Highwoods Properties, Inc.
Q1 2021 Earnings Call Transcript

Published: 2 May 2021

[Operator:]

Good morning, and welcome to the Highwoods Properties Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. . As a reminder, this conference is being recorded, Wednesday, April 28. I would now like to turn the conference over to Brendan Maiorana, Executive Vice President, Finance. Please go ahead.

[Brendan Maiorana:]

Thank you, operator, and good morning. Joining me on the call this morning are Ted Klinck, our Chief Executive Officer; Brian Leary, our Chief Operating Officer; and Mark Mulhern, our Chief Financial Officer. As is our custom, today's prepared remarks have been posted on the Web. If any of you have not received yesterday's earnings release or supplemental, they're both available on the Investors section of our Web site at highwoods.com.

[Ted Klinck:]

Thanks, Brendan, and good morning. Let me start by saying our buildings, which have remained open since the start of the pandemic, are starting to see utilization rates rise, albeit modestly. We estimate portfolio utilization is around 30%, up about 5% from three months ago. Generally, small and medium-sized customers are returning to their offices faster than larger users, though we are now hearing customers of all sizes are planning to return to their offices over the next few months. As I mentioned last quarter, it remains difficult to predict the duration and the severity of the current recession and when leasing will return to pre-pandemic levels, but activity has definitely picked up compared to one quarter ago. During the first quarter, we signed 553,000 square feet of second-gen leases, including 247,000 square feet of new deals, roughly in line with our long-term average for new leases. The count of new deals signed was a healthy 42, also around our long-term average. In addition, we continue to see increased requests for proposals, showings and space planning from prospects, and there are several existing customers requesting renewals far in advance of their expirations. With the improving macro environment, particularly in our markets, we're optimistic going forward.

[Brian Leary:]

Thanks, Ted, and good morning, everyone. A resilient and diversified portfolio in markets benefiting from an acceleration of the great migration to the Southeast and a dedicated team of professionals who maintain, manage and lease, all under one Highwoods roof enabled us to weather the unprecedented challenges of 2020. With the first quarter being the initial barometer of what the business looks like, moving from triage to recovery, we believe 2021 is off to a solid start. First, with regard to those customers who had proven needs-based rent relief earlier in the pandemic, 73% of this consideration has been repaid and the balance is on schedule. Further, all markets where we operate are open with regard to office occupancy and municipal mandates. We are seeing utilization rates rise across the portfolio and expect this trend to continue over the coming months. Our Sunbelt markets have been recognized lately for what we believe has been compelling for quite some time. The number, magnitude and quality of inbound job creation announcements highlights the evolution of these cities into dynamic 18-hour national talent attractors. Last week, we announced the planned portfolio acquisition from PAC. This transaction will add two high barrier-to-entry Sunbelt BBDs to our portfolio, establish a bulwark in SouthPark, Charlotte with five of the eight best buildings in the submarket and reinforce our leading position in Downtown Raleigh. We believe the PAC properties fit perfectly with our BBD strategy, high-quality assets with excellent growth prospects that will improve our near-term and longer-term cash flows.

[Mark Mulhern:]

