Q1 2021 PS Business Parks Inc Earnings Call
Good afternoon, and welcome to the P. S business parks first quarter 2021 earnings results conference call and webcast. At this time all participants have been placed in a listen only mode and the floor will be opened for your questions. Following the presentation. If you would like to ask a question at that.
Time, Please press star one on your Touchtone phone if at any point. Your question has been answered you may remove yourself from the queue by pressing the pound key.
You should require operator assistance. Please press star zero and it is now my pleasure to turn the floor over to Jeff hedges Psb's Chief Financial Officer, Sir you may begin.
Thank you good morning, everyone and thank you for joining us for the first quarter 2021 PS business Parks Investor Conference call.
This is Jeff hedges Chief Financial Officer with me today is our president and Chief Executive Officer Mac Chandler.
Our Chief operating Officer, John Peterson, and our Chief Accounting officer trend growth.
Before we begin and let me remind everyone that all statements other than statements of historical fact included and this conference call are forward looking statements. These forward looking statements are subject to a number of risks and uncertainties. Many of which are beyond PS business parks control, which could cause actual results to differ materially from those set forth and or <unk>.
Fly by such forward looking statements.
All forward looking statements speak only as of the date of this conference call.
PS business parks undertakes no obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise.
For additional information about risks and uncertainties that could adversely affect PS business parks forward looking statements. Please refer to the reports filed by the company with the Securities and Exchange Commission, including our annual report on form 10-K, and subsequent reports on form 10-Q and form 8-K.
We will also provide certain non-GAAP financial measures and reconciliation of these non-GAAP financial measures to GAAP is included in our press release and earnings supplement which can be found on our website and PS business parks dotcom.
I will now turn the call over to Mac.
Thank you, Jeff Good morning, and welcome to our Q1 call I am pleased to be hosting my first earnings call alongside the PSB team before turning to our prepared remarks I'd like to take a moment to thank the PS business parks team for my warm welcome over these past three and a half weeks for my first day I can sense for special culture are shared.
And a deep passion for supporting our customers and achieving results.
As the weeks and months progress I have plenty more listening and learning ahead of me, but I'm excited for the journey as we collectively built on the legacy and PSP and look ahead, too and even stronger future.
On today's call I will highlight our first quarter results J P will provide a run down on our markets as well as an update on our and our developments and Jeff will provide commentary on our financial results rent collection and balance sheet.
Our first quarter was strong on many fronts and this positive momentum positions us well for 2020 one.
Our quarter was highlighted by robust lease production, we executed 569 leases for nearly 2 million square feet. Our best first quarter production since 2015, our infill properties with a short lease duration are positioned well to capture the demand from a broad based economic recovery. This is seen in our Q1 cash.
Cash rent growth of five 7% led by our industrial portfolio at $9 five per se.
Our customers truly appreciate our product and our proprietary a hands on approach to operations and leasing and you can feel it and a 78 per cent retention rate and the fact that 53 of our customers expanded within our portfolio this quarter.
All of this leads to efficient transaction cost and cash flow and.
And the first quarter deal specific transaction costs were an impressive $2 and 59 per square foot.
It is widely known that the industrial acquisition landscape is competitive as supposed to experienced and inaugural buyers seek out the long term growth and industrial provides even more so and our supply constrained coastal markets that said PSB is uniquely positioned to acquire multi tenant industrial parks, including portfolios.
Due to our industry, leading operating platform and deep market knowledge and the strength of our balance sheet.
We're also taking a fresh look at our approach to external growth to share that we are best positioned and properly focused to create long term value, while maintaining our disciplined approach to capital allocation as always and I will now turn the call over to J P.
Thanks, Mac as all of you know demand for industrial product is robust and and the Mac touched on our Q1 results reflected overall strong fundamentals for.
First let me walk you through our markets.
Turning and Seattle, the industrial sector remains hot and the overall market is 95 per cent leased it's for.
And our product is high with demand driven by logistics and fulfillment users the.
And this activity came through and our tier one industrial rent growth of 17.9% and retention of 92 per cent.
We have a 48000 square foot vacancy at our 212 business Park that has good activity and we expect to lease it this year.
And northern California, the market, including our portfolio gained steam throughout the quarter as the economy gradually opened up and companies had better visibility and more certainty about space needs.
