Q2 2024 Highwoods Properties Inc Earnings Call
Cole: This is the 2024 earnings call. My name is Cole, and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you'd like to queue for a question, you can do so by pressing star 1 on your telephone keypad.
Cole: My name is Cole, and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you'd like to cue for a question, you can do so by pressing star one on your telephone keypad.
Be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
Speaker Change: If you'd like to queue for a question you can do so by pressing star one on your telephone keypad.
Cole: I'd now like it to pass it over to Hannah True.
Hannah True: I would like to pass it over to Hanna true. Please go ahead.
Cole: Please go ahead.
Hannah True: Thank you, operator, and good morning, everyone. Joining me on the call this morning, are Ted Klinck, our chief executive officer; Brian Mary, our chief operating officer; and Brendan Maiorana, our chief and angel officer. For your convenience, today's prepared remarks have been posted on the web. If you have not received yesterday's earnings release or supplemental, they're both available on the investor section of our website at highwoods.com. On today's call, our review will include non-GAAP measures such as FFO, N.O.I. and Ibidare. The release and supplemental included reconciliation of these non-gap measures to be most directly comfortable gats and angel measures.
Hannah True: Thank you operator, and good morning, everyone. Joining me on the call. This morning are Ted Klink, Our Chief Executive Officer, Brian Leary, Our Chief operating Officer, and Brendan Maiorana, Our Chief Financial Officer for your convenience today's prepared remarks have been posted on the web.
Hannah True: And now I get to pass it over to Hannah True. Please go ahead. Thank you, Operator, and good morning, everyone. Joining me on the call this morning are Ted Klinck, our Chief Executive Officer; Brian Leary, our Chief Operating Officer; and Brendan Maiorana, our Chief Financial Officer. For your convenience, today's prepared remarks have been posted on the web. If you have not received yesterday's earnings release or supplementary, they're both available on the investor section of our website at Highwoods.com. On today's call, our review will include non-GAAP measures such as FFO, NOI, and EBITDAIR. The release and supplementary materials include a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures.
Hannah True: You have not received yesterday's earnings release or supplemental they're both available on the investors section of our website at <unk> Dot com.
Hannah True: On today's call. Our review will include non-GAAP measures, such as <unk> NOI and EBIT there the release and supplemental include a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures.
Hannah True: For looking statements made during today's call, our subject to risks and uncertainties. These risks and uncertainties are discussed at length, and our press releases, as well as our SEC filing. As you know, actual events and results can differ materially from these forward-looking statements, and the company does not undertake a duty to update any forward-looking statements.
Hannah True: Forward-looking statements made during today's call are subject to risks and uncertainties. These risks and uncertainties are discussed at length in our press releases as well as in our SEC filings. As you know, actual events and results can differ materially from these forward-looking statements, and the company does not undertake a duty to update any forward-looking statements. With that, I'll turn the call over to Ted. Thanks Hannah, and good morning everyone.
Hannah True: Forward looking statements made during today's call are subject to risks and uncertainties. These risks and uncertainties are discussed at length in our press releases as well as our SEC filings as you know actual events and results can differ materially from these forward looking statements and the company does not undertake a duty to update any forward looking.
Hannah True: Statements with that I will turn the call over to Ted.
Hannah True: But that, I'll turn the call over to Ted.
Theodore J. Klinck: Thanks, and I good morning, everyone. We delivered excellent operating and financial performance in the second quarter. First, we reported FFO of 98 cents per share, representing 4% year-over-year growth, and we raised our full-year FFO outlook. Since the beginning of the year, we've increased the midpoint of our FFO outlook by 3 cents, even left selling 80 million of non-corder properties and absorbing the impact of higher than expected interest rates, neither of which were included in our original outlook. Further, are disciplined and ongoing efforts to further improve or high quality BBB portfolio, continue to pay off in the form of resilient cash flows.
Theodore J. Klinck: Thanks, Dan and good morning, everyone.
Theodore J. Klinck: We delivered excellent operating and financial performance in the second quarter. First, we reported FFO of $0.98 per share, representing 4% year-over-year growth, and we raised our full year FFO outlook. Since the beginning of the year, we've increased the midpoint of our FFO outlook by three cents, even with selling 80 million of non-core properties and absorbing the impact of higher than expected interest rates, neither of which were included in our original outlook.
Theodore J. Klinck: We delivered excellent operating and financial performance in the second quarter.
Theodore J. Klinck: First we reported <unk> of 98 per share.
Theodore J. Klinck: Representing 4% year over year growth and we raised our full year <unk> outlook.
Theodore J. Klinck: Since the beginning of the year, we've increased the midpoint of our outlook by <unk>, even with selling 80 million of noncore properties and absorbing the impact of higher than expected interest rates.
Theodore J. Klinck: Neither of which were included in our original outlook.
Theodore J. Klinck: Further our disciplined and ongoing efforts to further improve our high quality BBB portfolio continue to pay off in the form of resilient cash flows.
Theodore J. Klinck: In addition, our disciplined and ongoing efforts to further improve our high-quality BBB portfolio continue to pay off in the form of resilient cash flows. Second, we signed 909,000 square feet of second-gen leases, including over 350,000 square feet of new leases.
Ted Klinck: Second, we signed 99,000 square feet of second-gen leases, including over 350,000 square feet of new leases. This is the third consecutive quarter, strong new leasing volume. This is a testament to our Sundell markets, our BBB locations, our high-quality asset base, and our talented team. Our leasing pipeline continues to be robust, which makes us optimistic will sustain strong leasing volumes for the remainder of the year. Third, we signed seven first-gen leases encompassing 61,000 square feet across our development pipeline. Upon stabilization, we expect these projects will provide approximately 40 million of incremental inner-line and be a significant growth driver for our cash flows.
Theodore J. Klinck: Second we saw a 909000 square feet of second Gen leases, including over 350000 square feet of new leases.
Theodore J. Klinck: This is the third consecutive quarter of strong new leasing volume. This is a testament to our SunBelt markets, our BBB locations, our high quality asset base, and our talented team. Our leasing pipeline continues to be robust, which makes us optimistic we'll sustain strong leasing volumes for the remainder of the year. Third, we signed seven first-gen leases encompassing 61,000 square feet across our development pipeline. Upon stabilization, we expect these projects will provide approximately $40 million of incremental NOI and be a significant growth driver for our cash flow. Finally, our balance sheet is in excellent shape, with debt to EBITDA of 5.8 times at quarter end.
Theodore J. Klinck: This is the third consecutive quarter of strong new leasing volume.
Theodore J. Klinck: This is a testament to our sunbelt markets are BBB locations, our high quality asset base and our talented team.
Theodore J. Klinck: Our leasing pipeline continues to be robust, which makes us optimistic will sustain strong leasing volumes for the remainder of the year.
Theodore J. Klinck: Third we signed seven first gen leases encompassing 61000 square feet across our development pipeline.
Theodore J. Klinck: Upon stabilization, we expect these projects will provide approximately $40 million of incremental NOI and be a significant growth driver for our cash flows.
Theodore J. Klinck: Finally, our balance sheet is in excellent shape with debt to EBITDA of five eight times at quarter end.
Ted Klinck: Finally, our balance sheet is an excellent trade with debt to either the 5.8 times the quarter end. Vina Long-term Wayward with a strong ballachy is a clear differentiator in today's market, as we are able to fund leasing capex in and reinvest in our best-in-class properties. Our occupancy, which was steady at 88.5%, doesn't yet fully reflect the strong leasing for the past few quarters. We have a meaningful amount of space that's then leased, but where occupancy hasn't yet commenced. Primarily in Atlanta, Nashville, Richmond, and Tampa. And we'll start to contribute in a while later this year in 2025.
Theodore J. Klinck: Been a long term landlord with a strong balance sheet is a clear differentiator in today's market.
Theodore J. Klinck: Being a long-term landlord with a strong balance sheet is a clear differentiator in today's market, as we are able to fund leasing CapEx and reinvest in our best-in-class properties. However, our occupancy, which was steady at 88.5%, doesn't yet fully reflect the strong leasing over the past few quarters. We have a meaningful amount of space that has been leased but where occupancy hasn't yet begun, primarily in Atlanta, Nashville, Richmond, and Tampa, and will start to contribute NOI later this year and in 2025.
Theodore J. Klinck: As we are able to fund leasing capex.
Theodore J. Klinck: Reinvest in our best in class properties.
Theodore J. Klinck: Our occupancy which was steady at 88, 5% doesn't yet fully reflect the strong leasing over the past few quarters.
Theodore J. Klinck: We have a meaningful amount of space, that's been leased but where occupancy hasnt yet commenced primarily.
Theodore J. Klinck: Primarily in Atlanta.
Theodore J. Klinck: Yes, Phil Richmond and Tampa.
Theodore J. Klinck: And we will start to contribute NOI later this year and in 2025.
I want to provide an update on the former activity building in Nashville as.
Theodore J. Klinck: I want to provide an update on the former Tivity Building in Nashville. As we mentioned at the beginning of this year, we modified a lease with a backfill customer for 110,000 square feet that currently leases 50,000 square feet in another Highwoods building. Since then, this customer has further re-evaluated their long-term space needs. We are currently in discussions with our customer about what makes the most sense going forward for both Highwoods and for them. It is possible that we may agree to cancel the lease in exchange for recouping our investment.
Ted Klinck: I want to provide an update on the former Tiby building in Nashville. As we mentioned at the beginning of this year, we modified a lease with a backfill customer for 110,000 square feet; the currently leases 50,000 square feet in another Highwood building. Since then, this customer has further reevaluated their long-term space needs. We are currently in discussions with our customer about what makes the most sense going forward for both Highwoods and for them. It's possible that we may agree to cancel their lease and exchange for recouping our investment. Regardless of what happens, we have healthy prospect interest for this space, and in fact, to have already signed 66,000 square feet of new leases in this building.
Theodore J. Klinck: As we mentioned at the beginning of this year, we modified a lease with a backfill customer for 110000 square feet currently leases 50000 square feet and another high Woods building.
Theodore J. Klinck: Since then as customers further reevaluated their long term space needs.
Theodore J. Klinck: We are currently in discussions with our customer about what makes the most sense going forward for both high woods and for them.
Theodore J. Klinck: It's possible that we may agree to cancel their lease in exchange for recouping our investment.
Theodore J. Klinck: Regardless of what happens we have healthy prospect interest for this space and in fact have already signed 66000 square feet of new leases in this building.
Theodore J. Klinck: Regardless of what happens, we have healthy prospect interest in this space and, in fact, have already signed 66,000 square feet of new leases in this building. We do not expect any potential lease cancellation to have a meaningful impact on our near or long-term financial outlook. Turning to development, our $506 million pipeline is now 45% leased, and activity is solid at Glen Lake 3, our $94 million, 218,000 square foot development in Raleigh. We're now 34% leased and have healthy interest from additional prospects and our $200 million, 422,000 square foot Granite Park 6 development in Dallas that we are developing with our 50-50 joint venture partner, Granite Properties. We signed a full-floor user for 27,000 square feet to bring the lease rate to 26%.
Ted Klinck: We do not expect any potential lease cancellation to have a meaningful impact on our near or long-term financial outlook.
Theodore J. Klinck: We do not expect any potential lease cancellation to have a meaningful impact to our near or long term financial outlook.
Ted Klinck: Turning to development, our $506 million pipeline is now 45% least. Activity of solid at Glen Lake 3, or $94 million, $218,000 square feet development in the rally. We're now 34% least, and have healthy interest from additional prospects. That our $200 million, 422,000 square feet Grant Park Six development in Dallas, that we are developing with our 50, 50 joint venture partner Granite Properties. We signed a full floor user for 27,000 square feet to bring lease rate to 26%. We still have seven quarters to go before pro-formal stabilization to both Glen Lake 3 and Granite Park 6, and remain confident in the long-term outlook for both developments.
Theodore J. Klinck: Turning to development, our $506 million pipeline is now 45% leased.
Theodore J. Klinck: Activity is solid at Glen lag, three or $94 million 218000 square foot development in the Raleigh.
Theodore J. Klinck: We're now 34% leased and have healthy interest from additional prospects.
Theodore J. Klinck: And our $200 million 422000 square foot granite park fixed development in Dallas that we are developing with our 50 50 joint venture partner granite properties.
Theodore J. Klinck: We signed a full floor user for 27000 square feet.
Theodore J. Klinck: To bring lease rate to 26%.
Theodore J. Klinck: We still have seven quarters to go before pro forma stabilization.
Glen Lake III and granted parts.
Theodore J. Klinck: And we remain confident in the long term outlook for both developments.
Theodore J. Klinck: Staying in Dallas activity is steady at our 642000 square foot $460 million 23 Springs project in Uptown that we're also developing in a 50 50 joint venture with granite.
Theodore J. Klinck: We still have seven quarters to go before proforma stabilization at both Glen Lake 3 and Granite Park 6, and we remain confident in the long-term outlook for both developments. Staying in Dallas, activity of study at our 642,000 square foot, $460 million, 23 Spring project in Uptown that we're also developing in a 50-50 joint venture with Granite. The property is currently 56% leased, and we have an LOI for another full floor user with healthy interest from additional prospects.
Ted Klinck: Staying in Dallas, activity of steady at our $642,000 square foot, $460 million, $23 Springs project and Uptown, that we're also developing in a 50, 50 joint venture regretting. The property is currently 56% least, and we have an LLI for another full floor user with healthy interest from additional prospects. As a reminder, this project is scheduled for completion in the first quarter of 2025 and stabilization in the first quarter of 2008. Midtown East and Tampa, $143,000 square foot, $83 million project were developing in a 50, 50 joint venture with Granite in the West Shore BBD. Continues to generate strong interest.
