Q4 2024 City Office REIT Inc Earnings Call

Okay.

Operator: Good morning and welcome to the City Office REIT Inc. 4th Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Speaker Change: Good morning, and welcome to the City Office REIT, Inc. Fourth quarter 'twenty 'twenty four earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session was pulled out the formal presentation I'll ask a question you May Press Star then one on your touch.

Operator: A brief question and answer session will follow the formal presentation. To ask a question, you may press star, then 1 on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2.

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Operator: As a reminder, this conference call is being recorded. If you require operator assistance, please press star, then 0.

Operator: It is now my pleasure to introduce you to Tony Maretic, the company's Chief Financial Officer, Treasurer and Corporate Secretary.

Speaker Change: It is now my pleasure to introduce you to Tony Mirotic, The company's Chief Financial Officer, Treasurer, and corporate Secretary. Thank you. Mr. Marotic you may begin.

Anthony Maretic: Thank you, Mr. Maretic. You may begin.

Anthony Maretic: Good morning. Before we begin, I would like to direct you to our website at CIOREIT.com, where you can view our fourth quarter earnings press release and supplemental information package. The earnings release and supplemental package both include a reconciliation of non-GAAP measures that will be discussed today to their most directly comparable GAAP financial measures.

Tony Mirotic: Good morning, before we begin I would like to direct you to our website at.

Tony Mirotic: See I O REIT Dot Com, where you can view, our fourth quarter earnings press release, and supplemental information package. The earnings release and supplemental package. Both include a reconciliation of non-GAAP measures that will be discussed today to their most directly comparable GAAP financial measures.

Anthony Maretic: Certain statements made today that discuss the company's beliefs or expectations, or that are not based on historical fact, may constitute forelooking statements within the meaning of the Federal Securities Laws. Although the company believes that these expectations reflected in such forelooking statements are based upon reasonable assumptions, we can give no assurance that these expectations will be achieved. Please see the forelooking statement disclaimer in our fourth quarter earnings press release and the company's filing to the SEC for factors that could cause material differences between forelooking statements and actual results. The company undertakes no obligation to update any forelooking statements that may be made in the course of this call.

Tony Mirotic: Certain statements made today that discuss the companys beliefs or expectations.

Tony Mirotic: They are not based on historical fact may constitute forward looking statements within the meaning of the federal Securities laws.

Tony Mirotic: The company believes that these expectations reflected in such forward looking statements are based upon reasonable assumptions. We can give no assurance that these expectations will be achieved please see the forward looking statements disclaimer in our fourth quarter earnings press release, and the company's filings with the SEC for factors that could cause material differences between forward looking statements and actual results. The company undertakes no obligation to.

Tony Mirotic: To update any forward looking statements made in the course of this call.

Anthony Maretic: I will review our financial results after Jamie Farrar, our Chief Executive Officer, discussed some of the quarter's operational highlights.

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

James Farrar: I will now turn the call over to Jamie.

James Farrar: Good morning. After a challenging macro environment over the last few years, 2024 marked a clear turning point for the office sector. Supply-demand dynamics for office leasing have turned increasingly favorable for high-quality buildings in great locations. Across the country, the fourth quarter of 2024 reflected positive net absorption of office. Overall leasing volume in the fourth quarter was over 90% of pre-pandemic volume level. Sunbelt markets have performed particularly well and led the way at 95% of pre-pandemic volume. In addition, JLL estimates that since the onset of COVID, companies have collectively shrunk their office footprint by 8% while their office using headcount has actually grown by 5%.

Jamie Farrar: Good morning, after a challenging macro environment over the last few years 2024 marked a clear turning point for the office sector.

Jamie Farrar: Supply and demand dynamics for office leasing has turned increasingly favorable for high quality buildings in great locations.

Jamie Farrar: Cross the country the fourth quarter of 2024 reflected positive net absorption of office space.

Jamie Farrar: Overall leasing volume in the fourth quarter was over 90% of pre pandemic volume levels.

Jamie Farrar: Sunbelt markets have performed particularly well and led the way at 95% of pre pandemic volume.

Jamie Farrar: In addition, <unk> estimates that since the onset of Covid companies have collectively shrunk their office footprint by 8%, while their office using head count has actually grown by 5%.

James Farrar: As the return to office continues, demand dynamics at desirable properties should steadily strengthen. As we've discussed throughout 2024, new office construction is the lowest it has been in the last 50 years. This combined with a record number of conversions, demolitions, and redevelopments translates to decreasing inventory. The net effect of these industry trends is increasingly solid footing for office property.

Jamie Farrar: Is the return to office continues demand dynamics at desirable properties should steadily strengthen.