Thanks, Brian. In the first quarter, we delivered net income of 54.5 million or $0.52 per share and FFO of 97.5 million or $0.91 per share. The quarter included the $31 million sale of the FAA building in Atlanta and the acquisition of our partner's 75% interest in the Forum office portfolio in Raleigh for $138 million incremental investment. Both of these transactions closed in January. And in March, we delivered GlenLake Seven, our $44 million, 125,000 square foot development in Raleigh that is 100% leased. Other than these investment activities, there were no other significant items in the first quarter that impacted our financial results. FFO accelerated sequentially from the fourth quarter, primarily driven by lower operating expenses, lower G&A and the acquisition of the Forum using cash on hand. In addition to our solid FFO, our cash flows continue to strengthen, something that we have often highlighted, but where it's clearly materializing in our reported results. The improvement in cash flow is driven by delivery of our development projects over the past few years and continuously recycling out of older, more CapEx-intensive properties into newer, more capital-efficient assets. Our balance sheet is in excellent shape. We recast our revolving line of credit and increased our borrowing capacity from 600 million to 750 million, reduced the borrowing spread 10 basis points to LIBOR plus 90 basis points and extended the maturity to March 2025 plus two six-month extension options. We ended the quarter with $49 million of cash on hand. In April, we used cash on hand plus borrowings on our revolver to repay the remaining 150 million of June 2021 bonds at par and funded the $50 million earnest money deposit for the planned acquisition of office assets from PAC. As of now, we have nearly 600 million of remaining capacity on our revolver, only $66 million left to fund of our $394 million development pipeline and no debt maturities until November 2022. The total investment of 769 million for the PAC transaction includes the assumption of secured loans relating to the core assets estimated to be recorded at fair value of $403 million, plus 28 million of planned near-term building improvements. This leaves approximately 250 million of cash required to initially fund the remainder of the purchase price. And as I mentioned, we have already deposited 50 million of earnest money using the revolver. The remaining 200 million will be funded through a six-month unsecured bridge facility that we expect to obtain from JPMorgan. This bridge facility, which can be extended for an additional six months, will have terms comparable to our revolving credit facility. As Ted mentioned, with the planned PAC acquisition, we are deploying the playbook we've successfully used two other times over the past five years of flexing our balance sheet strength for opportunities as they arise and subsequently returning to pre-deal metrics by selling non-core properties. The combination of a high-quality pool of liquid disposition properties, expected growth in NOI, primarily from our development pipeline and meaningful retained cash flow gives us confidence that we'll return our balance sheet metrics to pre-acquisition levels by the middle of next year. Turning to our outlook. We've updated our FFO outlook to $3.54 to $3.66 per share, with the midpoint up $0.02 from the beginning of the year. This does not include the planned acquisition from PAC or our plan to accelerate non-core dispositions. We will update our outlook once the acquisition closes. The increase in the midpoint is essentially driven by higher NOI, which has also resulted in an increase in our same-property cash NOI outlook to 3.5% to 5.25%, up nearly 40 basis points at the midpoint. We continue to expect utilization rates across our portfolio will remain low in the second quarter and then recover in the third and fourth quarters. Many of you have asked about our parking revenue forecast given the reduction in parking revenues since the beginning of the pandemic. We still expect parking revenues to remain significantly lower in 2021, which is consistent with our initial outlook in February. Once parking returns to pre-pandemic levels, it will provide upside to our current run rate. Looking forward, we continue to remain positive about the long-term outlook for the company. We believe the improvement in cash flows is validating the asset recycling program we've employed over the past several years, and we continue to have a constructive view of our cash flow profile going forward due to the long-term positive outlook for our markets, our limited lease rollover during the next several years, our highly pre-leased $394 million development pipeline, the planned acquisition of core properties from PAC and our plan to accelerate the sale of non-core assets. Operator, we are now ready for your questions.

[Operator:]

Thank you very much. . Our first question comes from the line of Brendan Finn with Wells Fargo. Please go ahead.

[Brendan Finn:]

Hi, guys. Good morning. Can you talk any more about the profile of the potential sale candidates corresponding with your portfolio acquisition? And then how should we think about the quality and CapEx load for those assets versus the ones you're acquiring, and then maybe also versus the rest of your portfolio that you'll be holding on to?

[Ted Klinck:]

Hi, Brendan. It's Ted. I'll start off and maybe Brendan can jump in as well. In terms of the profile, it's going to be sprinkled throughout various markets; Atlanta, Tampa, Richmond and Raleigh, and then obviously, the remaining buildings in Greensboro and Memphis as well. So really, the first wave of assets we're taking out is going to be largely single-tenant assets with strong credit, long lease terms, so very liquid assets. And then the second wave will be the third remaining non-core assets that we'll bring out later in the year and early next year. So very liquid assets, the first, call it, 250 million or so are going to be those single tenant, highly leased assets, and then we'll follow up with another non-core.

[Brendan Maiorana:]

Hi, Brendan. It's Brendan Maiorana. With respect to the CapEx profile, what I would say is the first set of assets probably is a little bit below average in terms of the near-term CapEx profile of those assets because they are largely single-tenant well leased with a decent size WALT. But the second wave of assets is probably above average in terms of the CapEx load on those assets. So on balance, overall, I would say it's probably about average across our existing portfolio. However, the near -- the first wave of assets does carry kind of medium to longer-term CapEx risk. So it's not showing up as CapEx load in our current financials, but there is some medium to longer-term risk. So ultimately it would carry sizable amount of CapEx. So we think it makes sense to monetize those assets when the value has been maximized.

