Q4 2020 Office Properties Income Trust Earnings Call
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Good morning, and welcome to the office properties income Trust fourth quarter 2020 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please.
Please note this event is being recorded.
I would now like to turn the conference over to Olivia Snyder manager of Investor.
Relations. Please go ahead.
Thank you and good morning, everyone. Thanks for joining us today with me on the call are Opi's, President and Chief operating Officer, Chris Blotto, and Chief Financial Officer, and Treasurer on Matt Brown.
Just a moment they will provide details about our business and our performance for the fourth quarter of 2020, followed by.
A question and answer session with sell side analysts.
First I would like to note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company.
Also note that todays conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 and other securities.
Yes.
These forward looking statements are based on Opi's beliefs and expectations as of today Friday February 19 2021.
And actual results may differ materially from those that we project.
The company undertakes no obligation to revise or publicly release the results of any revision to the core.
These forward looking statements made in today's conference call.
Additional information concerning factors that could cause those differences is contained in our filings with the securities and exchange Commission or SEC, which can be accessed from our website O P. I read dot com or the SEC website.
Investors are cautioned.
And not to place undue reliance upon any forward looking statements.
In addition, we will be discussing non-GAAP numbers during this call, including normalized funds from operations or normalized <unk> cash available for distribution or C. A D. Adjusted EBITDA and cash basis net operating operating income.
Fourth our cash basis NOI.
A reconciliation of these non-GAAP figures to net income are available in our supplemental operating and financial data package, which also can be found on our website.
In addition, we will be providing guidance on this call, including normalized <unk> and cash basis NOI we.
We are not providing a reconciliation of these non-GAAP measures as part of our guidance because certain information required for such reconciliation is not available without unreasonable efforts or at all such as gains and losses or impairment charges related to the disposition of real estate.
Now I will turn the call over to Chris.
Thank.
Income and good morning, welcome to the fourth quarter earnings call for office properties income Trust.
We entered 2020 with leverage below the low end of our target range. After completing our post merger deleveraging plan as originally outlined which include on the disposition of close to $1 billion on assets.
This outcome.
Although the company with a strong balance sheet and a well diversified portfolio going into an unprecedented global health crisis that would soon impact our personal and professional lives communities and activities from the global economic economy down to neighborhood businesses.
Despite these challenges we continued executing on our.
Physician Thats on capital recycling plan and I am pleased to report operating and financial results representative of our strong portfolio composition.
Yesterday, we reported normalized <unk> of $1 28 per share exceeding our guidance range on consensus estimates for the quarter.
Year over year, we generated the same property cash.
Business. This NOI growth of five 1% increased by six 5% and completed 2 million square feet of leasing activity for the year, resulting in a six 9% increase in rent and a weighted average lease term of seven three years.
Turning to our operating results at the beginning of.
2020, we introduced our capital recycling program with the principle goal of selling $100 million to $300 million of properties annually those older in age more capital intensive or with less remaining lease term and reinvesting the proceeds of newer more stabilized properties that generate higher cash flows.
During 2020.
We sold $110 $5 million of properties, which had on average age of 22 years of weighted average lease term of six two years and on average cash contribution yield of three 6%.
These sales also eliminated approximately $30 2 million budgeted capital over the next five years.
In January 2021, we sold two additional properties for $131 million, including a small warehouse facility in Kansas City, Missouri for $845000 and on an opportunistic sale of a property in Richmond, Virginia for $130 million.
While non originally considered for 2021 capital recycling.
Reichling the Richmond property had a weighted average lease term of three four years anticipated vacancy with the subtenant occupying more than 61% of the property and estimated five year capital of $7 $9 million.
As conversations ensued on leasing efforts for the property, we received an offer to purchase the property at what we believe is.
Because of a long term stabilized value despite the anticipated vacancy.
This sale reflects a cash contribution yield of three 6% providing for an accretive redeployment of proceeds into newer stabilized properties consistent with our recent capital recycling plan.
We have also entered into an agreed.
