Q3 2019 Earnings Call

I toured audience Danny buying for today's conference at this time or admitting additional colors and we hope to be getting underway in the next couple of minutes. We thank you all for your participation how was your patience and we ask that you. Please continue to standby.

Good day, everyone and thank you all for joining this Piedmont Office Realty Trust third quarter 2019 earnings calls all telephone lines are presently Anna listen only mode and instructions on how to submit a question will be shared later in the call. If you should require operator assistance. Please press star in zero on your telephone keypad and an operator Willis this year.

Now for opening remarks, and introductions I'm pleased to turn the floor over to your host Chief Financial Officer Mr. Robert Bowers. Please go ahead Sir.

You operator.

Good morning.

Thank you for joining us for Piedmont's third quarter 2019 conference call.

Last night, we filed our Form 10-Q , along with an 8-K containing our quarterly earnings release supplemental financial information.

These items are available on our website under the Investor Relations section for your review.

On today's call the Companys prepared remarks and answers to your questions will contain forward looking statements is defined in the private Securities Litigation Reform Act.

Hi Tech 95.

Forward looking statements address matters, which are subject to risks and uncertainties that may cause actual results could differ from those we anticipate and discuss today.

Examples of forward looking statements include those related to Piedmont Office Realty Trust future revenues operating income dividends and financial guidance.

Well its future lease thing in investment activity.

You should not place any undue reliance on any of these forward looking statements and these statements speak only as of today payer made.

We encourage all of our listeners to review the more detailed discussion related to risk associated with forward looking statements contained at the company's falling to the FCC.

In addition, during this call will refer to certain non-GAAP financial measures such as Epo, Koricho, Hey, I thought, though and same store NOI.

Definitions and reconciliations of these non-GAAP measures are contained in the supplemental financial information available on the company's website.

After our prepared comments surveyed our senior management team will be available to address any questions that you might have.

At this time, our Chief Executive Officer, Brad Smith will provide some opening remarks and discuss third quarter results right.

Thank you Bobby good morning, everyone and thank you again for joining todays discussion.

On our second quarter earnings call I reported that Piedmont was experiencing solid momentum across all aspects of our business.

More specifically the strong leasing operations in capital markets activity. The company was generating would carry throughout the remainder of 2019 positioning Piedmont for meaningful earnings growth in 2020.

I'm pleased to share the P. bought team had an extremely productive third quarter on all fronts.

But even more exciting than our quarterly performance with the progress we made on numerous strategic objectives.

I really couldn't be more proud of the hardworking men and women that support me each and every day.

This morning, I'm going to review the company's progress on key initiatives.

First an update on capital markets activity, highlighting the transactions that are increasing the concentration of our portfolio in specific submarkets.

As we recycle out of fully valued mature assets and redeploy those proceeds into accretive.

Are you add acquisition [laughter] next I'll touch on the operational success across the portfolio, including the New York State leases 60 broad Street, and finally I'll share an update on Piedmont sustainability initiatives.

First and foremost the Piedmont team did a terrific job continuing to concentrate our portfolio and maybe you rich submarkets, which offer unique mixed use environment in close proximity to major education centers and transportation No I.

I would also note that we're experiencing incremental operational success in Submarkets, we can capture greater than 20% class eight market share.

And although previously announced in late August Piedmont aggregated another such strong whole position during the third quarter.

Moving to our ownership concentration elsewhere in our portfolio such as downtown Orlando, The Burlington Submarket of Boston and a Las Colinas Submarket of Dallas, We now own the entire Galleria office complex, giving us the dominant classy position in the northwest Submarket of Atlanta.

Let me outline why we think this burgeoning hubbard such a terrific opportunity for Piedmont.

The Gallery Atlanta is a master plan to mix use development hosting almost 7000 workers everyday with prominent visibility at the pin corner location. The by 75 and I to 85, approximately 10 miles outside of downtown Atlanta.

The buildings themselves are best in the Submarket, posting three storey lobbies floors, feeling window lines and great flat high resulting in phenomenal light an air as well is 360 degree views, including Buckhead in downtown Atlanta.

