Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and what we took a Brandywine Realty Trust first quarter 2020, <unk> earnings call.
At this time, all participants' lines I don't listen only mode.
After the speakers presentation will be a question and answer session.
The question during this session you'll need to press Star then one on your telephone.
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I would now like to hand, the conference over to your speaker today, Mr., Jerry Sweeney, President and CEO, Sir you may begin.
Crystal Thank you very much.
Good morning, everyone and thank you for participating our first quarter 2020 earnings call.
On today's call with me are George Johnstone, our executive Vice President of operations.
Dan Palazzo, our Vice President and Chief Accounting Officer, and Tom worth or executive VP, and Chief Financial Officer.
Broader beginning certain information discussed during our call may constitute forward looking statements within the meaning of the federal Securities law. Although we believe estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved.
For further information on factors that could impact or anticipated results.
Please reference our press release as was our most recent annual and quarterly reports, we filed with the FCC.
Well this is no ordinary time, and first and foremost all of us at Brandywine sincerely hope that you in years are safe healthy and sheltering in places happily and as productively as possible.
Pandemic has disrupted everything and presented a news did landscape for everyone in every business.
Well the duration of the crisis remains unclear we have assessed the crisis its impact on every element of our business employee tenant vendor safety and security a return to say building operations construction schedule delays forward leasing pipeline in renewal activity and of course all degree.
The latest financial implications additional details on these and other topics are outlined in our Colby insert found on pages, one to 13 of our supplemental package.
Looking at the first quarter, we opened the your strong.
First quarter results were among the best we've had in recent years.
Excellent leasing activity rental rate mark to market was almost 16% on a GAAP basis and 8% on a cash basis same store numbers were tracking slightly ahead of our original plan.
Capital costs with the low end of our targeted range, our retention rate was 76% and we posted SFL 35 cents, which was in line with consensus our leasing pipeline was building nicely, including some excellent forward leasing activity won several of our development projects.
That's strong start is of course in the rear view mirror and all somewhat irrelevant given the circumstances and our entire focus is on the path forward.
As we turn our attention to the impact of the virus. It's important to reflect on where we are and how to extrapolate the current situation to the near and intermediate term future.
So several observations from our team before we outlined or 20 strategy.
First we have a 25 year track record of building strong employee culture, and establishing lasting relationships with our tenants vendors and communities.
Never has the time for having built those bridges been more important than today. So we have heard on the side of over communicating with all of our stakeholders.
Second the paraphrase a number of behavioral sciences and economists.
Help people behave in a pandemic is not really a great guide to how they will act or live their lives in normal times as one person put it we're living in the middle of the Grand forced experiment and we really don't know how that experiment is going to play out.
So why we have stayed in close touch with our tenants vendors political and community leaders the path forward and the pace, we walk down that path is somewhat uncertain.
Please note that in developing our 2020 coal good revised business plan, we have pragmatically assess ford risk and incorporate all incorporate all those assumptions into our plan.
Given the current circumstances. This plan is accurate as we can make it.
Third every crisis somebody's elements of both danger an opportunity.
Our clear priority has been to assess every element of risk and into two plants to effectively mitigate or anticipate its effect. We're also have are focused forward when the opportunity set to anticipate situations, where we can enhance our business plan execution.
Whether that be through extending lease terms, improving the pricing of our current supply chains were working with institutional partners to seek opportunities, where our market position talent base and capital can create growth opportunities.
So in looking at the risk factors in our totaling 19 business plan. Our first priority is the safety and security of all of our employees tenants in buildings, we're very happy to report it no Brandywine employee has contracted the virus and consistent with applicable state and CDC guidelines.
We have maintained a doors open lights on approach to all of our building operations and maintained close communication with our tenants vendors and local health and municipal officials.
Secondly, we focused on the stability of our economic platform with particular attention to each of the falling items.
Rent collections.
Given that these are no ordinary times and the stay at home orders in effect, we did receive request from tenants for rent deferrals.
Full details of those efforts are found on page nine of our Seth.
Bottom line, we about 1.6% of our rents coming from retail tenants.
Normal monthly billings run about $500000, we received $150000 a in April 29 tenants or 45% of leases have been or in the process of documenting rent deferrals.
That 2.1% of our rents come from co working and conferencing tenants normal monthly billings or $675000.
During April received $580000.
For April we received 95% of overall rents, 96% collection rate from our office tenants and 100% collection rates from our top 30 tenants.
The vast majority of rent relief request or from our retail and co working tenants.
At this point there've been no rent abatements grants it.
Rent deferral situations are paid back to us either in 2020 or 21, where the lease extensions.
Just a point as well our leases are clear in that our tenants have a legal obligation to pay us rent.
While we certainly recognize every company wants to preserve cash the legal obligation to pass ramp is clear.
And as we've done over our history will certainly worked with those companies that truly need bridge assistance.
From an insurance standpoint, it's also clear that we can't rely on our standard property policy to reimburse us for rent not paid by tenants in default of their contractual obligations.
We did however have the foresight to procure a $5 million of coverage sublimit for interruption by communicable diseases under our property policy, which we believe will be operative, where we got force majeure claims such as in the case, we have heart had work stoppages due to government mandates due to the uncertainty of the recoverable.
