Q2 2020 Cousins Properties Inc Earnings Call
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Now I'd like to turn the conference over it was Pamela <unk> General Counsel. Please go ahead.
Thank you good morning, welcome to cover properties second quarter earnings Conference call with me today, our call Colleen, our President and Chief Executive Officer, Richard Dickson, Our executive Vice President operations and Great seen our Chief Financial Officer. The press releases supplemental package were distributed yesterday afternoon, and its wells furnished on form 8-K.
In the supplemental package the company's reconcile all non-GAAP financial measures for the most directly comparable GAAP measures and of course, the brushy requirements. You did not repeat a copy. These documents are available to the quarterly disclosures and supplemental SIFI information like on the Investor Relations page on our website.
The awareness certain measures matters discussed today may constitute forward looking statements and other media federal Securities laws and actual results may differ materially from these statements teach a variety of risks uncertainties and other factors, including the risk factors set forth at our annual report on form 10-K, our other SBC filings.
In particular, there are significant risk uncertainties related to the scope severity and duration of to have a 19%.
Along with a direct and indirect impacts at the end cemig and related mitigation efforts, including governmental apartments and private sector response. It may have on our financial condition operating results and those are <unk>.
The company does not undertake any duty to update any forward looking statement, whether as a result at new information future events or otherwise the full declaration regarding forward looking statements Isabel and supplemental package tested yesterday and a detailed discussions with potential risks, including those pose twice over 19 is contained in our filings with the FTC with that I'll turn the call.
Colin Connolly.
Thank you Pam and good morning, everyone.
[laughter] cousins, we've always taken the approach that if we take care of our dedicated employees, who deliver excellent service to our customers.
Our company will drive strong results for our shareholders.
In this challenging environment, we're taking great care to ensure that we are staying true to our values and principles.
For this I am thankful and proud.
In the market.
We have adjusted our operations to ensure the safety of our employees and customers as our properties all remain okay.
Across our portfolio.
Physical occupancy has remained at approximately 15% since early June.
Based on our discussions with customers.
I anticipate a modest increase after labor day.
However, ongoing health concerns related to covert 19, and childcare challenges, resulting from remote schooling will likely create headwinds to physical occupancy throughout 2020.
Despite the extraordinary environment.
Our team delivered solid financial results during the second quarter.
I will share a few of the highlights.
We reported FFO assist 66 cents a share.
We collected at 97% total rents and 98% of office Reits.
We leased 303000 square feet with a weighted average lease term 7.6 years.
Second generation cash rents grew by 20.6%.
Simply stated our financial performance highlights the quality of our markets our portfolio, our customers and importantly, our team.
It will come it's no surprise that many are continuing to speculate about the long term implications of co bid on the office sector.
Work from home is then go undergoing a nationwide cast and is proving serviceable thus far.
We have spent considerable time discussing this with our customers.
In fact, I recently asked the leadership of a fortune 500 company with a growing sunbelt footprints to share their perspective on the impact of code. It on their real estate strategy with the board of directors here at cousins.
I will summarize some of their findings.
A heightened focus on highly amenitized buildings with outdoor space in urban settings.
A priority <unk> prioritization of health and wellness.
An increase in worked flexibility for employees.
A commitment to provide employees with dedicated personal space.
And a reduction in overall density.
As one of the company executive shared.
The pandemic has not changed our plans in fact in many ways. It makes our space even more important.
We've proven that remote work can be effective.
But we've also learned that it is no substitute for being together for activities like collaboration relationship building.
Mentorship and so on.
The executive also added.
Well, we've been able to maintain productivity during these challenging times.
We're trading on the trust relationships understanding we built by being together.
After a deep dive into their real estate strategy.
This growing fortune 500 company concluded that while the layout of the office would likely change post cobot.
Their overall space needs would not.
Their study found that increased flexibility would be offset by an increase in personal in collaboration space.
This was encouraging feedback.
And while just one example, we've received similar thoughts for many other customers.
Personally.
I believe the teams are ultimately stronger together.
The observations provided by this particular company.
The other trends that we've been discussing even before the pandemic reach us.
Migration to the sunbelt.
Flight to quality and a growing emphasis on E.S.G.
