Q1 2021 Armada Hoffler Properties Inc Earnings Call
Welcome to Armada Hoffler first quarter, 2020 One earnings conference call. At this time, all participants are in a listen only mode.
After management's prepared remarks, you'll be invited to participate and a question and answer session at that time. If you have a question. Please press star one on your telephone and burnt.
Minder This conference call and being recorded today Tuesday may for 2020 one.
Now I'll turn the conference over to Michael O'hara, Chief Financial Officer at Armada Hoffler.
Go ahead Sir.
Good morning, and thank you for joining Armada Hoffler is first quarter of 2021 earnings conference call and webcast.
On the call. This morning, and in addition to myself and Lou Haddad CEO.
The press release announcing our first quarter earnings along with our quarterly supplemental package were distributed this morning.
Replay of this call will be available shortly after the conclusion of the call and June four 2021.
And the numbers to access the replay are provided in the earnings press release, but those who listen to the rebroadcast of this presentation remind you that the remarks made herein are as of today may four 2021 will not be updated subsequent to this initial earnings call.
This call and we will make forward looking statements, including statements related to the future performance of our portfolio and develop.
And pipeline impact of acquisitions, and dispositions and mezzanine program, our construction business and our liquidity position.
Performance and financing activities as all those comments on our guidance and outlook.
Listeners are cautioned that these statements are subject to certain risks and uncertainties.
Many of which are difficult to predict and generally beyond our control, particularly in light of the COVID-19, pandemic and any related economic uncertainty.
These risks and uncertainties can cause actual results to differ materially from our current expectations and we advise listeners to review the forward looking statements disclosure and our press release and was distributed this morning, and the risk factors disclosed and documents, we have filed with or furnished to the SEC.
And I'll also discuss certain non-GAAP measures, including but not limited to <unk> and normalized <unk>.
Definitions of these non-GAAP measures and as long as reconciliations to the most comparable GAAP measures are included in our quarterly supplemental package, which is available on our website and not a hostile dot com.
Now I'll turn the call over to Kevin.
Thanks, Mike.
And thanks, all of you for joining us today.
This morning, we posted first quarter results with 26 cents of normalized <unk> per share, which was in line with our expectations.
More importantly, and you see and our earnings release weighted.
And continued at an accelerated pace with overall portfolio occupancy nearly back to the mid Ninety's percentages, which is our historical norm.
And we anticipate new tenants, taking production by year end with lease revenue returning to pre pandemic levels early next year.
Simultaneously.
The rent collection percentages have returned to near 2019 levels and bad debt write offs continued to level off.
While we are very pleased with these results and barely began to tell the story of the momentum building within our company.
As we relayed to you with our guidance presentation last quarter.
2020, one as a year, where our focus is to substantially increase and a b U R.
Leasing initiatives improved quality of NOI and exciting development starts.
And so we anticipate that our activities over the course of 2020, one will build a solid case for expansion of our earnings multiple.
And ultimately lead to significantly higher earnings and dividends over the next few years.
And as the company's largest active equity holder management remains committed to generating long term value for all shareholders.
Later in the call Mike will walk you through some of the specifics from the first quarter.
And I'll use my time today briefly detail some of the recent developments that we believe will ultimately accelerate the accomplishment of our longer term objectives.
On numerous occasions, we have discussed that our mezzanine lending program will be gradually reduce to approximately $80 million and size.
We had anticipated that the two major projects and this program would have loans outstanding until the end of 2022.
Thereby reducing our ability to meaningfully resize the program until that time.
We still project that the interlock commercial loan will be outstanding for that duration, however, due to favorable market conditions and the rapid pace of unit absorption.
Our partners at true Willinger Packers have decided to market the solas interlock assets.
We now anticipate that loan to be paid off and the third quarter.
The projected return of $33 million of capital inclusive of nearly $10 million of earned interest will enhance our flexibility to take advantage of other opportunities that are appearing on a regular basis.
Since the fall of 2019, we have made clear the goal of rebalancing the percentage of our NOI that is derived from retail assets.
Ultimately the portion of NOI from retail will decrease due to the predominantly multifamily and office makeup of our development pipeline.
We have also made it clear and we expect to focus the retail sector of our business on high quality grocery and discount anchored centers.
Both through development and acquisition.
During the first quarter, we closed on the acquisition of a whole foods anchored center in Delray Beach, Florida.
