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Edited Transcript of CXP earnings conference call or presentation 27-Apr-17 9:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Columbia Property Trust Inc Earnings Call

Atlanta May 1, 2017 (Thomson StreetEvents) -- Edited Transcript of Columbia Property Trust Inc earnings conference call or presentation Thursday, April 27, 2017 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* E. Nelson Mills

Columbia Property Trust, Inc. - CEO, President and Executive Director

* James A. Fleming

Columbia Property Trust, Inc. - CFO and EVP

* Matt Stover

Columbia Property Trust, Inc. - Director of Finance & IR

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Conference Call Participants

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* John Kim

BMO Capital Markets Equity Research - Senior Real Estate Analyst

* Mitchell Bradley Germain

JMP Securities LLC, Research Division - MD and Senior Research Analyst

* Sheila Kathleen McGrath

Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst

* Vikram Malhotra

Morgan Stanley, Research Division - VP

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Presentation

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Operator [1]

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Good afternoon, and welcome to the Columbia Property Trust First Quarter 2017 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Matt Stover, Director of Investor Relations. Please go ahead.

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Matt Stover, Columbia Property Trust, Inc. - Director of Finance & IR [2]

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Thank you. Good afternoon. Welcome to the Columbia Property Trust conference call to review the company's results for the first quarter of 2017. On the call today will be Nelson Mills, President and Chief Executive Officer; and Jim Fleming, Executive Vice President and Chief Financial Officer. Our results were released this afternoon in our earnings press release and filed with the SEC on Form 8-K. We have also posted a quarterly supplemental package, with additional detail on the Investor Relations section of our website. Statements made on this call regarding expected operating results and other future events are forward-looking statements that involve risks and uncertainties. A number of factors could cause actual results to differ materially from those anticipated, including those discussed in the Risk Factors section of our 2016 Form 10-K. Forward-looking statements are made based on current expectations, assumptions and beliefs as well as information available to us at this time. Columbia undertakes no obligation to update any information discussed on this conference call. During this call, we will discuss certain non-GAAP financial measures. Reconciliations to comparable GAAP financial measures can be found in our earnings release and supplemental financial data.

I'll now turn the call over to Nelson Mills. Please go ahead.

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E. Nelson Mills, Columbia Property Trust, Inc. - CEO, President and Executive Director [3]

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Thank you. We appreciate everyone's time this afternoon. As most of you know, we had a very productive first quarter. The sales of our properties in Houston and Cleveland brought us to $1.2 billion in total asset sales over the past 12 months. This essentially completes the portfolio transition we began 4 years ago. During this time, we sold over 50 properties for $3.3 billion, acquired 7 properties for $2.6 billion and moved from 32 markets to only 7. In addition to our portfolio transformation, we've also had much leasing and operating success across the portfolio. Along the way, we built strong teams in our 3 focused markets and substantially increased the quality of our folio, not only in terms of markets and fiscal quality, but also the rent rolls, which now have solid growth potential across the portfolio. We have established a portfolio with an average embedded rent roll-up percentage in the double digits, and we're beginning to capture that income growth. Of course, selling higher cap rate assets and reinvesting in better growth opportunities resulted in diluted earnings over the last few years, but as Jim will discuss, we are now positioned to turn cash flow significantly upward going forward as evidenced by our recent leasing success.

As we complete this important chapter, I would like to reiterate just a few points on the transition, which I hope will provide some insight into what we're about as a company and our strategy going forward. First, while we fully committed to the transition and pushed through it relatively quickly, we did not conduct a fire sale. That might have been the correct approach had capital markets begun to tighten, but we were fortunate to experience relatively strong capital demand throughout our transition period. This gave us the time and opportunity to maximize our exit value of the properties. As you know, much of the legacy portfolio was concentrated in single-tenant suburban buildings, where value is driven heavily by credit and lease term. Because of this, we look for every feasible opportunity to extend and improve key leases prior to disposition. Some examples include T. Rowe Price in Baltimore, KeyBanc in Cleveland, PSE&G in Newark, CH2M in Denver and Bose in suburban Boston. In many cases, we provided additional capital for tenant improvements, reduced the rental rate or allowed the tenant to contract its space. But in each instance, we evaluate the overall impact, with an emphasis on value rather than the earnings impact.

Our team's efforts to maximize exit values substantially increased overall sales proceeds, which in turn created more capital for reinvestment in new properties. Of course, it can be a mistake to wait too long to exit, particularly for single-tenant properties. Not only is valuable lease term burning off, but a disruption or deterioration in capital markets could outweigh the value of a lease extension or restructure. And of course, those negotiations are never certain. Throughout our process, we thoroughly weighed that risk. In some cases, we'd come out in favor of an as-is sale. For example, our 3 properties in Houston last year or our Lenox Park buildings in Atlanta in 2014. In other cases, we've decided to hold and work through lease renewals and replacements, such as the successes I mentioned earlier.

