Q1 2024 City Office REIT Inc Earnings Call

May 3, 2024

Operator: Discussed Today to Their Most Directly Comparable Gap Financial Measures. Certain statements made today that discuss the company's beliefs or expectations, or that are not based on historical facts, may constitute forward-looking statements within the meaning of the federal securities laws. While the company believes that these expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that these expectations will be achieved. Please see the forward-looking statement disclaimer in our first quarter earnings press release and the company's filing with the SEC for factors that could cause material differences between forward-looking statements and actual results.

Their most directly comparable GAAP financial measures certain statements made today that discuss the companys beliefs or expectations or that are not based on historical fact may constitute forward looking statements within the meaning of the federal securities laws.

Operator: Certain statements made today that discuss the company's beliefs or expectations, or that are not based on historical fact, may constitute forward-looking statements within the meaning of the federal securities laws. While the company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that these expectations will be achieved. Please see the forward-looking statements disclaimer in our first quarter earnings press release and the company's filings with the SEC for factors that could cause material differences between forward-looking statements and actual results.

The company believes that these expectations reflected in such forward looking statements are based upon reasonable assumptions. We can give no assurance that these expectations will be achieved please see the forward looking statements disclaimer in our first quarter earnings press release, and the company's filings with the SEC for factors that could cause material differences between forward looking statements and <unk>.

Actual results.

Operator: The company undertakes no obligation to update any forward-looking statements that may be made in the course of this call. I will review our financial results after Jamie Farrar, our Chief Executive Officer, discusses some of the quarter's operational highlights. I will now turn the call over to Jamie. Good morning.

Operator: The Company undertakes no obligation to update any forward-looking statements that may be made in the course of this call. I will review our financial results after Jamie Farrar, our Chief Executive Officer, discusses some of the quarter's operational highlights. I will now turn the call over to Jamie. Good morning.

Company undertakes no obligation to update any forward looking statements that may be made in the course of this call.

I will review our financial results after Jamie Farrar, our Chief Executive Officer discusses some of the quarters operational highlights I will now turn the call over to Jamie.

James Thomas Farrar: Good morning. I'd like to start with some observations on the office sector fundamentals and then move to the highlights since our last call. Overall, the office sector is trending more towards equilibrium. Both our own tracking and national data reflect an increase in tenant demand. For the first quarter of 2024, JLL reported that 70% of US office markets experienced an increase in tenant demand as compared to the prior quarter. While leasing has not recovered to pre-pandemic levels, active office requirements have increased 28% nationally year over year, according to JLL.

James Thomas Farrar: Good morning. I'd like to start with some observations on the Office Sector Fundamentals and then move on to the highlights since our last call. Overall, the office sector is trending more towards equilibrium. Both our own tracking and national data reflect an increase in tenant demand. For the first quarter of 2024, JLL reported that 70% of US office markets, an increase in tenant demand as compared to the prior quarter. While leasing has not recovered to pre-pandemic levels, active office requirements have increased 28% nationally year over year, according to JLL.

Good morning, I'd like to start with some observations on the office sector fundamentals and then move to the highlights since our last call.

James Thomas Farrar: Overall, the office sector is trending more towards equilibrium.

James Thomas Farrar: Both our own tracking and national data reflect an increase in tenant demand.

James Thomas Farrar: For the first quarter of 2024, <unk> reported that 70% of U S office markets experienced an increase in tenant demand as compared to the prior quarter.

James Thomas Farrar: While leasing has not recovered to pre pandemic levels active office requirements have increased 28% nationally year over year. According to <unk>.

James Thomas Farrar: On the supply side. The sublease vacancy rate has continued to decline and new sublease additions have dropped off from a year ago.

James Thomas Farrar: On the supply side, the sublease vacancy rate has continued to decline, and new sublease additions have dropped off from a year ago. New construction has also essentially ground to a halt, with the lowest quarterly volume of new projects breaking ground on record.

James Thomas Farrar: New construction is also essentially ground to a halt with the lowest quarterly volume of new projects breaking ground on record.

James Thomas Farrar: Also, there's been an increase in conversions or demolition of obsolete buildings, and 2023 had the highest volume of buildings converted on record. This dynamic appears to indicate a long runway of net improvements to the supply-demand equation, although we expect the pace of improvement to be gradual. We see these trends playing out within our own portfolio. During the quarter, we executed 191,000 square feet of new and renewable electricity within 110,000 square feet of new leasing. We executed on two larger leaps.

James Thomas Farrar: Also theres been an increase in conversions or demolition of obsolete buildings and 2023 had the highest volume of buildings converted on record.

This dynamic appears to indicate a long runway of net improvements to the supply demand equation, although we expect the pace of improvement to be gradual.

James Thomas Farrar: We see these trends playing out within our own portfolio.

James Thomas Farrar: During the quarter, we executed 191000 square feet of new and renewal leases.

James Thomas Farrar: Within the 110000 square feet of new leasing.

We executed on two larger leases.

James Thomas Farrar: At block 83 in Raleigh, we completed an 11 year 29000 square foot lease with a strong financial tenant for the last full floor vacancy.

James Thomas Farrar: At Block 83 in Raleigh, we completed an 11-year, 29,000-square-foot lease with a strong financial tenant for the last full-floor vacant. Block 83's best-in-class amenity package and high-end suites continue to attract strong demand. At our FRP Ingenuity Drive property in Orlando, we signed a 10 and a half year, 43,000 square foot lease with a healthcare related tenant. As a result of this and prior new leasing, a healthy 172,000 square feet, or 3% of our portfolio, have signed leases that will commence in subsequent quarters.

