Q1 2023 Paramount Group Inc Earnings Call
It will provide some opening remarks, and we will then open the call to questions.
I will turn the call over to Albert.
Thank you Tom and thank you everyone for joining us this morning.
It Hasnt been long since we last spoke.
We're excited to share our progress as we are off to a good start so far in 2023.
We have seen strong year to date execution by our leasing team.
Before I dive into our overall results, let me touch upon the ongoing situation with first Republic, which currently occupies approximately 460000 square feet at one front Street in San Francisco.
On may 1st CFT IC to control of first Republic.
And J P. Morgan Chase subsequently acquired the majority of the assets.
Many of the details regarding the transaction remain unknown.
To date first Republic remains current on its rent payments and as offices remain open.
But we are watching this closely as I'm sure all of you are.
Over the review of the financial impact of first Republic in greater detail.
Yesterday, we reported core <unk> for the first quarter of 2006 <unk> per share <unk> <unk> ahead of the street consensus.
In the first quarter, we leased over 195000 square feet, which is in line with our first quarter leasing from prior years.
We also reported year over year same store growth of seven 1% on a GAAP basis.
And 0.1% on a cash basis.
As a result of our strong first quarter earnings we are raising the low end of our full year 2023 core <unk> guidance to be <unk> higher at the midpoint, which is now 92 cents per share compared to the previous midpoint of 91 per share.
We will also review our financial results and guidance in greater detail.
The larger leases, which we mentioned on our last couple of calls we're taking longer to execute.
Have started to come through.
Illustrated in our first quarter results.
We were happy to announce a 119000 square foot lease we signed at 31, West 50, <unk> Street, and with Wilson, Sonsini and international law firm.
This lease meaningfully derisked, our largest 2024 roll by approximately 30% and was the largest new lease signed in Manhattan during the quarter.
Our New York portfolio continues to perform well as strong indication of the steady return to the workplace, which we highlighted on our last call.
The significant lease we signed during the quarter is a testament to the strength of our class a assets and how a high quality well located buildings can outperform in a challenging environment.
While we are seeing a lot of touring activity and we continue to take more than our fair share of leasing.
Environment remains challenging.
However, there are some signs for optimism as the Metro North recently announced that they are recording peak and then make era of ridership and 74% of the pre pandemic average.
This positive trend is a good sign that the commuters are slowly returning to the city for work.
While the San Francisco portfolio continues to lag in New York City activity on the streets of San Francisco has to become more vibrant now than it was three six or 12 months ago.
And our San Francisco office utilization figures have been consistently rising.
Our centrally located San Francisco portfolio continues to attract high quality tenants during the quarter, we signed a 77.
Therefore at least at market center in San Francisco with way more.
Surgery of alphabet.
We believe this transaction demonstrates the quality of the asset and the ability of our team to meet the objectives of the most discerning clients.
Similar to the previously mentioned pleased with Wilson Sonsini in New York.
<unk> was the largest new lease signed in San Francisco during the first quarter.
Clearly both portfolios continued to benefit from a key advantage in each market.
The flight to quality.
In addition to well located class a assets part of the appeal to the highest quality tenants includes our market leading efforts with ESG.
We were proud to announce that we achieved in 2023 energy star partner of the year Award from the EPA and department of energy.
For the second consecutive year, we were recognized among our network of thousands of participants.
As a leader in sustainability space with performance within the top 25% for energy efficiency.
This achievement is on top of the one we recognized in 2022 as we achieved energy star labeled across 100% of our office portfolio.
As a patient in the energy Star program is not only integral.
<unk> as a responsible owner, but also to our tenants who partner with us and initiatives that reduce both our carbon footprint and operating expenses.
ESG matters to us.
And our tenants and will remain a key focus for us.
Turning to the transaction market activity remains muted.
Rising interest rates availability of debt capital and volatile equity markets continued to keep bias at bay and sellers evaluating when conditions will improve.
They have not been many quality assets that have come to the market.
For those that have the bid ask spread remains wide.
Ed said no significant debt maturities on the horizon, which will certainly present opportunities for well capitalized firms like Paramount.
We will be strategic and disciplined in allocating capital as.
As we always have.
Let me conclude by saying we approach our business with a long term mindset.
Our class a buildings in the coastal gateway markets in which we operate a resilient.
We have constantly evolved and grown over decades and over many economists cycles.