We've also elected this approach for our 3 remaining non-core assets in Atlanta and Pittsburgh. While they represent a relatively small percentage of our value and cash flows, we still have some work to do to capture value before our eventual exit.

Let's now turn to acquisitions. We continue to take a disciplined and focused approach in identifying investment opportunities. As mentioned, we have invested to $2.6 billion over the last 4-plus years, but only in 7 properties. And as we will cover in our leasing update, those properties are performing well, in most cases, beyond our expectations. We have looked at hundreds of deals. We bid on scores of them and have gone as far as the best in the final round on dozens of opportunities, just to capture those few properties. We have chosen to invest and operate in some of the best and most competitive office markets in the country, and for good reason. We believe the long-term rewards from these markets are well worth the cost and effort. We believe that high-demand, supply-constrained markets like New York City, San Francisco and Washington, D.C. tend to have stronger rent growth over time and will better weather market downturns.

In evaluating investment opportunities, we focused on several key attributes, attractive architecture, sound construction and mechanicals, flexible and efficient floor plates, wide in air and access to transportation and attractive amenities. Of course, we evaluate the current rent roll and tenant profile, the competitive set from the submarket and trends affecting both near- and long-term leasing opportunities. And of course, our views on overall market conditions always affect our investment underwriting as well as capital investment and leasing decisions. We have also chosen to limit our market cycle risk. A number of REITs allocate capital to development, and at some point, we may choose to do so ourselves. We understand that development can provide attractive returns as long as the market cycle doesn't turn at the wrong time. But so far, we have been very judicious about how much market cycle risk we're willing to take. We did buy buildings with significant lease roll in San Francisco in 2014 and in New York in 2015. But these allowed us to address leasing in the relatively near-term, and we balanced that risk with the stability of our other properties in each of those markets.

We've also worked very hard to get that leasing done quickly. As a result, we have only 131,000 square feet of unfilled vacancy and expirations through the end of 2017 in San Francisco and only 147,000 square feet through 2017 in New York. And we expect to achieve substantial rent roll-ups for all of it.

We understand there is substantial uncertainty in the broader economy and in our markets. Leasing demand and rental rate growth have slowed somewhat in New York City and San Francisco. And the D.C. office market has faced challenges for some time, given the modest supply absorption relative to new construction levels. With that said, these markets remain in a relatively healthy state, with vacancy rates ranging from 7.8% in San Francisco, 8.5% in Manhattan and just over 11% in D.C. We expect growth in rental rates to remain slower compared to recent years, in which Manhattan experienced mid-single-digit growth and San Francisco saw double-digit increases. We are anticipating low single-digit growth over the next couple of years for these markets. However, our expectation for overall net absorption is positive, and even with the anticipated supply deliveries in the near term, we expect vacancy rates will hold steady or slightly decline. We have been successful in capitalizing on these more modest, but positive, fundamentals as evidenced by our strong leasing activity year-to-date.

Capital demand in our key markets continues to be quite strong, and this makes it very difficult to find and win compelling investments. We continue to actively comb our markets for deals that make sense, but with more conservative underwriting in this environment. We believe that disciplined underwriting, along with diligence and creativity, will eventually yield attractive opportunities. But we'll be patient until they do.

Our analysis of specific opportunities is led by our local market leaders, with the close involvement of our senior team. Our board is kept well informed on our markets and opportunities and is actively involved in strategy as well as major policy and capital decisions.

Our last acquisition was 229 West 43rd, that's the former New York Times Building, almost 2 years ago. We recently signed a contract to acquire 149 Madison, a relatively small value-add opportunity in the Gramercy submarket of Manhattan. We were able to access that opportunity because of the combination of local relationships and a creative approach. One question that remains is how many markets we should pursue. We've talked before about West L.A. and Boston. In fact, we bought a building in the Back Bay of Boston 2 years ago. And we've held on to a smaller asset in Pasadena. We have also bid on a number of buildings in both Boston and West L.A. over the past several months, but they priced beyond our underwriting. Both of these are very strong markets with good fundamentals that could potentially meet our investment objectives. But we are faced with 2 key challenges: how to build enough scale in one or both of these markets to be relevant; and whether to spread our platform and resources across more markets. Because of this, we have not been aggressive in pursuing opportunities in either of these markets to this point. We'll continue to evaluate both of them for a while as we continue to weigh the advantage of having one or 2 more attractive markets in which to look for opportunities against our desire to build scale and presence in fewer markets.

