Q2 2022 Paramount Group Inc Earnings Call
Expansion of SBB Securities at 31 Avenue of the Americas, where they leased the entire first floor comprising over 68000 square feet.
The building is now 88, 1% leased up 380 basis points compared to March 31.
We are now left with three desirable and contiguous space floors totaling about 200000 square feet.
The New York portfolio are approximately 70% of our overall business continues to perform well not only did it account for over 60% of this quarter's leasing velocity, but it accounted for over 72% of our year to date leasing velocity.
<unk> growth continues to be strong, particularly in New York, which is almost fully recovered to pre COVID-19 level results.
Tourism is improving daily that bodes well for all retail businesses and the city in general.
The San Francisco portfolio as expected has lagged.
But there is one trend in both markets that remains consistent the flight to quality and that benefits our portfolio in particular.
At one market Plaza arguably one of the best buildings in San Francisco, we continue to execute deals with triple digit starting rents.
Of the 97000 square feet leased in San Francisco This quarter about 59000 square feet or over 60% was leased at one market Plaza at starting rents in excess of $118 per square foot.
One market Plaza continues to raise the bar in San Francisco.
Notwithstanding the success, we are seeing at one market Plaza the market in general remains challenged as tech tenants grapple with their return to office plans, keeping office utilization rates, well below pre pandemic levels and causing leasing activity to remain tepid.
We believe our own leasing results demonstrate the prevalence of the flight to quality for office space in our markets as more tenants are returning to work or are planning to do so after this summer.
We expect to continue to benefit from this phenomenon as tenants are seeking well operated well located well and monetized and environmentally conscious buildings for their employees.
Our assets deliver on every one of those fronts.
On the ESG front, we are proud to note that Paramount achieved the 2022 energy star partner of the year Award from the U S. Environmental Protection Agency EPA and the U S Department of energy.
Our efforts were recognized as being in the 25% among thousands of energy star buildings nationwide and.
Recognized for demonstrating superior leadership innovation and commitment to sustainability.
As we look to advance our mission to reduce the portfolio's environmental footprint.
Sustainability is an integral part of our business and we capitalize on every opportunity to further embed responsible practices into our daily operations.
Turning to the transaction market activity was muted during the quarter.
The second quarter, so roughly one 3 billion of transaction volume in New York.
Pricing for class, a and trophy assets continues to be strong and higher than the public markets imply.
For our part we have always maintained a disciplined approach with our capital and continue to monitor the markets carefully.
To that end, we opportunistically repurchased 268231 shares at a weighted average price of $6 96 per share or $1 $9 million in the aggregate.
As has been the case since the pandemic began we continue to maintain sufficient liquidity, which amounts to about $1 3 billion.
At the end of the quarter.
We have maintained a defensive posture since the onset of the pandemic with our portfolio of stable trophy assets and our proven ability to allocate capital we remain well positioned for the long term.
Let me wrap up by saying our operating goals continue to be clear.
Our primary focus is on the lease up of available space and the reintegration of our tenants in a safe and healthy manner. While we are also always looking for opportunities.
With that I will turn the call to Peter.
Thanks, Albert and good afternoon.
During the second quarter, we leased approximately 250000 square feet for a weighted average lease term of nine years.
Our second quarter leasing activity was more heavily weighted toward New York with approximately 153000 square feet leased or 61, 1% of this quarters total leasing.
Among the most significant transactions during the quarter was the previously mentioned expansion lease with SBB Securities at 301 Avenue of the Americas.
Our pipeline remains healthy as we continue to benefit from tenants pursuit of best in class buildings in both New York and San Francisco.
At quarter end, our same store portfolio wide leased occupancy rate at share was 91, 4% up 90 basis points quarter over quarter, and up 350 basis points year over year.
As we look ahead, our remaining lease explorations are manageable with 6% at share expiring by year end and approximately seven 3% at share expiring per annum through 2024.
Turning to our markets Midtown second quarter leasing activity of approximately $4 2 million square feet. Excluding renewals was only four 1% below Midtown pre pandemic five year quarterly average and was the fourth consecutive quarter of leasing activity in excess of 3 million square feet.
Financial services continued to drive the Midtown market contributing 49% of leasing activity during the second quarter well in excess of the 32% share of occupancy the sector currently accounts for in Midtown.
