Earnings Call: Q4 2020

Feb 12, 2021

Good day, and welcome to the Cousins Properties 4th Quarter 2020 Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Pamela Roper. Please go ahead. Good morning, and welcome to Cousins Properties' 4th quarter earnings conference call. With me today are Colin Connolly, our President and Chief Executive Officer Richard Hickson, our Executive Vice President of Operations and Greg Adzema, our Chief Financial Officer. The press release and supplemental package were distributed yesterday afternoon as well as furnished on Form 8 ks. In the supplemental package, the company has reconciled all non GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. If you did not receive a copy, these documents are available through the quarterly disclosures and supplemental SEC information links on the Investor Relations page of our website, cousins.com. Please be aware that certain matters discussed today may constitute forward looking statements within the meaning of federal securities laws and actual results may differ materially from these statements due to a variety of risks and uncertainties and other factors, including the risk factors set forth in our Annual Report on Form 10 ks and our other SEC filings. In particular, there is significant risk and uncertainties related to the severity and duration of the COVID-nineteen pandemic and the timing and strength of the recovery therefrom. The company does not undertake any duty to update any forward looking statements, whether as a result of new information, future events or otherwise. The full declaration regarding forward looking statements is available in the supplemental package posted yesterday and a detailed discussion of some potential risks is contained in our filings with the SEC. With that, I'll turn the call over to Colin Connolly. Thank you, Pam, and good morning, everyone. 2020 was an extraordinary year. The COVID-nineteen pandemic arrived swiftly and our lives changed almost overnight. As I said in May of last year, crises don't build character, they reveal character. At Cousins, we value our employees, our customers and our communities. I have been so proud that our dedicated team has ably navigated the pandemic, while consistently providing our customers with the same excellent service they expect from us every day. In addition, Cousins gave back to our communities as we committed $900,000 from our non profit foundation to support organizations focused on COVID-nineteen relief and important social justice causes. Before addressing our long term outlook, I want to provide a few highlights of our solid 4th quarter results. On the operations front, the teams delivered $0.68 per share in FFO with 2nd generation cash rents of 8.9%. We leased 387,000 Square Feet and collected 99% of total rent, including 99% from our office customers. In addition, we took advantage of economic uncertainty and made several investments in the south end of Charlotte, including our acquisition of the rail yard for $201,000,000 and 2 fabulous land sites totaling 5.6 acres in aggregate. These significant investments in Charlotte will provide a solid foundation for growth in that dynamic city for years to come. Cousins was well prepared to weather challenging times with a simple yet compelling strategy that enabled us to operate effectively throughout the year. Let me highlight the core principles of our strategy. First, to build the premier urban Sunbelt office portfolio. 2nd, to be disciplined about capital allocation and focus on new investments where our platform can add value. 3rd and importantly, to have a best in class balance sheet. And finally, to leverage our strong local operating platforms that take an entrepreneurial approach in our high growth markets. We have made significant strides in progressing this strategy. Today, we have the leading trophy portfolio in the best Sunbelt submarkets of Atlanta, Austin, Charlotte, Dallas, Phoenix and Tampa. 2nd, we have a terrific development pipeline of $449,000,000 that is 77% pre leased and attractive land sites where we can build an additional 5,000,000 square feet. Our balance sheet is strong with net debt to EBITDA of 4.8 times and G and A as a percentage of total assets at 0.3%, both among the best in the entire office sector. While the pandemic persists, we are starting to see early signs of hope with the promise that vaccines offer. As we approach the other side of the health crisis, our conviction around our Sunbelt Trophy office strategy has only grown. Let me share why. Our strategy has positioned Cousins at the intersection of 2 powerful trends driving the office sector, the migration to the Sunbelt and a flight to trophy properties. While these trends were underway before COVID, they are likely to accelerate. For example, the top 5 migration states from 2019 through 2020 were Texas, Florida, Arizona, North Carolina and Georgia, while the bottom five states were New York, Illinois, California, Michigan and Pennsylvania. We've also seen announcements of relocations and large expansions including Oracle, CBRE and Amazon. In fact, 2020 was a record year for corporate relocations and expansions in Austin with 39 companies that announced plans to add nearly 9,900 jobs in the Greater Austin area. And in Atlanta just yesterday, Microsoft confirmed it had purchased 90 acres in West Midtown with plans to build a major employment hub, which will include thousands of new office using jobs. Believe that we're only in the early stages of this geographic shift. I am confident we will see additional large relocation and expansion announcements later this year. We hope to directly benefit from some of these situations. But regardless, these moves will further validate the importance of the office to companies and the power of our Sunbelt footprint. And to be clear, innovative companies aren't relocating from California to Texas, Georgia and North Carolina to work from home. Looking forward to 2021, let me share some of our top priorities. First, we are focused on creating value in our existing portfolio, including making leasing progress in our larger blocks of space. 