Pre-call prep on Coyote Studios merger structure & cost savings

they probably are just running it all through. But what we could do is take the actual labor piece of managing the stages, stage manager piece, and bundle that into an MSA. It's one less cost that they have to incur in. It turns them into effectively just pure real estate holders. Right. I don't know.

I don't understand stages or no stages, but like, something that I missed on the call that Claude pointed out to me was they said the train of question or the train of thought was, um, this is basically what Victor said. I think what happens next is actually evaluating all the way through, which depending on the capital structure in the markets, you know, we look, the board always looks for alternatives for the highest value of the company. In the last few years, those alternatives have not been on the table. Those alternatives are now on the table, or are on the table now, and the reverse inquiries have been coming our way in a much more feverish pitch. And so we'll evaluate it at the time. I'm confident that we are going to execute on all of our platforms. And as you've seen in the past, literally in the past 90 days, we haven't made an announcement on anything, and yet our stock has been affected dramatically.

What does that mean?

I don't know what that means. Retaining certain assets. Is that— I wonder if I can listen to that part of the call.

Well, I mean, some of those stages are booked through the end of the year.

Ladies and gentlemen, thank you.

And they are booked. So on the—

can you hear this? Yodi, wind down as you described it. How does that happen? I mean, you're allowing leases to expire, unrenewed, or like what? Could you provide any color on what that might look like? And what might be left behind, you know, as we fast forward to this time next year in the COTI platform?

So, Rich, listen, obviously, you know, I can't discuss our game plan on an open call like this, right? Because we have fiduciary obligations and we have— it's going to show very—

that you made that you're not hoping for recovery, you're seeing it. If that continues and, you know, let's say everything goes according to plan in 2026, What does HPP look like this time next?

87% of the portfolio is our core office business, and it's going even greater when it comes to the revenue stream. So the banter and conversation around the studio business, if it's, it's less than 15% of the company, and that will be even less a year from now. As a company, you'll, you'll see we're going to be, you know, a best-in-class office REIT, which is what we've always strived to be.

I appreciate those, those thoughts and thinking bigger picture, Victor. I guess what has us a little concerned is, you know, if you execute as expected, but for whatever reason, whether it's AI fears or whether it's broader economic slowdown, whatever it might be, the market doesn't recognize the progress and you don't get a cost of capital that you think is appropriate. What do you do then? Like if you achieve everything you're set out to, and you don't get recognized for it, what happens next?

Well, I think what happens next is exactly what we've been evaluating all the way through, which is depending on the capital structure and the markets, you know, we will look— the board always looks for alternatives for the, for the highest value of the company. And in the last few years, those alternatives have not been on the table. Those alternatives are on the table now. And the reverse inquiries have been coming our way in a much more feverish pace.

So we'll evaluate at the time.

I'm confident that we're going to execute on all forms of our platform.

And that, that comment, that it doesn't sound like they're talking necessarily about the studio.

As you've seen in the past, literally in the past 90 days, we haven't made an announcement on anything, and yet our stock has been affected dramatically. And so it's not based upon the fact that what we're doing—

that comment—

give us a chance to get it done, and then we'll, we'll visit the process at that time.

I appreciate those answers. That's it for me. Thanks.

Okay. So basically what they said there was the guy's asking about like what the alternatives are. And then he talks about how they haven't been on the table, but now they are. It doesn't sound like he's referring to Kioti. It sounds like he's referring to just like the overall business. Like if the, the Class A office real estate, I don't think it's necessarily Kioti specific. This like alternatives are now on the table. I mean, it could be. But— all right. And they have to answer so many questions about the studio on this, it's crazy.

I asked how many— what percentage of the questions were about Kyoto. It says 33%, but they marked that as 3 of the 9 question turns mentioned Kyoto.

Feels like more than that, but Maybe I'm over-indexing on it too.

All right, so Coyote had 53% stage occupancy in quarter 4. What's going on with the output there?

It's still generating. It's working. It's working really hard. I turned on turbo mode.