Really these announced we have not included any insurance proceeds and our revised business plan.
We also were impacted by some construction work stoppages. The vast majority of our construction operations remain shut down with the exception of Austin, which was shut down for a period of time and some of our operations and met DC.
2020 plan, we're assuming that construction gets back to work in the next 30 days in fact in Pennsylvania, Our Governor last night announced plans to restart.
The opening of our economy on May eight and has accelerated the restart of construction, obviously compliant with safe distancing in CDC guidelines on maybe the first.
But the impacted this temporary work stoppage in our 20 plan is $2.3 million of gap and Hawaii.
208, 218000 square feet of lower occupancy, which reduces our yearend occupancy by 1.4%.
We also spent a significant amount of time.
Looking at our leasing pipeline.
Which stands right now at 1.3 million square feet.
Our leasing team and executive directors have been an extensive and repeated touch with every prospect in tenant rep.
Our 1.3 million square foot pipeline.
That to the best we can determine as of today, we believe that about 52% of that pipeline were 670000 square feet.
Our deals that are progressing, but clearly with the shutdown the execution timing is uncertain, but we would anticipate within the next 90 220 days.
We have about 45% of the deals in our pipeline on hold due to the virus of that based upon the information. We have we think that 10% of those will likely progressed to execution.
About 70%, it's just simply too early to tell is a lot of our prospects are focused on their own businesses versus their office space requirements and we believe about 15% is Mike most likely dead requirements because of the virus and we expect to lose the balance for about 7% too.
Huh.
To another competitor.
We also spent a great deal of time looking our capital spend and as Tom will walk through.
In more detail we've done a thorough review of our expected spend for the balance of the year and have reduced that spend by $50 million were about 20% more detail on that can be found on page 11 of our set.
We did make some adjustments the spec revenue as you might expect and primarily due to slower projected leasing and the impact of construction work stoppages, we're reducing our spec revenue target by $5 million to $26 million.
Our redevelopment project at 16, 76 International drive in Northern Virginia experience both of these conditions.
Totaling almost 60% of Thislife were $2.9 million.
The timing of our major tenant in that prices within until the first part.
Part of 21, and the additional lease up that we had projected for the balance of 20, we have also shifts until next year.
Overall leasing delays total about $2.7 million of GAAP revenue and the previously mentioned work stoppage of 2.3 accounts for the balance.
With these revisions, we have $1.1 million or revenue and a 149000 square feet to achieve our plan that we outlined in our press release in sub yesterday.
From a dividend coverage and liquidity standpoint, the company is in excellent shape, we're projecting to have between 400 $480 million available our line of credit by the end of the year that depends number depends on whether we refinance or pay off and $80 million mortgage securing one of our Philadelphia CBD properties, we only.
We have won $10 million mortgage maturing and 21, no unsecured bond maturities them to until 23.
Regenerate $85 million or free cash flow after debt service and dividend payments and that dividends extremely well covered with a 54% FFO and is 70% CAD.
Payout ratios.
And looking at our guidance, we set our new range at 137 to 145 per share.
The impact of this range on our operating metrics is detailed in both the press release and on page 16 of our set to do a very quick reconciliation our previous midpoint was $1.46 per share.
We did increase and Tom will talk about during his conversation.
Our project reserves, which reduce that by two cents. We did a building sale that cost us a penny our office leasing slides are close to two cents a share the construction slides will cost us a penny we anticipate losing penny toward our.
Our joint ventures.
And I anticipate losing another penny through last parking revenue and the hotel component of our 8-K project at the FMC tower.
The share buyback, which we also announced added three cents stacks, where new midpoint is one dollar and 41 cents.
So with those components addressed we'd like to take a look at the development opportunity set quickly.
First of all mid development front, all four of our production assets that is Garza 4.6, 50 in 155 Park Onefifty five King of Prussia Road are all fully approved all work is paid for their fully documented the pricing has been finalized and they're ready to go subject to leasing.
As we've noted previously each of these projects can be completed within four to six quarters and cost between $40 million to $70 million.
Free Cobot 19, we had a strong pipeline of deals that because that could have kicked off one or more these projects.
As we look at the crisis now clearly starting any development is an elective decision and will be evaluated on a case by case basis and as such you'll note in our revised business plan.
We have reduced or to.
Projected 2020 starts down to one.
We achieved with the with the start of our 3000 market Street project.
In looking at our existing development projects at four or five Colorado as we identified.
In our supplemental we did have a disappointment post quarter close our lead 70000 square foot tenant terminate their lease pursuant to a one time right to terminate if we did not meet an interim milestone delivery dates.
Based on the original construction schedule, we had we had at significant cushion built into meet that milestone.
The general contractor, while still being able to complete the project on time missed that milestone date.
We will naturally have a claim against the against that contractor, but right now our focus on getting the project built and leased.
So that project now stands at 18% leased with 160000 square feet to lease in what we know will be a very exciting addition to Austin skyline, Okay, great pipeline of deals before the crisis, and we expect that pipeline to reemerge and had been in touch with a number of those prospects.
Due to the short construction shutdown, we did have in Austin, we did slide to completion date back to Q1 21 and due to this tenant event moved the stable stabilization date back to Q4 21 on the bone building due solely to the mandated construction work stoppage. We are moving to completion date back one quarter.
