Q1 2024 Armada Hoffler Properties Inc Earnings Call
This time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session.
If at any time during this call you require immediate assistance, please press star zero for the operator.
This call is being recorded on Thursday, May 9, 2024. I would now like to turn the conference over to Chelsea Forrest, Director of Corporate Communications and Investor Relations. Please go ahead.
Good morning, and thank you for joining Armada Hossler's first quarter, 2024, earnings conference call and webcast. On the call this morning, in addition to myself, is Lou Haddad's CEO , Matthew Barnes-Smith, CFO , and Sean Tibbett, president and C-O-O-O.
The press release announcing our first quarter earnings, along with our supplemental package, were distributed this morning. A replay of this call will be available shortly after the conclusion of the call through June 8th, 2024. The numbers to access the replay are provided in the earnings press release.
For those who listen to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, May 9th, 2024, and will not be updated subsequent to the initial earnings call.
During this call, we may make forward-looking statements, including our statements related to the future performance of our portfolio, our development pipeline, the impact of acquisitions and dispositions, our mezzanine program, our construction business,
our liquidity position, our portfolio performance, and financing activities, as well as comments on our guidance and outlook.
Listeners are cautioned that any forward-looking statements are based upon management's beliefs, assumptions, and expectations taking into account information that is currently available.
These beliefs, assumptions, and expectations may change as a result of possible events or factors, not all of which are known and many of which are difficult to predict and generally beyond our control.
These risks and uncertainties can cause actual results to differ materially from our current expectations, and we advise listeners to review the forward-looking statement disclosure in our press release that we distributed this morning, and the risk factors disclosed in documents that we have filed with or furnished to the SEC.
We will also discuss certain non- GAAP financial metrics, including but not limited to FFO and normalized FFO. Definitions of these non- GAAP measures as well as reconciliations to the most comparable GAAP measures are included in the quarterly supplemental package, which is available on our website at armadahoffler.com.
I'll now turn the call over to Lou.
Thanks, Chelsea. Good morning and thank you for joining us today.
As you can see from our earnings release, it was another strong quarter here at Amada Hoffler.
We continue to see our portfolio produce robust operating metrics.
This, combined with new properties coming online, gives us confidence in our earnings guidance as our operational success offsets the headwinds from higher interest rates.
Before Sean and Matt give you the details on the quarter and projections for the rest of the year,
I'll take a minute to reiterate our long-standing strategy with regard to capital allocations.
As most of you know, management is the company's largest active equity holder with a 12% stake.
This alignment with external investors gives us a different perspective than that of most REAP management teams and creates a strong aversion to dilution.
While portfolio growth is an important goal over the long term, and capital market activity is an important component of that growth.
You have seen us recycle numerous assets at prices well above the stock market's implied valuation. This is the most efficient way to raise capital when Armada Hoffler common equity trades at an unacceptable discount.
The current environment is just such a circumstance, with as many as five new properties coming online over the next 12 months.
any necessary equity capital will be primarily raised by selling a couple of assets with significant embedded profits. We expect these transactions to produce a substantial amount of cash and to be relatively neutral to earnings.
We recognize that leverage will remain elevated through the stabilization of the new properties.
But with growing portfolio NOI and trophy quality assets, we are comfortable at these levels.
We are confident about the quality of the developments, our initial underwriting, and the extensive expertise we have in market selection.
I'll now turn the call over to Matt to highlight a couple of the quarterly metrics before Sean for the business update.
Good morning and thank you, Lou.
Starting with earnings, for the first quarter of 2024, we reported FFO a 40 cents per diluted share and normalised FFO at 33 cents per diluted share, representing a 10% increase over the same period last year.
AFF per diluted share increased 17% year over year to 27 cents and property NOI for the first quarter increased 9.3% over the same period last year due to a combination of both same store and acquisition based growth.
These year-over-year increases demonstrates our ability to drive consistent earnings growth which supports a growing and well-covered dividend with a payout ratio of 75% of AFFO
I'll provide more details on performance as it relates to our guidance expectations later in my remarks.
Our balance sheet metrics remain consistent with last quarter as we deploy the concluding tranches of our financial commitments on our harbour point development and real estate financing projects.
Stabilized portfolio debt to stabilise portfolio EBITDA is at 6.6 times with our debt service coverage ratio reporting 1.7 times. A weighted average cost of debt remains fixed just above 4% until a portion of our derivatives mature in October of 2025.
As mentioned on previous earnings calls and earlier by loop, our leverage will remain elevated until the current development pipeline matures.
Our total debt to enterprise value today is about 54%, and we expect to eventually bring this into the 40% range with a corresponding debt service coverage ratio in the 2.2 to 2.5 times range.
With respect to our financial performance, in comparison to guidance, I'll walk through each category in our guidance table on page four of the supplemental financial package separately.
For the quarter, property ANOI reported approximately 580K better than expected.
Strong commercial retenting throughout the year, coupled with one-time multifamily expense savings, will add an additional million dollars of NOI above the previously stated midpoint of the property NOI range.
The construction segment profit reported 4.1 million for the quarter in line with our guidance expectations.
The midpoint of this range remains at 13.75 million for the year and we expect the quarterly construction segment profit in quarter two to be consistent with quarter one and lower in quarter three and quarter four.
Our GNA expense reported 5.7 million for the quarter and was marginally above our guidance due to timing variances.
Quarter one always trends high and we expect to achieve the midpoint of our previously stated GNA expense range.
Interest income reported roughly 300k more than expected for quarter one due to higher interest on overnight deposits.
For the year, we have reduced our interest income range by $1.5 million due to our partner's intent to exit one of the real estate financing projects sooner than anticipated.
Interest expense for the quarter reported in line with our guidance expectations. We have however increased our interest expense range midpoint by $2 million, primarily due to higher interest rates than previously forecasted.
Finally, based on refinancings, expected strategic dispositions of assets and the realisation of capital from one of our real estate financing projects, we are no longer modelling any material equity capital markets activity for the remainder of the year.
These details, taken in aggregate, result in our NFFO guidance per diluted share range remaining at $1.21 cents per share to $1.27 per share.
Before I pass over to Sean, I would like to bring everyone's attention to a couple of updates we have made to the supplemental financial package. On page 10 and page 16, we have added a credit profile and a portfolio profile respectively.
These two dashboard pages represent a range of metrics presenting valuable details on the company's performance. There are several new and re-visualized metrics that we believe will assist you with your evaluation of our company's performance.
Over to Sean.
Thanks, Matt, and thank you all for joining us to review the quarter.
I would like to start out by revisiting our 2024 guidance to ensure that we are all aligned on what is and what is not included in our unchanged guidance range of $1.21 to $1.27.
I will walk you through the high-level components to add color to what Matt has just gone over.
Thank you for joining us today.
As you can see from our earnings release it was another strong quarter here at Armada Hoffler.
As Lou said, the first significant change is the removal of any material equity capital market activity, given the current conditions.
Speaker Change: We continue to see our portfolio produced robust operating metrics.
Speaker Change: This combined with new properties coming online gives.
And that refers to not just our discounted stock price, but also what we are finding to be an aggressive and relatively deep bid for multifamily across several of our markets.
Speaker Change: Gives us confidence in our guidance as our operational success offset the headwinds from higher interest rates.
Speaker Change: Before Sean and Matt give you the details on the quarter and projections for the rest of the year.
Our assumptions now reflect capital being sourced primarily through an asset disposition later in the year.
