Q2 2021 Paramount Group Inc Earnings Call
Back to the coronavirus COVID-19 on the U S regional and global economies, and our tenants' financial condition and results of operations. Therefore.
And therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a more detailed discussion of the risks that could.
Impact our future operating results and financial condition. During the call we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or a substitute for our financial results.
Third income in accordance with GAAP.
A reconciliation of these measures to the most directly comparable GAAP measure is available.
In our second quarter 2021 earnings release, and our supplemental information hosting our call today, we will have Mr. Albert Behler, Chairman, Chief Executive Officer, and President of the company will the pace Chief operating officer.
Officer, Chief Financial Officer, and Treasurer, and Peter Brindley Executive Vice President head of real estate management will provide some opening remarks, and then we will open the call to questions with that I will turn the call over to Albert.
Thank you assume it and thank you everyone for joining this morning.
We delivered a quarter with strong operating performance as we continued to experience a steady return to normalcy.
For the second quarter of 2021, we reported core <unk> of 22 cents per share, which beat consensus estimates by <unk> <unk> per share.
Our.
Same store cash NOI grew 3% year over year, despite headwinds from our recent vacancies at 13 O..1 Avenue of the Americas, and 31 West 50 <unk> Street.
I am extremely proud of the team's focused work as we have already backfield over 60.
62% of the recent vacancy at 31 West 50 <unk> Street.
This comprised of the previously announced lease was bracewell and a new lease with Centerview partners.
As we head into the second half of the year, we are increasing the midpoint of our earnings guidance.
<unk> 3 cents per diluted share driven by better than expected portfolio operations and higher GAAP rent interest income.
Wilbur will provide additional details.
During the first half of 2021 as our markets have been recovering gradually.
We have leased over 435000 square feet, capturing more than our fair share of deal flow in the market.
In the second quarter, we leased a total of approximately 247000 square feet, including approximately 81500 square feet at 31.
By 50, <unk> Street, where as I mentioned earlier, we backfill more than 62% of the space, formerly leased to TD bank at a positive cash mark to market gain of 11%.
Peter will go into greater detail on what we are seeing on the leasing front, but let me spend.
1 <unk> minutes sharing some observations.
Activity is accelerating and our leasing team is quite busy in both of our markets, New York and San Francisco.
The pipeline of activity continues to recover but is still below 2019 levels.
We are not.
<unk> major declines in asking rents in New York City, which speaks to our high quality portfolio and it continues to command premium rents.
Our tenants appreciate the quality of our space at Premier locations that feature attractive amenities that support their employees'.
Health and wellness.
Within our New York portfolio, the Barclays space at $13, 1 Avenue Avenue of the Americas remains our primary focus.
We believe 6 Avenue is 1 of the most desirable submarkets in the city.
Our space is centrally located.
<unk> and debt Submarket in a high quality buildings with large and efficient floor plates, which remains very attractive to prospective tenants over the long term.
In San Francisco offices fully reopened on June 15th and tenants are taking a measured approach to returning to office.
Officers.
Our leasing activity is still favors renewals or new leases.
However, they improved the market improved modestly during the second quarter, gaining strong momentum throughout the period.
Every day, we see more reasons for optimism in our markets.
More and more companies continue to plan for a return to the office.
As I highlighted last quarter based on ongoing conversations with our tenants. We continue to expect to see a meaningful uptick in space utilization beginning in the fall.
We look forward to welcoming more.
As of our tenants back to the office and are ready to accommodate day evolving space needs.
Turning to the transaction market.
Overall deal volumes during the first half of the year have been muted compared to 2019 levels, though there has been a small uptick in volume quarter.
Over quarter in New York.
Pricing continues to hold steady since last year.
Core assets that are well leased with a blue chip tenant roster and longer weighted average lease terms continue to command strong pricing.
Recent transaction and transaction.
Actions in New York, and San Francisco highlight opportunities for well capitalized buyers for assets in need of modest stabilization spend.
We remain interested yet disciplined.
To conclude our long term strategy remains on track.
To manage.
Our portfolio to the highest standards and allocate shareholder capital in a prudent manner to achieve the highest risk adjusted returns with an eye towards creating long term value for our shareholders.
Our priority remains to lease up of our availabilities as well as the reintegration.
1 of our current tenants in a safe and healthy manner.