James Thomas Farrar: At Block 83 in Raleigh, we completed an 11-year, 29,000-square-foot lease with a strong financial tenant for the last full-floor vacancy. Block 83's best-in-class amenity package and high-end suites continue to attract strong demand. At our FRP Ingenuity Drive property in Orlando, we signed a 10.5-year, 43,000-square-foot lease with a healthcare-related tenant. As a result of this and prior new leasing, a healthy 172,000 square feet, or 3% of our portfolio, have signed leases that will commence in subsequent quarters.

James Thomas Farrar: Block <unk> best in class amenity package and high end suites continue to attract strong demand.

James Thomas Farrar: At our FRP ingenuity drive property in Orlando, We signed a 10 and a half year 43000 square foot lease with a healthcare related tenant.

As a result of this and prior new leasing.

James Thomas Farrar: A healthy 172000 square feet or 3% of our portfolio has signed leases that will commence in subsequent quarters.

James Thomas Farrar: Our leasing pipeline continues to be strong with a number of larger potential new tenants evaluating spaces across our portfolio.

James Thomas Farrar: Our leasing pipeline continues to be strong, with a number of larger potential new tenants evaluating spaces across our portfolio. The trend of shorter-term lease renewals in place seems to be gravitating toward longer-term solutions, which is a positive for the industry. Tony will discuss our revised estimates for our 2024 guidance momentarily.

James Thomas Farrar: The trend of shorter term lease renewals in place seems to be gravitating to longer term solutions, which is a positive for the industry.

James Thomas Farrar: Tony will discuss our revised estimates for our 2024 guidance momentarily. These.

James Thomas Farrar: These reflect current discussions with WeWork, who are tenants at two of our properties at Quarter Inn. After engaging in extensive negotiations with the management team at WeWork, we believe we have an agreement in principle that would have them continue in both of our buildings, but with a smaller footprint when they emerge from bankruptcy. This expected outcome has not yet been finalized in the lease amendment. If completed, we would get back one floor at the Terraces in Dallas's Preston Center Submarket early in the third quarter, and one floor back at Block 83 in Raleigh in the fourth quarter.

James Thomas Farrar: These reflect current discussions with WeWork, who are tenants at two of our properties in Quarter End. After engaging in extensive negotiations with the management team at WeWork, we believe we have an agreement in principle that would have them continue in both of our buildings, but with a smaller footprint when they emerge from bankruptcy. This expected outcome has not yet been finalized in the lease amendment. If completed, we would get back one floor at the Terraces in Dallas's Preston Center Submarket early in the third quarter, and one floor back at Block 83 in Raleigh in the fourth quarter.

James Thomas Farrar: These reflect current discussions with we work towards tenants at two of our properties at quarter end.

James Thomas Farrar: After engaging an extensive negotiations with the management team that we were we believe we have an agreement in principle that would have them continue in both of our buildings, but with a smaller footprint when they emerge from bankruptcy.

James Thomas Farrar: This expected outcome has not yet been finalized and the <unk>.

James Thomas Farrar: If completed we would get back one floor at the terraces in dialysis Preston Center sub market early in the third quarter and one floor back at block 83, and rally in the fourth quarter.

The terraces in Dallas is currently 100% leased and we expect high demand for this 25000 square foot premium full floor.

James Thomas Farrar: The Terraces in Dallas is currently 100% leased, and we expect high demand for this 25,000 square foot premium full floor. Similarly, with the recently signed leases at Block 83, 98% of the office component is now leased, and therefore, we expect high demand for this 28,000 square foot full floor space. The conclusion of these discussions would put an end to the WeWork uncertainty and reduce them to just over 1% of our portfolio.

James Thomas Farrar: Similarly, with the recently signed leases at block 80, 398% of the office component is now leased and therefore, we expect high demand for this 28000 square foot full floor space.

The conclusion of these discussions would put an end to the rework uncertainty and reduce them to just over 1% of our portfolio.

James Thomas Farrar: Ultimately, when we have backfilled these spaces, our rent rules will be further diversified, and we expect that to result in a net increase in overall property value. Going forward, as we look to best position ourselves in this environment, we've commenced certain investments that will elevate key assets and help us to grow net operating income. We're fortunate to have the bulk of our overall value invested in leading cities that are primed for continued employment growth.

James Thomas Farrar: Ultimately when we backfill these spaces, our rent rolls will be further diversified and we expect that would result in a net increase in overall property value.

James Thomas Farrar: Going forward as we look to best position ourselves in this environment. We have commenced certain investments that will elevate key assets and help us to grow net operating income.

James Thomas Farrar: We're fortunate to have the bulk of our overall value invested in leading cities that are prime for continued employment growth.

James Thomas Farrar: While many of our assets are newer vintage or recently renovated, we have a handful of quality properties that require a refresh to optimally position them. This opportunity aligns with tenant demands, and we are already well underway making these improvements. The first phase of our Pima Center renovation in North Scottsdale is done, and we're now constructing the lobby amenity upgrade at the second building, which we expect will conclude by the end of the summer.

Anthony Maretic: While many of our assets are newer vintage or recently renovated, we have a handful of quality properties that require a refresh to optimally position them. This opportunity aligns with tenant demands, and we've already are well underway making these improvements. The first phase of our Pima Center renovation in North Scottsdale is done, and we're now constructing the lobby amenity upgrade at the second building, which we expect will conclude by the end of the summer.