All located adjacent to the Britain, Atlanta Braves new ballpark.

The Cobb County, you need an immediate vicinity the project at the fastest growing millennial population in Atlanta with excellent school schools low property taxes and numerous corporate expansion.

In addition, the location it just a 10 minute drive from bucket.

15 minute drive from mid town.

We believe these fundamentals in conjunction with the vast onsite neighboring walking men walkable amenities position the project for continued success.

Our position in the Gallery Atlanta, All began four years ago, when the Piedmont team acquired Galleria 300, and the year. Following Galleria 200, with a bold vision to achieve something that has never been done single ownership of the entire 2.1 million square foot office complex.

In the spring of 2017, the Braves began your inaugural season at Suntrust Park and completed the adjacent 1 billion dollar mixed use entertainment food and beverage centric development named the battery.

This 1.5 million square foot projects vast amenities that includes two new hotel, the 4000 feet Coca Cola Rocky theater, and over 200000 square feet of retail along with it doesn't restaurants from some of Atlanta supposed to claim shift all just a 10 minute walk from our office buildings and the Galleria.

Since those first acquisitions Pmone has achieved strong operational success the complex increasing annualized lease revenue by almost 20%, we'd even more upside to capture in the next few years as leases expire.

Continuing with our acquisition strategy in May of this year, we purchased a third building the complex in conjunction with a 1.5 acre development parcel and I couldn't be more proud to share. That's the Piedmont team completed the puzzle during the third quarter with the acquisition of Galleria 400 600.

The two buildings total approximately 860000 square feet, alright, combined 84% occupied and were purchased for 212.4 million. It at an accrual cap rate of 6.8 per se.

Well will stabilize above 8% after at least have been completed over the next few years.

Pima also acquired in adjacent 10 acre land parcel for 18.8 million, which is already entitled to accommodate over 1 million square feet of commercial development.

We believe decided among the best in Atlanta, and we are well positioned to track from the large corporate tenants looking to reclaim lucky to the Atlanta market.

Our total investment in the gallery, Atlanta is just under 500 million or approximately $215 per square foot.

Which represent over a 50% discount to estimated replacement cost.

Furthermore, besides the project gives piedmont the opportunity to significantly enhance redevelopment, while maintaining a competitive low basis.

We think it's a great example of how piedmont's positions itself to drive incremental values and cash flow growth for investors through redevelopment.

We had approximately 12% of the 2.1 million square feet available for lease at another 37% of leases rolling in the next four years <unk> rental rates approximately 20% below todays market rate. It's another instance of how p. money utilizing its scale and select Submarkets drive operational synergies and grow.

Rental rates through the creation of unique place, making environment that today's tenants demand.

I would encourage those who have not reviewed our presentation materials regarding gallery Atlanta to visit the Investor Relations section of our website and download. The featured report data August 2019.

Integral to our growth strategy is the disposition of a select group of noncore assets. In addition to those properties, which we believe the value potential under our ownership has been reached.

Over the past four years, we've sold 1.9 billion of assets.

And redeployed those disposition proceeds at an average acquisition yield 170 basis points greater than our disposition yield.

Continuing with that theme I'm pleased to report two strategic dispositions during the third quarter.

First we sold the degree a relatively small noncore asset in Atlanta for 12.7 million incurring a small impairment charge.

In addition, subsequent to quarter end on October 28, we closed on the disposition of 500 West Monroe in Chicago for 412 million or approximately $425 per square foot.

The two dispositions transactions as an average for 12 month accrual cap rate of 6.1% with proceeds used to pay down our 500 million dollar revolving line of credit.

Which as of this call stands near zero dollar balance.

The disposition of 500 West Monroe will result in Chicago, no longer being identified as a core market for capital deployment.

However, Piedmont will continue to manage 500 west Monroe on behalf of the buyer for an initial term of three years.

We now third party manage approximately 2 million square feet in downtown Chicago across 500, West Monroe and a previously sold 35 West Wacker, earning management income at both building.

500, West Monroe was a phenomenal investment for Piedmont.

