Columbia Property Trust, Inc.
Q2 2017 Earnings Call Transcript

Published: 28 Jul 2017

[Operator:]

Good afternoon and welcome to the Columbia Property Trust Second Quarter 2017 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there is will be an opportunity to ask questions. 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.

[Matt Stover:]

Thank you. Good afternoon. Welcome to the second quarter 2017 Columbia Property Trust investor conference call. 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 quarterly supplemental package which can be found on the Investor Relations section of our website and also filed with the SEC on Form 8-K. We've also filed our 10-Q with the SEC this afternoon. 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 Factor 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 supplemental financial data. I'll now turn the call over to Nelson Mills.

[Nelson Mills:]

Thank you, Matt. Thank you for joining us today. We've had a productive year thus far and have much more planned for the balance of this year and the next. We've had a clear and consistent vision for the future of Columbia. We've taken a disciplined approach to capital allocation decisions as we continue to build an exceptional portfolio in key gateway markets. We've established qualified and motivated local teams to manage that portfolio and that continues to bear fruit as demonstrated by our leasing and operational success. We also now have a terrific like-minded investment partner which enhances our ability to add scale in our markets, compete for opportunities and talent, create value and grow earnings. The quality of our portfolio and the strength of our team are evidenced by the leasing we've accomplished this year. Let's look at a couple of examples. At 650 California Street in San Francisco, we began the year with 150,000 square feet of vacancy with another 80,000 square feet expiring in the first half of the year. We've now least 188,000 square feet of that space bringing the building to 90% leased. We are in discussions with several other tenant prospects and expect to increase that percentage substantially during the second half of the year. At One Glenlake in Atlanta, we entered 2017 with 25% vacancy. Our recent investments in the lobby and amenities combined with the focus and determination of our team resulted in signed leases for all vacant space in the building. We're now 100% leased for all of our Atlanta properties. Our leasing in the first half of the year has moved our overall lease percentage from 90.6% up to 95.3% today. In addition, we've achieved substantial rate increases on signed leases for the quarter, 62% on a cash basis and 85% on a GAAP basis. With substantial embedded rent growth across the portfolio, there's more of this to come as Jim will outline in a few minutes. Notwithstanding our high overall lease percentage, we have some work to do at a few key properties. At Market Square in Washington DC, we have about 160,000 square feet available. That's approximately 22% of the property. We've maintained a respectable leasing pace at rolled up rents and attractive terms. Much of our leasing success has been with the government affairs offices of Fortune 500 companies whose space requirements tend to be small, averaging less than 10,000. We're currently exploring with our partner Blackstone opportunities to be more aggressive in capturing larger prospects. We've completed substantial improvement with this asset and it is competing well with the newest trophy buildings in the city in terms of rate and leasing pace. We're highly focused on driving occupancy in this still challenging market. We also have 137,000 square feet of vacancy at 315 Park Avenue South in Manhattan, mostly from the recent Credit Suisse expiration. 116 Huntington in Boston has 63,000 square feet available. We're seeing significant demand at both properties and expect to lease most if not all of this vacancy this year. As many of you know we have generated substantial positive leasing spreads across our portfolio over the last two years. We believe the rents across our portfolio are about 10% below market on average and we expect positive leasing spreads to continue for some time. Our largest expiration over the next couple of years is the 119,000 square foot DLA Piper lease at University Circle in Palo Alto, that lease expires next June. We are in discussions with them about a possible extension. Whether they stay or not, this space should lease at a significant premium to in-place rent. As Jim will outline we believe our increased occupancy and rent roll ups over the next several quarters will drive significant earnings growth beginning late this year and continuing for some time thereafter. Our focused markets are New York, San Francisco, and DC. All three are healthy with strong capital inflows, but are in various stages in terms of leasing demand, supply and rental rate growth. In New York, we're concentrated in pockets of midtown where we've seen positive net absorption in class A space and modest rent growth. In San Francisco, the CBD has been one of the best performing markets in US for some time for rent growth and occupancy gains. To manage cool a bit among the venture capital community there and some sub-leased space has come on the market. But new supplies steadily being absorbed and we're still optimistic about our ability to lease vacancy at attractive terms. As in New York, we have modest vacancy in the near term and are expecting substantial demand for what we do have. In DC, demand has improved over the last 12 months as evidenced by significant positive absorption. [indiscernible] rental rates are holding up but tenant concessions are still elevated. Overall, we're more positive on DC than we've been in several years and we're encouraged by its modest but steady improvement in fundamentals. We continue to build presence in these three key markets. We are a top ten office landlord in CBD San Francisco with an experienced team and a very well-known to the major brokers, tenants and owners. We have significant presence in midtown Manhattan where we are developing a solid reputation that is leading to more and more leasing prospects and investment opportunities. And we are relatively smaller, but very visible in DC with our two key assets there. Future acquisitions will help us build scale in all three markets and we have a strong pipeline of opportunities. We'll continue to be very patient and disciplined but we are confident that we'll get some acquisitions done this year that fit within our underwriting criteria and contribute significantly to the earnings targets we are projecting for later in the year and into 2018. Finally, we're very excited about our joint venture with Allianz Real Estate. This venture will enable us to increase our scale and market presence without the need to issue equity or increased debt. And Allianz is long-term approach to real estate investing mirrors ours. And their initial contribution to the partnership 114 Fifth Avenue is a perfect fit with our other midtown properties. The staging of the venture allowed us to minimize [indiscernible] cash, but we expect to ramp up this joint venture from a current size of over $1 billion to around $2 billion with new acquisitions in a relatively short period of time. We are actively sourcing and reviewing new opportunities together, but our investment decisions will always be based on maximizing value for our shareholders. The value of this joint venture goes well beyond these immediate benefits. We now have a partner that is active in our markets, has a long-term investment focus and has a shared vision for what our strategy can deliver. With that Jim I'll hand it over to you.

