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Columbia Property Trust Inc (CXP) Q1 2021 Earnings Call Transcript

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CXP earnings call for the period ending March 31, 2021.

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Columbia Property Trust Inc (CXP)
Q1 2021 Earnings Call
Apr 29, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by, and welcome to the Columbia Property Trust First Quarter 2021 Conference Call. [Operator Instructions]

I'd now like to hand the conference over to your speaker for today, Mr. Matt Stover. Thank you, sir. Please go ahead.

Matt Stover -- Director of Finance and Investor Relations

Thank you, operator, and thank you, everyone, for joining us on our First Quarter 2021 Columbia Property Trust Investor Conference Call. On the call with me today are Nelson Mills, President and Chief Executive Officer; Jim Fleming, Executive Vice President and Chief Financial Officer; Jeff Gronning, Executive Vice President and Chief Investment Officer; and other members of our senior management team. We released our results this afternoon in our quarterly supplemental package, which can be found in the Investor Relations section of our website and on file with the SEC on Form 8-K. We also filed our 10-Q with the SEC this afternoon, and an audio replay of this call will be available by this time tomorrow.

Statements made on today's call regarding expected operating results and other future events are forward-looking statements that involve risks and uncertainties. A number of factors could cause actual results to differ materially from those anticipated, including those discussed in the Risk Factors section of our Form 10-K, which includes specific risks pertaining to COVID 19. Forward-looking statements are made based on our current expectations, assumptions and beliefs as well as information available to us at this time. Columbia undertakes no obligation to update any information discussed on this conference call. During this call, we will also discuss certain non-GAAP financial measures, and reconciliations to comparable GAAP financial measures can be found in our supplemental financial data.

With that, I'll turn the call over to Nelson Mills.

Nelson Mills -- President Chief Executive Officer and Director

Thank you, Matt, and thank you all for joining today's call. I'll begin with a review of our first quarter performance, discuss the value creation opportunities we have at hand, talk about our commitment to corporate responsibility and conclude with an update on our strategic review process. Colombia is off to a great start in 2021, following a year that none of us will ever forget. A year that challenged us all, but ultimately demonstrated the resiliency of our portfolio, the strength of our platform and the quality and commitment of our team. With one quarter of the new Year already behind us, that same winning spirit and keen focus are continuing to carry us forward and drive our success. Now as green shoots begin to emerge within the office sector and within our markets, we're better equipped to serve our existing tenants and to attract new ones than ever before. We now have enhanced health and safety protocols in place, cutting-edge technology deployed across our portfolio and enhanced levels of service and flexibility to meet increasingly discerning demand. For the first quarter of 2021, our key performance metrics reflected the stability of our portfolio and tenant roster. We generated normalized FFO of $0.35 per share and positive same-store cash NOI growth of 4.8%. We ended the quarter with a 94% leased rate. Our rent collections have also remained strong, consistent with our experience throughout 2020. 98% of our first quarter rents are in the bank.

Paper collections are trending in the same direction, and we're confident that this pace can continue. This performance reflects the exceptional quality of our portfolio and the high-caliber of tenants we've attracted. Quality of that, in combination with the hard work of our team, continue to insulate us from severe negative effects of a pandemic. We have an average remaining lease term of 5.9 years with only 6% of the portfolio expiring over the remainder of this year. The modest level of rent relief requests we saw last year slowed considerably. And for the first quarter of 2021, only 0.2% of rents were deferred and fewer than 1% of rents were written off. We leased 69,000 square feet during the first quarter, and cash leasing spreads averaged 13.2%, our strongest in five quarters. Our GAAP leasing spreads were even better at 17%. While commodity office space is expected to suffer significant declines in net effective rents, Columbia's truly differentiated spaces continue to perform. More on that in a moment. We are seeing many encouraging signs as the office market begins to recover from this pandemic driven slowdown of the past year.

The number of property tours with prospective tenants have dramatically increased and existing tenants are beginning to plan in earnest for life after COVID. We're prepared and eager to serve as a resource and an ally as our tenants plan for the reentry of their teams to the office. Most are reconfiguring workspaces, altering work schedules and exploring new ways to foster collaboration and productivity. Because of our investments in our tenant relationships and our differentiated spaces and services, these forward-thinking companies know they can count on Colombia to help meet their future demands and offer their employees a safe, healthy and productive return to the workplace. A part of our strong tenant partnerships in the highly desirable space we have available and/or under development, we're excited about the opportunities ahead to create shareholder value and drive leasing and cash flow growth through the remainder of 2021 and beyond. These opportunities include a combination of renovated vintage product and state-of-the-art new construction as well as attractive existing space. All have substantial embedded rent roll up potential. These properties are in some of the most sought-after neighborhoods, a factor that sets Columbia space apart and helps us consistently attract the most desirable tenants. In our Manhattan portfolio, tour activity has surged over the past 90 days, and we are actively negotiating with several tenants on multi floor requirements.

