Greetings, and welcome to Hudson Pacific Properties 4th Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.
It is now my pleasure to
introduce your host, Laura Campbell, Senior Vice President, Investor Relations and Marketing. Thank you. You may begin.
Thank you, operator. Good morning, everyone, and welcome to Hudson Pacific Properties' 4th quarter 2018 earnings call. Earlier today, our press release and supplemental were filed on an 8 ks with the SEC. Both are now available on the Investor Relations section of our website, hudsonpacificpropertiesdot com. An audio webcast of this call will also be available for replay by phone over the next week and on the Investor Relations section of our website.
During this call, we will discuss non GAAP financial measures, which are reconciled to our GAAP financial results in our press release and supplemental. We will also be making forward looking statements based on our current expectations, which are subject to risks and uncertainties discussed in our SEC filings. Actual events could cause our results to differ materially from these forward looking statements, which we undertake no duty to update. With that, I'd like to welcome Victor Coleman, our Chairman and CEO Mark Lamas, our COO and CFO and Art Suaveau, our EVP of Leasing. Victor will give an overview of our performance Art will discuss leasing activity and our markets and Mark will touch on financial highlights.
Nossi will be joined by other senior management during the Q and A portion of our call. Victor?
Thanks, Laura. Good morning, everyone. Welcome to our Q4 2018 call. 2018 was all about execution for Hudson Pacific and setting the stage for the company's next phase of growth. We had our strongest year ever for office leasing in terms of volume and one of our strongest turn strongest in terms of rent spreads.
We signed a record 3,400,000 square feet of new and renewal deals with 30% GAAP and 16% cash rent spreads. This include multiple 100,000 square foot plus deals with exceptional companies like Google, Netflix, Nutanix and Square. We also did a massive amount of leasing in the Bay Area in 2018, nearly 200 deals totaling just shy of 2,000,000 square feet with GAAP and cash rent spreads in these markets of 29% 20%, respectively. This is a testament to the continued strength and vibrancy of our Bay Area office markets as well as our team's ability to drive leasing momentum at our assets across the city, the peninsula and the valley. In the Q4 alone, we signed over 800,000 square feet of new and renewal office leases at 36% GAAP and 20% cash rent spreads.
4th quarter leasing highlights include an early renewal with Technicolor for the entirety of the 115,000 Square Foot 6040 Sunset Office property in Hollywood, which carried a 15% mark to market. We also signed a 58,000 Square Foot lease with Nestle at our award winning now LEED Gold certified 450 Alaska office development in Pioneer Square, which brings that property to over 95% leased. I'll also note that in aggregate across the Bay Area, in the 4th quarter, we signed over 530,000 square feet of new and renewal deals at 34% GAAP and 21% cash rent spreads. Of course, Art will update you on this pipeline, but we're seeing similar market dynamics and leasing activity across our entire office portfolio thus far in 2019. Our stabilized and in service office properties finished the year at 95 point 4% 93% leased, respectively.
And as of this call, we've renewed, backfilled or added lease deals in leases, LOIs or proposals for about 50% of the remaining 1,200,000 square feet of 2019 expirations, which are collectively 18% below market. Our in place office rents are comparable 19% below market, providing us with a runway for continued growth throughout our portfolio. And furthermore, we have 1,100,000 square feet under construction and near term planned value creation projects, including One West Side, which is now over 86% pre leased. These projects have a weighted average of 8.1% initial stabilized yield, and we expect cash rents at our 500,000 square feet of active under construction projects to commence starting in mid-twenty 19 through mid-twenty 20. In terms of our studios, during 'eighteen, we saw further proliferation of streaming content creators bolstering an already high demand for stages and office production offices.
Streaming companies, including Netflix, Amazon and Hulu, today account for about 30% of our studio ADR, with cable and network providers like CBS, Disney, ABC, Fox, HBO and Viacom making up the balance. We've achieved higher occupancy, rents and ancillary revenue in all 3 CBOs in 'eighteen. And year over year, at Bronson and Gower, our trailing 12 month lease percentage increased 150 basis points to 93.1 percent, and our ABR increased 5.1 percent to $37 per square foot. We only have trailing 12 month data for some of this promise starting in June of 'eighteen. But in that time alone, we've increased the leasing percentage by 1,070 basis points to 89.2% and ABR by an additional 2.7 percent to $42 per square foot.
Further, with content companies locking up space with medium to long term deals generally 3 years or more in length, we have a mechanism to generate more stable cash flow while still capturing rental growth for shorter term leases. Case in point, more than half of our studio ABR is now under long term leases. With regard to capital recycling, we sold $465,000,000 of non core assets in 'eighteen at meaningful premiums to our basis, including Embarcadero Place in Palo Alto, Peninsula Office Park in San Mateo, 2,180 Sand Hill in Menlo Park and 9,300 Wilshire in Beverly Hills. All of these assets presented us with an opportunity to capitalize on strong market conditions and sell properties that did not fit within our long term portfolio and strategy due to location, building quality and ultimately return profile. We remain committed to making smart real estate decisions throughout our portfolio.
In terms of 'eighteen acquisitions, in addition to purchasing 3 small strategic properties that further our development in Sunsoft Los Palmas, we had 2 fantastic value add opportunities in our portfolio. Both are emblematic of our unique value creation strategy and that they involve creative reimagining and or adaptive reuse of urban transit oriented properties with our core markets. Our Westside Pavilion JV with Macerich is comprised of 548,000 sorry, 584,000 Square Feet 1 West Side Creative Office Redevelopment, which was recently fully leased to Google 3 years in advance of completion, as well as the remaining retail at 10,850 Pico. In the Q4, we purchased a Ferry Building in a JV with Allianz, where in addition to marking to market rents on leases roll, we intend capture revenue upside by driving foot traffic to the retail, both from increased ferry routes and other measures. And we believe these efforts, which were in the final stages of planning, will further activate and enhance this already very special property.
