Q2 2020 Piedmont Office Realty Trust Inc Earnings Call
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Please standby we're about to begin.
Ladies and gentlemen, thank you for joining today's Piedmont Office Realty Trust Inc. second quarter 2020 earnings call. All phone lines are in a listen only mode, but after todays prepared remarks, you will be given the opportunity to ask questions.
To get started I am pleased to turn the floor over to Eddie Gilbert Mr. Gilbert Good morning.
Thank you operator, good morning, everyone. We thank you for joining us today for Piedmont second quarter 2020 earnings Conference call last night, we filed our form 10-Q, and an 8-K that includes our earnings release in our unaudited supplemental information for the second quarter.
All this information is available on our website at <unk> Dot com under the Investor Relations section. During this call will refer to certain non-GAAP financial measures such as episode core FFO and AFFO same store NOI.
The definitions and reconciliations of these non-GAAP measures are contained in the earnings release in the supplemental financial information.
On today's call the company's prepared remarks and answers to your questions will contain forward looking statements as defined in the private Securities Litigation Reform Act of 1995. These forward looking statements address matters, which are subject to risks and uncertainties and therefore actual results may differ from those we anticipate and discuss today.
Risks and uncertainties of these forward looking statements are discussed in detail in our press release as well as our SEC filings.
I encourage everyone to review the more detailed discussion related to risks associated with forward looking statements.
In our SEC filings examples of forward looking statements include those related to piedmont's future revenues operating income dividends and financial guidance feature leasing in investment activity and an important factor for today's call is the potential adverse effects associated with it could have a 19 tend to make on the companys financial and operational results.
The extent to insist covenant 19, pandemic impacts us and our customers will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the depth and duration and severity of the pandemic and their related economic disruption you should not place any undue reliance on any of the forward looking statements. In these statements speak only as a date there may.
At this time, our president and Chief Executive Officer, Brent Smith, who will provide some opening comments and discuss our second quarter results and accomplishments Brent.
Thank you Andy and good morning, everyone.
We appreciate all of you taking the time to join US today for Piedmont second quarter earnings call.
In summary, our financial results for the quarter were strong and we made significant progress on a number of our strategic objectives.
Of note, we completed a strategic asset recycling transaction at the ended the quarter and we executed some important leasing.
All this spike in precedented disruption can the kroner virus pen pandemic on both the national and global economy.
Which had operational and financial consequences for our tenant and Piedmont.
In light of the challenging economic environment, we're very fortunate that most of our tenants are investment grade quality and subject to long term leases within approximately six year weighted average lease term remaining and with very low expirations over the next two years.
The strength of our tonnage tenant base demonstrated in the fact that we collected approximately 99% of the cash rent due for the second quarter of 2020 based on current contractual lease terms.
However, I would point out that this collection data is net of approximately 3.6 million of second quarter cash rents that have been deferred.
We have entered into lease modification agreements with approximately 50 of our tenants as result of handling. These agreement typically deferred an average of three months of rent to be paid later in 2024 in some cases in 2021 with interest.
Most of these workout agreements or with our retail tenant that represent approximately 1% of our annual revenue.
More importantly, during the second quarter, we continue to partner with our tenants to refine our operational procedures clean standards in health protocols and all of our building protect the safety and well being of all those working yet or visiting Piedmont property.
This partnership, including our publishing a return to work tenant guide outlining building specific information on operational changes such as elevator spacing commentary acuity, Connecticut, janitorial schedules enhance maintenance and engineering program and improved security protocol.
We have also installed a comprehensive signage program and handsets heading dispensers throughout all our buildings garages intermediaries and we've installed touched this equipment and automated doors in most common areas and pathways.
With all our buildings remain open and fully operational these past few months.
Could not be more proud of the hard work put forth by my Piedmont colleagues to ensure a central businesses in government agencies continue to operate during these challenging times.
I want to particularly recognize our property management personnel, who have worked compassionately with more than 1000 tenant while at the same time exercising vigilant financial stewardship of our stockholders.
Turning now to other key events in the second quarter, obviously, one of the highlights of the sales 19, one market Street are only asset in Philadelphia. The gross sales price was approximately 360 million or $450 per square foot at a five for cash cap rate, resulting in approximately one.
182 million dollar net book gain.
