HR
#Yes.
<UNK>, the spreads we are seeing some differentiation between our on and off, but generally across the board they've been strong.
If you look over the last 12 months, I believe we've been averaging about 4.8% for our on campus and about 1.3 % I think it was for our off-campus.
This past quarter with having everything be positive is a great step forward in terms of something we've been talking about for the last year or so of really trying to adjust the tails of the curve and being able to get rid of those, those releasing spreads that have been negative really helps to drive your average over time.
And there obviously there can be certain markets where in any particular time you might be getting some better results.
We actually had I think it was about eight or nine different markets this past quarter where we had double digit cash leasing spreads.
So we think that that's a positive indicator of how we're able to drive those cash leasing spreads across the country and not just in one or two specific.
<UNK>, I would add just this past quarter as an example, that range was basically zero to 33%.
So it's a broad range but the key as <UNK> said is very few, down at the low end, and no negatives.
And it's that distribution that really for us ---+ obviously we don't expect 32% very often, but, those are unusual circumstances, but very consistently we're seeing, as <UNK> said, double digit in multiple markets, many campuses.
I think, victim <UNK>, if you really think about the portfolio, we're obviously getting some boost this year as we continue to see some lease up in the development properties, which are now approaching the same as the rest of the portfolio at nearly 87% occupied.
But I think we see sort of a more normal level is still two to four but probably as you're pointing out it's more three to four is kind of where we can expect to be.
Our goal, much like <UNK> described on the cash leasing spread is within the portfolio to have that same portfolio approach of looking at the tails and saying what's driving the upper end of our performance on the NOI level and the revenue level growth ---+ revenue growth level and then what's dragging us and manage the portfolio that way and kind of eliminate the bad tails and increase the good tails and move that average over time.
So I think that's kind of how we view it.
But three to four is probably a reasonable range in the near future beyond kind of the development boost that we get.
You know, <UNK>, I would say there's obviously a number of large portfolios that have been sort of circulating out there.
Other folks have talked about them.
Like others, that's really not something we go after.
We may find some portions of those portfolios that are attractive but in general we're not interested in those $500 billion portfolios.
I would say that right now what we're seeing is just a healthy flow of individual deals.
Sometimes it's one deal, maybe two anywhere $20 million to $80 million, or $100 million and for us it's just a matter of figuring out the fit weapon, does the price work.
Is the value there.
Is the growth profile there.
So I would say for us doing two, three, $400 million a year, that's very manageable.
I think beyond that you have to kind of move into a whole different category of bigger deals that are just not of the same quality.
For us it's healthy volume of what we're after and easily abating a reasonable pace of $200 million, $300 million, $400 million a year.
Yes.
The quarterly spend that you see, <UNK>, does bounce around and it is up a little bit this quarter.
I would remind folks that number is what's spent or accrued to be in that particular period.
That may relate to deals that were struck three, four quarters ago that are on - going build out CapEx projects, TI projects or deals that are taking occupancy in a couple quarters.
So there's kind of a disconnect between the rate and that's being spent in the quarter versus what you're committing to on the leases that you struck during the quarter.
And so I think that's one disconnect you have to kind of watch and that's why that spending will bounce around.
We kind of bounce between $8 million and $14 million a quarter on second generation TI.
We don't feel like we'll be out of line with our guidance for the year.
When you really get down to what are we committing to go on a per square foot per lease year basis, for us on renewals we're spending about $4 on that.
That hasn't changed much at all.
It's almost flat from 2015 versus what we've been done so far in 2016 and then on renewals that number is about $1.50, which is not a big change from 2015 either.
You blend those together it's about $2.18 a foot per lease year in the first half and all of 2015 we spent $2.19 per foot per lease year so really have not seen a big uptick.
It's more just about sort of the nature of spending patterns bouncing around, depending on the quarter.
Yes, sorry.
Exactly.
Blends to that $2.18.
The leasing volume certainly impacts that.
I would say, just if you think about it this way, in the last 12 months if you take second generation TI commissions and CapEx, if you will, if you look at the last 12 months, that number is $40.4 million.