James Thomas Farrar: While many of our assets are newer vintage or recently renovated we have a handful of quality properties that required a refresh to optimally position.

James Thomas Farrar: This opportunity aligns with tenant demands and we've already are well underway, making these improvements.

James Thomas Farrar: The first phase of our Pima Center renovation in North Scottsdale is done and we're now constructing the lobby amended the upgrade at the second building, which we expect will conclude by the end of the summer.

James Thomas Farrar: Our well-located 5090 property in Phoenix's Camelback Corridor has kicked off its renovation construction, and we anticipate it will be completed by the fall. Additionally, we have now completed the renovation plan for our waterfront city center property in downtown St. Petersburg and initiated construction, which is starting in May and is expected to conclude by early 2025. And last, we're finalizing plans for an enhancement of 2545 McKinnon in Uptown Dallas, which is scheduled to commence later this year.

Anthony Maretic: Our well-located 5090 property in Phoenix's Camelback Corridor has kicked off its renovation construction, and we anticipate it will be completed by the fall. Additionally, we have now completed the renovation plan for our waterfront city center property in downtown St. Petersburg and initiated construction, which is starting in May and is expected to conclude by early 2025. And last, we're finalizing plans for an enhancement of 2545 McKinnon in Uptown Dallas, which is scheduled to commence later this year.

James Thomas Farrar: Our well located $50 90 property in Phoenix is Camelback corridor has kicked off its renovation construction and we anticipate it will be completed by the fall.

Further we have now completed the renovation plan for our waterfront City Center property in downtown St. Petersburg, and initiated construction, which is starting in May and is expected to conclude by early 2025.

James Thomas Farrar: And last we're finalizing plans for an enhancement of 20 525 Mckinnon in Uptown Dallas, which is scheduled to commence later this year.

James Thomas Farrar: We anticipate investing approximately $9 million into these four projects of which we've already spent approximately $2 million at quarter end.

James Thomas Farrar: We anticipate investing approximately $9 million into these four projects, of which we've already spent approximately $2 million at quarter end. At the conclusion of this renovation program, the vast majority of City Office's portfolio value will reside in new or fully renovated properties that are positioned for long-term leasing success. Cash Flow Maximization. We anticipate that leasing execution will be enhanced by these moves, and we are setting ourselves up for a strong 2025 and beyond. With that, I'll hand the call over to Tony to discuss our financial results and more.

Anthony Maretic: We anticipate investing approximately $9 million into these four projects, of which we've already spent approximately $2 million at quarter end. At the conclusion of this renovation program, the vast majority of City Office's portfolio value will reside in new or fully renovated properties that are positioned for long-term leasing success. Cash Flow Maximization. We anticipate that leasing execution will be enhanced by these moves. And we're setting ourselves up for a strong 2025 and beyond. With that, I'll hand the call over to Tony to discuss our financial results in more detail.

James Thomas Farrar: At the conclusion of this renovation program the vast majority of city offices portfolio value will reside in new or fully renovated properties that are positioned for long term leasing success and cash flow maximization.

James Thomas Farrar: We anticipate that leasing execution will be enhanced by these moves and we are setting ourselves up for a strong 2025 and beyond.

James Thomas Farrar: With that I'll hand, the call over to Tony to discuss our financial results in more detail.

Tony: Thanks, Jamie.

Anthony Maretic: Thanks Jamie. Our net operating income in the first quarter was $26.7 million, which is $200,000 lower than the amount we reported in the fourth quarter of 2023. NOI was marginally lower in the quarter as a result of lower... We reported core FFO of $13.5 million, or $0.33 per share, for the first quarter. This was the same amount as in the fourth quarter.

Anthony Maretic: Our net operating income in the first quarter was $26.7 million, which is $200,000 lower than the amount we reported in the fourth quarter of 2023. NOI was marginally lower in the quarter as a result of lower occupancy.

Tony: Our net operating income in the first quarter was $26 7 million, which is 200000 lower than the amount we reported in the fourth quarter of 2023.

Tony: NOI was marginally lower in the quarter as a result of lower occupancy we reported core <unk> of $13 5 million or <unk> 33 per share for the first quarter.

Anthony Maretic: We reported core FFO of $13.5 million, or $0.33 per share, for the first quarter. This was the same amount as in the fourth quarter. Our first quarter AFFO was $9.1 million, or $0.22 per share, which resulted in a well-covered dividend this quarter. The largest impact on AFFO was $600,000 of tenant improvement costs at Park Tower in Tampa. We will also continue to invest in our spec suites and vacancy conditioning program, although at a slower pace than in 2020.

Tony: This was the same amount as in the fourth quarter.

Anthony Maretic: Our first quarter AFFO was $9.1 million, or $0.22 per share, which resulted in a well-covered dividend this quarter. The largest impact on AFFO was $600,000 of tenant improvement costs at Park Tower in Tampa. We also continue to invest in our spec suite and vacancy conditioning programs, although at a slower pace than in 2020. The total investment in spec suites and vacancy conditioning in the first quarter was $400,000. Moving on, to some of our operational metrics.

Our first quarter <unk> was $9 1 million or <unk> 22 per share, which resulted in a well covered dividend this quarter.

Tony: The largest impact to <unk> was $600000 of tenant improvement costs at park tower in Tampa.