Now I'm going to turn the call over to Art for further details on Lucene and our markets. Thanks, Richard. West Coast office markets performed exceptionally well in 2018, particularly the innovation and creative hubs where our properties are located. We've had significant positive net absorption across all our major markets, including record absorption in places like Downtown Seattle, San Francisco and Silicon Valley. We had vacancy declines in all our markets except out on the peninsula, where vacancy remained stable.
We saw double digit rent growth in San Francisco and in Hollywood, where 4th quarter rents surpassed those in West LA. For these reasons, it's not surprising that our pipeline, which represents deals in leases, LOIs or proposals, stands at about 1,300,000 square feet, even after our record liencing activity this year. Now let's get into some specifics. The San Francisco Peninsula, which for purposes of this extension includes Palo Alto, had nearly 125,000 square feet of positive net absorption in the quarter and nearly 470,000 square feet in 2018. Class A rents increased 1.8% in the quarter and 2.3% year over year, ending at $86 per square foot, while vacancy stayed relatively flat and ended the year at 6.5%.
Palo Alto remains exceptional with nearly $125 per square foot in Class A rent and 3% vacancy. Redwood City, Redwood Shores vacancy and rents performed in line with the Greater Peninsula market. With 18,000 square feet of negative net absorption in the 4th quarter and 70,000 square feet of positive net absorption for the year, Our stabilized committal assets are 88.5 percent leased and in place leases are 13% below market. We have 415,000 square feet of remaining 2019 expirations at our Peninsula assets, which are 12% below market, with coverage that is yields renewed backfill releases LOIs for proposals on about 50% of that space. Our Peninsula portfolio, which comprises our properties in Foster City, Redwood Shores and Palo Alto, have fluctuated to some extent in terms of leasing percentage.
We purchased all but one of these assets in mid-twenty 15 and since that time, more than 60% of leased square footage has rolled. About 42% of leases expiring to date and not renewed have been greater than 10,000 square feet. Which has ultimately required additional downtime to reposition and or break up the space into smaller marketable suites. We're moving through that process, but we're also seeing some increased demand for more midsized tenants, which bodes well for layouts that don't break out that easily. As we've discussed previously, our long term portfolio strategy in the peninsula is to continue focusing on smaller tenants, which remain underserved in this market.
Even withstanding new challenges, we still achieved a modest gain in terms of in service lease percentage at our peninsula assets, up to 82.3% as of the end of the 4th quarter. We've also marked to market rents, growing average ABR per square foot by 16% to $52 And we've extended the average lease term from 6.2 to 8.5 years. So while there have been ebbs and flows and that will continue this year, we're making progress that is ultimately good for the bottom line. Silicon Valley, which for purposes of this discussion excludes Palo Alto, finished 2018 with positive net absorption totaling over 3,000,000 square feet despite 170,000 square feet of negative net absorption in the 4th quarter. There were 25 deals over 100,000 square feet last year, accounting for more than half of the 12,800,000 square feet.
5 of those were in the 4th quarter alone. Class A rents and vacancy entered the 4th quarter at $62 per square foot and 8.6%, respectively, which is relatively consistent quarter over quarter, but rents were up 3.5% and vacancy was down 2 40 basis points year over year. In 2018, we officially stabilized all but one of our Silicon Valley properties. Metro Plaza remains part of the lease up category in Maine only, in that as of the Q4, it was 93.5 percent leased. It has about 330,000 square feet of remaining 2019 expirations at our Silicon Valley assets, which are 17% below market with coverage on about 40% of that space.
Overall, our stabilized Silicon Valley portfolio is 97.9% leased and in place leases are 11% below market. San Francisco had a record year across the board. 12,000,000 square feet of gross leasing, 21 deals of 100,000 square feet or more and 3,500,000 square feet of positive net absorption. Class A rents were up 12% for the year to $86 per square foot and vacancy fell 170 basis points to 4.1%. We have about 120,000 square feet of remaining 2019 expirations in the city and a 28% below market with coverage on that of about 55%.
We've also had excellent activity on our converted vault space at 1455 Market and expect to have something to announce shortly. Our stabilized San Francisco portfolio is 94.7 percent leased and in place leases are 36% below market. 2018 ended with several big deals by content creators in Los Angeles, with Hollywood and West Los Angeles as some of the biggest benefactors. Hollywood is a standout. Class A rents increased almost 13% in 2018 to $62 per square foot and vacancy fell 4.90 basis points to 9.4 percent with nearly 130,000 square feet of positive net absorption.
West Los Angeles was the biggest performance submarket in terms of absorption in 2018 with over 1,200,000 square feet, but Class A rents fell 2% to $60 per square foot and vacancy stayed relatively flat at 11.4%, mostly due to more moderate demand from some midsized availabilities at larger business parks in Santa Monica. We have only 2 value creation projects remaining to be drilling premiums, and those happen to be located in Los Angeles. We're aware of the various reports that there's a deal for the entirety of Maxwell. To set the record straight, earlier this week, we signed 55,000 square foot lease with WeWork at Maxwell, which resulted in that project being 56% predates with negotiations for the balance of the building. At Harlow, we're still a year away from delivery, and we're feeling interest from a variety of entertainment tenants, both full and partial billing users.
