Q3 2021 Highwoods Properties Inc Earnings Call
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Good morning, and welcome to the Highwood properties earnings call. During the presentation, all participants will be in a listen only mode.
Afterwards, we will conduct a question and answer session.
At that time, if you have a question. Please press the one followed by the four on your telephone.
If at any time during the conference you need to reach an operator, Please press star zero.
As a reminder, this conference is being recorded Wednesday October 27 2021.
I'd now like to turn the conference over to Mark Mulhern. Please go ahead Mr. Mulhern.
Thank you. This is Brendan maiorana. Thank you operator, and good morning, everyone. Joining me on the call. This morning are Ted Klink, Our Chief Executive Officer, Brian Leary, Our Chief operating officer, and Mark Mulhern, Our Chief Financial Officer as is our custom today's prepared remarks have been posted on the web if any of you have not received yesterday.
<unk> earnings release or supplemental they're both available on the investors section of our website at <unk> Dot com.
On today's call. Our review will include non-GAAP measures such as F. O N O I and EBIT there the release and supplemental include a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures forward looking statements made during today's calls are subject to risks and uncertainties.
Including the ongoing adverse effect of the COVID-19 pandemic on our financial condition and operating results. These risks and uncertainties are discussed at length in our press releases as well as our SEC filings as you know actual events and results can differ materially from these forward looking statements and the company does not undertake.
The duty to update any forward looking statements with that I'll now turn the call over to Ted.
Thanks, Brendan 14th.
We are pleased with our solid financial and operational results in the third quarter.
Given the emergence of the Delta variant utilization across our portfolio did not increase as much in the third quarter as we anticipated leveling off around 40%.
We now do not expect usage to meaningfully increase until the new year.
While the progression of the pandemic and the resulting impact on office utilization remain difficult to predict customers and prospects. Fortunately continue to sign leases or parking revenues continued to recover nicely.
As I mentioned on our last call leasing activity has been healthy, particularly for new deals, we signed 672000 square feet. The second pieces, including 245000 square feet of new deals.
In total we signed 96 leases during the quarter, including 46, new deals consistent with our long term average.
So far this year, we've signed 140, new deals, which puts us on pace to eclipse our annual high watermark.
Plus we signed 83000 square feet of first Gen leases on the development pipeline.
In addition to healthy volume rents on signed leases increased 19, 3% on a GAAP basis, and four 3% on a cash basis.
The weighted average term was also solid at six three years.
Reflecting growing confidence in the long term value of the office for our customers.
Leasing capex increased but this was offset by higher face rents and longer terms.
We're often asked about the effect of the pandemic on net effective rents.
We don't track apples to apples net effective rent spreads. However, if you look solely at the change in second Gen net effective rents on signed deals.
From 2019 to 2021 year to date the.
The decline is roughly at the midpoint of the 5% to 10% average decline across our markets. We've mentioned previously which in our experience is also consistent with a typical recessionary patterns.
As we noted last quarter, we continue to believe net effective rents have stabilized.
As you may have seen from local media reports to customers in our top 20 announced this quarter plans to move out upon expiration and rewrote and relocate to new developments.
In both.
We have at least three years of lease term remaining.
In place rents are substantially below market and these buildings are among the best in their B B DS.
As the war for talent accelerates, we are strong believers that well located office space in highly of monetized best business districts will become a competitive recruiting advantage for employers.
This flight to higher quality buildings in the best locations.
Realized owners.
Plays to our strengths are.
Our markets in our portfolio continued to generate activity and growth further demonstrating the resilience and quality.
Turning to our results we delivered strong F F O a 96 cents per share in the third quarter.
Our same property cash NOI growth was also strong at six 4%, including the repayment of temporary rent deferrals agreed to during the first months with the pandemic.
Excluding these repayments same property cash NOI growth would still have been a healthy five 2% consistent with last quarter.
In last night's release, we updated our 2021 F F O outlook to $3.73 to $3 76 per share.
Seven cents at the midpoint from our prior outlook.
Up 16, and a half cents from our initial 2021 F O outlook provided in February.
We also raised our same property cash NOI growth outlook to 6% to 7%.
Up more than 150 basis points at the midpoint from our prior outlook.