[Jim Fleming:]

Thank you Nelson, and thanks everyone for joining us this evening. On our last call we provided a cash flow bridge to a full-year pro forma net operating income of more than $280 million together with our modeling assumptions about future acquisitions. We're right where we expected we would be for the second quarter at about the low point for the year, with a substantial pick up in FFO and NOI expected in the fourth quarter and into 2018. This was a good quarter for us and on track with our expectations. Our earnings are at a low point in the second quarter as we completed our programmatic asset sales in the first quarter and they had some large lease expirations at 315 Park Avenue South and 650 California at the end of April. We believe our earnings for the third quarter will be roughly in line with the second quarter as the earnings increased from lease commencements is offset by some additional cash that resulted from our joint venture from Allianz. But we expect our earnings will turn up beginning in the fourth quarter and will increase substantially next year. We've updated our guidance to reflect a narrower and slightly lower range for FFO this year. The two key reasons for the timing of acquisitions and the details of our recent leasing. So far this year we've not made any acquisitions except for the interest in one 114 Fifth Avenue we purchased from Allianz as part of our joint venture. Our original model was based on the assumption that we would have acquire $500 million of properties throughout the year, with the timing midpoint of July 1st. Our revised guidance reflects the fact that we still anticipate making acquisitions in the same dollar range, but weighted much more toward the end of the year when they will have less impact on our 2017 earnings. Our leasing is ahead of plan this year and we've raised our guidance for our year end lease percentage. But a number of leases we've signed have been larger than anticipated and with longer lease terms, which has resulted in more time between signing and lease commencement. Because new leases don't contribute to FFO until their commencement, our leasing activity in 2017 will boost our earnings in future years but will not generate quite as much FFO in 2017 as we originally expected. Because of these two factors, the timing of acquisitions and the timing of lease commencements, we've changed our FFO guidance for this year. But the reason we've accomplished already in 2017 combined with our share repurchases and expected acquisitions should contribute to even stronger growth in 2018. I want to spend some time focusing on the earnings impact from all of our releasing, the narrowing of the GAAP between our high leased percentage and economic occupancy and the new joint venture with Allianz. But before I do that I'd like to highlight several changes we made in the supplemental this quarter that we hope will be a benefit. We added an executive summary on page three in lieu of a separate earnings release, changed some of the key metrics summarized on pages 14 and 18, emphasized leasing volume and rental rates, provided more detail on leasing explorations by market and reorganized some of the pages by subject matter. Matt and I will be glad to follow up after the call if anyone has questions about specifics on these changes or anything on the quarter that we don't cover today. We began 2017 with 603,000 square feet of vacancy and 330,000 square feet of lease expirations bringing us to a total of 933,000 square feet to work with. Our goal this year has been to lease 547,000 square feet of this amount, which will take us to 95% lease overall and we're already there at 95.3% leased at quarter and 605,000 square feet of leases signed through the first half of the year. Because many of these leases have not yet commenced or are in free rent, economic occupancy is only at 83.1%. Over the next 12 months, the large gap between our lease percentage and our economic occupancy will narrow which will result in same store NOI growth, higher cash flows and increased FFO. As Nelson mentioned, we are very well positioned for organic earnings growth, with signed leases on over 5% of our portfolio that have not yet commenced. Another 7% of our