Q2 2021 Newmark Group Inc Earnings Call
Pardon me. This is the conference operator, today's Newmark group call will begin and just a few minutes and we ask that you. Please continue to hold again todays Newmark group call will begin momentarily. Please continue to hold and thank you.
[music].
Welcome to Newmark second quarter 2021 financial results conference call at this time, all participants will be in a listen only mode.
After the speaker presentation, there will be a question and answer session. Please.
Please be advised that today's conference is being recorded.
I'd now like to turn the conference over to Jason Mcgruder interim head of Investor Relations. Thank you and please go ahead.
Thank you and good morning, Newmark issued its second quarter 2021 financial results press release and a presentation summarizing. These results. This morning. The results provided on today's call compare only the second quarter of 2021 with a year earlier period, unless otherwise stated any figures with respect to cash flow from operations discussed on today's call refer to net cash.
Provided by operating activities, excluding alone originations and sales.
We will be referring to our results on this call only on a non-GAAP basis. These non-GAAP terms include adjusted earnings and adjusted EBITDA as well as those terms, excluding the impact of NASDAQ and the 2021equity event. Please see today's press release for more information on the impact of NASDAQ and the 2021 equity event as well from.
Results under generally accepted accounting principles or GAAP. Please also see the section of todays press release from the complete and updated definitions of any non-GAAP terms and reconciliation of these items and the corresponding GAAP results and how when and why management uses them.
All information with respect to our GAAP and non-GAAP results mentioned on today's call are available on our website and and supplemental tables.
And quarterly financial results presentation.
And the outlook discussed on today's call assumes no material acquisitions share repurchases or meaningful changes and the company's stock price. These expectations are subject to change based on various macroeconomic social political and other factors, including the COVID-19 pandemic I also remind you that information on this call regarding our business and are not historical facts are forward looking statements within the meaning of section.
27, and a Securities Act of <unk>, 19, and 33 as amended and section 21 E of the Securities Exchange Act pack and third and fourth estimate such statements involve risks and uncertainties. These include statements about the effects from COVID-19, panic and pandemic on the company's business results financial position liquidity and outlook, which may constitute forward looking statements.
And are subject to the rest of it the actual impact may differ possibly materially from what is currently expected except as required by law Newmark undertakes no obligation.
Uh huh.
To update any forward looking statements for a discussion on additional risks and uncertainties, which could cause actual results to differ from those contained in forward looking statements see Newmark Securities and exchange Commission filings, including but not limited to the risk factors set forth and our most recent form 10-Q, 10-K or form 8-K filings I'm now happy to turn the call over and our host Barry.
<unk> and Chief Executive Officer of Newmark Group, Inc.
Thank you Jason.
Good morning, and thank you for joining us for Newmark second quarter 2021 conference call.
Joining me on the call today are Newmark, Chief Financial Officer, Micros, Poly and <unk>.
Chief Strategy Officer, Jeff Day, and our Chief revenue Officer Lou Alvarado.
Following a record first quarter Newmark and revenues increased by 64% to $630 million.
Our best ever top line for a second quarter.
As the economy continues to recover and vaccination rates rise our clients are making plans to return to the workplace.
Companies have increased utilization of existing lease space and are making new long term commitments across all sectors.
We benefited from a rapidly recovering economy, and newmark continued market share gains revs.
Revenues reflected greatly increased demand across all major property types and.
Our growth was led by a nearly 250% increase and revenues from capital markets driven by the incredible talent and platform we have assembled.
Newmark volume across investment sales mortgage brokerage and multifamily originations together increased by 225% outperforming the industry by.
By comparison overall U S investment sales and debt volume decreased by approximately 47%.
Newmark had record debt volume of over $11 billion, which was an increase of nearly 200% led by multifamily we leveraged our diverse relationships with non agency lenders to help clients navigate lower GSE loan activity, while GSE volumes were down and the first half of.
The year, 57% of their 2021 caps remain as a result, we expect increased GSE lending activity and the second half of the year.
Our leasing and other commissions were up by 54%, which included growth from both tenants and landlords and improved activity level across office industrial and retail and we also saw improved activity across alternative and specialty property types like land mixed use and life science.
Newmark total revenues from management services servicing fees and other sources increased by 55% we continue to benefit from our focus on growing these recurring revenue businesses.
In addition to our robust operating resolved newmark received approximately $928 million and NASDAQ stock and we expect this accelerated windfall to allow us to buyback shares and reduce our debt invest in growth and maintain our strong liquidity and.
