Hudson Pacific Properties (HPP) Q3 2026 earnings call transcript

Good morning, everyone. Thanks for joining us. With me on the call today are Victor Coleman, Chairman and CEO, Mark Lomis, President, Harut Dermarian, CFO and Art Suaso, EVP of Leasing. This morning, we filed our earnings release and supplemental on an 8K with the SEC and both are now available on our website along with an audio webcast of this call for replay. Some of the information we'll share today on the call is for looking in nature. Please reference our earnings release and supplemental for statements regarding forward-looking information, as well as the reconciliation of non-GAP financial measures used on this call. Today, Victor will focus on current industry and market trends. Mark will provide detail on our office leasing and studio operations and who review our financial results in 2026 outlook thereafter.

We'll be happy to take your questions, Victor.

Thanks, Laura. Good morning, everyone, and welcome to our third quarter call. This is another quarter of steady progress for Hudson Pacific. We signed 534,000 square feet of new and renewal office leases, and our in-service office occupancy grew for the fifth consecutive quarter, approaching 86%. Together with improved studio performance, that contributed to growth of 8% in same-store cash and a Y and a core FFO per share year over year, and we're once again raising our full year outlook. We also continue to execute on our disposition plan and strengthen our balance sheet. Performance for our fourth quarter asset sales and senior notes repurchase, total liquidity stands at $840 million, with our share of debt reduced by 14% year over year.

And looking ahead, our leasing pipeline stands at 2.1 million square feet, with 1.1 million square feet now in advanced stages, nearly twice the level of a year ago. A pipeline of similar size set the stage for a very strong 2026, and its greater maturity today further positions us to extend our earnings growth into 2027. Touching our markets, I'm going to begin with the capital fueling demand. US venture back companies raised $98.4 billion in the third quarter. While below the outside first half totals, it was roughly double the quarterly levels of 2023 and 2024. Year to date investment now exceeds $515 billion, already more than 60% above full year 2025, with over 70% of it deployed in our West Coast markets.

AI remains the primary driver accounting for 20 US rounds of $1 billion or more in the quarter, while software also has captured a record share of venture dollars this year. Several indicators support continued funding, US VC fundraising reached over $100 billion through the third quarter, already ahead of all of 2025, and a record acquisition exit values are recycling capital back into the ecosystem. We're mindful of the recent volatility in tech stocks, which is largely centered on the capital spending of the largest platforms. That's a different part of the AI economy from the one driving demand in our markets. We'll continue to watch how public market sentiments affect private funding, but so far we haven't seen it in our pipeline or tour activity.

On the ground, demand continues to build. AI in tech-driven leasing is broadening the office recovery across the West Coast, with virtually no new supply coming online. San Francisco posted its eighth consecutive quarter of positive net absorption, adding 1.3 million square feet. Citywide vacancy has improved 660 basis points over the past year, and asking rents are up nearly 10%. The South Financial District continues to lead, having absorbed more than 2 million square feet so far this year. With large blocks in the South of market quickly disappearing, we expect tenants to widen their searches into adjacent sub-markets, which should benefit our assets greatly. Silicon Valley delivered its strongest leasing quarter since 2019. At 4.1 million square feet, it also absorbed more than 1 million square feet, an active tenant demand rose 12.4 million square feet, with Santa Clara among the leading sub-markets.

On the peninsula, net absorption turned positive, led by Redwood City Redwood Shores at more than 40% of the region's total, while neighboring Palo Alto remains one of the Bay Area's tightest office markets with rents among the highest in the country. Further north, in Seattle, net absorption reached its highest level since 2021, while downtown Seattle recorded its first positive quarter nearly five years on the strength of the CBD. Pioneer Square has been positive both for the quarter and the year to date. Los Angeles, by contrast, remains more mixed, leasing volume rose nearly 12% year over year, but net absorption was modestly negative. West Los Angeles captured roughly 40% of all leases in Los Angeles, while with Brentwood posting positive absorption this quarter, and in Vancouver, Class A vacancy downtown fell for the fifth straight quarter to its lowest level since 2022, with no new downtown supply expected until at least 2032.