portfolio in pre-rent and the balance of our getting leases at rates we believe are about 10% below market. We believe that the third quarter will be relatively comparable to the second quarter and then our leasing will lead to strong earnings growth in the fourth quarter and continuing into 2018. The amount of leasing we've accomplished has caused our future cash flows to be much more stable and predictable. Absent the DLA Piper lease at University Circle expiring next year, which we expect to be a significant role up, we don't have any other leases over 20,000 square feet that are expiring in 2017 or 2018. And for those two years we only have 370,000 square feet expiring in total. As a result, as our cash flows increase over the next several quarters there should be very little downside risk. The Allianz joint venture provides an important source of new capital for us with a well-known partner who shares our disciplined long-term approach. Nelson covered the rationale and our future plans, but I'd like to highlight one other point worth noting related to the price discovery on our two San Francisco assets. University Circle was valued at 540 million in the joint venture and our gross book value at June 30 was slightly over 292 million. 333 Market was valued at 500 million and our gross book value was approximately 409 million. Although it wasn't a reason for the venture, it's nice to see this confirmation of value in our portfolio. Our balance sheet is in the best shape it's been since our listing in 2013, which puts us in position to execute on new opportunities to deploy capital. We expect acquisitions will be the biggest part of that and we're working hard to make those kind of fruition at the right price and in the right markets. We also elected to make $27.5 million of stock repurchases during the quarter at an average price of $21.95 per share. We're working to improve our debt structure wherever possible and there are two recent developments. First, we were able to modify our $150 million term loan this past week to lower the interest rate by 45 basis points. This was possible because the loan originally had a seven-year term, but could now be repriced as a five-year debt and we were able to retain all the same banks in this loan. And second, we are in the process of paying off the $125 million loan on 650 California next month, which will leave us with only two mortgage loans with $325 million loan on Market Square, which is in our joint venture with Blackstone and a $25 million loan on One Glenlake that we expect to pay off next year. All of our other assets are now unencumbered. With that we're ready to take any questions and I'll turn it back over to the operator.

[Operator:]

[Operator Instructions] The first question comes from Sheila McGrath with Evercore. Please go ahead.

[Sheila McGrath:]

Nelson, I was wondering if you could talk about the acquisition environment and with shares at current levels, if you'll be considering both new acquisitions and additional share buyback.

[Nelson Mills:]

Our pipeline, we do have quite a few prospects in the pipeline, but the environment, the market continues to be tight in New York, San Francisco, DC, where we're focused. But we are seeing some opportunities that we think are compelling and has a potential of hitting our underwriting. So we're hopeful that we can get a deal or two done this year and maybe more so than in the past couple of quarters. So we're hopeful that we do have - we do intend to do a couple things this year. In terms of share buyback, we have bought shares the last couple quarters as you know. That's always an option if something's on the board. So we think take that quarter by quarter based on alternative uses for the capital such as acquisitions, availability of capital which we have plenty of today and the pricing. So the answer is yes and yes.

[Sheila McGrath:]

And then a follow up on, Jim, you have previously like in your investor deck provided the burn off of free rent adjustment and also leases not commenced and there's such a big gap between economic occupancy and what you have under contract. Could you provide those cash numbers to kind of help us bridge from in-place cash NOI to what's already signed?

