Q1 2021 Highwoods Properties Inc Earnings Call
Good morning, and welcome to the Highwood properties earnings call.
The presentation, all participants will be in a listen only mode.
Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the for on your telephone.
At any time during the conference you need to reach an operator, Please press star zero as of.
A reminder of this conference is being recorded Wednesday April 28.
I would now like to turn the conference over to Brendan Maiorana Executive Vice President Finance. Please go ahead.
Thank you operator, and good morning, 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 today's prepared remarks have been posted on the web if any of you have not received yesterday's earnings release of our Sop.
The mental Theyre 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. F O NOI and EBIT. There also the release and supplemental include a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures forward looking.
Statements made during today's call are subject to risks and uncertainties, which are discussed at length in 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 cause could cause actual outcomes to differ materially from our forward looking statements is the ongoing <unk>.
Adverse effect of the COVID-19 pandemic on our financial condition operating results and cash flows our customers the real estate market in which we operate the global economy, and the financial markets, the extent to which the pandemic impacts us and our customers of all depend on future developments, which are highly uncertain and cannot be predicted.
But 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.
Let me start by saying our buildings, which have remained open since the start of the pandemic for starting to see utilization rates rise.
Up modestly.
We estimate portfolio utilization is around 30%.
About 5% from three months ago.
Generally small and medium sized customers for returning to their offices faster than larger users the.
So we are now hearing customers of all sizes for planning to return the return to their offices over the next few months.
As I mentioned in the last quarter it remains difficult to predict the duration and the severity of the current recession and when the leasing will return to pre pandemic levels.
But activity has definitely picked up compared to one quarter ago.
During the first quarter, we signed 553000 square feet of second Gen leases, including 247000 square feet of new deals right.
Roughly in line with our long term average for new leases.
The count of new deals signed was a healthy 42 also around our long term average in.
In addition, we continue to see increased request for proposals showings and space planning from prospects and there are several existing customers requesting the renewals for in advance of their expirations.
With the improving macro environment, particularly in our markets, we're optimistic going forward.
Part of our optimism stems from the numerous companies who've announced job growth plans in our markets.
Any such as Oracle, Google Fidelity, Microsoft Robinhood N T T servicemaster, the Deco Airbnb and Biogen have all announced hiring plans in our markets and just for the past three months.
Some are migrating from other locations and others are expanding.
Plus just this week Apple announced plans to build out will become at the second largest camps. It's the largest campus on the east coast.
Here in Raleigh.
For a little higher over 3000 people with the average salaries of the $187000.
That's the over $1 billion.
Importantly, these employers are not planning major work from home initiatives in our markets.
Rather the major investments represent new workplaces that will bring employees together versus working from home.
Rents on signed leases are naturally a little softer than they were pre pandemic, but we believe are holding up reasonably well considering the challenges over the past year.
For the 553000 square feet of second Gen leases signed during the quarter.
Rents were modestly positive with 0.5% cash rent growth and eight 1% GAAP rent growth.
On average the movement in market rents is consistent with what we have anticipated.
Net effective rents down 5% to 10% as a result of higher concessions.
Well, we are seeing is the migration to higher quality buildings and in particular small to medium size users, they're seeking space and the best buildings in the BB DS across our markets.
Turning to our results we delivered F F O of 91 per share in the first quarter.
Our same property cash NOI growth was also strong at five 7%.
And for 8% when excluding temporary rent deferral of repayments.
As expected occupancy dipped in the first quarter to 989, 6%, where we expect it to remain before improving late in the year.
Our first quarter results and outlook for the remainder of the year give us confidence to increase our F. F O outlook to $3 54 to $3 66 per share.
<unk> <unk> per share at the midpoint.
This outlook does not include any impact from the planned investment activities, we announced last week.
Our agreement to acquire the the portfolio of office assets from preferred apartment communities and ultimately fund the acquisition by accelerating the sale of noncore assets.
We will update our outlook when the acquisition closes.
In addition to the increase in our F. F. O outlook. We also raised our same property cash NOI growth outlook to $3 five to three point to 5.25% of nearly 40 basis points at the midpoint.
Turning to investments obviously, the biggest investment news for our company as the agreement to acquire a portfolio of office assets from pack for a total investment of $769 million.
And the corresponding acceleration of five to 600 million of non core dispositions.
We expect to close the pack acquisition in the third quarter.
As you know from our call last week, we're upbeat about this acquisition as it improves our portfolio quality increase.
The increases our long term growth rate can provide the immediate and ongoing financial benefits.
The important component of our strategy is the fund the acquisition primarily by selling non core assets across several markets are.
Our plan is to sell of five to 600 million by mid 2022.
Roughly half of which we expect to close by year end 2021.
Most of the buildings teed up for sale in 2021 of fully occupied single tenant properties with long weighted average lease terms, which we believe will garner strong reception.