Turbo make no mistakes mode.

Yeah, yeah. I mean, this part right here where they talk about they have an opco business that is debt-free and revenue-producing.

Makes it sound like, like it didn't lose $4.7 million in Q4, right?

But also that they're not— they're looking to get out of the liabilities, not necessarily the things they own outright. So I would imagine that some of our—

what he says and what they are working with us on are different things. But this is also kind of what I was talking about yesterday, where it's like what we talk about with them and what he actually thinks might also be two different things. Right. And I think if the analyst ever actually saw a picture of the Cascades Golf Course graveyard or like Sarwagons in Ralston, like, they'd be like, What have you done?

Like—[No speech] Why is TR— this would be transportation assets.

PR is over there under Hudson.

Yeah, I can— I'll adjust that. Transportation, pro, supply.

It's got the PropCo. New Mexico in there.

Uh, where?

Above Coyote Studios LLC.

What is this dotted line for? I don't understand.

Holding hands across the aisle.

Yeah, this is something I don't like about how Claude does PowerPoints, is it doesn't put the text in the shape.

Okay, when they say on Coyote, we're assuming only modest NOI improvements in 2026 driven by completed or planned cost savings. Modest NOI improvements is not $4.5 million per quarter?

Yeah, that would be more than modest. Okay, is that about right?

Take the brands piece out because we own those.

Where?

In the legend on there, key structural notes. Um, I would say union agreements governing in that key structural note. Union agreements governing— it doesn't have to be here, it can be in the other sheet too. Ultimately, we need to figure out how to consolidate this together. And then just elsewhere around the document, it says contributes membership interest in all entities, MTCServices.

What do you mean? Sorry, what do you— what's the change?

It's saying contributes membership interest in all entities, which is to say that we're contributing the entities themselves, not the assets and liabilities of it. Okay, that—

okay, got it. Because it has the entities listed down here, which kind of makes it seem like we are using contributing all these entities. Because this, this part right here, then if we're not contributing the entities themselves, it's kind of a red herring. But it's not, it's the assets inside of these, not necessarily these themselves. Right.

But what that list is really meant to do is just designate which entities.

I mean, they've already kind of done it, but Okay, so I'll just say contributes all What's a better way of saying assets and liabilities? Because they're— I don't want to say liabilities, I just want to say All assets and operations.

Operations are liabilities, so. Right. So is this basically contributes all transportation assets, pro supply, all transportation and pro supply assets.

We don't need brand licenses.

We need, we don't need brand licenses. We need the fucking brands. We want the IP. So IP, all transportation and pro-supply assets relevant and all transportation and pro-supply assets relevant, relevant supporting liabilities, which is still to be determined, but that would be things like the underlying leases, the union agreement for commercial services, the Yeah, I don't know what else, but like put a parenthetical behind supporting liabilities to say Like operating leases, union white paper.

Why don't I pick that?

State Commercial Services Union.

I'm going to put that down here.

Oh my God.

Oh, it's so hard to navigate this. Okay, Union white paper.

Commercial Services Union white paper.

Real estate leases, anything else?

No. Let's talk just like a quick summary line of like potential open and still to be explored items, like Atlanta solution, basically, are we pulling in TR because we think we can get out of their Atlanta footprint? Which one's more expensive to run right now, TR or theirs?

Um, well, TR makes more money, like more revenue I should say, but their Georgia operation is about the same actually. Yeah, it's about the same in expenses. Yeah, but they make less money. It's $3.5 million in 2025. In expenses? In expenses.

What's the lease factor there?

Rent was $515,000.

Okay. So if we just decided to shut that down, we're looking at a $550,000 drag on Atlanta. Shut it down. Move the revenue, none of the expenses into TR, you've got an uplift, right? Then I think we do that. But I think we talk about that with them. Arguably, that's where the, like, the truest expression of the 1 1 3 here is, right?

Like, 1 -3 0.

But Mix to offset the cue.

Where are you typing? Just my notes on, uh, Claude here. I'll add it in. Okay, um. So you want it on a second slide?