In Q3 20.
Given that that building is fully leased we did move the stabilization date up to the Q4 of 20, so that'll be fully stabilized.
3000 market Street. This is a renovation project within school yards.
64000 square foot building is full being fully converted into a life science facility and we're very fortunate to have recently signed a lease with a life science tenant where they will take the entire building on a 12 year lease commencing in the third quarter of 21 and deliver development yield of eight behalf.
So we're really excited this is truly a great exclamation point to our emerging Lifesize pushing University city, just quick updates on broad mourn scoopable yards on broad more we're advancing block K, which is a combination 360000 square foot office building and 340 apartments through five.
Final design in pricing.
At school yards, we continued the design development process for a dedicated life science building.
And anticipate that with the schedule, we have in place market conditions permitting that could start in the first half of next year.
On our school yards West project, which is our office residential tower.
As you know from previous calls that's fully approved Christ and ready to go subject to finalizing our debt and equity structure.
Certainly.
Bikes that a big impact on the timing of this project start we continue to work with our preferred Q was the equity partner, but the crisis has certainly slowed the pace of procuring financing.
We do remain optimistic that we'll get that across the finish line when the situation and returns at some level of normalcy.
On the investment front, we sold one property during the quarter for $18 million.
We also repurchased.
Net after dividends savings $55 million of our own shares those shares repurchase that a tenant a half percent cap rate and 8% dividend yield and an imputed value of 200 $203 per square foot.
As we assessed it regardless of the trading price of our stock. This was a good investment delivering both immediate and better returns in our targeted developments and was paid for via the asset sale and the capital spending reduction of $50 million.
To provide a frame of reference the average cap rates in our markets on asset sales since the great financial crisis has been 6.4% and an average price per square foot of $350 both of those metrics more than supporting.
This investment as well as when you compare that to current replacement cost between four and $600. It further ramp looks lies the the validity of making that investment in our own shares.
There are tremendous number of private capital sources.
Actively looking for high quality investments, particularly with well capitalized partners. We continue to have an active dialogue with several institutional investors in private equity firms. We are exploring several asset level joint ventures that would improve our return on invested capital enhance our liquidity and provide.
Growth capital, while these discussions are active constructive and ongoing theres no certainty as to their outcome, but we continue to pursue and look forward to continued improvement in the debt markets. The last opportunity I'd like to spend a moment on is the is the opportunity set in embedded in the future of office.
Market demand drivers post the virus.
But do you believe there'll be more or less demand more square feet per employee more work from home. The immutable constant will be that high quality office space will be a recipient of any demand drivers tenants clearly want safe secure healthy environments, we do believe that owner.
As a best of class product like Brandywine will be beneficiaries of these future demand drivers I'd ask you to note that building asset access security Hvdc elevator items that we have identified in our co bid supplemental package insert and we're also keeping all of these potential changes in consumer preferences in.
Mine as we finalize our development planning.
Tom will now provide an overview of our financial results.
Thank you.
Right.
Wanted to start off with a review of the that income we.
Came in at 7.9 million or four cents per diluted share FFO totaled 61.4 million or 35 cents per diluted share. Some general observations of the first quarter.
Operating results were generally in line with our fourth quarter guidance.
Operating expenses from lower DNA expense was a million dollars as compared to the route to the forecast, let's do this and the timing of some compensation and professional fee recognition.
Interest expense lower due to the lower rates that we had forecasted and slightly higher capitalization of interest.
First quarter fixed charge and interest coverage ratios were 3.7, and 4.0, respectively. Both metrics improved as compared to the first quarter of 29 team.
Consistent with prior years, our first quarter annualized net debt EBITDA did increase as DNA increase the increase to 6.7 was primarily due to higher sequential junior today.
Cash used for our stock repurchase and this is partially offset by the proceeds from the sale of noncore assets not included our 2020 business plan.
Looking at 2020 guidance as Jerry outlined earlier, we're reducing the midpoint of our guidance by five cents per share. The combined 5 million dollar reduction inspect revenue was three cents per share in light of the increased economic concerns.
From a tenets, we increased our forecasted reserves.
By two cents per share we did that on a general basis. So not included in our revised same store.
For now the noncore asset sale in the first quarter, well summit, including the JV in the fourth quarter, which we didn't adjust guidance for is about a penny a share we anticipate.
A similar leasing slides.
Matt our JV, where were 50% odor and some slides as well at 40 40, which did open.
I get it CEO in February of this year.
In addition to that we believe our parking and FMC operations will be navigability affected in the near term and we're putting a penny share for that reduction and then the reduction to partially offset that is the pie back which is three cents accretive.
Looking forward to the second quarter 2020, we have the following general assumptions portfolio level operating expenses will total about $80 million. This will be sequentially 3.3 million below.
The first quarter, primarily due to the 1.8.
Million dollar increase in some operating expenses its timing of our an M.
6 million a 600000 due to the loss GAAP income from the noncore asset sale.
It was there in the first quarter not there in the second quarter and 1 billion due to March move out of SHR Skylake and the lower.
Hotel revenue that works, we expect to happen at AK.
FFO contribution from unconsolidated joint ventures, with total $2 million.
For the first quarter, which is down 700000, primarily due to map and bringing in 40, 40 online, which will incur some initial startup losses for the full year. The FFO contribution is estimated to be 9.5 million.