Theodore J. Klinck: The property is currently 56% leased and we have an LOI for another full floor user with healthy interest from additional prospects.
Theodore J. Klinck: As a reminder, this project is scheduled for completion in the first quarter of 2025 and stabilization in the first quarter 2028.
Theodore J. Klinck: As a reminder, this project is scheduled for completion in the first quarter of 2025 and stabilization in the first quarter of 2028. Midtown East in Tampa, our 143,000 square foot, $83 million project we're developing in a 50-50 joint venture with Bromley in the West Shore BBD, continues to generate strong interest. Midtown East is the only office project currently under construction in the entire market, was 16% pre-leased two years before scheduled stabilization, and has a pipeline of additional prospects. As mentioned earlier this year, we don't expect to announce any new development projects during the remainder of the year.
Theodore J. Klinck: Midtown East and Tampa are 143000 square foot $83 million project, we are developing in a 50 50 joint venture with Bromley in the West shore Bvd.
Theodore J. Klinck: Continued to generate strong interest.
Theodore J. Klinck: In the town east of the only office project currently under construction in the entire market. We're 16% pre-leased, two years before scheduled stabilization and have a pipeline of additional prospects.
Theodore J. Klinck: Midtown East is the only office project currently under construction and the entire market.
Theodore J. Klinck: We're 16% pre leased two years before scheduled stabilization and have a pipeline of additional prospects.
Theodore J. Klinck: As mentioned earlier this year, we don't expect to announce any new development projects during the remainder of the year.
Ted Klinck: As mentioned earlier this year, we don't expect to announce any new development projects during the remainder of the year. These starts a very difficult for any developer to pencil given the current environment, which is benefiting our existing portfolio as larger requirements for seeing dwindling options of quality space available across our footprint. As we previously disclosed, we saw the limit of over 60 million of non-core assets early in the quarter to bring our year-to-date total to 80 million. The prepping additional properties to bring a market have included up to an additional 150 million of non-core dispositions in our outlook.
Theodore J. Klinck: New starts are very difficult for any developer to pencil in, given the current environment, which is benefiting our existing portfolio as large requirements are seeing dwindling options of quality space available across our footprint. As we previously disclosed, we sold a little over $60 million of non-core assets early in the quarter to bring our year-to-date total to $80 million, with preparing additional properties to bring to market including up to an additional $150 million of non-core dispositions in our outlook.
Theodore J. Klinck: New starts are very difficult for any developer to pencil given the current environment.
Theodore J. Klinck: Which is benefiting our existing portfolio is large requirements, we're seeing dwindling options of quality space available across our footprint.
Theodore J. Klinck: As we previously disclosed we sold a little over $60 million of noncore assets early in the quarter to bring our year to date total to $80 million.
Theodore J. Klinck: We're prepping additional properties to bring to market have included up to an additional $150 million of non core dispositions and our outlook.
Theodore J. Klinck: While we don't have any acquisitions included in our outlook, we are having conversations with owners and lenders of wishlist properties in our markets.
Theodore J. Klinck: While we don't have any acquisitions included in our outlook, we are having conversations with owners and lenders of wish list properties in our market. While we're comfortable being patient, we do believe compelling investment opportunities will arise. To be clear, our criteria for capital deployment is highly selective.
Ted Klinck: While we don't have any acquisition included in our outlook, we are having conversations with owners and lenders of wishless properties in our markets. While we're comfortable being patient, we do believe compelling investment opportunities will arise. To be clear, our criteria for capital deployment is highly selective. Target acquisition opportunities must be well-located in the solid BBD, have good bones, and be well positioned to generate attractive risk-adjusted returns over the long term.
Theodore J. Klinck: While we're comfortable being patient, we do believe compelling investment opportunities will arise.
Theodore J. Klinck: To be clear our criteria for capital deployment is highly selective.
Theodore J. Klinck: Target acquisition opportunities must be well-located in a solid BBD, have good bounds, and be well-positioned to generate attractive, risk-adjusted returns over the long term. In conclusion, we're confident about the long-term outlook for Highwoods. First, demand for our Sunbelt BBD portfolio continues to be strong, which positions us to drive meaningful growth in occupancy and NOI following our long telegraphed trough in early 2025. Second, our $500 million development pipeline will come online over the next few years and significantly bolster our cash flow and earnings.
Theodore J. Klinck: Target acquisition opportunities must be well located in the solid BBB.
Theodore J. Klinck: Good bones and be well positioned to generate attractive <unk>.
Theodore J. Klinck: Risk adjusted returns over the long term.
Theodore J. Klinck: In conclusion.
Ted Klinck: In conclusion, we're confident about the long-term outlook for highways. First, demand for a Sundell BBD portfolio continues to be strong, which positions us to drive meaningful growth in occupancy and in a while following our long telegraphed trough in early 2025. Second, our $500 million development pipeline will come online over the next few years and significantly bolster cash flow in earnings. Third, we've been successful monetizing non-core assets and believe we can continue to create additional dry powder, which will also further improve our portfolio of in cash flow. Fourth, our balance sheet is in excellent shape and will enable us to capitalize on acquisition opportunities.
Theodore J. Klinck: We're confident about the long term outlook for <unk> <unk>.
Theodore J. Klinck: First demand for our Sunbelt bvd portfolio continues to be strong.
Theodore J. Klinck: Which positions us to drive meaningful growth in occupancy and NOI following our long telegraphed trough in early 2025.
Theodore J. Klinck: Second our $500 million development pipeline will come online over the next few years and significantly bolster our cash flow and earnings.
Theodore J. Klinck: Third, we've been successful monetizing non-core assets and believe we can continue to create additional dry powder, which will also further improve our portfolio and cash flow. Fourth, our balance sheet is in excellent shape and will enable us to capitalize on acquisition opportunities.
Theodore J. Klinck: Third we have been successful monetizing noncore assets and believe we can continue to create additional dry powder.
Theodore J. Klinck: Which will also further improve our portfolio and cash flow.
Theodore J. Klinck: Fourth our balance sheet is in excellent shape and will enable us to capitalize on acquisition opportunities.
Theodore J. Klinck: SaaS, even with higher interest rates, our underlying cash flows remained strong.
Brian M. Leary: Even with higher interest rates, our underlying cash flow remains strong. This supports our attractive dividend and allows us to continue reinvesting in our portfolio. And finally, I want to thank my 350 Highwoods teammates who deliver for our customers and shareholders every day. It is their effort that has positioned us for success for many years to come. Brian?
Theodore J. Klinck: Fifth, even with higher interest rates, our underlying cash flow remains strong. This supports our attractive dividend and allows us to continually invest in our portfolio.
Theodore J. Klinck: This supports our attractive dividend and allows us to continue reinvesting in our portfolio.
Speaker Change: And finally I want to thank my 350 high woods teammates, who deliver for our customers and shareholders every day.
Ted Klinck: And finally, I want to thank my 360 Highwoods teammates who deliver for our customers and shareholders every day. It is their effort that has positioned us for success for many years to come.
Theodore J. Klinck: It is their effort that has positioned us for success for many years to come.
Brian Mary: Brian? Thank you, Ted, and good morning all. A leaking momentum we had at the start of the year continues. Our leasing teams are busy, and in a second quarter signed 106 deals for 909,000 square feet, including 350,000 square feet of new deals. We are resolving prioritizing occupancy and will continue to lean on our strengths as a long-term owner of strengthening our long-term cash worth. This is evidenced by our portfolio's occupancy outperformance and comparison to our BBDs by almost 800 basis points. We're seeing solid demand at various price points across our portfolio. As demonstrated with a leasing volume in our development pipeline, the top of the market is doing well, but we continue to see the most demand for our well-located second-generation assets.
Theodore J. Klinck: Brian.
Brian M. Leary: Thank you, Ted, and good morning, all. The leeching momentum we had at the start of the year continues. Our leasing teams are busy, and in the second quarter, they signed 106 deals for 909,000 square feet, including 352,000 square feet of new deals. We are resolute in prioritizing occupancy and will continue to lean on our strengths as a long-term owner while strengthening our long-term cash flow. This is evidenced by our portfolio's occupancy outperformance in comparison to our BBDs by almost 800 basis points.
Brian M. Leary: Thank you Ted and good morning all.
Brian M. Leary: Our leasing momentum we had at the start of the year continues.
Brian M. Leary: Our leasing teams are busy and in our second quarter signed 106 deals for 909000 square feet, including 352000 square feet of new deals.
Brian M. Leary: We are resolute in prioritizing occupancy and we will continue to lean on our strengths as a long term owner, while strengthening our long term cash flows.
Brian M. Leary: As evidenced by our portfolio's occupancy outperformance in comparison to our Dvds by almost 800 basis points.
Brian M. Leary: We're seeing solid demand at various price points across our portfolio. As demonstrated by the leasing volume in our development pipeline, the top of the market is doing well, but we continue to see the most demand for our well-located second-generation assets. This is because a large segment of customers and prospects prioritize a premier office experience with a well-capitalized landlord at rents that are more affordable than new construction. To this end, over 70% of our leasing activity for the quarter was in suburban BBDs.
Brian M. Leary: We're seeing solid demand at various price points across our portfolio.
Brian M. Leary: As demonstrated by the leasing volume in our development pipeline the top of the market is doing well, but we.
To see the most demand for our well located second generation assets.
Brian Mary: This is because a large segment of customers and prospects prioritize the premier office experience with a well-capitalized landlord at rents that are more affordable than new construction. To this end, over 70% of our leasing activity for the quarter was in suburban BBDs. Our belief continues to be that the talent but in a building is the real trophy, and the technique where the experience we're delivering is providing the lifestyle our customers prioritize too, recruit, retain, and return their talent to the office. Before we walk through the market, it's worth noting that Virginia, North Carolina, Texas, Georgia, and Florida, five of our core six states, came in one through five in CNBC's recent annual rankings of the best states for business.
Brian M. Leary: This is because a large segment of customers and prospects prioritize a premier office experience with a well capitalized landlord at rents that are more affordable than new construction.
Brian M. Leary: To this end over 70% of our leasing activity for the quarter was in suburban bvd.
Brian M. Leary: Our belief continues to be that the talent within a building is the real trophy, and the commute-worthy experience we're delivering is providing the lifestyle our customers prioritize to recruit, retain, and return their talent to the office. Before I walk through the markets, it's worth noting that Virginia, North Carolina, Texas, Georgia, and Florida, five of our core six states, came in 1 through 5 in CNBC's recent annual rankings of the best states for business. Our sixth state, Tennessee, was close by in Washington, D.C.
Brian M. Leary: Our belief continues to be that the talent <unk> building is the real trophy and acute worthy experience, we're delivering is providing the lifestyle our customers prioritize to recruit.
Brian M. Leary: Retain and return their talent to the office.
Speaker Change: Before I walk through the market, it's worth noting that for junior North Carolina, Texas, Georgia and Florida.
Brian M. Leary: Five of our core six states came in one through five and Cnbc's recent annual rankings of the best state for business.
Brian M. Leary: Our six-state Tennessee was close by in eighth. While Elon Musk made dominate the headlines with his announced headquarters relocations to Texas, there are hundreds of others finding these aforementioned states as welcoming environments for the most valuable resource. This is further highlighted by JL, who noted Dallas's ascension to the third largest office-using job market in the nation, recently surpassing Chicago. While Dallas's population is projected to pass the Wendy City five years from now.
Brian M. Leary: Our six state, Tennessee was caused by an eighth.
Brian M. Leary: While Elon Musk may dominate the headlines with as announced headquarter relocations to Texas. There are hundreds of others. Finding these <unk> mentioned states as welcoming environment for their most valuable resource talent.
Brian M. Leary: While Elon Musk may dominate the headlines with his announced headquarters relocations to Texas, there are hundreds of others finding these aforementioned states as welcoming environments for their most valuable resource, talent. This is further highlighted by JLL, who noted Dallas' ascension to the third-largest office-using job market in the nation, recently surpassing Chicago. While Dallas's population is projected to pass the Windy City five years from now, moving to our markets, where Nashville, Raleigh, Atlanta, and Richmond made up almost 80% of this quarter's total leasing volume.
Jay: This is further highlighted by Jay <unk>, who noted dallas's ascension to the third largest office using job market in the nation recently, surpassing Chicago.
Jay: While dialysis population is projected to past that windy city five years from now.
Speaker Change: Moving to our markets, where Nashville, Raleigh, Atlanta, and Richmond made up almost 80% of this quarters total leasing volume.
Brian M. Leary: Moving to our markets, where Nashville, Raleigh, Atlanta, and Richmond made up almost 80% of this quarter's total leasing volume. In Richmond, our team signed 112,000 square feet in the quarter, including 57,000 square feet of new deals, including a new corporate headquarters location for a Fortune 500 company. We're seeing increasing interest from prospects in our Innsbruck BBB, where our market-leading assets and sponsorship are clear differentiators. Nashville signed the most volume in the quarter with 271,000 square feet, including 157,000 square feet of new leases. The largest share of new leasing across our portfolio for the quarter. Our Nashville new leasing volume was bolstered by a large new-to-market customer.
