Q2 2022 Healthpeak Properties Inc Earnings Call
Good morning, and welcome to the Health peak properties incorporated second quarter Conference call.
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Vice President of Investor Relations. Please go ahead.
Well then the Health Inc. Second quarter 2020 financial results Conference call Today's conference call will contain certain forward looking statements. Although we believe the expectations reflected in any forward looking statements are based on reasonable assumptions. Our forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our expectations for a discussion of risks and.
The risk factors is included in our press release and detailed in our filings with the SEC.
Not undertake a duty to update any forward looking statements certain non-GAAP financial measures will be discussed on today's call.
Can you refresh with the SEC yesterday, we have reconciled all non-GAAP financial measures. The most directly comparable GAAP measures in accordance with Reg G requirements.
Were also available on our website at <unk> Dot com.
I will now turn the call over to our Chief Executive Officer, Tom Herzog.
Thanks, a J and good morning, everyone with me today are Scott Brinker, our President and Chief Investment Officer, and Pete Scott, Our Chief Financial Officer.
Also here and available for the Q&A portion of the call are Tom <unk>, Our Chief operating officer, and Troy Mchenry, our Chief legal officer and General Counsel.
First a few highlights from the quarter, our Q2 operating results and same store growth came in stronger than we had expected.
But this was offset by higher interest rates Henry I suppose adjusted came in right on target.
We continue to have we seen in rate growth success in both of our life science and MLP businesses.
Our Ccs business has seen record entry fee sales.
But it is still facing some expense pressures.
We reaffirmed our <unk> as adjusted guidance, which has a few moving parts if people explained shortly.
And we have bumped our same store guidance by 25 basis points at the midpoint driven by medical office.
Regarding our development pipeline, we have placed into service our final building at the Boardwalk and Torrey Pines.
And a portion of phase two of the shore in South San Francisco.
These developments are a 100% leased.
In a recent lease we executed advantage in South San Francisco brought a $1 billion of life Science development pipeline to 81% pre leased.
On the balance sheet front, we secured commitments for a $500 million term loan with maturities in 2027, and 2028, which will bring our floating rate debt down to our long term target of 15%.
Turning to our new life Science joint venture.
Yesterday, we announced the formation of a JV with a leading sovereign wealth fund for seven planned redevelopment properties on a point grant campus in South San Francisco.
We also signed agreements with the same partner what they tend to utilize a similar JV structure for the development of phases, two and three advantage.
This agreement is subject to various closing conditions and is expected to close in the first half of 2023.
These jv's offer help pick a number of strategic benefits and allow us to accelerate development and redevelopment.
These key South San Francisco Life Science projects.
As to our announced share repurchase program.
We believe our current share price does not reflect the inherent embedded value of our high quality portfolios.
Accordingly, alongside our ongoing accretive development pipeline, our strongest current investment is in our own stock.
To that end yesterday, we announced that our board recently approved a $500 million stock repurchase program with potential for future expansion, depending on market conditions and our share price.
This program will allow us to take advantage of the dislocation between the applied cap rates in the private market versus the higher implied cap rate embedded in our recent share price.
<unk> 10 for the buyback program to be funded solely with proceeds from west core dispositions and JV proceeds.
Finally, a word on our ESG accomplishments.
Last month, we published our 11th annual ESG report, highlighting our 2021 achievements and outline in a variety of ambitious goals.
ESG continues to play a pivotal role in our business strategy with continued focus on the E. The S energy.
Let me turn it to Scott.
Okay. Thank you Tom and thanks, everyone for joining.
Each segment delivered strong operating results above or in line with expectations and life science occupancy finished the quarter at 99%.
Cash mark to market on renewals was positive 28% and those leases were signed with zero T I's and no downtime.
Same store growth was very solid at four 3%, we estimate the mark to market across the entire portfolio is positive 25%, there's variability by tenant so the number will bounce around from year to year.
Our rent roll has exceptional credit at the top and strong diversification throughout.
Our top four tenants are Amgen J&J, Bristol Myers in Astrazeneca.
To account for 19% of our total life science rent no other tenant accounts for more than 2%.
Leasing continues to be strong we signed more than 500000 feet of leases in the second quarter to.
To date in the third quarter, we signed another 400000 feet and already exceeded our full year leasing budget <unk>.
90% of year to date leasing was done with existing tenants a competitive advantage versus new entrants.
In Boston, We've already released 107000 square foot early vacate that we mentioned last quarter. The new rent is a positive 38% mark to market with a 12 year lease.
The tenant is an existing relationship a world class company with a 200 billion dollar market cap.
Lots of activity in South San Francisco, the birth place of biotech, where we enjoyed number one market share we signed a lease with a credit tenant for 154000 feet advantage phase one bringing that development project at 45% Prelease.
We continue to re tenant our oyster point campus in advance of explorations in June we signed a new lease for 150000 feet a credit tenant to backfill the right gel lease that expires in January of 2023 and.
And in July we signed a 120000 foot lease with an existing subtenant, who will go direct when the Amgen lease expires in December 2023.
60% of the Oyster point campus has now been released with the balance expiring over the next 18 months, So we're making great progress.
In Raleigh Durham, we signed a new 10 year lease with Duke for 166000 square feet. We've now placed the two assets into held for sale as we plan to crystallize the value creation of the new long term lease to a credit tenant.
It's not a core market for us and the assets should command strong pricing.
Turning to development, our active pipeline remains generally on time and on budget. The blended return on cost equal to seven 5%.
To date, we successfully managed through the volatile supply chain and cost environment.
We have essentially locked in a return on cost with GMP contracts and strong pre leasing.
For the past year or two we've received many questions about the risk of new supply.
As of today that that risk has significantly declined driven by higher development cost and interest rates.
Construction debt was in the high 3% range, just a few quarters ago, that's long gone with rates in the 8% range today, making new starts unattractive for Levered developers, Fortunately, we're not dependent on that lending market to fund our pipeline.
It's clearly a tighter market today sponsorship and location earn out Paramount both for attracting financing and tenants.
On the demand side the need for scientific innovation is not going away, regardless of the economic cycle biotech capital raising is still occurring at a healthy level.
Buying the IPO and venture capital investment and year to date is below last year's torrid pace, but it's actually above the comparable period in 2019.
Number of our tenants have reported new fund raising in the past 45 days, both public and private.
And looking forward VC firms have completed $16 billion of new fundraising this year that capital will be used for the next round of New company formation.