We have about 240,000 square feet of remaining 2019 expirations in Los Angeles, which are 21% below market with coverage on about 40% of that space. Our stabilized Los Angeles portfolio is 99.2% leased and 8 place leases are 15% below market. Downtown Seattle had over 2.3 weighted square feet of positive net absorption in 20 18, including about 365,000 square feet in the Q4. Class A rents were up 6.5% for the year to $47 per square foot and vacancy fell lower this quarter to 7.4%, down 2 50 basis points for the year. With the entirety of 450 Alaskan's office space leased, we're focused on expirations.
We have about 160,000 square feet of remaining 2019 expirations, which are about 32% below market. We've covered on about 70% of that space. Overall, our stabilized Seattle portfolio of 97.3 percent leased and in place rents are 21% below market. Now I'll turn the call over to Mark for financial highlights. Thanks, Art.
In the 4th quarter, we generated FFO excluding specified items of $0.49 per diluted share compared to $0.52 per diluted share a year ago. Again, the strategic capital recycling Victor described earlier on the call is the primary driver of this sequential decrease. Specified items in the Q4 consisted of transaction expenses of $300,000 or $0.00 per diluted share and lease termination non cash write off costs of $3,000,000 or $0.02 per diluted share compared to specified items consisting of one time debt extinguishment costs of $1,100,000 or $0.01 per diluted share a year ago. FFO including specified items was $0.51 per diluted share compared to $0.52 per diluted share a year ago. In the 4th quarter, NOI at our 31 same store office properties increased 0.3 percent on a GAAP basis and 7.2 percent on a cash basis.
For the 12 months of 2018, our same store office NOI increased 1.1% on a GAAP basis and 3.5% on a cash basis. Recall that our 12 month cash basis comparison is muted by a $3,200,000 one time improvement cost reimbursement received in 2017. 12 months same store office cash NOI adjusted for this one time item reflects growth of 4.9%. Our 4th quarter same store studio NOI, including Sunset Las Palmas, increased by 18.3% on a GAAP basis and 16.4% on a cash basis. Full year 2018 same store studio NOI, excluding Sunset Las Palmas, increased 10.4% on a GAAP basis and 3.7% on a cash basis.
The full year cash basis comparison is meted by a $700,000 one time tenant improvement cost reimbursement received in 2017. Full year cash NOI adjusted for this one time item reflects growth of 7%. As a reminder, Sunset Las Palmas, which was acquired in mid-twenty 17 and has been included in our last two quarterly same store comparisons, will also qualify for same store studio year to date comparisons starting with our 2019 results. Our 2019 same store guidance estimates likewise reflect that transition. Victor mentioned the $465,000,000 of non core asset sales in 2018.
Our successful capital recycling strategy continues to bolster our balance sheet, debt metrics and access to capital. A quick glance at the debt summary pages in our supplemental highlights those strengths. Leverage remains in check with total liabilities in the mid-thirty percent of total assets and secured debt of less than 5% of total assets. We had no material maturities this year and total liquidity in excess of $500,000,000 as of year end. Many of you may have seen reports that Twilio recently subleased 259,000 square feet from Salesforce at Rincon Center in San Francisco.
Subleased rents are more than 60% higher than in place rents. We agreed to reimburse sales force approximately $6,300,000 for costs incurred in connection with the sublease, which we are entitled to recoup from amounts paid pursuant to the sublease commencing February 1. We expect to be fully reimbursed by the end of March 2020, at which time sales force will remit half of the sublease rents exceeding those under their direct lease. We are providing full year 2019 FFO guidance in the range of $1.95 to $2.03 per diluted share, excluding specified items. You'll note that our guidance midpoint represents 7% year over year FFO growth for 2019.
These estimates assume the successful disposition toward the end of the Q1 of Campus Center, including the adjacent land for development for approximately $150,000,000 We expect to apply the proceeds towards the repayment of our revolving credit facility or other unsecured indebtedness. As a reminder, our full year 2019 FFO guidance otherwise excludes the impact of unannounced or speculative acquisitions, dispositions, financings and capital markets activity. One final note regarding our same store guidance. As we've discussed on prior calls, our same store has never fully captured our company's NOI growth potential. Of our 47 in service office properties, only 31 run through our same store guidance.
Our 16 non same store in service office properties are poised to contribute cash NOI growth in 2019 of 36.2%. Add to that our projected cash NOI growth in 2019 from our same store studio properties of 3.5% to 4.5%. Collectively, our studio and non same store in service office properties are expected to generate 2019 cash NOI growth of 28.2% and will comprise 35.4% of our 2019 total projected cash NOI, contributing substantially to our growth this year. And now I'll turn the call back over to Victor. Thanks, Mark.
To summarize, we are very well positioned as we head into 2019. Our markets continue to be among the best in the nation, driven by continued growth and expansion of tech and media industries. We've made significant progress already in our 19 office lease expirations, enabling us to capture the significant mark to market on those leases and our near to mid term value creation pipeline of office development and redevelopment projects are substantially pre leased. And as Mark just discussed, our balance sheet has never been stronger. And based on capital recycling completed last year, we have ample cash flow to run and grow our businesses.
As always, I want to thank the entire Hudson Pacific Properties team for their excellent work this quarter and the entire past year. Thank everybody for listening. We appreciate your support of Hudson Vincent Properties, and we look forward to be updating you next quarter. And with that, operator, let's open the line for
Our first question comes from Nick Yulico with Scotiabank. Please proceed with your question.