Midtown posted yet another quarter of positive net absorption during the second quarter, marking the third time in the past four quarters that Midtown has realized positive quarterly net absorption.
Despite midtown is elevated availability rate tour activity and transaction volume for high quality direct space and the market remains solid, particularly in well located class a buildings.
Tenants, who are more discerning than ever before are seeking high quality real estate to compel their employees to return to the office and enhanced all the benefits that can only be realized when people are working together in person.
Tenants, increasing desire to raise the bar and improve the quality of their real estate has resulted in the flight to quality trend that continues in New York.
Our New York portfolio is currently 92% leased on a same store basis at share up 130 basis points quarter over quarter, and up 570 basis points year over year.
During the second quarter, we leased more than 150000 square feet at a weighted average term of nine three years.
Our overall lease expiration profile in New York is manageable.
<unk> <unk>, 3% at share expiring by year end and seven 3% at share expiring per annum through 2024.
Turning now to San Francisco leasing activity increased quarter over quarter, but remains below its historical quarterly average.
San Francisco market continues to take a measured approach to returning to the office. However, with the relaxation of the masking rules San Francisco based companies have begun to more clearly define their return to office plans.
This has resulted in increased utilization as compared to earlier in the year.
Despite San Francisco's elevated availability rate the market for San Francisco's Premier assets remains tight and economics, particularly for view space and trophy assets remains strong.
Similar to New York flight to quality is a movement that continues to gain momentum in San Francisco.
Yeah.
At quarter end, our San Francisco portfolio was 89, 8% leased on a same store basis at share.
During the second quarter, we leased approximately 97000 square feet at a weighted average term of seven nine years with initial rents of approximately $105 per square foot.
But the leasing we completed in the second quarter in San Francisco was largely comprised of several renewals expansions and the addition of three new tenants to our portfolio that add to the strength in prestige of our tenant roster in San Francisco.
Looking ahead, our overall lease exploration profile in San Francisco is manageable with one 5% at share expiring by year end and seven 5% at share expiring per annum through 2024.
Our San Francisco portfolio is well positioned to manage through the current environment.
With that summary, I will turn the call over to Wilbur, who will discuss the financial results.
Thank you Peter Yes.
Yesterday, we reported core <unk> of <unk> 24 per share <unk> <unk> ahead of consensus estimates and 10, 8% higher than the prior year's second quarter.
Same store cash NOI grew by a strong five 6%.
Much like the first quarter the growth in the second quarter was once again, driven by our New York portfolio, which grew by a robust nine 2%, while the same store growth in our San Francisco portfolio decreased as expected by 2%.
GAAP same store NOI growth was even better at 9% portfolio wide.
New York at 11, 6% and San Francisco at four 1%.
During the second quarter, we executed 20 leases covering slightly over 250000 square feet of space.
Weighted average starting rents of $78 28 per square foot.
And for a weighted average term of nine years.
Mark to markets on 96052 square feet of second generation space was negative five 3% on a cash basis and positive half a percent on a GAAP basis.
As a reminder, mark to markets are calculated on space that has been vacant for less than 12 months. Therefore by definition, the 68000 square foot lease with SMA B securities. So the formal barclays' space was not included in our reported mark to market figures.
That lease at a positive mark to markets of three 1% on a cash basis and was basically flat on a GAAP basis.
Given our strong second quarter financial results and our outlook for the remainder of the year we are.
Once again raising guidance at this time on several fronts.
We now expect core up therefore to be between 95, and 99 cents per share or <unk> 97 per share at the midpoint.
<unk> higher than the midpoint of our previous guidance.
The <unk> increase in core of therefore at the midpoint is comprised of the following.
<unk> from better portfolio operations.
<unk> <unk> from higher straight line rent.
<unk> <unk> from lower interest expense.
Actually offset by <unk> <unk> from higher G&A expense.
We are also raising our expectations for same store cash NOI growth by 50 basis points at the midpoint.
<unk>, new same store cash NOI growth range of one five and two 5%.
We also expect same store GAAP NOI growth to be higher by 100 basis points at the midpoint, resulting in the new same store GAAP NOI growth range of $3 five and four 5%.