Moving to investments as we previously disclosed we acquired the office portfolio from pack in late July for a total investment of 680 <unk>.
Including planned near term building improvements.
We've already signed leases ahead of schedule and healthy rents and are seeing strong interest across the portfolio in Charlotte and Raleigh.
Well so the development parcel in the Cumberland Gallery of Bvd of Atlanta.
Around the corner from where the Braves are hosting the world series the Truest Park.
As you know we plan to bring our balance sheet back to pre acquisition levels by accelerating the sale of five to 600 million of noncore assets by mid 2022.
We closed two dispositions for $120 million in the third quarter, bringing our total to $163 million since we first announced the acquisition.
We are confident we'll end the year towards the high end of our outlook of $250 million to $300 million.
Turning to development, we delivered our $285 million build to suit for sure and in Nashville, The largest development project in Hollywood history.
Completing this project ahead of schedule and on budget in the midst of a pandemic the true Testament to the strength of our development team and our partners abreast feel gory and Hastings architecture.
We delivered the keys of this incredible workplace to our new customer three months early.
Following the delivery of the sheree and build to suits are $109 million development pipeline consists of Virginia Springs II in the Brentwood B B D of Nashville in Midtown West and the West shore Bvd of Tampa.
We signed 83000 square feet of leases on these developments during the quarter.
Bringing leasing to 59% for both buildings.
We have a pipeline of strong prospects to bring these properties to stabilization or the second half of next year.
We increased the low end of our development announcement outlook from zero to $100 million.
Demonstrating the growing confidence we have in potential announcements before year end.
The high end remains at $250 million.
We continue to see strong interest from prospective.
Prospective build to suit and anchor customers.
We believe companies planning significant investments in physical workplaces is yet another sign of a return to healthy fundamentals across our markets.
Our well located land bank, which can support more than 2 billion of future development is a true differentiator for high woods and it will drive value creation over the long term.
We are thrilled to have acquired the remaining 77 acres of development land at ovation in the Cool Springs District of Franklin, Tennessee would've Nashville's babies for a total purchase price of $57 8 million.
We will partner with the city of Franklin to re imagine innovation is one of the premier mixed use addresses in the country and anticipate working with high quality retail multifamily and hotel developers to realize the tremendous potential of this live work play property, while retaining full control of the developer.
<unk> office development sites.
Before I turn the call over to Brian I'd like to reiterate the strong financial and operating performance. We have delivered so far in 2021.
We deliver the 285 million assuring project on budget and ahead of schedule, we acquired 683 million portfolio of office properties with attractive long term returns.
Since announcing the acquisition, we have sold $163 million of noncore properties attractive valuations.
We raised our quarterly dividend over 4%.
We increased the midpoint of our F. L F O outlook 16, and a half cents per share since the beginning of the year.
And we did all this while maintaining a strong and flexible balance sheet with a debt to EBITDAR ratio of five six times.
Brian.
Thanks, Ted and good morning, everyone.
While the economy bore the brunt of the Delta variance impact in the third quarter. We believe our positive results for the period are a product of a clear and consistent B B D strategy Highwood she's been focused long time.
Developing operating and <unk>.
B B D. Located in talent centric workplaces has proved our portfolio's resiliency in the face of unprecedented times provides a strong foundation for future growth.
Customers are returning to the office.
Sooner than others, but the common course, we hear is that place matters and.
And that while many see them more flexible workplace and perhaps more accurately work week ahead.
Most of them have told us that they are at their very best when they are together first being remote.
This sentiment is inherent in the healthy quarterly leasing volume and metrics our team posted.
This is also consistent with our markets being highlighted in the most recent edition of your ally in Pwc's emerging trends in real estate.
And where we have a significant and best in class workplace options across 11, 8 million square feet and the B B DS of Nashville and Raleigh.
Which ranked number one and number two respectively and were 44% of our third quarter NOI was generated.
Okay, Great migration continues to accelerate as talented companies and individuals.
Migrate to the Sun belt.
Our cities and states are open for business.
Housing is affordable.
And commute times and modes more manageable.
At 98, 4%.
Occupancy increased 90 basis points from last quarter, and we foresee occupancy holding steady for the balance of the year.