Conditions are setting up for upward pressure on premium rents. Turning to a business, production levels in Los Angeles and New York continue to move in different directions, but as Mark's going to discuss, our prime locations are performing well in both. Third quarter, Los Angeles on location shoot days were 5% lower year over year, and remained 29% below the five-year average. New York, meanwhile, is surging with third quarter production spending up to 87% year over year to $1.6 billion approaching California's $1.8 billion. Filming permits in New York City were up 27% year to date as of September.

Looking ahead, we see potential catalysts for Los Angeles production. At the federal level, legislation introduced this fall, we create a 20% to 30% film and TV tax credit that stacks on top of the existing state credits and supporters are pushing to passes before year end. In a bold move this week, Governor Newsom proposed raising the state's annual credit from $750 million to at least $1 billion, and for the first time extending eligibility to above the line compensation, closing the gap with competing states. This proposal will require legislation action and will likely carry into the next administration, but it's a clear signal of the state's commitment to bringing production back.

We're also continuing to sharpen the portfolio through opportunistic asset sales. In year-to-date, we close nearly $190 million of non-core FFO or created dispositions. That includes $90.5 million from the sales of 2001 Gateway and $875.89 and $3.75 million of sales for the Skyport Plaza in the fourth quarter and $23 million of sales of the non-core assets from Coyote across both quarters. The office sales took largely vacant, capital-intensive assets off the books, allowing us to focus on capital leasing at our highest potential properties. Consistent with our capital allocation priorities, we use the majority of the net proceeds to deliver which HREUT is going to discuss shortly.

As we refine the portfolio, its quality continues to be recognized externally. We were named as a Gresby sector leader for the sixth consecutive year and earned a five-star rating in the 2026 real estate assessment. We also ranked first among U. S. listed office companies for the second consecutive year and first among all listed participants in the Americas.

That recognition reflects the investments we've made to keep our portfolio young, modern, efficient, and resilient, as well as our management team's commitment to quality and discipline. Now, with that, I'm going to send it over to Mark to talk through leasing and operational details.

Thanks, Victor. We signed 74 leases, totaling approximately 534,000 square feet in the third quarter with activity evenly balanced between new leasing and renewals. Tech Tenants provided a significant source of demand at 28% of activity and roughly two-thirds of our leasing was in the Bay Area where Palo Alto led all sub-markets at over 110,000 square feet. This included a 65,000 square foot renewal and expansion lease with Rivian and Volkswagen Group Technologies at Clock Tower Square, which addressed one of the four 2028 expirations over 50,000 square feet. Our in-service occupancy increased 310 basis points sequentially to 85.6%. Our fifth consecutive quarter of gains and our lease rate climbed 330 basis points to 86.1%.

Adjusted for asset sales and the temporary removal of fourth-intraction in our Los Angeles arts district from our in-service portfolio, our occupancy and lease rate increased 80 and 100 basis points respectively on a like-for-like basis.

Regarding fourth-intraction, the City of Los Angeles adopted seismic retrofit requirements several years ago that applied to the building so this is work we need to do. PayPal's recent expiration gives us a window to complete it and we have several prospective long-term tenants with requirements of up to 75,000 square feet interested in the building. That's precisely why we're moving quickly now so the work is done before they move in. We expect to finish the seismic work by end of second quarter next year but we'll work with those tenants to face an occupancy floor by floor. Rent spread screws 6% on a gap basis and 0.4% on a cash basis. Driven by new and renewal leasing at our peninsula and Silicon Valley assets, third quarter net effective rents increased 30% year over year and on a trailing 12 month basis we're up 9%.

Tour activity remained strong with 116 tours covering nearly 2 million square feet in third quarter. Tour count was up 13% year over year and the average requirement of 17,000 square feet remains well above the roughly 10,000 square feet typical in 2023 and 2024. Average requirement sizes grew most on the peninsula and in Silicon Valley where they roughly doubled this quarter and in Seattle where they rose almost 50%. Even after signing 2.4 million square feet year to day up 40% from last year our pipeline has remained above 2 million square feet for seven consecutive quarters roughly 25% above our long-term average. Almost 60% of the pipeline is new leases supporting continued occupancy gains while the renewal portion has grown to over 800,000 square feet the highest level we've tracked and as Victor noted more than 1 million square feet is in late stage negotiations.