[Jim Fleming:]

Yes Sheila, and so that's a great point as I mentioned just a little while ago, we've got 5% of our portfolio in leases that have been signed but haven't yet commenced that's 390,000 square feet. Our previous investor presentation showed that a 20 million that's still about the right number, it's right at $20 million. They've been some movement, one or two leases that have moved out of that and one or two that have moved in as we signed some new leases. And we'll update that when we review our investor presentation, but that number is still about right. Also mentioned 7% of the portfolio that's in rent abatement and free rent, that's 540,000 square feet. That number is a little lower than before because the Equinox lease commenced in the second quarter, but it's still between $23 million and $24 million. And I'll say this, just as a comment, Sheila, we've got - for the past several quarters now we've been doing a bridge and provided a valuation based on leasing that had already been done. Our view on that has not changed, it's really just - we're just saying it start to play out as we move forward.

[Operator:]

The next question comes from John Kim with BMO Capital Markets. Please go ahead.

[John Kim:]

So on the assets sales to the joint venture, you realized a nice cash gain and sort of reinforce your NAV. But in the near term it has caused some earnings dilution. So I'm wondering when does the earnings growth really become a focus for your company.

[Nelson Mills:]

Well that's right, so we've done what we can to mitigate that John. It was great transaction, the venture we're very excited about for all the reasons we said and been able to realize some of those gains of those properties which was key. But you're right, it does add a little bit more to - we already have plenty of capital to deploy new investment that adds a little bit more to it. As we've mentioned, I think we've mentioned before we mentioned in the materials, we have staged the venture such that our new partner Allianz comes in, in part today and they take a bigger percentage in the contributed assets as we have a need for capital. So we've somewhat mitigated that. We can release those capital - that capital, new capital as we needed. So that helps somewhat. In terms of, we've been saying for some time that the middle of this year, the second or third quarter mid this year was the low point of our cash flows. That's still the case. We've got a lot of leases in place that are in concessionary period. If we do no more leasing at all, we do plan to do a lot more leasing as we said and we've got a lot of near term leasing activity that we will be excited to report on later this year. But even if we did no more and just had the concessions burn off we, have substantial lifts in our cash flows, somewhat later this year, but especially first, second quarter, third quarter next year, it really starts to ramp up on a quarter-over-quarter basis. So it's coming. The work's been done and we're very excited about the leases we've done, but these are large leases and they do have a fairly length pre-rent periods. So -

[Jim Fleming:]

And John, let me just add a little bit to that in terms of a few details, because it's a good question about where we're headed from an earnings standpoint and we're not - we have not in the past and we're not now going to give earnings guidance, but just to give you a little color on it, what we said a little earlier is that we think the third quarter earnings will be about the same as the second and really the reason for that is we do have a couple of leases, the two rework leases again right at the beginning of the third quarter, so those will be a positive. And, but as you point out, we've got a couple of things going on. One is the JV with the fact that there's some additional idle cash right now and then we also have - the fact that a lot of leases that have been signed aren't going to commence until next year and that's pretty much offset we believe for the third quarter and then we think there will be a lift in the fourth quarter as a number of other leases began and also next year some more leases commence. So really the pickup we expect will be in the fourth quarter and then we'll continue and be much more significant as we get into 2018. I will say that the biggest - we put out earnings guidance in February, did not update it last quarter because we really just didn't know quite enough, but now that we're halfway through the year, we felt that we of course should. So this is the first change we've made. Really by far, the biggest reason for the change was that we had modeled in our assumptions, the acquisitions centered around a midpoint of the year and of course we didn't make any acquisitions in the first half of the year and so all the acquisitions will be later. We've commented on the fact that we're still trying to make acquisitions, but we just - the timing is going to affect the earnings for this year.

[John Kim:]

So I suppose the staged sale of the joint venture assets, I mean it's going to create further dilution next year, over the next 12 months when you exercise.

[Jim Fleming:]

Well, the question there John, I think in both cases, we think it'll be a positive. But what that requires is that we find something else to invest in, in the venture. We think that will happen and that's the reason we did the venture, but you're right. If we find nothing else to invest in either inside or outside the venture, then it does throw more cash on the balance sheet.