Speaker Change: I'll take a minute to reiterate our long standing strategy with regard to capital allocation.
Specifically, we are modeling the disposition of a multifamily asset in the fall at cap rates significantly more attractive than where the market is currently pricing our equity.
Speaker Change: As most of you know management is the company's largest active equity holder with a 12% stake.
Speaker Change: This alignment with external investors gives us a different perspective than that of most REIT management teams and creates a strong aversion to dilution.
Our shareholders own embedded value, and we intend to prove it.
Across all of our sectors, the portfolio is performing well as evidenced by 95% occupancy.
Speaker Change: While our portfolio growth is an important goal over the long term and capital market activity is an important component of that growth.
This is slightly ahead of expectation through the first quarter.
Therefore, the NOI component of our guidance remains consistent with last quarter.
Speaker Change: You have seen us recycled numerous assets at prices well above the stock market's implied valuation.
That said, you should expect the year to be front-loaded from an earnings perspective for three reasons.
Speaker Change: This is the most efficient way to raise capital when Armada hoffler common equity trades at an unacceptable discount.
First,
The construction profit component of our income stream will be higher in the first half of the year, and then we'll reduce for the third and fourth quarters ultimately resulting in a targeted midpoint at 13.75 million of construction gross profit.
Speaker Change: The current environment is just such a circumstance with as many as five new properties coming online over the next 12 months.
Speaker Change: Any necessary equity capital will be primarily raised by selling a couple of assets with significant embedded profit.
Speaker Change: We expect these transactions to produce a substantial amount of cash and to be relatively neutral to earnings.
The second relates to our mixed-use development, Southern Post in Roswell, Georgia.
Speaker Change: We recognize the leverage will remain elevated through the stabilization of the new properties.
Unchanged in our guidance is the fact that while lease up of Southern Post occurs through 2024, the carry costs associated with leasing up such a development will not be a positive earnings benefit realized in 2024.
Speaker Change: But with growing portfolio NOI and trophy quality assets, we're comfortable at these levels.
Speaker Change: We are confident about the quality of the developments our initial underwriting and.
We do, however, expect that 2025 results will benefit handsomely from the assets performance.
Speaker Change: And the extensive expertise we have in market selection.
Speaker Change: I'll now turn the call over to Matt to highlight a couple of our quarterly metrics before Sean for the business update.
In a few moments, I will review the leasing of this highly anticipated development, which is progressing well across office, retail, and multifamily.
Matt: Good morning, and thank you <unk>.
Matt: Starting with earnings for the first quarter of 2024, we reported <unk> 40 per diluted share and normalized fad.
And finally, our partner has signaled the intent to pursue a sale of one of the assets and our real estate financing portfolios sooner than anticipated.
Matt: <unk> 33 per diluted share representing a 10% increase over the same period last year.
As a result, we are forecasting a reduction in interest income for the second half of 2024.
Matt: <unk> per diluted share increased 17% year over year to 27.
Matt: Property NOI for the first quarter increased nine 3% over the same period last year due to a combination of both same store and acquisition based growth.
A sale would also result in our capital and accrued interest on that project returning in midsummer.
Although we would have slightly less interest income than previously anticipated, we are pleased that our partners are contemplating an early sale transaction.
Matt: These year over year increases demonstrates our ability to drive consistent earnings growth.
Matt: Also growing and well covered dividend with a payout ratio of 75% of ISI.
The sale of a pre-stabilized apartment project at a mid-five cap rate in a market thought to be oversupplied demonstrates the strength of this asset class in our target markets.
Matt: I'll provide more details on our performance as it relates to our guidance expectations later in my remarks.
Matt: Our balance sheet metrics remain consistent with last quarter as we deploy the concluding tranches of our financial commitments on a half a point development and real estate financing projects stabilized portfolio debt to stabilized portfolio EBITDA is at six six times with our debt service coverage ratio reporting one.
This essential sale demonstrates our partner's deep capability in the space, the strength of our real estate financing program, and our collective ability to execute on successful preferred equity investments.
We do expect to deploy a portion of the return capital into another preferred equity investment opportunity with the same partners.
Matt: Seven times <unk>.
Matt: Weighted average cost of debt remains fixed just about 4% until a portion of our derivatives mature in October of 2025.
We are targeting a very attractive project located in another high growth Southeast market. This investment is fully entitled and should commence in the fourth quarter.
Matt: As mentioned on previous earnings calls and earlier on.
Matt: Our leverage will remain elevated until the current development pipeline matures, our total debt to enterprise value today is about 54% and we expect to eventually bring this into the 40% range with a corresponding debt service coverage ratio in the two to two five times range.
We anticipate funding a portion of this year and a balance in 2025, which will provide some offsetting interest income in 2024 and interest income in 2025 and into 2026.
Now, as a reminder, I'll touch on what was not included in guidance, specifically the WeWork income projections.
Matt: With respect to our financial performance and comparison to guidance I'll walk through each category and our guidance table on page four of the supplemental financial package separately.
Approximately $2 million of annual income associated with the WeWork location in Atlanta was removed as of December 31, 2023, and was never included in 2024 guidance.
Matt: For the quarter property NOI reported approximately 580 K better than expected.
While leasing activity on this vacant space is unlikely to materially affect 2024, it will be a significant opportunity for 2025 and beyond.
Matt: Strong commercial re tenant team throughout the year, coupled with one time multifamily expense savings will add an additional million dollars of NOI above the previously stated mid point of the property NOI range.
The Durham location, we were able to renegotiate a reasonable set of terms that keeps we work remaining in the property.
Matt: The construction segment profit reported $4 1 million for the quarter in line with our guidance expectations.
We work will retain both floors in Durham for the remainder of the year and will receive a discounted rent.
Matt: Midpoint of this range remains $13 $75 million for the year.
Matt: We expect quarterly construction segment profit in quarter, two to be consistent with quarter, one and lower in quarter, three and quarter four.
In 2025, we work will vacate one of the floors and return to market rent on the remaining space.
This is now our only rework lease currently representing less than 1% of portfolio ABR and going to less than half a percent in 2025.
Matt: Our G&A expense reported $5 7 million for the quarter and was marginally above our guidance due to timing variances.
Matt: One always trends high and we expect to achieve the midpoint of our previously stated G&A expense range.
Let me spend some time walking through our fundamentals across the sector.
Matt: Interest income reported roughly 300 K more than expected for 401 due to higher interest on overnight deposits.
In our commercial properties, value creation is realized through consistent leasing activity, releasing space and increased rents, and market leading occupancy statistics.
Matt: For the year, we have reduced our interest income range by $1 5 million due to our partners intend to exit one of the real estate financing project sooner than anticipated.
In addition to the daily management of over 700 tenants,
We signed 24 commercial leases.
Matt: Interest expense for the quarter reported in line with our guidance expectations. We have however increased our interest expense range midpoint by $2 million, primarily due to higher interest rates than previously forecast.
including new, extensions, and options for a total of 115,000 square feet at releasing spreads of 11.5%.
while maintaining an overall commercial occupancy of 95% through the first quarter.
Matt: Finally, based on refinancings expected strategic dispositions of assets and the realization of capital from one of our real estate financing projects. We are no longer modeling any material equity capital markets activity for the remainder of the year.
The office segment signed two lease renewals for a total of 18,000 feet at an average releasing spread of 14.2%.
The retail segment executed 19 renewals and three new leases for a total of 98,000 square feet.