Jamie Farrar: As we've discussed throughout 2024, New office construction is the lowest it has been in the last 50 years. This combined with a record number of conversions demolitions and redevelopments translates to decreasing inventory.

Jamie Farrar: The net effect of these industry trends is increasingly solid footing for office properties. However, not all markets and office properties will benefit from these improving fundamentals.

James Farrar: However, not all markets and office properties will benefit from these improving fundamentals. You may note in our investor materials, we have split out our sunbelt and non-sunbelt markets in our portfolio table. Our properties are predominantly located in Sunbelt Markets, and we believe these will continue to outperform due to their favorable demographic and employment trends. We also believe that amenitized and modern spaces will draw the greatest share of leasing going forward. As discussed on prior calls, we've spent the last few years making impactful upgrades to our properties, enhancing amenities, and investing in ready-to-lease expectations. These efforts are clearly working.

Jamie Farrar: You may know in our Investor materials, we have split out our sunbelt and non sunbelt markets.

Jamie Farrar: Our portfolio of tables.

Jamie Farrar: Our properties are predominantly located in the Sunbelt markets and we believe these will continue to outperform due to their favorable demographic and employment trends. We also.

Jamie Farrar: So believe that are monetized in modern spaces, we will draw the greatest share of leasing going forward.

Jamie Farrar: As discussed on prior calls we have spent the last few years, making impactful upgrades to our properties enhancing amenities and investing and ready to lease suites.

Jamie Farrar: These efforts are clearly working.

James Farrar: Since 2021, we have completed significant property upgrades at nine of our properties. Our most recently completed large projects are at Pima Center in 5090 in Phoenix, 2525 in Dallas, and City Center in downtown St. Petersburg. We also have one additional amenity enhancement project planned at Block 23 in Phoenix. The goal of these improvements is to drive occupancy as well as to capture growing rent. Also, over this period, we've constructed 231,000 square feet of modern spec. which are over 75% leased today. These proactive efforts have resulted in strong leasing results in 2024. The 806,000 square feet of new and renewal leases signed during the year represented a 35% increase over 2023.

Jamie Farrar: Since 2021.

Jamie Farrar: We have completed significant property upgrades at nine of our properties. Our most recently completed large projects are at Pima Center and 1090 in Phoenix $25 25 in Dallas and City Center in downtown St. Petersburg.

Jamie Farrar: We also have one additional amenity enhancement project plan that block 23 in Phoenix.

Jamie Farrar: The goal of these improvements is to drive occupancy as well as to capture growing rents.

Jamie Farrar: Also over this period, we've constructed 231000 square feet of modern spec suites, which are over 75% leased today.

Jamie Farrar: These proactive efforts have resulted in strong leasing results in 2024.

Jamie Farrar: 806000 square feet of new and renewal leases signed during the year represented 35% increase over 2023.

James Farrar: Over the course of the full year 2024, we also realized a robust 5.9% cash rent roll-up upon renewal. Turning to specific highlights from the fourth quarter, we signed a 60,000 square foot lease at our Terraces property in Dallas. The lease extended the tenant's existing 44,000 square foot space until 2036 and expanded the tenant space by 16,000 square feet also through 2036. The negotiated rental rate for the new expansion space is 17% higher than what the tenant's existing space is currently paying. This demonstrates how rental rates have increased for premium assets and aligns well with our thesis that rents are poised to grow for quality property.

Jamie Farrar: Over the course of the full year 2024, we also realized a robust five 9% cash rent roll up upon renewal.

Jamie Farrar: Turning to specific highlights from the fourth quarter, we signed a 60000 square foot lease at our terraces property in Dallas the lease extended the tenant's existing 44000 square foot space until 2036 and expanded the tenant space by 16000 square feet also through 2030.

Jamie Farrar: Six.

Jamie Farrar: The negotiated rental rate for the new expansion space is 17% higher than what the tenant's existing space is currently pay.

Jamie Farrar: This demonstrates how rental rates have increased for premium assets and aligns well with our thesis that rents are poised to grow for quality properties.

James Farrar: Moving to a disposition transaction. Subsequent to year end, we sold Superior Point, a smaller 152,000 square foot property in the northwest sub market of Denver. The sale decision was largely driven by our view that we would achieve more value by selling the property as compared to investing considerable amounts to try to win leasing in a challenging subject. We elected to sell Superior Point for a gross sale price of $12 million. The property was unencumbered by...

Jamie Farrar: Moving to a disposition transaction subsequent to year end, we sold superior Pointe a smaller 152000 square foot property in the northwest Submarket of Denver.

Jamie Farrar: The sale decision was largely driven by our view that we would achieve more value by selling the property as compared to investing considerable amounts to try to win leasing and a challenging sub market. We elected to sell superior point for a gross sale price of $12 million.

Jamie Farrar: The property was unencumbered by debt.

