Q1 2021 Paramount Group Inc Earnings Call
Good day, ladies and gentlemen, thank you for standing by and welcome to the Paramount Group first quarter 2021 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note that this conference call is being recorded today.
From 29, 2021 and I will now turn the call over to Sumit Sharma, Vice President of business development and Investor Relations. Please go ahead.
Thank you operator, and good morning, before we begin I'd like to point, everyone to our first quarter 2021 earnings release, and supplemental information, which we released yesterday both can be found under the heading financial information quarterly results and the investors section of the Paramount group website at Www.
Paramount that hyphen group Dot com side.
And if our comments will be forward looking statements within the meaning of the federal securities laws.
Forward looking statements, which are usually identified by the use of the words, such as will expect should or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect including without limitation the negative impact of the coronavirus COVID-19.
The U S regional and global economies, and our tenants' financial condition and results of operation and therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition during the call.
We will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.
A reconciliation of these measures to the most directly comparable GAAP measure is available and our first quarter 2021 earnings release, and our supplemental information and hosting the call today, we have Mr. Albert Behler, Chairman and Chief Executive Officer, and President of the company will have a base Chief operating officer, Chief Financial Officer and.
And treasurer, and Peter Brindley Executive Vice President and head of real estate management will provide some opening remarks, and we will then open the call to questions with that I will turn the call over to Albert.
Thank you Sumit and thank you everyone for joining this morning.
We hope that everyone is staying safe and healthy.
We are cautiously optimistic that we are moving closer towards the end of this pandemic as vaccines are being distributed nationwide.
I am very proud of how the Paramount team has performed during these unprecedented times.
Yesterday, we reported core <unk> for the first quarter of 'twenty three cents per share.
We are reaffirming our 2021 core <unk> per share guidance between 82 to 88 cents per share.
Liver will review, our financial results, and our 2000 and 'twenty, one guidance and greater detail.
Since the onset of the pandemic our results have demonstrated the strength of our assets as we have benefited from the high quality of our portfolio and blue chip tenant roster.
With very limited exposure to retail and.
This manifested itself through our superior rent collections throughout 2020 and continues to do so demonstrating our disciplined investment approach and the overall and resiliency of our portfolio.
We see early signs of a recovery as the vaccination rates continues to climb driven by governments aggressive public health and safety mandates.
And New York.
Over 40% of the population has received their first vaccine dose while about 30% have been fully vaccinated.
And that number is even higher and San Francisco, where about 60% of its population has received their first dose and about 40% have been fully vaccinated. These.
And these numbers continue to grow at an impressive rate and we see this as a very positive sign for the impending return to the workplace and normalcy.
With every passing day, we see more reasons for optimism and the markets, where we operate as companies begin to announce plans to return to the office and speaking with our tenants most of them are eager to come back to the offices they called home for so many years.
As I highlighted last quarter, we continue to maintain and ongoing dialogue with our tenants regarding their plans to return to the office and offering our assistance if needed.
But based on these discussions we are convinced that the second half of 2021 will be the time when comfort levels return to normalcy and offices repopulate.
It will most probably be post labor day, however, when we see a meaningful uptick and physical occupancy we look forward to welcoming our tenants back to the office and are ready to accommodate the evolving space needs.
During the quarter, we leased a total of 188000 square feet.
The majority of this quarter's leasing activity was comprised of renewals like most of last year.
And New York the activity was driven by the renewal of the Gershwin Theatre lease at 16 and 33 Broadway.
Although not a needle mover in terms of its contribution to Paramount bottom line. This.
This 20 year lease speaks to the conviction the tourism and Broadway will return to New York City with Gusto.
While Peter will go into greater detail on what we are seeing on the leasing front, let me spend a minute sharing my observations.
We are finally, beginning to see real activity notwithstanding that the market is nowhere close to pre pandemic levels of activity.
Serious inquiries are plentiful and in person tours have increased.
Brokers and forming tenants that now is the time to act as lend birds fight for every deal and the market.
As you know subsequent to the quarter and we signed a 54000 square foot lease with Bracewell L. L. P. At 31 West 50 <unk>.
