Q4 2020 Highwoods Properties Inc Earnings Call
Good morning, and welcome to the Highwood properties fourth quarter earnings call.
During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct the question and answer session at that time. If you have a question. Please press the one the followed by the four on your telephone if at any time during the conference you need to reach and operator, Please press star zero and.
As a reminder of this conference is being recorded Wednesday February 10, 2021, I would now like to turn the conference over to the Brendan Maiorana. Please go ahead Mr. Miranda.
Thank you operator, and good morning, everyone. Joining me on the call. This morning are Ted Klink, Our Chief Executive Officer, Brian Leary, Our Chief operating officer, and Mark Mulhern, Our Chief Financial Officer as is our custom and today's prepared remarks have been posted on the web and if any of you have not received yesterday's.
Earnings release or supplemental they're both available on the investors section of our website at <unk> Dot com on today's call. Our review will include non-GAAP measures such as F. O N O Y and EBIT. There also the release and supplemental include a reconciliation of these non-GAAP measures to the most of.
Correctly comparable GAAP financial measures forward looking statements made during today's call are subject to risks and uncertainties, which are discussed at length and our press releases as well as our SEC filings as you know actual events and results can differ materially from these forward looking statements and the company.
Does not undertake a duty to update any forward looking statements.
One of the most significant factors that could cause actual outcomes to differ materially from our forward looking statements is the ongoing adverse effect of the COVID-19 pandemic on our financial condition operating results and cash flows our customers the real estate market and which we operate the global economy and the finance.
Markets, the extent to which the pandemic impacts us and our customers will depend on future developments, which are highly uncertain and cannot be predicted what the confidence, including the scope severity and duration of the pandemic and its ongoing impact on the U S economy and potential changes in customer behavior among others.
With that I'll now turn the call over to Ted.
Thanks, Brendan and good morning, everyone.
Let me start by saying I hope, you're all well and your families continue to be safe and healthy.
Our buildings of remained open throughout the pandemic with protocols in place to keep our customers and their guests the safest possible.
Across our entire portfolio, we estimate utilization is now 25% to 30% on average.
Up slightly from the end of last year as we've seen a modest increase during the past couple of weeks.
And general well, it's difficult to draw trends, the cross markets or Submarkets.
There was higher utilization of our small and medium sized companies and larger companies.
We arent and assuming a meaningful increase in utilization and our portfolio until the second half of the year.
As mentioned on our last call the high wood teams across our markets. The safely returned to the office.
And we've heard from many of our customers who are eager for their full return.
As I mentioned last quarter, it remains difficult to predict the duration and the severity of the current recession and when the leasing activity will recover.
Overall leasing volume dipped and the fourth quarter. However.
However, new leasing volume was relatively steady at 160000 square feet.
While below our long term quarterly average.
New leasing volume was well above the low experienced during the pandemic.
We signed fewer renewals during the quarter, partly due to low lease explorations.
At year, and we only had 8% of our revenue is expiring in 2021, and eight 3% and 2022.
This two year cumulative exploration total is among the lowest and our history.
So far this year, we are seeing some modest green shoots with regard to prospective leasing activity.
Since January one we've already signed 100000 square feet of new leases.
We continue to be optimistic about the long term population and job trends and our markets.
Small and large users from outside of our footprint continue to seek office space and our markets.
With some of our new leasing activity already in 2021 attributable to out of town users.
Turning to our results, we reported 2000 20-F F O of $3 58 per share.
While our performance was impacted by the economic disruption caused by the pandemic, we were able to deliver per share of F. F. O. Excluding one time charges in line with our original expectations of $3 60 to $3 72.
And our ability to control expenses.
<unk> strong rent collections of over 99% keep.
Keep our buildings open safely and continue to advance our development projects on time and on budget and a testament to the tenacity and the dedication of the entire high Wood's team.
Our fourth quarter <unk> was 87 cents per share, including the <unk> severance charge that was not in our outlook.
Cash rent spreads were flat.
Down from the mid single digits over the past several quarters.
The sequential drop was attributable to a few short term deals where we provided aggressive economics to support occupancy.
Which had an outsized impact on our quarterly stance given the below average volume.
Occupancy held steady and from the third quarter to the end of the year at 93%.
Same property cash NOI growth was a solid three 7%.
Well of 1.6%, excluding the impact of temporary rent deferrals.
And as an aside to date, we've already been repaid on more than 60 per cent of the temporary rent deferrals granted earlier on the pandemic.
The positive same store result was achieved even though average occupancy was down 130 basis points of year over year because.
And as our average in place rents were up four 6%.
Higher rents and combined with tight control on operating expenses were more than enough to offset lower year over year occupancy.
Turning to investments, we sold $129 7 million of non core properties in the fourth quarter of.
All in Greensboro and Memphis.
We now have only one office property in Memphis, and four office buildings, and one part and Greensboro.
Subsequent to year, and we sold 100 thousands of square foot building in Atlanta for $30 7 million, the there's 100% leased to the FAA.
This was our only building and the airport Submarket in Atlanta.
We delivered the build to suit and 2009 for a total cost of $18 2 million, which further illustrates the value creation from our development activities.
We're planning to market additional non core properties as we continue to strategically prune our portfolio and improve the overall quality.
We didn't close any acquisitions in 2020, but in January of this year, we acquired our joint venture partners, 75% interest and the 636000 square foot Forum office portfolio and Raleigh for 131 3 million.
We have planned to highway Deicing and will increase our investment to $138 4 million.
Well, we're bullish on the long term upside for these assets given the wide array of walkable amenities proximity to executive housing and easy access to rallies major thoroughfares.
We continue to evaluate additional acquisition opportunities.
Even after the forum purchase we have plenty of balance sheet capacity with zero drawn on the route on our revolving line of credit and $100 million of cash on hand.
However.
Rice and remains competitive for the few high quality buildings that have come to market since the pandemic started.
Rest assured.
We will remain disciplined allocators of capital and seek properties that we believe will deliver appropriate risk adjusted returns over the long term for our shareholders.
Our $1 2 million square foot 503 million, 79% pre leased development pipeline remains on budget and on schedule.
To date, we funded 79% and expect to spend the most of the remaining $104 million by the end of 2021.
Our pipeline will provide over $40 million of annual NOI upon stabilization.
On the 8 million of which is scheduled to be recognized in 2021.
Now to our 2021 F O the outlook of $3 50 to $3.66 per share.
And 2020, we were able to offset lower parking revenue and rents by reducing opex.
We assume utilization across our portfolio will remain low and the first half of this year and.