In addition to the very attractive economic terms. This transaction was also strategic and then it allowed us to exit the market and continue our accretive asset recycling program by successfully structuring the disposition transaction is part of it 10 31 exchange with the Dallas Galleria Office towers, which we acquired during the first quarter of the.
This year and an approximately 250 basis points greater cap rate.
Consequently, no special distribution of the significant gain from this disposition will be required.
I would note to sale the 100% leased 801000 square foot Philadelphia properly property did marginally impact our reported occupancy during the quarter.
Lowering our overall these percentage by 1% to approximately 89%.
And the result of this transaction, 96% of our annualized lease revenue is now generated by properties located in our seven core operating market.
Currently no other significant development acquisitions or dispositions are underway.
We continue to examine piedmont's business strategy in the context of both the near term health crisis as well as implications on the office sector beyond the vaccine.
We believe the pandemic has accelerated two main themes, which we have been incorporating into our portfolio strategy for several years, specifically millennial family formation generating population migration to the suburbs incorporation relocating to lower cost pro business cities that offer a world class education centers.
And highly integrated multi modal transportation infrastructure.
Today.
We are uniquely position portfolios 57 class a office properties, comprising 17.2 million square feet, primarily concentrated around urban infill and suburban didn't mixed use environment or what we call hub urban.
Offering our customers the real estate required to attract and retain a high caliber professional workforce.
Including a strong amenity base walkability convenient access to transportation in closer proximity to workforce and executive housing.
We were already starting to witness the impact of these population migration trends and data collected before the pending.
Specifically for 2019, Cushman and Wakefield reported that nearly 70% of the class a office absorption occurred in the suburbs with shorter commute times and walk them walkable amenities that allows poised to accomplish more of their data and just work imported employers are more and more acknowledging these locations offer as comps.
Calling a live work play environment as many urban cores.
We think the target millennial workforce will drive office space absorption in suburban nodes as well as in lower cost higher quality of life market and with approximately half of the PMA portfolio located in the sunbelt and additional approximately 20% located in the concentrated knowledge centers of Boston in Northern Virginia, We are you.
Weekly position to capture incremental office space demand spurred on by this burgeoning demographic shifts in America.
Furthermore, our concentrated submarket positions.
Garnering significant market share in areas like Orlando's Lake Mary Burlington in Boston, Atlanta's Northwest Submarket.
Dallas is lower North Tollway, and Washington is RB corridor or give us the ability to leverage our scale in market depth to meet the flexibility todays office users demand.
Transitioning to leasing activity the payment the pandemic did have an impact on this area the business.
With a new tenant leasing pipeline virtually coming to a halt during the second quarter due to travel and shelter in place restrictions.
However, we did execute 271000 square feet of leasing transactions during the quarter almost entirely renewal activity within most significant lease executed being brother International's renewals are approximately 102000 square foot lease at 200, Bridgewater crossing in Bridgewater, New Jersey.
Lifting of all leases greater than 10000 square feet completed during the quarter is included in the supplemental financial information that was filed last night for your further review.
On a year to date bases executed leases will have a starting cash roll up of 4.5%.
And accrual based global almost 12%.
Looking ahead, we are encouraged by the amount of leasing interest that has begun to reemerge and were particularly heartened by the activity, we're seeing and Dallas Atlanta, Washington, DC in the Boston Submarkets.
We continue to make progress on one large upcoming renewal, representing one person or more of our annualized lease revenue. The city of New York 313000 square feet at 660 Broad Street that is currently in holdover.
While the governmental leases are typically flow to complete I.
Understandably the city's contracting personnel have been preoccupied with more pressing issues during the pandemic.
That said communications had been ongoing unproductive and we expect to complete a long term renew the city by the end of the calendar year 2021.
Other than this one renewal we have no other significant explorations until 2022.
In conclusion in light of the pandemic, we feel that we are well positioned to withstand the effects of the economic slowdown associated with covert 19 and in good financial position to take advantage of growth opportunities should they present themselves.
I want to also add.
Considering the public discussion around surrounding a quality in our country I want to take this opportunity to reiterate that all of this at Piedmont, We'll continue to support the non violent efforts to eliminate prejudice and discrimination wherever it exists.
We proudly joint other George employers this past quarter and urging our legislatures passage of a new hate crimes Bill and our state.
Pmone has committed to demonstrating to each other and archimedes, the compassion cadence and string required to bring about positive and lasting change.
