Q4 2023 Orion Office REIT Inc Earnings Call
Operator: Greetings. Welcome to Orion Office Reit's fourth quarter 2023 earnings call. As a reminder, this conference is being recorded. I would now like to turn the call over to Paul Hughes, General Counsel for Orion. Thank you, and you may now go on. Good morning, everyone.
Greetings and welcome to Orion Office, REIT fourth quarter 2023 earnings call.
This conference is being recorded.
I would now like to turn the call over to Paul He was general counsel for Ryan. Thank you and you may now begin.
Thank you good morning, everyone yesterday, Oh, Ryan released its financial results for the quarter and year ended December 31st 2023.
Unnamed Speaker: Yesterday, Orion released its financial results for the quarter and year ended December 31st, 2023, filed its form 10K with the Securities and Exchange Commission, and posted its earnings supplement to its website. These documents are available in the investor section of the company's website at onlreit.com. Certain statements made during this call are not strictly historical information and constitute forward-looking statements. These statements, which include the company's guidance estimates for calendar year 2024, are based on management's current expectations and are subject to a number of risks that could cause actual results to differ materially from our estimates. The risks are discussed in our earnings release as well as in our Form 10-K and other SEC filings. The Company undertakes no duty to update any forward-looking statements made during this call.
<unk> Form 10-K, with the Securities and Exchange Commission and posted its earnings supplement to its website.
These documents are available in the investors section of the company's website at O N L reap dot com.
Certain statements made during this call are not strictly historical information and constitute forward looking statements.
These statements which include the company's guidance estimates for calendar year 2024 are based on management's current expectations and are subject to a number of risks that could cause actual results to differ materially from our estimates.
The risks are discussed in our earnings release as well as in our Form 10-K, and other SEC filings.
The company undertakes no duty to update any forward looking statements made during this call.
Unnamed Speaker: Additionally, during the conference call today, we will be discussing certain non-GAAP financial measures, such as Funds from Operations, or FFO, and Core Funds from Operations, or Core FFO. The company's earnings release and supplement include a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. Our presentation of this information is not a substitute for the financial information presented in accordance with GAAP. Hosting the call today are Paul McDowell, the company's Chief Executive Officer, and Gavin Brandon, the company's Chief Financial Officer, and joining us for the Q&A session are Gary Landriau, our Chief Investment Officer, and Chris Day, our Chief Operating Officer. With that said, I am now going to turn the call over to Paul McDowell.
Additionally, during the conference call today, we will be discussing certain non-GAAP financial measures such as funds from operations or F. F O and core funds from operations or core S. S. L.
The company's earnings release and supplemental include a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure.
Our presentation of this information is not a substitute for the financial information presented in accordance with GAAP.
Hosting the call today are Paul Mcdowell, the company's Chief Executive Officer, and Gavin Brandon The company's Chief Financial Officer.
Joining us for the Q&A session are Gary laundry out, our Chief investment Officer, and Chris Day, Our Chief operating officer with that I am now going to turn the call over to Paul Mcdowell.
Paul McDowell: Good morning, everyone, and thank you for joining us on Orion OfficeReit's fourth quarter 2023 earnings call. Today, I will discuss our portfolio, performance, and operations for the fourth quarter and full year 2023, as well as our progress on executing our business strategy and our general forward outlook. Following my remarks, Gavin will review our financial results and provide our 2024 outlook. At year end, we own 75 properties and six unconsolidated joint venture properties comprising 8.9 million rentable square feet that were 80.4% occupied. Adjusted for properties that are currently under agreement to be sold, our occupancy rate was 87.2 percent as of December 31st, 2023. The properties in the portfolio are predominantly either triple or double net leased to credit-worthy tenants, as a percentage of the annualized base rent as of December 31st, 2023.
Good morning, everyone and thank you for joining us on our Orion Office Reits fourth quarter 2023 earnings call.
Today, I will discuss our portfolio performance and operations for the fourth quarter and full year 2023.
