Q4 2019 Earnings Call
Good day, ladies and gentlemen, thank you for standing by welcome to the Paramount Group fourth quarter 2019 earnings Conference call.
At this time, all participants are in listen only mode.
A question and answer session off all the formal presentation.
Please note that this conference call is being recorded today February 13th 2020.
Well now turn the call over to Rob Simone director of business development and Investor Relations. Thank you operator, and good morning by now everyone should have access to our fourth quarter 2019 earnings release and the supplemental information both can be found under the headings financial information quarterly results any investor section of the Paris.
About website at Www Dot Paramount Hyphen group Dotcom.
Our comments today will be forward lookingstatements within the meeting of the federal Securities laws.
Forward looking statements, which are usually identified by the use of words, such as well expect should or other similar phrases are subject to numerous risks and uncertainties that could cause actual results could differ materially from what we expect.
Therefore, you should exercise caution in interpreting and relying on them.
We refer you to our FCC filings for a more detailed discussion of the risks that could impact our future operating results that's natural condition.
During the call we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance.
These measures should not be considered an isolation or as a substitute for our financial results prepared in accordance with gap.
A reconciliation of these measures to the most directly comparable GAAP measure is available at our fourth quarter 2019 earnings release at our supplemental information.
Hosting the call today, we have Albert Behler, Chairman, Chief Executive Officer, and President of the company.
Overpays Executive Vice President Chief Financial Officer, and Treasurer.
And Peter friendly Executive Vice President Lisa.
Management will provide some opening remarks and be we'll then open the call to questions with that I'll turn the call over to Albert.
Thank you, Rob and good morning, everyone.
We ended 2019 on a very strong old it's all a strategic initiatives continue to translate into results.
Core if at all for the fourth quarter was 26 cents per share, bringing our full year 2019 core f. all to 98 cents per share a penny above the high end up a previous guidance range.
Today, we I initiated in 2020 core efforts all per share guidance between one dollar and one dollar and six cents per share.
Wilbur will review, both a financial results and our 2020 guidance in greater detail.
In addition to the strong financial results, we achieved in 2019, we executed on several operational and strategic initiatives.
Let me recap some of these.
We leased over 1.5 million square feet, our highest leasing gear on record as a public company and twice the original goal we set at the beginning of the year.
This leasing shelf to reduce roughly 80% of 2020 role in New York and San Francisco and was done at a weighted average starting rents up nearly $90 per square foot and for a weighted average job of almost nine years.
Mark to markets on second generation space were robust at 14.8% cash and 17.1% gap.
This would have been even higher at 15.6% cash and 18.1% gap. If you excluded the impact of the previous short term renewal at 900 thought.
We completed.
Our 200 million share buyback program by repurchasing a total of 14.7 million shares over the last 18 months, representing about 6% of our public float.
We repurchased C shares at a weighted average price of 13.59 per share, which is not only significantly below and they'd be estimates, but also below current stock price levels.
At these levels, we haven't embedded gain off nearly $12 million and a saving 5.9 million annually in dividends.
More importantly, we funded our share repurchase program and the leverage neutral them at a using a portion of the proceeds generated from asset sales in Washington D.C.
We use the remaining proceeds from asset sales to complete over 1.3 billion up expeditions in San Francisco, one off the nations fastest growing markets with joint venture partners and be also refinanced all headquarters at 16 subjects, we Broadway by upsizing the debt to 1.25 billion.
And reducing the interest rate to 2.99% for a 10 year term effectively borrowing addition that an additional 200 million at no incremental interest cost.
As we head into 2020, our strategy remains unchanged and all value proposition continues to be straightforward with the overarching premise being all leasing strengths and disciplined focus on allocating shareholder capital.
As we have demonstrated consistently over the past several years, we can recycle capital very effectively by repositioning it into higher growth opportunities all by taking advantage of extreme market dislocation in all share price.
That being said, let me spend a minute on each of all markets. We remain very constructive on the New York office market.
On our last conference call.
I reason that we could see tech tenants begin to take more space in the market, it's unprecedented levels ranging between three and 4 million square feet.
In the fourth quarter itself, approximately 2 million square feet of this potential requirement has been executed all of which is positive absorption and great for the city.
Well I will let Peter comment on this in greater detail. The one thing that is clear to us that tech tenants up all over the city and seeking a product that fits their growing needs.
Looking back we see that Paramount has captured its fair share of this demand.
The time of our IPO Tami tenants represented approximately 9% of our portfolio.
Today that figure has more than doubled to 19% and continues to grow.
As we cede the evolution of the tenant makeup sustained office using job growth and low unemployment continued to be drivers so strong underlying fundamentals.
The availability rate in Midtown remains healthy and average asking rental rates are trending up its.
This market backdrop should surface tailwind as we work to lease of Barclays space. It. So do you know one sixth Avenue.