In South San Francisco, we estimate market rents are up low to mid single digits year to date with $2 5 million square feet of current demand.
Market rents are up low single digits in Boston year to date and active demand is at $3 5 million feet and.
In San Diego rents were up low single digits enacted to manage $1 3 million feet.
These numbers are down from their all time highs, but still very healthy by historical standards.
So when we look at the overall landscape with ongoing secular demand and a slowdown in future new supply the outlook remains compelling.
Moving to medical office, we had a great quarter same store NOI grew four 5% driven by leasing recoveries parking and medical city Dallas leasing activities ahead of budget, we signed one 6 million square feet of leases year to date with another $1 1 million under letters of intent.
Retention was 81% a key metric given the cash flow on our renewals is more than 50% higher than new leases on average over the lease term that's.
That's driven by lower Ti and commissions and no downtime.
On campus buildings have materially higher retention rates, which benefits our relative performance.
Same store growth has consistently been at or near the top of the peer group and we point to three fundamental reasons, one our on campus locations less than 30% of the country's inventories on campus by contrast, 81% of our portfolio is on campus plus another 6% that's adjacent.
To the profitability of our host hospitals, which on average have profit margins 500 basis points above the national average and three operating experience and relationships that span more than two decades.
Moving to <unk>.
The business is performing very strongly on a cash basis and meeting expectations on a GAAP basis entry fee cash receipts are up 30% year over year and exceeded the amount we recognized in earnings by $10 million in the quarter. The cash receipts will amortize over a 10 year average length of stay.
We continue to have pricing power Revpar was up 6% year over year and Theres no discounting.
New supply in our markets remains exactly zero and we expect that to continue.
Now had five straight months of net positive hires and contract labor is down 40% from the high point in March.
An update on the transaction market price discovery is still occurring but based on changes in borrowing costs and return targets from the big institutions. We estimate cap rates have increased about 50 basis points from a year ago that number varies by asset, though with core assets less impacted especially those with mark to market potential.
We exited three non core mlps in the quarter $26 million recycling the proceeds into our core acquisition in the same amount a relationship deal negotiated in late 2021 that fits our medical office strategy on campus and anchored by a leading local hospital.
Turning to the structured joint venture in South San Francisco, which we did with an existing partner.
There's scale time horizon that sophistication allows it to collaborate through the inevitable real estate cycles.
Will receive a preferred return that helps us offset the earnings drag of Redeveloped seven buildings with 400000 square feet at a point grant campus. The venture allows us to retain majority ownership earn fees reduced our funding requirements and enhance our upside through a promote.
The purchase price was roughly $1050 per foot for buildings that are or will soon be vacant.
The assets are 28 years old on average to the JV will invest an additional $400 per foot to fully renovate and re tenant the buildings over the next two to three years. The all in cost implies a mid to high fives return on cost upon stabilization in 2025.
We've also reached agreement with the same partner to use a similar JV structure on phases, two and three of vantage the adjacent class a development campus the purchase price for the vacant land is dependent upon final entitlements and density which should be finalized in the first half of 2023 at which point, we intend to close.
This joint venture structure augments, our ability to create value through development and redevelopment, we see numerous opportunities to grow the partnership over the next decade, allowing helped people to grow our life science footprint beyond what we can accomplish on our own.
I'll turn it to Pete to cover the balance sheet and guidance.
Okay.
Thanks, Scott starting with our financial results for the second quarter, we reported <unk> as adjusted of <unk> 44 per share and.
Total portfolio same store growth of three 7%.
As Scott mentioned, our life Science and medical office same store results continue to reflect strong industry fundamentals and our leading platforms.
Additionally, we had another strong quarter of CRC entry fee sales.
Last item under financial results for the second quarter, our board declared a dividend of <unk> 30 cents per share.
Turning to our balance sheet.
We ended the quarter with a five one times net debt to EBITDA at $2 billion of liquidity.
In July we secured commitments for $500 million of unsecured term loans, which are expected to close later this month and funded in the fourth quarter.
We entered into a swap agreement fixing the rate on the term loans through a maturity at three 5%.
Term loans will be split into two tranches with $250 million maturing in 2027 and $250 million maturing in 2028.
The proceeds from these term loans will be used to reduce our commercial paper balance.
We would like to give a special thanks to all the banks that chose to participate in the term loan offering.
Turning now to our 2022 guidance.
First as you can see from our results. Our segment performance is strong and medical office year to date same store growth of four 1% is trending well above our initial guidance range.
And life Sciences year to date same store growth of four 8% is trending above the midpoint of our initial guidance range.
And and CCR see year to date same store growth of six 2% in line with our expectations are.
Our guidance assumes sequential growth in the second half of 2022 from a continued recovery in occupancy and improving labor costs.
Second our development machine continues to deliver with recent and near term deliveries, including the shore the boardwalk and one O. One Cambridge Park drive we should see a nice ramp up in earnings as these projects come online.
Third we have a $175 million of floating rate notes receivable and expect $2 million to $3 million of incremental earnings versus our initial guidance.
However, we have seen approximately two pennies of headwinds from increased interest expense and an additional one penny headwind on the previously disclosed early tenant vacate at 65 days, which as Scott mentioned has been fully re leased at a positive 38% mark to market.
Fortunately, though the strong performance of our portfolio and platform offsets both of these headwinds.
So with that as the backdrop, we are reaffirming our <unk> as adjusted guidance of $1 68 to $1 74 per share.
We are increasing our medical office same store guidance range by 75 basis points to 3% at the midpoint and we are increasing our blended same store guidance range by 25 basis points to $4 two 5% at the midpoint.
Please refer to page 38 of our supplemental for additional details on our guidance.
Finally, a few housekeeping items before turning to Q&A.
To assist with modeling on our guidance page in the supplemental we have added a LIBOR assumptions for the second half of 2022.
Second we recently sent out a save the date for a management presentation property tour and reception in South San Francisco on November 14th prior to NAREIT.
Formal invitations will follow but in the meantime, please reach out to Andrew Johns for additional details.
With that operator, let's open the line for Q&A.
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The first question today comes from Steve <unk> with Evercore ISI. Please go ahead.
Hi, Thanks, Good morning, I guess I wanted to focus on.
The life science and some of the comments Scott that you had on demand could you just elaborate a little bit more where you are seeing in which markets. The best friends and maybe you know relative softness if you will or where there's less demand and maybe characterize it by tenant type whether it's biotech large pharma.