Tony: We also continued to invest in our spec suite and vacancy conditioning program, although at a slower pace than in 2023.

Anthony Maretic: The total investment in spec suites and vacancy conditioning in the first quarter was $400,000. Moving on to some of our operational, Our first quarter same store cash and OI change was negative 1.0%, or $200,000 lower as compared to the first quarter of 2023, excluding Cascade Station in Portland; the rest of our same store portfolio was a positive 0.8%. Our portfolio occupancy ended the quarter at 83%, and including 172,000 square feet of signed leases that have not yet commenced; our occupancy was 86% as of quarter end.

Tony: Total investments spec suites and vacancy conditioning in the first quarter was 400000.

Tony: Moving on to some of our operational metrics, our first quarter same store cash NOI change was negative, 1.0% or 200000, lower as compared to the first quarter of 2023.

Anthony Maretic: Our first quarter same store cash on a wide change was negative 1.0%, or $200,000 lower as compared to the first quarter of 2023, excluding Cascade Station in Portland; the rest of our same store portfolio was a positive 0.8%. Our portfolio occupancy ended the quarter at 83%, including 172,000 square feet of signed leases that have not yet commenced; our occupancy was 86% as of quarter end. Our total debt as of March 31st was $668 million.

Tony: Excluding Cascade station in Portland, the rest of our same store portfolio was a positive <unk> 8%.

Tony: Our portfolio occupancy ended the quarter at 83% include.

Tony: Including 172000 square feet of signed leases that have not yet commenced our occupancy was 86% as of quarter end.

Anthony Maretic: Our total debt as of March 31st was $668 million. Our net debt, including restricted cash, to EBITDA was 6.6 times. As of March 31, we had approximately $97 million undrawn and authorized on our credit facility. We also had cash and restricted cash of $43 million at quarter end.

Tony: Our total debt as of March 31 was $668 million or net debt, including restricted cash to EBITDA was six six times.

Anthony Maretic: Our net debt, including restricted cash, to EBITDA was 6.6 times. As of March 31, we had approximately $97 million undrawn and authorized on our credit facility. We also had cash and restricted cash of $43 million at quarter end.

Tony: As of March 31, we had approximately $97 million Undrawn and authorized on our credit facility. We also had cash and restricted cash of $43 million as of quarter end.

Anthony Maretic: As far as our debt maturities in 2024, we have four scheduled maturities for a total of $102 million principal balance. However, the liquidity in debt markets for new office loans remains challenged, and as such, the priority is working with existing lenders. The first maturity we have discussed on prior calls. The $21 million non-recourse property loan at our Cascade Station property in Portland matured earlier this week on May 1st. In December 2022, we recorded an impairment in that asset's value that effectively rolled off our equity value at that time.

As far as our debt maturities in 2024, we have four scheduled maturities for a total of 102 million principal balance that.

Tony: Liquidity and debt markets for new office loans remains challenged and as such the priority is working with existing lenders.

Tony: The first maturity we have discussed on prior calls.

Tony: The $21 million nonrecourse property loan at our Cascade station property in Portland matured earlier this week on May 1st.

Tony: In December 2022, we recorded an impairment and that asset value that effectively wrote off our equity value at that time.

Anthony Maretic: We are negotiating the terms of a deed-in-lieu transfer and continue to expect that we will dispose of the property to the lender during the second quarter, which would reduce our total debt by $21 million. This assumption has already been reflected in our prior guidance.

We are negotiating the terms of a deed in lieu transfer and continue to expect that we will dispose of the property to the lender during the second quarter, which would reduce our total debt by $21 million.

Tony: This assumption has already been reflected in our prior guidance.

Anthony Maretic: At Central Fairlands in Orlando, we have a property loan with a $16 million principal balance that matures in June. We have come to terms with the lender on a five-year loan extension. We intend to enter into a swap agreement at closing that will effectively fix the rate. We expect closing to occur in May. Based on today's interest rates, the fixed rate on the loan is expected to be in the high 7% range.

Tony: At Central <unk> in Orlando, we have a property loan with a $16 million principal balance that matures in June we have come to terms with the lender on a five year loan extension, we intend to enter into a swap agreement at closing that will effectively fix the rate we expect closing to occur in may.

Tony: Based on today's interest rates fixed rate on the loan is expected to be in the high 7% range.

Anthony Maretic: At FRP Ingenuity Drive in Orlando, there is a property loan with a balance of $16 million that matures in December. As Jamie mentioned, we signed a $43,000 square foot lease at this property in the first quarter, which will take the occupancy back to 100% at that property when the lease commences. That lease execution is very positive for the prospects of a loan extension, and we continue to advance the discussion. Finally, we have a $50 million corporate term loan that matures in September, which is part of our $375 million credit facility.

Tony: At FRP ingenuity, driving Orlando Theres, a property loan with a balance of 16 million that matures in December as Jimmy mentioned, we signed a 43000 square foot lease at this property in the first quarter, which will take the occupancy back to 100% at that property when the lease commences.

Tony: That lease execution is very positive for the prospects of a loan extension and we continue to advance discussions.

Tony: Finally, we have a $50 million corporate term loan that matures in September which is part of our $375 million credit facility. We continue to have discussions with our lending group and expect to be able to provide an update on our next call.

