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Hudson Pacific Properties Inc (NYSE:HPP)
Q2 2020 Earnings Call
Jul 30, 2020, 2:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, ladies and gentlemen, and welcome to Hudson Pacific Properties Second Quarter 2020 Earnings Conference Call. [Operator Instructions]

It is now my pleasure to introduce your host, Ms. Laura Campbell, Senior Vice President of Investor Relations and Marketing. Please go ahead.

Laura Campbell -- Senior Vice President of Investor Relations and Marketing

Thank you, operator. Good morning, everyone. Welcome to Hudson Pacific Properties Second Quarter 2020 Earnings Call. Earlier today, our press release and supplemental were filed on an 8-K with the SEC. Both are now available on the Investors section of our website, hudsonpacificproperties.com. An audio webcast of this call will also be available for replay by phone over the next week and on the Investors 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.

These statements are subject to risks and uncertainties discussed in our SEC filings, including various ongoing developments regarding the COVID-19 pandemic. Actual events could cause our results to differ materially from these forward-looking statements which we undertake no duty to update. Moreover, today, we've added certain disclosures, specifically in response to the SEC's direction on special disclosure of changes in our business prompted by COVID-19. We do not expect to maintain this level of disclosure when normal business operations resume. With that, I'd like to welcome Victor Coleman, our Chairman and CEO; Mark Lammas, our President; Alex Vouvalides, our COO and CIO; and Harout Diramerian, our CFO.

Note they will be joined by other senior management during the Q&A portion of our call. Victor?

Victor J. Coleman -- Chairman and Chief Executive Officer

Thank you, Laura. Good morning, everyone. Welcome to our second quarter 2020 call. I hope everyone is staying safe and healthy during these difficult times. And let me start by saying, once again, how incredibly proud of our Hudson Pacific team, whose deep experience, ingenuity and adaptability is enabling our company to successfully navigate current circumstances. Despite the unpredictability of this pandemic, the shifting government mandates and evolving protocols, we continue to run our business efficiently and effectively. As an essential business, all of our properties remain open and operational, while physical building occupancy remains low, and Mark is going to touch on that, our conversations with tenants indicate they have every intention of returning to the office. It's simply a matter of when and how. Google is a perfect example of this, although they're now targeting a 2021 as a return date, Buildout of our unabated one Westside asset is absolutely on target.

And in near term, most of our tenants are leveraging the lower occupancy that remote work affords, coupled with temporary solutions like moving desks, installing barriers and staggering schedules to safely reintroduce a portion of their workforce. This is exactly what we did starting in June with our own employees, targeting 50% utilization at our corporate and regional offices, and there's no doubt it requires people to get accustomed new seating configurations, paths of travel, regarded PPA, PPE use and the likes. But what we fully intend to avoid are the pitfalls of work from home, which I've been talking about for months, and which chip cutters peace at the Wall Street Journal articulated very well just last week. Things like impaired efficiency, lack of mentorship, poor communication, limited creativity are all factors in the company's long-term success and viability as they've been for ours. If companies haven't been recognized this already, they will soon enough and hopefully, before it's not too late. I suspect that this article in the wall Sea Journal will signal an important shift in the mindset as the realities of a prolonged time away from the office begin to set in. In the second quarter, our rent collections were exceptional. 99% of our office and 100% of our studio tenants pay rent. And again, Mark's going to discuss this in detail. But the quality of our tenancy shined during these difficult times. And in terms of industry exposure, the resilient and innovative nature of tech and the anti-cyclical nature of media will continue to serve us well.

Specific to credit quality, 85% of our top 15 tenants are publicly traded or owned by a public parent, while over 60% are either large-cap or investment-grade rated. Regarding geography, nearly 75% of our ABR is derived from less public transit dependent markets like Los Angeles, the Peninsula and Silicon Valley. And as for asset type, the preponderance of our assets are low to mid-rise product. Our buildings are eight stories on average, facilitating ingress and egress. And further, essentially, all of our properties have been substantially repositioned or upgraded or full redevelopment or new construction projects. From optimized air filtration to ample outdoor workspace, our portfolio is well positioned to meet any new COVID-related requirements. By far, our biggest milestone in the quarter was the announcement of our latest partnership with Blackstone, and the genesis of this transaction well predated COVID related conversations with multiple interested parties began as far back as December of 2019, annoying, we had a tremendous amount of interest in this portfolio, which we've built over more than a decade through strategic acquisitions, operational and capital improvements, world-class development and phenomenal leasing success. Through the years, we assembled the largest collection of independent stages in the United States. We built the first Class A office building in Hollywood in more than 20 years, and we signed two of the largest office leases ever in Hollywood and created the LA headquarters for two global media companies. We evolved design of our urban vertical campus and push boundaries in sustainability, delivering Los Angeles' first office building with a solar facade and a record amount of functional outdoor space. Our sale of 49% to Blackstone, arguably, the preeminent institutional real estate investor provides validation to the stock market of which they had not. Around the value of the portfolio, our views on content and creation, our expertise as an operating partner as well.

Clearly, we also chose them. As frequent partners and collaborators, they are less execution risk as we seek to expand our platform and we're well aligned with our vision going forward. After financing, which Alex will provide some details on as well, we'll have about $1.3 billion of gross proceeds at our disposal to bolster our liquidity position and further fortify our balance sheet. Especially now that we've reduced our funding requirements for future development, we are nimble and poised to take advantage of market dislocations in the current environment to expand in office as well as studios. We continue to closely monitor various ballot measures in California and the state of Washington that have passed, would increase taxes for businesses. There's no doubt the local and state municipalities have resulted the economic shutdown are suffering meaningfully by the declines in revenue, which stand to for spending cuts and priority programs and initiatives. At the same time, there's a renewed engagement as the corporate level including from real estate firms such as ourselves and all of these processes. And while Top 15 will be on the ballot in California in November, we continue to believe the bill will be effectively depleted SB 939 and the Seattle head tax were both recently defeated, but there is now a new payroll tax considered under consideration in Seattle. So like the pandemic, dynamics at play continue to evolve, and we will remain engaged and provide leadership as necessary.

Before I turn the call over to Mark, I do want to touch on diversity, equity inclusion initiatives, which we've been working on for some time and were rightly brought to four in the last quarter. As you know, in March, we lost launched our better Blueprint, which has three focus areas: sustainability, health and equity. Specifically, our commitment to equity is grounded in the notion of opportunity for all. And the recognition that we, as a company, need to do our part to eliminate races and promote diversity and inclusion both internally and where possible externally in our communities at large. Our HR and social impact teams are spearheading multiple initiatives to accelerate and strengthen this commitment, including ongoing training sessions, resource groups and a virtual library for employees. I also joined Los Angeles' pledge to address racial equality equity and align with CEO action for diversity and inclusion, which among other commitments, provides a network of other companies with which to share best practices. We also redirected a portion of our annual corporate giving donating to the community coalition here in the South Los Angeles and pledging thousands more in micro grants to smaller organizations championing racial equality across our markets. As you can see, we're investing heavily not only because it's the right thing to do, but because it's essential to our continued success and industry leadership. It's well-established that welcoming different cultures, ideas and skill sets yield better business outcomes. And I expect every Hudson Pacific employee to model these values and in doing so, will make our culture and our company even stronger.