Bracewell has a leader and legal services and government affairs.
This trophy assets with its desirable location efficient center core design minimal columns and newly renovated lobby appeal to them and lined up very well with their space needs.
We look forward to about coming and bracewell to 31, west and the Paramount portfolio.
The execution of this lease underscores our ability to continue to transact at the highest level and the most difficult of times.
It is that the same ability and focus that enables us to speak with confidence when it comes to leasing our remaining availabilities and specifically in our New York portfolio.
Post the execution of the Bracewell lease we have an additional 77000 square feet of the former TD Bank space at 31, West that will become vacant next week and to 498000 square feet block block at 13 O. One Avenue of the Americas.
Third you know one continues to be a primary focus for several reasons.
Not only by Abbvie and the market to lease the asset, but we are also and the market to refinance it as the 850 million mortgage loan matures in November this year.
The reception from lenders and stellar and Buber will update you on the status.
We also recently announced our plan to create a brand new amenity center at 13 O One which will further add to the appeal of this asset.
More to report on this in the coming quarters.
Turning to the transaction market.
And <unk> transaction volumes remained low and this quarter, despite the small uptick and the fourth quarter of 2020 as bidder offer spreads remain wide.
Core assets that are well leased with a blue chip tenant roster and longer weighted average lease terms continues to command superior pricing.
We believe the market continues to be and a period of price discovery.
And the opportunistic buy us unable to find the bargains, they expect and sellers are maintaining their asking price.
Looking ahead, our long term strategy remains unchanged to manage our portfolio to the highest standards and allocate shareholder capital and a prudent manner to achieve the highest risk adjusted returns with an eye towards creating long term value for our shareholders.
Our priority remains the lease up of our availabilities as well at the reintegration of our current tenants and a safe and healthy manner.
As before we continue to maintain sufficient liquidity, which amounted to 1.5 billion at the end of the quarter and we remain well capitalized and positioned for the long term.
With that I will turn the call to Peter.
Thanks, Albert and good morning, everyone.
During the first quarter, we leased and excess of 188000 square feet, including approximately 156000 square feet of theater space at 16 and 33 Broadway.
This long term lease while not included in our office leasing statistics is notable and two ways not only does it de risk our 2022 lease roll and New York, but it also underscores the growing optimism for the eventual return of consumer and tourist demand and Midtown Manhattan the.
<unk> theater at 16, and 33 Broadway is the largest on Broadway and home to Wicked one of the most successful Broadway productions of all time.
Okay.
Slide from the theater lease we completed approximately 30000 square feet of leasing at a weighted average starting rent of <unk>.
$76 eight per square foot.
Most of our leasing activity. This quarter was once again renewal based and serve to further reduce lease roll in 2021 and beyond.
Our remaining lease expiration profile is manageable with approximately six 3% expiring per annum at our share on a square footage basis through 2023.
This is the direct result of our ongoing strategy to pre lease space and Derisk future lease roll.
As our press release last night stated and as Albert noted, we signed a 54000 square foot lease subsequent to quarter and with Bracewell at 31, West 50 <unk> Street.
Bracewell will occupy the entire 18th and 19th floors, four and initial term of approximately 16 years.
Importantly, this lease back those over 40% of the upcoming 131000 square feet of vacancy at 31, West 50, <unk> Street, which is scheduled to expire on April 32021.
A leader and their field bracewell fits the high quality tenant profile that is a signature of Paramount portfolio and reflects the desirability of the location the appeal of the asset and the ability of our team at transact with a quality tenant even in the current environment.
In Midtown first quarter leasing activity of one 9 million square feet, excluding renewals was 51% below the five year quarterly average according to CBRE.
<unk> of approximately $1 2 million square feet were executed during the quarter accounting for a disproportionately high percentage of total leasing velocity consistent with our overall portfolio.
The leasing mix typically shifts toward renewals during uncertain times and as expected tenants continued to take a wait and see approach toward relocating and expanding or making significant investments in new and longer term space commitments.
Sublease availability and Midtown now comprises 25% of all availability above Midtown and five year average of 21%, but below the peak ratio realized during previous recessions.