Agreement to sell a property located in Huntsville, Alabama that we have previously discussed is a known vacate for 2021.
The tenant provided notice of their lease termination for a move out effective in August of this year and we've evaluated both the re leasing and disposition strategy for the property.
The sale will eliminate anticipated leasing.
The downtime significant capital and a potential drag on occupancy with an industrial property not core to <unk> business strategy.
As previously announced in December we acquired a corporate headquarters property in Fort Mill, South Carolina for $35 $1 million.
This 150000 square foot class eight.
Properties sits on 16 acres was recently constructed in 2019 and serves as the tenants corporate headquarters.
The property has a remaining lease term of 10 eight years and is located in a growing market and what is considered suburban Charlotte North Carolina.
This acquisition is indicative of our core investment strategy.
And on average cash contribution yield of seven 4%.
Lastly, we have entered into an agreement to acquire a property adjacent to one we own in the Boston CBD.
This acquisition represents the final piece for assemblage of properties within the block and provides us with optionality as part of our longer term strategy for redevelopment.
But in a high growth corridor of the North station neighborhood.
In the near term, we will continue operating these properties as their current use and look forward to providing updates as we evaluate opportunities for the site.
We have been successful on the disposition and of our capital recycling plan and believe the low cash.
Relevant on these sales today creates ample room for OPI to reinvest in higher yielding properties.
<unk> and see a day accretion as shown with the Fort Mill acquisition.
Our acquisition pipeline remains healthy and our focus in 2021 continues to be on acquiring properties, we believe to be mission critical to tenants.
And those.
And yield that work is less likely including single tenant headquarters high security government buildings life Science and medical office buildings.
Turning to leasing for the quarter during the fourth quarter, we completed 139000 square feet of leasing with a 7% roll down in rent a weighted average lease term of nine seven.
Seven years, and leasing concessions and capital commitments of $5 73 per square foot per lease year.
We ended the quarter was consolidated occupancy of 91, 2% and the quarter's performance is in line with expectations.
Timing of leasing can vary quarter to quarter, but we are pleased to have ended.
Ended the year with strong leasing results, reflecting a six 9% increase in rent and a weighted average lease term of seven three years.
Subsequent to quarter end, we completed a lease restructure with tailored brands located in Houston, Texas. Following its approved plan of reorganization, which includes a decrease of roughly 67 basis.
Basis points of annualized revenue and a reduction to their footprint.
<unk> are currently underway with re leasing efforts and we look forward to providing feedback on leasing on the upcoming quarters.
Our overall leasing pipeline remains active with discussions covering three 7 million square feet, an increase of roughly 19% in pipeline.
Activity from the prior quarter this.
This includes roughly 250000 square feet of new and renewal leasing signed since year end 313000 square feet of current activity that is in advanced stages of negotiation and more than 690000 square feet that could absorb vacant space across the portfolio.
Given the circumstances with COVID-19 throughout 2020, we remain focused on our leasing activity and relationship with tenants and we feel confident with how we have been able to navigate the pandemic. Despite.
Despite broad market uncertainty and discussion around the demand for office space. Our portfolio has performed well leasing activity continue.
Pipeline approve and we attribute our resilience through the pandemic, including quarterly rent collections remaining at 99% to our strong balance sheet favorable geographic exposure.
40 of our properties and the makeup of our tenant base with approximately 65% of annualized revenue coming from investment grade tenants, including.
Two 9% coming from government tenants.
As we look to 2021, we remained focus on the growth of our business through acquisitions redevelopment leasing and operational programs. In addition to those items. We highlighted we continued to advance several programs to manage operating costs, while utilization of our properties increase.
And the 2021 and on our sustainability initiatives, which include current and proposed programs for real time energy monitoring lead well and fit well programs and others, which have previously earned opioid designations for the energy Star partner of the year Award and the Green lease leader Award.
Before I.
Turn the call over to Matt I would like to acknowledge Rmr's property and engineering teams for the exceptional work in 2020 to ensure the health and safety of our tenants employees and the many programs implemented across our portfolio for a safe reentry to the office.