James Farrar: Moving to our potential redevelopment plans at City Center in downtown St. Petersburg, Florida, we continue to track our expectations. The redevelopment site plan application has now received unanimous approval from the City of St. Petersburg and all appeal periods have expired. The approval was for the demolition of the stand-alone parking garage to allow for a new multi-use, water-facing development. The site plan includes approximately 164 residential condos. 78,000 square feet of retail and office. We continue to advance agreements and development plans with a very experienced developer who would be responsible for leading the project's execution. However, any redevelopment of City Centre remains subject to a number of conditions, some of which are beyond our control.

Jamie Farrar: Moving to our potential redevelopment plans at city center in downtown St. Petersburg, Florida, We continue to track our expectations. The redevelopment site plan application has now received unanimous approval from the city of St. Petersburg, and all appeal periods have expired.

Jamie Farrar: The approval was for the demolition of the Standalone parking garage to allow for a new multi use water facing development.

Jamie Farrar: The site plan includes approximately 164 residential condos and 78000 square feet of retail and office.

Jamie Farrar: We continue to advance agreements and development plans with a very experienced developer who would be responsible for leading the project execution. However, any redevelopment of citycenter remains subject to a number of conditions some of which are beyond our control. We will provide further updates on our progress on future calls.

James Farrar: We'll provide further updates on our progress on future calls.

James Farrar: And last for me, in our earnings press release, we introduced guidance for 2025. Our focus in 2025 remains on driving long-term cash flow growth through leasing, active asset management, and value creation opportunities. Our core FFO per share guidance range is effectively in line with our fourth quarter results on an annualized basis. Our expectation is that as signed leases take occupancy, when we continue future leasing momentum, we will have improvements in occupancy and same store results. We expect this will drive core FFO per shared growth over time. While we are guiding that overall occupancy will increase during 2025, that growth is expected to occur primarily across our Sunbelt market.

Jamie Farrar: And last for me and our earnings press release, we introduced guidance for 2025.

Jamie Farrar: Our focus in 2025 remains on driving long term cash flow growth through leasing active asset management and value creation opportunities are.

Jamie Farrar: Our core <unk> per share guidance range is effectively in line with our fourth quarter results on an annualized basis.

Jamie Farrar: Our expectation is that as signed leases take occupancy when we continue future leasing momentum.

Jamie Farrar: We will have improvements in occupancy and same store results.

Jamie Farrar: We expect this will drive core <unk> per share growth over time.

Jamie Farrar: While we are guiding that overall occupancy will increase during 2025 that growth is expected to occur primarily across our sunbelt markets as discussed earlier these markets have the strongest leasing dynamics and value creation potential.

James Farrar: As discussed earlier, these markets have the strongest leasing dynamics and value creation potential.

Anthony Maretic: With that, I'll turn the call over to Tony to discuss our financial results in more detail.

Jamie Farrar: With that I'll turn the call over to Tony to discuss our financial results in more detail. Thanks, Jami, our net operating income in the fourth quarter was $25 5 million, which is 900000 higher than the amount we reported in the third quarter higher occupancy was the primary driver of the NOI increase.

Anthony Maretic: Thanks, Jamie. Our net operating income in the fourth quarter was $25.5 million, which is $900,000 higher than the amount we reported in the third quarter. Higher occupancy was a primary driver of the NOI income. We also reported a core FFO of $11.7 million, or $0.28 per share, for the fourth quarter. Core FFO was $600,000 higher than the amount we reported in the third quarter. Similar to NOI, the increase was driven primarily by higher occupancy, but marginally offset by higher interest expense. Our fourth quarter AFFO was $4.3 million or $0.10 per share. The success of our leasing efforts elevated tenant improvement costs and leasing commissions.

Jamie Farrar: We also reported core <unk> of $11 7 million or <unk> 28 per share for the fourth quarter.

Jamie Farrar: <unk> was 600000 higher than the amount we reported in the third quarter.

Jamie Farrar: NOI increase was driven primarily by higher occupancy, but marginally offset by higher interest expense.

Jamie Farrar: Our fourth quarter April was $4 3 million or <unk> 10 per share the success of our leasing efforts elevated tenant improvement cost and leasing commissions the largest impact to <unk> was a $2 $3 million leasing commission on a 60000 square foot lease at the terraces.

Anthony Maretic: The largest impact to AFFO was a $2.3 million leasing commission on a 60,000 square foot lease at the terrace.

Anthony Maretic: Significant property renovations underway in the fourth quarter that Jamie described resulted in a 1.3 million dollar reduction to AFFO. We also invested 300,000 dollars on spec suites and vacancy conditions.

Jamie Farrar: The significant property renovations underway in the fourth quarter that Jamie described resulted in a $1 $3 million reduction to <unk>.