Gradually increase over the third and fourth quarters.
We expect higher utilization will cause the operating expenses the increase while we're assuming parking revenues will be slower to recover.
At the mid point of our per share outlook, we assume net operating expenses will be six cents higher than last year.
The parking revenues will only improve by one of them.
Overtime, we expect parking revenues will fully recover the seven cent drop we experienced in 2020.
The same property cash NOI growth is projected to grow 3% to 5% and 2021.
Our outlook for dispositions and 2021 is $100 million to $150 million.
In addition to the $30 7 million and sale of the FAA building completed in January.
Our acquisition outlook of zero to $200 million, which is in addition to the forum acquisition.
We have a placeholder for development announcements of zero to $250 million.
We continue to have conversations with build to suit and pre lease prospects, but expect to be measured with regard to 2021 development commitments.
Before I turn the call over to Brian I'd like to reiterate the strong financial and operating performance, we delivered in the midst of and unprecedented economic environment.
Since the start of the pandemic, we've collected 99, 9% of rents.
For 291 million of non core properties.
Kept our 503 million, 79% pre leased development pipeline on time and on budget.
And maintained a strong balance sheet with leverage of 36% and the debt to EBITDAR ratio of five times.
Even with the ongoing economic disruption caused by the pandemic, we still expect <unk> per share to be higher in 2021 compared to a normalized 2019, the last full year before the pandemic.
Plus we have significant embedded growth potential as our development pipeline delivers and stabilizes.
Parking revenues recover and occupancy improves.
And we're cognizant of the near term challenges ahead, but we're confident we have the ingredients to drive sustainable growth over the long term Brian.
Thank you Ted and good morning all.
Our 26 million square foot portfolio, and it's well balanced across the <unk> of our markets and where we have exposure to many of the best Submarkets and the South East.
Our diversification is purposeful.
The cross markets across urban and suburban submarkets and across customer size and industry.
This balance of served us well and provided noted resiliency as we posted healthy portfolio metrics and 'twenty and 'twenty. Despite the most challenging of macro environments.
We believe this will prove beneficial as the matriarch nation emerges from the pandemic and recession.
The common belief shared by each and every member of the high which team is.
We are and the work place, making business and used to our portfolio that our customers can achieve together what they cannot apart.
Before jumping into the quarterly statistics and I'd like the first reflect on our overall 'twenty and 'twenty performance.
And we collected 99, 9% of rents contractually due since the beginning of the pandemic.
Note that this is from all of our customers, including amenity retail restaurants and co working.
It does not include the effect of temporary rent deferrals, which have totaled approximately $8 million and up.
60% has already been repaid.
Even with the traditional leasing and environment shut down for three quarters of the year, we leased 2.8 million square feet with cash re leasing spreads of a positive four 6%.
And net effective rents in line with our high watermark and 2019.
This positive outcome is a testament to our diversified portfolios resiliency and our team's ability to leverage technology and meet our customers needs in spite of the challenging environment.
We achieved these leasing results, while spending limited the leasing capex.
Ended the year with portfolio occupancy of 93%.
The slightly lower than we expected at the beginning of 'twenty and 'twenty.
As Ted mentioned, we have only eight per cent of rents expiring in 'twenty and 'twenty, one and eight 3% in 'twenty and 'twenty two and.
And we have no remaining explorations and either year greater than 100000 square feet.
We're starting to see forward momentum and leasing activity across our markets based on the velocity of the inbound inquiries the number of Rfps received in.
And the amount of tours occurring in our buildings.
Coupled with the portfolios limited lease roll and a few pockets of high quality vacancy, we're well positioned to capture of leasing demand when the recovery takes hold.
Focusing on the fourth quarter, we finished the year by executing 466000 square feet of second generation leases, including 160000 square feet of new leases as we've mentioned previously.
Overall volume can ebb and flow, depending on explorations and renewals, while new leasing trends can often be more indicative of market activity.
We've been pleased that new leasing volume has picked up measurably since of the depths of the pandemic and the second quarter.
As Ted noted we've seen good new leasing volume already and the early part of 'twenty 'twenty, one and we're cautiously optimistic that recent activity will translate to additional signed deals.
We posted GAAP rent spreads of of positive eight 4% and flat cash rent spreads.
We made the conscious decision to provide aggressive lease economics, and a few instances, where we felt it was important to maintain occupancy or bridge of customers through the pandemic.
And while these deals were small.
Given the limited lease volume and the quarter.
Had an outsized impact on reported rent spreads.
Temporary rent deferrals granted since the start of the pandemic remain static and the quarter at one 2% of our annual revenues.
For some added color, we convenient and rent relief task force starting in March the met daily for almost three months.
Come summer, we were able to pare back our meetings twice a week.
And we know convene every other week to monitor customer progress and performance.
And like to commend our local teams down to each and every <unk> property manager Who's in place relationships were key to supporting our customers and resulted in best in class rent collections throughout the pandemic.
Now to our markets, which continue to garner national attention for their of above average population and job growth forecast.
And their physical health and low taxes business friendly climates.
Of dependence on mass transit affordability and overall high quality of life has accelerated the great migration to our footprint to the.
And U S News and World report list three of our markets and the top eight of the best places to live.
Additionally, Green Street recently identified Raleigh Charlotte.
Tampa, Orlando, and Nashville, and the top quadrant of National cities in terms of both population growth and.
And lower susceptibility to work from home risk.
Where else to start, but Tampa, the new Super City by the Bay, where the Stanley Cup and American League pennant and the Vince Lombardi Trophy I'll call home and.
And where our success on the field of play and its begetting success and the halls of the city's economic developers as evidenced by Pfizer's decision to create a new 100000 square foot and enabling functions hub and <unk>.
Furthermore, Tampa ranked number four in the United States for net rid of residential growth and 'twenty and 'twenty.
In addition to Pfizer's news Fisher investments of high what's customer has made a large commitment to growth and Tampa announcing the planned addition of 600 jobs and the year ahead.
Moving to our Tampa portfolio at 50, 332, Avi on we're seeing solid interest and the remainder of the availability we have there on.
Also on the West shore of Bvd are 150000 square foot Midtown west of element that sits above and Rei and Mexico of whole foods market Shake shack and true food kitchen, it's finishing construction hosting and hard hat tours, and where we're seeing solid interest from prospects.
And out of Raleigh, where we saw another quarter with positive net absorption and where and where California base Gilead Sciences, just announced the addition of 275, new jobs with an average annual salary of 142000 and knowledge.