I would also like to quickly recognize the RMR group for being named one of the top 2000.
20 places to work in Massachusetts by the Boston Globe.
We are proud to be part of an organization that commits to building an inclusive culture investing on the wellness and development of its employees and providing an innovative workplace, we believe that the scale and caliber of rmr's operations as well as the opportunities for advancement attract.
Talent and OPI is a beneficiary of this success I will now turn the call over to Matt Brown to provide details on our financial results, Matt Thanks, Chris and good morning, everyone.
Normalized <unk> for the fourth quarter was $61 8 million or $1 28 per share, which beat consensus by <unk> <unk> and.
Tons of our estimate by <unk> <unk> due to NOI coming in higher than forecasted partially offset by an increase in G&A.
For the fourth quarter was $42 3 million or <unk> 88 per share our dividend is well covered with our full year 2020 payout ratio of 58, 8%.
On the high end despite pressure from the 2021 vacancies that we have discussed we expect our dividend to remain well covered.
G&A expense for the fourth quarter was $7 $1 million down from $7 3 million for the fourth quarter of 2019 and flat sequentially.
G&A expense for the fourth quarter.
Includes approximately $600000 of share grant acceleration from the retirement of three RMR officers and $450000 of net G&A expense related to a lease obligation we assumed in connection with our 2017 acquisition of Spo.
This lease expired on January 31.
<unk> thousand 21, and will result in a reduction of $300000 of G&A expense in Q1 and $450000 beginning in Q2.
Interest expense for the fourth quarter was $28 8 million down from $30 million in the fourth quarter of 2019 and up $1 7 million.
<unk> in Chile.
The sequential quarter increase is due primarily to the issuance of $250 million of unsecured senior notes in September 2020.
Turning to property level results for the quarter.
Same property cash basis, NOI increased $4 5 million or five 1%.
<unk> paired to the fourth quarter of 2019 exceeding our guidance range of 2% to 4% the.
The increase was mainly driven by increased cash received from contractual rents of $3 million as a result of free rent expiring and roll ups in rent related to leasing activity in 2020, as well as a $2 $2 million.
<unk> is on operating expenses expenses, mainly driven by cost savings initiatives implemented by RMR in response to the pandemic.
These NOI increases were partially offset by a decline in parking revenue of $800000.
We have been encouraged by OPI strong performance throughout 2020, including full year.
Decreased operating cash basis NOI growth of two 8%.
Our monthly rent collections continue to average approximately 99% and granted rent deferrals totaled $2 $5 million, which is unchanged.
<unk> from what we reported on our Q3 earnings call.
Repayment activity has been strong as we have collected $2 million or over seven.
98% of total granted rent deferrals to date.
While there was a surge in COVID-19 cases in the U S. Over the last several months, we have not experienced an increase in deferral requests, which we believe is a testament to the resilience and strength of our tenant base.
Turning to normalized <unk> and same property cash basis NOI expectations.
St. We expect first quarter normalized <unk> to be between $1 22, and $1 24 per share declined from $1 28 per share reported this quarter is mainly due to the January 2021 disposition of the Richmond, Virginia property, resulting in <unk> of lower normalized <unk> in Q1, and a restructure of the.
<unk> brands lease effective January one 2021 also resulting in <unk> of lower normalized <unk> in Q1.
Offset by the share grant acceleration in Q4, and FPL lease exploration discussed earlier that will have a favorable impact of <unk> on G&A expense in Q1.
We expect first quarter same.
Tailored cash basis, NOI to decline between 2% and 4% as compared to the first quarter of 2020.
We are forecasting a reduction in rental income of $2 4 million, most notably due to the tailored brands lease restructure that will impact cash revenue by $1 4 million in the first quarter and a decrease of 600000.
Dollars in parking revenue due to the pandemic.
In addition, we are forecasting an increase in operating expenses of $1 million, most notably an increase in forecasted snow removal costs.
