Q2 2021 Piedmont Office Realty Trust Inc Earnings Call
[music].
Please standby were about to begin.
Good day, ladies and gentlemen, and welcome to the Piedmont Office Realty Trust, Inc. Second quarter, 2.2021earnings call all lines have been placed on listen only mode and the floor will be opened for your questions and comments. Following the presentation. If you should require assistance.
For the conference. Please press Star zero on your telephone keypad to reach of live operator.
At this time, it's my pleasure to turn the floor over to Mr. Eddie Gilbert. Please go ahead Sir.
Thank you operator, and good morning, everyone. Thank you for joining us today for Piedmont second quarter of 2021 earnings Conference call.
And last night, we filed our form 10-Q, and our form 8-K that includes our earnings release and our unaudited supplemental information for the quarter ending June 32021, which are available on our website at Piedmont REIT Dot com under the Investor Relations section.
During today's call you will hear for senior executives and Piedmont.
And so on and they may refer to certain non-GAAP financial measures such as the <unk> core <unk> and same store NOI the definitions and reconciliations of these non-GAAP measures are contained in the earnings release and in the supplemental financial information.
During the call the company's prepared remarks and answers to your questions.
And will contain forward looking statements as defined on the private Securities Litigation Reform Act of 1995 of these forward looking statements address matters, which are subject to risks and uncertainties and therefore actual results may differ from those we anticipate and discuss today.
The risks and uncertainties of these forward looking statements are discussed in detail in our press.
And as well as and our SEC filings.
We encourage everyone to review the more detailed discussion related to risks associated with forward looking statements and our SEC filings.
Examples of forward looking statements include those related to Piedmont, future revenues and operating income dividends and financial guidance future leasing.
Released mint activity and the impacts of the COVID-19 pandemic on the company's financial and operational results you should not place any undue reliance on any of these forward looking statements and these statements speak.
Only as of the date they are made.
At this time of our President and Chief Executive Officer, Brent Smith will provide.
And and vetting comments and discuss our second quarter results and accomplishments Brent.
Good morning, everyone and thank you for joining us on today's call as we review, our second quarter financial and operating results on.
On the call with me. This morning are George Wells, our Chief operating Officer, Eddie Gilbert.
Gilbert our executive Vice President of Finance, and Treasurer, and Bobby Bowers, Our Chief Financial Officer, as well as other members of the senior management team.
I would like to begin today by expressing our hope that all of you and your families are well the.
The second quarter really marks the country's reemergence from the economic shadow.
And some opening cost overall us all for year, along with the related concerns around the long term outlook for the office industry.
Office utilization by tenants has improved across the portfolio and fears of a continued large amounts of space being pushed out for sublease of subsided.
While still nowhere near pre Covid.
Good levels 10 of utilization of space seems to be improving roughly 5% of month across the portfolio and this trend is expected to continue into the fall with several of tenant returned to office announcements coinciding with the beginning of the new school year.
That said, our building utilization varies by tenant and by market with the Sun belt markets, leading the way.
The COVID-19 several locations, having over 50% utilization the.
The lowest utilization rates and our portfolio are generally and are few northern markets and perhaps the best described as being a couple of months behind the sunbelt markets and recovery.
As I focus upon the second quarter of 2021, we're very pleased with this quarter.
<unk> <unk> from many perspectives financial results were solid with core <unk> of <unk> 48 per diluted share along with almost a 5% increase and both cash and accrual of same store NOI.
We were particularly encouraged by our leasing accomplishments with 664000 square feet of completed leasing coming from across our.
The portfolio APA.
Proximately, 1 quarter of that total leasing was executed with new tenants.
And notably we achieved significant double digit rollouts and both cash and accrual rents on the leases signed during the quarter.
The weighted average lease term for activity was about 6 years, reflecting long term commitments from our tenants and.
And not just short term solutions and our opinion another indication of the health of our completed leasing activity.
As we mentioned on the first quarter's earnings call. We were very close to completing a 5 year extension with the city of New York for their entire 313000 square feet at 60 broad Street, the public hearing and formal documentation.
And Mentation processes were officially completed during the second quarter and the new lease with the city has been executed and commenced in June.
And the rental rates during the term or and the mid to high $40 per square foot and there is very limited capital associated with this lease.
Clearly this larger Newell ahead of favorable impact for the second.
Second quarter's lease roll of metrics that I just highlighted.
While we are pleased to have the extension in place we're continuing to work with the city on a much longer term renewal, which would include a significant capital outlay to rebuild their space.
As you've seen with both the city's 5 year extension as well as the process for the state of New York's 20 year renewal of completed last year.
Negotiations with larger government and these are complex and <unk>.
Following multiple agencies the department of the city administrative services and with numerous departmental approvals and detailed buildout plans and.
Therefore, well into the negotiation schedules have a tendency to become protracted.
Primarily to accommodate the internal processes and.
Timelines of these multiple constituents.
We will work to complete the longer term renewal as expeditiously as possible and we will continue to keep you updated as we pass significant milestones and the process. Once completed the long term lease should result in a significant straight line and <unk> rollout.
Looking at our the overall leasing activity I would.
Note that the number of leasing prospects and volume of our property tours has improved steadily throughout the year, particularly and our sunbelt markets, which continue to lead the U S recovery.
A detail of significant leases executed during the quarter is included in both of our earnings release and the quarterly supplemental information for your reference.
I would characterize the majority.
Prospects as having per employee space needs and similar to pre pandemic levels, but with more focus on collaboration space and the availability of employee amenities necessary for our customers to attract and retain their workforces and today's very competitive labor market.
With the majority of the millennial cohort now and the family.
40 of ours and stage and with that significant portion of today's workforce migrating to suburban areas for affordable housing ample space and strong school systems. We believe we are well positioned owning nodes of well and monetize high quality office buildings and mixed use environments, located and walkable urban infill areas for.
And for maintenance Cds primary ring road the.
These types of properties have been and high demand and we believe they will continue to benefit from the population migration trends, taking the United States.
Looking forward based on our current prospect pipeline and our tour activity, we anticipate the current leasing momentum to continue into the fall.
Importantly.
For a long for Piedmont, and others and the office sector, the improving leasing volumes of stymie the decline in occupancy, resulting from the pandemic, which brought most new office leasing activity to a virtual halt during 2020.
Our lease percentage was essentially flat changing 110th of a percent during the just completed quarter for.
For Piedmont.
Gently with low expirations for the next 24 months, we expect our leasing percentages to improve by the end of the year and to reach approximately 87%.
I will note that since we tend to sell of our 100% leased properties and to acquire properties with some earnings growth and lease up potential.
Occupancy based on changes constantly due to.
<unk> capital transactions for.
Regardless of that changing baseline, we are working aggressively to grow our occupancy.
Moving to capital transactions activity as I mentioned in last quarters call with the completion of Raytheon's long term 440000 square foot renewal at our $2.25.
And $2.35 presidential way buildings, and Boston and.
And with 10 years of lease term remaining and with a credit worthy tenant we.
We believe the value potential for the assets has been maximized our under our ownership and we therefore began marketing the buildings for sale.
I am pleased to report that during the second quarter we.
These can do a binding contract to sell these 100% leased assets for $129 million or approximately $293 per square foot, 2 and investment grade buyer and.
The sizable gains anticipated and were currently expect the transaction to close around the end of this year.
As we've been doing over the last several.
We entered into we will continue to focus our portfolio expansion and sunbelt markets.