Matt: These details taken in aggregate result, and our <unk> guidance per diluted share range remaining at $1 21 per share to $1 27 per share.
The average releasing spread was 10.7%.
The weighted average lease maturity of the commercial portfolio is 6.7 years with minimal short-term lease maturities.
Speaker Change: Before I pass over to Sean I would like to bring everyone's attention to a couple of updates we have made to the supplemental financial package on page 10, and page 16, we have added a credit profile and our portfolio card call respectively. These two dashboard pages represent a range of metrics presenting valuable details on the come.
We believe that proactive tenant relationship management is key to maximizing NOI and property values.
The multifamily portfolio beat our projections at over 95% occupancy.
We expect this level of performance to sustain throughout the year. Our multifamily asset management team partners with property management firms who are experts in the respective sub-markets, resulting in strong leasing and therefore sustained occupancy rates in the high 90s.
Sean: In Asia performance, there are several new and revision lives metrics that we believe will assist you with your valuation of our company's performance.
Sean: Sure.
Sean: Thanks, Matt and thank you all for joining us to review the quarter.
Sean: I would like to start out by revisiting our 2024 guidance to ensure that we are all aligned on what is and what is not included in our unchanged guidance range of $1 21.
The office product continues to produce superior occupancy results at 94%, well above the high end of the broader peer set.
This level of relative success is a direct result of the location of our assets in mixed-use ecosystems.
Speaker Change: Two $1 27.
Speaker Change: I will walk you through the high level components to add color to what Matt has just gone over.
97% of our office space has walkable mixed-use environments.
Speaker Change: As Lou said the first significant change is the removal of any material equity capital market activity given the current conditions and that refers to not just our discounted stock price, but also what we are finding to be an aggressive and relatively deep bid for multifamily across several of our markets.
We intentionally place our buildings, which are generally newer in their respective markets, and provide top-tier amenities that create demand from investment-grade tenants who prefer our properties over anything else in the market.
In most cases, our office properties are in a class of themselves in each market with no real competition. This strategy continues to underpin the future growth of our company, most notably in Southern Post and Harbor Point development projects.
Speaker Change: Our assumptions now reflect capital being sourced primarily through an asset disposition later in the year.
Sean: Specifically, we are modeling the disposition of our multifamily asset in the fall at cap rates significantly more attractive than where the market is currently pricing our equity.
Our construction business continues to produce record results. While working through a $343 million current backlog, the first quarter yielded profit results consistent with the targeted projections included in our 2024 guidance.
Sean: Our shareholders own embedded value and we intend to prove it.
Sean: Across all of our sectors the portfolio is performing well as evidenced by 95% occupancy.
Sean: This is slightly ahead of expectation through the first quarter.
The partner firms using our construction expertise continue to identify and execute on opportunities that allow us to demonstrate our capabilities and collect market data for our internal underwriting of further development and construction opportunities.
Sean: Therefore, the NOI component of our guidance remains consistent with last quarter.
Sean: That said you should expect the year to be Frontloaded from an earnings perspective for three reasons.
Sean: First the construction profit component of our income stream will be higher in the first half of the year and then we will reduce for the third and fourth quarters, ultimately, resulting in a targeted midpoint at $13 $75 million of construction gross profit.
The development platform continues to also produce results consistent with guidance, and we expect delivery of three projects through the end of this year, setting us up to realize the embedded earnings growth into 2025.
Although we forecast leasing to continue to accelerate, as I mentioned earlier in the call, we will experience carry cost during lease up in the second half of 2024 as we approach stabilization into 2025.
Sean: The second relates to our mixed use development southern post in Roswell, Georgia.
Sean: Unchanged in our guidance is the fact that while lease up of southern post occurs through 2020 for the carry costs associated with lease up such a development will not be a positive earnings benefit we realized in 2024, we.
As I mentioned, leasing has been robust at the Southern Post project, especially in the commercial space, demonstrating the strong demand in this new, soon-to-be trophy asset in downtown Roswell, Georgia, only 14 miles due north of Buckhead.
Sean: We do however, expect that 2025 results will benefit handsomely from the asset performance.
We're now 71% leased in the commercial space at rents running ahead of pro forma levels.
Sean: In a few moments I will review the leasing of this highly anticipated development, which is progressing well across office retail and multifamily.
Similarly, the apartment rents are slightly above pro forma underwriting and move-ins recently commenced.
Sean: And finally, our partner has signaled the intent to pursue a sale of one of the assets in our real estate financing portfolio sooner than anticipated.
The apartments are 15% leased, and we expect this momentum to continue given the limited supply of high-quality product in the sub-market and as we approach the historically active spring and summer months.
Sean: As a result, we are forecasting a reduction in interest income for the second half of 2024.
The Tiro Price Global Headquarters Project is looking great as we approach anticipated move-in later this year. The Trophy-Built-to-Soup project is well situated among our assets on the peninsula and will bring thousands of professional workers to the site.
Sean: Sale would also result in our capital and accrued interest on that project returning in mid summer.
Sean: Although we would have slightly less interest income than previously anticipated. We are pleased that our partners are contemplating and early sale transaction.
We are looking forward to the continued flight to quality that will be experienced by top-tier credit tenants inhabiting our ecosystem at Harbor Point.
Sean: The sale of a pre stay stabilized apartment project at a mid five cap rate and a market thought to be oversupplied demonstrates the strength of this asset class in our target markets.
The Allied Department Project is also progressing nicely.
and we will be nearing completion in the months to come.
Sean: Our central sales.
This 312 unit high-rise apartment building sits at the top of the market, and its parking garage component also complements the T-Row Price Project.
Sean: Deep capability in this space.
Sean: Frank.
Sean: Okay.
Sean: Yes.
Sean: Perfect.
Its views and amenities are virtually Baltimore's best, and we look forward to this complimenting our other trophy apartment project at 1405 Point Street.
Sean: Right.
Sean: We do expect to deploy a portion of the return capital into another preferred equity investment opportunity with the same partners.
Sean: We are targeting a very attractive project located in another high growth southeast market.
Finally, given our performance, asset quality, value creation machine,
Sean: This investment is fully entitled and should commence in the fourth quarter we.
and continued focused on shareholder returns,
Sean: We anticipate funding a portion of this year and the balance in 2025, we provide some offsetting interest income in 2024 and interest income in 2025 and into 2026.
We believe that our firm is well positioned for the future.
We believe our equity is trading at a discount to NAV, and we will take any steps necessary to realize that value for our shareholders, including asset sales to provide growth equity if the stock market for real estate remains under value.
Speaker Change: Now as a reminder, I'll touch on what was not included in guidance.
Sean: Specifically, the we work income projections.
Sean: Approximately $2 million of annual income associated with the rework location in Atlanta was removed as of December 31, 2023 and was never included in 2020 for guidance.
Operator, we are ready for the question and answer session.
Thank you. And ladies and gentlemen, we will now begin the question and end your session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the star followed by the number two. One moment please for your first question.
Sean: While leasing activity on this vacant space is unlikely to materially affect 2020 for.
Sean: It will be a significant opportunity for 2025 and beyond.
Sean: The Durham location, we were able to renegotiate a reasonable set of terms that keeps we work remaining in the property.