Like, what is your idea of a deliverable here? No, I'm thinking like we can walk through this structure because arguably like this is what the purpose of the call is, what we're doing here 20 minutes before the actual call. Right. What I think that we can, what I think we still have to get What I was saying is like open it up for any questions of the information that we've sent them to the degree they've reviewed it. Um, but really it's today is about, look, we have— we were pretty certain that we could pull off this tax-free reorg. This is kind of like as simply put as we can make it with the amount of information that we have. This is The like actual mechanics is what we would propose. The actual flow is subject to change based off of additional diligence and analysis. Right. But a 721 tax-free contribution is achievable here without causing some type of like tax bomb to go off. Right. As best we understand, as best we know today. These are the— based off of this, these are the relevant, like, entities which would contribute to assets. We would ideally like to put all of them into the asset code, into a single asset code for simplicity, but that has, you know, potential built-in gain considerations that would have to be understood down the road. What I think we have to still give them, what we still have to more or less present to them, or at least speak to with some level of like, here's numbers on a slide, is here's what we think happens when you put these two together. Here's the cost savings we are able to achieve. Speak to a range of insurance savings of like $800 to $1.2 million, but we're using $800. As like the plug until we're actually, you know, until we go to market and see what we can actually get. Here's the personnel savings based off of this. We need better specificity in the commercial services division cost because we're basically going to be looking to take that over as is because there's revenue on it that on day -1 of the transaction is governed by a white paper that day 0 won't be a party to. Or it will need to be contributed or like assigned and consented to. We don't know, we haven't seen it. But in order to not disrupt the revenue associated with that, we think the path of least resistance is to just step into like contribute those agreements more or less as is. Any relevant employees governed by it would be terminated and rehired. By the new operator. Yeah, but the big ticket item here is the elimination of that fleet services, what we call the fleet services kind of union arrangement, wherein we feel pretty confident that there's at least— how much to save? Uh, I think this is my point. It's like we need to have our hits of like, yeah, we're able to pull X amount out of personnel, X amount out of insurance, real estate. We think that there's realizable savings of X over the next 12 months, whether that's we get out of Satacoy or we let some other lease somewhere else expire. Like they have lease expirations in '27.

So It's $4.3 million on the fleet side.

On the personnel? Yep. That's the difference in our costs plus their costs. Or sorry, that's the difference between— that's what Coyote— that's what the combined entity costs to run when you put— that's what we're saying it would cost to run, what we're saying cost to run versus what they're saying, what they're current— what it currently costs them to run.

The savings is $4.3 million. Our fleet team currently costs us $1. $1.4 million on the LA footprint. Their fleet team currently costs them a little under $8 million.

So we say our combined fleet team— what are you looking at here, Richard?

Yeah, Richard's Our fleet team right here costs us $1.4 million right now. Their team costs a shade under $8 million right now. Richard's saying it's going to be $3.6 million on a combined basis when you combine the two entities. Okay, but that's just on fleet, right?

That's just on fleet.

So what's the total personnel savings? Hold on, I don't know where I did this actual calculation.

I got to find it.

Eliminate the EV special project tech. Like, well, I'm not going to pull this up, right? But yeah, I get your point.

It's not about the exact numbers necessarily.

Are you pulling up the total personnel savings? I'm trying to find it. Yeah. All right, so I have this. This is more of a summary than what I was thinking of, but—

oh, he gave Faustino a raise. Pulling that back. Yeah. We've quintupled the size of the fleet you're managing and we are not giving you a raise.

Let me confirm. I don't know why my— I did all this personnel stuff. I must have been in an old file that I need to find, like an old version of the file, but it might have gotten overwritten. Oh no, here it is. I had too much shit floating around in this document. All right, so the combined payroll cost is $33 million in on a 2025 run rate, ours being $9, theirs being $24. We're saying on a combined basis we can get to $18. Um, the difference being the transportation department in 2025 on a combined basis to $20, that's going down to $10, of which a lot of it is in the operations and the fleet side, and then some administrative cut as well. Based on an average salary as well. So we're just taking average salaries across the board, actually giving a 5 or giving a bit of an increase, um, but reducing the count overall. Uh, Georgia going from 2 to 1-4, New Mexico shuttering, production supplies going from 8-7 to 5-6. We're currently at 3 on the Avon side and 5.6 on the Coyote side.