The quality and momentum of our pipeline are as strong as we've seen and we're highly confident in our ability to convert a significant portion of it. Turning to our explorations we have approximately 50% coverage on both the remaining 144,000 square feet expiring in 2026 and the 1.1 million square feet expiring in 2027. We define coverage as deals and leases, LOIs or proposals. For the first half of 2027 coverage is over 50% including full coverage on the sales force and Twilio space at Ringcon Center in San Francisco where we're in late stage negotiations. Second half 27 expiring are mostly smaller leases averaging about 6,000 square feet and those tenants typically do not engage until about a quarter before expiration.

At Washington 1,000 consistent with last quarter we have coverage on approximately 65% of the building with active negotiations across 10 tenants whose requirements range up to 125,000 square feet including over 60,000 square feet of late stage deals. Activity at our move-in ready spec suites has increased meaningfully since their June completion and plans and pricing are complete for the next phase of spec suites on the fifth and sixth floors. Beyond our current pipeline, tour activity has picked up noticeably from tenants with near-term occupancy needs most of them new to the market. As has been reported while Goshall and Manjes are tenant at towers at Shore Center in Redwood Shores is winding down operations. While occupied 89,000 square feet across two leases, 38,000 square feet expired after quarter end and the remaining 51,000 square feet runs through 2038.

While recently completed an estimated $700 per square foot build-out leaving pristine space that ranks among the peninsula's best for professional service firms with in-place rents at market. Beyond the public announcements we haven't heard from while about its plans for the Redwood Shores lease. Given the quality of the space and the demand for both the asset and Redwood Shores more broadly, we're confident we could release it efficiently. In our studio segment our in-service stages were 74.7% leased on a trailing three-month basis in the third quarter stable compared to the prior quarter. Our Hollywood stages remained well leased at 95% and Sunset Pier 94 continued to ramp with its leased rate up another 370 basis points to 82.2%.

In contrast to the broader Los Angeles market, our prime location stages in production fleet saw higher production activity and spend compared to the same quarter last year though activities softened from the last quarter. Together with lower operating expenses both sequentially and year over year and the continued wind down of non-core key-od operations, our share of core studio NOI improved to 4.3 million from 2.2 million last quarter and up considerably from negative 2.5 million a year ago.

Lastly, in terms of additional avenues for value creation, after quarter-end we secured entitlements to convert approximately 164,000 square feet of office space at 91 market in San Francisco into 136 residential units above the existing retail. As we did at 10,950 Washington, we've created real optionality given us multiple paths to respond to market demand and maximize value. We're advancing construction drawings and evaluating pricing and we will determine the best path forward in the coming quarters. This remains part of a broader effort as we continue to evaluate residential and mixed-use opportunities alongside our office assets in Palo Alto and across the peninsula. And now Haru will take you through our financial results and outlook.

Thanks Mark. In the third quarter total revenues were $180.9 million compared to $186.6 million in the prior year primarily due to asset dispositions, most significantly the sale of Element LA, partially offset by improved office occupancy and increased studio production activity. GNA improved 10% to $12.3 million compared to $13.7 million in the prior year resulting from cost cutting initiatives. We reported net loss of $218.1 million or $3.38 per diluted chair compared to $136.5 million or $2.12 per diluted chair in the prior year, primarily driven by non-cash $5.89. The de-consolidation loss related to something like Glen Oaks accounted for the loss reported in the prior year period. Excluding these items, our underlying performance continued to strengthen. Core FFO grew to $18.6 million up approximately 11% from $16.7 million in the prior year and increased approximately 8% on a per diluted chair basis to $0.28 from $0.26.

This was driven by higher same store and UI across both our office and studio properties and lower non-real estate depreciation from the wind down of non-core-chiodi operations, partially offset by asset sales. Adjustments to FFO totaled negative $2.8 million or negative $0.4 per diluted chair, primarily reflecting gains on non-core-chiodi lease terminations at prior period property tax refund and the sale of non-real estate assets partially offset by non-core-chiodi costs.

This compares to positive $2 million or $0.3 per diluted chair in the prior year. We grew same for cash and a Y, 8.3% to $85.2 million compared to $7.8 million in the prior year, driven by improved office occupancy and increased studio production activity. Turn to the balance sheet. We ended the quarter with $956 million of liquidity, including $161 million of unrestricted cash and full availability of $795 million on our revolver. Net debt to underappreciated book value was 32.1% and our debt was 100% fixed or capped at a weighted average interest rate of 4.9%.