Our Midtown South and West Chelsea locations provide direct exposure to tech and media-driven demand that is alive and well, and we're adding to those opportunities. Our new build at 799 Broadway is on schedule to be completed this summer. Tour activity for this unique trophy office building continues to grow, and we're now in advanced talks with multiple prospective tenants. Another well-located property is 149 Madison Avenue in the Nomad section of Midtown South, where we will soon hold a broker event to introduce this fully renovated and attractively sized building into the market. This building will provide modernized creative office space with exciting new amenities and options for flexibility. We also have longer-term growth opportunities in Manhattan, including terminal warehouse, a true unique historic redevelopment that offers a compelling mix of creative office space and on-site amenities to attract discerning tenants of all sizes. We expect to begin redevelopment of this exciting project with our partners in the coming months. We are also in the planning stages for 101 Franklin and Tribeca, yet another unique opportunity to deliver meaningful shareholder value in the years ahead. We have many other value creation opportunities across the portfolio that feature attractive locations, flexible floor plans and state-of-the-art systems for a successful return to office life. At University Circle in Palo Alto, we'll be recapturing 90,000 square feet of prime office space in the next couple of months from Amazon Web Services, which was paying a blended rate of just $79 per square foot for their space. We expect a substantial roll up in rents on this space, which is some of the best in our entire portfolio, located at one of the premier office addresses in Silicon Valley.

Tour activity in San Francisco picked up in March and April as the city began to relax its COVID restrictions and tenants planned for Q3 or Q4 occupancy. Much of the demand has come from smaller professional services tenants, but recent data suggests that tech demand is returning rapidly. Some of the market leaders have formally announced their return to Work plan which should help influence other companies to begin more actively looking for space. In Washington, D.C., we'll have more than 130,000 square feet of highly desirable space available at our iconic Market Square property. We're executing an enhancement plan for the lobby, the Outdoor Plaza and the ground level retail areas. In-person tours increased meaningfully during the first quarter, and we now have proposals out on over 100,000 square feet at this property. A couple of miles to the southeast in the Capital Riverfront District, we're seeing similar trends at 80 Inn Street, with 140,000 square feet of proposals and LOIs on roughly 160,000 square feet of availability. Development continues on our innovative 3-floor vertical expansion of this property, which will add 105,000 square feet of office and amenity space. Constructive with environmentally friendly mass timber, this will be among the most appealing office space in D.C. when it comes online in mid-2022. 60% of this new space is pre-leased, and we've seen a dramatic uptick in market interest for the remainder.

Our mass timber overbuild at 80 M Street is just one of many examples of our commitment to caring for the environment and operating responsibly in all that we do. Our 2020 environmental, social and governance report released last week chronic with this dedication across our platform over the past year. The report describes our long-term commitment to net zero carbon emissions and our expanded tracking and reporting of environmental data for all of our properties. This report, which is available on our website, also describes how we are caring for people on our team, in our industry and across our communities. Through the challenges of 2020 and beyond, we've pledged to create a positive impact on our stakeholders the environment and communities in which we operate. This includes our teams and passioned commitment to meaningful diversity, equity and inclusion initiatives. On behalf of all of my colleagues, we're very proud of our efforts and commitment to addressing climate change, advancing social justice and reporting our progress to you with awareness and transparency. I hope you will take the opportunity to read this important report. In summary, there are many reasons for our confidence in the future of Columbia Property Trust. We have one of the nation's premier office portfolios which we're leveraging with our capable and committed team to provide differentiated service to our shareholders and tenants.