With that I, along with the rest and senior management team will be available to address any question do you have after Bobby losses through the financial high for the quarter and outlook for the rest of 2020.
Bobby.
Thanks for a while I'll discuss some of our financial highlights for the quarter I encourage you to please review the earnings release and supplemental financial information, which were filed last night for more complete details.
For the second quarter of 2020 reported 49 cents per diluted share of core AFFO, a 14% increase compared to the second quarter of 2019, reflecting rental rate growth throughout the portfolio and accretive capital recycling activity since the second quarter of.
Last year.
Hey, AFFO was approximately $45 million for the second quarter, well in excess of our second quarter dividends.
In same store NOI was up approximately 2% on a cash basis and up over 5% on an accrual basis for the second quarter of 2020 before deducting an approximate 5 million dollar General reserve.
Our general and administrative expenses decreased $6.5 million during the second quarter of 2020, when compared to the same period in 2019.
This decrease is due to lower accruals for stock based compensation than the current year.
At 3.2 million of retirement expenses included in 2009 teams results related to the senior management transition that occurred on June 30 of the 2019.
Turning to the balance sheet.
Average net debt to core EBITDA ratio for the second quarter of 2020 was slightly elevated at 6.2 times because of the increase balance on the company's line of credit due to the purchase of the Dallas Galleria office towers during the first quarter of 2020.
This metric is anticipated to return to a more normalized range of around 5.6 times and the third quarter benefiting from a four full quarters impact of the sale of 91 market Street, and the resulting paydown of debt.
Our debt to gross asset ratio was approximately 34% at the end of the quarter.
As of the duration and severity of the cobot 19 pandemic when the longer term consequences on the economy and on our tenants continue to be unknown, we're not providing guidance for 2020 currently.
Notwithstanding this economic backdrop Piedmont has a strong diversified tenant base, a majority of which is investment grade quality.
Additionally, Piedmont has a prudent balance sheet that we've discussed with excellent liquidity, including approximately $30 million in cash for the full availability of our 500 million dollar line of credit at June Thirtyth.
With no debt maturities until late 2021.
Despite the widespread impacts with scope at 19 pandemic from a global economy. We currently anticipate that our overall lease percentage than expected 2020 financial performance will be only modestly impacted by the pandemic.
Well not providing guidance, we want to offer some additional information regarding performance year to date.
And our current expectations for how the pandemic could impact our financial performance for the year when compared to the previous year into the original expectations that we had for 2020.
First as Bret indicated new tenant leasing activity slowed during the second quarter.
Although new tenant prospects have begun to increase particularly in our sunbelt markets, Washington, DC in Boston, We believe the slowing new tenant leasing trend will continue throughout the third quarter likely pushing out new tenant leasing goals several months, which will modestly lower our originally anticipated.
The accrual in July for 2020 by approximately $5 million.
And lower our estimated year end lease percentage.
Also much of piedmont's typical transient parking income for the third quarter of 2020 will not occur there will be similar to the second quarter's results in July from transient parking is estimated to be lower by approximately $2 million for the year.
Further with respect to retail tenant income, which is about 1% of the company's total 2020 revenues overall retail it'll expectations are estimated to declined by approximately $2 million on an accrual basis for the year.
As I just mentioned the company took an additional charge this quarter up approximately $1.8 million against rental revenue in recognition of the increase in rental collectability risk.
This charge is a specific reserve against individual accounts.
Also as a precautionary measure we established at approximately 5 million dollar general reserve or roughly 1% of our annualized lease revenues for potential future losses.
Offsetting these reductions and earnings are approximately $5 million of interest expense savings due to lower Libra treasury rates than we originally budgeted for the year at approximately $1 million to $2 million of operating cost savings associated with the landlord portion of various operating expenses. So.
Such as utilities, and Jennifer Tory or cost due to lower active utilization of the properties.
These are identified impacts of covert 19 pandemic equate to approximately $10 million to $12 million as identified and NOI reductions from our original expectations for the year half of which is a prudent estimated general reserve provision.
And despite this we will still be outperforming our 2019 results.
I will note the estimated effects of KOVA 19 on the Companys financial performance are based upon the premise that the economic impacts from the pandemic will subside during the fourth quarter of 2020.
We will reevaluate providing guidance once the longer term consequences of the pandemic on the economy.
And on our tenant base are known or at least a minimum can be more thoroughly considered.