But to be clear, our team continues to be primarily focused on New York City, San Francisco and D.C. We acknowledge that the competition is fierce in these markets for both acquisitions and leasing. That's why our team and board stay focused and diligent on capital allocation decisions and why we remain committed to building and supporting talented and experienced teams in our focused markets. We have worked hard to establish credibility and relationships with the best brokers, owners and operators there too. Our successful acquisitions and leasing in New York City, San Francisco and D.C. provide some evidence of our improving footholds in those markets.

Some of you may be aware that I have recently moved to New York. I made this decision with the blessing of our team and board because my role is largely outward-facing today, focusing on things like larger leases, acquisition opportunities, potential joint ventures and relationships with others in our sector. Jim will continue to be based in Atlanta, along with Kevin Hoover, our Head of Portfolio Operations, Wendy Gill, our Chief Accounting Officer and Head of Corporate Operations, and the rest of the home office. Adam Popper, Dave Dowdney and their teams are already well-established in our 3 markets. We all travel frequently, and I expect to be in Atlanta every couple of weeks. My move reflects the fact that we're functioning well as a team, and I believe I can add more value being more closely involved in one of our key markets.

Finally, scale is an issue that our team and board have continued to weigh. While we're very pleased with the quality of our holdings, we could benefit from more presence and reach within our focused markets. Today, we can't do that by issuing stock, and we're not willing to add debt to our balance sheet. We believe a joint venture with a strategically aligned partner is our best opportunity to address scale and reach at this time. As we mentioned on our last quarterly call, we have been exploring this for some time. We're pleased to announce that we are now on the final stages of documenting a joint venture agreement with an institutional partner. Even though this transaction isn't yet finalized, we believe it will be this quarter, so we decided to provide some details on today's call.

We anticipate that this venture will start with slightly over $1 billion in assets and grow to around $2 billion through new acquisitions over time. We will initially fund our share by contributing 2 of our West Coast properties, and our partner will primarily contribute cash. We will stage the contribution so that Columbia doesn't accumulate unacceptable levels of cash until new investment opportunities are identified. The JV partner is a well-known institution, who has been active in our markets and has a long-term investment focus. We will own slightly over half of the venture, and we will manage it, subject to shared major decisions. We will receive a management fee, and although this isn't a major driver for us, it should eventually contribute modestly to our earnings. Our investments will have a long-term lockout, whereby neither party can force a sale for several years. The venture will focus on acquisitions of quality office assets in our key markets, consistent with our strategy. At this point, we can't provide any more specifics, but we're very excited about this important opportunity for Columbia.

With that, Jim, I'll hand it over to you.

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James A. Fleming, Columbia Property Trust, Inc. - CFO and EVP [4]

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Thanks, Nelson. I'll spend a little time discussing our results for the first quarter, but mostly, I want to talk about the key drivers for our business going forward. Matt and I will be glad to follow-up after the call if anyone has questions about specifics on the quarter that we don't cover today.

For the first quarter, FFO was $0.28, which is on track toward our guidance of $1.15 to $1.22 this year. The first quarter included about $0.01 of contribution from our Houston and Cleveland properties, which were sold in January. Second quarter will also be lower due to the vacancy of Crédit Suisse at 315 Park Avenue South. However, by the end of the year, a number of recently signed leases will be adding to our FFO, including rework at both 80 M Street and 650 California, along with Bustle at 315 Park Avenue South. So as we have been saying, we expect the second quarter to be our low point, with substantial increases after that.

FFO this year will also depend on acquisitions, and so far, we haven't made any. Please understand that the contribution to 2017 FFO from acquisitions is not something we're focused on. Our acquisitions will likely be long-term investments, and we're interested in buying additional properties only if they enhance our market presence and provide an opportunity for growth. So we're okay waiting for a while if we don't find acquisitions that meet our underwriting.

Nelson, Matt and I have been on the road a good bit lately, meeting with a number of you. One of the things we have emphasized is our cash flow bridge, which is on Page 8 of the investor presentation on our website. This is a simplified version of our cash flow model going forward, and it shows our cash NOI at a low point early this year due to our recent asset sales, but with strong growth over the next couple of years. The first 3 blue bars in the bridge are contractual items for burn-off of free rent, commencement of recently signed leases and rent increases in 2017 and 2018 under existing leases. In the bridge, these add up to $48 million per year. The remaining 3 bars are speculative, based on our assumptions about vacancy lease-up, leases rolling to market this year and next and acquisitions. These 3 add up to another $48 million. The result is a pro forma NOI of $281 million, which we believe should support a much-improved share price, assuming a cap rate in line with our peers. Of course, it's one thing to talk about these bars on a graph, and it's another to perform. So our plan is to report progress along the way, and as of today, we have already signed additional leases that have moved $10.5 million out of the speculative fees and into the contractual fees.