As I referenced in my previous remarks during our first quarter conference call. We continue to expect our same store cash NOI growth to decelerate for the rest of the year as we contend with tougher comps in the second half of the year.
Our year to date portfolio wide same store cash NOI growth sits at four 7% and the midpoint of our increased range is now up to 2%, implying flattish growth in the second half of the year.
Same store GAAP NOI growth, however is expected to accelerate in the second half of the year.
Our year to date portfolio wide same store GAAP NOI growth sits at 3% and the midpoint of our increased range is now up to 4%, implying a 5% growth in the second half of the year as we expect to benefit from higher straight line rent commencements as the year.
Asses.
Turning to our balance sheet, we ended the quarter with almost $1 3 billion in liquidity comprised of about $525 million of cash and restricted cash and the full $750 million of undrawn capacity under our revolving credit facility.
We have been very disciplined and mindful and managing our balance sheet for a moment like this where there is a scarcity of debt capital and a rising interest rate environment.
We have limited maturities and limited exposure to variable rate debt.
Our outstanding debt at quarter end was $3 7 billion at a weighted average interest rate of 341% and a weighted average maturity of four six years.
87% of our debt is fixed and has a weighted average interest rate of three 6% the.
And the remaining 13% is floating and has a weighted average interest rate of 443%.
We have no debt maturing in 2022, and roughly 5% of our share of debt maturing in 2023.
Lastly, we have updated our investor deck, which includes a schedule of free rent and the related burn off.
Which increased by 6% from our April Investor deck, and now sits at $55 2 million at sure.
Investor deck can be found on our website at www Dot <unk> dot com.
With that operator, please open the lines for questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
In the interest of time, we have seen each keep to one question and one follow up thank you.
Our first question comes from the line of Bryan Spillane with Evercore ISI. Please proceed with your question.
Hey, Thank you Albert you mentioned the transaction market and we saw $13 36 to have sell this month for about 625 Bucks a foot.
Which is meaningfully above your implied price per foot for your New York City asset. So curious your thoughts there and where you see the transaction market heading into the back half of the year and maybe Wilbur if you could just tie in how the debt markets are evolving as well.
How that relates to the financing of office assets.
Yes, I would say that the transaction was an aberration.
The seller is a private equity firm that.
Their own opinion about New York propagation.
I think that asset.
In a normal market without the special.
The special situation there.
Would have traded at.
Pricing.
It's an asset that we looked at.
That we looked at from time to time it needs TLC.
It is.
A couple of small tenant spaces.
I don't think this is reflective of the class a and trophy.
<unk> offers.
This market in New York.
As I mentioned, an aberration special circumstance.
I think there was some debt that was coming due.
<unk> had to be repaid in this market.
It might be a difficult task.
Sure.
Add to that Brian .
The debt market right now is very volatile <unk> is down significantly and then it's down to 29% relative to the first quarter <unk> issuances in and about 50% from the fourth quarter of 2021.
So what it's done is you have the bank market, that's a little bit more open to do.
Office deals right now selectively and Thats, where some of the deals are getting done is getting done in the bank market.
Got it.
Okay, and you mentioned.
Share buybacks as well so can you maybe just talk us through your capital allocation plans for the back half of the year.
What is the capacity to continue buying back stock just given where the leverage is at.
Yes, we have been historically very careful with.
Our capital allocation and we are optimistic.
And what what we use of capital for our shareholders for.
We.
We have been.
When we buy back shares it should be.
Leverage neutral and this was approved.
Assignment by the board, a while ago and when the price was attractive.
We took this opportunity. So we are very careful with our capital.
But we are in a special situation at Paramount in some ways because we don't have any.
Leverage on balance sheet.
Our leverages on the assets and D assets is below what we're seeing.
In his remarks.
Our long term financed we have short term financing of about approximately.
Approximately 15% overall.
And we have cash on balance sheet.
That was earmarked by the board.
For buyback opportunities I cant tell you what we will do in the future here.
Don't want to do that at this point.
But we are opportunistic and we bought <unk>.
All of our options to deploy capital and maintain of course appropriate liquidity, we have been through these kind of cycles before.
And we want to be we want to be prudent in our acquisition for example that we.
<unk> got criticized for of 60 to 100 Broadway.
A couple of quarters ago.