During the quarter, together with our joint venture partner, we extended the $1.1 billion holiday media portfolio CMBS loan to November 2027, providing additional flexibility as we continue to execute our business plan for the portfolio. The extension required no principal pay down, the spread is unchanged and we fixed sofer at 3.5% through the extended maturity slightly better than the swaps it replaced. Subsequent to the quarter end, we repurchased $200 million of senior notes, $100 million each of our 2027 and 2028 notes at a discounted bar. We funded the repurchase with the cash on hand and borrowings under our revolver. We then closed sales of Skype or Plaza and a non-core QOD asset and used the net proceeds to pay down the revolver to $30 million.

Performer for these transactions, HPP share of debt is $2.7 billion, a reduction of $425 million or 14% from a year ago. An HPP share of net debt to cash adjusted EBITDA RE improves to 11.4 times from 11.8 times at quarter end. Performer liquidity is $840 million, consisting of $75 million of unrestricted cash and $765 million of revolver availability, which includes $333 million of commitments expiring this December. Beyond the senior notes, our remaining 20-time matrices are non-recourse, property-level joint venture loans, primarily the hired media portfolio CMBS, which we just extended. For our 2027 and 28 matrices, we expect to utilize a combination of liquidity, asset sales, and capital markets in a disciplined manner. Interest expense for the quarter was $40.9 million, which improved modestly from the prior year and $117.4 million year to date, a 12% improvement versus the first three quarters of 25.

Wrapping up our 2026 outlook, we're increasing and narrowing our full-year core FFO to a range of $1.15 to $1.21 per diluted share up from the prior range of $1.12 to $1.20.

This updated range reflects, at the midpoint, approximately one sense of outperformance in the third quarter compared to our initial expectations, as well as approximately one sense, attributable to improved expectations for the fourth quarter. While we have received no indication that while Goshall will stop paying rent, we've taken a conservative approach and excluded their rent from our guidance for the balance of the year. The 200 base points improvement to average in-service office occupancy reflect actual results for the first three quarters and estimates for the fourth quarter. The 175 base point improvement to same-store property cash and a wide growth reflect the full-year estimates of the properties, which now contribute the same store. In both cases, the improved estimates are essentially attributable to the sales of 875 Howard and Skyport Plaza and the temporary removal of fourth interaction from the in-service and same-store portfolio for seismic upgrades ahead of releasing.

After these changes, the company would have likely maintained its prior outlook on both metrics. As a reminder, this updated range excludes the previously announced wind-down of non-core Kyoto operations from core FFO and, as always, our outlook excludes potential dispositions, acquisitions, or capital markets activity beyond those completed to date.

With that, I'll turn the call back to Victor for closing remarks.

Thank you, Harood. This was another quarter of steady execution. At least you remain strong, occupancy continues to grow, and we further strengthen our balance sheet. With improving demand supporting the recovery in our markets, a healthy pipeline and potential tailwinds from proposed federal and state production incentives were well positioned heading into 2027. We look forward to sharing more on our investor day on December 1st, where we provide a deeper look at our long-term strategy, the outlook for our office and studio businesses, and our capital allocation priorities heading to 2027. Thank you to the entire Hudson team for their hard work and to our tenants, partners, and shareholders for their continued support. Operating with that, let's turn it open for questions.

So, thanks Blaine. I'll start with, you know, we are not remotely interested in raising equity at these levels, and we don't need to raise equity to address our debt issues. Our first majority of the debt comes through end of next year, and as you noted, we've already taken care of 200 million of the 750, so we're down at 550. We've got multiple areas that we are evaluating, and if you come to our investor day, we're going to outline a plan that's going to detail it throughout all of 28, and we're comfortable in executing that plan to give you some highlights. We do have some additional assets, which we're not talking about now. I'm very few that are going to fall in the disposition category, and we also have JV opportunities with additional assets that we're going to announce lease up on for fully leased assets and long-termaturities with credit tenants that are unencumbered that we can also convert.

So, we have lots of optionality, as we said. We're attacking this plan methodically as we've dictated, and to date, we've executed it exactly how we've looked. Okay, great.