Tore in RFP activity is getting back to pre pandemic levels.
As many organizations that delayed decision making.
Any scope or scale since the spring of 'twenty 'twenty.
We're now ready to discuss their long term office plans.
With 140, new customer signing onto joined the portfolio. So far this year.
Led by Engineering and health care life Science customers.
We're enthusiastic about where their plans may take them.
With many new to the market.
With plans for growth.
Now to our markets, which are increasingly being discovered by individuals.
Organizationally and investors.
So on the prevalence of out of state license plates of the grocery store and then ending stream of housing sales above listing sometimes sight unseen.
There continue to be more data points support open.
Open for business and let's get back to work mentality.
Such as J O L, noting Atlanta, Charlotte and Nashville pushed above 2019 leasing levels in the Atlanta market posting a positive net absorption.
478000 square feet for the quarter.
In Raleigh, we signed 135000 square feet of leases for the quarter and activity. There is off to a quick start in the fourth quarter.
Market vacancy discrete decreased slightly year over year and.
And market rents are up nearly 4%.
We expect to be at or near the top of many less for years to come with several additional new job announcements this quarter, including three new headquarter relocations.
Adding to the strong list of relocations from the first half of 2020 one.
In Nashville, we signed 76000 square feet of second generation leases.
And achieved quarter end occupancy of 95, 3%.
Our development team completed a new 553000 square foot assuring headquarters.
Anchoring our Gulf Central mixed element.
It stretches the better part of three city blocks and is adjacent to naturals Amazon HQ2.
In addition, we had a strong leasing quarter in our development pipeline.
We signed 83000 square feet of first generation leases at Virginia Springs, II in Midtown West.
Bringing the leased rate up from 59% from 24% last quarter weak.
We continue to see strong interest in both projects and are tracking well towards the project stabilization in the latter half of 2020 two.
As Ted mentioned, we have a sizable land bank.
Back in support over $2 billion of future development.
Having completed nearly $1 billion of successful development since 2016.
We're confident development will continue to drive future growth and value creation.
To this end we're extremely excited about our purchase of the remaining acreage elevation in Nashville suburban Williamson County.
Lifted by Kiplinger as the 10th most affluent in the nation. These.
These 145 acres.
Already home to Mars Petcare as U S headquarters that we developed in 2019 represent one of the premier mixed use opportunities in the nation and it's where we can build an additional 1.2 million square feet of class a office amid significant densities of complementary residential retail and hotel uses.
In conclusion.
We're fortunate to be weathering the storm well.
With our high quality portfolio and our unmatched all under one roof team to develop lease operate and maintain it we.
We are supporting our customers' ability to achieve together what they cannot apart.
Because of this our customers are growing more than they're not they're investing in new space and they see their workplaces as competitive currency to retain and recruit the very best talent available.
Our development team has delivered the very best examples of our work place, making and is busy reloading the pipeline for the next generation of commute worthy buildings.
Our exceptional people and portfolio of produce results, we're proud of this quarter and throughout the pandemic.
It truly is a team effort and each and every member of the highway family plays a meaningful role in our.
Our success Mark.
Thanks, Brian and the third quarter, we delivered net income of $72 1 million or 69 cents per share in F. F. All over $102 8 million or <unk> 96 per share an increase from 93 cents in the second quarter.
As Ted mentioned.
On the acquisition from pack in late July.
Delivered the $285 million share in development in September.
And so the $120 million of noncore assets at the end of the quarter.
While there were a lot of moving parts from investment activity in the quarter there weren't a lot of unusual operational items that impacted our financial results.
Turning to the balance sheet, our leverage obviously ticked up temporarily due to this quarter's acquisition.
However, we are very pleased that our debt to EBIT. There was five six times in the third quarter less than half a turn increase at 0.2 times in the prior quarter.
We are making solid progress on our noncore disposition plan, having sold 163 million of the planned 500 to 600 million and are on track to return our balance sheet to pre acquisition metrics by mid 2022.
Further we have ample liquidity with 615 million currently available on our revolving credit facility.
Limited debt maturities until late 2022 and.
And expected disposition disposition proceeds over the next several quarters.