Mike will explain in more detail, we have already used a portion of the proceeds to significantly reduce our fully diluted share count we have enormous white space to grow our business, we aim to expand our presence and business lines and geographies, where we have already invested and our infrastructure and there is an opportune.
80 to accelerated growth and increase our market share.
And with our strong foundation, we expect to outperform the market over time as industry volumes continue their recovery with that I'm happy to turn the call over to Mike.
Thank you Barry and good morning at the end of June we received 6 million and 222000 and 340 shares of NASDAQ worth $1 billion.
$1 billion $94 million will.
We used 944329 shares valued at $166 million.
Repay the remaining liability on our NASDAQ forward transaction.
As a reminder, the NASDAQ forwards raised capital for 2017 acquisition of Berkeley point.
Newmark remaining NASDAQ shares were worth $927.9 million.
The receipt of the $1 billion 94 million is included in other income and its ordinary income for tax purposes.
In order to offset a significant portion of this taxable income, we accelerated $428.6 million of tax deductible GAAP compensation charges related to previously issued units.
And utilized $101 million of deferred tax assets.
These actions, which we referred to as the 2021 equity event also reduced our fully diluted share count by $16.1 million at the end of the quarter.
Our press release shows adjusted earnings and adjusted EBITDA, both including and staff and the compensation charges related to the 2021 equity event.
And excluding that.
Beginning with the third quarter of 2021, we will only report our non-GAAP earnings measures. Excluding these items.
To be consistent the recast of all historical periods is included in our earnings supplement which is available on the Investor Relations section of the website.
Adjusted EBITDA was $973.9 million and earnings per share was $2 and 89.
Now I will present, our quarterly earnings and if the receipt of NASDAQ did not occur.
Newmark generated record second quarter revenues of $629.9 million up 64, 1%.
<unk> increased $193 million.
And this includes variable compensation related to 91, 1% growth and commission based revenues and $54.4 million of higher pass through expenses.
The remaining increase relates to support and operational expenses, resulting from accelerated business activity and our acquisition of <unk>.
Okay.
Our adjusted EBITDA was $120.6 million.
161, 8% compared to $46.1 million.
Our EPS was up 210% to 31.
As compared to 10 says.
These were record second quarter earnings even without NASDAQ.
Turning to our balance sheet.
Newmark had $1.260 billion on liquidity as of June 30.
Which included $1 billion $94 million on Nasdaq.
As previously described on July 2nd we settled the NASDAQ forwards with RBC for $166 million.
We used approximately $201 million to reduce our fully diluted share count by $16.1 million and.
And we used approximately $327 million, primarily for taxes related to NASDAQ and the 2021 equity of that.
As a result based on yesterday's NASDAQ closing price, we expect to retain approximately $457 million.
In July we also repaid the $140 million outstanding on our revolving credit facility and.
Currently have $465 million available on our revolver.
We anticipate using our strong balance sheet and cash flow from operations to invest and growing the business at attractive returns.
Repurchase additional newmark shares and repay debt.
With respect to our fully diluted share count in addition to the $16.1 million share count reduction from the 2021 equity event.
We repurchased 3.8 million shares and units during the quarter.
In total we lowered our spot fully diluted share count by $19.8 zone.
This will benefit our fully diluted weighted average share count in the second half of 2021.
Moving to guidance for the remainder of the year.
We are increasing around book for 2021 to reflect improving business conditions and our continued market share gains.
All of our guidance excludes NASDAQ and the related 2021 equity now.
We anticipate third quarter revenues between 610, and $655 million up 40% to 50% and adjusted EBITDA of $110 million to $128 million.
<unk>, 5% to 130%.
We expect annual revenues between 2 billion and $400 million, and 2 billion and $500 million up 26% to 31%.
We anticipate adjusted EBITDA of $415 million to $465 million.
64% to 84%.
Going forward, we expect our tax rate to be approximately 18%.
Our guidance continues to include the <unk> acquisition, which will be 3% to 5 cents dilutive in 2021.
With that I will turn the call back to there.
Thanks, Mike.
Steady consolidation has driven growth among commercial real estate intermediary for nearly 20 years.
Newmark is in a unique position to grow at a faster rate than our peers as a result of the investments we have made.
And we have built the.
Talent, we have assembled and the market share we have captured.
With the injection of $1 billion onto our balance sheet and the momentum we have created we expect to outperform the industry.
Global corporate services property management debt origination mortgage brokerage and real estate investment banking are all areas, we have enormous white space to grow.