2nd, we will look for opportunities to upgrade the quality of our portfolio through strategic acquisitions with properties that reflect the office of the future. An example of this is our recent acquisition of the Railyard in Charlotte. We will likely fund these with the sale of older vintage higher CapEx properties. As I said last quarter, we will not always be able to time our buys and our sells concurrently, which could on occasion create short term earnings fluctuations. However, our creative deal making is a differentiator and integral to driving long term earnings and NAV growth. 3rd, we will continue to prioritize and appropriately size land bank to meet customer demand for new experiential properties in the best locations. Lastly, we will continue to identify new office and mixed use development opportunities with an eye towards pre leasing. However, we will also selectively consider development opportunities with speculative components in unique markets like The Domain in Austin, where fundamentals and in migration are so strong. 2021 is a transition year for Cousins from an earnings perspective. Our financial results will reflect several known move outs from recent value add acquisitions like 3,350 Peachtree, 1200 Peachtree in Atlanta as well as the Bank of America Plaza building in Charlotte, which is now known as 1 South at the Plaza. Clearly, the COVID-nineteen pandemic and associated lockdowns delayed our releasing efforts. However, with the vaccine rolling out, we are seeing restrictions ease and revived customer interest. We are eager to begin executing our business plans to reposition these exciting projects. Our strategy remains intact. The properties are in the right markets and the trends are in our favor. As we look to 2022 and beyond, these value add investment opportunities are a terrific source of value creation. Combined with our existing and future development pipeline, Cousins is uniquely positioned to deliver long term growth for our shareholders. Importantly, we have the right balance sheet with low leverage and ample liquidity to capitalize on the opportunities. Before turning the call over to Richard, I want to thank our dedicated, talented and flexible Cousins team, which has continued to work hard each day under the toughest circumstances over the past year. They always rise to the occasion, providing excellent service to our customers and applying their talents to make our company stronger. I'm proud to be part of Cousins. Richard? Thanks, Colin, and good morning. We reported solid 4th quarter operating results delivering a constructive close to a year that presented every one of us with truly historic challenges to overcome. As I've done for the past couple of quarters, I will begin by updating you on general business conditions. First, an update on customer utilization within our 20,000,000 square foot operating portfolio. Utilization continues to track at an average of approximately 20% across the company, squarely in line with our reported levels last October. Given the widespread increase in COVID cases over the past couple of months, we view steady utilization through this period as encouraging. Like last quarter, we sense that utilization will not move materially higher until the second half of twenty twenty one and should be highly dependent on vaccination efforts. Rent collections were consistent and strong again this quarter. We collected 98.8 percent of rent from all customers and 99.2 percent of rent from office customers in the 4th quarter. Collections are running at comparable levels so far in 2021 as well. We also continue to have very few ongoing rent deferrals, which are at this point largely limited to our retail customers. In the 4th quarter, rent deferral agreements represented just 0.3% of annualized contractual rents and were only 1.5% of contractual rents for all of 2020. Now let's turn to operating results. Our total portfolio ended the 4th quarter at 90.8% leased with our same property portfolio at a solid 92.7 percent leased. Total portfolio weighted average occupancy held steady this quarter at 90.4% and the same property portfolio moved up to 92.4%. As Colin already referenced, we expect 2021 to be a transitional year for Cousins including occupancy. While only 8.5% of our annual contractual rents expire in 2021, our operating portfolio includes value add investments with known 2021 pending vacancy, such as 1200 Peachtree and 3,350 Peachtree Atlanta and 1 South of the Plaza in Charlotte. The final 169,000 square feet of Bank of America space at 1 South expired at the end of 2020, representing about 90 basis points of portfolio occupancy. So we will see a lower weighted average occupancy beginning in Q1 of 2021. I would also note that in late 2021, our occupancy will reflect the positive impact of some known commencements from new deliveries, most notably at The Domain in Austin. In short, occupancy will be lower in 2021 compared to 2020. But as