During the quarter, we issued a modest amount of shares on the ATM at an average price of $45.81 per share for net proceeds of $6 8 million.
Consistent with the ATM activity in the second quarter.
ATM issuances remain one of the many arrows in our quiver and we continue to believe are in efficient and measured way to fund incremental investments, particularly our development pipeline on a leverage neutral basis.
As Ted mentioned, we increased the low end of our development announcement outlook to 100 million signifying our growing confidence in future development starts.
The modest ATM issuance, so far in 2021 it gives us a head start on funding these future investments.
Regarding our expectations for the rest of the year, we've updated our 2021 <unk> outlook to $3 $73.73 to $3.76 per share.
With the midpoint up seven cents since July and up 16, and a half cents from our original 2021 outlook provided in February.
Rolling forward from our prior outlook in July the rationale for the increase was.
One said higher per share impact from the combination of the acquisition and corresponding noncore dispositions.
One to two cents higher per share impact due to earlier than expected delivery of the assurant build to suit.
And four to five cents higher per share impact from core operations due to our robust third quarter results and the outlook for the remainder of the year.
Compared to our original asset though outlook provided in February here are the major moving parts.
Five to seven cents higher per share impact from acquisition and disposition activity on a net basis.
Three to five cents from the early delivery of a sharing and faster than expected lease up of the remainder of the development pipeline.
Approximately two cents from rising parking revenues, particularly transient parking.
And four to five cents from better than expected core operations.
In addition to our improved 2021 F. O outlook. We also increased our same property cash NOI growth outlook to a range of 6% to 7% up more than 150 basis points at the midpoint from our July outlook.
Since the onset of the pandemic, we regularly commented on parking revenues and operating expenses given the reduced utilization rates.
We're still tracking below normal on both the Opex and parking revenues, but recently, we've seen a notable increase in transient parking revenue.
The trajectory of Opex and parking revenues continues to be challenging to four two forecast.
But with that said, we do expect an increase in both line items in the fourth quarter compared to our quarterly averages so far in 2020 one.
In addition to our solid F F O our cash flows continue to strengthen.
Since 2016, we've sold nearly 1.8 billion of noncore properties we've.
We've acquired 1.3 billion of high quality assets and the BB DS of our Sun belt markets and delivered $940 million of development.
We are very proud to have consistently grown our <unk> per share, while simultaneously, making meaningful improvements to the quality of our portfolio.
A strengthening of our cash flows since 2016 as evidenced by.
A 22% increase in average in place cash rents.
An 18% increase in our dividend and a steadily declining payout ratio over that same timeframe.
Our strengthening cash flows and continuous portfolio improvement.
Bind with a land bank that can support 2 billion of future development and our proven track record as a developer makes us confident about us confident about our long term outlook.
Finally, this is my 28th and last quarterly earnings call. It High Woods I really appreciate all your interest in <unk> and the great questions over the years.
As you know Brandon is well qualified for the CFO role and we will do a great job, helping to continue high with strong track record of success.
Operator, we are now ready for your questions.
Yeah.
Thank you very much ladies and gentlemen, if you'd like to register a phone question. Please press one for on your telephone keypad, you will hear a three ton prompts to acknowledge your request if you could.
<unk>, who has already been answered and I like to withdraw you May press, one to remove yourself from the queue. Once again, if you would like to register a phone question. Please press one four on your telephone keypad now one moment. Please for the first question.
And our first question comes from Manny Korchman with Citi. Please go ahead.
Hey, Good morning, guys. This is Parker Decrane Dion for many my first question is just about and ovation site.
Theres been any changes since you know what you guys were initially entitled to Al <unk> several years ago, and if theres been any changes since then.
Hey, Parker good morning, it's Brian here. Thanks for the question on ovation couldn't be more excited to now have.
The full side under control specifically to your question regarding entitlements, let me just remind everyone. What we've got out there right now on the 145 acres of which about 138 or develop all too are the roads and curb that are actually already in place out there. So that's been the better part of a $20 million.
Already put in the ground and part of the grading and sewer system. So we're entitled to one 4 million square feet of office of which about 200000 square feet has already been built as part of Mars Petcare as U S headquarters, which is it just a fantastic customer and a truly innovative building.