Additionally, we've identified a few off market acquisition opportunities and the retail area.
As you might expect these potential acquisitions would fit nicely with the return of capital from the Solas interlock payoff.
Last quarter I reported that we already had over 90000 square feet of new leases on vacant space and and this and an additional 46000 square feet and final negotiations.
There is no substitute for well located real estate, regardless of the property type.
And the case and point I'm pleased to report we've executed nearly 60000 square feet of new leases, including the bed Bath and beyond vacancy at North point, which is now leased to Burlington.
As a reminder, we had agreed to terminate two of our bed back leases and order to recapture the space at those centers.
We can now report that both of these spaces, where almost immediately released with minimal investment and and nearly 7% aggregate increase in NOI.
In addition, we have another 50000 square feet of retail space that exactly.
Given the velocity of activity around our assets our expectation continues to be that we will be extensively back to our retail sector historical norm of approximately 95% leased within the next 12 months.
Substantial progress is also being made at Wills Wharf, Our office building at Harbor point, and Baltimore that was deliberate at the onset of the pandemic.
And that activity has resumed and we are now and final lease negotiations with two credit tenants totaling 40000 square feet.
And that will shortly bring total occupancy to 60%.
As you might expect the announcement with T. Rowe price, bringing 1700 employees to harbor point and the Governor's decision to locate and several state facilities and the central business District, thus, bringing an additional 3300 employees and close proximity to our collection of assets and hardwood point.
Will serve to further enhance the value of all of our properties that dislocation.
The development pipeline is largely unchanged from last quarter's call.
All commencement and completion dates remain intact.
And you may recall, the four projects underway total nearly $250 million and are heavily weighted to the multifamily sector.
Given the robust market for these types of assets and the South East, we expect to eclipse, our historical 20% spread between cost and value on these facilities.
Those totals do not include our recently announced joint venture with BD development.
450000 square foot build to suit for T. Rowe Price's World headquarters and its complementary mixed use development.
These two world class state of the art facilities are adjacent to our other three assets at Harbor point on the walk Baltimore waterfront.
Our team is fully engaged and we anticipate groundbreaking on the complex prior to year end.
Moving on to construction.
That group continues to perform at the extremely high level, we've come to expect over these many years.
And as facet of our business is also generating the same sort of momentum that we're seeing companywide.
And successfully wrapping up several large third party projects and the next few months and.
And expect to break ground on two more engagements or a long standing client later this quarter.
This past year has seen our company intensely tested and several ways.
While the struggle is brought on by the pandemic or certainly not unique to us.
And perspective, we've gained and navigating what is our fifth major recession.
It's allowed us to use the strategies that have seen us survive and ultimately thrive through multiple cycles over the decades.
Conserving cash and working with tenants reducing operational expenses.
Taking care of our people.
All of these approaches set the stage for the most important part of the equation taking.
Taking advantage of new opportunities and ultimately outperforming our peers and the subsequent recovery.
We fully anticipate demonstrating that outcome over the next few quarters.
As you saw on the press release yesterday Board has continued to increase the dividend given the momentum that we see building and the company.
We believe and robust leasing off market acquisition opportunities development progress, new construction contracts and additional free capital will justify this and subsequent increases.
Now I'll turn it over to Mike for an update on the quarter.
Okay.
Thanks, Lou and good morning, Hope all is well with you and your families.
This quarter refreshed our supplemental package, we think you'll like to changes and find it easier to navigate.
And the first quarter reported at SFO and normalized <unk> of 26 cents per share.
And collections continued to be strong at 99% portfolio wide, including retail collections and 98%.
Bad debt write offs with $270000, which is approximately the same as last quarter.
With bad debt write off stabilizing and rent collections near 100%.
Peers that our attendance and our company are successfully handling the impacts from the COVID-19 pandemic.
We have collected 92% and existing deferrals do you expect to collect all remaining deferrals outstanding.
Key page 28, and a supplemental package and the more information on our rent deferrals.
Our stabilized operating portfolio occupancy for the first quarter was 94% and office at 97 retail at 94, and multifamily, including student housing and 92.
Invention on multifamily was 96% occupied with student housing and 85% and.
Student housing property, John Hopkins village and see outlier at 74%.
It's COVID-19 related decline in occupancy along with the expiration of our five year real estate tax abatement, where the main.
