Hudson Pacific Properties, Inc. (HPP) Q4 2014 Earnings Report, Transcript and Summary

Greetings, and welcome to the Hudson Pacific Properties Fourth Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kay Tidwell, Executive Vice President and General Counsel. Thank you, Ms.Tidwell. You may now begin.

Good afternoon, everyone, and welcome to Hudson Pacific Properties Fourth Quarter 2014 Earnings Conference Call. With us today are the company's Chairman and Chief Executive Officer, Victor Coleman; and Chief Financial Officer, Mark Lammas. Other members of the company's senior management team are also here to answer questions. Before I hand the call over to them, please note that on this call, certain information presented contains forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties and assumptions. Potential risks and uncertainties that could cause the company's business and financial results 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, February 26, 2015, and Hudson Pacific does not intend and undertakes no duty to update future events or circumstances. In addition, certain of the financial information presented in this call represents non-GAAP financial measures. The company's earnings release, which was released this afternoon and is available on the company's website, presents reconciliations to the appropriate GAAP measure and an explanation of why the company believes such non-GAAP financial measures are useful to investors. And now I'd our like to turn the call over to Victor Coleman, Chairman and Chief Executive Officer of Hudson Pacific. Victor?

Thank you, Kay, and welcome everyone to our fourth quarter February 26, 2015 conference call. The fourth quarter rounded out a highly productive year for Hudson and laid the groundwork for our company's continued growth. We had continued leasing momentum throughout our portfolio, acquired an office property in one of Los Angeles' most sought-after submarkets for technology and media users and executed agreements to sell a nonstrategic legacy asset and to purchase a large portfolio of irreplaceable office properties in Northern California from Blackstone. Our stabilized office portfolio is now 94.6% leased. We completed 211,000 square feet of new and renewal leases during the quarter with average lease rates higher than expiring rates by 13.6% on a cash basis and 14.1% on a GAAP basis. Year-to-date, we signed 632,000 square feet of new and renewal leases with an average lease rates higher than expiring rates by 44.9% on a cash basis and 56.6% on a GAAP basis. The most significant leasing transaction during the quarter was NFL's Media lease extension from 2017 through 2019 at our 10900 and 10950 Washington properties. NFL Media remains an anchored tenant at these 2 assets, now occupying a total of 137,000 square feet consisting of office space and 2 sound stages used to broadcast the NFL Network, NFL.com, and NFL Mobile. NFL Media's lease extension exemplifies our ability to not only attract but also retain high-profile media and entertainment tenants, whose -- require best-in-class office and studio spaces specifically designed to meet their unique needs. In terms of dispositions, in December we entered into an agreement to sell our 222,000 square foot First Financial property in Encino, California for $89 million, including the assumption of an existing $43 million loan. Hudson's predecessor entity acquired the property as part of our IPO, and we proceeded to create value through lease renewals and backfilling of office space, including a 30,000 square foot lease signed with luxury fitness company Equinox. We expect this transaction to close next week and intend to use the net proceeds from the sale to acquire the EOP Northern California Portfolio pursuant to a like-kind exchange under the Internal Revenue Code 1031. Subsequent to the quarter, in January, we formed a joint venture with CPPIB, which proceeded to purchase a 45% interest in our 1455 Market Street property for $219.2 million before closing adjustments equivalent to the asset value of a $487 million price. Hudson acquired the property in December of 2010 for $93 million. Going forward, we retain a 55% ownership stake and a general partner status, along with leasing and management oversight. The joint venture in sale follows a major renovation and backfilling of over 584,000 square feet of space vacated by Bank of America with tenants including the San Francisco Metropolitan Transit Authority as well as high growth companies Uber and Square. Our joint venture with CPPIB allowed us to unlock a portion of the value created for shareholders while continuing to participate in additional upside from re-tenanting space with below market rents and retail repositioning now underway. We intend to use the proceeds from the transaction to acquire the EOP Northern California Portfolio pursuant to a like-kind exchange under the IRS Code 1031. In terms of acquisitions, in October we acquired our 12655 Jefferson property, a 6-story, 88,000 square foot office property in the Playa Vista submarket of Los Angeles for $38 million. Playa Vista's popularity among leading technology and media companies continues to grow with Yahoo!, Fullscreen and WPP signing 130,000, 58,000 and 49,000 square foot leases, respectively, in the fourth quarter. Google is under contract to purchase 12 acres of land for a built-to-suit across the street from 12655 Jefferson and adjacent to the former Spruce Goose hangar, where Google signed a 300,000 square foot lease. We've completed plans for the property, its redevelopment as a creative office space and already had over 125,000 square feet of tours and inquiries. We expect to see significant demand for 12655 Jefferson as it's one of only 2 remaining large blocks of space available for single tenant occupancy in the submarket and offers adjacency to the Playa Vista development and runway, a 220,000 square-foot lifestyle retail center filled with restaurants and amenities. Now in December, we entered into an agreement to acquire via an exclusive, direct transaction with EOP Northern California Portfolio from Blackstone. As noted on prior calls, the acquisition presents a rare opportunity to own a critical mass of existing office assets and 2 development parcels in prime Bay Area submarkets