In many ways the cobot pandemic has not created a new paradigm.
It is simply accelerating trends already underway.
Many years ago.
We crafted a compelling.
And resilient strategic plan.
With the goal to position cousins at the intersection of these trends.
In short, we prioritized trophy sunbelt properties.
Disciplined approach to capital allocation.
A best in class balance sheet, and leading local operating platforms.
We have made great strides today.
Let me highlight.
100% of our portfolio is located in the best Amenitized submarkets across the sunbelt.
100% its classic.
Our portfolio is among the newest vintage and the office sector with an average building age of 2002.
Our average building size is just 347000 square feet with the overwhelming majority having multiple elevator banks.
77% of the portfolio is near mass transit.
Well also enjoying an average parking ratio of 2.9 per thousand.
Net debt to EBITDA of only 4.4 times and liquidity in excess of 1 billion.
A 566 million dollar development pipeline that is 82% committed.
And projected to add approximately 66 million of incremental NOI by year end 2022.
Currently there is a lot of discussion in the market regarding urban versus suburban and hub and spoke.
At cousins.
We believe our portfolio has attributes that check the box for all of the Bob.
In addition.
The company has a fortress balance sheet and attractive embedded growth through our development projects.
Nonetheless.
We're not immune to the headwinds as a result of the coated 19 pandemic and the associated economic recession.
Physical dispensing and quarantines treat all markets the same.
During this period.
Leasing activity will likely be muted in parking income will be impacted.
The duration and severity this downturn.
I will be determined by the public health needs, which are and should be everyone's top priority.
Yes, Pandemics and recessions do end.
And as companies are able to safely returned to work.
The economy can transition from surviving to once again thriving.
However, this will take time.
At cousins.
We have long been disciplined with our strategy to build their pre eminent sunbelt off the street.
I believe that we're in the right markets with the REIT portfolio.
Coupled with our strong balance sheet in an extremely talented team.
We feel confident cousins can weather this challenging environment.
At the same time.
Dislocation in the markets could create opportunities for us.
We are in a strong financial position to reinvest in our buildings to take advantage of strategic land opportunities for future office and mixed use projects.
And to pursue compelling investment opportunities that can add value for shareholders.
We will remain judicious and act at the appropriate time.
Before turning the call over to Richard.
I want to thank the cousins team, which continues to work extraordinarily hard day after day in all of our markets.
Appreciate your skills your dedication and your resilience I'm, so proud to be part of cousins Richard.
Thanks, and good morning, everyone as Colin said, we are in the midst of a historically challenging economic environment.
I want to lead off by saying that our team and operating portfolio are performing exceptionally well during this difficult time.
From the start of the pandemic. We have remained focused on the things that we can control and positively influence such as our leasing strategy Red collections, managing deferral requests property operations expense control customer outreach and relationship building.
Our teams professionalism and focus in these areas combined with top quality assets and some of the best Sunbelt Submarkets led to solid second quarter results.
As we all know we felt the full impact of the ongoing pandemic for the entire second quarter, whereas we only saw a partial impact in the first quarter given that I'm, especially pleased to say that our team executed 303000 square feet of leases in the second quarter with an average lease term of 7.6 years.
That average lease term is squarely in line with our long term run rate.
Further 32% of our leasing activity this quarter was new and expansion leasing.
I'm also pleased report that rent growth remains exceptionally strong with second generation that rents increasing 20.6% on a cash basis a level not seen since 2015. This was driven primarily by continued excellent growth in Austin.
Net effective rents for the quarter came in at $25.43 per square foot, even higher than in the first quarter. We also ended the second quarter at 92.5% leased within place gross rents posting another company record of $39.48 per square foot.
Finally, our same property portfolio leased percentage came in at a solid 94.4%. We view. These is fantastic results in light of current economic conditions.
I described to the market backdrop last quarter as one of distinct uncertainty and while it is no longer quite as acute significant uncertainty remains with new cobot 19 cases, continuing at elevated levels, especially in the sunbelt leasing activity is considerably subs subdued and our pipe.
One of new leasing activity has been on the decline.
Rest assured we are approaching all new leasing up opportunities aggressively and there are some out there, but we still expect most of our activity in the coming quarters will likely fall into the renewal category.