Anthony Maretic: We continue to have discussions with our lending group and expect to be able to provide an update on our next call. Lastly, we are reducing guidance to reflect the impact of the WeWork expected downsizing that Jamie described. The impact of the WeWork downsides on core FFO guidance is approximately $1.8 million, or $0.04 per share, in 2024. Approximately $0.02 of this reduction relates to the non-cash write-off of this tenant's straight-line rent. We have updated the respective ranges of our Net Operating Income, Core FFO, Same Store, and Occupancy to reflect the impact of this change in assumption. That concludes our prepared remarks, and we will open the line for questions. Operator?

Anthony Maretic: We continue to have discussions with our lending group and expect to be able to provide an update on our next call. Lastly, we are reducing guidance to reflect the impact of the WeWork expected downsizing that Jamie described. The impact of the WeWork downsize on core FFO guidance is approximately $1.8 million, or $0.04 per share, in 2024. Approximately $0.02 of this reduction relates to the non-cash write-off of this tenant's straight-line rent. We have updated the respective ranges of our Net Operating Income, Core FFO, Same Store, and Occupancy to reflect the impact of this change in assumption. That concludes our prepared remarks, and we will open the line for questions. Operator?

Tony: Lastly, we are reducing guidance to reflect the impact of the we work expected downsizing that Jamie described the impact of the we work downsize on core <unk> guidance is approximately $1 8 million or <unk> <unk> per share in 2024.

Tony: Approximately <unk> of this reduction relates to the noncash write off of this tenant's straight line rent we have updated the respective ranges of our net operating income core <unk> same store and occupancy to reflect the impact of this change in assumption that.

Speaker Change: That concludes our prepared remarks, and we will open up the line for questions operator.

Speaker Change: Thank you.

Operator: Thank you. As a reminder, if you would like to ask a question today, you can do so now by pressing star followed by the number one on your telephone keypad. If you change your mind and would like to be removed from the queue, please press star and then two. Our first question today comes from the line of Rob Stevenson with J'Nai. Please go ahead, Rob.

Speaker Change: As a reminder, if you would like to ask a question today you can do so now by pressing star followed by the number one on your telephone keypad.

Speaker Change: Do you change your mind I would like to be remain from Nicky. Please press star and then K.

Speaker Change: Our first question today comes from the line of Rob Stevenson with Janney.

Robert Chapman Stevenson: Please go ahead Rob.

Robert Chapman Stevenson: Good morning guys. Jamie, in terms of WeWork, given the quality and occupancy of those two assets, how did you think about entering into negotiations with them and coming to this solution versus just biting the bullet, taking back the space now and not having to deal with this again when they're having issues in a year or two, etc.?

Robert Chapman Stevenson: Good morning, guys. Jamie, in terms of WeWork, given the quality and occupancy of those two assets, how did you think about entering into negotiations with them and coming to this solution versus just biting the bullet, taking back the space now, and not having to deal with this again when they have issues?

Robert Chapman Stevenson: Good morning, guys.

Robert Chapman Stevenson: Jamie in terms of if we were given the quality of the occupancy those two assets. How did you think about entering into negotiations with them in coming to this solution versus just biting the bullet taking back the space now and not having to deal with this again, when they're having issues in a year or two et cetera.

Jamie: So that required a lot of thought and analysis I mean, it's a good question the way we look at it is.

James Thomas Farrar: So that required a lot of thought and analysis. I mean, it's a good question.

James Farrar: So that required a lot of thought and analysis. I mean, it's a good question.

James Thomas Farrar: The way we look at it is, you know, I think it's a net negative today to have as much space as we do in these two premium buildings. And we came to a consensus with them where, you know, in Dallas, we'll take back one floor. They're going to be really full on the remaining floors and a good spot from their standpoint. Same story in Raleigh, where we take back one floor; they'll be extremely full on the remaining two floors.

Jamie: I think it is a net negative today, having as much space as we do in these two premium buildings.

Jamie: We came to a consensus with them were imbalanced, we will take back one floor, they're going to be really full on the remaining floor in a good spot from their standpoint.

Jamie: Same story in Raleigh, where we take back one floor there'll be extremely full on the remaining two floors and for US we have no vacancy remaining in those buildings.

James Thomas Farrar: And for us, we have no vacancy remaining in those buildings. Rents are good. We've just leased two full floors in Raleigh in the last six months. The highest rents in our entire portfolio are at the Terraces building in Dallas, and so we're feeling really good there. We have a tenant prospect to potentially expand into one of those spaces already, and so we're setting ourselves up really to diversify the overall rent role, and I think it's a win for everyone.

Rents are good we just leased two full floors basically in Raleigh in the last six months.

Jamie: The highest rents in our entire portfolio our comparisons building in Dallas and so we're feeling really good there we are.

Jamie: No tenant prospects to potentially expand into one of those spaces already and so we're setting ourselves up really to diversify.

Jamie: The overall rent roll and I think it's a win for everyone.

Jamie: Okay.

Robert Chapman Stevenson: Okay. So, Cascade Station goes off the books at some point in the second quarter. How are you guys thinking about incremental asset sales and, you know, what you could achieve pricing-wise on that, given that, you know, the incremental debt costs, I think Tony said, on the Central Fairwinds extension are going to wind up being high sevens. So, I mean, is that something that's still on the table? Is it just not there in the market-wise for the assets that you'd want to sell within the portfolio? How should we be thinking about, you know, the asset sales situation these days?

Jamie: So Cascade station goes off the books at some point here in the second quarter. How are you guys thinking about incremental asset sales.