[Brendan Finn:]

Okay, great. And then just kind of switching gears here. In terms of cash same-store guidance, you guys demonstrated some pretty significant expense restraint in Q1. And then if I look at occupancy guidance, it remains the same as last quarter. So is it fair to say that the higher same-store guidance is a result of expense savings or is there something else going on there that we should think about?

[Brendan Maiorana:]

Yes. No, it's more top line I would say than expense savings. The expense savings did show up significantly in the first quarter and impacted FFO and same-store. But remember, last year we're comping against a pretty normal pre-pandemic quarter. And so we've had a lot of OpEx savings post pandemic. As we flip into the second quarter, that's when we started to save significantly on OpEx. So what's likely to happen in terms of the OpEx on same-store is it will be higher for the balance of the year; for second, third and fourth quarter. I think we disclosed in February, we expected net of recoveries, about $6 million more of OpEx in our 2021 same-store pool versus 2020. So OpEx will move higher. Really, the increase was driven by -- and I think Mark mentioned in his prepared remarks, just overall kind of better leasing activity. And so that drove really the increase of, call it, 40 basis points at the midpoint on that same-store guidance line item.

[Brendan Finn:]

Great. Thanks, guys.

[Operator:]

Our next question is from Manny Korchman with Citi. Please go ahead.

[Parker Decraene:]

Hi, guys. This is Parker Decraene on for Manny. Just in terms of the 42 new deals that were signed during the quarter, did you guys sort of see any incremental demand from some of those tenants that you're referencing or just in general from sort of the non-Sunbelt markets, or do we sort of have to wait longer to sort of see some of that come through in terms of leasing demand?

[Ted Klinck:]

Hi, Parker. It's Ted. So of the 43 new deals, most of them -- let me give you the breakdown a little bit. It's really healthcare, technology, engineering and law firms that made up 60% of the 250,000 square feet, and it's also 21 deals for those four categories. In terms of markets it was really Nashville, Atlanta, Raleigh, were our largest percentage, roughly 70% of the new leasing volume. There are a couple of inbounds from other markets, but nothing significant. It was smaller users. So really none of the headline names that we mentioned on the call this morning. But again, there continues to be good inbounds both from out to market as well as in market as well.

[Parker Decraene:]

Got it. And then just how actively are you guys sort of still considering acquisitions in terms of sort of at a larger scale, especially due to the recent transaction that you guys announced. If you guys find another opportunity or something as well as that, how would you guys sort of think about the source of funds? Do you guys just accelerate dispos even more, or you consider hitting the equity market? Just some color on that would be great.

[Ted Klinck:]

Sure. Look, I think we want to digest what we have. So while we look at everything in the market, we're not anticipating doing anything on a large scale at all. Again, we look at it, we underwrite it. But right now, we're highly focused on getting this transaction closed and getting the dispositions out the market and returning our balance sheet to the metrics that we've currently got.

[Brendan Maiorana:]

Yes, Parker, the only thing I'd add is we believe we've got a really good strong balance sheet, got good access to capital if we need it. So the ATM is always available to us. We obviously have raised capital when we needed to. And I think the playbook of replacing maybe higher CapEx load assets with newer, less -- more capital-efficient assets is something we would be interested in. We think we've got flexibility to do that if something came up.

[Parker Decraene:]

Okay. Thanks. That's all for me.

[Operator:]

Our next question is from Vikram Malhotra, Morgan Stanley. Please go ahead.

[Vikram Malhotra:]

Thanks for taking the question. Maybe if you could give us some more color on sort of the -- on build to suit opportunities as you see it progressing through the year. I know in the past, you've referenced kind of some of the economic organizations within different markets seeing interest or proposals. And just given the strong job growth numbers you've referenced, can you give us a sense of how we should think about sort of the build to suit pipeline evolving over the next six to 12 months?