With that I will turn the call to Peter.
Thanks, Albert and good morning.
During the first quarter, we leased approximately 196000 square feet.
Our first quarter leasing activity was weighted towards New York.
With 119000 square foot lease.
By the lease we signed with Wilson Sonsini at 31, West 50 <unk> Street.
As Albert mentioned this lease which was the largest new deal completed in Manhattan. During the first quarter reduced our portfolio is most significant 2024 lease exploration by approximately 30%.
We are delighted to further expand our relationship with Wilson Sonsini, who has chosen to double the size of their footprint in New York with the signing of this lease.
In San Francisco, we completed the market's largest new lease of the quarter with the signing of Weibo at 555 market Street.
Wait mobile leaves approximately 77000 square feet and the base of the building on floors four through seven.
This lease reduced our portfolio's largest remaining in 2023 lease exploration and more than 30%.
Despite operating in a challenging market environment, we continued to make progress on our business plan.
As evidenced by our first quarter results.
Companies have become increasingly focused on pursuing assets.
The highest quality managers and stable ownership.
We remain laser focused on delivering exceptional services.
Throughout our high quality portfolio.
And capturing more than our share of demand.
And while companies have exhibited caution during the current economic slowdown we remain encouraged by the ongoing return to office trend and companies increasing desire to locate in the best buildings in our two markets.
These trends are encouraging and we expect them to result in increased leasing activity when the economic conditions recover.
At quarter end, our same store portfolio wide leased occupancy rate at share was 89, 8%.
<unk> 150 basis points from last quarter.
80 basis points year over year.
As we look ahead, our remaining lease explorations are manageable.
Two 3% or approximately 181000 square feet at share expiring by year end.
Turning to our markets.
<unk> first quarter leasing activity of approximately $2 5 million square feet, excluding renewals was down 2% quarter over quarter.
130% below the five year quarterly average.
Availability of Midtown remains elevated at 18, 5% and absorption was negative during the first quarter as large block space additions exceeded below average leasing activity.
Despite the challenging supply demand environment, Midtown highest quality real estate and the most well located submarkets remains active.
We are encouraged by the level of interest in our largest availabilities at both one avenue of the Americas.
And 31, West 50, <unk> Street, and we will aim to build on the success we had in 2020.
In the first quarter of 2023 at both properties.
We look forward to updating you on our progress over the balance of the year.
Our New York portfolio is currently 92% leased on a same store basis at share down 190 basis points quarter over quarter.
Around 60 basis points year over year, largely as a result of the known lease exploration with credit Agricole at 1300, one Avenue of the Americas.
During the first quarter, we leased 119000 square feet at a weighted average term of 16 five years.
An initial rent of $81 per square foot.
Our overall lease exploration profile in New York is manageable at 6% or approximately 31000 square feet at share expiring by year end.
Turning now to San Francisco leasing activity remains muted as companies contend with macroeconomic headwinds. Despite these well known challenges we have seen an uptick in active requirements in the market since year end, including from leading AI companies.
We have also witnessed the ongoing return to office announcements from leading companies as many continued to reestablish workplace policy and we expect this trend will continue.
The result has been increased utilization within our own portfolio, which will support increased leasing when the economy recovers.
Despite San Francisco's elevated availability rate the market for premier assets remains tight and economics articulately for abuse space in trophy assets remains strong.
Similar to New York flight to quality movement that continues in San Francisco, resulting in an ongoing bifurcation of the market.
At quarter end, our San Francisco portfolio was 88, 7% leased on a same store basis at share.
Down 20 basis points quarter over quarter.
Down 140 basis points year over year.
During the first quarter, we leased approximately 77000 square feet and weighted average term of five years with an initial rent of $85 per square foot.
Looking ahead, our San Francisco portfolio has 7% or approximately 150000 square feet at share expiring by year end.
The majority of our 2023 lease role will occur at market Center and Ubers lease expires in July .
We look forward to building on our most recent success at market center and providing updates on our progress.
With that summary, I will turn the call over to Wilbur, who will discuss the financial results.
Thank you Peter and good morning, everyone.
I will start off my prepared remarks by covering the details of our first quarter results.
Solid by a quick discussion of our balance sheet.
With an update on our 2023 earnings guidance.
Yesterday, we reported core <unk> of <unk> 26 per share, which was ahead of consensus estimates and our own internal estimates same.