Thanks.
Yeah happy to take that one.
Steve I mean demand remained strong.
Certainly by historical standards. If you look at the three markets, where we have a big presence Boston today still has the highest gross demand. It also has the highest new supply.
And we have virtually nothing that we're looking to lease today, our development pipeline is 100%.
Our operating portfolio is nearly 100% with with no maturities for three years. So you know we're in pretty good shape. When we had that tenant vacate early you know we backfill that within a couple of weeks so.
Despite demand coming down a little bit in Boston. It still remains very strong by historical standards and we just don't have anything at least in the near term. So we're not concerned about Boston at all in terms of our portfolio in San Diego to similar story, our pipeline is 100% our operating portfolio is nearly 100%.
And we don't have much maturing through the end of 2024, so we still feel really good about our footprint in C&D, San Diego, even though demand has come down a little bit and then in south San Francisco, where we do have some maturities over the next couple of years, primarily oyster point in point Grand both in South San Francisco that we've talked a lot about it.
<unk> meetings over the past couple of months are you know, we're making great progress those campuses are a plus locations, but the buildings tend to be 25 to 30 years old and that first generation build out lasted a long time and in those buildings generated a lot of cash flow for help streak investors over the years, but I've actually.
Those systems those need to be replaced and we just reached that point with both of those big campuses, but our success to date and back filling both campuses has been pretty astounding and we are getting a mark to market pretty substantially with point grant in particular, so we feel really good about south San Francisco as well, we just signed the Big news.
Lease.
At vantage to bring that to almost 50% pre leased and it doesn't open for another 15 months or so so great progress there year to date, our activities has been dominated by very large credit tenants. We are starting to see more interest from the more traditional series a $20 to 50000 foot users are to the extent we can.
Availability, so bone anything you'd add to that.
No I think that was a great summary, Scott I mean, the only thing I would add there has been some significant deal done.
Over the past 60 to 90 days in South San Francisco as well as Boston.
Oh, great size I mean in Boston there's.
There has been six deals alone that totaled over 2 million square feet executed in the second quarter three.
Three in the suburbs three kind of a downtown Boston, Cambridge and.
And in South San Francisco, you know as we've mentioned we've done three deals over 100000 square feet. There was another deal on the peninsula that was 300000 square feet. So a lot of good great leasing getting done as Scott mentioned, there's a lot of that new company formation. The smaller deals are certainly there as well.
Okay, and just as a quick follow up on the supply front I know Boston has kind of been in the market people, who have been most worried about but Scott are you seeing any signs of maybe some of these conversion projects or potential new developments fallen by the wayside either because the financing issues.
Or just you know cost increases that don't make yields on cost kensal.
Yeah.
Yeah, I mean for sure I mean, there was a period of time, where virtually anything that got built would get leased just because the supply demand was so tight but if you look at new deliveries over the next two years in San Diego and Boston in particular, almost half of it is conversion and some of those are actually pretty well situated but a lot of them will struggle.
To compete if the market isn't quite as tight.
We've seen that to date.
If you look in Boston.
There's a lot of new supply come in but at least for the 22 deliveries that purpose built new supply is about 90% pre leased whereas the conversions are about 30% pre leased so you're seeing a pretty noticeable difference in performance already and if you think about trying to get new projects financed today I've mentioned.
The change in construction.
Lending rates and conversions in particular everything we've heard is that both the equity and debt sources or a lot less likely to proceed with those.
If so we'd be at much much higher rates of return so I would expect that.
To fall pretty dramatically going forward Steve.
Great. Thanks.
Okay.
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The next question comes from Adam Kramer with Morgan Stanley . Please go ahead.
Hey, guys. Thanks, Thanks for the time.
Just maybe following up a little bit.
I think this was covered a little bit on Steve's question, just now or his first question, rather, but just wanted to ask about tenant health I think a lot of focus.
When you were talking with some of your kind of close peers has been on kind of tenant health in this space right and kind of looking at whether it's public or private private funding for biotech companies are kind of the public market valuations for some of these maybe it's mid cap or small cap companies.
Just kind of talk a little bit about I mean, maybe not in kind of your your biggest tenants right youre kind of largest market cap tenants, but what kind of a tale of tenants right. Some of those maybe smaller cap or small cap tenants talking maybe talk little bit about kind of their health their kind of need for space and kind of a demand there broadly.
Yes, I'm happy to start with that one.
Scott speaking here you are a watch list really hasn't grown at all since the last quarter or collections remained at 99 plus percent so really no change.
From last quarter, if anything its been positive a number of our companies have actually raised money year to date in the first quarter, we had about $1 billion five of fundraising and our portfolio second quarter. It was about the same at 1 billion five in July alone, we had almost 800 million of fundraising within the portfolio, including some public offerings, so that that market.
Is it shot certainly companies that have good data readouts on our clinical trials are still able to raise financing and we've seen that happen in our own portfolio. So we actually feel really good about our portfolio, we talked about 99% occupancy for the operating portfolio of highly pre leased development pipeline and you've heard us talk in the past.
The quality of our space, both locations as well as the buildings and build outs and the fact that it's generally pretty reusable. If we do have a tenant blow up which you know we've had one and we backfill that awfully quickly with a credit tenant and so we actually feel really good about the portfolio, but just the reality of the life science.
It's a high risk.
Business in terms of the drug discovery process not all of them are successful, which is why we're so focused on being in the core markets with.
With space, that's pretty generic and well located.
Because the need for scientific innovation isn't changing so a lot of money is being pumped into the into the sector 16 billion of venture capital raised year to date is a pretty big number.
<unk>.
Larger than any year on record in.
In 2021, so there's still a lot of activity in the space and.
Rent collections remained strong.
Thanks, guys.
Really helpful.
Just switching gears to kind of a CCR C portfolio.
Look I think kind of a lot of the demand drivers there and you know looking at some of the public the public kind of pure play peers in senior housing you know clearly a lot of the demand kind of driving there.
But let me just wanted to ask you what kind of CCR see within kind of your portfolio right.
How does that kind of fit in with the with the MLP and with the life Science portfolio why is it something that you guys are kind of attractive to them.
Is it something that you would kind of how would you kind of rank I guess kind of growing the CCR C relative to life science and MLB.
Yeah. This is up Herzog, yes, so for <unk>. It represented about 10% of our company.
Company.
As far as how they fit in.
We are not a portfolio that is irreplaceable at this point in time.