The 960000 square foot building was acquired in 2011 for approximately $235 per square foot within occupancy position to drop below 20%.

Over the next several years, the Piedmont team completed a redevelopment or the asset and enacted aggressive leasing program to capture large suburban Tennessee moving into downtown Chicago.

The team did an outstanding job leasing nearly 1 million square feet during our ownership to corporate tenants such as Motorola solutions General electric and locked in insurance, while pushing the buildings occupancy to 100%.

This is a great example of Piedmont strategy to drive incremental value in cash flow growth for shareholders.

Acquiring high quality, a class a properties in need of repositioning.

In this instance, the outcome resulted in a realized gain of approximately $160 million, which will be included in our fourth quarter results.

I want I commend the entire Piedmont team for a herculean effort nine digit capital gains or a tremendous outcome.

Finally, I would note at the second and third quarter acquisitions of the gallery, Atlanta totaling $326 million had an average for 12 months accrual cap rate of 7.1% and working through reversed 10, 31 exchange with 500, West Monroe and as a result, no special dividend related to this transaction.

We'll be required.

Finally on our last call I noted that we would focus on completing our noncore dispositions over the next 12 to 18 months using the proceeds to fund future growth through acquisitions development and redevelopment.

The noncore properties comprised our three long term lease single tenant assets located in Philadelphia, Houston as well as one multitenant asset in Chicago.

We've been encouraged by the recent private market pricing achieved by properties similar to those fueled by the decline in long term interest rates in conjunction with a reduction in foreign exchange cost for international buyers over the past nine months.

For example, in Philadelphia, a high quality Multitenant class a assets located on market Street with over 10 years, a weighted average lease term recently traded for mid Sixs cash cap rate and.

And similarly, there was a Houston trade for a long term lease single tenant assets that price through a 6% cash cap rate.

We believe the disposition of our noncore assets will fund Additionally, recycled accretive to cash flow.

We will focus the redeployment of disposition proceeds into markets with the most favorable risk adjusted return.

Which we currently believe to be Boston, Dallas, Atlanta, Orlando in Minneapolis.

We will also continue to take a balanced approach across CBD urban infill suburban submarkets within those cities.

Really maintaining one third of our portfolio in each category.

Turning to our leasing activities during the quarter, we completed approximately 564000 square feet of leasing with approximately 195000 square feet related to new tenant leasing.

Activity was well dispersed throughout our markets and resulted in an almost 10% rolled and beginning cash rents and a 23.5% increasing GAAP rent inline with the year to date trends on both metrics.

The larger leases executed during the quarter include in Dallas commercial metals company renewed approximately 106000 square feet. Your 2020, 860, 565, North Mcarthur Boulevard in gardener expanded their footprint with the new leads for approximately 55000 square feet through June 2034.

60, 31 connection drive.

This brings our total square footage in the complex now to nearly 210000 square feet.

In Atlanta, we signed a new lease through 2035 for approximately 72000 square feet at 11, 55 Pereira reminisced Interwest with we work this lease combined with our previously reported Vmware expansion now has backfield, 60% of this quarter's RBS exploration.

In Minneapolis, Siemens Corporation renewed approximately 69000 square feet, a crescent reached two through 2030.

In Boston Qualcomm renewed approximately 49000 square feet through 2025 at 90 Central Street.

In New York City Morse add me architects renewed and expanded approximately 20000 square feet 60 broad street through 2029.

Additionally, subsequent to quarter in we received a 550 million dollar lease renewal and expansion for approximately 20 years executed by the state of New York Office of General services, providing for the tendency of seven agencies with terms and conditions better than initially anticipated at the beginning of the year.

Yeah.

Rather than a 10% downsized the New York State current 480000 square foot lease.

Totally square footage will increase to approximately 520000 square feet, we'd beginning cash rents down slightly and a substantial rollup in an accrual basis rents.

The new lease begins on November 1st of this year with no free rent and no downtime.

The lease will include a phased construction period during which several agencies will be departing and arriving to the building.