This year, we're very focused on leasing. Part of this effort, of course, is renewing leases that don't expire for a while, and this is important for the future. But the immediate part is leasing a current vacancy and near-term roll. We began 2017 with 603,000 square feet of vacancy, and we have another 330,000 square feet of lease expirations in 2017. This gives us 933,000 square feet to work with. Our goal this year is to lease 547,000 square feet of the 933,000, which would take us to 95% leased overall. Fortunately, our portfolio is very high-quality today, and most of the vacancy is in buildings we have acquired recently and also involve substantial roll-ups in rent, which is why we made most of our recent acquisitions. So far, we have signed 333,000 square feet toward our goal of 547,000. Much of this is at 650 California in San Francisco and One Glenlake in Atlanta. We'll keep you posted on our progress throughout the year.

Another element of our cash flow bridge is deploying cash on our balance sheet. Our bridge assumes we invest $500 million at a 4% initial yield. But this is just a placeholder to show potential cash flow a couple of years out. Buying a stabilized asset with a 4% yield would not be our strategy. As we have discussed, we want to build additional scale in our key markets, and we're looking for investments that will allow us to create value while doing this. But we haven't bought anything in almost 2 years because we're not going to buy unless we believe the acquisition adds to our platform and gives us an opportunity to add value. If we can't find assets to buy, we're willing to hold cash or lower leverage to enable us to act later, and we'll also buy stock as long as the pricing stays attractive.

Nelson mentioned the substantial rent roll-ups we saw again this quarter. This follows leasing spreads over the past 2 years, excluding the NYU lease of 222 East 41st Street that have averaged 27% on a cash basis and 46% on a GAAP basis. And we anticipate this trend continuing for a good while. In fact, we believe today's market net rents for the remaining lease expirations in 2017 through 2019 are more than 20% higher than the in-place cash rents. Of course, our leasing results will vary from quarter-to-quarter depending on where leases are signed, but overall, we expect the strong positive trend to continue for a good while.

Rent roll-ups, of course, are only one factor in our financial picture. Occupancy levels, as well as the portfolio mix and contractual escalations, matter too. Because of our portfolio transition over the past 4 years, we have seen declining same-store NOI for a while. But we expect this trend to reverse in 2017 as a number of recently signed leases commence and we lease up a good bit of the remaining vacancy in our newly acquired buildings. For 2017, we expect same-store NOI to be slightly down on a cash basis and slightly up on a GAAP basis. Beginning next year, we expect strong year-over-year growth in both cash and GAAP going forward.

We recognize the compelling value of our stock today. As a result, we purchased $28 million of stock in the fourth quarter and expect to continue to take advantage of the disconnect between our stock price and the value of our portfolio by buying more. We did not buy any stock in the first quarter. But the only reason was our pending joint venture, which Nelson described earlier. As the negotiations for this venture progressed, we concluded that we were not in a position to open the window for stock purchases this quarter. After today's call, that issue will go away.

As we think about share repurchases, we have said many times that we need to be in a strong financial position so the repurchases don't put strain on our balance sheet, either on overall leverage or on liquidity. These are not issues for us today. The other question is balancing the stock price discount against the strategic value of more scale in our markets. Today, we believe there is at least a 100 basis point difference between the cap rate implied by our share price and the value of our portfolio. That's a significant discount and one we will work to take advantage of.

As we have also said, we believe additional scale in our key markets will help us further establish our platform and generate opportunities in the future, and so our goal is to do some of both this year. Of course, both are dependent on price, and we would much prefer to wait a while to see if opportunities present themselves rather than make investments in a faulty market.

Before I finish, I need to mention the Westinghouse campus in suburban Pittsburgh. They are 3 buildings totaling 824,000 square feet, and Westinghouse has filed for Chapter 11 bankruptcy. Our belief is that they will be able to reorganize with a viable business, and there are several good signs so far, including the fact that they are moving employees from other locations into our buildings. Their rent is current, and as long as they are occupying the space, future rent will be an administrative expense and generally must be paid in order for them to get a plan of reorganization approved. Additionally, their parent, Toshiba, has guaranteed $42 million of Westinghouse's rent. Of course, we'll keep monitoring this situation.