Looking ahead to Q2 2021, we expect previously disclosed known tenant Vacates and capital recycling activity.
Activity to impact normalized <unk> as follows the.
The exploration of the GSA lease at 20, Massachusetts Avenue that will impact normalized <unk> by <unk>. However, we remain optimistic about our potential redevelopment that could generate cash on cash returns of 8% to 10%.
The disposition of our Huntsville, Alabama.
Bama property that is expected to impact normalized <unk> by <unk> and other disposition activity and vacancies that we expect may impact normalized <unk> by <unk>.
Turning to capital expenditures on the balance sheet, we spent $20 2 million on recurring capital during the fourth quarter, bringing total 2020.
Recurring capital expenditures to $76 $3 million, and we expect 2021 recurring capital expenditures to be approximately $85 million.
At December 31, our leverage was six times the low end of our target range. We currently have more than $900 million of liquidity, including full.
Availability under our $750 million revolving credit facility and we have no significant debt maturities until February 2022.
We are confident that the strength of our portfolio and balance sheet provides flexibility and support to our business and safety to our shareholders as we execute on our strategic business plans in 2000.
'twenty one.
Operator that concludes our prepared remarks, we're ready to open the call up for questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw.
Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
The first question comes from Bryan Mayer with B Riley Securities. Please go ahead.
Good morning, Chris and Matt and thanks for that.
No update.
Can you talk a little bit about the Technicolor disposition.
And how it relates to pricing relative to expectations and other.
Other opportunities you may or may not have passed that property.
Yeah, Brian This is Chris.
The droid kind of going back.
As you know the tenant gave us notice to vacate.
<unk> of August of this year.
We originally kind of went out assembling a team and marketed this space for lease and at the same time.
Have an opportunity to spend a lot more time with the building.
I think understanding kind of what the strategy could be from a leasing effort and.
And I think as we continue to kind of work through things you know, we just found that.
More interest came from the acquisition side and kind of coupled that with the fact that this building <unk>.
Despite being industrial is really 31% manufacturing.
<unk> at a balance of warehouse distribution and Theres, just some logistical challenges with dock doors and other things that really layered on additional capital required to reposition the asset and I think the last caveat. There is you know as we started kind of looking around and seeing tenants on the market.
<unk> I think there were some bigger users maybe at 250000 square feet, but on average the users are 50000 square feet and it just became more evident that the cost to reposition vs. A strategic play and selling it at a price that we think is indicative of the value given the the rent rates and kind of what capital required we'd be in a better position.
We are staying on to redeploy those proceeds into something more core to our business.
Okay, Great and can you shift gears to Matt that in D C.
It's been a couple of months since you last updated us on that asset and the potential for redevelopment.
Anything changed in your thought process there.
Things changed.
Turning to pass you know this building can support a kind of a government uses that's currently in there today.
You know we've seen some activity we're in various levels of conversations with some government uses certainly around the repositioning.
Believe that adds additional value.
And provides attractive returns as well we've been running parallel paths, meaning.
From a use standpoint, we have flexibility with the different types of uses we can put in there and have done some work around design and other related items. So when we get down the path, which we hope to kind of have some direction here on that.
Near term, we're not necessarily missing a beat on timing and our ability to get out and start construction and be in a position to deliver timely.
Okay.
When we think about kind of the four big assets this year.
With vacate Technicolor plantation, Fresno, and Matt that if we were to back those.
Out of the equation and just think about you know the core balance of the portfolio, where would you envision that occupancy being.
No around year end 2021 give or take.
I think a reasonable assumption at this stage and there's certainly a.
It was all the variables that play into this just given the level of capital recycling and then where we may buy right around 90% is probably a reasonable assumption.
Okay and then just last from me when we look at what's happening with New York City and a couple of other marketplaces out there really impacted by Covid.
A handful there is some level of discount on potential assets that would come available that could compel you enter those markets or is there just really no appetite at OPI for that.
Think it's more around kind of our core business strategy, we just see less opportunities.
In a market like.
Kind of some of these gateway cities on the C V D's.