Your first question comes from the lineup, Rob Stevenson with Janie. Please go ahead. Good morning, guys. Sean, thanks for the detail. I guess one question on the leasing side. How should we be thinking about occupancy in the office and retail portfolios ebbing and flowing throughout the year? Are there substantial moveouts of consequence that is going to cause it to dip and then the new leases sign bring it back up? Is it relatively sort of tit for tatin? terms of tradeouts, etc.? How should we be thinking about that as we work on our models throughout the year?
Sean: We work will retain both floors in Durham for the remainder of the year and we will receive a discounted rate.
Sean: In 2025, we work will vacate one of the floors and return to market rent on the remaining space.
Sean: This is now our only we work lease.
Sean: Currently representing less than 1% of portfolio, ABR and going to less than half a percent in 2025.
Yeah, I think, and thanks for the question, Rob, thank you for being here this morning. In the retail, I would, to use your term, characterize it as tit for tad. There are some 10 and 20,000 foot moveouts.
Speaker Change: Let me spend some time walking through our fundamentals across the sector.
Speaker Change: In our commercial properties value creation is realized through consistent leasing activity re leasing space and increase rents and market leading occupancy statistics.
and then some backfills. We have a lot of activity in the space, which we are excited about. I would say in the office, the main driver of the occupancy, at least sitting where it is today, is that loss of WeWork or the removal of WeWork, that intentional removal in Atlanta. So we lost 40,000 feet there. Good activity there. As I said in the comments, I'm not certain that we'll get that done this year. But we certainly have some activity down there, so we'll see how that plays out. Thank you.
Speaker Change: In addition to the daily management of over 700 tenants, we signed 24 commercial leases, including new extensions and options for a total of 115000 square feet at re leasing spreads of 11, 5%.
Sean: While maintaining an overall commercial occupancy of 95% through the first quarter.
Sean: The office segment saw two lease renewals for a total of 18000 feet at an average releasing spread of 14, 2%.
So we should view that as relatively consistent in the office.
In the multifamily space, it's a little misleading. We have actually 41 units down at the end of the quarter. That number has shrunk to more like 30, 28 units somewhere in that range.
due to water issues and a flood down in North Carolina. So the adjusted occupancy, by the way, we kept those in the denominator, the adjusted occupancy would have been 96.
excuse me, 96.2%. So we're seeing good activity there. We're actually seeing tradeouts improve in the trailing 30 over what was the quarter one result. So we're up closer to 1% blended tradeout there. So we see strength there. We're looking forward to continued success in the multifamily space.
Okay. You mentioned WeWork, the page 19 of the supplemental with the one lease, 1.35 million of ABR, is the 135 of ABR the reduced
rent level for the remainder of 24 or is that what they were paying previously to coming to the agreement? Yes, sir.
Spot on, the 134 is the reduced rent level, essentially through the end of 2024. You will see that number drop down to 850 or so in 2025, which obviously will drop them out of the top 20. And that was my comment, less than a half a percent of the ABR, if you will.
Sean: This level of relative success as a direct result of the location of our assets and mixed use ecosystems.
Sean: 97% of our office space is walkable mixed use environments, we intentionally place our buildings, which are generally newer in their respective markets.
Okay, that's helpful. And then are you able to currently market the second floor that they're going to vacate to get a jump on to basically have somebody signed ready to go in there once reconstruction is done or is they, you know, or is it going to be a later this year event for you guys really market that?
Sean: And provide top tier amenities that create demand from investment grade tenants, who prefer our properties over anything else in the market.
Sean: In most cases are offers properties are in a class of themselves in each market with no real competition.
We have a cooperative relationship with the tenant, and so we are able to reasonably get in and market the space. So yeah, essentially that space will come back to us.
Sean: This strategy continues to underpin the future growth of our company, most notably in southern posts and Harbor point development projects.
Sean: Our construction business continues to produce record results, while working through a 343 million dollar current backlog the first quarter yielded profit results consistent with the targeted projections included in our 2024 guidance.
Jan 1, and our hope is, to your point, have good activity between then and now.
Okay.
And then you obviously have, you know, three big projects, all three are supposed to complete later this year. How are you guys thinking about new starts?
Sean: The partner firms using our instruction expertise continued to identify and execute when opportunities allow us to demonstrate our capabilities and collect market data for our internal underwriting of further development and construction opportunities.
once those three projects complete. Is stuff teed up? Is the environment not such that you're likely to start anything in the back half of 24 or early 25? How are you guys thinking about development? How should we be thinking about development once these three are completed?
Sean: The development platform continues to also produce results consistent with guidance and we expect delivery of three projects through the end of this year setting us up to realize the embedded earnings growth into 2025.
Robert Sluh. So our expectation would be the only thing that we will embark on the rest of 2024 is the redevelopment of Columbus Village with the old bed-bat space.
Sean: Although we forecast leasing to continue to accelerate as I mentioned earlier in the call. We will experience carry cost during lease up in the second half of 2024 as we approach stabilization into 2025.
look for some really nice announcements on that coming up. Beyond that, right now, we're not seeing anything that pencils to be worthy of any of our equity.
Sean: As I mentioned leasing has been robust at the southern post project, especially in the commercial space demonstrating the strong demand in this new soon to be trophy asset in downtown Roswell GA, only 14 miles due north of bucket.
with where construction prices are and interest rates.
the spread, we look to have a 150 to 200 basis point spread.
on launching a development. And that's what would make those things accretive to the company. Right now that spread is just not attainable. I shouldn't say it. It's not attainable in any of the sectors that we would want to launch something at.
Sean: We are now 71% Leafs in the commercial space at rats running ahead of pro forma levels.
Sean: Similarly, the apartment rents are slightly above pro forma underwriting and move <unk> recently come in.
Sean: The apartments are 15% leased and we expect this momentum to continue given the limited supply of high quality products and the Submarket and as we approach to historically active spring and summer months.
Believe it or not, there's a number of office build-to-suit opportunities out there, and we're just not right now in the appetite of launching any office space.
Okay, that's helpful. And then last one for me. Matt, the MES that you expect to come out this year, is that Solicity Park 2 or is that one of the other ones just trying to figure out how we should be thinking about?
Sean: The T Rowe price Global headquarters project is looking great as we approach anticipated move in later this year.
Sean: The trophy build to suit project as well situated among our assets on the peninsula and will bring thousands of professional workers to the site.
money to you and lost interest income going forward?
Sean: We are looking forward to the continued flight to quality that will be experienced by top tier credit tenants inhabiting our ecosystem at harbor point.
Hey, Rob, let me jump in on the actual identification of that property. We believe it's probably best for our partner to announce that for a number of reasons, competitive and so and so forth. But I'll defer to Matt on the second piece of the question.
Sean: The Allied apartment project is also progressing nicely and.
Sean: And we will be nearing completion in the months to come.
Yeah, good morning Rob, but yes, your assumptions are correct there. We will, you know, reduce interest income or the expectation of interest income when that property is potentially exited from the program. As we've had in guidance, we will look to deploy some of that in another or a new real estate financing project later in the year. But I just would caution that not all of that money will go straight back out at once. And it's going to take a little bit of time for those draw schedules to go through. So we anticipate potentially a small portion of that going back out in the final quarter of the year.
Sean: This 312 unit high rise apartment building sits at the top of the market and its parking garage component auto complements the T Rowe price project.
Sean: It's views and <unk> are virtually Baltimore's best and we look forward to this complimenting or other trophy apartment project at 14 O Five point Street.
Sean: Finally.
Sean: Given our performance asset quality value creation machine.
Sean: And continued focused on shareholder returns we.
