Q2 2024 BXP Inc Earnings Call
Okay.
Speaker Change: Good day and thank you for standing by welcome to be X piece second quarter 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone you will then hear an automated message advising him just raised to withdraw your question. Please press star. One again, please be advised that today's conference call is being recorded I would now.
Speaker Change: I like to hand, the conference call over to your first Speaker, Helen Hahn Vice President of Investor Relations. Please go ahead.
Speaker Change: Good morning, and welcome to Dxp's second quarter 'twenty 'twenty four earnings conference call approximately for supplemental package were distributed last night and furnished on form 8-K.
Supplemental package DXP has reconciled all non-GAAP financial measures to the most are roughly comparable GAAP measure in accordance with Reg G. If you did not receive a copy. These documents are available in the investors section of our website at investors <unk> com.
Speaker Change: This call will be available for 12 months at this time, we would like to inform you that certain statements made during this conference call, which are not historical may constitute forward looking statements within the meaning of the private Securities Litigation Reform Act.
Speaker Change: That'll be X P believes the expectations reflected in any forward looking statements are based on reasonable assumption. It can give no assurance that expectations will be achieved.
Speaker Change: Factors and risks that could cause actual results to differ materially from those expressed or implied by forward looking statements were detailed in yesterday's press release and from time to time in D. F E filing with the FTC DXP does not undertake a duty to update any forward looking statements.
Owen David Thomas: You're welcome Owen Thomas Chairman, and Chief Executive Officer, Doug <unk>, President and Mike Labelle, Chief Financial Officer.
Speaker Change: During the Q&A portion of our call Ray Ritchey Senior Executive Vice President and our regional management teams will be available to address any questions. We ask that those of you participating in the Q&A portion of the call. Please limit yourself to only one question. If you have additional queries or follow up please feel free to rejoin the queue.
I would now like to turn the call over to Owen Thomas for his formal remarks.
Owen David Thomas: Thank you Helen and good morning, everyone.
Owen David Thomas: <unk> performance in the second quarter once again demonstrated the relative market strength of the Premier workplace segment of the commercial office industry as well as DXP strength and execution.
Speaker Change: Our <unk> per share with six cents above our forecast and five cents above market consensus for the second quarter. Further we raised the midpoint of our <unk> per share guidance for 2024 by 8%.
Owen David Thomas: We completed over one 3 million square feet of leasing, which is 41% greater than the second quarter of 2023.
Owen David Thomas: And close to our 10 year average leasing volume for the second quarter.
Owen David Thomas: As our leasing volume continues to escalate exceeding current lease expirations, we expect our occupancy will increase over time.
Owen David Thomas: Weighted average lease term on leases signed this past quarter remained long at nine years.
Owen David Thomas: On the sustainability of this past quarter, we released our 2023 sustainability and impact report hosted our third annual sustainability and impact Investor update and we're recognized by time magazine as one of the world's most sustainable companies ranking number one in the U S. Among property owners.
Owen David Thomas: Delivering sustainable real estate solutions is increasingly important to our clients as well as the communities, where we operate and decreases our cost of capital given the growing number of ESG investors interested in our debt and equity securities.
Speaker Change: Moving to macro market conditions, we continue to experience market tailwind for the two most important external forces impacting dxp's performance interest rates and corporate earnings growth.
Owen David Thomas: The U S. Inflation report released on July 11th reflected a 3% inflation rate for June lower than expectations, sparking new forecast of accelerated interest rate cuts by the fed as well as lower market yields for the 10 year U S. Treasury lower interest rates are obviously favorable for real estate.
Speaker Change: And bx piece valuation and for broader corporate earnings growth. The second important external factor driving dxp's performance.
Owen David Thomas: After remaining flat for all of 2023, S&P 500 earnings growth was 6.6% in the first quarter of this year and is expected to be around 9% for the second quarter as mentioned repeatedly companies with earnings growth are much more likely to invest to hire and to lease additional.
Speaker Change: Space as demonstrated in our growing leasing volumes this year.
Speaker Change: Premier workplaces defined as the highest quality six 5% of buildings, representing 13, 1% of total space and our five CBD markets.
Speaker Change: To materially outperform the broader market.
Speaker Change: Direct vacancy for Premier workplaces, as 13% versus 18, 5% for the broader market.
Speaker Change: Likewise net absorption for Premier workplaces has been a positive $6 9 million square feet over the last three years versus a negative $22 8 million square feet for the broader market.
Speaker Change: Asking rents for Premier workplaces are 51% higher than the broader market a consistent gap from prior quarters.
Speaker Change: Outperformance is evident and Bx PS portfolio, we're just under 90% of our NOI comes from assets located in CBD that are predominantly premier workplaces.
Speaker Change: CBD assets are 94% occupied and 92, 2% leased as of the end of the second quarter.
Speaker Change: We are also experiencing moderate but steady increases in workers returning to the office based on the turnstile data, we capture for roughly half of our 54 million square foot portfolio.
Speaker Change: Corporations continue to push for increased office attendance, including sales force recently announced their new policy shift from primarily flexible work to mandatory office attendance for most employees a three to five days per week, depending on job function.
Speaker Change: Regarding the real estate private equity capital markets office sales volume in the second quarter continued to be muted at $6 9 billion and has ranged from $6 $2 billion to $9 $1 billion for the last six quarters well below volumes achieved before the fed started raising interest rates in 2022.
Speaker Change: Completed transaction activity for Premier workplaces has been very limited, though increasingly owners are testing the market to understand pricing.
Dxp: Moving to Dxp's capital allocation activities, we remain active in pursuing acquisitions from owners and lenders, but as mentioned have seen limited opportunities in the premier workplace segment.
Speaker Change: We are in active negotiations for the disposition of four land positions, which if successful would generate approximately $150 million of proceeds half of which could be realized this year.
Speaker Change: For our development pipeline, we delivered into service for 118000 square foot Dick's House of sport on Boylston Street at the Prudential Center in Boston fully leased at a strong yield.
Speaker Change: On July 12, we open Sky, Mark or 508 unit luxury residential tower development at Reston Town Center, we have already leased 21% of the units ahead of schedule.
Speaker Change: And rents are also modestly above projections.
Speaker Change: We continue to push forward with several residential projects primarily on land, we control that are being entitled and designed for which we intend to raise JV equity capital.
Speaker Change: DXP continues to execute a significant development pipeline with 10 office lab retail and residential projects underway as of the end of the second quarter. These projects aggregate approximately $3 1 million square feet.
Speaker Change: $2 $3 billion of DXP investment with $1 2 billion remaining to be funded.
Speaker Change: And will contribute to bx fees external <unk> per share growth over time.
Speaker Change: Though market segment for the broad office asset class remains challenging DXP continues to leverage its key strengths which are.
Speaker Change: Our commitment to premier workplaces, and our clients as many competitors disinvest in the office sector.
Speaker Change: A strong balance sheet with ready access to capital in the secured and unsecured debt and private equity markets.
Speaker Change: And one of the highest quality portfolios of Premier workplaces in the U S assembled over several decades of intentional development acquisitions and dispositions.