To that and we're looking to recycle of the presidential way proceeds into our strategic Sun belt acquisition, but we have nothing to announce at this time.
Yes.
Finally, I want to mention that our annual ESG report is now available on our website.
Year. This year's report as a broader scope, including all of sustainability accounting standards board metrics and information, which are aligned to the recommendations of the task force on climate related financial disclosure.
In addition to these environmental issues.
It covers our various diversity initiatives, including our financial scholarship program for need based students.
And employee training programs, along with details on our first green bond issuance and corporate governance policies.
And we're extremely proud of the progress that we continue to make on the environmental social and governance areas of the company and I Hope you will take time to review of this important report.
Which covers matters that should concern us all.
As we strive to make our communities and the planet better places to live and work.
With that I'll turn it over to Bobby to walk you through the financial high for the quarter and updated guidance for 2021.
Bobby.
Thanks, Brent I'll discuss some of our financial highlights for the quarter.
<unk> I encourage you to please review the earnings release and supplemental financial information, which were filed last night for more complete details.
As Brent mentioned for the second quarter of 2021, we reported 48 cents per diluted share of core of <unk>.
And our <unk>.
<unk> was approximately $42 million for the second quarter and $80 million year to date, which is well on excess of our current dividend level.
Same store NOI increased 4.8% and for 7% on of cash and accrual basis, respectively.
For the second quarter compared to the same quarter, a year ago, primarily reflecting the burn off of abatements at certain properties and the commencement of new leases with improved economics.
We've previously provided same store guidance for the year and the range of 3% to 5% for.
For both the cash and accrual basis.
However, based upon the completed leasing and financial operating results today.
We're increasing the same store cash guidance for the current year to 5% to 7%.
Leases executed during the second quarter.
Order of 2021 for a recently occupied space reflected an 18, 2% and 27, 4% roll up and cash and accrual rents respectively.
And as Brent also mentioned both metrics were influenced by the city of New York renewal.
But both of those metrics would.
And have been strong even when excluding the sizable renewal at a 4.5% cash roll up and a 15, 2% accrual rollout.
Turning to the balance sheet with collections, having returned to normal pre COVID-19 levels, our balance sheet looks very good.
We'll.
Note that we re classed our 2 presidential way assets to held for sale once the purchase and sell agreement became binding and the earnest money was no longer refundable.
Also all of our debt is now unsecured as we paid off our only remaining secured debt during the second quarter.
Which was a small mortgage previously secured by our 5 wall Street building and Boston.
Our average net debt to core EBITDA ratio as of the end of the second quarter of 2021 was 5.7 times and our debt to gross asset ratio was approximately 34, 6%.
Percent.
We currently have approximately $425 million of the availability on a lot of credit for strategic purposes should we complete and acquisition prior to the closing of the sale around year end of the presidential way properties.
Looking at our debt maturity schedule.
We do plan to refinance later this year, our maturing $300 million term loan with long term unsecured debt that will both extend the maturity schedule and ladder out our maturities with the continued interest and replacing maturing debt with the public bond issuance.
At this.
We did like to review of our previously provided 2021 guidance for core <unk> per diluted share, which was originally of $1.86 to $1.96 per share.
This guidance did not include any acquisition or disposition activity and contained many uncertainties.
Related to the economic recovery post Covid.
Even though the sell of the President's Hawaii properties is pending since this transaction is set close around year and it does not necessitate a change and our guidance.
However, with the leasing completed year to date.
And the limited amount.
Time headed to the sublease space and most of our concentrated submarkets.
Along with property level operating costs being lower than we originally budgeted due to the gradual return to office utilization of our tenants.
We are revising our previous guidance to the upper end of our range between.
Of 90 to $1.96 per diluted share for core <unk>.
And we remain optimistic about our investment strategy, which is consistent with office trends that we believe our target tenants desire.
And we are optimistic about piedmont longer term outlook as well.
We believe.
Leave that together our communities and tenants have weathered the pandemic and are returning to a more normalized operation.
Encouraged by this.
Still remain vigilant and we encourage everyone to get vaccinated.
With that I'll now ask our operator to provide our listeners.
<unk> with instructions on how they can submit their questions. We'll attempt to answer all of your questions now and we'll make appropriate later public disclosure if necessary.
Operator.
Thank you Sir and.
Ladies and gentlemen at this time I'd like to open the.
I'd like.
The open the call for your questions.
And just a moment.
And if you'd like to ask a question at this time of it is star 1 on your Touchtone telephone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
And Thats Star 1 to ask a question at this time and we.
We'll take our first question from Anthony <unk> with J P. Morgan.
Yeah, Hi, thanks.
My first question is just maybe Brent.
If you could walk through your portfolio of pretty broadly and.
In terms of where you're seeing the strongest.
Rebound and activity versus which parts of the portfolio.
And it might be lagging in terms of your markets.
Sure Good morning, Toni Thanks for joining us.
And I'll tick through each of the markets, but just in general I would say Boston continues to be very strong and active.
<unk> labs space, taking out competitive.
<unk> of product and just.
The market that's difficult to build and there's not a lot of construction and we see of good roadway there for continued.
The absorption from our portfolio of at least.
Moving down to New York, obviously very challenged market. It continues to open up.
And we've seen at utilization at our building go over 30, now almost 40% we do have some leasing activity for smaller sized users. If you recall, our 60 broad asset, which is our only asset and New York has a small floor plates at the top of bigger floor plates.
And we've done the state and we just renewed the city. So we can accommodate the smaller users and we've seen them come back into the market. So I think that's a positive and bodes well for New York again, we're thankful we have very limited exposure there, though in DC and Northern Virginia continues to I'd say of be behind Boston, and the sunbelt, but still pretty active.
For the bottom wrong, we continue to see smaller tech tenants active and that market needing anywhere from call. It 5 to 15000 square feet and.
And the district, though I will say it continues to be challenged although we've seen of recent uptick and tour activity, but nothing imminent I would say the district itself.
And most challenged market from a fundamentals and operations standpoint from a leasing.
Moving down into the Sunbelt and Atlanta, we continue to see robust activity.
Across the market, but particularly with what we own around that first ring road, well and minute ties the product.
And easily accessible.
Desire of off the highways and we've continued to have good activity and those markets.
And that market of Submarkets, and Orlando, we've seen a pickup and activity downtown which I think it bodes well and Lake Mary we're well leased at the moment, but again those are both well and monetize nodes and easy accessible off the highway.
And so we're looking to hopefully announce adoption in Orlando and the future here a couple of quarters and Dallas, It's 1 of our strongest markets and as well in line with Atlanta, and Orlando, and maybe and not more so because of the amount of corporate relocations coming into that market I would say its most active on that front, although those users.
<unk> are being pragmatic and their approach, it's entering of new market taking their time.
And looking at options et cetera, but we still see good activity and our portfolio of there from those and signed a large user of this quarter and that market as well as and Orlando for more than 40000 square feet.
And then Minneapolis, I would say the suburbs.
Picked up and activity, we have a number of tours and ongoing proposals for the that part of the portfolio, we are well leased and the CBD and we're thankful for that.
And so it's good.
Because of that area of the market has been more challenged and the suburbs frankly, but overall I'd say we've definitely.
Definitely continue to see activity pick up we've got 75 proposals outstanding and we've frankly been averaging about 20 deals a quarter during the pandemic and we did 44 and the second quarter. So I think we continue to see good leasing velocity as we head into the fall.
And of course schools are going to be starting back here in the Sun belt This month and.