You will recall that our second quarter leasing activity did include the previously announced 74000 square foot new lease with de lay pipe or at Colorado tower in Austin.
As I mentioned last quarter. This global offer more occupied space currently we spiked parsley energy with planned phased commitments starting early next year.
Our second quarter activity also included significant long term renewals of a 112000 square foot customer at the domain in Austin, and a 42000 square foot customer at the point and Tampa.
Now for some more general we see market observations first we still see leasing decisions being delayed more often than cancelled altogether. The fact is most corporate real estate decision makers are still an observation mode evaluating their post cobot real estate strategy and trying to determine what that might mean for existing.
And future requirements. We expect this dynamic to continue at least through this year, but we're also hopeful that will lead to some level of pent up demand when the recovery begins.
Second.
It is still too early to identify any reliable price discovery trends in the leasing markets transaction volume is simply too low and high we situational. However, it is worth noting that quoted or face rents have yet to experience much pressure with most negotiations instead focusing on lower net effective rents.
Through increased concessions.
That said face rates will almost certainly be impacted net negative we over time with the magnitude of the impact likely correlated with the ultimate duration of the pandemic.
Third while still at relatively benign levels compared to the past we are seeing an uptick in sub lease westins across some of our markets. This is an expected and reliable leading indicator of the health of the office leasing markets.
And our view of the CBD of Boston has seen the largest nominal amount of new subleased listings of any of our target submarkets.
Given the amount of new construction set to deliver over the next couple of years and the Austin CBD, we are watching the submarket, particularly closely.
With that said Austin was one of the first markets to emerge from the last downturn and we're confident that this will be the case. Once again Austin is a highly appealing metro area that will continue to attract great talent and businesses fleeing from areas, such as California, the northwest and the northeast.
A Prime example is teslas recent decision to build its newest auto Assembly plant near Austin.
While this is obviously not an office requirement. The overall economic impact of this plant will be very positive for the Austin market as a whole.
On a similar note. We're also thrilled with Microsoft's recent decision to lease over 500000 square feet and the new project in Midtown Atlanta, adding 1500, new technology jobs in our hometown.
Like last quarter I want to offer some insights into the condition of our current business activity beyond market conditions and leasing.
First I will cover recollections in May like many we expressed concern about whether collections will become more challenging over time I'm very pleased to say the collections have remained solid.
97% of our customers overall paid rent during the second quarter and the collection rate among our traditional office customers was 98% further 100% of our top 20 customers paid rent in the second quarter as of today, 98% of our customers overall have paid July rent charges.
Please note that these numbers reflects the impact of rent deferral agreements completed to date.
These numbers are very heartening, and we continue to attribute them to high quality customers and great teamwork.
Next rent deferrals as noted last quarter, we received requests for rent relief from the majority of our retailer and flexible office provider population.
And from a much lower share of our traditional office customers. The team has done a fantastic job evaluating each request on its merits and negotiating relief, where we deemed appropriate.
The total cash rent deferred today stands at seven and a half million dollars were 1.1% of our annualized contractual gross rents.
While the volume of request for rent relief has declined significantly relative to April and May we do expect some deferral activity to continue until the pick pandemic has dissipated.
This activity is inherently hard to predict but we view the highest risk customer segments to be our retailers and flexible office providers. As a reminder, those two segments only represent 1.7 and 1.9% of our overall operating portfolio respectively.
Finally, I would like to touch on property operations.
Throughout this pandemic all of our properties and remained open to customers with common sense adjustments to our security access visitor and cleaning protocols. Despite being open the physical occupancy of our properties is currently only at about 15% on average with usage of our parking.
Facilities is similarly low levels.
I will touch on the financial impact of this lower parking utilization in a minute.
During the quarter, our operations team finalized communicated and implemented a comprehensive plan for the anticipated return of our customers to the office. The team has done a fantastic job preparing for this process a difficult operating conditions and I could not be proud of what they've accomplished I can confidently state.
We are ready to safely welcome our customers back to work as soon as they are ready with that I'll now hand, it off to Greg.
Thanks, Richard and good morning, everybody.
I'll begin my remarks, this morning by providing a brief overview of our quarterly financial results in activities, including some detail on our same property performance and receivables data.