Our goal remains to lease at least hop off the space before expiration at year end.
We remain confident that given the quality at location of the building the size of the block need the base about building and the large and efficient floor plates. This space will prove very desirable in the market.
In San Francisco demand remains robust as a market continues to be supply constraint.
During the year, we leased nearly 1 million square feet in San Francisco was impressive cash mark to markets nearly 25%.
Not only was it a record here from a leasing volume perspective, but the achieved several minds milestones from an occupancy perspective as well.
We addressed upcoming role at one front and three under admission both of which are now 100% leased.
One market Plaza is 98.4% leased bringing our San Francisco same store portfolio to 99.3% leased truly remarkable.
We are excited about the new opportunities, we haven't San Francisco with the acquisition of 111, Solder 55 second and market Center, we have already begun executing on our business plans and bill approach these opportunities and the same proactive humana is all previous expeditions, thereby creating additional value.
For our shareholders.
We are happy with our capital allocation strategy and our portfolio transformation.
With only one acid in Washington, D.C., we are now essentially a by close to read with some of the very best assets in New York and San Francisco.
New York portfolio were represented approximately 70% of our and why would the remaining 30% coming from San Francisco, which by the way is up from about 8% at the time, we went public.
In closing why do we continue to marine remain disciplined and opportunistic in managing the portfolio or our main focus will undoubtedly be to lease up the Barclays block, which remains a single biggest priority.
With that I'd turn the call to Peter to give additional insights on our leasing.
Thanks, Albert and good morning.
During the fourth quarter released approximately 290000 square feet, bringing our full year 2019 totaled two more than 1.5 million square feet leased.
Approximately one third of this leasing production addressed immediate vacancy in the portfolio or space scheduled to expire during 2019.
The balance of our leasing contributed to the reduction of our portfolios near term lease role just currently a manageable 7.4% expiring per annum through year end 2024.
At quarter end, we were 96.1% leased on a same store basis down 30 basis points year over year, driven largely by the Henri Bendel lease take back in January 2019.
Excluding this strategic lease termination our same store leased occupancy would have been up 10 basis points year over year.
Our current availability is remain very well positioned relative to tenant demand and we expect to build on our proven track record of attracting credit tenants across a diverse range of industry.
Let's review our results by market, starting with New York.
Manhattan ended the year with the highest ever a three year leasing total on record.
During this time Manhattan realize a jump and leased occupancy of 17 million square feet from 366 million square feet to $383 million square feet, helping to offset the influx of new supply and maintain a stable availability rate during this period.
Of equal importance is the ever increasing depth and diversity of the city's tenant base.
During the past year, the tech sector accounted for 25% of the leasing activity in Manhattan, surpassing financial services for the first time ever as the largest driver of market demand in a given year.
The emergence of Tech is yet another reminder, that irrespective of industry Manhattan remains a magnet for companies seeking the best and brightest.
The top three largest tech deals in the fourth quarter occurred in Midtown wherever we are seeing significant.
New tech demand across the city.
Ability to scale and dynamic locations superior access to transportation robust infrastructure and large floor plates are all hallmarks of what the tech sector is seeking and their real estate.
Our portfolio was highly diversified and we expect to capture our fair share of this tech demand that will undoubtedly continue to fuel absorption in our markets.
Turning to our New York results, our same store portfolio is 95.5% leased at quarter end down 50 basis points year over year.
As mentioned Henri Bendel had a significant impact on same store leased occupancy. If you were to exclude the former Henri Bendel lease termination at 712 Fifth Avenue, The New York portfolios occupancy would have been 96.2% leased up 20 basis points year over year.
During the fourth quarter, we leased approximately 124000 square feet, bringing the full year 2019 total to over 540000 square feet.
We achieved a weighted average lease term of approximately nine years with initial rents nearing $84 per square foot.
Of the 540000 square feet leased 200000 square feet serve to eliminate 63% of our 2020 lease roll.
With only 1.4% of leases expiring in 2020, we turned much of our attention to 2021 and 2022 explorations.
Looking ahead, the New York portfolio is very well positioned with approximately 6% expiring per annum through year end 2024, which figure excludes the lease expiration of Barclays 500000 square feet as reflected in our 2021 lease expiration schedule.
Our New York properties are ideally located relative to current tenant demand we have capitalized on this competitive advantage by successfully leasing to the most discerning of tenants quarter after quarter.
We remain focused on the successful lease up of our remaining availabilities the largest of which is the Barclays block of space at 13.1 Avenue of the Americas and perceive current market conditions to be a tailwind in our effort to lease the space.
30, no one avenue of the Americas is located in the heart of the sixth Avenue Submarket among mid town strongest performing sub markets, having realized more positive absorption than any other midtown submarket in 2019, and boasting and availability rate of 9.5% 180 basis points below the broader midtown ever.
