Q4 2024 Paramount Group Inc Earnings Call
Please note that this conference call is being recorded today February 28 2025.
Tom Hennessy: I will now turn the call over to Tom Hennessy, Vice President of business development and congratulations.
Speaker Change: Thank you operator, and good morning, everyone before we begin I would like to point, everyone to our fourth quarter 2024 earnings release, and supplemental information, which we released yesterday both can be found under the heading financial results in the investors section of the Paramount Group website at Www Dot P. G R. A dot com.
Speaker Change: Some of our comments will be forward looking statements within the meaning of the federal Securities laws forward looking statements, which are usually identified by the use of words, such as will expect should or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.
Speaker Change: Therefore, you should exercise caution in interpreting and relying on them.
Speaker Change: We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.
Speaker Change: During the call we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.
Speaker Change: A reconciliation of these measures to the most directly comparable GAAP measure is available in our fourth quarter 2024 earnings release, and our supplemental information.
Speaker Change: Hosting the call today, we have Mr. Albert Baylor Chairman, Chief Executive Officer, and President of the company.
Speaker Change: Wilbur pays Chief operating Officer, Chief Financial Officer, and Treasurer, and Peter Brindley Executive Vice President head of real estate.
Speaker Change: Management will provide some opening remarks, and we will then open the call to questions with that I will turn the call over to Albert.
Albert Baylor: Good morning, everyone. Thank you for joining our call today.
Albert Baylor: Yesterday, we released our fourth quarter results reporting core F. F O <unk> 19 cents per share, bringing our total for the year to 80 cents per share which is at the high end of our most recent guidance range.
Albert Baylor: Looking ahead, we have initiated 2025 core F OHL per share guidance with a range between 51 and 57 cents per share along with the 2025 leasing guidance range between 800001 million square feet.
Albert Baylor: What about the review our financial results and guidance in greater detail in the fourth quarter, we leased approximately 109000 square feet, bringing our full year total to 763500 square feet leased.
Albert Baylor: This volume is 3% ahead of last year and near the midpoint of our original guidance for the year, though it trails a revised target from November.
Albert Baylor: In New York, we leased approximately 57000 square feet in the fourth quarter, while our quarterly leasing in New York did not meet the revised targets.
Albert Baylor: <unk> set for ourselves in November the pipeline remains robust.
Albert Baylor: Peter will cover this in more detail shortly.
Albert Baylor: We are seeing strong interest from a byte array of tenants, particularly in the financial services and legal sectors.
Albert Baylor: This demand reaffirms our conviction in the long term appeal of our high quality strategically located space in New York's core Submarkets.
Albert Baylor: The flight to quality remains a consistent theme as we begin the new year with tenants increasingly focused on premier buildings in core locations.
Albert Baylor: Our portfolio is benefiting from this trend, particularly along sixth Avenue, where the Paramount club continues to be a significant differentiator in the market.
Albert Baylor: This amenity has proven transformative not just in attracting new tenants, but in fostering a vibrant workplace community.
Albert Baylor: And hence as tenant satisfaction and retention.
Albert Baylor: In San Francisco the market continues to lag in New York, we see encouraging signs.
Albert Baylor: The November election was that potentially signals the beginning of a political shift it didnt. All of you are a clear indication of reduced patients from the electorate.
Albert Baylor: In our portfolio this quarter, we leased approximately 51000 square feet, bringing our full year total to approximately 339000 square feet leased.
Albert Baylor: Our 2020 for leasing activity in San Francisco was over 40% higher compared to last year.
Albert Baylor: We are definitely seeing progress as the market continues to improve.
Albert Baylor: The majority of our leasing activity in San Francisco remains focused on renewals and shorter terms.
Albert Baylor: The flight to quality is also evident in San Francisco's positioned as a hub for tech innovation and its leadership in AI focused venture capital funding underscore its potential for recovery. We are confident our portfolio is well suited to capitalize on these trends.
Albert Baylor: Moving to our capital allocation activities subsequent to the end of the ear, we close the sale of a 45% interest in 903rd Avenue, raising approximately 95 million in net proceeds.
Albert Baylor: The transaction valued the property at $210 million or $354 per square foot.
Albert Baylor: We continued to own the remaining 55% interest and we will continue to lease and manage the property.
Albert Baylor: This transaction underscores the underappreciated value of our assets in the public market highlighting the difference between the underlying long term value of our real estate compared to levels at which our stock currently trades.
Albert Baylor: The transaction also further strengthened our balance sheet operating enhanced flexibility in our capital allocation strategy. We ended the year was approximately 461 million and 400000 in cash and restricted cash excluding noncore assets and before the impact of the partial.
Albert Baylor: The sale of 903rd Avenue.
Albert Baylor: Further adjusting for the sale of the third Avenue would bring our cash and restricted cash to $546 million and 500000.
Albert Baylor: As we experienced with our sale of 903rd the broader real estate transaction market continues to exhibit signs of resurgence we are seeing an uptick in potential deals, which could signal a more active market in the coming year.