Despite the protracted negotiations this was a phenomenal outcome for investors, we estimate the tenant improvement capital to be roughly $100 per square foot, which inclusive of leasing commissions should equate to approximately $7 per square foot per year of lease term in capital commitments.

Our only sizable exploration over the next 18 months is also a 60 broad street, where we remain engaged an active negotiations with the city of New York for the renewal of substantially all of their existing 313000 square foot lease scheduled to expire in April 2020.

Word advanced discussions incorporating detailed design space planning, but the various eating agencies.

The city of New York's leases anticipate to include 20 years of term and we estimate a significant roll up an accrual rents once the long term leases executed in addition to a large roll up in cash rents.

I would note that like the New York State the city of New York's premise. This incorporates numerous agencies, which complicates the transaction and could delay the execution of a new deal beyond the current lease expiry.

Potential delays in the city of New York lease could temporarily impact Piedmont 2020 accrual rental income stream.

The company earnings into a new lease is consummated.

One final strategic update I.

I would like to take them over to draw your attention to our website, where we released our inaugural sustainability report this week.

Providing portfolio wide benchmark data as well as outlining our sustainability policy annual performance track record and progress toward long term goals for electrical water and other utility consumption.

One of my top initiatives is for Piedmont to be a leader in environmental social and governance disclosure and we look forward to expanding upon this initial report is the company sustainability efforts continued abroad.

In short Piedmont is committed to materially reducing waste and carbon emissions in our buildings with a goal to eliminate 20% of our energy and water consumption over the next eight years.

At this point I will turn the call over to Bobby to walk you through the financial highlights for the quarter body.

Thanks, Brad.

Well I'll discuss further some of the key financial results for the quarter I encourage you to please review the earnings release and supplemental financial information, which were filed last night for more complete details.

For the third quarter 2019, we reported 45 cents per diluted share core FFO, which is consistent with the same period a year ago.

And I AFFO was approximately $36.7 million for the third quarter well in excess of our current 26 million dollar quarterly dividend level.

I'd like to note that the current quarter's results also included over $2 million excess DNA expenses related to accruals for potential stock compensation due to our top quartile relative stock performance year to date.

We continue to believe our normalized DNA expense to be around $6.5 million per quarter. After the management staffing changes that took place at the end of the second quarter.

Same store NOI was up approximately 5% on a cash basis and up one half a percent on non accrual basis for the third quarter.

The increase in cash basis same store NOI was attributable to the explorations of several lease abatements, including the pre lease in Washington, DC, The Gartner lease in Dallas, and the slumber J lease in Houston.

The slight increase in accrual basis same store NOI was related to the commencement of leases with higher straight line rent.

It was offset by Downtimes between leases at 200, South Orange Avenue in Orlando and at 11, 55 parameters Denver Center West in Atlanta, where we've already backfill 60% of space related to recently expired leases.

On a year to date basis same store NOI was up 5% on a cash basis and up 2% on the accrual basis.

Turning now to the balance sheet, our overall leverage metrics at September Thirtyth 2019 are higher than typical.

Well those using our line of credit to interim find the Galleria Act acquisitions in advance of the sale of the 500 West Monroe building.

Reported net debt to core EBITDA was six times and our debt to gross asset ratio was approximately 39% at the end of the quarter.

We've included an additional pro forma disclosure in our supplemental financial information this quarter. It illustrates these metrics returning to their normal range with the application of the disposition proceeds received from the sell a 500 west Monroe.

In the pro forma leverage is in the low 30% range and net debt to core EBITDA in the low five times range.

We have no debt maturities until late 2021 and as of today, we have almost all of our 500 million dollar line of credit available.

Our estimates indicate that we've completed the 10 31 exchange requirements for the gain on the 500 West Monroe sale and again as Brent mentioned, no special dividend as needed in 2019 to cover the reach distribution requirements.

At this time I'd like to raise the lower end of our 2019 annual guidance for core FFO per diluted share.

We now estimate $1.77 to $1.79 cents per share for the year.

Just as a reminder, all major acquisitions and dispositions through today are included in this guidance and no speculative capital activities included.

Also final results movie dependent upon our relative stock performance over the remainder of the year.