Colin said, we have a great opportunity to create long term value as we lease up these blocks of space. On top of that, we have only 8% or less of our annual contractual rents expiring in each year through 2024. As expected, the pandemic once again impacted quarterly leasing volume with the new activity slower. With that said, we saw an encouraging bounce in overall activity this quarter. In all, we executed over 387,000 square feet of leases during the 4th quarter and over 1,400,000 square feet of leasing for the year. Notable leases in the 4th quarter included a renewal of NASCAR at NASCAR Plaza in Charlotte and a renewal and expansion of Amazon at Terminus in Atlanta. After quarter end, we also signed a new lease at our 100 Mill New Development in Tempe. Our average lease turn this quarter was a healthy 6.6 years and it was 7 years for the full year. Our average lease term was fairly consistent between new and renewal activity and was not meaningfully different than our 3 year pre COVID run rate of 7.5 years. Lease concessions defined as free rent and tenant improvements were $4.15 per square foot per year this quarter, below our rolling 8 quarter average. Nonetheless, we continue to feel the most least negotiating pressure around concessions. Rent growth within our portfolio has remained strong, especially for operating in the pandemic, with 2nd generation net rents increasing 8.9% on a cash basis for the quarter and 13.1% on a cash basis for the year. With solid rent growth and lower than normal concessions in this past quarter, our average net effective rents came in at $25.19 per square foot. We have printed higher net effective rents in only 3 other quarters since the beginning of 2018. As we look ahead despite continued headwinds in overall vacancy and sublease availability, there are hopeful signs in each of our markets that meaningful economic recovery is possible as the year progresses. Let me provide some examples. There has been a clear ramp in major Sunbelt job and office relocation announcements. Oracle's relocation to Austin, Microsoft's sizable new East Coast hub in Atlanta and Pfizer's growth commitment in Tampa to name just a few. Per CoStar, Uptown Charlotte and Tempe still have notably low Class A vacancy rates of 7.7% and 6.9% respectively. These would be great launching off points emerging from a recession. Per JLL, there are currently over 5,400,000 square feet of tenant requirements in the market in Austin. 40% of these requirements are focused on the CBD and Northwest domain. Also per JLL, employees in Dallas have returned to the office faster than the rest of the country at almost 40% in December. This compares to only 10% to 15% in the coastal markets. Even more impressive, both Dallas and Austin are already back above pre COVID-nineteen employment levels. Across the board, it is becoming clear that physical office space will remain important as we emerge from the pandemic. According to a recent PwC study, 70% of executives expect their real estate footprint to stay the same or grow over the next 3 years due to the rising headcounts and social due to rising headcounts and social distancing. In one example of this sentiment, Google's CFO said during the company's most recent earnings call that when they look ahead, the company expects to return to a more normalized pace of ground up construction and the fit out of office facilities. It does not get any clearer than that. Now some color on our leasing pipeline. While we had a pause during the Q4 with COVID and seasonal headwinds, early stage interest and inquiries have noticeably increased again since the beginning of the calendar year, signaling the companies now seem willing to begin the process of making longer term real estate decisions. The most noticeable upticks in inquiries and activity have been in Austin, Midtown and Buckhead of Atlanta and Tampa. Economic development teams in every one of our markets are still signaling high optimism, noting that they are as busy as they have ever been. As I said last quarter though, keep in mind that early stage activity can often take multiple quarters to evolve. In summary, we enter a transitional 2021 with a sense of renewed optimism albeit cautious for what lies ahead. Before handing off to Greg, I want to say how proud I am of all of my Cousins teammates who have responded to this pandemic with amazing confidence, resilience and hard work. Thank you for all that you did to make 2020 a success. Greg? Thanks, Richard. Good morning, everyone. I'll begin my remarks by providing a brief overview of our quarterly financial results, including some detail on our same property performance, our development pipeline and our transaction activity, followed by a quick discussion of our balance sheet and dividend before closing my remarks with information on our outlook for 2021. Overall, 4th quarter numbers were solid and have held up relatively well since the onset of the pandemic. FFO was $0.68 per share for the quarter and $2.78 per share for all of 2020. Same property cash NOI growth remained positive during 2020 at 0 point 7% and was up a very solid 4.5% when adjusting for COVID related rent deferrals and parking losses. Most impressive as all, as Richard said earlier, was that we increased cash rents on expiring leases by over 13% during 2020. Focusing on our same property performance, cash net operating income during the Q4 declined 3.3% compared to last year, driven by a 4% decline in the revenues and a 5.2% decline in expenses. Adjusting for COVID related rent deferrals