Albert Baylor: The persistent gap between buyer and seller expectations also continues to narrow potentially unlocking more opportunities.
Albert Baylor: In this evolving landscape, we remain committed to a disciplined approach to capital allocation.
Albert Baylor: Our strong financial position enables us to act swiftly on attractive opportunities, particularly those involving strategic partnerships, where we can leverage our market expertise.
Albert Baylor: Lastly, I'm, particularly proud to highlight that Paramount achieved a grasp the five star rating for the sixth consecutive year in 2020 for earning sector leader status in the office America strategy category.
This recognition, which places us among the top performers.
Albert Baylor: Out of over 2200 global participants demonstrate our unwavering commitment to environmental stewardship and sustainable operations.
Albert Baylor: Our score outperformed the grasp the average by 21% and we achieved an a rating for public disclosure, reflecting our dedication to the transparency and stakeholder engagement.
Albert Baylor: These achievements underscore our focus on sustainability isn't just about meeting current standards, it's about setting them.
Albert Baylor: This leadership position in ESG practices increasingly resonates with our tenants and investors, who prioritize partnerships was environmentally responsible landlords.
Albert Baylor: I'll hand over to Peter.
Peter: Thank you Albert and good morning during the fourth quarter, we leased approximately 109000 square feet with 53% occurring in New York and the balance in San Francisco.
Peter: Weighted average term for leases signed during the fourth quarter was 11 one years.
Peter: At quarter end, our same store portfolio wide leased occupancy rate at share was 84, 8% up 10 basis points from last quarter.
Peter: In both New York and San Francisco tenants continue to prioritize premier centrally located amenity rich buildings, we remain focused on cultivating our strong tenant relationships securing renewals for upcoming lease expirations and filling our vacant spaces.
Peter: For the full year, approximately 40% of our leasing activity occurred on vacant space or space scheduled to roll in 2024.
The balance of our leasing activity served to Derisk lease roll in 2025 and beyond.
Looking ahead, we are very encouraged by the current level of interest in our portfolio, particularly in New York, we're improving market dynamics in Midtown core Submarkets combined with our market, leading amenity offering at the Paramount club have helped generate significant momentum in our portfolio.
Peter: Subsequent to quarter end, we completed a significant new lease for 131000 square feet at 903rd Avenue addressing both vacant and soon to be vacant floors.
Peter: Our pipeline continues to grow with approximately 350000 square feet of leases out approximately half of which are for vacant space and the balance for space scheduled to expire in 2025 and 2026.
Peter: Additionally, we are in advanced stage of negotiations for more than 200000 square feet of proposals.
Peter: Turning to the New York market Midtown fourth quarter leasing activity marked the highest quarterly total since Q4 2019 exceeding.
Peter: Exceeding the five year quarterly average by 73%.
Peter: For the full year Midtown is 2020 for leasing activity exceeded leasing activity for full year 2023 by 38%.
Peter: This increased leasing activity in Midtown resulted in two and a half million square feet of positive absorption during the fourth quarter the highest quarterly total in nearly 25 years.
Peter: Business sentiment continues to improve irrespective of industry, resulting in tenants willingness to make longer term lease commitments.
Peter: In fact, there are currently more than 350 active tenants in the market in Manhattan for more than 25 million square feet exceeding Manhattan's 2018, 2019 demand profile.
Peter: Increased tenant demand coupled with conversion of select office buildings and little to no new development as lead is leading to a scarcity of high quality availability in Midtown as premier buildings.
Peter: We are gaining momentum in our New York portfolio as evidenced by our current pipeline and expect the improving market dynamics will support increased leasing and improved deal economics in the year ahead.
Peter: Our New York portfolio is currently 85% leased on a same store basis at share unchanged from last quarter.
Peter: Our lease expiration profile in New York remains manageable with approximately 6% expiring at share during 2025.
Peter: Shifting to San Francisco market wide leasing activity continues to steadily improve San Francisco employees have been returning to the office at an increasing rate as more tech companies modify their workplace policy to be more office centric.
Peter: As we have seen in New York returned to work on a larger scale in San Francisco will drive increased leasing activity in 2025 and beyond.
Peter: I based companies accounted for 86 leases totaling more than 1 million square feet in 2024 and have become an increasingly large percentage of the tenants in the market as they continue to raise significant venture capital funding.
Peter: This past year, San Francisco based companies raised $47 3 billion or roughly 20% of the venture capital funding throughout the United States with more than 1400, AI based startups, San Francisco was far and away the largest innovation hub in the United States and where many of these leading edge companies will operate and grow their business.
Peter: While overall market conditions remain challenging given elevated supply there continues to be a steady uptick in leasing inquiries and tour activity, which have increasingly lead to proposals and an increased number of transactions.
Peter: In fact, San Francisco's fourth quarter leasing activity was commensurate with the pre pandemic quarterly average of approximately $2 3 million square feet, resulting in the strongest full year leasing total since 2019.