With that, I'm going to turn it over to Mark.

Mark Lammas -- President

Thanks, Victor. As Victor highlighted, our rent collections remain exceptional. During the second quarter, we collected 97.3% of total rents, comprised of 99% of office rents, a 100% of studio rents and 48.7% of our retail rents. To date in July, we've collected 94.8% of total rent, comprised of 96.9% of office rents, a 100% of studio rents and 31.4% of retail rents. These percentages exclude rents contractually deferred or abated in accordance with COVID-19 lease amendments. If we were to include those amounts, as we have done in previous public disclosures, our second quarter collections would have been 94% for total rent, 96% for office, 93.8% for studio and 44% for retail. Our July collections would have been 93.4% of total rent, 96% for office, 89.5% for studio and 31% retail. During the second quarter, we granted deferrals equivalent to $4.2 million or 2.7% of total rents. Another approximately $4 million or 2.5% remains in discussion for either payment or deferral. We abated only $1.1 million or 0.7% of second quarter rents in connection with COVID-19 relief and another $200,000 or 0.1% due to a settlement in connection with a non-COVID-related litigation matter. Again, our strong collections are a reflection of our high-quality tenant base and even more so, the strength of our large tenants.

Our 50 largest tenants account for over 60% of our quarterly rents. three co-working tenants within our largest 50 tenants comprise 1/3 of all uncollected rents. We deferred rents for only one non-co-working tenant within our 50 largest. The remaining nearly 2/3 of uncollected rent was traceable to small tenants, including our storefront retail, the average size of which is approximately 6,800 square feet. It is precisely these tenants which were afforded relief under the very state and local rent collection moratoriums. Understandably, many of our store from retail tenants, which comprise only 2.8% of our total ABR are struggling. We recognize the value they provide to our office tenants and the surrounding community. Whenever possible, we're working closely to support them and find a solution to keep them in the space which increasingly involves some sort of percentage rent arrangement. There are, however, a handful of tenants where we'll agree to take back that space and repurpose it for backfill with another retail use or potentially even an office use

Regarding our studios, stage demand remains strong, with only three of our 35 stages available for lease, all of which are subject to active discussions with multiple major studios for commencements in the coming months. As for production activity, delays among content producers, the gilts and unions representing actors and crews in adopting COVID-19 protocols, mainly on frequency and methods of testing have pushed production commencements. We now expect production to phase in over the next month with essentially all stages in use by September. As we've discussed previously, trends bode well for an increase in stage demand and production activity in Q4 and into 2021. Returning shows are asking for additional space to dedensify cast and crew at any given time. Location shoots are being replaced with stage sets to increase protection for actors. Shows will go straight to series and forgo pilot testing and multi season shows will skip hiatus periods and shoot without interruption. Bottom line, production must resume as safely and as soon as possible. Content creators are now under significant pressure to refresh their pipelines at the risk of losing subscriber interest. As previously noted in May, we launched our tenant reintegration program, which we've developed in accordance with local government guidelines and in close coordination with our larger tenants and internal and external subject matter experts.

Our priority has been to create the safest and healthiest work environment possible. We're focused on proactive multichannel communication, enhanced safety focused cleaning and operating procedures and efficient building access. We're also asking tenants to do their part. And thus far, the program has been very well received. Questions generally center around air filtration and ventilation and options for enhanced cleaning of office suites, which we are well equipped to address. Indeed, tenants are slowly repopulating our buildings. Right now, physical occupancy stands around 5% to 10% in the United States and 15% to 20% in Canada. This is up 5% to 10% across the board over the last few weeks. Even so many large tech tenants, including most recently, our top tenant, Google, have announced extended but still temporary plans to work from home most until year-end. Some companies are staying flexible and modifying plans based on local conditions. For example, Amazon Seattle employees will work from home until year-end, but the Vancouver counterparts will return to the office this fall. Clearly, the situation remains fluid, and we're ready to pivot accordingly to support our tenants through these challenging times.

And now I'll turn the call over to Alex.

Alex Vouvalides -- Chief Operating Officer & Chief Investment Officer

Thanks, Mark. In the second quarter, stay-at-home guidelines along the West Coast continue to mute office leasing demand. The good news is that our markets began the pandemic on very strong footing. Vacancy at historic lows, rents at historic highs, limited and/or pre-lease supply and absorption muted only by constrained availability. Despite negative absorption and increased sublease supply across our markets in the second quarter, outside of the San Francisco CBD, rents were stable and vacancy ticked up only around 50 to 250 basis points. Tech, Media, Life Science, Health Care and government tenants drove demand. We remain vigilant regarding the impact of continued shutdowns and a potentially more protracted impact to the San Francisco CBD, given its density and greater reliance on public transit. In general, our portfolio is outperforming current trends, and we feel about as well positioned as any to weather the next six to 12 months. Our stabilized and in-service portfolios ended the quarter at 95.1% and 94% leased, respectively. Our second quarter leasing activity reflects both slow demand due to COVID and our portfolio's limited remaining 2020 expiration, just 3.6% of our office ABR.

We signed 107,000 square feet of leases in the quarter. About half were related to short-term 12-month or less extension at or around in-place rents, including some COVID-19 lease amendment. Deal terms for the remaining 50,000-or-so square feet of activity were in line with prior quarters, including an average mark-to-market of 17.7% on a GAAP basis and 21.4% on a cash basis. Although we've seen an uptick in activity and tours with the initial lifting of stay-at-home orders, tenants are still, for the most part, on the sideline. We have about 800,000 square feet of deals in our leasing pipeline that is deals in leases, LOIs or proposals. This is slightly less than reported in prior quarters, and again, in large part because of our limited expiration. Less than 10 deals representing approximately 75,000 square feet died due to COVID and only a portion of requirements in our pipeline, about 20% are officially on hold. The rest are just moving very slowly. Tenants regardless of size, are working to understand and balance near-term work from home and density requirements with longer-term space and growth needs. Note that of the 3.6% of our office ABR subject to expirations this year, just 0.6% is attributable to the San Francisco CBD. Our 2021 expirations represent 10.6% of our office ABR and San Francisco CBD expirations represent only 0.4%. Most of our exposure next year, about 8% of our office ABR is in the Peninsula and Valley.

