Dylan Burzinski: Hi guys. Thanks for taking the question. Just a quick one on sort of leverage and how are you guys thinking about a target for a long-term leverage goal as you guys get dispositions across the finish line.
Bobby Bowers: As we stated, Dylan, our target is between 30% and 40% leverage. Currently, we are around 38%. Obviously, we would like to drive that down closer to the midpoint 35%.
Brent Smith: I think from a debt to EBITDA standpoint as well, we are looking to try to stay in the mid to high-6s, try to continue to drive that to the mid-6s through both cash flow growth, but as we have talked about dispositions, and pay-down of debt here more near-term. So, that will be the two levers that we continue to use to improve the balance sheet and the liquidity. I would note too, that we have very little debt maturing over the next 2 years. And if you think about the cash flow of the portfolio, we are generating roughly around $310 million to $320 million a year of EBITDA. And then you have got interest expense right now around $115 million to $120 million annually, which leaves us with call it $100 million, sorry, $200 million for the dividend and capital expenditures, the dividend today $60 million, so that we got more than ample cash flow to continue regular weighing CapEx. And hopefully, once we are through this period that Bobby has noted, here of its wrapping up a few of these larger projects around the summer timeframe, that will give us cash flow to continue to de-lever as well.
Dylan Burzinski: And then as you guys sort of think about potential acquisition opportunities, do you guys have sort of a yield on cost or unlevered IRR target that will get you really excited about or what are some of the things that you are looking at to actually go out and buy assets in the private market?
Brent Smith: Great question, Dylan and maybe I will take this as an opportunity to take a step back and really explain how we view and have been thinking about the market overall. When we – COVID hit, and really a year after the hybrid model started to take shape, we as a firm took a step back, really looked at the strengths, weaknesses, opportunities and threats, and customer segmentation in detail. We created a strategy which was the focus on small, medium enterprises, hospitality design and an elevated level of service. And then we went out and executed that in here in Atlanta. Now, that’s not necessarily true, some acquisitions over the last few years, you think about 999 and 1180, as well as just before the pandemic, putting the rest of the Galleria here in Atlanta together.
But each of those projects, we have really created a unique environment and we have built a track record. And I would encourage investors to come to Atlanta and see what we have accomplished. But it’s not only been here as well, we have started to export that and multiply and amplify that capability at the Dallas Galleria project and the exchange project in Orlando, which is 222 South Orange, as well as 60 Broad in New York. And what we have continued to prove out and build that track record is continuing to have occupancy growth. I will use Atlanta as an example. We drove – driven now our occupancy over the last few years from 84% across the Atlanta portfolio, which is almost 5 million square feet, to 92%. And that’s while our direct peers have lost almost 400 basis points of occupancy, potentially, or more.
So, we really felt like we have created now a model that we can leverage. And that model is really focused on taking older vintage assets, call it 1980s and ‘90s, vintage product, which is very much the description of what I just described, what we have acquired previously, and then really rehabilitating that and being very successful at it. So, now we are at the point where we really want to sell that capability. And whether we are given an opportunity in the public markets, or if there is private capital that would consider partnering with us, we are going to look for creative ways to grow the asset base. Now, your point then – so that’s how we think about funding and positioning and selling our capabilities and raising capital around that.
If you think about then how are we thinking about specific acquisitions, Chris and the team are laser focused on the 10 to 15 assets that we would like to own in every one of our markets. And we know them backwards and forwards, who owns them, the cap stack, the leasing profile, and the opportunity and when it might come to market. We continue to have a Sunbelt focus on our existing operating markets, where we have a municipality relationship, great relationships with the brokers and the other players in the commercial real estate market. And we will leverage that knowledge to target acquisitions that are generally not going to be marketed, but are of our profile, again, a high quality and could potentially be an older vintage, or even something that was built in the early 2000s, 2000 teens.
But as CapEx, it’s going to be needed, and/or role that might be creating a very discounted pricing. As we talked about previously, nothing prices to core, but heavy opportunistic returns would be what we are looking for. So, you are thinking about unlevered IRRs in the mid-teens for challenged real estate, but something that we can continue to drive long-term value at. And so we really want to get away from thinking about a cap rate. We are very focused on basis. And as I mentioned, unlevered IRRs, and driving – moving back towards that prolific recycle $300 million to $400 million of assets a year. It’s going to take some time for the transaction market to really I think allow us that opportunity. But we will have an eye towards deleveraging and positioning the company for acquisitions latter part of this year, more likely 2025, which we think will pair well with a lot of the dislocation that might be forthcoming.