And national mortgage lender Pennymac financial services announced 322, new jobs last month.
The Raleigh leasing team signed 130000 square feet of deals and the quarter lives.
Life Science users continue to be the most active and the market and we're also seeing good activity from technology financial services and corporates.
Atlanta also posted a healthy volume of 130000 square feet with solid rent spreads and we are seeing increased prospect activity and bucket, which we believe can translate into signed leases later in the year.
And finally back down to central Florida to wrap up and Orlando, where we leased 91000 square feet, including 20000 square feet of new deals.
Our CBD portfolio and spec suite program. There are seeing good interest from prospects across the combination of small and medium size requirements. We expect occupancy will continue to improve as we move throughout the year.
In closing.
We're looking forward to 'twenty and 'twenty one on.
And we will deliver new trophy assets, such as the <unk> headquarters in Nashville, and.
We are fortunate to be well positioned with our dynamic and growing markets are high quality and diversified portfolio, our roster of strong and performing customers with the limited forward lease role of quiet across a wide array of industries Mark.
Thank you, Brian and good morning, and the fourth quarter, we delivered net income of $82 1 million $82 $1 million or <unk> 79 per share and F. F O of $92 $5 million or 87 per share.
The quarter included a one time severance charge, which reduced F F L by two cents per share.
For full year, 'twenty and 'twenty, we delivered <unk> of $3 58 per share.
<unk> for the severance charge or F. O was in line with the midpoint of our updated 2020 outlook provided in October.
I'd like to take a moment to review, our 'twenty and 'twenty results compared to our original expectations.
As I mentioned, we reported <unk> of $3.58 per share and.
Included in our full year numbers or five cents of one time charges the.
The two cents average severance charge I mentioned earlier that we took and the fourth quarter and.
And three <unk> debt extinguishment charge, we disclosed with our third quarter results and.
Adjusting for these items our F O would have been $3 and 63 per share.
In addition, we had $153 million of non core dispositions and no acquisitions that were not and our original 'twenty and 'twenty outlook, which.
Which reduced the F F O by two cents.
For the year.
Plus we incurred a penny of additional interest expense from the excess cash we held on the balance sheet, following our $400 million bond offering and the third quarter.
This financing also wasn't included in our original F O outlook.
We believe all of these items non core dispositions, obtaining long term financing and reducing G&A will benefit the company over the long term <unk>.
Excluding these non operational items are F. F O would have been higher by eight cents or 300 of $3.66 per share.
Which was the midpoint of our original F F O outlook.
Given the economic harm and disruption to our industry caused by the pandemic we're extremely pleased on.
The overall financial performance was generally in line with our pre pandemic expectations.
Our balance sheet is in excellent shape.
Following the acquisition of our joint venture partners, 75% share of the forum, we have of $100 million of cash on hand, and nothing outstanding on our $600 million revive the revolving line of credit.
We only have one remaining debt maturity before late 2022, which is the $150 million remaining on our 3.36% interest rate bonds that we plan to pay off at par in April.
We have a little over $100 million left of fully fund our $503 million development pipeline, most of which will be spent by the end of this year.
As Ted mentioned, our leverage remains low at 36%, while our net debt to adjusted EBITDA. There is five times.
Clearly, we have plenty of liquidity and ample room to pursue additional investments if we see attractive opportunities.
Turning to 'twenty 'twenty, one and last night's release, we provided our initial F. F O. The outlook of $3 50 to $3 66 per share.
And this includes four to eight cents per share of lower F. F O due to higher anticipated year over year operating expenses.
As we assume higher utilization and the second half of the year.
We're optimistic on the long term prospects for our parking facilities recovering to pre pandemic levels, but we don't expect significant improvement in 2021 at.
At the midpoint of our range. We are assuming increased net operating expenses combined with higher parking revenue will have the five cents per share headwind compared to 2020.
The annualized dilutive impact of the $153 million of dispositions late last year that were not included in our original 2020 outlook is expected to be offset by the accretive net impact of the farm farm acquisition and the SFA sale in 2021.
We expect the five cents headwind from net Opex and parking revenues in 2021 to offset the other non operational charges and 2020 I mentioned early earlier that are not forecast to recur in 2021 and.
As a result, we expect we expect overall I thought the results in 'twenty and 'twenty one to be in line with 'twenty and 'twenty.
Finally last week, we announced a quarterly dividend of 48 cents per share, which is unchanged from our prior dividend.
The past few years, we've announced dividend increases in conjunction with our fourth quarter earnings releases.
As a reminder of our dividend strategy is to generally target of level that approximates our taxable income over time.
Given our income projections combined with the uncertain economic environment around the Penn debt pandemic. We believe it is prudent to use our excess cash flow to fund our development pipeline and for other investment opportunities.
We continue to be constructive on the long term cash flow outlook of the company and expect strong dividend coverage in 'twenty and 'twenty one.
Operator, we're now ready for your questions.
Thank you.
If you would like to register a question. Please press star one four on your telephone.
You will hear of three Tom prompt technology of request. If your question has been answered and you would like to withdraw your registration. Please press the one followed by the three <unk>.
One moment please for the first question.
Our first question comes from Blaine Heck with Wells Fargo. Please proceed.
Great. Thanks, Good morning, maybe for Mark or Brendan and I, just wanted to touch a little bit more on what seems to be a little bit of a disconnect between you know a lot of positive assumptions baked into guidance of cash same store NOI guidance being one of those major positives and and episodes that you know of relatively flat year over year.
<unk> is there a material difference between GAAP same store NOI growth and cash given the decrease expected and straight line rent or are there other ins and outs that might help us bridge that gap.
Yeah, Hey, good morning, Blaine, it's Brendan I'll take a stab of that and I'll try to run through some of these items in in general. So overall I would say, yes, there's a meaningful difference between cash and GAAP NOI growth. So we've got at the midpoint.
And you pointed out cash NOI growth that at plus 4% at the midpoint of the outlook, whereas GAAP is let's call. It you know.
And at flattish to maybe even slightly down a little bit the.
The the biggest drivers on that are there's the the the things that are in GAAP that that are not and cash is really attributable to a lot of the burn off of some of the straight.
The straight line rent and free rent on leases that were done late 2019, and early part of 'twenty and 'twenty and so overall at the midpoint we've got.
We have about a 22 million dollar a decline in terms of our expectation for straight line rent now a portion of that is attributable to the deferrals that we and the temporary rent deferrals that we provided in 'twenty and 'twenty. So that is on a year over year basis, we gave.