Thanks. Victor, I just wanted
to get your thoughts on where you see the company's focus going forward. You do have the bulk of the development pipeline now leased, still some leasing due to increased occupancy in the valley. So I guess at this point, you came off a year where you had some transitions with asset sales. I mean, is the focus now internal growth and delivering existing development pipeline, increasing the valley occupancy? Or do you maybe think about starting to recycle some capital out of the valley and look to increase development projects?
Thanks, Nick. So several points there. I mean, I think we've been pretty consistent in our focus in terms of geographical markets and the focus on redevelopment and development activities. You're accurate in that. The projects that we have that have come out of the ground currently today, we've got a tremendous amount of pre leasing already accomplished well in advance.
There is always going to be a mix of internal growth and external growth. The external growth will be consistent of the redevelopment projects that we still have a lot of work to do. We've also said we've got almost 1,000,000 feet in Los Angeles and another 500,000 feet in the Bay Area of new development opportunities. And that's also on top of a potential additional 500,000 feet of development in West Los Angeles at our Riot Games campus, Elm in LA. So we've got a lot of future development in place today.
There's a lot of opportunity in the existing portfolio to expand, whether it's the lease up. And as Mark has let people know for a long time, that internal growth aspects, aside from just the lease up that our team has done an exceptional job at, we have a tremendous amount of cash that is ready to be coming through the company from a leasing standpoint in mid to late 2019 all the way through mid to late 2020 before any of the new stuff that I just referred to. And it's going to I think people have maybe not looked at it as seriously as they should, but I think it will be quite surprising as to the amount of cash and the percentage of NOI increase that we're going to have in the company in the next 24 months.
And in terms of the Valley exposure, is that something that you're comfortable with over the next couple of years keeping it at its level? Or do you think that as you've now stabilized some of those assets, maybe recycle some capital out of the valley?
Well, I mean, the mark in the valley has been I think it's high teens now. It's 19% mark to market increase in the valley from our standpoint. We've rolled over 60% of the total square footage of the existing portfolio. We sold somewhere close to $1,000,000,000 of assets in that portfolio. I do think that the complexity of what we own today fits very well in our portfolio.
And we're happy with that real estate more than I think people have maybe given us some credit for in terms of the operational aspects of the upside and the tenant mix. There's maybe an asset or 2 in the portfolio that we would look to recycle maybe in 2019 or maybe in 2020. There's nothing specifically on the books that we're looking to do other than campus now. So we're comfortable with it. We're comfortable with the remaining portfolio in Seattle, San Francisco and here in LA.
And I've always said there's maybe 1 or 2 assets that we would maybe recycle, but we're still in a growth mode.
Okay. That's helpful. Just one other question, Mark. How should we think about some of the other items like specifically recurring CapEx, TIs, leasing commissions, what that would look like this year as trying to get to like some sort of adjusted FFO, FAD type of number for you guys?
Yes. Thanks for asking that. Actually, crude and I have been spending a considerable amount of time really thinking about that. Our view is and timing it is always a challenge because we have these pretty lumpy leases that come through and it's difficult to pinpoint when draws on sizable TI allowances, for example, will ultimately be requested. A good example for that is Google only, I think, Recon Center only recently asked for their TI allowance reimbursement on a lease that you know was signed quite some time ago.
TIs were done quite some time ago. So it's very challenging to pinpoint when some of these bigger TI amounts will ultimately hit in the quarter. Having said that, our view is that AFFO, while we don't guide for that, looks like it will be in line with materially in line with 2018 AFFO. In terms of the key component parts of that, commissions are looked to be even though we expect to have a good year, I think we're not going to have some of these bigger deals that are new that tend to garner higher TI per I mean commission per foot amounts. So we'll have good leasing activity, but it will be on a lot more of these renewal type activities.
So we think commissions will trend lower, recurring will be a bit probably in line with 2018. And then the hard one and of course, the biggest of the 3 contributors is TIs. They could be a little elevated compared to 2018, but it's really, really going to depend on timing for tenants asking for their allowances. So bottom line, we think it's overall AFFO is going to be materially the same as 2018.
So just to be clear, you think that overall AFFO is going to be the same as 2018 so that there's no AFFO growth this year?
Yes. And I know that sounds counterintuitive because FFO growth was 7% higher than 2018. I think and again, this is going to depend on whether or not some of these bigger TI requests come through in 2019 or not. We think that's going to that's showing a bit higher than 2018. But again, it's a timing item.
And so for example, and Victor alluded to this, obviously, we're not ready to start guiding to 2020. But what's happening is if we end up incurring a lot of this TI reimbursement amount in 2019, then what I just said will sort of bear out. If it's still and if that happens, 2020 AFFO is just going to go it's going to really steeply increase. If it doesn't play out, then we'll have higher AFFO in 2019 than what the current TI spend is suggesting, because it will spill over in 2020 and it will mute a little bit more of the 2020 increase, right? So again, it's hard.
The challenge here is locking this number into a 2020 calendar year 2019 timeframe as if it all sort of can be precisely bucketed there when in fact it's a bit more fluid.
Okay. Thanks for all the detail, Mark.
Yes. Thanks, Ken.
Our next question comes from Manny Korchman with Citi. Please proceed with your question.
Hey, guys. Good afternoon.
On One Westside, it looks like the project costs went up as well as the yields coming up there. I was wondering if you could just give us more details as to what's going on with that project.
Well, the costs were we gave you guys a range in the costs in negotiating with a single tenant like we did with Google. And some of the changes that they wanted in the project were applicable to us modifying it. We had some soft bids and then that changed. The timing was a big issue, too. It got pushed out a little bit, but it reflected a much better yield than we wanted anyway.
