Upal Rana: Great. Thank you.
Jerry Sweeney: Thank you.
Operator: Thank you. Our next question comes from Bill Crow with Raymond James. Your line is open.
Bill Crow: Hey, good morning. First question is when you look at the competitive leasing landscape in the Philly and Austin markets, is it your sense that your competitors are getting more desperate and urgent in their leasing less urgent and desperate? Where does the market stand from a panic perspective?
Jerry Sweeney: Yeah. Good question Bill. Look I think as I touched on earlier that we are in a very good position given the quality of the product we have and our ability to execute both from a tenant improvement brokerage commission standpoint. And that’s really been one of the wonderful things about having an unsecured balance sheet, which is why Tom I think touched on our preference to being an unsecured borrower. It gives us really good operating latitude. I think a lot of our private market competitors have secured financings in place. They certainly — they may not have the ability to fund the TIs or maybe in the middle of loan negotiations, they may be trying to work out refinancing programs. And all that just signals a delay in execution to a tenant market that wants in this kind of climate particularly given the macro-overtones, a high level of certainty of execution.
So we think that really is a wonderful competitive advantage for us. I would not define it as a panic mode at all. I think each of these markets is seeing more leasing activity. Absorption numbers still are fairly bleak in most of the markets but you’re seeing more tenants in the market, more tenants looking for higher-quality space. So I think at the higher end of the quality class those properties seem to be performing much better to which — our CBD Philadelphia properties being in the 90% lease range certainly compared to a 20% vacancy is the best evidence we can give that we’ll continue to see deals. And even with Bill where there is a call it a panic mode on the part of one landlord if they don’t have the right product, they’re not going to get the deal, because the consumer preferences as we’ve talked is changing.
I mean tenants as they’re bringing people back to the workplace on a higher quality work environment, they want a very strong management services delivery platform, which we have and they want to know that they have confidence that their landlords are going to be there to service them through their entire course of their tenancy. So I think the market — the macro tone seems to be a little bit more dour than what we’re seeing at the ground level. But we recognize that like the other office companies we need to demonstrate that change in tone through lease executions. And that’s really the focus for the company.
Bill Crow: I appreciate that. I do have a follow-up for Tom. I think if I go back to Tony’s question about the cadence and the recovery of the development the $0.07 that you outlined in stabilizations. Do you think earnings hit bottom late this year as we go through the asset sales, the refinancing and then we build off that? Or is it — is the $0.07 that we’re going to capture over the course — into 2025. Is that enough to keep you flat or positive in 2025?
Tom Wirth: Yes. If you look at our yields on our multifamily build once they get to stabilization, they’re going to be generating over $0.09 of NOI right? So that’s, kind of, like if they hit stabilization, which will occur in the beginning, the first half of 2025. Right now we’re projecting for this year for them to do less than $0.03 in the $0.0250 range. So really it’s a swing between that NOI where it is. So, for example, in one of our projects the one that’s going to start up in Austin they’re going to generate negative NOI for 2024. So, when you couple that with the lease up that’s starting to occur here at Schuylkill Yards, you’re getting to an NOI number that’s $0.06 below. So, the fact that when you turn on both the preferred and the interest expense, that’s all getting — those are where those losses are coming from.
As we grow from that $0.02 to $0.03 of NOI that we’re expecting over the course of this year, you’ll start to hit that full $0.09 of earnings on the multifamily, call it, end of first quarter beginning of second quarter of 2025.
Bill Crow: So, 2025 is going to be positive, right…
Tom Wirth: Yeah.
Bill Crow: When we see growth overall.
Tom Wirth: Yes. That’s the NOI growth overall, because we’re already taking full hits on the interest and the preferreds as you get into the third and fourth quarters, because both projects will be fully available and fully taking those charges.
Bill Crow: All right. Perfect. Thank you for your time.
Tom Wirth: Yes. Thank you, Bill.
Operator: Thank you. And our last question comes from Omotayo Okusanya with Deutsche Bank. Your line is open.
Omotayo Okusanya: Yes. Good morning, everyone.
Tom Wirth: Good morning.
Omotayo Okusanya: I wanted to go back to — I wanted to go back to the interest expense forecast for the year. Tom, the debt refinancing that you have planned for the year that debt comes due in 4Q. I’m just curious if it’s going to be refinanced earlier which is why it’s having a bigger impact on interest expense. And also wanted to understand the type of SOFR forecast that we’re using on your variable debt and how that’s impacting your interest expense forecast as well?
Tom Wirth: Sure, Tayo. So I’ll start with the bonds. So, we — a couple of points on that. One is, as we talked about on our last call, we prefer doing that bond deal a little sooner than later. However, since the last call, we have seen rates come in quite a bit. I think that our borrowing costs have probably come in on a secured or unsecured deal at least 150 basis points. So the tone has been better for us to get a bond yield done or a secured deal done. I think though we would prefer getting one done earlier than later, Tayo. So if you look at that cost if we do one in the second quarter, every quarter we think roughly $4-plus million of interest expense — in additional interest expense by taking out that bond early would occur.