As has been the case for the past year, we continued to maintain sufficient liquidity, which amounts to $1.5 billion at the end of the quarter.
With our portfolio of stable <unk>.
Grace and our historical ability to allocate capital, we remain well positioned for the long term.
With that I will turn the call to Peter.
Thanks, Albert and good morning.
During the second quarter, we leased approximately 247000 square feet Inc.
Including 35000 square feet of theater space for 15 years at $16.33, Broadway, which further underscores the growing optimism for an accelerated return of consumer and tourist demand in Midtown Manhattan.
Aside from the theater lease we completed approximately 212000 square.
So as we have office leasing with a weighted average term of 9.3 years.
A highlight of this quarter as office leasing was undoubtedly the 81500 square feet of office space. We leased at 31, West 50, <unk> Street, which backfield over 62% of the space vacated by TD Bank on April.
Square feet.
We signed leases with brace well, which we previously announced in April and with Centerview partners, a leading investment banking and advisory firm.
Central view is an existing tenant at 31 West 50, <unk> Street that expanded their footprint within the building by over 33% and now leases roughly.
110000 square feet at 31, west or approximately 14% of the building.
Taking into account Td's exploration and a subsequent lease up of a majority of that space our portfolio wide leased rate stands at 88% at share at quarter end, which is 60.
60 basis points lower quarter over quarter.
We believe that this will be the trough for our portfolio in 2021.
Our remaining lease expiration profile is manageable with approximately 6.1% expiring per annum at share on a square footage basis through 2023.
This is the direct result of our ongoing strategy to pre lease space and de risk future lease roll.
Turning to our markets.
In Midtown second quarter leasing activity of $2.1 million square feet, excluding renewals was up 9% quarter over quarter, but 45.
5% below the 5 year quarterly average according to CBRE.
Renewal leases accounted for 430000 square feet during the second quarter down 64% quarter over quarter, suggesting the pandemic trend favoring renewals, particularly short term in length is shifting and tenants are opportunistically.
<unk>, considering relocations and longer term space commitments.
Midtown sublease availability did increased 20 basis points quarter over quarter to 4.3% and now comprises 24% of total available space slightly above the 5 year average of 21%, but below the peak ratio.
As during previous recessions.
Important to note. However is that growth sublease additions have declined in each of the last 4 consecutive months and important early indicator of improving market sentiment.
Finally tenant touring activity in the market continues to access.
Realized, particularly in well located high quality buildings.
Our New York portfolio was 86, 5% leased on a same store basis at share down 80 basis points quarter over quarter.
During the second quarter, we leased approximately 225000 square.
Accelerate at a weighted average term of 9.6 years with initial rents averaging approximately $70 per square foot.
Our New York portfolio has 1.1% or just 62548 square feet at share Rolling in 2021.
Looking ahead, our overall lease.
Our fee generation profile in New York is manageable with approximately 5.2% expiring per annum at share on a square footage basis through 2023.
As we have stated previously <unk> hundred 1 Avenue of the Americas remains our primary focus as we market. This block of space and we are getting more than our fair share.
<unk> ex <unk> in the market.
The prospective tenants we are engaging with currently represent a wide variety of industry, we expect to benefit from the ongoing diversification of Midtown tenant base and the flight to quality trend taking shape as tenants pursue the most well located highest quality assets and managers, we look forward to updating.
You on our progress in future quarters.
Turning now to San Francisco.
San Francisco office leasing has begun to rebound at San Francisco as the economy fully reopens and indoor capacity limits are lifted on all businesses.
Sizable venture capital funding for high growth startups has resulted.
<unk> of our new lease expansions in the market contributing to an increase in leasing velocity quarter over quarter.
Sublease availability remains elevated but appears to have plateaued as it declined 6.3% quarter over quarter as per J L.
Importantly tour activity continues to increase particularly for well.
Located high quality product as we've experienced in our own portfolio.
We are cautiously optimistic and remain long term believers in the resiliency of the San Francisco market.
Our San Francisco portfolio was 92, 1% leased on a same store basis at share up 10 basis points quarter over.
<unk> and <unk>.
During the second quarter, we leased approximately 22000 square feet for a weighted average term of 5.1 years with initial rents averaging more than $83 per square foot.
Our San Francisco portfolio has 1.4% or just 31.806 square feet at share.
Quarter Rolling in 2021.