Yeah, I can't comment on Radford other than the fact that Netflix has not closed that transaction, and they are not deciding to close it until sometime maybe later in the year, or not. That's not a concern of ours. I can tell you that the replacement of Radford for their existing office doesn't fit the footprint, as we've talked about in the past. We have and continue to have very fruitful, very productive conversations with them. I think we will have some resolution on some levels of that, hopefully by year end, and continuing these conversations positively for them to extend beyond 2031 is looking in the direction that we're comfortable with.

Sure. This is our, you know, so the mix of new and renewal within the pipeline is also 60, 40, 60 new growth tenants and relative to the distribution of the pipeline. Again, two-thirds in the Bay Area, the quickest growing portion of our pipeline and tour activity for the last two quarters has been Seattle. And so the next, you know, large, large movers will be in Seattle and will, I believe will continue to be in Seattle. And of course, Vancouver and LA make up a small portion of that pipeline.

Yeah, absolutely. So, you know, we, we continued the momentum that we had, you know, last quarter. Currently, there are 10, 10 deals in negotiation, three of which are on the three remaining market ready suites. One of those deals is in late stages for 15,000 square feet. The remaining seven deals in negotiation one for 50,000 square feet is, is in late stage, late stage leases. And the restaurant various various phases behind that, behind that, you know, we have six, six tenants who are looking for more market ready suites that have really started to tour and be in discussions with us. So we've we've planned and we've priced the next phase, two floors of market ready suites that we're we're going to be ready to go once once we're in leases with the others.

Yeah, we're well, at least generally speaking in redwood shores. I don't know that a lot has changed. I mean, we've seen steady demand from, you know, smaller tenants throughout that market and well diversified, you know, professional services, tech obviously given its location. And so I think we've just benefited from what has been you know, steady quarter over quarter demand. We've captured, we've outpaced the overall market consistently. I don't know what else to say about it.

I mean, I can add some further color on it though.

Yeah, absolutely, Tom. You know, so I think the strength of that market for us is a small tenant, our market ready moving ready suites. You know, we've deployed probably over 200,000 square feet over the last several years right now. We have well over, I'd say close to 100,000 feet of moving ready suites with great coverage. And that's how we're outperforming the market, right? We understand the size of the tenant is market indicated, you know, they're generally under 20,000 square feet.

And that's precisely how we're meeting the market.

Yeah, I mean, we were, we were well into the 80s. I feel like we can get back well, ready as well. There's been lift, as you know, on the peninsula, there's been significant lift with Palo Alto with Redwood, Redwood, Redwood City. And we're now seeing this wave of small to mid-sized tenants, you know, that were aggressively pursuing. So yeah, we could get well into the 80s.

In terms of just the wind down, we are down to just a few more leases associated with the non-corcuity business. And we think those will be wrapped up by year end. I think, you know, just in terms of a scorecard, we're on schedule if not a bit ahead. And we've been able to extricate ourselves at a price, if you will, below what we had initially targeted. So we think we're executing extremely well on the wind down. Once it's, that wind down is complete, we'll be, at that point, we'll be a transportation company exclusively based in New York and largely in LA, roughly 1,000 vehicles of various types with six or so locations to either house those vehicles or maintain those vehicles.

And importantly, and you see it in our third quarter results, even with show counts sort of stubbornly, for now, at least stuck at 70, we almost hit the break even target. We were at the negative 600,000 for the quarter, which is darn close to where we hope to get. And with just a touch of improvement in show count, we think where we would be at break even. So that's kind of what the business we think looks like when the wind down processes it over. And once that's done, we'll have to just step back and kind of assess what comes next. Yeah.

And last, just lastly on that piece, Tom, you know, we're still maintaining our market share, which is extremely high for that business.

Aaron, great question. So I don't know if we're ready to talk about 20, I'll give you some high level, you know, amounts, but, you know, as Lisa continues to improve and as FreeWem burns off, we expect these things for cash and a while to continue to improve. So that's the trajectory. There may be some, you know, additional FreeWem for new leases in the upcoming year, but ultimately the trajectory should be growing on a go-forward basis.

Sure. So, you know, the leverage increased quarter of a quarter, but it's, again, below our expectations, and it's almost entirely due to the PayPal lease expiring at fourth-intraction. So, all within our expectations, in fact, we beat our expectations. And I think we set enough remarks when you perform in the NOI purchase and asset sales, leverage tick back down.