Peter: We remain focused on our soon to be move outs, notably the backfill of Google's space at one market Plaza and the portion of JP Morgan space at one front street that expire this year.
Peter: We're currently developing plans to deliver exceptional amenities at both one market Plaza at one front street, leveraging our experience from the Paramount club.
Peter: We are confident that our amenity plan will resonate with existing tenants and prospective tenants alike and look forward to updating you on our plan on future calls.
Peter: At year end, our San Francisco portfolio was 83, 8% leased on a same store basis at share up 20 basis points from last quarter.
Peter: Our lease expiration profile in San Francisco is significant with approximately 29% expiring at share in 2025.
Peter: 66% of which is comprised of Google at one market Plaza and JP Morgan at one front Street.
Peter: With that summary, I will turn the call over to Wilbur, who will discuss the financial results.
Wilbur: Thank you Peter and good morning, everyone, Yes.
Wilbur: Yesterday, we reported core <unk> of <unk> 19 per share for the fourth quarter, which was one cent ahead of consensus estimates, bringing our full year 2024 core off that four to <unk> 80 per share.
Wilbur: Same store cash NOI growth in the fourth quarter was basically flat at negative 0.1%, bringing full year same store cash NOI growth of negative one, 1%, which came in better than our expectations. As we continued to rein in operating expenses.
Wilbur: While real estate impairment losses, do not have an effect on F. F O I do want to highlight that during the fourth quarter. The 55 second Street joint venture recorded an $87 $2 million noncash real estate impairment loss.
Wilbur: Our 44, 1% share of this impairment loss was $38 4 million. However, we were limited to recognizing only $29 8 million as it brought the basis of our investment in the joint venture to zero.
Wilbur: During the fourth quarter, we executed 11 leases for a total of 108824 square feet at weighted average starting rents of $85 65 per square foot and four of weighted average lease term of 11 one years.
Wilbur: We ended 2020 fold with 47 executed leases aggregating 763449 square feet.
Wilbur: While our financial results came in at or ahead of our most recent guidance we missed the mark on our most recent leasing activity and same store occupancy goals.
Wilbur: This was primarily due to a significant lease that fell through at the goal line, which unfortunately, it's happened sometimes having said that our leasing team came through in a big way with the execution of the 131000 square foot lease at 903rd Avenue in the first quarter, which sets us up.
Wilbur: Nicely as we move into 2025.
Wilbur: As Albert indicated earlier in January we sold a 45% interest in 903rd Avenue at a gross asset valuation of $210 million.
Wilbur: The sale yielded us net proceeds of approximately 95 million of which nine and a half million was reflected in the 461 4 million year end cash and restricted cash balances and the remaining will be reflected on our balance sheet at the end of the first quarter.
Wilbur: As most of you know 903rd was one of the assets supporting our unsecured credit facility.
Wilbur: In order to permit the sale of the asset we modified our credit facility to reduce the number of assets supporting the facility and improved certain covenants, while limiting our borrowing capacity to 200 million.
Wilbur: Now, let me turn to our 2025 guidance.
Wilbur: We expect 2025 core F F O to be between $51 57 per share or 54 cents per share at the midpoint.
Wilbur: This represents a 26 cents per share decrease from the 80 reported in 2024.
Wilbur: The 26 cent decrease in core <unk> is comprised of the following.
A 17% decrease in cash NOI, resulting primarily from the scheduled lease expirations, including that of J P. Morgan and Google in our San Francisco portfolio, which has been telegraphed for quite some time.
Wilbur: A full cent decrease in non cash straight line rent revenue.
Wilbur: They do sell decrease from the disposition of a 45% interest in 903rd Avenue in January 2025.
A two cent decrease in fee and other income due to lower yields and certain nonrecurring fees earned in 2024.
Wilbur: A one cent decrease in lease termination income, which.
Wilbur: Which we typically do not budget for it.
Wilbur: A one cent increase in interest and debt expense.
Wilbur: Partially offset by a one cent decrease in general and administrative expenses.
Wilbur: We expect same store growth to remain negative in 2025 and range between negative 11, and negative 7% on a cash basis and negative 13 and negative 9% on a GAAP basis.
Wilbur: Given by the significant lease explorations in 2025.
Wilbur: And we expect our leasing velocity to improve in 2025, and our goal is to lease between 800001 million square feet.
Wilbur: Notwithstanding that that leasing goals, we expect year end same store occupancy to remain roughly flat given the significant explorations in 2025 and are guiding to a year end portfolio wide same store leased occupancy rate between $83 nine and 85.
Wilbur: 9%.
Wilbur: While we do not give specific guidance metrics with respect to New York and San Francisco I will say that our assumptions are include.
Wilbur: And clearly the occupancy in New York will continue to improve in 2025, while occupancy in San Francisco will further deteriorate in 2025, driven by the sheer magnitude of the JP Morgan and Google lease explorations.
Wilbur: Please refer to page six of our supplemental package and our investor deck for additional information regarding our 2025 guidance.
Wilbur: With that operator, please open the lines for questions.
Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Wilbur: A confirmation tone will indicate your line is and the questions you.
Speaker Change: You May press star two to remove yourself from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing need starkey.
Speaker Change: One moment, please welcome call for questions.
Speaker Change: Our first question comes from the line of Steve <unk> with Evercore ISI. Please proceed with your question.
Speaker Change: Thanks. Good morning, everyone. This is Matt on for Steve.
Speaker Change: I just had a quick question on the deals that you were unable to science dissipated. The one that you were mentioning that fell through at the finish line could you maybe talk about the reasons to why that happened. Maybe you said it was like location based if the tenant was hesitant or if he couldnt agree on rental rates just for us to understand a little bit of a color here would be helpful.
Peter: Sure. This is Peter good morning.
The ultimate reason is not entirely known.
Peter: It is highly unusual for a lease to be and execution and for it to be pulled and so that was really very unfortunate.
Peter: It's probably more productive quite honestly to talk about.
Peter: Our plan going forward and we have a couple of tenants that are very seriously interested in these two floors right now and so while this other decision I think more the other tenants that didn't ultimately transact is mulling, what they will ultimately do I think we will likely proceed with with.
Peter: Very creditworthy tenant for those two floors in the not too distant future. In fact, we think we think we're getting close so.
Peter: We think we'll have a good story to tell ultimately it was unfortunate but those two floors at the base of 13 O Warner squarely in the middle of where all of this activity that youre familiar with along sixth Avenue is occurring and it sits directly on top of.
Peter: Arguably the finest club in New York and I'm, referring of course, the Paramount club, which is at 13 O one of any of the Americas.
Peter: Yeah.
Speaker Change: I mean, it's really it's really unfortunate as Peter was saying and very very very unusual that something like this happens and a field for Peter and the team.
Speaker Change: The only good thing here is that the current leases that Peter and the team are talking about are significantly higher in rent and I think that's a good momentum that we are going to see now here at the beginning of 2025 that finally, we can push rents a little bit and that.
Speaker Change: It goes across the portfolio from New York.
Speaker Change: Got it that makes sense I appreciate the color and maybe one follow up question. If I may could you maybe touch on the progress or the current status for the two noncore assets of 111 Sutter Street, our market center in terms of a potential sale of lender a resolution or just kind of like the thoughts as you stand now in the beginning of 'twenty five that would be helpful.
Speaker Change: Sure Madison and.
Speaker Change: Think there's much to talk about 111 salary yet frankly, if you recall.
Speaker Change: We got an extension there that runs through the end of December of.
Speaker Change: 2025, so well.
Speaker Change: Yeah, we're gonna resumed conversations with the lender on that front, but as as we've highlighted before there is no risk to Paramount balance sheet with respect to 111 setup. Because you know we're not funding the debt shortfalls were not funding the tea ice to lease that we continue to manage the property and we have optionality.
Speaker Change: D on that asset.
Speaker Change: The market Center I'm sure you guys have all seen the press reports and you saw a disclosure.
Speaker Change: That asset is in the market that deal has been awarded we continue to work with the lender.
Speaker Change: To sell that property and.
Speaker Change: That that remains ongoing and we expect a resolution perhaps you know as early as the second quarter at which point the assets will come off our books the debt will come off our books and will recognize a tax loss that we can play around with.
Speaker Change: Great. That's it for me thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.
Blaine Heck: Great. Thanks, good morning.
Blaine Heck: 2025 leasing target of 900000 square feet at the midpoint seems maybe a little ambitious relative to the 763000 that you did and what would what someone would argue is a pretty strong New York leasing market. In 24. So can you just talk about what gives you confidence in that acceleration in 'twenty five.
Blaine Heck: And related to that I think Peter said, there's around 500000 square feet of leases under contract or in advanced stage negotiation. So that would leave 400000 of speculative leasing to get to the target is that kind of the right way to think about it.
Speaker Change: Yeah, Hi, Blayne, let me start answering.
Let let me Scott maybe answering the question going back to 2024.
Speaker Change: The market was very fragmented.
Speaker Change: Fragmented with regard to leasing a lot of the leasing happen.
Speaker Change: In the Park Avenue area, and we don't have an asset there.
Speaker Change: This 903rd outside of that sub market.
Speaker Change: And it seems to be moving and there's.
Speaker Change: With regard to a high quality properties, there seems to be a lack of assets and the market is moving more towards six avenue and the west side.
Speaker Change: And that's why we are quite confident that the leasing guidance can be achieved.
Speaker Change: And especially with the mishap that happened in the fourth quarter on that one transaction, we are really counting on that being being I'm done and it was really pretty much ready to be signed.
And that space as Peter was saying is already marketed to other tenants who are basically left on the sidelines and that's a significant.
Speaker Change: Scrap with it. So we are we are very confident that the chiefs as gods.
Speaker Change: Okay.
Speaker Change: Okay, great. Thanks al.
Speaker Change: Yeah go ahead Peter.