Our pipeline of near-term value creation opportunities includes nearly two million square feet of active development and redevelopment projects that once delivered and stabilized, could add more than $40 million of incremental NOI. As we pursue these new opportunities, we will continue to focus on optimizing our existing high-quality portfolio, which has been a pillar of our long-term success. We provide workspaces to some of the world's most forward-thinking dynamic growth companies, companies like Affirm, DocuSign, Oracle, Pitchbook, Snap, Amazon, Gemini and Twitter. We are driven to provide workplace environments in which our tenants innovative and collaborative cultures thrive. More than ever, these discerning companies seek flexibility, creativity and differentiated service to meet their needs, and Colombia is well positioned to remain their partner of choice. Finally, I want to comment on our recently announced strategic review process, our Board announced its decision to conduct a comprehensive strategic review of alternatives, and we are serious about this process. The process includes the Arcos Group, which, as you know, previously announced their interest in the company, and whom we invited to participate in our process as well as other potential counterparties..

While we cannot provide any assurances or certainty about the timing or outcome of our strategic review, I want to assure you that our Board is driven by their fiduciary duty to represent our shareholders' interest and the process is being conducted with open minds and in a manner designed to achieve the best outcome for all shareholders. We wanted to provide that level of transparency to you, and that is all the detail we can provide at this point. We will not be commenting further about our process on this call.

With that, I'll now turn the call over to Jim to walk us through our results, our strong financial position and our financial outlook for the year.

James A. Fleming -- Executive Vice President Chief Financial Officer

Thank you, Nelson, and thanks, everyone, for joining us on today's call. We started the year with another solid quarter despite continued challenging conditions. During the first quarter, we produced normalized FFO of $0.35. And our adjusted FFO, $0.31 was up sequentially and year-over-year and well in excess of our $0.21 quarterly dividend. And we once again grew quarterly same-store cash NOI, which was up 4.8%. Our numbers this quarter benefited from a $0.04 tax abatement that we had anticipated, but they also reflected some increased operating expenses due to seasonality and timing. All in all, we believe we are on track for a good year, and we're pleased with these results. Our rent collections were also strong during the quarter at nearly 98% overall, and just over 98% for our office tenants. As Nelson mentioned, we had very few deferrals or write-offs during the first quarter. And so far, April rents have come in at a similar pace to what we've seen over the past several months. At the end of March, our lease percentage stood at 94% down slightly as expected, but consistent with the outlook we provided last quarter. However, we are pleased to see activity picking up on the leasing front with increased tour traffic and interest across our available opportunities.

Our team leased another 69,000 square feet during the first quarter, our highest level since the second quarter of last year. 47,000 square feet of our first quarter leasing was in San Francisco at double-digit positive cash releasing spreads. In fact, due to the below-market nature of our portfolio, our leasing spreads remain robust overall, up 13.2% on a cash basis and 17% on a GAAP basis. We are also pleased to see a solid start to our leasing activity in the second quarter. Summarizing our financial and operational performance, we remain proud of the resiliency we have demonstrated last year, which is clearly carried into 2021. As Nelson mentioned, this not only reflects the quality of our portfolio and tenant roster, but also the ongoing efforts of our team. We have a solid balance sheet and strong liquidity, which enables us to take a thoughtful appropriating long-term shareholder value. We ended the quarter with more than $60 million in cash plus access to $526 million of additional funds under our revolving credit facility. Our net debt to real estate asset ratio was 32.2%, and our fixed charge coverage ratio stood at 3.5 times. We have more than $4 billion of unencumbered properties, and our only debt maturities prior to next year or modest loans at our share on 799 Broadway in Terminal Warehouse. I want to point out a new line in our income statement for strategic review costs. These costs are being added back in calculating normalized FFO, but not in calculating adjusted FFO. Turning to our full year outlook. We are reaffirming the ranges we provided last quarter, which reflect our strategic dispositions in 2020 and assume a continuation of current operating conditions.

This includes a normalized FFO guidance range of $1.23 to $1.30 per share, same-store cash NOI growth of negative 3% to 5% and a year-end occupancy range of 90% to 95%. We also continue to expect full year corporate G&A of $33 million to $35 million. As Nelson discussed, we have many exciting increasing opportunities across New York, Washington, D.C. and the San Francisco Bay Area. We expect these leasing opportunities, which include new and renovated space, as well as attractive availabilities in our existing portfolio. We will begin to make a meaningful contribution to our cash flows next year. In summary, the year is off to a strong start. As we've maintained the focus that carried us through 2020, a year in which our performance was largely consistent with or even better than our initial outlook despite the unexpected impacts of the global pandemic. We're proud of our team's efforts and excited about the opportunities ahead.

Now operator, if you could, please open the lines. We'd be happy to take questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Sheila McGrath with Evercore.

Nelson Mills -- President Chief Executive Officer and Director

Hi, Sheila.