With that I'll now ask our operator provide our listeners with instructions on how they can submit their questions. We'll attempt to answer all of your questions now we will make appropriate lighter public disclosure if necessary.
Operator.
Gentlemen, thank you for your remarks and to our audience. Joining today, if you would like to ask a life question simply press star one on your telephone keypad pressing star and one will place your line into a Q and we will take your questions wanted a time also a friendly reminder, that if you're joining us. This morning honest speakerphone. Please return to your handset.
The pressing star and wanted to be certain that your signal does recharge equipment. Once again, ladies and gentleman that is star in one if you'd like to ask your question, we'll hear first from Anthony Powell Leone with JP Morgan. Please go ahead.
Okay. Thank you I.
I guess first question is for Bobby just to maybe help with a little bit of a walk on the NOI.
In some of these write offs in reserves. So if we think about what you recorded for through to Q.
Think about rolling that into Threeq, Q I want to make sure I understand the sort of 1.8 million.
That effectively took away for either a tenant or a variety of tenants to cash based a recognition that would change and show, which I guess, making assumptions as to what happens from here, but then.
5 million is that just a general straight line right off where we add that back.
As we start to roll into three channels.
Probably science so the question.
Looking to buy action.
Address it first let me sort of give you a little background, we've had very little losses for the last as long as I've been here, maybe $2000 of year related to any sort of bad debt, but certainly we're living in a period of time this very different right now and so for the SEC.
Quarter, our tenant reserves.
Consisted of road two components, you mentioned with first quarter.
As a specific reserve of $1.8 million if that is recorded as you've indicated against individual tenant accounts that was done after a thorough review of all of our tenant billings and it includes related balance sheet accounts. I think this is a piece maybe people don't realize it includes the write off.
For straight line receivables and tangibles and yes, it does take it to a cash basis.
There was a second component that we have typically never done.
That was included in the second quarter this year.
I'll tell you what was driving it obviously, we don't know Foley.
All the impacts of the pandemic.
On the balances that we have on our balance sheet.
It includes straight line rents again and intangibles as it relates to every tenant.
Thats, including those tenants that are currently.
We're presently hurdle there payables and those tenants that have been granted deferrals.
So I think the uncertainty that there is what's the impact the pandemics going to happen do duration on all of these units and nobody knows that.
And I will tell you. This after a lot of discussion we believe is prudent.
To establish.
And I would say an adequate second general reserve.
For these potential is yet another identified losses.
The question is how do you get there when you will have a historical perspective.
Yes devices and our particular case, we have very clear trend at 99% of our tenants have been paying.
There are billed receivables.
Therefore, we do separately reported want a 1% reserve of this annualized lease.
Revenues that we have that was approximately $5 million.
Equates to a four cents impact that ran through our financials issue in the second quarter again, we thank you. It was a conservative prudent thing to do.
And I can assure you that reserve will be entirely use lighter but.
But I do believe it's unrealistic to assume that.
All potential losses.
On our balance sheet or no.
And they have been identified at this time, it I think thats true for anymore.
Does that address your question Tony.
Yeah, I think Thats really helpful context in terms of how you got there at all just from a from like a short term just.
You know quarter to quarter basis if.
If nothing really happened in the third quarter you Wouldnt.
You know that 5 million comes comes back right like you've reserves Ford already and so you see if there were some incremental losses in shape, a third quarter, you could tap into that 5 million and.
And use some of it I dash and so in that regard like when we think about the run rate. We would just add the 5 million back as we roll into to reach you.
That's absolutely correct any unused balance will come back to benefit us.
Okay.
Got it and then on we work in Orlando as they kind of push out the completion of that.
It does it change when actual cash rent is due on that space or is the cash rent do whenever they're constructor like whenever the which actually combat systems. So that gets pushed out you.
Hi, Tony I appreciate you taking the time was it today this is Brent.
Yeah, I guess on the topic of we work at first and let us say that we have.
Our current on all the rental obligations and we continue to be a great performing intending on each specific location in Orlando as we have noted previously they have pushed back construction given some the issues first actually around fire code and now are around coded, but we do still believe that that will be a 20.
21 commencement.
As we've noted before we did not include any of that income and our 2020 numbers, but when it comes in specific lease we don't like to get too much in detail, but there is a firm dating which means payments will have to begin.
And so we feel like we're protected and that just continuing to get kicked further and further app.