Despite these current headwinds we remain encouraged by the ever increasing tour activity, we were experiencing and our portfolio and expect that the number of new space inquiries in person tours and active negotiations for our available space will increase further as the vaccine is rolled out more broadly and people return to work and larger numbers during.
The second half of 2021.
Our New York portfolio was 87, 3% leased on a same store basis down 780 basis points quarter over quarter, largely as a result of the barclays' lease at 13, and one Avenue of the Americas as.
And as we've stated previously 13 O. One Avenue of the Americas remains our primary focus as we market this block of space.
In connection with our marketing of the building and as Albert mentioned previously, we've recently announced plans to develop and amenity center on the concourse level of the building, adding to the buildings overall desirability.
Our offering of 13 O. One is compelling, especially in today's environment, and we are getting more than our fair share of activity and the market as evidenced by the increasing number of tours, we have had and subsequent exchange of proposals.
Prospective tenants, we are engaging with currently represent a variety of industries and in many instances have chosen to capitalize on the market conditions and upgrade the quality of their offices.
We are also marketing the TD bank space at 31, West 50 <unk> Street.
As we look to build on the momentum we created by executing the bracewell deal.
We expect to benefit from the ongoing diversification of Midtown tenant base and the flight to quality trend as tenants pursue the most well located highest quality assets and managers.
We look forward to updating you on our progress and future quarters.
Turning now to San Francisco.
San Francisco realized limited leasing activity during the first quarter contributing to a 310 basis point quarter over quarter increase and total vacancy as per J L.
Once again, it disproportionately high percentage of the leasing transactions were renewals.
Tenants are taking a wait and see approach toward relocations expansions and longer term space commitments.
This is a direct result of the city shutdown of nonessential offices, which had endured for more days during the pandemic than any other city in the United States.
However, things have begun to change with.
With San Francisco moving into the state of California's Orange tier, allowing for non essential offices to reopen at 25% capacity.
Since then we have seen an uptick and the number of tours and the number of new requirements and in fact, we are tracking 23 tenants with new requirements of 50000 square feet or more and San Francisco and just the last 60 days.
Despite this pause and the market, we remain long term believers and the resiliency of the San Francisco market.
And the first quarter alone San Francisco based company set a record by receiving $20 billion of venture capital funding 40 of which raised in excess of $100 million.
This is particularly noteworthy given that this comes on the heels of robust VC funding in 2020.
Ongoing investment and San Francisco based companies a string of successful Ipos and increased unique job postings, particularly in large tech has led to renewed optimism and San Francisco.
Our San Francisco portfolio is 92% leased on a same store basis down 370 basis points quarter over quarter.
During the first quarter, we leased approximately 30000 square feet and weighted average term of three nine years with initial rents averaging approximately $76 per square foot.
Our San Francisco portfolio has one 8% or just 41000 and 420 square feet at share Rolling in 2021.
Looking ahead, our overall lease expiration profile and San Francisco is manageable with approximately seven 7% expiring per annum at our share on a square footage basis through 2023.
Needless to say.
And our San Francisco portfolio was well positioned to manage through the current environment.
With that summary, I will turn the call over to Wilbur, who will discuss the financial results.
Thank you Peter.
Yesterday, we reported core <unk> of <unk> 23 per share, which was <unk> <unk> ahead of consensus as expected current quarter score off therefore was <unk> <unk> per share lower than prior years as a result of the January one 2021 Barclays lease exploration at <unk>.
And Avenue of the Americas.
This lease exploration was also the primary driver of the negative two 6% same store cash NOI growth in the quarter.
During the first quarter, we executed seven leases covering 188641 square feet of space and clearing 156000 square feet that was leased and the Gershwin Theatre at 16 and 33 Broadway.
While we have always reported the leasing velocity for all types of space and our portfolio. Our leasing statistics have only focused on the office space as such office leasing in the quarter amounted to 32000, and 685 square feet that was leased at a weighted average initial rent of $76.
And <unk> <unk> per square foot for a weighted average lease term of three nine years.