Very little of our own equity, but it was a proven partner who wanted to buy that asset we manage it for them, we put it in 5% of the equity and get a return for 9% of the accurately.
That shows that we are very disciplined and stay optimistic.
Alright, thanks for that.
Youre welcome.
Thank you. Our next question comes from the line of Vikram Malhotra with Mizuho Securities. Please proceed with your question.
Thanks, So much thing the question.
Maybe just Wilbur the stock can you clarify.
Clarify.
60 wall.
Was the capitalized interest already in guide.
No.
Thanks for the question listen I think I think you're referring probably to the component of the guidance and how we lowered interest expense in the guidance I can tell you. It has nothing to do with the capitalization of 60 wall interest.
When we came up with our guidance at the beginning of the year.
We did have a plan to early refinance opportunistically one of the debt that's maturing in 2024 and.
That was that was going to result in interest expense being higher because we had a plan to potentially see if we could upsize that debt that has been table because that was being done purely on an opportunistic basis given the volatility in the markets we table that for.
For now and Thats, where the decrease that you saw in the guidance from an interest expense perspective came from it's not because of <unk> 61, and the potential capitalization of interest there.
Got it okay. So let's put it potentially so I mean youre not capitalizing that.
Yes.
Yes, no we havent started capitalizing interest yet.
Got it Okay, and then one of your peers, just laid out sort of bigger picture risks to the kind of trends and I guess their own specific.
NOI.
Headwinds the numbers for 2003.
I know, obviously youre not going to give US 23 guide, but can you maybe just walk us through any big picture puts and takes we should be considering for 2023.
Well Big picture I can say, we seem to be in.
A pretty good spot with regard to leasing and.
Sure.
You'll remember with the move of Barclays out of 31.
There was.
A.
Reduction of leasing of the total portfolio that is going to be picked up by a very limited explorations we have earmarked.
For what we need the capital to keep the portfolio in good shape.
And the <unk> the commissions for.
The notes that have been done.
<unk>.
The situation should should look reasonably positive.
Yes.
Yes, I was just going to.
To add a couple on that on the 23 explorations as far as moving pieces Vikram, There's really two one in New York and one in San Francisco and New York In February 23, you have the credit Agricole space. That's expiring that's about 300000 square feet and then you have.
In San Francisco, the Uber space expiring in July .
23, these bolt on known move outs and.
Of course.
Credit Agricole is at $13, one that is 100% by Pgi array. So that we will have 100% impact on our numbers.
<unk> is at market center, and we own 67%. So that's going to have a pro rata impact on that number but.
But Peter will talk to you about the activity that we're seeing on both of those blocks in.
Yes.
But to answer your question those are the big deals that are beyond that.
That was going to be my last question on the activity, but just to clarify I guess, what I meant more specifically was.
Given the economic slowdown all the announcements from from Tech companies I guess what Youre.
Baking in was slowing slower leasing activity.
Interest costs et cetera, So just those sort of factors that will influence the stabilized portfolio and then the other below the line puts and takes that one should think about.
The explorations are definitely the government doing explorations are helpful. But just wanting some color on the other piece.
Piece of the income statement.
I'll start and then maybe Peter can add on the activity, but in terms of the puts and takes look we've gone through COVID-19.
Our collections had been sector meeting during that period.
That's because we've been very very prudent in making sure.
The tenants, we transact with so if you're asking do we see anything as a headwind aside from the non move outs. The answer is no that said anything can happen with a.
Bankruptcy or tenant blowing out we do not have any reason to believe as we sit here today that any of that is happening in our portfolio.
Okay, Great and then just if you could give us some color you mentioned the sub market.
In Midtown well positioned.
On the assets. We're looking that you are looking to lease up could you just give us more flavor on the pipeline what that put them into these larger one.
Paul couple of floor users that they're smaller than this maybe give us more color on the pipeline.
Well I'll start in New York at 201, we of course of the remaining 200000 square feet in the base of the building and then we have the former credit Agricole floors, which is will be noted as 300000 square feet and makes up.
Three quarters of our 2023 lease roll in New York, and what I would say as it relates to that blocks of spaces. We've got considerable amount of activity in the pipeline on that.
Credit Agricole space that rolls in February of 2023, we feel very encouraged.