Given stronger fundamentals and the low-rise recently modernized nature of our portfolio in those markets, we're optimistic tenant demand for a majority of our forthcoming availabilities will be resilient. Work continues unabated at our two construction projects. Carlo is substantially completed with only corn shell closeout work remaining. We expect full completion in Q3, and discussions are moving slowly with a handful of potential users to lease all or portion of the space. One West side is fully funded and pre-leased and on track for delivery in Q1 2022. One final note regarding our Blackstone Studio JV. We expect the transaction to close imminently. We also expect to close a $900 million mortgage loan secured by the portfolio. The nonrecourse loan will be interest-only with initial annual interest rate of LIBOR plus 2.15% and a 2-year term with three 1-year extension options. Harout will provide further details as to the use of proceeds from both the sale of our 49% interest and our share of asset level financing.

And with that, I'll turn the call over to Harout.

Harout Diramerian -- Chief Financial Officer

Thanks, Alex. In the second quarter, we generated FFO, excluding specified items, of $0.50 per diluted share compared to $0.48 per diluted share a year ago. Second quarter specified items in 2020 consisted of transaction-related expenses of $200,000 or $0 per diluted share with no specified items in 2019. the commencement of significant leases at Epic, fourth and traction and Foothill Research partially offset by the project and portions of Page mill center being taken offline for repositioning were primary drivers of this year-over-year increase. The second quarter 2020 FFO, excluding specified items, includes approximately $0.02 per diluted share of reserves against uncollected cash rents and approximately $0.01 per diluted share of charges to revenue related to the write-off of accrued straight-line rent receivables, some on all of which may be ultimately collected. Finally, second quarter 2020 FFO reflects approximately one separate diluted share decrease in parking revenue, some or all of which will resume with tenant reintegration. In the second quarter, NOI at our 39 same-store office properties decreased 5.2% on a GAAP basis and 3.7% on a cash basis. A onetime property tax recovery at Rincon center and 275 Brandon reduced operating expenses in the second quarter of 2019 by approximately $3.2 million.

Adjusted for this onetime amount, net operating income and cash, net operating income would have decreased 2.3% and 0.4%, respectively. The cash net operating income decrease also reflects that it does not include approximately $1.7 million of COVID-related contractually deferred rents and recoveries. Adjusted for the onetime property tax recovery and the COVID-related deferred rents and recoveries, cash net operating income would have increased 1.5%. Our same-store studio NOI decreased by 21.3% on a GAAP basis and 26.7% on a cash basis, largely due to a decrease in service and other revenue stemming from shelter-in-place measures, disrupting production activities and stage utilization. Note that revenue reclassifications in accordance with ASC 842 increased rental revenue with a corresponding decrease in service and other revenue in the second quarter of 2019. Adjusting for these reclassifications, second quarter 2020 rental revenue would have been modestly higher with a correspondingly higher decrease in service and other revenue compared to second quarter of 2019. We have $1.1 billion in liquidity, comprised of $45.1 million of cash and cash equivalents, $400 million of capacity on our unsecured revolver, $230 million of capacity on our revolver secured by Sunset Bronson, Icon On-Q and 380,800,000 capacity on our one Westside construction loan. Again, we have no maturities until 2022, except for our $65 million loan secured by MedPar North, which we intend to repay with our revolver.

Upon closing our JV with Blackstone, which Alex mentioned, we anticipate eminently, our total balance sheet and cash liquidity will increase significantly to about $1.6 billion. Following full repayment of our unsecured revolver and term loans B&D. Further, the transaction is expected to improve many of our credit metrics, including reductions in company share of net debt to market capitalization and adjusted annualized EBITDA to consolidated net debt. Needless to say, we have ample liquidity to manage our properties, complete our developed projects and ultimately pursue new opportunities as they We withdrew our previous 2020 earnings guidance on May five due to the uncertainty around business disruptions related to the COVID-19 pandemic. Given that these uncertainties persist, we have not reinstated earnings guidance for the balance of the year. We are, however, once again, providing the following details in lieu of formal guidance, we based this information on what we know today to help you assess our potential earnings results for the second half of 2020. We expect our rent relief program to have a minimal impact from a GAAP perspective. In terms of cash, we deferred approximately $4.2 million of second quarter cash rents across all segments, with another $4 million remaining in discussion for payment or deferral. Additional deferral may be appropriate over the coming months. During the duration of deferred rents will depend on various shelter-in-place measures and tenant reintegration plans across our portfolio. As Mark previously mentioned, we made in approximately $1.3 million of second quarter cash rents, most of which we expect to continue throughout the year. Parking income decreased approximately $2.25 million in the second quarter compared to last year.

As with the deferred cash rents, we expect the duration of the impact of this income to coincide with tenant integration time frames. With respect to our studios, notwithstanding the delay in occupancy on a handful of stages at Sunset Las Palmas previously mentioned by Mark, we anticipate approximately $400,000 more rental revenue in the second half of this year compared to the first half, most of which will occur in the fourth quarter. Similarly, due to temporary shutdown and production activity at our studios, we anticipate an approximate $1 million to $2 million decrease sorry, $1 million to $2 million increase in second half studio NOI stemming from service and other revenues less expenses compared to the first half, most of which will occur in the fourth quarter. While our leasing pipeline remains healthy, we currently estimate that the slowdown in leasing activity could result in a 3% to 4% decline in consolidated second half NOI compared to second quarter run rate, exclusive of parking and other impacts already mentioned. Again, depending on the duration of shelter-in-place measures and tenant remigration plans. Please be aware, that all estimates are provided based on the assumption that the Blackstone studio joint venture will be treated as a consolidated for accounting purposes. As a result, Blackstone's share of operating results and associate financing related to the asset held in the new joint venture will be reflected as an increase to FFO attributable to noncontrolling interest.

And now I'll turn the call back to Victor.

Victor J. Coleman -- Chairman and Chief Executive Officer

Thanks, Harout, Alex and Mark. I know our remarks have been extremely lengthy today, but I want to take a final moment to once again recognize our incredible Hudson Pacific team. Their health and well-being remain of paramount importance. And we're taking every possible precaution to create a safe and comfortable environment as our employees return to work. I'm so proud that in the face of adversity and in some cases, personal stripe, they have risen occasion and to each and every challenge in space and their willingness to go above and beyond and to bring their A game to task both big and small, to pivot quickly in dynamic and evolving situations and work together even when physically apart. It's all a testament to what an amazing company we've all built. It's an RM part of this group, and I applaud, and want to thank each and every one of them. And to everyone listening, I appreciate your continued support. Please stay healthy and safe. We look forward to updating you next quarter.

With that, operator, let's open the line up for any questions.