Speaker Change: So in conclusion bx.
Speaker Change: DXP continues to display resilience with a growing leasing pipeline as well as stability in <unk> per share and dividend level and is well positioned to continue to gain market share in both assets and clients. During this time of market dislocation for the office sector.
Speaker Change: Expectations for lower interest rates and stronger corporate earnings growth, while also provide terror tailwind for our renewed growth over time.
Speaker Change: So now Doug I'd like to wish you, a happy birthday, and I will turn the call over and you can talk about our strong leasing activity sector and I really enjoy celebrating my birthday with all you on the call every few years.
Doug: The highlights.
Doug: So as we described during our NAREIT June meetings and the webcast will be did the trend line of Dxp's leasing activity in the second quarter of 'twenty four picked up materially relative to what we executed in the first quarter and what we discussed on our last call all really good stuff.
Doug: As of June 30th we've completed $2 2 million square feet of leasing for 'twenty four.
Doug: When we spoke to you during our May call. We stated our pipeline of leases under negotiation at that time <unk> was 875000 square feet.
Doug: Aaron highlighted we signed leases for 132 million square feet between April one and June 30, a lot more.
Doug: And our active pipeline of leases under documentation today has grown to 139 million square feet.
Doug: So if we complete this will all transactions, we will have leased 3.5 dollars 9 million square feet of space.
Doug: <unk> of our leases in documentation, we have an additional <unk>.
Doug: Set of transactions under discussion totaling about 850000 square feet. So if we execute 50% of those transactions, we will more than achieved our leasing guidance of 4 million square feet for the year.
Doug: This quarter, we completed 73 transactions 37 lease renewals for 830000 square feet.
Doug: 36, new leases encompassing 500000 square feet.
Speaker Change: 12 clients expanded into 228000 square feet of additional square footage, while we had four contractions totaling 63000 square feet.
Speaker Change: 45% of our absorption was growth from our existing client pool.
Speaker Change: As a point of comparison last quarter, we completed 61 transactions with 29 renewals encompassing about 400000 square feet and 32 leases for 194000 square feet and we had only three expansions for 18000 square feet and we had four contractions totaling 44000 square feet. So again really big improved.
Speaker Change: Q2 activity was concentrated in our east coast markets with 445000 square feet in New York 343000 square feet in Boston, and 351000 square feet in Northern Virginia.
Speaker Change: These three markets made up 1.14 million square feet or 86% of the activity.
Speaker Change: Our west coast activity was almost exclusively in San Francisco with 146000 square feet. The.
Speaker Change: The majority of our client expansions came from Manhattan This quarter.
Speaker Change: The only significant contraction in the portfolio came from a tech company downsizing in recipe.
Speaker Change: We had three transactions over 100000 square feet, one each in Boston, New York and <unk>.
Speaker Change: Expansions or new clients made up 42% of the activity in New York.
Speaker Change: 40% in Boston, 37% on the West Coast and 16% in D C.
Speaker Change: As reported in our supplemental the mark to market of leases that commenced this quarter, which is about a 375000 square foot base was up 6% and transaction costs averaged $11 per square foot per year.
Speaker Change: The overall mark to market I've never starting cash rent on leases executed this quarter, which was a 1.15 million square feet pool relative to the previous implants in place cash rent was about flat.
Speaker Change: <unk> rents on leases, we signed during the second quarter were up about 8% in Boston really flattened New York down 6% in D C and down 7% on the West Coast.
Speaker Change: And I want to spend a minute on our occupancy changed during the quarter, which seem to have been a focus of many of the analyst reports that we saw this morning and last night.
Speaker Change: As we stated in February and May we have two large known explorations won in April 200000 square feet at 680, Folsom, which is in the second quarter figures and one in July 200000 square feet at times Square tower at the JV asset. So our percentage here is 110, but we report the 200.
Speaker Change: This quarter, we also vacated a 148000 square feet of occupied but non revenue producing spaces, what do I mean, well we had some tenants in default, where we had stock recognizing revenue yet they were still in possession and we were in legal proceedings to vacate the space. In addition, we took back 60.
Speaker Change: Thousands square feet from we work at dock 72, but they're at the absolute rent that we were receiving remains the same it's just on a lower square footage.
Speaker Change: Finally, we terminated a 33000 square foot lease in Waltham that was simultaneously released but won't be delivered into next quarter. Those movements account for 92% of the reduction in our occupancy in the second quarter from the first quarter.
Speaker Change: As of June 30th.
Speaker Change: We have approximately 1 million square feet of signed leases that have not commenced hence the 200 basis points difference between occupied space and leased space.
Speaker Change: In the first quarter, our leasing included 383000 square feet, a bacon space leasing this quarter that same vacant space leasing was 362000 square feet.
Speaker Change: Leases are all part of our leased square footage percentage.
Speaker Change: Our pipeline of leases in negotiation includes an additional 635000 square feet of currently vacant space, which have signed will contribute another 130 basis points to our leased square footage.
Speaker Change: In addition to the known 200000 square feet exploration at times Square Tower in Q3, our two Waltham life science developments will be added into our in service portfolio in the third and fourth quarters 183 point and 103 fourth Avenue, respectively. There.
Speaker Change: Were a combined 32% occupied which will reduce our in service occupancy.
Speaker Change: These additions will result in about a 50 basis point reduction at the year end for.
Speaker Change: For those of you that are focused on the next call.
Speaker Change: Expect us to be lower by about 40 basis points with a recovery in the fourth quarter, where most of the leases that have been signed and start to commence where we projected occupied space to be between 87 and 87, 5% inclusive of the addition to the in service portfolio.
Speaker Change: In previous quarters, we have not been including the additions to in service portfolio, but we're doing that now because it's a quarter away.
Speaker Change: Or at least space will continue to be above 89%.
Speaker Change: DXP continues to lease space in <unk>.
Speaker Change: Manhattan, almost all of our demand continued to originate from financial institutions alternative asset managers professional service organizations and law firms in many circumstances. These clients are expanding.
Speaker Change: Concessions are flat and taking market rents have risen double digits digits in 2024.
Speaker Change: The sub 8% availability in the Park Avenue Submarket is a direct reflection of these users growing and competing for limited blocks of space in one of our assets. We have three tenants that would like more space and we have no immediate availability.
Speaker Change: We had more than 130000 square feet of expansions at the General Motors building and at 601 Lexington Avenue this quarter.
Speaker Change: Our strongest tour activity in New York City continues to be in this sub market at the same time technology demand across the city continues to be light. We completed a single floor at least at $3 60 Park Avenue, South with a digital media firm this quarter, but Midtown South is a tech oriented submarket in the city.
Speaker Change: Were transactions over 20000 square feet have been very limited in 2024, and Princeton, We completed 10 transactions totaling 150000 square feet during the quarter, including an extension and expansion with a foreign pharma company.
Speaker Change: In the back Bay, and the financial District of Boston, We completed 195000 square feet of leasing this quarter. The majority of this activity was in our back Bay portfolio and the clients, where alternative asset managers and professional services firms. The back Bay continues to outperform the financial district, which continues to have to digest the new construction.