Looking ahead, our overall lease exploration profile in San Francisco is manageable with approximately 8.3% expiring per annum at share on a square footage basis through 2023.
Needless to say, our San Francisco portfolio was well positioned to manage through the current environment.
<unk>.
With that summary, I will turn the call over to Wilbur, who will discuss the financial results.
Thanks Peter.
Yesterday, we reported core <unk> of 22 per share, which was <unk> <unk> ahead of consensus.
<unk> store cash NOI increase.
<unk>, 3% for the quarter ended June 32021, as compared to the prior year's quarter.
Driven largely by better than expected portfolio operations.
During the quarter, we executed 20 leases covering 246922 square feet.
Cash, including 34570 square feet of theater space that was leased for a 15 year term.
Excluding the <unk> released 212, 352 square feet of which our share amounted to 197000 square feet that was leased at a weighted average.
Average initial rent of $70.81 per square foot.
After 212352 square feet leased in the quarter 156117 square feet represented our share of second generation space for which mark to.
Markets were negative 1.4% on a cash basis and negative 5.2% on a GAAP basis.
It is important to note that the overall negative mark to markets were driven largely by lease renewals at 903rd Avenue in fact, the 81560.
Square feet that was leased at 31 West 50, <unk> Street that backfill the majority of the TD Bank vacancy was leased at positive Mark to markets of 11, 1% on a cash basis and 8.6% on a GAAP basis moving to guidance.
Based on our results for the fourth.
60 half of the year and our outlook for the remainder of the year, we are raising 2021 full year guidance on multiple fronts.
We now expect core <unk> per share to range between 86, and <unk> 90 per share or <unk> 88 per share at the midpoint.
First is <unk> <unk> higher than our prior estimate.
This increase is driven by <unk> <unk> per share from better than expected portfolio operations and <unk> <unk> per share from higher straight line rental income driven by lease renewals in the quarter.
Given stronger.
With durations, we now expect the Companys share of same store cash NOI growth to be flat with a range between negative 1% and positive 1%.
We've also improved our leasing goal for 2021, which now stands between 700000 and 900000 square feet for the year.
Turning to our balance sheet, we ended the quarter with $1.5 billion in liquidity comprised of $507.8 million of cash and restricted cash and the full billion of borrowing capacity under our revolving credit facility.
Our outstanding debt at quarter end was $3.6 billion at share.
As a weighted average interest rate of 3.2% and a weighted average maturity of 4.4 years.
The $13.1 loans became freely pre payable earlier this month and we are finalizing the completion of debt refinancing, which we hope to announce shortly.
Lastly.
And also updated our investor deck, including our schedule of free rent and signed leases not commenced which now sits at $23 million. This information can be found on our website at www Dot Paramount Hyphen group Dot com.
With that operator, please open the lines for quest.
At this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star 1 on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You may price start to if you'd like to remove your question from the queue from participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
1 moment, please while we poll for questions.
Our first question is from Steve <unk> with Evercore ISI. Please proceed with your question.
Thanks, Good morning, maybe.
Maybe this one's directed to Peter.
I know you went through a lot of the leasing stats and you don't have a lot of space.
In the back half of this year I think it's under 100000 feet and your share of space. Rolling next year is under 350, but do you have a sense for what the renewal rates may look like on either the second half space. This year or as you talked to tenants in 'twenty 2 I know the retention rate was much lower this.
Sure, but you know what are you thinking about over the next 18 months from a retention rate standpoint.
Well, we're in front of we're in front of just about every 1 of these prospect. These tenants Steve as you would expect.
<unk>.
We expect to keep.
Many of the tenants.
Rolling that you outlined.
<unk> lease explorations over the balance of this year and into 2022, we typically lease space 12 months in advance, but we're in discussions with these tenants typically in advance of listing space.
And our expectation is that we will keep the majority of our existing tenants.
Okay.
Let me just with respect to 2022 you should.
I should point out that on that 334000 square feet that is expiring in 2022 that includes 81.5000 square feet at share of Deutsche banks of 25% of that activity is a non vacate.
Really the number youre dealing with in 2022 is 250000 square feet or so that that is the real activity that we'd be looking to.
Attempt rhenium.
Okay, Thanks, and maybe as a follow up Peter.
Talking to.
To tenants.
And I realize that People's return to offices has been a bit slower the delta variant may create a little bit of habit coming into labor day, but what kind of discussions are you, having with tenants on kind of space needs.