Jamie: What you could achieve pricing wise on that given the.

Jamie: The incremental debt costs, I think Tony said on the <unk>.

Jamie: Central Fair winds extension is going to wind up being high sevens.

Jamie: So I mean is that something thats still on the table is just not there of market wise for the assets that you would want us well within the portfolio how should we be thinking about.

Jamie: The asset sales situation these days.

Speaker Change: Yeah from our standpoint over time, we'll look to prune our portfolio and exit when it makes sense near term.

James Thomas Farrar: From our standpoint, over time, we'll look to prune our portfolio and exit when it makes sense. In the near term, as you said, the markets are extremely illiquid. The major driver for that is it's very difficult to get financing. So the way we're looking at it is positioning our assets so that our best assets in our portfolio are positioned to win leasing, be careful with the bottom few assets that are challenged, and position those to monetize at the right time.

Speaker Change: As you said.

Speaker Change: The markets are extremely illiquid the major driver to that is it's very difficult to get financing. So.

Speaker Change: The way we're looking at it is positioning our assets so that our best assets in our portfolio are positioned to win leasing.

Speaker Change: Careful on kind of the bottom few assets that are challenged and position those to monetize at the right time.

James Thomas Farrar: And then the ones in between, be careful and prudent, position yourself to try and create value. And over the next few years, when the markets open back up, which they inevitably always will, look to pare back the portfolio and really focus on our best-positioned assets.

Speaker Change: The ones in between be careful and prudent position, that's great and create value and over the next few years when the markets open back up which they inevitably always will.

Speaker Change: Look the pare back the portfolio and really focus on our best positioned assets.

Speaker Change: Okay. That's helpful and then last one for me.

Robert Chapman Stevenson: Okay, that's helpful. And then last one for me, Tony, any incremental move-outs of note that we needed net against the leasing you did here in the first quarter when we're thinking about net occupancy, you know, towards the back half of the year and into 2025?

Speaker Change: Tony any incremental move outs of note that we needed net against the leasing you did here in second and first quarter.

Tony: When we're thinking about.

Tony: Net occupancy.

Tony: Towards the back half of the year and into 'twenty five.

Anthony Maretic: Sure, so maybe I'll just speak really quickly about our expiries over the next four quarters. We do have four tenants that are of significant size, over 30,000 square feet, that are coming up. One is an expected renewal, which we talked about before, an FRP collection that occurs in Q2. The other that is unknown at this point is DTC Crossroad, which is an early 2025 project that's 30,000 square feet. Then we do have two known vacants; I think we've talked about one, if not both, that are occurring both in Portland.

Tony: Sure. So maybe I'll just speak to really quickly or expire.

Tony: Expiry is over the next four quarters, we do have four tenants that are of significant size over 30000 square feet that rule. One has an expected renewable which we've talked about before at FRP collection that occurs in Q2.

The other that is unknown at this point is that DTC crossroad, which is in early 2025, that's 30000 square feet.

Tony: And then we do have two known Vacates.

Tony: We've talked about one if not both that are occurring both in Portland, one has already occurred at Cascade station, which is related to the to that.

Anthony Maretic: One has already occurred at Cascade Station, which is related to that issue with the debt. And then the other is we have a 72,000 square foot tenant at Amber Glen that is expected to vacate in Q1 2025.

Tony: The issue with the debt and then the other is we have a 72000 square foot tenant at Amber Glenn that is unexpected vacate in Q1 2025.

Robert Chapman Stevenson: Okay, so nothing beyond the stuff that you've talked about before at this point.

Speaker Change: Okay. So nothing beyond what would be stuff that you've talked about before at this point.

Anthony Maretic: These, nothing new, these are all the ones we've spoken to in the past, and I should highlight they're offset by the known move-outs which we have signed of 173,000 square feet that will take occupancy over the next three to four quarters.

Speaker Change: Not nothing new these are all <unk>.

Speaker Change: One as we've spoken to in the past and I should highlight there offset by the known move outs, which we have signed up a 173000 square feet that.

Speaker Change: That will take occupancy over the next three to four quarters.

Operator: Okay, perfect. Thanks, guys, and have a great weekend. Thanks, Rob.

Speaker Change: Okay, perfect. Thanks, guys and have a great weekend.

Speaker Change: Thanks, Rob Thank you.

Operator: Thanks Rob. Thank you.

Speaker Change: The next question comes from Barry, Oxford with clients.

Operator: The next question comes from Barry Oxford with Colliers.

Barry: Please go ahead.

Barry: Great. Thanks, guys.

Barry Paul Oxford: Great, thanks guys. Tony, you mentioned in your prepared remarks that the spec suite investments are slowing. Is that going to be a continued trend, so you're going to be doing less of them in the future, or is this just kind of a point in time?

Barry: Tony You mentioned.

Barry: You mentioned.

In your prepared remarks that the spec suite investments are slowing.

Barry: Is that going to be a continued trend or so you're going to be doing less of them in the future or is this just kind of a point in time.

Tony: I think it's more than a point in time. It was a really big focus of ours Berry in 2023, and we we focused on that we had a higher spend we spent just over $7 million in 2023. So.