Herbs.
In September and we think that continues to bode well for continued utilization and hopefully that translates into tenants, making decisions as well, but we've been very proud of the 1.3 million square feet. All of those that we've done year to date on the leasing front and we continue to push forward and.
Really low expirations for the.
And the year to take advantage of that.
Okay, great. Thanks for all of that.
And then I just had 2 others 1 is Cvs being 1 of the just for only the large expirations you have and for a while here.
Late next year, what's the.
The mark to market on that.
Remains as well.
Tony They do occupy.
Our 750, West John Carpenter freeway asset and Las Colinas of Great building sort of half a mile from the music factory, great and monetized area there.
It's a little early and the process, but we have had dialogue with them as they continue.
Continue to figure out their space needs.
But I think we continue to feel very.
The positive about where that's headed.
As you point out we have very little of expiring. There. There are only tenant that is greater than 1% of ALR. The expiring between now and the end of 'twenty 2.
So I think we feel.
And that should pan out well the teams here, giving me the exact market to market, but I'd say, it's roughly in line with our portfolio.
Which is about 5% to 10% below so we'll have a nice roll up.
Assuming they renew.
Okay got it thanks, and then just.
The last question just you have.
Parcels of land and I'm, just curious with some of the corporate relocation activity that you've talked about and.
Our new entrants and some of these markets and any shot of any of that getting activated anytime soon like maybe just seem like the parcel adjacent to the Medici and stuff like that.
A few we have had some dialogue with the number of larger user groups that would kick off of development and both the Atlanta and Orlando.
And so I think we continue to be optimistic on that front, but there is nothing imminent and I would say.
And in that regard, we continue to lean and right now on redevelopment.
<unk> got a number of interesting projects and feel like that's a great way to continue to have covered cash flow and enhance our assets whether it be 25 Mall road and Boston are our campus down and downtown Orlando and of course of the gallery and Atlanta, but.
But we have a number of sites that will on the development front keep active on and maybe in 'twenty.
2 of some positive things to share on on that front.
Yes.
Okay, great. Thank you.
We'll take our next day or 2 more.
Sorry.
Sorry, Tony and I thought you said there were 2 more questions.
And Mr. Malone, if you do have another question you can go ahead and Cuba.
I will get you back into the queue well go next to Dave Rodgers with Baird.
Yes, good morning, everybody.
Brian maybe start with you and what kind of work.
And around but from an economic perspective, it seems like you're pretty bullish on kind of a net rents really haven't moved much net effective rents.
And you back us since the pandemic or even through the pandemic and your number of showed that a little this quarter I guess, what's your view on and on net effective rent and the impact on economics, the Covid pad and sublease space has had do you have a view of kind of for the portfolio overall.
I think Dave and thanks for joining us today, I think you've got to take it really mark.
Market by market almost submarket by Submarket when it comes to the competitive sublease space I think and regards to sub lease overall, we found that it's kind of going the other direction and companies are taking it off the market and <unk>.
<unk> been leased so we're not competing heavily against that but maybe and 1 or maybe 2 locations and we've continued.
Beat them out when we have had competitive deals and kept those tenants.
And so overall I don't really see sublease space being too competitive when it comes to the <unk> as you reference I think we would characterize it really face rates and held up very well, but then any ours have eroded depending on the market and the sunbelt.
Balance and say, Boston, and I'd say, it's pretty limited, but it's their zero to 5% and our other markets, though I think it's probably closer to 5 to 10, and maybe D C and New York and and downtown Minneapolis, but the suburbs of many of the continue to hold.
Well and Thats really been because of additional Ti.
And just people feel like they need of Covid discount and with the increase in commodity pricing for.
Construction of the space, that's where they're looking to take the buyout of the landlords hide if you will so.
And we do have seen a little bit of erosion and here is the good news is where our vacancy stands today, whether it's in Dallas and Atlanta.
For Orlando those of the markets, where we've seen the least amount of erosion and we've been able to continue to manage that and.
Portfolio Youll see this quarter, we had about $5 per square foot per year on the capital side, which is kind of in line with the trend we've had pre pandemic almost so we feel pretty good about our ability to continue to hold any of ours.
And yes that is helpful. I appreciate that Brent and then maybe 1 for Bobby.
Can you talk about kind of where deferrals are today, how much you've collected what the plan is there and then also looking for a trend on your parking and ancillary income.
From a dollar basis perspective, and kind of how that's contributing and the first half second quarter.
And the expectation and guidance.
Sure on your preferred.
And you might remember we have a limited number of deferrals.
Gabe and they were primarily to our retail customers in total of about <unk>.
70 agreements that we entered into and we had about 6.
Millions of dollars.
Deferrals.
Over a third of that collected last year and the remaining portion to be paid this year.
And our cash same store NOI numbers include and our original forecast.
And primarily 3% to 5%.
It was about 1% related to the workouts, we've collected most of that and we still have some of this outstanding and to be honest I've got reserves against all of the remaining balances of there.
And right around $1 million.
Does that answer your question.
And that does on the deferrals and and.
And then maybe on parking and ancillary income what are you seeing in terms of the improvement sequentially from the first quarter and is that helping out the guidance for the second half of the year as well.
Yes, Andy Scott those numbers here on the parking.
And obviously that is tied closely to our utilization.
And when we originally budgeted this year.
Here, we took a fairly conservative view on that but Andy if you want to comment specifically on how much was parking for sure Hey, Dave Yes.
<unk>.
Basically sort of trough the out at the and ending part of 2020, we've started the increase here in 'twenty 1.
And we.
And of our parking income which is on.
A little bit more than 1% of our annual revenue and about 70% of that is contractual meaning it's embedded and leases and 30% of that historically been transient parking on.
And obviously it was really the transient parking and they got hit we did see an increase over the first.
2 quarters of let's just call it about $200000 increase.
And we would expect to come back to at least currently and our thought is and by the beginning of <unk>.
2022 that we'll be back to more normalized levels. So we would expect to see and increase in Q3 and in Q4.
For the parking really is a relatively small number.
And.
Of our revenue state.
Yes, no thats fair to good indicator of the people getting back to work. So thank you and then last maybe I don't know, if Brent or Chris or whoever wants to take this on just on the acquisitions you talked about trying to find the strategic Sunbelt acquisition. It sounds like Youre looking at something specifically I guess.
Can you talk about the acquisition market broadly are you finding discounts and opportunities out there or have interest rates cap rates really stabilized and not really providing maybe a substantial discount of opportunities.
Thank you and Dave This is Brian again.
We're looking to price cycle, obviously, we had the Raytheon proceeds.
Coming towards the end of the year, but likely 2 to 200 of 400 million and then the next 12 months or so and.
We continue to focus on those markets, where we do see the most leasing velocity and that being the sunbelt and Boston.
And we're always having more off market discussions there is nothing eminent but we do feel like something might come to fruition and.
And that would be a good opportunity to recycle into the deals. We're looking at to again would be existing market potentially of new submarket, but would follow our strategy of of well located and monetized assets that are and a slightly older and older vintage, but have great bones, and a means by which we can enhance value.
So I think we.
And we'll continue to keep the market of abreast of that but there's nothing imminent at this point I could point to and say, we're going to get that went in the door, but from a pricing perspective, I think youre going to see and the strong markets, where you're still having activity and growth pricings down modestly zero, 5%.
What we see is the benefit right now is we're just limited competition.
And maybe more is coming and now might be the time the strike.