You know as we look at a single tenant occupied assets or kind of how we've expanded the horizon a little bit it's not that we don't find opportunities on the peripheral like New Jersey.
In California in San Jose.
You have asked at southern California, and other markets.
Those are the likely candidates for opportunities for acquisitions.
Okay. Thank you very much.
Thank you.
Next question is from Jason <unk> with RBC capital. Please go ahead.
Yes, I was wondering about.
Hey, where are we at Boston acquisition, it looks like that was 59% leased but it sounds like that might be part of a larger plan.
I guess what were your thoughts on pulling the trigger on that with the lower utilization and is it okay to just assume that you're going to operate that.
Current level until.
On that other opportunity presents itself.
The.
I think that's right I mean, ultimately we own.
Two other buildings that connect to this building and so with the acquisition of this and they actually share party walls were able to assemble.
About seven acres within kind of the north station Submarket.
And so I think the strategy with that building has to be in a position, where we have control of some of the space.
And we can do short term leasing with no capital or very little capital.
So that really is the play as we evaluate longer term options I think it's important to caveat that with the.
Mark your adjacent building, we do have term on some of the leases and so this is not something I would expect to come to fruition.
Let's just say the next year or two this is probably likely a longer term strategy.
Got it Okay, and then in terms of the capital recycling program going.
Forward.
You guys have said in the past $100 million to $300 million annually came in at the low end and 2020, but yeah, a $170 million sold or under agreement year to date. So I guess, what's the possibility of going above that range I guess, you've got something that you guys are open to and how open is the market today.
I mean, it's not.
The other thoroughly.
I don't know that we'll hit that.
One to 200 excuse me one to 300 million is kind of a range. We're comfortable with it really is on a case by case basis, just where we're at with opportunities and strategies, but.
No I think at this stage, it's a comfortable range to continue.
Can you earmarking.
Okay, and then last one from me if you guys could just touch on the acquisition that was terminated in Georgia.
The Georgia acquisition. So we were originally looking at.
Three buildings, that's part of kind of a campus.
They also own buildings and really this was an opportunity to try to kind of assemble a larger piece.
Ultimately when we got into diligence I think what we found that kind of the capital required to reposition those assets and the fact that there was still other assets in the park that we wouldn't control.
Where will it just wasn't the right strategy I think we're comfortable with that.
The buildings the way they are they are fully leased and I think we're better suited just to kind of continue down the path we are there.
Got it thanks, Chris.
Yeah.
The next question is from Omar Tayo Okusanya with Mizuho. Please go ahead.
Control Hi, yes, good morning, everyone.
First question it looks like there's an asset.
Yes.
Colorado.
Tenants at United launch Alliance, it looks like you're trying to lease that building as well at least it's up on these three is that an additional vacancy we should be thinking about in spending from anyone.
I don't think so I mean that lease that.
That building doesn't expire until late 2022.
Uh huh.
That location is strategic in the sense that they're their corporate headquarters is there within the park there.
There are several other buildings they are.
Hi.
That building specifically has their space program minute with skiff space across a handful of floors and so I think at this stage.
I wouldn't expect that you know we have any insight into them vacating I think the focus right now is on conversations to.
Occupy to keep them on the building.
Great. That's helpful and then the Technicolor space again understand industrial noncore.
But again I guess, when we take a look at the ramp you were getting there on price.
It just looks like a really big category, so kind of on trying to wonder even with.
Our continuous pieces of how much capex you would need to re purpose it.
How are you kind of look back that sale was the best routes.
At the current fuel price I guess, we're trying to figure out.
Oh yeah.
Portfolio.
Portfolio repositioning you're doing you're trying to make it.
And our credo and I definitely just struggled with the pricing when this transaction how that ends up being treated on the longer term.
Given.
What you end up investing the proceeds into yeah.
Yeah, I mean, I think you know you know kind of looking at it.
You may recall that last.
Here with Technicolor, we did a restructuring of their lease.
I think later in the year, whereby the rent was reduced they had a downsize right.