Our first full pet building too so if you ever out there she come see at 950 residential units and approximately 400000 square feet of retail we would argue that there's probably more retail than the site needs or it could support at the moment, but to having that flexibility we're bullish about.
And then the 450 hotel rooms, that's existing entitlement and we think that's kind of plenty to say grace over at the moment, we would probably re imagine.
The master plan into a more integrated mixed use development. So we can really get the benefit of all of those complementary users being adjacent to each other and we will be partnering with the city of Franklin to kind of go through and extradited a repositioning of that but.
We don't necessarily see the need for much more density the city if anything it would be supportive of more office density, but where that's kind of the plan right now what we're gonna be doing since now that we've closed on it when you're spending.
The next few weeks identifying and inviting a select group of high class.
Developers and operators in these other uses to come in and be part of.
The re imagination of the Master plan to work with the city of Franklin and then ideally he hit the ground running early next year does.
Is that helpful.
Yeah, absolutely. Thanks, and then just my second is just around concessions.
You know concessions and Ti, they're still pretty high over all figured it leasing volumes right now.
I think you guys mentioned that.
It's offset by some of the face on staff and in term, but you know as you guys are mentioning in your opening remarks, that's growing back to where it mentality and some of the strong leasing volumes that are in a few of your markets. When are you starting to think that you may see concessions start to tick back down towards a more normalized sort of arguably pre COVID-19.
Along with that.
Hey, Parker, all I can start and Bryan are bread and want to jump in a look at things are still competitive I do think concessions of who have them starting to level off in most of our markets, but its still competitive companies.
Thankful that we've signed 245000 square feet of new leases new customers to Highwood. This past quarter and it was just sort of on par with our first couple of quarters, but it's still competitive out there and we're going to try and meet the market, but we've been able to hold face rates and as you alluded to you know T eyes have been higher rents.
Rents are free rent has been a little bit higher, but we think net effective rents are hopefully hopefully stabilizing now.
Alright, Thanks, guys. That's all for me. Thank you.
And our next question is from Rob Stevenson with Janney. Please go ahead.
Hi, Good morning, guys, Ted when you talked earlier about the 40% utilization rate. When you look at your key card data is it the same people day in day out to constitute that 40% or are you having more people starting to rotate in on a regular basis.
Yeah. That's a great question you know.
One of the really the only real data point, we have as a bank of America.
In Charlotte that is really bringing their folks back you know most of our prepaying or is the return to work started most of that 40% of our smaller customers right. So those are the ones that are to come back to the office or really our larger customers have continued sort of pushed push out their returned either later this year or early 2002.
Two so the one exception is real at Bank of America. They started bringing their people back right. After labor day I think they brought roughly 700 people back in the first wave and they've got a few more increments coming back between now and the end of the year. So really don't have any real data all the different people within each company or not but the smaller companies are generally.
Hey, Rob Brian here, one thing maybe to add to that is because I think you kind of sensitive and maybe some of the other things you've seen is that those card swipes say there is 100 car types from a company that we are still seeing suddenly we kind of saw last summer when companies are doing these kind of waves or you know this team in and his team out so.
You might get 200 different people with 100 card swipes over a period of time. So I think we are seeing that.
They are planning they've kind of ramp that back up to have both of those people and at the same time early next year.
Okay, because I wonder how that's altering how tenants are thinking about space for the future. If you, but there's a big difference between having you know people where everybody's in two days a week, but that's only sort of call it 40% utilization versus the same people in five days a week only and the other people remote.
And what they're looking at in terms of what you know at both you know fixture office space conference rooms, cubicles and things of that nature, and just overall space needs. So.
So it's interesting.
I guess the other question for me is any push on the part of buyers to get any of your acquisitions or dispositions I guess I should say from your end done by year end is the disposition pace expected to accelerate into the November December here or are we likely to be more ratable you know to close.
The remaining whatever it is three 340 $440 million of dispositions through mid 2022 with what's your marketing how does that look how does that sort of pace look like today.
Sure Rob So as we stated in our remarks, we've closed thus far about $163 million of transactions.
Our initial guidance was five to 600 of which half of that or $2 50 to 300, we thought we'd get done by year end and then the other $2 50 to 300 by mid year 2022, So we're over halfway there to our initial.