Increased demand was broad based with logistics and construction related industries driving activity.
Industrial rent growth and northern California. It was 15, 5%, which includes a 90000 square foot warehouse steel and Silicon valley with rent growth of over 60%, which represents an all time high warehouse rent for our portfolio.
Regarding our 140000 square foot vacancy and Hayward.
Main patient to find the right credit user.
Have multiple interested parties and expect to have that space leased and the next couple of quarters.
Our team and southern California benefited from strong demand for logistics smaller last mile companies import export firms construction and in general the reopening of the southern California economy.
And I can see was strong at 95, 7%.
And retention was about 75 per cent and rent growth was four three per cent.
And Texas industrial demand is healthy, especially in Austin.
Kevin Sheehan and I said, it was $95 one per cent and industrial rent growth and Q1 was $16 seven per cent and.
And that's real activity Austin was buoyed by medical and construction users plus the influx of tech and other business is relocating to Austin and the last 12 to 18 months.
In Q3 of this year, we will be getting back is 67000 square foot flex building in Austin.
The building is well located and our plan is to reposition and potentially subdivide the building and we have done many times before.
And Dallas occupancy was 82, 6%, primarily due to the lower than average occupancy at our Royal Tech and North way Flex parks and Las Colinas.
The rest of our portfolio and Dallas has seen good activity as the local economy has benefited from the early reopening as evidenced by strong demand for our new free Port development, which I will discuss momentarily.
Our expectation is that occupancy and Dallas, where like other regions for the remainder of 2020 one as we look to release, our vacancies at Royal Tech and Norway.
And Washington Metro our industrial portfolio continues to perform well with Q1 occupancy coming and at 92, 2% and rent growth of three 9%.
Our office portfolio was 87 five per cent well they have their head of our office peer set but still lagging our industrial portfolio. The good news. However is that we have seen recent increase in demand for our suburban office product and feel confident that we will be able to recapture occupancy as the reopening of the local economy continues.
In Florida, where the economy has been open longer than most fundamentals are among the strongest of all of our markets hockey.
Occupancy was 95.5% rent growth was $8 four per cent and demand from both existing and new customers is at pre pandemic levels.
This demand is coming from business services logistics distribution and e-commerce.
Occupancy at over 3 million square foot M. A C. C Park was $95 four per cent with small industrial users driving demand, we have only one vacancy larger and 15000 square feet and only a few vacant units under 5000 square feet clearly highlighting the recovery of small industrial tenants.
Importantly, as heavy demand as allowed us to push rents to all time highs and M. I C C.
Regarding our development projects Freeport, our 83000 square for industrial development and Dallas is on track to exceed our return expectation.
The building is 28% leased with rents well above our pro forma underwriting.
Excellent interest and the rest of the building and are tracking to have it fully leased this year.
And Seattle, we still await final permits on our 80000 square foot industrial development well the permit delays are frustrating, we do expect to secure permits this quarter and deliver this project and the summer of 2020 two.
Brent for our 411 unit multifamily development in Tysons, Virginia is planning to deliver the first units and mid 2020 two.
Finally on the disposition front, we are marketing for sale to business parks and Northern Virginia.
First for Monroe business Center is a seven building 244000 square foot office Park located in Herndon and <unk>.
Second as Park East Corporate Center, and 198000 square foot office oriented Flex Park and Chantilly.
Buyer demand is strong and pricing is poised to meet our expectations that said there is no pressure for us to transact.
The sale of these two parks is consistent with our strategy to Opportunistically divest of non strategic assets.
Now I will turn the call over to Jeff.
Thank you J P.
I'll begin with an overview of our financial results for the quarter net income allocable to common shareholders for the three months ended March 31.
It was $27 9 million or one dollar and one cent per diluted common share, resulting and F. F L and $58 4 million or $1 67 per share.
During the quarter cash net operating income attributable to our same park portfolio was $69 9 million.
Roughly flat from the prior year.
Same park cash revenue growth was one 2%, which was partially muted by lower same park weighted average occupancy, which was 92, 4% and Q1 2021 versus 92, 8% and the prior year.
And the impact of slightly above average free rent concessions from recent lease production.