Fashion opportunities reconfiguring existing.
Right.
Just what are the discussions like with tenants on that front.
I think tenants are raising the bar much like how landlords have raised the bar themselves and monetizing their buildings and so forth I think tenants are looking to improve their space in new and innovative ways to not only compel their employees to come back but to enhance the overall.
<unk> experienced I think more and more tenants acknowledged the importance of the office and the only way for these companies to realize their full potential is to get people together and so they're looking and Central review is a nice example of that they have taken additional space Theyre thinking very creatively creatively about how theyre going to create.
A floor that is more community.
The nature of that brings people together that allows them to attract talent in new and different ways and they are really at the forefront and we're seeing more and more tenants think more critically about how we can build really very dynamic space no longer is it acceptable to deliver.
Land space with a seat of cubes and beige walls tenants are thinking very.
Communally now about how they can enhance the overall experience of being in the office and as a result realize their full potential.
Okay. Thanks, and then maybe just last from me on the Barclays Space I realize you guys are working hard to backfill.
And I realised size of tenant will matter, but.
Creative given kind of where you are in the various discussions with tenants and realizing you don't know which deal you make what is a realistic at this point. If you were still able to get some leases signed by the end of the year whats a realistic kind of start timeframe for for a lease for that space from a.
GAAP revenue perspective.
Steve as we have discussed over the years. These are large spaces and they normally take it take that time to get negotiated especially in New York.
And so you have to expect that.
We put out the goal that people.
People.
Brent half of the space of the vacant space and we stick to that.
And you should expect that.
You will do more in the second half of this year.
Where we are at this point, so we don't want to give you much.
Much more in detail.
Most probably.
Kind of not get.
Much of revenue this year.
At all on that space.
And I think Steve you alluding to would we be recognizing GAAP revenue really in the second half of 2022 and <unk>.
Assuming we we hit which we believe we're going to.
<unk> do what Albert outline in terms of our goal for year end, but let's assume a deal gets done and this year I think the expectation that the second half of 2022 would be revenue producing from a GAAP basis is entirely realistic.
Great. Thanks, <unk> I appreciate it that's it from me.
Thank you Steve.
And our next question is from Vikram Malhotra with Morgan Stanley. Please proceed with your question.
Thanks, so much good morning.
Maybe just first 1 on the pipeline you've outlined tenants.
Looking at spaces.
That are vacant this year or may be expiring next year I remember last we spoke you had outlined.
Demand from small and medium sized tenants can you give us a flavor of kind of the pipeline today, maybe by size and sector.
Yourself.
Sure Vikram. This is Peter I would say that we're seeing quite a bit of.
Activity from financial service tenants, there and our experience leading the charge I think it's been reflected in the statistics that they represented I think 40% of contributed approximately 40% towards leasing velocity.
Year to date, and so we are seeing more than our fair share.
Financial services, I think just because a function of our product is.
Such that we are also seeing large tenants right of course <unk> hundred 1 being our primary focus there are large tenants in the market as well.
But the point I made previously holds true which is we are seeing quite a bit of demand from smaller to mid sized tenants as well predominantly financial services, but not in its entirety we are.
Working to convert.
Prospective tenants that represent other industries aside from financial services were called the fire sector more broadly.
But generally we feel that activity continues to increase week after week and we feel generally pretty active in our portfolio.
And you'll see a little bit of a flight to quality.
<unk>.
You see tenants.
I'll take this as an opportunity.
To get into a class a building tenants are very focused on the safety and security of the employees in the future.
<unk>.
That's where we are focusing on as a company.
To offer the.
And the best product there.
Okay, and then just the expectation I know what at the <unk> space.
Had a nice roll up on a cash basis I'm just wondering like how representative is that all sort of your other big vacancies.
Yes.
Our updated thoughts on where the mark to market could shake out for the Barclays space.
So every building is different it's like.
If you have children you have a couple of them every child. That's different is the different characters. So every building has a different character and every every lease is.
<unk> is different and sometimes you have raw space and of course, you have to invest more capital.
Get it leased and.
And some some.
Some assets.
Higher demand so it's very hard to.
You have to look at asset by assets here.
But just specifically on the Barclays space.
What's the latest relative to maybe where you started the last year at <unk>.
I think the expectation requirement is still the same I think in a pre COVID-19 environment, we thought it was going to be a.