By the demand and it's typically larger tenants. This is a larger tenant type building. It's a magnet for as you can see on the tenant roster creditworthy type tenants. The type of activity that we're garnering is no different and we look forward to giving you an update as we as we move forward with some of the interest.
Those floors as it relates to the base floors I would say that we're left with.
The <unk> if you will of the former block Barclays' space, we have customers two three and four.
They show extremely well recall they have.
<unk> connectivity to the retail space, which we've positioned as a private welcome center, which will allow for tremendous branding opportunity on 56, and we have we have really very good activity on those floors to so I cant vikram say much more just yet in that regard.
But suffice it to say third general one is where we're spending quite a bit of time in San Francisco.
<unk> Center of course, where we get 234000 square feet back in July of next year.
We all know that San Francisco is leasing has been has lagged however, the better product has.
<unk> found ways to be productive and what I would say at this point, although it's still early is that we have some real interest 555 market where that exploration is represents a significant portion of the role in 2023, and we're heavily focused on on going to market on those floors. We have some some really nice activity, there too which I.
Look forward to updating you on but once again, it's too early for me to say much more than that but suffice it to say we feel good about our pipeline.
And we continue to think that our current pipeline will put us within our range.
Okay, great. Thanks, so much.
Thank you.
Thank you. Our next question comes from the line of Tom Kathryn with BTG. Please proceed with your question.
Thank you and good afternoon everybody.
Peter You said in your prepared remarks comment about leasing pipeline remains healthy can you quantify the size of the pipeline right now and maybe how that compares to your usual mid year levels.
Sure I'll start by saying.
We had a productive quarter in San Francisco, you've heard me say that we.
Brought three new tenants into the fold three tenants that we're really very proud to add to the San Francisco portfolio that said our pipeline.
Based on our leases out will bring us into our range will be clear about that.
It is more heavily weighted to New York when you think about what we've done so far this year.
Year to date leasing has been.
Predominantly financial services or I should say, just about 50% financial services, which is not unlike what we're seeing in the broader Midtown market.
Going forward I would say, it's more diversified in terms of industries represented our pipeline that is we've got financial services. We have tech we have legal I think thats one of the elements of New York, That's awesome times overlooked over the past several years the city has diversified tenant base significantly and so while <unk>.
<unk> has been not nearly as active as they were two two years ago. For example, financial services has stepped up.
And we will see that ebb and flow I think going forward, but suffice it to say we feel good about our pipeline we like the fact that it has a diverse range of industry represented.
We're looking forward to a production a productive second half.
Thanks for that.
Following up on your comment on San Francisco, So just a thought on the positioning of your portfolio I understand what you were saying as far as.
Flight to quality, obviously, a lot of demand for for the view space the rents youre getting at one market, obviously eye opening there when you think of the balance of your portfolio, especially as you work away from the water.
What do you think needs to change to generate some more leasing momentum in that market is it small tenants coming back is it coming back is it business services is there something else once we get below the view space that finally drives a pickup in your assets there.
No.
I think the San Francisco as we've said over the last quarters is behind.
Europe on coming back to the office.
Move in.
I think thats affecting leasing in combination with some.
General market changes in San Francisco.
Each building is different as we know.
And.
The one that is may be the softest right now is 111 Sutter doses.
Designed more for incubator in small tenant space and the activity is not.
Not that great, but as you know, it's a very small.
Asset in our portfolio and we have.
A partner.
And we own a minority stake so I think the larger.
Assets are doing better.
<unk>.
I'm optimistic that once things change too.
The better that San Francisco will come back as well.
Peter <unk>.
Peter.
Yes.
And the city looks looks really much much better than before I think it's important that the.
The city government is taking more charge offs.
Of security and safety and I think thats part of what was necessary in the deal.
It's taken care of.
Worked with.
We welcome that.
Got it thanks, everyone.
Sure.
Thank you. Our next question comes from the line of Gerrick Johnson with Deutsche Bank. Please proceed with your question.
Hi, everybody. Thank you.
So look I've asked this question a couple of times.
But I don't really know if I've gotten the answer so I was hoping Albert.
Seems like a lot of companies are talking about expanded.
<unk> partnerships and really I'm, just wondering how deep is the investor pool right now right. If it sovereigns, if it's pensions and maybe now versus previous cycles, and then, especially for New York and potentially San Fran assets.
