Q3 2019 Earnings Call
After today's presentation, there will be an opportunity to ask questions.
Please note that this event is being recorded I would now like to turn the call over to Matt Stover Director of Investor Relations. Please go ahead Sir.
Thank you good afternoon, everyone and welcome to our third quarter 2019, Columbia Property Trust Investor Conference call.
On the call with me today are Nelson Mills, President and Chief Executive Officer, Jim Flemming Executive Vice President and Chief Financial Officer, and other members of our senior management team.
Our results released this afternoon in our quarterly supplemental package, which can be found on the Investor Relations section of our website or by what the FCC Young for me.
We filed our 10-Q with U.S. you see this afternoon.
An audio replay of this call will be available by this time tomorrow.
Things made on todays call regarding expected operating results and other future events.
Forward looking statements and involve risks and uncertainties.
A number of factors could cause actual results could differ materially from those anticipated, including those discussed in the risk factor section of our 2018 Form 10-K .
Forward looking statements are made based on our current expectations assumptions and beliefs as well as information available to us at this time Columbia undertakes no obligation to update any information discussed on this conference call.
This call will also discuss certain non-GAAP financial measures reconciliations to comparable GAAP financial measures can be found in our supplemental financial data.
I will turn call over Nelson Mills.
Thank you Matt.
Welcome everyone and thank you for joining us. This afternoon, we reported the results from another strong quarter.
Reflecting the success of our strategy.
The quality of our portfolio and the hard work of our entire team.
We have created one of the best position portfolios and the entire office sector.
We feature attractive modernize properties located in some of the most desirable neighborhoods within high barrier to entry Gateway markets.
We've also taken key strategic steps to enhance our ability to create value for shareholders.
Oh properties continue to experience strong demand as evidenced by high occupancy and substantial increases in reflects.
They are ideally located with attractive structural and functional qualities.
Today's most forward looking companies require these features to attract retain and inspire a dynamic and energetic workforce.
You can see evidence of this and the quality of our tenant roster and in the same store results, we continue to generate quarter after quarter.
At Columbia, we maintain a very discipline, a proactive approach to capital allocation investment selection and leasing.
We're always looking ahead for opportunities to further improve our portfolio and strengthen our operating platform with a focus on growing cash flow and net asset value.
And while we've seen a disciplined approach we take decisive action to capture these opportunities.
This has been on full display over the last several years and it's clearly visible in our operating and financial results, which Jim will walk you through shortly.
But first I'd like to discuss the key tenets of our strategy and highlight our most recent decisions to generate growth opportunities.
Our primary goal is value creation for our shareholders as measured by cash flow and in a big.
And we have two key drivers.
Disciplined investment and capital management.
And operational excellence.
Our investment strategy has been to thoughtfully recycle capital overtime and to better growth opportunities.
We have diligently disposed of more than $4 billion noncore assets after repositioning them to maximize exit value along the way.
That capital has been redeployed into very select submarkets with strong demand and tight supply and some of the most competitive markets in the country.
Choosing the right properties within those Submarkets is even more important and the choices we have to make continue to pay off for our shareholders.
As you know our legacy Atlanta assets did not fit within the strategy.
And after selling one and three Glenlake earlier. This year, we have now completed our exit of the Atlanta market.
Feldman Berks huh.
These sales have positioned us with 90% of our portfolio now located in New York, San Francisco in Washington D.C.
The sales generated combined net proceeds of nearly $400 million that we can now deployed into new growth opportunities.
One such opportunity is our ground up development, it's seven nine I Broadway.
This property is attracting strong interest from multiple high quality tenants, including a mix of well established blue chip names.
And exciting new growth opportunities.
As a reminder, seven nine on Broadway is located adjacent to Union Square Park, an ideal live work play location next to one of New York's most active transportation hubs.
We're confident that this buildings prime location and attracted an official design will come and substantial leasing at very attractive rates well before construction is completed.
In addition, we're also under contract on an exciting redevelopment project at 250 Church Street Rebecca.
This property is located in the heart of one of Manhattan, most attracted neighborhoods.
Hi end residential Submarket that has very limited modern office supply.
Our vision for 250 churches to create highly desirable boutique office space that like seven nine on Broadway.
We will attract strong interest from top tenants at impressive rental rates.
Despite being 97% leased today, we continue to find opportunities to unlock value and grow cash flows across the portfolio.
Our highly talented and motivated team leased almost 200000 square feet during the third quarter, making it our most productive leasing quarter this year.