It's about a five and a half million dollar benefit to the same store and 2021 parking revenue is as Mark mentioned in his remarks is about $1 million positive. So that's six and a half million dollars positive on cash that's essentially offset by the higher net operating expense.
Which at the midpoint again are also of about six and a half million dollars negative. So those two things cancel each other out and so we're left with the the with the remaining straight line reduction, which is call it about 16 or $17 million at the midpoint of the outlook.
And that all falls to the bottom line from a cash perspective, and it's as I mentioned earlier, it's largely attributable to a lot of the leasing that we did late 2019, and 2020, where those leases where and of free rent period, and the and that has expired and probably the best example of that is fanatics at 53, and 32 avian which.
The debt that lease commenced from a cash perspective earlier. This month. So I'd say those are probably the major the major drivers in terms of positive cash versus <unk> versus the GAAP number and I think as we've been stating you know our cash flow continues to strengthen with the the rotation of the portfolio and the <unk>.
And the good leasing that we've done so I think we feel we feel good about the long term cash flow outlook for the company.
Okay, Great that's really helpful detail.
And then along the same lines again, we appreciate all the color you guys have given and in guidance and and the decrease and straight line rent seems like it should be a positive for sort of F. N E. R. E. S. S O growth, but can you also talk about how you guys are thinking about capex and how that might trend year over year and the implications for.
And for a S F O growth relative to that flat if at the growth that you or your guidance implies.
Yeah. So so we just talked about the the drop and so from a cash perspective, and as we think about kind of F O or CAD and we just talked about the at the midpoint of the range of 22 million dollar kind of drop in terms of straight line versus 'twenty and 'twenty versus <unk>.
21, so that's a positive for for cat that is not impacted in terms of.
In terms of E and F O or GAAP number and in addition to that I would point out we spent $90 million of leasing capex and we expense in 'twenty and 'twenty and we only committed of less than $50 million of leasing capex in 'twenty and 'twenty.
And typically what we commit and and foreshadow it was kind of what we spend going forward now I think it's unlikely that we would have a.
$40 million reduction and leasing capex spend year over year, I think that's probably more aggressive than we would we would assume and obviously that's pretty lumpy, but we do think that it's likely that leasing capex in 'twenty and 'twenty one at least in the base case that we've laid out and the guidance outlook is likely to be of.
A little bit lower than what it was in 'twenty and 'twenty and so the combination of more cash from rents that are commencing and likely lower leasing capex means we expect the dividend coverage is likely to improve as we as we think about 2021 versus 2020 and and you know.
Again point out that we we've been saying that for a while that we feel like the the cash flow outlook of the company of strengthening so we think 'twenty 'twenty one will be a good example of that.
Perfect.
Last one from me and maybe if you're tired of Brown and can you talk about the X the acquisition prospects out there.
Are you guys focus on any market in particular like growing and Charlotte and can you comment on whether you'll be looking at core deals, which I think as Brian mentioned make up the the majority of deals that are being marketed right now or do you have enough conviction and the markets to bid on anything that might come to the market with a value add component.
At this point.
Sure Blayne as Ted.
Look I mean, we look at everything that's out of the market.
Whether it's core value add core plus and opportunistic so when we look at her.
Is it in of Bvd is an asset we want to own the long term due to the priced appropriately on a risk adjusted return basis. So.
You mentioned as we sit on and on our prepared remarks core acquisitions today are very aggressively pursued and really hasn't seen any price deterioration from from the start of Covid.
And then the on the value add deals you know, we're looking at all of those but it's got to be priced right.
So we're looking at it from a lease up perspective, what do we think market rents are going to be clearly if it's in the market. The we're in we understand the current dining.
Dynamics of the leasing market. So if we can underwrite it.
Based on our assumptions that we feel like we can get.
Good risk adjusted stabilized return, we would absolutely chase value add as well.
Alright, great. Thanks.
Our next question comes from Manny Korchman with Citi. Please proceed.
Hey, good morning, everyone Brendan.
Brendan and at the beginning of of your script I think you went through a few risks that could come from the pandemic.
And and you know.
And the potential pressure on tenants from that and the 10-K you had similar language how are you thinking about sort of those.
The risks versus how youre planning for whether it be for the year or the next couple of years.
Yeah, I mean, there are the risk factors that maybe the size it's Ted.
And obviously the risk factors would put and the 10-K, it's sort of just the required. So we've got to really put to the kitchen sink and there. So look we our outlook that we've got in our guidance reflects the current situation. We're in we're in a recession, we're still in the middle of Covid. So I think the the way we put out guidance the range, we put out really.
The factors in all of the risk factors that we've laid out in the 10-K.
Just the factors based on where we are in today's environment.
And then of your question.
Yeah, I think the.
And you talked about some of out of counters little cat space and your portfolio.
Are the characteristics are sort of the requirements of those any different from the end market users.
The.
And that you're talking tourist Inc.
No not really again, it's a combination of smaller companies.
And they're looking to expand their office here just access to talent and labor. It's the same thing we've really seen for many years now and the larger customers. It's the same same thing I mean, if you just think about.
And the last couple of weeks, there's been three announcements and our <unk>.
Oh, the new inbound of new inbound announcements too and Raleigh, Gilead is creating 275 jobs and.
The Penny Mac I think 322 jobs both of those announcements from the last week or so they both sided it's all of the things we talk about the migration of the southeast it's the.
Our high quality talent low cost low tax high quality of life and.
And all of that and so I think they are looking to use the access that and get out of some of the higher state.
Kind of higher cost cities.
Hey, Manny its Brian maybe just to pile on a little bit and we've talked about this previously where I think what we're hearing and the scene is that well prior to the pandemic of lot of these moves might have just been around affordability of lot of these conversations that we're hearing now it's really about the talent and if you remember kind of 1% of our.
Organizations annual investment and their businesses around utilities, and 9% is on the real estate, but 90% on their talent and so they're seeing that these markets and then submarkets of our B B DS are the places for them to retain and recruit the.
And going forward and so from what I think what we hear it's really at 90% kind of decision, making that supports their 9%, which obviously these markets are.
The competitive from an affordability standpoint.
Thanks, Brian and I have one more for you you talked about the the 8% rolling.
21 of them and again of 22, if you had to predict how much of that becomes sort of typical of long term leasing versus the.
And the shorter term debt that led to.
And maybe some some extra of influence of the 14 numbers, which way the would you lean on that 8% expiring this year.
Well good question and one thing I might also just put as a footnote to your question Manny is the amount of firms that we're still seeing kind of coming out of the space and maybe going to work from home most of them on a temporary basis are still very small and number and size you know 500 square feet 1700 square.