Okay got it and just last question on DC, just generally where you have a bit more they can see and I know things are slow but is it.
Is it a matter of you need a certain size 10, and thats, not where the market is or or that the traffic just not there just wonder if you give some color on on just the environment, there and prospects for addressing some of that they can check.
Yes. So so I guess is I would point out we really had ended the year would really limited roll almost no roll ending NDC for the next cost for five years, we'd really great runway and I would also say what was probably is that leasing pipeline, we've seen there and probably.
Three years.
From a number of different whether it be government.
Defense and or technology related as we were starting to see some of the benefit of the Amazon is if you will.
As we headed into the pandemic I'd say DC as a market held up actually the pipeline of activity those best out of all of our markets and we do hope to have good news to share on that front as we kind of head through the rest of the year and I think that will prove that durability of that market will prove out and so.
So as we've now alluded to in the prepared remarks, we started to see the pipeline build across the portfolio DC is one of those markets that it wasn't beat up as bad in the pipeline is also starting to grow a little bit more in the RB corridor than the district.
In that front and again Thats generally just been contractor and a.
Technology related so we are seeing a pickup in activity there and I think we're hopeful that it will become as robust as it was pre.
Pre covin crisis, where we had a number of kind of 15000 square foot deals that where we were we thought we had a really good chance the landing so I'd say, it's picking back up not quite as much as our Atlanta, and Dallas markets, where we're seeing really good activity, but still I'm starting to rebuild that pipeline and I'd say, we're still constructive.
Particularly in our R&D positions.
Great. Thank you for the car.
Thank you.
We'll hear from Dave Rodgers at Baird.
Yeah. Good morning, everybody, Brian I think in the.
Comment that you've made earlier in the press release, you talked about walkable amenities non public transit oriented locations really starting to see a pickup in demand and I think you guys also quoted about 30% utilization of office overall kind of back up.
From where it has been I'm wondering if you can give us maybe some anecdotal information on these kind of walkable in non public transit oriented asset Thats, what you own obviously, but the demand that you're starting to see the conversations you're having is that from tenants wanting to leave.
Ken for instance is that from tenants that are looking to establish new presence in the suburbs and and closer to the the employee base any color that you can have on I realize it's early would be really helpful. Though.
Yes, Dave appreciate you taking the time joining us this morning.
I think as we think about it and see some of the activity around demand that we noted before.
Really seeing good activity in Dallas and Atlanta.
And I and DC to some extent I think when you come to this concept of the hub and spoke which we've heard discussed a lot. There is a thesis that it may be within market in a from takes a location will use Atlanta as an example, and mid town you know they've had a millennial workforce there used to that young.
Kind of walk sorry, a new newer walkable urban environment with mixed use.
No that age cohort as we've seen is now at the precipice a family formation in children are starting to go to school.
The first millennials are really not reaching 40 and that is driving a suburban push but also a push out of California in the northeast to these lower cost markets, a little bit higher quality like the layer on the effects of salt, which we think we'll continue to drive is a secular shift in the American population.
Towards more of these lower cost high quality life markets, which due predominantly exist in the Sunbelt produced include other cities within the middle U.S. as well and so as that focus it comes into play we're seeing some of our tenants within a market think about this hub and spoke concept.
And maybe they have a location Atlanta and they decide to take another location. The Galleria because it is a dance walkable environment to the battery to have raised game.
And what all the lunch and dinner options that are available at the base in that building. So they're they're experiencing used to this urban core and they want to replicate that experience in the suburbs drive to their office.
And be able to accomplish a lot more within their day then they just do a going to office would there be.
Kind of everyday Erin meeting someone for lunch or a nice dinner and evening or an activity with friends.
In the ballpark it provides that experience, but the better school systems that usually typically exist in the suburbs as well as greater profit in each of their where they live and we are seeing the millennials now being the largest buyers of homes and that is now in the suburbs. So we think all those trends play to that location as Eric mentioned them.
Our remarks, not just the Atlanta, Galleria, but Burlington and Boston.
Lake Mary in Orlando.
Our position in the lower tollway, there in Dallas as well as our while they are in urban cores like in Orlando and Minneapolis, Our towers. There we still have to 4000 parking. It is very much a car driven markets not reliant on mass transit and as we talked to a lot of our tenant that.