As we continue to push occupancy back to stabilized levels, our NOI stands to benefit given the healthy re leasing spreads experienced in the past few quarters.
Funds available for distribution or F. A D was $50 3 million for the three months ended March 31, representing a 2% increase from Q1 2020.
F N D benefited from low recurring capital expenditures incurred during the quarter, which for our same park portfolio registered at seven 4% of NOI.
This is in part a reflection of our team's continued efficient use of transaction capital associated with new and renewal lease production, but also partially attributable to timing of certain capital improvements and our expectation is that recurring capital measured on a percentage of NOI basis, we will return to levels more consistent with our historic average in future quarters.
I'll now take a moment to provide some quick commentary on rent collections and rent relief for.
For the third consecutive quarter rent collections were consistent with pre pandemic levels. We have collected 98, 8% of Q1 and build revenue.
And similar to the prior quarter, we experienced minimal new rent deferral or abatement activity. Further we have collected 99.1% of deferral repayments is scheduled to be repaid through March 31.
And with $1 1 million left to be built this year.
While we still have a handful of customers continuing to face pandemic related challenges. The vast majority of our customers have adapted to this environment and are well positioned to benefit from economic momentum generated by the vaccine rollout stimulus and lifting of restrictions occurring and all of our regions.
Turning now to the balance sheet.
We ended the quarter with $69 $5 million of unrestricted cash and our credit facility remains undrawn.
We funded our development projects during the quarter with free cash flow and we will continue to rely on free cash flow and cash on hand to fund our developments utilizing our balance sheet, including our credit facility as appropriate as acquisition opportunities present themselves.
Lastly, I'll point out that we paid a dividend on a dollar a five per share to common shareholders and the first quarter and our board recently declared a dividend on a dollar a five per share to be paid and the second quarter of 2021 on June 30th to shareholders of record on June 15.
With that I'll turn the call back to Mark.
Thanks, Jeff.
Looking back one of the most critical realizations I've had over the years has been learning that creating long term value is not an easy recipe and a master.
It requires hard to find ingredients and the perfect balance of and innovative culture with entrepreneurial zeal and engaged and proven leadership team.
Portfolio of well located assets and the most desirable markets.
And and opportunistic balance sheet bolstered by free cash flow.
Fortunately PSP knows the recipe well and it has all the necessary ingredients to continue to create long term value for its customers shareholders and employees.
With that we're happy to open up the call for questions.
And the floor is now open for questions. At this time, if you have a question or comment. Please press star one on your Touchtone phone if at any point. Your question has been answered you may remove yourself from the queue by pressing the pound key.
And that while you pose your question that you pick up your handset to provide optimal sound quality. Thank you and our first question will come from Manny Korchman with Citi. Please go ahead, hey, good.
Morning out there guys.
Mac I know, it's only been a few weeks on the job, but just as you you sit back and reflect on the topics you touched on on the call P. S. PS long history that the balance sheet, all those things taken together.
Yeah from the CEO seat, how do you sort of approach the future of this company and.
And maybe you could share some of his initial thoughts over the.
You know being there for for at least for three weeks and and the longer time, you've thought about that.
Yeah. Thanks Betty.
You know and these early days, it's only been day 20 for as you mentioned and I'm really spending a lot of time getting to know where people are understanding our processes, how we make decisions around here and getting to know our portfolio and that's and that's going to take some time, but.
Really I'm encouraged by by many things, but our operating ability on our platform is well known and really second to none operating multi tenant assets is a difficult business and we've really mastered debt and it's hard for others to do just that I think we can make it look easy, but it's but it's not.
And then obviously our balance sheet is is very impressive and it has a lot of potential to really allow us to creatively.
Find out opportunities internal growth external growth can.
It could be through acquisitions development redevelopment and Theres a lot of angles that we'll be discussing and and really working through so.
And not ready to make any big pronouncements on AR on strategy changes or anything like that.
But I'll be digging into this further and and making sure that we're positioned well to grow smartly and wisely and to take advantage of our competitive advantages that we have and the marketplace.
Thanks for that and just I guess, neither you nor Jeff came from our internal to the company or the broader company and so just going back to the balance sheet for a second do you think that there that investors should be looking at the opportunity to diversify.
On the balance sheet.