You just literally get no new supply coming up against it. It has that eight to 10 year length of stay with the younger healthier seniors.
<unk> has some very high quality cash flows the entry fee creates a great stickiness to those tenants.
And then we've got the strong baby Boomer tailwind.
Lots of land these things are.
The 15 that we have they sit on 700 acres plus of infill land and the replacement cost would be three times or a basis, so impossible to replicate.
It's hard to it's hard for another company to come into it because it requires so much scale.
That for them.
So we do feel really good about the business as far as the yield that it produces.
We've got $20 million to $40 million of upside in that business and to your comment about.
Are there synergies relative to the rest of our the.
The rest of our business.
There is some back office synergies and whatnot, but not dramatically the life science and Mlps have much much greater synergies fit better together, but the yields that were receiving relative to the cap rates with the assets would have traded at historically.
I've been very very strong now.
It's entirely possible, we believe that cap rates are starting to decline and CCR sees them because of the benefits of the product. So we'll see what that looks like in a in the future but as of now.
It's a nice part of our portfolio of those small loan.
Great. Thanks again for the time you bet. Thanks.
The next question comes from Daniel Bernstein with capital one. Please go ahead.
Good morning.
Hey, Dan.
Hi.
I'll stick with the CCR she's just for a second.
Want to understand kind of what you're embedding in guidance for entrance fees net interest skus on a cash basis, and how youre thinking about that with higher interest rates and maybe the whole market is slowing down a little bit.
Okay.
Yeah, Hey, Dan happy to take that one.
At June was one of our best months ever in terms of sale of both the number of sales as well as the price points and everything we've seen so far in July suggest that it's going to be ahead of expectations as well. So we feel good about that product I think just in general there's a housing shortage and a lot of markets.
<unk>, including the 15 CCR see markets that we have which are dominated or concentrated in florida. So that bodes well for housing prices, hopefully being pretty sticky even if interest rates do stay a little bit higher and with construction cost just going up there's not a whole lot being built in Florida right now certainly dose.
<unk>, but probably not a whole lot of housing either especially in these infill locations like our buildings are are at and where residents come from so we feel pretty good about ongoing demand. We've also got a pretty big cushion. When you think about the fact that our cash and rough with almost $30 million in the quarter and our amortization was $20 million. So they're there.
In terms of the impact on earnings there is a huge cushion, but obviously, we're pretty focused if not solely focused on the cash collections, which remains strong and the outlook.
<unk> remains strong and the other point I would mention Dan is that you know, we're not targeting a super Super affluent resident here, our average entry fee on a net basis is a little bit below $200000. So you know what we're targeting for the most part residential that are selling homes into three four or $500000 range.
There's still pretty broad demand for housing at that price point and all those residents are sitting on massive.
Massive games on their housing even though over the past couple of years. So we still feel like the demand outlook is really strong.
Okay.
And then one quick question on the Mlps expenses have been elevated but it seems like Europe for your growth has come down a little bit do you have any specific.
Knowing that many of your tenants are triple net.
Do you have any specific expense initiatives in the MLP space you can talk about.
Hi, Dan This is Tom.
We have a number of initiatives you know every year, we have our green budget or green initiatives, and we really focus on investing in technology and our buildings that will lower our utility expense. So if you look at you know things like energy management systems led retrofits.
Even.
Films on Windows will help us do that so we target that every year and then in all of our markets.
Fairly good concentrations and we we focus on regional and in some cases national contracts. For example, we have an elevator contract that's national.
A lot of regional cleaning contracts and the like and certain repair and maintenance items.
That's typically where we would target.
Our expense initiatives and quite frankly, we have a great risk management department and our insurance increases.
Increases had been less than the industry averages. So we benefited from that so there's a number of areas that we focus on that.
Okay.
That's all from me. Thank you thanks, Dan.
The next question comes from it comes from Connor <unk> with Baird. Please go ahead.
Yeah.
Hi, all thanks for having me on the call just one one quick question on the buyback I know you talked about it previously but in terms of funding the potential buyback and what would that be through the sale of assets core noncore and then how would that relate to.
Potentially allocating capital to say M. Obese, if we're in a rising rate environment and you start to see rates pick up in that asset class.
Yeah, Conor it's Tom Herzog.
You stated it right.
The buybacks would be funded solely from.
Less core asset sales or JV proceeds, it's not our intention to lever up in fact, that's why we didn't start the program earlier in June when we had noted the share price decline and it was harder to figure out what <unk> was there just were no transactions.
But as we sit here today, we are clearly trading below NAV.
We have oh, an implied cap rate inside of our stock that's higher than the than the applied cap rates on a risk adjusted basis in the private market. So there's probably some benefit there as far as the allocation of capital part of your question.
The two places that we'll be allocating capital as we sit here today on a ongoing basis of course, it's in our accretive development pipeline.
Buy side with if the market conditions dictate that we would have an accretive N E and F O as adjusted impact for repurchasing shares we will be doing that too, but only from proceeds not from levering up.
It applies to Mlps and the yields on those.
Obese.
If we end up getting really great returns relative to our cost of capital that could shift. It in fact, just in general if if we started with.
<unk> been a share price that was strong trading at a premium we would go back into.
Growth in acquisition mode relatively quickly so that that applies to them obese or life science.
And then the last thing I'd mention is dependent on how long this persists and.
Don't expect it's going to persist long enough maybe for Vista matter, but if we got to a place where debt rates on new bonds in the future.
Were expensive.
Expensive relative to cap rates inside of our portfolio some of the proceeds could be allocated toward.
Putting less debt in place as well so we've got all of those different tools that we would utilize to optimize our outcome.
Got it understood and then just quickly back to life science apologies, if I missed this earlier, but trending up trending above guidance year to date and it was mentioned that the watch list may have improved since NAREIT I mean, what do you what do you need to see maybe two.
The guidance number for life science same store growth towards the end of the year.
Either brinker or.
I can take that I can say that it's conor.
<unk> as I mentioned, we're at around four 8% relative to our guidance of a 4% to 5% to four 8% year to date.
You know I think another quarter of performance makes sense before we assess any changes to that guidance as Scott said, we do see some improvement from a capital raising perspective from our tenants.
Highly occupied at 99% level so hopefully.
Hopefully next quarter, we can.
Reassess what were going to do with that but we're pleased with where we're trending in some of the improvement since we last spoke at around NAREIT, but at this point in time, we felt it was premature to reassess that and make any changes.