As well as our progress on executing our business strategy and our general forward outlook.
Following my remarks, Gavin Who'll review, our financial results and provide our 2024 outlook.
At year end, we owned 75 properties and six unconsolidated joint venture properties, comprising $8 9 million rentable square feet that were 84% occupied.
Adjusted for properties that are currently under agreement to be sold our occupancy rate was 87, 2%.
As of December 31, 2023 the.
The properties in the portfolio are predominantly either triple or double net leased to credit worthy tenants.
As a percentage of annualized base rent as of December 31, 2023, 76% of our tenants were investment grade the company strong portfolio of assets is well diversified by tenant kind of industry and geography.
Paul McDowell: 70.6% of our tenants were investment grade. The company's strong portfolio of assets is well diversified by tenant, tenant industry, and geography. Our largest tenant by annualized base rent remains the United States government, and our two largest tenant industries are healthcare and government, representing 15.3% and 13.9% of annualized base rent, respectively. Additionally, over 35% of our annualized base rent is derived from Sunbelt Market, on an annualized space rent basis. Our largest markets by state are Texas at 17.2% and New Jersey and New York at 10.2% each.
Our largest tenant by annualized base rent remains the United States government in our two largest tenant industries are health care and government, representing 15, 3% and 13, 9% of annualized base rent respectively.
Over 35% of our annualized base rent is derived from Sun belt markets.
On an annualized base rent basis, our largest market by state our Texas at 17, 2%.
In New Jersey, and New York at 10.2% each.
Paul McDowell: Our portfolio's weighted average lease term stayed steady at four years at year end. During the fourth quarter, we gained some traction on renewals and new leases. We entered into a 10-year early lease renewal for 90,000 square feet in Memphis, Tennessee, where the investment-grade tenant's lease term will now run until year-end 2034. We also secured a five-year early lease renewal at a 39,000 square foot property leased to the United States Postal Service in Minneapolis, Minnesota, where the post office's lease term will now run until April 30th, 2030.
Our portfolio's weighted average lease term stayed steady at four years at year end.
During the fourth quarter, we gained some traction on renewals and new leases.
We entered into a 10 year early lease renewal for 90000 square feet in Memphis, Tennessee, where the investment grade tenants. The lease term will now run until year end 2034.
We also secured a five year early lease renewal at a 39000 square foot property leased to United States Postal service and Minneapolis, Minnesota, where.
Where the post office's lease term will now run until April 30th 2030.
Paul McDowell: We also signed a new 10 year lease for 3000 square feet of retail space at our Covington, Kentucky property leased primarily to the United States government, including these leases during the full year 2023. Additionally, we entered into new leases and lease renewals for 250,000 square feet across six different properties as well as a lease expansion with an existing tenant covering an additional 11,000 square feet and one other property. Overall, lease terms for this activity averaged 10.6 years.
We also signed a new 10 year lease for 3000 square feet of retail space at our Covington, Kentucky property leased primarily to the United States government.
Including these leases during the full year 2023, we entered into new leases and lease renewals for 250000 square feet across six different properties as well as our lease expansion with an existing tenant covering an additional 11000 square feet and one other property.
Overall lease terms from this activity averaged 10 six years.
Paul McDowell: Shortly after year-end, we entered into two long-term lease transactions with the United States government. A 17-year lease renewal for 9,000 square feet at one of our Eagle Pass, Texas properties and a new 15-year lease for 86,000 square feet at a Lincoln, Nebraska property. The United States government will be backfilling space that is currently vacant at the Lincoln property and is expected to take occupancy in the third quarter of 2025, following landlords' build out of the premises, at which time the Lincoln property will be fully leased to two tenants. All told, since the start of the fourth quarter of 2023 through yesterday, we have executed 227,000 square feet of new and renewal leases. In addition, we continue to have accelerating activity on our forward leasing pipeline with more than a million square feet in various stages of documentation and discussion.
Shortly after year end, we entered into two long term lease transactions in the United States government.