We'll keep you informed of any transactions as they occur and what we believe the impact of such activity will be on the current year and next year projections.

Looking ahead to 2020.

We're not prepared to issue formal guidance at this time, although we do believe the current midpoint of street consensus for 2020 core FFO.

Is below our preliminary estimate by $4 million to $5 million.

Also despite downtimes abatements and capital needs associated with the new leases since that we've signed four tenants and renewal leasing 2020 estimates indicate AFFO easily exceed our current dividend level.

With that I'll now ask our operator to provide our listeners with instructions on how to can submit their questions. We'll attempt to answer all of your questions now or will make appropriate lighter public disclosure if necessary.

Operator.

Gentlemen, thank you for your remarks.

Since joining today, if you would like to ask a life question over your telephone line. Please press Star then one on your telephone keypad.

And your pricing so I'm wondering what's your line into a Q and also a friendly reminder, that if you're joining us today on the speakerphone. Please be sure that you return to your handset before pressing star and one to be sure that your signal reaches our equipment and also to provide the most favorable sounds quality once again, ladies and gentlemen that is star and one if you would like to ask a question and we'll pause.

Just a moment to give our audience and opportunity to signal.

We'll take our first question today from Anthony Polyones from JP Morgan. Please go ahead, Sir your line is open.

Yes. Thank you good morning.

Just a couple of clarifying items on the New York State lease.

So what was the gap.

Spread on that.

Turns out.

Hi, Tony Good morning sprint. Thanks for joining us today is Halloween day happy Halloween.

In regard to New York State the gap spread from the prior lease the new leased with approximately 40%.

40%, Okay, and and I guess, maybe trying to tie this and with with Bobby's comments about the preliminary look into its warning.

20 consensus and the $4 million to $5 million shortfall.

Right now the number that we have in our model that or order magnitude you. Thanks.

Some of that sort of related to New York State This large gap.

Spread.

Absolutely part of it is related to the New York State, but I'll, let Bobby maybe give a comment on a little bit broader and the death of that answer Abhi. Yes. There are several factors Tony that add to that part of it is that we've got 600000 square feet of leases executed that haven't commenced yet that includes the.

300000 square foot lease with transaction that will begin later this quarter.

We'll get the full years benefit of the transaction late next year as well as 55000 square feet on the dark on lose the begins in the first quarter.

Also as you just indicated our full year of large state lease that roll up of again here in November obviously, there's some speculative leasing that we've included as we're doing our budgets for next year. We've also included in New York City, Louise, which is 213000 square feet and it will began.

Sometime during the second quarter.

2020.

Okay and on the New York.

City part of it just to.

Clarify these two things with the New York State comments, and then branch comment about New York City, potentially having a little bit of an episode drag as you work through that next year. What why is that I don't remember the New York State dynamic having that effect on on earnings or something different went the way New York City is going.

Actually it is no different there was a similar effect.

From the New York State this year.

And I would say you know we can first and foremost you continue to make good progress in New York City and we still.

Remain confident if they want to remain a tenant of ours.

But I would like to state. It's complicated there are multiple agencies. So if you recall with the state. They originally had planned to expire.

Basically an end of March of 19.

And we did an extension and then we did an additional extension to get to the point, where we could announce what we just did so in our earnings release.

But as a result of that.

State, we did not recognize the full roll up that we just describe that 40% effectively until Bobby pointed out until November 1st. So we were losing quote unquote FF, though that we had thought might be within within our numbers as we tripped over what was the original exploration without signing that 20 year lease.

Yes.

So we could have that same effect is the city didn't reach a point, where they can signed by the second quarter of next year, but again, we still we've got some time and we still remain very productive on those discussions.

Okay, Great I understand that now and second question as it relates to Galleria.

Now that you've got it all put back together, how should we think about the pacing of lease up there I mean, what what's your sort of expectation in terms of absorbing some of that vacant space.

Oh, well, we continue you have very good activity across the project as we've noted we've got roughly a little more than 10% currently vacant and we've got a great 75000 square foot block top one of those buildings frankly best in the sub market.