So I mean, I think if I go off a recollection, I think it was a 7 percent. No, it was 6.5 percent. 6.5 percent. Yes, it was a 6.5 percent. And obviously, we escalated that substantially.
So it wasn't that material. I think originally, we said it was between $5,000,000 $5,500,000,000 right around the $5,200,000,000 range total cost in our $140,000,000 Yes. Well, Manny, we had a base case assumption there that reflected a design well before we had a tenant in discussion. And the cost estimates that we originally set forth reflected that. And then Alex and the whole crew got engaged with Google.
They had significant input on exactly what they wanted. And we didn't try to constantly redo our estimates as negotiations were moving forward. We figured once we had we concluded that, we would come up with one final set of estimates. So that's why you see significant change. But it was an evolution towards what is the ultimate design.
And as you can see from the yield, we're getting more than paid for it in the sense that we're obviously pleased with where the final yields check out.
Art, I have one for you. I think you mentioned the Maxwell, you're at 56% now and you said you're in negotiations for the rest of the space. Is that negotiations with WeWork for the
rest of the space? And if it's not, how does having them in there as sort of
a very large anchor impact discussions with other smaller tenants?
Yes. No, it's for a single user, but we're in negotiations, and I can't comment on who the tenant is. In terms of your second part of the question, Manny, I'll jump in on that. This is the WeWork piece that is looking at taking down the Maxwell for the lease it was signed is their enterprise business, and they've already got 2 tenants for the whole thing.
Got it. If I could ask just one last one. It sounds to me like your the mark to market that you talked about on expiring leases in 2019 has actually come down a little bit versus the levels you talked about last quarter. Is that a mix issue because you're including some of the 4Q 'eighteen leases in that number? Or is there something else that we should think about as you're talking about those mark to markets?
I don't think it's come down at all. I don't yes, I think Manny, I think we've been in the high teens. At times, we've over performed our own initial estimates and gotten into that 20 ish range and low 20 range. But I mean, that's I think we've been pretty consistent around that number. Thanks, guys.
Our next question comes from Craig Mailman with KeyBanc Capital Markets. Please proceed with your question.
Hey, guys. Mark, on the Twilio lease or sublease, can you run through kind of the mechanics of that? Like have you guys already funded the $6,300,000 so that's in 2018 and then you get, I guess, around $1,300,000 a quarter until March 2020. And does that run through like investment and other income? Can you just give us how that kind of flows through the 'nineteen guidance?
Yes. I mean, I think you're I mean, you're sort of real close here. I mean, I think you understand how the footnote, it translates very well. We have funded the 6.3. It was largely in January, and it was basically the commissions associated with the deal.
The way the original the deal works is whoever funds that out of pocket first gets it back out of the sublease incremental sublease rents. We funded it, so we get it all. We could first. In the footnote, it describes exactly how that happens. You read that correctly.
That is to say, we'll get $6,300,000 back. If you translate that, that's roughly $450,000 a month or about your $1,300,000 a quarter. Once that we recouped all of that by the end of March 2020, then we the notion of the even split of that incremental rent takes effect and we'll get you can do the math, we'll get half that amount, right, so instead of the full incremental difference. And so that's how it works. I mean, it's really just that straightforward.
Okay. And then just a question And by the way, it runs through rent. I mean, that's just it'll come through as rent. Okay. And then just this quarter, it's you guys didn't flag it, but it looked like you bought back about $50,000,000 of stock.
Is that accurate?
You're right. Okay.
And nothing is baked in for next year? No. And kind of how are you guys thinking about that going forward? I know you guys were buying it back about 10% ago, but you guys are still trading at a pretty big discount to NAV. Kind of how Yes.
I mean, Craig, you haven't changed our position on this. You've heard us say this multiple times over. At opportunistic times, we're going to buy back stock and we're going to deploy capital for what we think is the highest and best use in other opportune times. That's not going to change our plan, it hasn't changed. Okay.
Thanks. Victor, you had mentioned Campus Center. Any update there on timing or how the process is going? We have 2 separate buyers, one for the land and one for the property. And I'm anticipating that we'll have this transaction closed by the end of this quarter and maybe it leaks into the year next.
But hopefully, we're earmarked to make an announcement end of March. Okay. Perfect. And then just one last one, kind of a 2 parter. On the WeWork lease at Maxwell, you guys said it's enterprise.
Just kind of curious, did you guys know that going in? And kind of how does that affect the rent negotiations relative to just a normal WeWork that's going to be kind of smaller freelancers versus the enterprise? And then the second part of that, you guys have now leased up or close to leasing up both buildings. What's the view on the downtown or the Arts District exposure going forward? Is that a kind of a hold or maybe opportunistically sell to fund other development?
No. So let me answer the second part first. The plan is to hold those assets. I do think that our story is proven out in the Art District. Our yields are better than we initially thought.
Early on, we thought they were going to be worse. I think they've come in better now with the transactions that we've already announced and the ones that we're going to announce. It took 3.5 years for Warner Music to move in the space. They're finally moving in quarter. Spotify is moving in later this year.
Honey is on their way by middle of this year. So it's going to be a much different complexity in terms of the value creation, the rent, the population and just the growth of the arts district. That being said, if there was an opportunity for us to buy something or build something out there of size to capitalize on that future growth, it's something that we would consider. We don't have anything in the books now. This is not a reposition play for us to sell.