Anthony Maretic: I think it's more than a point in time. It was a really big focus of ours, Barry, in 2023. And we focused on that. Well, we had a higher spend; we spent just over $7 million in 2023. So for 2024, we're projecting spending about half the amount that we did in 2023, which is kind of returning to a more normalized level. So I think you'll see more spending along the lines of what you saw in Q1. And just to add on,

Tony: So for 2024, we're projecting spending about half the amount that we did in 2023, which is kind of returning to a more normalized level. So I think youll see more spend along the lines of what you saw in Q1 going forward and just to add onto that varies. So today, we've got about 80000 feet of spec across our inventory.

Anthony Maretic: And just to add to that, Barry, so today, we've got about 80,000 feet of spec across our inventory. We've got about another 16,000 that will be completed by the end of the year. So call it 100,000 feet, just under 2% of our portfolio. And, you know, that's very impactful because our own estimates are it'll generate more than $2 million in NOI. So we want to see that get leased and some progress, and then we'll revisit the remaining inventory.

Tony: We've got about another 16000 that will complete by the end of the year. So call. It 100000 feet, it's just under 2% of our portfolio.

Tony: That's very impactful because our own estimates are that will generate more than $2 million of NOI. So we want to see that get leased and some progress and then we'll revisit the remaining inventory.

Speaker Change: Are you still achieving the rents that you had anticipated when you started to work.

Barry Paul Oxford: Are you still achieving the rents that you had anticipated when you started the work?

Speaker Change: Yes rents are generally held pretty well across across the portfolios. So we're pleased there.

James Thomas Farrar: Yeah, rents have generally held pretty well across the portfolio, so we're pleased there.

Speaker Change: Okay.

Barry Paul Oxford: Okay, so you're still getting the return on investments that you had penciled out to begin with when it comes to this spectrum.

Speaker Change: Still getting the return on investments.

Speaker Change: You had penciled out to begin with when it comes to the spec suites.

James Thomas Farrar: Correct. We just feel we've got enough in inventory right now. We want to see that get leased, and then we'll reassess at that point.

Speaker Change: Correct religious feel we've got enough inventory right now we want to see that at least and then we'll reassess at that Ryan.

Right.

Barry Paul Oxford: Right or wrong, and I have no objections to that.

Ryan: I have no objections to that seems like a smart move.

Operator: That seems like a smart move. Alright guys, that's all the questions, and have a great weekend. Thanks, Barry.

Speaker Change: Alright, guys Thats, all the questions and have a great weekend.

Speaker Change: Thanks, Barry Thanks, Greg.

Operator: Thanks, Barry. Thanks, Craig.

Our next question comes from the line of OTT Jones with RBC capital markets. Please go ahead.

Operator: Our next question comes from the line of Aditi Balachandran with RBC Capital Markets. Please go ahead.

OTT Jones: Hi, good morning, Thanks for taking the question I think just a more general question how are your discussions with tenants.

Aditi Balachandran: Hi, good morning. Thanks for taking the question. I think just a more general office-related question. How are your discussions with tenants going? What exactly are they looking for? And how long is that?

OTT Jones: What exactly are you looking for and how long is that.

OTT Jones: Thanks for the question is Jamie.

James Thomas Farrar: Thanks for the question, Jamie. I would say, in general, and you'd see this in the results from our leasing last quarter. So, you know, the last few years really have been about, you know, tenants wanting to figure out their space, some downsizing, and those that renewed generally wanted to have shorter-term renewals while they figure things out. And I'd say in most of our markets, that's trending to tenants wanting to have a longer-term solution, which obviously for us is a big positive.

Jamie: I would say in general and you'd see this in the results.

Our leasing last quarter. So the last few years really has been about <unk>.

Jamie: Tenants wanting to figure out their space, some downsizing and those that renewed generally wanted to have shorter term renewals, while they figure things out and I would say in most of our market that's trending to tenants wanting to have a longer term solution, which obviously for us is a big positive.

James Thomas Farrar: There still is, you know, we've worked through a lot of the downsizing across our portfolio over the next couple of years, and there will still be some more of that. But we're seeing it being offset by tenants looking to relocate in buildings or into markets on a longer term basis. So I'd say from our own feelings that trends are much better than they were a year ago, and we're seeing utilization midweek really pick up.

Jamie: There still is.

We've worked through a lot of the downsizing across our portfolio over the next couple of years, there still will be some more of that but we're seeing it being offset by tenants looking to whether it's relocate and buildings or into markets.

Jamie: On a longer term basis, so I'd say from our own feeling trends are much better than they were a year ago, we're seeing utilization mid week really pick up by our tenants Monday slow Friday is very slow, but midweek is actually quite good.

Jamie: So trends are moving in the right direction.

Speaker Change: This could be great. Thank you.

Operator: It's good to hear from you. Thank you.

Speaker Change: Thanks for the question.

Speaker Change: The next question comes from Paul <unk> with Keybanc capital markets. Please go ahead.

Operator: The next question comes from Upal Rana with KeyBank Capital Markets. Please go ahead.

Paul: Great. Thanks, Good morning, guys.

Upal Dhananjay Rana: Great, thanks. Good morning, guys.

Paul: So given the occupancy guidance on your interest rate.

Operator: So, you know, given the occupancy guidance, do you anticipate an opportunity to kind of try and hire for the remainder of the year? You know, could you walk us through some of the moving pieces? Because, you know, the two floors for the reworks downsizing haven't taken place yet. And, you know, when do you anticipate them to consolidate? And do you see 2Q to be the floor of occupancy here?

Paul: Kind of trying to hire for.