17 year lease renewal for 9000 square feet at one of our Eagle pass, Texas properties.
And a new 15 year lease for 86000 square feet at our Lincoln, Nebraska property.
I see its government will be back selling space that is currently vacant at Lincoln property and is expected to take occupancy in the third quarter of 2025, following landlord build out of the premises at which time the Lincoln property will be fully leased to two tenants.
All told since the start of the fourth quarter of 2023 through yesterday, we have executed 227000 square feet of new and renewal leases.
We continue to have accelerating activity on our forward leasing pipeline with more than a million square feet in various stages of documentation and discussion.
Paul McDowell: Turning to dispositions, we remain aggressive in right-sizing our portfolio, and we have made a lot of progress. Since the spin, we have sold 17 properties, or more than 15% of the initial portfolio, for a total of 1.8 million square feet, with total gross proceeds of $59 million, much of which has gone to pay down debt and to repurchase shares of our common stock. Importantly, since the spin-off, we have reduced debt by more than $145 million.
Turning to dispositions, we remain aggressive in right sizing our portfolio and we've made a lot of progress here.
Since the spin we have sold 17 properties were more than 15% of the initial portfolio for a total of one 8 million square feet with total gross proceeds of $59 million much of which has gone to pay down debt and to repurchase shares of our common stock.
Importantly, since the spin we've reduced debt by more than $145 million.
Paul McDowell: As we have progressed over the past year, we found it increasingly challenging to get sales accomplished, which can be seen to some degree in the declining price per square foot. Even so, in the fourth quarter, we successfully closed the sale of four non-core vacant properties representing a total of 575,000 square feet for an aggregate sales price of approximately $11.4 million. For the full year of 2023, we sold six vacant properties, representing a total of 849,000 square feet for an aggregate sales price of approximately $25.4 million. We also have agreements to sell 7 additional properties, representing 694,000 square feet, for approximately $46 million, and are actively reviewing the sale of several additional properties. The properties under agreement include the six-building former Walgreen campus in Deerfield, Illinois, that is expected to be redeveloped and we have had under contract to sell for the past year.
As we have progressed over the past year, we found it increasingly challenging to get sales accomplished which can be seen to some degree and the declining price per square foot.
Even so in the fourth quarter, we successfully closed the sale of four non core vacant properties, representing a total of 575000 square feet.
For an aggregate sales price of approximately $11 $4 million.
For the full year 2023, we sold six vacant properties, representing a total of 849000 square feet for an aggregate sales price of approximately $25 $4 million.
We also have agreements to sell seven additional properties, representing 694000 square feet for approximately $46 million and are actively reviewing some selling several additional properties.
The properties under agreement include the six property former Walgreen campus in Deerfield, Illinois that is expected to be Redeveloped, and we have had under contract to sell for the past year.
Paul McDowell: While the project has experienced some delays, the buyer continues to make progress with its redevelopment plans, and we now expect this sale to close in the fourth quarter of 2024 or the first quarter of 2025. We also have a vacant property in Denver, Colorado, which we put under contract to sell during the fourth quarter to a buyer who intends to redevelop the property over the next several years. This sale is scheduled to close in the first half of 2025 and is subject to the buyer's satisfactory completion of its due diligence and governmental approval process. While the closing of these sales is not immediate, by working with the buyers who wish to redevelop them, we expect to provide the best economic outcome for our shareholders.
While the project has experienced some delays the buyer continues to make progress with its redevelopment plans and we now expect this sale to close in the fourth quarter of 2024 or the first quarter of 2025.
We also have a vacant property in Denver, Colorado, which we put under contract to sell during the fourth quarter to a buyer who intends to redevelop the property over the next several years.
This sale is scheduled to close in the first half of 2025 and is subject to the buyer satisfactory completion of its due diligence and governmental approval process.
While the closing of these sales does not immediate by working with the buyers who wished to redevelop them.
Do you expect to provide the best economic outcome for our shareholders.