Notable leases signed during the quarter include renewals of credit Suisse at 650, California.
Deluxe creative services to 18 West 18th Street in Chelsea.
And Tetra Tech in Pasadena.
As Jim will discuss in a moment, we also generated our highest releasing rent spreads of the year on both a cash and GAAP basis.
While our portfolio repositioning and transaction activity has drawn much of the attention over the last few years, we can't overemphasize are tremendous leasing success.
Over the past three years, we have at least more than 2 million square feet in our core markets at an average 43% roll up in rents.
Finally, I want to highlight the key strategic step for Colombia.
As announced last week were very excited to have entered into an agreement to acquire enormity real estate management.
The integration of this complimentary platform will significantly enhance columbia's capabilities relationships and pipeline of opportunities in New York do you see in Boston.
The 100 million dollar acquisition, which is expected to close by year end will be largely funded with CXPI shares valued at $26 at 50 cents per share.
With this acquisition, Colombia will capture substantial revenue streams that should be modestly accretive FFO with minimal impact on our corporate gionee.
Joining forces with enormity is a natural fit both operationally and culturally.
Founded in 2002, Normandy, as a leading real estate operator with respect to development and management team.
And we're already working hand in hand within one to development projects seven nine on Broadway and to the teacher history.
By bringing together these two talented and accomplished teams we expect to establish a competitive force within our New York and DC markets.
The acquisition brings us an expanded platform deeper execution string and greater access to capital.
All of which enhance our long term growth potential.
We're very pleased to welcome the enormity team to Colombia, including fan with words, who will join our board of directors.
And Jeff Groaning, who will become our chief investment officer.
As well as Gavin Evan and pulsating, who will also join our senior leadership team.
In summary, Colombia has just produced another quarter of impressive operational and financial results.
We have embedded growth in our existing properties the pipeline of new value add projects that further add to our growth prospects.
And we'll soon have the broadest and most capable platform in our history to drive value creation for our shareholders.
It all comes back to the core drivers our success.
The strategic positioning we've accomplished through our unique investment strategy and of course, the hard work of our talented team.
We continue to seek even more opportunities to enhance shareholder value.
Including the potential repurchase of our own discounted shares.
I look forward to keep you updated on our progress.
With that I'll now turn the call over to Jim to provide additional detail on our results into share our updated outlook for the year.
Thank you Nelson and we appreciate everyone joining the call today.
2019 continues to be a strong year for Colombia.
And for the third quarter, we produced normalized FFO of 39 cents per share.
Our highest level of year.
And same store NOI growth of 6.5%, putting us right in line to meet our form your expectation of 8% to 10%.
Despite low vacancy unlimited rollover.
Our team was able to lease a 198000 square feet during the quarter.
Including a couple of key leases and to 18 West 18th Street and work.
And it's 650, California in San Francisco.
Again this quarter, we saw very high leasing spreads, 53% on a cash basis and 77% on a GAAP basis.
As you know.
Achieving higher rental rates on renewal and replacement leases is a key driver a future growth.
Both interline NFL.
Our balance sheet remains strong.
And as benefited further from the sale last month of Bloomberg sooner.
As of September Thirtyth, we had net debt to adjusted EBITDA and 5.9 times.
Which is down from 6.1 times in June and 6.6 times March.
Our net debt to gross real estate assets also improved to 28%.
Down from 30% in June and 32% in March.
And except for a small construction loan on sort of 99 Broadway.
Yeah, no debt maturities until 2022.
We have more than $4 billion are unencumbered properties.
Our financial strength.
Gives us substantial capital to deploy.
As we move ahead with our strategy.
We will continue to seek attractive value add development and redevelopment projects in our key markets.
In addition, now that the enormity transaction has been announced publicly.
We have the ability to repurchase our shares.
Which we see as a compelling value.
You can expect us to be more active in this regard.
Utilizing our new repurchase authorization that was put into effect in August .
But always acting opportunistically.
Balancing against all the investment options that means.
Turning to our updated outlook for 2019 were once again, raising the anticipated range for normalized Depofoam.
Due to our continued strong financial performance and the later than originally anticipated sales number.
Our original full year range was $1.35 to $1.40.
Which we raised after the first quarter.
And again after the second quarter.
And today, we're raising the range again.
From $1.42 to $1.46.
Up to $1.47 to $1.49.
The rest of our guidance estimates remain unchanged, including.
Aireon lease percentage of 96% to 98%.