Sean: We believe that our firm as well positioned for the future.
Sean: We believe our equity is trading at a discount to NSV.
Okay, that's helpful guys. Thanks. Appreciate the time this morning. Thanks a lot, Rob.
Sean: And we will take any steps necessary to realize that value for our shareholders, including asset sales to provide growth equity if the stock market for real estate remains undervalued.
Your next question comes from the line of Peter Abramowitz from Jeffries. Your line is open.
Speaker Change: Operator, we are ready for the question and answer session.
Yes. Thanks for the time. I noticed you added a chart in there with your multifamily tradeout and I think it's kind of negative mid-single digits this quarter and last quarter on new leases. Could you just talk about kind of the trend there, what your expectations are for the rest of the year, whether you have sort of any visibility to an inflection and sort of what's embedded in the guide? Okay.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session.
Sean: If you would like to ask a question. During this time simply practice are followed by the number one on your telephone keypad. If you would like to read by your question <unk> followed by the number two one moment. Please for your first question.
Sean: Your first question comes from the lineup Rob Stevenson with Jamie. Please go ahead.
Sure.
Thank you for being here this morning, Peter. Yeah, the blended was 0.1 for the quarter positive. New leases, to your point, were about 4.5 negative while renewals were 5.2 to the positive.
Robert Chapman Stevenson: A good morning, guys Sean.
Robert Chapman Stevenson: <unk>. Thanks for the detail I guess, one question on the leasing side, how should we be thinking about occupancy in the office and retail portfolios ebbing and flowing throughout the year or the substantial move outs of consequence that it is going to cause it to dip and then the new leases signed bring it back up is it relatively.
What we're seeing since then and the kind of trailing 30 is about a 1% positive tradeout blended.
Robert Chapman Stevenson: Sort of tit for tat in terms of trade outs et cetera, how should we be thinking about that as we work.
That negative on the new leases has shrunk to about two and a half, and then the renewals are up in the four or four plus range. So we're seeing improvement there. I think we should be thinking about a year of 95% occupancy, give or take.
Robert Chapman Stevenson: Work on our model throughout the year, yes.
Speaker Change: Yeah, I think and thanks for the question Rob. Thank you for being here. This morning, and the retail I would to use your term characterize it tit for tat. There you know some some 10 and 20000 per move out and then so backfills, we have a lot of activity in the space, which we are excited about I would say in the office the.
and one to two percent trade out growth kind of blended. So we're seeing strength improved there. A lot of this has to do with in the first quarter supply online, as most people know, there's some challenges, some headwinds, I would say, in supply in the Charlotte market, some in the Richmond market, but we also are seeing kind of offsetting strength in the Virginia Beach and Baltimore market. So I would say, yeah, you should probably see low single digits blended on a go-for basis.
Robert Chapman Stevenson: The main driver of the occupancy at least sitting where it is today is that loss of we work or the removal of we work that intentional removal and Atlanta. So we lost 40000 feet. They're good activity there as I said in the comments I'm not certain that we'll get that done this year, but we certainly have some activity down there.
driven by stronger renewals and improving new lease numbers.
Robert Chapman Stevenson: So we'll see how that plays out so.
Robert Chapman Stevenson: So we should do that is relatively consistent in the office and the multifamily space. It's a little misleading we have actually 41 units down at the end of the quarter that number has shrunk to like 30 28 units somewhere in that range due to water issues in a flood down in North Carolina. So.
Gotcha, that's helpful. And then another question on Mulsat families, so you talked about
a pretty strong cap rate on the disposition that you're expecting. I think you mentioned that the asset is in the southeast.
where a lot of the supply issues are happening, and I think your occupancy is lower than the rest of your multifamily portfolio. I guess just trying to get some context around the cap right there, because it would seem that the pool of capital is still pretty deep, the pricing is still pretty attractive. Is it simply kind of buyers are just sort of brushing off the supply and looking through to the next year or two, or just some context around how you can still get the strong pricing despite the supply challenges?
Robert Chapman Stevenson: Did occupancy by the way we kept those in the denominator of the adjusted occupancy would've been 96 point.
Robert Chapman Stevenson: Excuse me, 96.2%. So we're seeing good activity there were actually seeing trade outs improve and the trailing 30 over what was the quarter. One result, so we're up closer to 1% blended trade out there. So we see a strange there and we're looking forward to continued continued success and the multifamily space.
Robert Chapman Stevenson: Okay. You mentioned, we work the page 19 of the supplemental with the one least $1.35 million a b R is the 135 of a b R. B reduced rent level for the remainder of 24 or is that what they were paying previously too.
Peter, I'll let Sean answer that specifically, but I want to make sure to reiterate
what we said earlier, the occupancy, what looks like a dip in occupancy and those properties down there is solely due to the insurance claim.
Speaker Change: <unk> coming to the agreement yes, Sir these spot on the 134 is the reduced rent level essentially through the end of 2024, you will see that number dropped down to 850 or so in 2025, which obviously will drop them out of the top 20 and that was my comment less than a half.
So we left those units in the denominator and perhaps maybe we shouldn't have, but we wanted to be as accurate as possible. We expect those to lease right back up once they come back online. So there really wasn't a dip in occupancy.
Robert Chapman Stevenson: A per cent of the AVR a few wheelchair.
Speaker Change: Okay. That's helpful. And then are you able to currently market. The the second forward that to go to vacate to get a jump on the basically have somebody find ready to go in there once reconstruction is done or if they you know or or is it going to be a later.
Good, Sean.
Yeah, I think what you're referring to, Peter, is on page 17, the southeast sunbelt, looks like it's our dip to 91-1 right in that range. And, again, there are 41 units.
not contributing to the occupancy there. So to lose point, we thought that given there's an insurance kind of effort moving forward, we thought we should keep in the denominator. We can cut that either way, but again, adjusted holistically high-level macro, we're at 96.2% when adjusting for those 41 down units.
Robert Chapman Stevenson: Events are you guys really market that we have a cooperative relationship with Tennant and so we were able to reasonably get in and market. The space. So yeah, essentially that space come back to us Jan one N R.
To your question about the strength, I would say that the interest in our asset is due to the quality and due to the location as it's typical with our properties. And the strength of that particular asset has been great for us, but we believe, as Lou said earlier, that, and as I alluded to yielding
Robert Chapman Stevenson: Is to to your point have have good activity between.
Speaker Change: Okay, and then you obviously have.
Robert Chapman Stevenson: Three.
Robert Chapman Stevenson: What was the complete later this year how are you guys thinking.
yielding or harvesting that capital at those types of cap rates, it's probably the most prudent move for us in terms of capital.
Robert Chapman Stevenson: New start once those three projects complete is stuffed teed up is the environment not such the <unk>. You know you are likely to start anything in the back half of 24 early twenty-five how should we have you guys thinking about development, how should we be thinking about development. Once these three are completed.
That's helpful. And then one more for me. I just want to go back to lose comment a minute ago about office build the suits. So it sounds like you're hesitant to kind of get started on those. Is that a more factor of
Speaker Change: Robert flu.
just not wanting to increase office exposure or is it more about the construction costs and then once the tenants understand kind of the premium rents they have to pay they're a little hesitant and the deals won't pencil. Yeah, it's really the ladder.
Robert: So our expectation would be the only thing that we will will embark on the rest of 2024.
Robert: Is the redevelopment of Columbus village with you all bad bad space.