A $2 50 to 300, and we feel very confident we're going to be at the upper end of that range of about $2 50 to 300 range by the end of this year or so so that should give you. Some indication. We do have several deals that are under contract with hard money that should close by year end and then the remaining at all again, we where we've actually got a few.
The second half already in the market as well, so I think youll see a continual cadence of dispose into into the first and second quarter next year.
And how is pricing coming in on the on the stuff that's under contract.
Today is is it where you expect a little bit better or a little bit softer how would you characterize that.
Sure 163 million, we've closed it's been roughly a GAAP cap rate of six cash cap rate of the low fives.
Then what we have remaining to sell call. It gap in the mid to high sixes cash low to mid sixes.
So in total when you put it all together in that $5 million to $600 million. We think it's gonna be a mid sixes GAAP low six's cap, which is better than we had indicated initially.
Okay.
Rob I just wanted to just.
Just follow up on your timing question. So I'm you know unlike our normal practice, we have layered in the expected disposition the dilution from the dispositions into the guidance for the outlook for the remainder of 'twenty, one and really at sort of the midpoint for the the sales that we.
To close in the remainder of 'twenty, one I think it's fair to assume that that's a mid quarter fourth quarter close on balance on average for all of those so it's not all at the end of the year, it's going to be roughly call. It in the middle of November for an average.
Okay. That's very helpful. Brendan. Thank you and then lastly for me Mark just wanted to say you'll be missed thanks for everything thanks, Rob I appreciate it very nicely.
And our next question is from Dave Rodgers with Baird. Please go ahead.
Yeah, Mark I kind of sediment and thanks for all the help over the years and best of luck you left us in good hands.
I wanted to ask Brian I'll start with you two questions maybe on leasing first is its obviously clear across the market across obviously youre development. There's there's the demand for really high quality brand new space. So the two questions I guess it would be can you talk about the second generation leasing you did in the quarter and was there anything consistent or trends through any of that certain.
A building CBD suburban et cetera that you can kind of decipher for US and then the second question is as you talk to pinnacle in bass Berry was there anything in their conversation that you could've done to keep them in that space or are they just kind of moving on to even better space just any color around there would be helpful. Dave great great questions. So let me hit the sack.
One first pinnacle bass Berry, they're basically still staying in the same kind of B B D. In an in town Nashville, they have the need to update their space and it's hard to do when you're in it in some cases, they're growing and we couldn't accommodate growing.
And so that's really part of it I think the pinnacle wanted it's even been kind of written about in the local press, it's even a bigger.
Player partnership in leasing space, It's a bigger partnership on that performing eventually I knew that's there. So some kind of we're super excited for them and staying in the neighborhood and in keeping that occupancy in the B B D and being a civic citizens like pinnacle's less than 100000 square feet, so not not.
That big of a one and the other thing is we've never really had the ability to mark this building to market and lease it up in the middle of you know the booming kind of so grow micro market of the D. V. D. Right next to the four seasons that is selling out so our leasing team is chomping at the bit so they're pretty excited.
That went out to your global question on the second Gen leases I'd have to say, it's a little bit of suburban and urban and in that regard depending on the different markets. We have a lot of work underway on sort of repositioning and monetizing our suburban.
And assets to make sure that they have some of those same kind of amenities walkability access to food and beverage that you might have if you walked right out of the CBD location.
And so as we start laying out the vision for those renderings plans timelines, they're being received very warmly by the market. So I don't know Brendan or Ted had any more specifically, but I felt like it was it was kind of across the board on the second Gen renewals and leasing no I think that's right. The only thing I would add on bass.
Barry and critical and could even throw novellus in there is we've got plenty of times right. We've got a minimum of three years, three and a half almost four years on maybe pinnacle just shy of four years.
They're in great buildings in the best B B DS in our best markets and just to reiterate there well below market from a rent standpoint, so we feel like we're in pretty good.
Pretty good shape.
Yeah.
One more on leaf thing if I could the activity at Midtown and Nashville up the new developments I mean were those meeting our prior expectations at any level of discount that we should take note of.