Today, our second quarter DNA expense will be a half million very similar to first quarter full year GNS expense will total about $32 million interest expense will be 21 million. So the second quarter with a 95.3% of our balance sheet debt being fixed rate capitalized into.
Chris will approximate $1 million and full year interest expense is approximately $82 million capitalized interest will continue to approximate three two for the year as we continue building four or five Colorado, we extended our mortgage the two Logan square.
Great additional maturity date from May 1st to August 1st.
That mortgage payoff is about $80 million at a 3.9% 898% rate. This loan is very well covered based on the current and align thats in place, which has grown over time and we're considering an extension.
Or refinance of that loan.
Termination other income, we anticipate termination fee and other income to be two and a half million for the second quarter and 11 half million for the year.
Net management leasing and development fees quarterly NOI will be.
$2 billion that will approximately $8 million for the quarter.
Land sales and tax provision will nets to zero.
Our buyback activity as Jerry mentioned, we executed on the stock buyback in March 2020 at excellent economic terms at an implied 8% cash dividend yield since the shares were purchased late in the quarter. The weighted average share count did not have any impact on our first quarter results.
In addition, the weighted average share count for the year will be reduced to about 774 million answer the second quarter will be roughly 172 million as our weighted average share count we have no anticipated ATM or additional share buyback activity in our plan.
For investments, we have no other incremental sales activity in our plan with the acquisition and the the acquisition side, we do have the rather land purchase which did occur this quarter and we still have the only the building acquisition, a 250 King of Prussia road for roughly $20 million and that.
It will be bought later in the year and that will go into redevelopment. So no earnings impact no everything's increase for and alike and 2020.
Capital plan as outlined we took a hard look at our capital spend and have reduced 2020 capital by $15 million, while we've reduced our earnings we have saved on the capital for 16 76, the reduced development capital is based on only one development start and 3000 market.
Being our only development start and that will have it just lower the amount of prospective capital we had on the other two development starts based on the above our CAD range will remain at 71 to 78, that's a lower capital may be offset by deferred rent that was group that will be repaid in 2020.
Uses and our outline as on page 12, we have 91 million of development capital.
Thats been spent we have common dividends of 97 million.
Revenue maintain of 36 million.
And then we have $40 million.
Revenue create.
And then.
6 million of mortgage amortization loan pay off if we do it is $80 million and the acquisition of King of Prussia Road.
Primary sources will be cash flow after interest of 182.
Line use of 150, which would bring us up to the $200 million, we projected and cash on hand of 33 million and some land sales that we still expect to have happened later in the year based on this capital plan, we would have 200 million outstanding on our line or 120, if we if we refinanced the more.
Average, we projected our net debt to EBITDA will range between three and six high so it's a little higher there where it's been where our range. We had previously been six once the sixthree. The main reason is that the leasing slides they've been talked about a lot of those affect EBITDA in the fourth quarter.
Annualized that EBITDA.
It results in a.
Lower hired that debt to EBITDA, the a the lower capital spend offsets the share buyback. So that's the how that that's not affecting it in addition, our net.
Our debt to G.A.D. will approximately 43%.
Gary mentioned, we have a well covered dividends both from FFO and AFFO metric of 54 and 70% respectively. In addition, we anticipate our fixed charge ratio will continue to approximate three seven and our interest coverage to approximate 4.1.
I'll now turn the call back over to Jerry.
Tom Thank you very much.
Were started grand a few minutes over our normal time in our prepared comments, but before it was important to frame out the thought process and the new business plan.
With that Chris we're happy to open up the floor for questions.
And though as we always do would ask the interest of time you limit yourself to one question a follow up thank you.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one key on your Touchtone telephone.
If your question has been answered when you wish to remove yourself from the Q. Please press the pound key once again. Please press Star then one to ask a question.
And our first question comes from Jamie Feldman from Bank of America. Your line is open.
Thank you and good morning, and thanks for all the disclosure I was really helpful. Both on the April payments and then just the addition to the supplemental.
So thanks for doing that I have I guess my first question is on the insurance policy can you talk more about how that's going to work and how much it might cover and is it.
For instance for building or is it a blanket coverage of 5 million just as much color as much color you can provide.
And it and you think it's something that's common across the sector.
Jamie Thanks for us for those comments our team really here, it's been working very hard to make sure that we're able to present a high level of transparency. What we're thinking about you know on the insurance policies, it's kind of a new territories for me as well I think we kind of verified that.
The standard property policy Doesnt really provide us the ability to get reimbursed. This coverage. We think is somewhat unique but I really can't speak to what other companies do and it would provide us up to the $5 million of coverage in the aggregate.
You know because we're not sure how insurance company will respond to this we excluded that from or any reimbursement from that into our numbers.
We certainly think that given the provisions of that policy that where we've had a loss of revenue due to a force majeure events, where we've had this shut down due to the virus and regulatory directive that that loss or revenue would be.
At least a claim mobile item under the policy. So we're we're in and when Tom and are both talking about kind of the work stoppage number we have which is a couple of million dollars. We think that would certainly be.
Something that we would be.
Working with the insurance companies on but I really do think honestly. This is a whole new area for insurance companies and Hello, everyone response to this and weather.