Same store cash NOI growth of 8% to 10%.
In summary, 2019 continues to be a strong year for Colombia.
We're pleased with our third quarter results.
Well provide guidance ranges for 2020 normalized AFFO and other metrics on our next call.
But we continue to believe we can again achieved same store cash in a wide range in the high single digits.
Which will result in solid 2020 AFFO.
Despite our recent noncore dispositions.
We're also excited about our upcoming acquisition.
And as Nelson explained.
We expect this transaction will be modestly accretive to our 20 20-F AFFO per share.
However, we believe the real value from this combination will come from the track record relationships and capabilities of the larger platform.
And as we move forward into next year.
We will be focused on leveraging our platform to find value creation opportunities.
While maintaining a strong balance sheet and disciplined underwriting.
With that.
Nelson and I would now be pleased to take your questions.
[noise] to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key.
Akin to ask a question you will need to press star one on your telephone and to withdraw your question press the pound or hash key.
Please standby, while we compile the Q and a roster.
[noise].
Okay.
Your first question comes from the line of John Kim with BMO capital markets. Your line is open.
Thank you.
Wondering if you could provide an update on 149 Madison I know, it's probably enough food situation with we work.
So where does that project stands today and I think in the last call you mentioned that occupancy may start to finish this quarter I'm wondering if that's okay.
Yeah, Hey, John Thanks for question. So yes, just as real quick reminder, we have Oh, we work in three locations around the country.
70000 feet each in DC in California, both of those are highly utilized hockey and see situations and we're monitoring all of it with all the news we work hard to one point on Madison. This building is under construction under build out by the.
The leases commence cash flow begins next summer in June .
Oh.
We works in the process of building out the space.
They are they're working actively either there what they're well along in the process. We originally believe and we're told it.
Two subsidiaries, we work with likely off the cat occupied space its with all the changes that's not entirely clear whether that will be the case.
We do think the space will be ready and a few months.
We are told we're speaking with the senior the new senior people and we work we're told that.
They're very confident in their ability to occupy the space either with.
Some of their companies or or or enterprise tens and they have plenty of demand stacked up so.
That's what that's you know that's what they're doing the work that's what we're being told we have no reason to believe that we won't have full occupancy there, but we're keeping close eye on it.
Is your preference to keep the status quo, just given your existing relationship with them or.
Is there a plan b and C of if you're actively considering.
Well first of all they have legal right to the property there under a 15 year lease and as long as they're not in default.
Their properties, you're paying us a good rate we struck as we've discussed in the past we think we.
We struck a good deal for our investors would good credit enhancement and good terms.
If if they have the ability and the desire to continue to space, then there'll be a great tenant green Dot com.
If that changes for any reason.
We were very confident that that building is would be in high demand and its midtown South property, which is what our focuses is why we retracted that building. The first place. We're very confident that an alternative use would be a workout just fine but.
For the time being.
That's that's where it is there a very up.
Our current.
The current tenant and we've got some good often do anything.
Okay, just switching to Normandy.
Can you discuss I know you've talked about a little bit on your prepared remarks, but can you discuss how you plan to grow the business what kind of assets under management, you're looking to.
Acquire a will have you kind of more in the private equity side as far as.
Funds, if you're looking to raise.
And we'll be sourcing transaction.
Drilling in the east coast or.
And maybe looking at other markets as well.
Yes, So Normandy armies focus has been a new York, Boston DC northeast corridor, and they have quite a good reputation there and they have a lot lot of good things going on there and there is a core their business. Our two funds funds three months for currently active we're acquiring.
The GP interest in those funds.
They have several years each have several years.
To run.
And so we'll step in is the manager and we'll look obviously collect fees for managing those funds.
Oh those funds invest in various projects, which also have other direct investors at the project level and those investors pay fees as well and those are longer lives.
Income streams as well in addition to that there is very various property management third party property management.
These leasing fees.
And it's a it's a very.
A healthy.
Vibrant business. The enormity has has developed and there Bob we're stepping in were merged into companies together really.
At their peak of a very successful story and so we're very excited about that.
All of those income streams may not last forever most of them are quite durable.
And we together will will decide what we renew and continue.
But the real reason as Jim mentioned.
The reason for the the merger was just the the talent. The reputation is this company has.
The complement to our our team and our Rob.
Our platform.
And the ability to go up to forwarding increased tied together sources of capital.
I will include project level equity and debt raise as opportunities arise.
It is.