Speaker Change: Just to add to that you know.
Speaker Change: We're sitting here at just about March we have as I mentioned leases out at various stages, but leases out Nonetheless of 350000 call. It two thirds of which is in New York and then I mentioned advanced stage proposals for 200000 or more and of course, there's quite a bit on that in terms of proposals being being exchange, but just in terms of what we're seeing in the market.
Speaker Change: The way our offerings are positioned.
Speaker Change: Feel very confident as we sit here and just about March call. It.
Speaker Change: That we will achieve what we've put forward by way of velocity and a 900000.
Speaker Change: The mid point.
Speaker Change: Blend.
Speaker Change: You had one question in terms of dimension that speculative just to just to clarify that your your math does not include in the speculative the 100031 square foot lease that was already done right. So when Peter is talking about a 500000 square foot pipeline.
Speaker Change: And that is excluding the already executed lease that took place in the first quarter. So you have 400000 of speculative map would get reduced at a minimum by that $1 31.
Speaker Change: Square foot lease.
Speaker Change: Got it that's very helpful. And then Peter maybe sticking with you you know leasing capex as a percentage of initial rent are at risk to the highest level. We have on record in the fourth quarter can you just talk about whether there were any specific leases that drove that increase and more generally kind of what you're seeing with.
Speaker Change: Two concessions for new leases on the market.
Speaker Change: Sure sure Blaine I wouldn't read into that as a trend what really what drove that was it was a deal that we chose to turnkey space in other words build it for a tenant.
Speaker Change: It was on a lower floor in one of our buildings and as a percentage of initial rent that turnkey was was a little bit higher than where we've been historically, but generally speaking what I expect we will see in the year ahead.
Speaker Change: Is is I think 441 or certainly paramount that have well positioned premier type assets, we will have pricing power in the year ahead, particularly for higher floors, 80% of midterms availabilities on floors 24 and below so interestingly when you have an upper floor is becoming increasingly scarce and I think as a result, we have pricing power.
Speaker Change: Concessions, we know are elevated to certainly have stabilized I do think given that mid terms being picked over real time. Some tenants are out in the market a little bit earlier and their objective is to not pay double rent.
Speaker Change: So you.
Speaker Change: For that reason I think free rent will likely remain where it is it will probably start to come down at some point, but remain where it is just in the near term for that reason and I think T is.
Speaker Change: They start to come in a little bit.
Speaker Change: As the market continues to tighten.
Speaker Change: I recognize that over the last three years to five years inflation has had an impact on the cost to improve space, but that being said I do think that this market is moving very quickly in Midtown specifically, we feel really very good about fundamentals, improving and we think that our product mix will allow us to like I said.
Speaker Change: Achieve better net effective rents in the year ahead.
Speaker Change: Glenn just to add to what Peter said I mean do you mean in your comment that it is screened as being very high aside from the fact that you had the turnkey recognize that.
Speaker Change: You had only 100000 square feet of leasing activity or so in the fourth quarter. So you have a turnkey you have it on the lower floors, and so and you have limited activity. So that number screened high if you look at the full year based on the 763000 square feet that was leased those numbers are more in line.
Speaker Change: And with what we have been reporting quarter over quarter more in line with what our peers have been reporting.
And so you know quarterly metrics can fluctuate, but it's important to highlight that it was very limited activity.
Speaker Change: Got it that's absolutely fair and one more if I can you know I know, we're just starting 2025 and I appreciate your commentary and transparency on the 25 move outs, but I wanted to ask if you could give any color on the largest expirations in 'twenty six and your updated thoughts on which are likely move outs and which are still.
Speaker Change: The negotiation.
Blaine Heck: So Blaine I would say that a number of the explorations in 2006 are currently.
Blaine Heck: In negotiation under discussion, but certainly I think the largest known move out you know if you look at New York specifically.
Blaine Heck: Showtime represents the largest are likely move out in 2026 and <unk> and so.
Blaine Heck: 57% of our 2026 expirations will occur at 16, 33, driven largely by Showtime.
Blaine Heck: I will tell you that we have several tenants that have.
Blaine Heck: <unk> expressed interest in this block of space you know the number of high quality blocks.
Blaine Heck: In Midtown continues to dwindle and so we are active on that block of space.
Blaine Heck: But that's that's the largest I would say at this point are likely move out in our portfolio in 2026, and if you think about the largest sort of moving parts in San Francisco you have Morgan Lewis Autodesk visa and KPMG I think visa is a known move out and KPMG is a known move out.
Blaine Heck: The other two I think are too soon to comment on.
Blaine Heck: Oh.
Blaine Heck: Yeah.
Great very helpful. Thank you guys.
Blaine Heck: Thanks, Eric.
Blaine Heck: Thank you.
Blaine Heck: Our next question comes from the line of Ron Camden with Morgan Stanley. Please proceed with your question.
Ron Camden: Hey, just two quick ones just on the San Francisco you know like we've.