From prospective buyers.
These properties are already in the market, we will be launched soon.
We're not seeing any significant change in asset prices compared to pre pandemic values for high quality assets with limited near term lease roll in the <unk> of our markets.
Job and population growth that regularly exceed national averages combined with the maturation of our cities continues to fuel interest in sunbelt markets.
In fact, institutional investors, who have historically focused only on gateway markets are now focusing on our markets.
The data and what we've been saying for many years.
Turning to development, we placed in service to 100% leased developments that have a combined value of $108 million and encompassed 345000 square feet.
The remaining pipeline is now 394 million the 75% pre leased.
Our 285 million assuring project in Nashville is on time and on budget.
Will deliver in the fourth quarter.
At Virginia Springs to our best in Class project in the Brentwood B B D of Nashville, We signed a 30000 square for at least during the quarter, which brings pre leasing to 32%.
The six quarters before projected stabilization.
Finally at our office project in Midtown Tampa prospect activity is increasing as the overall mixed use development is nearing completion.
The element and they loved hotels opened before the Super Bowl the.
Rei co op opened in March the whole foods, shake shack and numerous other restaurants and retailers are scheduled to open in the coming months some.
Some of the apartments have begun leasing of the new residents.
Before I turn the call over to Brian I'd like to reiterate our strong performance so far this year.
To recap in the first quarter, we collected over 99% of rents.
Signed 247000 square feet of new leases.
Delivered to 100% leased development projects, representing an investment of $108 million.
And we maintained a strong balance sheet with leverage of 37% the net debt to EBITDA ratio of five 1% one of $5 one times.
Given this performance we have updated our 2021 per share F O outlook with a two set increase at the midpoint and raised our same property cash NOI outlook, nearly 40 basis points at the midpoint.
We have limited lease rollover risk during the next few years built in growth from delivery of our development pipeline Recut.
The recovery momentum in our markets and improving activity with are not within our own leasing pipeline.
And were excited to once again deploy our proven playbook of opportunistically using our balance sheet for attractive investments.
Such as the planned acquisition of a desirable and resilient portfolio of office assets from pack.
And then subsequently selling non core assets with less upside to return our balance sheet to pre acquisition metrics to reload our dry powder.
In summary, we're confident the we have the ingredients in place to drive sustainable growth over the long term Brian.
Thanks, Pat and good morning, everyone.
Our resilient and diversified portfolio in markets benefiting from an acceleration of the great migration of the South East.
And a dedicated team of professionals, who maintain manage and lease all under one high woodroof enabled us to weather the unprecedented challenges of 'twenty 'twenty.
With the first quarter being the initial barometer of what the business looks like moving from triage to recovery. We believe 2021 is off to a solid start for.
With regard to those customers, who had proven needs base rent relief early in the pandemic.
73 per cent of this consideration has been repaid and the balance is on schedule.
Further.
All of markets, where we operate are open with regard to office occupancy of municipal mandates.
We are seeing utilization rates rise across the portfolio and expect this trend to continue over the coming months.
Our sunbelt markets had been recognized lately for what we believe has been compelling for quite some time.
The number.
The two of them quality of inbound job creation of announcements highlights the evolution of these cities into that dynamic.
18 hour national talent of the tractors.
Last week, we announced the planned portfolio acquisition from pack.
This transaction will add two high barrier to entry Sun belt <unk> to our portfolio.
Establish of Bulwark, and South Park, Charlotte with five of the eight best buildings in the sub market.
And reinforce our leading position in downtown Raleigh.
We believe the pack properties fit perfectly with our BD strategy.
High quality assets with excellent growth prospects that will improve our near term and longer term cash flows.
Our markets turn the page in the new year in January and has had a noted increase in activity.
Inbounds tours and Rfps.
This activity translated into 553000 square feet of second generation leasing with GAAP rent growth of $8 one per cent.
And cash rent growth of of half a percent.
As Ted mentioned, what's the most encouraging is the 247000 square feet of new leases signed in the quarter consistent with our long term average.
Given our limited lease roll in the next few years, we expect renewal leasing volume will be lower than our historical average as a result, we think new lease volume is an important barometer of the return of healthy activity across our markets.
Occupancy did dropped 70 basis points sequentially to 89.6%, but this was expected based on our expiration schedule.
And as a normal seasonal pattern for our portfolio.
We expect occupancy to remain around current levels in the second and third quarters before rebounding late in the year.
Now to our markets.
Starting here in Raleigh, where on Monday, Apple announced their plans to invest over $1 billion for our new campus and engineering hub.
Our 5.8 million square foot portfolio was over 91% occupied at quarter end.
Our team signed 97000 square feet of leases and we put into service to 100% leased office buildings.
We don't have any remaining development projects in our pipeline and Raleigh, but we have land that can support over 1.2 million square feet of future development and the strongest urban and suburban B B DS in the market.