We remain remains to be stuff will decide at some point whether to do another fund that's certainly a possibility.
Before we could go with direct project by project financing and we will.
We certainly are going to be we're going to take great care and funds freedom for investors and play those out.
And then from there will have overhead various options for raising new capital and doing projects together so.
Yeah again.
Gregg said about the opportunity Greeks. It you know it was not Normandy was not looking to sell their company.
We were partners together, we this this really started his discussion how we can do more together how would you strategically aligned the two companies.
And a few months ago, we came to conclusion that pretty much companies together with the best answer for both of us. So.
That's how we got to this point that does not necessarily signal, we're going to dive headlong into.
Bunch of new development projects.
We do have an active pipeline Arlington opportunities, but you still got the same discipline.
Board and management team Columbia shareholders had before.
You know directing those efforts. So we will continue to be thoughtful and disciplined about it we now have more weapons more tools more broader.
Relationships access to capital.
We just think it really elevates our game on many fronts.
And that's yeah, that's the reason to do it.
So how does not impact your acquisition pipeline.
As it stands or you are you still looking to do more value add core funds type of acquisitions are you looking to do more.
Redevelopment that yes, we will we will certainly and as you know we've we've actually launched two development projects relatively small relative the overall portfolio.
Last year to both of those with Normandy.
We do have a couple projects, we're looking at Weve with Normandy.
You know potential value add projects. We also have some core core plus assets Oh in New York in San Francisco They.
We're looking at and even DC, so we keep up and keep it on the DC market. So.
No.
You know at any point in time, probably 15% to 20% would be a cap on our at risk.
The at risk portion of our portfolio.
The more we lease and more successful we are the more we can do more value add but we do not plan to.
Significantly expands the the percentage of our of our shareholder dollar cigarette at risk.
Opportunistic investments.
Great. Thank you.
Thank you John .
Your next question comes from the line fit from Bell Malhotra with Morgan Stanley . Your line is open.
Thanks for taking the question just another question on Normandy could you clarify.
The.
The payment or the 100 million can you break that up into if there's an earn out component.
Based on the metrics and it's not just how is the payments structured between what speed now versus maybe what's more deferred.
Hey, Vikram this is Jim that said.
Very good question it was something that we.
And a lot of thought terms part of the way the deal with structured so.
Just to.
For everybody in the same page that $100 million.
13, and a half of that is cash that's paid at closing and the other 86 and a half is.
Are these LP units, they're essentially shares at 20 650.
And.
We went into this enormity went into this with the idea that there should be some tie Ed.
To where we can all be vested upfront.
The.
There are three original principles, plus one investor enormity.
And roughly.
Two thirds of the of that fast right away.
And the other one third is held back invest over really a three year period and that's some of that is shared by the way with other key members of the team that are going to come to work for us. So some of that one third is going to.
Folks who have been employees of Normandy.
To really tie them in and align them with shareholders and then the rest goes to Normandy form of principle. So there's a substantial amount at stake.
Going forward, it's tied to continuing to work for us and.
And it was structured that way on purpose.
And just answer that Oh piano, they just had to that Vikram I.
Jim mentioned there at the end.
A portion the purchase price is tied to retention of key employees and then also it's important these key senior employees that are coming over who joined our senior management team.
They're being compensated just like the rest in our senior team is much of their compensation is tied to shares is tied to performance.
Performance for our shareholders and investors over several years. So we think theres a lot of alignment and retention at all.
Those features built in.
Got it Okay and then.
The separate question on just to the the buybacks.
Versus sort of you know acquisitions here can you sort of update does on how you're thinking about buybacks, just given where the stock is relative to your view of anything.
Yes.
Sure Vikram way just so everyone is clear we just we have not bought shares back in some time.
The reason, which we really couldn't discuss recent watch that we had this transaction pending and we thought it might.
Uh huh.
Our lawyers, especially thought it might you from first to be buying shares with this transaction.
Now that's behind US has been announced.
And so we'll be three going forward to to buy shares we did renew our authorization with a new 200 million dollarss.
In August so we are free to go do that and we do.
We have bought shares at this price level.
And even a bit higher in the past the reason as we think this price compelling versus our in I'd and really intrinsic value the company and so yeah. We we do want to keep the business going forward and we do.
There is a strategic value and doing some value add where we can add value, but we think it's very clear value in the stock and I think you should expect us to to see some share repurchases were going to be opportunistic so I'm not going to lay it out.
And wouldn't really be able to laugh laid out that clearly, but we're now.