Of the 32000, and 685 square feet leased and the quarter 18211 square feet represented our share of second generation space for which the Mark to markets were negative eight 6% on a cash basis and negative 15, 9% on a GAAP.
GAAP basis.
All of the office leasing in the quarter took place and San Francisco, where the lease terms are generally much shorter than that of New York. However, this quarter's weighted average lease term was even shorter than usual and was driven by an 18 month short term renewal of 13900 square.
Foot lease at share at market Center.
Moving to guidance, we reaffirmed our outlook for the full year of 2021.
And while they have been some tweaks to the building blocks that formed the basis for our guidance, which has been outlined in our supplemental package not much has changed in our overall outlook.
We still expect core us therefore to range between 82, and 80% 88 cents per share or <unk> 85 per share at the midpoint and we continue to expect same store results to be negative this year driven by the two large known move outs of Barclays and TD Bank.
Goal for 2021 still remains to lease between 600000, and 900000 square feet this year and and the year with the same store leased occupancy rate between 88 and 90%.
Turning to our balance sheet, we ended the quarter with $1 49 billion and liquidity comprised of $488 million of cash and restricted cash and the $4 billion of borrowing capacity under our revolving credit facility.
Our outstanding debt at quarter end was $3 6 billion and has a weighted average interest rate of three 2% and a weighted average maturity of four seven years.
This of course includes the debt at 13 O. One that is set to mature in November of this year.
Excluding the $13 one debt the weighted average interest rate.
And is three 4% and a weighted average maturity is five nine years.
As Albert touched upon we are currently and the market to refinance this debt.
And the reception we received from lenders has been remarkable notwithstanding that the asset is currently only 71% leased we expect to fully refinance the $850 million maturing debt prior to our next quarterly call during which we will provide you with additional details.
With that operator, please open the lines for questions.
At this time, we will be conducting a question and answer session. 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 queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary.
And we did pick up your handset before pressing the star keys.
Our first question comes from Vikram Malhotra with Morgan Stanley. Please go ahead.
Alright, thanks, so much for taking the question good morning, everyone.
You outlined the incremental the new leads you've signed I head up the exploration at D D.
And congrats on getting that done and I know, it's a tough environment can you maybe just talk about additional prospects for that space and the Barclays space.
Sure. Thanks for the question Vikram.
We are trading paper at 31, West 50, <unk> Street on.
Those TD floors, you, obviously noted that we completed the deal most recently with Bracewell, which we are really very excited about but.
But we are trading paper on the balance of those floors with I would say predominantly law firms and financial service firms.
And and then one or two instances there with financial service firms looking to take additional.
Additional space. So we feel generally very good about the activity there as it relates to the Barclays Block I would say that activity tour activity has picked up markedly since the beginning of the year.
And because of those floors, the large blade based floors.
Predominantly appealing to both financial services and Tech I would say financial services has been even more active and the early going of 2021, but we're trading paper.
All of those floors.
With a handful of prospective tenants and we feel good about.
Our offering.
How we've priced it and we think we are doing very well and tracking and the right direction.
Thanks, So much and then just maybe one more.
Obviously, theres a theres a lot of discussion about how force COVID-19.
Work from home or agile Workspaces may evolve.
Can you maybe just talk about both San Francisco, and New York, what Youre hearing in terms of.
And new requirements as it pertains to square footage incentives and the Stickney had.
Have you had paramount be neither has seen any potential restructuring either positively or actually you've been a beneficiary of any of this.
Yeah, Peter will chime in and then second.
We are quite.
Optimistic about.
And actually some of the tenants wanting to increase their space.
For reasons that are based on their business picking up and that goes for San Francisco as well as for New York.
But you don't have the quantity of our.
Tenants looking for space, but the ones, who are looking a serious and they want to do deals and we.
We think Oh opinion has said.
The tenants will come back a lot of what is announced today is has a certain purpose in mind and.
And we think that.
And you can't keep up with culture and a.
Company, who can train.
Long term you can you can I would call it muddle along for a while.
But the ones who come to the office early will be the big winners and this yeah. There's no question that flexibility will be part of the future, but I think we continue to hear more and more from tenants.