Speaker Change: Pipelines.
Speaker Change: Our remaining activity was in our Waltham urban edge portfolio, we completed just over 110000 square feet and 90% of those transactions were on either existing or near term vacancy not renewals here.
Speaker Change: Here the demand came from a consumer products company homebuilder and a few pharma life science companies with Opex requirements.
Speaker Change: We did execute 125000 square foot life Science Lab Leafs.
Speaker Change: The life Science lab demand in greater Boston continues to be lackluster with tenants displaying a little urgency around any potential new requirements are relocations.
Speaker Change: This year there have been a non renewal lab deals in Waltham Lexington, Watertown in West, Cambridge that didn't involve a sublet only one was greater than 25000 square feet.
Speaker Change: Our reston portfolio with responsible as I said for virtually all of our executed leases this quarter in the D C region.
Speaker Change: Leasing activity and tenant demand growth is coming primarily from two industries cyber security and defense contracting we had just over 30000 square feet of expansions from existing tenants, but we also experienced as I said, a 50000 square foot contraction from a traditional tech company.
Speaker Change: The vibrant residential and retail environment continues to be a natural location for small businesses in the financial services and legal industry as well and we did do six leases at 5000 square feet or less in the town center as well as a handful of retail deals.
Speaker Change: The district of Columbia Office market is becoming more and more bifurcated the private sector tenant demand is dominated by the legal industry in D C. But in almost every case law firm renewal are relocations are resulting in smaller requirements, which is leading to negative absorption as we've all read and seen it doesn't look like the government leasing where usage is going.
Speaker Change: To help with this problem.
Speaker Change: With the either existing or near term high vacancy there are many buildings with over a leverage capital structures unwilling to provide capital for new transactions and therefore, they have very little client interest.
Speaker Change: Clients do want space, they prefer to be in the top of refurbished amenity rich well capitalized buildings, there appears to be limited opportunities in the market that meet these client demands. So our availability at 'twenty 200, Penn in 91, New York Avenue should fare well over the next few quarters.
Speaker Change: On a comparative basis, the west coast markets, particularly San Francisco are seeing more demand in 'twenty four 'twenty. Three however, additional sublet availability and technology company lease downsizings upon lease expirations continue to mute the positive demand emanating from the AI organizations that continue to.
Speaker Change: Look for space.
Speaker Change: Tech growth away from AI has yet to emerge.
Speaker Change: The San Francisco CBD also continues to act as a financial centre of the West coast with its own set of asset managers, including private equity firms and venture firms and hedge funds a few specialized fund managers and obviously their financial and legal advisors. This is the source of the bulk of the transactional activity in the market and while the brokers correctly report.
Speaker Change: Pickup and tenants in the market. If you look more closely very little of that demand represents net growth from those tenants.
Speaker Change: Our San Francisco activity continues to center on traditional non tech demands at Embarcadero Center.
Speaker Change: This quarter, we completed an 80000 square foot law firm renewal with no change in square footage and five smaller deals all 12000 square feet or less with new tenants on currently vacant space.
Speaker Change: We continue to see many of the professional services and locker and continuing to downsize, which is in Stark contrast to the activities of those same tenants in New York and Boston.
Speaker Change: We are seeing a steady flow of potential tenants 12000 square feet or less which is about a full floor at our $5 35, Michigan property, but this is in contrast to 680 Folsom, whose location is less desirable for non tech demand and where the potential tech clients continue to have inexpensive furnished sublet oxygen.
Speaker Change: Tenant activity is improving in our mountain view research R&D buildings, where we have about 215000 square feet of availability and uniquely attractive product.
Speaker Change: Buildings are designed for companies that are making some sort of device be it a car center photovoltaic panel or a medical device. They don't compete with the large multi storey office product that has flooded the market.
Speaker Change: We saw activity come to a halt when the SBB imploded last year, the entrepreneurial device maker companies still exist and they are now slowly making capital commitments once again and looking at leasing space.
Speaker Change: The lab market story in South San Francisco is not dissimilar to greater Boston there are only a handful of new leases completed during the first six months of the year that didn't involve a renewal or sublease, though there have been about 100000 square feet of new deals completed in the last 30 days.
Speaker Change: Overall, we are experiencing an improving operating environment leasing available space is primarily driven by gaining market share from competitive landlords <unk> lower quality building, but not net new market demand growth.
Speaker Change: While the market's need consistent incremental absorptions to show a macro recovery. We have started to see pockets of strength, where low availability is driving constructive client behavior. The back Bay of Boston in the Park Avenue Submarket of New York are the obvious examples as clients choose premier properties in sound financial condition operating.
Mike: By the best property management teams, we will continue to be successful in capturing demand leasing space and increasing our occupancy and with that I'll turn it over to Mike.
Mike: Great. Thanks, Doug.
Mike: Birthday. Thank you.
Speaker Change: Yes.
Mike: So this morning I'm going to cover the details of our second quarter performance and the increase to our 2020 for full year guidance.
Mike: So for the second quarter, we reported funds from operations of $1 77 per share that exceeded the midpoint of our guidance from last quarter by six cents per share.
Speaker Change: Our portfolio NOI came in a penny ahead of the midpoint of our guidance. The majority of this resulted from lower operating expenses in the quarter.
Speaker Change: Until revenue was closely aligned with our expectations and.
Speaker Change: And as Doug described our occupancy decline was anticipated in our guidance as we've covered with you in the last two earnings calls.
Doug: Five of our earnings beat came from a reduction in noncash interest expense that we don't expect to recur and that you should not incorporate in our run rate going forward.
Speaker Change: The change is due to our reassessing, our future earn out payment related to our skyline multifamily project in Oakland the.
Speaker Change: <unk> results and the reversal of $9 million of previously accrued noncash interest expense or.
Speaker Change: Our structuring of this deal with the protection of an earn out in lieu of an upfront land purchase is saving us nearly $40 million of projected land payments.
Speaker Change: So moving to the full year, we're increasing our <unk> guidance for 2024 to $7 nine to $7 15 per share at the midpoint. This equates to $7 12 per share and is an increase of eight <unk> per share over the prior guidance midpoint.
Speaker Change: In addition to the second quarter outperformance, we anticipate <unk> per share better projected portfolio NOI in the back half of the year from our in service portfolio.
Speaker Change: We've negotiated three lease terminations all in Boston with payments that will add incremental income in the second half of 2024 net of lost rental income or NOI is projected to be higher by approximately $4 million or two cents a share.
Speaker Change: The geography of the expected improvement shows up as an increase in termination income and a modest reduction of same property NOI.
Speaker Change: We don't include termination income in our same property guidance and we guide to it separately. So you will see in our detailed guidance table in our supplemental that our full year 'twenty for termination income guidance is now 14 million to $16 million up $8 million.
Speaker Change: Correspondingly, we have reduced our 2020 for same property NOI growth by 25 basis points at the midpoint to a range of negative one 5% to negative 3% from 2023.
Speaker Change: If not for the terminations are same property performance expectations would have been in line with our prior guidance.