Same store growth was up seven 1% on a GAAP basis, and 1% on a cash basis.
With positive same store results were driven by our San Francisco portfolio, which was up a robust 10, 9% on a GAAP basis, and one 9% on a cash basis.
Our New York portfolio was up five 4% on a GAAP basis and down 7% on a cash basis as expected.
Similarly, due to the scheduled expiration of credit Agricole, <unk> 305000 square foot lease at 1300, one Avenue of the Americas.
Although I should point out that the full impact of this exploration on our same store results won't be felt until the second quarter because credit agricole lease expired at the end of February and as such we had revenue for the two months in the first quarter.
During the first quarter, we completed 195634 square feet of leasing at a weighted average starting rent of $82 21 per square foot and four our weighted average lease term of 13 years.
Mark to markets on 143882 square feet of second generation space was.
Positive <unk>, 9% on a GAAP basis and negative one 9% on a cash basis.
Now to our balance sheet.
Our liquidity position remains strong and amounted to over $1 2 billion at quarter end.
$463 million of cash and restricted cash at share, which was up $11 million from the prior quarter and we have the full $750 million of capacity under our revolving credit facility.
An underappreciated yet tremendously important fact about our balance sheet.
Is that all of our debt is secured and is nonrecourse.
During the quarter, we executed short term extensions of two mortgage loans on JV assets 60 Wall Street, and 111 Sutter Street.
At terms that are substantially similar to that of the maturing debt.
Outstanding debt at quarter end was $3 67 billion at a weighted average interest rate of three 5% to 8% and a weighted average maturity of three eight years.
87% of our debt is fixed and has a weighted average interest rate of three 6% the.
The remaining 13% is floating and has a weighted average interest rate of five 8%.
We have under $85 million of debt at share maturing in 2023 and $585 million share maturing in 2024.
Turning now to our 2023 guidance.
Based on our first quarter results and our outlook for the remainder of the year, we are increasing our core <unk> guidance to be between 90% and 94 cents per share was <unk> 92 per share at the midpoint.
This is up <unk> <unk> per share compared to our prior guidance.
While we continue to expect same store growth to be negative in 2023, driven by known move outs of credit Agricole in New York and Uber in San Francisco, We are expecting a 50 basis point improvement in our same store results on both GAAP and cash basis same.
GAAP NOI growth is now expected to be between negative, 1% and negative 3% on same store cash NOI growth is now expected to be between negative 3% negative 5%.
Let me close out my remarks by spending a couple of minutes on the impact of first Republic on our financial results and guidance.
At 2023 guidance assumes at first Republic continues to honor its obligations under our lease agreements and we continue to recognize rental revenue in accordance with GAAP through year end.
As a reminder, first Republic currently leases 460726 square feet of space at one front Street in San Francisco.
It accounts for approximately $43 million or six 4% of annualized rent at share and represents about 520 basis points of our leased occupancy at sure.
First Republic remains current on its rent and we have already received may's rent.
We recognized about $3 $5 million, a month and GAAP rental revenue, which we will continue to do until facts and circumstances change, indicating the collection of rent is not probable.
As of March 31, we have a straight line rent receivable asset on our balance sheet of slightly over $19 million.
We will continue to monitor the situation closely and update you accordingly.
With that operator, please open the line for questions.
Thank you we will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause for a moment to assemble our roster.
Our first question today will come from Steve Sochua of Evercore ISI. Please go ahead.
Thanks, Good morning.
Thanks for the detail on first Republic, I realize it's a pretty fresh situation.
I just don't know if you have any sense as to kind of what the legal precedent is given sort of the FDIC see here and the ultimate sale JP Morgan I know this isn't like a typical bankruptcy. So do you have any sense for how this kind of ultimately plays out or gets resolved.
Well, Steve Good morning Albert.
<unk>.
It's still very early.
From what we understand.
JP Morgan now has about 60 days to decide what space Youre talking about the real estate by Douglas and Thats, what im referring to 60 days time to figure out.
What space, they would like to reject or accept and.
We have had first calls whether it's way too early to talk about it.
One front is.
The premier asset.
They occupy in San Francisco.
We think that.
Most of this space will stay in place, but it's way too early to really predict anything else.
Great. Thanks.
Then maybe I guess one for Peter.