[Ted Klinck:]

Sure, Vikram, it's Ted. I'll jump in and maybe Brian, if you have anything to add. Look, our development team, as we've talked about in the last few quarters, it sort of got shut down at COVID. It's encouraging that the number of conversations have in fact picked up in the last, I'd call it, six months. And more recently, even in the last few weeks, we've had a couple of pitches with really out-of-state searches that -- I say out of state, we have pitches to for large customers on build to suits and pre-lease customers that they're coming and looking in the southeast. Still some of them haven't picked a city. They're multicity tours in pitches right now. So I'm encouraged. It sort of feels like it's not back to pre-COVID levels, but there is more activity, more inbound activity. We've had a couple of discussions going on that we've had for a few months, they're also going pretty slow. But I'm just encouraged that people are coming back out in some of the economic development. We mentioned on the call, a lot of big wins in our markets. And that's hard to do because there's still being tours done on Zoom from the economic development folks. But I'm just -- again, I think it's going to continue to pick up, and I'm encouraged, hopefully in the next several quarters, there'll be more activity.

[Brian Leary:]

Vikram, Brian here. A little bit to add and sort of similar to maybe Parker's question, we are seeing kind of codename inbounds in multiple markets. So they'll show up in Nashville and then we'll meet them in Atlanta too and maybe Charlotte. So that's encouraging. I would also say maybe a year ago, there wasn't a lot of people coming in to talk about anything. Now there is. And so we'll continue to advance the advancement of designs, of entitlement. So that way, we are in the starting gate and being able to respond as quick as possible.

[Operator:]

Our next question is from Rob Stevenson with Janney. Please go ahead.

[Rob Stevenson:]

Hi. Good morning, guys. Brendan or Mark, how should we be thinking about the guidance in terms of the first quarter results? So the $0.91 just flat puts you at the high end of your 3.54% to 3.66% range ex the APTS purchase and the dispositions. You guys sold FAA, bought Forum. You have some developments that come online. You did some new leasing. You talked about the occupancy loss in the prepared comments, but what's the incremental drags from here that we need to be thinking about against the $0.91 run rate that pushes downward on that throughout the remainder of the year ex the asset sales and the acquisitions from the APTS stuff?

[Brendan Maiorana:]

Yes. Hi, Rob. It's Brendan. It's a good question. So really, the first quarter benefited from what I would call timing around some OpEx, which is partially or largely discretionary. So there is about $0.02 of lower OpEx in the quarter that we incurred from just pushing some spend from first quarter into the balance of the year. So we -- I know we don't guide by quarter, but I would say that there were a couple of pennies that we benefited from sort of that discretionary timing of OpEx spend. So really kind of a normalized for that timing impact, the first quarter was more like $0.89. So when you annualize that, you get to that $3.56 level and then the positive drivers that you mentioned. I would say, Forum and FAA probably were -- those were done in January, so don't have a big impact. But you are right about the development of the delivery of GlenLake Seven, the payoff of the bond and then some occupancy benefit as we migrate throughout the year. So that kind of takes from that normalized kind of $0.89 in the first quarter up to that $3.60 level for the whole year. So it really was just a little bit of timing on OpEx. And then as I mentioned, I think to an earlier question, we do feel a little bit better about leasing. So that really drove the couple of pennies at the midpoint higher than what we guided to in February.

[Rob Stevenson:]

Okay. And then last one for me. Just given the comments that you made to Vikram's comment, is it likely that the -- any of the development starts in 2021 would be sort of fourth quarter or at least late third quarter and beyond starts that there's nothing contemplated at this point in time breaking ground here in the second, or at least in the early to mid parts of the third quarter?

[Ted Klinck:]

Sure, Rob. It's Ted. Look, I think it's too early to tell. We're going to be measured on our development starts. We're going to need some -- unless it's a build to suit, we're going to need some level of pre-leasing depending on how much it depends on the market and the building and all that. So look, there's nothing imminent without a doubt, but we're just encouraged that there are discussions going on. And if we get lucky, maybe we can have an announcement or two later this year.

[Rob Stevenson:]

Okay. And the Apple announcement, what do you guys think that does to the value of the 40 acres that you guys hold in Raleigh now?

[Ted Klinck:]

Yes. Look, obviously, it only gets better. Again, I think it's still early to understand exactly, but certainly there's multiplier effects when all these companies are coming in our markets. So we continue to believe just in all of our Sunbelt markets, and it's only going to be great things I think for Raleigh.

[Rob Stevenson:]

Okay. Thanks, guys. I appreciate it.

[Ted Klinck:]

Thank you.

[Operator:]

Our next question is from Venkat Kommineni with Mizuho. Please go ahead.