And.
The northern markets were not really heavily looking at I'd say values of impaired maybe a little bit more but to your point interest rates have held and frankly, what has held really well as our raytheon disposition.
And I think exemplifies having 10 years of term on that deal and others that we see and the market of similar profile have continued to price frankly, almost through COVID-19 levels, but I would say sunbelt down zero to 5% and some of these other markets New York Minneapolis, maybe 5 to 15 plus.
If you go.
Go to the West coast, and San Francisco et cetera, but obviously, we don't operate there to help them.
Very helpful. Thanks, everyone.
Yes.
We'll take our next question from Joab Dempsey with true it.
Yes.
Hi, good morning, everyone and thanks for taking the questions of course.
First of all.
Are you able to disclose the cap rate the recently announced that we will go and transaction.
Well, we don't give specific cap rates, but thank you for joining this morning, Joe Ed.
I can't give you a range and so we would say thats in the mid to high fives cap rate.
Okay, great great and.
Secondly, the sort of piggybacking on that on the earlier on exploration question that you know as it relates to the PBF USA and Brian cargo do you have like and early sense of whether those tenants what day and and would that 5% to 10% Mark to market. You mentioned earlier, Brent would that apply to all Florida properties.
[noise].
Well, that's the 5% to 10% we referenced was really the portfolio as a whole in terms of our mark to market. There was a specific question around.
And the Cvs lease, which I said also kind of fell within that range and parameter, but we don't usually provide mark to markets for specific assets or tenants generally, but that's kind of the range for Cvs.
And as.
As we think about the overall.
Other tendency that you mentioned, it's a little early to say the engage on some of those given there beyond 'twenty 2.
And so we will continue as we always do have regular dialogue with our tendency.
And to meet their needs wherever.
It may be the <unk> as they return to work if they are a larger corporation and Havent already.
But at this point, it's a little early to speculate but.
But we still always feel good about kind of our relationship with those firms and they're using their space and I wouldn't see any reason to be concerned at this point and we will keep you apprised as we continue to have more dialogue with those that are further out.
Yes, again beyond 'twenty 2.
Okay. Thanks, Brad and then lastly have.
Have you seen any changes in the house.
Ken It's 1 of the utilize their space.
Have you seen much and the way of.
Space reconfiguration requests coming in.
Yes.
We've seen.
Yeah.
I'd say in general there's been a modest densification.
And obviously of much greater focus on I'd say 2 factors 1 the collaboration space and of more hospitality field to the office environment as well as outdoor space being very important.
Tenants that we have coming in.
<unk> and tenants coming into the building so I'd say that's been the focal point.
To date, there really the overall I would not say I've seen of trend.
And really the existing tenancy some of our larger tenants are spending their own capital to flow.
Change or the densify their own space.
The new rate a little bit more of collaboration space et cetera.
And that's an interesting phenomenon, but I don't think it's overall dramatically changing the environment in which they already exist and again that was on their own dime and I.
I think the as I mentioned on our last call of tenant describe that effort is.
And making their space more like of we work.
Which was an interesting comment to say that they are creating a little bit more of getting that hospitality feel.
And making it a place to be of culture kind of building environment and I think all of the more important to create those different activities and an office building that can create health companies.
Companies attract and retain that talent kind of mid.
And he is around them walkable et cetera.
Great. Thanks, so much price that's all I had thank you.
And once again, ladies and gentlemen that star 1 on your Touchtone telephone if you would like to ask a question star 1 at this time. Please we will go next to Daniel.
And now with Green Street.
Great. Thank you and we're building utilization of and the returns of office any trends in terms of the return to office by the size of tenants or the industry of those tenants are on.
I think we've seen I wouldn't say.
The industry was certainly by size and Danny and thanks for joining this morning.
I would say the small tenancy of already and they were back frankly at the end of last year.
Because of the level I think of.
The lower concern for.
And what potential lawsuit.
From employees concern.
They buy it but also the ability to space out more within their own environment smaller users under 5000 square feet typically know each other well and they were more comfortable coming back we saw the medium sized tendency also return.
And also call it middle of this year.
And really starting to picking up in June.
And as we've talked about.
And for the most part I think we've seen a few larger tenants, but they have continued to be out of the office.
The overall, so and I would characterize them as being kind of 25000 square feet, maybe 50000 square feet or greater.
And it also depends on just if there of national firm or a smaller.
Smaller local firm because we have several local firms even within this building to take up 50000 square feet and have a lot of their employees back. The gallery is also a good example of where we have some buildings that are approaching over 75% utilization and of course, we always have the mission critical facilities no matter, where they are that have always been active during.
And <unk>.
But I think hopefully that gives you a little bit of color I think labor day will be.
No.
The leg up and we are.
Watching the <unk>.
<unk> very very closely but we have not at least the tenants were engaged and their return to the work place have not backed off.
That said timber number although there are a number of the headlines I think both of us of and you've probably seen that some of the technology companies have been a little bit more shy of returning to the office large technology company.
Great. That's helpful. And then Bruce you mentioned, a few times, the growing demand and sunbelt markets and.
And in the past have mentioned the need to have significant pre leasing to start of developments.
Just curious if there's any change to that thinking or perhaps.
Perhaps a bit more willing to take a bit more risk given the strong demand backdrop.
Okay.
Yes.
It's a good question Danny.
And I think our peers of the developers that we talk to are getting more bullish on the market. However, I think we're a little bit more cautiously optimistic if you will so we're looking for something that pre leasing is.
50% or so maybe it's come down a little bit just given the volume that we're seeing start to kick tires.
And these markets, but we're still going to have it be meaningfully pre leased and that regard and would not put a shovel on the ground.
To accomplish that so we will keep an eye on other developers who seem to be implying they may go and I think 1 of the announced here in Atlanta, and maybe others and some of the sunbelt markets, but we're going to be a little more pragmatic.
Got it and then last 1 for me.
And regarding the potential acquisitions, as well as future dispositions or any of those.
Our portfolio deals on either side of the coin being considered or should we continue to look for Piedmont to sell assets as they get stabilized and look to deploy and so.
Another single asset type deal.
I think it's of Great question, Danny and I think we're always going to be engaged and the regular blocking and tackling to harvest values, we created with well leased assets and buy opportunities to create value for our shareholders and and utilize the platform to do so.
<unk>.
So I think we're going to continue to.
Look for.
Everything that's out there whether it's the portfolio of single asset.
We're looking in those markets I think we described Boston and the Sunbelt as being most active right now.
So don't ever.
The count on a portfolio opportunity and we'll continue to look at them as they arise.
So I would say everything's on the table at this point.
Great. Thanks, Greg.
And ladies and gentlemen that does conclude the Q&A session for today at this time I'd like to turn the conference back over to Mr. <unk>.
Smith for closing remarks.
Well I appreciate everyone joining us today.
And then.
The productive and I appreciate.
We've got a really what we think has been a great start to 2021, we think that's going to carry into the later half of this year with very little explorations again, 3% of.
So and very manageable debt maturities.
And the portfolio of vacancy as I said sits and Theres more active markets of Atlanta, Dallas, Orlando and Boston and.
And we haven't touched on today, but I'm really proud of our best in class ESG platform.
And we've really pair that with some high quality of minutes size of environment that I think positions us well for.
The all of our chance to get some corporate larger corporate users, but I encourage the investors to check out on our website that latest ESG report.
Been posted as well.
And thank everyone for your time and.
Well reconvene in October and thank you.