Followed by a discussion of our balance sheet before closing my remarks with updated information on our outlook for the remainder of 2020.
All things considered second quarter results were solid and they were inline with the information we provided in April.
Looking specifically at our same property performance cash net operating income during the second quarter declined 1.6% compared to last year.
This was driven by 4% decline in revenues and a 7.8% decline in expenses.
As Richard discussed earlier, we modified leases for certain customers to provide for temporary payment deferrals adjusting for the impact of these deferrals cash net operating income declined at 0.1% during the second quarter.
Beyond least deferrals the largest item driving our same property performance is the physical occupancy within our buildings, which remains significantly below pre pandemic levels.
Fewer customers coming to the office means fewer cars and as a result same property parking income was down 30% compared to last year's second quarter.
This is comprised of a 12% decline in contractual parking and a 76% decline in transient parking.
Adjusting for the impact of both rent deferrals and reduced parking income same property cash NOI was up 3.7% during second quarter.
For the balance of the year, we anticipate cash same property performance will.
Likely stay negative.
Potentially troughing in the third quarter.
In addition to continued rent deferrals and reduced parking demand we are seeing some opportunities to execute the lease extensions with existing customers that could pull forward free rent.
Which would impact cash NOI. However, we believe these opportunities are positive long term real estate decisions.
Before moving to external activities I did want to touch on customer receivables.
During the second quarter Epicel was reduced by approximately $400000 due to a combination of rent write offs and an increase in our allowance for uncollectible rents.
Comparable number for the first quarter was approximately $500000.
These numbers are tied to specific customers and leases no general Cobot 19 reserve has been taken to date.
To put these numbers and perspective charges related to collectability averaged approximately $170000 per quarter during 2019.
Turning to external activities, we closed one acquisition during the second quarter. The purchase of 1500 50 space parking deck in Uptown Charlotte for $85 million.
We also closed a one year extension of the existing construction loan on our Carolina square property in North Carolina during the second quarter.
Not only did we extend the maturity of this loan we also reduced the interest spread from 190 basis points 225 basis points and eliminated a repayment guarantee.
With this extension Weve no further debt maturities for the remainder of 2020.
Looking at the balance sheet, we entered this period of volatility with exceptional financial strength among the very best of our office peers.
Not only do we have low leverage our liquidity position of over $1 billion, we ended the quarter.
Represented over 15% of our total market cap at quarter end and is more than enough to fund the remaining $160 million necessary to complete our current development pipeline.
Looking forward.
Our 2020 outlook remains generally inline with the information we gave in our previous earnings call in April.
Assumptions around the impact of code 19 on speculative leasing and rent deferrals remains within the ranges we provided.
In addition to these items there are few updates outlined in our second quarter earnings release that I'd like to provide a little more color on.
First.
We currently anticipate the parking deck that we purchased in early may generate net operating income of between one and a happened $2 million during calendar year 2020.
To be clear this is a pro rata number and represents just under eight months of our ownership.
Not an annualized number.
In addition, this number is not a stabilized to figure it reflects our current belief that physical occupancy of our buildings and the commensurate parking income will continue to be significantly impacted by the code 90, 19 pandemic through the end of 2020.
We anticipate the annual stabilized NOI on this parking deck to be between four and a half of $5 million going forward.
Second.
We continue to take a hard look at our general and administrative expenses.
Prior to covert 19, RG nailed load was already exceptionally low and we've taken steps to reduce it even further.
Our current 2020 forecast assumes corporate gene a expenses net of capitalized salaries of between 27 million and $29 million.
On both an absolute basis.
And as a percentage of enterprise value.
This range represents a very low cost to our shareholders.
Third when we provided information on parking revenues in April our range was primarily driven by the duration of the pandemics impact on our portfolios physical occupancy.
The low end of the range assumed we would start to see an improvement in occupancy beginning early in the third quarter well the high end of the range assumed improvement wouldn't take place until year end.
As we sit here at the end of July at 15% physical occupancy, we clearly need to adjust low end of our range in this metric.
Finally, we have not completed the lease amendment with parsley energy at Colorado Tower that we discussed in our last earnings call.