Robert Chapman Stevenson: Look for some some really nice announced to the Mac coming up.
Robert Chapman Stevenson:
Robert Chapman Stevenson: [noise] right now, we're not saying anything that pencils to be worthy of [laughter] worthy of any of our equity with where construction prices at our and interest rates.
We would engage with a credit tenant that would honor the spread we need to make in order to launch.
um
Today, that number is outside the realm of what people are willing to pay.
Robert Chapman Stevenson: Spread <unk>, we look to have 150 to 200 basis points spread.
I expect that will change at some point.
Robert Chapman Stevenson: Launching a development.
I expect trophy office buildings to go back to normalize cap rates in a not too distant future or in the next year or two. So we'll be on the lookout, but right now they just don't pencil.
Robert Chapman Stevenson: And that's what would make those things accretive through the company right now that spreads just not attainable.
Robert Chapman Stevenson:
Robert Chapman Stevenson: I shouldn't say, it's not attainable in any of those sectors that we would want to launch something at believe it or not there's a number of of office build to suit.
And we don't want to, we've seen some real estate companies play the game of looking at year four or five as far as stabilization and saying that they're making a spread. That's just not a game we've played for 40 years or not going to start now.
Robert Chapman Stevenson: Opportunities out there and we're just not right now and the appetite of of watching any any office space.
Speaker Change: Okay. That's helpful and last one for me Matt.
Matt: <unk> the <unk> that you expect to come out. This year is that sold the city park two or is that one of the other ones just trying to figure out how we should be thinking about money to you and lost interest income going forward.
Gotcha, that's helpful. And I guess one more while I have you, any particular markets where those requirements are kind of most active right now?
It's really in our ecosystem of mixed use. So you can guess. There's still a lot of activity in Baltimore. We've got a couple of tenants that would love to get into Harbor Point. We just don't have the room.
Matt: Let me jump in on the actual identification of that property, we believe probably best for our partner to announce that for a number of reasons competitive and so and so forth, but all of the <unk> on the second piece of questions. Yeah. Good. Good morning, <unk> Yeah sure. Your assumptions are correct that we will reduce.
And here in Virginia Beach, we're still trying to shoehorn in tenants in a 99% occupied building. But again, you just can't launch.
Speaker Change: Interesting comedy expect the expectation of interesting Tom when that that property is potentially exited from the program as we've had in guidance, we will look to deploy some of that and I and I know there are I knew real estate financing project later in the year, but I just would caution that noted.
Got it. That's all for me. Thanks.
Your next question comes from the line of Camille Bunnell with Bank of America. Please go ahead.
Good morning. You had mentioned dispositions are your preferred route to raise capital today. So just wanted to expand on this a bit more. How big do you expect this program will be what kind of assets are you looking to sell? And if you've started marketing assets, how has interest been?
Speaker Change: My regards straight back out once and it's gonna, it's gonna take a little bit of time for those who are scheduled to go through say, we anticipate potentially.
Speaker Change: <unk> portion of that going back out in the in the final quarter of the year.
Speaker Change: Okay. That's helpful guys. Thanks I.
Speaker Change: Appreciate your time this morning, Thanks a lot.
Speaker Change: [noise] Yeah. Our next question comes from.
So, as I mentioned, we will
We're looking at two, at most three assets for disposition.
Speaker Change: Peter abdominal it's Jeffrey your line is open.
Peter: Oh, yes. So thanks for the time I noticed you out of the chart in there with your multifamily trade out and I think it's kind of a negative mid single digits. This this quarter and last quarter on on new leases could you just talk about kind of a trend there what your expectations are for the.
I can tell you that interest is strong. We're waiting, these are non-core assets that we're waiting on a few brokers' opinions of value before we decide where to pull the trigger. But we're getting unsolicited offers in on
Peter: The rest of the year, whether you have sort of any visibility to an influx here and sort of what's I'm better than the guide.
It's just about everything we own in the southeast of a multi-family variety. Again, as Sean alluded to, quality is everything for
Speaker Change: Sure.
Speaker Change: Thank you for being here this morning, Peter Yeah, the the blended.
For an investor that's looking for a multi-year hold, they're viewing the current environment as an opportunity to pick up quality real estate at a discount and then operated for years to come.
Speaker Change: Was 0.1 for the quarter positive new leases to your point or about four and a half negative wild renewals, where 5.2 positive.
Speaker Change: What we're seeing since then and the kind of trailing 30 is about a one per cent positive trade out blended.
So the growth markets are still where
still where that activity is going to happen.
Speaker Change: That that negative on the new leases has shrunk to about two and a half and then the renewals are up in the four four plus range. So we're seeing improvement there I think we should be thinking about a year of 95 per cent occupancy give or take and 1% to 2% trade outgrowth.
And we'll be making some announcements, you know, a not too distant future on where that stands. But as you might expect,
At the kind of cap rates we're looking at, it's by far the most efficient way to raise capital. And as I said, with as many as five properties coming online,
and maybe a subtraction to two, the company will be substantially larger next year in any result.
Speaker Change: Blended so we're seeing strength improve there are a lot of this has to do with the first quarter supply online.
Okay, and shifting to the balance sheet, how are conversations with your lenders going on?
Speaker Change: Most people no. There's some challenges some headwinds I would say in supply and the Charlotte market. Some in the Richmond market, but we also are seeing kind of offsetting strength in the Virginia Beach in Baltimore market. So I would say yeah, you should probably see a low single digits blended on a go forward basis.
around your extensions. And are there any updates on how you plan to address any near term maturity? Just trying to get a sense of how far you're looking across your debt expiration profile when you're doing your capital planning.
Speaker Change: Driven by stronger renewals in and improving new least numbers.
Yeah, good morning, Camille.
So, yeah, a lot of interest from lenders initially. When we've looked at a couple of the term loans we have and, you know, we have capacity on them to syndicate, I would say that it's still limited. The lenders are slowly coming back to the market to have those conversations. It's better than it was last year when I would say that there was probably a very limited lending activity, but that has eased up here in the first of the year. We have a couple of small maturities this year that we're going to pay off at maturity, and we had a construction loan that we were able to extend.
Speaker Change: Gotcha. That's that's helpful. And then another question on most of my family So you're talking about.
Speaker Change: Pretty shrunk cap right on the disposition that you're expecting.
Speaker Change: You mentioned that the acid is in the southeast.
Speaker Change: Where a lot of those supply issues are are happening and I think your occupancy is lower than the rest of your multifamily portfolio I guess, just trying to get some context around around the cap right there.
Speaker Change: Cause it would it would seem that you know the the pool of capital still pretty deep the pricing still pretty attractive is it simply kind of buyers are are just sort of broken off the supply and looking through to the.
Speaker Change: The next year or two or just some some contexts or.
we have two one-year extension options at a relatively good rate that we pulled the first one-year extension option on. So nothing for us really, really too much concern until we get into the end of 2026. But yes, we're in constant contact with all of our lending partners to make sure that the debt side of the capital is available as and when we may need it.
Speaker Change: Can I still get the strong pricing despite the the supply challenges.
Speaker Change: <unk> Ah, let Sean answer that specifically, but I wanted to make sure I reiterate.
Speaker Change: You said earlier that occupancy what looks like a dip in occupancy and those properties <unk> down there is solely due to the insurance claim.
Okay, and when you think about those 2026 maturities, is the idea to, you know, wait or is there opportunity to address those maturities today? I think you've seen, you know, mixed strategies across the REITs in terms of how far they're looking at.