Sheila McGrath -- Evercore -- Analyst

Hi, Nelson. I wondered if you could comment on leasing activity. You did have a pretty active comparatively quarter and first quarter and also, you have some things in the pipeline. Are there any trends that you could point us to in terms of how the rents are coming in versus your expectation? Are concessions more elevated and also on length of lease term?

Nelson Mills -- President Chief Executive Officer and Director

Sure. As we said, Sheila, and prepared comments, activity tours interests really in all three markets has picked up dramatically. These are meaningful discussions, tours, even swapping paper. Not a lot of leases executed just yet, but we think we're making good progress and which some are getting close. But I'd say New York, first and foremost, followed by D.C., and then even in San Francisco, we're seeing a lot of activity. In terms of the rents, so far, so good for the for the really high-quality space, which, again, is most of our space. It's either new build or renovated or well-located in the town South stuff. We're really not seeing -- we're not having to pull back that much. It's from pre-COVID pricing. It's -- obviously, there's some of that, a little more in terms of concession or free rent, but certainly inside 10% on most of our properties in terms of reduction.

Some of the space that we have around the portfolio, we may have to pull back a bit more than that just to get leases done. But I will tell you, we're feeling very optimistic over these last couple of months about the pace, absorption rate pace as well as the terms. I think we'll actually going to come out OK on that. I don't want to overstate it. I mean there clearly is pressure in the system. There's clearly excess demand out there. There's a sublease activity is still substantial. So there is -- it is still a tough road out there. But we feel good about delivering certainly on the expectations that are embedded in our guidance for the year, and we think even better than that. So Paul Teti, who heads our real state operations group, is actually here. Paul, anything to add to that?

Paul Teti -- Executive Vice President National Real Estate Operations

No, I think that's right, Nelson. Really encouraged by the activity this quarter. And I think regarding your question, most of the movement that we've seen in terms of has been in the form of concessions, free rent timing, that sort of thing. We haven't seen as much pullback in face rate. As Nelson pointed out, we're hoping to see more transactions across the board in the market close, and I think that will give us a better sense when those comps start to hit.

Nelson Mills -- President Chief Executive Officer and Director

Yes. We're quite optimistic, Sheila, relative to where we were a couple of months ago.

Sheila McGrath -- Evercore -- Analyst

Okay, great. Thank you.

Operator

Thank you. Your next question comes from the line of John Kim with BMO Capital Markets.

John Kim -- BMO Capital Markets -- Analyst

Good evening, I know you're limited on what you could say on the strategic review. I just have a very simple question. You -- or can you give us an indication on how long you think this process may take? I think the last time you went through a review, it was never really formally announced or concluded, and I was just wondering at this time it will be different?

Nelson Mills -- President Chief Executive Officer and Director

John, that's difficult to say. And we certainly can't commit to a particular time line. I will tell you the process has started in earnest. It's very active. We're really focused on it, as a our advisors, Morgan Stanley and our advisory team. So we're -- it's moving along, and we're giving it full attention. A lot of the timing will depend on how -- where this takes us. The level of interest, the nature of the interest. But we certainly don't want to drag it out for months and months, right? it's -- I'd say best guess would be a few months. But it's really -- we really don't want to -- we really can't nail down to any particular combine at this point.

John Kim -- BMO Capital Markets -- Analyst

Okay. And the announcement that you made this morning with Archos withdrawing a slate of directors, is that indicating that you're -- you have a more friendly relationship with them and you're opening up the due diligence process to them?

Nelson Mills -- President Chief Executive Officer and Director

Yes. No, sure, John. So we've always had a friendly dialogue, open dialogue with Archos Group, and they are very much part of this process. As you know, there were the first experts expressed interest. They're very much involved in the process. They have access to the data room and access to us and our advisors. So it's always been a friendly open dialogue. I think they made the decision as we announced this morning. We're really just updating the proxy with annual meeting coming up, but they made the decision to withdraw the slate, and I think that's in connection with us all working together to see if there sees a transaction here.

John Kim -- BMO Capital Markets -- Analyst

Okay. You mentioned in San Francisco, you're anticipating office employees coming back to the office in the second and third quarter. Are you anticipating higher leasing activity ahead of that?