Well clearly the plum reward of of competitive exercise Apple's announcement. This week joins Google Fidelity Fuji film, Eli Lilly and Xerox is the latest in the string of notable announcements to create for grow offices in Raleigh.
As you know Charlotte has long been a priority for us and expansion at the right time and the right location has been on our radar of since our reentry in the fall of 2019.
Our acquisitions from pack will double our presence in the Queen city, which similar to Raleigh saw over 10000, new jobs announced over the past few years.
While new supply increased across the city during the past several years there are no projects currently under construction in South Park.
And rents increased at or near 6% CAGR from 2013 through 2020.
Moving west in music city.
Amazon is previous headline grabbing 5000 job of announcement of Nashville.
As recently surpassed by Oracle's commitment to invest $1.2 billion in the city with its planned 1.2 million square foot campus for.
For 8500, new employees downtown along the East bank of the.
Cumberland River.
By the end of the first quarter are for point 6 million square foot portfolio of Nashville was 93 per cent occupied.
Our team of signed over 130000 square feet of leases in the quarter.
And we've started to see some increased usage of our parking garages.
We continue to pay close attention to supply of Nashville, but we're comforted by the limited amount of supply outside of the CBD and Gulch, where we have no meaningful lease expirations until 2025.
At our 111000 square foot, Virginia Springs, II development in Brentwood, we.
We used our omni channel marketing platform, the secure a 30000 square foot customer, bringing the building to 32% pre leased in advance of its estimated stabilization date, the third quarter of 'twenty 'twenty two.
We remain on budget and on schedule with the share in 553000 square foot Global headquarters, which.
Which will be placed into service in the fourth quarter. This year.
This will anchor our development in the Gulf.
We have a fantastic mixed use land assemblage, and where we can develop an additional 1 million square feet per.
Plus we can develop another million square feet in cool springs at our ovation mixed use development.
Not to be outdone by its Tennessee neighbor, Atlanta, where we signed 117000 square feet in the quarter with solid GAAP rent growth as.
As further solidifying its status as a major tech hub.
Ranking third nationally and startups.
Cushman and Wakefield is predicting Atlanta will add more than 20000, new tech jobs by 2030 of number already threatened by Microsoft for 15000 job of announcement in February which in its own words puts Atlanta on the path towards becoming one of the Microsofts largest hubs in the United States in the coming decade after the pure.
It sound and the Silicon Valley.
In closing.
Our markets and port for all they have proven resilient and we believe will grow stronger as the nation emerges from the pandemic and recession.
Hi, Woods is in the work place, making business and it's through the workplaces, we create that our customers can achieve together what they cannot apart.
By doing this we believe our buildings will remain locations of choice and combined with strong demographic trends across our footprint provide a strong tailwind for our fundamentals.
Art.
Thanks, Brian in the first quarter, we delivered net income of $54 5 million or 52 cents per share.
In F F O of $97 5 million or 91 cents per share.
The quarter included the $31 million sale of the FAA building in Atlanta, and the acquisition of our partner's 75% interest in the Forum office portfolio in Raleigh for 138 million dollar incremental investment.
Both of these transactions closed in January and.
And in March we delivered Glenn like seven or 44 million dollar of hundred and 25000 square foot development in Raleigh that is 100% leased.
Other than these investment activities there were no other significant items in the first quarter that impacted our financial results.
<unk> accelerated sequentially from the fourth quarter, primarily driven by lower operating expenses lower G&A and the acquisition of the four of them using cash on hand.
In addition to our solid F F O our cash flows continue to strengthen.
Something that we have often highlighted but where it's clearly materializing in our reported results.
The improvement in cash flow is driven by delivery of our development projects over the past few years and continuously recycling out of older more capex intensive properties into newer more capital efficient assets.
Our balance sheet is in excellent shape, we recast our revolving line of credit and increased our borrowing capacity from 600 million to $750 million.
Reduced the borrowing spread 10 basis points to LIBOR, plus 90 basis points and extended the maturity to March 2025, plus two six month extension options.
We ended the quarter with $49 million of cash on hand.
In April we used cash on hand, plus borrowings on our revolver to repay the remaining $150 million of June 2021 bonds at par.
And funded the $50 million earnest money deposit for the planned acquisition of office assets from pack.
As of now we have nearly $600 million of remaining capacity out of our revolver.
Only $66 million left to fund of our $394 million development pipeline and no debt maturities until November 2022.
The total investment of 769 million for the Pac Transit action includes the assumption of secured loans relating to the core assets estimated to be recorded at fair value of $403 million per.
Plus $28 million of planned near term building improvements.
This leaves approximately $250 million of cash required to initially fund the remainder of the purchase price and as I mentioned, we have already deposited $50 million of earnest money using the revolver.
The remaining 200 million will be funded through a six month unsecured bridge facility that we expect to obtain from J P. Morgan.