Those assets should be the core to our portfolio. In terms of your comment on WeWork, I don't think we don't look at a rent differentiator when our team has negotiated the prior two deals with WeWork, 1 in Seattle and the one that we sold in Playa Vista. It's WeWork. It's the credit structure that we get from them, which is our original lease, which is a spectacular lease with the guarantees. And as a result, it wouldn't matter if it was enterprise or if it was their core business.
That rent is going to be consistent with WeWork being the tenant.
Great. Thank you.
Our next question comes from Vikram Malhotra with Morgan Stanley. Please proceed with your question.
Great. Thanks for taking the questions. Sorry if I missed this, but just on the expirations, you talked about dealing with 50% of them. Any big chunks in the balance of expirations? Anything big notable in 2020?
Yes. Thanks, Vikram. Yes, we have 50% virtually done or in LOIs or leases or some form of function. The second 50% is pretty much the makeup of our consistency in that portfolio with the exception of 2. I think stand out ones that we've commented on, which one would be Saatchi and Saatchi, which is the last day of the year in our Torrance asset, which no there's no hidden secret there.
That's an asset we've tried to sell. That's an asset that does not it's not core to the portfolio. And that's an asset we've been making a lot of cash flow from since 2010 when we contributed to the IPO. The second one would be Stanford Health, which is a new move out. How big are well, it's 2 spaces, 63,000 square feet and 23,000 square feet.
They're moving residents sitting through their own campus, right? So we've only got plans on the way to kind of re market the space. But after that, no, there's nothing there to make.
Okay, great. And then just a question on the studio business. Obviously, there's been a lot of success there. I saw the strategic parcel that you guys bought. Just two parts to that.
1, can you give us an update just given how that those the
3 big assets have evolved?
Give us a sense of how you would how we should now think about cap rates or valuing those assets? And then second part, just any update on looking at studios elsewhere?
So on the first question, listen, I think we imputed a cap rate that was always 100 basis points higher than office. I think we've been proven wrong there. A matter of fact, I know we've been proven wrong there. What's transpired by comp other than the 3 that we bought between Culver Studios, which at the time traded at a 4 something cap and then with CBS Studios where everybody gave us a hard time for even looking at it, never mind buying it, and it trades at a subforecast. I think you would now look at what we've created and what we are going to continue to create over at Las Palmas and Gower with an additional almost 1,000,000 square feet between the 2.
You have to look at that as a comparable cap rate to Class A office now. And the expense side, you would alter because it is slightly higher from an operating standpoint. But I mean, look, the mark to market rents in Hollywood were the highest in all of Southern California, and I think it was somewhere around 12% in 'eighteen. So it just shows that the value is created there, and it's just continuing. I would say if we were to which we just don't do on a regular basis, but if we were to value the cap rates today, it would be considered the same value as you would buy Class A assets in Los Angeles.
And then just the thoughts on any update on looking at studio assets elsewhere?
Well, we still have earmarked a couple of assets here in Los Angeles. One potentially may be coming to market later this year that we're going to take a hard look at. And we've commented in the past and we're consistent, if we had an opportunity to buy in Vancouver, both on the office side or on the studio side, that would be a marketplace that we would like to expand our portfolio into.
Okay, great. Okay, thank you.
Thanks, David.
Our next question comes from Jamie Feldman with Bank of America. Please proceed with your question.
Great. Thank you. I guess just starting out the big news of the day, Victor, any thoughts on the Amazon decision and what you think it might mean for your markets or just tech and media companies making market decisions going forward?
Well, Jamie, you and I have spoken to this several times. We said that Seattle was always going to be Seattle in terms of Amazon, and we're seeing it now regardless of the decision not to be in New York, Amazon is expanding in Bellevue in a big way. They're expanding in Vancouver. And so they are maintaining a strong presence in the West Coast and will continue to do so. I think since the H2Q announcement, they've leased over 3,100,000 square feet in the Seattle area.
So it still is their home. From a political standpoint, I'm not going to comment. I think it's an unfortunate situation personally, but I'm not going to comment on that. I do think that there is a there are certain companies that will shy away from people who don't want them because there's a lot of cities that do want these companies. And for as much press as you saw today on them not going there, there is equal number of politicians in other cities around the country who said that they would welcome them.
So it's one block is one's opportunity, I think.
Okay. Are there any groups that were supposed to go to New York that you think now grow in your markets? Or I think it was all expansion.
It was all expansion. I think it was TBD in terms of the number is 25,000 people. I do think that we have seen, as I said, a big pickup, specifically in Vancouver and Bellevue of what they want to do. I don't think in terms of specific to Seattle to San Francisco or Los Angeles, we've not seen any major movement.
Okay. And then looking at your future development pipeline, how should we think about the timing or potential prospects to start any of these projects, the sizable ones?
Well, listen, I mean, we mentioned that we had an we have an opportunity to build up in Northern obviously be specific to us having a deal on hand before we broke brand. I just mentioned to Vikram, the mark to market rents in Hollywood are almost, I think it was 12.9% for the year of 'eighteen. And we've got just at Dower alone, 500,000 square feet, which we're in design for on effectively 3 buildings, 2 are attached with some studio component around them and then one just pure office. And I do think that as the market continues to grow and there's very little expansion in these marketplaces, we will consider breaking ground given where our reverse increase have been. It's a little early at Las Palmas right now for our 400,000 square feet.
We, As you know, we just accumulated the land around it, and so now we have the ability to do so. And I think it's been and I think that is going to be dependent upon the media related businesses that are growing there. Lastly, our last 500,000 plus or minus square feet in West LA, I do think that's the furthest away just given the tenants in place today and Tencent's desire to continue to grow, that's going to be a negotiated item. So that's not going to be spec. So I guess to answer your question, Northern California and West L.