No. We've you know the activity has been fantastic I mean, I think we'd get a little more ti not too dissimilar to our second Gen leasing a we've been able to hold face rates, maybe a little bit more free rent a little bit more ti. So net effect is maybe they're down a little bit but in terms of the lease up timing.
We're sort of on track on both of those so we're.
Very pleased with Virginia Springs, II, we took it from 50% to 59% during the quarter and then Midtown Tampa went from 11% last quarter to 59% and our pipeline for with strong prospects. It is very very good. So we're encouraged.
Great last one maybe Ted just specifically for you you guys, obviously saw the opportunity to double down on some existing markets with the Pac transaction and an exit some others, but I guess as you continue to move through this year or is there anything additional that is causing you to think about what the bottom of the portfolio is today or what the bar.
Markets are are you still pretty confident that as leasing comes back you have got the right set.
Look I think that's just part of our normal normal business right. We're constantly evaluating what's core what's non core looking at our markets looking at what customers want and we look at demand and we're trying to meet demand and make sure. We have that portfolio that we can do we can meet the demand with so it's a it's a constant process for us where we're all about.
Capital recycling and upgrading the portfolio. So it's something I think youre going to see us continue to do overtime, Dave Brian here would wish that clip on to Ted statement, one of the things that we're laser focused on is are these assets, becoming a tools that our customers use to retain and recruit talent not just against.
Where they're competing with day in and day out for their own business, but even against the couch. So we're laser focused on this and we'll be doing that in the coming years, Yeah, and Dave just said maybe pile on again.
I mean as Mark mentioned in the prepared remarks, we've sold $1 8 billion of assets. Since 2016, so really just over the past five or six years.
And then is as Ted mentioned on the sales to help fund the pack acquisition I mean, those are coming in at you know at a GAAP cap rate in the mid six is a cash cap rate in the low sixes. So you know the noncore that we have currently I think is a lot higher quality than what the noncore was in five or 10 years ago, So I think well.
We'll continue to do that but I think we feel very good about about what where the portfolio has gone through over the past several years.
Oh, great. Thanks for all the time guys.
Our next question is from Ronald Camden with Morgan Stanley. Please go ahead.
Hey, just a couple quick ones for me are just one hour here and clearly a lot about sort of supply chain delays and so forth. Then you know when you're thinking about the $1 billion, you've delivered successfully since 2016 and I'm looking for thinking about the 2 billion pipeline is there.
Should we think about what are you thinking about differently.
Should we expect more delays should we expect you know what is going to be the differences sort of looking forward versus looking back given what we're hearing about supply chains. Thanks.
Hey, Ron O'brien, Larry Let me take a first shot at this one so two things about supply chain and you know and there's plenty of people are talking about this right from Janet Yellen to you know construction leaders, there's hard kind of commodity supply chain issues and as labor supply chain issues I think we all feel pretty bullish.
That the commodity raw material supply chain issues will work its way out I mean, you just need to look at the a satellite photo of the hundreds of boats off that long beach or L. A ports to know that at some point those boats are all going to be getting in and get unloaded and stuff. So on the labor side.
It's forcing the industry into a more efficient delivery of construction through preconstruction.
Work through precast work through prefab work, so actually they get it you know we're going to get through this and I think it's gonna add a dose of innovation to that but we've got a plan that in right now the longer timetables and potential cost for supply chain disruption. The good thing is that.
That most of the customers we're talking to you about new development, new construction believe that that investment in rent to cover that is more than worth it when they focus on the much larger investment they make even a year out on their talent. So it is not necessarily a slowing us down in terms of starting.
New construction, particularly for those customers that value our their workforce.
Great and then my my second question was just going to be a sort of piggybacking on one of the other questions. The.
Clearly, there's the the 500 to 600 million of disposition and that seems to be on track and on target, but once those are completed when you take a step back and you look at the portfolio is it fair to say that you have the portfolio you want or is there still some sort of lower quality.
Our lower not lower quality, but sort of bottom bottom of the portfolio lower growth that you would want to call just thinking about where are we in sort of this portfolio recycling are we mostly done after that or.
Should we expect more thanks.
Sure.
We were always recycling as I mentioned a minute ago. We're we always rank our assets. One to 10 is just a process. We go through each year and so if you look at our capital recycling over the last 15 years, we're always selling.