Paul: For the remainder of the year could you walk us through some of the moving pieces because it looks like the two floors from rework downsizing hasnt taken place yet.

When do you anticipate them to consolidate and do you think <unk> would be the floor on occupancy here.

Anthony Maretic: Good morning, Upal. So, good question. So let's talk about those.

Speaker Change: Hey, good morning, Paul.

Speaker Change: Good question, So let's talk about those so we are expecting the two floors and we work as Jimmy mentioned those agreements have not been finalized yet. This is based on the outline of the discussions.

Anthony Maretic: So we are expecting the two floors when we work, you know, as Jamie mentioned, those agreements have not been finalized yet. This is based on the outline of the discussions and what we anticipate is that the floor at the terraces would come back mid-year, whereas the floor at Block 83 would come back at the end of the year, but both of those would come back to us before the end of the year, and we are not assuming a lease up just given where they're going to be when they're received in the balance of the year.

Speaker Change: And what we anticipate is that the floor at the terraces.

Speaker Change: Come back mid year, whereas the floor at blocking three would be ended the year, but both of those would come back to us.

Speaker Change: <unk> at the end of the year and we are not assuming a lease up just given they're going to be when they received in the balance of the year. So we're expecting that that will have an impact on occupancy on year end occupancy.

Anthony Maretic: So we're expecting that that will have an impact on year-end occupancy. Beyond that, the 173,000 square feet of leases that we have signed that don't take occupancy, all of that is expected to take occupancy before the end of the year. It may slip a little.

Speaker Change: Beyond that the 173000 square feet of new leases that we have signed that don't take occupancy all of that is expected to take occupancy before the end of the year. It may slip a little and this does include.

Upal Dhananjay Rana: This does include the two leases that Jamie highlighted in his prepared remarks at FRP Ingenuity and at Block 83. Both those leases have Q4 starts, and so we should see the positive impact of that leasing on year-end occupancy numbers. And so to your question, yes, we do expect that this represents a floor in terms of occupancy for the year.

Speaker Change: The two leases that Jamie highlighted on his prepared remarks at FRP ingenuity and block 83, both those leases have Q4 starts.

Speaker Change: And so.

Speaker Change: We should see the positive impact of that of that leasing on year end occupancy numbers and so to your question yes.

Speaker Change: Yes, we do expect that this represents the floor in terms of occupancy for the year.

Speaker Change: Okay, Great. That's helpful and then one last.

Upal Dhananjay Rana: Okay, great. That was helpful. And then last quarter, you mentioned backfilling Block 23's WeWork space with another co-working tenant, you know, which could commence rent in early 2017. Is that still the case, or has it changed?

Speaker Change: Cody you mentioned back billing block 20 threes.

Speaker Change: Space with another co working tenants.

Speaker Change: Which should commence in early 'twenty five vessel the case or are those changed.

Cody: Yes, so we're still advancing discussions there is likely if we're going to pursue would be part of the space. So we've got a full floor just stepping back in that building call. It just under 50000 feet half of it is kind of what we're looking at in co working which is already well built out from the.

James Thomas Farrar: Yeah, so we're still advancing discussions there. It's likely, if we're going to pursue it, to be part of the space. So we've got a full floor, just stepping back into that building, call it just under 50,000 feet. Half of it is kind of what we're looking at in co-working, which is already well built out from the WeWork space, and then looking at breaking up the balance and doing a couple of smaller suites, which is really what's being leased in the market. And so I think we'll have a better view on timing and whatnot on our call next quarter.

Cody: We work space and then looking at breaking up the balance and do a couple of smaller suites, which is really whats being leased in the market and so I think.

Cody: We'll have a better view on timing and whatnot on our call next quarter.

Speaker Change: Okay got it and then one last one for me.

Upal Dhananjay Rana: Okay, got it. And you know, with Cascade Station, you know, on its way out, how do you view the Amber Glen property, you know, with its upcoming expiration and its next debt maturity is going to be in 27. So maybe what are your views on Amber Glen and maybe Portland as a whole?

Speaker Change: With Cascade station on its way out how do you view the amber Glenn property with upcoming exploration and its next debt maturity is going to be in 2007. So maybe what are your views on amber Glenn maybe Portland as a whole.

James Thomas Farrar: I'd say Portland as a whole is our most challenged market, and that translates down to what your views are on individual assets and leasing prospects, so we're being very careful there. You know it isn't a good location within the Sunset Corridor, but it is an extremely challenging market.

Speaker Change: I would say Portland as a whole is our most challenged market and that translates down to what your views are on individual assets and leasing prospects. So we're being very careful there.

Speaker Change: It isn't a good location within the Sunset corridor, but it is an extremely challenged market.

Speaker Change: Got it okay, all right well that was helpful. Thank you guys.

Upal Dhananjay Rana: Got it. Okay. All right. Well, that was helpful. Thank you, guys.

Speaker Change: Thank you Laura.

Speaker Change: We have no further questions, sometimes called back to Jamie.

Operator: We have no further questions, so I'll turn the call back to Jamie.

Speaker Change: Thanks for joining day as always please feel to reach out if you have any follow up questions Goodbye.

James Thomas Farrar: Thanks for joining us today. As always, please feel free to reach out if you have any follow-up questions. Goodbye. Thank you, everyone, for joining us.

Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.

Operator: Thank you everyone for joining us today. This concludes our call, and you may now disconnect your line. And you may now disconnect your lines.

Speaker Change: Yeah.

Speaker Change: [music].

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