We are excited by our unique position and prospects operator, we'd like to open for questions.
We will now begin the question and answer session to ask a question you May Press Star then 1 on your telephone keypad.
And if youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then 2.
At this time, we will pause momentarily to assemble the roster.
And our first question will come from Alexander Goldfarb of Sandler O'neill. Please go ahead.
Hey, good.
Good morning.
And I have to say great job on the earnings and Thats something I.
And generally, but it's great to see such a strong blow out quarter and.
And rebound of capital markets and leasing et cetera.
So along those lines.
First Mike.
And Mike on the.
And the go forward accounting the way that you guys are going to present the earnings numbers going forward.
On a like for like basis, how much does that impact the growth rate that we think about newmark. So historically I think your revenue your top line grew at double digit your bottom line was growing sort of.
Mid single digits, and then you guys were trying to advance that by you know getting better on stock issuance et cetera. So.
The net effect of the changes that Youre doing does this mean that we should think about.
Yeah, what is the bottom line means for earnings growth on and then on the new format and the basis.
Sure.
And Youll see that in the supplement that's on the website. We do show all of the historical earnings both with and without NASDAQ. So you can see those growth rates.
We expect to grow the bottom line and the company as fast if not faster than the top line and as we continue to focus on becoming better operationally.
And taking the cost out of the business that and.
And we've already taken out the $60 million plus the additional $15 million, we expect to take out before the end of the year. So.
Our growth rates are going to continue to be better than the industry and we think it's both topline and bottom line.
Okay, but to be clear you you expect.
That's the bottom line will now grow commensurate with the top line or perhaps even better at that.
That's correct.
Okay second question.
On the buyback that you did a you know there's sort of $20 million year to date I think you did about 19 or so on the quarter.
Is that a number it sounds like that's not a number that we should expect to be recurring it sounds like the ongoing buyback it maybe something closer to that 3 or 4 million shares not that 19 is that correct because of the 1 time way that you handle this NASDAQ would be tax treatment et cetera.
And I just want to make sure I understood that correctly.
Yes, I think the the NASDAQ transaction gave us an opportunity.
And to really accelerate the buybacks you can see we reduced the share count by $16.1 million.
As a result of lowering our effective tax rate.
And so yes, I think Thats, a fair assessment and we'll look to continue to buyback our stock, but it certainly wouldn't be at a higher rate as it was and the second quarter.
Okay and then just the final question I. Appreciate your time on the tax rate. If my memory serves I thought originally you guys were like a 13% tax rate and then now you're talking 18, maybe I'm mistaken, but could you just go over and.
The changes to the tax rate.
Either as a result of that back or what have you.
Sure.
First part of this year and even in the last year, we were around 16% 16, 5% on our tax rate.
So as a result of accelerating a lot of the unit redemptions and we've now used a lot of our future tax deductions. So we do expect that to go up about a point to a point and a half to around 18%.
Is it going to go up again next year or 18% of the new level.
We think 18% of the new level.
Okay. Thank you.
Great. Thanks, Alex.
The next question comes from Jade Rahmani of K B W. Please go ahead.
Thank you very much.
Great to see Newmark, and continuing to gain market share and the league tables and I was wondering if you could comment on mix of transactions by property type and I know you mentioned being strong and the alternatives, but are there any numbers that could quantify perhaps on the leasing and the capital market side how.
It's coming from office, how much is coming from multifamily how much is coming from those other alternative sectors.
We don't publish those general data, but what I can tell you is that as you've seen obviously the office market has lagged a little bit the significant amount of activity has come from both the life science side as well as the industrial side, which are both areas that we invested significantly and <unk>.
Prior to the pandemic those step paid great dividends for us and and we expect those to continue to be strong at least through the foreseeable future here as office starts to recover I can tell you that and capital markets. We've seen a significant uptick and people as now we have a better vision for the return.
And until the office.
People preparing to take assets to the market later half of this year, which we anticipate will continue to drive our growth and capital markets.
Okay. Thank.
Thank you and on the multifamily side I'm starting to hear from the first time.
Yeah, some of the debt funds that correspond with mortgage REIT as well as investors and the space that are.
Valuations being stretched in the multifamily space.
Do you anticipate any diminution in multifamily volumes or is that just select cases and I'm hearing.
Well, the multifamily business and the real estate business is a relative value business and with interest rates, where they are and with the dry powder available on allocated to multifamily. We believe that there are strong tailwind and expect there to continue to be very <unk>.
Good activity certainly through the end of the year.