Questions and Answers:

Operator

[Operator Instructions] Ladies and gentlemen, our first question comes from the line of Nick Yulico with Scotiabank. Please proceed with your question.

Nick Yulico -- Scotiabank -- Analyst

Thanks. Hi, everyone. I just want to ask about the second half of this year NOI impact. I think you said about a 3% to 4% decline versus second quarter or first half of the year. Can you just tell us what the assumptions are behind that? I mean, are you just not assuming much in the way of any sort of new leasing or new commencements that will be able to backfill vacancy or expirations?

Victor J. Coleman -- Chairman and Chief Executive Officer

Not exactly. It's more of a deferral or delay in leasing as tenants haven't been able to make up their minds in terms of space planning. So that's the reason for the push. So it's just delayed, not reduced.

Nick Yulico -- Scotiabank -- Analyst

Okay. And in terms of the deferrals, I just want to be clear, it sounds like you guys are including that as a negative impact when you're talking about cash NOI or same-store cash NOI?

Victor J. Coleman -- Chairman and Chief Executive Officer

Or do you mean the projections?

Nick Yulico -- Scotiabank -- Analyst

For both. I mean, for both. I mean, you're talking about the deferrals being an actual loss piece of cash NOI?

Victor J. Coleman -- Chairman and Chief Executive Officer

That's correct, right. So when we defer the income, that means we did not receive the cash NOI. So our cash NOI results reflect a lower number as a result of the deferrals. So we also provide had we included the deferrals as if we collected them and the onetime property tax adjustment for prior year would be up 1.5%.

Nick Yulico -- Scotiabank -- Analyst

Okay. I just want to be clear on that because I know companies are taking a different approach to this, and it sounds like you guys are on the more conservative end. Just my last question is, maybe you could talk a little bit more about the different type of demand in your markets. And I just want to hear a little bit more as well about San Francisco versus the Valley, it sounds like you guys are a little bit more worried about leasing in San Francisco because of it being a city reliant on mass transportation versus the valley, which is more of a drivable mark. And I guess I'm just wondering, is this something that is just popping into your head as a realistic theory? Or are you actually hearing this type of dialogue coming from prospective tenants looking at San Francisco versus Valley?

Victor J. Coleman -- Chairman and Chief Executive Officer

Sure. Nick, I'll start, and then I'll have Harout jump in. So this is not something that's coming or ahead. Listen, I think at the end of the day, right now, the leases that we're looking at that are large leases are actually in the city. We're negotiating a couple of deals right now that are fairly large deals that look like we'll get them across the finish line in the next month or so. And so we're seeing activity there. I think the inter form thought is that we're just seeing a little bit more of our pipeline that's in the Valley right now because that's where the available space is. We don't have a lot of space available in the city. And so we're not seeing that there's a trend going away from San Francisco or not going.

Harout Diramerian -- Chief Financial Officer

That's exactly right. We don't have the vacancy in the city, the deal that Victor referenced, the deals Victor referenced are in leases right now have been going on for some time, and there's been no discussion about any trepidation about your concerns. And we're certainly not hearing it even with the smaller tenants for the vacancy in San Francisco.

Nick Yulico -- Scotiabank -- Analyst

Okay. Thanks everyone.

Victor J. Coleman -- Chairman and Chief Executive Officer

Thanks, Nick.

Operator

Thank you. Our next question comes from the line of Craig Mailman with KeyBanc Capital Markets. Please proceed with your question.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Hey, guys. Maybe sticking on the rental environment to some extent. Pre-COVID, the mark-to-market seemed north of 20% in the portfolio. Just kind of curious, if you look at the remaining 2020 expirations, which are pretty minimal in 2021. How you guys are viewing that mark-to-market maybe with whatever assumptions you guys have on market rents going forward?

Harout Diramerian -- Chief Financial Officer

It's Harout. Yes. So I think they're going to be very similar. I mean, a lot of the mark-to-markets you saw on vacancy, some of those deals, it just happened that they were very close to market. But the deals that we have in our pipeline that we are continuing to get through, that is to say, in LOI leases. There have been no erosion on rents and those they're exactly the rents that we've targeted for those spaces.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Okay. And Harout, with the deals you guys have in the pipeline, I mean are tenants pushing back or trying to retrade potentially on rents or pushing for increased concessions? Kind of what's the conversation to a tenant has been like?

Harout Diramerian -- Chief Financial Officer

Yes. So the deals that we have in the pipeline that will continue to move forward, that is to say, we've got about 125,000 feet in leases on top of the deals we signed this quarter. There's been no erosion in rent. These are deals that need to get done. I suspect they've been trying to push it through the decision. They're not economic decisions, they're space utilization decisions. And so we haven't seen that so far and certainly not an uptick in tenant improvements on those same deals.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Okay. And then just moving to the investment landscape. You guys have ample capital here post the Blackstone deal. Just kind of curious if you could give a little bit of color on how much of this could be potential studio expansions versus office? And then maybe just the most recent update on the West side? And then lastly sorry for a three-part question, but just how you think about deploying capital, even though you raised it at pretty attractive yields here, but deploying it when the stock is trading where it is today? And kind of how you view that trade-off?

Victor J. Coleman -- Chairman and Chief Executive Officer

Yes. So I'll jump in here first, Craig. So we first of all, the Blackstone transaction, we've talked about the deployment of capital. Yes, we have ample liquidity. We really will look at it on a multiple of areas. Clearly, the first area that we've talked about, and we're seeing some very good traction on is deploying that capital to enhance that business with Blackstone and grow that platform. And with the announcement of the deal and some of the relationships we've had in the past, we're seeing a nice flow of product that should help us accomplish that goal. We mentioned before on the capital deployment, our position has been if we can get and we are evaluating some better yielding positions of pieces of paper on the meta side. That's something that we would be attractively looking to deploy capital on either a loan to own or some sort of a hybrid med piece. And Alex and his team has seen and starting to see more of those deals come to market as we feel in the third and fourth quarter, that would be the case. Not dissimilar to what I've said in the past at various levels where the stock is trading and our best performance at whatever the cap rate is trading at today, we will also entertain buying back stock as we always have, and it's not mutually exclusive to that aspect. So we are in a very engule position to be able to use that capital, we think we'll be able to deploy it efficiently. And when we do, you guys will be the first to know.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Got you. And just kind of update on one West side.

Victor J. Coleman -- Chairman and Chief Executive Officer

Oh, yes. Sorry, it was a 5-part question, not a four-part question. one West side, we are completing the throes of it. There's been no change in terms of the construction pipeline or interest level of Google. For the most part, the design that we had put in place with and with Google, has held up to a post-COVID world lots of outdoor space, as you know, when we showed it, lots of accessibility for walkways and safety and security. And that is now starting to shape up for us to look at that asset. And in terms of time line, I literally think we're a week or two behind. So it's literally nothing. We've lost, we've been building all the way through this process. Alex actually just toured yesterday, you want to jump in on that at all?