$50 million to $150 million a year on average so I would expect that's going to continue over time as we continue to upgrade the portfolio.
Yeah, and Ron just it's all my questions.
This is brendan just to add onto that I mean, we as.
As Ted mentioned, we have been active recyclers of capital we will continue to be active recyclers of capital, but that is not.
Detracted from our track record of earnings and cash flow growth over the past decade, plus so I think we've we've proven that we're able to recycle capital while still growing earnings per share dividend per share and cash flow. So I think we feel like we have the ingredients to be able to continue that formula going forward.
Helpful. Many thanks.
Ladies and gentlemen, as a reminder, if you'd like to register a question. Please press. The one followed by the four on your telephone keypad one floor for questions.
And our next question is from Jamie Feldman with Bank of America. Please go ahead.
Great. Thank you good morning.
So I know you made the comment about some of your larger tenant move outs coming can you just walk us through the largest expirations through the end of 'twenty two.
I know some of those might not be in the top 10. It later or is it really not much there.
Sure Jamie so through 2022, our largest is a 62000 square foot customer that expires December 2022, and we have and they're actually gonna be a known vacate gonna be vacating, we've got a 50000.
Foot or and then a 44 so those are our top three below that we've got a couple thirties and then it falls into the Twenty's. So not a lot of large customer exposures through 2022.
Okay, and the 50 and the 40 of those.
Does the renew or too early.
50, we're not sure about and the 44 is a known vacate.
Okay.
And what about the.
So the backfill.
Yeah.
I don't think that one's in September 'twenty, two I don't think we have any prospects for that space yet.
But in the.
44, though it's arguably one of our best buildings in that market and with what's going on.
These improvements and amenities I think we do have some folks looking at.
Yeah.
Where is that one.
In Pittsburgh.
In Pittsburgh.
And then where does the 50.
Thank you.
The 62 in the 50 or both in Tampa and we have a we have a prospect for a for a lot of that space.
Okay. Thank you.
And then I guess, just taking a step back and thinking about your market.
Assuming we're coming out of the pandemic here, I mean, which would you say, whether it's markets or even submarkets.
The most kind of structural change from the pandemic in terms of you know a change in tenant sentiment around whether it's hybrid work or wanting to be downtown versus the suburbs. I mean is there anything that you can you can read read from at this point.
I think it was just too early Jamie I mean, we've got to get everybody back in the office.
And why just came out with a study the other day that said three out of five companies haven't decide what their workplace is going to look like post pandemic I think that sort of what we're seeing as well like the customers have got to get in get their folks back to work and before they figure out what the workplace is going to be so I think it's still pretty early to figure that out.
Okay.
And then I see that you increase the development starts guidance at the low end to 100 million Soviets 50, sorry.
Alright, yeah at the low end to $100 million.
At the high end can you just provide more color on what the start there and what would get you to the 250.
So sure we still got several discussions ongoing for both build to suit and what would be a pre lease on a spec building. So multiple conversations don't know exactly what's going to hit yet, but just given where those discussions are just gives us confidence that we're going to have you know a start or two before the end of it.
The year.
Okay.
Sorry, just to go back to like the 62000 exploration and a 44 like what percentage of NOI or would you say that is our occupancy.
Our revenue wise, they're all you know no hard from a million to 1 million five yeah.
Annual basis.
Annual basis, and that's on a base of call it $730 million of annual revenue. So it's a pretty small percentage of annual revenue.
Okay.
Okay.
Alright, great. Thank you.
Thanks, Jamie.
And those are all the questions. We have at this time I'll turn the call back over to Mr. King for any closing remarks.
Thank you and before we conclude the call I just want to thank Mark again for his significant contributions to Hollywood first as a member of our board of Directors and then as our CFO since 2014 on behalf of the entire high Woods family, we wish Mark well as he transitions into a well deserved retirement and we look forward to seeing him. So.
N M around town.
Thanks, everybody for joining the call and thank you for your interest in Highwood <unk> look forward to seeing many of you at NAREIT in a couple of weeks.
And ladies and gentlemen that does conclude our call for today. We thank you all for your participation and have a great rest of your day you may disconnect Your line.
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