and parking losses, same property cash NOI actually increased 1.7% during the Q4. Before moving past same property performance, I wanted to take a moment to highlight the outstanding work done by our property management teams with controlling expenses during the pandemic. For all of 2020, same property operating expenses were down 6% compared to 2019. And excluding property Turning to our development efforts, one asset, Domain 12 in Austin was moved off our development pipeline schedule during the Q4 as economic occupancy at that property exceeded 90%. The remaining development pipeline represents a total Cousins investment of $450,000,000 across 1,500,000 square feet in 5 assets. Our remaining funding commitment for this On the transaction front, we closed 3 acquisitions during the 4th quarter. On the transaction front, we closed 3 acquisitions during the Q4. The purchase of the rail yard in Charlotte for $201,000,000 as well as the purchase of 2 land parcels in Charlotte for $47,000,000 In addition, we sold our interest in 2 small non core land parcels that the company acquired over 15 years ago when the strategy was decidedly different than it is today, incurring a loss of approximately $750,000 One parcel was a residential tract in Texas and the other was a golf course in Georgia. With the completion of these sales, only one non core parcel remains in our land inventory, a tract in North Atlanta adjacent to a shopping center we developed and subsequently sold over 8 years ago. Looking at the balance sheet, we entered this period of volatility with outstanding financial strength, among the very best of our office peers. Not only do we have low leverage, our liquidity position is strong and our dividend remains well covered. The only near term debt maturity is a construction loan at our Carolina Square property in Chapel Hill. We've selected a lender and anticipate closing a new 5 year floating rate loan on this asset in the next few weeks. Before discussing 2021 earnings guidance, I wanted to highlight an asset that we have moved to the held for sale classification as of year end. As we have previously discussed, our Burnett Plaza property in Fort Worth is a non core holding for us. It was acquired as part of the larger Tier REIT transaction in mid-twenty 19. However, the completion and timing of this sale remain uncertain. Per GAAP, we have marked the value of Burnett Plaza down to reflect its current market valuation. This impairment reflects approximately a 6% decline in value for the asset, which is not surprising considering the disruption to energy markets since we closed the TIER transaction a year and a half ago. Looking forward, we are providing initial 2021 FFO guidance of between $2.76 $2.86 per share. No acquisitions, dispositions or development starts are included in this guidance. If any transactions do take place, we will update our earnings guidance accordingly. Please also note that our earnings guidance assumes physical occupancy will remain significantly below normalized levels until the second half of twenty twenty one. As a result, quarterly earnings are anticipated to gradually increase as the year progresses. Finally, don't forget that year over year comparisons on all performance metrics, including earnings won't be perfectly clean during the Q1 of 2021. It will be a bit of an apples and oranges comparison to 2020 during the Q1 as the impact of COVID really didn't kick into our numbers until the Q2 of 2020. With that, let me turn the call back over to the operator for your questions. We will now begin the question and answer session. The first question comes from Blaine Heck with Wells Fargo. Please go ahead. Great. Thanks. Good morning, guys. As you mentioned in your prepared remarks, you guys got some good news this week with Microsoft's confirmation of plans to make Atlanta their East Coast hub. Maybe for Colin or Richard, can you just talk about that West Atlanta Bank Head and Quarry Park submarket and whether you guys would consider making any investments in that area that might benefit from Microsoft's activity? Well, first, let me just say, good morning, Blaine. And we were thrilled to see the announcement from Microsoft yesterday. We had some idea that that was in the works. And I think it's going to be terrific for the overall city, including the west side of Midtown. If you step back and really look at Microsoft's decision and what drove them to announce this large hub, it gets a testament to the city as a whole. And they certainly recognize the technology talent that is here in Atlanta, but they also recognize the diverse composition of the talent base in Atlanta. And so I think they want to align themselves with that and continue to grow their company here. And I hope and I think we'll see other companies follow suit. So as that project unfolds out on the west side of town, we'll continue to watch that. There are some other projects underway as well. And we'll continue to monitor that if and look for investment opportunities if we think it warrants. All right. Great. That's helpful color. Secondly, can you just discuss the interest in the Bank of America space in Charlotte? I think you guys have had a little over 200,000 square feet of move outs thus far. And that's not one of the markets that Richard pointed out where you're seeing an uptick in inquiries. But I guess, based on any interest that you have there, do you have any sense of how long we should expect to return to kind of stabilization to take? And how many tenants do you envision that