This bridge facility, which can be extended for an additional six months, we'll have terms comparable tour of the revolving credit facility.
As Ted mentioned with the planned pack acquisition, we're deploying the playbook, we've successfully used to other times over the past five years of flexing our balance sheet strength for opportunities as they arise and subsequently returning to pre deal metrics by selling non core.
Property.
The combination of the high quality pool of liquid disposition properties expected growth of NOI, primarily from our development pipeline.
And meaningful retained cash flow gives us confidence that we'll return of our balance sheet metrics to pre acquisition levels by the middle of next year.
Turning to our outlook, we've updated our F L outlook to $3.54 to $3.66 per share with the midpoint up two cents from the beginning of the year.
This does not include the planned acquisition from Pac or our plan to accelerate non core dispositions.
We will update our outlook once the acquisition closes.
The increase in the midpoint is essentially driven by higher NOI, which has also resulted in an increase in our same property cash NOI outlook to $3 five per cent to 5.25% up nearly 40 basis points at the midpoint.
We continue to expect utilization rates across our portfolio will remain low in the second quarter and then recover in the third and fourth quarters.
Many of you have asked about our parking revenue forecast given the reduction in parking revenue since the beginning of the pandemic.
We still expect parking revenues to remain significantly lower in 2021, which is consistent with our initial outlook in February.
Once parking returns to pre pandemic levels, it will provide upside upside to our current run rate.
Looking forward, we continue to remain positive about the long term outlook for the company. We believe the improvement in cash flows is validating the asset recycling program. We've employed over the past several years and we continue to have a constructive view of our cash flow profile.
<unk> forward due to the positive.
A long term positive outlook for our markets.
Our limited lease rollover during the next several years.
Our highly pre leased $394 million development pipeline.
The planned acquisition of core properties from pack.
And our plan to accelerate the sale of noncore assets.
Operator, we are now ready for your questions.
Thank you very much and ladies and gentlemen, if you would like to register a question. Please press. The one followed by the for on your telephone Keypad, you will hear rates III prompt to acknowledge the request for your question has been answered and you'd like to withdraw you May press. The one followed by the three once again for questions. Please press the one followed by.
For one moment for the first the question.
Our first question comes from the line of Brendan Finn with Wells Fargo. Please go ahead.
Hey, guys. Good morning can you talk any more about the profile of the potential sale candidates of corresponding with your portfolio of acquisition.
And then how should we think about the quality and capex slowed for those assets versus the.
The ones Youre acquiring and then maybe also versus the rest of your portfolio that you'll be holding on to.
Hey, Brendan this is Ted I'll start off of maybe Brent Brendan can jump in as well in terms of the profile.
It's gonna be sprinkled throughout the various markets.
The into Tampa, Richmond, Raleigh, and then obviously the remaining buildings in Greensboro, and Memphis as well so really the first wave of assets were taken out it's going to be largely single tenant assets with strong credit.
Long lease terms, so very liquid assets and then the second wave will be the third remaining noncore assets.
That will bring out later in the later in the year in the early next year or so.
Very liquid assets, the first call of 250 million or so we're gonna be those single tenant highly leased assets and then we'll follow up with some other non core.
Hey, Brendan it's Brendan Maiorano with respect to the Capex profile of what I would say as you know the the first set of asset probably is a little bit below average in terms of the near term capex profile of those assets because they are largely single tenant well leased.
With the width of decent size Walt.
But the second wave of assets, it's probably above average in terms of the capex load on those assets. So on balance overall I would say, it's probably about average across our existing portfolio. However, the near to the first wave of assets does carry kind of medium to long.
The term capex risk so it's not showing up as capex load in our current financials, but there is some medium to longer term risks all of the ultimately would carry sizable amount of capex. So we think it makes sense to monetize those assets when the values of been maximized.
Okay, Great and then just kind of switching gears here in terms of cash same store guidance.
You guys demonstrated some pretty significant expense restraint in Q1, and then if I look at occupancy guidance. It remained the same as last quarter. So is it fair to say that the higher same store guidance as a result of.
Expense savings or is there something else going on there that we should think about.
Yeah, no. It's more of top line I would say of an expense savings of the expense savings did show up significantly in the first quarter.
And impacted <unk> and same store.
What but remember last year, we're comping against a pretty normal pre pandemic quarter and so we've had a lot of opex savings post pandemic as we flip into the second quarter of that's when we started to save significantly on our opex. So what's likely to happen in terms of the Opex on same store is it will be high.
Or for the balance of the year for second third and fourth quarter I think we disclosed in February we expected net of recoveries of about $6 million more of Opex in two in our 2021 same store pool versus 2020, So opex will move higher really the increase was driven by them.
I think Mark mentioned in his prepared remarks, but just overall kind of better leasing activity and so that that drove really the increase of call. It 40 basis points of the midpoint on that same store guidance line items.