A. Will not be spec. Las Palmas, TBD and possibly we need those spec Sunset Gower only given the current demand.
Okay. Would you build more studio?
Well, the anticipated plan right now that we have designed with Gensler, as I said, is really a 3 building complex. It's 2 buildings with a studio, both on a ground level that we're going to look to build above it. So we're designing that today. And if we felt that there was the opportunity to enhance that yield around that, that's something we're considering now. It doesn't take away much of our FAR.
We're still close to 500,000 square feet, and we can move it around because it's fungible. So and in terms of the office building, that's going to be the primary piece there, 350,000 feet roughly.
Okay. And just finally for Mark, as you think about the same store guidance, I know it's a smaller part of the whole portfolio, but can you just talk through some of the assumptions around that, like kind of year end occupancy, leasing spreads, cash rent bumps? I'm just trying to figure out how you get to that number from kind of a bottoms up.
Yes. We don't of course, we don't model to a target occupancy level or anything like that. We take our actual budgeted assumption. So this is the outcome of asset specific projections. I mean, so but let me give you some kind of data points around it.
At the initial midpoint here, 3% on the office, I think one key consideration is that same store this year is significantly larger than it was last year. So last year's beginning same store was 7,300,000 feet and our starting point of NOI was about $245,000,000 This year, it's 7,800,000 feet. And if you just take Q4 'eighteen annualized, for that same store pool, you're starting off at like $280,000,000 of NOI. The 3% midpoint is about $8,500,000 of projected NOI growth. That's very close to what our NOI growth was for last year's guidance.
I would say we had guided at 3.5% growth when we at the inception of the year, we ended up closer to 5%. But 3.5% on the original NOI that we started with last year was about $8,500,000 And if you try to cut through that, what you'll see is you have to go through asset by asset. There were some pretty big drivers of that NOI growth last year at Rincon, in part at 1455, 875 Howard. We have some of that same kind of big lift, like at Rincon Center, for example, and a few others, Pagemill Hill, 875 Howard. It's just you've got a little bit of a denominator effect because that same NOI is growing off of a pretty sizably higher starting NOI amount.
Also, the portfolio starts at 94.7 percent leased. So it's not like you've got a whole lot of net absorption think we can both agree that starting off at 95% lease, I think we can both agree that starting off at 95% lease doesn't give you a heck of a lot of room there to increase your occupancy level. I don't know I don't want to spend a whole bunch of time on media other than to say that our projected this again is a denominator. Last year, we started off with 873,000 square foot portfolio that generated 22,000,000 NOI. This year, we start off with a 1,200,000 square foot portfolio that's generating closer to $35,000,000 So, our 3 our guided 4 percent midpoint is about $1,500,000 of NOI growth.
That's about what we generated in last year's at the 7% NOI growth on the smaller same store. Again, we continue to forecast good growth there. It's just that we're approaching stabilization on that portfolio. We ended the year at over 91% leased. Some of the other items, I think, we can quickly tick through.
The G and A expense, dollars 5,400,000 of that increase on a year over year basis is merely the change in accounting standards on leasing. If you control for that, it suggests about a 5% increase or roughly $3,000,000 over last year. That's you can see that's almost entirely non cash compensation. Last year, we had about $17,500,000 non cash. Now we're at 20.5 dollars That's the impact of the amortization of our long term incentive programs.
So that on interest expense, last year, our midpoint, we finished the year at like, call it, dollars 83,000,000 This year, we're guiding to $97,750,000 at the midpoint, dollars 12,000,000 of that is really just higher line of credit balance than we averaged last year. And $2,200,000 is not really interest expense per se. If you recall, we have a loan that's embedded in the ferry ownership that's not I mean, so it does require us to book that as interest expense, but it's really a form of equity. And there's a corresponding offset in the amount that goes to the non controlling interest that they get in the form of interest that they otherwise would have gotten in the form of the equity distribution. And then the last is just the FFO to non controlling interest, which is about $4,500,000 higher than we ended last year.
And again, that's really the ferry building and just somewhat higher NOI at 1455 and Hill 7. So those are the component products. Hopefully, that sort of explains the differences.
Okay. No, that's very helpful. All right. Thank you.
Thanks, Jamie.
Our next question is from Blaine Heck with Wells Fargo Securities. Please proceed with your question.
Thanks. So Victor, I know
it's hard to imagine rent growth getting any better than it has been, but it seems like we're entering this year with kind of steady pace of demand and vacancy rates are generally lower than this time last year. So I guess is there any reason to think rent growth should slow in your markets other than just kind of worries around an eventual reversion to the mean? No.
I mean, Blaine, I think, listen, we look back at what we sort of projected it to be last year. And in instances, I can just tell you, we looked at in our markets, and then we said L. A. Would be somewhere around 6%. Hollywood, as I said, was close to 13%.
So we were way off there. In San Francisco, we thought it was like an 8% to 10% this year, and 'eighteen ended up being a 12% increase. So we were right around the hood. We did say that we thought that the peninsula overall would be like a 4% to 6%. It ended up being, I think, 3.5%.
So we were a little off on that one. And in Seattle, we were spot on. We said 6% to 8%, and it ended up being like 6.5%. So I think going forward, if you're looking for me to sort of prognosticate how we look at it, I would sort of feel very comfortable around the same kind of numbers that we sort of looked at last year, which would be Seattle being at 6% to 8%. And I think I'll probably be wrong because I think they'll probably be higher.