[John Kim:]

So you're necessarily saying that a buyback is the panacea of capital allocation, but absent of acquisition opportunities now, why not just load up on the buyback.

[Jim Fleming:]

Well, again, we've made - we have been doing some share buybacks. That's a part of - certainly one capital allocation tool is not the business we're in, it's not strategic, but we do believe it's a great value. The question is, are we going to be able to find other acquisition opportunities in our target markets that could add some value by adding to our platform, adding to our momentum in those markets? We do think it has mattered the things that we bought today and we think we could add some scale and that would provide some strategic benefit. So it's really just a trade-off between those two. Clearly, the stock in our mind is a very good value right now.

[John Kim:]

Okay. And then going forward, how are we going to decide between acquisitions done on balance sheet versus through the joint venture.

[Nelson Mills:]

Well, the joint venture, we'll certainly look at most opportunities through the venture. Our partner Allianz may or may not. There's certainly no exclusive for either party, may or may participate. It's likely that I'd say the majority of things we look at would be of interest to our partner. We believe that venture is going to be more core, stabilized, property focused and to the extent we do something with a little more lift upside risk in it, which we don't expect to add much of that, but to the extent we did something like that, that could very likely be outside the venture. So those are some of the criteria that we consider, but I would expect for the next couple of acquisitions, it's likely most of that would be in the venture.

[John Kim:]

So in your market for core products, do they have right of first offer?

[Nelson Mills:]

No. They do not. There's no obligation on either party, no obligation for them to only partner with us or vice versa and we can certainly buy things outside the venture without permission. Not our intent. We plan to be in regular dialog and show them opportunities we're looking at, but there's no obligation for the agreement.

[John Kim:]

Okay. And then last question for me, assets you contributed were down at around 5% cash cap rate on our numbers and I was wondering what about the assets that Allianz contributed, what cap rate was that done at?

[Jim Fleming:]

Yeah. You're right, John. The two that we put in were just a little but under a 5% cap rate hike for us based on the first quarter net operating income and then the one that came in is a little higher than the 5. It is on a ground lease, so it is a little bit of a different structure. But it is also a very high quality building, mid-town south, fully leased. So that's the math on that, low 5s for 114 fit.

[Operator:]

The next question comes from Vikram Malhotra with Morgan Stanley. Please go ahead.

[Vikram Malhotra:]

Just sticking with venture, so is it fair to say since you're seeing most of the product that you're looking at would be of interest, are you primarily now looking at core stabilize product as opposed to maybe value add.

[Nelson Mills:]

Well, the last deal we announced was a heavy lift value add, the 149 Madison, which we should close later this year. So it's small. We - with or without the venture, just the vast majority of our portfolio is always going to be fairly stabilized and core. We don't have a lot of heavylift value add in the portfolio. That's not really our strategy at this time. So I'd say it's always been true that most of what we look at is fairly stabilized. And in our portfolio right now and then the last several acquisitions, while they haven't been heavy lift value add, we've taken on some leasing risk and as we've explained, we're taking care of that, we're gaining that lease step and realized that value. So let me put this year, it hasn't reshaped or changed our strategy. I do think in the normal course of how we look at deals anyway, there's a fair amount of it that would fit adventure. That's our expectation, which is why we chose this partner and structured the partnership the way we did because it fits very well with what we plan to do anyway.

[Vikram Malhotra:]

Okay. And then just on the guidance adjustment, can you just maybe break out just so we get a sense of like what you're modeling in for timing of acquisitions and cap rates. Can you just break out the guidance adjustment between, like you mentioned timing of leases signed and commenced and then the acquisition timing? Can you just break out the guidance between those two?