Great. Thanks, guys.
Yes.
And our next question.
One moment please.
Our next question is from many of.
Korchman with Citi. Please go ahead hey.
The guys are this is part of pretty crazy on for me.
Just in terms of the 42, new deals that were signed during the quarter did you guys sort of see any incremental demand from some of those tenants that you're referencing or just in general for them.
Sort of the non sunbelt markets or do we sort of have to wait longer to start to see some of that come through in terms of leasing demand.
Hey, Parker, it's Ted so of the 40 43 new deals.
Most of them. The let me give you the breakdown of little bit, it's really health care technology engineering. The law firms that made up 60% of the 250000 square feet and it's also 21 deals were those for.
The categories in terms of markets. It was really Nashville, Atlanta, Raleigh, where our largest percentage roughly 70% of the new leasing volume.
There are a couple of inbounds from other markets, but nothing significant it was smaller users.
So it really none of the headline names that we mentioned on the call. This morning, but again there continues to be good in bounds of both.
For him out of market as well as you know in market as well.
Got it and then just how actively are you guys sort of still.
Considering acquisitions in terms of sort of at a larger scale, especially due to the recent transaction that you guys announced.
If you guys find another opportunity or something.
You know as long as that how would you guys sort of think about you know the source of funds do you guys just accelerates dispose, even more or do you consider hitting the the equity market and just some color on that would be great.
Sure look I think we want to digest, what we have so while we look at everything in the market, we're not anticipating doing anything on the on a large scale at all again, we look at it we underwrite it.
Things, but right now we're highly focused on getting this transaction.
<unk> closed and getting the dispositions out market and return of our balance sheet to the metrics that we've currently got he of Parker. The only thing I'd add is you know we we believe we've got a really good strong balance sheet got good access to capital if we need it. So you know the Atms I always available to us.
Obviously, the raise capital when we needed to and I think the playbook of of.
Replacing maybe higher capex load assets with newer less more cap capital efficient assets is something we would be interested in we think we've got flexibility to do that if something came up.
Okay. Thanks, that's all for me.
And our next question is from Vikram Malhotra of Morgan Stanley. Please go ahead.
Thanks for taking the question.
Maybe if you could give us some more color on sort of the belt on built to suit the opportunity that you see it progressing through the year I know in the past you've referenced kind of some of the.
Economic organizations within different markets in interest of our proposal and just given the strong job growth number of the reference can you give the sense of you know how we should think about sort of the pipeline evolving over the next six to 12 months.
Sure Vikram, Ted I'll jump in and the maybe Brian if you have anything to add look our development team as we've talked about in the last few quarters, it sort of got shut down of COVID-19.
The encouraging that the number of conversations have in fact picked up in the last call. It six months.
And then more recently, even the last few weeks, we've had a couple of pitches with really out of state.
Searches that are I'd say out of state, it's we've had pitches too.
For large customers on build to suits and pre lease customers that the acute theyre coming to look into the south east still some of them, having the pick the city of their multi city tours and pictures right now so I'm encouraged it's sort of feels like it's not back to pre COVID-19 levels, but there is more activity more inbound activity.
Got a couple of discussions going on the we've had for a few months there also going pretty slow, but I'm just encourage the people are coming back out.
The if some of the economic development.
We mentioned on the call of a lot of big wins in our markets.
That's hard to do because they're still being tours done on zoom now from the economic development folks, but I'm just again I think it's going to continue to pick up and I'm encouraged hopefully in the next several quarters there'll be more activity.
Brian here, a little bit to add and sort of similar to maybe of Parker's question. We are seeing kind of code name inbounds and multiple markets. So they'll show up in Nashville, and then won't meet them in Atlanta, two and maybe Charlotte So that's encouraging.
I would also say maybe a year ago. The there was.
A lot of people coming in to talk about anything out of there is and so we continue to advance the advancement of designs of entitlements. So that way we are in the starting gate in being able to respond as quick as possible.
Our next question is from of Rob Stevenson with Janney. Please go ahead.
Hi, Good morning, guys Brennan of Mark how should we be thinking about the guidance in terms of the first quarter results. So the 91 cents just flat puts you at the high end of your $3 54 to $3 66 range ex the a P. T S purchase and the dispositions you guys sold F of FAA bought for.
You have some developments of the come online you did some new leasing you talked about the occupancy loss in the prepared comments, but what's the incremental drag from here is that we need to be thinking about against the 91 set of run rate that push is downward on that.
Throughout the remainder of the year ex the asset sales and the.
The acquisitions from the a P T S stuff.
Yeah, Hey, Rob it's rented yeah. That's a good question so really the the first quarter benefited from what what I would call timing around some opex, which is partially or largely discretionary. So there was about two cents of lower opex in the quarter that we incurred from just push.