I see you've de risked a little bit of the universe base with the way Mo deal and I think you had talked on the last call about having some deals in the hopper for that space I presume Weibo was one of them, but just.
Just maybe what other activities or are you seeing in San Francisco for this near term exploration.
Yeah.
I think Steve this won't come as a surprise, we're dealing with a challenging environment in San Francisco. The market is challenged we saw light leasing velocity in the first quarter.
That being said we are seeing a notable.
Not only return to office, we are seeing a significant increase in utilization, we feel really good about that but we've also seen an increase in tenant demand call. It over the last four to six weeks not where we would all like it to be but it has increased.
And as you would expect tenants who are more discerning than ever are focused on higher quality real estate with high quality managers with stable ownership. So to answer your question specifically, we do have activity. We of course are working to further derisk that role which will.
Get back later this year nothing more I can share specifically at this point the building shows very well, it's very well located and of course, both brokers and tenants are well aware of.
The opportunity and certainly Paramount.
And so we look forward to updating you on future calls, but I don't have anything more specific to say today other than we feel okay about the level of interest.
Okay and last one for me just Albert you sort of talked about maybe potential investment opportunities and I realize that.
Net leverage and net debt to EBITDA might be on the higher end of what the markets.
Comfortable with right now and I don't think you bought back stock in the quarter, but how are you and the board thinking about new investment opportunities in office, which remain challenged against share buybacks as a alternative to new investments.
It's a very good question Steve.
We have a history of being opportunistic.
But both are very disciplined and I said on the last calls already that will be very very careful was ending our own equity.
On any future future.
The acquisition so.
No.
That said I think the market.
Currently has a lot of.
Bid ask spreads so.
There will be.
Development for opportunities we have relationships.
As you know that go back for quite some time.
And as we did in the past.
<unk> acquired the Eminem building six.
<unk> Broadway the company.
Invest a lot of its equity, but there was.
And Investor group that lap.
The exposure and actually it's performing very well for them and they're very happy with that investment.
When we have a situation like that a lot of.
Especially for investors.
Looking to have boots on the ground.
We'll have an experienced looking for an experienced team.
It knows leasing and property management and asset management.
Those.
The kind of.
Potential investors, we will be talking to.
The opportunity arises.
Great. Thanks, that's it for me.
Thank you.
Our next question will come from Kamil Bond now of Bank of America. Please go ahead.
Hi, good morning.
Just starting with capital markets Theres been a lot of debate and strong opinions around whether or not landlord should be handing back Keith <unk>.
<unk> can't come to terms with their lenders how.
How do you think about this as one of your options and what are the positives and negatives of taking that approach in your view.
Well.
<unk>.
Heard from <unk> remarks.
Our debt is basically nonrecourse to the company.
We are evaluating each case.
On a case by case basis, we are not.
They are not currently in a position to share a lot of detail I think.
Really dependents.
We also have good relationships with.
With our lenders over over decades and.
The lenders have to face.
Reality that they need someone who understands real estate.
You are talking about giving back piece, it's not an easy thing for both parties. So.
We have in the history of Palm oil never done this so far.
But but we can evaluate the ability of value.
A case by case basis.
Our our debt and maybe overbooking go into more details is pretty spread and we have the.
We are in the.
Good position that we have a lot of long term debt of about 87% of our debt is.
<unk>.
Staggered over a couple of years.
So we will look at each case on a case by case basis.
Sure.
Only thing I would add incremental obviously that is a tool in the toolbox. Its the reason you have non recourse debt right. It's the ability to be able to do that if it doesn't make economic sense for you to continue to operate that asset.
And we evaluate that as Albert said on a case by case basis you.
You saw this quarter, we extended short term a couple of our JV loans and.
It's a market where everybody is going to have some pain. There is going to be a lot of work outs across operator groups in and from our vantage point lenders.
You want to work with landlords that have the knowledge and the wherewithal.
And to be able to come out of this crisis.
And so.
We will have those discussions they will be tough, but they have to be mutually beneficial to both parties.
Thank you for your responses.
Yeah.
One market Plaza has been one of the best performing assets within your portfolio and I know, we're still this far out visa who leases quite a large amount of space recently announced that it plans to sublet.
At one market Plaza.
Before ultimately relocating to its new HQ and mission Bay. This seems to be a similar trend ubers decision to vacate their offices around market Street.