Jamie Farrar: We also invested $300000 on spec suites and vacancy conditioning.

Anthony Maretic: Net income was impacted by an $8.5 million non-cash impairment of real estate charge in the fourth quarter to reflect the sales price of Superior Point, which closed after quarter end. Moving on to some of our operational metrics. Our same store cash NOI trended higher in the fourth quarter, there was a healthy increase of 3.3%, or $760,000 as compared to the fourth quarter of 2023. The largest contributor to that was Raleigh, where NOI continues to materially increase at Block 83 as signed leases take occupation. Our portfolio occupancy entered the quarter at 85.4%, an increase of two full percentage points from the prior quarter.

Jamie Farrar: Net income was impacted by an $8 5 million noncash impairment of real estate charge in the fourth quarter to reflect the sales price of superior Pointe, which closed after quarter end.

Jamie Farrar: Moving onto some of our operational metrics, our same store cash NOI trended higher in the fourth quarter. There was a healthy increase of three 3% or $760000 as compared to the fourth quarter of 2023.

Jamie Farrar: The largest contributor to that was Raleigh, where NOI continues to materially increase at block III as signed leases take occupancy.

Jamie Farrar: Our portfolio occupancy ended the quarter at 85, 4% an increase of two four percentage points from the prior quarter.

Anthony Maretic: Our occupancy was 87.6% inclusive of the 122,000 square feet of signed leases that have not yet commenced. Our total debt as of December 31st was $647 million. Our net debt, including restricted cash, to EBITDA was $6.9 trillion. As of December 31st, we had approximately $42 million undrawn and authorized on our credit facility. We also had cash and restricted cash of $34 million at quarter end. Our credit facility matures in November 2025, with an ability to extend it to November 2026. That option can be exercised in August, 90 days prior to the maturity, as long as we remain in compliance with our debt covenants, which we are comfortably projected to be.

Jamie Farrar: Our occupancy was 87, 6% inclusive of the 122000 square feet of signed leases that have not yet commenced.

Jamie Farrar: Our total debt as of December 31 was $647 million.

Jamie Farrar: Our net debt, including restricted cash to EBITDA was six nine times.

Jamie Farrar: As of December 31, we had approximately $42 million Undrawn and authorized on our credit facility. We also had cash and restricted cash of $34 million at quarter end.

Jamie Farrar: Our credit facility matures in November 2025, with an ability to extend it to November 2026 that option can be exercised in August 90 days prior to the maturity as long as we remain in compliance with our debt covenants, which we are comfortably projected to be as such we expect to exercise that option and continuing.

Anthony Maretic: As such, we expect to exercise that option and continue discussions on a renewal. We have only two property debt maturities in 2025. The loans for both Greenwood Boulevard in Orlando and Intel Center in Tampa mature in the fourth quarter. We have begun discussions and expect to provide an update on next quarter's call. We also have two high-value properties, Block 83 in Raleigh and City Center in Tampa, that are completely unencumbered. We continue to see improvements in debt margins. As liquidity comes back, potential refinancing terms are improving, despite long-term interest rates trending higher. We expect to place debt on some of our unencumbered assets to increase liquidity in 2025, given this backdrop.

Jamie Farrar: <unk> on a renewal.

Jamie Farrar: We have only two property debt maturities in 2025 loans for both Greenwood Blvd in Orlando and Intel Center in Tampa mature in the fourth quarter, we have begun discussions and expect to provide an update on next quarter's call.

Jamie Farrar: We also have two high value properties block <unk> three in Raleigh, and city center in Tampa at a completely unencumbered, we continued to see improvements in that market.

Jamie Farrar: Liquidity comes back potential refinancing terms are improving despite long term interest rates trending higher recently, we expect to place that on some of our unencumbered assets to increase liquidity in 2025, given this backdrop.

Anthony Maretic: And lastly for me, as Jamie mentioned, we have provided our 2025 guidance. The guidance includes the recent disposition of Superior Point in Denver, but assumes no other acquisitions or dispositions. Despite two known vacates in our non-Sunbelt properties totaling 102,000 square feet in the first half of the year, we are anticipating an increase in overall portfolio occupancy by year-end, driven largely by the leasing momentum in our Sunbelt markets that Jamie described. Overall, we are anticipating a healthy increase in same-store cash NOI with a range of 2.5% to 4.5% growth as compared to the prior year.

Jamie Farrar: And lastly for me as Jimmy mentioned, we have provided our 2025 guidance. The guidance includes the recent disposition of superior Pointe in Denver, but assumes no other acquisitions or dispositions.

Despite two known Vacates in our non sunbelt properties totaling 102000 square feet in the first half of the year. We are anticipating an increase in overall portfolio occupancy by year end driven largely by the leasing momentum in our sunbelt markets that Jim described.