States Institute reimbursement legislation for insurance companies remains to be seen we've seen that in a couple of different.
A couple of different states, but it's something that we were fortunate we had within as a writer in the supplement our policy and.
Certainly to the extent, we think we have a great direct path to get money, we will certainly do that.
Okay. Thanks.
So just to be clear, it's 5 million total revenue coverage if it plays that's correct.
Correct.
And then can you talk more about to four or five Colorado lease break was there any kind of break fee and then is this typical.
Yeah for tenants to be able to walk at.
This kind of delay do you think will you expect to litigate and how do you think this will play out in is another thing we need to be watching across the sector.
Yeah look I think this is not something you need to be watching across the sector. I think this is a very unique situation.
I will tell you would see only time, we've ever done a transaction were tenant had a right to terminate.
Based on interim milestone date.
We did that really I think due to market pressures too.
In Austin to meet market conditions, whether landlords are willing to offer and I think we assessed it.
It is four or five is only a 200000 square foot building.
They were 70000 square foot tenant we felt as though there was a huge pipeline of demand. We know this building architecturally and from a floor plate standpoint should resonate very very well in the marketplace.
When we agreed to do that we had plenty of cushion built into the schedule to make sure that we had.
A good safety margin.
As things turned out the contractor did fall behind.
On on meeting this interim milestone.
We're still on track to deliver as I mentioned the project on schedule and of course will have a claim.
But right now the focuses on getting the project delivered.
Weve reinvigorated the marketing efforts you have a great team working on it.
But from our perspective, Jamie look it's a disappointment truly.
It's very very unique set of circumstances, we've never done another development deal, where we've had any kind of termination rights by attending based on a interim milestone dates so.
Whereas we thought we made good judgment going in so it's certainly turned out not to be the case as things evolve.
And again I think as we looked at it it's not that it's not anywhere near a good news story for us, particularly given the dynamics of the marketplace today, but we do feel as though the pipeline will re emerge and I frankly also one of things we were happy about was our ability to get.
3000 market Street.
Yes fully leased.
This is we're starting the renovations.
From an economic standpoint.
Really help off or whatever impact would be in 2021.
Give you an example.
The trade off between that lease 10, and in Austin at four or five and 3000 markets to 3000 market Street tenant will generate.
More than $800000 and additional cash and why they would have received from the four or five projects. So.
Not a great circumstance why the disclosed as soon as we got notification on it but rest assured it's a very very unique situation.
For Brandywine and I would expect throughout the rest of the real estate community as well.
Okay. Thank you.
Thank you.
Our next question comes from Craig Mailman from Keybanc capital markets. Your line is open.
Thanks, guys. Just one quick clarification on the four or five even try to kind of retrade, you on rent or anything or they just walk immediately.
Yes, there were discussions Craig where we work to provide them.
A number of alternatives relative to.
Short term extensions to address that our concern and a few other things and I think they just simply made the determination that.
It was in their interest to terminate police.
Gotcha.
Then just more broadly on the the leasing pipeline that was helpful kind of going through it.
Or any of those deals related to the copper spaces, you guys are going back to Macquarie reliance it could just give us an update on kind of your thoughts on on timing on that now just given.
What's going on.
Yeah, Great question and.
Yes, all start off in George maybe you can pick up but look I think we've got a great pipeline on the on commerce.
Again, the virus is clearly had an impact on help what people are focusing on but I actually thought when we did our pipeline assessment Craig from a broader standpoint that more than half of that pipeline still active.
It's really we thought very very positive and.
To be moving towards lease executions in the next call. It 90 120 days, we think is really encouraging.
And it certainly we think with the with some of these states beginning the process of reopening strictly Pennsylvania.
And and and Austin, Texas, we feel like we're in pretty good shape to weather. The we see initial blow on pointing to form the mcquarrie space, we did sign.
38000 square foot lease during the quarter.
The life Science company, which we're really excited to bring into our portfolio as an expansion tenant there was about so that was about 25% of the space. We have had another 20% of the space in advanced lease negotiations that we feel pretty good about and then we have proposals outstanding for about another 10% of space. So as we sit today.
We we feel we're in a very good position.
On on a little more than 50% of that space.
And certainly it's a top priority for our company, but I think we're pretty happy with the results, thus far and the pipeline.
We will have to spend obviously some time not just on Macquarie space on the rest of the pipeline, making sure that we can convert dose to full.
To fully executed leases, but George anything else you want to add on that.
Yes sure. Thank you.
Reliance space as you recall comes back to US 12, 31 of 20, it's a 141000 square feet. We've got about 200000 square feet of prospects in that pipeline that the Gerry detailed in his commentary so.
Certainly.
We expect conversations to kind of pick up.
[music].
As things start to come back some level of normalcy and.
Again, we've got plans in place for.
What we need to re purpose that space once we get it back from the tenant and.
And we feel good about the pipeline we have I think you'll just come down to how quickly some of those companies can make.
Theres space need decisions.
That's helpful. Maybe I can slip one more in just Jerry as you guys have discussions with JV partners on development.
And he and I know, it's early but just any change in pricing there or how you.
I think those partners may want to kind of price the risk.
Yeah, Great question, Craig and.
You know I think the big Wild card on on pricing right. Now is it seems to be what the cost of debt will be.