[Jim Fleming:]

Yeah. Vikram, and this is, I think this would be, you could probably do the math on a lot of this. We had previously modeled $500 million of acquisitions, really the placeholder mid-year and if we were not to do any of that at all, it depends on what you assume we could interestingly look at on our cash, but that would be a negative, somewhere around $0.10. So if you really took the $1.22 with the, there was a high-end of the range before and just took that off, you'd be down to $1.12 and high end of our range now is higher than that. So just that just sort of gives a little perspective on it. I would say that the dilution from the JV is somewhere around $0.03 if we don't buy anything. And then the leasing pace is another $0.03, but then there are some positive. We got more leasing done than we had originally anticipated. We've done some share buybacks that have helped. And so that kind of got us into the range. If you do all that math, I think you'll wind up on the low end of the range and the reason we've given up range from $1.09 to $1.14 is we do expect we'll do some acquisitions this year, either that or some more share buyback. Year one would help. The acquisitions would have more effect, because it be would be a chance to put more cash at work. We haven't really given any timing, but we do expect that we'll be able to get in this range of 400 million to 700 million. If you do the math on what we've announced so far, as you know, we've bought a share of $1.14, so I think that's $109 million at our share and then we also have talked and have announced that we have under contract 149 Madison. That's 88 million. That only gets you to 197. So the low end of the range, 400 does require some more acquisitions and think we'll get there. We just haven't put a stake in the ground about the timing. It could well be late in the year. We're willing to - not doing this to try to drive earnings this year. We're doing it to try to find the right acquisitions that are going to be good long term and so we're leaving ourselves on flexibility in terms of timing.

[Nelson Mills:]

And let me just add to that, we don't announce deals until they're done and there are no deals done, but we realize it's mid-year and we're adjusting guidance and we would adjust it further if we weren't fairly confident, we'll get an acquisition or two done. So that should be an indication that we feel very good about our prospects that there are things out there that we're working on and we're confident we'll deliver on a couple of them. So we'll leave it at that, but we think that range is -

[Vikram Malhotra:]

Just to quickly clarify, do you change your CapEx assumption at all for those acquisitions?

[Jim Fleming:]

No. We did, at one point, provided a very simplistic model where we said just assume we can invest our capital of 4% going in cap rate. That was just a simplistic one, really wasn't our goal. Our goal is going to be to get properties that we think provide good value. Obviously, the underwritings are different for core than it is value add, but in any case, I think we try to do better than that and so that was just a placeholder.

[Operator:]

The next question comes from Mitch Germain with JMP Securities. Please go ahead.

[Mitch Germain:]

So Nelson, I want to circle back with the whole value add core. If I look at many of your more recent acquisitions, whether you want to characterize a value add or just had really a leasing element to it, right, either a lot of roll or some vacancy that you acquired. So is it a function that you're really cautious on the fundamental environment that you want to potentially lighten up, acquiring something with some near term vacancy. I know you did the one asset in in New York, but is that really kind of what you're trying to say in essence here?

[Nelson Mills:]

That's fair, Mitch. So we're more cautious. I wouldn't characterize this as extremely cautious, but we're more cautious versus 2014, 15 in San Francisco and New York. Of course, we're more cautious. We all know that in both those markets, our key markets that in our underwriting, the rental growth isn't there. Our leasing pace would be slower. And we're just a little more conservative on our underwriting, which makes it until sellers adjust their expectations, it makes it harder to do deals, but we would, I think it's fair to say, we would favor a core profile much more today than the last couple of years we bought those others. So yes, that's fair, not completely turning off that aspect of the pipeline, but there's definitely a stronger leaning toward more stabilized properties and taking on a lot of value added risk at this time of the cycle.

[Mitch Germain:]

Great. And if I look, 650 Cal, 315, Park; 221, Main, I think were your more high profile value add, I will call it transactions How is performance relative to the original underwriting?

[Jim Fleming:]

Well, in terms of rating terms, it's actually above and varying degrees. Our pace isn't quite matching our underwriting at 315 Park, but in terms of - but, in pace of leasing, but a lot of that, we just got back a few months ago and we're working on that. We're getting a lot of activity there. We think we'll get 315 leased this year. That is - but at rates and terms better than the underwriting. 650, Cal is about right on the underwriting. That patient has been good. I think as we said, we leased 180 of the 230,000 feet or so available there this year. So at about the same, maybe slightly ahead of pro-forma and at the 650 Cal. So we're going to perform on those. We've had to spend a little more capital in some cases like I said, the pace has been a little bit a quarter or two slower than we originally underwrote, but other than that, we're right on.