Contributors to the negative nine 5% same store NOI, we expect this property to be back to a 100% leased this fall with the university and back to in person classes.
As Lou discussed we have seen leasing activity pick up across all of our property types.
And total we have leased over 150000 square feet since last October.
This does not include re signing 100000 square feet of Regal cinema leases.
And good progress and getting tenants in place and so all tenants are paying rent, our NOI and EBITDA will be lower which is having a temporary negative impact on our leverage metrics.
Re leasing spreads were positive overall for the quarter at six 1% GAAP and 6% cash.
If you look at the performance metrics of our portfolio, including occupancy and rent collections, releasing spreads and how quickly the vacated space re leased and reflects the high quality of our real estate.
And as Lou discussed we have.
Focused on growing and a D H eight and the supplemental package as the component data for calculating our M D.
When evaluating and please see the section on the bottom left and this page and additional information to consider when evaluating the company.
These include management's estimate of the land value from the development range from restructured and Harrisonburg, and Regal lease and they can space as of March 31st the 70000 square feet and vacancies are.
I'll at least along with estimated rent months not include and can.
We believe these have real value and should be continue and evaluating our NAV.
During 2020, we took multiple steps increase our liquidity position and strengthen the balance sheet.
And our common stock trading at discount levels. During most of 2020, we utilized other sources to raise capital.
And total since the pandemic started.
We sold 10 unencumbered retail assets totaled a $106 million, including the disposition of an unencumbered and Kroger anchored center during the first quarter for gross proceeds of $5 $5 million.
Yeah.
These asset dispositions combined with 100 million range two preferred stock issuance last year, we have raised over 206 million and cash.
And to reiterate we believe preferred stock should account for no more than 15% of our capital stack.
Do not anticipate issuing any more preferred stocks and foreseeable future.
In addition, this year and prudently issued stock through the ATM program, raising $14 6 million and an average price of approximately $13.
Each combined capital raising activities put us in a position to fund our development projects, including the T Rowe price enquiries.
But most of the projects beginning later this year and early 2020. Two as is the case of the T. Rowe price project capital requirements for 2020, one are modest and.
In addition, you own the land for other projects and development pipeline.
Yeah.
As is typical of ground up development and capital requirements ramp up over an extended period of time.
It's a modest capital requirements. This year, we believe using the ATM program is and most efficient method to raise capital and he.
And necessary, assuming favorable market conditions, Alternatively, we could sell additional noncore assets to fund future developments.
We are excited to be part of the development teams and new T. Rowe price headquarters building and associated mixed use project and ownership and these projects is expected to be 50%, but both of these projects structure is non consolidated joint ventures, and therefore off balance sheet.
Current estimate of our equity requirements combined from these two projects and $60 million.
GAAP requirement and corresponding investment and joint venture I liked and easy only impacts on our balance sheet.
Last month, we closed on the refinancing of the last 2021 debt maturity.
We have now started addressing our 2022 maturities.
Our 2021 per share earnings guidance is unchanged with normalized <unk> of 98 to $1 <unk> per share.
See page for supplemental package for details of our 2021 guidance.
Ranges and assumptions and I'll now turn the call back from them.
Thanks, Mike.
Before taking your questions I would like to take a moment to draw your attention to our ongoing sustainability initiatives.
Last month, we published our 2020 sustainability report, which can be found on our website. We are excited to share the enhancements that have been taking place over the last year.
Operator, we would now like to start our question and answer session.
Thank you if you would like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is and the question Kipp Crestor.
Crestor too if you'd like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the sources.
One moment, please while we poll for questions.
Thank you. Our first question comes from Dave Rodgers with Baird. Please proceed with your question.
Lou Mike Good morning, and thanks for the added disclosures this quarter Louis.
Louis you talked quite a bit about the the tone and I heard you talked about a lot of leasing and I guess I'm curious about the tone and the focus of the leasing activity that you are seeing we hear and office that and it's all about high quality buildings and and everybody upgrading.
And you're pretty full and office, so I guess when I look at the impairment and the Cassidy and and the bio load departure, there and is there any kind of trading going on and in the multifamily and the retail business that youre seeing that.
And that would kind of give us a better sense of kind of where that leasing direction is headed.
We're seeing that really portfolio wide.