Rich.
We are finalizing our marketing center at 31 in March of this year and are confident in our current level of interest which has been diverse and its makeup.
Our goal remains to leave lease half of the Barclays space by year end and we look forward to updating you on our progress.
At 712 fifth Avenue, we completed the lobby renovation at September 2019, and are thrilled with the result during the fourth quarter, we completed six deals totaling more than 51000 square feet at rents among the highest in the market. We are encouraged by the tour activity at the high end and are confident.
712 fifth Avenue will continue to perform well.
In San Francisco leasing fundamentals continue to strengthen and we continue to capitalize by securing long term deals with best in class tenants net absorption in San Francisco remains positive and average asking rents continue to increase up 15.6% year over year for class a product in the CBD.
Okay.
Vacancy for class a product in the CBD continues to decline down 160 basis points year over year to 5%.
It is our expectation that rents will increase further given robust demand and limited supply.
Our same store portfolio in San Francisco was 99.3% leased at quarter end up 130 basis points year over year.
During the fourth quarter, we leased approximately 166000 square feet.
For the full year, we leased just shy of 1 million square feet at weighted average term of 8.6 years with initial rents nearing $95 per square foot.
Not only did this leasing velocity increase occupancy but are also contributed toward the reduction of 2020 lease role.
During 2019, we eliminated approximately 86% of our 2020 lease roll excluding the three properties we acquired during the year.
The San Francisco portfolio is very well positioned with approximately 7.6% expiring per annum through year end 2024.
At one market Plaza, we completed two transactions during the quarter, bringing our occupancy to 98.4% leased.
One market continues to achieve among the highest rents in San Francisco.
At one front Street and 300 Mission Street, we are now 100% leased as a result of the long term 265000 square foot expansion with first Republic back at one front and the three deals totaling more than 262000 square feet at 300 mission, both of which were executed in the second quarter.
At 111 Sutter Street, we're now 86.3% leased up from 70.3% when we acquired the property in February 2019.
During the fourth quarter, we successfully completed two deals totaling approximately 36000 square feet at healthy double digit cash mark to markets.
The building is architecturally significant and appeals to creative tenants and traditional tenants alike.
Lastly in San Francisco, we're very excited by the opportunity we Havent market Center, a multi building office campus that is currently 95.6% leased with several key in place leases well below market. The building boasts unparalleled transportation access desirable amenities, including the fitness center.
Our efficient floor plates and spectacular view corridors in the heart of San Francisco, CBD, all of which support our team's efforts to take advantage of the current and upcoming availabilities and create tremendous value in the process much like what we have done in the recent past with our portfolio in San Francisco.
With that summary, I will turn the call over to Wilbur, who will discuss the financial results.
Thanks Peter.
We had another strong quarter, a financial and operating performance our core FFO for the quarter was 26 cents per share, bringing our full year 2019 core FFO results to 98 cents per share.
Two cents above the midpoint of our most recent guidance.
Our same store cash NOI grew by 5.9% in the quarter, bringing full year same store cash NOI growth to 7.3% 30 basis points higher than the midpoint of our guidance.
The same store cash NOI growth in our New York portfolio was a healthy 5% and San Francisco grew by a robust 13.1%.
As expected same store leased occupancy decreased by 30 basis points year over year from 96.4% to 96.1%.
This decrease was driven by the early termination of the Henri Bendel space and lease expirations in the fourth quarter at 903rd which we had previously telegraphed.
As highlighted earlier, we continued our strong leasing momentum and despite limited availability, we have been executing leases for significant space in both New York and San Francisco.
In the quarter, we executed 20 leases covering 290000 square feet of space at positive Mark to markets of 1.1% cash and 10.1% gap.
The current quarter cash and GAAP Mark to markets were impacted by an 18300 square foot lease in the mid rise of 903rd.
That was executed at market trends, what was previously leased for a nine month period at over $93.50 per square foot.
Just to put that in perspective, the average in place rents at 903rd are roughly $70 per square foot.
Excluding the impact of this lease mark to markets would have been 4.4% cash and 15.9% gap.
Year to date, Mark to markets were 14.8% cash and 17.1% gap and would have been even higher at 15.6% cash and 18.1% gap. If you excluded the lease at 903rd.
Turning to our balance sheet, we ended the quarter with over 1.3 billion and liquidity.
We refinanced 16 33 Broadway in November.
Financing was received with tremendous reception as evidenced by its execution.
We essentially borrowed $200 million for nil, keeping our cash interest unchanged pushing out maturities and lowering our weighted average cost of debt capital.
Our outstanding debt at quarter end was 3.75 billion at a weighted average interest rate of 3.37% and a weighted average maturity of six years.
87% off our debt is fixed and has a weighted average interest rate of 3.3% and the remaining 13% is floating and has a weighted average interest rate of 3.6%.