Able to get in the market and we see a lot about [noise].
Okay, great. Thank you.
Thanks to occur.
Your next question comes from the line of Sheila Mcgrath with Evercore. Your line is open.
I guess [laughter] Nelson I was wondering if you could help us understand how you thought about the valuation of Normandy. How you arrived at the 100 million and also the 20 650 share price.
Oh, Hi, Sheila so.
It was a heavily negotiated.
Price.
As you as you can imagine if I mentioned earlier normally really wasn't looking to sell an exit and.
And we have our bankers they have their bankers, we looked at cash flow streams. The various cash flow streams I mentioned earlier I mentioned, some are more durable than others. Some some.
You know would have a higher cap rate multiple than others and so.
We it was a it was a negotiated price our board was very involved from the beginning with our advisors in bankers.
But we looked at comparable multiples from other raw management companies and.
And again, we feel like it was a very fair deal is obviously.
Normally owners did.
But you know.
And then go shaded, but largely based on a.
Evaluation of multiple streams, we multiple multiples on cash flow streams.
We.
Obviously, there's there's enterprise value there beyond that it's a talented team it's a great fit with us.
There are a lot of intangible reasons, you know two valuations that you could you could add on to that but.
We were very we were very pleased with the.
Yes.
The quality of cash flow streams, and the multiple we pay for though so we will take that very seriously with any investment.
And we were confident that we got a good value for shareholders, but it was a heavily negotiated over several months.
[noise] process.
Okay, Great and then on the the you said in your comments minimal impact to DNA do you mean that there's incremental DNA from this transaction, but the fee streams more than over.
More than offset that incremental DNA.
That's right I mean, we did you're putting together to companies that have a lot of similarities in terms of platform that structure and and operations and so forth. So there were some redundancy some synergies there.
We had about 100 people they had a little bit more than 100 people.
And putting the two companies together again over several months of planning.
There were several positions eliminated on both sides and so we were very conscious of that and trying to get to an efficient structure. This platform. So there were some real savings there on for the two companies together.
And then a lot of a lot of the incremental costs that we're bringing on and people were bringing on our tied directly to.
Income streams property management development projects.
And management.
And so those are allocated to the project and and don't really affect garbage unite so we will give.
Give more details on this later in the year or when we provide guidance for next year the latest.
But.
Yeah, the incremental corporate DNA, which.
Just doing straight up standard allocations, we think it's going to be very modest increase be very modest what what we reported today.
Okay, Great and I was wondering if you could give us an update on the interest level at a 799 Broadway I think that will be completed sometime next year, just wondering how that marketing effort is going.
We do expect the property to deliver late next year and that's one of that side of is going quite well a lot of interest on the tenant prospects side.
We have entertained and are having conversations around a couple of offers already all substantial portions of the building.
These are high profile.
Good quality tenants.
Still a you know we you know nothing is.
No we're not on the verge of thinking anything just yet but.
We're very encouraged by the level of activity and it's just we're going to have a lot of choices. There in terms of who we choose and we were very confident in meeting our meeting our expectations on rates and terms. So I know, there's a bit vague, but but we're confident we'll have something to announce in not too distant future.
Okay, and one quick one for Jim just on DNA in the quarter I see you did separate I'm, assuming that 2 million. Some amount is related to Normandy cost, but away from that the GE. They did decline sequentially by a million or more dollars could you help us understand that.
Sure Sheila it's the DNA.
For us and probably most companies tends to be a little bit one thing we have director stock grants in the second quarter that.
With that caused that when to be higher than the third quarter and then.
Yeah, there just curious things getting into the weeds, but.
Any unused medication gets forfeited in the third quarter. So it swings around a little better. So it's not unusual to see it bumped up and down a little bit quarter to quarter, but I would say this I'd say we're on track.
To meet our range, we feel very good about that in fact, we're pushing towards the long into the range we believe.
So we feel that DNA is under control.
Okay. Thank you.
Thanks Sheila.
Again, if you would like to ask a question press star one on your telephone.
Your next question comes from the line of Mitch Germain with JMP Securities JMP Securities. Your line is open.
[noise] Nelson did I hear you mentioned, Boston again is the target market as yet [noise].
And essentially was that assumption that you know maybe deal activity or do you feel a little more constructive about growing there obviously, it's been a pretty tough so far.
Yeah. Thanks to the question Mitch I know I know, we sell a bit of schizophrenia about Boston, sometimes we're in route as you know weve on the as you mentioned, we owned the property there.