Brian M. Leary: In Richmond, our team signed 112,000 square feet in the quarter, including 57,000 square feet of New Deal, including a new corporate headquarters location for a Fortune 500 company. We're seeing increasing interest from prospects in our Innsbruck DVDs, where our market-leading assets and sponsorship are clear differentiators. Nashville signed the most volume in the quarter with 271,000 square feet, including 157,000 square feet of new leases, the largest share of new leasing across our portfolio for the quarter.
Enrichment, our team signed 112000 square feet in the quarter, including 57000 square feet of new deals, including a new corporate headquarters location for a fortune 500 company.
Speaker Change: We're seeing increasing interest from prospects in our Ames broken DVD.
Speaker Change: Our market, leading assets and sponsorship are clear differentiators.
Speaker Change: Nashville assigned the most volume in the quarter with 271000 square feet, including 157000 square feet of new leases the largest share of new leasing across our portfolio for the quarter.
Brian M. Leary: Our Nashville new leasing volume was bolstered by a large new-to-market customer. Cushman and Wakefield highlighted that the national market posted positive net absorption for the fifth consecutive quarter. 68% of all leasing activity in the market was either expansions or new leases, and new-to-market requirements increased with 18 tenants looking for more than 850,000 square feet in the aggregate.
Speaker Change: Our Nashville, New leasing volume was bolstered by a large new to market customer.
Brian Mary: Cushman awaits you highlighted that the Nashville market posted positive net absorption for the fifth consecutive quarter. 68% of all leasing activity in the market was either expansions or new leases, and new to market requirements increased with 18 tenants looking for more than 850,000 square feet in the aggregate. Further, the most active Nashville sub-market in the quarter were Brentwood and Cool Springs, where combined leasing volumes were up over 100% year over year. As a reminder, these two sub-markets encompass 60% of our 5.1 million square foot Nashville portfolio. In Raleigh, our leaching team signed 176,000 square feet of second-gen leases in the quarter, plus 20,000 square feet of first-gen space at our Glen Lake 3 mixed use development.
Cushman and Wakefield highlighted that the Nashville market posted positive net absorption for the fifth consecutive quarter.
Speaker Change: 68% of all leasing activity in the market with either expansions or new leases.
Speaker Change: And new to market requirements increased with 18 tenants looking for more than 850000 square feet in the aggregate.
Brian M. Leary: Further, the most active natural submarkets in the quarter were Brentwood and Cool Springs, where combined leasing volumes were up over 100% year over year. As a reminder, these two submarkets encompass 60% of our 5.1 million square foot Nashville portfolio. In Raleigh, our leasing team signed 176,000 square feet of second-gen leases in the quarter, plus 20,000 square feet of first-gen space at our Glenlake III mixed-use development. JLL reported aggregate space requirements in the market increased 70% year over year, and the number of prospects greater than 10,000 square feet increased by 23%.
Speaker Change: Further the most active Nashville submarkets in the quarter were Brentwood, and cool Springs, where our combined leasing volumes were up over 100% year over year.
Speaker Change: As a reminder, these two submarkets encompass 60% of our $5 1 million square foot Nashville portfolio.
Speaker Change: In Raleigh, our leasing team signed 176000 square feet of second Gen leases in the quarter, plus 20000 square feet of first Gen space at our <unk> three mixed use development.
<unk> reported aggregate space requirements in the market increased 70% year over year.
Brian Mary: JLL reported aggregate space requirements in the market increased 70% year over year, and the number of prospects greater than 10,000 square feet increased by 23%.
Speaker Change: And the number of prospects greater than 10000 square feet increased by 23%.
Brian Mary: In conclusion, our leasing pipeline is healthy, and our high-quality portfolio is proving its resilience. The flight to quality includes a flight to quality buildings, a flight to quality experiences, and a flight to well-capitalized owners who are willing and able to invest in their portfolios. While facing the same headwinds as all office owners, we're benefiting from the long-term attractiveness of our Sunbelt BBDs and the elevation of a new community-worthy bar of workplace experience. Providing this across a variety of price points gives us a unique value proposition.
Brian M. Leary: In conclusion, our leasing pipeline is healthy, and our high-quality portfolio is proving its resilience. The flight to quality includes a flight to quality buildings, a flight to quality experiences, and a flight to well-capitalized owners who are willing and able to invest in their portfolios. While facing the same headwinds as all office owners, we're benefiting from the long-term attractiveness of our Sunbelt BBDs and the elevation of a new commute-worthy bar of workplace experience. Providing this across a variety of price points gives us a unique value proposition. Brendan?
Speaker Change: In conclusion, our leasing pipeline is healthy and our high quality portfolio is proving its resilience.
The flight to quality includes a flight to quality buildings, a flight to quality experiences and a flight to well capitalized owners, who are willing and able to invest in their portfolios.
Speaker Change: While facing the same headwinds as all office owners were.
Speaker Change: We're benefiting from the long term attractiveness of our Sunbelt <unk>.
Speaker Change: And the elevation of our new TV worthy bar of workplace experience.
Speaker Change: Providing this across a variety of price points gives us a unique value proposition Brendan.
Brendan Maiorana: Brendan? Thanks, Brian. In the second quarter, we delivered net income of $62.9 million, or $59 per share. During the quarter, the state of Tennessee modified the methodology for calculating franchise taxes, which lowers our annual franchise tax obligation and was applied retrospectively. As a result, we received $5.8 million of tax refunds related to prior years. This non-recurring refund is included in other income in our two two results, and was partially offset by a $1 million non-recurring charge recorded as a reduction to rental and other revenues that also relates to prior years. The net impact is a $4.8 million benefit from these non-recurring items, 2.5 million of which were anticipated in our prior outlook.
Speaker Change: Brendan.
Brendan C. Maiorana: Thanks, Brian in the second quarter, we delivered net income of $62 9 million or <unk> 59 per share and <unk> of $105 9 million or <unk> 98 per share during the quarter. The state of Tennessee modified the methodology for calculating franchise taxes, which low.
Brendan C. Maiorana: Thanks, Brian. In the second quarter, we delivered net income of $62.9 million, or $0.59 per share, and FFO of $105.9 million, or $0.98 per share. During the quarter, the State of Tennessee modified the methodology for calculating franchise taxes, which lowers our annual franchise tax obligation and was applied retrospectively. As a result, we received $5.8 million in tax refunds related to prior years. This non-recurring refund is included in other income in our 2Q results and was partially offset by a $1 million non-recurring charge recorded as a reduction to rental and other revenues that also relate to prior years.
Brendan C. Maiorana: <unk>, our annual franchise tax obligation and was applied retrospectively as a result, we received $5 8 million of tax refunds related to prior years.
Brendan C. Maiorana: The nonrecurring refund is included in other income in our <unk> results and was partially offset by a $1 million nonrecurring charge recorded as a reduction to rental and other revenues that also relates to prior years.
Brendan C. Maiorana: The net impact is a $4.8 million benefit from these non-recurring items, $2.5 million of which were anticipated in our prior outlook. In other words, these non-recurring items resulted in a net two cents of upside compared to our outlook from April. Our balance sheet remains in excellent shape.
Brendan C. Maiorana: The net impact is a $4 $8 million benefit from these nonrecurring items $2 5 million of which were anticipated in our prior outlook in other words. These nonrecurring items resulted in a net <unk> <unk> upside compared to our outlook from April.
Brendan C. Maiorana: In other words, these non-recurring items resulted in a net, 2 cents of upside compared to our outlook from April.
Brendan C. Maiorana: Our balance sheet remains in excellent shape at June 30, we had $27 million of available cash and nothing drawn on our $750 million revolving credit facility.
Brendan Maiorana: Our balance sheet remains in excellent shape. At June 30th, we had $27 million of available cash, and nothing drawn on our $750 million revolving credit facility. Subsequent quarter-end, our unconsolidated McKinney and Alb JV paid off at maturity a $134 million secured loan, with an effective interest rate of 5.3%. This property is now unencumbered. Also subsequent quarter-end, our unconsolidated grant at Park Fix JV paid down the $71 million balance on the construction loan with an interest rate of 7.394 basis points. In connection with these pay-downs, we ingran it each contributed $103 million to the respective joint ventures.
Brendan C. Maiorana: At June 30th, we had $27 million of available cash and nothing drawn on our $750 million revolving credit facility. Subsequent to quarter end, our unconsolidated McKinney & Olive JV paid off at maturity a $134 million secured loan with an effective interest rate of 5.3%. This property is now unencumbered. Also, subsequent to Quarter End, our unconsolidated Granite Park 6 JV paid down the $71 million balance on the construction loan with an interest rate of Silver plus 394 basis points.
Brendan C. Maiorana: Subsequent to quarter end, our unconsolidated Mckinney <unk> olive JV paid off at maturity, a $134 million per carat loan with an effective interest rate of five 3%.
Brendan C. Maiorana: This property is now unencumbered.
Brendan C. Maiorana: Also subsequent to quarter end, our unconsolidated granite park fixed JV paid down that $71 million balance.
Brendan C. Maiorana: On the construction loan with an interest rate of sofa, plus 394 basis points.
Brendan C. Maiorana: In connection with these paydowns, Granite and I each contributed $103 million to the respective joint ventures. These loan repayments will increase our near-term cash flow from operations and also likely be a future source of capital as we plan to obtain long-term financing for both properties at some point in the future when conditions in the secured market are more favorable. As Ted and Brian mentioned, we had a strong leasing quarter, especially new leasing volume. Our lease rate, which includes current occupied spaces plus leases signed but not yet commenced on vacant spaces, is 280 basis points higher than our actual occupancy of 88.5%.
Brendan C. Maiorana: In connection with these paydowns, we and granted each contributed $103 million to their respective joint ventures. These.
Brendan C. Maiorana: These loan repayments will increase our near-term cash flow from operations, and also likely be a future source of capital, as we plan to obtain long-term financing for both properties at some point in the future when conditions in the secured market are more favorable. As Ted and Brian mentioned, we had a strong leasing quarter, especially new leasing volume. Our release rate, which includes current occupied spaces, plus leases signed, but not yet commenced on vacant spaces, is 280 basis points higher than our actual occupancy of 88.5%. And this current lease rate assumes we end up canceling the 110,000 square foot signed, but not yet commenced lease at the former activity building in Nashville that Ted mentioned.
Brendan C. Maiorana: These loan repayments will increase our near term cash flow from operations and also likely be a future source of capital as we plan to obtain long term financing for both properties at some point in the future when conditions in the secured market are more favorable.
Speaker Change: As Ted and Brian mentioned, we had a strong leasing quarter, especially new leasing volume.
Brendan C. Maiorana: And this current lease rate assumes we end up canceling the 110,000 square foot signed but not yet commenced lease. Typically, our lease rate ranges between 100 to 200 basis points above our actual occupancy rate. This current spread illustrates the strong demand we're capturing across our portfolio, which makes us optimistic about a future occupancy recovery. As we stated last quarter, if we continue to post strong leasing volumes, we believe our trough occupancy level early next year will be higher than our original expectations, and our recovery will be faster.
Speaker Change: Our lease rate, which includes current occupied spaces philosophy leases signed but not yet commenced on vacant spaces at 280 basis points higher than our actual occupancy of 88, 5%.
Speaker Change: And its current lease rate assumes we end up canceling the 110000 square foot signed but not yet commenced lease at the former activity building in Nashville that Ted mentioned.
Brendan C. Maiorana: Typically, our lease rate ranges between 100 to 200 basis points above our actual occupancy rate. This current spread illustrates a strong demand we're capturing across our portfolio, which makes us optimistic for a future occupancy recovery. As we stated last quarter, if we continue to post strong leasing volumes, we believe our trough occupancy level early next year will be higher than our original expectations, and our recovery will be faster. Our strong second quarter leasing volumes certainly supports this trend. As Ted mentioned, we've updated our 2024 FFO outlook to 354 to 362 per share, which implies a 4.5-cent increase at the midpoint compared to our prior outlook.
Speaker Change: Typically our lease rate ranges between 100 to 200 basis points above our actual occupancy rate there.
Current spread illustrates the strong demand, we're capturing across our portfolio, which makes us optimistic for a future occupancy recovery.
Speaker Change: As we stated last quarter, if we continue to post strong leasing volumes, we believe our trough occupancy level early next year will be higher than our original expectations and our recovery will be faster our strong second quarter leasing volume certainly supports this trend.
Brendan C. Maiorana: Our strong second quarter leasing volume certainly supports this trend. As Ted mentioned, we've updated our 2024 FFO outlook to $3.54 to $3.62 per share, which implies a $0.045 increase at the midpoint compared to our prior outlook. As I mentioned, 2 cents of this increase is attributable to the additional unexpected upside from the non-recurring items we recorded in 2Q, with the remaining 2.5 cents of upside mostly attributable to better NOI. However, there are still several variables in our outlook, including projected property tax savings, which aren't assured yet. The same property cash NOI, which does not include the $5.8 million of prior tax refunds that were booked in other income, does include the $1 million non-recurring charge that relates to prior years.
Speaker Change: As Ted mentioned, we've updated our 2024 <unk> outlook to $3 54 to $3 62 per share, which implies a four 5% increase at the midpoint compared to our prior outlook.
Brendan C. Maiorana: As I mentioned, two cents of this increase is attributable to the additional unexpected upside from the non-recurring items we recorded in 2Q, with the remaining 2.5 cents of upside, mostly attributable to better NOI. There are still several variables in our outlook, including projected property tax savings, which aren't assured yet. Same property cash and OI, which does not include the $5.8 million of prior tax refunds that were booked in other income, does include the $1 million non-recurring charge that relates to prior years. Even with this previously unexpected charge, we still maintained our outlook for growth in 10 property cash and OI of positive 0.5% to 2%.