[Mitch Germain:]

Great. I know you've had some discussions with the Pittsburgh, at the Pittsburgh asset for a blend extend, anything to update on there.

[Nelson Mills:]

Well, we have reached agreement with Westinghouse management to extend that lease from the eight or so years remaining out to 15. That is subject to, but it's signed, it's a delivered lease, but it is subject to bankruptcy court approval. It's not bonding on either party unless we get that approval and we hope and expect that's going to happen in the next few months. But we will see. If we do, we think we're in a pretty good situation there. So that's the next step on that one and we'll keep you posted as that develops.

[Jim Fleming:]

Mitch just so there is no confusion. Even though that lease is signed, it's really not effective yet, so when you look at our leasing statistics about new leases and renewals and all that sort of things, it's not in those number, yet. We distributed, it's pending for our calculations until it gets bankruptcy court approval.

[Operator:]

[Operator Instructions] The next question is a follow-up from Sheila McGrath with Evercore.

[Sheila McGrath:]

Nelson or Jim, it seems like you're at a good point in terms of cash NOI ramping higher to I guess starting significantly in fourth quarter. But and at the same time, capital expenditures, the profile looks to be going lower. Is there any way you could give us some insight on how CapEx might look this year and then directionally is it going to be significantly lower, just kind of CapEx trends.

[Jim Fleming:]

Sheila, there is a big component of that. It's about $70 million related to the NYU lease that we booked in the fourth quarter of last year because we needed to under the GAAP rules and that cash is now starting to go out and it will go out potentially over this year, could extend into next year. It won't hit our CapEx numbers, because it's already been booked, but it will come off of our - come out of our bank account. So however you account for that, you should think about. On top of that, we do have some CapEx from leases that have been signed. As you know and as we've talked about, we signed a lot of leases lately and a number of them are long term leases and so there are some Cap Ex requirements that are really this year and are going to next year, we really haven't given guidance about the timing of all that, but after we get through next year, we expect the CapEx to be significantly lower. We think it'll stay up through probably second quarter of next year and maybe second or third quarter of next year and then drop off pretty substantially after that and that really reflects a fact that we don't have a lot of lease expirations coming up after that. And we've really stabilized the portfolio with a really high lease percentage.

[Nelson Mills:]

And Jim you spoke to leasing cash flow, TIs and so forth, in addition to that, we have a building CapEx improvement projects. A lobby here, a roof top deck there. Those are all really this years. There could - some of that expenses could roll over into next year, but the vast majority of that gets done this year. So in that category too, our expectation would be that next year would be significantly lighter in terms of capital outflow.

[Sheila McGrath:]

Okay. And then just quickly on the Atlanta, you said those are 100% occupied. You have a lot of cash now. So I don't think there's a need to sell them right now, but just if you could comment on your long-term plans for Atlanta.

[Nelson Mills:]

Okay. So we have two property, three buildings, but two, look, there are two properties here in Atlanta. One is almost 1 million square feet with AT&T Limburg south bucket and that is fully leased to AT&T but there's about less than 4 years, 3.5 years remaining now. We are in discussions with them about an extension renewal. We'll see how that goes. They have a renewal right a year from now, so they don't have a lot of negotiate early, but we'll see how that goes. If that were to get re-leased and extended or when it does, that could be an excellent candidate to sell. As you know, we're exiting the single tenant properties and that be a great time to do that. So we'll keep you posted on that one. The other property in Atlanta is two buildings. One is fully leased and renewal. They in all likelihood, their lease expires less than three years from now, pretty good chance they'll be leaving and we've got prospects to backfill some of that already. The neighbor building, the twin building to that where our office is multi tenants, it's fully leased. Depending on how the new or the replacement works out, if we can get something done on that early, it might be a good candidate to sell. It's in our backyard, both of them are and there's no immediate need to do anything, but we want to take those off the table at the optimum value. So nothing this year, I'm sure, but we'll not likely, but we won't hold those forever.

[Operator:]

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

[Nelson Mills:]

Well, thank you all so much for joining us today and we really appreciate the opportunity. We're always available for questions at your convenience. Have a good evening.

[Operator:]

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