Sean: So we we left those units in the denominator for.
Sean: Perhaps maybe we shouldn't have but we wanted to be as accurate as possible.
Sean: We expect those to lease right back up once they come back online. So there really wasn't a dip in occupancy got Sean Yeah, I think what you're referring to Peter is on page 17, the south the Sun belt looks like it's our depth to 91, one that range and again, there 41 units not contributing to the occupancy.
Yes, so we are always monitoring those maturities. As you know, as we're transitioning to this unsecured balance sheet, there are very, very limited, you know, prepayment penalties on those loans. So at the right rates, of course, we would go ahead and
Sean: There so I had to lose point, we thought that given there is an insurance kind of effort moving forward. We thought we should keep in the denominator, we've got that either way, but again adjusted Holistically high level macro we're at 96.2% when adjusting for those 41 down units to your question about the strength I would say that.
you know, refinance or extend those terms out as and when we could. We would love at some point, as we have said, to utilize our investment-grade credit rating. The rates and the spreads on the Treasury are still a little bit rich for our taste right now, but yes, we will continue to monitor, and at the appropriate time, we will take the appropriate action.
Sean: The interest in our asset is due to the quality and do the location as is typical with our properties and this the strength of that particular asset has been great for us, but we believe as Lou said earlier that you know and as I alluded to yielding yielding or harvesting that capital at those types of cap rates is probably the most.
All right, and finally, the new leasing activity with retailers have been slowing over the past few quarters. We've been hearing that retailers though are moving forward with their store-opending plans. So just wanted to get more insight on what tenants are saying to you and are they prioritizing certain in the market.
Sean: Fruit and move for us in terms of capital.
Sean: So that's helpful. And then one more for me I just wanted to go back to lose common a minute ago about office building suits. So so it sounds like you're you're hesitant to kind of get started on on those is that a more a factor of.
So it certainly are prioritizing certain markets, and again, back to the growth markets.
We really haven't seen any kind of a slowdown in expectations. Remember, our portfolio is 95% least, so there just isn't that much room to do a whole lot. The vacancies that Sean mentioned, we already have prospects for all of them, actually multiple prospects.
Sean: Just not wanting to increase office exposure or is it more about the construction costs and then once the tenants understand kind of a premium rent they have to pay their a little hesitant.
Sean: And the deals won't pencil.
Sean: It's really the the the ladder Peter.
So,
We're not seeing that, but again, that's, we think that's market specific. I'm not sure what's happening in the rest of the country, but
Sean: We we would engage with a credit.
Sean: That would honor the spread we need to make an order to launch today that number is outside the realm of what people are willing to pay.
We're seeing robust sales really across the board with the people that report sales.
John , you want to add to that? Yeah, I would just add to that. Generally speaking, those decisions are driven by rooftops in the kind of immediate vicinity as well as foot traffic and I'm tying that back to well-located properties,
Sean: I expect that will change at some point.
Sean: Back the trophy office buildings to go back to normal normalized cap rates.
Sean: And and not too distant future or or in the next year or two.
where our ecosystems are driving traffic. People want to be located, and statistically that's where business is done. So I think to lose point, we're seeing good activity, and yes, to your point, Camille, we are seeing people actually signing up, which is a good thing, a little bit different than it was.
Sean: So what will be on the lookout, but right now they just they just don't cancel and we don't Wanna, We've seen some real estate companies play the game of looking at here for five as far as stabilization and saying that they're making a spread.
say four years ago. And so we feel good about that and looking forward to continued success in that space.
Sean: It's just not a game we've played for 40 years or they're not going to start now.
Speaker Change: Gotcha, that's helpful and I guess, one more while I have you any particular markets where those those requirements are are kinda most active right now.
Thanks for taking my questions. Thank you.
Your next question comes from the line of Bill Crow with Raymond James. Please go ahead.
Sean: It's really in our in our ecosystem of of mixed use. So you can guess, there's still a lot of activity in Baltimore, We've got a couple of tenants that would love to get into Harbor point, we just don't have the room.
Hey, good morning.
Blue,
I was looking back through some old notes and I made it back to 2018 and I'm sure I could have gone back a little bit further, but
Sean: And here in Virginia Beach, where we're still trying to shoehorn and tenants and 99% occupied building.
You know, during the last six years, we've been talking about uncomfortable levels of balance sheet leverage. And during those six years, you had chances to issue equity ad or certainly near $20 a share.
Sean: But again you just you just can't launch.
to sell assets, hit the pause button on new investments, Ms. Commitments, et cetera. So why are we still talking about the balance sheet? I get the dilution to stain, but I also see a stock price
Speaker Change: Got it well that's all for me thanks.
Speaker Change: Your next question comes from the lineup coming out of <unk> Bank of America. Please go ahead.
you know, some $11, it certainly reflects leverage levels that are higher than it should be. So how do we – do we ever get it back down or is it just –
Speaker Change: Good morning.
Speaker Change: You had mentioned disposition your preferred route Tuesdays capital today, So just wanted to expand on the second floor.
difficult to say no to good projects.
Speaker Change: How do you think you can expect this program will be what kind of assets are you looking to sell and if you started marketing asset how is interesting.
So I appreciate the question, Bill. And also I want to clear up something that might have been a misunderstanding. Change in fair value with derivatives is a
Speaker Change: So.
Speaker Change: As I mentioned, we will.
Speaker Change: We're looking at two at most three assets.
excluded from our core results.
This quarter it was positive, last quarter it was negative, which is exactly why we excluded. So I want to make sure nobody picks up
Speaker Change: Okay for disposition.
Speaker Change: <unk> I can tell you that interest is strong we're waiting these are non core assets that we're waiting on a few brokerage opinions of value before we decided where to pull the trigger but we're getting unsolicited officer offers in on.
the fact that we made some money or made some money on paper regarding a derivative.
Bill, as far as your other question,
I think we're always going to be on the higher side of leverage, a company our size that has the kind of development activity that we have.
Speaker Change: Just about everything we own in the southeast of a of a multifamily variety.
Speaker Change: Again, it's Shawn alluded to quality is everything for.
is always going to be on the higher side simply because the most efficient way to do development is with as much debt as possible and then ultimately when those projects stabilize, you bring them online and you de-weber.
Speaker Change: For an investor that's looking for you know a multiyear hold their viewing the current environment as an opportunity to pick up quality real estate at a discount and then operated for for years to come so the growth markets are still wear.
So I think the short-term debt is a reality of the way we sit in the marketplace.
Speaker Change: Still where that activity is gonna happen.
Speaker Change:
We have delivered with $18 stock and $15 stock. We have sold assets at 4.15 cap rates.
Speaker Change: And will be will be making some announcements you know not too distant future on on where that stands but as you can.
Speaker Change: <unk> it kind of cap rates were looking at it by far the most efficient way to raise capital and as I said with as many as five properties coming online.
And we're going to continue to operate that strategy. Ultimately, with Matt's plan of ultimately going into the preferred bond market,
That leverage will come down to where we would like to see it in that five and a half times range. But again, that'll simply be on our core portfolio because development is always going to be full leverage.
Speaker Change: And maybe it's subtracting it to the company will be substantially larger next year in any in any resolved.
Speaker Change: Okay and shifting to the balance sheet hour conversations with your lender is going on around your extensions.
Speaker Change: And are there any updates on how you plan to address any near term maturities just trying to get a sense of how far you're looking across your that exploration profile when you're doing your capital planning.