We have no debt maturing until the fourth quarter of 2021 and beyond that our maturities are well laddered.
Turning to our guidance.
Outlook for 2020 remains solid.
We expect to lease between 700000, and 900000 square feet for the year.
We expect same store leased occupancy to be between 96.6% and 97.2%.
We expect same store cash and allied to grow between 3.8% and 4.8% and we expect core FFO to be between a dollar on a dollar six per share or dollar three at the midpoint.
This represents an increase of five cents per share of 5.1% when compared to 2019.
The pluses are as follows six cents from higher same store cash NOI growth four cents in cash NOI from acquisitions net of dispositions.
Two cents, resulting from lower weighted average shares outstanding due to the share repurchase in 2018 in 2019.
And one sent from a reduction in general and administrative expenses.
These pluses aggregating 13 cents are partially offset by the following.
Three cents of higher interest expense, resulting from new debt on the assets acquired in San Francisco.
Three cents in lower straight line rent and Fas 141 income primarily due to the burn off of free rent.
And two cents from lower lease termination income that is not projected to be received in 2020.
It is important to note that our current guidance assumes that Barclays will be India space for the duration of the term which ends on December 31st 2020, and pay rent for the full year, which the contractually obligated to.
If we're successful and releasing a portion of the Barclays space sooner than the exploration it will definitely be a great outcome for the company long term, but we'll certainly have an impact on our 2020 guidance, including same store and core FFO results.
Lastly, we have also updated investor deck, including our schedule of free rent and signed leases not commenced which now sits at 51 million. This information can be found on our website at www Dot Paramount Hyphen group Dot com.
With that operator, please open the lines for questions.
Thank you we will now be conducting a question and answer session.
If you'd like to ask your question you May press Star one on your telephone.
A confirmation tunnel indicate your line is any question Q you May press star too if you would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Jason Green with Evercore ISI. Please proceed with your question.
Good morning, a on the potential early we assumed with Barclays space can you provide a little more detail as to how that's contemplated in current guidance and then I also know you mentioned it would impact guidance. If you were to get early receipt done, but I guess are you able to quantify or be more specific as to how it could in fact guidance if say half the space, where do we leased.
Way through the year.
Sure Hi, Jason.
In terms of the leasing guidance, we have contemplated that our goal is to lease 50% of the Barclays space. In 2020, we have been very vocal about that Albert has been very local about that Peter has been very vocal about that so that's in the leasing guidance as far as the earnings guidance goes we have not projected and it would be in.
Prudent for us to do anything that takes away the contractual obligation that they are supposed to pay us during 2020 to answer your question in terms of quantification and everybody knows at this point, we we publish a schedule in our top talents on page 34 of our supplemental I'd said Barclays.
Contributes roughly $32 million, a $33 million Joanna lie.
You can do that math.
Bye bye, averaging and dividing that by 12 months to understand the implication of what that could do to earnings at any point in time of close the goalpost is assuming you got all 500000 square feet, what would that due to earnings and you'd lose three thirds, assuming a deal is done on March 31st Greg.
Sample you lose three quarters of that $33 million. There's so many permutations, which is why we did not try to dimension.
We are taking 250000 square feet early what that could mean for earnings at what point in time.
If then when we have successful we will certainly dimension that to our investors.
Got it. Thank you and then I guess just on acquisition front, just curious where you're seeing in the New York City in San Francisco markets, and then kind of comparing that to the reauthorization of the buyback program, just how you're thinking about capital allocation as we go into true fiscal year 20.
Yeah. This is Albert.
No we are not that exclusive looking at either acquisitions or dispositions or buybacks. We we're opportunistic looking at all these various option, it's not an either or decision.
And we haven't saying in the past said.
We look at both markets, New York and San Francisco also for our mezzanine investment portfolio. So our acquisition team is always very active and very involved.
And we we we watch these markets carefully.
New York might be getting more and more attractive.
And.
We look at all these opportunities we have a new 200 million.
Buyback program authorized by the board and we will use it when we feel that the time as right.
Got it thank you very much.
Sure you're welcome.
Our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.
Hi, Thanks, good morning, so it seems as though maybe there's a little less interested in having a fifth avenue flagship than there has been in the past, especially in light of under Armours comments that they might pulled out of their GM building flagship space. So I guess is there any kind of push on your part to get that Henri Bendel space leased and put.
The bed in the near term or are you guys kind of a pretty comfortable with waiting for the right kind of and the right rental rate there.
Blayne as we had said when we took the space back this was a.
Great opportunity.
The rent that Andrew Bendel paid.
Was well below market and the timing was not the best timing as we had said at the time to the retail market is is.
And a big changing changing mode, but this location is still one of the best locations in the world for retail.
And it might not be an under armour location.
But.