Ladies and gentlemen, this does conclude today's.
Conference. We appreciate your participation you may disconnect at this time and have a great day.
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Good day, ladies and gentlemen, and welcome to the Piedmont Office Realty Trust, Inc. Second quarter, 2.2021 earnings call all lines have been placed.
And the listen only mode and the floor will be opened for your questions and comments following the presentation and.
If you should require assistance throughout the conference. Please press star zero on your telephone keypad to reach of live operator.
At this time, it's my pleasure to turn the floor over to Mr. Eddie Gilbert. Please go ahead Sir.
Thank you operator.
Morning, everyone. Thank you for joining us today for Piedmont second quarter of 2021 earnings Conference call last night, we filed our form 10-Q, and our form 8-K that includes our earnings release and our unaudited supplemental information for the quarter ending June 32021, which are available on our website at.
At Piedmont, REIT Dot com under the Investor Relations section during.
During today's call you will hear from senior executives of Piedmont, and they may refer to certain non-GAAP financial measures such as the <unk> core <unk> and same store NOI the.
The definitions and reconciliations of these non-GAAP measures are contained in the earnings release and then.
And the supplemental financial information.
Also during the call the company's prepared remarks and answers to your questions will contain forward looking statements as defined in the private Securities Litigation Reform Act of 119.95 of these forward looking statements address matters, which are subject to risks and uncertainties and therefore actual results may differ from those we anticipate.
And discussed today.
The risks and uncertainties of these forward looking statements are discussed in detail in our press release as well as and our SEC filings.
We encourage everyone to review the more detailed discussion related to risks associated with forward looking statements and our SEC filings.
Examples of forward looking statements include those.
And related to Piedmont, future revenues, and operating income dividends and financial guidance future leasing and investment activity and the impacts of the COVID-19 pandemic on the company's financial and operational results you should not place any undue reliance on any of these forward looking statements and these statements speak.
Only.
Those are of the date they are made.
At this time of our President and Chief Executive Officer, Brent Smith will provide some opening comments and discuss our second quarter results and accomplishments Brent.
Good morning, everyone and thank you for joining us on today's call as we review, our second quarter financial and.
And operating results on the call with me. This morning are George Wells, our Chief operating Officer, Eddie Guilbert, Our executive Vice President of Finance, and Treasurer, and Bobby Bowers, Our Chief Financial Officer as well as other members of the senior management team.
I would like to begin today by expressing our hope that all of you.
As of families are well the.
The second quarter really mark the country's reemergence from the economic Shadow of Covid cast overall us all for year, along with the related concerns around the long term outlook for the office industry.
Office utilization by tenants has improved across the portfolio and fears of the continued.
You and your large amounts of space being pushed out for sublease have subsided.
And while still nowhere near pre Covid levels cash utilization of space seems to be improving roughly 5% of month across the portfolio and this trend is expected to continue into the fall with several tenant returned to office announcements coinciding with the beginning of the New school.
That said, our building utilization varies by tenant and by market with the Sun belt markets, leading the way with several locations having over 50% utilization.
And the lowest utilization rates and our portfolio are generally and are few northern markets and perhaps best described as being a couple of months behind the sunbelt markets.
And recovery.
As I focus upon the second quarter of 2021, we are very pleased with this quarter's achievements from many perspectives financial results were solid with core <unk> of <unk> 48 per diluted share along with almost a 5% increase and both cash and accrual of same store NOI.
We were particularly.
Full year hedged by our leasing accomplishments for the 664000 square feet of completed leasing coming from across our entire portfolio.
Approximately 1 quarter of that total leasing was executed with new tenants and.
And notably we achieved significant double digit roll ups, and both cash and accrual rents on the leases signed during the quarter.
The weighted average lease term for activity was about 6 years, reflecting long term commitments from our tenants and not just short term solutions and our opinion another indication of the health of our completed leasing activity.
As we mentioned on the first quarter's earnings call. We were very close to completing a 5 year extension with the city.
The increase for their entire 313000 square feet at 60 Broad Street.
And the public hearing and formal documentation processes were officially completed during the second quarter and a new lease with the city has been executed and commenced in June.
The rental rates during the term or and the mid to high $40 per square foot and there is.
Very limited capital associated with this lease.
Clearly this large renewal had a favorable impact for the second quarter lease rolled metrics that I just highlighted.
While we are pleased to have the extension in place we're continuing to work with the city on a much longer term renewal, which would include a significant capital outlay to rebuild their space.
<unk> seen with both the city's 5 year extension as well as the process for the state of New York's 20 year renewal of completed last year negotiations with larger government and these are complex involving multiple agencies. The department of city of administrative services and with numerous departmental approvals and detailed build out plans.
And therefore.
As you well into the negotiation schedules have a tendency to become protracted.
Primarily to accommodate the internal processes and timelines of these multiple constituents.
We will work to complete the longer term renewal as expeditiously as possible and we will continue to keep you updated as we pass significant milestones and the process. Once completed the long term leash result.
And the significant straight line and <unk> rollout.
And looking at our the overall leasing activity.
Note that the number of leasing prospects and volume of our property tours has improved steadily throughout the year, particularly and our sunbelt markets, which continue to lead the U S recovery.
A detail of significant leases executed during.
During the quarter is included in both of our earnings release and the quarterly supplemental information for your reference.
I would characterize the majority of our prospects as having per employee space needs and similar to pre pandemic levels, but with more focus on collaboration space and the availability of employee amenities necessary for our customers to attract and retain their workforce.
Verses the days very competitive labor market.
With the majority of the millennial cohort now and the family formation stage and with that significant portion of today's workforce migrating to suburban areas for affordable housing ample space and strong school systems.
We believe we are well positioned oney nodes.
<unk> monetized high quality office buildings, and mixed use environments, located and walkable urban infill areas for a long of Cds primary ring Road.
These types of properties had been and high demand and we believe they will continue to benefit from the population migration trends, taking the United States.
Looking forward based on our current.
The of Welbeck pipeline and our tour activity, we anticipate the current leasing momentum to continue into the fall.
And importantly for Piedmont, and others and the office sector, the improving leasing volumes of stymie the decline in occupancy, resulting from the pandemic, which brought most new office leasing activity to a virtual halt during 2020.
Our lease percentage was essentially flat changing 110th of a percent during the just completed quarter.
For Piedmont with low expirations for the next 24 months, we expect our leasing percentages to improve by the end of the year and to reach approximately 87%.
And we'll note that since we tend to sell of our 100% leased properties.
Crossfire properties with some earnings growth and lease up potential occupancy based on changes constantly due to these capital transactions.
Regardless of that changing baseline, we are working aggressively to grow our occupancy.
Moving to capital transactions activity.
As I mentioned in last quarter's.
And with the completion of Raytheon's long term 440000 square foot renewal at our $2.25, and $2.35 presidential way buildings and Boston.
And with 10 years of lease term remaining and with a credit worthy tenant.
We believe the value potential for the assets has been maximized our under our ownership.
Call, Therefore began marketing the buildings for sale.
I am pleased to report that during the second quarter, we entered into a binding contract to sell these 100% leased assets for $129 million or approximately $293 per square foot, 2 and investment grade buyer.
The sizable gains anticipated and were.
And we.
The transaction to close around the end of this year.
As we've been doing over the last several years, we will continue to focus our portfolio expansion and sunbelt markets.
To that and we're looking to recycle the presidential way proceeds into our strategic Sun belt acquisition, but we have nothing to announce at this time.