Understood. Thank you for the time.
Thanks Connor.
The next question comes from Steven Valiquette with Barclays. Please go ahead.
Hello, everyone. Thanks for taking the question.
Circling back on the medical office portfolio.
Yeah, I'm actually looking at the fact that the.
SS NOI growth has actually accelerated for a third fourth quarter in a row.
I'm just curious to hear more about what's driving the same store growth acceleration is it just driven more by just higher rent escalators on new releases this year.
Can you just remind us for the overall mob portfolio what percent of the annual leases have.
Rent escalators that go into effect on Jan one each year versus how much goes into effect mid year, just rough approximation, it's just to frame that a little bit better for us.
Sure Steve This is Tom Clarridge.
We've seen most of our major drivers positive this quarter and really last quarter also.
Our in place escalators averaged three 1% that was pretty much driven by.
Inflationary impact on the CPI leases, but also our mark to markets are averaging two 4% year to date and on a trailing 12 month basis. They are actually in the three plus range. So really good there.
Occupancy is trending ahead of where we were last year on a on an occupied square foot basis. We're about 65000 square feet ahead. So that was also positive and then our our medical city Dallas AD rent was up as well as parking income the other thing thats.
That's a driver this year that we do.
Is ahead of where we expected it to be was the percentage of <unk> expense.
Expenses, we get recovered last year, we were running in the.
You know kind of mid to upper 48% range. This year with 50, 555%. So we've seen improvement there. So on our expenses, where we're seeing better returns from the tenants on that and that's primarily driven by a shift in our leasing from some gross leases, where we were at six 8% last year were $5.
7% this year and they what they moved to the net structure so that was positive.
And then.
On the annual increases the fixed increases in CPI increases you know typically it's close to 50% that roll in January give or take it.
All of our medical city, Dallas leases, which is about seven.
750000 square feet, they all roll on Jan one and a good percentage of our other leases roll. So I'd say, it's around the 50% Mark.
Okay, that's perfect. Thanks.
Next year.
The next question comes from John Hello, D with Green Street. Please go ahead.
Yeah.
Thank you for the time just a few questions from me on the transaction market could you quantify the size of the pool dispositions you have teed up right now.
Yes, John I'm, not going to comment on a specific number we did put the two assets in Durham and held for sale. So those are definitely assets that we're looking to sell are we talked about having a second phase of this joint venture in South San Francisco.
So that would likely close in the first half of 2023, so that's kind of in process, but I want to state a specific number yet just because it's dependent upon entitled mentioned density and then Theres. Some other things that we're in the stages of evaluating but nothing thats far enough along that we would comment on on this call.
Okay.
On the Durham sale could you give us a rough sense of cap rate you expect to transact that.
Yes.
[laughter], we haven't engaged with sellers, yet so I'll, probably hold off from commenting on cap rates, but that's a long term lease to a high credit tenant and a growing market. So we would expect that to be a sought after asset.
Okay final one for me Scott I'm curious what your team is seeing in land values given the spike in construction costs you referenced.
Just higher interest rates in general so.
Any shift in land values the team is seeing.
In your core markets.
Yeah, you know, we're not actively in the market looking for land just given the size of our Densification.
<unk> bank footprint.
We'll have better price discovery, when we're able to talk about details on phase two of this joint venture in South San Francisco, but but obviously you would not have moved forward with that if we didn't feel like the land value was being priced at a level that we found to be.
Attractive an inadequate.
Alright, Thank you for the time.
Thanks, John .
The next question comes from one Santa Maria with BMO capital markets. Please go ahead.
Good morning, I was just hoping we could talk about the joint venture the new one.
You guys announced and maybe just a bit more background on the strategic thinking as to.
Kind of wide target highly.
Highly valuable lifestyle opportunities versus may be joint venturing existing assets thinking maybe CCR, CS which are a much smaller piece of the portfolio and just.
Curious as to the.
The impact on leverage and.
With them without the joint venture.
How the math changes in your mind.
As part of the strategic rationale for doing that we're doing this now.
Yes.
This is Tom Herzog again.
One lots lots of stuff in there let me see if I can catch all the pieces that you mentioned.
Let's let's start with the the rationale for.
Doing the JV.
In life Science.
So when you've got a backup to the opportunity set that we've been describing for the last.
Couple of years, where we've got a 10 plus billion dollar opportunity and.
Land Bank development and Densification.
If the pacing that we would be completing that that's up.
A 10 to 15 year endeavor, which is an awful long time.
Even from an investor standpoint, it gets hard to look out 10 15 years.
So we were.
And the other thing I would add is it's not like once we've got that that opportunity that we will not identify other parcels at times that are approximate to our existing clusters, which we have many so we still have future growth so by doing jv's.
It sounds like were really giving anything up we're just able to accelerate the benefit.
And share some of the risk and the upside with a strong JV partner.
We've looked at.
Development in general, especially in life Science, we looked at a number of constraints and I've mentioned these calls in the past as we look at demand supply in any particular market, we'll look at the amount of pre leasing that's in place.
We always look internally very carefully at our funding sources and uses to make sure we have that figured out.
And then we have to balance it against the amount of drag that we're willing to take on and as you know as you increase the size of the program.
That increases the amount of drag reduction in earnings growth timing of dividend growth et cetera. So we concluded that with the size of the opportunity in front of us that there would be some real advantages to taken on a strong partner.
Has good cost of capital allows us to move faster and specifically in South San Francisco is the one that we focused on at this point.
We've got.
We've got point brand, we've got vantage, you've got oyster point.
So that's a lot to do all one time and the demand supply characteristics in that market for us for the locations that we have are are very favorable and we wanted to take advantage of them. So by taking on a joint venture partner.
Allows us to share the funding share the risk share the upside.
We get to earn some fees, we have an opportunity for promote.
The waterfall, which we're not going to get into the details on the specifics due to confidentiality with our partner, but you know there are preferreds in the waterfalls and that can take the edge off of our drag.
So there were a variety of.
Good reasons for us too.
Take a joint venture partner on to do more together than we could do on our own.
So that was the rationale behind the JV and wildlife science as far as existing assets.
It's a different that's a different animal I mean, there could be circumstances, where doing a JV on a stabilized asset makes sense.
That's gonna be a pure pursuit type JV, maybe you earn a little asset management fee.
You would do that if you needed the capital, which based on how we're lining this out I think we're quite comfortable with where we're at from a sources and uses perspective.