We have at the highest levels discussions with potential retailers and it's not that we are sitting on the sidelines here.
We.
Working on several deals and it's too early to go into details and you might recall when we got the space back I indicated that this is Doug.
Something done overnight. This is something that we have to work on that it might take 24 month, but it is worth the effort to get the right tenant for the location.
Got it appreciate the commentary.
Second maybe with the retail Peter I think it over the last quarter. You mentioned you guys were working with the tenant on the retail space and the key that 16 33, sorry, if I missed it but can you give any update on on the discussion or negotiations there and.
Any sense of what sort of maybe financial impact we should expect from that.
Hi blend we continue to make progress we don't have anything just yet to announce we do perceive the perspective tenant to be a tremendous amenity to the building.
We have we have a little bit of work ahead of us in order to get to the finish line with this particular user that we identified now, but we remain hopeful and we look forward to updating you as we make progress.
Okay. That's helpful and all round it out with a question for Wilbur.
So your next major debt maturity is that 13, one late next year 850 million coming due can you just talked about how you're thinking about addressing that debt given all the moving pieces with Barclays coming out of the building.
Sure. So when when we had refinance that only on land we had.
By intent had that maturity in 2021, so it dovetails against our ability to re lease up the Barclays space. So that debt will get refinanced in conjunction with the success. We have there because that would be the best outcome for the financing.
Okay, and big event that that maybe the unfortunate event, but you have any delay in re tenanting that is there any kind of plan b.
Yeah, we have more weight flexibility. If you look at that debt you have half half a billion dollar thats fixed and the large chunk of our floating rate debt is basically coming from that stack, which is 350 million.
Obviously, we have a lot of capacity on the revolver, we have a lot of.
Cash on balance sheet, we have multiple avenues way, we can tackle that.
So, but we're not concerned because we are fully off the view that we will have great success in the Barclays space.
Okay, great. Thanks, guys.
Thank you.
Our next question comes from the line of Jamie Feldman with Bank of America Merrill Lynch. Please proceed with your question.
Great I, just wanted to dig a little deeper into New York.
Peter I think you said that tech tenants are looking all over the city I just wondering maybe get some more color on exactly what you're seeing which submarkets, maybe they'll get more aggressive in and then as you think about Barclays can you just give more color on the exact conversations you're having.
Sure.
You know it's interesting.
Manhattan Tech accounted for 25% of market velocity across Manhattan in Midtown specifically it was 18% we're seeing tech deals.
Across the occur across the entire city, specifically, we're seeing in Midtown tech occur in various submarkets predominantly on the west side.
We're actually touring attacked user through 31. This afternoon. So we are seeing a healthy amount of demand from tax I think what we're seeing now is that they're looking for locations where they can scale.
In parts of town that have huge connectivity and transportation to the outer boroughs and other locations.
So thats what were seeing tech users looking for as you've heard from this team we remain very positive and have a lot of conviction about tour activity and what we have to offer at 31, there aren't many opportunities of this size that possess the attributes of our offering ability to scale significant branding opportunity large floor plates and then as central.
Location as you can find so.
We remain as optimistic as we were three months ago, and our ability to ultimately transact here with the right.
Tenant and so we look forward to updating you on our progress there.
So are there certain submarkets and maybe people aren't thinking about that are getting more check interest like we've seen a little bit of a pickup on third Avenue.
Is there may be something happening under the surface that isn't so easily recognizable when we just your dad lines of.
Big leases on the west side.
Well, Jamie this activity I mean, some of them all but then they stick than others. You have seen that we have picked up a couple of.
Technology tenants also and 16 73 Broadway and the good thing is.
Those tenants are growing and.
For example, we are 100% leased as you know at 673 broadly that might give us opportunities.
And so we see we see activities in all different market segments.
Because rental rates are.
Coming up across the board and.
I think in today's market its a.
The brokerage community is showing those tenants all the opportunities said they are on the island.
Okay.
And then for Barclays can you quantify like you know is it one large tenant is it several smaller tenants like what is the pipeline look like of discussions you're having.
I would say the pipeline currently would would suggest that this could be two maybe three tenants.
Not not inconceivable that it could be one ultimately, but I think just based on the activity level and the requirements that were that we're considering its more than likely to be more than one perhaps two or three.
And you're talking about to get to your 50% leased goal or just to sell them. Thank you have enough conversations for the entire space.
Well we.
As Albert again, we have discussions was with a handful of different tenants there and it's too early to say of course, we.
One or two of the tenants might take more space and then we have also tenants who look at just one floor.
I think we put out a goal of 50% and that's a good goal I don't want to go further than that at this point, Jamie Okay make sense.
And then Albert said before you know New York City might be getting more attractive on the investment side.
Can you just provide more color on your thoughts on that and what what you'd like to see they get more aggressive in New York.