Getting more you know whether it be property level and corporate level debt using the equity more or do you think it's going to be more of the same that that's sort of and the history of this company.
Well I certainly think it's possible in and of course, we're going to look at look at all angles. I mean, we have a long history of issuing preferred stock and that's worked very well for us, but we we recognize that we'd be.
Ill advised just to sort of only have one card and the playbook. We're gonna look a lot of different things and has to do with the.
Opportunities that come to us and it has to do with pricing at the time. So we will look at everything.
You know funding growth through cash flow. Obviously is is are.
Our first card, but it could be through disposition ticket be through equity could be through debt, whether that's preferred secured unsecured I mean.
There's no reason to sort of lay it out exactly.
Today until we know what the opportunities and their hand, but we're going to smartly take a step back and and approach all that and run the business for the long term and make investments that are accretive that provided cash flow. That's ultimately what we're looking for and every investment.
Thanks, and one for J P on Jimmy just turning back to Hayward for a second.
You mentioned a lot of activity and the last call you were talking about a lot of activity again is that the same activity and also have rents moved at all since the last time, we spoke about trying to release that projects.
To answer your first question no it's new activity.
And.
Simple answer is it's new activity and different deals and yes rents have moved.
Not a lot for they've moved up over the last three or four months.
For the economy reopens, there theres less restrictions et cetera, we're starting to see more activity and but we're like I mentioned in my remarks, we're pretty we're gonna be pretty selective on credit.
We're doing a little work and the space so.
We want and excuse me and secure the right deal for the long term. So we'll continue and be patient here, but I do like the level of activity that we're seeing.
Great. Thanks Al.
Thanks Manny.
Well take our next question from Blaine Heck with Wells Fargo. Please go ahead.
Great. Thanks, and good morning out there probably another one for J P and I just wanted to talk a little bit about retention as I'm looking out between now and the end of 2020. Two I think you have almost 40% of your leases expiring and then by the end of 2020 three it's almost 60%. So I'm just trying to get a sense for you now.
And as you stand right now what do you think the retention and expectation is for for those leases that expire and then.
Are there any large tenants or chunks of space that might be on the fence or known move outs that we should be aware of.
Yeah, Plano I touched on on a couple of the larger ones and my comments to one and in Austin.
Earlier, so but the good news is we don't have any in the larger ones that we're not looking for it to and I think we've we're starting to make some really good traction on the rest of our exploration, but we really like and Thats a fairly normal exploration schedule for us as you well know so what we like is our ability to capture.
Moving rents and improving markets over the next year or two or even three as we mark to market. These explorations that you talked about so we really like.
These expirations that are hitting us over the next year or two and and.
And looking forward to capturing rent growth as those deals come to us and as you can tell from our retention stats, we're seeing pretty good interest and our existing customers that want to stay with us as their business solidifies and made it through the pandemic, so and with higher retention as you know comes lower transaction costs. So we kind of like the way, it's shaping up for us.
Here and the next year or two.
Okay, Great. That's helpful. And then you talked through some of the success that you guys are having with your development strategy recently, I guess, just with demand for industrial product is robust and it's as maybe it has ever been you know are you more inclined to start additional spec industrial development and.
Can you give us any sense of how much capacity your current landholdings might afford you on on that development side.
Well, let me touch that and then and see if anybody else wants to jump in.
Were evaluating and have been evaluating for awhile.
Where we can do exactly that what we've done and free part what we've done and Seattle do we have other parks debt. We can we can redevelop or find some some extra space and extra land and our parks and we're looking at that we're not ready to talk for anything we might have a few here or there but.
In terms of our development success, and we like what we've done there but.
There may be some but it's not a we're not ready to talk specifically about it yet and.
And those two things Blayne as you know take take quite a bit of time, even if it's already entitled for for industrial.
But we like that opportunity and we like the traction we're seeing in Dallas and and I expect Seattle will be the same if not better.
Does that answer your question.
Yeah. That's helpful. Maybe one last one if I can fit one and Jeff you've got some preferreds that are callable in October sorry, if I missed this but can.
Can you just give us your updated thoughts on those and whether we should expect them to be redeemed later this year.
Yeah, Hi, Blaine.
As we always do when not.