Upon finalization of the accounting treatment. The amendment was deemed a lease modification rather than a termination.
Total earnings impact of the amendment remains unchanged at $2.1 million. However, it's the timing of that impact. This now spread out over the remaining term partially is retained space specifically.
Instead of recognizing $2 million as a termination fee in 2020.
And an additional termination fee of $100000 to 2021.
Well recognized $300000 as property level NOI in 2020, and $1.8 million as property NOI over the course of the remaining lease term through mid 2025.
When taken together, we anticipate these four changes on net each other out and our 2020 earnings.
The positive impact of the parking deck purchase of approximately $1.7 million. If you use the midpoint of our guidance combined with a reduction in gene a $1 million.
Equals the negative earnings impact of accounting for the partially lease as a modification and the commensurate 1.7 million dollar reduction and the adjusted range you parking revenue of $1 million again at the midpoint.
With that let me turn call back over to the operator for your questions.
Okay.
Well I'll begin the question answer session.
Question Press Star one on your Touchtone phone.
For use in the speakerphone, please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then too.
At this time, we'll pause momentarily to assemble a roster.
First question come from Blaine Heck of Wells Fargo. Please go ahead.
Great. Thanks, Good morning, I'm, calling it can you just a first talk about your markets and I understand we're still in somewhat of a discovery phase with respect to both leasing and pricing, but can you give us any sense of.
Your thoughts on which of your markets you expect to be most resilient both on the leasing side and the asset pricing sides in which you know if any might be showing some cracks.
Well blame it on.
Good morning.
Yes, I do think that it's still.
Preliminary to really differentiate among our markets and as I mentioned previously the pandemic in and the locked down really does does not differentiate among markets were appropriately so.
Yes.
Generally observing that helped guidelines through throughout our markets and.
As I think overall activity is.
It is is muted that being said as I look across our markets and think about a reopening of the country and a recovery and you look at the underlying industries that really drive our markets I think that gives us a whole lot of optimism here in Atlanta.
Technology continues to be a big driver as it is in Austin and Tempe, I think we've got a lot of enthusiasm long term about Charlotte and you saw the recent announcement with Centene moving their corporate headquarters to to Charlotte and I think Tampa, we'll continue to do well.
With the the healthcare.
Matt critical mass in that particular market. So I think as we look across all our markets. We've got a lot of long term confidence that that there'll be some of the markets that will be first to recover and where we'll see once again sustained rent growth and I think those underlying supply and demand factors of the leasing.
Market will really help maintain and stabilize asset values.
Okay. That's helpful second one for either you or or or for Richards can you just discuss some of the prospects for the the upcoming move outs and Backfilling some of that space Bank of America, Bluecross, Norfolk, Southern and then you know.
Closer to today, you've got Tiet time, Warner I think.
Towards the ended the year. So so just touch on each of those spaces with.
Sure blame it on and it's kind of Warner actually we were able to renew this past quarter. So that was in approximately 100.
Plus thousand square foot exploration that we've gone ahead and renewed out at the domain in Austin. So we were thrilled to get that done this past quarter.
That's why we do have.
Three fairly sizeable.
Explorations and move outs within the portfolio here in Atlanta at the anthem space in Buckhead, The bank of America space in Charlotte and the Norfolk Southern space and in Midtown I think all three of those buildings as we've touched on in the past or it really attractive value add opportunities that the company has.
And going into the pandemic. We've had said we had very good interest in all three of those I would say.
Yes, a meaningful component of that that activity is on pause as you would expect in the various lockdown across those cities. So I do think the lease up at that space will take us longer that being said many of those prospects.
I'm not cancelled their interest it's on pause, but that that will likely create some delay, but I think just stepping back is here at cousins. When we look at those move outs, we put in perspective of the overall company and the total.
Why associated with this three particular customers is less than $30 million and when we compare that to.
The.
Incremental NOI by that's expected to come off of the development pipeline again vast majority of that is our contractual obligations. That's up words of $66 million and so we do still continue to have a great deal of confidence as we look forward to 2021 and 2022 about the embedded growth within the company.
By some of these move outs and really fantastic buildings, and we still have the a terrific opportunity our team to backfill that space and create value.
Great. That's helpful. One last one maybe for Greg.