And on the GSE side could you characterize what in your view resulted and they're lagging lending activities and the first half from here and your confidence level and growth and the second half.
Sure.
Last year, the Gse's, we're really the dominant multifamily lender and most other lenders pulled back in the face of Covid and the uncertainty around.
And the lack of ability to.
Manage evictions and the lack of understanding about what the impact of the on the economy would be so there was a lot of dry powder and non GSE lenders coming into the beginning of the year also the GSE has had a reduction and caps and so they needed to make sure that they manage that appropriately given that 57% of the cap space is.
Left remaining and we have a new acting director of FHFA, who is very knowledgeable about the GSE and is supportive of the <unk>, we would expect the GSE business to normalize through the end of the year.
And overall in terms of the Fervency, we're seeing and capital markets do you believe it.
Short term phenomenon and growth will moderate next year or do you believe that it's more of a long term trend.
And I don't understand the question Dave.
And we're seeing the staggering growth rates.
Alright go ahead.
And just and multi or you're talking about generally.
Generally the amount of real estate and <unk>.
<unk> and capital markets. It serves all of the theory brokers have beat estimates by you know north of 50% to 100%.
On the.
Revenue growth projections do you think that it's a trend that's going to wane as we go into next year or it's sustainable.
We have coming out and come out of it and uncertain time, we just had a pandemic. So the bar was set relatively low there is an enormous amount of liquidity and the market interest rates.
We will likely remain low for a long period of time.
I think there are still lots of room and the metrics look good and.
And the categories and investment for us for a continuous period going forward.
Thanks for taking the questions.
Okay.
Again, if you have a question. Please press Star then 1.
And our next question will come from Patrick O'shaughnessy of Raymond James. Please go ahead.
Hey, good morning, I'm curious if you can give an update on your deal pipeline like what sort of things are you looking at right now and what about valuations look like.
Okay.
As far as.
Are you talking about capital markets leasing or Eddie.
Sorry.
And so acquisitions for Newmark group I apologize.
Yes, I mean, the market is still pretty fragmented there's lots of companies out there and that are good candidates to consolidate with and.
So we have a pretty robust pipeline.
Of acquisitions and and hires per going forward.
And would you.
Would you see that the receipt of these NASDAQ shares as a catalyst for and acceleration of some of that activity.
Well look we not only have we.
Not only are and a good.
Liquidity liquidity position we have.
Really good cash flow, we have lots of dry powder to go out and acquire and we did prior to the add back and post NASDAQ. So I mean, we have a plan to continue to grow and fill in the white space that will make us a better company and we're on.
And we'll continue that and then it does certainly does give us more liquidity to do more of it but we are pretty much viewing the market and the growth. The same way we did prior to the NASDAQ equity event.
Got it makes sense.
Our servicing portfolio I think it's at $69 billion at the end of June down slightly quarter over quarter can you speak to kind of dynamics going on and that portfolio.
Sure.
And obviously, we have the preponderance of the servicing book is the GSE business and.
So with GSE production being down.
And having roll off and the book Youre going to see a different kind of growth rate and we expect to see going forward.
So have a fairly decent amount of C. M B S.
And life company servicing and we had some run off from the <unk> through the Covid period and into the first quarter of this year, which is reflected in the June numbers, but we think this is temporary and we expect the growth to go back to a positive.
Consistent with the past.
Got it thank you.
How much of the NASDAQ shares have you guys liquidated up to this point versus how much remains on the balance sheet.
Sure I think the way to think about that as we liquidate enough to pay off the 2021 equity event.
For now so that's fully funded and.
And then we'll look at what we need going forward and decide.
We want to do with the remaining shares.
NASDAQ has been a great asset for the company were not in a rush to sell off the remaining shares.
I think up 10, plus dollars since the end of the quarter and we.
We think it will continue to be a great asset for us so.
That's where we currently stand.
Okay got it and.
And then Michael question about taxes, there's language in the press release today, Let me just redeploy its quote Newmark believes that the 2021 equity event will result, and the total amount of cash paid with respect to both withholding taxes and corporate taxes to be less and the total amount of such taxes and would've been paid had the 2021 equity that not occurred and quote.
Sorry, I feel like Magruder reading and long script here.
But just kind of curious it seems like theres negative tax rate arbitrage, where you're paying withholding taxes that something approximating 50% to avoid corporate taxes at 18% or maybe mid twenty's. So how does the net cash outflow for newmark actually lower under that arrangement.
Sure.
I think this is when you can really see the benefit of our corporate structure.