<unk> some spend from first quarter into the balance of the year. So we yeah I know, we don't guide by quarter, but I would say that there were a couple of pennies that we benefited from sort of that discretionary timing of opex spend so really kind of of normalized for that timing impact the first quarter. It was more like 89 cents.
So when you annualize that you get to that $3 56 level and then the positive drivers that you mentioned and I would say for them an FAA, probably where those were done in January so I don't have a big impact, but you are right about the development of the delivery of Glen Lake seven the pay off of the bond and then some occupancy benefit as we migrate throughout.
The year, so that kind of takes from that normalized kind of 89 cents in the first quarter up to that $3 60 level for the for the whole year. So it really was just a little bit of timing on opex.
And then as I mentioned I think to an earlier question, we do feel a little bit better about leasing so that really drove the couple of pennies of the mid point higher than what we guided to in February.
Okay, and then last one for me just given the comments that the.
Todd made the victims comment.
Is it is it likely that the any of the development starts in 2021 would be sort of fourth quarter or at least late third quarter and beyond starts that theres nothing contemplated at this point in time breaking ground here in the second or at least in the early to mid parts of the third quarter.
Sure Rob It's Ted look I think it's too early to tell I mean, we're gonna be measured on our development starts going to meet some of them unless it's a build to suit or we're going to need some level of pre leasing depending on.
How much to pay for it depends on the market in the building and all of that so look there's nothing imminent without a doubt.
Or just encourage of the discussions going on and if we get Lucky maybe we can have an announcement or two later this year.
Okay.
Apple announcement, I mean, what do you guys think that does to the value of the 40 acres that you guys hold in Raleigh now.
Yeah look obviously only gets better yeah.
Again, I think it's early to understand exactly but certainly there's multiplier effects. When all of these companies are coming into our market. So we are we continue to believe.
Just in all of our Sunbelt markets and that's the only gonna be great things I think for Raleigh.
Okay. Thanks, guys I appreciate it thank you.
Our next question is from event kind of coming any with Mizuho. Please go ahead.
Hi, good morning.
Brendan I think of last week's call you had discussed using proceeds from the disposition program to pay down debt in the near term just wondering if you can provide any color on the anticipated timing of the MAU.
You guys didn't address the $150 million due in June so it looks like next maturity is the $250 million in January 23 would that be the next targeted pay off or will you look to address the $200 million of term loans coming to you in November.
Yeah, there's lots of good question there'll be I think we're keeping our options open I would say in the immediacy of heading disposition proceeds in the door that will be used to pay down the line and and potentially pay down the November of 2022 term loan but ultimately.
I think when you look at that January 23 bond maturity of the 250 that you reference that is a target for those disposition proceeds so it will take a little bit of time to get the capital stack normalized as we get through the acquisition and then receive the disposition proceeds so I think there'll be a little.
Of bumping it sort of Choppiness with the F O progression as we move throughout the next several quarters, but we do have a pathway to kind of get the capital stack normalized and that is what we talked about which is getting to you know an immediate kind of F O neutral outcome for.
Some of the entire Pac acquisition with the proposed dispositions.
And getting to cash flow of accretion and then ultimately we expect that the it will be F of accretive as leases roll within the acquired portfolio.
Okay. Thank you and during the quarter Raleigh looks to surpass the Atlanta and Nashville as your top margin in terms of revenue contribution by by year end 'twenty, two where do you think your exposure says three markets will end up once you completed the acquisition of the non core dispositions close in the in process development.
Uh huh.
Come on line.
Sure I think of those three O remain the top three there might be a little bit of a.
The changing just depending on what actually closes by the end of the year and all of that but I would say Raleigh, and Nashville of both Gonna go up a little bit of Atlanta may come down a little bit I think but I think those three are still remain the top three markets just a little bit of shifting.
Okay and one last quick one I think it will look for to call you had mentioned potentially exiting the JV in Kansas City is that under consideration as part of the disposition program and if so what kind of proceeds do you think you could source there.
It's a we're evaluating that.
So it's a we have we are of great partner, we've been in that building a long time. So it's something that's definitely under consideration there is a little bit of moving parts on the rent roll as well so it's a.
Obviously, we exited the Kansas the Mark of about five years ago sort of a non core asset so it's under evaluation along with several others.
Great. Thank you.
Okay.
The next question is from Dave Rodgers with Baird. Please go ahead.
Yeah. Good morning, everybody, maybe first question for Brian.
You guys have maintained face rates is that most people have but obviously the economics have been more challenged as we've seen pretty much across the board of <unk>.
Couple of questions on that first of I guess do you have a sense of how much of that is really market conditions versus how much of that could potentially be related to just not being able to get into the office or not being able to get employees to kind of build out that space. Those types of kind of transitory issues that could come back more quickly on the economic side and then the second question to that I think you mentioned.
Some tenants that were had long dated maturities looking for very early renewals, maybe some added color on that as well.