Theodore J. Klinck: As I mentioned <unk> of this increase is attributable to the additional unexpected upside from the nonrecurring items, we recorded in <unk> with the remaining two five cents of upside mostly attributable to better NOI. There are still several variables in our outlook, including projected property tax savings.
Speaker Change: Which arent assured yet.
Speaker Change: Same property cash NOI, which does not include the $5 8 million of prior tax refunds that were booked in other income does include the $1 million nonrecurring charge that relates to prior years.
Brendan C. Maiorana: Even with this previously unexpected charge, we still maintained our outlook for growth in same-property cash NOI of positive 0.5 to 2%. However, our updated outlook, combined with the strong first half of the year results, implies lower quarterly FFO for the second half of the year. A few items to note. First, we don't expect any significant non-recurring items in the second half of the year. Second, the third quarter is typically our lowest from an operating margin perspective as utility costs tend to be highest over the summer months.
Speaker Change: Even with its previously unexpected charge, we still maintained our outlook for growth in same property cash NOI of positive 0.5% to 2%.
Brendan Maiorana: Our updated outlook, combined with the strong first half of the year results, implies lower quarterly FFO for the second half of the year. A few items to note. First, we don't expect any significant non-recurring items in the second half of the year. Second, the third quarter is typically our lowest from an operating margin perspective, as utility costs tend to be highest over the summer months. Given the heat wave we've encountered, so far this summer we certainly expect lower margins in 3Q compared to the full year. Third, because Glen Lake 3 and Granite Park 6 developments were completed in the third quarter last year, gap requires us to seek interest and expense capitalization on those projects in the third quarter of this year.
Speaker Change: Our updated outlook combined with our strong first half of the year results implies lower quarterly <unk> for the second half of the year a.
Speaker Change: A few items to note.
Speaker Change: First we don't expect any significant nonrecurring items in the second half of the year.
Speaker Change: The third quarter is typically our lowest from an operating margin perspective as utility costs tend to be highest over the summer months given the heat wave we've encountered so far this summer, we certainly expect with lower margins in <unk> compared to the full year.
Brendan C. Maiorana: Given the heat wave we've encountered so far this summer, we certainly expect lower margins in 3Q compared to the full year. Third, because Glen Lake 3 and Granite Park 6 developments were completed in the third quarter last year, GAAP requires us to cease interest and expense capitalization on those projects in the third quarter of this year. While this will be a temporary headwind to earnings, rising revenues from those projects will fall to the bottom line as occupancy grows.
Speaker Change: Third because Glen Lake III and granite parks fixed developments were completed in the third quarter last year GAAP requires us to cease interest expense capitalization on those projects in the third quarter of this year.
Brendan C. Maiorana: While this will be a temporary headwinter earnings, rising revenues from those projects will fall to the bottom line as occupancy grows. Finally, we have some long telegraphed known moveouts late in the third quarter and early in the fourth quarter, and therefore we expect average occupancy will be lower in the second half. As mentioned earlier, we expect occupancy to drop in early 2025 and recover their ass.
Speaker Change: While this will be a temporary headwind to earnings rising revenues from those projects will fall to the bottom line as occupancy grows.
Brendan C. Maiorana: Finally, we have some long-telegraphed known move-outs late in the third quarter and early in the fourth quarter, and therefore, we expect average occupancy to be lower in the second half. As mentioned earlier, we expect occupancy to drop in early 2025 and recover thereafter. To wrap up, we're very encouraged about the future for Highwoods.
Speaker Change: Finally, we have some long telegraphed known move outs late in the third quarter and early in the fourth quarter and therefore, we expect average occupancy will be lower in the second half.
Speaker Change: As mentioned earlier, we expect occupancy to trough in early 2025 and recover thereafter.
Brendan C. Maiorana: To wrap up, we're very encouraged about the future for Highwoods. The leasing activity across our Sunbelt BBD portfolio has been solid, which should drive future and wide growth. Plus, we have strong embedded growth potential within our development pipeline, as those projects deliver and stabilize. Our balance sheet is in excellent shape, which will allow us to capitalize on future acquisition opportunities, and our cash flows continue to be resilient.
Speaker Change: To wrap up we're very encouraged about the future for highlights the leasing activity across our sunbelt bvd portfolio has been solid which should drive future NOI growth plus we have strong embedded growth potential within our development pipeline as those projects deliver and stabilize our balance sheet is in excellent shape.
Operator: The leasing activity across our Sunbelt BBD portfolio has been solid, which should drive future NOI growth. Plus, we have strong embedded growth potential within our development pipeline as those projects deliver and stabilize. Our balance sheet is in excellent shape, which will allow us to capitalize on future acquisition opportunities, and our cash flows continue to be resilient. Operator, we are now ready for questions. If you'd like to queue for a question, you can do so by pressing star 1 on your telephone keypad. If, for any reason, you'd like to remove your question, you can press star 2.
Speaker Change: Which will allow us to capitalize on future acquisition opportunities and our cash flows continue to be resilient.
Cole: Operator, we are now ready for questions. If you'd like to do so for a question, you can do so by pressing star 1 on your telephone keypad. If you're in a reason you'd like to remove your question, press star 2. Again, to join the question queue, please press star 1.
Speaker Change: Operator, we are now ready for questions.
Speaker Change: If you'd like to queue for a question you can do so by pressing star one on your telephone keypad.
Speaker Change: Or any reason you'd like to remove your question from press Star two.
Speaker Change: Again to join the question queue. Please press star one.
Cole: Our first question is from Camille Bonnel, with Bank of America.
Speaker Change: Our first question is from Camille Bonnell with Bank of America. Your line is now open.
Operator: Again, to join the question queue, please press star 1. Our first question is from Camille Bonnell with Bank of America. Your line is now open. Hi, good morning. This is Andrew Berger on behalf of Camille.
Andrew Jason Berger: Your line is now open. Hi, good morning.
Andrew Berger: Hi, Good morning. This is Andrew Berger on for Camille just wanted to ask about expenses at seeing rental expenses were a bit lower this quarter. Just curious if there is anything specific driving that.
Andrew Jason Berger: This is Andrew Berger on for Camille. Just wanted to ask about expenses.
Andrew Berger: Just wanted to ask about expenses. It seems rental expenses were a bit lower this quarter. Just curious if there was anything specific driving this. Hey Andrew, it's Brendan.
Brendan C. Maiorana: It seems rental expenses were a bit lower this quarter. Just curious if there was anything specific driving this.
Speaker Change: Okay.
Brendan Maiorana: Hey, Andrew, it's Brendan. Yeah, there was, I mean, there's always a little bit of seasonality, but probably the biggest item that was unusual in the first quarter that did not occur in the second quarter is there was a, it had no impact on N.O.I. but there was a tax refund, where a tax payment that was due related to 2023 in a triple net building. We recorded that as a gross up in terms of revenue in the first quarter, and then there was a corresponding expense that zeroed out to no N.O.I. impact related to 2023. But that drove up operating expenses, maybe unusually higher in the first quarter.
Speaker Change: Hey, Andrew It's Brendan Yes, there was.
Brendan C. Maiorana: I mean, there is always a little bit of seasonality, but probably the biggest item that that was unusual in the first quarter.
Brendan C. Maiorana: That that did not occur in the second quarter is there was a it had no impact on NOI, but there was a tax refund alright.
Brendan C. Maiorana: Alright tax payment that was due related to 2023 and a triple net building, we recorded that as a gross up in terms of revenue in the first quarter and then there was a corresponding expense that zeroed out to no NOI impact related to 2023, but that drove up operating expenses.
Speaker Change: Maybe unusually higher in the first quarter that did not recur and then there was a little bit of some savings there is always a little bit of seasonality in operating expenses going from Q1 to Q2 and that we would expect that to occur.
Andrew Berger: That did not occur. And then there was a little bit of some savings. There's always a little bit of seasonality and operating expenses going from Q1 to Q2. And that we would expect that to occur in Q3 and Q4 as well. But that unusual $3 million was the biggest change that didn't occur Q1 to Q2. Got it. Thank you.
Speaker Change: In Q3, and Q4 as well, but that unusual of $3 million item was the biggest change that didn't recur Q1 to Q2.
Speaker Change: Got it thank you and maybe switching gears to dispositions just curious if the buyer pool has expanded at all and any particular markets, where you are sensing more interest.
Ted Klinck: And maybe switching gears to dispositions, just curious if the buyer pool has expanded at all, and any particular markets where you're something more interest. Hey, Andrew, it's Ted. Yeah, look, we don't, as you know, we've closed about $80 million so far this year, 60 of which was this past quarter. It happened actually happened very early in the second quarter. So we're here in exactly what you just said. We don't have anything else out in the market right now to have any data points or self, but certainly in conversations with brokers. We're here in, there's a lot of money on the sidelines.
Theodore J. Klinck: Hey, Andrew it's Ted.
Brendan C. Maiorana: Yeah, there was I mean, there's always a little bit of seasonality But probably the biggest item that that was unusual in the first quarter that that did not occur in the second quarter is There was a it had no impact on NOI, but there was a tax refund Or a tax payment that was due related to 2023 in a triple net building We recorded that as a gross up in terms of revenue in the first quarter And then there was a corresponding expense that zeroed out to no NOI impact related to 2023 But that drove up operating expenses, maybe unusually higher in the first quarter that did not recur And then there was a little bit of some savings There's always a little bit of seasonality and operating expenses going from Q1 to Q2 and that we would expect that to occur In in Q3 and Q4 as well, but that unusual three million dollar item was the biggest change that didn't recur Q1 to Q4, Got it. Thank you. And maybe switching gears to dispositions. Just curious if the buyer pool has expanded at all and any particular markets where you're sensing more interest? Hey Andrew, it's Ted.
Theodore J. Klinck: Yeah, look, as you know, we've closed about $80 million so far this year, 60 of which was this past quarter, actually happened very early in the second quarter. So we're hearing exactly what you just said. We don't have anything else out in the market right now to have any data points ourselves, but certainly, in conversations with brokers, we're hearing, hey, there's a lot of money on the sidelines, and I think people are starting to think that we're hitting closer to the bottom on the capital markets, so there are a larger number of bidders that are looking at assets now and making offers. Thank you very much.
Theodore J. Klinck: Yes look we don't as you know.
No we've closed about $80 million so far this.
Speaker Change: This year, 60% of which was this past quarter Capex should actually happened very early in the second quarter. So.
Speaker Change: We're here and exactly what you just said, we don't have anything else out in the market right now to have any data points ourselves, but certainly in conversations with brokers we're hearing.
Hey, there's a lot of money on the sidelines and I think.
Ted Klinck: And I think people are starting to think that we're hitting closer to the bottom on the capital markets. So there are a larger amount of bidders that are they're looking at assets. Now, now we're making offers.
Speaker Change: People are starting to think that we're hitting.
Speaker Change: Closer to the bottom on the capital markets. So there are.
Speaker Change: A large amount.
Speaker Change: The amount of bidders that are theyre looking at assets to now now and making offers.
Speaker Change: Got it thank you very much congrats on the quarter.
Andrew Berger: Got it. Thank you very much.
Andrew Jason Berger: Congrats on the quarter. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our next question is from Georgia, Dean cough with Mizuho. Your line is now open.
Theodore J. Klinck: Congratulations on the quarter. Thank you. Our next question is from Georgi Dinkov with Mizuho. Your line is now open.
Cole: Our next question is from George Dinkoff with Mizuhu. Your line is now open. Hi, thank you for taking my question.
Speaker Change: Hi, Thank you for taking my question can you talk about mark to market and where do you see that trending over the next few quarters.
Georgi Damyanov Dinkov: Hi, thank you for taking my question. Can you talk about back-to-market and where do you see that trending over the next few quarters? Sure. Look, this is Ted.
Georgi Damyanov Dinkov: Can you talk about Mark Tomarkin and where do you see that training over the next few quarters?
Speaker Change: Sure look this is Ted I think mark to market I think it's pretty flat and I wouldn't expect that to change over the next couple of quarters as you know.
Theodore J. Klinck: I think mark-to-market, I think it's pretty flat, and I wouldn't expect that to change over the next couple of quarters. As you know, we're still facing a challenging leasing environment, a lot of headwinds, so I would think it's going to be bouncing around roughly where we are from a mark-to-market perspective. Great. Thank you so much.
George Dinkoff: Sure, look, I think Mark Tomarkin, I think it's pretty flat, and I wouldn't expect that the change of the next couple quarters is, you know, we're still in a facing to challenging leasing environment, a lot of headwinds. I would think it's going to be, you know, bounce around roughly where we are from Mark Tomarkin perspective.
Speaker Change: We're still facing a challenging <unk>.
Speaker Change: Leasing environment and a lot of headwinds.
Speaker Change: I would think it's going to be bounce around roughly where we are from a mark to market perspective.
George Dinkoff: Great, thank you so much. Thank you.
Speaker Change: Great. Thank you so much.
Speaker Change: Thank you.
Young Ku: Our next question is from Young Ku with Wells Fargo; your line is now open. Yes, good morning out there. Just want to go back to your comment on the activity back to the lease. Not sure if that's going to be impacting the commencement timeline, but any details would be helpful. Yeah, I don't think it's going to change a whole lot. As you know, they were going to be moving in; in fact, in terms of rent and branding can jump in here in a second. So we've got great prospects on that. You know, as we call it, building a cool spring five, but we've got a lot of prospects to back sell that, and look at the reality was with landmark.