Well performing property by property there once you've seen Huntington in Boston, we have kept close eye on Boston, we've actually been must be opportunities there are really over the years.
We do not have a team there and we have we focus more on on Manhattan, San Francisco, but we've always like Boston always considered as a potential fourth market.
It's a very very tight market, but much like San Francisco today. So it's yes, it's tough its competitive.
But given.
You know given our history and interest there given normal these history track record relationships. There. It's it's a market we're going to pay more attention too. So there is nothing eminent there there is no theres nothing.
Actively in the pipeline.
But I think I think this is the market, we're going to give more serious about.
Okay.
And then you are talking about getting serious about Boston to getting so it seems like it getting serious a little more a bit about buying back stock I.
I mean, we you know over the past couple of years, we've seen these levels before but we've seen a bit of a reluctance to.
Acquire stock, possibly because you had deals that you felt pretty.
Constructed that as well.
And maybe what does it say with a deal pipeline or or be you know why maybe the change here in posture towards buybacks.
Sure Mitch.
We just haven't been in the market.
And you know it's been we haven't really been able to explain why but the reason it's been this pending transaction has kept us out of market that's now announced.
So we are free to go into market.
And Meanwhile, we've got a pretty good balance sheet, we've sold our to Atlanta.
Non core properties. During this timeframe and you know as you can see our card debt's down below 30% and its and the stock is trading at a.
Big discount to what we think it's worth so.
There is value there and I think it's our job ago addressed that now strategically we got to keep in mind other situations, where we maybe able to create value with real estate and.
We're in a capital intensive business, but I think part of our job is to go create value capture value. When can you know images to just reiterate.
For the last few quarters.
Or lack of share buy backs was entirely related to this we thought this was a material.
Transaction is material enough development that we now.
Way.
Obviously.
We understand the shares are trading substantial value, it's a great use share dollars as Jim said.
We do have balance of other duties due.
You know scale and Packard issue, but.
Yes.
We'll see a different competitive standpoint.
Not yet last one from me it seems like I kind of interpreted in R&D as a data is more of a.
Acquired a higher type of a transaction.
And.
It sounds like you're suggesting you don't really have a specific plan about.
How to leverage our organization it seems like from account level, you likely you're getting but you know you may consider funds and she may consider separate account investments is I mean, yeah, I think one of the things the investment community seems to dislike is uncertainties. So.
Over the course next couple of months as you finalize the transaction should we expect a little more although a clear a plan of how you intend to work together going forward.
Yes, absolutely and to be clear Mitch.
Raising capital.
Our private capital is absolutely in the plant.
We have is powerhouse organization Normandy in addition to being great on the real estate.
[noise] performance side. There are also excellent fund managers investment managers a reputation there we want to use that plus we have a fair amount of private capital under our management with all the Onsen Blackstone, So we will absolutely.
Use that the question is whether it would be a fun.
For a club or just a private capital a project the project basis. Those are the things that will will provide more clarity around.
One of the things we're doing the reason is going to take US a couple months to close is where we're actually talking to existing investors normally platform. We are we're introducing ourselves to them, we're getting their consent for the transaction and the process of doing that will will educate ourselves further on what those opportunities are to extend those relationships and and and into future.
Our investments and we have our own relationships and there'll be new relationship. So.
We absolutely.
Yes, it is a great.
Oh.
Accumulation of talent and that is a major driver.
We do have a plan beyond that to renew and grow.
And further develop you know.
This this this business they freed so yes, absolutely more to come on that.
No later than are.
2020 guidance, but possibly even for as we get this deal closed and we and we would pull that story together.
Okay, we understand we think element, which I'm actually going to listen to your point about the uncertainty.
And this is something.
We're going to focus on the next couple of months.
Thank you.
Thank you thanks.
Your next question comes from the line of Michael Lewis with Suntrust. Your line is open.
Great. Thank you.
Are you are you able to tell us what that 2.4 million a transaction costs I like Sheila assumes that that was normative related but maybe you could give a little more detail and then.
You know can you share you know what additional costs might be or should we expect to find that out when a deal closes.
Hey, Michael Yes that is Normandy, and its lawyers and bankers fees and there will be more.
And I don't think we I think we have an exact number yet but it will be.
You know that that say, it's just it's a substantial piece of it though that $2.4 million.
But more to come on that want to come on that Michael when we you know we closed transaction and we announced more detailed transaction and the impact.