Of your current finally, I want to mention that our annual ESG report is now available on our website.
This year's report as a broader scope, including all of sustainability accounting standards board metrics and information, which aligns of the recommendations of the task force on climate related financial disclosure.
In addition to these environmental issues the report.
For coverage.
For various diversity initiatives, including our financial scholarship program for need based students and employee training programs along with details on our first green bond issuance and corporate governance policies.
We are extremely proud of the progress that we continue to make on the environmental social and governance areas of the company and I Hope you.
Covers are take time to review this important report.
Which covers matters that should concern us all as we strive to make our communities and the planet better places to live and work.
With that I'll turn it over to Bobby to walk you through the financial high for the quarter and updated guidance for 2021 Bobby.
Yes.
Thanks, Brent I'll discuss some of our financial highlights for the quarter I encourage you to please review the earnings release and supplemental financial information, which were filed last night for more complete details.
As Brent mentioned for the second quarter of 2021, we reported 40.
8 cents per diluted share of core <unk>.
And our <unk> was approximately $42 million for the second quarter and $80 million year to date, which is well in excess of our current dividend level.
Same store NOI increased 4.8%.
And for 7% on of cash and accrual basis, respectively for the second quarter compared to the same quarter, a year ago, primarily reflecting the burn off of abatements at certain properties and the commencement of new leases with improved economics.
And we've previously.
We provided same store guidance for the year and the range of 3% to 5% for both the cash and accrual basis.
However, based upon the completed leasing and financial operating results to date.
We're increasing the same store cash guidance for the current year to 5.
The 7%.
Leases executed during the second quarter of 2021 for recently occupied space reflected an 18, 2% and 27, 4% roll up and cash and accrual rents respectively.
And as Brent also mentioned.
Both metrics were influenced by the city of New York renewal.
But both of those metrics would have been strong even when excluding the sizable renewal at a 4.5% cash roll up and a 15, 2% accrual rollout.
Turning to the balance sheet with collections, having returned to normal.
Immel pre COVID-19 levels, our balance sheet looks very good.
You will note that we re classed our 2 presidential way assets to held for sale once the purchase and sell agreement became binding and the earnest money was no longer refundable.
Also all of our debt is now.
Secured as we paid off our only remaining secured debt during the second quarter, which was a small mortgage previously secured by our 5 wall Street building and Boston.
Our average net debt to core EBITDA ratio as of the end of the second quarter of 2021 was 5.7.
7 times and our debt to gross asset ratio was approximately 34, 6%.
We currently have approximately $425 million of availability on a lot of credit for strategic purposes should we complete and acquisition prior to the closing of the sale around year end.
Unpresidential Hawaii properties.
Looking at our debt maturity schedule, we do plan to refinance later this year, our maturing $300 million term loan with long term unsecured debt that will both extend the maturity schedule and ladder out our maturities with the continued interest and replace.
Replacing maturing debt with the public bond issuance.
At this time I'd like to review of our previously provided 2000 and 'twenty 1 guidance for core <unk> per diluted share.
Which was originally of $1.86 to $1.96 per share.
This guidance did not include.
Of the printing acquisition or disposition activity income.
Contained many uncertainties related to the economic recovery post COVID-19.
Even though the sell of the President's Hawaii properties is pending since this transaction is set to close around year and it does not necessitate a change and our guidance.
However, with the leasing completed year to date.
And the limited amount of competitive sublease space and most of our concentrated submarkets and.
Along with property level operating costs being lower than we originally budgeted due to the gradual return to office utilization by our tenants we.
Include the revising our previous guidance to the upper end of our range between $1.90 to $1.96 per diluted share for core <unk>.
And we remain optimistic about our investment strategy, which is consistent with office trends that we believe our target tenants desire.
We are and we are optimistic about piedmont for longer term outlook as well.
We believe that together our communities and tenants have weathered the pandemic and are returning to a more normalized operation.
Encouraged by this but still.
And vigilant and we encourage everyone.
To get vaccinated.
With that I'll now ask our operator to provide our listeners with instructions on how they can submit their questions. We will attempt to answer all of your questions now and we'll make appropriate later public disclosure if necessary.
Operator.
Thank you Sir and.
Ladies.
Ladies and gentlemen at this time I'd like to open the.
I'd like to open the call for your questions.
Just a moment.
And if you'd like to ask a question at this time of the Star 1 on your Touchtone telephone. Please make sure. Your mute function is turned off to allow your signal.
We want to reach our equipment.
And again Thats Star 1 to ask a question at this time and we will take our first question from Anthony <unk> with J P. Morgan.
Yeah, Hi, thanks.
My first question is just maybe Brent if you could walk through your portfolio of pretty broadly.
In terms of where.
Where youre seeing the strongest rebuy.
The rebounding activity versus which parts of the portfolio might be lagging in terms of the markets.
Sure.
And Tony Thanks for joining us.
I'll tick through each of the markets, but just in general I would say Boston continues to be.
Very strong and active and continued lab space, taking out competitive product and just.
Market, that's difficult to build in and there's not a lot of construction and we see of good roadway there for continued.
<unk> from our portfolio of at least.
Moving down to New York.
And obviously very challenged market. It continues to open up.
And we've seen at utilization at our building go over 30, now almost 40% we do have some leasing activity for smaller sized users. If you recall, our 60 broad asset, which is our only asset and.
And in New York has a small floor plate at the top of bigger floor plates of the bottom of where we've done the state and we just renewed the city. So we can accommodate the smaller users and we've seen and come back into the market. So I think thats, a positive and bodes well for New York again, we're thankful we have very limited exposure there though.
D C Northern Virginia continues to.
I'd say of be behind Boston, and the sunbelt, but still pretty active and strong we continue to see smaller tech tenants active and that market needing anywhere from call. It 5 to 15000 square feet.
And in the district, though I will say it continues to be challenged although we've seen of <unk>.
Click and tour activity, but nothing imminent I would say the district itself is our most challenged market from a fundamentals and operations standpoint from a leasing.
Moving down into the Sunbelt and Atlanta, we've continued to see robust activity.
Across the market, but particularly with what we own.
And of that first ring road, well and many ties the product.
And easily accessible off the highways and we've continued to have good activity and those markets and that market of Submarkets and Orlando, we've seen a pickup and activity downtown which I think it bodes well and lake Mary where well.
For the moment, but again those are both well and monetize nodes and easy accessible off the highway.
And so we're looking to hopefully announcement of adoption and Orlando and the future here a couple of quarters and Dallas, It's 1 of our strongest markets and as well in line with Atlanta, and Orlando, and maybe and not more so because of the amount of corporate relocations.
Around coming into that market I would say its most active on that front, although those users are being pragmatic and their approach, it's entering of new market, taking their time and.
And looking at auctions et cetera.
Still see good activity and our portfolio of there from those and signed a large user of this quarter and that market as well as and Orlando.
<unk> for more than 40000 square feet and.
And then Minneapolis, I would say the suburbs of picked up and activity, we have a number of tours and ongoing proposals for the.
And that part of the portfolio, we are well leased and <unk>.
And we're thankful for that and.
And so it's good.
Because of that area of the.
And if it has been more challenged and the suburbs frankly, but overall I'd say, we've definitely continue to see activity pick up we've got 75 proposals outstanding and we've frankly been averaging about 20 deals a quarter during the pandemic and we did 44 and the second quarter. So I think we continue to see good leasing velocity as we head into the.
The market.