we've long targeted, including Redwood Shores, Palo Alto and San Jose. Despite a strong diversified tenancy, including blue-chip technology companies like Google, Cisco and Qualcomm, the Portfolio's below market rents and occupancy as well as a significant near-term roll afford the opportunity to achieve NOI growth by leveraging our in-house leasing and repositioning expertise. We'll fund the acquisition with $1.75 billion in cash and approximately 63.5 million common shares and operating partnership units issued to Blackstone, which upon closing will own approximately 44% of Hudson's common equity on a fully diluted basis and will have a representation on our Board of Directors. We've made considerable progress towards identifying sources of financing for cash consideration, which Mark's going to discuss in a minute. Regarding the status of the EOP Northern California Portfolio acquisition, we're on track to satisfy customary closing conditions for the end of the first quarter closing. We're taking all necessary steps to ensure a seamless integration with regard to accounting functions, leasing and property management personnel and operations and information technology. After thorough inspections and careful deliberation, we're refining the asset-specific business plans and identifying strategic repositioning capital needs. And finally, since our December announcement, we've overseen all major decisions in leasing activity, and we're extremely pleased with our leasing progress to date and confident we'll exceed our original underwriting projections. Since approximately 40% of the current vacancy within the EOP Portfolio is concentrated in 2 assets in Foster City and San Mateo, I'd like to take a brief time here regarding these markets in San Francisco Peninsula submarkets and discuss them. In Foster City, vacancy fell 70 basis points during the fourth quarter and 670 basis points year-over-year to 12.6%, while asking rates remain constant for the quarter and are up 5.1% year-over-year at $57 per square foot. Foster City posted 23,000 square feet of net absorption for the quarter and the largest occupancy gains within the San Francisco Peninsula for the year with a net absorption of 225,000 square feet. As for San Mateo, the vacancy fell 200 basis points during the quarter and 160 basis points year-over-year to 8.7%, while asking rates remain constant for the quarter and are up 13.5% year-over-year at $45 per square foot. The submarket posted 135,000 square feet of net absorption in the fourth quarter with 81,000 square feet of net absorption in -- for the year. Most of San Francisco Peninsula's 1.5 million square feet of new construction is focused in the Palo Alto and Menlo Park submarkets; thus we expect fundamentals in both Foster City and San Mateo to improve in the near to mid-term. Silicon Valley/San Jose airport submarket, which forms part of the north San Jose submarket, accounts for 22% of the existing vacancy and 44% of 2015 to 2017 expirations within the EOP Northern California Portfolio. Average asking rates in North San Jose increased 5.9% for the quarter and 14.5% year-over-year to $32, the highest quarterly increase for the Silicon Valley region. Vacancy fell 260 basis points in the quarter and 30 basis points year-over-year to 13.8%, and North San Jose posted the region's third largest net absorption for the quarter of 223,000 square feet. We expect to see further compression in rents and occupancy with only 650,000 square feet of new product coming online that will be owned and occupied by Samsung. In addition, northern markets such as Mountain View, Sunnyvale and Santa Clara continue to tighten, pushing activity south to the North San Jose submarket. Turning back now to Hudson's legacy portfolio. In January, we broke ground on Icon, our 413,000 square foot vertical creative office campus and 1,600-space parking structure at Sunset Bronson Studios. As anticipated, Icon's construction as well as the ongoing lease negotiations with an existing tenant require us to selectively pursue new leasing activity and take certain billings offline at Sunset Bronson in the fourth quarter. We expect this trend to continue over the next several quarters in order to meet longer-term leasing objectives and complete capital improvements in advance of Icon's delivery in the fourth quarter of 2016. We continue to see significant demand for large blocks of creative office space in Hollywood, particularly on the heels of the Viacom deal, and have an active pipeline of potential tenants for Icon with total demand in excess of 2 million square feet at this time. Similarly to Playa Vista, Hollywood remains one of Los Angeles' strongest submarkets in terms of leasing activity and absorption, and in the fourth quarter vacancy fell 40 basis points to 6.8%, equivalent to a 530 basis point year-over-year decline. And Class-A rents increased 3.4% for the quarter to $44 per square foot or 7.3% year-over-year increase. Finally, we're pleased at the current level of demand for stage and office space at both our media and entertainment properties. Sunset Gower stages were fully leased during the quarter, and demand remained high for available stages at Sunset Bronson. We've got commitments in hand through 2015 with media giants ABC, HBO, Nickelodeon for production of hit programs like Scandal, How to Get Away with Murder and Togetherness. Driven by strong demand for creative office space through the properties, we continue to strategically invest capital to transform outdated, underperforming office space and ancillary space into high-tech creative space ideal for growing media companies desiring occasional stage access or to be part of a creative production environment. For example, Spafax and Believe Media, both well-regarded digital media and creative advertising companies, recently signed 5-year leases at approximately $42 per square foot for this type of renovated space at Sunset Gower. These long-term leases as well as upgrades like our new commissary and 350-space parking structure expansion slated for 2015 in September bolster our efforts to drive demand and ultimately generate more stable media and entertainment cash flow. With that, I'm going to turn the call over to Mark Lammas for a discussion of our fourth quarter financial results.