And that about the.
Portance of the office and Vikram I think you'll find this interesting and speaking with my colleagues at <unk> and San Francisco things.
Things are really ramping up pretty quickly since that city began to open up and March in fact.
They're tracking 36 tenants looking for space tenants and excess of 50000 square feet and I think a particular, inc.
Interest here is that 26 of them are expansion base.
Based requirements, which I think is probably not what you would have thought but things are really starting to to move and the right direction, there and fundamentally what I would say is that tenants acknowledged that in order for them to innovate and be as productive as they all we'd like to be I think that the narrative is and sentiment and belief is that they do.
In fact need to get people back into the office and I think that's what we believed all along and I think we're starting to see that play out.
And just now.
Great. Thanks, so much.
Next question Blaine Heck with Wells Fargo. Please go ahead.
Great. Thanks, Good morning, So 13 O. One is obviously the focus and I appreciate all the commentary on that and the prepared remarks.
And I thought it was interesting that you mentioned that many of the tenants you're talking to are looking to upgrade their space and presuming. Some of that is driven by more affordable rents. So is there any way you can quantify the change and rent you've seen there and elsewhere that might be driving those tenants to kind of take advantage and upgrade their space and then you know as you're thinking about.
Bringing tenants and that maybe couldn't afford or space before how are you thinking about tenant credit underwriting.
And you think you'll have to get any looser on that side of it.
Yeah.
I would say Fortunately our portfolio has served as a function as a magnet for good credit. So typically we always underwrite every prospective tenant, but fortunately we have appealed to credit tenants as evidenced by our tenant roster as you well know.
We haven't changed our pricing all that much at 13 are one we still expect this to be a single digit positive mark to market relative to.
Barclays outgoing escalated rent.
Feel very good about our activity at the right level that we're communicating with prospective tenants.
There's no question that concessions have been elevated.
I do think they've begun to stabilized, albeit at higher levels.
And historically high levels.
But our fundamental belief is that as velocity starts to.
Come back as we expect it will based on the number of tours that we've had.
And that will start to eventually improve on the economics over a period of time, but we are prepared to hit the market. Our objective is to lease our buildings to credit tenants.
And on the rent from to answer your question I don't I don't expect a material change relative to what we've been communicating all along on the rent front.
Got it okay. That's helpful.
And then maybe sticking with you first of all congrats on getting the lease done with bracewell.
Can you give us any any more detail on that obviously, it's a very long term lease so keeping that in mind can.
Can you give us any sense of what the mark to market is relative to T. D. Any detail on the concession package and then when should we expect a commencement on a GAAP and cash basis.
Okay.
Thanks, Brian I appreciate I appreciate that we realized a positive mark to market with that deal.
For the two floors I would say concessions were generally in line with what we're seeing and the market, which is a free rent basis call. It one point to total $1 five months of free rent per year.
The lease term and Ti would be approximately call it $10 per square foot per year of lease term give or take so we were generally in line with where we are seeing concessions currently.
We felt good about the run and we felt very good about the tenant and we're looking to having a very productive long term relationship with them.
And and an additional comment TD took that space over different times and.
Not all rent is at the same level.
So there are flaws, where the rent is a little higher than what currently is going to be.
Occupied by Bracewell.
Just as an additional comment here.
Great. That's helpful. Maybe one more while I have you Albert can you just talk about what you're seeing on the funds side of things, whether you're seeing any opportunities open up to make new investments I think you know you've talked about before.
The core deals are definitely getting relatively strong bids, but there arent too many value add type of opportunities.
Is that hindering your ability to put capital to work or do you think some of those situations might open up here.
It doesn't look like it's opened up a very.
So and there's a lot of liquidity and the markets on the debt side mezzanine debt side.
And there are very few.
There are a few players who want to.
Ooh and Ah cell.
And assets currently there is no real distress and the market.
And I.
I think it's something the board.
Market participants were a little bit too optimistic and looking for potential.
Attractive buys.
That is not there.
And it might not happen because of the interest rate environment and because of the and liquidity.