Young To: Our next question is from young to with Wells Fargo. Your line is now open.
Young Koo: Thank you. Our next question is from Young Koo with Wells Fargo. Your line is now open. Yes, good morning out there.
Young To: Hi, Yes, good morning out there just wanted to go back to your comment on the activity backfill lease.
Theodore J. Klinck: I just want to go back to your comment on the Pivoty backfill lease. I'm not sure if that's going to be impacting the commencement timeline, but any details would be helpful. Yeah, I don't think it's going to change a whole lot. As you know, they were going to be moving in, in terms of rent, and Brendan can jump in here in a second. So we've got great prospects for that.
Young To: Not sure if thats going to be impacting their commencement timeline, but any details would be helpful.
Speaker Change: Yes, I don't think its going to change a whole lot as you know.
Speaker Change: They are going to be moving in fact in terms of rent and Brendan can jump in here in a second so we've got great prospects on that.
Theodore J. Klinck: You know, we call that building now Cool Springs Five, but we've got a lot of prospects to backfill that. And look, the reality with Landmark, it's a, you know, we, the activity we're seeing in that sub-market is so good. When they came to us and said they continue to have, you know, challenges in their business, and they're struggling, and they're reevaluating their office needs, we just didn't think it made sense to saddle the customer with a lease that clearly is not going to work for them long term. And then, just given the activity we're seeing in the space, you know, we're trying to work out something with them right now that makes sense for Yeah, Young. It's Brendan.
Brendan C. Maiorana: As we call it building cool Springs, five, but we've got a lot of prospects to backfill that and look at it.
Brendan C. Maiorana: It was with landmark it's a yes.
Theodore J. Klinck: It's a, you know, we activity were seen in that submarket is so good when they came to us and said they continue to have, you know, challenges in their business and they're struggling and the reevaluating their office needs. We just didn't think it made sense to saddle the customer; the lease, it clearly is not going to work for them long term. And then just given the activity we're seeing on the space, we know we're trying to work out something with them right now that makes sense for both of us.
Brendan C. Maiorana: The activity, we're seeing in that Submarket is so good when they came to us and said they continue to have.
Brendan C. Maiorana: Challenges in their business and they're struggling and are reevaluating their office needs. We just didn't think it made sense to saddle the customer the lease that clearly is not going to work for them long term and then just given the activity we're seeing on the space.
Brendan C. Maiorana: We're trying to work out something with them right now that makes sense for both of us.
Brendan C. Maiorana: Just to, you know, maybe to just put it in terms of the context of expectations for this year and how we should think about that. We have assumed, in our current outlook, no revenue associated with the backfill user in that space throughout 2024. That also has been taken out of the occupancy numbers as well. And I think, as I mentioned, it's also out of the lease rate. So even with all of that, I think we feel very good about the outlook.
Brendan Maiorana: Yeah, Young, it's Brendan just to, you know, maybe to just put it in terms of the context of expectations for this year and how we should think about that. That we have assumed that we had assumed in our current outlook, no revenue associated with the backfill user in that space throughout 2024. That also has been taken out of the occupancy numbers as well. And I think, as I mentioned, it's also out of the least rate. So even with all of that, I think we feel very good about the outlook. We still expect occupancy at year end 24 to be in line with where we were previously, which excludes the backfill.
Brendan C. Maiorana: Yes, yes, it's Brendan just to.
Brendan C. Maiorana: Maybe.
Brendan C. Maiorana: Just put it in terms of the context of expectations for this year and how we should think about that.
That we have assumed that.
Brendan C. Maiorana: We had assumed.
Brendan C. Maiorana: And our current outlook no revenue associated with the backfill user.
Brendan C. Maiorana: In that space throughout 2024.
Speaker Change: That also has been taken out of the occupancy numbers as well and I think as I mentioned, it's also out of the leased rate. So even with all of that I think we feel very good about the outlook, we still expect occupancy at year end 'twenty four to be in line with where we were previous.
Brendan C. Maiorana: We still expect occupancy at year end 24 to be in line with where we were previously, which excludes the backfill. And I wouldn't expect that there'd be a real meaningful impact, even in terms of near-term earnings impact. So I think ultimately, where we'll get to is we'll probably have a better long-term outlook for that building. But I don't think there'll be much impact this year or next year.
Speaker Change: <unk>, which excludes the backfill.
Brendan Maiorana: And I wouldn't expect that there'd be a real meaningful impact even in terms of near-term earnings impact. So I think, ultimately, where we'll get to is we'll probably have a better long-term outlook for that building. I don't think there'll be much impact this year or next year. And we think it's beneficial for our existing customer, we think it's beneficial for future customers and long-term will lead beneficial for us as well.
Speaker Change: And I wouldn't expect that there'd be a real meaningful impact even in terms of near term earnings impact. So I think ultimately where we'll get to is we'll probably have a <unk>.
Speaker Change: At our long term outlook for that building I don't think there'll be much impact this year or next year, and we think it's beneficial for for our existing customer we think it's beneficial for future customers and long term will be beneficial for us as well.
Brendan C. Maiorana: And we think it's beneficial for our existing customers. We think it's beneficial for future customers, and in the long term, it will be beneficial for us as well. Got it.
Speaker Change: Got it thanks, Brendan and then just I want to go into guidance a little bit so it looks like the core expectation is up.
Brendan C. Maiorana: Thanks, Brendan. And then I just want to go into guidance a little bit. So it looks like the core expectation is up two and a half cents. But when we look at your assumptions, they really didn't change much. So I was wondering if you could go on if you could talk about the end.
Young Ku: And then just want to go into guidance a little bit.
Young Ku: So it looks like the core expectation is two and a half cents. But when we look at your assumptions that they really did change months.
Speaker Change: Two five cents, but.
Speaker Change: But when we look at your assumptions they really didn't change much. So I was wondering if you can go.
Brendan Maiorana: So I was wondering if you can go if you can talk about the end. Yeah, good question. I'm so on same property; we didn't change those assumptions. We did take the million dollar charge related to prior years into same property. So that number, you know, but for that, we probably would have raised the same property outlook. The straight line numbers, we didn't change, but we have worked with a number of users where we're providing a little bit of short-term kind of free rent in exchange for lease extensions. So that's had a little bit of a negative impact on the cash and a lie.
Speaker Change: If he can talk about the end of the analysis.
Speaker Change: Yes. Good question. So on same property, we didnt changed those assumptions, we did take the million dollars charge related to prior years into same property.
Brendan C. Maiorana: Yeah, good question. So, on the same property, we didn't change those assumptions. We did take the million-dollar charge related to prior years into the same property. So, that number, you know, but for that, we probably would have raised the same property outlook. The straight-line numbers we didn't change, but we have worked with a number of users where we're providing a little bit of a short-term kind of free rent in exchange for lease extensions. So, that's had a little bit of a negative impact on the cash NOI.
Speaker Change: So that number but for that we probably would have raised the same property outlook.
Speaker Change: The straight line numbers, we didn't change, but we have worked with a number of users where we're providing a little bit of short term kind of.
Free rent in exchange for lease extensions, so thats had a little bit of a negative impact on the cash NOI, we've offset that with just better activity elsewhere throughout the same store portfolio. So all of those things at the base level allowed us to kind of keep the same property.
Brendan C. Maiorana: We've offset that with just better activity elsewhere throughout the same store portfolio. So, all of those things at the base level allowed us to kind of keep the same property outlook unchanged even though there were some headwinds within those numbers. And then everything else, to us, feels like it is trending in the right direction even with the raise on FFO.
Brendan C. Maiorana: We've offset that with just better activity elsewhere throughout the same store portfolio. So all of the outlook unchanged, even though there were some headwinds within those numbers. And then everything else to us feels like it is trending in the right direction, even with the, you know, with the raise on FFO. Got it.
Speaker Change: Outlook.
Speaker Change: Unchanged, even though there were some.
Speaker Change: Some headwinds within those numbers.
Speaker Change: And then everything else to us feels like it is trending in the right direction, even with the with the raise on on <unk>.
Speaker Change: Got it thanks, Brian.
Young Ku: Thanks, Ben.
Speaker Change: Okay.
Michael Griffin: We have a question from Michael Griffin with Citigroup. Your line is now open. Great thanks. First question was just on kind of the leasing environment and expectations there. It seems like particularly new leasing has been pretty solid this first half of the year. Can you give a sense of these expansions? I mean, are our tenants more willing to sign and commit to leases than as the environment kind of improved at all as we look for the back half of the year?
Speaker Change: We have a question from Michael Griffin with Citigroup. Your line is now open.
Brendan C. Maiorana: Thanks, Brendan. We have a question from Michael Griffin with Citigroup. Your line is now open. Great, thanks. Um, the first question was just about kind of a leasing environment and expectations there. It seems like, particularly new leasing, has been pretty solid this first half of the year. Can you give a sense of whether these expansions, I mean, are tenants more willing to sign and commit to leases? And has the environment kind of improved at all as we look toward the back half of the year? Hey, Michael. It's Ted. I'll start, and if Brian wants to jump in,
Michael Anderson Griffin: Great. Thanks.
Michael Anderson Griffin: My first question was just on kind of the leasing environment and your expectations. There it seems like particularly new leasing.
Speaker Change: It's been pretty solid this first half of the year.
Speaker Change: Can you give us a sense are these expansions I mean are tenants more willing to sign and commit to leases and as the environment kind of improved at all as we look toward the back half of the year.
Speaker Change: Yes.
Ted Klinck: Michael's Ted, I'll start, and have Brian wants to jump in. Look, as you saw, we've had our third straight, very strong leasing quarter in a row. And I can tell you, our leasing team, they're laser focused on capturing every deal we can get. And it's interesting; the summer slowdown really didn't happen this year in most of our markets, maybe in a couple of them. But in general, releasing folks are really busy; are pipelines as follows. It's been quite some time. I think I may be mentioned last quarter that, you know, we are starting to see larger deals not, I'll define larger and full floor or two floor deals with 25 to 50,000 feet.
Hey, Michael as Ted I'll start and Brian wants to jump in look as you saw we've had our third straight very strong leasing quarter in a row and I can tell you our leasing team they're laser focused on capturing every deal we can get and what's interesting is a summer slowdown really didn't happen. This year with most of our markets maybe in a couple.
Theodore J. Klinck: Look, as you saw, we've had our third straight very strong leasing quarter in a row. And I can tell you our leasing team is focused on capturing every deal we can get. And what's interesting is the summer slowdown really didn't happen this year in most of our markets, maybe in a couple of them, but in general, our leasing folks are really busy. Our pipeline is as full as it's been in quite some time. I think I maybe mentioned last quarter that, you know, we are starting to see larger deals. I'll define larger as full floor or two floor deals for 25,000 to 50,000 feet.
Brian M. Leary: All of them, but in general our leasing folks are really busy our pipelines as full as it's been in quite some time.
Brian M. Leary: I think maybe mentioned last quarter that we are starting to see larger deals and I'll define larger than a full floor to floor deals for $25 to 50000 feet. We're seeing some of those get done as well so.
Ted Klinck: We're seeing some of those get done as well. So, you know, and I look, I do think we're also benefiting, and we continue to benefit from some of the distress in the market. Some of the buildings that don't have capital to invest, we're gaining market share. So I do think there's a bifurcation there in the market. So, but in general, our activity is very good; our pipelines full. I'm pretty optimistic that, you know, the second half of the year is going to continue to be three years of kicking the can and just, you know, kind of coming to consensus around return to work.
Theodore J. Klinck: We're seeing some of those get done as well. So, you know, and look, I do think we're also benefiting. We continue to benefit from some of the distress in the market, some of the buildings that don't have capital to invest in. We're gaining market share. So I do think there's a bifurcation in the market. But, in general, you know, our activity is very good. Our pipeline is full, and I'm pretty optimistic that, you know, the second half of the year is going to continue to be pretty strong. Michael, I might clip on this, Brian.
Brian M. Leary: Look I do think we're also benefiting we continue to benefit from some of the distress in the market. Some will buildings that don't have capital to invest where we're gaining market share. So I do think there is a bifurcation there in the market so but in general in our activity is very good our pipeline's full and I'm pretty optimistic that.
Brian M. Leary: The second half of the year is going to continue to be pretty strong.
Michael Anderson Griffin: Michael I might clip honest, Brian the three years of kicking the can.
Brian M. Leary: The three years of kicking the can and just, you know, kind of coming to consensus around return to work. We're seeing that kind of come to roost, and we even forwarded an internal email to an 185,000-person company whose CEO is like, look, we're better together, we're back this fall, look forward to seeing you. That's the short version.
Michael Anderson Griffin: Kind of coming to a consensus around return to work.
Speaker Change: We're seeing that kind of come to roost in where we even were forwarded.
Ted Klinck: We're seeing that kind come to boost, and we even were forwarded internal email to 185,000 person and company who the CEOs like, look, we're better together, we're back as fall, look forward to seeing you. That's the short version. So I think those, the bigger companies that have kind of delayed making those decisions can now have conviction around making decisions. I think we still are, you know, generally expanding more than contracting. The bigger ones are more right-sized in general. We're seeing that across, whether it's an output fully or outside the portfolio in the market.
Speaker Change: Internal E mail to a 185000 person company, who the CEO is like look we're better together we're back this fall and look forward to seeing you. That's the short version. So I think the bigger companies that have kind of delayed making those decisions can now have conviction around making decisions.