Jamie Farrar: Overall, we are anticipating a healthy increase in same store cash NOI with a range of two five to four 5% growth as compared to the prior year.

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

Concludes our prepared remarks, and we will open up the line for questions operator.

Operator: Thank you very much. To ask a question, you may press star, then one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two.

Speaker Change: Thank you very much to ask a question you May Press Star then one on your touch tone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys to enjoy your question. Please press Star then kick.

Upal Rana: Our first question comes from Upal Rana with KeyBank. Upal, your line is now open, please go ahead.

Speaker Change: Our first question comes from Ron.

Speaker Change: <unk> with Keybanc.

Speaker Change: Your line is now open. Please go ahead.

Upal Rana: Great, thank you.

Speaker Change: Great. Thank you.

James Farrar: So I wanted to kind of talk about the disposition of Superior Point, you know, what was the reasoning behind selling it? And, you know, could you characterize how the market is currently in terms of the transaction market?

Speaker Change: So I wanted to kind of talk about the disposition of superior point, what was the reasoning behind selling it and could you characterize how the market is currently in terms of the transaction market.

James Farrar: Sure, thanks for the question. So, as we've indicated in our prepared remarks, really there's kind of a... A real thrust for value creation and ability to grow rents in some of the top markets, including in the Sunbelt, and some other markets are a lot slower, and Denver kind of is a mixed bag in that respect.

Sure. Thanks for the question so.

Speaker Change: Yes.

Speaker Change: It did in our prepared remarks really there is kind of.

Speaker Change: A real thrust for value creation, and the ability to grow rents in some of the top markets, including in the Sunbelt and some other markets are a lot slower in Denver kind of as a mixed bag in that respect. So superior it was a bit of a challenge submarket high vacancy when we looked at the lease term.

James Farrar: So Superior is a bit of a challenged sub market, high vacancy. When we looked at the lease terms of what we could execute upon, we weren't thrilled, and we didn't see that changing for a long time.

Speaker Change: <unk> of what we could execute upon we werent thrilled and we didn't see that changing for a long time and it's not a place where we wanted to invest capital. So.

James Farrar: It's not a place where we wanted to invest capital, so we opted to exit that one and really focus our efforts on the best markets and the best sub markets were in great value. In terms of what are we seeing overall, the capital markets for office have significantly improved. I mean, they were completely illiquid, so you're starting to see transactions now for the top of the market, the best assets, there's investor interest. But we're also starting to see more interest in smaller assets and smaller asset buyers, just case in point would be our Superior transaction.

Speaker Change: We opted to exit that one and really focus our efforts on the best markets in the best Submarkets, where we can create value in terms of what do we see an overall the capital markets, where office have significantly improved I mean, they were completely illiquid. So youre starting to see transactions now for the top of the.

Speaker Change: A market the best assets, there is investor interest, but we're also starting to see more interest in smaller assets in smaller asset buyers.

James Farrar: So I'd say the market is definitely improving in terms of liquidity, and we think that's going to continue to grow.

Speaker Change: Case in point would be our superior transaction. So I'd say the market is definitely improving in terms of liquidity and we think thats going to continue.

Upal Rana: Okay, great. That was helpful.

Speaker Change: Okay, Great that was helpful. And then I noticed you guys broke out the sunbelt occupancy in the total portfolio occupancy this quarter any reason behind that.

James Farrar: And then I noticed you guys broke out the Sunbelt occupancy and the total portfolio occupancy in this quarter.

James Farrar: Any reason behind that, that you can maybe add some color to? If you think again, back to where are we going to create the most value over time, it's going to be in our high-growth Sunbelt markets, and it gets a bit lost when you look at portfolios, so we thought it was helpful to provide both. And we think Sunbelt, you're going to see significant rent growth over the next few years as well as occupancy growth.

Speaker Change: So you can maybe add some color too.

Speaker Change: Yes, if you think again back to where are we going to create the most value over time, it's going to be in our high growth Sunbelt markets and it gets a bit lost when you look at portfolio. So we thought it was helpful to provide both.

Speaker Change: And we think sunbelt youre going to see significant rent growth over the next few years as well as occupancy growth.

Upal Rana: Okay, and then do you think that does this maybe suggest that those For assets that are in those in the other category could potentially be up for up for consideration for sale. You know, we didn't put any dispositions beyond superior in our guidance.

Speaker Change: Okay, and then do you think that does this maybe suggest that.

Speaker Change: Those.

For assets that are in those in the other category.

Speaker Change: Potentially be up for up for consideration for sale.

Speaker Change: We didn't put any dispositions beyond superior in our guidance I guess, what I would say is Portland, Portland, almost needs to be ignored I mean, it's a tiny asset it's a really tough market and so we don't see significant value in that market Seattle different our asset there.