Ron Camden: Heard sort of different rates different property types hawking about a turnaround coming there and I'm just curious just commentary on the market overall and how you're feeling today and then if you could just specifically on some of the expirations just remind us what the plan is for the backfill a large tenant small tenant readout just just what's the plan of attack.
There would be helpful.
Ron Camden: Great. Let me start on that and thanks for asking the question because San Francisco.
Ron Camden: Despite the fact that we did significant significantly better leasing and 24, then in 2023 seems to be getting quite active.
Ron Camden: Already in the first two months and I think the impact might be that are we have new leadership, there and the new mayor Laurie as setting new a new Gold's and I think the the leadership change in Washington might F. A bra.
Ron Camden: More clarity to some of the tenants that are very active in the San Francisco market. So even in the first two months we already are.
Speaker Change: <unk> increased and Peter can go into details of what I'm talking about leasing.
Ron Camden: Leasing demands are.
Ron Camden: Showing space and as you know all our assets are in.
Speaker Change: And in good quality locations and are of good quality. So we and we always have said this over the last at least six to eight our earnings calls that San Francisco seems to be lagging behind New York are the economy is not an established supply.
Speaker Change: It is in New York economy, but now it seems to be picking up also with the move of our.
Speaker Change: People being back in the office of large tech companies, who at for example, the Cham enough sales Force had said initially after the after.
Speaker Change: After the pandemic that nobody had to go back to the.
Speaker Change: The office now is calling for five days.
In the office, so those kind of samples.
Speaker Change: Important to change.
Speaker Change: People's attitude.
Speaker Change: Peter.
Speaker Change: Okay.
Speaker Change: Adding to what Albert just now outlined you know, we all are well familiar with the supply demand problem in San Francisco and I think we're all assessing real time, what's happening here I can tell you generally out in the field feels feels.
Speaker Change: Actually much more active to start the year tour activity is up we've had a number of inquiries number of broker calls returned to office.
Speaker Change: It's happening in a more significant way, we all know that's the fuel that drives leasing velocity venture capital funding to San Francisco based companies has been has been quite significant and these are.
Speaker Change: Early stage companies are all acknowledging the importance of the office in order to execute on their lofty plans and so they're out in the market, we're well positioned and that the CBD will likely be north and South financial district will continue to be I think the first sub markets to recover and all of this this is where the majority of the leasing.
Speaker Change: He is occurring.
Speaker Change: And so all of this is just now percolating, we have a plan of course to backfill the known move out as you asked about with Jpmorgan.
Speaker Change: We have several leases out between the two buildings and we have good amount of tour activity. We're also working now too.
Speaker Change: <unk> worked through our amenity plan, it's one thing to talk about amenities, it's another to have.
Speaker Change: I think the skills to execute on amenities that actually do move the needle for our tenants.
Speaker Change: And so we're pushing putting some some oh quite a bit of work into.
Speaker Change: Leveraging what we have learned that the Paramount club and what we were able to deliver and do that in the San Francisco away at our at our properties in San Francisco. So all of that I think will help drive additional velocity, but but I would just say Ron to start the year, while we're not where we need to be ultimately by way of demand. We did just come off the best year, we've had.
Speaker Change: Since 2019.
Speaker Change: We all would like to see more.
Speaker Change: Demand, but the tenants in the market profile continues to increase and just out in the field. We are feeling generally considerably better to start the year than we did at this time last year.
Speaker Change: Great. That's helpful. And then my second one is so I saw that 279 market Center alone.
Speaker Change: The plan there is working with the lenders to sell the property.
Speaker Change: So I guess my if I think about the 2026 maturities I know, it's early but any indications on what the plan for those are in and where you think you could.
Speaker Change: You can sort of refinance banks.
Speaker Change: Sure look I think the.
Speaker Change: 2026 maturities a little bit too soon to talk the the overall market continues to improve especially in New York a lot of the 2026 maturities on New York.
Speaker Change: Our market improving for high quality asset high quality sponsors.
Speaker Change: The banks and insurance companies continue to sit on the sidelines as they work through their loan books, but see MBS issuance has picked up tremendously.
Speaker Change: Fact in 2024 <unk> activity was 2.5 ex that of 2023 so.
Speaker Change: You know the market continues to improve spreads continue to come in so we're going to we're going to tackle that as we move into the second half of 2025 and enter 2026.
Great. That's it for me thank you.
Speaker Change: Thank you goodbye.
Speaker Change: Thank you. Our next question comes from the line of Hum catheter would be T. I G. Please proceed with your question.
Speaker Change: Thanks, and good morning, everybody Wilbur sorry, I want to go back to your answer to Blaine leasing question to make sure I get the numbers right.
Speaker Change: Between the 131000 square feet of leasing thus far in <unk> and roughly 500000 square feet in the active pipeline. It leaves roughly 300000 square feet of yet to be identified leasing opportunities to hit the midpoint of guidance is am I getting that right.
Speaker Change: Not necessarily let me just add clarify one the 131000 square foot.