Nelson Mills -- President Chief Executive Officer and Director

Well, third and fourth quarter, I think we said, and a lot of those -- we have specific dates for several of our larger tenants there, who they've announced to their teams and to us, their reentry. In a lot of cases, it will be a phased reentry. But all of our -- almost all of our major -- larger tenants are at least in the active planning stages coming back, some are taking steps to actually physically come back already. In terms of leasing, in most cases, there's term left on the lease there's not any expansion or contraction plans on the board. It's just a matter of reentering in their existing space. Although we are having several discussions across the San Fran portfolio, as we are in other markets, about renewals, extensions and even expansions in a couple of cases. So a lot of discussion is with within the -- with us and the tenant has to do with but how is it going to be different when they come back? The reconfiguration of their space, their work schedules, possibly converting some of their space to more collaborative conference room space, less density, those sorts of things. That's more of a tenant or a company determination, but we're certainly engaged and involved with those discussions. So yes, I think we'll see more leasing. Paul, is that fair? I think we'll see more leasing as we get later in the year.

Paul Teti -- Executive Vice President National Real Estate Operations

Yes, for sure. And I think the dynamic that Nelson pointed out is particularly relevant for smaller tenants, call it, less than 50,000 feet, where they can come back a little bit quicker. And I think we've heard some of the activity that we've spoken about here today is a result of coming back and realizing that I want -- they might want a little bit more space. So early indications there.

James A. Fleming -- Executive Vice President Chief Financial Officer

John, this is Jim. Just to note, we have had some leases in San Francisco. I sure expect that those will decrease as people actually come back to the office. But as we noted in our remarks, we had -- we actually had two the renewal leases and two new leases in our San Francisco properties in the first quarter add really good leasing spreads. So I hope that's a leading indicator.

Nelson Mills -- President Chief Executive Officer and Director

Yes. And John, as we all know, as anybody would expect, the better the property, the better located property, the better the space, the better design, the less will be impacted, right? So as you know, we work very hard over the years to really be very discerning on not only selection of properties, but spending capital in properties. And even on assembling tenant rosters, right, we've been pretty selective on that. And that's really -- again, we're not immune to the pressures in the system, but that's paying off for us. We've got some really good quality space out there. And I think we're going to -- that's why I think that's a lot of the reason why we're seeing this early demand as companies reenter.

John Kim -- BMO Capital Markets -- Analyst

My follow-up question is on the DC market. You had a dip in occupancy this quarter, which partially due to the Market Square innovation. But one of your office REIT peers have described the D.C. CBD market is one of the slowest in their portfolio. And I'm wondering if that's a fair characterization for you guys?

Nelson Mills -- President Chief Executive Officer and Director

Yes. That's definitely fair. D.C. for several years has been the -- I guess you said the weakest of our three markets, and it's primarily because of the influx of high-quality new trophy supply. The reason even pre coded and we think now will hold our own there because again, we have some pretty unique buildings there. Market Square is its location, its reputation for being one of the main most attractive homes for government affairs, it does quite well. And we do think some enhancements to some of the common areas and mines are in order. We've put a beautiful rooftop in place. But we think there's opportunity on the ground floor retail and some conference space to really enhance it even further. So we think we'll do OK there. But -- and then 80 M Street, where we're doing overbuild, that is really getting a lot of market attention and interest from some strong tenant prospects. So we're fortunate to have some really unique property there. But I agree with your other company's sentiment that it's not the strongest office market right now in terms of the broad fundamentals.

John Kim -- BMO Capital Markets -- Analyst

Great, thank you.

Operator

Our next question comes from the line of Vikram Malhotra from Morgan Stanley.

Vikram Malhotra -- Morgan Stanley -- Analyst

Thanks for taking the question. Good evening. Hey, how are you doing. Maybe just first question on specifically the development projects as we kind of a merge out of COVID you referenced a return to work and the pickup in leasing. Can you maybe just give us a bit more color on how you're thinking about lease-up? Maybe any incentives you're offering just to get some of those leased up where price points are now shaking out versus pre-COVID?