Feet.
And if they're still on business all of them are saying that they plan on coming back, but they have the ability and flexibility.
And to wait it out so we are seeing interest of those that are looking to kind of renew and I'm looking at longer terms.
Because I think folks you know, let's be honest and it's a little bit more of a tenants market and they see the opportunity to kind of make a commitment longterm and we arent seeing reconfigurations, particularly folks kind of a you know downsizing.
Downsizing and I think they are balancing the need for maybe more square feet per person and there you know.
Fans for flexible workplace, but I think we'd see that fairly consistent Brendan do you have of the perspective on that as well yeah. Many of I think likely at least what's what's kind of <unk>.
Our base case expectations is the.
And they'll they'll probably be of a comparable amount and the in the quarters at least is as we've kind of laid out the expectations for 'twenty and 'twenty. One. So I don't think we expect some major snapback in terms of net effective or or lease terms of extending out, but we will see how that plays out and that's part of the reason why.
We have a range of of possibilities and our 'twenty and 'twenty one outlook.
Great. Thanks Al.
Yeah.
Our next question comes from Jamie Feldman with Bank of America. Please proceed and proceed.
Thank you good morning.
So I guess sticking with the 'twenty one outlook.
Maybe if you could just talk us through.
How you got to your base case general assumptions, and maybe where there's meaningful room for upside or potentially downside.
The key potentially on the key drivers that would really move the numbers.
Yeah, Jamie I'll start and maybe turn it over to Mark or Brendan I mean look obviously the base cases, we started really it's no different than any other year, it's the sort of bottoms up.
From a leasing.
Standpoints, when we hit that and and this year was looked a little more difficult on the Opex side, just given COVID-19.
Last year was not a normal year on the.
On the Opex side on the parking side. So it was virtually everything we do is bottoms up and and drilling down and building by building on the line on them by a lot of them on the.
The budget. So that's sort of just an overview and then Brendan do you want to run through sort of the.
Sure Jamie Yeah, I mean, as we tried to lay out on the press release I think we we took a fairly conservative view with respect to Opex I think opex. The increase in Opex is not linear to the increase and utilization of the buildings and so that's why we saw at the midpoint about of <unk>.
<unk> <unk> headwind in 'twenty 'twenty, one versus 'twenty 'twenty, even though we don't expect utilization to improve significantly until the back half of the year and I would say that that general outlook with respect to utilization of mimics the leasing assumptions that we have and the in our.
Outlook range. So we don't have we don't expect a lot of lease up to happen and what's likely to happen for us and occupancy is we will probably have the occupancy dip and the first quarter that is a normal seasonal pattern for us and then often and what happens in a normal year as we make that back up and the.
And three quarters of the year.
This year, we think that and will dip a little bit and then probably not make nearly as much of that back as we as we often doing it and a normal year.
Okay. Okay. That's helpful.
And then as we think about and <unk>.
<unk> has been rising and some of your markets as well as some of the.
And the markets, we hear about the way, it's really spike can you just talk about how much you think.
And that space will in <unk>.
Current market conditions and.
And the economics going forward and how much do you think is.
Gonna come right back off the market as soon as things reopen.
Sure.
Start and maybe Brian can jump in and add additional color.
And obviously sublease space I think it is rising and maybe all but a couple of other markets.
We've seen some.
Some sublease space is competitive.
We in fact over the last nine months, we've lost a couple of deals two of sublease space, but at the same time not all sublease space is created equal.
And some has short terms the.
The less or may not provide T is theres no renewal options on most of the stuff we've actually even heard from brokers that the companies are just putting it out there because they're not at work right now anyway. So they're just putting it on the sublease market and see if theres a taker, but they think the company is actually going to need it when they come back to the office.
Look I think the other issues credit worthiness of.
Of the.
Sub landlord is also a question these days and we've heard a little bit about the sub tenants of worried about what if the primary tenant goes bankrupt, what's going to happen to their rent and all of that so again, while there is definitely from the competitive subs sublease space not all of it is so how that plays out of its sort of building by building.
But sublease, but and I think some competitive some is not.
Hey, Jamie Brian here good morning.
The Ted's point, it was kind of a broad spectrum and just to give you some bullet points.
Richmond, and Pittsburgh total sublease space was down and in fact, Jay and I was calling for 46 per cent of Richmond sublease to be absorbed and the first half of 'twenty, one Atlanta, where it might look like of large nominal number of Cumberland and Buckhead and Midtown and sublease space is all down you know the sublet space comes with some interesting handcuffs too and.
Terms of who goes in there is the the sub lessor ready to write a check for ti or not and I think of lot of it is opportunistic we haven't seen it drag and any fundamentals down yet in terms of competitive and that's across the board and maybe anecdotally.
Anecdotally, one or two and.
And but it's obviously something we are tracking.
Daily and fact.
Okay. That's helpful. I mean, other certain markets and you're more concerned than others.
And I don't think I don't think so you know we are maybe a quarter or so ago, we might have a set of look Atlanta. It looks like they have a lot of sublease space and then you start seeing of disappear and the Submarkets and you look at high Woods portfolio alone our sublease space within our portfolio has gone down.
And Atlanta and in Pittsburgh and enrichment you know.
I think we're looking across the board all of our previous markets that were and continue to be a lot of the areas of inbound activity, Atlanta, and Nashville, Raleigh and.
Tampa and that's also where we're watching the sublease space grow and compete.
Yeah.
Okay, and then finally, you had mentioned solid interest for.
And 533 to Abbvie on and Midtown West.
Can you just talk about.
What what that pipeline and really looks like and I guess throw Virginia springs into that mix as well sure Jamie a couple of things as you look at the those two Tampa assets. We just finished construction of repositioning of avian and and so it wasn't really even available to be seen and now that.
And that it's kind of cash kind of shiny and renew and theres been a lot of great interest and there's three hotels right next to it and there's a world of beer, that's still pretty popular so we're getting.
Some good traction.
And traction there plus there's you've got fanatics and the building showing of being used and it's a very kind of young and exciting company. So it definitely shows well.
It's going to Midtown and I have experience over my 25 years working on these kind of complicated mixed use developments.
Developments and which so key is delivering enough critical mass and wants to kind of create the they're there and that's the one thing that Midtown is actually doing so are the two hotels opened up the right before the Super Bowl the restaurants are finishing up and so.
Kind of hasn't even really been open for people to experience. The live work play aspect of it. So now that we have the elevator work and we can take people up on a hard hat tour of.
There's a lot of folks coming.
