Brendan Maiorana: Rob, it’s Brendan. I’ll just kind of — for use of proceeds side of that. So I mean, I think at the margin, it would be — we would pay down kind of debt, but we do have development spending that’s going to go there, so you could sort of toggle those two things. But I would say, I think where we feel good is that cash flow has continued to hold up extremely well even in the face of higher interest rates. So we feel very good about that. And we don’t — we haven’t received any significant NOI contribution from the development that is under construction even with a fairly modest level of financing left to get done or funding left to get done to complete those projects. So, I think we feel like there’s a lot of good embedded growth in the development pipeline and given that cash flows have held up pretty well, it provides us a lot of optionality with respect to disposition dollars that come in the door.
Operator: Thank you. Our next question comes from Georgi Dinkov of Mizuho. Your line is now open. Please go ahead.
Georgi Dinkov: Can you just talk about the portfolio mark-to-market today? And how this varies by — sorry, by market?
Brendan Maiorana: Georgi, this is Brendan. I’ll start and maybe let Brian and Ted give their views on color on the market. But just overall, I mean, I think we would say that it’s — let’s call it, roughly flat, which is kind of on a cash basis, which is where you’ve seen cash rent spreads be in broad strokes over the past many quarters. So, we think that, that’s representative of probably where the portfolio is. If you had to pin us down, we’d say it’s modestly positive, but there are some long-term leases in place that are below market. So, I think flat is as good enough a guidepost as any, and maybe I’ll turn it over to Ted or Brian, to give some color on how we see the different markets.
Ted Klinck: Yes, I’ll jump in first. I mean, look, I think our markets — Tampa is a great market for us right now. We’re seeing a lot of good inbound migration to Tampa. So I’d put Tampa and Orlando, the sort of the Sunshine state Brian mentioned on his prepared remarks, continue to do very well for us. And then Charlotte and Nashville continue to do well as well. Look, I think from a Raleigh perspective, I think there’s a little more sublease space in Raleigh. So that market in a fair amount of new construction as a percent of stock. So I think Raleigh is historically been one of our top two markets. I think right now, there’s a little bit more softness in Raleigh. And then Atlanta, I think I mentioned probably a little bit soft in Buckhead as well.
So, and then Pittsburgh and Richmond, Richmond has actually got a fair amount of activity, our occupancy down is down in Richmond, but the market vacancy is roughly about 10% or so. It just so happens we had a fair amount of move outs in the last couple of quarters. So, we’re — well, hopefully, we’re rebounding in Richmond.
Georgi Dinkov: And just in terms of demand, what have you seen in terms of size and tenant profile?
Ted Klinck: I think smaller — definitely seeing small and medium-sized users or — it’s been this trend we’ve had probably for several quarters now. Last fall, the bigger users went to the sidelines when the fed started raising interest rates and that we’re starting to see some of them come back now, but still a majority of our activity is that it’s really our bread and butter. It’s that 5,000 to 15,000 square foot customer who’s been the most active. And that’s really with our expansion of contractions as well, we had expansions out number contractions, I think, is 3:1 this quarter, but a lot of it is just small companies that are growing.
Brian Leary: Georgi, the sectors are kind of the fire sectors as we talked about, financial services, insurance, telecom, I see a little bit of TAM in there, too, kind of coming back, but the general nature of the users.
Operator: Thank you. Our next question comes from Dylan Burzinski of Green Street. Dylan, your line is now open. Please go ahead.
Dylan Burzinski: I appreciate the commentary on the situation going on with the Tivity backfill. But I guess just curious, if there’s any other larger tenants that you guys are worried about from a credit or ability to pay rent perspective?
Brendan Maiorana: Dylan, it’s Brendan. No, I don’t think that’s the case. I mean we’ve got a pretty robust credit review process and watch process. So, I would say that there are — certainly no large ones that are out there. The — it has — what I would say is kind of overall bad debt expense, if you will, or credit risk has picked up a little bit over the past several quarters, but it’s picked up from what was effectively a negligible level. So any sort of change from a de minimis level feels like it’s a large percentage increase even if the overall dollar exposure is relatively modest. So, that’s kind of what we’ve seen. We’ve continued to collect greater than 99% of rents every month. That’s been consistent since the onset of the pandemic. So, there hasn’t been a real big change there. But I would say that bad debts are up a little bit, but from, as I said earlier, effectively zero levels.
Dylan Burzinski: And then just maybe going to market rent growth. I appreciate the comments you guys provided in the prepared remarks on net effective rents. But just curious if you’re seeing any landlords sort of capitulate and then start to lower the asking rents that they’re looking at or looking to achieve in certain buildings?
Ted Klinck: I think in general, a general comment is face rates have held up, right? It costs more to build out space these days. So TIs are higher. So, I think a lot of customers understand that. And so again, that’s one of the reasons we focus on net effective rents. It’s throw everything into the lease economics, whether it be free rent, TIs, face rents. So in general, face rents have held up pretty well. Are there instances where some landlords have gotten really aggressive. They’re really more aggressive on the free rent versus lowering the phase rate. So generally holding up, but again, we pay attention to net effective rents.
Brian Leary: Dylan, it’s Brian. I might just add on this. Might come across a little more philosophical, but we are seeing the bifurcation of flight to quality, flight to capital, flight to landlord. And so, there is a bifurcation of a certain pool of assets that are competing and keeping face rates and getting those net effective. And I would argue that those that aren’t relative or commute-worthy, yes, they are probably getting more desperate, but they’re not leasing up either. So, I’ll leave it at that.