So that doesn't do us a lot of good.
Of course, we Wanna fueled some share repurchases that are creative could be considered you mentioned <unk> well that could be on the table at some point, a JV, where we maintain the platform.
Great platform and team.
But you know to JV that is something that could be considered.
And as far as impact on leverage it really has no impact on leverage we did this very intentionally where we didn't start the program until we knew we were had a strong enough discount to NAV and we looked at the applied and the implied cap rates on assets in the market versus our shares and came to the conclusion that the timing is now.
Right, but everything we're doing is going to be based on recycling capital on less core assets or JV I like the JV because it routines are effectively our assets under management and scale, which we like.
And so that's where we would drive those proceeds but that would not involve us levering up.
Great. Thank you and then just one quick follow up I think you mentioned an incremental drag from the initial expectations on the tenant that left early in Boston I was just hoping for a little color on that.
Yeah. The bottom line is we.
We had a tenant that fell out 65 Hayden.
We got released.
Within literally a couple of weeks there was a 38% mark to market, it's going to be a very good thing for us over the next.
10 years, but.
For 2022, we simply have downtime so cost us a penny so it cost us a penny in 2022 in a way of upside going forward.
Simple.
Got it. Thank you thanks for the.
A detailed answer thanks, Tom Yeah, Thanks, a lot.
The next question comes from Victor <unk> Malhotra with Mizuho. Please go ahead.
Good morning, Thanks for taking the question.
I want to go back to sort of the life Sciences outlook you highlighted.
At NAREIT, you will you will say Lee.
Clear or I guess specific on the watch list monitoring this impact the heels and develop and timing.
I just want to make sure you are are you, saying the outlook is now improved and all those things are.
You know not as impactful or not as impacted and if so can you give the specific contribution do you anticipate on the from the development side.
So over the next 12 months.
Hey, Vikram I'll start with that I mean, certainly in the public markets. The outlook is a lot more favorable today for biotech certainly off still that 2021 highs but.
Up 25%, 30% in the last 45 days or so depending upon which index you want to monitor so that's a pretty dramatic change in a positive one.
We also have not had any other material tenant defaults, which allowed us to print a good number here in the second quarter and have a good outlook for quarters, three and four as well, but you know on balance I'd. Just ask you to keep in mind that we also are set at NAREIT that public market financing is just one component.
After funding that comes into the life science industry with venture capital partnerships M&A NIH funding, albeit the majority of the funding and that had all remain quite strong and we've seen that continue to happen. So there's really no change on that side of the equation, if anything those big retro capital firm shoes.
Raised even more money for new fundraising in the past couple of months that will be used for the next round.
Of investment so we feel good on that side on development.
Talked about our current pipeline of $1 billion being 81% pre leased all these awful we bought out. So you know we have certainty on cost in and we're underwriting at a seven 5% yield which is pretty strong. It's also high because of our land bank.
The point was more if you had to go buy land at today's market value and enter into construction con contracts today as opposed to 12 to 18 months ago or the cost is going to be higher depending on the market, but probably 10% to 20% higher and to date rents had kept up.
Throughout 2021, and the early part of 'twenty two I'm not sure. That's the case today as construction costs continue to decline, although we do see some light at the end of the tunnel. So the point was more it'd be hard to recreate that seven 5% return that we're going to get on our current pipeline. If you had to go buy land at today's market value and entering new construction contract.
You know it depends on the market and the project but.
At fair market value underwritten yields are probably more in the six to six 5% range today for for a new entrant. Fortunately most of what we're gonna be doing is going to be through our land bank. So over there you also end up still being pretty strong.
Okay, and just quickly just to clarify.
That's why at that point.
In your guidance for same store in the life Sciences in the second half you're not baking in any credit issue or occupancy loss.
Versus you know maybe sort of what what you were anticipating at NAREIT.
I think that's right.
We always have.
A little bit.
Credit cushion within our numbers, but nothing material has occurred since.
Okay.
So there is a little bit of that remaining at this point in time, but as the year.
<unk> concludes we will release some of that to the extent that.
We don't need it so there's a little bit of cushion in the numbers for the balance of the year and hopefully we don't need it but more to report as the year progresses.
Okay. That's helpful. And then just the last question you talked a little bit about the impact from the tenant that you backfill another penny or so into 'twenty three and then you obviously talked about can you. Maybe just you know obviously you wont give us guidance now, but some of your peers given the volatile environment the market funding rates.
And sort of given bigger blocks, we should think about going into <unk>.
So is it fair to say.
Obviously, the costs can change, but if things stay the way. They are how should we think about the rate impact into 'twenty two.
Any of the bigger building blocks you flag for us as we think about modeling next year.
Yeah.
Yes, it's Pete I'll take a stab at that one.
At this point in time, we've got great portfolios with our three segments and we think those should generate some pretty strong same store growth through the cycle. So that's 0.1 I'd probably factor in as you're looking at year over year growth. Two we should have some nice earn in from all of our development platform.
Especially this year, we've got some pretty big projects coming online throughout the course of the year that being the boardwalk as well as the latter phases of the shore and that we've talked a bit about this is while we still have the CCR see upside of $20 million to $40 million, we won't get that all in one year, but but certainly we see improved.
Performance in 'twenty three relative to 'twenty two based upon what we're seeing today.
Headwind items, you mentioned interest rates for the first half of the year LIBOR was around 1% from us a little bit south of that.
We model the forward curve, we actually put what our LIBOR assumptions are for the second half of the year, which follows the forward curve, that's a little bit north of 3%. So as I said, we were at a little south of one in the first half a little north of three for the second half So I would certainly factor that in.
As you look at our average weight for the year relative to what the forward curve says for 2023 again, we did not put with 2023 LIBOR assumptions are but you guys can look at the forward curve and then the last thing I would point out we did in our NAREIT deck include.
Oyster point redevelopment economics, I think that's something that as you look at the year over year growth in 'twenty three 'twenty four we certainly are not dealing with linear growth of 5% plus on that.
Campus there is some downtime with.
Regards to some of the leases there so I would focus on that and then look at 2025 importantly, where once that campus is stabilized we will see some pretty significant growth in 2025, I know you didn't ask about 2020 for 2025, but I did want to point that out. So I think those are the building blocks that would get you know again, it's a little premature.
To start talking about more detail at this point in time, but that's probably the right way to start framing 2023.