Paul McDowell: Executing on the sales of vacant and non-core assets is critical as controlling carrying costs is necessary to maintain a strong, low leverage balance sheet in the current environment. vacant property operating expenses for the year ended December 31st, 2023 were $11.5 million, as further detailed on page 18 of the supplementary. As we have said before, while asset sales reduced operating expense drag in the short term, they will pressure our ability to grow earnings in the future as we become smaller with fewer buildings to lease. That said, we continue to believe our aggressive sale of vacant properties is the best approach under current market conditions to maximize the long-term value of the overall remaining portfolio and position the company to grow profitably in the future.
Executing on the sales of Bacon and noncore assets is critical as controlling carrying costs as necessary to maintain a strong low leverage balance sheet in the current environment.
Making property operating expenses for the year ended December 31, 2023 were $11 $5 million.
As further detailed on page 18 of the supplemental.
As we've said before while asset sales reduced operating expense drag in the short term it will pressure our ability to grow earnings in the future as we become smaller with fewer buildings to lease.
That said, we continue to believe our aggressive sale of vacant properties is the best approach under current market conditions to maximize the long term value of the overall remaining portfolio and position the company to grow profitably in the future.
Paul McDowell: As a reminder, our portfolio comprises primarily single-tenant leases, and tenant retention remains a significant challenge, as we have faced and will continue to face, significant lease obligations in the next few years, including approximately 1.9 million square feet in 2024 alone, as disclosed in our supplemental. Highlighting these challenges are that we expect that several of our largest tenants with leases rolling in 2024 will not renew, causing revenues and earnings to decline materially and carrying costs to rise until we can get these properties released. While we are extremely proactive in our efforts to retain tenants, when they leave, it takes longer to release the full building vacancy, and this timeline is further pushed out by market conditions. Therefore, expiring leases and the associated declines in revenues over the past couple of years have had an outsized material effect on our results, and that impact will accelerate in 2024. However, beginning in 2025, the impact on results will begin to moderate as we will have less than half the lease withdrawal we have this year, and then earnings should begin to grow in the following years as expirations improve, we fill vacancy, market demand improves, and financing costs fall. This is not just an Orion issue.
As a reminder, our portfolio comprises primarily single tenant leases and <unk>.
Tenant retention remains a significant challenge.
As we have faced and will continue to face significant lease roll in the next few years.
Including approximately one 9 million square feet in 2024 alone as disclosed in our supplemental.
Highlighting these challenges are we expect that several of our largest tenants with leases rolling in 2024 will not renew causing revenues and earnings to decline materially in carrying costs to rise until we can get these properties released while we are extremely proactive in.
Our efforts to retain tenants when they leave it takes longer to release, a full building vacancy and this timeline is further pushed out by market conditions.
Therefore <unk>.
Expiring leases and the associated declines in revenues over the past couple of years have had an outsize material effect on our results.
And that impact will accelerate in 2024.
However, beginning in 2025 the impact on results will begin to moderate as we will have less than half the lease roll. We have this year and then earnings should begin to grow in the out years as explorations improve we feel vacancy market demand improves and financing costs fall.
This is not just you know Ryan issue.
Paul McDowell: The hybrid workplace model has become the mainstay, and office tenants continue to need less square footage, creating leasing activity for the industry that has not returned to pre-pandemic levels. Nevertheless, despite these significant secular pressures, it is important to remember that we do have a good portfolio of stable assets, supported by a low-leverage balance sheet that provides a solid foundation for future growth. We continue to prioritize current and expected future capital expenditures for building improvement allowances and lease incentives to retain existing tenants and attract new ones, in order to extend our existing portfolio's weighted average lease term and drive sustained cash. Given the persisting economic conditions, especially in the commercial office real estate sector, maintaining a strong capital structure that can support the necessary investments in our core portfolio is a critical part of our business plan. While market challenges persist, our strategic pillars, retaining existing tenants, filling empty spaces, and strategically streamlining through non-core asset disposals, remain firmly in place.