Those become callable when we get a little closer to that day. It will take a close look at where where rates are at that point, we'll also evaluate what our other capital needs are.
And potential capital deployment opportunities that may be in front of us at that point in time.
And so certainly I would say that is a possibility, but we're certainly not in position here today to give any type of guidance as to what we may do with those preferreds and when they do become callable later this year, but as we've done in the past and expect us to take a close look at that and.
If there is an opportunity to opportunistically refinance we will consider that very carefully.
Very helpful. Thanks, guys.
And we'll take our next question from Craig Mailman with Keybanc capital markets. Please go ahead. Your line is open.
Hey, guys.
Just want a little bit of clarity here on timing expectations for the two asset sales and some of the move outs and kind of the potential impact here and we think about 'twenty one out for fall.
Sure Craig this is Mac.
And just so I can give a little more color too on on those assets.
We're.
We market these assets for sale and we've gotten really strong buyer demand for those and the pricing looks like it's going to meet our expectations, but but if it doesn't we're certainly under no pressure to sell those and and we won't we won't we won't transact unless it meets our terms.
But given that to me and I think a reasonable expectation would be second half of the year closing.
And and the reason were selling these as we've been looking at these assets for a long time and.
And the pricing as such this is an opportunistic price and opportunistic timing.
These are very good assets and and presuming.
Presuming they do close and we wish the buyer as well and I think we'll do quite well with these assets.
J P can touch upon some of the move outs.
And you need to move that I mentioned and in Texas.
For example.
And in Austin, and and you said you know, we expect oxy Dallas to lag kind of just the yes, I guess, specifically and then some of the impacts on the others.
Yeah Austin.
The us and when we're bringing the attention because it's bigger space for us.
But we are as I mentioned, two where we have the opportunity to split that down into two or three different spaces and once we get access to the building later in the year, we will do that.
And that will take some time to release that it's you know it's their bigger spaces and.
And this would be the first time, we get back for these spaces because we when we purchased these assets to us and this tenant was already in there. So we're looking forward to get back and get into that building and and.
And subdivide accounted for more manageable chunks, which will do and.
And then help me out here, Craig what was the other Oh one other.
Question for Us so what does the 67000 expire what's the impact on <unk>, because it sounds like it'll be down for the rest of the year right. So.
When does it come out and what does that do that for flow.
Hi, Hey, Craig This is Jeff our expectation and it's not.
Certain at this point, but our expectation is the the tenant will vacate in the third quarter of this year.
And it's about <unk>.
100 little over 100.
<unk> thousand of NOI per month.
Okay.
And then just to come back on Royal Tech do you want me to talk about that Craig Yeah, Yeah, just other and any other big ones that are going to you know.
And some decent impact on on that for a phone kind of timing and magnitude.
Yeah Theres no other big move outs that we haven't talked about debt will have a F O impact the reason that the royalty.
Royalty and north way.
And are going to take a little bit longer, they're just bigger spaces, and they're they're bigger flex spaces and it just takes time to work through that and as I mentioned potentially.
Do the work to subdivide those down into smaller chunks. So.
That's it just going to take a bit longer to get through that so but there is good activity and Dallas right now and we'll work our way through that.
Throughout 2021, but.
That's the story with those two parks.
Okay. That's that's helpful. And then Jeff just on on same store as we think about kind of deferred and debated rents and you guys have kind of business.
Excluding it not normalizing it is there going to be a point the share where there's going to be a big spike and any one quarter as debt.
You know I think you said a good chunk of the deferrals that come back in.
But just from a timing perspective are we going to get a spike and one quarter because of the.
Kind of the comp and then that added income.
Yeah. Thanks, Craig.
And as it relates to the repayments well first of all let me just say in Q1 as we disclosed on the press release and the Q New deferral activity was very minimal so you know and our.
Our expectation is that that were net new deferral activity will remain minimal through the remainder of this year, although of course that.
And that's subject to what happens broadly with the economy and and the pandemic.
And that aside from a repayment perspective, we have $1 1 million left to be build over the remainder of this calendar year. So from April one through December 31, and Thats pretty smooth throughout the year it diminishes a little bit kind of on a natural diminishing scale.