Coming now and so we're moving the marketing center into the building and from a trailer and so that is real and having an experience like this and other markets and other projects. Once it's actually open and people can walk the streets and go to Shake Shack, and then catch of concert and the park it'll really get it.
Sea legs under it.
And just as a reminder, you know Midtown is delivering and the second quarter of this year, we don't under we haven't underwritten it to stabilize in the fourth quarter of 'twenty, two and so to your point on Virginia Springs, and Brentwood, and Nashville, and that just recently delivered and we've kind of projected that to stabilize and the third quarter of 'twenty two.
And its sister building, Virginia Springs wanted you know as you know is full next door and so those two buildings coming together and now have a whole set of outdoor amenities were pursuing some additional certifications for that building that we'll be sharing with the market and so it's the best in class building and the entire $6 2 million square foot Brentwood.
Sub market. So now that you can actually show people the space get them out there are the team of teams in Tampa, and Nashville, and been very busy with tours and inbound interest and those two or three assets actually.
Okay.
So youre, saying, Virginia Springs of seeing a similar uptick and interest as the other two you mentioned.
I think so I think it's different right Brentwood is of different sub market, we know very suburban drivable surface parked a stable kind of sub market and then you know Midtown is the very shiny and new dynamic west shore market and so.
You know, it's a little different vibe and Brentwood, but you know the you also have some bigger users who could take a couple of different floor. So I think it's different but we're happy with the activity that's occurring right off the bat and 'twenty one yes, Jamie I'm looking at the prospect sheet, we've got about 280000 square feet of prospects. Some of those are such and such.
And as well right now, but the people that are touring where the brokers of asked for brochures and information on pricing and all of that so it's a pretty solid list just given the we're still on the pandemic and a lot of companies, especially the bigger companies, Brian alluded to art and making those type of decisions yet just to get the inquiries and I think as good and Tampa are <unk>.
Suspect list is right at 200000 feet.
Most of those have actually done the hard hat tours and coming back for either second tours are asking for more information as well. So you know the.
The activities significantly picked up from what it's been over the last six months and both of those assets again and as they get completed you can see what what theyre going to look like and what the surrounding areas like so I'm encouraged but again I wouldn't say anything's of strong prospects, yet, but we like the general activity.
Okay alright, thank you.
Yeah.
Our next question comes from Rob Stevenson with Janney. Please proceed.
Good morning, guys, Brian can you talk a little bit more about your market expectations for 2021 overall of the best markets and 2021 be the same from 'twenty and 'twenty, you're expecting any meaningful improvement or deterioration in any markets.
So hey, thanks for the question.
And maybe taking that last part of the question first no I don't think we see any.
Notable of expected deterioration and these markets across the board and those that were performing well pre pandemic.
Pandemic have seen accelerated inbound interest and so while there was more of a natural flow I'm looking at the great migration I think we're seeing an increase at the again the economic developers are saying they've never been busy the pipeline has never been more full of the prospects to Ted's point and suspects.
And have been busy sort of Atlanta has obviously seen the number of wins, there and Microsoft isn't just growing by 1500 people and Midtown they're buying.
Buying the land.
To the west side of the emerging area of they're doing the cloud computing Center.
South of town Nashville, we're.
And we're seeing lots of inbounds from the West coast, and and Chicago folks coming in through our and.
Kind of different fields, we have out there and then obviously Raleigh with the life science and technology and bounds.
We're talking billions of dollars of new investments and some of it probably aren't even getting above the fold I mean app of Jack vaccine is building of Giga factory, the 800 million dollar investment and it's a million square foot facility here in Raleigh, and they'll have 650 jobs they'll be able to trade 15 different drug simultaneously 8 million of day.
Of Prefilled injectors, I mean, just stuff like that.
And it's happening and and Raleigh through the pandemic and then look at Tampa.
Tampa of winning Pfizer's interest and an investment of over 100000 square feet and that can't be under stated.
In terms of Tampa now joining kind.
Elite company and this country of winning.
What kind of the economic development and competition.
Okay.
Yes.
Of that I mean, which markets do you have that are expected to be at or above the sort of 5% high and the same store NOI growth range, and which markets are going to be below sort of 3% as we start thinking about the contribution to earnings and in 2021.
Hey, Rob it's Brendan.
Yeah, it's probably from a cash perspective, which is which is where we provide the outlook I think it's gonna be a little bit more asset specific associated with some of the some of that conversion of of straight line rent of cash rent. So I mentioned 50, 332, AVR probably be the largest example of that.
And also you know another another asset and Tampa, where there's there was a straight line rent that will convert to cash and in 'twenty and 'twenty, one compared to compared to 2020 Atlanta has a couple of assets that are that are in that category as well. So those are those of probably be the major one.
And as I'm sort of running down the list here, but it'll be a little bit more asset specific than it would be necessarily driven by market dynamics.
Okay, and then last one from me how are you guys thinking about the remaining JV assets are there more buying opportunities and there is there a source of dispositions in 'twenty and 'twenty. One there continue to just hold them and can you remind me if any of the jv's are coming up on the sunset.
Sure This is Ted.
And we've really only got.
Five buildings left and JV and three Jv's well, we still have just to remind you what they are we've got a three building JV.
With our customer enrichment.
And that's no no in date on that one we've got a.
The JV on Midtown development project, as well and Tampa.
And that's the second JV and the third is we saw the 50 50 JV with the local partner and Kansas City I'd say, if there's any of the three the Kansas City, one gift, giving and we sold the plaza.
Will be one that we would we would exit out of but unlikely from of buy perspective down. The road, obviously, we're going to want to own the 100% of Midtown Tampa and that's provided for with our development partner.
But other than that.
The Richmond, we buy those assets, but its again the JV is.
No time soon probably going to unwind that.
Okay. Thanks, guys I appreciate it.
Our next question comes from Dave Rodgers with Baird. Please proceed.
Hey, guys. Thanks for all of the information and so far Brian maybe you wanted to go to some of the exploration and the renewals that you're doing.
The one that you mentioned nothing over 100000 square feet coming up here and the near term.
And remember right you had and $3 50000 square footers, maybe rolling out and that number of growing changing evolving and then maybe a second a more qualitative question on the exploration and renewal and are you having discussions for swing space that people want to redo their space or those discussions happening or is it just hey of contracting from expanding on.
On the exiting without a really repurposing of the space.
Hey, Dave It's Ted I'll, maybe start out and Brian can jump in in terms of the explorations, we have remaining for this year and others.
The 75.
Thousand footer Thats at the very end of the year on December <unk>.