Dave Good good questions within that question. So it's I think there's a bunch of different things going on right and because we have different size customers engaged on their space right. So the bigger ones are taking a longer view the little slower to move kind of lowest kind of common denominator about decision, making so I think that kind of moves.
It is absolutely of tenants market right. We know that has changed so there are some opportunistic the folks looking to kind of blend and extend the good thing on the blend and extend conversations most of those are maintaining their square feet, they're not looking to downsize them across the board and this is a little bit of talking our own book.
But they're all believing they're getting the people back into the office is going to be the best thing for the business to continue to keep growing and so some are taking the opportunity to reposition to upgrade within their space. Some to move we had.
<unk> of multiple offices of Nashville into the New Virginia Springs to development.
Pete by an organization so they took the opportunity to upgrade.
And move into kind of best in class space.
And so I do think.
There is gonna be of flexible environment going forward and I think people are trying to figure that out I don't know if anyone knows what that will be in terms of their rotations.
But I think hopefully I answered some of that but where it's a little bit of across the board but.
The tenant market is competitive so that's one thing it is a kind of cut throat out there and we're willing to compete on every deal is going to sound, probably a little corny, but we believe we have a much higher chance of for knowing someone who's in the port for other than who's not and so we're committed to getting the men and keeping them in.
Great Brian I appreciate the color on that and then maybe a question for you it doesn't it sounds like with the asset sales that youre targeting for the second half of this year the kind of net leased single tenant asset.
It sounded like Youre targeting things like like a bridgestone, let's say, but I guess as you think about that having large single tenant asset and the sharing of Enbridge Stone Mars maybe.
Maybe all of in a single market, how do you contemplate maybe taking some money out of out of the out of the portfolio in those particular assets overtime and the thoughts maybe around the joint venture with some of these assets seem to be so highly desired.
Sure Dave I think look I think that's a good question and something we talk about right I think the.
Most important thing for us is making sure we build.
The buildings that are not specialized for the nice thing about bridgestone and assure in the Metlife buildings. The other large build build to suits, we've done over the last sort of FICA.
Cycle or so they were all easily convertible if we do lose of large customer theyre all in highly desirable bvd is in our market. So that takes some of the pressure off from a again from a development standpoint, but it's something we consider I wouldn't I would never take that as an option that's off the table, but as we currently have them, they're all long term.
Some leases with great credit so we're very comfortable of the exposure we have on all of those.
Great. Thank you.
Thanks, Dave.
Our next question is from Jamie Feldman Bank of America. Please go ahead.
Thank you I appreciate the update of <unk>.
Your view the net effect is you are probably down 5% to 10% can you talk about how that differs across the different markets.
Sure maybe of Love, Jamie I'll start and Brian can jump in look I think it's probably down on the lower end of that in Raleigh, and maybe Nashville.
Richmond, maybe as well.
Well, it's been it's been a little bit slower from the volume perspective, but that's just the market. We don't spend a lot of capital on in face rates are pretty steady.
I think of Atlanta, right now for a little bit more competitive.
From that standpoint, just from a concession T I elevated tee off on some of the transactions as well and then I would put maybe Tampa and Orlando sort of in the middle its you know Theyre down you know part of the.
The mid single digit.
Range, but it look I think the blank of statement is the in all of our markets. It is the tenant market, we're sort of in an office recession that we're coming out of not unlike any other the.
Downturn, perhaps of the fundamentals are under pressure.
That's sort of my take on the market by market.
Yeah, Jamie Brian here, just maybe partly on a little bit.
The market to Submarket too you're seeing whether it's in Charlotte and South Park deals getting done during the pandemic at rates higher than pre pandemic.
Because of that supply demand balance for the best product, we're seeing it.
Even here in Raleigh in the North Hills, we're seeing it.
The other places in the portfolio folks are able to kind of hold on and again.
I'm going to get kind of yanked at some point for rolling This one out of all the time that kind of the 190 90 right. So in the organization looks at what creates value.
And where they spend their money or invest every year one per cent on each of these 9% on real estate, 90% on people, yes, there's an opportunity to save on that 9%, but for those organizations that really when people back in the office, which seems to be the majority of that we're talking to.
The net 9% is more on the margin. So if they see an opportunity to get what they want to upgrade their paying for it.
Yeah.
Okay.
And then the similar question just in terms of where you think companies are going to be more likely to implement more of a hybrid.
And I guess, maybe the throw Pittsburgh into the mix you guys haven't really talked about that market.
But do you think theres. Some as you just kind of look at activity across the markets and the conversations across the markets of their semi view of it more or less risk of having a more hybrid model are it looks pretty consistent across all.
Jamie Great Great question. So a couple of things just start with Pittsburgh and it's always tough when we have these calls is to be able to the.
The highlight all of the different things going on and we have to kind of pick and choose for Pittsburgh the interesting right.