Alex Vouvalides -- Chief Operating Officer & Chief Investment Officer

Yes. Just further what Victor said, we've been successful keeping the project on track during this current environment. It's looking great. It's progressing, and we're super excited to keep the project going and to deliver to Google. As Victor mentioned, the bones of the project, pre-COVID really positions it strong for what we think the world is going to look like coming out of this. Low-rise building, lots of indoor/outdoor space, natural air light it's going to be a fantastic project that we're super proud of.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

And that's helpful. But I guess what I was getting at is just talks with masic about buying their remaining interest. Any update on that kind of process?

Victor J. Coleman -- Chairman and Chief Executive Officer

Listen, we've talked about this before. So this is this deal has got a lockout period. And so we would have to agree on this transaction. It's at our option at the end of the day. The intent is basically to own 100% of this asset. That's always been clear and given where they sit today and their capital needs, they know where we sit. So we've had open conversations and dialogues. And I think there will be an appropriate time where we will sit and make a transaction, but it's not imminent.

Alexander Goldfarb -- Piper Sandler -- Analyst

Mark or Harout, just if we could just go back, I think, to Nick's question on the impact in the back half, just so we're clear, maybe I need to be clear. If we start with the second quarter as a base and then add back the write-offs, so add back the $4 million, then the changes that we would make to the quarterly run rate for the back half, it sounds like are just the potential for an additional $4 million of write-off and then the uptick in the fourth quarter at the studios, I think, you mentioned basically $1 million to $2 million of 1-part of income from the studios, another $400,000 uptick from the studios. And I'm not sure if that's only in the fourth quarter or if that then flows into next year? But so I just want to make sure I have those pieces correct as we think about how the back half of this year should be?

Mark Lammas -- President

Yes. I mean, I think maybe the easiest most direct weight piece together those component parts is really look at third quarter I mean sorry, three-month actuals for second quarter, start with your office rental. We've already dealt with the service and other revenue through the commentary around the parking and other revenue. So ignore the service and other revenue line item. So just start with office rental, back of office operating expenses, right, because those then they're both on a GAAP basis. And then the commentary is the adjustment is that $3.5 million that $3 million to $4 million or a midpoint of $3.5 million on decline in the second half relative to that amount, right? Because that's your second quarter run rate, right? The rental left the expense. And then you back off that number, say, $3.5 million in the back half.

Alexander Goldfarb -- Piper Sandler -- Analyst

And that $1.5 million is a quarterly rate, right, Mark, not in totality for the back half?

Mark Lammas -- President

In totality? Yes.

Alexander Goldfarb -- Piper Sandler -- Analyst

It's a total number, not quarterly?

Mark Lammas -- President

As if you had annualized in effect that second quarter. Okay. And then we've given you the studio piece separately, and we've given you the parking piece separately. Another way to think about the parking piece is just take your service and other revenue and run it through. In other words, just to keep it level at second quarter levels.

Harout Diramerian -- Chief Financial Officer

For at least Q3. And then assuming that all these at home measures get lifted after Q3, then it will be back up to what we normally have presented.

Mark Lammas -- President

Yes. So a conservative view would be to keep it flat is that there was no pickup on parking revenue relative to second quarter. A somewhat less conservative view would be maybe to start showing some increase in that revenue on the theory that park as tenants reintegrate and transient parking resumes that maybe we do better on parking.

Harout Diramerian -- Chief Financial Officer

And then I think one more comment on the studio in terms of what to look for outside of 2020. And I think Mark had mentioned, we expect as the studio filming has been delayed as a result of the sale measures again, we expect Q4 to be stronger, and that will roll into 2021 because they'll need more time to fill.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay. The $400,000 and the $1 million to $2 million, that's in aggregate. So basically, studios in the fourth quarter are looking to be up $1.5 million to basically $2.5 million, is that correct?

Mark Lammas -- President

Yes. That's a good way to look at it, right. The third quarter is may be a tick higher than second quarter because we're going to see we think some production activity phasing in starting in August and then maybe more fully we should be basically in full production in September. So you're going to see some of that pick up within the third quarter, but the majority of it will hit in the fourth.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay. And then the second question is, maybe I missed comments on Maxwell, but can you just update us on Maxwell WeWork and what's going on there?

Victor J. Coleman -- Chairman and Chief Executive Officer

Yes. Sure. I mean, listen, this is we had discussed this on our last quarterly call. WeWork is paying rent in all of their locations with the exception of Maxwell We were negotiating a deal. We signed that deal with them, and it's going to be more of a percentage rent transaction. It also will enable us the deal has enabled us for us to take over the asset with some notification period, we're now evaluating some of the other tenant uses and interest level down there. And so we the numbers that the guys have quoted has been based on a percentage rent. It's the only deal that we have with any of our co-working entities. And that looks like it will be a wait and see based on the interest level. And we clearly have interest level of some of the existing enterprise tenants and new tenants in that marketplace that want to expand into it.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay. Thank you, Victor.

Victor J. Coleman -- Chairman and Chief Executive Officer

Thanks.

Operator

Thank you. Our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.

Victor J. Coleman -- Chairman and Chief Executive Officer

I believe it's Blaine.

Blaine Heck -- Wells Fargo -- Analyst

You got it, Victory. correction. So just following up on the Blackstone JV. Victor, you just talked a little bit about deployment. But I guess, just out of curiosity, are there any targeted studio assets that maybe you've been looking at that wouldn't have wanted to do just on your own balance sheet, but will within the JV structure? And if so, any geographical or other color you can give us would be helpful.

Victor J. Coleman -- Chairman and Chief Executive Officer

So the answer is yes. And clearly, I don't want to go into the details of the ones that we're looking at. But we are in the process right now of evaluating several. Some we would have done on our own and still would have done our own. And others, it makes it a lot more compatible for us our venture with Blackstone. Blackstone gets this business. They've got it for a long time. We've been talking about this transaction with them for several years. And obviously, Blaine, you know covering us for such a long time. You understand this business. Clearly, the content play is a play that is on the forefront of a lot of people, even some of our peers are looking to buy-and-build in that area as well. And so it shows the validity of that business. I think we're going to have some really good attractive transactions on the horizon that's going to add to the value of this portfolio.

Blaine Heck -- Wells Fargo -- Analyst

Got it. Okay. That's helpful. And then can you update us on the ferry building? It obviously has a large retail component, and there was a good amount of media coverage on whether it's open or closed? And how to characterize that space? Just can you give us an update there on current operations and then future plans for that space, especially given the new social distancing norms?