Brian M. Leary: So I think those bigger companies that have kind of delayed making those decisions can now have conviction around making decisions. I think we still are, you know, generally expanding more than contracting. The bigger ones are more right-sizing in general.
Speaker Change: I think we still are.
Speaker Change: Generally expanding more than contracting the bigger ones are more right sizing in general we're seeing that across whether it's in our portfolio outside of the portfolio in the markets but.
Brian M. Leary: We're seeing that across whether it's in our portfolio or outside the portfolio in the market. It does feel busy, and Brian to that, and have large space requirements picked up across your markets, or is it still kind of that, you know, small to medium-sized tenant that you're, you're a great question. It's interesting. I have it kind of here in my notes.
Speaker Change: It does feel busy for sure.
And.
Brian M. Leary: And Brian to that and have large space requirements picked up across your markets or is it still kind of debt.
Brian M. Leary: Small to medium size tenants youre seeing muscle.
Great Great question, it's interesting I have it here in my notes taken when I talk about the markets you know it's interesting.
Brian M. Leary: When I talk about the markets, you know, it's interesting. I think inbounds Theodore Klinck, Brian Leary, Nicholas Thillman, Brian Leary, Theodore Klinck, Brian Leary. So, the economic developers and the chambers of commerce now have the kind of code names back. What's interesting is that they are multi-markets, and they're multi-markets within our markets, so we'll see the same code names show up in one city or the other. So that has definitely picked up, and some of those are larger, right?
Speaker Change: I think inbounds.
Speaker Change: End of code named Inbounds, it's sort of been quiet with the run up in interest rates or everyone was kind of waiting to see what happens they have returned.
Speaker Change: So the economic developers in the Chambers of Commerce is now have the kind of the code names back what's interesting they are multi market and theyre multi markets within our markets. So we will see the same code name show up.
Speaker Change: In one city or the other so that has definitely picked up and some of those are our larger right I mean, you even seen.
Brian M. Leary: I mean, you're even seeing, not in our portfolio, but a new market in Nashville. Oracle announced their headquarters is relocating from Texas to Nashville, and then they went ahead and expanded and renewed kind of where they were. So the pipeline of new inbounds is... showing up. And to your question about size.
Speaker Change: Not in our portfolio, but a new market in Nashville Oracle.
Speaker Change: Announced their headquarters is relocating from Texas to Nashville, and then they went ahead and expanded and renewed kind of where they are at.
Speaker Change: So with a pipeline of new inbounds as is showing up and to your question about size.
Brian M. Leary: You know, Nashville, codename 500,000 square feet is probably the biggest one we've seen, and Ted's Point, two floors, three floors. There are more on the radar now, which is good to see. Great, that's helpful.
Speaker Change: Nashville co named 500000 square feet is probably the biggest one we have seen.
Speaker Change: Much attach point.
Speaker Change: <unk> four floors three floors.
Speaker Change: They are more on the radar now which is good to see.
Theodore J. Klinck: Great. That's helpful. And then just one more I'd be curious to get your thoughts Ted you mentioned in your prepared remarks that there are select acquisition opportunities that youre looking to see.
Michael Anderson Griffin: And then just one more, I'd be curious to get your thoughts, Ted. You mentioned in your prepared remarks that there are select acquisition opportunities that you're looking to see. I mean, when you're underwriting these prospects, are these, you know, high-quality buildings that might have poor capital structures where, you know, you could contribute equity or maybe assume the mortgage? And then can you give us any sense of kind of what hurdle rates or IRRs you're underwriting to on potential? Sure, so yeah, look at the acquisitions. You're starting to see a few things trade, largely.
Speaker Change: <unk> underwriting. These prospects are these high quality buildings that might have poor capital structures, where you could contribute equity or maybe assumed the mortgage and then can you give us any sense on kind of what hurdle rates or IRR as you're underwriting to on potential acquisitions.
Theodore J. Klinck: Sure. So yeah look on the acquisitions.
Theodore J. Klinck: Starting to see a few things trade largely.
Speaker Change: You need seller financing to get to get the higher quality in the larger deals.
Michael Anderson Griffin: You need seller financing to get the higher quality and the larger deals done. So what we're looking at, it's sort of a combination of both, right? It's high-quality assets, assets that are in our sub-markets that have good bones, and we think you can get a very attractive risk-adjusted yield. Now, what is that yield?
Speaker Change: So what we're looking at is it sort of a combination of both right. It's high quality assets assets that are in our submarkets that have good balance and we think you can get a very attractive risk adjusted yield and what is that yield I think it varies based on the profile of the asset so our core buildings going to underwrite to a lower.
Theodore J. Klinck: I think it varies based on the profile of the asset. So, you know, a core building is going to underwrite to a lower required yield than a large value-add asset, right? So it might be 80% lease today, going to 70, or maybe even lower than that. So we're sort of all over the board, but certainly they're double digits, Michael. But, again...
Speaker Change: Wired yield in a large value add asset right that might be 80% leased today go into 70 or and maybe even lower than that so so we're we're sort of all over the board, but certainly they are double digits Michael.
Speaker Change: Michael.
Speaker Change: And but again.
Theodore J. Klinck: The number of distressed deals is growing, and there are a lot of deals that are out there right now, but it's just hard to get them to figure out because the lenders are moving really slow, and then the owners, in some cases, are trying to protect their equity if there is any left. So, you know, everything we're looking at is coming. It's not easy right now, but we're going to remain patient, and I think those opportunities will come. Great That's it for me.
Speaker Change: Number of distressed deals it is growing and there's a lot of deals that are out there right now, but it's just hard to get them to figure out to the lenders are moving really slow and then the owners in some cases, we're trying to protect their equity if there is any less so everything we're looking at is it.
Speaker Change: It's not easy right now but.
Speaker Change: Going to remain patient and I think those opportunities will be there.
Speaker Change: Great. That's it for me thanks for the time.
Michael Anderson Griffin: Thanks, Michael.
Michael Anderson Griffin: Our next question is from Rob Stevenson with Janney. Your line is now open.
Michael Anderson Griffin: Thanks for your time. Thanks, Michael. Our next question is from Rob Stevenson with Janie. Your line is now open.
Robert Chapman Stevenson: Good morning, guys. Brendan, what's the magnitude of the projected property tax savings in the second half of the year? Trying to get a feel if this is up to a penny or more than that. And is that a one-time thing, or is that expected to recur in 2025 and beyond, given your comments about no significant non-recurring items in the second half here? Yeah, Rob, it's about a penny and a half of upside, with I would call it roughly about a penny of downside if none of that was realized, and the vast majority of that would be recurring.
Robert Chapman Stevenson: Hey, good morning, guys Brendan what's the magnitude of the projected property tax savings in the back half of the year trying to get a feel if this is up to a penny or more than that and is that a one time thing or is that expected to recur in 2025 and beyond given your comments about no significant nonrecurring items for the second half year.
Speaker Change: Yes, Rob it's about.
Robert Chapman Stevenson: So related to related to this year and recurring thereafter. Okay, and then how material is the additional interest expense on Glen Lake and Granite Park? She can't capitalize on it, trying to get a sense of the headwind there.
Speaker Change: A panel could be maybe a penny and a half of upside with that.
Speaker Change: I would call it a roughly.
Speaker Change: About a penny of downside if none of that was <unk>.
Speaker Change: Realized and the vast majority of that would be recurring so related to related to this year and would recur thereafter.
Speaker Change: Okay, and then how material is the additional interest expense on Glen Lake in Granite Park, you can't capitalize trying to get a sense of the headwind there.
Speaker Change: Yes.
Brendan C. Maiorana: Yeah, it's so I'm going to try to walk through this with you and for your benefit and everybody else on the line, and if you've got follow-ups offline, I'm happy to take that, because I want to put this in context because I know it's challenging a little bit to kind of model this. If you look at what we have spent to date on those two projects, it's about $150 million at our share. They are in occupancy.
Speaker Change: So I'm going to try to.
Speaker Change: Walk through this with you and for your benefit and everybody else on the line and if you've got follow ups offline Im happy to take that.
Speaker Change: <unk>.
Speaker Change: Because I want to put this in context, because I know, it's challenging a little bit to kind of model. If you look at what we have spent to date on those two projects, it's about $150 million at our share. They are in occupancy there are about 20% commenced occupancy so you've got 80% of the capital that is being.
Brendan C. Maiorana: They're about 20% occupied. So you've got 80% of the capital that is being capitalized from an interest expense standpoint. So that 80% of that $150 million is $120 million.
Speaker Change: Capitalized from from an interest expense standpoint, so that 80% of that $1 50 is $120 million if.
Brendan C. Maiorana: If you look at that and you just put a 5% capitalization rate on that, that annualizes to about $6 million a year or about $1.5 million on a quarterly basis. We will stop capitalizing interest midway through the third quarter and then have no capitalization of that interest in the fourth quarter. In addition to that, you've got operating expenses that are capitalized on uncommenced occupancy at those two buildings, and that has about a half a million dollar impact when you think about that in 2Q compared to a 4Q run rate without any of those expenses capitalized.
Speaker Change: If you look at that and you just put a 5% capitalization rate on that that annualize to about $6 million a year or about 1 million $5 on a quarterly basis that we will stop capitalizing interest midway through the third quarter and have no capitalization of that interest in the fourth quarter. In addition to that you've got <unk>.
Speaker Change: Operating expenses that are capitalized on on commenced occupancy at those at at that at those two buildings and that has about a half a million dollar impact.
Speaker Change: When you think about that.
Speaker Change: On <unk> compared to a four Q run rate without any of that without any of those expenses capitalized. So what that means is it's about $2 million impact on a quarterly basis.
Brendan C. Maiorana: So what that means is it's about $2 million impact on a quarterly basis. But what happens is now we have very little NOI that's being generated out of those assets as it stands today, and we have no interest capitalization at least as of, you know, kind of mid-third quarter.
Speaker Change: But what happens is now we have very little NOI, that's being generated out of those assets as it stands today.
Speaker Change: And we have no interest capitalization at least as of kind of mid third quarter. So as those buildings lease up all of that falls to the bottom line. So theres significant upside relative to kind of the back half 'twenty for run rate as those assets lease up so that's going to create a lot of growth potential now.
Brendan C. Maiorana: So as those buildings lease up, all of that falls to the bottom line, so there's significant upside relative to kind of the back half 24 run rate as those assets lease up. So that's going to create a lot of growth potential. Now there's execution, and we need to get some additional leases done, but that creates a lot of upside. That is also a very similar dynamic to two buildings that we have that are vacant in our operating portfolio, so 2500 Century Center and Cool Springs 5. Both of those buildings are generating negative NOI this year in 2024.
Speaker Change: Execution, and we need to get some additional leases done but that creates a lot of upside.
Speaker Change: That is also a very similar dynamic to two buildings that we have that are that are.
Speaker Change: Vacant in our operating portfolio. So 2500 century center and cool Springs five both of those buildings are generating negative NOI. This year or in 2024, we haven't taken those buildings out of service, which means at and there are significant leasing at both of those assets. So they will generate positive NOI.
Brendan C. Maiorana: We haven't taken those buildings out of service, which means at – and there's significant leasing at both of those assets, so they will generate positive NOI. So not only will we not have the negative drag next year, but they will generate positive NOI, so there's a lot of upside in those two assets as well. And that creates a little bit of volatility in our numbers because we don't take those buildings out of service, but it drives a lot of upside as they come online.
Speaker Change: So not only will we not have the negative drag next year, they will generate positive NOI. So theres a lot of upside in those two assets as well and that creates a little bit of volatility in our numbers because we don't take those buildings out of service, but it drives a lot of upside as they come online and so you're sort of seeing the.
Brendan C. Maiorana: And so you're sort of seeing the confluence of those two assets that are in service and the two development properties all hit kind of late this year, which is giving us that kind of headwind, but it also means there's a significant amount of upside as those properties come online. The two operating assets will be online early in 2025, and then as we lease up Glenlake 3 and Granite Park 6, that will drive a lot of growth later in 2025 and into 2026. Okay, that's extremely helpful. Thank you for that detail.
Confluence of kind of those two assets that are in service and the two development properties all hit kind of late this year, which we're taking that kind of headwind, but it also means theres a significant amount of upside as those properties come online. The two operating assets will be online early in 'twenty five and then as we lease up Glenn like three in Granta Park.
Speaker Change: That will drive a lot of growth later in 'twenty five.
Speaker Change: And into 2026.
Robert Chapman Stevenson: And then the last one for me, Ted, how are you looking at these dispositions? Is the pricing for assets improved as we get closer to the rate cuts? Are these going to be, you know, pretty similar prices to the year-to-date sales? How would you characterize that?
Speaker Change: Okay. That's extremely helpful. Thank you for that detail and then the last one for me.
Speaker Change: How are you looking at these dispositions as a pricing for assets improves as we get closer to the rate cuts.
<unk> be pretty similar pricing to the year to date sales how would you characterize that.
Robert Chapman Stevenson: Yes, Rob.
Theodore J. Klinck: Yeah, Rob, again, we don't have anything in the market right now, but what we're hearing is, again, there's more capital looking to come back. The debt markets, while they're still challenging, CMBS is coming back. I think there's hope that an interest rate cut might be coming in September, and I think that's going to help. So all these things, you know, hopefully, are going to be come Labor Day or the back half of the year are going to enable more things to start trading. Obviously, smaller deals are what we've been selling. They're easier to get done than larger deals.