Going forward.
You know we're.
As we've mentioned.
It's a good it's a good result booking.
Near term and longer term near term accretive modestly, but and then the growth opportunities from there or something we're very excited about more details to come on that.
Soon.
Okay Fair enough and then is there anything where you could say about the fee stream is maybe you're not quantifying those but maybe even a sense of you know how much of these fees or investment management versus property management versus leasing versus development, just kind of a sense of you know what you're kind of taking on here.
They want.
Well, Michael we're not I guess, we're not prepared to.
To provide detailed on the stratification all those I will say there is substantial.
Long term asset management fees, the best management fees from the funds.
Two funds on three month for our it at the core of the business.
Oh, yes, other fees like leasing development construction management.
Property management are significant.
And while those aren't is long term and not quite as durable on their face.
They are quite renewable given the platform the relationships the future opportunities and so forth. So.
We understand that they're not as durable and long term as rents on properties, but we also did not been say multiple and pay for property. So we that was all take into account so.
Yes, we will well break that down not only in terms of.
You know of what we're hearing they want to what we expect.
Back to Mrs question earlier, what we expect the platform to the like going forward in the sources of revenues and activities, we could provide more information on that.
And in a couple of months and I think Michael.
I know everybody just curious where not.
We're not switching to a fee business I mean, where we're going to have $100 million Ns and we've got $5 billion and real estate. So this is not really the bulk of our business or the bulk of our revenues by any stretch. It you wouldn't expect us to do more there so.
I think.
Really what's most relevant is what is it do.
For us going forward and well what provides more clarity on that too as we provide guidance for next year. We just have been in a position to do that.
Precisely in yes, except to say it's modestly accretive.
That's a very significant personnel costs, but of course, it's accretive so the the fee stream, we believe will be substantially more than the personnel costs and.
We think and we've really enhance the platform so that doesn't really.
Last one is really motivation for doing it so again.
It's not a big part about investment portfolio by any stretch.
Its a.
And we do feel that the price that was paid.
For the fee streams fit with them.
What our bankers were expecting based on other transactions have been done in the market both public and private.
And we felt that it needed to be that way. So that we felt okay about the acquisition, but of course, the motivation was to expand the platform and to get the talent relationships and the track record and the excess.
And Michael when we say it's accretive.
Modestly accretive that's that's on a.
For share basis.
So we are issuing a few more shares in connection with the transaction. So it's producing enough net income to cover that those shares and the overall net accretive again modestly to all shares. So you know it's so it's a good short near term outcome as we've said.
The near term is not the primary reason for doing this transaction, but.
Unlike just going out and hiring talent and assembling that and organically, which would include costs no revenues.
This is the best of both worlds you get a real business here a viable.
Renewable extendable business with also the great talent so.
We think it's a very unique and on top of that the cultural operational fit with a group that we already know very well so from those reasons.
These these these transactions.
These mergers are always difficult.
As you know, but it's hard to imagine one there was a much more logical better fit and this one.
Got it and then lastly, I just wanted to ask a new York cap rate question.
You know it's been a long time now that you know investors have pushed back on these discounts teneighty by saying you know Davies, our real or they're not right or the cap rates aren't right. You have bought back shares in the past. So that you know I assume you still see it.
Really wide a difference between the public and private market valuations, but have you seen any movement in cap rates or you know kind of [laughter] you know how do you respond to that kinda pushback.
You know Michael we're out there competing both in New York and elsewhere on a weekly basis for that next opportunity even Stephen things that we don't go for a second or third round on where we're out there very active and there is still a lot of capital from all of the world.
Aggressively chasing quality.
Real estate office real estate.
And.
It is a bit of a bifurcated market right now the new product.
Newly renovated product renovated finished product like we have.
Is there is no evidence that pricing is cool nodes at all some of them or standard commodity.
Locations commodity.
Okay.
Product is maybe not you could argue is not trading quite as well or is not much interest, but but overall I'd say.
Cap rates in New York crude to be holding up well and particularly for for quality location and quality properties.
That'd be our view and that's from as from buyers.
From a potential buyers point of view as well the seller.
Okay. Thank you.
Thank you thanks, Michael.
Your next question comes from the line of Sheila Mcgrath with Evercore. Your line is open.
I guess quick follow up on any known move outs that we should be aware of and what are there any lease termination fees in the quicker.
She has they weren't any material lease termination fees I go look to make sure was absolutely zero, but they weren't any material ones and no.