Well I think the big cap rates have opened Dave sorry, the interest rates have come down early in the year again and.
We.
Get more interest from on the investment side so.
I think the.
Since since the leasing demand is picking up and I mentioned that in my in my remarks, especially on the Tech side I think it's a this market has been under appreciated for for quite some time and I think we needed a.
A catalyst to two changes market momentum.
And I think.
It might be happening and this year because.
Momentum is positive.
We talk to our investors outside of the United States and there's still flush was lot of low interest.
Capital that Theyve available so I think.
That will that will change the momentum New York is a great market.
And you have a lot of activity as I mentioned in the Rewalks again from tech and others and.
A positive employment growth so that will all work itself out to two value increases.
Okay. So lets say you guys fell out of DC and you do a joint venture at 16 33 do you think the capital is more likely to go to San Francisco or New York.
Well you are you assuming two things that I don't want to go into at this on this call. So.
It's too early to say and.
I mean, Washington DC.
We have one asset then.
We will report whenever we have something to report.
Okay and then my last question is I sat press release for one Stewart Lane, a condo project in San Francisco.
Can you talk more about that.
Yeah, that's an asset that it was part of one market Plaza when we bought it a in 2007. It was the garage building and we we formed a special funds.
That is managed by the public company, we went through a long.
Permitting process in San Francisco, It's now a great.
Development on the waterfront that.
But the public companies just.
The manager of the asset and.
The the development manager and.
We have very limited capital at risk and this asset we think it'll be a great opportunity.
But it's not a major focus of P. Gerry.
Would you guys collect gains or or or any kind of profits condo sales lead.
If it works out well, we will get promotes and we will get fees of course and.
The that's part of our business.
Okay, all of which all of which by the way Jimmy all of that fees that we would collect would be showing up in the public companies fee income.
When do you think that starts to hit or is it not even meaningful.
Well, it's too early to say I've been beyond the construction will be up to the sixth floor and.
If it's if you if you had promotes that as move over saying that will benefit to shareholders are p. Jerry only.
That might be two years from now.
Okay.
All right. Thank you.
Sure you're welcome.
Our next question comes from the line of Vikram Malhotra with Morgan Stanley. Please proceed with your question.
Thanks, So I know you've talked a lot about the prospects at 30 no one.
Just to kind of maybe brought to two questions. One just specific.
Can you just clarify update does on what you what you're thinking onto the mark to market at that space versus in place.
And then just around that space is there anything.
Differing you may be doing I know, it's obviously different building different space, but just anything different you're doing relative to maybe two or three years ago. When you had large vacancies in other parts of your portfolio.
We expect to high single digit mark to market on the space and in terms of blocking and tackling it's really no different than what we have done quite honestly with other blocks of space, which we've had success leasing is well no I mentioned the marketing center in my remarks, we're finalizing a marketing centre, which we think.
Inc. allows for us to cure rate marketing material and visuals that help a tenet envision themselves in the space itself and all of that is is supportive and helpful.
As we tour and discuss.
Deals with prospective tenants so to answer your question Vikram, we were not doing anything different the blocking and tackling that we know very well remains the same and we're working our way through a process now these larger deals take a little bit of time and so we're working we're working through it.
And maybe in addition, the space currently has an opportunity to access directly to the street. So there's a branding opportunity.
That that we haven't been focusing here on these calls but.
We have a lot of flexibility there.
For for a tenant who wants to get a branding recognition and that right on sixth Avenue and a great location.
You just grab them I mean.
One of the one big thing that wouldn't be different in this sense would be that when we dealt with the prior role with Deloitte and Touche I presume was your reference at that time. They were in this space still the last day and so we couldn't get back that space until they vacated for us to be able to.
Market here the big this big advantage. We have is we know Barclays is moving out they are happy to give back if we had a perspective tenants. So we are able to engage much sooner with the market on this space. So that I would say is probably one of the biggest differences.
Okay, Great and then I know you wanted to discuss whether youre.
Kind of looking to JV or sell piece of piece of so you know 16 33.
Or any other buildings, but just curious or are you opened just given its your largest asset would you be open to you know someone coming in interested at the right price would you be open to doing that.
Okay Crombie always said that we we want to develop.
Develop and lease our assets too.
The full maturity to maturity and capitalize on the improvements that we have done. So we we have done that in Washington, DC and that could be an opportunity here as well.
Okay.
And then just last one on on you referenced in the obviously now being the Vicor stood read.
Just curious kind of given how the west coast has the interest is sort of spread you know obviously was four cents score many years ago and I'll do a lot of interest and in other markets are you solely focused on San Francisco opportunities or would you be open to other west coast sub markets.
Yeah. It's a very good question, we have and segment also.
A couple of times I said, we would be open most probably another at this point in the cycle.
To go to another market.
But we are opportunistic if you have an opportunity in a market that is growing significantly.