So I appreciate that. When do you think we can get to five and a half times? Is that two years, three? I mean, just give us a target to kind of think about it.
Speaker Change: Yeah.
I think you're a couple years out and again, I mean, we need the macro economy to participate in that. You'd like to see some normalization of interest rates and spreads come in a little bit.
Speaker Change: Good morning, Camille Uhm, so yeah, a lot of a lot of interest from from lenders. Initially when we've looked at a couple of the time lines. We have and you know we have capacity on then to just indicate I would say that it's still it's still limited the lenders.
You know, we're
We're used to the position, as I said at the outset. We're comfortable at these levels. As you probably recall, Bill.
Speaker Change: <unk> slowly coming back to the market to have those those conversations it's better than it was last year. When I would say that there was already very limited lending lending activity that that is that has eased up here in the in the first of the year. We have a couple of small maturities dish this year.
We've never gone below 93% occupancy. In a great recession in 2008, our portfolio went all the way down to 92%. That's an all-time low.
So we don't really have a lot of speculative income to be concerned about where the leverage sits. That said, obviously the market would like to see it lower, we'd like to see it lower. We're just not going to do it at any cost.
Speaker Change: We're gonna pay off that maturity and we had a construction line that we were able to extend we we have two one year extension options a a.
Speaker Change: <unk> if you could write that we go with the first one year extension option on so nothing for us rarely rarely too much concern until we get into the end of 2026, but yes. We're we're in constant.
Okay. Thank you.
Thank you. And there are no further questions at this time. I would like to turn it back to Lou Haddad for closing remarks.
Speaker Change: We have a order of all lending partners to make sure that the that side of the the captain is available as and when we might need it.
Thanks very much for your time and attention this morning. It's been a great quarter, and we look forward to another great quarter in just another couple of months. Take care and have a great day.
Speaker Change: Okay and when you think about this 2026 maturity is is is the idea to wait or is their opportunity to address his maturity I think you've seen you know make strategies across convincing in terms of how far they're looking at.
Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change: Yeah, So he said <unk>.
Speaker Change: <unk> waves monitoring those maturities I as you know as we transition into this unsecured balance sheets, they're all very very limited.
Speaker Change: <unk> at the right right of course, we would go ahead and and refinance or extend those turns out as and when we when we could we would love at some point as we have said to Utilise investment grade credit rating, the the rights and the spreads on the <unk>.
Speaker Change: Injury is still a little bit rich broth tight right now, but yes, we will continue to monitor and at the appropriate time, we will take the appropriate action.
Speaker Change: Alright, and finally, the knee leasing activity with free tellers has been swelling over the past few quarters.
Speaker Change: We've been hearing that <unk>.
Speaker Change: <unk> are moving forward with their store opening plan. So I just wanted to get more insight on what kind of interesting to you and are they prioritizing signing market.
Speaker Change: Oh, It certainly are a priority prioritizing mmm certain markets and again back to the growth markets.
Speaker Change: We really haven't seen any kind of a slowdown in and expectations you remember art our.
Speaker Change: [noise] portfolio is 95 per cent late cause it just isn't that much room to do a whole lot. The vacancies that John mentioned, we already have the prospect for all of them actually multiple prospects. So.
Speaker Change: Not seeing that but again, that's we think that's markets specific I'm not sure what's happening in the rest of the country, but.
Speaker Change: We're seeing robust sales really across the board with the people that report sale.
Speaker Change: <unk>, Yeah, I would just add to that that.
Speaker Change: Generally speaking those decisions are driven by Ah rooftops in the kind of immediate vicinity as well as foot traffic in time that back to well located properties right. So where our ecosystems are driving traffic people Wanna be located and typically that's where business is done so I I think to lose point.
Speaker Change: We're seeing a good activity and yes to your point Camille we are seeing people actually signing up which is a good thing with different than it was say four years ago and so we feel good about that and and looking forward to continued continued success in that space.
Speaker Change: Thanks for taking my question. Thank you.
Speaker Change: Your next question comes from the line of <unk> I Raymond James. Please go ahead.
Raymond James: A good morning.
Raymond James: Ooh.
Raymond James: Looking back through some old notes and then made back in 2018 and I'm sure I could go back but further but.
Raymond James: During the last six years, we've been talking about uncomfortable levels of balance sheet leverage and during those six years, you had an issue equity ad or or certainly near $20 a share.
Raymond James: <unk> hit the pause button, the new investments best commitments et cetera. So why why are we still talking about the balance sheet.
Raymond James: Get the dilution disdain, but I also see a stock price.
Raymond James: You know some $11 certainly reflects leverage levels that are higher than the than it should be so so how do we do we ever get it back down or is it just.
Raymond James: Difficult to send out a good projects.
Speaker Change: So I appreciate your question Bill and also what was clear up something that might've been a misunderstanding.
Speaker Change: Change in fair value of derivatives is.
Raymond James: Excluded from our core results.
Raymond James: This year.
Raymond James: This quarter with positive last quarter. It was negative which is exactly why we excluded so I want to make sure nobody picks up the.
Raymond James: The fact that we we made some money or made some money on paper regarding a derivative.
Raymond James: [noise].
Speaker Change: Bill as far as your other question.
Speaker Change: I think we're always gonna be on the higher side of leverage our company. Our size that has the kind of development activity that we have is always going to be on the higher side simply because the most efficient way to do development cause with as much data as possible.
Speaker Change: And then.
Raymond James: Okay.
Raymond James: Okay.
Raymond James: Alright.
Raymond James: Short term.
Raymond James: Yeah.
Raymond James: <unk> the way we sit in the marketplace, we have delevered with $18 back in $15 back we have sold assets at 4.15 cap rates and we're gonna continue to operate that strategy ultimately with Max plan ultimately going into the.
Raymond James: The preferred bond market that leverage will come down to where we would like to see it and at five and a half times range, but again that will simply be on our core portfolio because.
Raymond James: Development is always gonna be full leverage.
Raymond James: Oh.
Speaker Change: I appreciate that when do you think we can get the five and a half times is that does that too.
Speaker Change: Two years, three I mean, just give us a target to kind of think about I think you're a coupla years out and again I mean, we we need the macro economy to to participate in that you'd like to see some normalization of interest rates and spreads come in a little bit.
Speaker Change: But.
Speaker Change: Yeah, where.
Speaker Change: We're used to the <unk> at the outset, we're comfortable at these levels.
Speaker Change: As as you probably recall bill.
Speaker Change: We've never gone below 93% occupancy in a great recession in 2008, our portfolio went all the way down to 92 per cent, that's an all time low.
Speaker Change: So we we don't really have a lot of speculative income to concern to be concerned about.
Speaker Change: About where the leverage set that said, obviously the market would like to see it lower we'd like to see it lower we're just not gonna do it at any cost.
Speaker Change: Mmk thank.
Speaker Change: Thank you.
Speaker Change: [laughter].
Speaker Change: Thank you and there are no further questions at this time I would like to turn it back a <unk> remarks.
Speaker Change: Thanks, very much for your time and attention. This this morning.
Speaker Change: It's been a great quarter, and we we look forward to to another great quarter of yeah.
Speaker Change: And just another couple of minutes [laughter] take care and have a great day.
Speaker Change: Thank you for Saturday and ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect [music].
Speaker Change: Ooh Ooh Ooh, Ooh Ooh Ooh Ooh Ooh.