The hybrid workplace model has become the mainstay in office tenants continue to need less square footage, creating leasing activity for the industry that has not returned to pre pandemic levels. Despite the significant secular pressures. It is important to remember that we do have a good portfolio of stable assets supported by a low leverage balance sheet.
That provides a solid foundation for future growth.
We continued to prioritize current and expected future capital spend for building improvement allowances and lease incentives.
To retain existing tenants and attract new ones.
In order to extend our existing portfolios weighted average lease term and drive sustained cash flows.
Persisting economic conditions, especially in the commercial office real estate sector, maintaining a strong capital structure that can support the necessary investments in our core portfolio is a critical part of our business plan.
While market challenges persist.
Our strategic pillars retaining existing tenants.
Filling empty spaces.
And strategically streamlining through noncore asset disposals remain firmly in place.
Paul McDowell: The lease rule we face for the next few years will create ongoing pressure on per share results, which we may seek to partially offset through targeted capital recycling efforts. While we remain confident in our plan and committed to its execution, we expect that it will take a few more years to fully reposition our portfolio at a smaller leverage than when we spun. Finally, I also want to stress that we remain flexible and non-dogmatic in our approach to our business plan.
The lease roll we face the next few years will create ongoing pressure on per share results, which.
Which we may seek to partially offset through targeted capital recycling efforts.
While we remain confident in our plan and committed to its execution.
We expect that it will take a few more years to fully repositioned our portfolio at a smaller base than when we spun.
Finally, I also want to stress that we remain flexible and non dogmatic and our approach to our business plan.
Gavin Brandon: With our board, we are constantly assessing our options and strategies, given the market realities, and are open to making changes to our plans if we believe doing so will generate the best outcome for shareholders. With that, I will now turn the call over to Gap. Thanks, Paul.
Our board, we're constantly assessing our options and strategies given the market realities and are open to making changes to our plans. If we believe doing so will generate the best outcome for shareholders with that I will now turn the call over to Gavin.
Gavin Brandon: I will start by discussing Orion's results for the fourth quarter and full year and then provide our 2024 financial outlook. Orion generated total revenues of $43.8 million in the fourth quarter as compared to $50.3 million in the same quarter of the prior year. We've reported a net loss attributable to common stockholders of $16.2 million, or $0.29 per share, as compared to a net loss of $19 million, or $0.33 per share, reported in the fourth quarter of 2022. Core funds from operations for the quarter were $18.5 million, or $0.33 per share, as compared to $24.9 million, or $0.44 per share, in the same quarter of 2022. Adjusted EBITDA was $24.6 million versus $30.7 million in the same quarter of 2022. The changes year over year are primarily related to vacancies and the disposition of properties. For the full year, Orion's total revenues were $195 million, and net loss attributable to cum stockholders was $57.3 million, or a loss of $1.02 per share. Core funds from operations were $94.8 million, or $1.68 per share. Adjusted EBITDA for the full year was $118.5 million.
Paul I will start by discussing Orion's results for the fourth quarter and full year, and then provide our 2024 financial outlook.
Orion generated total revenues of $43 8 million in the fourth quarter.
As compared to $50 3 million in the same quarter of the prior year, we reported a net loss attributable to common stockholders of $16 2 million or 29 cents per share as compared to a net loss of $19 million or 33 cents per share reported in the fourth quarter of 2022.
Core funds from operations for the quarter was $18 5 million or <unk> 33 per share as compared to $24 9 million or <unk> 44 per share in the same quarter of 2022.
Adjusted EBITDA was $24 6 million versus $30 7 million in the same quarter of 2020 to the.
The changes year over year are primarily related to vacancies and the disposition properties.
For the full year Orion's total revenues were $195 million and net loss attributable to common stockholders was $57 3 million or a loss of $1 <unk> per share.
Core funds from operations was $94 8 million or $1 68 per share.
Adjusted EBITDA for the full year was $118 5 million.