taking that space? Sure. I'd be happy this is Richard. I'd be happy to touch on that really quickly. I think you're right. I didn't call out Charlotte specifically as being one of the more noticeable upticks in inquiries and activity. But that's not to say that there isn't good early stage activity. I'd say that's actually been one of the most optimistic economic development areas. I think they're getting a lot of inbounds in Charlotte. And so we do have, I'd say the pipeline right now for One South is a mix of smaller potential customers whereas when you look at Atlanta where we've seen really good activity recently in Buckhead and Midtown, It's more of a mix of full floor to multi floor users, so larger users. So again, Charlotte, we still feel really positive about the prospect of being able to create a lot of value at One South. And depending on the pace of the economic recovery, vaccination efforts and these new kind of tire kicking efforts of inbounds into Charlotte and other in town moves, The pace of that stabilization is anybody's guess, but we feel great about long term rolling up rents there and creating a lot of value. Blayne, I'd just add that as you look at Charlotte in Uptown in particular that the large banks really drive that market and they've been, I'd say, more on the cautious side of reopening their offices. And I think that has perhaps impacted the pace of leasing activity kind of picking back up in Charlotte. But as Richard mentioned, as we think about that market over the longer term, fast forward a quarter or 2, we have a lot of conviction in the market. And I think that's certainly highlighted by our acquisition of the rail yard and really what are 2 terrific sites in the south end of Charlotte that will accommodate we think some pretty interesting and attractive office and mixed use projects. So we're believers in the long term for sure. And one other thing I'd just quickly reiterate, I mentioned in my remarks, but Charlotte and Uptown in particular does still have a phenomenal sub-ten percent vacancy rate. So the market overall in Uptown in particular are going to be very well positioned when things do pick up. All right. That's helpful. And then lastly for me with all the news around Parsley Energy and they're being acquired by Pioneer and the associated layoffs, have you guys had any recent discussions with Parsley about their space needs and maybe interest in subletting any additional space? Great question, Blaine. And again, we're thrilled that we've now delivered 300 Colorado. It's a fantastic project. Again, I think very reflective of the office of the future, but obviously Parsley has been a long time customer of ours and great friends of ours were purchased Pioneer and that project has closed and they have put the entirety of their 300,000 square feet on the sublease market. But again, as we touched in our prepared remarks, Austin is seeing a significant inbound activity that has got interest in the market as a whole, but I think you're seeing some particular interest in the CBD and out in the Northwest. But we're in a terrific situation. We've got a long term lease with investment grade customer And but we'll continue to have dialogue with them. And if there are situations that it's a great outcome for Pioneer and a great outcome for Cousins. We'll absolutely consider those. And I think we're already seeing some of those opportunities come our way. Great. Thank you, guys. The next question comes from Dave Rodgers with Baird. Please go ahead. Yes, good morning. Richard, maybe I wanted to start with you. You've done a lot more leasing in terms of renewals in the quarter, as you mentioned. I guess what are tenants' primary concerns as you sit down with them today to talk about? I mean is it really safety? Is it just locking in good space? Are they worried about kind of configurations? Or is it really just kind of moving forward at a pace that's more normalized? Because the economics certainly don't reflect any amount of major concern, it doesn't seem like. So kind of what are those conversations sound like? That's a really good question. And you're right. The economics, at least in our statistics in 2020 and kind of looking at our pipeline are not meaningfully different. COVID or pre COVID. In fact in some ways they've improved. So I'd say that in our conversations with customers, it really runs the gamut. I mean, 1, our volume is still lower, right, than pre COVID. So there's not a nearly as much data to kind of dig into and try and spot trends. But I think people are most concerned right now with configuration of space with how they might change sort of the new normal if you will. And I think around that it tends to be again this is a gross generalization, but it tends to be how do they potentially experiment with hoteling or hot desking? Is it even appropriate for it depends from company to company and their culture and their view of collaboration and how that works. There's less of a focus I would say on implementing new technology around wellness and air quality. But I think that's something on the front of mind and that will eventually come to fruition. But there's not a lot of hard pressing and hand wringing over that. So it's really at the end of the day, I think just like before COVID, every company is a little different with regard to their decision making, how they view collaboration and culture and that really more and what they do frankly as a business dictates more of how they think about their space than anything and that really hasn't changed