So that goes 8.7 to 5.6. Stop. That has us taking not all of their salespeople.

Yes. I mean, you also have to remember I'm trying to pull this information out of this document that is not clear about who.

Is in what? I'm not accusing you, but it doesn't— it's not— it's— my point is like, we need a—

we need a sexy headline number here. Okay. Well, yeah, that's where I was getting to. The, the number I've saved is $15 million in payroll going from 33 to 18, going from 316 headcount to 177. I think there's more. Okay, to validate that, we actually need the information we requested from them.

Like, if you eliminated their 6— if you eliminated 4 of their 2 salespeople and production supplies, and, wow, 2 people in Georgia for them?

So 3 people in Georgia for them for production supplies?

I see. Yeah, then take operations headcount down for production supplies. Take their sales down to 4, 9 to 4, cut 5 there.

And then if you take 40 there and make that 32, which I guess is ours, right? We're at 32 and 23, so I was assuming we weren't going to just go back to what we were currently operating at.

Okay, then yeah, make that 40.

That 40 is fine then. Yeah, so there's $15 million on the personnel cost side. Rent, I'm actually not really projecting any savings right now because we wouldn't necessarily be able to get out of everything. Um, let me see what our P&L line item is. 14, I guess going down to 9 because they had their full— so I guess we are projecting savings and that's based on their pro forma, not necessarily our ability to get out of anything. I was just talking about their lease obligations expiring over the course of the next 5 years. We're not saying like, oh, we're going to get out of X, Y, and Z, we're going to save the money on rent because we have— go to their rent schedule.

Yep, got it right here. I'm pretty sure their production supply is Montague warehouse there where they say is month to month. Uh-huh.

When they say 1.5, what does that mean? That's probably just like additional parking and/or like the utilities, how they have like DWP here.

They have some.

Okay, so what's the rent on that?

Combined, it's $10K a month.

Why is Osborne combined? Where's Osborne? Oh, I don't know. I assume those are the same, like locations.

Maybe they're not. No. Take the month to month. Out. Remove the Montague preference lines. I'm pretty sure that's where they consolidated Coahuila into.

We don't need another deeper valley hub. Okay, that's $1,500 a month, so that's not a huge, like, savings, but I hear you.

Okay, but that's their internal cost, like they're just charging that $1,500, but Wait, go back up.

Where are we going? I'm sorry, I'm trying to make the adjustments down here rather than in their schedule.

Number 31. Okay. So from a standalone basis, we think looking at a 2025 pro forma, there's $15 million in personnel savings. Yep. Identified. With likely more as we get into actual planning. The lion's share of that— where—

if Richard's 4.7, where's the rest of that coming from? All of the cuts to the operations, because you're just looking at the fleet side, but there's also like they have, they have 60 people in operations. We have 51 in fleet. So it's going from 16 plus 60, 76, taking that down to 25, keeping all the sales resources. Fleet, 14 plus 51 to 65, taking that down to 27. Yeah. All right. Let me run and use the bathroom before this call. So yeah, I'm gonna come and grab water. Yeah. All right, so do you want me to have this org chart pulled up or prepare to pull it up during our call?

Prepare to pull the structure up and prepare to pull the summary dashboard of this. Show me that real quick. This? Yeah. Hide rows, I guess, 39 through 42. Hide anything they could grab onto that would be like So, I think we can pull this up from a high level and speak to those numbers. I mean, like, we can talk through specifics on how we go through this, but some of— a lot of this is still going to need to be kind of validated in higher-level discussions. But, like, I think our objective here is to just start with this kind of preview on both the model and the structure side and get a sense for, like, pain points. Okay. All right, see you on there. Yeah.