No there are not any material move outs or they were anticipating.
No of course, we're well leased we got very limited rollover going forward. There a couple of key leases that Nelson I. Both mentioned what was the top two floors in or 18th Street building when we refer to as rebel but this was another tenant there.
I think we've gone on some tourist through that space that get renewed at us very substantial rollout.
Credit Suisse on the top two floors at 650, California was also renewed.
It is substantial rough we did get to force back at 650, California, but again that will be a very big rollout as we get that space leasing and we wish we had more if we shed more space to lease.
Building, so we're pretty tight right now and I don't we don't we're not concerned about that Sheila we do have a couple of situations, where we have a tenant in place.
That's no longer needs as much space.
And is considering mover of vacate however, the tenant is has good credit the tenant is good for the rents there's plenty of lease term left.
But there is interest from other tenants at roll ups.
To come and take this space loser grid opportunities to have.
And we may take advantage of those or could be some news report on that next couple of months that will be good that'll be it'll be good news.
The needle overall, but it's a good story just again reaffirming.
The attractiveness of.
Of the space, So when you're 97 absent lease it's difficult to find a whole lot of Ah.
Upside and activity, but we do have some better on the portfolio that we take advantage of.
Okay, great and just kind of leasing spreads in the quarter. They were significant I'm sorry, if I missed this but can you just tell us whether one specifically striving that or where property to give us a little detail on the spreads. He goes past two Sheila that I'm I mentioned that 18th Street in New York, and 650, California, where the too big.
Drivers there each around 30 31000 feet. So there was it.
And then there was more another significant lease.
Tetra Tech.
So we had three which is that.
Our Pasadena property. So those were the through and that was.
I say between the three of those those were over half of that leasing soon.
Okay. Thank you.
Thank you.
Your next question comes from the line of John Kim with BMO capital markets. Your line is open.
[noise] follow [laughter] and often just a follow up on Normandy.
Just because it's been a recent transaction so it's not in any of the accretive deal. It's modestly earnings accretive next year.
I was wondering what does it do as far as your earnings growth profile.
As having this platform.
Accelerate growth going forward.
Yeah, I think a absolutely right so.
Just look at it.
We're already doing as you know some development activity through partnerships with Normandy.
And we're very excited about that where they're not we've done. This transaction, we're very excited that opportunity, but we are partnering with.
Third party you're paying fees.
You are paying promote you're sharing profits.
And so just from that point of view to have capabilities.
In house.
To do that net in addition to that construction management fees.
Other other fee streams other.
Ways to generate that capital so I think it does it doesn't make.
That more profitable it doesn't make those opportunities more profitable for us in addition to that.
More importantly.
It gives us the opportunity to be more competitive or to have better chance. It it is winning compelling opportunities or the ability to attract investors alongside us.
The likes of.
And invesco.
And counters in Texas teachers, and other current partners of Normandy.
The ability to attract some of those investors alongside who will also be great partners pay fees. They promote I think it brings all that to the table for US now we're going to continue to be disciplined with our investor capital.
We're not going up for you know I said, we used that 15, 20%.
Cap on on.
Risk investing for our for our investors dollars will be DB disciplined on that but I do think this does open.
Door and provides us the base from which to.
Due to increasing up our profitability in our earnings.
Value creation opportunities so.
Yes.
The can you discuss what the different multiples you used to value.
Different fee streams work.
And John we were not we can't really we won't get into that at this point, what we will do as we provide guidance for next year will provide some building blocks as you can understand how this fits with the company.
I will say, we did look at each different.
Type of fee stream, we evaluated with our bankers.
In terms of durability, we delicious test to make sure that.
The numbers really looking at were really real.
And we are holding up during the year end we.
Looked at this multiples that had been paid on other transactions, both private and public real estate.
Public and private real estate targets.
With our bankers and so we feel good about it.
But thats all really we can we can say at this point.
Okay. That's helpful. Thank you.
Yes, Thank you John .
There are no further questions at this time I will turn the call back to Nelson Mills for closing remarks.
Thank you everyone for joining us today, we really do appreciate you.
Participating and for the questions great questions.
And we really are grateful for your ongoing interest in Colombia property Trust.
You can tell we're very excited about the future and are in value creation opportunities going forward and we do look forward to updating you with more more details on on a recent transaction and will soon.
Be able to provide more more guidance on the rest of this year in 2020 so.
Thank you again for your time and please reach out to us anytime with any questions and we hope to see you soon have agreed.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.