So.
We haven't really sense from our discussions with the.
With the equity partners on one of these large development deals whether it's at school yards are broad where I think there's there's still a high level of conviction that these projects will be extremely successful.
So I think we're all kind of working through is what we think the cost of debt will be and those those markets clearly are a little bit dislocated. So neither.
Other brandywine to partner prepared to make any concessions on pricing until we see what the underlying cost of debt will be.
But I think in a broader sense, we've really been very encouraged with the number of institutional partners equity sources private equity firms that have.
Reached out to us proactively to talk to US about you know some type of adventure structure on some existing assets, where we think the pricing is very much in line with what we would have expected.
And also starting to talk about how you can go more on on the on the offensive side of the equation. If we start just any kind of dislocation in pricing.
So I think the big hang up and on the investment market right now, whether you call to cooling off period or as Barry Sternlicht.
You mentioned kind of short term coma is just got to wait for some of these debt markets to one freeze and I think that will have an impact on.
On where pricing winds up.
What we're seeing from a rental rate standpoint, and again canvassing all of our team members and outside.
The market experts is we don't really see that big of an impact on rights in fact.
If anything you know, we actually think that some of these high quality existing projects we have.
We'll wind up doing the recipient of some additional incremental demand.
As tenants are starting to look at really the quality of the space I mean, just to our ability to to upgrade our hvdc systems to Merck level filters is is pretty significant.
Some building see that none of rebuilding Ken, but certainly air flow controlling access points the capacity for separation are all key things.
So little bit of rambling answer but to answer your question directly we've not really seen any significant change in pricing. What we have seen is a significant influx of private equity sources looking to do transactions.
Obviously subject to what the overall pricing might be on the debt markets.
Great. Thanks Gerry.
Thank you. Our next question comes from Jason Green from Evercore ISI. Your line is open.
Good morning on the collections of 95% is there any level of security deposits within that figure or is that 95% pure collections similar to the normal course of business.
George would you like take that.
Sure, Yes that was all cash collection there was no no application of security deposit to to cover April rent.
Got it and then in your deck you guys talked about some capital improvements that you are making the assets to position then for reopen are you able to provide on a total dollar figure and then a per square foot basis kind of what that spend is.
Yes, we're actually computing that I mean, the increased filtering is about a 50% premium to existing filters, but when you layer that in its.
I think a 100000 dollar increase the issue. There's this can your system support the new filtering systems. If they can it's it's a fairly straight forward improvement if they can't it's a big retrofit. So we've been fortunate that we'd always invest a lot of money into our hvdc equipment.
Our mechanical system. So we're in pretty good shape on that but.
Jason that's certainly something we're going to be focused on over the next couple of months. So we don't want to really give you a number.
But we do view it as an opportunity for us to reinforce the the high quality of our assets and also to allay whatever.
Derivatives concerns our tenants may have about the security and help other workplace.
George I did want to anything you want to add to that.
No I think Youve I think you covered most of it the filtering the just a little bit of a small incremental.
Increase but again I think.
As we assess that cost.
There may be some other normal projects that.
We're able to kind of substitute to just to stay home.
Got it thank you.
Thank you. Our next question comes from Emmanuel Korchman from Citi. Your line is open.
Hey, good morning, everyone.
Jerry or Tom I guess, you guys touched on its a little bit but in terms of the buyback.
I was just wondering how you're thinking about using money that was probably more.
Delayed right in the Capex spend on both the in place expenditures and also the development spend.
Buyback stock, which it feels more like a permanent event, so aren't should just going to need to other raise that money through new equity when the time comes to you do want to sort of.
Build out whatever that capex spend was going to fonda or find other ways of finding that capital.
Well, a managed a Tom I'll tag team.
A lot of the deferred capital spend.
Related to.
The sequencing of some of the spend on our development projects. So.
No those projects as I mentioned that really elective at any point in time, but certainly in this at this point in time so.
Yeah.
We were able to save some dollars bye.
Differing one of those starts until we get more visibility on leasing activity.
Obviously 3000 market turned out to be a great transaction for us and certainly by.
Ferrari early release packages some site preparatory work I mean, all those things cost a lot of money and we deferred those and so we're actually ready to start the project.
We had a number of.
Base building projects.
But they only aggregated.
Seven or $8 million than we deferred about six of those.
Because we were able to defer those without creating kind of safety issues.
Or or or a preventive maintenance issues.
And we'll take a look at that in 2021.
But I look as we looked at this the share buyback program number one we thought we had plenty of liquidity going I think the number support that we have plenty of liquidity.
To certainly focus on our near term growth opportunities secondly.
Given the pace and tenor of our discussions with that with a number of institutional investors and private equity firms, we felt that at some point in near future against as I mentioned too.
On the last question about the timing of debt, we have the ability to recycle some capital within the organization to provide additional liquidity to meet some of those forward growth opportunities.
Thirdly and.
I guess fundamentally we did take a look at the trading metrics of our company.
Took a look at the.
The cap rate the price per square foot and I think just really objectively sat back and say at these levels.
Given what replacement cost is I think I referenced in the comments, we took a look since the great financial crisis with the trading ranges of assets have been so even to get back to the great financial crisis.
Have.