Nelson Mills -- President Chief Executive Officer and Director

Yes, we'll certainly do that. I'll start, and I'll let Paul to way in as well. So as we've said before, Vikram, the better the property, the newer the property, the better located, the more unique it is, the easier time you will have of it. That's true for all of us in this business. So at 799 Broadway, of course, we will experience lighter economics, somewhat lighter economics than we would have pre coded, but we really don't think we'll have to give up that much from pre cote pricing. Paul can talk about more of the dynamics of how that -- does that take the form of increased concessions or whatever. But even on 149 Madison, which is a 100-year-old property that we took back -- we had at lease to WeWork, we unwound that. We got a termination payment and took that property back. Even an older property like that, it shows really nicely. We cleaned it out, cleaned it up, and we're showing some floors there, and we're getting interest there. It's -- in that case, the economics will be a little tougher to entice tenants. We're going to be a little higher on concessions than we might have been before. But again, great location relative to transportation, really floor place play out well, high ceilings, great windows. It's going to do OK, too. We're fortunate not to have much in the way of just basic commodity, mid-block, mid-building-type space. We think that struggles a little more. But Paul, we're doing a lot -- as we mentioned, Vikram, we're having a lot of discussions right now with real live prospects, and we've done some leasing. We're getting close on some other leasing. So we have a pretty good finger on the pulse of what it's been taken to get deals done, but it does vary by property. Paul, a little bit of color on that.

Paul Teti -- Executive Vice President National Real Estate Operations

Yes. Thanks, Nelson. I think that's right. And the other thing I would say, in the form, when you talk about concessions or things that you might utilize to incentivize folks to make decision, I think the other thing that comes into play is flexibility. And so those concessions could take the form of perhaps a phase in, if it's a multi floor tenant or even our willingness to break a certain block of space in order to get some growth, so those are the types of things we're talking about when we think about either concessions or flexibility to help tenants as they reenter, make those decisions a little bit more swiftly, and we're employing that tactic across some of the buildings that Nelson mentioned.

Nelson Mills -- President Chief Executive Officer and Director

Vikram, one of the things I think we are going to see -- we are seeing, given all the uncertainty in the market, uncertainty with the tenants about exactly how fast and how far they want to go with office space, right? So one of the things we are seeing is a desire for shorter lease term, pretty dramatically so in some cases. But those tenants would be want to pay a premium or give up some other part of the terms. So that's going to be a pretty common recurring thing. You're going to see with us and other landlords, I think. Now for 799 Broadway, where you have a high-quality, unique space like that, we're not -- we're still going to get lease term. We're still going to get reasonable concessions in decent rate. But for some of this other space, like 149 Madison, we may look at short lease terms, something inside five years. Now to do that, we're going to have -- we need to get paid for that in terms of face rate, and we can't give up as much in concessions. But we -- a lot of these tenants as they're trying to figure out their comeback and post covet, they're willing to pay those premiums to have that flexibility. So that's something we'll see surface over the next few quarters.

Vikram Malhotra -- Morgan Stanley -- Analyst

That makes sense. Yes, I mean, I guess, you said, in some cases, under five years. So I guess if you look at your pipeline, you talked a lot about, well, tour activity, proposals being traded in San Francisco, even New York. I guess if you were to bucket it, like roughly what proportion of the pipeline would you say is looking for that shorter 5-year-type lease? And can you also comment on how termination kind of clauses might -- may or may not change going forward?

Paul Teti -- Executive Vice President National Real Estate Operations

Sure. With respect to the pipeline relative to the overall activity, I'd say it's probably less than 20%. So it's significant enough that I think it's worth mentioning, and it's a tool that we think we can utilize to get both activity and premium, like Nelson mentioned, in some cases. But that's probably right. It's somewhere in the 20% range of the overall activity is looking for some form of more flexible terms.

Nelson Mills -- President Chief Executive Officer and Director

Yes. In terms of the termination, that's an old trick that we're all very accustomed to the probably a 10-year term, but I'd like an out after 4. That's not a 10-year lease, right? So obviously, when you're talking about term, it's -- what's the real term, right? So yes, those are in the discussions. But like Paul said, it's a minority of the cases will go for the shorter lease term. But again, to get that, they're going to need to pay a premium. And we've got to make sure we can reuse the TIs and all those sorts of things and evaluating what -- how much premium we have to have. The other thing that's important to keep in mind though, Vikram, in addition, it's expensive and time-consuming and disruptive for companies to choose a home build out that home, establish their business operations and their culture in that home and doing that every few years is disruptive to their business. So aside from the economics, all things held equal, tenants would like to have longer lease terms, right? But again, because of some of the uncertainty that we're dealing with right now, we think we will see a significant portion of -- a significant portion of our negotiations will include at least a discussion about short lease terms.

Vikram Malhotra -- Morgan Stanley -- Analyst

That makes sense. And then I remember, obviously, last call, you talked about known move out over the next, call it, 12 months or so. And I'm wondering if you can just give us an update if there's any changes in that schedule or the movement and anything incremental would be helpful?