[Venkat Kommineni:]

Hi. Good morning. Brendan, I think on last week's call, you had discussed using proceeds from the disposition program to pay down debt in the near term. Just wondering if you can provide any color on the anticipated timing and amount? You guys have addressed the 150 million due in June. So it looks like the next maturity is the 250 million in January '23. Would that be the next targeted payoff, or would you look to address the 200 million of term loans coming due in November?

[Brendan Maiorana:]

Yes, it's a good question. I think we're keeping our options open. I would say in the immediacy of letting disposition proceeds in the door, that will be used to pay down the line and potentially pay down the November 2022 term loan. But ultimately, I think when you look at that January '23 bond maturity, the 250 million that you referenced, that is a target for those disposition proceeds. So it will take a little bit of time to get the capital stack normalized as we get through the acquisition and then receive the disposition proceeds. So I think there'll be a little bit of bumpiness or choppiness with the FFO progression as we move throughout the next several quarters. But we do have a pathway to kind of get the capital stack normalized, and that is what we talked about, which is getting to an immediate kind of FFO neutral outcome from the entire PAC acquisition with the proposed dispositions and getting to cash flow accretion. And then ultimately, we expect that it will be FFO accretive as leases roll within the acquired portfolio.

[Venkat Kommineni:]

Okay. Thank you. And during the quarter, Raleigh looks to have surpassed Atlanta and Nashville as your top market in terms of revenue contribution. By year-end '22, where do you think your exposure to those three markets will end up once you completed the acquisition and the non-core dispositions close and the in-process developments come online?

[Ted Klinck:]

Sure. I think those three will remain the top three. There might be a little bit of a changing, just depending on what actually closes by the end of the year and all that. But I would say Raleigh and Nashville are both going to go up a little bit. Atlanta may come down a little bit I think, but I think those three are still remaining the top three markets. Just a little bit of shifting.

[Venkat Kommineni:]

Okay. And one last quick one. I think on the 4Q call, you had mentioned potentially exiting the JV in Kansas City. Is that under consideration as part of the disposition program? And if so, what kind of proceeds do you think you could source there?

[Ted Klinck:]

We're evaluating that. So we have a great partner. We've been in that building a long time. So it's something that's definitely under consideration. There's a little bit of moving parts on the rent roll as well. So it's -- obviously, we exited the Kansas City market about five years ago. So it is a non-core asset. So it's under evaluation along with several others.

[Venkat Kommineni:]

Great. Thank you.

[Operator:]

Next question is from Dave Rodgers with Baird. Please go ahead.

[Dave Rogers:]

Yes. Good morning, everybody. Maybe first question for Brian. You guys have maintained face rates as most people have, but obviously economics have been more challenged as we've seen pretty much across the board. A couple of questions on that. First is, I guess do you have a sense of how much of that is really market conditions versus how much of that could potentially be related to just not being able to get into the office or not being able to get employees to kind of build out that space, those types of kind of transitory issues that could come back more quickly on the economic side. And then a second question to that, I think you mentioned some tenants that were -- had long-dated maturities looking for very early renewals, maybe some added color on that as well.

[Brian Leary:]

Dave, good questions within that question. So it's -- I think there's a bunch of different things going on, right, because we have different size customers engaged on their space. So the bigger ones are taking a longer view, a little slower to move, kind of lowest common denominator about decision making. So I think that kind of moves out. It is absolutely a tenant's market, right? We know that has changed. So there are some opportunistic folks looking to kind of blend and extend. The good thing on the blend and extend conversations, most of those are maintaining their square feet. They're not looking to downsize across the board and this is a little bit of talking our own book, but they're all believing that, getting the people back into the office is going to be the best thing for their business to continue to keep growing. And so some are taking the opportunity to reposition, to upgrade within their space, some to move. We had consolidation of multiple offices in Nashville into the new Virginia Springs II development feed by an organization, so they took the opportunity to upgrade and move into kind of best-in-class space. And so I do think there is going to be a flexible environment going forward, and I think people are trying to figure that out. I don't know if anyone knows what that will be in terms of their rotations. But I think -- hopefully, I answered some of that. But it's a little bit of across the board, but tenant market is competitive. So that's one thing. It is kind of cutthroat out there, and we're willing to compete on every deal. This is going to sound probably a little corny, but we believe we have a much higher chance of renewing someone who's in the portfolio than who's not. And so we're committed to getting them in and keeping them in.