Finally, I want to note that our balance sheet remains in great shape. We're in the process of giving 263 Shuman back to the lender, and we can't control the timing but we don't have much further involvement with that property. Besides that, we have only 3 mortgage loans: a $325 million loan on Market Square, which we share with our venture partner; plus a $26 million loan on One Glenlake that we expect to repay next year; and a $126 million loan on 650 California that is due in 2019, but can be prepaid as early as this July. All of our other assets are now unencumbered, and we ended the first quarter with $555 million of cash, with no borrowings on our $500 million line of credit and no significant near-term maturities.

With that, I'll turn it back over to the operator to begin our question-and-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question will come from Sheila McGrath of Evercore.

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Sheila Kathleen McGrath, Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst [2]

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Nelson, I was wondering if you could comment a little on the joint venture in terms -- once it formed, will all the acquisition opportunities of the REIT have to go into the joint venture, or how would you allocate between the balance sheet and the venture?

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E. Nelson Mills, Columbia Property Trust, Inc. - CEO, President and Executive Director [3]

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No, Sheila. So it won't be exclusive to either party. We can do investments outside the venture, as can our partner. As we mentioned earlier, we do expect to see the venture initially with a couple of assets, and we'll stage that, so as we -- so those contributions happen when we need the capital for new investments. So -- but no, it's not exclusive for either. We will do some inside and outside, would be our expectation.

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Sheila Kathleen McGrath, Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst [4]

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Okay. And the assets that you would be [seeing] -- are in San Francisco, is that right?

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E. Nelson Mills, Columbia Property Trust, Inc. - CEO, President and Executive Director [5]

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Yes, that's the expectation. That's right.

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Sheila Kathleen McGrath, Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst [6]

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Okay. And then, just if you -- I know it's a smaller acquisition, but I think it will be helpful for us to understand your plan for the Madison Avenue property and kind of what you think that could pencil out, in terms of a stabilized yield on cost?

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E. Nelson Mills, Columbia Property Trust, Inc. - CEO, President and Executive Director [7]

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Okay. We'll put more details out soon in the next few months, as that comes together. At this point, we're under contract to buy the land. Obviously, we've done our underwriting and we have some budgets there. But generally, it's just under $88 million to purchase the land. We expect to close later this year. It is a pretty extensive rehab. It's a relatively small building, 126,000 feet. And as you know, we have done a lot of renovations of lobbies and common areas in buildings before, so this is something we're very excited to take on. And then we'll actually get access to the property in January. That's when the ground lease expires. The building comes back to us. It would be empty at that point. Well before that, we're already assembling our team and doing planning and so forth, as you would expect. So we want to be ready to go this fall when we get the property. So another $20 million, $25 million is probably the expected range for additional capital, lease-up period for a couple of years, as you would expect, and probably, we have got a reasonable shot at a 7 return on cost. It could be just under that, sort of in that range. But a lot is to be determined at this point. But even under conservative underwriting, we're very excited about the opportunity.

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Operator [8]

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And the next question comes from Vikram Malhotra of Morgan Stanley.

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Vikram Malhotra, Morgan Stanley, Research Division - VP [9]

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I just wanted touch on your comments around looking at markets for additional opportunities. It sounds like, I think if I remember correctly, earlier, you were focused primarily on New York but now you are considering Boston as well. Is that just sort of given pricing, you're sort of looking at other markets? Or are you just sort of open right now across your key markets?

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E. Nelson Mills, Columbia Property Trust, Inc. - CEO, President and Executive Director [10]

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So hi, Vikram. So as we said, we're really focused today on the markets in which we have a substantial foothold and we have teams, that is New York, San Francisco and Washington, D.C. However, for some time, we have been looking at Boston and the West L.A. submarkets. We bid on properties there. We actually own a property in the Back Bay of Boston. And they're very compelling markets and they fit our strategy quite well. But they're also very competitive. And it's, as we discussed, it's a matter of -- we're very attracted to those markets, but we're also balancing that with the scale issue and our platform. And so I think we'll continue to look in those markets. The primary focus is in the big 3. We're not ruling them out, but we just wanted to emphasize that the focus is really in those big 3 central markets.

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Vikram Malhotra, Morgan Stanley, Research Division - VP [11]

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Okay. Sounds good. And just a question on some of the leasing, just on the renewals. The -- I think the term, if I'm not wrong, was around 36 months. Was there something unique about those leases or those tenants just relative to the leases you signed over the past few quarters?

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James A. Fleming, Columbia Property Trust, Inc. - CFO and EVP [12]

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Hey, Vikram, this is Jim. If that's the way the math turned out, it does look a little odd, but what we did was to extend an existing lease in New York. I think it's for 1.5 years. And because of that, that's the way the math turned out. That wasn't a near-term expiration, so we wouldn't typically do 36-month leases. I think that lease got extended to 2027, and so just because of the 1.5-year extension, that the math turned out that way.