We appreciate all the commentary and and all that detail in the supplemental on same store.
What are the ask about same store expenses declined pretty meaningfully year over year this quarter.
All of that savings just due to lower utilization at your properties are there other drivers that might be more sustainable.
Now that the vast majority of the same property expense decline that you saw this quarter was driven by lower physical occupancy so items like utilities and cleaning.
And similar items were driving the vast majority of them.
Okay, great. Thanks, guys.
Thanks, but.
Next question comes from Jamie Feldman Bank of America Merrill Lynch. Please go ahead.
Thank you and good morning.
So in your car in your press release, you talked about potentially opportunistic buying I think in the call. This morning, you also mentioned land buildings.
Can you just talk about more about what's in the pipeline and what we might see where you want to do it and what types of assets.
Well Jamie it.
Anything that we.
Do we will be consistent with the strategic plan that we set forward and we'll continue to focus on the best Submarkets across.
Across the Sunbelt and.
And I think is we're kind of moving through this current cycle.
We are starting to see some opportunities on the land side.
That I think it create.
Opportunity for future.
Development opportunities for office and mixed use projects as well, obviously execution of those will obviously take longer term, but from our perspective now is an interesting time too.
To look at land and we'll keep our discipline within our 3% or so.
Target for for land on the building side, I think thats going to take a little bit longer for those those specific opportunities to materialize as as we just worked through the system I think obviously the environment over time could create strain and stress, particularly on private folks that.
That have relied on on leverage.
Theres will likely come later, we are starting to see some of the discussion.
That has peaked our interest and given us some visibility on what might come.
And as I said that those will likely be in the company coming coming months in quarters.
Okay, and you think about picking up additional land.
Sure what are your thoughts on how you'd mentioned before hub and spoke maybe satellite offices do you think it makes sense to get more land in more suburban locations across your markets or.
Stick with.
Urban.
Model.
Yes look I, obviously as I said in my remarks, there's been a lot of discussion on.
Urban suburban and hub and spoke since I think.
Some of that narrative and discussion I think makes sense in and in larger geographic Metro areas like New York City in San Francisco, but as you look at our markets Atlanta Austin Charlotte.
Again, I don't believe and we have not heard any differentiation from our customers and really what that building experiences whether that the elevator or the parking experience in a building in buckhead or midtown relative to.
The northwest or or.
Alpharetta.
Hi, Submarkets and I think ultimately what we've heard from customers and I think the Microsoft lease.
Validate that there was another very large technology company that that we understand assign over 300000 square for at least in Midtown. This past this past quarter I think that continues to validate customers and is not knowledge economy are focused on highly amenitized markets.
That that garner the type of talent they want to grow their businesses and we think that will continue.
Post post pandemic.
Okay, and then and we appreciate the commentary on that the Fortune 500 Company you had speaking your board meeting.
What what were they thing about.
Space per employee in terms of actual square foot.
Employee kind of pre pandemic and have you post vaccine.
Do you have any view on that yeah.
They were very clear, it's going up and I think its a.
I think it's going to come through a combination as I said, a a commitment from then to continue to offer dedicated personal space.
They also as they look at their collaboration space think that that will need to will continue to be important, but we'll need to be grow our you'd be grown to accommodate.
Yes increased physical social distancing, even post pandemic, but even looking at things like the with the corridors was one that they mention again just to continue to create more space in the office and so that overall from their perspective and their individual company was going to lead to a greater space.
For square foot.
Can you quantify like on a percentage basis.
Or it actually has it been play yeah, Jay they didnt get in still kind of early in the process I think for them to drill down and give.
A specific space per square foot.
But I think one of the things that I found interesting as they talked about again and the the remote working option in providing flexibility.
To their employees pre pandemic, they target that about a 10%.
Number.
Given day it would be in the office and I think their view post head pandemic that could potentially.
Increase to 20% on on any given day, but that being said with with commitment to dedicated space more collaborative space more open space I think their view was that the increase in in remote working what actually help them not to have to ad space.
Again is that space per employee continues to grow.
But they're saying each play still gets a dedicated to ask even if there.
Our often.
Absolutely it was a commitment they felt was important.
Over the long term even post pandemic.