And as I didn't know before we still see great activity across.

Corporate tenants ranging in size from call. It 10000, plus what was also interesting at that site is the opportunity that didn't allow the delavan site also has there as well and we are in the running for a potential build to suit for the Sherwin Williams Corporation I would also add that we have.

The opportunity to add some pretty interesting enhancements to the project, which we believe will allow us to push rental rate even further on the existing product in stands today, which is in the low thirtys and we think we've got the opportunity to drive rate into the mid Thirtys in short order and we're already swinging hammers on a number of those projects right.

Now to add some of the many space and thinking towards a grander vision, but we're taking our time on that approach and thinking about how to really create an interesting in mixed use environment, there and I want to be clear, we would not look to own or developing it was not an office use for the most part.

But we would look to partner with those other individuals that's not our area of expertise, but we do believe there's an opportunity there to identify and create a very exciting environment.

Okay and last question you talked a bit about.

Filling in Houston markets being strong as you contemplate dispositions.

What about on the acquisition side.

What is that pipeline look like right now.

I'd say, we still have a very good pipeline opportunities in Boston Dallas, We continue to see look in Atlanta, Although it's our largest market we'd be very mindful of that Minneapolis still remain very interesting at two so I'd say our pipeline looks as robust as I would.

I have said it's been in the past I will say it does seem like looking into next year as I talked to some brokerage others in the brokerage community the pipeline that they're seeing seems to be reducing a little bit but overall I still think we see a lot of great opportunity in the marketplace.

Okay, great. Thank you.

Thank you Tony next we'll take a question from John Guinee, Steve Our Stifel. Please go ahead, Sir your line is open.

Great. Thank you up two questions first.

Impressive execution on 500 West Monroe.

$425 a foot in Chicago seems very high are you at Liberty to talk about who bought it and why.

Hi, John Good morning, this is Brian .

Happy Halloween, So we don't usually comment on.

Transactions other parties I think it has been reported in the press generally who the counterparty was but.

I'll be Frank we were the benefit of a declining interest rate environment.

And the next buyer has a great opportunity to utilize an extensive amount of leverage versus what we could accomplish.

As well as some upside through parking and some other opportunities. So that led to what we thought was a solid execution with even more exciting is we do I get the chance to maintain management at that property and earn some fee income as well.

And we'll continue to kind of help that the new owner out if you will in that process, but we're excited about the transaction and look forward to continuing to manage it.

Great.

Next question.

I have a relatively works over in the Galleria market in the last time, I checked Marta and doesn't run over to the Galleria.

Does that concern you in terms of.

Tennis wanting to check the Marta public transportation box when they.

Consider leasing space.

Well I think the high priority to be on modest for that tenant then I would say I would agree with you were a little bit at a disadvantage, but I do think we create an interesting environment at that location and more importantly, though I think it's interesting that in Atlanta, the infrastructure that predominantly moved individuals to and from their house and were.

<unk> is the highway system not so much the Marta system. So despite even for instance, the state farm development.

Perimeter stop here, which is about almost too little over 2 million square feet of office ridership. It that station is down since they've opened the first half of that project.

It's just a mode of transportation that has not a fully have been adopted in the city, but it is very useful to certain businesses and we recognize that but what's nice about overall in the Galleria is the short dry that it is from a lot of different areas in the city, whether it'd be the airport mid town buckhead or even north of the city.

With a new hot lanes are told lanes that allow individuals to move pretty rapidly the dislocation and the fact that it's right off the highway with dedicated highly access it's really unique in that transportation point acuity, five and 75 and Atlanta and that's what really gets us excited about the whole thing.

And that's kind of as they are our view on thing.

Great nice job. Thank you.

I would add if you want to take a look that presentation that we mentioned on a during our prepared remarks on the website will also go into some detail around all those points. We just made.

Great. Thank you.

And once again to our phone audience today that is star and one if you'd like to ask your life question. Also reminder, please return to your handset before pressing star in one to be sure that your signal does recharge equipment next we'll hear from Dave Rodgers with Baird.