Okay. Great. Thanks that was very helpful. I'll follow up more offline. Thank you guys Hey, just to let you know we have eight more people in the queue, we'd like to get to everybody. Maybe just give us your top question and will expedite our answers as well.
The next question comes from Joshua <unk> with Bank of America. Please go ahead.
Yeah, Hey, guys let.
Let me go back to the JV.
So if I recall correctly I think he had scaled back plans that youre, putting in the first JV.
Like how big you're building the asset was that driven by kind of the discussions with the JV or are there any plans to kind of stick with your original kind of bigger bigger initial plans.
Hey, Josh It's Tom Herzog again, we looked at.
The changing landscape in biotech and recognize if there would be some real benefit based on the supply and demand in the market to get some product to market quicker and point Grand was perfect for that because we can get product to market in 12 months to 18 months.
At a b plus type rate in an a plus location and we thought that was important for what we were talking to different biotech Ceos as to the type of space that they would be looking for smaller floor plates and a little lower entry point, knowing that we'd have to eat plus product next next door advantage in the a minus at oyster point.
That's what caused us to make the shift.
When we were working on the partnership with our sovereign wealth partner, we were actually working on that when we were at NAREIT and talking about these things but of course couldn't speak to it. We were also in discussions with them as to what they thought fit best and they agreed with that approach. So that's that's where we fell out on that.
Okay interesting. Thank you.
Josh.
The next question comes from Nick <unk> with Scotiabank. Please go ahead.
Oh, Thanks, just realizing you know Occupancies high in life Science collections are high as well you mentioned earlier, but as we think about the watch list can you frame out what exactly the watch list is right now as you know as a percentage of the portfolio as we think about you know if the capital markets are difficult we hit in the recession.
Now historically, how we should think about you know potential occupancy loss going forward.
Okay.
Hey, Scott.
Scott here I mean, it's still less than 5% of the portfolio.
It is somewhat subjective.
Because each company situation is unique and we are doing certainly a deep dive on any company that that's even close to that category just to understand all the specifics, but we overlay that against just some general parameters that we apply across the portfolio to try to sort the risk and manage the risk.
Cash balance.
Certainly whether they've.
As for a termination and some cases or if they've done employee layoffs, coupled with lack of cash balance your market cap. So theres a variety of things that were looking at to Pratt.
Proactively manage that risk but.
If anything things are a little bit better today than they would've been two.
Two to three months ago neck and.
Okay. Thanks.
Understate the risk, but there's always some risk taking biotech tenants on depending.
Depending on the stage that they are at in their their drug development.
So we expect some of that type of movement, but at the same time, you end up with some very outsized growth within these clusters criminals very type of tenants. So that's always been part of what we're dealing with.
Just what the just what the market dynamics over the last year or so we extend it up a little bit higher watchlist, but Scott says it's under five it's more in the 3% range. So this isn't a.
A big concern, but just one that we're keeping an eye on.
Great. Thank you.
Thanks, Nick.
The next question comes from Michael Carroll with RBC capital markets. Please go ahead.
Yeah. Thanks can you provide some color on how you're underwriting differs at the Grand redevelopment site versus the advantages I mean, what's the difference between the face rents and tenant.
Tenant taking in taking space I mean is there a T I couldn't admit like their responsibility differ between the the point Grand and the vantage developments.
Yeah, but when do you want to take that.
Okay.
Sure Hey, Michael It's Scott.
Okay.
The difference you have the advantage in point Grand start with the T is.
Advantage you are typical T eyes on our developments have been we've provided had been in the high hundreds you know that 175 to 185 range historically.
And the total to build out those spaces, there's probably.
$350 a foot today so.
So is it really significant tenant contribution.
On the on the new developments, whereas appoint grant will be much closer to getting to getting.
Getting a tenant I should say to closer to a turnkey maybe not all the way there, but there'll be much less kind of contribution there. So the rent will reflect that.
Yeah.
On a monthly basis I'd point granted you're probably in that.
Yeah, Hi fixes.
To low Sevens and then depending.
Depending on the demand up just how much Ti we do put in on.
On those whereas advantage you know you're in the.
The mid sevens, but a bunch bigger tenant contribution.
Standpoint.
Great. Thank you.
Michael.
The next question comes from Nick Teo Okusanya from Credit Suisse. Please go ahead.
So quick question, just kind of given the JV strategy in South San Francisco does that make you think any differently about how you would kind of fund or approach the ultimate redevelopment.
Right.
Tyler it's good.
Question.
That certainly is something we should consider.
But it would be premature for us to get into any detail on that but that is a possibility. So we'll see what happens.
Thank you thanks, Jeff.
The next question comes from Dave Rodgers with Baird. Please go ahead.
Hey, Tom maybe this is for you you talked about the joint venture is really being able to accelerate that 10 to 15 year timeframe for development.
I mean does that mean that we would expect the development redevelopment pipeline to kind of move from one two to like 1718 in a pretty short order getting that 10 to 15 years down to seven to 10, I mean is that kind of a goal here in the next say six to 12 months or 12 months to 18 months to really push that that pipeline to a much larger number with that excess outside capital.
Yeah, Hey, Dave Yeah, I think that you could see the pipeline itself increase the amount of spend that we're incurring might be similar to what we've had in the past it might be in that half a billion range, maybe a little bit bigger and yes. It could.
It could it could shift that 10 to 15 years to seven to 10, depending on how much we expand the program with our sovereign wealth partner. So that's yet to be determined but I think the magnitude of.
Estimates that you that you just put forth are probably not online.
Thanks, Tom Thanks.
The next question comes from Michael Griffin with Citi. Please go ahead.
Hey, guys. Thanks for taking the question maybe to circle back on transaction activity. I'm curious you know obviously your volumes seem to kind of have been muted for this year, but can you maybe give a sense of sort of have you seen any assets trade sort of where cap rates. You know might've gone expanded you know where they are relative to the past couple of months.
Yeah, I can start with that one Mike.
Michael I mean <unk>.
<unk> that are well located and have good sponsorship still get done starting point Grand is a good example of that and as I mentioned in the remarks, I mean that was underwritten to.
To a stabilized yield in the mid to high fives on a project that if everything goes to plan, which stabilized in 2025, so call. It three years forward looking so you know we feel like that's a pretty good indication of where the market is.
Those rents are naturally just at market. So that's one thing about cap rates. It always requires a lot more explanation in terms of is there a mark to market the lease term.