Speaker Change: To provide a little more detail most of our termination income comes from terminations, we have negotiated to allow us to sign new long term leases with both expanding and new clients.
Speaker Change: These transactions are reducing our occupancy by 100000 square feet temporarily but the impact will be short term as we have new leases coming in after six months to 12 months of downtime that will cover virtually all of the space.
Speaker Change: These deals reduce our 2020 for occupancy by about 20 basis points and are reflected in our updated argument the guidance.
Speaker Change: We've also modified our guidance for net interest expense to incorporate the <unk> <unk> per share of lower interest expense recorded in the second quarter. This resulted in lower interest expense for the full year and our new guidance range for net interest expense of $578 million to $588 million.
Speaker Change: The remaining components of our prior guidance have not changed meaningfully and overall our earnings performance for 2024 is exceeding our prior expectations.
Speaker Change: I would like to spend a minute on interest rates is there has been no consistency quarter to quarter on fed rate cut projections that.
Speaker Change: Back in January the street was projecting forward rate cuts starting in the second quarter than the first quarter data came out in the street change that deserved a one time.
Speaker Change: And now with more progress on inflation. The street has reverted back to three cuts this year.
Speaker Change: We have not changed our base model that assumes 125 basis point cut in December should the fed cut by 25 basis points three times starting in September our interest expense will be about $2 million or a penny per share lower which is within our guidance range.
Speaker Change: Another item that could impact interest expense is the refinancing of our $850 million, 335% bond expiring in January 2025.
Speaker Change: We have access to multiple debt markets and in general the bond markets had been improving with tighter spreads and lower treasury rates. We are evaluating the timing of replacement financing and it is possible we could hit the market this year.
Speaker Change: We would expect to invest any financing proceeds temporarily and bank deposits.
Speaker Change: Currently earn approximately 5% and then redeem the bond at its exploration.
Speaker Change: We haven't included the impact of a potential debt transaction in our current guidance.
Speaker Change: So in conclusion, we are increasing our guidance for <unk> to $7 nine to $7 15 per share.
Speaker Change: This is an eight share.
Speaker Change: <unk> increase from the midpoint from our prior guidance.
Speaker Change: The primary reason is improvement of <unk> <unk> per share lower noncash interest expense five cents of higher termination income offset by <unk> <unk> of lower same property NOI from the lost rental income related to lease terminations.
Speaker Change: That completes our formal remarks, operator can you open up the line for questions.
Speaker Change: Thank you Sir as a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press star one again, we ask that you. Please limit yourselves to one question.
Speaker Change: You have any follow up questions. Please feel free to rejoin the queue. Please standby, while we compile the Q&A roster.
Nicholas Gregory Joseph: And I show. Our first question comes from the line of Nick <unk> with Scotiabank. Please go ahead.
Nicholas Gregory Joseph: Thanks, Good morning, So I appreciate some of the clarity there on the occupancy guidance and the leasing activity.
Speaker Change: It sounds like some of this is.
Speaker Change: A lot of it is just sort of timing related in terms of the adjustment to the occupancy and same store guidance.
Speaker Change: Is there a way to give us a feel for it.
Speaker Change: Some of the recent leasing pace continues.
Speaker Change: How that could translate into.
Speaker Change: Occupancy growth next year I know you know on did talk earlier about you know.
Nicholas Gregory Joseph: Getting to the point where.
Speaker Change: Occupancy will increase over time, I mean, any any sort of early thoughts on 2025 impact. Thanks.
Doug: So Nick this is Doug So I think that Owen's comment was was 100% accurate, which is our occupancy is going to increase.
Doug: Mike would also tell you that we have a cycle with regards to particularly our CBD leasing which by the way we are in the 90 mid mid 90% occupancy level right now.
Speaker Change: Where are those leases take some time to go from from leased to occupied right. So.
Speaker Change: We have about 200000 square foot piece of space that's available in a particular building and we sign a lease for it but we may not see actual occupancy for 12 to 16 months because the tenant has to actually physically build out the space and so it's a little hard for us to give you a.
Speaker Change: A tight projection on winter occupancy number will actually start to materially increase the trajectory. There is no question, it's going up and if we end the year again with this new adjusted in service portfolio with the availability that we have in these life science buildings in the mid 80 Sevens, we will my guess it would be in.
Nicholas Gregory Joseph: The 88 and in 2025, and we could get lucky relative to delivering some space, where the tenant takes it in and as its condition and suddenly we are going to get a big pickup in quote unquote occupied.
Nicholas Gregory Joseph: And therefore, we can start recognizing revenue those are the kind of things that would make a material difference, but we're not counting on those.
Nicholas Gregory Joseph: Okay.
Speaker Change: Thank you.
Speaker Change: I'm showing our next question comes from the line of Steve Sochua from Evercore ISI. Please go ahead.
Nicholas Gregory Joseph: Thanks.
Helen Han: You guys talked about maybe pursuing some new apartment development I'm. Just curious if you sort of look at pricing today for materials and kind of current rents what sort of yields do you get on trended rents today and.
Speaker Change: It sounds like you might bring in JV partners, but how would you sort of think about funding those and what percentage of those deals would you likely keep yes, Steve.
Steve: Steve It's Alan.
Helen Han: So most of what we're pursuing is on land or other assets that we control that.
Steve: That we are re entitling, yes, there is.
Speaker Change: No secret that there is a shortage of housing certainly affordable housing in this country broadly and I think communities are a lot more interested in entitling housing projects today than they have been in the past and Thats a real help to our activities.
Speaker Change: Obstacle is what you described which is our costs, which have gone up not only for materials, but also capital given interest rates, but.
Speaker Change: But to come to your question, we have a pretty significant portfolio of land that we control that we're pushing through this entitlement.
Speaker Change: And design process, but not all of the projects pencil.
Steve: We're trying to get on a project basis is mid six yields and higher.
Steve: And as you also suggested our goal would be to bring in JV partners for that I.
Steve: I mentioned this.
Steve: Sky Mark project that we are currently opening in Reston, we own 20% of that project can have an 80% JV partner and our hope.
Steve: Is to establish similar types of joint ventures for these projects in our pipeline.
Doug: This is Doug I, just maybe falling following additional comment which is this stuff works with stick frame.
Speaker Change: So the things that we're looking at in our suburban.
Speaker Change: Well I'd say nine.
Speaker Change: Office likely potential properties, and the greater Waltham market as well as in <unk>.
Speaker Change: Northern Virginia.
Speaker Change: Are there places, where you will probably see us being able to start things sooner rather than later CBD construction in CBD rents are much harder to pencil right now.
Speaker Change: And all of our teams are looking at and studying it but we don't we're not we're not sure that 2025 will be in a position from.
Nicholas Gregory Joseph: Our economic start on that stuff.
Nicholas Gregory Joseph: Yeah.
Nicholas Gregory Joseph: Thank you and our next question comes from the line of Michael Griffin with Citi. Your line is open.
Michael Anderson Griffin: Great. Thanks, I wanted to go back to your comments around expectation for forward earnings growth and kind of how that translates to leasing.