We were trying to work with them to kind of continue to retain them into building, albeit they had a termination right.
And so their rent.
<unk> adjusted to something closer to market.
Which I think it was to the tune of about $4 $9 million and so you know.
Fast forward today I mean, we look at the building. Despite you know that theres being a N O Y its a vacant building.
In August and so were affected.
Starting from from scratch, and I think kind of going back to some of the feedback earlier, what we've found with time.
If there is a lot of complexities with this building and given kind of the shallow market itself.
I, just you know with the capital required downtime free rent and other.
At least that go into this.
It really didn't make sense for us to kind of spend the time on the resources.
With an outcome that doesn't provide it doesn't produce any value for the company.
And then one more from me that the Richmond.
And then.
Just remind me again.
Element I didn't.
It sounds like you're on a top 10 tenants in that building wide again it it didn't make sense hold on to that wasn't really the I think the attractive pricing on that.
Kind of influence you did kind of sell it.
Yeah, I mean that wasn't part of our original plan to sell it and again as we continue to have value.
Wait options again, I think I.
I mentioned, it's the lion's share of that building is currently sublease I think for US there was a real risk of vacancy on the horizon.
And also at that building it was a build to suit for the tenant at the time and we expected there to be a roll down on rent and so as we started.
Valuing at it.
You know, we ultimately decided that you know based on the offer we see which was extremely attractive it was a better opportunity for us.
Stickley to sell that and focus on redeploying that in something more stabilized.
And you said it was a three six GAAP rate.
Our cash contribution yield yeah cash.
Looking with a perfect. Thank you.
Thank you.
The next question is from Jamie Feldman with Bank of America Merrill Lynch. Please go ahead.
Great. Thank you.
I just wanted to make sure I heard you right on some of these SFO moves. So you had said.
122 to one.
Once before in the first quarter and then what are you seeing sequentially you lose about 12 to get to the second quarter number of like 110 to 112 is that the right way to think about it.
Davidson.
Okay.
And so I mean, how long do you think you'll stay at that level like what are the offsets that give you a little bit of upside.
From that 110 to 112.
Yeah, I'd say that our 2021 forecast is pretty conservative we do have a very healthy lease pipeline that Chris highlighted in the prepared remarks. So if we're successful on some of that leasing activity that should help us. In addition on the capital recycling front.
We sold a lot more than we've acquired so if we can find acquisition opportunities, we will see some upside there as well.
Okay and does that include the G&A benefit you mentioned on the call.
It does yes.
Picked into the 122 to 124, that's right Duane.
And that that really.
Fluctuate quarter to quarter and Q2 of each year, we have trust the share grant expense. So G&A will naturally increase from the Q1 level that I had highlighted.
Okay. So that's a further drag into <unk>.
Yes, how much do you think that goes up.
A penny.
So if you're at this 110 to 112, I guess 190 to 111 for the second quarter. How do you think about dividend coverage I know you sold stuff that's got a higher capex.
Where do you think your CAD payout ratio ends up trending.
For 2021, we expect it to remain well covered it'll be.
It would be just.
North of 75%.
Okay.
Alright, that's helpful.
And then as we think about.
Both 'twenty, one and 'twenty two I mean, what are the largest still unknown.
From potential vacancy risks.
Move outs in 'twenty one.
Two.
Well for 'twenty one.
The big four that we've highlighted are still stands you know you probably saw that are expiring annualized revenue increased into this.
This quarter for 'twenty, one, which was largely attributed to some tenants.
Holdings.
On in 'twenty over <unk>.
So we think you know as we think about that added let's call it 2% increase.
Increase in exploration this year, there's only 30 basis points of that at risk and those were known Vacates that are didn't conclude at the end of 2019. So that's just that's just more carryover. So I don't think there's any real change to 2021.
Holding on and saying for 2022, I mean, I think we've talked about.
You know the kind of the bigger exploration risk in 2022 and outside of that.
At this stage, we don't necessarily have anything meaningful to to report on.
Okay.