We have the team we have the nimble nimbleness and within the culture of par amount, but but really currently I think we want to focus on these two markets.
They are lots of opportunities and.
I think that's good for this time of where beyond the cycle.
Great. Thank you.
Our next question about comes from the line of Daniel Ishmael with Green Street Advisors. Please proceed with your question.
Great. Thank you.
Given the amount of leafing you guys are done over the last few years can you speak to the trend or Densification in your markets. Do you think most tenants had already rightside their space there or is there still more left to do.
I would say Danny this is Peter I would say that a lot of the Rightsizing has occurred and worked its way through the system certainly would law firms and Tami tenants I think at this point I haven't heard most recently a comment from a broker that represents a number of law firms, suggesting that they in fact underdog space. So.
I think we have seen a lot of that Rightsizing work its way through the system as the Densification trend has now been ongoing for the last call. It five years or so give or take.
Thats a very good question something we've been thinking about.
But I think Thats, that's really the way it's played out at this point.
And you sometimes.
Here from tenants that they have over done it as Peter was indicating and it's more now the look for.
For qualified labor and.
It's.
Two please submit linear labor force as much as possible. So some tenants going a little bit more on the other direction and take more space to.
To.
Make it to happy and then the productive environment for their labor. So I think it's a it's something after the recession hit in 2910.
Most maybe an overreaction in some of the.
Some of the market, but disciplines and you can see that it's going the other way.
I guess harbor internal rule of thumb or.
No. What you guys are currently signing new leases out in terms of square foot per employee.
I think if you look at our portfolio, it's very diverse I think it's very hard to say.
50 per square to 250 per rentable square foot as a standard I think it varies by industry.
Certainly by market is hard to hard to give you.
A single figure given the diversity of our portfolio I.
Let me if you look at for example, 16 33.
You could get about 500 people both Florida These 50000 square foot floors.
And.
And some of the tenants who took space they realize say the overdid it and.
They they feel like they should have taken a little bit more space, which is I think a good momentum for the landlords.
Okay. That's helpful. And then Peterson for have you can you maybe quantify your expectations for net effective rent growth in New York in San Francisco This year.
I think net effective rent growth in San Francisco will be up.
I think it's interesting we talked about the velocity in Manhattan over the last three years availability has remained relatively stable. So fundamentals are strong and when you think about tech who is a significant absorber of space coming to Manhattan in a significant way and concessions having now stabilized I think it's reasonable to think that and then well leased buildings are buildings that have been invested in.
Properly in Submarkets that are desirable, which our portfolio is certainly situated toward I think you will see net effective rent growth.
A little bit this year and how much remains to be seen but but we are we are bullish on what lies ahead given some of the trends that are not taking home.
Okay and just last one for me can you give us an update on where you are in place rents currently sit relative to the market both in not New York in San Francisco.
In place I in place rents are below market, Danny Thats, what youre getting and we obviously problems that are high in place rents in our buildings and you can see that building by building in our supplemental on page 31.
You can also go and look at what we've done in San Francisco per Se from the IPO on how the average in place rents in the building have grown as we have continued to have a very high double digit mark to markets in San Francisco, and we see that trend continuing.
Okay, great. Thanks, Eric.
Thanks Center.
Okay.
Our next question comes from the line of Tom Catherwood with BTG. Please proceed with your question.
Excellent. Thank you very much.
Peter I'm, sorry to beat on all 13 I want again.
But just a quick one is there.
Most of the tenants that you're engaging with comping that space to kind of similar second gen large block spaces or they comparing it to.
Newly redevelop buildings or or newly developed buildings and what is the kind of.
Rent gap between what you're looking for and what someone would have to get in redevelop or new building.
Well certainly announced in new construction, they're looking at triple digit type rent figures were asking in the upper seventys for our space, but we're being comp to other blocks of space.
Of which there aren't many that have floor plates of this size and I think.
Ideal locations a lot of the end users that we're communicating with care about location, it's not entirely about product. Although product. This is a class a building.
And is as well located as any any building in the city.
From a transportation perspective, so I think we're talking to end users I care not only about product.
But also location. So there are a couple of blocks, but generally at higher price points, what we're finding relative to what we're offering and we think the attributes as we've now is that a couple of times of our offering our compelling and will resonate.
Gotcha, but just the thinking specifically, obviously, there's not a big block left but if we look at something that's newly redevelop the on on sixth Avenue like 12, 71, there was still a substantial premium if a block were somewhat similar to what do you have between what they needed to make that work and what you guys are looking for correct.
That's right that's right. Okay, all right and then Peter you would also mentioned.
Pulling forward, some 2021 and 2022 leases if I kind of do it back to the envelope and I could be wrong here, but on the 800000 square feet. It looks the you're guiding to it looks like maybe 300 to 400000 square feet of that could be those out your expirations being pulled forward.