We see increased numbers. But that 6% to 8% seems pretty solid from our standpoint. I think in the coming down the coast, San Francisco, it's hard to imagine we all were saying San Francisco in double digits. So I'm going to come off of that number this year and say it's more like an 8% number. And I'll probably be wrong only given the fact that there is so little product of new product coming in the marketplace and the amount of activity of large TAM seems to be growing at a consistent pace.
But I'm going to say right around 8. I think the peninsula, we're going to see the same kind of numbers. I'm going to say 4 to 5 instead of 4 to 6. And I think we're going to hit that because Los Angeles has proven out to be the big leader there. It's obviously an offset with Palo Alto.
It rents at over $100 and, I don't know, dollars 20 a foot or something like that right now. But if you look overall, I still think you're going to see some positive momentum. And then lastly, in Los Angeles, we have the same issue, but it's even magnified worse. I mean, look what's happened between Hollywood and our One West Side deal. And these are deals that were in a marketplace of Blaine that was never anticipated at preleasing.
These are deals that are leased 2 to 3 years in advance and the demand for media and the surrounding tech growth still seems to get the attraction. And so I think we're looking at a 6% to 8% in that market again. And I hope I'm wrong in all of these and they're higher. But to answer your question, I think in detail, we still see rent growth momentum in 'nineteen.
All right, great. That's very helpful. And then I know it's early, but if I'm remembering correctly, you guys have already seen some expirations at the Ferry Building. Can you just talk about the interest you've seen so far in that space? And what type of mark to market you guys are looking for that in upcoming expiries?
Well, so I mean, listen, we've got one large space, somewhat large space for the $30,000,000,000 coming that has come due, and our team is positioning that space today. There is lots of interest, so to speak, from lots of very interesting, very good names, some names that are existing tenants in our portfolio, other locations and some names that want to get a foothold at the Ferry Building. I think from the office side, it's a 30% mark to market is conservative. But my guys are giving me thumbs up thinking it's more. So 30% -plus going there.
I think we'll be pleasantly surprised to see what's going to happen in there. We have one deal on the retail side, but we've said we are in a complete repositioning plan to the totality of our retail, which will be a 1, 2, 3 year plan that is going to be very unique. I think it's going to increase the revenues, as we've said, and we've engaged a very creative consultant, and we're in the middle of it right now. We've already the plan is being outlined and now we're in the middle of implementation and the first phase that comes due is a deal right now with 1 of the retail tenants that we've extended on a month to month portion, but that I think was a 20% increase, Alex, I think, roughly a 20% mark to market increase on the repo alone on this one location. So yes, it's paying out to be what we thought it would be, which is going to be unique mark to market opportunity and a great repositioned Hudson esque asset.
Great. Thanks, Victor. Thanks, Blaine.
Our next question comes from Alexander Goldfarb with Sandler O'Neill. Please proceed with your question.
Hey, good afternoon out there. So two questions for you. First, Mark, as we look at guidance for this year, it sounds like from your response to one of the earlier questions, there are no sort of unexpected move outs that you're looking at for this year. But if you could talk about dispositions that maybe be over and above Campus Center that could come out this year? And then how the lease up of Maxwell, specifically the timing of when WeWork takes their space for GAAP purposes, how that influences the numbers?
Yes. On the disposition, there's no assumption around anything but the Campus Center sale that we identified. Obviously, the minute we if that were to come around, we would as soon as we possibly could, we would notify the market and make sure everyone understood the impact of that. But guidance doesn't assume anything beyond Campus Center on the On Maxwell, we did we will turn possession over to them in February and GAAP rents will reflect that and obviously our guidance reflects that. Cash is expected to commence in July on WeWorks.
And so guidance assumes that early delivery, it's a tenant build, so that GAAP requires us to take that straight line in at that point and then cash will follow in sometime in July.
Okay. And then the balance of Maxwell, I'm sure Art's working hard to lease it. But is there anything assumed for the balance of Maxwell in this year's numbers or no? No. Okay.
And then the second question is to Art. I think if I heard correctly in your comments in the opening, you said that you guys were sort of switching to a small tenant focus in the Peninsula. And just sort of curious if you're expanding that strategy to other markets or if it's just specific to the peninsula? And then curious what that does as you think about it for the economics, does it mean that you would get better economics or it's a reflection of where the demand is in the market?
Yes. So that's not specific to the Peninsula. Where we strategically across the entire portfolio felt like there was demand for this, The VSP program that we've talked about, that's what I was referring to. And so we've had some we had a couple of large move outs. The appetite for full floor meals, call it, in Redwood Shores isn't there.
And so thinking it's time to kind of maybe bite size people to the tenants who are in the market. And by the way, we've got probably we've done about 150,000 square feet of VSP over the last year and a half there, and we've got another, call it, 150,000,000 teed up ready to go with a pipeline of fields across the entire peninsula of about 4 probably 400,000 square feet. So activity is still really good in that size range.
Okay. And then Art, so you said it's only for the Peninsula or it's HPP portfolio wide from Seattle?
HPP Portfolio wide strategically where we find that there is demand for that space.
This concludes our time for today's question and answer session. At this time, I'd like to turn the call back to Victor Coleman for closing remarks.
Thank you so much for support, participation in listening in. And I want to just give a shout out to the Hudson team for a phenomenal 'eighteen year and our best leasing year in terms of volume of all time in the history of the company. We'll talk to you guys next quarter.
This concludes today's call. You may disconnect your lines at this time,
and we thank you for your participation.