Speaker Change: Again, we don't have anything in the market right now, but what we're hearing is again there is more capital looking to come back the debt markets, while they're still challenging CBS is coming back I think there is a hope that interest rate cut might be coming in September and I think that's going to help so all these things.
Robert Chapman Stevenson: Sure.
Robert Chapman Stevenson: Hopefully youre going to be come labor day, or the back half of the year going to enable more things to start trading.
Robert Chapman Stevenson: Obviously smaller deals is what we've been selling they are easier to get done the larger deals, but certainly I would expect pricing is going to get better as my view just given the amount of capital that's out there if interest rates come down all those things should be good for asset pricing now in terms of what we're going to sell obviously, we sold some quasi medical building.
Theodore J. Klinck: But certainly, I would expect pricing to get better, in my view, just given the amount of capital that's out there, if interest rates come down, all those things should be good for asset pricing. Now, in terms of what we're going to sell, obviously, we sold some quasi-medical buildings in the first half of the year. So I would expect the yields on the dispositions going forward are going to be a little bit higher than what we achieved earlier this year. Still, again, we're, we're.
Robert Chapman Stevenson: The first half of the year, so I would expect that.
Robert Chapman Stevenson: The yields on the dispositions going forward are going to be a little bit higher than what we had.
Robert Chapman Stevenson: <unk>.
Robert Chapman Stevenson: Achieved earlier this year, but.
Robert Chapman Stevenson: But still again where were we.
Theodore J. Klinck: We're hopeful the price is going to improve for our next wave of... What are you going to use the proceeds for? I mean, is that just to fund the remaining on the development commitment, or is that earmarked for something else because you guys don't have any near-term debt maturities? Yeah, well, yeah, obviously, we've got a little bit of development spending to do, but there is capital that's kind of, in general, I would say, available. I think we've found good uses of capital.
Robert Chapman Stevenson: We're hopeful the price is going to improve for our next wave of assets.
Speaker Change: What are you going to use the proceeds for I mean, so just to fund the remaining on the development commitment or is that earmarked for something else. Because you guys don't have any near term debt maturities.
Robert Chapman Stevenson: Okay.
Robert Chapman Stevenson: Yes, Rob Yeah, obviously, we've got a little bit of development spend to do there is capital that is kind of in.
Theodore J. Klinck: So if you just think about what we announced subsequent to quarter to quarter end, right, we paid off a mortgage that we had coming due on a JV property with our partner, and we paid down, you know, a relatively high interest rate construction loan. So there will be uses for that capital. And then, of course, you know, that's replenishing the dry powder to then, hopefully, be able to reinvest in investment opportunities. Okay, guys. I appreciate the time this morning. Thanks a lot.
Speaker Change: In General I would say available I think we've found good uses of capital. So if you just think about what we announced subsequent to quarter to quarter end, we paid off a mortgage that we had coming due at a JV property with our partner we paid down.
Speaker Change: At a relatively high interest rate construction loan. So there will be uses of that capital and then of course, that's replenishing that dry powder to then hopefully be able to reinvest into investment opportunities.
Speaker Change: Okay. Thanks, guys I appreciate the time this morning.
Speaker Change: Good morning. Thanks.
Robert Chapman Stevenson: Thanks, Rob.
Speaker Change: Our next question is from Peter Abramowitz with Jefferies. Your line is now open.
Peter Dylan Abramowitz: Our next question is from Peter Abramowitz with Jeffries. Your line is now open. Thank you. Yes, I just wanted to take a step back. Brendan, you've made these comments around occupancy, I think, this quarter and last quarter, that your expectations around a recovery, once you've cleared those known move outs, are probably higher than they were, you know, this time a year ago or when you started this year. Just wondering if you could kind of dig into that a little bit.
Peter Dylan Abramowitz: Thank you, yes, just wanted to take a step back Brendan you've made these comments around occupancy I think this quarter and last quarter.
Speaker Change: Your expectations around the recovery once you've cleared those known move outs are probably higher than they were.
Speaker Change: This time, a year ago or when you started this year.
Peter Dylan Abramowitz: Wondering kind of what you see as the long-term, like, real potential for your stabilized occupancy in the portfolio? You're hovering around 88% today and for the last couple of quarters, I think, at the peak before the pandemic, it was somewhere in that number. Just wondering if you could comment on the kind of long-term potential; where do you think you can really stabilize? Hey Peter.
Speaker Change: Just wondering if you can kind of dig into that a little bit wondering kind of what do you see as a long term like real potential for stabilized occupancy in the portfolio, you're hovering around 88% today and for the last couple of quarters.
Speaker Change: I think.
Speaker Change: Before the pandemic with somewhere in that 93% range. Just wondering if you could comment around kind of long term potential where do you think you can really stabilize occupancy.
Theodore J. Klinck: Hey, Peter Thanks for the question, so I'm going to start and maybe give you some color as to why we're so encouraged in terms of the activity that we've seen and the potential and then maybe I'll let Ted.
Brendan C. Maiorana: Thanks for the question. I'm going to start and maybe give you some color as to why, you know, we're so encouraged in terms of the activity that we've seen and the potential. And then maybe I'll let Ted and Brian comment on where they see the stabilized levels. But if you go back to the beginning of the year, the portfolio was around 89% occupied, and the lease rate was around 91%. So we were around 200 basis points higher on the lease rate.
Speaker Change: Brian Opine on where they see that stabilized levels, but if you go back to the beginning of the year the portfolio was around 89% occupied and the lease rate was around 91%. So we were around.
Theodore J. Klinck: 200 basis points higher on lease rate during that time occupancy has come down a little bit. So we're down about 50 basis points yet at the same time, our lease rate has gone up to 91, three and if you think about it in the beginning of the year. We also had within that lease rate the 110000 square foot backfill user.
Brendan C. Maiorana: During that time, occupancy has come down a little bit. So we're down about 50 basis points. Yet at the same time, our lease rate has gone up to 91.3. And if you think about at the beginning of the year, we also had within that lease rate, the 110,000 square foot backfill user at Cool Springs 5. That is now stripped out of that 91.3.
Theodore J. Klinck: At Cool Springs, five that is now stripped out of the 91 three so I think that gives you. Some context in terms of just the good activity that we're seeing and how much net absorption we're driving on the operating portfolio. So that really makes us optimistic in terms of kind of that if we can sustain this level of leasing that that is going to drop.
Brendan C. Maiorana: So I think that gives you some context in terms of just the good activity that we're seeing and how much net absorption we're driving on the operating portfolio. So that really, you know, makes us optimistic in terms of kind of that if we can sustain this level of leasing, that that's going to drive the recovery and occupancy kind of when we get to what we expect to be trough levels early in 25.
Theodore J. Klinck: The recovery in occupancy.
Theodore J. Klinck: When we get to what.
Theodore J. Klinck: What we expect to be trough levels early in 'twenty five.
Brendan C. Maiorana: And then the only thing I would add on stabilized occupancy: look, I think you're right about us, you know, pre-COVID, we're in that 92 to 93 range. I don't see any reason why we can't get back to those levels.
Speaker Change: And then the only thing I would add on stabilized occupancy look I think youre right on.
Speaker Change: Pre COVID-19, we are in that 92% to 93 range I don't see any reason why we can't get back to those levels. If you think about what we've done over the last several years, we have significantly improved our market selection, our portfolio quality and I think the trends coming out of Covid, the flight to quality and the flight to capital never in my career, but more.
Theodore J. Klinck: If you think about what we've done over the last several years, we've significantly improved our market selection, and our portfolio quality. And I think the trends coming out of COVID, the flight to quality and the flight to capital, never have it in my career been more important to be with a landlord, a well-capitalized landlord. So I think we're going to continue to gain market share at the expense of others. So, look, it's going to take some time, without a doubt, right?
Speaker Change: Important to be with a landlord well capitalized landlords. So I think we're going to continue to gain market share the expense of others. So look it's going to take some time without a doubt right. We got to work through the next year or so but.
Theodore J. Klinck: I mean, we've got to work through the next year or so, but I think we can get back to stable in that 92 range probably in the next several years. That's helpful, Ted. Thank you. And thank you, Brendan. And then just one other one.
Speaker Change: I think we can get back to a stabilized in that 92 range probably in the next several years.
Speaker Change: That's helpful. Thank you and thank you Brenda.
Speaker Change: And then just one other one could you just comment any update and color on the role kind of distressed activity is playing in that.
Theodore J. Klinck: Could you just give us an update and color on the role for the Arts? Thank you. Thank you. Yeah, in terms of the distressed transactions out there, is that your question, Peter? Correct. Yeah, look, there's definitely distressed transactions out there. They're taking a long time, right?
Speaker Change: Transaction market have you looked at deals.
Speaker Change: Yes.
Speaker Change: Of the distressed transactions out there or is that your question Peter.
Peter Dylan Abramowitz: Correct Yep.
Speaker Change: Yes look there's definitely distressed transactions out there there is taking a long time right.
Speaker Change: It's just I think we're all we all get frustrated, but I continue to remind our team that coming out of the GSE.
Theodore J. Klinck: It's just, I think we all get frustrated, but I continue to remind our team that coming out of the GFC, it took, you know, four years or so coming out of the GFC for any distress on the highest quality buildings. We've got a lot of good news to come, and that's what we're looking for today. There's a fair amount of distress in the lower quality assets today, and those are starting to trade a little bit, and there are some price resets on those. But those aren't the assets we want. The assets that we've got on our – you know, we've got a pretty well-defined and vetted wish list of assets. Most of those are not distressed.
Speaker Change: Four years, or so coming out of the GSA for any distress of the highest quality buildings.
Speaker Change: To come in and that's what we're looking for today. There is a fair amount of distress of the lower quality assets today and those are starting to trade a little bit and some price resets on those those arent the assets we want the assets that we've got on our we've got a pretty well defined and vetted wish list of assets not most of those are not distressed.
Speaker Change: A lot of them do the sellers do want to sell and cleared at some point, but it's just going to take some time. So while there is a lot of distress out there not as much for the assets, we want or if it is it's just they're very difficult to get your hands on.
Speaker Change: That's all for me thank you.
Speaker Change: Thank you.
Speaker Change: Our next question is from Dylan Burzynski with Green Street. Your line is now open.
Theodore J. Klinck: A lot of them do – the sellers do want to sell and clear them at some point, but it's just going to take some time. So while there is a lot of distress out there, not as much for the assets we want, or if there is, it's just that they're very difficult to get your hands on. Our next question is from Dylan Burzinski with Green Street. Your line is now open.
Dylan Robert Burzinski: Hi guys, thanks for taking the question. Just sort of curious, I know you guys have been focused on prioritizing occupancy as you sort of work your way through some of the no move-outs, but I guess I'm just curious about what that means for net effective rents as we sort of think about the trajectory there. It seems like space rents are still holding steady, but from Sessions' point of view, have things started to stabilize there, or are you continuing to see further pressure on that front? Hey Dylan, it's Ted, and I'll start, and if Brian wants to jump in,
Dylan Robert Burzinski: Hi, guys. Thanks for taking the question just sort of curious I know you guys aren't focused on prioritizing occupancy as you sort of work your way through some of the known move outs.
Speaker Change: Sort of what that means for net effective rents as we sort of think about the trajectory. There I mean, it seems like things are still holding steady.
Speaker Change: But I guess from the concessions point of view.
Speaker Change: Are you starting to stabilize there or are you continuing to see further pressure on that Brian.
Speaker Change: Hey, <unk>, Ted I'll start and if Bryan wants to jump in look Youre still seeing I think it's stabilized in some of our <unk>.
Theodore J. Klinck: Look, you're still seeing, I think it's stabilized in some of our best BBDs; Brentwood in Nashville and South Park in Charlotte continue to be very strong markets for us. But in general, the general overall comment is there's still pressure on that effect of rents. And I think what we're seeing is exactly what you said. We're generally holding face rents steady, and some markets are actually growing face rents. But the TI pressure has not abated for the most part. You know, free rent is still very common, typically a month or so per year of the lease term.
Speaker Change: Best BB days, the Brentwood and in Nashville, The South Park in Charlotte continue to be very strong markets for us, but in general the general overall comment is there's still pressure on net effective rents and I think.
Bryan: We're seeing is exactly what you said, we're generally holding face rent steady in some markets, we're actually growing face rents, but the ti pressure has not abated for the most part free rent is still very common in a typically a month or so per year of lease term. So its still challenging on that front. The good thing is we're getting more.
Theodore J. Klinck: So it's still challenging on that front. The good thing is we're getting more term when we're spending more TI. So that is a tradeoff. And if we get good credit, good terms, we'll spend more on TI. But I don't think we're seeing any signs of it abating, other than select submarkets. I do think markets are becoming more bifurcated with respect to both the larger market and submarkets. So you've got to really drill down. That's the same thing about the vacancy as well. A lot of the market vacancy is concentrated in just a few buildings here and there.
Bryan: Term when.
Bryan: When we're spending more ti so that is a trade off and if we can get good credit good term, who will spend more in ti.
Bryan: But it's I don't think we're seeing any signs of it abating other than select.
Bryan: Select Submarkets I do think markets are becoming more bifurcated with respect to markets and Submarkets, where you got to really drill down.
Bryan: That's the same thing on the vacancy as well a lot of the market vacancies concentrated in just a few buildings here and there so.