<unk> <unk>, a is that fair and B how much line of sight do you have on that and what are the chances for that the trend higher throughout the year.
Sure Tom maybe I'll give you some color your math is fairly had on because if you look at the lease expirations, taking place and then you try to solve to get to the midpoint off our same store leased occupancy range you would come up with the figure a similar to that that says you know pre leasing and pulling forward some wind.
400, plus thousand square foot range.
And obviously is as Pete on Albert mentioned that includes the 250000 square foot of pre leasing on the Barclays space, which were hoping to do.
And yes, we are team engages with tenants 12 to 24 months ahead, it's it's never a an exact size, but our goal is always to de risk. If you look in 2019 being a record leasing year.
The majority of that came by de risking future years, it's no surprise that I'll millions of that 1.5 million plus square fit feed came from San Francisco because the market. There is so tight and tell enzyme engaging sooner. So we have some line of sight a depends by market a deposit.
It depends on the building leased occupancy.
Because I at least to occupy occupied buildings.
Generally will generate better leasing behavior, so as a lot of moving pieces, but that's kind of consistently our goal.
Gotcha, So just to say it another way it sounds like.
The 400000 ish square feet.
For the out years is stuff that you feel highly confident on old stuff that you're already speaking on right now is that fair to say.
Yes, yes, okay. Okay and then the final one for me this may be in the presentation, but Albert <unk>, Oh, sorry, Wilbur in the.
Passed in Twoq and Threeq you did the three deals over 300 mission with glass door, Autodesk and Maple bear.
When do they start rolling in two into revenue.
So those deals will only renewals and was an anomaly because this space did not come due until the end of the year. So they'll start to come into 2020, but not necessarily fully stabilized in 2020.
So is that kind of even across the year today is it kind of back ended as they would hit their natural expirations.
So they once the natural expiration comes out from the numbers at the end of 2019 and 2020 there'll be some free rent element to that and that's when the cash will start to comment. So it's really hard to to give you would not going into really granular detail when each of these tenants start to two countries.
Good to cash in on but.
Suffice it to say I think broadly speaking, we've given you all the building blocks Tom and.
To come up from a portfolio wide standpoint as to what's contributing to cash NOI in 2020.
Got it so just as just it sounds like then there's not a big bump to cash NOI in 2020 from those.
Yes, not necessarily from there will be a bump to cash NOI as dimension in our schedule of re rent for now.
Because if you look at San Francisco, San Francisco is is.
Contributing about 14 million to the free rent burn off in 2020.
So the bulk of it will come in 2020 would with the tail end coming towards 2021.
Understood. That's it for me thanks, everyone.
Thank you.
Our next question comes from the line of.
Okay Omotayo Okusanya with Mizuho. Please proceed with your question Oh, Yes. Good morning, everyone. Congrats on the on the solid guidance.
I did join the call little bit late so I apologize. If this has been asked before but just curious about your thoughts about prop 13, I know again Youre San Francisco portfolio is very news or not likely Avenue, we will impact, but just generally around the proposition on the possibility of it passing.
So, let's say I mean, yeah. We're following this closely prop 13 is set for the balance in November 2020, I think if you. If you read the polls I think it's fairly split whether this does happen or not.
So we will continue to watch it closely but as you said relative to our though a major office landlords in San Francisco for.
For us it will be the least implicate of because our portfolio in San Francisco is fairly new.
Okay. That's helpful. And then second of all just around Tech demand in New York City again, some of the big leases that have kind of hit the.
I hit the news that all kind of around you know.
You know Hudson yards.
Just kind of curious about the tech demand and kind of core Midtown kind of what are you seeing.
In regards to interest from that demand driver.
Yeah, I've mentioned it in my.
Prepared remarks that we were I was indicating on the last call that.
We would potentially have about three to 4 million square feet and then the last quarter.
The.
3 million square feet, nearly nearly signed over 2 million square feet signed in the last quarter already so we see a lot of activity and then Peter can add to it in more more detail.
We think this could be really a catalyst.
On the demand side for for the island, we have we have an image of all of the tech users across Manhattan, and one thing is evident which is they have chosen to locate all over the city all over the island and so it's hard to I think say or to put them in a basket at this pace.
Find very difficult to do that.
Because as I said they have.
Chosen to located in a number of sub markets across the island.
But do you feel a lot of activity in kind of like your core mid town location.
Yes, we're seeing like I said, we're seeing we're seeing activity in Midtown and all over the city Yep.
Alright, thank you.
Sure you're welcome.
This concludes our question and answer session for today I'd like to turn the call back to Albert failure for closing remarks.
Thank you all for joining us today.
We look forward to giving you an update on a continuous progress when we report on our next quarter results in May.
Goodbye.
Ladies and gentlemen, this does conclude todays teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.