Speaker Change: Not represent the first quarter leasing activity that just represents one significant deal that was done in the first quarter right. So there is other activity that has been executed until when Peter dimension. The pipeline. He said look its 500000 square feet and it's growing so when.
Speaker Change: When you take that right now if you would adjust to factor the 131 you'd come up to about 270000 square feet plus or minus of speculative activity, but again that does not include other leases that have been executed in the first quarter, thus far and and and.
Speaker Change: The pipeline is growing.
Speaker Change: Okay.
Speaker Change: So let me try it a different way.
Speaker Change: It would then seem that roughly two thirds of the mid point 900000 square feet is already identified maybe even higher but that seems like a very high percentage at the beginning of the year is that normal to have kind of that much identified for your leasing target once you give guidance or am I thinking about this.
Speaker Change: Long way.
Speaker Change: Well I think it depends look you know we look at the portfolio. We look at the role in any given year, we look at.
Speaker Change: Fundamentals in the market, we look at the pipeline when equal its a pipeline you are assuming the entire pipeline is converted to a lease that is not factually correct, either so that does not typically happen.
Speaker Change: The pipeline is more to give you guys comfort as to what do we see in the Hopper.
Speaker Change: 2024, and 2023 are released.
Speaker Change: Slightly under 800000 square feet, but if you went to 2021 and 2022.
Speaker Change: We leased close to 1 million square feet in that in those years and you know when we sit around the table and come through the guidance and the goal. The goal has to be robust goals have to be stretch goals and.
Speaker Change: We tried to triangulate between what we're seeing in the market as fundamentals continue to improve them and establish these goals at the onset and then we'll continue to tweak them as as we go forward, but when we sat and determined these goals. It was a very good feeling about reaching.
Speaker Change: You know the <unk>.
Speaker Change: Mid point of our goal as we establish at the beginning of the year.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Then maybe pivoting over I'm kind of thinking through the.
Speaker Change: Albert I think you mentioned over $500 million in cash well with the closing of the partial interest sale at 903rd.
Speaker Change: How much of that cashes earmarked for redevelopment sort or capex spending you know maybe for example on one front, which you pulled out of the out of the same store pool, and then how many of that how much of that $500 million could be allocated towards new investments should they arise.
Speaker Change: Yeah, that's a good question.
Speaker Change: We always consider all the all the options that we have so nothing is really earmarked specifically.
Speaker Change: And it's too early to exactly identify it of what's required at one front or other assets I think I mentioned that the other call we have to keep a certain amount of firepower. If you all have a bankruptcy.
Speaker Change: Yeah.
Speaker Change: You might consider share buybacks, but for the time being we are.
Speaker Change: We keep our options open we want to stay liquid and are we also looking at opportunities.
Speaker Change: As I have said in the past we will only go asset light that means we will we will only invest a small amount of our equity and we will.
Speaker Change: Find partners, who will co invest with us.
Speaker Change: There's.
Speaker Change: Quite a inactive.
Speaker Change: A line of people.
Speaker Change: People, who would think.
Speaker Change: The correction has been has been overdone and it said it more or less perfect time.
Speaker Change: To get back into the market. So we are their condition team is very busy looking at all the opportunities. We have and we are we are very focused on that and.
Speaker Change: I think it was a great execution for the team.
Speaker Change: And are grateful to the shareholders to.
Speaker Change: To.
Speaker Change: Get a piece of 903rd sold it.
Speaker Change: About 25% north of what.
Speaker Change: And Abby currently is considered by the market. So I think that that shows that.
Speaker Change: The pricing might not be correct in the public markets at this point.
Speaker Change: Got it I appreciate the answers thanks, everyone.
Speaker Change: Sure you're welcome.
Speaker Change: Thank you IRA.
Speaker Change: Our next question comes from the line of Vikram Malhotra with Mizuho. Please proceed with your question.
Speaker Change: Thanks for taking the question I'm, sorry, if you want to do this I joined late but just.
Specifically on on a Google and JP Morgan I'm not sure. If you gave any sense of like the pipeline.
Speaker Change: No there are no they'll need to move out et cetera, but just what's the what are the options or how the pipeline to backfill those two specifically.
Speaker Change: Yes, Hi, Vikram this is Peter so.
Speaker Change: I did mentioned earlier that we've got several leases out.
Speaker Change: Between the two buildings those named one front one market.
Speaker Change: And tour activity, while you always want to see more demand and we are starting to see more by way of demand in San Francisco.
Speaker Change: It has been steady.
Speaker Change: We are also I think you know I mentioned earlier, delivering amenities, which are becoming increasingly important to tenants in San Francisco.
Speaker Change: To both properties and so we are in the process of rolling all of that out and that has been very well received by prospective tenants and so.
Speaker Change: As I mentioned, we do have several leases outdoor activity is picking up its been feeling quite a bit better since since.
Speaker Change: The beginning part of this year relative to how we felt at this time last year.
And so we'll have more to report in the coming quarters, but San Francisco seems to be moving in the right direction. As we've said now several times on this call and.