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Vikram Malhotra, Morgan Stanley, Research Division - VP [13]

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Okay. And then just last, quickly, a numbers question. Can you just give us a sense of what your budgeting for TIs and CapEx for the balance of the year?

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James A. Fleming, Columbia Property Trust, Inc. - CFO and EVP [14]

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So Vikram, we were in the low $20 million range for total CapEx this quarter. We haven't put out guidance in terms of CapEx. And what's happening is, there's a fair amount of our CapEx that's going out today, is incremental CapEx, investment capital. Nelson mentioned 149 Madison, where there is $20 million to $25 million. That will show up in later years. But we have some of that now related to 650 California and 315 Park Avenue South. So we think a lot of it is going to be investment capital, and that includes both the building improvements as well as some leasings, the way we characterize it for the first short period of time after we buy a property. I think -- my guess is it will probably be a little bit higher than it was this quarter for the next couple of quarters and then settle back down. But that's really investment capital.

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Operator [15]

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The next question comes from Mitch Germain of JMP Securities.

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Mitchell Bradley Germain, JMP Securities LLC, Research Division - MD and Senior Research Analyst [16]

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Just a quick question. When I look at guidance, I know you've got acquisitions in there. Does that also imply some of the debt redemption that you guys can do?

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James A. Fleming, Columbia Property Trust, Inc. - CFO and EVP [17]

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Hey, Mitch, this is Jim. Our guidance is based on the assumption that we make $500 million of acquisitions. And that's still our game plan, but we did want to emphasize in this call that that's really not our driver. Our driver is not to try to generate FFO for this year. Our driver is try to build scale in our markets and buy assets that are going to be good investments for the long term. So it's possible that we won't find assets to buy within the time frame that we'd originally expected and maybe a little bit later, and in that case, there would be some dilution to near-term earnings. We have paid off one mortgage. We had a $73 million mortgage we paid off in the first quarter. There is another one that we could pay off in July. And then there is some term debt that could be repaid as well. We haven't gotten to that point yet. So I can't really answer whether that might be the result. I think, at this point, our goal is still going to be to try to find acquisitions. We also, as we've talked about, could do some share repurchases as well.

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Mitchell Bradley Germain, JMP Securities LLC, Research Division - MD and Senior Research Analyst [18]

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Okay. Got you. If I look at the joint venture, are there any attributes? Is it a core acquisition? Is it core-plus value-add? Or does it pretty much flexibility with regards to the investment, investments that it can complete?

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E. Nelson Mills, Columbia Property Trust, Inc. - CEO, President and Executive Director [19]

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Mitch, this is Nelson. So there is flexibility. It's -- the risk-return spectrum is not tightly dictated. Our expectation is that the investments would likely be core to core-plus for that venture. In fact, as you know, the vast majority of our portfolio will continue to be core to core-plus. We have a few value-add opportunities from time to time that we have and will execute, but our expectation with the venture, at least initially, would be core to core-plus.

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Mitchell Bradley Germain, JMP Securities LLC, Research Division - MD and Senior Research Analyst [20]

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Got you. Cool. I know you guys backfilled, I believe, if I'm not mistaken, a portion of the CSFB space. Can you just maybe just update, I know they're expected to exit upcoming in this quarter, where that stands right now?

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James A. Fleming, Columbia Property Trust, Inc. - CFO and EVP [21]

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Sure, Mitch. This is Jim. So if you look at Page 22 of our supplemental, you'll see it in the New York numbers for the very -- in the very top left-hand corner of this column, the -- this quarter, 138. It had been 147. They've given back one floor already. The 138 does include 2 more floors that we've pre-leased. So there's really a net of, I think, it's 98. It's just under 100,000 square feet left to go. We have signed leases with Oracle and with Bustle for the 3 floors, and we continue to have good activity on there. But we've got about 98,000 square feet left to go, and that's what we'll get back that will be unleased this quarter.

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Mitchell Bradley Germain, JMP Securities LLC, Research Division - MD and Senior Research Analyst [22]

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And in terms of the space itself, I was under the assumption, I can't remember touring it, though I think I might have -- under the assumption that it's relatively well-maintained?

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James A. Fleming, Columbia Property Trust, Inc. - CFO and EVP [23]

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Yes, there will be some demos that will need to happen. We can't do that until we get the space back. But this is very desirable space, and it's a very attractive building. We're in the process now of redoing the lobby. And Equinox is there and open. So we feel very good about getting it done. It's in our game plan to get it done this year, but it's still work to be done.