Between now and the end of day end of this year, but it won't be very lumpy and any particular quarter. So I would expect that that $1 1 million will pretty much be spread pro rata over the next three quarters beyond 2021, Craig we have about 800000 on deferral repayment to be scheduled to be repaid in 2000.
'twenty two and beyond.
Okay, and then just lastly, and you guys had a much bigger snow removal costs. This first quarter on which made sense given the weather did you guys get the recoveries this quarter or is that can happen and subsequent quarters.
Yeah.
Well, we build the recoveries on a.
Secondly, a budgeted basis. So there was no true up.
Booked in Q1 that will kind of work itself out over the remainder of the year and.
Typically our true up calculation is performed at the end of the year. So if if by the end of the year snow removal and all the other costs that our tenants are typically responsible for exceeds what has been.
Build and then there'll be a cam true up billing in the first quarter of next year.
So I think the point, you're making here is that there is a bit of a timing effect here and where the operating expense was higher.
In Q1, but not necessarily a corresponding increase and expense reimbursement revenue in that quarter.
Okay, Alright, great. Thank you.
And we'll take our next question from Anthony Poland with J P. Morgan. Please go ahead. Your line is open.
Okay. Thank you.
First question is for J P. I'm, just trying to tie together some of the comments around the move outs and also some of the leasing opportunities that you talked about I think last quarter. You said, maybe there's a chance that you get back to your 95 per cent sweet spot on.
Occupancy by the end of this year can you just maybe comment on whether you know the activity and set of circumstances like is such that you could still get there or is that for and route.
Yes, Tony I think yes, I think we are on track to get there we need to lease fixed base norco, which as I already touched on I think we will and.
Space, and Seattle, which I think will lease and yes that helps quite a bit getting that number and what we're seeing and what we've seen even the first four months of this year is really the momentum is built January if you're thinking back to January COVID-19 was a little crazier. It wasn't opening where we're now starting to see various economies open and cool.
And in California.
And tour volume is up really increasing week by week and and so I do think that we have a really a chance to get there.
And our customers, we're collecting all the rent our customers are expanding Mac touched on it so.
I think it's pretty broad based.
Yeah, we've got a lot of wood to chop and I think we have every ability to do that our space.
Mentioned, a couple of spaces that we have to reposition which we're doing but yes, I like our chances.
To get there and I see the fundamentals in our markets support that too. So so yeah I think we have a chance to get there this year for sure.
Okay got it and then maybe.
And for Mac on the investment side and you should you open to looking at everything across the process and so forth and I mean should we take that as contemplated.
Contemplating other you know more or slightly different property types and geographies like wood and once that was it.
I mean.
Well I mean.
I would say everything is on the table, that's maybe that's a little broad based but.
I'll tell you. This we really enjoyed the markets that we're in we do well on those markets, we would love to expand and this markets.
Well, we look at other new markets and venture into those.
Yeah, we will consider those.
Selectively.
And prudently.
Regarding other property types I mean, our core business is is really what we're all about but if there are.
Accretive opportunities within our portfolio.
With appropriate risk adjusted returns, we will consider those two as well.
And what's what's really unique is we have so many properties that are so exceptionally well located and the market surrounding them have matured.
Sometimes for decades, now and that as that population growth has filled in.
Basically supply has diminished and our properties continue to enjoy rent growth and high occupancy.
But they also present new opportunities too as well, which we'll consider it and those are opportunities for for density and Redeveloped and our assets repurposing them. So.
Well, we're starting to work on a plan that will lay out that all out but it will take many years to realize all of that but that's part of what our focus is going to be on.
And and perhaps and maybe like over the balance of this year is there much of a pipeline that you've kind of walked into here that could potentially offset the potential dispositions and the second half for the year or or are you starting towards the investment process.
From scratch.
Well I would say from scratch, we have a talented team with years of experience here and we've got a lot of work on their properties debt that we own.
But is there a.
And immediate asset that we have that we're about to close on that that would.
Replace.
And the sale of those true those two assets that we mentioned if those do in fact sale sell.
There is nothing identified and ready to close on that said, we are and the market constantly.
And we've got great market knowledge and relationships and we'll continue to pursue those and where were looking at and <unk>.
Lots of properties on market and off market as well.
We think were really uniquely positioned to capture some of these opportunities.
Okay. So all of that.