It's going to be, you know, a little up and down in the short term, but overall, we expect it to start dropping. And that's our plan. So, again, similar to the same store cash and a Y, as FreeWem burns off, those leverage metrics will definitely increase.

Yes. Yep, I got you. Thank you.

Sure. This is art. Let me start with kind of the largest five deals we have out there. The most significant of which is a Rincon Center with Salesforce and Twilial combined. It's 163,000 square feet. We have 100% coverage on that. But to round out the top five deals, we have very close to 70% coverage on those deals. Behind that, John, as we move through the year and we cater to a lot of small tenants, very hard to get a read, a further read on what their decision is, more than three months out. So, our total coverage right now is 50%. However, as we move through the year, we'll be getting more commitments from these smaller tenants who usually wait to the end.

So, we feel like we're in really good shape. And then moving into, and then moving in at 28, our largest tenants make up about 550,000 square feet. And right now, we have 100% coverage on those.

Sure. I feel like a broken record here. A big part of the AFFO turning positive again is freewance burning off. So, in your right, it's a timing issue. Once again, our AFFO results this quarter well exceeded our expectations. The timing of CAPX is very lumpy, as you said. And that's not always easy to predict. However, this is good news capital. So, as we spend the money, we're going to be receiving additional N. O. I. in future periods that will help reduce that AFFO burden. So, we expect it by the back half of next year to turn around. It is challenging to do exact timing only because the timing of the CAPX is volatile by nature.

Hi, Dylan. It's Victor. Listen, I think a lot of people are perceiving that to be the case. I can tell you from a front row seat, we're not seeing that at all in the deals that we're doing. But a lot of the deals we're doing are big tech companies. And so they're not just AI correlated, even though the preponderance of the growth of AI is obviously in the Bay Area. But we're seeing a tremendous amount of support around fire related tenants. And as I said, I think you're going to see when we talk about the coverage we currently have, I mean, arch coverage is deals that are in leases.

And these are tech companies. These are not AI companies. And they're credit quality companies that we're going to announce deals. And it's going to support, I think, we're seeing on the ground with the amount of activity and the amount of backfill that we see with new tenants come to the marketplace or expanding tenants. So we're comfortable as we sit right now. And I don't think much is going to shake the tree on the deals we're working on and about to announce in the next quarter or two.

So I think that will give you sort of a feel in the market.

Dylan, if I could add to that, a lot of these tenants are smaller tenants in the market. And they're looking for near-term opportunities. That's why obviously our market-ready moving ready suites have been so successful. So on the contrary, they're looking to move in quicker, not prolonged process.

Well, listen, I think we've been very fortunate. The deals we've closed have had zero renegotiation given the interest rate environment. I think we're very happy about those executions. And for the most part, we would have probably thought we would have some portion of retraining, but that was a zero for the deals. Now, the one deal that is still about to is in the process of our disposition plan, which we've talked about, which is 10, 950, has had impact, I think, directly correlated to multifamily. And the returns on multifamily and the interest rate levels that were quoted, let's say, six to 12 months ago versus where it is today. I think we're very happy with the price range that we're getting on that asset.

It's better than we thought it would be. So we do have some room there, but that would be the only thing that correlates to some form of renegotiation. Other assets in the marketplace currently today that we're looking at, there's only a few. And those really, I think we are pretty solid around pricing around that, that things could change. Nothing's going to close this year, probably. It's going to be next year. So we'll have to see where that sort of shakes out from demand and interest level.

Thanks, Dylan.

You know, I think, listen, I'll take the latter part first, Caitlin. We're not seeing that much activity. And I think that's why 901 has gotten a lot of interest and activity. We are confident that we will get that approved. Whether we sell it as a conversion or sell the asset or lease it up, that's going to be determined. But right now, it's going in the right direction, where the interest level is very high. And the location is changing, right? I mean, it is, it was a location that during COVID was a lot worse than it is today. Some of the stuff around us has already been cleaned up. And what the city is doing literally across the street is also helping out the future viability of that asset.

So we're comfortable with it. We don't have a specific timeline as to decision making, but we have a lot of interest of multifamily people who want to invest and either buy that asset from us.