If we didn't have that structure, we would pay and call it $360 million.
Corporate taxes on a $1 billion 1 of income.
We were able to do is accelerate the unit redemptions.
Which generate compensation and related payroll taxes.
That otherwise would have been paid over time, so basically the way to think about it is we.
Paid or we accelerated the payment of the withholding and payroll taxes now.
And we won't have to pay a significant amount of corporate tax.
So most of the taxes that are in that line item are really related to just payroll taxes and they would've been paid over a number of years and we just pull them into the current period.
Net net it's a significantly less amount of taxes.
And then otherwise because we would have otherwise paid to corporate taxes, now and the payroll taxes over time.
It also allowed us to significantly reduce the share count as we've discussed I think the.
The only small negative to the way we handle this is the tax rate going forward goes up about a point to.
And to a point and a half like we said to about 18%.
Okay got it thank you very much.
The next question comes from Henry Coffey of Wedbush. Please go ahead.
Yes, good morning, and thanks for taking my question.
First on more of a technical question Hugh.
And with the NASDAQ proceeds you accelerated.
Realizations on the stock and then quote reduced your diluted shares was that.
Can you talk through that was that you.
You bought shares you bought back shares and the open marketplace can you kind of walk through that transaction.
Or that series of transactions with us.
Sure Hi, Henry it's Mike So Theres really 2 things and the quarter. We bought we did buy back shares on the open market about $3.8 million.
And then specific to the NASDAQ and $3.8 million of shares $3.8 million shares on the open market right and that's what I thought and then another $16.1 million shares or units related to the equity event.
What that really entailed was.
Deeming units.
For both shares and cash.
And as a result of doing that we were able to significantly reduce the share count.
$40 million or so.
<unk> you.
You are at.
You, then redeemed units per stock and cash.
As of say August 15th or whatever day, you want to choose.
What is the specific amount of shares outstanding and what is the <unk>.
Diluted share count that we should be using for the rest of the third quarter and the rest of the year.
Sure. If you look in the press release, we gave you the spot share count.
At the end of the quarter and that number is $251.9 million fully diluted shares.
And that number that'll be plus whatever we buy back I'm, sorry, less whatever we buy back plus whatever share is normally come into the share count for compensation, but that's the number that goes forward and to keep Q3, and Q4 and you get about half of the buyback so half of the $19.8 million that we bought.
And the quarter will impact the fully diluted weighted average share count for the year, but in Q3 and Q4 it will be the $2.51, 9 plus or minus those other things Ive discussed why why why doesn't that reduction come out.
Well, it's just weighted average it came on it comes out on June 30th.
So you get about $10 million to benefit the full year and 2021 and the rest will benefit 2022.
So in 2020, 2 that we could take the $2.51, and basically reduce it by $20 million.
Well the $2.51 is the current spot.
And that's that that's that shares outstanding today are fully diluted shares today fully diluted shares outstanding today, Okay, and and then.
We should reduce that by.
And he sale.
Or is that that debt. If you don't buy back any more stock were at $2.51.9 diluted shares for the rest of the year.
August forward.
Correct correct.
And whatever normal activity for compensation right exactly.
Oh, that's good thank you on on the NASDAQ remaining shares.
<unk>.
Have all the tax has been paid.
Or accrued paid is probably not as relevant as a group.
Yeah, Everything's accrued at the end of June so the payments for the most part happen day in early July and.
And corporate taxes, whatever small amount of corporate taxes would be probably towards the end of the year.
We have $900 million of essentially cash if you so chose to convert those securities to cash.
Yeah.
Yeah, I think there is a table in the press release, Henry which you can walk, which kind of walks through the $928 million we received.
And what we've use the capital for and related to the 928.
After all the taxes and the share buybacks, we net about $457 million, Okay, and I know you had mentioned that so we're now at 450 ish and.
And you Havent really indicated.
You know, where that's going to go in terms of paying down.
Secured debt and term debt paint.
Paying down and senior notes paying down buying back stock investing and you know new teams can you can you sort of give us a.
Some sort of sense of how that remaining cash would.
Well, but remember so you take the money the $4.57, and net debt we received from NASDAQ, We still had $165 million of cash on the balance sheet. We.
And we used some of that to pay down the remainder on our revolver. So we paid down $140 million in July.
So what Youre left with is about a half a billion dollars $480 million or so.
We generate a significant amount of cash flow through the back half of the year I think you can see that and our EBITDA guidance and.
And we haven't specifically said how much we're getting you used for acquisitions and how much we're going to use for buybacks and how much for that but we will use that capital for all of the above.