Nelson Mills -- President Chief Executive Officer and Director

Okay. Well, nothing really surprising or incremental, but Jim can give us some of the headline numbers. If you recall, our guidance for the year, we're at about 94%, just over 94% leased today. Our guidance for the year is 90% to 95%, right? So what that -- but midyear, we may dip below that. And you've got pershing termination coming up, June 30. You've got Amazon Web Services 90,000 feet coming at June 30. We also hope to have some leases done in the next quarter or 2. But it's possible that our low point is in the high 80s. But then we expect certainly by -- and this is consistent with our guidance. We expect certainly by the end of the year to be back up in that low to mid-90s range. But anyway, Jim, is there some -- nothing new really, but some of the headlines there.

James A. Fleming -- Executive Vice President Chief Financial Officer

That's right, Nelson. And the other one to mention is there's a offer a midlevel at Market Square, that's -- and we only own 51% of the building, but 54,000 square feet. That's the end of July. So those are the big ones this year. Those are all leading. And as Nelson said, we've taken all that into account. We -- both in terms of the year-end leasing expectations, percentage leased and in terms of the revenue expectations for the year. And I will say we feel that we're on track for the year to -- in terms of our guidance. We think that things are moving in the right direction. I know we may sound a little more optimistic than some other companies that have had their conference calls, but we're telling me what we're seeing in our properties, and we feel that we're on track. So really no update, but I guess we're reaffirming what we said in our last call.

Vikram Malhotra -- Morgan Stanley -- Analyst

Great, thanks so much.

Nelson Mills -- President Chief Executive Officer and Director

Thanks for that. Good talking to you.

Operator

Your last question comes from the line of Michael Lewis with Turist Securities.

Michael Lewis -- Turist Securities -- Analyst

Thanks. Nelson, you already answered this question, and I'm going to ask it kind of more bluntly, even though I realize you may not -- there may not be anything else to add to it. But why did Arcos with their lease?

Nelson Mills -- President Chief Executive Officer and Director

That's a question for them. I think as we're until comfortable speculating on that. As I mentioned on John's question, we've been in regular dialogue with them. Their focus has been clearly their interest in the acquisition and as indicated by their offer. And I think this is consistent with that. And we're very engaged with them. They're fully plugged into the process and to our advisors and our team. And so I don't -- I couldn't speculate beyond that. But I think I think it's just an indication that the interest is -- they're in the process in that, and I think that seems to be their primary focus.

Michael Lewis -- Turist Securities -- Analyst

Okay. Got it. And then, Jim, one on the guidance. You did $0.35 a share normalized in 1Q. If I look at your range for the full year, that implies less than $0.31 a quarter at the midpoint for the rest of the year. Is that a function of, again, leaving some conservatism for leasing volume and what's going to happen in the rest of the year? Or was there anything incremental in 1Q that doesn't really carry through to the rest of the year?

James A. Fleming -- Executive Vice President Chief Financial Officer

Yes. Michael, there are really two things to know. One is that midway through the year, as we've talked about, we've got three significant leases that are expiring. And we do think we'll get those leases replaced. We actually think we're going to want to put blow ups and rent on average for those three leases. But we think just given the timing that it's awfully hard to get a new space built out and get new rent coming in the door without some real -- there are significant sized spaces. And so there will require some -- even if we get the leases done, right, we'll require some build-out. And so it will take some time before those leases come in. So there'll be some slippage there. So I just translate that. The income in the second half of the year ought to be lower than the first half. The other thing to note is that the $0.35, there were a couple of onetime things going on in the first quarter. By the way, that happens all the time. They've happened last year. It will happen next year, I'm sure, may happen next quarter, but we had a tax abatement that did in the first quarter that helped us. We also had -- and if you look at our management fee income, it appears to be low in the second quarter, and that's really a function of timing of some expenses. We still think that's on budget and on track to deliver essentially the same result this year as last year. So those two things will even out a little bit. But on the whole, is a little bit beneficial to the first quarter. So a little bit of lumpiness and a little bit of probably some slippage in the back half. By the way, a temporary slippage in the back half essentially because space is released, and especially after we get some leases done at 799 and 149, we should be headed in the other direction.

Nelson Mills -- President Chief Executive Officer and Director

Yes. And as Jim said earlier, we're effectively reiterating our guidance from earlier. We still feel good about all those ranges. So...

James A. Fleming -- Executive Vice President Chief Financial Officer

Yes.