Thank you, Victor. Funds from operations excluding specified items for the 3 months ended December 31, 2014 totaled $22.2 million or $0.32 per diluted share compared to FFO excluding specified items of $15.6 million or $0.26 per share a year ago. The specified items for the fourth quarter of 2014 consisted of expenses associated with the EOP Northern California Portfolio acquisition of $4.3 million or $0.06 per diluted share and costs associated with a 1-year consulting arrangement with a former executive of $1.3 million or $0.02 per diluted share. Specified items for the fourth quarter of 2013 consisted of expenses associated with the acquisition of our Seattle office portfolio of $500,000 or $0.01 per diluted share and an early lease termination payment from Bank of America relating to the company's 1455 Market Street property of $800,000 or $0.01 per diluted share. FFO, including the specified items, totaled $16.6 million or $0.24 per diluted share for the 3 months ended December 31, 2014 compared to $15.9 million or $0.27 per share a year ago. Net loss attributable to common shareholders was $2.3 million or $0.03 per diluted share for the 3 months ended December 31, 2014 compared to net loss of $100,000 or $0.00 per diluted share for the same period a year ago. Turning to our combined operating results. For the fourth quarter of 2014, total revenue from continuing operations increased 19.8% to $68.8 million from $57.4 million a year ago. Total operating expenses from continuing operations increased 21.6% to $57.1 million from $47 million for the same quarter a year ago. As a result, income from operations increased 11.8% to $11.6 million for the fourth quarter of 2014 compared to income from operations of $10.4 million for the same quarter a year ago. I will discuss the primary reasons for the increases in total revenue and total operating expenses in connection with our operating segment results. Interest expense during the fourth quarter increased 5.6% to $6.4 million compared to interest expense of $6.8 million for the same quarter a year ago, which reflects the company's ability to obtain financing at more favorable interest rates as well as an increase in capitalized interest resulting from additional development and redevelopment projects. At December 31, 2014, the company had $960.5 million of notes payable compared to $920.9 million as of September 30, 2014 and $931.3 million at December 31, 2013. Turning to our results by segment. Total revenue from continuing operations in our office property segment increased 22.9% to $58.6 million from $47.7 million in the fourth quarter of 2013. The increase was primarily the result of a $6.7 million increase in rental revenue to $41.9 million, a $2.6 million increase in tenant recoveries to $10.9 million and a $1.6 million increase in parking and other revenue to $5.8 million largely resulting from significant leasing activity at our 1455 Market Street, Rincon Center and 901 Market Street properties, the acquisition of the Merrill Place property on February 12, 2014 and interest income earned from the Broadway Trade Center note participation purchased on August 20, 2014. Operating expenses from continuing operations in our office property segment increased 6.2% to $20.4 million from $19.2 million for the same quarter a year ago. The increase was primarily the result of expenses associated with higher average occupancy, property tax expenses resulting from the reassessment of certain of our San Francisco properties and the acquisition of the Merrill Place property on February 12, 2014. Same-store office net operating income for the fourth quarter excluding specified items increased by 28.2% on a GAAP basis and 25.7% on a cash basis. At December 31, 2014, our stabilized office portfolio was 94.6% leased. During the quarter, the company executed 18 new and renewal leases totaling 211,103 square feet. Total revenue on our media and entertainment properties increased 4.5% to $10.2 million from $9.7 million for the same quarter a year ago due to a $1.5 million increase in other property-related revenue to $4.7 million resulting from heightened production activity at Sunset Gower. Despite this trend, rental revenue decreased by $600,000 to $5.2 million, and tenant recoveries decreased by $400,000 to $200,000 relative to the same quarter a year ago due to the planned removal and temporary vacancy in certain buildings and stages taken offline at Sunset Bronson to facilitate our Icon development and other long-term plans for our Sunset Bronson property. Total media and entertainment expenses increased 22.6% to $7.4 million from $6 million for the same quarter a year ago, largely due to additional lighting expense incurred in connection with heightened production activity at Sunset Gower. As a result, same-store media and entertainment net operating income in the fourth quarter, excluding specified items, decreased by 24.9% on a GAAP basis and 25.3% on a cash basis. As of December 31, 2014, the fourth quarter same-store average occupancy for the media and entertainment properties decreased to 70.4% from 70.7% for the same quarter -- same period a year ago, reflecting the net impact of temporary vacancy at our Sunset Bronson property mentioned earlier. Turning to the balance sheet. At December 31, 2014, the company had total assets of $2.3 billion, including unrestricted cash and cash equivalents of $17.8 million. At December 31, 2014, we had $300 million of total capacity under our unsecured revolving credit facility, of which $130 million have been drawn. Subsequent to the end of the fourth quarter, the company fully repaid amounts outstanding under our unsecured revolving credit facility from proceeds of the January common stock offering. Nothing is currently outstanding under our revolving credit facility. During the quarter, we paid a quarterly dividend on our common stock of $0.125 per share, and we paid a quarterly dividend on our Series B Cumulative Preferred Stock equivalent to 8.375% per annum. In addition, we completed important financing transactions during and subsequent to the fourth quarter. In October, we fully repaid a $37.9 million loan secured by our 6922 Hollywood property with proceeds from a draw under our unsecured revolving credit facility. The loan bore interest at an annual rate of 5.58% and was scheduled to mature on January 1, 2015. In November, we amended our construction loan for our Element LA property to, among other things, increase availability from $65.5 million to $102.4 million to fund budgeted site-work, tenant improvements and leasing commission costs associated with the Riot Games lease of the property. In January, we completed a public offering of 12.65 million shares of common stock at the public offering price of $31.75 per share. Net proceeds from the offering after deducting underwriting discounts and before other transaction costs were approximately $385.6 million. We contributed net proceeds from this offering to our operating partnership, which intends to use them towards the acquisition of the EOP Northern California Portfolio or, if such acquisition is not completed, to fund development and redevelopment activities, potential acquisition opportunities and/or for general corporate purposes. Pending these applications, the operating partnership used net proceeds from the offering to temporarily repay indebtedness outstanding under its revolving credit facility. Turning to guidance. The company is providing full year 2015 FFO guidance in the range of $1.42 to $1.48 per diluted share, excluding specified items. This guidance reflects the acquisitions, dispositions, financing and leasing activity referenced in this press release and all previously announced acquisitions, dispositions, financings and leasing activity, including the company's pending EOP Northern California Portfolio acquisition and the temporary impact on tenancy of construction and leasing activities at our Sunset Bronson property. For purposes of this guidance, the company has assumed the acquisition of the EOP Northern California Portfolio will close as of April 1, 2015. Funding for the EOP Northern California Portfolio's $1.75 billion of cash consideration and $50 million of closing cost is assumed to include $216 million of net proceeds from our joint venture with CPPIB with respect to 1455 Market Street and $46 million of net proceeds from our pending sale of First Financial, both of which will fund the transaction pursuant to a 1031 exchange. Our January equity offering raised approximately $385 million in net proceeds, $130 million of which was used to repay outstanding revolving loan draws. We intend to use the remaining $255 million towards the transactions, cash considerations and closing costs. After accounting for the nearly $520 million of 1031 and equity offering proceeds, approximately $1.3 billion of additional capital is required to fund the remaining cash consideration and closing costs. We are in the process of securing commitments from a syndicate of lenders to fund $750 million of new 5- and 7-year term debt. We are also pursing unsecured and secured debt alternatives to fund the remaining $550 million required to close the transaction. For purposes of this guidance, we have assumed a weighted average rate of interest for the combined $1.3 billion of financing proceeds of 3.75% per annum, including estimated amortization of deferred financing costs. The company intends to update its full year 2015 FFO guidance upon the closing of the EOP Northern California Portfolio acquisition to reflect final funding sources, interest rates, GAAP accounting adjustments and other matters. As is always the case, the company's guidance does not reflect or attempt to anticipate any impact to FFO from speculative acquisitions. The full year 2015 FFO estimate reflects management's view of current and future market conditions, including assumptions with respect to rental rates, occupancy levels and the earnings impact of events referenced in this release, but otherwise exclude any impact from future unannounced or speculative acquisitions, dispositions, debt financings or repayments, recapitalizations, capital market activity or similar matters. And now I'll turn the call back to Victor.