The credit of the tenant et cetera, but at least in my science that Mark to market. That's built into the cap rate is always an important question and these rents would be at market naturally we're going to sign them in the future. So that impacts the stabilized return as well a lot of.
All of our commentary is more from what's not getting done.
Sellers' expectations versus what buyers are willing to pay today as well as just a lot of conversations whether it's with pension funds or private equity or sovereign wealth or brokers or even the other reach just what kind of return targets do they have today.
What they would've had six and 12 months ago, and that's more of the basis of our commentary around what's happening with with valuations I think it will still take three to six months to really have clarity on.
What is truly happening with cap rates, but certainly the financing market for levered buyers has changed pretty dramatically.
Okay. That's it for me thanks for the time.
The next question comes from Austin <unk> with Keybanc. Please go ahead.
Great Thanks, and good morning.
With respect to targeting the smaller tenants appoint grant I guess I'm just curious how deep that market is today or maybe what percent of the two and a half a million square feet.
Of demand that you identified in South San Francisco is related to those smaller tenants and in them are.
Are you in negotiations I guess with anybody today or given the more turnkey nature should we expect these to be leased closer to completion.
Yes, Scott here I might ask up on a comment as well, but it's several separate buildings. There all have various maturity dates some of them have already matured others don't mature until late 'twenty. Three so this is going to happen.
Over time.
But we are having productive conversations with a couple of tenants that meet the profile that we described already so no leases signed but we feel like theres a lot of demand in that size.
Size category.
All of them are existing relationships. So I think that's the other key point you know 90% of our leasing year to date is with existing relationships and all the potential tenants that we're talking to appoint grant or existing relationships. So it just underscores that the incumbents really do have a just a huge competitive advantage in this particular sector.
And you asked a question that comes from Michael question with Citi. Please go ahead.
Michael Bilerman I appreciate taking my follow up.
Hum I Wonder if you can just step back strategically you, obviously talked about doing the share buyback, which I know has been on your mind for a little while and you talked about sort of the valuation of the shares relative to private market, but I would assume also relative to some of the parts of.
Your peers that are involved in the same property types.
I guess what else is on your mind to sort of drive value for shareholders and I guess, we would.
We've debated the property sector allocations and honed in on it and it'll be the my science with also a little bit of exposure to CCR, CS and I know you're committed.
We believe the combination of those makes a lot of sense.
I guess, if youre not going to get the right value in the market for those businesses together have.
Have you thought at all about them and I know, there's the synergies with that but just walk me through sort of what happened in the boardroom.
Initiated a share repurchase program and other things that were discussed.
Hello.
So I had you on mute.
No worries.
Hear me now I can hear you.
Oh no.
When we.
Look at it what.
Other opportunities are going forward clearly the development pipeline is an important driver of value and we've got the we've got the three businesses that are all in vital sectors, they're all cleaned up businesses.
High barrier to entry.
So we feel really good about all three businesses.
The trading where we're trading at right now is is that a discount to the sum of the parts there'll be some discount.
But I think after you take into account leverage cap rates, non earning assets and whatnot. It is.
That neutralizes it some but still we see a lot of upside in our shares so as we looked at the different opportunities. We will play through in life science in Mlps and believe we're going to get a great outcome.
From the the unique way that those businesses have been put together.
And continue the development and we do think the JV has allowed us to accelerate and capture more income as we go forward with less drag which makes for a smoother.
Income growth model.
And then the share repurchases.
If we're going to be trading at a discount for some period of time, we hope it's not very long.
We can take advantage of the accretive nature to both <unk> and <unk> as adjusted so we do as a management team and as a board I think that that's the right play when we look at.
The question you asked some of the parts I think in your most recent piece yet at one seven turns low.
What's your view on it.
We think we can recapture that in a whole lot more as we go forward under our current plan. So I do think that that the comments that come up once in a while not by most but once in a while.
Whether we do something more dramatic we don't believe that that would create shareholder value. There are way more dis synergies go what I think people would realize and we do think that the MLP in the life science business is fit very well together with all the shared infrastructure that's in place.
And the fact that <unk> create some stability.
Two our earnings model that allow us to be more aggressive on the life science side and the development side. So we do think it's a great model the way it's put together in that.
But the campuses that we have and in life science and Mlps that literally took decades to build there's no way that that can be replicated and we think that that's going to pay up provide strong same store growth for.
For years to come so we feel really good about our model.
And then Tom can you just talk a little about the board you know I think over the years Theres been as the company has changed dramatically there have been a lot of moves on and off the board.
You have a board today that seven members of which you are one of them.
And obviously you have some that have pretty long tenure and some newer I know I recognize lithia would come off during the quarter. What is the board and what are you looking for in terms of adding additional members. What is the right side. What is the right skill set that you're looking for to help the company go forward.
At this time.
Yeah, we have a we had a board of eight.
If we if you're referencing too if we roll back.
Prior to the spin.
And over the last last.
A couple of years after the spin we had a we had a we had a board that had been together for a long time, some very very tenured board members and we decided that we wanted to do a refreshment.
Which we which we did in a pretty dramatic form and so that's been that's been completed.
We're down one board member right now with Lydia.
And she took another board on that that.
That involves.
Construction.
Which is her background and so I think that that was great and we wish her and wish her well. So we will be adding a couple of board members I think the optimal size of our board. This was after nom Gov and the entire board, but I'll just give you. Some some quick sentiment that that there'll be greater discussions on in our boardroom, but we're probably looking to add.
With board members.
And I'm not quite as states specifically.
What what skills, we're looking for because I think I.
Conversations we will be having in the boardroom over the next few weeks, but this isn't something that we're gonna sit on we're working on it right now.
And so more to come on that.
As far as what some have been on the board for a longer period of time than some of our newer I personally think.
That's a good balance I do like having a couple of board members that have been on for a long time. They have the history. The relationship is good and I like having some new blood and new thoughts on the board at all times. So I feel like the balance from that respect is actually quite good.
Yeah, No I was just referencing where it stands today and the fact that you you have eight positions, but only seven of our field. So that's what that's why I said, 7%.
Yes.
Alright, I appreciate the time thanks.
Thank you.
Operator any more questions.
No. There are no further questions, which conclude the Q&A session I would like to turn the conference back over to Tom Herzog for any closing remarks.
Well, thanks, everybody for joining our call. We appreciate your interest and look forward on scene.
Many of you at our upcoming industry events over the coming months. So we'll talk to you soon thanks.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.