Cap rates for asset sales well below the trading cap rate for our stock gave us a lot of comfort that we could generate some incremental liquidity by doing spot asset sales and recover that so I think we had a unique circumstance with the sale the asset the the ability to differ.
Some some development spend that created the liquidity for us to go ahead and do that.
Net $55 million share buyback program.
What was the cap rate on the Malvern sale Jerry.
Well I'm sorry the.
I actually don't forget but that was Tom do you know.
On on the in place video is fairly high.
Upper single digits, but we have some roll coming over on that building, which is why its noncore weak and we did the sale so.
In my and looking at what I said in her remarks.
We we lost about $600000 of income in the first quarter, which would imply pretty high cap rate, but.
There is some roll coming that was going to roll out so.
Kind of hard to pega cap rate, but it was in the upper single digits weather normalized.
Thanks, guys.
Thank you.
Thank you. Our next question comes from Michael Lewis from Suntrust. Your line is open.
Hi, Thank you.
How does the IB m. renewal impact the plans up probably more I know this has been a question for a while about whether they would say or want to new building or move around.
So they still have optionality to that into a newbuilding ones built there or is there kind of certainty now.
Yeah, Hi, Michael.
It as we laid out in the supplemental package, we can still built around 2.7 million square feet.
With the existing IDN buildings in place number one.
Number two the the programs we're moving forward with by the planning for block game particular than the remaining blocks of a long Burnett.
We can do all of those.
Without really impacting existing IBM footprint.
We the renewal we do with IDN covered every one of the buildings with the exception of the nine five building, which is literally sits where we would be taking our palm way boulevard to the back at the site.
We continue to work with them.
On what they want to do with that building.
If they would like to stay there and a bridge base I think we're fine with that because there is other access points the back of the sites.
We certainly.
Always indicated them the ability that if they.
We'd like to move into a consolidated.
Larger build like back on block elevated back at that site towards the train line. We can do about 1 billion to square feedback Darren in 30 story building, so I'd be him could consolidate into one building so.
We thought it was important to get them to commit to broad more for a period of time, which they've done.
It's been sparked a lot of great conversations with our team in IBCM on what their long term plans are.
So I think we we kind of thread the needle by having them sign on for the base level of square footage will continue the dialogue on that one building, but I think the key takeaways point is that our current plans, we're developing kind of the burn it side of the site or not impacted by IPO.
Being there.
Okay and then on the.
The 95% recollection April was good you mentioned the co working on retail tenants.
You know disproportionately asking for deferrals are there any other trends emerging in the portfolio as you're having discussions with tenants in terms of strength or weakness.
Whether it be by.
Tenant industry or CBD versus suburban or large spaces versus small.
You know anything notable there.
George one of you pick up on that please.
Sure Michael Good morning.
I think in terms of trend, it's been more kind of the medium sized to smaller size a tendency within the office mix and again I think as Jerry mentioned in his commentary I mean, everybody is is really just managing their own cash flow. So they are trying.
And to determine.
Where they can kind of ship dollars and rent obviously is a big piece of that puzzle I. I think you know as we evaluate these on a case by case basis, I mean first and foremost we've got to.
Have a strong belief that the tenants viable for the long term.
And we try and get that you know deferment paid back within you know.
18 to no longer than 24 months with an extension of term at the same time, so hasn't necessarily.
Identified itself as you know particular to anyone industry I think it just has been more kind of the the medium to small or tendencies.
Any difference between selling in Austin or no trend or.
I would say the overall volume of request has been.
More heavily in Pennsylvania than it has in both DC in Austin.
Great Okay.
Thank you. Our next question comes from Kyle I can find yet from Mizuho. Your line is open.
Hi, good morning, Congrats on the on the pre lease at 3000 market.
Just curious if you could talk about who that sat tenant is and if you can't just kind of described.
Overall kind of what kind of life science sector. They may be in general size. I'm also curious how got makes you feel about potential.
To really kick off the rest of the of the life science projects in clinical.
Good morning.
Yes.
We can't disclose who the tenant is I think they want to do their own kind of announcements.
There are there.
Well no tenant in in that in the Philadelphia area. They are.
A major.
Corporate credits.
They are in the cell and gene therapy business.
They do have other presences in University city.
And we were delighted to really bring them in and Nx and.
Folks on them taken that entire building.
It was really a bit of an experiment for us because we really did see tremendous.
Growing demand for for life science, probably cell and gene therapy companies in Philadelphia, and one of the chances we were facing quite candidly was that did the the time to build these bigger buildings were contemplating.
Put us at risk of losing some of that pipeline. So we're able to move very quickly with far.
With our development team.
Architects and engineers to to really debt the viability of converting 3000 to a life science facility. Fortunately, we were able to do it and do it in a very cost effective way.
And given that projects location as.
As a premier corner in Scoop of course, we had an immediate upsurge of activities were in the fact that it could be delivered within nine to 12 months.
So we really use that as a catalyst to continue building a pipeline. We are looking at the potential of of converting a couple of other floors of our existing buildings into life science.
I wish it appears we can do in a couple of cases to try to capture again that near term demand.
But it certainly has reinforced I think the validity of our position of trying to really expand and expand fairly dramatically.
The life science component of Schuylkill yards.