[Dave Rogers:]

Great, Brian. I appreciate the color on that. And then, Ted, maybe a question for you. It doesn't -- it sounds like with the asset sales that you're targeting for the second half of this year, the kind of net lease single-tenant assets. It doesn't sound like you're targeting things like Bridgestone, let's say. But I guess as you think about that having large single-tenant assets, Asurion, Bridgestone, Mars, maybe all in a single market, how do you contemplate maybe taking some money out of the portfolio in those particular assets over time and the thoughts maybe around a joint venture with some of these assets that seem to be so highly desired?

[Ted Klinck:]

Sure, Dave. I think that's a good question. It's something we talk about, right? I think the most important thing for us is making sure we build buildings that are not specialized. So the nice thing about Bridgestone and Asurion and the MetLife buildings, the other large build to suits we've done over the last cycle or so, they are all easily convertible. If we do lose a large customer, they're all in highly desirable BBDs in our markets. So that takes some of the pressure off from -- again, from a development standpoint. But it's something we consider. I would never take that as an option that's off the table. But as we currently have them, they're all long-term leases with great credit. So we're very comfortable with the exposure we have on all this.

[Dave Rogers:]

Great. Thank you.

[Ted Klinck:]

Thanks, Dave.

[Operator:]

Next question is from Jamie Feldman, Bank of America. Please go ahead.

[Jamie Feldman:]

Thank you. I appreciate the update of your view that net effectives are probably down 5% to 10%. Can you talk about how that differs across the different markets?

[Ted Klinck:]

Sure. Maybe I'll -- Jamie, I'll start and Brian can jump in. Look, I think it's probably down on the lower end of that in Raleigh and maybe Nashville, Richmond, maybe as well. While Richman has been a little bit slower from a volume perspective, that's just a market we don't spend a lot of capital on and face rates that are pretty steady. And I think Atlanta right now is a little bit more competitive from that standpoint, just from a concession, elevated TIs on some of the transactions as well. And then I'd put maybe Tampa and Orlando sort in the middle. They're down probably that mid-single digit type range. But look, I think the blanket statement is in all of our markets, it is a tenant market. We're sort of in an office recession that we're coming out of, not unlike any other downturn we have so the fundamentals are under pressure. That's sort of my take on market by market.

[Brian Leary:]

Jamie, Brian here. Just maybe piling on a little bit. In a market to submarket too you're seeing, whether it's in Charlotte and SouthPark deals getting done during the pandemic at rates higher than pre-pandemic because of that supply/demand balance for the best product. We're seeing it even here in Raleigh, in the North Hills, we're seeing it in other places in the portfolio, folks are able to kind of hold on. And again, I'm going to get kind of yanked at some point for rolling this one out all the time, but kind of the 1%, 9%, 90%, right? So when an organization looks at what creates value and where they spend their money or invest every year, 1% on utilities, 9% on real estate, 90% on people. Yes, there's an opportunity to save on that 9%. But for those organizations that really want people back in the office, which seems to be the majority that we're talking to, that 9% is more on the margins. So if they see an opportunity to get what they want or upgrade they're paying for.

[Jamie Feldman:]

Okay. And then a similar question just in terms of where you think companies are going to be more likely to implement more of a hybrid? And I guess maybe to throw Pittsburg into the mix, you guys haven't really talked about that market. But do you think there's some -- as you just kind of look at activity across the markets and conversations across the markets, are there -- some of you view it at more or less risk of having a more hybrid model or it looks pretty consistent across all?

[Brian Leary:]