Gavin Brandon: G&A in the fourth quarter was $5.5 million compared to $4.4 million in the same quarter of 2022 due to higher compensation expenses as a result of annual merit increases and hiring additional headcount during the year and an additional year of non-cash stock-based compensation expense. CAPEX in the fourth quarter was $7.4 million compared to $6.1 million in the same quarter of 2022. As we have previously discussed, CAFX timing is dependent on when leases are signed and work is completed on properties. CAFX will likely increase over time as leases roll and new and existing tenants draw on tenant improvement allowances. GNA for the full year was $18.7 million, and CapEx, tenant improvements, and leasing costs were $21.3 million.
G&A in the fourth quarter was $5 5 million compared to $4 4 million in the same quarter of 2022 due to higher compensation expenses as a result of annual merit increases and hiring additional head count during the year and an additional year of noncash stock based compensation expense capex.
In the fourth quarter was $7 4 million compared to $6 1 million in the same quarter of 2022.
As we have previously discussed Capex timing is dependent on when leases are signed and work is completed on properties Capex will likely increase over time as leases roll and new and existing tenants draw on tenant improvement allowances.
G&A for the full year was $18 7 million and Capex tenant improvements leasing costs were $21 3 million.
Gavin Brandon: Turning to the balance sheet, we ended the year with strong total liquidity of $332.1 million, comprised of $23.1 million of cash and cash equivalents, including the company's pro rata share of ArtStreets Joint Venture cash, and $309 million of available capacity on the company's $425 million credit facility revolver. As Paul discussed, we intend to maintain significant liquidity on the balance sheet for the foreseeable future to fund expected capital commitments in our future leasing efforts and provide the financial flexibility needed to execute on our business plan over the next several years. We ended the year with $498.3 million of outstanding debt, including $116 million of floating rate debt on the Credit Facility Revolver and $27.3 million representing our share of the Ard Street Joint Venture Mortgage Debt, which has swapped a fixed rate until May 27, 2024. We have two debt maturities in late 2024. Our Credit Facility Revolver and the Ard Street Joint Venture Mortgage Debt are both scheduled to mature in November 2024. These debt obligations also include extension options which may be exercised if applicable conditions are met.
Turning to the balance sheet, we ended the year with strong total liquidity of $332 1 million comprised of $23 1 million of cash and cash equivalents.
<unk> the company's pro rata share of arch Street's joint venture's cash and $309 million of available capacity on the company's $425 million credit facility revolver.
As Paul discussed, we intend to maintain significant liquidity on the balance sheet for the foreseeable future to fund expected capital commitments and our future leasing efforts and provide the financial flexibility needed to execute on our business plan over the next several years.
We ended the year with $498 3 million of outstanding debt, including $116 million of floating rate debt on our credit facility revolver and $27 3 million, representing our share of the R&R Street joint venture mortgage debt, which is swapped to fixed rate until may 27 2024.
We have two debt maturities in late 2020 for our credit facility revolver and the Orange Street joint venture mortgage debt are both scheduled to mature in November 2024.
These debt obligations also include extension options, which may be exercised if applicable conditions are met we expect to exercise the extension options or otherwise extend the maturity of these obligations.
Gavin Brandon: We expect to exercise the extension options or otherwise extend the maturity of these obligations. At year end, our net debt to adjusted EBITDA was 4.01 times, and since the spend, as Paul mentioned, we have repaid $145 million in debt, including $59 million in 2023. On February 27, 2024, Orion's Board of Directors declared a quarterly cash dividend of $0.10 per share for the first quarter of 2024, payable on April 15, 2024, to stockholders of record as of March 29, 2024.
At year end, our net debt to adjusted EBITDA was four one times and since the spin as Paul mentioned, we have repaid 145 million in debt, including $59 million in 2023 on February 27, 2020 for Orion's Board of directors declared a quarterly cash dividend of <unk> 10.
Per share for the first quarter of 2024 payable on April 15th 2024 to stockholders of record as of March 29, 2024, turning to the 2020 for outlook.