And based on the amount of activity that we're seeing at Wills wharf.
I think it's going to continue for for quite a quite a spell.
On the retail and multifamily from cap rates continued to compress.
And so youre seeing youre seeing and awful lot of leasing take place and a short period of time.
People are rushing to fill vacancies again and the higher quality centers.
Hi.
We're seeing this continuing through the summer maybe through year end.
But we are rapidly running out of space. So I think I can confirm and.
From your thesis on what's happening out there.
And I'm not sure that that is true and and the gateway markets.
And I'm not sure it's true and can be quality.
But in terms of the best located real estate and the highest quality buildings.
No lack of activity.
Yeah, just one thing on the on the office leasing.
And our releasing spreads.
True negative cash flow this quarter, but that was.
And one tenant every new and for two years, it's 4000 square feet and I think it's a good indicator and what's happening.
Great. That's helpful. I did miss some of the early part of your answer I don't know if it was mute or just my phone and so if I add something repetitive I apologize.
And Mike I guess I'll ask about the.
The initial repayment at interlock I thought at some point you were going to get and initial payment back from from your partners there and maybe that did happen. It looked like the balance just continued to build so was there any difference or change and the way that your mezz loan at the interlock is been treated or your plans for that.
Yes, so there's two different ones here one is the multifamily piece with 12 and get past this debt Lou.
And I talked about debt, we're expecting that to be marketed and sold and have that loan paid off.
Early on the other the commercial mixed use piece there are some.
Part of that are some townhome parcels boy.
And we're trying to contract and we're expecting those to start closing and have some of those persons paid off here starting point.
Later this month or early next month.
We did launch some more money on that project and it's been some changes in the.
And the senior alone.
Of which we are working with the with our partner on that as well as the as the lender.
Okay. That's helpful. Thanks, a lot last from me is on the student housing you did talk about Johns Hopkins and the other projects I guess I'm curious on the leasing pace for next year I imagine, there's quite a bit of a question as to whether or not the schools will open and how quickly, but what are you seeing and the lease pay.
<unk> for for your student housing assets as you think about kind of the fall lease up.
David It's a little slower than it's than is typical and.
I think there was some hesitancy based on.
Yes.
Hopkins has announced that they're doing full in person classes come call.
And as is we expect the college of Charleston. So.
We expect things to be normalized come next next school year starting in August.
Yeah.
Okay. Thank you.
Thank you. Our next question comes from Rob Stevenson with Janney. Please proceed with your question.
Good morning, guys, just a follow up on Dave's question.
Louis do you have and can provide any type of different.
And the lease if the college goes remote given.
And that this is the first time that any of this stuff is really been experienced.
Yeah.
We're not all the leases are 12 month leases that we're doing on those three assets.
Okay. So if these colleges go remote than the <unk>.
Food and can stay or whatever but theres no ability for them to stop paying rent and until it goes back to being in person or anything like that.
Correct, Okay, and I think hence that's why I think youre seeing again nationwide youre seeing absorptions slower rate, but.
Like I said based on.
Virtually every college talking about full in person classes or expectation as debt.
False Investor Day will look a lot like 2019, yeah. What we're hearing is the students are ready to sign leases, but the parents are not because they got burned last year. So there's been no.
A slowdown and getting the parents and signed leases.
And I mean, that's perfectly understandable I mean is it.
I, just didn't know whether or not the market had changed basically have some sort of remote out.
You know or pause or whatever.
And these leases in order to accelerate that leasing, especially if you didn't think that it was a likely event the colleges would go and remote again.
On the Mezz portfolio, how should we be thinking about that and how aggressive are you guys. You added next.
But how aggressive are you guys and back filling that because when I look at the guidance was basically flat for versus last quarter in terms of the and the expected income in 2021 on that.
Are you expecting when interlock goes and and part of the mixed use gets paid back that theres going to be another one in addition to next and that's added into that pipeline, how should we be thinking about that.
Yeah, our expectation is that.
One to two projects will be added sometime in 2020 two.
To continue the program at the at the rate that we'd say, we've set a target of roughly $80 million of being our threshold for it.
And of course that debt.
And it's only a guideline.
We're not going to turn our noses up to good business and we're certainly not going to do sub standard business just to hit a target but that is our expectation.
Our our partners are very active and and as you might imagine and multifamily is very active.
We don't anticipate any issue with refilling that pipeline.