<unk> actually and they are there is still a prospect to renew would be of downsides that they renew that.
That's not COVID-19 related downside, that's something we've known it's been out there for a while and then we've got a really to ride out 51 of the fifties as and September that's likely a downsides and we think we've got a decent chance of renewing them for one floor and then we have another of 48.
And that just left February one and we've already back filled about 9000 feet of that so those are the really the last remaining three we've got for this year that are in that side of the after that dips down to about 35000 feet or so in terms of swing space to renew it to.
And to redo their space, we're really just not seeing much of that yet.
Companies are still holding back decided what they're going to do the small companies most of those folks are already and hard wall offices.
And the density is not very great anyway, so they're not going to redo. It the bigger companies that are more dense space. There are still figuring it out a lot of them don't want to spend money yet against the same thing we've been seeing from really the last nine months the waiting to get their employees back Theres, certainly planning behind the scenes, but there hasn't been any mass.
Inbound calls for us to help give them capital redo their space or the things like that.
Dave just to kind of not to contradict what Ted said by anyways, but I'd say there are a few that are not in the space now working from home and see this as an opportunity you know to naturally do work and their space and not necessarily put plexiglass and spread out but it's time you know if they've been in the space for a while the time to upgrade and.
And reduced so we have seen some folks being opportunistic and said hey, right. Now we don't have to go through the nightmare of kind of redoing our space, while we're in it and so I think some folks are realized and theres an opportunity to do that.
That's helpful. Thanks for that and then maybe mark or Brendan and it looked like there was maybe of 1 million and a half or so of lost revenue weather and bad debt or of straight line rent write off and the fourth quarter.
Can you confirm kind of where that was and then what's the expectation and your guidance for 2021 and for any kind of bad debt or losses are those largely out of the out of the mix at this point.
I'll start with that I think Mark's confirming the are that the fourth quarter of number at that sounds about right, but I think well give you a confirmation on that number in terms of 'twenty. One expectations is it at least in the core of call. It midpoint of the outlook as is more of a <unk>.
Normalized of year. So so not it would be more comparable to 2019 as opposed to 'twenty and 'twenty and 'twenty and 'twenty wasn't a year that was I would say dramatically different.
Different from a straight line rent and write off perspective, but it was a little bit higher than normal to the tune of call. It and maybe three to $3 million to $4 million higher than a normal year I think for 'twenty 'twenty, one and we expect it to be back in line with the with the 2019 levels and in prior years.
Yeah, David the only thing I'd say, the additive and yeah. We did have that million dollars youre correct on that we did have as you know.
No amenity.
Co working and some amenity retail amenity customers that we had some write offs on during the year, but our collections were continuing to be really strong you know we're obviously the 99 plus percent numbers. We've quoted you. Our watch list doesn't really have any material risk on it. So we obviously have a watch list process that we go through every quarter. So.
Overall, we couldn't be happier about the collection and and Brian and his and the divisional folks have done just a great job of staying after all of this so we feel really good about where we are including collection of the deferrals. So from a credit and collections perspective, we couldn't be happier.
And Mark maybe and finish up with you I think in your prepared comments, you said the severance and the fourth quarter was unexpected or something along those lines.
Anything there related with the development was it just kind of leaning out with Covid.
The broad color there would be helpful.
Yeah listen you we.
And as everybody kind of prudently manages the business. We obviously earlier in the year had some of the impact of the Mark of rotation plan of getting out of Memphis, and Greensboro, but we've just look for efficiencies all across our business.
And we've obviously had had less travel less activity less showings all of those things that of kind of kind of.
Impacted our business and so we did make some adjustments and the work force and and took that severance charge. We obviously didn't have that and our outlook. So that's kind of how we've talked about.
Okay, great. Thank you sure.
Yes.
Our next question comes from the Venkat coming on with Mizuho. Please proceed.
Hi, Good morning, just a few quick ones.
Over the last two quarters you guys had mentioned that you do.
Utilization of that tended to be higher among smaller tenants versus larger if you had to break that out what do you think that utilization figures for both segments.
Great question and I think.
I'm not sure I'd break it out by market and but.
I dunno ease of 50% and 15% something along those lines very few large companies are coming and or if they are at the skeleton crew and the one Big example for us of Charlotte, where we've got the bank of America.
And as a large customer there as well and.
The accounting firm KPMG, they have got skeleton crews and the big large customers and we've got a couple of smaller.
Firms also and the building and they're back and the office.
I think it just depends on and on the large company and the mix, we've got the I'd say somewhere in that range.
Might add on that and it feels like a 100 per cent of the law firms are back and you know and accounting firms and so they've been busy and working through non stop.
Okay.
And of the 100 to 150 of potential dispositions and 2021, how much of that is part of the market rotation program I think he mentioned in the prepared remarks, there's a building in Memphis of core property parking and Greensboro, but just wondering what that kind of dollar figure it looks like.
Sure. So if we sold all of those the last remaining five buildings. The let's call. It 90 to 100 million. So that if we sold all of that that would get us close to the bottom end of the range. So you know are the <unk>.
One of our range does include a few assets that are outside of those but its depending on again it depends on pricing and all of that is with respect of whether we sell all of the remaining Greensboro and Memphis assets.
Okay, and the apologize if I missed this in your prepared remarks, Brian but on rent deferrals, how much do you expect will be repaid in 2021 should we expect around three and a half million based on five of the house deferred and $2 million repaid so far.
Venkat, it's Brendan I'll take that one and it's probably on and on a net basis going to be one and a half to $2 million kind of net positive cash and that will be repaid in 'twenty, one and there's a little bit of nuance kind of into some of those numbers because there are some customers where we.
Bided temporary rent belief based upon percentage of sales and so there could be some additional deferrals that happen and in 'twenty. One so the net impact is about one and a half the $2 million positive.
And on cash versus versus GAAP in 'twenty one.
Hey, Brian and maybe to add and not to be overly optimistic but prior to the Thanksgiving Spike we saw a number of those say restaurants or folks on that percent rent actually start to get a good amount of business and getting close back to their contracted rent obviously that.
Kind of hit the hit the wall of a little bit into the end of the year, so that might be and area that we continue to look for as people return to some kind of a normal thing.
Great. Thank you.
Our next question comes from Vikram Malhotra with Morgan Stanley. Please proceed.
Thanks for taking the questions I apologize. If this was on said I just jumped on the it just.
Instead of thinking on the of the of the.
You know potentially rebound like you alluded to sublease space, you know potentially coming down.