Theodore J. Klinck: So, you know, we're not actually anticipating it to abate any time soon either. I think we're still, you know, still facing the same headwinds we faced. Appreciate that and then, Going back to your comments on acquisitions, doesn't sound like anything is imminent, but I'm curious sort of how you guys think about the potential acquisition environment vs. the balance sheet, and I'm curious if you guys are willing to sort of lever up a little bit should acquisition opportunities arise further. Yeah, I'll start, and if Brendan wants to jump in,
Bryan: We're actually not anticipating it to abate anytime soon either I think we're still still facing the same headwinds we faced.
Bryan: I appreciate that and then going on going back to.
Speaker Change: Your comments on acquisitions doesn't sound like anything is eminent but just curious sort of how you guys think about.
Speaker Change: The potential acquisition environment versus the balance sheet and curious if you guys are willing to sort of lever up a little bit it should acquisition opportunities arise here or there.
Speaker Change: Right.
Speaker Change: Yeah, I'll start and Brendan wants to jump in look I think we're laser focused on continuing to build our dry powder in and get a few more dispositions out of the door now things don't happen in a linear fashion all the time. So we've as we've proven over the years, we've been able to flex our balance sheet, if and when we need to.
Theodore J. Klinck: Look, I think we're laser focused on continuing to build our dry powder and get a few more dispositions out the door. You know, things don't happen in a linear fashion all the time either. So we've, as we've proven over the years, we've been able to flex our balance sheet if and when we need to, but as you stated, really, there's nothing imminent from our standpoint. We're not afraid to do it if we need to, but, you know, right now, we're focused on the disposition side and then finding the right acquisition at the right price. Again, our underwriting team, they're getting a lot of practice right now. We're getting a fair number of reps in, but, you know, but nothing imminent.
Brendan C. Maiorana: But as you stated really theres nothing eminent from our standpoint, we're not afraid to do it if we if we need to.
But right.
Speaker Change: Right now we're focused on the disposition side and then finding the right acquisition at the right price again are the nice thing is our underwriting team. They are getting a lot of practice right now were.
Speaker Change: Getting a fair amount of reps in but.
Speaker Change: But but nothing eminent at this point.
Brendan C. Maiorana: Yeah, Dylan, the only thing that I would add is, I think we have a lot of arrows in the quiver with respect to capital availability. And as Ted mentioned, we are focused on. But I would say, over time, I think the bias is that leverage will move down rather than move up on a long-term basis. But, as Ted said, that doesn't happen in a linear fashion.
John: Yeah, John the only thing that I would add is I think we have a lot of arrows in the quiver with respect to kind of capital availability and as Ted mentioned, we are focused on.
Speaker Change: But I would say over time I think the bias is that leverage will move down rather than move up on a long term basis, but as Ted said that doesn't happen in a linear fashion.
Speaker Change: I appreciate the comments thanks guys.
Brendan C. Maiorana: I appreciate the comments. Thanks, guys. Thank you. We have a question from Michael Lewis with Truist. Your line is now open.
Speaker Change: Thank you.
Speaker Change: We have a question from Michael Lewis with <unk>. Your line is now open.
Speaker Change: Okay.
Michael Robert Lewis: I actually, I was going to ask that last question from kind of a different angle. And I was thinking about it, you know, we had talked about this in the past as far as funding sources for acquisition. Your stock's up almost 30% year-to-date now. I was just wondering, you know, it's still below NAV, significantly, I think, for the consensus NAV.
Michael Robert Lewis: I'm going to ask that last question from kind of a different angle.
Michael Robert Lewis: And I was thinking about it we had talked about this in the past as far as funding sources for acquisition.
Speaker Change: <unk>.
Speaker Change: Almost 30% year to date now.
Speaker Change: I was just wondering it's still below an EV.
Speaker Change: Significantly I think the.
Speaker Change: Consensus NAV.
Speaker Change: Would you consider issuing stock even below any day now.
Michael Robert Lewis: You know, would you consider issuing stock even below NEV now to fund an investment if it was creative and if that made sense? And maybe it solves the issue of, you know, or it reaches the goal of lowering your leverage as well. Michael, it's Brendan.
Speaker Change: To fund that investment.
Speaker Change: If it was accretive.
Speaker Change: That makes sense.
It.
Speaker Change: The issue.
Speaker Change: Reaching the goal of lowering your leverage as well.
Speaker Change: Okay.
Brendan C. Maiorana: Michael It's Brendan.
Speaker Change: We've had we think about all sort of sources of capital I think what we've been very successful in terms of our investment program over the past several years has been.
Brendan C. Maiorana: We've had, you know, we think about all sorts of sources of capital. I think what we've been very successful in terms of our investment program over the past several years has been monetizing non-core assets and recycling that capital into development and acquisitions that have been accretive to our cash flow, have been largely balance sheet neutral, and have been a benefit in terms of overall portfolio quality. So that model has worked well for us.
Speaker Change: Monetizing noncore assets and recycling that capital into development and acquisitions that has been accretive to our cash flow has been largely balance sheet neutral.
Speaker Change: And has been a benefit in terms of overall portfolio quality. So that model has worked well for us.
Brendan C. Maiorana: In prior cycles and prior times, you know, equity was a portion of that. So, you know, that's something that is certainly an option, but I think we've been very successful over the past, you know, five, six years of investing a lot of capital, doing it in a way that was balance sheet neutral by just kind of using proceeds from non-core asset sales. So that kind of is, I would say, certainly first and foremost for us, but, you know, we'll think about other sources of capital if that makes sense as well. Okay, great.
Speaker Change: In prior cycles in prior times equity was a portion of that so.
Speaker Change: That's something that that is certainly an option, but I think we've been very successful over the past five six years of investing a lot of capital doing it in a way that was balance sheet neutral.
Speaker Change: With with just kind of using proceeds from noncore asset sales. So that kind of is I would say certainly first and foremost for us, but we'll think about other sources of capital if that makes sense as well.
Speaker Change: Okay, Great and then my second question is related to the two JV loan Paydowns.
Michael Robert Lewis: And then my second question is related to the two JV loan paydowns. I'm curious about what options were available or what you considered. You know, is there any read through to the refi market in terms of available capacity or proceeds or, you know, whether the pricing is prohibitively expensive or maybe how much of this is if you wait two, three, six months, maybe the Fed has multiple cuts coming up, and you could do that refi more attractively later?
Speaker Change: Im curious kind of what options were available or what you considered is there any read through to the refi market in terms of available capacity of proceeds or whether the pricing is prohibitively expensive.
Speaker Change: Or maybe how much of it.
Speaker Change: If you wait 236 months, maybe the fed has multiple cuts coming.
Speaker Change: Coming up and you could do that refi more attractively later.
Speaker Change #100: Or even in one of your other answers you talked about maybe theres no better use of capital.
Michael Robert Lewis: Or even in one of your other answers, you talked about maybe there's no better use of capital, at least right now, than paying down those loans. So how did you kind of think about that and come around to, you know, paying those loans down rather than doing the refi? Yeah, good questions. So each is a little bit different.
Speaker Change #101: At least right now and paying down those loans. So how did you kind of think about that and come around to paying those loans down rather than doing the refi now.
Speaker Change #102: Yeah. Good questions. So each is a little bit different so at amino.
Brendan C. Maiorana: So at M&O, we, you know, as we disclosed last quarter, we've got a customer there that needed to expand, and we couldn't accommodate them at M&O. So they're moving down the street to 23 Springs. So the lender there, I think we were less willing to provide a higher loan to value or the V was a little bit lower, given the pending vacancy. We are very confident in terms of that backfill and wanted to get those backfill users that those strong prospects that we have inked, and therefore be able to go back to the lending community and get more loans to get more proceeds out of that one. So I think we want to kind of get that rent role stabilized before reintroducing that to the mortgage market and then get what we view as attractive terms on a potential loan.
Speaker Change #102: <unk>.
Speaker Change #102: As we disclosed last quarter, we've got a customer there that needed to expand we couldnt accommodate them at <unk>. So theyre moving down the street to 'twenty three springs, so the lender there.
Speaker Change #102: We.
Speaker Change #102: Was less willing to provide a higher loan to value or the V was a little bit lower given the pending vacancy. We are very confident in terms of that backfill and wanted to get those backfill users that those strong prospects that we have inked and therefore being able to go back to the lending community.
Speaker Change #102: And get more loan to get more proceeds out of that one. So I think we want to kind of get that rent roll stabilized before reintroducing that to the mortgage market and then get what we view as an attractive terms on a on a potential loan. So that was the reason for sort of not doing a refi.
Speaker Change #102: As it stands right now so I would call that one a little bit more temporary and then I think at granite Park six that was more opportunistic obviously with where rates are in terms of sofa and then the spread on that construction loan that is higher now to be clear we didn't pay that down we just paid down the balance but that loan is still outstanding. So we can see.
Speaker Change #102: They'll draw on that construction loan for future proceeds if we choose to do that but given the capital that we have and that our partner has that just made financial sense given the high interest rate on that one now and same kind of thing as we get that building stabilized I think we will go to the mortgage market and that will be a good source of proceeds.
Brendan C. Maiorana: So that was the reason for sort of But given the capital that we have, and that our partner has, that just made financial sense, given the high interest rate on that one now. And same kind of thing, as we get that building stabilized, I think we will go into the mortgage market. And that will be a good source of revenue for us and our partner. The only thing I would add is that I think it's a testament to the strength of our joint venture partner, Granite Properties.
Speaker Change #102: For us and our partner.
Speaker Change #103: The only thing I would add is I think it's a testament to the strength of our joint venture partner granite properties on the day, we are in lockstep in agreement on the strategy for both these assets and they were able to step up in rate and a pretty significant check alongside us to effectuate. These paydowns.
Brendan C. Maiorana: We were in lockstep in agreement on the strategy for both these assets, and they were able to step up and write a pretty significant check alongside us to effectuate these paid, good to have options. We have a question from Omotayo Okusanya with Deutsche Bank. Your line is now open. Hi, yes. Good morning, everyone.
Speaker Change #104: Good to have options. Thank.
Speaker Change #104: Thank you.
Matteo <unk>: We have a question from Matteo <unk> with Deutsche Bank. Your line is now open.
Matteo <unk>: Hi, Yes, good morning, everyone Brendan.
Omotayo Tejumade Okusanya: Brendan, I was hoping you could go back to 2024 guidance. Again, still trying to understand some of the overage that you talked about earlier on. Again, taking out the tax refund situation, this kind of $0.02 increase on better NOI, but again, none of your same store numbers really changed. I know there's like an additional $1 million charge now that's in the numbers, but could you kind of walk us through exactly what that NOI increase at the end of the day is, especially if it's kind of coming from non-same store NOI?
Brendan I was hoping you could go back to 2020 guidance.
Matteo <unk>: Just trying to understand some of the some of the overage that you talked about earlier on again, taking out the tax refund situation.
Speaker Change #106: <unk> increase on better NOI.
Speaker Change #107: Again, none of your same store numbers really changed I know there is that's an additional $1 million charge now that's in the numbers, but could you kind of walk us through exactly.
Speaker Change #108: NOI increased at the end of the day is especially if it's kind of that's coming from non same store NOI.
Speaker Change #107: Alright.
Omotayo Tejumade Okusanya: Um, yeah, Taiyo, so just, um, it is, what I would say is the NOI increase, it is... same store, we guide to cash, same property, NOI growth. I would say some of that benefit is... There is some cash benefit overall, but that was largely offset by the million dollar charge, which was not in our prior outlook and is flowing through the same store. The remainder of the two and a half cents of upside is probably more on the non-cash side.
Tayo: Yes, tayo so just.
Speaker Change #110: What I would say is the NOI increase it is <unk>.
Speaker Change #111: Same store, we guide to cash same property NOI growth I would say some of that benefit is.
Speaker Change #112: There is some cash benefit overall, but that was largely offset by the $1 million charge, which was not in our prior outlook and is flowing through same store the remainder of the two and a half cents of upside is probably more on the noncash side I did mention I think in response to a previous question.
Omotayo Tejumade Okusanya: I did mention, in a response to a previous question, we have done some lease extensions with some users that carried some proactive free rent into 24, which we didn't previously forecast, but those are good economic deals for us, which pushes those lease extensions out much further into future years. So it's a little bit of a cash hit in 24 for benefit in future years.
Speaker Change #112: We have done some.
Speaker Change #112: Lease extensions with some users that carried some proactive free rent into 'twenty, four which we didn't previously forecast, but those are good economic deals for us, which pushes those lease extensions out much enter into future years. So it's a little bit of a cash hit in 'twenty four for future for benefit in future years.
Brendan C. Maiorana: So it's all in NOI, but there's a portion of it which is gap NOI and not cash NOI, which is what we guide to. Gotcha. Okay, that's helpful. Thank you. We have no additional questions at this time, so I'll pass the call back to the management team for any closing remarks. Well, thanks everyone for joining the call today and thanks for your interest in Highwoods. If you have any follow-up questions, please feel free to reach out, and I look forward to seeing you soon. Thank you.
Speaker Change #112: So it's all in NOI, but there is a portion of it which is GAAP NOI and not cash NOI, which is what we guide to.
Speaker Change #113: Gotcha, Okay. That's helpful. Thank you.
Speaker Change #112: Yes.
Speaker Change #114: We have no additional questions at this time, so I'll pass the call back to the management team for any closing remarks.
Sure.
Speaker Change #115: Well, thanks, everyone for joining the call today and thanks for your interest in Highwood <unk> do you have any follow up questions. Please feel free to reach out and look forward to seeing you soon thank you.
Speaker Change #115: Yeah.