in my opinion. No real change in kind of tenants seeking to maybe get options to opt out of space at a certain point in time. I mean, in terms of yes, we'll pay the economics, but maybe we can get out early or anything like that? Sure, sure. Everybody certainly would like flexibility. Is it a if we were at a 5, is it a 10? No. I mean, I think we've seen some more asks for flexibility, but it really hasn't been meaningfully different. Yes, Dave. I'd just add, it's Colin. When you look at our the term on the leases that we've completed through COVID, it really has continued to average about 6.5 years and pretty consistent with our overall run rate. And where I think we continue to see trends accelerating in our discussions with customers, it is really a flight to higher quality properties, better amenitized properties, more experiential properties and we think we've got a lot of product that meets that demand. But I think you're seeing many customers take a little bit of a wait and see approach in terms of major reconfigurations to their space to really hopefully get through the next couple of quarters, get their teams back in the office and then position themselves to make any long term changes. That's helpful. I appreciate all that color. Colin, maybe with you again. On the build to suit discussions, I mean, obviously, you'll continue to be opportunistic. I think you even mentioned select speculative opportunities. But I guess talk about what those discussions look like today, how they have evolved over the last 3 or 4 quarters in terms of build to suit or development oriented discussions for customers? Yes. No, great question. And I think we're now getting to the point the COVID experience where it's realistic to start having some of those conversations about actual transactions and opportunities. And as I look back to much of last year, there are a lot of discussions, but it might be a discussion with somebody who's in California or Illinois and they're unable to actually get on a plane and come down and get on the ground. So it's hard to execute those types of transactions over Zoom as we can now hopefully with the successful vaccine rollout look to the other side, I think there are going to be opportunities to identify and hopefully execute on some build to suit opportunities. And I think what's interesting, as you look at a lot of these large corporate relocations, maybe out of the West Coast or the Midwest into the Sunbelt, we are seeing an increase in desire for large companies to control their own space, where they can control the environment, they can control the security and our hope is that that will lead to again more build to suit opportunities. But we will, as I mentioned, look at and evaluate some opportunities that have some speculative component, but I think will be targeted and focused on in particular markets and submarkets like the domain. Last on the activity at 100 Mill, do you have any additional details on that Richard? I think you mentioned in your script, but I didn't hear any details on that. Sure. It was a smaller lease 10,000 square feet. I think the context there is a customer that was an existing customer portfolio at Hayden Ferry. And we needed to accommodate wanted to accommodate an expansion actually of Silicon Valley Bank there and this customer was excited about the opportunity to move over to 100,000,000 to accommodate that other expansion. Okay, great. Thank you. Thanks, Dave. The next question comes from Michael Lewis with Truist Securities. Please go ahead. Thank you. Craig, you mentioned the Burnett Plaza property up for sale. Should we expect that you to market anything else this year? I know you've got the one asset in Houston. You've got now just a couple or a few JV interest. I don't know if you'd be interested in either selling your stake in those or acquiring your partner's interest? Hey, Michael. Thank you. Good morning. As you know, our balance sheet has been kind of running where we want it for an extended period of time. So if we saw something, it won't be to fix the balance sheet, it will be to fund a more attractive investment opportunity. And so I think sales will depend upon our ability to identify those investment opportunities. I see. Okay. I hit it with something. My second question, New York Urban obviously is not the same as Charlotte Urban, but I thought it was interesting yesterday, Equity Residential talked about balancing its urban exposure with more suburban. Do you coming out of the pandemic feel a need or desire to do that at all? And then the other thing the apartment guys are doing is targeting Denver and South Florida a little more, I think. If apartments are going there, do you think those become more attractive potential office targets as well? Both great questions, Michael. The as it relates to urban versus suburban, I would wholeheartedly agree that there is a difference in suburban Charlotte and suburban New York. And I'd say the biggest kind of structural difference is kind of the well, I'd say the structural challenges of getting from suburban New York into Manhattan versus Charlotte suburbs into Uptown Charlotte. There's kind of far fewer barriers to move between those urban and suburban submarkets. And so as we've looked at the market and we've studied the data in our markets and we just have not seen customers choosing to look to move outside of the urban core where they are well amenitized and experiential can attract the type of young talent that they want to more commodity space in the suburbs. And really the