Release Date: February 20, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Office leasing activity increased by nearly 20% in 2024, with over 2 million square feet of signed leases, marking the highest level since 2019.
- Successful completion of two major development projects: Washington 1000 in Seattle and Sunset Glenoaks in Los Angeles.
- Achieved approximately $4 million in G&A savings through cost-cutting initiatives, with further savings anticipated in 2025.
- Positive net absorption in key markets like San Francisco and Silicon Valley, indicating resilience in West Coast office fundamentals.
- Increased venture funding in the Bay Area, particularly driven by AI interest, which is expected to boost office leasing demand.
Negative Points
- Q4 2024 revenue decreased to $209.7 million from $223.4 million in the previous year, primarily due to asset sales and tenant move-outs.
- FFO per diluted share decreased to $0.11 from $0.14 year-over-year, impacted by goodwill impairment and other specified items.
- Same-store cash NOI declined due to lower office occupancy, with a negative outlook for the first half of 2025.
- Leasing spreads were down, with GAAP and cash rent spreads lower by 6% and 9.9% respectively in the quarter.
- Challenges in the studio segment, including a goodwill impairment related to slower-than-expected recovery post-strike.
Q & A Highlights
Q: How are the fundamentals firming up in office leasing, and are you able to push rents or continue to push on term?
A: (Art Suazo, EVP of Leasing) The tours and pipeline are up quarter over quarter, with the average deal size increasing by 15%. This indicates more volume and larger deals in the pipeline. Lease terms are trending positively, with a trailing 12-month increase of 2% quarter over quarter and 80% year over year.
Q: What is the current status of the secured financing on a portfolio of six assets, and what is the backup plan if it doesn't come to fruition?
A: (Victor Coleman, CEO) We are in process with multiple events to right-size the balance sheet and feel confident that one or more will come through imminently.
Q: Can you provide more color on the leasing pipeline and the type of tenants looking to commit?
A: (Art Suazo, EVP of Leasing) We are seeing more urgency from tenants needing to return to the office. The pipeline includes 800,000 square feet of late-stage deals, with high coverage on upcoming expirations. The activity is spread across the portfolio, not just in a few markets.
Q: What are your thoughts on the future of the Quixote business, given the recent goodwill impairment?
A: (Mark Lammas, President) We remain believers in the studio business and are undertaking cost-saving initiatives to right-size Quixote. We are looking for ways to improve margins and are confident in the future of the business.
Q: Can you provide more details on the sales of non-core assets and the expected proceeds?
A: (Victor Coleman, CEO) We have three deals in process, with one non-refundable and two in contract or negotiation stages. We are realizing good pricing on these deals, which are marketed, and are considering additional assets for sale, potentially increasing the proceeds.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