James Farrar: I guess what I would say is Portland almost needs to be ignored. I mean, it's a tiny asset. It's a really tough market. And so we don't see, you know, significant value in that market.

James Farrar: Seattle's different. Our asset there, it's leased to Pfizer. That's one that at some point we'll find a way of exiting. You know, we think it's a very good asset. It's a great tenant. It's a great location. So as capital markets improve, that's one that we'll take advantage of. I don't think it's near term, but longer term.

Speaker Change: At least two to Pfizer.

Speaker Change: That's one that at some point, we'll find a way of exiting we think it's a very good asset it's a great tenants, it's a great location.

Speaker Change: As capital markets improve that's one that will take advantage of I don't think it's near term, but longer term and then in Denver, it's kind of a mixture.

James Farrar: And then in Denver, it's kind of a mixture. It's, you know, been a bit of a slower market with respect to our whole portfolio. We're looking at ways of creating value. We've had a lot of success at CirclePoint. The Denver Tech Center has been a little slower. We are seeing leasing activity starting to pick up there. So we're trying to get our arms around how do we best create value overall.

Speaker Change: <unk> been a bit of a slower market with respect to our whole portfolio.

Speaker Change: We're looking at ways of creating value we've had a lot of success at circle point. The Denver Tech Center has been a little slower we are seeing leasing activity starting to pick up there. So we're trying to get our arms around how do we best create value overall, but they certainly arent markets that we're going to expand and grow overtime.

James Farrar: But they certainly aren't markets that we're going to expand in or grow over time.

Upal Rana: Okay, great.

Speaker Change: Okay, Great and then last one from me would be just on the.

Upal Rana: And the last one for me would be just on the on your GSA exposure. It seems like you have U.S. Attorney's Office as one of your tenants, and it makes up about 1.9% of your portfolio. Do you have any expectations for this lease, given the expiration is in 2016? If you could give any color on that, that would be helpful.

Speaker Change: On your GSA exposure.

Speaker Change: Seems like you have.

Speaker Change: In the U S. Attorney's office I was one of your tenants and it makes it by the one 9% of your portfolio do you have any expectations for this lease given exploration is in 'twenty six.

Speaker Change: If you could give any color on that that'd be helpful. Thank you.

James Farrar: Sure, so effectively it's in our Park Tower building. You nailed the stats. It's the top seven floors, I believe, so phenomenal views, great location.

Speaker Change: Sure so effectively that's in our park tower building.

Speaker Change: Mailed the stats the top seven floors I believe so phenomenal views great location.

James Farrar: Their lease rolls at the end of 26, so we're at the natural point of having some discussions with them. It's too early to say where that's going to land, but what I can say is they heavily utilize their space. So, you know, it's logical that they'd like to be there long term, but obviously there's some uncertainty around that until we can advance it.

Speaker Change: Their lease rules at the end of 2006, so we're at the natural point of having some discussions with them.

Speaker Change: Too early to say, where that's going to land, but what I can say is this.

Heavily utilize their space.

Speaker Change: So.

Speaker Change: Logical that they'd like to be there long term, but obviously there is some uncertainty.

Speaker Change: Around that until we can advance it.

Upal Rana: Okay, great.

Upal Rana: Thank you for your help.

Speaker Change: Okay, great. Thank you for.

James Farrar: Yeah.

Speaker Change: Yes.

Barry Oxford: Our next question comes from Barry Oxford with Cooley's Barry, your line is now open, please go ahead. Great, thanks guys.

Speaker Change: Our next question comes from Barry, Oxford with cliffs.

Speaker Change: Your line is now open. Please go ahead.

Great. Thanks.

Speaker Change: Thanks, guys.

James Farrar: Jamie, as you look at acquisition opportunities, Number one, are you seeing any distressed opportunities or, look, Barry, I'm not playing in the distressed opportunities. And then secondly, how do you balance the acquisition cap rate with your costs? So what are we seeing overall, Barry? We haven't seen huge amounts of lenders taking back properties yet and then turning them over and I do think that's going to pick up over the next few years. I don't know if those assets are going to be ones that we want to necessarily own, although we've had a lot of luck in the past buying value-add assets and creating value and monetizing them.

Speaker Change: Amy as you look at <unk>.

Speaker Change: Acquisition opportunities number one are you seeing any distressed.

Opportunities or look Barry I'm not playing in the distressed.

Speaker Change: Opportunities and then secondly, how do you balance the acquisition cap rate, what's your cost of capital.

Speaker Change: So what are we seeing overall, Barry we haven't seen huge amounts of lenders taking back properties, yet and then turning them over and distressed sales.