Michael Anderson Griffin: Should we take it as the fact that there is a pivot to earnings growth improves the outlook versus maybe the magnitude of what corporate earnings growth is expected to be maybe relative to history, and then I imagine that a lot of that growth is coming from tech companies just given the fact that they had been more hesitant to lease space.
Speaker Change: As we've seen over the past couple of years, how does that maybe factor into using that metric is a good forward indicator of leasing demand.
Michael: Michael Good morning, So we provide in our IR deck, a graph of S&P 500 earnings growth versus Dxp's leasing activity. There is a clear correlation not all of our clients are in the S&P 500, but S&P 500 earnings growth is just an indicator of I would say.
Speaker Change: Corporate health.
Speaker Change: And when companies are growing and they're healthy, they're more likely to invest higher and lease space.
Speaker Change: So I think it's real and.
Speaker Change: This year, it's proving itself once again because in 'twenty three we had more muted leasing activity. There was no S&P 500 earnings growth. This year the growth is stronger and our leasing is stronger so that correlation holds.
Speaker Change: You are 100% right I think in terms of your comments about tech leasing when you look at the markets today I would say outside of Tech and life Science are leasing is.
Speaker Change: Almost back to normal whatever that is defined as pre pandemic. Those are the two plays.
Speaker Change: Places that there is a gap and I recognize some of the S&P 500 earnings growth is coming from tech companies, but again when you look at the data that correlation holds S&P 500 earnings growth to leasing and it seems like it's holding this year in 2024.
Speaker Change: Thank you.
Speaker Change: And our next question comes from the line of John Kim from BMO Capital markets. Please go ahead.
John P. Kim: Thank you.
John P. Kim: You pushed back the stabilization dates of several development projects, how should we think about the likely lease up period versus those new dates.
John P. Kim: And Mike if you can remind us of your capitalization interest policy I know in the past you stopped capitalizing as soon as initial occupancy took place.
John P. Kim: Just wanted to clarify.
Speaker Change: That position.
Mike: So John I think that the.
Mike: Stabilization dates assume a 85% occupied square footage of the building. So that's sort of how that works. So presumably the leasing would be done in a 12 to 18 months prior to that date occurring and we would be building out space and generating revenue Windows 10 has actually moved in.
Speaker Change: I'll, let Mike talk about our capitalization methods.
Speaker Change: So.
Speaker Change: The.
Mike: Policy around capitalization as we stop capitalizing interest.
Mike: And any expenses associated with asset like real estate taxes 12 months. After the base building is completed.
Mike: So like for 103 City point and 180 City point that Doug described that is going into the in service portfolio later this year.
Speaker Change: Those base building completed in the third and fourth quarter of 'twenty three so on the <unk>.
Speaker Change: Third and fourth quarter 'twenty for the capitalized interest will stop.
Speaker Change: And those assets and so they're not fully leased so we will have some impact there.
Speaker Change: <unk>.
Speaker Change: 751 Gateway asset completed its phase building in the second quarter of 'twenty four.
Speaker Change: And 360 Park is later this year.
Speaker Change: So those will have some impact.
Speaker Change: Next year and then later next year for 360 part so that's kind of the timing associated with the capitalized interest works and again.
Speaker Change: Unfortunately.
Speaker Change: This geography, but we throw all of these development assets 12 months. After we've completed based building into our in service portfolio wherever they are at least.
Speaker Change: And so they you know they have I mean using effect on our occupancy even though they are not really apples to apples as part of the in service portfolio that we're describing on a sort of quarter by quarter basis.
Speaker Change: Yes.
Speaker Change: Thank you and I'm showing our next question comes from the line of Blaine Heck from Wells Fargo. Your line is open.
Blaine Matthew Heck: Great. Thanks, good morning.
Blaine Matthew Heck: Oh in conversations about the potential impacts of the election are ramping up so wanted to get your thoughts on whether you see any possible changes in regulations or the overall economic or political environment that would be impactful to your business.
Speaker Change: Under under either party.
Blaine Matthew Heck: Yes.
Speaker Change: I don't think that's a huge difference for us I mean, clearly there are some tax.
Speaker Change: Issues that are coming up over the next couple of years, where there is a one party or the other gets elected it could have some impact, but I will say.
Speaker Change: State and local elections have a larger impact on our day to day business or whats going on with real estate taxes in our city, what's our ability to entitle real estate, what's going on with.
Speaker Change: Commuter transit whats going on with safety.
Speaker Change: And crime and are in the streets of our cities those types of issues have a bigger impact on us than issues at the federal level.
Blaine Matthew Heck: Yes.
Blaine Matthew Heck: Thank you and I'm showing our next question comes from the line of Camille Banal from Bank of America. Please go ahead.
Camille Banal: Good morning, I wanted to pick up on the portfolio as Capex spend for the first half of the year, which looks to be tracking in line with 2023 level.
Speaker Change: While below your historic average so could you provide an update on the Capex assumption do you have plan given expectations for higher lease commencement.
Blaine Matthew Heck: So.
Speaker Change: Our maintenance Capex.
Speaker Change: I would suggest is going to run somewhere between 80 and $100 million. This year, which is in line with I would say historical type of averages maybe a little bit lower.
Speaker Change: Do have some repositioning capex that is more meaningful this year than it was last year.
Speaker Change: Primarily at 200, Clarendon Street, where we're putting in a pretty significant amenity center that is going to result in.
Speaker Change: Tenant retention and higher rents and.
Speaker Change: Asset.
Speaker Change: So you may have noticed this quarter, there was a little bit more repositioning capital.
Blaine Matthew Heck: On the leasing side this quarter was lower because we just didn't have that many leases commenced this quarter. It was just a little bit bulky, obviously quarter to quarter on our leases commenced.
Blaine Matthew Heck: And.
Blaine Matthew Heck: I think that.
Blaine Matthew Heck: The run rate annual run rate is $200 million to $240 million of lease transaction costs.
Blaine Matthew Heck: Would be a part of our <unk> calculation.
Speaker Change: Thank you.
Speaker Change: And I'm showing our next question comes from the line of Conor Mitchell with Piper Sandler. Please go ahead.
Conor Mitchell: Hey, good morning, Thanks for taking my question.
Speaker Change: Got it.
Speaker Change: Kind of following along with Mike's answer there.
Speaker Change: Providing some capex on Alex amenities I was just wondering with the Liza coming back could you guys had a good quarter of leasing volume in building out the pipeline. Some more do you feel it's time to really reengage in building amenity upgrades in existing buildings.
Speaker Change: Or are you still looking for a little bit more of a push from the demand side.
Doug: So this is Doug.
Speaker Change: What I would say is I'm, a I'm going to ask some of the regional management teams to discuss what's going on but.
Speaker Change: We are effectively done.
Speaker Change: Every building from a sort of a re imagination <unk> project perspective.
Speaker Change: It's either underway or it is just about complete.
Rod: And I can let rod talk about what's going on in Embarcadero Center and all that.
Rod: Peter J talk about the things that we've been doing in the greater D. C market and then Brian can discuss.