Yes, very good question.
A long history, even before we went public.
Long history of working with joint venture partners.
Together and the reason is that the assets we are focused on are.
Mostly larger in size and dollar amounts and.
We like to work with partners.
The risks.
Paramount.
The equity exposure.
And we.
We really.
We have diversified our group of potential joint venture partners over the last decade as you could see.
We.
We have had.
This last acquisition of <unk> and a broad base.
Newer developed partnership and those relationships have proven very reliable and stable source of capital over the last 20 years and.
Right now I think.
People are all a little.
More conservative right now, but I'd say right now means over the last couple of months.
They want to see how the capital markets develop.
Now interest rates developed but the general.
Fundamental.
Movement is still a positive for the United States, because if you look to other parts of the world.
It's not.
Another safe I mean, the United States is still a safe Haven.
And a stable economy.
If you look at the currencies of dollars.
And Thats currently maybe a little bit of a handicap.
The dollar is so strong.
So investors are also like to have a little bargain in the exchange rate even sort of the.
Mostly in most cases their investment but.
We are very optimistic about.
Working with partners in the future and it's not like a leg.
Leggett group that runs in and out of markets.
Many of them they invested in multiple multiple.
Assets.
Thank you. Thank you for that that's very helpful actually.
And then.
Since we're on on partnerships and I know, it's only 5%.
But 60 Wall Street redevelopment.
This has been taken out of service.
Any possible timeline thoughts conversions.
Certainly a nice fee stream to tap into here. So just any updates on that somewhat under pressure submarket.
Well, we have looked at that.
A while ago about.
Yeah.
Converting the asset into into other uses.
It's.
It's not feasible.
The layout of the floors it doesn't make sense actually we looked at a long long time.
Our goal and <unk>.
Coming up with different scenarios for our joint venture partners because internally we wanted to discuss.
What would be the best capital.
The investment for the renovation.
Currently we are envisioning to to do a major.
Renovation as you know and it will be a fantastic.
Nearly new kind of building.
<unk>.
We are sticking to keeping it.
Office.
Thank you guys.
Sure you're welcome.
Thank you, ladies and gentlemen, as a reminder.
If you'd like to ask a question. Please press star one on your telephone keypad. Our next question comes from the line of Ronald Camden with Morgan Stanley . Please proceed with your question.
Great just a couple quick ones. Just first is just on the transaction activity and I. Appreciate the comments about staying opportunistic but is it fair to say if there is sort of an opportunity out there would it have to be sort of with a JV partner maybe.
Maybe could you comment on just how much how much that youre willing to take on to get to get something done how are you thinking about that.
We look every time on an asset by asset basis, and the opportunity to opportunity basis. It depends.
The underwriting and on.
Whether it's a value add with its core normally we wouldn't buy a core building.
I say that but we just bought <unk>, which was a score as it can get but that was an opportunity as special opportunity for us.
Where we could proactively buy something.
Semi off market.
And with the right partner the right capital allocation for Paramount, we wouldn't have to spend a lot of equity of prior months.
Precious.
Equity on that asset so.
But in general I can tell you we will for the time being not allocate a lot of paramount's equity.
We will definitely do it.
Incorporation of as a joint venture or joint venture partners as we have done previously.
And we.
We would be looking more for a real value add opportunities.
Great. That's helpful and then on the fee income guidance of $30 million at the midpoint.
Just thinking about sort of 2023.
Question earlier was there anything you can you remind us what if there's anything one time or is that all recurring.
So Ron.
You May recall, one let me just start by saying, obviously, we're not guiding to 2023, yes that said to answer your question as it relates to 'twenty two.
Last quarter, there was a onetime or if you look at the results last quarter core up vessel was 25 per share there was two cents of one timer in.
In the first quarter of 2022 related to fee income and so that that should not be expected to recur.
That will get partially offset by development fees will start to receive on 60 wall.
As well, so there'll be ins and out but there was <unk> of one timer and thats about $5 million.
In 2022.
Related to fee income.
Great. That's all my questions. Thank you.
Thank you.
Thank you. Our next question comes from the line of Daniel Ismail with Green Street Advisors. Please proceed with your question.
Okay.
Great. Thank you.