Speaker Change: I do think that's going to pick up over the next few years I don't know if those assets are going to be ones that we want to necessarily own. Although we've had a lot of luck in the past buying value add assets and creating value and then monetizing them. So it's not something that I'd close completely but right now as we look forward for the.

James Farrar: So it's not something that I'd close completely, but right now, as we look forward for the next year, we see good opportunities within our portfolio to put capital work and leasing to our best assets through renovations, other improvements, pick up NOI at the asset level, which translates to higher value for those assets. And so that's really where our focus is right now is internally.

Speaker Change: Next year, we see good opportunities within our portfolio put capital work in leasing some of our best assets through renovations other improvements pickup.

Speaker Change: Pick up NOI at the asset level, which translates to higher value for those assets and so that's really where our focus is right now is internally.

James Farrar: I would say external growth will come down the road, if it makes sense.

Speaker Change: I would say external growth will come down the road if it makes sense.

James Farrar: Great. And Jimmy, how do you look at your specs face? Do you want to do more of it? We've got about 50,000 feet right now. A lot of it is in Phoenix, Tampa as well. I think Phoenix, out of all of our markets, as far as leasing activity right now, has significantly picked up. It would be top of our list. So we're feeling good there as far as what we have in getting that leased.

Speaker Change: Alright, and Jimmy how do you look at your spec space do you want to do more of it.

Speaker Change: Yes.

Speaker Change: So we've got about 50000 feet right now a lot of it is in Phoenix, Tampa as well I think Phoenix out of all of our markets as far as leasing activity right. Now is significantly picked up there will be top of our list. So we're feeling good there as far as what we have in getting that leased we're planning actually right now kind of.

James Farrar: We're planning actually right now kind of the next phase of spec suites that we're going to do in 2025 and where we think we're going to be most successful based on the demand. So I think that's a question I can probably give you a little better color on on the next call or two, but we still find, particularly for smaller suites, you know, if we build those out, we build out the right product in the right location, we're getting great rents.

Speaker Change: The next phase of spec suites that we're going to do in 2025.

Speaker Change: And where we think we're going to be most successful based on the demand. So I think that's a question I can probably give you a little better color on the next call or two but we still find particularly for smaller suites. If we build those out we built the right product in the right location, we're getting great rents so we'll be doing more overtime.

Barry Oxford: So we'll be doing more over Perfect. Thanks so much, guys. Yeah, thanks, Barry.

Speaker Change: Perfect. Thanks, so much guys.

Speaker Change: Thanks Barry.

James Farrar: Yep.

Speaker Change: Yep.

Operator: Thank you very much.

Speaker Change: Thank you very much just as a reminder, if you would like to ask a question.

Operator: Just as a reminder, if you would like to ask a question, you may press star then one on your touch tone phone right now.

Speaker Change: You May press Star then one on your Touchtone phone right now.

Craig Kucera: Our next question comes from Craig Kucera with Lucid Capital Markets. Craig, your line is now open, please go ahead.

Speaker Change: Our next question comes from Craig Cassandra with Lucid capital markets. Craig. Your line is now open. Please go ahead.

Craig Kucera: Yeah, thanks.

Craig Cassandra: Yes, thanks, good morning, guys.

James Farrar: Good morning, guys. I'm curious about the buyer of Superior Point. Are they expecting to utilize that as office for the longer term or potentially convert it to another use?

Craig Cassandra: I'm curious about the buyer of superior Pointe are they expecting to utilize that as office for the.

Craig Cassandra: Longer term or potentially convert it to another use.

James Farrar: So it was a family office, and my understanding is they're going to significantly invest in the property, build out a lot of amenities, and then maintain it as office. Got it.

Craig Cassandra: So it was a family office and my understanding is they are going to significantly invest in the property built out a lot of amenities and then maintain it is office.

Craig Cassandra: Got it.

Craig Kucera: Changing gears, you mentioned in your guidance there's no dispositions, but are you contemplating any lender-to-lender? Hey, good morning Craig. So we have two loans that are maturing at the end of this year, both in the fourth quarter, and at this point we've started discussions on both, advancing one that the Greenwood Boulevard property is 100% leased, so those discussions are going more or a little more of an advanced stage, and then starting discussions on the other loans.

Speaker Change: Changing gears you mentioned in your guidance there is no dispositions, but are you contemplating any lender transfers.

Craig Cassandra: Hey, good morning, Craig. So we have two loans that are maturing at the end of this year.

Speaker Change: Both in the fourth quarter.

Speaker Change: And at this point, we've started discussions on both advancing one.

Speaker Change:

Speaker Change: The Greenwood Blvd properties are 100% leased.

Speaker Change: So those discussions are going more or a little more of an advanced stage.