Victor J. Coleman -- Chairman and Chief Executive Officer

Yes. Well, let me sort of make a couple of comments about the ferry building. First of all, yes, there's a lot of retail space there. It's approximately 75,000, 80,000 square feet of the totality of the asset. The asset also, as we've always pointed out, even though on the forefront, it looks like it's a retail asset. It has 200,000-plus square feet of office which is fully occupied at great rents and a great tenant mix, which supports the building in terms of its current cash flow levels. We had announced, in conjunction with our partner at Allianz that we were going to revisit the entire retail component, including the indoor/outdoor attributes, which we are currently in the middle of design as well as the NAV, which is the interior aspects. This has enabled us fortunate incident enable us to expect that process to evaluate the architectural design in plans around it.

And yes, we've had some interesting press around the ferry billing as of late, one being selito filing bankruptcy, which is a prime corner and an area that I think we as a partnership with Allianz as an operating partner, are very happy to have the ability to get that back. And higher and better use with better rents. Clearly would be the aspect there. The other aspect of the variability is we just got allocated the ability for the ferry building to reopen during this time frame because it's considered a transportation hub and a flow-through with the ferry terminal. And so we are just getting it up and running while we're in a shelter-from-home retail aspects there. So I think you're going to see a pickup as well with the tendency there in the third and fourth quarter, if things sort of stay constant and don't move. So I'm optimistic there's a lot of good things going to happen in the ferry building in the near future.

Blaine Heck -- Wells Fargo -- Analyst

Thanks. Victor.

Victor J. Coleman -- Chairman and Chief Executive Officer

Thanks, Blaine.

Operator

Ladies and gentlemen, our next question comes from the line of Manny Korchman with Citi. Please proceed with your question.

Manny Korchman -- Citi -- Analyst

Hi, everyone. Mark and Harout, I appreciate all the details you gave earlier in the call on sort of what the rest of the year looks like. Given that level of detail, what's preventing you from throwing out a guidance or a published view of where the year is going to be? Are there other aspects that we're sort of not thinking about are not covering it? And maybe those are either external growth or buybacks or something that we haven't spoken about.

Mark Lammas -- President

Yes. Look, I think we're close here. I think we would agree that we've given you all of the main moving parts. But look, to dial in at a real level of precision, one would want to know things like how soon our parking and other revenues going to resume to a level of normalcy. You'd want to have a pretty good handle on how well we do on the collections. It's starting to occur. That is to say, tenants that were given deferrals in the second quarter, where there's amortization of that deferral into over the remaining terms of leases starting to occur, you want to have some confidence around success on the collections. And then and there's another big looming item, which I'll touch on. But we also have $4 million in second quarter rents and counting where we still haven't cut a deal yet with tenants. It's mostly on the retail side where we're seeing struggle, and we don't know the fate of that $4 million. And so there's still a considerable amount of moving parts that would be a challenge to pin down in terms of guidance for the balance half of the year.

I would also add we're imminently closing the JV with Blackstone we know what the initial debt pricing on that is but we don't ultimately know the final pricing because they're intending to securitize it. And there's some latitude on final pricing in connection with the securitization. So we don't know what the interest expense there is. And then we have an opportunity, which, if it comes to pass, we'll give further information around, but we won't know probably for the next 10-or-so days to potentially buy some piece of debt there. And so there's just enough moving parts on the horizon here that it's not we don't think it's the appropriate time to provide specific guidance.

Harout Diramerian -- Chief Financial Officer

And let me just add to that. While we provided guidance mostly on GAAP related matters, there's a huge amount of uncertainty in terms of the cash, right, just because we've the deal that we do deferred rent transactions on, from a GAAP perspective, have very limited, if any, impact. But when we provide full guidance by cash NOI, among many other things, and that is just really challenging to predict.

Manny Korchman -- Citi -- Analyst

Right. And Victor, maybe to follow-up on another earlier question. Those studio deals that you now think you can do with Blackstone as a larger entity, and those may have been deals that were too big for you to swallow. Would those have been deals that Blackstone could have potentially done on their own? And so by forming this, you've just sort of taking out the competition or sort just made yourself the logical buyer in all cases?

Victor J. Coleman -- Chairman and Chief Executive Officer

No. I mean, Blackstone was ever intend buying studios without an operating partner. It's an operating business, Manny. You know that. This is much more beyond just probing an asset and putting a player in place. I mean this is a relationship business that is a full opco with show runners and relationships with all the studios that are going to be in place in every single studio that we're looking at, has nothing to do with that. And it has nothing to do with the fact that these were assets that were too large for us. Their timing on what we were looking at with this transaction with a partner that saw value in a portfolio that, candidly, The Street has not seen value added, and that was the bottom line. And so we've proved out where we were being priced at an 8-cap valuation at a much more attractive cap rate with a partner, and then we'll take those proceeds. And I think the combined entity is much better going forward than what was the perceived entity in place.

Manny Korchman -- Citi -- Analyst

Great, thanks guys.

Victor J. Coleman -- Chairman and Chief Executive Officer

Thanks, Manny.

Operator

Our next question comes from the line of Vikram Malhotra with Morgan Stanley. Please proceed with your question.

Vikram Malhotra -- Morgan Stanley -- Analyst

Thanks for taking the question. Just maybe if you can give us some thoughts around just San Francisco specifically and your views on the kind of rent trajectory given where we've seen sub lease rates go. I know you talked about the leasing spreads remaining healthy in the near term. But can you give us sort of a sense, how do you see this evolving, assuming the sublease rates remain? Kind of what if you can compare and contrast with maybe what you saw what we saw last cycle, what's different? And where do you think the puts and takes are?

Mark Lammas -- President

So Victor, I'll jump in on this and then Harout will add as well. So listen, in the city right now, as we said, in terms of our portfolio, we don't have a lot of expirations, but we do have a fairly big piece of sublease space that was put in the market last fall, which is Uber's space, and I believe we've got four years or maybe four to five years left on our lease term. So any tenant is going to look at that is going to come to us because they're going to want to have some form of extension on that. Clearly, the sublease has been on the forefront of San Francisco in terms of the amount of space that has come or is projected to come on the market. In terms of cycles between the last cycle and this cycle, this is clearly a much different characterization of tenant mix size of the tenants in the marketplace and the desirability to be in the city versus because of the lack of space. We've seen an increase in vacancy in San Francisco that's almost doubled from where it was two quarters ago to where it is today.