Just wondering if you could share your views about the competitiveness of market Street or core CBD, San Fran for Chelsea demand.
With these large supply headwinds and how <unk> strategy fits in this context.
Well I wouldn't say that there's a lot of supply.
Headwind there when.
We bought market center.
We knew that Uber was moving out.
That was from the beginning very clear they had worked on their headquarter already when the asset was purchased.
With with one market Plaza. This is something the lease expires in 2026, a lot of time between now and 2026.
This is arguably.
Arguably one of the best if not the best leased building in San Francisco and even in this market Peter and his team.
Nasty job.
In many cases.
Leasing space.
<unk>.
At over $100 a square foot.
<unk>.
In one case reached.
Recently there.
There was a competition on between two tenants to get the same floor.
So we'll tackle it in time.
Spaces normally in good demand.
Will.
We'll tackle that overtime I don't think Thats a trend.
Because of Uber and visa I'm, making that decision.
And a follow up question for welfare or do you see this recent announcement impacting your ability to refinance the mortgage loan coming due in 2010, a floor at similar terms.
Yes.
What I don't similar terms that current detrimental is up 4% you are not going to see 4% money on any building in New York City on San Francisco, So I don't know if similar terms as the right terminology here.
Don't expect any issue with refinancing that asset that asset is arguably one of the best assets.
Great tenancy.
Had a history of <unk>.
Capturing way more than our fair share of demand in the market.
Flocking to that asset.
It has very good coverage.
And it has terrific sponsors between Paramount and Blackstone.
Thank you for taking my questions.
Our next question today is from Blaine Heck of Wells Fargo. Please go ahead.
Great. Thanks, Good morning, just to piggyback on some of the earlier questions on some of those loans that you executed extensions on 60 wall and 111 Sutter.
Were you or your partners require to make equity infusions in connection with the extension.
So now let me take each loan Mitel 60 wall as you'll know is a project that is currently under development that loan was scheduled to mature in February we extended short term for a year under the same terms no equity infusion yet we continue to negotiate with the lender.
Recognize for US we are 5% so.
We have a view our partners have a view and we're having discussions with the lender group right now when you look at our balance sheet.
Sure 60 wall is about $29 million of debt on our balance sheet, which had zero EBITDA is a non income producing asset. So if it turns out that we don't come to a mutually agreeable solution.
That will come off our balance sheet.
It will improve metrics.
And let me add on that.
We have we have Blaine we have.
The joint venture is available and is willing to invest the one.
Hundreds of millions of dollars to renovate that asset.
I think the lending group no set.
Got something.
That.
It is not.
Got it.
Seen by them so its a matter like boba fett.
We have to come to terms that makes sense for both parties.
Nobody would invest hundreds of millions of dollars to renovate an asset if it's not.
No.
Also.
A good investment for the future.
Or you know the term not throwing good money after bad money.
That has to be evaluated.
And then on 111 Sarah.
111 side of that that came due in March.
We have extended that through may of 'twenty four.
It's under the same terms, but we're not going to be putting any capital in that so essentially that's a cash flow loan. We came to agreement with the lender group that we're not going to invest we and our partners is not going to invest in new capital from our balance sheet.
To be able to move forward on that project that assets continues to remain challenged Peter talked about the market being challenged that asset is 56% leased.
And so we have a cash flow loan.
We will pick up our share of the shortfalls in our earnings but it will be back to the principal balance and as you know we've already written off our investment in that asset last quarter.
So.
We're going to see how that develops how the market develops in a year from today are protecting our balance sheet by not investing our capital into it.
And then we'll reassess a year from today.
Great very helpful color from both of you. Thank you.
Second question can you guys give us any color on the Wilson's Sydney lease and where that rent is relative to what Clifford chance is paying and maybe what the concession package look like on that lease from both the Ti and free rent perspective.
Sure.
Interestingly enough ordinarily, we would not give that but the reality is.
We had that lease in New York and it shows up in our staff that was 119000 square foot lease you saw the initial rent on that deal was $81 a foot.
Mark to markets relative to the Clifford chance place I think we said 92000 square feet.
<unk> to de risk the Clifford Gen space.
The remainder of it really was.
Occupancy, increasing because it's us to absorb a vacant former TD bank floor.
So on the 92000 square feet, you sort of Mark to market was negative three 6%.
So the stats are published in our leasing results Blaine.