And then for 'twenty, one do you have anything beyond the 7% on move outs you highlighted in the third on the third quarter call.
Yeah, there's probably another 30 basis points added to that.
Okay, but that's included in.
But you gave for the second quarter.
Non.
On the drag on earnings.
I would say are and when they expire expiring annualized revenue we have.
Seven 3%.
At risk are expected to vacate for 2021 and with respect to the earnings.
Yeah, I mean, I think the biggest drag on Q2 as the.
<unk> mass Av.
Vacancy at March 31.
There's nothing else significant impact in Q2 forecast on a vacancy side.
Okay. I mean are there more vacates in the back half of the year or everything is already in by the second quarter.
No we have I mean, we've.
20th Technicolor as August.
We have the Fresno.
Tenant that you now expires in November I, there's conversations that they may.
I'll continue into early 2022, but our forecast assumes that they don't.
And so those are the larger ones on the back half.
Highlights.
So what are your expected to vacate in 'twenty two on a percentage basis.
Right now the only one that we're tracking is the building in Seattle with a five.
What percentage of that is that its about two 2% of annualized revenue.
And I would say with that building.
While the tenant is expected to vacate which has been something that we've communicated historically it had been in front of I think in general we're pretty optimistic about the potential for that with alternative uses in addition to just office and so I think as we think about that there's a real opportunity to put.
Proceeds to work, which could again put us in a position, where we're getting attractive yields kind of in the high single digits, our strategies outside of just acquisitions.
Okay.
And then I guess, sorry to jump around here, but then for the.
Yes.
<unk>.
Okay.
So with Huntsville does that mean that the third quarter can go even lower than that 110 to 112 like I guess I was thinking that 1% to 112 is your bottom for the year, but it sounds like maybe you go even lower than that before stabilizing.
No I think thats, a pretty good run rate.
Where Q2 ends up.
Okay.
And then.
What would you say is your portfolio mark to market right now.
As far as on rental rate, Yeah, I know rents have moved in most markets. They have I mean, if you think about we originally thought we would end 2020.
'twenty at a 2% to 3%.
And certainly ended the year at a roll up of just under 7% I think based on our <unk>.
Pipeline today, I think we're kind of seeing that trend in the range of you know, let's just call it 4% to 5%.
To 5% below.
Increase.
No increase okay got it.
And then as you think about your just kind of sources and uses I know you said on 100 to 300 of acquisition activity, but how do you think about your capital position today and if you do any more dispositions I'm just kind of when you think you'll need capped.
Capital again.
We have $900 million on liquidity.
So we have a lot of cushion.
Find acquisitions to source.
In addition, we do have some properties in the market for disposition as well, while non material, but it could increase.
Our liquidity position, yes, we would also use proceeds for kind of a redevelopment like 20 mass Avenue. Some other strategic opportunities as well in addition to this acquisition.
But that's in addition to the one to three.
The redevelopment spend.
With respect.
Two I'm, just kind of being net neutral, meaning buying buying 300 in selling 300 is that what you're referring to although you said earlier that $1 million to $300 million of acquisition seems about right for a given year I assume that the price that was capital recycling that was this is recycling.
Do you include.
Are you talking about the redevelopment spend in that one to three or there was an additional capital spend.
It would be additional.
So like what's your what's your total capital expected spend this year on the redevelopment side.
If we do move forward with the 20 mass AV redevelopment, it's about 60.
<unk> million dollars.
For the whole project.
In 2021, where.
We're targeting.
Cost for that project before leasing at $150 million.
So the balance would be in 2022.
Okay.
And any other big projects in the portfolio.
We're thinking about.
No not of that scale.
Okay.
Alright, great. This is really helpful. Thank you all right. We appreciate your time thanks.
This concludes our question and answer session I would like to turn the conference back over to Kris <unk> for any closing remarks.
Thank you for joining us.
Today, we look forward to updating you on our progress this year and hope to see many of you at the upcoming conferences and events.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
[music].
Great.
Thanks.
[music].