And of course schools are going to be starting back here in the Sun belt, This month and and the North and September and we think that continues to bode well for continued utilization and hopefully that translates into tenants, making decisions as well, but we've been very proud of the $1.3 million square feet. All of those that we've done year to date on the leasing front.
The fall, we continue to push forward and have.
It really low expirations for the remainder of the year to take advantage of that.
Okay, great. Thanks for all of that.
And then I just have 2 others 1 is Cvs being 1 of the just for only the large expirations you have and for a while here.
Late next year, what's the mark to market on that right.
Well.
Tony They do occupy.
Our 750, West John Carpenter freeway asset and Las Colinas and great building.
Half a mile from the music factory, great and monetized.
And for you there.
It's a little early and the process, but we have had dialogue with them as they continue to figure out their space needs, but I think we continue to feel very.
Positive about where that's headed.
As you point out and we have very little expiring do there are only tenant that is.
<unk> and 1% of ALR of the expiring between now and the end of 'twenty 2.
So I think we feel like that should pan out well. The teams are giving me the exact market to market, but I'd say, it's roughly in line with our portfolio, which is about 5% to 10% below so we will have a nice roll up.
They.
Greater than.
Okay got it thanks and then.
The last question just you have a few parcels of land and I'm just curious with some of the corporate relocation activity that you've talked about.
New entrants and some of these markets and any short of any of that getting activated anytime soon.
They renew it seemed like the parcel adjacent to the magnitude and stuff like that.
Okay.
We have had some dialogue with the number of larger user groups that would kick off of development and both the Atlanta and Orlando.
And so I think we continue to be optimistic on that front, but there is.
And like the imminent I would say.
And in that regard, we continue to lean and right now on redevelopment and got a number of interesting projects and feel like that's a great way to continue to have covered cash flow and enhance our assets whether it be 25 Mall road up and Boston are our campus down and downtown Orlando and of course of the gallery and Atlanta.
Nothing, but we have a number of sites that will on the development front keep active on and maybe in 'twenty 2 of some positive things to share on on that front.
Okay, great. Thank you.
We'll take our next day or 2 more sorry.
Sorry.
Sorry, Tony and I thought you said there were 2.
Questions.
Yes.
And Mr. Paul on if you do have another question you can go ahead and queue back up I will get you back into the queue. We will go next to Dave Rodgers with Baird.
Yes, good morning, everybody.
Brian maybe start with you and kind of our way around but from an economic perspective.
It seems like you're pretty bullish on kind of the.
Rents really haven't moved much net effective rents the since the pandemic or even through the pandemic and your numbers showed that a little this quarter I guess, what's your view on and on net effective rent and the impact on the economics that Covid pad and sublease spaces had do you have a view of kind of.
For the portfolio overall.
I think Dave and thanks for joining us today, I think you've got to take it really market by market and almost submarket by Submarket. When it comes to the competitive sublease space I think and regards to sublease overall, we found that it is kind of going the other direction and companies are taking it off the market and <unk>.
<unk> been leased.
So we're not competing heavily against that but maybe and 1 or maybe 2 locations and we've continued to beat them out when we have had competitive deals and kept those tenants.
And so overall I don't really see sublease space being too competitive when it comes to the <unk> as you reference I think we would characterize it really.
Really face rates have held up very well, but then any ours have eroded depending on the market in the sunbelt and say Boston I'd say, it's pretty limited, but it's their zero to 5%.
And our other markets, though I think it's probably closer to 5 to 10, and maybe DC, and New York and and downtown Minneapolis, but the suburbs of many.
We have to continue to hold.
Well and Thats really been because of additional Ti right and just people feeling they need of COVID-19 discount and with the increase in commodity pricing for.
For for construction of the space, that's where they're looking to take the buyout of the landlords hide if you will so we.
We do have seen a little bit of erosion in the yards. The good news is where our vacancy stands today, whether it's the Dallas Atlanta Orlando those of the markets, where we've seen the least amount of erosion and we've been able to continue to manage that in the.
The portfolio Youll see this quarter, we had about $5 per square foot per year on the capital side, which is kind of in line with the trend.
We've had pre pandemic almost so we feel pretty good about our ability to continue to hold any of ours.
Yes.
Yes that is helpful. I appreciate that Brent and then maybe 1 for Bob.
Can you talk about kind of where deferrals are today, how much you've collected what the plan is there and then also looking.
Kind of on your parking and ancillary income.
From a dollar basis perspective, and kind of how that's contributing and the first half second quarter and the expectation and guidance.
Sure on your hurdles you might remember we had a limited number of deferrals that we gave and they were primarily.
For a 2 to customers the total of about.
70 agreements that we entered into and we had about $6 million.
Deferrals.
Over a third of that collected last year and the remaining portion to be paid this year.
Our cash.
2 of our restore NOI numbers included in our original forecast about the primary.
And remember it was 3% to 5% was about 1% related to those workouts. We've collected most of that and we still have some of this outstanding and to be honest about GAAP reserves against all of the remaining balances of their.
And right around $1 million.
Does that answer your question.
And that does on the deferrals and then maybe on parking and ancillary income what are you seeing in terms of the improvement sequentially from the first quarter and is that helping out the guidance for the second half of the year as well.
And any Scott those numbers here.
The same for parking.
The asleep at the time.
Moving to our utilization.
And when we originally budgeted this year, we took a fairly conservative view on that but if you want to comment specifically on how much was partnering for sure Hey, Dave.
And we.
Basically sort of trough out at the end.
And the part of 2020, we've started the increase here in 'twenty 1.
We.
Of our parking income which is.
More than 1% of our annual revenue of about 70% of that is contractual meaning embedded and leases and 30% of that history.
Historically, the transient parking on obviously it was really the transient parking and they got hit we did see an increase over the first 2 quarters of let's just call it about $200000 increase.
And we would expect to come back to at least currently and are thought of and by the beginning of.
2022 that.
It will be back to more normalized levels. So we would expect to see and increase in Q3 and in Q4.
And the parking really is a relatively small number and our.
The other.
Of our revenue stream.
Yes, no thats fair to good indicator of the people getting back to work. So thank you and then last maybe I don't know if Brent.
Brent or Chris or whoever wants to take this 1 just on the acquisitions you talked about trying to find the strategic Sunbelt acquisition. It sounds like Youre looking at something specifically I guess can you talk about the acquisition market broadly are you finding discounts on opportunities out there or have interest rates cap rates really stabilized and not really providing maybe a substantial discount of opportunities.
And so Dave this is Brent again.
We're looking to price cycle, obviously, we had the Raytheon proceeds coming towards the end of the year, but likely 2 to 200 of 400 million and then the next 12 months or so and.
And we continue to focus on those markets, where we do see the most leasing velocity and that being the sunbelt and Boston.
And we're always.
Always having more off market discussions there is nothing imminent, but we do feel like something might come to fruition and that would be a good opportunity to recycle into the deals. We're looking at to again would be existing market potentially of new submarket, but would follow our strategy of of well located and monetized assets that are slightly older and older.
Older vintage, but have great bones, and a means by which we can enhance value.
So I think we will continue to keep the market of abreast of that but nothing imminent at this point I could point to and say, we're going to get that 1 in the door.
From a pricing perspective.
Youre going to see and the strong market.
And you're still having activity and growth pricings down modestly zero, 5% I think what we see the benefit right. Now is we're just limited competition.
And maybe more is coming and now might be the time to strike.
And.