Brian: 200, Clarendon Street, but that's kind of the last of the major changes Hilary has a few little things going on.
Rod: <unk>.
Hilary: On the margin and some of her her buildings.
Speaker Change: But why don't we start with Roger.
Blaine Matthew Heck: Yes.
Roger: So as Doug mentioned, we are in the process of doing it and amenity center at <unk>.
Speaker Change: Embarcadero Center and this is we have always had a conference facility and what we've done now is basically <unk>.
Speaker Change: Commissioning that conference facility, where were building a brand new both conference and amenity center over three Embarcadero. So that is under construction and it's it's got both indoor and outdoor space, it's going to be available primarily to our tenants, but it will be available to the general public as well.
Blaine Matthew Heck: And we're excited about it.
Blaine Matthew Heck: Its an absolute must I mean, we are making the same improvements similar in concept anyway.
Blaine Matthew Heck: At our other projects and it's demanded by the tenants. So very excited about getting this one done.
Blaine Matthew Heck: Pete.
Peter Dylan Abramowitz: Hey, Good morning. This is Pete Aten ADC, So I would say we've been as Doug said through several major projects here in the DC market. We just opened Wisconsin place in the Chevy Chase, Maryland market here recently to great fanfare, and we're optimistic that that's going to translate as rod was.
Speaker Change: Just describing and Doug did into both increased demand and retention at the property. We are under construction at Sumner square and that'll be done later this year. That's the result of some leasing that we have Jake and his team have mostly already done.
Speaker Change: And that was demanded by some of those tenants through part of their renewal and then upcoming is at 901, New York Avenue as part of our lease renewal with Finnegan late last year and early this year, we're doing a pretty major renovation of both that lobby the existing lobby and replacement of the <unk>.
Speaker Change: Entity center on a lower level so.
Peter Dylan Abramowitz: I would say we are mostly through that.
Peter Dylan Abramowitz: In the D C market Theres no major ones on the horizon.
Speaker Change: Ill see if Eric has anything to add.
Eric: No nothing nothing to add other than.
Eric: In terms of repositioning that we just opened up with contemplates that's been met with.
Speaker Change: Quite quite a bit of fanfare and we've had some broker events and there's definitely some activity and interest in that space now with <unk>, which is exactly what we wanted to have happen and at 91, New York Avenue.
Peter Dylan Abramowitz: We will hopefully.
Peter Dylan Abramowitz: <unk> construction on those renovations.
Peter Dylan Abramowitz: And first quarter of next year and and.
Peter Dylan Abramowitz: And again.
Peter Dylan Abramowitz: Lot of that information has been shared with the brokerage community.
Peter Dylan Abramowitz: Plus or minus 100000 square feet of vacant space, we have in that asset.
Peter Dylan Abramowitz: Where we've got some really good activity on that space.
Peter Dylan Abramowitz: Brian you want us to sort of talk about what Turner Claris, yes, we're towards the tail end of our investments and execution Doug mentioned.
Brian: At 200 Clarendon.
Brian: Three year process of design and inclusion with our clients in that building and also tied to commitments to <unk>.
Speaker Change: Renewal and.
Peter Dylan Abramowitz: That is under construction as we speak and going well at.
Peter Dylan Abramowitz: At the Prudential Center, Boston should be included an upgrade of amenities for our clients.
Peter Dylan Abramowitz: Boston has a tremendous amount of design factors that were put in.
Peter Dylan Abramowitz: By input from the clients to major clients at the Prudential Center for that space for meeting space et cetera, and then we finished at 140 Kendrick into Europe, and <unk> portfolio to tremendous success really great feedback on that high utilization and if we do any others it'll be on the March.
Peter Dylan Abramowitz: In let's say one of the possible urban edge larger assets, but it would be.
Peter Dylan Abramowitz: Yeah.
Peter Dylan Abramowitz: Thank you and our next question comes from the line of Caitlin Burrows from Goldman Sachs. Please go ahead.
Caitlin Burrows: Hi, good morning, everyone.
Speaker Change: <unk> talked about how the tech and life science areas, our Q, where at leasing is not quite that Ted.
Caitlin Burrows: Normal normal whatever that might be but that the other areas are so just thinking of the tech and life Science I think.
Peter Dylan Abramowitz: Yes.
Speaker Change: Details are different for each of them, but like what do you think gets them back how much downsizing is theyre still to see.
Speaker Change: But yes could you talk about that a little bit more.
Doug: Sure. So <unk>, Doug so on the tech side I actually don't think it's about downsizing much anymore.
Caitlin Burrows: Caitlin it's it's.
Caitlin Burrows: It's really at this point about <unk>.
Speaker Change: Whether whether they want to make.
Caitlin Burrows: High value added.
Caitlin Burrows: Investment in their real estate relative to their current.
Speaker Change: Platform of human beings and where their spaces are so as an example, you may see some tech companies.
Speaker Change: Large tech companies, making incremental expansions in particular cities, because that's where they think talent is but on the margin those companies are not growing quickly.
Speaker Change: We're starting to see dollars right and and you're seeing this both on the life science side as well as the venture side being raised by companies that will be the next group of organizations that are doing something that to create value for.
Speaker Change: The world at large the business community.
Speaker Change: The improvement in the human condition and from the perspective of life science and in long gating.
Speaker Change: The value of People's lives.
Speaker Change: That pipeline of money it.
Speaker Change: It takes time to move into the organizations in those organizations to.
Speaker Change: Really create.
Speaker Change: For new opportunities for growth from an Opex perspective.
Speaker Change #103: It's been going on we're hoping that we will start to pick up but I'm not I'm not smart enough to know when that's going to happen, but we know it will happen and if as we think about our cities and our portfolio. We have a view that there will be more creation of new jobs in new economic activity.
Speaker Change: <unk> and life Science, and then technology broadly thinking then there will be in traditional financial services asset management professional administrative services. So we're banking on that happening. It's just a question of when and it's really hard to be able to sort of give you a timeframe for that.
Speaker Change #113: So and just just to add a little bit to what Doug said and I've mentioned this on prior calls you know that.
Speaker Change: Lot of the large tech companies took a lot of space in 'twenty, one and 'twenty, two and I think there's a digestion process that's underway and we can't really forecast when that completes but again I would reiterate doug's point about where the relative growth will be.
Speaker Change #112: And then I think the other thing that's interesting that I mentioned in my opening remarks is what are the in person work policies of the tech companies.
Speaker Change: And Salesforce.
Speaker Change: Just this last month or last couple of months announced that starting in October they expect almost all of their employees to be in the office three to five days, a week and Thats a big change.
Speaker Change: And their policy and Theyre one of the biggest employers in San Francisco, So I think thats going to have an impact as well.
Speaker Change #125: Thank you and our next question comes from the line of Vikram Malhotra from Mizuho. Please go ahead.
Vikram L. Malhotra: Thanks for taking the question just two clarifications to the comments I guess, one you've described sort of east coast and financial leasing picking up, particularly in New York, but maybe more broadly how much of that is.