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Mitchell Bradley Germain, JMP Securities LLC, Research Division - MD and Senior Research Analyst [24]

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Right. Last one for me. After spending some time with you, I felt pretty comfortable about the Westinghouse situation. But then Toshiba, obviously, announced some going concerns issues. So does that put the deposit at risk, or is that still money good in your mind?

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James A. Fleming, Columbia Property Trust, Inc. - CFO and EVP [25]

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Mitch, that's an interesting one. This whole thing, we're not close -- any closer than you are to Toshiba, so we can't really tell you what's going to ultimately happen. But I will note that Toshiba did publish their accounting results with the going concern opinion. That day, their stock was up about 5%. So I don't think that was unexpected. And I think the whole bankruptcy reorganization is, in part, to protect Toshiba. So I don't think anything has changed since we talked. We can't predict what's going to happen with Westinghouse or Toshiba, but we still feel pretty okay about the overall situation.

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Operator [26]

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The next question will come from John Kim of BMO Capital Markets.

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John Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [27]

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On the topic of the day, the joint venture, so the 2 assets that you're contributing, are they going to be more of your stable assets or more of the assets that have some potential upside?

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E. Nelson Mills, Columbia Property Trust, Inc. - CEO, President and Executive Director [28]

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Hey, John. This is Nelson. So there is a 75% chance since we've identified the -- in San Francisco, we got 4 assets there and 4 of them are very stabilized. So we've got a 75% chance of even more of at least one of them being, you know. Yes, we do expect it to be the more core-stabilized properties. As I mentioned earlier, that's probably going to be the emphasis of the venture, and we feel like that works well for us too.

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John Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [29]

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And just to clarify, will the investments going forward also be focused on the West Coast? And I just wanted to make sure what the impact to earnings would be on this?

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E. Nelson Mills, Columbia Property Trust, Inc. - CEO, President and Executive Director [30]

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No. So not -- to answer the first question, not necessarily. We and our partner are very much aligned in terms of the markets that we're focused on. So it could be any one of the markets we're in. But -- so no, not necessarily just West Coast. In terms of the financial impact, and that's -- a lot of that is to be determined based on new investment opportunities, of course, but as we mentioned, we have a mechanism in place to time the contribution of our assets, which would yield cash to us. So time that with the identification, execution of new investments to redeploy that cash. So that was something that was important to us, and that's an accommodation we got to help settle on that front to keep our capital at work.

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John Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [31]

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On the Westinghouse lease, do you have any expectations that they would want to renegotiate the rents during the reorganization?

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E. Nelson Mills, Columbia Property Trust, Inc. - CEO, President and Executive Director [32]

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So John, we mentioned the Toshiba guarantee earlier. That's a factor that's important. It will be following the bankruptcy proceeding. That's all important. Our highest hope and expectation for Westinghouse is their obvious commitment to that campus. They seem to have a very viable business, and they're committed to long -- for the long term. We're seeing in the press and otherwise, we're seeing some movement of employees into that property. There may be a consolidation going on. We don't have all the details on that. But we -- every indication is that they're very interested in that property long-term. And we have been, and continue to be, in discussions about a lease extension, a substantial lease extension. So that's even post-bankruptcy. So that -- to the extent they have control of their future, we think they're very much committed to the space for the long term.

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John Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [33]

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And then once they're clear through the reorganization, do you plan to hold the asset or eventually sell it?

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E. Nelson Mills, Columbia Property Trust, Inc. - CEO, President and Executive Director [34]

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Well, we've sold 50-plus assets, a lot of them were properties just like this. This is not part of our strategy. Even though Westinghouse has been a great tenant and it's a beautiful property, the single-tenant suburban property is not our strategy. So to answer that question, yes, eventually. We need to work out -- work through this situation, hopefully in the next few months. As we mentioned earlier, we're -- there's construction building issues, physical issues with the building that we're working through and we're well down the path of getting those addressed, related to the original construction. So once we work through those couple of things, yes, I'd say -- we've been clear with Westinghouse on this as well, we're not a long-term holder of this property. We don't expect that to be this year, but could be or maybe next year, but first things first.

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John Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [35]

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And then at 229 West 43rd, it looks like you expanded the snap lease. So can you just remind us or update us on how much of the building they currently lease and what their basic requirements are going forward?

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James A. Fleming, Columbia Property Trust, Inc. - CFO and EVP [36]

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Sure. John, we added 26,000 square feet with snap and they extended for 95,000 square feet. So all in, it's about 120,000 square feet in that building. And their lease term goes to 2027. So they -- basically, what happened there is they came to us and wanted some additional space and said they would make a really long-term commitment and make this their home if we could provide it. And we were able to move out a couple of smaller tenants to make room for them, and that really enabled them to make this commitment to the building.