And then I mean in terms of that I mean, how are you guys thinking about just straight out you know 11 and 12, 15%.
Loans versus the loan to own when we look forward are you guys really only interested and loan to own or are you more than happy to take you know 12 or 13%.
Transactions, where you have no real ability to get to the asset.
It is.
Great question, Rob and it's really both what we want to do is participate with well heeled partners and great real estate.
And to the extent that.
And our ability is limited.
To only be able to get that interest income because of the exit cap rate that our partners can achieve and then so be it.
As we've said for many years, we underwrite each of these as if we're going to own them and we certainly would love to own them.
But as you know sometimes that debt that exit cap rate and just so far below our cost of capital and it just doesn't make good sense.
Couple of things, Rob when you look at the return some of these alone and simple interest summer compounding.
And most of them also have a minimum a minimum amount of interest and needs to be paid somewhere between two and a half and three years and so even though on an early exit.
Looking at yet and the full full amount.
And remember we're also there as.
As a rule.
Yep.
The rule of thumb is if you if you want our money Youre also using our construction company and so there's typically a construction fee involved as well.
Alright speaking of that what are you guys seeing in terms of the materiality of construction cost increases on future projects and.
Have you guys.
Have you guys bid out T Rowe.
And the other stuff and your pipeline now and what is that versus what it would have been you know.
A year or two ago.
Yeah, I think where.
We wouldn't be the first and tell you that the prices are going crazy right now.
With with western and our pipeline.
The two projects that are that are in the ground now Gainesville and Chronicle mill.
Everything has been fully bought out and materials are either onsite or R and route so we.
And thats been since last fall and early winter.
And nothing really no no real effect there.
With regard to the two that we haven't started yet we really don't need materials until early next year. So the hope and expectation is that things will normalize a bit.
Yeah.
With respect to T Rowe price.
No that is that that project is in design now of where we're seeing the biggest increases and says you might expect AZ and residential type construction the multifamily side wood frame.
I think everybody knows wood has.
Tripled if not quite reported and price.
From a year ago.
And again hope and expectation is that will normalize before we need a wood Fortunately on the T Rowe price project and <unk>.
Most of what we do is high rise concrete construction.
Which is less affected however.
We are seeing material increases everywhere.
And this is this is where it is helpful to have your own construction company because.
And they really close to the market.
Multiple lines of subcontractors and utilize as well as our network.
That's more regional and local.
To bring and what we need for our properties.
And how about on the labor side, how much inflation are you seeing there are you seeing good availability as well.
We're not having a we're not having a lot of trouble on that side yet again.
And up here and homebuilding it's.
It's getting really difficult, but for large scale projects are we're not seeing the issue there it's really on the materials side again and that's.
Things are getting tighter and all the time.
But our expectation is that.
With the Premier projects, we're doing and certainly the largest contracts and their regions.
And we feel certain that we'll be able to attract what we need.
To expedite construction.
Okay, and then last one from me.
You talked about being in negotiations on.
And some leases at Wills wharf, and what is the pipeline behind that look like to get that assets sort of fully felt at this point.
Or like I said.
Our expectation is we'll be at 60% here here shortly.
Which leaves around 100000 square feet or 90 to 100000 square feet to lease a really good activity surrounding the assets.
Maryland has been a little bit behind.
Virginia, and the Carolinas in terms of reopening.
But now it is reopening and they're getting a lot more tours and a lot more activity.
I'd tell you, where we are extremely excited about what what's going on at the Baltimore waterfront.
And you heard me mention earlier.
The state is bringing some 3300 employees into the CBD.
Which is certainly going to help downtown Baltimore and tangentially helped helped the hardware by not having problems next door.
And with T Rowe price essentially committing to.
A long term lease with 1700 employees.
And the activities.
Really picked up and so our expectation is that behind.
Behind that 40000 square feet is a like amount that we hope to sign a prior to the end of the year.
If not sooner.
And is the Hilton opened and how and if so how has the utilization there.
The hilton's open as a matter of fact had brunch there.
This past Sunday.
Restaurant was full.
I mean again there they are slowly building back.
It's not dissimilar from what we're seeing.
The other hotels debt tangentially are and our properties like for instance, the western here.
And there are still on the wrong side of 50% occupancy.
But that is that is building and and should continue to build.
And.