Great that's helpful and then.
Just generally can you talk a little bit about how higher interest rates have been impacted.
Additive landscape with regard to <unk> I assume some landlords are kind of less willing to spend on <unk> based on their higher cost of capital. So how does that play out with respect to free rent, increasing or lower phase III and how do you think <unk> can.
Differentiate itself to get Pete that environment.
Brian This is Peter I think I think in many respects it shrinks the market in terms of buildings that can compete given the environment that we're functioning within I don't think.
We've seen a significant uptick E concessions theyre already at historical levels, but I think brokers and prospective tenants are extraordinarily mindful in terms of who they are about the transact with and want to ensure that the owner is well capitalized and able to deliver on the commitment.
Im actually seeing it in a deal that we were able to influence on our direction because.
In essence, the flight to quality term has broadened it does not only apply to the asset quality it applies to the landlord quality.
That's very helpful. Thank you all.
Our next question. Thank you okay.
Thank you. Our next question today will come from Vikram Malhotra of Mizuho. Please go ahead.
Thanks for taking the question just to sort of.
The San Francisco and some of the larger needs as I know this is two years out but I'm wondering if you've had any early conversations with with Google on their needs are obviously in process or will be building bigger campus.
Down the road and I'm, assuming tech agenda, consolidating any any any conversations or any conversations you may have had on Google.
Vikram this is Albert.
It's really stabilizing dramatically over the last.
Really the positive way.
Substantially in the last I would say couple of months.
We are now talking from $6 33 bought Broadway most days back to 75% occupancy that has.
And that means people in the office.
Okay.
That is still different in San Francisco, However, San Francisco has been the increases have been more drastic.
In New York over the last couple of months.
And we also.
We have developed through one of our plants the condominium tower.
Thats right.
Waterfront Embarcadero.
And it's.
Arguably arguably the best.
Frodo Minium tower in San Francisco.
And.
I could say it was relatively quiet for the last 12 months with regard to sales, but now sales have picked up and interest has picked up.
Significantly over the last six weeks or so and we're making deals so two years from now.
As a lifetime in.
And these kind of markets so.
<unk>.
There was a term and stay alive still 95 at one time by Sam Zell I would call it stay alive to 'twenty five.
New awards.
We will have to you have to be a little patient and things are changing dramatically very quickly.
No that's fair enough that's talking about 25 I guess.
What about if I, if we look at all the moving pieces you've just outlined.
Still work to be done in terms of re leasing.
Do you mind, just updating us on cost.
Malik dividend coverage.
Of your peers have decided to postpone our cut.
The dividend and potentially exploring future cash or all stock pay outs and I'm, just wondering how youre thinking about the dividend here given given the yield and what youre seeing in terms of cash flow.
The dividend is a sub.
<unk> is a policy that.
Gets decided by the board and we are talking about this on a quarterly basis Vikram.
<unk>.
We are looking at this especially in these kind of.
Times are very very carefully I'll ask <unk> to give more details, but thats something where the management is putting their heads together and recommending things to the board.
I think it's too early to say what the company is <unk>.
<unk> here.
Yes, Albert is exactly right I mean, we continue to discuss this with the board it's not lost on US what is happening in the market, where our stock is where our peer stock as we've seen the actions they have taken some have done it more.
More than once so we continue to evaluate we recognize our profile we recognize that the stock is not trading on the dividend yield today and.
So yes.
More to come on that we will continue to discuss and more to come.
Okay, and then just one bigger picture question I guess Albert you referenced the improvement in traffic in New York in the recent months, San Francisco, improving as well.
Some workouts.
Are there other players have handed back even on the private side. So I'm just wondering from a if you're if things are sort of in collecting.
Im trying to wonder what Youre monitoring.
That would sort of make paramount and want to go on offense in terms of whether its value add or other types of billings in your in your core markets.
What are the things you're monitoring that would suggest okay. We now are finally seeing the inflection we want to put capital to work.
Very good question Vikram.
We were referring to before.
Rick.
Difference between bid and ask.
<unk>.
The expectation.
And.
I think.
And I mentioned before we are very careful even so we have been historically very opportunistic in these kind of market cycles. So physician team is is quite quite actively evaluating.
But what happens in the market.
We as you know have mis onset.
See what's going on in domestic business and I think there's more pain to come.
And.
I would say the.
The market is improving for making the acquisition if you want to be really.