Jamie, great question. So a couple of things. I’ll start with Pittsburgh, and it's always tough when we have these calls is to be able to highlight all the different things going on and we have to kind of pick and choose. But Pittsburgh is interesting. I think it's not a monolithic kind of just market, right? There's different stories going on there. Our main occupancy is downtown. It's kind of a corporate occupancy. Pittsburgh and really Pennsylvania has been more locked down. While at the same time, you're seeing Pittsburgh being part of Google's national growth announcement, Apple's national growth announcement. And we have this great position in downtown. Downtown is kind of this legacy place for folks in Pittsburgh. It's very sticky. It's kind of unique in many ways across all of our markets, just to give you a little stat about Pittsburgh's kind of health through the pandemic. We own -- PPG Place is a multi-building kind of asset there, which is very iconic, and we have a skating rink. It's kind of a tradition where people come down to skate around a Christmas tree with severe conditions placed upon that kind of gathering by the city and the state, we were at 76% of our pre-COVID attendance. And so that was pretty interesting. But back to your global question about are there some markets that are more susceptible to a flexible model? We have this kind of theory that those markets that have a higher friction between where you live and where you work, meaning whether it's a commute, whether it's having to ride transit, whether it’s having to ride in a jammed up elevator, whether it's having to sit right on top of someone, we feel like those are more at risk or have more headwinds on that work from home. Again, our markets don't necessarily have that risk. The ability to move between where you work and where you live and back and forth in our markets, and you might even say Atlanta and Pittsburgh might have the longer commutes or on that. But of those compared to some of the gateways, they're kind of a breeze. So we feel pretty good about that. And I think others out there that are talking about this work-from-home exposure risk have our markets right in the quadrant of where you'd like them to be.

[Jamie Feldman:]

Okay, that's helpful. And then can you talk about the value-add investment sales market? Are you starting to see that come back to life? What are you seeing in terms of maybe cap rates or IRRs or just -- it's just that the market has been so focused on high-quality, well-leased assets, how is that changing?

[Ted Klinck:]

Yes, Jamie, while certainly changing there's a few that are finally hitting the market. I don't think we've got enough data points to see the change in the pricing and all that. There are a few that came out last year that ended up not trading, but there have been more come out in the last month or so that are working their way through the sale process. So I think it's a wait and see, and hopefully we'll have some more data points in the next few months.

[Jamie Feldman:]

Okay. And then finally, have you seen any reverse inquiries since you announced the PAC announcement in terms of asset sales? Has anyone come to you and said, hey, here's what we're interested in that you weren't even thinking about?

[Ted Klinck:]

Yes, Jamie. I think before I got back to my desk after the call last Wednesday, I had four or five, whether it be a text or an email or a call. So yes, we've had multiple inquiries.

[Jamie Feldman:]

Okay. All right, great. Thank you.

[Ted Klinck:]

Thanks, Jamie.

[Operator:]

. The next question is from Vikram Malhotra, Morgan Stanley. Please go ahead.

[Vikram Malhotra:]

Thanks for taking me in again. I actually got disconnected. I just had one more question on what you may have heard around potential downsizing or maybe you being a beneficiary of some of this restructuring in a post COVID world. And perhaps more specifically, I think I heard or read that Global Payments, one of your tenants in Atlanta, has your space on the sublease market. Any update on that would be great.

[Brian Leary:]

Hi, Vikram. It’s Brian. I'll start this one and let Ted kind of grade my paper. So again, it's kind of across the board in terms of the utilization. There's lots of different models that we're hearing, whether it's 100% of everyone in Tuesday to Thursday, and then flexible maybe Monday, Friday and organizations are figuring out how do we build that office when everyone's in from Tuesday to Thursday. So there's two ways I think to look at it. One is, are there organizations whose economic activity is less or they have just less people in general coming out of recession? I think that's any recession. And that's not unique to the work from home, flexible work. So I kind of put that one to a side. We'll deal with that as kind of any normal kind of course of business. But to the flexibility side, I think that's it. I think we don't have any single story to pull that trend line through. And to your point on Global Payments, that's a consolidation of a number of -- two major moves there, and they're looking at where they allocate their space. We have good term where we're at. We have some good provisions within that lease, deciding what they want to do, and it's in the perimeter submarket near MARTA. And so I think we like the asset and we're looking at how we continue to stay competitive there. Ted?

[Ted Klinck:]

Really not much to add. I think we benefited -- we've been on both ends of the consolidation. So we've got several instances where we've been the beneficiary of the consolidation. And then Global Payments is one where they did choose to consolidate to a different building than ours. So again, as Brian said, we do have a lot of term left on that lease. So we're -- and we think it's great buildings and all that. So we'll deal with it.

[Vikram Malhotra:]

Thank you.

[Operator:]

Gentlemen, those were all the questions we have. I'll turn it back over to you for closing remarks.

[Ted Klinck:]

Well, thanks everybody for being on the call today. If you have any additional follow-up questions, please feel free to give us a call. Be safe and healthy. Thanks.

[Operator:]

Ladies and gentlemen, that does conclude our call for today. We thank you all for your participation. Have a great rest of your day. And you may disconnect your line.