data backs it up. CoStar put out a study not too long ago and looked at demand both in the urban markets and suburban markets nationally. And there really was no difference in 2020 relative to kind of prior pandemic year. So we're going to continue to focus on again the highest quality, most amenitized assets that really are going to attract the talent that growing and innovative companies want. As far as looking at other markets, we're always paying attention to kind of demand drivers and again where growing companies are looking to locate. In many cases, they're following the talent and you are seeing a population move and talent move to places like South Florida and Denver. So those are clearly on our radar and we'll continue to watch that play out. There are other markets that fit that bill as well, including Nashville and opportunities to expand for us in places like Raleigh, Durham or Dallas, where we've got a small presence today, but would hope to see that grow over time as well. Thanks. I have just one more. Colin, you said something interesting about companies are not relocating to your markets to work from home. And that's interesting because maybe, right? So if everybody is going to work from home, maybe you move the headquarters from New York or San Francisco and let employees do whatever they want. So it would still be a net positive, but maybe it doesn't settle the work from home debate. And so does this new environment change the way we at relocation activity? Should we be a little careful about that? Because it may be attractive to move your headquarters there, whether you want to work from home or not. What are your thoughts? Yes. Again, I would just look to the specific examples of kind of what's happening. And again, if you look at Oracle moving their corporate headquarters to Austin, right, they purchased 100 of acres of land just outside of downtown on the way to the airport to build a campus. And again, I would point to the most recent announcement yesterday from Microsoft to build a large regional hub and that came with a purchase of 90 acres of land. And I think their intent is to put that into production and build offices along with things like affordable housing and retail and other enhancements to the community. So I think their actions are demonstrating that they're committed to creating an environment to bring their teams and their people together. Our sense as you look at some of the office debate over the past year, what you're hearing and what you're seeing are many employees who are and companies who are frustrated by the cost of living in certain markets, which is leading to very challenging commutes in and out of the office. And I think what companies have recognized over the last year is that there are clearly benefits to having their team together, building their culture, collaborating and mentoring in person. But perhaps the lesson of COVID is you don't have to be singularly focused in one market like San Francisco or Seattle or New York. Perhaps you can distribute that workforce across other markets in the country that offer a lot of the same amenities and quality of life, but perhaps come with shorter commutes and lower cost of living. Makes sense. Thank The next question comes from Jamie Feldman with Bank of America. Please go ahead. Great. Thanks and good morning. Greg, I was hoping to start with you on the guidance. Can you and maybe get a little bit more color in terms of how you thought about the assumptions for the year? Can you maybe walk us through the occupancy by quarter and what you're assuming for some of the large lease ups of the large vacancies that you guys have and whether there's any impact on 2021? Jamie, good morning. Appreciate the question. That level of granularity around occupancy behind our guidance is something we didn't provide pre COVID and with the uncertainty that COVID's introduced, we're not But we thought it was important right now to absolutely step up to the plate. But we thought it was important right now to absolutely step up to the plate and provide a baseline for you. And I think that's what we've done with the guidance that we provided. Jamie, as it relates to the blocks of space that we have, again, we hope to make great progress leasing some of that space this year. But if you kind of work backwards, the Norfolk Southern space doesn't expire until the end of the year. So and then as you look at the Anthem space at 3,350, we actually don't get that back until June of this year. So realistically, by the time you're able to lease that space, kind of build it out with tenant improvements and fit it out, I wouldn't see that being either of those being an impact in 2021. We obviously have some of the Bank of America space now back. Our hope is we can make some progress in that particular building over the course of the year. As I mentioned earlier, Charlotte has slightly slower in its resumption of activity than perhaps Atlanta and Austin, Tampa and Dallas have. But we hope to make some progress and I think hopefully that would be reflected in our numbers in Charlotte. Okay. Maybe if I can ask it another way. When you thought about guidance, what are the biggest variables that really could swing numbers in either direction more generally? And then in terms of the Fort Worth sale, is that included in your guidance? So Jamie, it's Greg again. Clearly, the biggest lever in 2021 to our guidance would be the pace of the recovery from the COVID pandemic. And there's a light at the end of the tunnel, no doubt about