Yes, good morning, Brent you've already were asked about acquisitions and address it to some extent, maybe just to kind of refine that question seems like you have a plan to kind of even further refine your own plans around these suburban markets and so Galleria you kind of talked about can you give us a glimpse into kind of where more might be and.

Whether you'll have the ability to kind of be able to recycle these assets that you've discussed into that those types of suburban markets.

Sure Dave Thanks again for joining.

No. It's kind of interesting there is this perception that theres, a quote unquote flight to quality and we do see a lot of that particularly with tech tenants, but I think were Piedmont really shines is finding those diamonds in the rough liked the Galleria and those submarkets that will outperform.

Longer term in the more suburban and urban infill locations as well as our CBD position. So we look for those large scale developments in the good news is in the kind of Ninetys in early two thousands there were a number of these kind of in that first level of ring road as there was a lot of expansion outside of the Cbds in cities and as that expansion continue these areas.

We are sometimes.

Yeah Forgotten if you will end, so you're looking at Atlanta and Dallas.

Boston as well there has kind of been a resurgence in those areas in that kind of first dreaming and those are the opportunities and there is actually quite a few many out there I don't want to get into specifics of what we're chasing just given some of it is live but I would say I think we think buying properties in that 200 that maybe $300 a foot.

Repositioning them, yes, taking that value add to a core and really creating a lot of interesting NPV and cash flow growth.

Is our strategy and it seems to be playing well Enzo todays capital markets activity.

Great one follow up for me is related to the dividend Bobby in your comments you mentioned a good the AFFO coverage based on the consensus view So for Britain, Bobby how do you guys think of that recommendations to the board in terms of dividend increases going forward for for Piedmont.

I think.

We've been very encouraged about an olive cash flow growth. However, we are cognizant, the fact that with the sitting today.

In fact, we will be covering the dividend there will be a fair amount of cash going out the door I think our view is probably more prudent to wait evaluate that process and revisit it.

I'll call. It in 21, one for through some of that heavier lifting if you will I would also add we continue to invest in our properties and seeing good returns on that investment I think you had the opportunity to visit our asset in Minneapolis to see one of those that exact situation.

And we're going to continue to look at those opportunities and where we can generate returns you know north of the 20%. We're gonna be involved and then redeploying into those as well.

Body anything you would add well it may be down piling here on your comments, but last quarter, we talked about as you look at 2020, you should expect some very attractive gap roll up that's going to take place in our same store basis and as 2021 is one of the cash is expected to increase nicely.

Great one.

Lastly from me just I guess, maybe you can always on the we work topic, obviously, you've got two leases yet to commence one that you signed in the quarter.

Do you feel like maybe just given all the news out there that you're getting full do you want to spread that out to some other co working tenant how you view in that kind of in light of recent events in the two big move ins you've got coming.

You know I guess first and foremost Dave we we recognize that the co working flex space. However, you want to deem. It I think collect is probably a more appropriate term.

Cancer demanding that and when we work has proven as they're willing to pay the have that flexibility.

We've seen the benefits of how having a lot of scale in a single market allows you to accommodate that flexibility for tenants, but we'd really deal with larger tenants and we find that these operators are great way to target that two to 5000 square foot tenant.

And then help us kind of leverage our operating model.

As we think about these locations in specific where we put we work we feel very confident in that with a logical place to put that type of.

Facility into the building and then we looked at within that not having too much concentration with any single building that was important to us and we already have actually spread around our exposure to a number of different providers already and in fact have not done a lease with we work.

Until the second quarter of this year, primarily because they weren't able to meet our credit terms.

They did reach a level that we feel comfortable living we did decide to move forward with that but we would still I would say make those deals today, we feel very confident and where they are and the rationale for putting them, where we have I would finally point out that we work represents less than 1% of our overall, a realized lease revenue or AOR and total co working expire.

Oh sure to these types of operators from near the more traditional reduces to move more we work styles and more more new product is 2.2% of annualized lease revenue.

Great. Thanks for the kind of color a happy Halloween everywhere.

Thank you next next we'll take a question from the line of Daniel Ismail with Green Street Advisors. Please go ahead. Your line is open.