Available and the market with regard to debt and equity, but our team is searching.
And what's happening and the market. So we will be we're looking at transactions, but it's very very competitive which is I think and general good.
Got it that's helpful. Thanks, guys.
Sure welcome.
Next question, Jamie Feldman with Bank of America. Please go ahead.
Great. Thank you and good.
I was hoping to get more color on the San Francisco demand you talked about Peter is this all in the CBD or is this in the Bay area overall and can you talk more about.
And these companies that are a result of the funding we've seen this year any more color you can drive it would be really helpful.
Sure I think it's predominantly San Francisco based and so.
We think about it but it's predominantly San Francisco based you know as I mentioned in my remarks venture capital funding for the first three months of the year were at an all time high coming off a very productive year in 2020. So a lot of these companies are being invested in 40 of which as I mentioned received in excess of $100 million.
Very successful ipos, allowing for these venture capital firms to reinvest in these companies and San Francisco and these are many of the companies that we're seeing looking for additional space.
We'd like to see some of that sub lease space absorbed.
And in San Francisco, which we which we believe we will and the near term.
But a number of these tenants are discerning right. They want the ability to have renewal rights and expansion options all of which become impossible as a subtenant. So.
We're competing for deals and one case, we and one of our buildings one of our availability, we've got three tenants vying for the Florida. So.
We're seeing activity and San Francisco.
Which is really very encouraging.
Yeah.
Okay. Thank you and then and I assume from the your discussion Wolverine's discussion of that.
Guidance targets that you still are comfortable with 13 O 150% leased by year end.
Yes by year end.
Yes, we are.
Okay great.
And then also just I guess finally from me.
Can you talk about just tenant expansions versus contractions I know you talked about some of the brace well.
The Batesville economics, but.
Whats basically coming from and ease and an expansion or contraction or even as youre looking at tenants for 13, and one just how should we think about kind of the drag overall on the market, even if youre able to lease up your space. What do you think it does for the market overall.
Yeah, Jamie Bracewell has a tenant that goes back with Paramount a long time, you might recall and our track record. When we went public we owned the building 11, and 77 and six Avenue for a couple of years said, where a tenant of Paramount.
Net building and that company.
Liked apparently paramount.
A lot and and they they were they wanted to be in and at Paramount building again.
And so.
So I think that that speaks for for how we are treating all tenants and how we operate all buildings and I think that's a focus.
And the future that the tenants really are looking more for the landlord how the landlord operates buildings how and.
How safe it can day employees be in those buildings and I think they're very comfortable with the space and the and.
They are they want to be a long term tenant there.
Yeah, Jamie I think it's difficult to say what absorption will look like for the balance of the year I think youll have and realize some absorption just by way of sublease space being delisted, we've seen it most recently and a building of ours where tenants.
And in excess of 100000 square feet had sublease or listed for sublease, the entirety of their space and most recently day listed all but.
And what equates to less than 10% of their initial offering and I think we will see more of that and that will contribute to contribute to absorption and our market beyond that it's really difficult at this point to say if tenants are taking more or less space every requirements a little different when I think about the composition of our.
Pipeline I would say generally the majority of our demand is such that tenants are taking more space than they have currently.
But that may vary from owner to owner I don't know, we feel very good about the quality of our tenants that are enquiring about taking additional space, we of course need to convert but that's the status of the pipeline today.
Okay, and sorry, just one more just thinking about the decision to refinance 13 O and now it sounds like you think youll get it done by the end by this time next quarter versus waiting till you get it leased up.
Can you just talk about maybe how the debt markets look to make that decision.
And just made that decision.
Yeah, we want to be.
And and group or add to this we made a decision.
But it's a large refinancing and you never want to wait until the end.
You know that we only do asset financings and.
And historically, we always started like two years ago, two years before exploration of a financing to search for.
Good opportunity to refinance its clearly risk reduction and you don't know how these markets are and the markets are currently very liquid and you wanted to take advantage of that and that's why we started.
At this point and time.
The only thing I would say Jamie to your question.
I think when we're talking to the lenders. There is if the question somehow is implying had you successfully leased the building today would that affect the ability to refinance the answer is no because there are assumptions on that space. The market participants know this space well they know where.