A low double digit uptick.
Mark to market and I think we're now in.
Mid single digit uptick with respect to the Barclays space Nothing has changed in our view relative to where we were when do you begin.
Okay, Great and this last 1 wellbore for you could you just clarify.
2 things $1 million to $5 million termination termination income.
How much of that actually is at your share impact impacting your 22 cents.
And then is the I'm assuming the termination income is backed out so the 3% same store is is excluding termination income.
That is correct. So on a same store question, we typically do not include.
Termination income as part of our same store. So if you look at our reconciliations at.
Of that debt is a negative adjustment net backs out the impact of that termination income to arrive on an apples to apples basis that same store is organically up 3%, excluding termination income with respect to the impact.
To that on earnings net 5 million was at an asset in which we have a 31, 1% interest, namely 300 mission and so our share of that was about $1.5 million. So the contribution is really half a cent with.
With respect to this quarters.
Factor in terms of how termination impacted this quarter's numbers.
Great. Thanks, so much.
Sure you're welcome.
<unk>.
And our next question is from Derek Johnston with Deutsche Bank. Please proceed with your question.
Hi, everybody good morning.
It seems the expectations on leasing from full year 'twenty 1.
From the guidance range has as upticks a little bit at the low end I believe went from 600000 square feet to 700000 square feet.
So this is kind of leaves us to believe that you guys are becoming incrementally more positive on maybe perhaps the vacated.
Kate at Barclays Space is it a fair question if I ask if you guys are trading paper at this time.
Yeah.
Well I mean trading paper is a long process as I just mentioned a minute ago in New York These kind of leases, especially the larger loans take a while.
And.
I think Peter has pointed out debt.
Having proposal that's out and I think that's as far as we can go.
But we feel generally more optimistic as we were in the beginning.
Winning of the year, yes, we do.
Both of our markets.
The activity.
And the leasing side.
Picked up.
And that's why we feel comfortable to.
To increase it.
For this year.
Yeah.
Okay great.
Just to add some color on the leasing guidance bump as you noted we bumped.
Bumped the lower end that implies a 50000 square foot bump at the midpoint of the guidance and part of that also stemmed from.
A lot of the renewal activity, we did this quarter, which.
When we originally came up with our guidance assumptions, we werent sure whether those.
<unk> would renew and that has a direct impact on earnings as well. So if you noticed on the core <unk> guidance, we bumped a penny because of straight line rental income that is directly related to that leasing guidance bump as well right. So you had renewals, which otherwise would have been vacation vacation.
Space that would've been vacated rather and that would not have contributed to a straight line increase in the current year, but but that space got renewed and as a result of that we are picking up some straight line on the back half back half of the year.
Okay, Great and then San Francisco has certainly rebounded more slowly.
<unk>, probably because of the prolonged lockdown, but where do you see.
Demand coming from is it coming from the traditional tech tenants are you seeing.
More fire activity and leasing in San Francisco and when do you really think we will see an inflection point.
Leasing demand in that city.
Thank you.
Yeah.
Derek we're seeing.
Venture capital funding has reached record levels. Most recently in the second quarter, just shy of $4 billion raised by a San Francisco based company. So we're seeing a lot of early stage technology companies that are the recipients of all of this capital expand in.
We're also seeing a lot of private equity and financial services.
Tenants that are choosing to upgrade the quality of their research the other real estate or other.
And so we've been very active in fact at several of our buildings we've had competing offers.
We have now.
<unk> 2 lease negotiations.
So I would say, it's predominantly financial services.
And early stage tech that have been most active in the early going in our experience.
Okay.
And just as a reminder, if anyone has any questions you May press star 1.
The market will keep doing so will ensure your spot in the question and answer queue.
And our next question is from Jamie Feldman with Bank of America. Please proceed with your question.
Thank you good morning.
So I guess as we think about labor day, and and it's coming back I mean, what are your expectations for utilization.
It's a portfolio.
And then also how do you think thats going to affect operating margins.
Well, we as a team.
The Paramount team is back 100% debt.
So we want to.
The leading by example.
Simple, we know from and we are serving our tenants by profit to manage us being in close.
Contact with all of our tenants, we get an indication that after labor day.
Over time.
Companies are getting back to hopefully by the end of the year.
We're somewhere around 60% or store occupancy and.