Been their focus our concern is I feel comfortable once I get to the office, but getting to the office, particularly when you're relying on 100% on mass transit has been a problem. So in these markets like at Orlando Minneapolis before really a lot of the office population left we actually saw an uptick in parking is more and more of the individuals who would have normally.
Taken mass transit, we're parking now and the CBD.
So we think the all this continues to add to that dynamic that may need walkable Hubbard's if you've heard me use that term.
Really where we think the office market is going to see the greatest demand and then near and medium term.
And maybe just on that point.
Oh, yes.
Real quick on that point is it more of a it's I guess, a long term trend I guess I'm trying to gauge maybe how much of that been driven by cove, it and how much of this resume activity that you're seeing is kobin related versus just the continuation long term trend.
I think it is a continuation of the long term trend would maybe more coded related or accelerated and I meant minton to add this point back back from my prior markets on this hub and spoke concepts, we're not seeing it materializes into Marty and I think tenants are still saying if I'm in Midtown right now, maybe I'm thinking about going into Galleria, but what we.
As seen in Atlanta, and Dallas in particular, our locations outside of that market looking to bring 40 to 60000 square feet into the market.
Maybe it's a division maybe to group I'm seeing more of that in the hub and spoke concepts and Dallas and Atlanta, being Hey spoke and.
And maybe like a new York or San Francisco being the the hub more so than within market right now and I'll keep you abreast as we start to see that would end market, but right now I'd say, it's more driving from some of these higher costs markets to some of our sunbelt markets.
Okay, great. Thanks, a question for me on the New York City negotiations I realize there's still going on but is there any risk or have there been any changes in scope in terms of the overall size of the requirement or how they might be moving different groups into that building.
As we mentioned on our remarks, the pandemic has delayed things pretty pretty considerably and you'd like to New York State I expect we'll do a shorter term renewals on more near term and due to longer term leases I mentioned towards the latter part of next year.
It is still a very unique building and is well suited for the agencies that occupy it. So we feel very good about.
Keeping their quote unquote eyes on the prize and getting a lease done and over the goal line. The terms really still are generally inline with what we've previously shared overall from an economic standpoint, I think right now there are still trying to decide what is the ultimate agency group that will reside in the building.
And that is being reviewed until we continue to make progress overall, but again no no material change in what we've previously shared.
Add that means a meaningful cash rollout.
To market, which is right now, which is generally inline with where their holdover rate is.
And of course that gap roll up that will be really significant is not going to be realized unfortunately, though until that long term deal.
Is signed but again everything still.
Proceeds that you would expect it given a government agency in the middle of a national crisis.
Great. Thank you for that last for me Bobby.
About $10 million to $12 million NOI impact for the full year relative to initial guidance and I realize you're not giving guiding but you'd said that all of this assumes a for Q 20 kind of re rebound in activity and kind of the opening of the economy, what's still at risk if that doesn't happen as it is it really just parking at this point, maybe offset by some opex costs.
So how do you how do you look at Fourq you since that was your expectation for an opening.
If you look at the guidance say that we've provided we indicated it was 10 to 12 million dollar impact half of that was related to the bad the charges that all ramp through.
As you have reserve here in the second quarter really the other significant item is new leasing that's where you see the impact.
So that really taking its effect not executing those new leases delays the commencement of those leases at revenue recognition. So you really have to major factors.
First the reserve charge in the second quarter and then they impact right in this year that comes from the delayed leasing again.
The other stuff as you indicated largely offset each other the parking the retail offset by Opex savings in June I said.
Alright. Thanks.
Yeah, I think thats exactly in line with what you use you described Dave.
All right.
Our leasing we pushed leasing out and we will not benefit this year it'll be a 2021 impact and of course, we won't give guidance on 2021 until January.
All right.
Anything further Mr. Rogers.
That's great. Thank you.
Thank you for your questions today Sir.
A reminder to our phone audience. Please return to your handset prior to pressing star in one of you are joining on speakerphone, ladies and gentlemen star in one if you would like to ask a question.
Move next to Mr., Michael Lewis at Suntrust.
Hi, Chris Thank you.
I know this is a tough question to answer now that asset pricing, whether theres not a lot going on.
But I wanted to ask the question.
You know about particularly between core stabilized assets that you might be selling and then the types of assets that you might still be willing to five.
So maybe it's a longer term question about kind of what kind of risks you're willing to take at this point and then.
Yes, maybe those spreads widen out even further maybe that's helpful. If you are willing to take on.