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John Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [37]

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Is there demand for them to take more space or even availability for that?

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James A. Fleming, Columbia Property Trust, Inc. - CFO and EVP [38]

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There is no availability. It's 100% full. Nelson, I don't know if you have any thoughts about their demand.

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E. Nelson Mills, Columbia Property Trust, Inc. - CEO, President and Executive Director [39]

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Well, at this time, that additional space commitment satisfies their current need, although they've been very clear that this is going to be their home for some time, and I think they would like to expand there. But there is no -- there is nothing being negotiated today for additional expansion at the property.

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Operator [40]

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And next, we have a follow-up question from Sheila McGrath of Evercore.

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Sheila Kathleen McGrath, Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst [41]

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Yes, the leasing spreads in the quarter were really strong. Can you just give a little more detail on the drivers of that? I haven't gone through the whole supplemental, like which leases were driving that big mark to market.

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James A. Fleming, Columbia Property Trust, Inc. - CFO and EVP [42]

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Sure, Sheila. It's -- a lot of it was in San Francisco, we had -- the rework lease out of 650 Cal was a substantial roll-up. I think we talked about the rental rate there being in the upper 60s, and as you may remember, we bought that building with rents in the -- they varied from the upper 30s to low 40s. And so those -- we're experiencing very substantial roll-ups. We'll see more of that in the future. And the upper floors we're leasing in the 70s. So that's a big chunk of it. We did have a substantial roll-up at University Circle. The snap lease was a bit of a roll-up that we talked about. And I'm looking through a list. Those were most of it. We had another lease at 650 California that actually happened this year -- this quarter, excuse me, after the end of the first quarter, there's a substantial roll-up as well. So it's -- the others are not that meaningful. It's really those buildings that are contributing right now. And we do see, as we move forward, I think I mentioned it earlier, we do believe this is going to continue for a couple of years. We have got -- we have looked at our expirations, and we have got expirations in buildings with substantial embedded roll-ups.

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Sheila Kathleen McGrath, Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst [43]

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Okay. Great. And then one last question. Can you comment on rental concession trends in your markets? Are they pretty stable in terms of TI and free rent? Or are they moving directionally one way or the other?

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E. Nelson Mills, Columbia Property Trust, Inc. - CEO, President and Executive Director [44]

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Sheila, they seem fairly stable. As you know, in our big 3 markets, in D.C., concessions had been high. Rate has held too in our buildings and other A-class buildings. But they have been high for some time. There's been some discussion in the market, in the press, about a similar trend beginning to happen into New York, with landlords expanding capital, so definitely the whole rate. We're not seeing that. We're not doing that. It's -- we continue to see, to achieve our rates and see some growth in rates, but we're holding pretty firmly on the TIs. We have seen a couple of examples of it elsewhere with other landlords, but I don't see it as a trend in New York. Same thing in San Francisco, to capture a big compelling opportunity or a unique situation, occasionally, you'll hear about larger TIs. But again, we don't see a trend there. We think those -- certainly, rate growth has flattened, no question about it, in San Francisco and New York. But we don't see a huge across-the-board jump in concessions at this point.

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Sheila Kathleen McGrath, Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst [45]

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Okay. And you were pretty cautious on whether or not you would have acquisitions this year just because you're disciplined. But I'm just curious, are you in -- is it more because there is not much for sale? Are you missing out on stuff? Or are you currently looking at some acquisition opportunities?

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E. Nelson Mills, Columbia Property Trust, Inc. - CEO, President and Executive Director [46]

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We are looking at several, and at any point in time, there's 7 to 12 properties in our pipeline. Some we're more excited about than others. Those usually fade away with pricing. They usually slip away from us and escape our underwriting and pricing because -- and there does seem to be more activity, more coming to the market in New York than a few months ago. But as we mentioned, it's very competitive, there's a lot of capital from literally all over the world and looking at opportunities in these markets. And it's just -- it's hard to keep a property within inside of your underwriting. And we think we'll do it with enough hard work and creativity. We think we'll capture the few that we need. $500 million is not all that much. It's probably 2 or 3 properties. So we'll stay after it. We're being a little bit cautious, maybe, in terms of expectations on how fast that will happen, but we are seeing some pretty good activity on the pipeline.

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Operator [47]

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And this concludes our question-and-answer session. I would like to turn the conference back over to Nelson Mills for any closing remarks.

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E. Nelson Mills, Columbia Property Trust, Inc. - CEO, President and Executive Director [48]

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Well, thank you all. Once again, we really appreciate your time and attention, and we're available for any questions you might have. Otherwise, we look forward to seeing you all soon. Thank you.

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Operator [49]

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The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.