Great. Thank you and happy Halloween to you guys as well just a quick question on the Sherwin Williams, a build to suits potential can you provide any any insight into a sort of the total size of of any potential build to suits timing and you know obviously sensitive subject you can't.

Yeah, just cause a lot, but just curious as to what kind of potential impact I could have on it yet for you guys.

Are you I'm, sorry to clarify Danny are used to spring specifically to our Galleria location or just you hit the highlights across the portfolio yeah. The highlights across the portfolio because I believe they're looking at.

They might be looking more than one area.

More what I'm, sorry, I'm, sorry, I believe I believe they may be that's kind of maybe looking more than one area or any other build to suit opportunity that is absolutely correct. So they are looking at a number of cities first and foremost, it's Atlanta, Charlotte and Dallas has that been reported on the breadth and even within Atlanta, there are multiple locations they could go.

It is still very early but I think I wanted to mention that because it demonstrates the scale of the opportunity that we have at that location. It's effectively unhindered in terms of development only by the actual footprint itself is zone for an effective you could build even greater than 1 million square feet, Although we think thats probably logical given the overall.

Size of the site.

And so that is something that we continue to feel it's probably the best land site in the central perimeter area.

And if there was a relocation coming to Atlanta that was I mean admittedly tech focus is generally going to go to mid town, but obviously theres a tenant that has not tech focus we think we're well positioned to garner that opportunity and we're getting looks as we speak right now I think the other opportunity that we.

We had nibbles if you will.

I have not found has an opportunity cost anything would be in our lake Mary location.

There is you will know we have two assets already in adjacent to that the ability to build another million square feet and we've talked to a number of.

Companies looking to maybe relocate northeast into that market, who would be interested in those opportunities again, though very early nothing eminent yet.

And we've even seen a few of the local Orlando accompanies also interested in that site. So those two are probably the most near term I think the others in our portfolio, our Jason and great opportunity I hate to what we already own and great opportunities, but maybe not as near term if those two which we are hopeful maybe something could.

Come around and the next year or two.

And and let's say that the Atlanta, Galleria would that be something the entirety of that 1 million square feet. You guys with you on your own or what do you guys think about thank you think about bringing a JV partner read on that.

Oh, I think we'd have to consider you know our overall capitalization.

And how we would fund that obviously to sizable development, but I don't history, I think we would need a partner in that not instance, we've got the ability and relationships to utilize other construction management, but firms, but we've got good would want to do that in housing capture all of that upside.

But of course, it would need to be pre lease.

And we would focused on the office component of that project.

Because it would be likely to include other uses and partners on the non office component, but if it came just the office I want to be clear that that's our expertise and we're going to do that in house and manage that construction.

Okay, and just last one for me and some of your Submarkets like Las Colinas in Burlington, How would you guys frame a year over year net effective rent growth and those submarkets.

In Burlington, we've had actually very good.

Net effective rent growth over the last 12 months, we've seen rents generally move from caused a high thirtys into well into the low Fortys and capital has remained roughly flat on all those deals in some instances, we've we buy existing tenancy, we're seeing the benefit that kind of utilize that relationship to get better economics on them.

Arjun as I alluded to in my earlier in my prepared remarks, and Las Colinas.

Has not been is a growth the as you will in Boston.

But we still have had very good absorption in that market, but I would say net effective rents in that market have been generally flat to slightly up.

Okay, great. Thanks, guys.

And ladies and gentlemen, thank you all for your interest in for your questions. Today Mr. Smith, there are no questions pending from the audience at this time I'll turn it back to use or for any additional or closing remarks.

Thank you I want to thank everyone for joining us today, we appreciate the opportunity to spend time with the investment community and we look forward seeing many of you. It may read in Los Angeles in two weeks.

Please feel free and reach out to us if you'd like to schedule, a meeting and we think ever be again and everyone have a happy Halloween and if they Halloween.

Good day.

Ladies and gentlemen, this does conclude todays earnings conference and we thank you all for your participation. You may now disconnect your lines and we do hope that you enjoy the rest of your day.

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