Maybe just start off can you discuss the expansion of the board and maybe what prompted that decision at the board level.
Well we.
I had a change in the last quarter.
This was something.
The board is constantly looking at.
Refreshing and.
Proving the diversity and that something that the promise to our shareholders.
When we reached out to them and we found the right person we take this very seriously.
<unk>.
This was the right time and.
This Lady brings diversity to the board.
And.
We think that's great for <unk>.
Shareholder value.
Got it and then maybe just two quick questions on leaching for Peter.
Maybe can you remind us where in place rents relative to market.
In place rents relative to market.
For a particular.
Thanks.
No just just overall where portfolio level rent these days, what shakeout relative to market rents.
Yes.
That's a very hard question to answer obviously, you're dealing with product that is coming online and that mark to market. What youre trying to derive is a function of product mix that's available in the current environment.
I mean.
I don't know if were sitting here and marking to market the entire portfolio to tell you where the wind.
Portfolio is relative to market I can tell you that obviously rents rents are under pressure in this environment I think we reported negative mark to market this quarter. Unfortunately.
The place that we did have the positive mark to market initially did not make it into our statistics we have some.
So the Barclays block of space that we continue to lease will be a positive mark to market, but because it's been vacant for more than 12 months, it's not showing up in the statistics.
And so not offsetting if you will the negative mark that we're reporting and we saw a couple of reports where people highlighted that.
Saying it was probably.
Higher than what they thought and that's why we added the color providing investors and analysts alike.
There was a positive mark to market on a large piece of space that was done in the corner that did not make it into our reported figures.
Got it.
And I appreciate the complexity of trying to answer that question. So I appreciate the color and maybe just last one for Peter on concessions.
You've mentioned a few times I think stabilization of concessions over the last few quarters I'd be curious.
Announcements and some tenants do you think that there's any slowing.
Slowing growth that is.
Do you expect.
Any any potential upside in concessions from here or do you think we're at a level where.
It could be as high as they can get given the where rental rates are.
I think it's hard to say I do think they've stabilized, albeit at historically high levels.
I think we will have to see.
What.
What.
And the economy going forward and in our market, specifically, but I would say for the time being we have seen a leveling off I would say over the last year or so of concessions in general we have not.
I don't think felt compelled to give more than we would otherwise had to a gift given a year ago give or take.
In order to transact so so.
To answer your question for the time being we feel as though that.
They have held firm.
If things were when things start to improve in velocity.
The increases when we will ultimately be able to sort of pull these in a little bit I think remains to be seen but for the time being I think they have stabilized, albeit at higher levels than certainly we've ever seen before.
Got it I appreciate the color. Thank you.
Thank you.
Thank you. Our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.
Great. Thanks, just one for me and I apologize if you guys addressed this but looking at guidance Wilbur.
It looks like leasing and the lease rate guidance is unchanged, but same store NOI is higher. So can you help me reconcile what's driving that increase the rents.
Our rents that are higher than original expectation opex, that's lower or maybe something else altogether.
So it's coming from a variety.
All sources, obviously operating expenses is helping it and then we had some early renewals.
That is helping the NOI.
Based on the guidance and increasing the projection as far as the leasing guidance, we left that unchanged as Peter touched upon.
When you look at year to date, we've done call. It 450000 square feet of activity and the pipeline that Peter has.
It's quite robust that gives us enough comfort that we fall within the range.
Of the guidance that we laid out.
It's going to be a tall order.
A very tough market, we're sitting here in the summer months.
Right now, but we have enough confidence based on the pipeline of activity and the leases out for signature that we can get to within the range of the guidance.
But.
It was too soon for us to start to tweak that one way or another.
Because of the lack of visibility we have probably into the fourth quarter and we thought it makes sense for us given the visibility we have given that before within the range to keep things as well.
As they are now and tweak it when we meet and talk next time, so we feel comfortable with the activity falling within the range.
And whether that falls in the low end of the range or the target that stuff will get tweaked.
When we meet next time.
Okay makes sense thanks Robert.
Sure.
Thank you, ladies and gentlemen that concludes our question and answer session I will turn the floor back to Mr. <unk> for any final comments.
Thank you all for joining US today, we look forward to providing an update on our continued progress when we report our third quarter earnings.
Goodbye.
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