Rents are that's all priced in to that refinancing discussion so.
And the general market was concerned given the size of the depth and then pending vacancy of Barclays and our ability to refinance and and the thing that you should take away and the rest of the people should take away is what kind of fully refinance the entire $850 million and we will have news to report that report on that before our next call.
Okay can you give some color on how lenders are willing to finance vacancy or underwrite vacancy like what are they assuming for rents and.
Capex costs.
It's basically what is and the market today right I mean, Peter covered a little bit of where concessions on today, where rents are he also alluded to we think this is going to be a roll up relative to what Barclays were paying so there's there's no exorbitant and assumptions. It's basically what is the data that's available today and thats what they are.
Pricing in the other thing that lenders really really focus on and sponsorship sponsorship and these kind of thing matters people know who we are.
And so we think we're going to have a very successful outcome there.
Okay, Alright, thank you for the color.
Sure you're welcome.
Next question, Steve <unk> with Evercore. Please go ahead.
Thanks, a lot of my questions have been answered on leasing, but just maybe a couple of things Wilbur.
As it relates to guidance a couple of the.
Line items like G&A interest expense kind of changed any color on kind of why G&A went down and interest expense went up.
So Steve I'll, a lot of the day and G&A was was more noncash where at the time, we released guidance. We didn't have all of our equity grants granted and and and how that translate into G&A to the bottom line. So there was some.
Tweaks that we made on G&A.
Just expense again was changed a little bit based and our expectation of the timing of the refinancing of 13 O one where at the time, we released guidance. We thought that was further out given where we are and the market and the reception we received.
Yeah.
That changed some of the interest expense assumptions and the fee and other income also changed slightly because based on what we see.
Getting done and our fee business between now and you are and so net net as you pointed out there was no real change to the bottom line core assets for a number where the midpoint there were some.
And tweaks within these line items that moved up or down.
Okay, and then other question and I don't want to get too technical but when you look at the straight line rent adjustment and the above and below market leases you know relative to what it came in the first quarter can you just kind of speak to.
Kind of why there was a big flip in the next three quarters.
Sure and.
And one of the things that is obviously inherently challenging with our portfolio given.
Average lease size being and all.
Close to 50000 square feet and weighted average trumps being longer.
Great lending will be chunky, the straight line adjustment, which you are referring to will be will be chunky and not your typical bell curve that is expected.
And then you add to that the complexity of the fact that when we went public you had leases in place that needed to get lease straight line and so part of that is going to cause a lot of the burn off now that we're five years over the five year Mark of being public. So you I would anticipate streamlining store.
And to turn negative as we go into the rest of the year. So the big positive that you are referring to is and the first half first quarter and I would expect that to turn sharply negative and be in line with the guidance range that we provided for straight line as youll see that as sort of the number of where we are today.
For the full year.
Great and then last question just sort of buyback activity I know you guys haven't been active on the acquisition front and pricing has been high for a good quality assets and there hasnt been a lot of distress. So how are you sort of looking at the buyback activity versus you know just are up.
Acquisition activity.
I think we want to keep it.
And opportunistic as in the past so we have both options open.
I think we will be very very conservative with regard to acquisitions as I mentioned and the previous calls.
Cash is very very valuable and we will treat it that way.
Great that's it from me thanks.
Thanks, Nick.
The next question Tom Catherwood with BTG. Please go ahead.
Thank you and good morning, everyone.
Peter I appreciated the color on the improved demand and San Francisco and it raises the question that that is likely a few quarters too early but I think it's important to at least think about.
If my memory serves me you have some tenants and your San Francisco portfolio that are pretty materially below market, and especially some that had been pulling back or or rejiggering some of their footprint in the San Francisco market.
Are there opportunities to kind of creatively recapture some of this below market space to meet some of the growth and demand that you referenced or is the focus just filling up the vacancy you have and the portfolio right now.
Our primary focus is to is to realize the best outcome from an economic standpoint, and our credit worthiness of tenant standpoint for our existing vacancies and of course for the space that's scheduled to roll and the near term there are at times opportunistic ways in which you can take back.