Speaker Change: We look forward to executing on what we have in front of us and converting some of the new opportunities that have come about most recently with <unk>.
Speaker Change: The.
Speaker Change: The decrease in tour activity and the exchange of proposals of course and so.
Speaker Change: And that's where we are currently.
Speaker Change: And then just a last one is there a thought about.
Speaker Change: Several years ago, you JV part of of small part of 16 33.
Speaker Change: It is is there any I guess it taught or interest in you know additional JV or asset sales or even just bigger picture more strategic kind of action just given where the stock is trading.
Speaker Change: Absolute and relative to peers.
Speaker Change: Hum.
Speaker Change: As we had to set in the past, we if we find.
Speaker Change: The right value and we.
Speaker Change: We find a partner who is willing to.
Speaker Change: Buy a piece of an asset.
Speaker Change: And we think that is.
Speaker Change: Decent pricing as we had done was 16 33 years you said.
Speaker Change: That was early independent make them, we would definitely consider other joint ventures, and then making use of that debt equity.
Speaker Change: Yeah.
Speaker Change: Create and have flexibility and and make sure that we can grow the potentially with other opportunities.
Speaker Change: And and or share buybacks or.
Speaker Change: Potentially our dividends as well.
Speaker Change: Thank you.
Speaker Change: Youre welcome.
Speaker Change: Thank you.
Speaker Change: And as a reminder, if anyone has any questions you May press star one on your telephone keypad to join the queue.
Speaker Change: Our next question comes from the line of Julien Brzezinski with Green Street.
Speaker Change: Please proceed with your question.
Speaker Change: Hey, guys. Thanks for taking the question I guess, just going back to your comments on sort of the acquisition team boom as busy as ever but theyre still sort of being a a wider bid ask spread.
Speaker Change: Necessitate fans.
Speaker Change: Transactions to start clarity I mean, as you guys look across San Francisco, and New York I mean, do you guys get the sense that that New York is getting to a point, where we're that buys that buy sell spread is it as.
Speaker Change: It is much narrower than it is in San Francisco or any of them.
Speaker Change: About that you know across the market footprint today.
Speaker Change: I think both markets are very different.
Speaker Change: And it really depends sometimes its capitulation.
Speaker Change: Of and.
Speaker Change: <unk> or.
Speaker Change: The debt team, taking over and really don't wanting to take over it's different in each case.
Speaker Change: And the spread I think is getting narrower.
Speaker Change: In some cases and.
Speaker Change: There are some assets that are.
Speaker Change: Getting considered to be put on the market for recapitalization that.
Speaker Change: What in the market for a while.
Speaker Change: So we're looking at those as well and I think in San Francisco, it's more than that.
Speaker Change: That did you can you can look for deep value, but you really have to be a believer in San Francisco coming back because the development is at least 12 months behind New York City and.
Speaker Change: And that's shown in the value that you can that you can can achieve.
Speaker Change: But it's definitely so.
Speaker Change: A riskier than investing in at least in our kind of markets in Midtown mainly in Midtown of of New York.
Speaker Change: That's helpful. Thanks, Albert I guess, just one one more touching on sort of.
Speaker Change: You know a large tenant leasing activity, especially in San Francisco, you guys starting to see sort of a recovery. There I know traditional big Tech has sort of been on the sidelines as it relates to leasing.
Speaker Change: Can you kind of talk about just the broader larger tenant activity in San Francisco, New York today.
Speaker Change: Yes, so I think we're seeing a lot of activity from more early stage companies some of the traditional companies over the past year like law firms in New York.
Speaker Change: In some cases, we're right sizing actually which was very different than what we were experiencing in New York with law firms expanding.
But we're seeing a lot of <unk>.
Speaker Change: Smaller tech activity, a large percentage are about roughly 30% of the.
Speaker Change: Tenant in the market profile is comprised of AI companies many of them early stage in their <unk>.
Speaker Change: High octane type tenants with significant funding, but theyre not looking for a 30 40000 square feet, they're looking for a significantly less space and so I think your average deal size in the first half of this year might be a little bit smaller in San Francisco.
Speaker Change: But certainly with the return to office, we are starting to hear from some of the larger tech companies for the first time, who had been largely dormant for the past several years as we all know starting to inquire again and that's that that is I think something that we have seen in the early going this year.
Speaker Change: So I think I think I think it's not entirely clear.
Speaker Change: Just yet, but we are feeling very good about the number of inquiries that we've had out in the field. The number of tours that we've had.
With not only financial service firms law firms, but they are increasingly with technology companies that are that are re engaging and so I think I think this will be a really very interesting year for us to see how it develops in San Francisco.
Speaker Change: Awesome. Thanks, guys appreciate it.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Thank you we have reached the end of the question and answer session I would like to turn the floor back to Albert Mueller for closing remarks.
Speaker Change: Thank you.
Speaker Change: All for joining us here today on this call.
We look forward to providing an update on our continued progress when we report our first quarter 2025 results Goodbye.
Speaker Change: Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].