Thanks, Mark. To summarize, our fourth quarter, and all of '14 for that matter, was highly productive and, in many ways, transformational in terms of the setting of the stage for our company's future growth. We appreciate continued support of Hudson Pacific Properties as always, and we look forward to updating you on our next progress again next quarter. Now operator, with that, I'm going to turn the call over to you for any questions.

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

Mark, on guidance, those helpful to financing kind of assumptions there, what are you guys assuming for the GAAP yield on EOP?

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

Correct. Yes, correct.

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

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

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

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

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

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

It's a combination of both. I think our underwriting right now is better. I mean, the performance there is better than what we underwrote it at in terms of the lease rates. We're seeing very solid activity across the board on all the vacancy as well as the renewals. I think, as our underwriting had spoken for when we initially came out, we were looking at a year end '15 and roughly 85% leased. With the couple of large deals that were done right when we took over the day-to-day leasing in operations in December, those were executed, and subsequently we're in discussions on a formal basis for 600,000 plus square feet of deals and we are in leases or have signed an additional 400,000 plus square feet of deals. So we're way ahead of what we thought our numbers would be from a velocity standpoint. As I said, the mark-to-markets are exactly in line, if not better.

Okay. Wow, sounds good. So where do you think, end of 2015, that portfolio could be leased to?

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

Our next question is from the line of Vance Edelson with Morgan Stanley.

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

Vance, listen, I think our 3 core markets, San Francisco and down in the Valley, Seattle and here in Southern California, are still on the forefront. We are seeing deals in Seattle, and we're going to continue to hopefully execute on some of the opportunities that we're working on. We are also seeing deals in Los Angeles, and we're going to be executing on some deals there. I'd say of the 3 markets, the Valley and the City are probably in third place. We're not seeing as many deals, and obviously we're going to attack the existing portfolio that we're about to close and for the most part focus our energy and our team on that versus new deals. We love the quality of the assets and what we have, and so I would say it's sort of a tie between the Los Angeles market and the Seattle market going forward for the short term.

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

No, I think what we're seeing right now in the Seattle marketplace, the fundamentals and the cap rates, obviously there is some disparity there. I think in Seattle we're probably looking at a 6% to 7% range on the cap rates, which is fundamentally in line with the leasing. I think obviously here in Los Angeles, in line with the comps you see in the market, you're really talking about somewhere around the 4% to 5% range, where rental rates still haven't moved into place yet. But I believe there's going to be some substantial comps coming to the marketplace on a rental rate basis which is going to make that gap a lot smaller. And cap rates are probably going to stabilize in the 5% range, seems to be where we're looking at going forward.

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

So let's say, I think as we had commented on initially in our December announcement, we started integrating then. We have not stopped. It is a process. I am very confident that it's been as smooth as we could have possibly imagined. The retention and hiring is almost complete. I think the heavy lifting, as you would put it, is really mostly behind us, but there is going to be a tremendous amount of integration and Hudson culture or processes put in place. I do think from an accounting and operating side, we're way ahead of target as to where we were, where we would have been if we hadn't sort of started this in December. But it is an ongoing process. I am sure, like anything else, when you're taking on 8.2 million feet in a marketplace that we've got a spectacular staff around it day-in and day-out, we will encounter issues that will be surprising. And I think the team is fully prepared to deal with them on a foremost basis, and I'm confident that the execution is going to continue through probably the first couple of quarters of operations. But no surprises should derail us from this phenomenal opportunity.

Our next question is from the line of Ian Weissman with Crédit Suisse. Ian C. Weissman - Crédit Suisse AG, Research Division: Just going back to the guidance for a second. How should we think about sort of the legacy portfolio, just a comp store revenue growth number?