And it will play itself out over time.
As you know.
As the market.
You know puts properties into market and allows us to realized and and close them and and precision.
Got it and then just last one for for you and Jeff I think.
And do you have sort of the team in place and are you envisioning to do all of this or I think in the past there was some consideration of a CIO would you anticipate on that side and then I guess for for Jeff to think about G&A run rate over the balance of the year.
Sure I can take that.
We are definitely looking to bring and cemetery, where team who's who is a senior executive whose who could focus primarily on investments.
And we will continue to pursue that person.
And and bring that person on board.
So that's definitely.
<unk> supports that initiative and supports debt that avenue of growth.
No not ready to announce anything we don't we don't have a candidate and the wings.
And part of this is I wanted to take some time to really assess the need.
The scope.
The appropriate background and experience for that person before we before we hired that person so.
I'll be working closely with that and.
And when we're ready to announce something we'll be we'll be sure to share them.
Yeah, and then just the second part of your question Tony.
G&A perspective.
Given what Mac, just laid out and the inherent uncertainty on.
The timing of when these potential this individual or individuals may join our team it's hard to give any real guidance as to what implications that's going to have on G&A going forward I will point out though that.
We are going to have some increased stock based compensation expense and the <unk>.
And the last three quarters and in Qs two three and for this year, primarily as a result of Max on boarding which occurred here in Q2.
So so you should expect that but otherwise you know right now I think our Q1 on it.
As a fairly good reflection Q on G&A that is a fairly good reflection of our run rate for the year.
But as you know G&A is always going to be lumpy with certain things and of course will be impacted by the on boarding of any potential team members that join US later this year.
Okay, great. Thanks.
Yeah.
And once again as a reminder to ask a question today that is star then one on your Touchtone phone.
We'll take our next question from Vince to bone with Green Street. Please go ahead. Your line is open.
And Matt Congrats on the new role and move to the West Coast.
Just for first one for me just day, all Mac, maybe how do you how would you like to see the portfolio mix evolve over time in terms of industrial and flex and office and would you consider larger deals either on the acquisition or disposition side to accelerate any transition there.
Okay.
Well, we're definitely going to dig in on that and I'm starting to do that with the team.
I mean the mix is.
And the right mix is a portfolio that provides compounded growth over the long term and with limited capitals in the right markets that we think have the best chance of.
Providing outsized growth so we're going to take a take a hard look at that.
Certainly you've seen a pattern, where we've shifted the mix towards industrial as we've sold off some office.
I don't expect that to change.
And that's where we're performing best and.
We'll lean into that that makes all the sense and the world.
But in terms of.
A deeper refinement I don't have anything yet yet to share but.
In general that's the direction, we're leaning towards.
And it makes sense one more for me switching gears.
Oh, I growth and the flex portfolio line.
Lagged that of the traditional industrial portfolio by a fair amount do you see that dynamic persisting over the near term and what needs to change in your mind to get flex fundamentals two to fully recover.
Yeah sure let me, let me take a stab at that.
You know flex is.
Depending on where it is and whatever and I've told them to many of you over the years is the less office, we have and our flex building or parks the better. It is because it really is used for what it was designed for which is is distribution and assembly.
Lab that kind of stuff so.
Just so happens a couple of the flex parks and then.
<unk> vacancy, we have especially and Dallas is more heavily concentrated to office.
So we still like the location of these assets, we still like the assets, but as we get these spaces back and I think I touched on earlier, we're going to convert those to more typical flex buildout, which is less office and more.
And more warehouse in the back or distribution more assembly those kind of things. So we're going to migrate back towards how it was originally designed and that will help us attract a wider array of users. So that's our plan that's what we've done before and we've got these kind of spaces back. So we still like the flex demand.
And all of our markets. It's just repositioning some of these spaces as I mentioned earlier.
And how they were designed originally does that help.
Yeah, and that's very helpful. Thank you.
Sure.
And there does appear to be no further questions. At this time I will turn the call back over to you and Mac Chandler for any closing remarks.
Thank you everyone for your time today I look forward to seeing you soon hopefully in person or at least virtually and please enjoy the rest of your day.
Thank you and this does conclude today's conference call. Please disconnect. Your line at this time and have a wonderful day.
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