I mean, I think it was around 6%, and it's close to 11% right now. And so you can clearly see that, that's going to have some downward pressure on rate and negotiability for the sublease space. The key to the sublease space though, Vikram, is who is the master tenant. As a landlord, that's who we're looking to. Credit of the tenants that are in place and their obligation to us as a landlord. We're we have not changed our tune pre-COVID to post-COVID. It would take an exceptional amount of negotiation and quality of tenant for us to let the existing tenant off the hook from the obligation both of the lease term and the security for us to make the determination that we wanted to go with the subtenant. So I think this game is to be played out. The good news is, if there is some silver lying in this process is there's very little new construction in the city or new product coming out in the city that's already not pre-leased and ready to go. And so we think it's going to be an interesting time. And hopefully, we'll see the outcome be a positive one in the process. Harout?

Harout Diramerian -- Chief Financial Officer

Yes. I mean, if I could say that we're positioned pretty well right now with no vacancy, very little vacancy in the city. If you look at next year, I think our expirations are less than 1% of ABR, well less than 1% of ABR. And so we feel pretty good about that. Your comment about the last cycle is having been through a few cycles myself, what we didn't see was there was demand. There's still demand out there. There's a wait-and-see approach on the demand. Maybe it was six million feet, and it's about 3.5 million feet still looking but moving at glacial speed before there was no demand, right? And so some of these tenants who are out there are still trying to make a decision on space utilization are waiting to see what's going to happen next. And so I feel good about reengaging with those tenants that are out there in not just San Francisco business but in all the markets.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay. That's fair. And then this quarter, there was a writedown that you took for a non-real estate investment in the technology fund. You had given some color in the last quarter's skew on an investment you had made. Can you give us some color what was that, kind of what led to the write down?

Harout Diramerian -- Chief Financial Officer

So for accounting purposes, we're required to effectively mark-to-market our investments as information comes available. So we get regular statements from the fund, and we adjust our valuation as a result of that. So it's just current valuation on the underlying investments, and which can move up or down in the future as things progress.

Vikram Malhotra -- Morgan Stanley -- Analyst

But is this I mean, there was a it was pretty public that there were lots of investors, I think, in fifth wall, is this that investment?

Harout Diramerian -- Chief Financial Officer

No. There's a small portion related to that, but there is the other portion that's driving this is our investments in Zouk, autonomous car manufacturer that used to be a tenant. They recently were purchased and that mark-to-market valuation brought it down. Now historically, there was a valuation that brought it up. So our underlying investment wasn't didn't deteriorate. It's just we had marked it up based upon other metrics in the past. And then when the transaction occurred, we had to mark it down to reflect that transaction.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay. And then just lastly, I wanted to clarify. You mentioned that you've obviously taken you've written down some straight line rents, and you've taken some reserves. But you said there might be a need sort of going forward to reassess, and there may be kind of more reserves. Can you sort of just give us a little bit more color on first of all, the and I ask this because I think there was also a comment that there are different companies using different strategies. Some companies have said if we had challenges, we're just going to kind of remove or writedown straight-line rents and go on a cash basis. Others have decided x percent needs that treatment. Can you give us a little bit more color on how you're thinking about that?

Harout Diramerian -- Chief Financial Officer

Sure. So our philosophy is, if we've cut a deal with them, and we are and they're keeping to that deal, we're not going to writedown the straight-line rent or go to cash only because we have something in place. However, if we don't have a deal with a tenant, and these are all I mean, 90% of them are retail. If we don't have a deal with a tenant or they're not able to meet the agreements that we have, put together, then we will reserve or writedown the straight-line rent for those items because there's a lot of uncertainty and effectively push them to cash basis.

Mark Lammas -- President

Yes, on the cash rent. I would add, there's really little noise between the amount we've taken in reserve and the amounts that we've cut deals on. That is to say, we collected roughly 40% of retail rents in the second quarter. And if you look at the roughly 60% uncollected, what you'd see is only a small fraction of the of those amounts are even subject to contracts right now. Because most of our of the uncollected retail tenants are looking for some form of relief. They haven't just committed to, say, two months of deferral, they're looking to go to a percentage rent deal or so forth. And so you wouldn't see that much difference in the number either way. I would add, too, just so we don't lose perspective on it, we're talking about 2.8% of our ABR and if you look through that, 60% uncollected, we're talking about a really insignificant difference in the amount that we reserved for based on what is under contract versus what's not under contract. It's still almost insignificant.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay. And then just last one, if I may. The WeWork the specific WeWork restructuring in the Maxwell building is that I'm just trying to understand like, is that just a very unique situation? The reason I ask is we've now seen different landlords address this in different ways. Some are some have said there might be a need for WeWork to give back space. In other cases, we've heard WeWork is asking for 10% kind of abatement going forward. And then there was this unique deal that you've talked about. Just your perspective on co-working and how that how the arrangements are changing?

Harout Diramerian -- Chief Financial Officer

So Vik, this is a specific deal we did directly with Sandeep. He has reached out very early on in this process. It just took us a long time to execute it. On the premise of we look at each of our assets with them and the quality of the tenancy and the occupancy levels in their desire to be there. This is the one that sort of stood out that he had not least as much. They just got the space from us completed in the first quarter of this year, and only had signed a portion of it to and an enterprise tenant. And so that enterprise tenant is occupying and paying them. And so we just looked at this as an opportunity for us to either keep that space with them and see where the world goes or turn around and take that space back at a later date and transact on our own

In terms of your latter part of your question, we think there is an opportunity whether it's WeWork or Regis or anybody else for that matter, on co-working because, I think, the validity of co-working in a post code world could have a lot of interested smaller tenants taking small space and it's secluding themselves on a variable basis and have the optionality of moving into their own space down the road. So it's a good stop gap. And how long it lasts. And to the extent by which there is interest level, we still think that there's an opportunity here and a good opportunity for them to be part of it.

Vikram Malhotra -- Morgan Stanley -- Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Dave Rogers with Baird. Please proceed with your question.

Dave Rogers -- Baird -- Analyst

I just have one left, and maybe I'll start with Harout and Victor. And Harout, you could jump in on some of but with the VSP program, just kind of wondered about your experience now with collections as you move into August. The demand negotiations with any of those tenants? And I guess, are you inclined to do more of this given kind of the comments that you just made around WeWork and just co-working in general? Just kind of your thoughts on that part of the business? And how it's performed?

Harout Diramerian -- Chief Financial Officer

Sure. It's Harout. The VSP is cheaply, it's a lot of the smaller spaces that are kind of ready to go. We've always built them out less densified that's the word. Let's densify and allow tenants to create the environment that they need. And so we're on track with deals that we have right now in the VSP program. During this period, we've been able to deploy our resources to build out more in this fashion. And I think that, that's going to be part of kind of the increase in leasing velocity going forward is having the inventory in the proper markets ready to go. So yes, it's going to be a big part of our successes going forward as it has been, with some space modification.