We, ourselves, talked about this and thinking it could likely come up. I think the challenge of the legacy portfolio and what the incremental impact of the Redwood transaction has to it is, it starts with difficult -- the starting point of that can be a challenge because we've done a lot of things that change that underlying legacy portfolio leading up to this transaction. So in order to get to a same-store point of reference, you'd have to make certain decisions around whether or not you assume First Financial is sold, whether or not you assume the JV at 1455 is done. You'd have to make an assumption around the equity offering and other events that have transpired as it relates to legacy portfolio that have been done and proceeds of which now get redeployed into this particular opportunity. But if there weren't this opportunity, then there is other uses of proceeds. And so the challenge, Ian, is coming up with what that base case number is, and I think -- but I do think it's a fair question. But I just think it probably deserves a bit of development in terms of what you'd want as your starting point so that we could give you -- use that as the point of reference so you could see the impact. And I think, by the way, a month from now, we'll give full sets of numbers around the actual final debt structure and timing and interest rates and everything. And at that point, what we'll try to do is give people points of reference, like the incremental cash NOI, incremental GAAP NOI that came through from the Redwood transaction so you can see what the legacy portfolio did. Ian C. Weissman - Crédit Suisse AG, Research Division: I guess what I'm struggling with here or trying to figure out is -- I mean, if we sit here and we don't know the FAS 141 number, we don't have a good number on the legacy internal growth number, why put out a -- and you guys put out a guidance range way above the Street. I just want to know what that range is based on and how we can sort of bridge the gap between where the Street is today, which is significantly below that to that number. Now the financing costs were very helpful. I just want to make sure that I'm modeling the company correctly and -- so are you basically essentially telling us we need to wait?

Well, I don't know we need to wait. What I think we could do, Ian, is -- obviously, not anything that wasn't discussed on today's call, but what we could do is we could spend some time with you focusing on what the non-Redwood portfolio's performance has been off the record and then we can hone in with you on what that -- would have meant in 2015 but for the Redwood impact. And by the way, as it relates to the current consensus estimate, which I think you're probably seeing a $1.37, that's what we see, I can tell you the composition of that reflects certain numbers which haven't been updated for quite some time and, in fact, don't reflect the announcement on Redwood at all, and some have been updated. So it itself is sort of a combination of numbers with a very wide range of estimates in it. So on -- I don't really know that our number, as it relates to the Street's expectations, that the Street's expectations is that good a point of comparison. Ian C. Weissman - Crédit Suisse AG, Research Division: Right. Okay. And then just a question, just given your leasing success so far out of the gate in the EOP Portfolio, any plans -- and I know there's a lot to digest there, but any plans about thinking about selling some of those noncore assets or markets sometime this year?

Listen, we've addressed that before, Ian. And at the end of the day our position is we've got perhaps 1 or 2 assets that we may consider disposing of sometime in '15. But for the most part, the portfolio in place is what we're going to keep, and we're excited about the opportunity of having the combined portfolio, which makes a lot of synergetic sense going forward to be with what we have.

[Operator Instructions] The next question is from the line of Ryan Peterson with Sandler O'Neill.

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

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

Okay. And then the G&A uptick this quarter I assume is the beginnings of the integration?

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

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

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

Okay. And then one more question, just kind of switching gears on the -- you said the Icon development that you have 2 million square feet of demand, I think. How are the rents looking on that versus what you were originally underwriting?

We're seeing rents higher than what we underwrote, and that is obviously given the fact that some of the comps set in the area had been higher rents. And Viacom, being the most specific one, was at a higher rent that we had initially even underwrote our assets to be stabilized, which really we're anticipating in September of '16 as to where those effective rents would be coming into play. So we're happy to see the flow of tenancy, and we're even happier at some of the quarter rates that we're looking at and discussions that we're having.

Our next question is coming from the line of Rich Anderson with Mizuho Securities.

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

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

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

Well, we had indicated, Rich, at the time of the transaction, that the projected in-place yield on a cash basis was about 5.1%. And we...

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

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

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

Okay. All right. Look, I think it's safe to assume that on a GAAP basis that 5.1% cap rate approaches very close to a 6% cap rate on a GAAP basis.

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

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

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

No.

Our next question comes from the line of Jamie Feldman with Bank of America.

Can you talk a little bit more about your relationship with CPP? You think we'll see more sales or more joint ventures with them? And then also just, beyond them specifically, what was the... [Technical Difficulty]

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

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

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

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