Speaker Change: Starting discussions on the other loans. So at this point, we have not assumed in our guidance that we are making any dispositions, including the <unk>.

James Farrar: So at this point we have not assumed in our guidance that we are making any dispositions, including the assets of mortgages that are maturing this year. Just to jump on and add to that, because you raised a good point, the asset Greenwood Boulevard in Lake Mary that Tony mentioned is leased long term. That's actually a sub market that started to pick back up, and we are in discussions with a potential tenant to come in and take down some of that space on a very long-term basis, which could position us to, you know, extend the balance of the space as well.

Speaker Change: The assets with mortgages that are maturing this year just to jump on and add to that because you raised a good point.

Speaker Change: The assay Greenwood Blvd in Lake Mary that Tony mentioned is leased long term, that's actually a sub market that started to pick back up and.

Speaker Change: And we are in discussions with potential tenants to come in and take down some of that is based on a very long term basis, which could position us to extend the.

Speaker Change: Balance of the space as well so it's one example, where.

James Farrar: So it's one example where it's been an asset in the past, I think we've talked about, that had a little bit of lack of utilization that could be completely changed. Got it.

Speaker Change: It's been an asset in the past I think we've talked about that had a little bit of lack of utilization that could be completely changed.

Speaker Change: Got it.

Craig Kucera: You mentioned the large known vacates in the first half of 2025, but when do you anticipate the least but not commenced will begin paying rent in 2025? So they're spread out pretty evenly through the year, we have 122,000 square feet as you mentioned, a lot of that is in Phoenix, as Jamie talked about some market that's been picking up, but it is spread to the end of the year, we have a deal in Dallas that's later in the year, we're still figuring out the timing of how long the tenant improvement work will work, so it's pretty evenly spread.

Speaker Change: You mentioned the large known Vacates in the first half of 'twenty five, but when do you anticipate the least but not commenced will begin paying rent in 2025.

Speaker Change: So they are spread out pretty evenly through the year.

Speaker Change: We have a 122000 square feet as he mentioned a lot of that is in Phoenix as Jimmy talked about some markets that's been picking up.

Speaker Change: And but it has spread to the end of the year, we have a deal in Dallas. That's later in the year, we're still figuring out the timing of how long the tenant improvement work work, so it's pretty evenly spread.

Craig Kucera: Okay, great.

Craig Kucera: Just one more for me. I just wanted to follow up on St. Petersburg. Can you talk or give us any color about what the anticipated economics of a deal there might look like?

Speaker Change: Okay, Great just one more for me I just wanted to follow up on St. Petersburg.

Speaker Change: Can you talk or give us any color about what the anticipated economics.

Speaker Change: A deal there might look like and given that Theres condo sales that might start 25 is there any impact to guidance for in the guidance.

James Farrar: And given that there's condo sales that might start 25, is there any impact to guidance or in the guidance? There is no impact in the guidance, but to maybe just touch on that, the way we are contemplating the structure, and we can't give too many details on who our development partner is yet. It's at a late stage. We hope that that will change soon where we can provide a little more color, but think of a very experienced developer leading the development. The way we're participating is rolling in our parking garage at a certain point when the project has been de-risked, and then we share the economics going forward.

Speaker Change: There is no impact in the guidance, but maybe just touch on that the we are contemplating the structure and we can't give too many details on who our development partner has yet set of late stage, we hope that that will change soon where we can provide a little more color but.

Speaker Change: Think of a very experienced developer leading the development. The way we're participating is rolling in our parking garage.

Speaker Change: At a certain point when the project has been de risked and then we share the economics going forward, it's too early to talk about project economics.

James Farrar: It's too early to talk about project economics.

Craig Kucera: Okay, fair enough. Thanks.

Speaker Change: Okay fair enough. Thanks.

James Farrar: Thanks for the question. Thanks, Craig.

Speaker Change: Thanks for the question Thanks, Greg.

Operator: Thank you very much. We currently have no more questions.

Speaker Change: Thank you very much we currently have no more questions.

James Farrar: I will now hand back over to Jamie for any closing remarks. Thank you for joining today. We look forward to updating you further next quarter.

Jamie Farrar: I will now hand back over to Jamie for any closing remarks.

Speaker Change: Yeah.

Jamie Farrar: Thank you for joining today, we look forward to updating you further next quarter Goodbye.

James Farrar: Goodbye.

Operator: Thank you very much, Jamie and Tony, for being our speakers today.

Thank you very much Jamie and Tony for being our speakers today.

Operator: That concludes our conference call. You may now disconnect your lines.

Jamie Farrar: That concludes our conference call you may now disconnect your lines.

Jamie Farrar: Yeah.

Jamie Farrar: [music].

Jamie Farrar: Yeah.

Jamie Farrar: Sure.

Jamie Farrar: [music].