Speaker Change #107: Focus primarily on the premium product versus sort of the general market in other words is it still the divergence or is the market actually picking up number one and then number two just in your comments on leasing and what that May mean for occupancy could you maybe give us more color how much of that is actually renewal or how much visibility today.
Speaker Change #122: Do you have on renewals into 25. Thanks.
Speaker Change #110: You wanted to take the first question.
Speaker Change #110: Vikram.
Vikram: Pickup is clearly in the premium buildings I gave you all the statistics on it.
Speaker Change #102: Asking rent gap.
Speaker Change #127: A lot of speculation well as the market improves this gap is going to decrease so that hasnt happened.
Speaker Change #118: Definitely stayed flat if not grown.
Speaker Change #105: Do think in certain locations, though that are very desirable like around Grand Central station.
Speaker Change #105: Market strength does creep into the beyond the Premier segment, I think that's true for special location.
Speaker Change #105: And Andrew on your question about sort of renewal versus new so I.
Speaker Change #120: One of the.
Speaker Change #104: Things that I provided in my remarks, where the amount of vacant space that we leased in each quarter and whats going forward and so that number is coming out to somewhere around 40% of our leasing is those types of added occupancy generators and the rest of it are renewables and generally when we're doing renewals.
Speaker Change #104: The majority of it is forward, but some of it is you know.
Speaker Change #104: Relatively broadly speaking sort of.
Speaker Change #108: And the contractual exploration period of the given year. So we do have a bunch of leasing that we're doing for 2024 explorations, but the majority of that is for 2025 and 2020.
Speaker Change #123: Thank you and I show. Our next question comes from the line of Floris Van <unk> from Compass point LLC. Please go ahead.
Speaker Change #114: Good morning, guys. Thanks for taking my question.
Speaker Change #101: Owen you mentioned something in your comments about potentially.
Speaker Change #119: Transaction activity in the office market, maybe starting to pick up and some of the the pipeline.
Speaker Change #109: We think about it that foreclosure, maybe starting to transact could you maybe talk a little bit more about.
Speaker Change #109: That part of the market what percentage of those assets could be premium or the ones that you would target and maybe also talk about the disconnect between buyers and sellers and what does that mean for your.
Speaker Change #116: Our people closer to your cost of capital or are they our expectations on the seller and on the lenders still too high.
Speaker Change #109: Yes good.
Speaker Change #117: First of all on the foreclosure activity and short sales loan sales and things like that there's very very limited activity in those areas for premier workplaces, I think generally the premier assets.
Speaker Change #101: Usually theyre less leverage leverage there in stronger hands.
Speaker Change #101: And if there are if they are leveraged there.
Speaker Change #101: They are usually performing pretty well and if they have a problem the owners are.
Speaker Change #101: Are doing whatever they can to fix the loans. So we just haven't seen much foreclosure or distressed activity with the premier assets for all those reasons.
Speaker Change #101: That all being said we've gone out we've had a deal drought here for a couple of years and.
Speaker Change #101: Investors other owners, they kind of get on with their business plans and at some point they need to transact and so I.
Speaker Change #101: I do think we're seeing increased whereas I described in my comments testing of the market of certain assets.
Speaker Change #101: I won't get into any specifics, but theyre definitely.
Speaker Change #101: A handful of buildings right now that are being offered in the market I think they are premier.
Speaker Change #101: And it's just going to be interesting to me if that bid ask spread gets bridged because right now I do think there is a bid out there for premier assets and so far no owners have decided have elected to to to take it and I think the second half of this year it'll be interesting to see if any of those deals come to fruition.
Speaker Change #101: Thank you.
Speaker Change #151: I show. Our next question comes from the line of Reni Pierre from Green Street. Please go ahead.
Reni Pierre: Hi, guys. Thanks for taking the question just curious.
Reni Pierre: I appreciate your comment on the difference between premier assets versus the broader market averages, but just trying to get a sense for at what point. You think you can start to see a pick up in net effective rents for you guys as a premier portfolio.
Speaker Change #126: Something that given the difference in rents between Premier non Premier that you don't think youll start to see or sort of just how should we be thinking about prospects for net effective rent growth.
Hillary: So I'm not entirely sure what you want to use as your out year from win to win point, but I can tell you that net effective rents in our park Avenue Submarket of Manhattan, and then I'll, let Hillary comment.
Hillary: Are higher today than they were six months ago and they are higher today than they were a year ago I can stay the same thing definitively about the.
Hillary: The back Bay Submarket of Boston.
Hillary: But it's going to take a long time for.
Speaker Change #106: For that to occur in markets, where there is a significantly larger availability rate because of the nature of having to basically steal market share from existing.
Hillary: Embedded occupancy and Hillary you can maybe comment on sort of transaction costs and what's going on with you know with the rents in Manhattan, because it's obviously.
Hillary: The clearest example of what's going on from an MBR perspective.
Hillary: Sure. Thanks, Doug.
Speaker Change #129: So in the Park Avenue Submarket in which I think is the easiest one to focus on in Manhattan. The vacancy rate as noted earlier in the call is less than 8% and when vacancy drops below I would say about 10%.
Speaker Change #129: Folks start realizing that if they want to be in that submarket. The pickings are very very slim and they have to move if they wanted to get leases done and that's exactly what we've seen.
Speaker Change #129: We first saw it.
Speaker Change #106: <unk> face rates rise.
Speaker Change #106: Concessions remain stable, which is a little bit unusual in past cycles, you would first see concessions bleed out of the market for phase III began rising Nevertheless, that's what happens face rates have risen concessions have remained roughly stable and so that has caused.
Speaker Change #124: An increase in net effective now anecdotally and very very and consistently we're starting to see concessions move in a little bit and so we're hopeful that that means that net effective will accelerate but I would just reiterate that there isn't a lot of wholesale ability and the strongest submarkets to test that.
Speaker Change #140: Theory against.
Speaker Change #124: In addition to the tightness in the Park Avenue Submarket and what that's done for net effective I would say that it has.
Speaker Change #124: Outward in the sense of creating more leasing velocity and adjacent submarkets, but those submarkets remain sort of fall with concessions and so I think until those markets demonstrate more tightness in occupancy will see stable concessions and rents flat for the near term.
Speaker Change #111: Thank you.
Speaker Change #111: And our next question comes from the line of Peter Abramowitz with from Jefferies. Please go ahead.
Speaker Change #111: Yeah.
Peter Dylan Abramowitz: Yes. Thank you just noticed that the operating expense growth was a little bit elevated in the same store portfolio. This quarter. Just wondering if you could comment on that anything you would call out and anything to look forward for the rest of the year.
Speaker Change #121: I actually think our operating expenses were less than we expected them to be.
Speaker Change #128: So I think.
Speaker Change #135: Maybe they increased a little bit because there's a little more utilities expenses in the second quarter.
Speaker Change #138: And repair and maintenance in the second quarter versus the first quarter.
Speaker Change #138: We generally get started a little bit slower at the beginning of the year on some of those items.
Speaker Change #128: And I think the third quarter is generally higher than the second quarter seasonally as well.
Speaker Change #128: Because of weather conditions again utilities.
Speaker Change #111: And then I would expect to earn him to be a little bit higher too.