If you have the right capital structure.
Do you want to be very very careful.
It's important to have long term capital available.
It's Nick.
Possible to find the bottom.
We're not stock pickers here via asset because if you look at it.
And.
To find an asset thats attractive for us.
Sometimes we have to look for years and it has to be certain location that it has to have certain characteristics.
<unk>.
It takes a long time.
From the valuation point of view I think we are getting close to where it might make makes sense to put some some money but again.
As such we will not invest a lot of its own equity capital, but there are a lot of.
Parties have capital out there and they are looking for these kind of opportunities.
Great. Thank you so much.
So you are welcome.
Our next question today is from Derek Johnston of Deutsche Bank. Please go ahead.
Hey, everybody. Good morning, I guess or early afternoon I just wanted to go back to Ti specifically in San Francisco.
Nice volume there was 77000 square feet, but a term of five years as you know.
Less than ideal for the Ti package that they receive at around 23% of starting rents. So I was just wondering is there something special about this deal something in a one off nature or is this somewhat of the new norm for Ti isn't in the San Francisco market.
No Derrick this is Peter we were excited about the tenant it was a shorter term deal.
And to continue to improve their own space. We believe that <unk> is a candidate to potentially continue to expand within the building. We think those are productive dollars that they will likely used to improve the space and we felt very good I would say about the overall economics of the deal even though the concessions were slightly elevated relative to where we had been.
Historically.
Yes, the only thing I'll highlight maybe add to what Peter is saying.
On the real estate business downtime is a killer okay. When we look at the economics of transacting you value.
Typical downtime we've done now.
Risking.
Nice chunk of the yoga space ahead of its exploration, we have de risked a nice chunk of the Clifford chance space ahead of this exploration we de risked the crowd.
Agriculture space with 161000 square feet.
<unk> ahead of its exploration and that is not talked about that's a tremendous amount of savings by eliminating downtime now on 300 400000 square feet of leasing activity over the last nine months.
And especially if you talk about the asset that we own.
Those leases seem to be a little bit more lumpy.
The team is laser focused on approaching these kinds of explorations early and making plans for it.
No that's very helpful and specifically, what Peter said with the expansion opportunity with Whammo It seems to make.
Make good sense.
I guess second question is we were pretty impressed with the leasing volumes this quarter.
Definitely beat our internal expectations here at DB, but was also wondering.
Why you guys kept the leasing guidance unchanged given.
Given the strength that you saw very early in the year.
You know, it's very early in the year, you said, it and Thats why we didnt change it.
As I mentioned a minute ago. These leases are very lumpy.
You don't expect.
And.
The progress negotiate sometimes for months and months, it's very hard to predict when the decision is going to be made so that's why we are not doing it.
Changing things and then if you look at the guidance I mean, even if you were to annualize that number it falls within the range. So it falls slightly above the midpoint of where our current ranges between six and 900000 square feet.
So as Albert said, we felt that it's too early to adjust that at this point.
Okay fair enough and lastly.
Just thinking out loud I'm, not a bank analyst but.
First Republic, usually when when you acquire something you acquire acquire the assets and the liabilities and I'm just wondering if theres any.
Recourse that you could potentially have if jpmorgan decides to not take the space.
Are there any ways that you can perhaps recover a sizable lease exploration fee or any any possible way to somewhat monetize that space. If you can even just force them to to continue to occupy it and pay rent.
Once again I like thinking out loud I don't really know this isn't a traditional bankruptcy where youll have bankruptcy.
Court protection right.
Yes, Derek it's too early this was two days ago.
Speculate what we can do it now, but clearly not do it on an earnings call.
I think we should leave it at that.
Thanks, guys appreciate it.
Youre welcome.
Our next question today is from Ronald Camden of Morgan Stanley . Please go ahead.
Hey, just a couple quick ones. So saw the 60 wall and 111 Southern was extended can you comment on 300 Mission Street I think that was the other.
That piece has that caused those conversations coming and.
And so forth.
So.
As you pointed out 300 mission matures.
In September of this year October of this year, rather than we are we're starting to launch a broader process in the market. We continue to have negotiations with the existing lender group as well.
That asset is a terrific asset.
Yes, it's well leased.
It has.
No no major near term roll.
And it has plenty of.
That coverage I would envision obviously us to be successful in refinancing that asset, albeit.