Some of them.
Doing.
Part time still worked from home.
I think it also depends a little bit.
With the Delta ovarian.
Is making a major.
Major spread into New York and San Francisco currently it looks like because of the high vaccination rates.
It's going to be an issue, but I think that might turn some of that tends to be a little bit more cautious.
We see a gradual uptick already now.
<unk>.
We're looking optimistically into the second half of the year for this.
Okay. Thank you that's helpful. Yes, clearly that delta does and stuff.
Questions I guess, so to speak but I guess are you seeing the normalized rate you think whenever thank.
I think you'll get back to normal and 60 or no I'm just trying to.
Of the apples to apples like what was it before the pandemic and what do you think it returns to based on what you're talking to with your clients talking about with your clients.
They're moving more into 2022, if you are if you look at before Covid.
Occupancies will be more 2022, I'm, saying it's gradually.
Picking.
Picking up, especially after labor day.
And you have seen day announcement that we have seen it be hearing from our tenants directly.
Some of the service tenants might opt to.
Especially law firms, maybe taken a little longer time to.
2.
Work flow time back in the offices and others.
Want to be back we'd have 1 tenant who is back 100% and has been.
Even during the lockdown.
Coming to the offices so.
Each tenant takes it very differently tenants seem to be.
Sure.
Careful and want to manage it properly, but I think.
With the vaccination rates picking up further.
This will be coming to normal in 2022.
And Jamie maybe just to dimension that a little bit.
Physics.
Physical utilization.
Our buildings in our portfolio did they have is around 20% right and we've seen that gradually uptick over the summer.
Where we are today and as Albert said, even as preferred prepared remarks, we expect a meaningful uptick post.
Post Labor day, obviously, there are other factors that.
Could derail that but based on where our expectation is youre going to see a meaningful uptick from the levels. We are today post labor day.
And as far as returning to a pre COVID-19 utilization Thats realistically early 2022 kind of scenario.
Okay. That's helpful and then I guess.
As you think about getting back to normal.
The cost of operating the building do you think you just go back to your kind of pre Covid operating margins, our NOI margins are simple.
Good evening net incremental.
Yes, there is there is incremental.
So we bumped guidance, we talked about better than expected.
<unk> operations that was really stemming partially from.
Lower operating expenses and better operating margins in the first half and what we see.
Thus far into the second half so.
What would help us to achieve the high end of the guidance would be again.
1 way depending on how.
Portfolio come back into velocity at which they come back over the second half of the year.
We don't think operating.
Expenses go back to pre Covid levels until 2022, so we have baked that we fine tune that and are re forecasting and caused us to update the numbers now and we will continue to pay close attention to.
And update you on the progress.
When we speak next time.
Okay.
And then as you think about San Francisco versus New York and the return I mean, do you think theres going to be a meaningful lag in San Francisco.
San Francisco tenants versus New York tenant.
There is a meaningful leg already.
That already now.
Jamie.
San Francisco, it's about currently about 7% to 10%.
Occupancy of tenants.
Space.
And even though the vaccination rates are substantially higher even than New York I think it is a different kind of culture that you have.
In California.
Maybe some of the technology tenants.
More used to.
Working from home, even before the pandemic hit many financial institutions had nobody talked about work from home.
That much but they had a policy that people could take.
From home.
Dave.
So.
But we see in San Francisco that they're picking up steadily.
Very quickly.
So I think.
There will be moving behind New York This time, but I think they will come.
It works the same way too.
Pretty much to the same occupancy levels.
Okay.
Are you seeing any real difference in how tenants are approaching a space usage, whether it's space per employee or.
More flexibility and high return.
We're thinking about that.
The demand side of things as we get out of it.
I think it's too early to say, Jamie we have.
You saw a tenant.
So that <unk> took another floor and thats attended 2 approaches.
They want to get there.
And from.
<unk> a very.
Very vibrant and flexible space and they are going to make sure that there's enough.
Space to collaborate and meet and but also have have privacy and I think that will be more important in the future I think benching.
We'll be we'll be more limited so I think.
Companies will be.
We'll be more focused on giving the employee space and flexibility and I think that will flow.
Combat that some.
Tenants.
You might think about reducing their space you have other tenants who increased their space. So I think.
It's too early to say how this all plays out.
We are optimistic about the ultimate outcome.
Okay.
And then I guess Wilbur any early metrics you can.