Gavin Brandon: Turning to the 2024 outlook, As we have previously stated, the company benefited in 2023 from a number of items that will not carry forward. In the next few years, our financial results will be significantly impacted by a large number of lease expirations. This will result in a reduction in revenue from quarter to quarter due to the smaller portfolio size and be further impacted by the vacancy carry costs and extended release time as well as the required investment to secure longer-term leases. G&A will rise in 2024 as compared to 2023, primarily due to the amortization of an additional year of non-cash compensation. Given those assumptions, our core FFO for 2024 is expected to range from $0.93 to $1.01 per diluted share. Additionally, our GNA for 2024 is anticipated to range from 19.5 million to 20.5 million, and net debt to adjusted EBITDA is expected to range from 6.2 times to 7.0 times. Excluding non-cash compensation, we expect G&A to be flat in 2023. We also did not expect G&E to rise significantly in the next years, including non-cash compensation.
As we have previously stated the company benefited in 2023.
A number of items that will not carry forward in the next few years, our financial results will be significantly impacted by a large number of lease expirations.
This will result in a reduction in revenue quarter to quarter due to due to the smaller portfolio size and be further impacted by the vacancy carry costs and extended release time as well as required investment to secure longer term leases.
G&A will rise in 2024 as compared to 2023, primarily due to the amortization of an additional year of noncash compensation.
Given those assumptions are core <unk> for 2024 is expected to range from 93.
To $1 <unk> per diluted share. Additionally, our G&A for 2024 is anticipated to range from $19 5 million to $25 million man.
And net debt to adjusted EBITDA is expected to range from six two times to seven times.
Excluding noncash compensation, we expect G&A will be flat in 2023.
We also do not expect Genie to rise significantly in the outer years, including noncash compensation.
Operator: As a percentage of revenue and total assets, our G&A remains in line with other similarly sized public regions. While we do not provide quarterly guidance, given the cadence of scheduled lease vacancies this year, we expect the first quarter to be relatively in line with the fourth quarter, and beginning in the second quarter, to have sequential reductions in the quarterly amount of earnings and core SFO on a per share basis as we move through the year. With that, we'll open the line for questions. Operator?
As a percentage of revenue and total assets, our G&A remind remains in line with other similarly sized public Reits.
While we do not provide quarterly guidance given the cadence of scheduled lease vacancies. This year, we expect the first quarter to be relatively in line with the fourth quarter and beginning in the second quarter to have sequential reductions in quarterly amount of earnings and core CFO on a per share basis as we move through the year with that we will.
And the line for questions operator.
Operator: Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question, press star 1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Thank you at this time, we'll be conducting a question and answer session.
I have to ask a question at this time. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
You May press star two if he would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please can we poll for questions.
Thank you and our first question is from the line of Mitch Germain with citizens JMP. Please proceed with your questions.
Mitch Jermaine: One moment, please, while we poll for questions. Thank you, and our first question is from the line of Mitch Jermaine with Citizens JMP. Please receive your question. Audio, Good morning. Yeah, I mean, we have a variety.
Good morning. This is jordy on for match. My first question here is based on the recent leasing trends what are your thoughts on Capex any.
Hi.
Yes.
Good morning.
Yes, I mean, we have a variety of leasing capex has very pretty dramatically with respect to renewals.
Unnamed Speaker: Our leasing CAPEX has varied pretty dramatically. With respect to renewals, we've generally been able to maintain relatively smaller CAPEX and lease concessions than we have on new leases. So I would say that with respect to new leases, concessions are significantly higher than they may have been traditionally. But on new leases, we've been pretty good at maintaining a pretty low level of concession. Right, and we should expect it to be quite high for 2023. Explorations at UH West.
We've generally been able to maintain.
Relatively smaller capex.
Lease concessions than we have on new leases, so I would say that with respect to new leases concessions.
Concessions are significantly higher than they may have been traditionally put on new lease we've been pretty good at maintaining a pretty low level of concessions.