At North of where the current interest rate is.
Got it makes sense.
And then just a bigger picture question on San Francisco.
We saw the same article on V side, obviously autodesk.
Earlier in the year.
And I was just wondering sort of Albert <unk> and team.
What sort of needs to happen and San Francisco market for that market to bottom because if you. If you sort of look at the class a or b availability and if you look at sublease, they've been going in the wrong direction right.
Do you need something governmental just trying to figure out what stop sort of this vicious cycle.
How are you guys sort of thinking about it.
It doesn't seem like if you can just wait and see everything is going to get better it feels like there needs to be some sort of a catalyst how are you guys thinking about that.
Yes, I think it starts with and Peter will talk about the visa.
Because that's old news sorry to say.
Peter will give you details.
I mentioned that in answering another question before a little bit.
These markets go in cycles and.
San Francisco is clearly behind New York with in terms of.
Back to the office.
Users.
It has picked up tremendously over the last couple of.
Weeks.
<unk>.
I am confident that this will impact.
The market over the next 12 months.
<unk>.
You can also see I mentioned a minute ago. We have developed you might know condominium tower right on the waterfront that had no sales activity for quite a long time, but I would say for 12 months.
Now we have sold a couple of this is held in the funds so not to confuse everyone. It has been one of Paramount funds and the public company is a very small interest in that fund.
But it's interesting to see that just recently, we have a couple of sales based activity.
This visitor activity.
No.
Some of the news you are getting today, it's old news.
<unk>.
San Francisco is a market that goes down quickly, but then it comes back also pretty quickly.
Yes, Ron just just to clarify we did get another question on visa just to clarify that lease was signed two years ago and that occurred after we were unable to accommodate them at one market because one market. So well leased for roughly 400000 square feet. So I just wanted to clarify that I know there had been something written about it most recently, but this is.
This is old news, we do think the return to office has been significant companies have been very demonstrative about about acknowledging the importance of in person work specifically in San Francisco with Tech companies, and we think thats going to be a needle mover for us companies of course, our focus right now on cost controls capital preservation et cetera, but there.
Turning to office is very significant and as the economy starts to settle down and improve some extent. We think we will that is the that is the impetus to ultimately realize an uptick an increase leasing going forward.
Alright, thanks, so much.
Youre welcome.
And as a reminder, please press Star then one to ask a question. Our next question today comes from Michael Mono Sub Green Street. Please go ahead.
Hey, guys you have Mike on for Bill on this morning, but just one quick question kind of looking at the balance sheet. It seems like you guys have a large cash balance that has continued to grow and understand that looking at potential acquisitions as distress may come up in some markets. You guys are looking to really mostly use JV capital.
Mindful of your current cost of capital.
And then also just kind of Triangulating everything together it seems like there is $15 million left on your current share repurchase authorization. So just curious if you guys have any plans for that large cash balance.
Let's start with the buyback we are discussing that with.
With the board on a quarterly basis.
We are.
Looking very carefully not to increase leverage so we.
Try to do this leverage neutral when it comes to acquisitions and I talked about on this call.
To go.
It.
We will clearly be very careful with our own capital.
Because in times like this we don't know.
What happens with the assets.
The company Youre right. The company has a clean balance sheet.
We have no debt on balance sheet.
We have only.
Nonrecourse debt on assets and some assets have no debt at all.
And we would like to keep it.
Clean we will.
Clearly not.
Go out there and acquire something with significant equity capital from Pete Jerry but.
There is an opportunity and we have been opportunistic in the past.
That's how this company.
Grew and rented funds business in the past.
We will look at opportunities as we have joint venture partners, who are interested.
To venture with us they want boots on the ground that our experience with <unk>.
Difficult situations, who.
A familiar with leasing assets and we will only look at.
Class eight opportunities I think quality, we talked about this a couple of times quality.
<unk> is key and that's where tenants want to go too.
And this is.
Where where the team will focus on that we will be very very careful.
Great. Thanks, that's it for me.
Thank you.
And at this time.
No further questions, we will conclude our question and answer session.
I would like to turn the conference back over to Albert Behler for any closing remarks.
Thank you very much.
All of you for joining us today, we look forward to giving you an update.
Our continued progress when we report our second quarter 2023 with Us Goodbye.
The conference has now concluded we thank you for attending today's presentation.
You may now disconnect your lines.