Some of those loosing risks and other study of tenant.
Yes, Hi, Michael This is Brent I appreciate you, taking the time and join us today.
You know and we have been very effective at route continuing to recycle capital prior to the pandemic.
Obviously, given the slowdown in the capital markets.
That's going to be.
You did hear in more near term.
But we still feel like we've got to a nice clinical pipeline of potential disposition candidates through.
Through our regular way business now that I'm very happy were 96% now in our core markets and it's just regular way recycling and continuing to enhance what we have within the markets.
And so we've got a number of candidates that we think we can push into the markets that are well leased long term good credit.
And that could be a sold we could also good.
Yes, creative and look at an opportunity to sell something that was.
Maybe a really we felt was long term lease high credit and doesn't required.
No significant mortgage or if it does it's easy to put onto the asset. So those will be what we think we could sell in terms of the buys and taking more risk.
If we view it as a need time to be patient.
If we set a logical strategic bolt on you'd see us do it but really I find is an opportunity to to maybe find something that is very high quality, but might have.
Now you add component to it so.
So in some regards it's risky because it has that value add but we think itself such high quality them that fits well within our pipeline and upgrade the overall portfolio.
I don't see anything right now in the pipeline that fits that and again, we'll be patient. We're fortunate that 30 million a cash balance sheet and a full line of credit available.
We're tart talking to various parties as well.
Given the since the disruption may be coming whether it be other groups. If there were a larger opportunity that we could.
Take down something with Andrew or get creative admit we needed to raise additional capital quickly, but we felt like our stock price might not afford that sewer quote unquote being creative about building a war chest.
But you're going to continue to see us leverage that kind of 200 basis points spread between the buys and sells.
For the foreseeable future I, just hope that that now that spread will garner as something has to have even higher quality than it would have before if that helps put into context.
That's correct.
And then my second question I kind of circling three themes I wanted to ask you about one was the hub and spoke which you already give.
You already there could detail on it was helpful. The second I wanted to ask if you've had any tenants.
Suggests significant work from home, where they might be reducing their space.
Serially because they're shifting to you know they think they might do this long term and then the third one was the opposite effect of that I, suppose which would be.
The need to social distance are there any tenants that are coming here in Spain.
We need more space or we need to we need to do this differently and kind of go the other way.
So I guess first on the.
Absorption side and social distancing, we have seen a number of tenants.
Who have either we approached in stay occupies a 90% of a floor theres a vacant suite.
Go to them as they would you like to control all the floor take their last remaining kind of portion of the floor or have your own bathrooms et cetera. Your environment. We have seen a few of those in addition, we've seen a number of tenants who anticipated prepaying hitting said to downsize I'd say, maybe 15, 20% and go 180 and renew on the full amount.
So we have seen the social distancing effect lead to some absorption.
The significant work from home pulling tenancy out on a few.
Select low the situations, where the tendency was a pretty small tenant and can basically kind of pick up there are things and not come back to the office. We've had maybe one or two of those instances with a 2000 type square foot tenants, who basically said I cant structure my business and pay for real estate anymore I'm, taking my entire company and everybody is working.
From home.
We've not really seeing that widespread and again, it's been very limited number of cases, so from for most part for our type of tenancy.
That that work from home is now more of a I think.
I see a situation where every 10 15 years the context of how an office is used to create that collaboration and culture is reevaluated and redesign is it keeps a lot of people in there and the American economy going construction and design et cetera, and I think we're at the precipice of one of those situations where.
Our companies are now just trying to they feel like Dave stabilize the shift from the reaction of the other pandemic and now they're just starting to evaluate the real commercial real estate needs.
And what that means for the future I think you're going to continue to see them utilize roughly the same amount of space, but re reconfigure it overall.
And so the work from home component will play into that but I think it will be offset by the densification and youre going to see August is really be more focus for that collaboration teamwork and culture building components.
Great data, indeed instrumentation will still kind of offset that work from home that's our view at least.
Got it thanks.
And with no further questions in the queue I will turn it back to Mr., Brent Smith for any additional or closing remarks.
Thank you appreciate everyone, giving us to time today, we look forward to continuing to dialogue hopefully, we'll get a chance to meet many of you. It may read in November but.
But if we don't have a chance to connect.
Again wish everybody a great rest the summer appreciate the time.
Have a good day.
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