That's up 3% over the prior 12 months of $39.1 million.
So, again, not a huge change.
Maybe if you go back to [13] it's up a little, a little more than that, but that's right at the midpoint of our guidance for those items for this year.
In terms of the reposition, and you're right, it does ---+ it has stayed kind of around that million square feet for a while.
And one of the things I will point out on that, it has to do with kind of our definition of same store and the fact that we're looking at trailing 12 month basis.
So once an asset has reached occupancy above 60% and positive NOI, it needs ---+ it stays in that reposition for eight quarters before it goes back in.
So there are actually some properties inside of the reposition that are already in what we would call back into a stabilized level but have yet to move back into same store just because we're waiting on the time period because we don't want to show an accelerated growth once you put it back in same store, so trying to be cognizant of that.
In terms of just in general, yes, we do look at the breakdown of those assets.
Some of them we do look at as long-term holds and we have done some work as I mentioned many are ready to move back into the same store.
There are some that we are looking at potentially disposing of.
We have sold some over the last year or two out of that bucket of properties and so, it's a mixture kind of between the hold in it.
No.
Nothing of concern.
No significant space that we're concerned about there.
I feel very comfortable with the renewals we have.
Sure.
I did touch on that.
There's two projects.
The large one is a new development that is a $62 million budget.
140,000 square foot MOB.
We have a commitment for 44% of the building so far and there's a lot of planning underway that we think will take it over 2016 near or around the time we start construction early next year.
So that's kind of that general preleasing level.
And then, on the other project which is smaller and nine plus million dollar budget, it's really a redevelopment and an expansion of the building we bought last year, that's a 100% prelease.
So high levels of leasing there with yields that are in the seven to mid-seven range on those.
In terms of additional development, I would say, we've certainly talked about another development in Seattle that's sizeable with a $60 million plus, $67 million budget.
That's something that could probably start probably middle part of next year, kind of depends on preleasing I think will sort of see how that goes as we get closer here but we're well underway on planning designing and getting the right various entitlements we need.
So that can be another project in the near term.
Certainly, our team, as we talked about earlier sort of activity and interest inquiries from health systems even some development partners that we've worked with before talking about some new development.
So I think we see a healthy pipeline beyond what we know that we plan to do in the next 12 to 18 months or at least get started.
So it's not unlike the acquisition pipeline just a very robust shadow pipeline if you will.
Sure.
It's ---+ we don't have an absolutely threshold but I would say, case by case but generally a bare minimum for us would probably be something around where we see NOI breakeven which typically is 35%, 40%, 45%, 50 plus or minus is probably a good way to think about it.
But again, it's case by case.
There's one in Seattle that we haven't started that sort of in the shadow pipeline.
That's one where unbelievably tight market and a lot of big users that need space.
So we have a lot of confidence there we would like to obviously see some commitments, a lot of discussion, specific discussions before we get started.
So, again, maybe lows of 35%, to 40% but.
.
But and a lot of times the demand is coming from the hospital.
That's the candle as to get this project started.
So, they often will have one or two or three identified needs.
For example, <UNK> mentioned you have 44% commitment on this one out in Seattle with indications that they could go up to 60% that's because they are still doing their programming and their planning.
We certainly got enough I think to do the initial work but what we have seen as this hospitals as the process moves along their space needs increase to their finding ancillary physician groups who want to be a part of this project and are being added.
So a lot of this is being demand driven and were just meeting that demand.
Also as a process of risk management to some degree if you ring out all of the risk and development, you have an acquisition with a lot more risk.
So, to some degree its where is that inflection point that you reward matches the risk and so, closure on campus and you have the affiliation, you probably have the opportunity and less risk and better returns if you're in the 35% to 45% range whereas if you do a big on campus and you wait until you get a 70% or 80% lease, just an abstract comparison then you're down in very low acquisition rates.
Right.
Thank you everyone for being on the call.
And any follow up most specially around today.
So, we'll be please to deal with any follow up calls and otherwise, we will be on the call in November.
So, have a good rest of the summer.
We'll talk to you then, good day.