It's not a monolithic kind of just market right. There's there's different stories going on there you know our main occupancy as downtown its kind of of corporate occupancy of Pittsburgh and really Pennsylvania has been more locked down while at the same time, you're seeing Pittsburgh of being part of Google's national growth of announced.
And apples national growth announcement, and we have this great.
Vision in downtown the downtown is kind of just the legacy a place for folks in Pittsburgh is very sticky.
It's kind of unique in many ways across all of our markets just to give you a little stat about being of Pittsburgh's kind of health through the pandemic we own.
P. G places of multi building kind of asset there, which is very iconic and we havent skating rink, it's kind of of tradition, where people come down of skate around a Christmas tree with severe conditions placed upon that kind of gathering by the city and the state. We were at 76 per cent of our pre COVID-19 attendance and so that was.
Pretty interesting, but back to your global question about other some markets that are more susceptible to a flexible model.
We have this kind of theory that those markets that have a higher friction between where you live and where you work, meaning whether it's the commute whether it's having the right transit with the.
You know ride in a jammed up elevator, whether it's having to sit right on top of someone we feel like those are more at risk or have more headwinds on that work from home.
Again, our markets don't necessarily have that risk the ability to move between where you work and where you live and back and forth in our markets and you might even say Atlanta.
The Atlanta, and Pittsburgh might have the longer commutes or on that but of those compared to some of the gateways, they're the kind of of breeze. So we felt pretty good about that and I think others out there that are talking about this work from home.
Exposure risk I have our markets right in the quadrant of where you'd like them to be.
Yeah.
Okay. That's helpful and then.
Could you talk about the value add investment sales market. I mean are you starting to see that come back to life. What are you seeing in terms of maybe cap rates or our IRR is or just.
It's just that the market has been so focused on high quality well leased assets.
How is that changing.
Yeah, Jamie will certainly changing the theres a few that are finally, hitting the market I don't think we've got enough data points to see.
The change in the in the pricing and all of that there are a few that came out last year that ended up not trading.
But there have been more come out in the last month or so that are working their way through the sale process.
I think I.
I think it's a wait and see and hopefully we'll have some more data points for the next the next few months.
Okay, and then finally.
Have you seen any reverse inquiries since you announced the pack announcement in terms of asset sales I mean, if there's anyone coming to you and said hey, here's what we're interested of the you weren't even thinking about.
Yeah, Jamie I think before I got back to my desk. After the call last Wednesday, I had four of five whether it be of taxed or an email of recalls so yes, we've we've had multiple inquiries.
Okay, Alright, great. Thank you.
Thanks, Jim.
Ladies and gentlemen, as a reminder for questions. Please press one for on your telephone keypad. The next question is from Vikram Malhotra of Morgan Stanley. Please go ahead.
Thanks for taking the and again I S. He got disconnected.
I just had one more question on <unk>.
What you may have heard around the potential downsizing or maybe you being a beneficiary.
Off of some of this restructuring in the post COVID-19 world and perhaps more specifically.
I think I've heard of Red that global payments one.
One of your tenants in Atlanta has their space on the sublease market.
Any update on that would be great.
Hey, Vikram Bryan I'll start this one and let Ted kind of great My paper.
So again, it's kind of a.
Across across the board in terms of the utilization, there's a lots of different models.
Models that we're hearing whether it's 100 per cent of everyone in Tuesday, the Thursday, and then flexible maybe Monday Friday in organizations of figuring out how do we build.
The Bill that office when everyone's in from Tuesday as of Thursday.
So theres two ways I think to look at it. One is are there organizations, whose economic activity is less or they have just less people in general coming out of the recession and I think that's any recession and that's not unique to the work from home and flexible work. So I kind of put that one to aside we'll deal with that as kind of any normal kind of course of business.
<unk>.
Due to the flexibility.
You know I think that's it I think we don't have any single story to pull that trend line through and then to your point on.
Global payments you know that's a consolidation of a number of our Macy's two major moves there and they're looking at where they allocate their space we have good term.
Where we're at.
We have some good provisions within at least deciding what they wanted to do and it's in the perimeter submarket.
Marta and so I think we like the asset and we're looking at how we continue to stay competitive there.
No really not much to add I think we've benefitted we've been on both ends of the consolidations. We've got several instances, where we've been the beneficiary of the consolidation in the global payments was one where they did choose the consolidated to a different building the in hours.
So you know again as Brian said, we do of a lot of term left on that lease.
So were and we think its great buildings and all of that so we'll deal with it.
Yeah.
Thank you.
And gentlemen, those of all the questions. We have I'll turn it back over to you for closing remarks.
Well, thanks, everybody for being on the call today. If you have any additional follow up questions. Please feel free to give us call the safe and healthy. Thanks.
And ladies and gentlemen that does conclude our call for today. We thank you all for your participation have a great rest of your day and you may disconnect Your line.
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