Dave Rogers -- Baird -- Analyst

What's your total exposure to that VSP that you might consider to be in the VSP program? And what's the availability do you sit here today? Or what do you how much you build out?

Harout Diramerian -- Chief Financial Officer

So I think deployed ready to go right now. We've got about 100 probably about 120,000 square feet. Again, these are smaller tenants for smaller tenants. We've got in the works. We've got probably another 75,000 square feet in some process of development.

Dave Rogers -- Baird -- Analyst

Okay, great. Thank you.

Operator

Our next question comes from the line of Arthur Okusanya [Phonetic] with Mizuho. Please proceed with your question.

Arthur Okusanya -- Mizuho Bank -- Analyst

Hi. Yes, good afternoon. The short-term leases that were signed, could you just talk a little bit about what the terms of the leases are? Just trying to get a better sense of the flexibility around those things, either become long-term leases later on? Maybe opportunities for you if you find a better tenant and you can kind of move a tenant in there? I'm just kind of curious what kind of flexibility and puts and takes around the short-term.

Victor J. Coleman -- Chairman and Chief Executive Officer

Well, I wouldn't the ones we called out so that we could give you a clear understanding of what the true underlying mark-to-market is a 54,000 square feet of short-term extensions. I wouldn't look at those as if they were in connection with sort of just a desire to extend them for 12 months or less. That was in connection with rent relief programs that we were granting to a tenant that had a shorter term remaining on the lease. So tenant comes to us, want two months of deferral. We are willing to give them two months of deferral, but we want, say, turn beyond the period that they would that the bullet payment would arise or give them a little bit more turn so that they have time to amortize in the deferred rents. And so this wasn't like arm's length arrangement where a tenant came to us for a short term extension. This was hand-in-hand with an underlying rent granting of some form of rent relief.

Arthur Okusanya -- Mizuho Bank -- Analyst

Got you. Okay. And then Harout, some commentary was made there that the process of trying to lease it up is moving along, but the word slowly was used. I'm just kind of curious the use of the word slowly as you kind of shifted to this multi-tenant strategy? Again, how confident are you feeling that you get lease-up there by opening or a little bit after opening?

Victor J. Coleman -- Chairman and Chief Executive Officer

Well, clearly, given the fact that tours are not at face-to-face. They're virtual. It is slowed, by definition, the process of the amount of people that actually can see the space. It has enabled us to finish it, which we will be finishing it shortly. It's almost complete. I guess, is by end of September, it should be rate be seen. And hopefully, when the when we see the lifting and people starting to come back, we'll see a lot more tours. But that's the definition of slowing. I mean, we just we're just not getting the physical tours right now for a full office building like that.

Operator

Sir. Thank you. Ladies and gentlemen, our next question comes from the line of Richard Anderson SMBC. Please proceed with your question.

Richard Anderson -- SMBC -- Analyst

Thanks, good afternoon. Sorry if I going. We had a whole star one trouble for some reason. So just two questions. First for Harout, when you talk went through the sort of the guidepost for the rest of this year, you talked about the JV, and it's going to be consolidated. So is it sort of a simple, take 49% of the FFO previously somehow? And has that minority interest fee DUCs, is that how we should think about it?

Harout Diramerian -- Chief Financial Officer

Partially, that would be true for the assets unlevered, but then you have to factor in the leverage of the $900 million and allocate 49% of that debt to effectively offset that reduction of FFO.

Richard Anderson -- SMBC -- Analyst

Okay. Okay. I'll try to miss around out that. And then a quarter question perhaps for Victoria, just kidding, Victor. The densification of the studio, somebody mentioned along the way as sort of content starts to ramp back up. I'm wondering if the de densification of the studio and need more or spread within the studios for health reasons and all that, if that can be extrapolated to how the office business generally would behave in the aftermath of all this? Do you see this gosh, actually being resulting in an increase in office demand because of social distancing within the four walls of those assets?

Victor J. Coleman -- Chairman and Chief Executive Officer

Well, I think, listen, we've talked about that. And Rich, and I think that's exactly what us and other landlords are finding right now with the with companies during doing layoffs and furloughs at the end of the day, we're finding that they're not asking for less space. They're actually keeping the existing space with less people. And so that's exactly the case that's happening in the studio business. What we're finding is that they're allocating more space for the same amount of people that they're going to be working there.

And we're feeling that in the deals that we're negotiating right now that we're in leases. And as I mentioned earlier in the call, there's a couple of them in San Francisco right now that are larger tenants, square footage wise. The amount of square footage has stayed the same, and they're going to put less people in that space. I think that's going to be a trend going forward. And then who knows what happens if people start hiring, again in 2021 or beyond and what they're going to do about that. But I think it's going to be a combination of existing space or more space, and then flexible hours to gain people not coming in at the same time or sharing space in a different form of function than we've seen in the past. So this is a wait and see.

Richard Anderson -- SMBC -- Analyst

And I think just taking one step further, maybe maintenance CapEx starts to trend down because you're not jamming so many people in there, it's not as much of a house party. I mean I'm kind of riffing on this, but it seems like there's perhaps another side of this argument is

Victor J. Coleman -- Chairman and Chief Executive Officer

Well, I definitely think that will fall into play. But I do think be cautious on the maintenance side, when it comes to date orders in and out of office buildings, you're going to have a lot more cleaning done on a regular during the day than you just had you would have of the night. So that could offset it.

Richard Anderson -- SMBC -- Analyst

Yeah. Okay, great. All right, thanks, that's all I have.

Victor J. Coleman -- Chairman and Chief Executive Officer

Thanks, Rich.

Operator

Thank you. Ladies and gentlemen, at this time, there are no other questions, I would like to turn Victor Coleman for closing comments.

Victor J. Coleman -- Chairman and Chief Executive Officer

Yes. I apologize that we've gone over by our allotted time, but I think there was a lot of information. I appreciate the support for Hudson, and we look forward to speaking on our next quarterly call, and we hope everybody is safe. Thanks so much.

Operator

[Operator Closing Remarks]

Duration: 72 minutes

Call participants:

Laura Campbell -- Senior Vice President of Investor Relations and Marketing

Victor J. Coleman -- Chairman and Chief Executive Officer

Mark Lammas -- President

Alex Vouvalides -- Chief Operating Officer & Chief Investment Officer

Harout Diramerian -- Chief Financial Officer

Nick Yulico -- Scotiabank -- Analyst

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Alexander Goldfarb -- Piper Sandler -- Analyst

Blaine Heck -- Wells Fargo -- Analyst

Manny Korchman -- Citi -- Analyst

Vikram Malhotra -- Morgan Stanley -- Analyst

Dave Rogers -- Baird -- Analyst

Arthur Okusanya -- Mizuho Bank -- Analyst

Richard Anderson -- SMBC -- Analyst

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