Northern markets were not really heavily looking at I'd say values have been impaired maybe a little bit more.
<unk> for your point interest rates have held and frankly, what has held really well as our Raytheon disposition exemplifies having 10 years of term on that deal and others that we see and the market of similar profile have continued the price frankly, almost through COVID-19 levels, but I.
And I'd say sunbelt down zero to 5% and some of these other.
And but it's New York Minneapolis, maybe 5 to 15 plus.
If you go to the West Coast, and San Francisco et cetera, obviously, we don't operate there.
Very helpful. Thanks, everyone.
Yes.
We'll take our next question from Joab Dempsey with.
The truth.
Yeah.
Hi, good morning, everyone and thanks for taking the question first of all of you able to disclose the cap rate the rest.
And we announced that will go on and transaction.
Well, we don't give specific cap rates, but thank you for joining this morning.
And I can't give you a range and so.
And we would say thats in the mid to high fives cap rate.
Okay, Great Great and then just secondly, the sort of piggybacking on on the earlier.
Exploration question as it relates to the PBF USA and Brian cargo.
Like in the early sense of whether those tenants what day and.
And would that 5.
The 10% Mark to market, you mentioned earlier, Brian would that apply to all 4 of the property.
What was the 5% to 10% we referenced was really the portfolio as a whole in terms of our mark to market. There was a specific question around.
Of the Cvs lease, which I said also kind of fell within that range and parameter, but we.
Provide mark to markets for specific assets or tenants generally, but that's kind of the range for Cvs as we think about the overall.
The other tendency that you mentioned, it's a little early to say the engage on some of those given their beyond 'twenty 2.
And so we'll continue.
As we always do have regular dialogue with our tendency helping them to meet their needs wherever it may be the as they return to work if they're a larger corporation and having already.
But at this point, it's a little early to speculate.
But we still always feel good about kind of our relationship with those firms and they're using their space and I wouldn't see any 1.
<unk> to be concerned at this point and we will keep you apprised as we continue to have more dialogue with those that are further out.
Again beyond 'twenty 2.
Okay. Thanks, and then lastly have you seen any changes and how Ken.
And just wanted to utilize their space.
Have you seen much and the way of.
On the reason reconfiguration request coming in.
We've seen.
I'd say in general there's been a modest densification and obviously of much greater focus on I would say 2 factors 1 the collaboration space and of more hospitality field to the office environment as.
As well as outdoor space being very important.
Tenants that we have coming in to new tenants coming into the building. So I'd say that's been the focal point.
To date, there really the overall I would not say I've seen of trend.
And really the existing tenancy some of our larger.
Tenants are spending their own capital to flow.
James your deed into by their own space create a little bit more of collaboration space et cetera.
And that's an interesting phenomenon.
And I don't think its overall dramatically changing the environment in which they already exist and again that was on their own.
Dime and.
I think the as I mentioned on our last call.
And it describe that effort is making their space more like of we work.
Which was an interesting comment to say that they are creating a little bit more of a given that hospitality feel and.
Making it a place to be of culture kind of building.
And I think all of the more important and to create those different activities and an office building that can create help companies attract and retain that talent, having many of these around them walkable et cetera.
Great. Thanks, so much Brad that's all I had thank you.
And once again, ladies and gentlemen that star 1.
<unk> your touch tone telephone if you would like to ask a question star 1 at this time. Please we will go next to Daniel Ismail with Green Street.
Great. Thank you reported utilization and the returns of office and.
The trends in terms of the returns of office by the size of tenants or.
1 on history of those tenants are on.
I think we've seen I wouldnt say by industry, but certainly by size Danny and thanks for joining this morning.
I would say the small tenancy of already and they were back frankly at the end of last year.
And because of the lack of lower.
Sure concern for.
On.
And the potential lawsuit from employees concern for the health, but also of the ability to space out more within their own environment smaller users under 5000 square feet typically know each other well and they were more comfortable coming back we saw the medium sized tendency also return.
And also call it middle of this year and.
Really starting to picking up in June as we've talked about.
And for the most part I think we've seen a few larger tenants, but they have continued to be out of the office.
Overall, so and I'd characterize them as being kind of 25000.
<unk> thousand square feet, maybe 50000 square feet or greater.
And it also depends on just if there of national firm or a smaller local firm because we have several local firms even within this building to take a 50000 square feet and have a lot of their employees back. The gallery is also a good example of where we have some buildings that are approaching over 75.
5% utilization and of course, we always have the mission critical facilities no matter, where they are that have always been active during the pandemic, but.
But I think hopefully that gives you a little bit of color I think labor day will be.
A leg up and we are watching the the delta variant very closely but we.
Have not at least the tenants were engaged and their return to the work place have not backed off that September number. Although there are a number of headlines I think both of us of and you've probably seen that.
Some of the technology companies have been a little bit more shy of returning to the office large technology companies.
Yes.
Great.
Okay. That's helpful. And then Bruce you mentioned, a few times, the growing demand and sunbelt markets and in the past have mentioned the need to have significant pre leasing to start of developments.
And I'm just curious if there's any change to that thinking or.
Perhaps a bit more willing to take a bit more risk given the strong demand.
Backdrop, and the Sun belt.
Yes.
A good question, Danny and I think our peers of the developers that we talk to are getting more bullish on the market. However, I think we're a little bit more cautiously optimistic if you will so we're looking for something thats pre leasing.
And is 50% or so maybe it's come down a little bit just given the volume that we're seeing start to kick tires and these markets, but we're still going to have it be meaningfully pre leased and that regard and would not put a shovel on the ground.
To accomplish that so we will keep an eye on other developers who seem to be implying they may go.
1 is announced.
And here in Atlanta, and and maybe others and some of the sunbelt markets, but we're going to be a little more pragmatic.
Got it and then last 1 for me.
Regarding the potential acquisitions, as well as future dispositions or any of those.
Our portfolio deals on either side of the coin.
Or should we continue to look for Piedmont to sell assets as they get stabilized and look to deploy and so on.
On other single asset type deal.
It's a great question, Danny and I think we're always going to be engaged and the <unk>.
<unk> blocking and tackling to harvest values, we created with well leased and.
The fits and buy opportunities to create value for our shareholders and utilize the platform to do so.
And so I think we're going to continue to.
Look for.
Everything that's out there whether it's the portfolio of single asset.
And looking in those markets I think we described Boston and the Sunbelt as being most active right now.
So don't ever count on a portfolio opportunity and we'll continue to look at them as they arise.
So I'd say everything's on the table at this point.
Great. Thanks, Greg.
And ladies and gentlemen that does conclude the Q&A session for today at this time I would like to turn the conference back over to Mr. Brent Smith for closing remarks.
And.
Well I appreciate everyone joining us today.
It's Ben.
Productive and I appreciate we've.
Got a really what we think has been a great start.
2021, we think that's going to carry into the later half of this year with very little explorations again, 3% of the ALR, so and very manageable debt maturities.
And the portfolio of vacancy as I said fits and Theres more active markets of Atlanta, Dallas, Orlando, and Boston and and we haven't touched on today, but really proud of our best in class.
Star key platform.
And we've really pair that with some high quality of minute type of environment that I think positions us well for our chance to get some corporate larger corporate users, but I encourage the investors to check out on our website that latest ESG report that's been posted as well.
Again, thank you everyone for your time and.
We'll reconvene in October and thank you.
Yes.
Ladies and gentlemen, this does conclude today's conference. We appreciate your participation you may disconnect at this time.
8 day.