Speaker Change #111: Kind of in line with where our budget is.
Speaker Change #111: And then it would be probably a little lower in the fourth quarter.
Speaker Change #134: Thank you and I'm showing our next question comes from the line of all Matteo <unk> from Deutsche Bank. Please go ahead.
Matteo: Hi, Yes, good morning, Thanks for taking my call.
Matteo: Question on leverage again.
Speaker Change #143: Kicked up again, a little bit this quarter.
Speaker Change #139: You do have kind of debt that matures next year that probably refinances to a higher rate just curious how we should kind of think about the trajectory for leverage over the next six to 12 months.
Bridget: Also if the rising that bridget, causing any issues.
Speaker Change #137: Issues concerns if I may use those words with credit rating agencies.
Speaker Change #133: So our leverage ratio is impacted by the funding of our development pipeline.
Speaker Change #146: In a negative way and then in a positive way when that development pipeline delivers and starts generating EBITDA right. So every quarter, we're funding developments that arent going to be completing and delivering for a year or two or three.
Speaker Change #133: We have two major developments in Cambridge that are going to be delivering one 300 Binney street delivering in the first quarter next year.
Speaker Change #133: And the other one is 290 Binney Street that is three times the size of that one.
Speaker Change #133: To be delivering in 2026, both of those are 100% leased.
Speaker Change #133: So when the when that.
Speaker Change #133: Then it will moderate the leverage.
Speaker Change #133: The other developments.
Speaker Change #111: And earlier, we pushed out a little bit, but when they stabilize they will also moderate deleverage.
Speaker Change #111: So that will be I'd say impactful.
Speaker Change #111: And when we think about leverage we think about kind of pro forma leverage for those.
Speaker Change #111: Those types of investments, which would reduce our leverage probably a full turn or so plus or minus.
Speaker Change #111: Which would bring it back down below into the you know.
Speaker Change #111: Six five to seven five times range, right, which is where we.
Speaker Change #111: Kind of typically target and.
Speaker Change #111: So I think were temporarily higher than that.
Speaker Change #111: But we're gonna stay higher than that for.
Speaker Change #111: The next several quarters the timeframe that you just described.
Speaker Change #111: Complete this pipeline.
Paul <unk>: Thank you and our next question comes from the line of Paul <unk> from Keybanc capital markets. Please go ahead.
Paul <unk>: Great. Thanks.
Paul <unk>: Could you give us a little more detail on the terminations and it looks like one of them was from Altamira 1100 winter.
Paul <unk>: But what were the others, how do these transpire and any timing associated with these would be really helpful. Thank you.
Paul <unk>: So.
Speaker Change #136: The terminations.
Speaker Change #144: Not all of them have occurred.
Speaker Change #145: The one that you mentioned was in the media.
Speaker Change #136: And one of them that one was a pure termination.
Speaker Change #136: The square footage in the media was inaccurate however.
Speaker Change #136: It only impacts 20000 square feet of our.
Paul <unk>: Occupancy in the near term.
Paul <unk>: The other two one is a tenant.
Paul <unk>: That were downsizing and relocating within our portfolio they are staying with us.
Paul <unk>: And we've got another tenant that is.
Paul <unk>: Four or five times their size.
Paul <unk>: That is going to be coming in and taking.
Paul <unk>: Their space as well as other vacant space that is in that building.
Paul <unk>: So that.
Paul <unk>: Deal is not signed yet.
Paul <unk>: But it's something that we're working on and we're confident in and then the last one is a tenant at the Prudential Center.
Paul <unk>: Where we have a.
Paul <unk>: Tenant whose business plan has changed.
Paul <unk>: <unk> been looking to vacate their space and we have somebody else that wants it.
Paul <unk>: So that tenant is going to be coming in but the exiting tenant will be leaving in either the third or maybe the beginning of the fourth quarter, probably the third quarter.
Paul <unk>: But the new tenants are not going to be coming until the first quarter of 25, and so thats really the situation. We're dealing with on these is the exiting tenants are leaving in 2020.
Paul <unk>: <unk> and the new tenants are coming until 2025, we also had a similar situation in.
Paul <unk>: The New York City market at 601, Lex where.
Paul <unk>: Where we have an expanding tenants looking for space and we've done somebody.
Paul <unk>: That would exit and so that tenant has exited.
Paul <unk>: But the expanding tenant will not be going in until mid 'twenty five so.
Paul <unk>: An example, if you add up all that square footage is 100000 square feet of occupancy that's hurting us this year.
Paul <unk>: There were really it's really a good thing because we're bringing in a client that's a growing client wants to sign a long term lease.
Paul <unk>: With a client who is closer to their expiration date, maybe there.
Speaker Change #147: Plans have changed in the case in New York declined had already signed a lease in another building a couple of years ago, because they needed space and so they're able to just consolidate into that building.
Speaker Change #147: So every situation is a little bit different it's all case by case.
Speaker Change #147: But this is kind of what we do we try to manage these buildings and work these buildings.
Speaker Change #111: So we can limit downtime increased rents and cover exposure.
Speaker Change #141: Thank you.
Speaker Change #141: And our final question comes from the line of Ronald Camden from Morgan Stanley. Please go ahead.
Ronald Kamdem: Hey, just a quick one for me look if I think about this year on the same store NOI right.
Ronald Kamdem: Some explorations that you guys have been able to backfill it quite nicely, but still a sort of ended up being a headwind to the same store NOI. So as we roll into next year, maybe can you talk about whether its commencement.
Ronald Kamdem: Or sort of larger exploration sort of those two aspect how should we think about <unk>.
Speaker Change #153: Youre rolling into next year sort of pop potential headwind tailwind either from Commencements for exploration. Thanks, so much.
Speaker Change #149: So the same store NOI this year, which is modestly down rate is due to occupancy being a little bit lower this year than it was last year.
Speaker Change #150: We've actually offset that a little bit with rent growth. So rents are actually higher than they were last year, but the occupancy is a much bigger impact than the roll up or the roll down or at least by 5% or 10%.
Speaker Change #149: So as Doug described in his occupancy views and we can't we don't know the exact timing, but our expectation is that we'll start to have more some occupancy growth next year and if we get occupancy growth that should go into the same store. So that will will help same store.
Speaker Change #149: Thank you and this concludes our Q&A session at this time I would like to turn it back over to Owen Thomas for closing remarks.
Owen David Thomas: We have no more closing remarks, and I would like to thank everybody for their interest in <unk> have a good rest of the day.
Speaker Change #152: And this concludes today's conference call. Thank you for participating you may now disconnect.
Ronald Kamdem: Okay.
Ronald Kamdem: [music].
Ronald Kamdem: Okay.
Ronald Kamdem: Yes.
Ronald Kamdem: [music].
Ronald Kamdem: Okay.
Ronald Kamdem: Mhm.
Speaker Change #111: Okay.
Speaker Change #111: [music].
Speaker Change #111: Okay.
Speaker Change #111: Sure.
Speaker Change #111: Okay.
Speaker Change #111: [music].
Speaker Change #111: Yeah.