Yeah, I think, Caitlin, you know, our first priority is to continue our conversations, which is Victor mentioned, have been very productive with our largest tenant there. And that we need to follow through on that. The extension gives a sample time to do that. We need to follow through on that conversation. And only after we have, you know, clarity around that, that their requirement and how that ultimately shakes out. Will it ultimately be productive to then reengage with with the lender?

In terms of pricing, you mean cap rates or price per square foot or cap rate? Yeah, I think, listen, we're not going to openly discuss cap rates on a on a call like this because that obviously puts us in a situation where we're going to be backed into evaluation. I would just say that, you know, today, if you look at the market conditions on the assets we're looking at, people are paying a premium right now for vacancy because of the demand and lack of future development for the next three to five years. And so that is one cap rate and one return. That's not an in place. It's going to be a future, a future IR.

And then still today, there are lots of capital partners and capital providers and interest level for acquisitions that want stable, walled related assets with high credit. And that will range as well. I, but as I said, I mean, even when we go out to the marketplace publicly with a broker, we don't come out with a price. So we're not going to talk about cap rates. But suffice to say, the asset qualities that we're looking at are, you know, some of the best that would be entered in the market right now.

I think I think it's important to sort of know what the past has sort of delivered for the company. Um, as we said in our prepare remarks, you know, again, we had a great quarter with leasing excess of 500,000 square feet consistently. We've done that quarter over quarter for almost eight or nine quarters in a row. And we're ahead of our expectations on leasing. We thought the year would be roughly around two million square feet were over that through three quarters. And so we still, when we look at the term coverage, we are confident that we're going to execute on the transactions and they're either in leases in in L. O. I. S. or in negotiations.

I would say of the 50% coverage, which is the the comment that we had made, we are in leases for 50% of those, 50% the entire 50% of those deals at some form or function. So we are comfortable that either in the fourth or the first quarter, that will be executed.

So, you know, we'll always explore opportunities to go to the capital markets if they're beneficial, i. e. tender and other items. And yes, this last one was based upon asset sales. However, if the opportunity presents itself and we have capital available either for asset sales or asset level financing or anything else, and the tender market is available, and we'd explore it for sure. But as we get closer maturity, I think that becomes less and less likely.

Yeah, I'll tell you the interest level in that transaction was much higher than what we executed, but we had committed to 200 at the time. We didn't know where the market conditions would be, and we're happy with the execution. We'll always look back to revisit now that we've done that once it enables us to, you know, evaluate it going forward for multiple opportunities.

Yeah, as I mentioned, I mean, we don't have a game plan for 2000 and 27 to be a excessive disposition year of assets, so it's going to be more on the organic growth, the performance on the leasing, and cash flow, and getting to FFO positive, and then alternatives around the assets that we currently had that are unencumbered, which will create multiple avenues for us to address the latter issue, which is, which is the coming debt, end of 27, early 28.

Just to add to that, the asset sale, at least the last few have been non-encompreducing asset sales, and I think those are the type of assets we've been targeting, so they would be accretive to FFO in the future, and a FFO.

Thank you, Haru.

Thanks, Alex.

Hey, listen, I think, you know, Rich, the long-term vision on the service side is always going to be under a conversation. I mean, we have some tailwinds now, given the federal bill that is going to be presented in should come through, maybe as early as December, if not first quarter of next year. And with, you know, as we said in our prepare remarks, with the sort of new announcement that was this week by Governor Newsom on increasing the California tax credits to a billion dollars, but more importantly, including the above envelope, the line, which is a huge windfall for the industry and the business, I think it's still, we're accomplishing what we want to accomplish, which is getting this to break even or comfortable with that.

And then from that point on, we'll see where the valuation of the business is and what transpires from the show count and what transpires from a demand standpoint, but things aren't going to get worse, they're only going to get better.

Yeah, we've looked at alternative uses. There are a few areas, there is obviously some entitlement changes that we've evaluated and whether it's worth capital outlight to that, given the asset and what's happening. I think, you know, in the near term, we'll have some resolution around that asset and whether or not it's part of our portfolio or not. So we're looking at all different avenues at the same time, we're, you know, trying to lease it out as best we can.

I want to thank everybody for participating. I want to thank the Hudson team for all the hard work in the last quarter and we're going to strive to year end at the same success levels. Thanks very much. This concludes today's call. Thank you for attending. You may now disconnect.