What is the current status of your buyback authorization.
And how big is it how much is left to go.
Sure the board authorized 400 million, so thats whats left on our share buyback program.
Alright, obviously, a big revenue quarter, as well, mainly and the capital markets area was that more property sales or our debt placements or both.
It's both.
And certainly property sales, where we're up.
Paired to the quarter.
But last year and.
A lot of drive in the office alternative abuses conversions of buildings to life science or the likes or properties that have opportunities for that as well as the industrial side and then.
I think that volumes were up significantly.
And that's what I was good as next it seems like you know if I ask something about the real estate market. They go multifamily industrial and multifamily industrial and I can say what else is going on and they'll say multifamily and industrial so it really was a continuation of that trend.
Yeah.
I think that's true, but I think that we've seen a resurgence and the other food groups as well so no diminishment and the <unk>.
Level of interest and multifamily and industrial but we've seen a lot of activity and retail office and life Sciences, we said to seniors and health care et cetera.
And I think what you've seen what you saw on the corridor for US Henry was we had a record volume.
And for any quarter and the history of the company in terms of debt placement on $11 billion.
So as we continue to grow our capital markets business, it's both the investment sales side and the capital placement on the <unk>.
That business and they are both growing really rapidly for us.
Great. Thank you.
The next question comes from Michael Funk of Bank of America. Please go ahead.
Yeah. Thank you for the questions. This morning, and all but a few if I could so.
And the return of capital I think last quarter, you said at least 100 volume and share repurchases and I understand the equity event is separate from that so is that still the target for 2021, and I think earlier someone asked about $3 million share in the quarter, which would seem to tie relatively well with that so is that $100 million.
Is that still the target for the year.
And I don't know that we have a target Michael I think that when.
And when we said the $100 million.
And as really a minimum amount through the balance of the year. When we said that back in May.
We have certainly exceeded that by repurchasing close to $250 million and the second quarter.
And the equity event and the NASDAQ where she gave us an opportunity to do that and take some shares out pretty rapidly which was really good for everybody.
At the company, including the shareholders.
We don't have a target for the back half of the year, but we certainly continue to believe that these prices. The stock is undervalued and we will continue to buyback.
Understood and then should we anticipate future equity events.
This quarter is that seen as the as the best use of the cash or would it be more allocation towards buying back common stock what is the thought there.
Well certainly the equity than we did in the quarter.
Specific to the.
Excuse me the specific to the receipt of the NASDAQ shares.
Sort of a 1 time opportunity.
Could that happen again, and the future we hope we can generate.
On the $1 billion and some transaction that would be great.
But.
Other than that it would just be a typical share buybacks on the open market.
Understood and then I think at least 1 of your peers commented that the leasing and funnel is building very well.
It's looking strong relative to last 12 months are you seeing a similar trend with your own leasing Paul.
Yeah, I mean book across all of our markets activities way up.
Companies are getting closer to making the decisions of the return theyre, making their plans and so decisions are being made and longer term commitments are being made and activity in general just as across particularly on office, which was down the most I mean, we're not 100% back to what where the pre pandemic rates.
But certainly the activities there and we anticipate that to continue to grow stronger as we go and get further down and this year.
Yeah.
Understood and I guess.
That that comment implies that the leases that are being contemplated would be more back to a normal term versus some of the shorter term renewals. We've been seeing recently is that correct.
Yeah, I mean look you're seeing a combination of both right you have some companies that are under.
Understand and they have to be back they still don't uncomfortable as to what that future office space needs to be so theyre, making some short term commitments and then you have others, who have already determined what their plan is and are making the longer term commitment because they're also taking advantage of a good net effective market right now where they can make those long term plans.
Understood and then the 1 <unk>.
Last 1 accounting question and I think I understand that but want to make sure. So with the with the partnership unit reduction and the quarter.
Should we think on a proportionate.
And reduction in future period partnership distribution is that how it's working or is there something else and the math there and do you think about us as a model for that.
So I think that's fair if you look at the fee ownership for the partnership it went down from.
Excuse me about 33% to about 20 or 21%.
And so therefore, the allocation to the partnership will go down overtime.
Understood. Okay. Thank you guys very much appreciate it.
Thank you.
As there are no more questions. This concludes our question and answer session I would like to turn the conference back over to Mr. Gostin for any closing remarks.
Yes.
Okay.
Thank you all for joining.
And this call and I look forward to speaking to everybody on the next quarter.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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Okay.
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Yes.