For for their particular company, Okay, and can you say what sector therein.
I think we shared with them that we would we would provide compensate reality is they're continuing to kind of work through their real estate strategy again, some of what I'm sharing with you haven't necessarily been shared with their underlying employees.
But at a growing growing fortune 500 company.
Okay, great. Thank you.
Sure.
Got it for you have a question. Please press Star then one.
Our next question comes from Dave Rodgers of Baird. Please go ahead.
Yeah, Good morning, maybe Richard or whatever the you did mentioned some sublease commentary in your prepared comments that I was wondering if you get to dive a little bit deeper in terms of.
You know the competitiveness of that space, maybe the term and and maybe just focused on a handful of the larger markets that you guys are in but just getting a sense for where that shaking out and how competitive that might be as you look to relieve some of your space.
Sure, Yes, it's a great question.
You know, what's it like I alluded to in my my remarks, the amount of sublease space today that we're seeing is actually pretty benign, but we are seeing that uptick trend, but just just looking at all of our markets today.
We're really.
2% or less of inventory in the class a segment.
In virtually all of our markets, but for Austin and that's it about 4% right now on the numbers that we're seeing so the competitiveness of that space.
You know it's across the board to be honest, but I think just stepping back what we're seeing is that the recent sublease space that's come online.
Especially in Austin, but in other markets too is really probably more space that companies that were in high growth mode going into coated.
I've kind of had to step back from those those growth plans.
And so that was space that they were they were really almost inventorying are expecting to fill over the near term and Thats force them to kind of walk that back. So the implication there would be that its space that they do have.
Piece of term on it's not just somebody trying to to backfill a two year opportunity, which that that would not be competitive to most of our space. So.
And then and then again it is it is just generally the sublease space that we see coming back is being driven by technology financial services, but but we're seeing it across the board. It's also law firms some energy, but but in that tech component. It is interesting to see that that from our view at least the most of the.
Overall, we space is coming from companies that are more VC backed private smaller there were in high growth mode not necessarily the big Captech names that are publicly traded.
Thanks for that color and then maybe a follow up then on that Collyn that kind of dovetails into what I would ask and the questions about development and and maybe specifically domain, but just thinking about development with those big tech firms being the ones that are still committing the microsoft's of the world and obviously the the tech component that you have added dome.
Main I mean, I guess as you sit here today and I realize there's no clear crystal ball, but I mean is that an area, where you expect demand to increase for that single building user on domain nine et cetera.
How did the time Warner leak does that preclude you guys from kind of going forward with a redevelopment of domain point in the next couple of years.
Yeah, I think the domain is going to continue to do very well and again as you as you think about kind of coming out of the pandemic A.A. submarkets hit its proven.
To attract the fastest growing companies in the world and I think that's that's obviously location of the domain, but it's the mix of uses and the amenities that walkable nature.
The buildings are in attracting size for this type of companies I think you'll see even more coming out of this some of those large cap technology companies wanting to control their entire building.
And so the size of those buildings works well the parking ratios were very well and so we continue to be sure.
Extraordinarily bullish about the long term prospects for the domain I think while we currently.
We're presently still in.
Whether their official or not.
The locked down which again is appropriate for this point in time I don't think you're going to see a lot of companies make long term.
Strategic decisions that were already in the queue and so that could create a pause, but again I think some of the conversations we've had with companies that are interested there is still there is still checking in and making sure that somebody's not getting in front of them.
For for some of those opportunities so that gives us a lot of confidence as kind of incoming check in calls.
And I think we'll do well at the domain the time Warner.
At least it there's not prohibit our long term redevelopment.
The point that the plans there have always revolved around.
Taking down.
One of the existing parking garage is and then expanding out overtime.
With with podium style buildings, and so thats still absolutely and play and part of our long term plans.
Alright, thank you.
Thanks, Dave.
This concludes our question answer session.
Like the permit conference back over to Mr. Colin Connolly.
Please go ahead.
Well, thank you all for joining us.
On this last day in July we appreciate your time and interest in cousins as you've got any follow up questions. Please do not hesitate to reach out to the team and we don't speak to you before navarrete, we'll look forward to catching up with many of you all at that.
Time of everybody has a great weekend.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.