And the P. P P really helped the hotel industry.
So we're not seeing the kind of duress that you normally would see with you know with those kind of occupancy numbers.
So.
Again expectations are and later on this summer and fall that there'll be a REIT.
Normalized.
Okay. Thanks, guys I appreciate it.
Thank you Rob.
Thank you. Our next question comes from Jamie Feldman from Bank of America Merrill Lynch. Please proceed with your question.
Thank you.
Starting with T Rowe and.
Following up on the construction materials question I mean, do you have any protections and that.
How does it work if prices do go up materially.
Jamie I'll I can tell you that we are fully protected.
Against price increases.
And just have to leave it at that.
It might give the details.
The lease but.
It didn't come at all and upon all of us to keep prices to a minimum that's helpful for everybody, but we're not at any risk there.
Okay.
I guess, just generally with the increases do you see changing any of your price structuring like cost plus or anything like that as opposed to.
Fixed pricing or and you know anything you think will change if we do see.
And just kind of a sustained rise.
And again, we are our construction company works collaboratively with owners, where we really don't bid for projects.
We work with owners and architects to come up with the best designs.
And to expedite construction and so it's more of a team approach now ultimately if things continue to.
To go where they're going there and we're gonna see delays and projects.
I've mentioned that.
Our construction company is going to break ground later this quarter.
And a couple of projects for for a long term client.
And those projects were supposed to start earlier this year and they have and started mainly because people are wrestling with costs and again, our guys are working with the owner and the architects and in order to try and get the best value for the dollar the thing that is happening on the other side.
Jamie.
Well aware of is that cap rates are compressing, so you're still able to maintain our spread.
But at some point the expectation would be that debt that rents aren't going to keep up with those costs and so and that's that's what our system is all about right as once that demand goes away on the rent side, then you'll see enough projects and die and when they die hopefully prices come back in line.
Okay. Those are helpful thoughts.
You had mentioned the Regal cinema leases sort of one of them at least being backfill and I. Appreciate the added disclosure. This quarter can you just walk us through because it looks like you've got them expiring from 'twenty one to 'twenty four I know, there's only one listed on the <unk> through 'twenty three.
Table, but can you just talk us through all of those leases and where they stand and what vacancies you may still have coming.
Sure so moving to Regal cinemas and the one and Harrisonburg.
As we reported earlier, we and.
And bringing regal back and we negotiated.
Our ability to do and mixed use development.
On the property, which we are moving forward with and again hope to hope to break ground and first quarter and next year.
Regal there.
And is fully theyre going to open and the middle of May.
And at least as it is.
They're full pre pandemic rent level.
The Regal here.
And at town Center is different.
We're kind of and a wait and see mode. They are they're going to open that one and the middle of May as well, we've only made a deal.
And for minimum rents from now through the end of the year and at the end of that period, we and Regal, Oregon and decide if they can go back to full rent.
And or if we decide it would be better for us to go ahead and take the building back and do the multifamily projects that we had previously talked about so we're somewhat into cat bird seat, there and we're kind of good with either outcome.
But we're going to see how well the movie theater business does.
It's a different situation here at town center, there are half a dozen theaters nearby.
<unk> and Harrisonburg from what we understand it's the only movie theater within 100 mile radius.
So we suspect that one's going to stay a movie theater forever.
Okay.
Okay. That's helpful.
And then.
And you guys had mentioned the mark to the office leasing spreads and weren't really.
A good example of where things really stay and can you talk about your mark to market on both office and retail and other portfolios a little all over the place, but just any thoughts there.
So with it it's it's somewhat difficult Jamie on the vacancies and particularly the COVID-19 related vacancies.
Where we are spending considerable tenant improvements.
With with higher credit tenants, we are getting higher rents than what we were getting prior to the pandemic.
Where someone is willing to come in and essentially as is we're giving a discount on the rent.
And it's it's really.
It's really all over the board and say, it's kind of almost everything in between.
I think the best thing, we can say about those vacancies is that our expectation is that NOI on those properties will be slightly above where it was in 2019 once everybody's paying rents, which we expect to be early next year. So again our portfolio.
Remember our whole busy.
Business model as our portfolio.
Grows at one 5% to 2% a year. If you look a look at it on a decade by decade basis.
Primarily our primary source of growth is through that development pipeline.