Michael Lewis -- Turist Securities -- Analyst

Okay. That's helpful. And then just lastly, I'm going to ask kind of a bigger picture question. It's very early in the return to work, maybe ahead of most of the return to work. But as you're talking to tenants and maybe even in your own portfolio, are there any tangible signs yet of tenants reconfiguring space, using it differently, committing to hybrid models and whatever that means for the way that they utilize the space? Or is it still too early to kind of tell what's going to happen on that front?

Nelson Mills -- President Chief Executive Officer and Director

So Michael, a quarter ago, I would have said it's a bit early. But in this quarter, and based on the compensation we were having with various tenants, those plans. Those are in process. And what you just mentioned is happening. Now very few tenants have moved back in and actually implemented those changes. But there's definitely a lot of thought effort going into work schedules, reconfiguration of space, making sure that the space is -- it fits a different -- it's less density, more collaboration, all the rest. And some of our some of our larger tenants have had quite advanced thoughts planning about that. Others are just -- we're spending a lot of time talking with tenants about the options. So Paul, what are some things you're seeing?

Paul Teti -- Executive Vice President National Real Estate Operations

Yes. I think the more tangible adjustments that we've seen over the last quarter have been from some of the smaller tenants, as I mentioned, call it, below 25,000 to 55,000 feet that don't have the luxury of every other person, every other day. They don't have large departments. Some of these either smaller tech and financial users around our portfolio that have come back. And that's where we've seen the more immediate either reconfiguration or some of that organic demand that I had mentioned earlier on the call. I think for the larger tenants, it's been more in the planning and discussion phase. And then the last thing I'd say is the most encouraging thing, obviously, in come back has been the vaccinations, right? So for the larger tenants, I think now the destinations are widely available. What we've actually started to see in the form of the new tenants coming to market in the buildings that Nelson mentioned is some of those plans are more normal than you might think because I think the plan is really let's reanswer when it's safe and that safety picture seems to be getting better every day.

Nelson Mills -- President Chief Executive Officer and Director

And not to go too far with this example, but 315 Park Avenue South, where our office is located here, we have seven tenants and 20 stories -- seven or eight tenants and 20 stories here. It's all tech and media-type tenants. Some great tenant roster. six months ago, if you were to speculate about what this building might look like a year later, you could have made the argument, I wouldn't have, but you could have made the argument that, well, maybe this group sublease, maybe they don't come back, maybe they don't expand, whatever. Just based on the discussions and these tenants trying to figure out when and how and whether they come back and how much and do they need all their space. Today -- and again, these are tenants we know well. Today, based on those same discussions with same tenants, we'd say no concern about having this building 100% occupied. Those who were considering sublease may be still, but not to the same degree they were there are even some considering expansion needs. That's just a microcosm, that's just one building, and we have the same story at other builders other locations. But I mentioned this building just because it's -- to me, it's reflective of of the major shift we're seeing in the last few months of just the attitude, the intentions, the optimism. We'll see. I mean over the remaining quarters, we'll be reporting on leasing activity, and we'll give you more details. But we feel we're not declaring a full recovery just yet by any meaning. But we do see a lot of positive movement in our portfolio.

Michael Lewis -- Turist Securities -- Analyst

Yeah, that's really interesting. Thanks for that.

Paul Teti -- Executive Vice President National Real Estate Operations

Thanks, Michael.

Nelson Mills -- President Chief Executive Officer and Director

Thank you, Michael.

Operator

And there are no further questions at this time.

Nelson Mills -- President Chief Executive Officer and Director

Okay. Well, thank you all for your spending your time with us today. And we appreciate your interest, and [Indecipherable] to share with you. We'll certainly be in touch over the next few months and coming quarters on our activity, operational activity and financial performance and also the strategic process. Again, we can't commit to a specific time line or certainly not an outcome. But we know this is important. The Board is taking it very seriously. We're giving it our all to make sure we're in a good process to get the best result to shareholders. And so we look forward to reporting back to you on that at some point in the near future. But thank you again, and we look forward to speaking to you again soon.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Matt Stover -- Director of Finance and Investor Relations

Nelson Mills -- President Chief Executive Officer and Director

James A. Fleming -- Executive Vice President Chief Financial Officer

Paul Teti -- Executive Vice President National Real Estate Operations

Sheila McGrath -- Evercore -- Analyst

John Kim -- BMO Capital Markets -- Analyst

Vikram Malhotra -- Morgan Stanley -- Analyst

Michael Lewis -- Turist Securities -- Analyst

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