it. But I think there's a lot of question marks around how we get from here to there. And so that's going to be the biggest lever in terms of our earnings guidance and whether it goes up or down from here. In terms of the Burnett Plaza sale, that is not included in our guidance. No transactions are included in our guidance and they're not included because they're not certain at this time. Again, we're in the midst of a COVID pandemic. Typically, we don't identify sales until they actually happen for this exact reason. So there's nothing unique about Burdett other than the fact that we're still in the midst of COVID and which enters a new level of uncertainty. So it's not in our numbers. If we follow through and if we're able to sell it in the first half of the year like we hope we will, we'll adjust our guidance accordingly at that point. Okay. I mean, do you see I know you said you would maybe find acquisitions, if you get some sales and vice versa. Do you I mean, do you think I assume it will be dilutive to numbers or do you think there's any way you can normalize that or neutralize that? I'll jump in then, Collin. It all depends on what we do with the proceeds, right? And as Colin said, I mean, we're out there aggressively for acquisition opportunities and we think we're going to find some hopefully. Don't know that we do have anybody at this have any at this point, but we hope we will. And so when you look at specific dilution from a specific disposition, it all revolves around what you do with the proceeds. Yes. Jamie, as I said in my prepared remarks, obviously, we can't always perfectly time the sales and the buys, but and that could create some short term fluctuations in earnings. But we are over time very focused on continuing to upgrade the quality of the portfolio into kind of newer vintage buildings of the future that do carry a lower CapEx profile. And I think we've proven ourselves to be creative operators and investors to find those opportunities and make those investments. And so as we look at the market today, we're hopeful just as we did in December with the rail yard, we're hopeful to continue to identify opportunities to deploy capital into acquisitions and potentially some development opportunities as well. And I think if we're successful doing that, put the quarter to quarter aside, I think we feel very enthusiastic about our ability to drive earnings growth and NAV growth over the long term. Okay. And then last for me. Colin, you used the term Office of the Future experiential several times on this call including that last answer. I mean, what is the Office of the Future in your mind? It looks like the Charlotte building you just bought is more low rise, high amenities. You've got land nearby, which means it's a little more campus y feeling or neighborhood feeling. But most of your portfolio is kind of infill towers. Do you see a shift here? When you use the term office of the future, what exactly does that mean? Yes. No, I wouldn't characterize our portfolios as a bunch of towers. I think our average square footage is about 350,000 square feet. And I think as you look across our portfolio and kind of the office of the future, we've been this isn't a trend to us that's just emerged over the past year. We think this is a trend that's been going on for quite some time. And that's why we position the company the way we have. And so we feel like we're where the puck is heading. And that is product like the rail yard or what we're doing at the domain 300 Colorado, 100 Mill. We think the portfolio is very, very well positioned for that. And I think that building of the future, it is more experiential. It has more amenities. It's got more areas whether it's at the ground plane or outdoor plazas, rooftop space, fitness, wellness, amenities, opportunities candidly where our customers, employees have places to get outside of their specific floor and be together and collaborate and create an environment where they can both kind of work and play. And I think we see more of that coming and we've been hard at work for years to position ourselves. At the intersection of that trend along with this migration that continues to accelerate. Okay. Sorry and just one more. What do you think the mark to market looks like for your 2021 expiration? Well, Jamie, that's again, our crystal ball in the midst of a pandemic is perhaps not as clear as it is in a normalized environment. But we've always felt like the portfolio was 8% to 10% below market. And certainly quarter to quarter, what we deliver is entirely incumbent upon what the particular mix of leasing is in any quarter. But as Richard alluded to earlier, we've been successful holding our face rents. And we certainly we've seen some pressure on our concessions, but we've seen face rents hold up. But at 8% to 10% kind of pre pandemic, even if there is some erosion in rental rate, we think we've got some attractive margin there to we're cautiously optimistic that we can continue to deliver positive mark to markets. Okay. Thank you. Thank you, Jamie. This concludes our question and answer session. I would now like to turn the conference back over to Colin Connolly for any closing remarks. I want to thank you all for once again thank all of my teammates the phone for your continued hard work and support of the company and flexibility and we'll look forward to seeing many of you at some of the upcoming investor conferences over the next month. Thank you all and have a great weekend. Stay safe. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.