Okay. So you said you expect NOI higher than 2019 does that include the development.
No.
Talking about just on the on the stable portfolio day.
And we'll portfolio and you're saying office and retail.
And.
Yeah, Yeah, Okay, and then hopefully a bit a bit higher than that on the multifamily. If you saw our guidance presentation and our expectation is when the development pipeline and stabilizes and scatter.
See a bit of a hockey stick.
Formation.
Right, Okay, but that is a debt is at 'twenty three 'twenty four story.
Okay.
And I just wanted to clarify you made a comment that the ATM is the most efficient way to raise capital going forward are you, saying as of now like Youre happy tapping the ATM for future needs.
Okay.
Let's go a little bit deeper than that we have fairly minimal capital needs and so therefore.
It is by far the most efficient way to get that.
I wouldn't say, we're happy with.
We werent happy when the stock was trading at $19. So we started that GOR and happy with trade and the 13 or 14.
But for the minimal amount of equity that we need and.
And the ability it gives us the dollar cost average and as small as the requirements are and it is by far the most efficient way Mike to add to that.
If it doesn't.
The stock doesn't and continue to increase.
And we'll do what we did last year and as the saying, we'll go look at selling more and more assets and yes.
I think we always look at it with the ATM more raising is what's our what's our cost of capital and is the money and put to work that is still accretive, especially in these development projects and we're seeing the answer is yes.
Okay. Thank you and then my last question is just that and we work.
Any thoughts on any changes and there your plans for them and your portfolio or will they grow with a shrink or just stay where they are.
And I'm pretty sure it'll just stay where they are Jamie there theyre doing fine as you know they consolidated into our high rise and Durham and so it is it is b we work.
And net market.
And our expectation is that there'll be fine there for 15 years.
Our partners at the interlock and Atlanta have them on one floor.
I think it's being built out now.
Our expectation is is that they're gonna be defined we don't have.
And I think I've said this before pre pandemic and everybody was touting that debt co working space was going to be 10% to 15% of the overall market.
Class a office market.
And then of course, the pandemic hit and then it was going to be zero, but my guess is things will go back to the center line within a year or two and co working will be and active ingredient.
Now whether or not that particular name does well and as well.
Anybody's guess, but.
I think that kind of arrangement is going to be here to stay.
And for it for a small but significant part of the office market.
Okay, Great I appreciate your thoughts.
Yes.
Thank you.
Yeah.
Thank you. Our next question comes from Dave Rodgers with Baird. Please proceed with your question.
Yeah. Thanks for the follow up guys, Lew just kind of tying and your comments for the demand around high quality projects and and obviously starting a couple of construction projects and your construction business I guess, what's the backlog of activity and your own development pipeline beyond what we're seeing right. So you've got $240 million and processed 138 million.
And complete and leasing tend to try and and still sitting out there and then opportunities. So I guess are you still look and to backfill that pipeline or are there more adds to that do you think here and the next six to nine months in terms of the owned development pipeline.
Dave we are.
We're okay with adding more and we're being extremely selective at this point.
And that $240 million does not include a $400 million or so that were working on with the T. Rowe price and its companion development. So so we're gonna be awfully busy.
We're seeing more opportunities and then we could ever execute on.
So we're going to continue to try and fill more holes, but we're gonna be extremely selective.
Yeah.
Our hope and expectation would be over the next 12 months to add a project or two to that development pipeline.
But we're really looking for that the homerun and opportunities at this point.
Alright, Thanks for that Lou and then Mike maybe just a follow up on that.
And the deferral.
You have the write off category and and the Abatements I guess just.
And having a deferral already in place and then abating and I guess, one how is that different than the write off and I guess, when we think of that as more of a blend and extend as youre kind of negotiating leases, maybe just some added color on that and that abatement number.
Yes, so we added <unk>.
Approximately 400000 shares the deferral agreements this past quarter and some of those had had.
<unk> abatements and on.
And the write offs and obviously the ones that have been in place.
Working with the tenants to try and keeping them in writing off some of those deferred rents.
Yeah.
Okay. Thank you.
Yeah.
Thanks, Dave.
Yeah.
And there are no further questions at this time I would like to turn the floor back over to Louis sedan for any closing comments.
Thanks, very much for your attention this morning.
Look forward to.
And updating you over the next couple of months and and reporting on next quarter.
Great day.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.