Can provide on the refinancing.
Sure.
We are we are Jamie as we speak where I ran the process of dotting, our i's and crossing our T's I think we will have news to report on that by the early part of next week I will tell you. This as you've seen through the guidance, obviously, we factored the impact of debt refinanced.
Refinancing in our guidance it will be a full dollar for dollar refi.
So theres going to be no no cash utilized from balance sheet to pay down that debt.
And we received tremendous interest in the market pricing is was very tight and so we're very very happy with where.
<unk> has shaken out and.
Like I said, we will report on this.
By the early part of next week.
Okay.
Alright, Thank you very much.
Thank you Jamie.
Our next question is from Blaine Heck with Wells Fargo. Please proceed with your question.
Great. Thanks, Good morning, Robert just to follow up on that last question just wanted to confirm.
It seems like there are no contingencies related to leasing at <unk> associated with that refinancing is that correct.
Yes, Theres no contingencies as I said Blayne I mean, it's an $850 million loan.
The deal just became freely pre payable.
Earlier this month.
It is going to be a full dollar for dollar maybe a slight up refi.
To account for some of the transaction and closing costs.
And that said no no other contingencies.
Great that sounds good.
1 that the Peter we talk a lot about 1300, 1 in 31 west 52nd on these calls for good reason, but there are also a couple of other assets that you guys have an opportunity to move the needle through leasing can you just touch on any interest youre seeing at 903rd and 111 Sutter.
Sure.
Sure.
900, <unk> you saw we completed more deals during the quarter than any other building 7 deals in excess of 85000 square feet. So we were very active at 903rd in the most recent quarter.
And we're trading paper with with other tenants that are seeking full floors at the building. So you are right. It represents an.
The opportunity for us to increase occupancy and we're heavily focused on that I would throw in another building at $13.25, where we've got some really nice activity on our couple of.
Vacant full floors at the top of that building so.
While we always talk about the fact that we're hyper focused of course on <unk> hundred 1 in 31, West, which which you know we are there are other opportunities.
<unk>.
At other buildings to increase occupancy they show exceptionally well as you would expect and we have some really nice activity on them same goes for 712, where as I mentioned earlier financial services are leading the charge 712 is has really seen a huge I would say increase in the amount of activity by way of tours and exchanging our proposals.
We've had there.
111 Sutter.
Of course has an occupancy well below our expectation for the building we did suffer some some move outs. Most recently I will say that activity is coming back slowly.
In San Francisco, but is increasing I will say over the last several weeks.
And we have some real interest at the property on.
A couple of full floor. So we're working very hard to convert and increase the occupancy level at 111.
It's a building that appeals to tech companies or Nate It has a wonderful history.
And it certainly has a real presence in the market so our.
Our expectation is that as this.
This funding continues to fuel.
These especially younger technology companies that will will be the beneficiaries of that.
Let me say this.
Put in perspective, you're absolutely right and 111 startup is sitting at well below.
Yeah.
Our occupancy rate.
Net we are custom than we would like that said it is the smallest building in our portfolio and it's a building that we own a part off so when you look at an $8.5 billion company owned so that's building and that share is less than 1% of our gross asset value. So as much as we're focused on this.
Yes, not to lose perspective of the impact what.
That means to our bottom line I think it's important to dimension that.
Sure that's fair.
Okay, and then last 1 from me Albert can you just talk about what Youre seeing on the fund side of things.
As he said the core deals are.
Are getting relatively strong bids, but there haven't been too many value add type opportunities yet or.
<unk> type buildings that had traded is that really hindering your ability to put capital to work and what do you see on that front going forward.
Yes, I mean youre.
I mean, we wouldn't be interested in buying.
Buying a core assets.
Through the funds business of funds are focused on value add or opportunistic investments and.
There hasnt been much.
Opportunities in debt in the segment, so that might change.
Correct. It was some of the B buildings seem too.
The suffering more than the class a buildings, but for the time being that haven't been that many opportunities there.
Great. Thanks, guys.
Thank you.
And we.
We have reached the end of the question and answer session I will now turn the call over to Albert Behler, Chairman, Chief Executive Officer, and President for closing remarks.
Thank you all very much for joining us today here, we look forward to providing an update of our continued progress when we reported our third quarter results during.
Default.
Goodbye.
And this concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Okay.
[music] moving.