Space and and assembled for example, a block of space and transact with a large user that makes sense, but fundamentally to answer. Your question. Our focus is squarely on the vacancy and Tom I would just say to Peter's comments and these tenants and the market and San Francisco. This is a lot of new data relative to COVID-19 right.
Not like there is a flurry one should not misconstrue.
Activity and the market today versus pre COVID-19 levels.
And in the market today versus COVID-19 levels and these are green shoots, yes, but that does not necessarily mean, you have a flurry of tenants, where you can kind of rejigger and and and and capture below market space and try to grow these tenants and we obviously have an eye towards that any anytime the opportunity presents itself, but I just wanted to.
Today identify maybe at that point.
Absolutely fair and that's why I said it was it was likely a couple of quarters too early I just think of the of the kind of creative deals you've done in the past moving tenants between 31, west 52nd and 16 and 33. So we will keep it on the list to look out for and the future.
One last one for me and I know retail obviously small part of your of your portfolio.
But it seems that there has been a pick up recently with retail tenants coming back into the market.
And with some spaces getting taken up and then just in general more interest there have you seen this and kind of the few availabilities and your portfolio and kind of what is your thought on getting to some of those and the near term.
Tom I think retail remains relatively slow.
We still need to see the consumer return and.
And people return and greater numbers.
We have very little retail we have very important retailers you know at 712, and we are showing the space, but fundamentally I would I would answer your question by saying retail remains slow and probably will remain as such until until more people come back to our markets.
Understood. Thanks, everyone.
Thank you.
Once again, if you would like to ask another question. Please press star one on your telephone keypad. Our next question comes from Tayo Okusanya with Mizuho. Please go ahead.
Yes. Good morning, you have you want and so my question has to do more around <unk>.
Macro topic of kind of corporate taxes, and the Baidu and administration and we need kind of trying to wean taxes and corporations is somehow or the other that actually happen.
And what is kind of the implications for you and your tenants who are going and all corporations and how do how does one kind of thinking about that the potential impact and that's it.
Net cash flows and what it means from the ability to kind of pay rents going forward and just kind of talk us through just thoughts preliminary thoughts on that we'd appreciate it.
Yeah, I think that's a it's a little early to think about these are proposals they have not been negotiated.
And don't expect that.
It will come out exactly the way it is proposed and.
I don't think it will inhibit.
And our tenants.
And their basic business.
And I think that's too early to really say, what what the and outcome here.
Okay.
And you think of any other time and the pass through when we didn't have a big increase and corporate taxes, and what what happened to office tenant demand.
Okay.
And everybody is thinking and thinking about the path.
No.
And it's nominally not impacting the office demand directly.
At all.
And the I.
I mean, the vibrancy of the markets of New York and San Francisco.
And have been and then.
Very very strong and.
And you all this should expect that business.
Business participants will find ways.
To to keep their business going and the improving it and creating maybe something else, especially in San Francisco.
You're always innovate and and have new tech companies.
And with new ideas and I'm not so worried about this at all.
Thank you Albert.
Sure.
We have a follow up from Jamie Feldman with Bank of America. Please go ahead.
Hey, Thanks for taking the follow up I just wanted to clarify so the six to 900000 square feet of leasing guidance is that pro rata P. Jerry share is that consolidated and does it include the gershwin lease.
Yes, when we disclose guidance and and leasing volume, Jamie we've typically disclosed leasing volume and 100%.
And so to answer your question. Yes. It does include the leasing velocity that was reported and the first quarter, which included the grocery and data.
Okay, So youre, saying its not pro rata share it's total.
No occupancy that's disclosed when you look at the same store occupancy figure that we provided 80 to 90, that's a pro rata share, we've always disclosed leasing volume and at 100%.
Okay, great. Thank you for clarifying.
Sure.
Thank you I would like to turn the floor over to Albert for closing remarks.
Thank you all for joining us today.
We look forward to providing an update on the progress when we reported our second quarter results during the summer of this year.
Hey safe.
This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
Okay.
Yeah.
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