And the back half of these GNL, highlighting that and just still a decent amount of interest in terms of the pipeline I'm. Just wondering if you talk to your tenants or potential tenants and.
He and insights into kind of their posture and in terms of the ability there and their desire to grow and and where specifically in your markets or new tenants that may be considering relocating from the coolest growing in AR and AR.
We'll spend on <unk>, so sort of and a work from home.
The environment that may persist and hybrid way, which seems to be what we're hearing from other corporates.
What are you seeing specifically and your current tenant base and the new tenants with what type of buildings, our submarkets are they considering.
Yeah.
Pardon me so we cannot hear you at this time.
Oh I'm sorry.
Is it better now.
I'm, sorry, I think I was on or and so.
What we're hearing from our customers first and foremost we need to get him back on the back on the office.
But what we're here and he is ready to come back on the office of ready to get the employees back and the office.
And theyre not going to be worked from home company is what we're hearing from the majority of our customers. So what that looks like when they are not going to be a work from home company of they're going to go to a hybrid model.
A hub and spoke I think it's still too early to tell I think we do well we are here and is there going to be more flexibility right. So customers are going to have some of their employees and some of their departments working at home for some of the time.
But again, what that looks like are they gonna have assigned seating and they're gonna have hot desk, where you just check in check out over time I think of it depends on the company of the industry of the department that are that our customer.
It is using the space force. So I don't think there's any one size fits all of our one solution. The fits all for all of our customers at all by any stretch in terms of the locations look I think on it.
The bvd easily one of many ties Submarkets is what we continue to hear it doesn't necessarily have to be urban markets right I think the suburban for being cut down on on the.
And their employees commute. So he can provide some of the flexibility that way youre seeing a little bit of that but not a lot. Yet again I think it's early and it's going to take a while to play out in terms of the customers you say prospects that are inbound it's sort of the same thing right. It's the they're looking at our markets for a reason it's all the reasons we've taught.
About its low cost of living high quality of life of adjacent to the.
Highly educated workforce and so forth and so on and once they find that market they want to be in the a monetized markets, whether it's urban or suburban so I think it's very similar whether its an inbound or existing customer base.
Got it okay, that's the that Tesla.
And then just on a on the.
On the debt stacks that are going forward just sort of wondering your ability looking out couple of years your ability to maybe get at some of that some of that debt and maybe you alluded to some of this and sort of the 'twenty and 'twenty, but just looking forward any plans to potentially kind of get a little ahead of the kind of some of the majorities.
Yeah, and Vikram, it's Mark we are fortunate to have a really clear.
Clear maturity ladder here, we've got a $150 million bond and you know half of the bond that we paid part of and in 2020, we'll pay that off on April 15th So no maturities after that and 'twenty. One 'twenty two we've got of late and maturity of our <unk>.
Bank term loan and that's the floating rate and a.
LIBOR on just a portion of its fixed but most of it's floating so it's very low cost and then of bond and 23, so nothing on the immediate.
And the immediate short term that we could go grab efficiently from an economic perspective, So and then we've got open years three or four open years. After those years, so really good shape from a debt stack perspective.
Okay, great. Thanks, so much.
Our next question comes from Chris Lucas with capital One Securities. Please proceed.
Okay.
Hey, good morning, everybody.
Just a follow up on some earlier questions just as it relates to the tenant retention and what was that in 2020, and then sort of what is embedded in your 'twenty one outlook.
Hey, Chris It's Brendan.
It was it depends a little bit on how you look at that from because we did a lot of early renewals of natural 'twenty and 'twenty explorations in years prior to 'twenty and 'twenty. So when we think about the overall retention level and that was probably in that 60 to 65.
5% kind of range when we thought about the natural at 'twenty and 'twenty explorations, but if you compared it to this point and time last year of what we had remaining of that expired and was significantly below that level and I would say the same thing is is the case with the remaining eight per cent that is included that.
Remaining to expire in 'twenty, one as you know the closer you get to the expiration dates and the likelihood on on renewing those and low because typically we're going to do that ahead of time. So the what we have programmed in our 'twenty 'twenty one outlook with respect to the remaining eight per cent of expert.
<unk> is you know, it's it's low it's probably a little bit lower than a normal year, given the economic environment and the and the pandemic still going on so that's it's certainly well below that normal normalized 60 to 65 per cent win when you look a few years out.
Okay, and then I guess any themes that you guys of cooked up as it relates to tenants who don't renew is it.
Consolidating locations as the shrinking the footprint low growing the footprint you couldn't accommodate.
And it seems that you might want to discuss.
Sure, Chris as Ted and maybe Brian can jump in really I don't think there's a lot of themes other than we're not losing a lot of customers. The other buildings. So you know obviously were pretty big landlord and all of our markets, we try and accommodate if we can't accommodate a customer in the end of the.
Existing space, we've got plenty of other space, we can typically use so.
The only thing I would say, we're not losing a lot of other competitors. So it's a regional office and its closing it's a small company, that's contracted or whatever or pre COVID-19 theyre going to go into work from home indefinitely or Theyre, just consolidating two of two or three offices. So several different instances I don't think there's any 111.
Theme there and.
Ted following up some we've actually been the beneficiary of where some companies have bought other companies and consolidated into our ports.
The portfolio and then other than those anecdotal smaller.
Really from one to 3000 square feet.
And folks who have gotten to their natural end of life of their term decided to work remotely and let the dust settle before they come back.
Okay and then last question from me just as it relates to the co worker co working space.
And you know and you guys have been very light on that historically and it.
On the up David views on that and then going forward post pandemic.
Sure look I think just a reminder, I mean, we've got.
10 different locations.
The little over a one 2% of our revenues with co working that split between industrious and Regis, we don't have any we work exposure.
Think of that model continues to be ripe for consolidation I think obviously the the.
The pandemic expose the risk of having long term liabilities and short term leases. So you know a lot of the co working operators of the struggle and we've seen that I think long term, there's a place for flexible <unk>.
Space and in our portfolio and I think it's just going to take a while the two to play out on and see exactly what does that look like but we're firm believers and flexible space, whether it be co working or.
And some some other version of that going forward. So we're constructive on the concept overall, but it's going to go through of consolidation and sort of revamping of their business model somewhat.
Okay, great. Thank you.
And.
There are no further questions at this time.
Alright, well, thank you everybody for being on the call. This morning, and thank you for your continued interest and high Woods and the we look forward to talking to you next time. Thank you.
The.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect. Your line have a great day everyone.
The.
[music].
And.
Yes.
[music].
Yes.
The test.
[music].