Alright, and we should expect that to trend quite high for the 2023.
Explorations that you address as well.
Unnamed Speaker: You know, I think when we get the answer to that, yeah. Yes, the answer to that is yes. When we get back vacancy, our expectation is that we will be required to attract new tenants, and we will be required to spend significant amounts of tenant improvement allowance to attract those tenants, as well as to add some additional landlord work to the buildings to improve amenities and things like that. All that being said, once you've been able to do that, we do believe that we can attract good quality tenants on a long-term lease where the return on our investment is significantly better Yeah, thank you. And a second question. So, last quarter, I think you guided for paying $33 million in debt, but for Q, there was a $59 million reduction. So what was the reason for the change there? Yeah, yeah, this is Gavin.
I think when we get.
The answer is yes.
Yes, the answer to that is yes, when we get back they can see our expectation is that.
We will be required to attract new tenants will be required to spend cigna.
Significant amounts of.
Tenant improvement allowance.
To attract those tenants as well as to add some additional landlord work to the buildings to improve amenities and things like that all that being said once you've been able to do that.
We do believe that we can attract good quality.
Tenants on a long duration lease where the return on our investment.
Significantly better than it would be on <unk>.
Vesting in new properties.
Yeah. Thank you and second question here, So last quarter, you had guided to 30.
<unk> 3 million in debt.
For Q, there was a $59 million adoption. So what was the reason for the change there.
Yeah, Yeah. This is gavin.
Gavin Brandon: The term loan we took out last quarter was $175 million. We had, you know, $59 million in escrow. I'm sorry, $499,000.
Yes.
The term loan we took out last quarter with $175 million, we had $59 million in escrow.
No I'm, sorry, $49 million and we paid an additional $10 million at the year end. So total pay down for the year on that revolver is $59 million.
Gavin Brandon: We paid an additional $10,000,000 at year end, so the total pay down for the year on that revolver is $59,000,000. Please use the proceeds from the escrow that we are carrying throughout the year. Oh, And the last one for me... Walgreens, the timing I think you mentioned was 4Q or 1Q25.
The proceeds from escrow that they were carrying throughout the year.
Oh got it and then last one from me.
Walgreens said timing I think you mentioned was for Q2 25.
Unnamed Speaker: It's just due diligence, and the timing is delayed. Yeah, I mean, that's a six-campus property in Deerfield, Illinois, as you know. And the redevelopment plan there is very large. So, as a result, that redevelopment plan is taking time to develop. The developer who is doing that is working diligently to do that. There are a variety of moving pieces, including getting TIF financing, getting approval from the local municipality, public comment periods, and so on and so forth.
Does the due diligence and the timing is delayed because of that.
Yeah, I mean, that's our sixth campus property in Deerfield, Illinois, as you know and the redevelopment plan there is very large.
So as a result that redevelopment plan is taking time to develop the developer who is doing that is working diligently to do that.
There are a variety of moving pieces.
Including getting Tiff financing.
Including getting approval from the.
Local municipality.
Public comment periods, and so on and so forth and that's all ongoing.
Unnamed Speaker: And that's all ongoing. It's just taking a bit longer than we initially expected, but we do expect the transaction will reach the goal line, and we hope to have it closed at the end of this year, and, if not, at the beginning of next.
It's just taking a bit longer than we had initially expected, but we do expect the transaction will reach the goal line and we hope to have it closed at the end of this year and if not at the beginning of next.
Paul McDowell: Thank you for the email. Thank you. At this time, I will now turn the call back to Mr. McDowell for any closing remarks. Thank you, everyone. We appreciate you taking part in the call and we look forward to updating you at the end of the first quarter. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Okay got it. Thank you for taking my questions. That's all.
Thank you.
Thank you.
At this time I'll now turn the call back to you Mr. Macdonald for any closing remarks.
Thank you everyone. We appreciate you are taking part in the call and we look forward to updating you at the end of the first quarter.
This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.