Certainly there's been a slowdown in overall activity I will tell you there's been no slowdown in activity in terms of life science tenants.
Whether they be independent affiliated with the universities or health care systems, I think that location at school yards is really starting to generate.
A much more pervasive brand in those sectors.
We were talking a couple of incubator companies about setting up an incubation for life science companies at school yards. So we really do you view that as one of the primary catalyst to start going vertical within.
Vince cool yards, but last one and that our school yards West tower.
We have made some modifications to that design to be able to accommodate several floors of life science space within the 200000 square foot office component again.
More of a recent more in response to that kind of tremendous increase we've seen in demand coming from that sector.
I hope that answers your question.
Yes, that's very helpful I.
Let me, but the going vertical on the rest the scope we are that more focus on landing.
A key tenant in the building or is it more focused on getting financing.
Well, a little bit a little bit of both I think on a school yards West you know Thats at 200000 square foot office component I, just referred to we can do some life science there.
And threw in 20, some residential units.
That's we're ready to go on that given the size of the office component and the and the residential component there, it's really a matter of getting financing pull together.
And we're actively working on that but from an equity and debt standpoint.
The other building that program Suky guards, West which is a.
800000 square foot.
Life Science and office product about a third life science two thirds office. There we are looking for an anchor tenant to move that forward.
As we've outlined in the past we are looking at.
A partner on both of those projects at school yards, and then as I mentioned earlier, we're moving forward on the on the planning for a life science dedicated building within school yards and that planning process should be completed within the next several quarters and while we're going through that design development process will certain.
Only be marketing that dedicated building to somebody emerging prospects that we're saying.
Great. Thank you.
Thank you.
Next question comes from John Guinee from Stifel. Your line is open.
Great. Thank you end up thank you the team for doing such a great job on the soften and being the first office name to report.
Couple of just a little nets first.
Any change on Northrop Grumman's expected move out.
Early 2021, and then can you give any detail on.
The 540000 square foot I'd be on leasing and if it is somewhere in the up in the software enough previously Reedy really document just let me now.
Hi, John I'll take the first one and then George if you don't mind picking up the second one.
No no change on their plans John I think they were planning on moving into an owned facility.
I think from our perspective, we have a.
Renovation plan in process.
But we're also as we mentioned on the last call very much focused on whether we we spin that asset out the a sale or through some type of structured finance joint venture.
But we do not believe this crisis or anything related to it will have any impact on them leading by the end of the year I think they've already started to move out of some of the space.
George will pick up.
M. deal.
Absolutely John on page 14, we in the supplemental we did lay out some of the particulars, but there are 540000 square foot tenancy pushed out five years since March of 27.
We.
Executed that was only up 4% leasing commission for transactional capital and.
12.5% Mark to market on a cash basis, and 22, almost 23% on a on a GAAP basis.
Great. Okay, and then I think you still have a lot more capacity on your share repurchase.
Authorization.
Any reason you wouldn't do that an acute you already addressed that let us now.
Well, we do it we do have that capacity out there I think you know the one of the key drivers behind what we did in the first.
Quarter was kind of kept at leverage neutral. So we're able to define sources of capital to fund it.
I think certainly we're very very mindful of.
Of our balance sheet metrics as Tom touched on this slide of income in Q4 into Q1 in Q2 of 21, yes that that creates it.
No.
Little bit of an upward pressure on.
Our targeted range from an EBITDA standpoint, so I think John we're going to be.
Going through the algorithm both figure out what's the best way to deploy capital keep for working capital capacity strong keep our balance sheet strong.
So so we stopped at the at the net 55, because that's where that we had full complete confidence in the coverage of that from a from a liquidity standpoint.
To the extent certainly that.
That some of these potential other sales or joint ventures would proceed which again or is uncertain.
I think we would certainly look at the current stock pricing level as it recipient of of some of those proceeds.
Okay, and then regarding SGOCO yards, it's short looks like a great location, so far for someone who rides the Amtrak all the time.
How should compare with the sort of the Hardy University city, a few blocks to the west where the pluses and minuses.
Yes, I think the plus is our number one it's closer to center city number two it's closer to.
The the mass transportation Nexus.
Hi, either third busiest train station that country.
It has really riverfront views John and it's also very close to Drexel University University of Pennsylvania, I think the advantage is.
As we assess it further west out by 30 Eightth Street wear.
Design Center is.
They have what we're trying to build which is they have they have a cluster. So they have they have a bit of the scale there already.
It's a quality developments I think it's additive to the city.
An additive in terms of our plans of creating a larger cluster within University city. So they have a bit of a head start in us because they've been added for about 20 years now.
And they've got some life science companies there.
I think they're doing thoughtful design.
I think they have.
Limited mass transportation access compared to where we are I think we have comparable amenity basis.
So I think it will be really a very interesting I think cross over the next couple of years as we work.
Collectively collaboratively competitively to try and Craig we think a significant life science cluster in this in University City section of Philadelphia.
Great. Thank you.
Thank you. Our next question comes from Bill Crow from Raymond James Your line is open.
Thank you good morning jury.
When you think about the future of office right in this post co good or hopefully postcode world.
Beyond the the signage that I saw in yourself with the fuel filtration talk about things like do you need more elevators as you think about designing new buildings do you need more parking because.
Hesitancy to get back of mass transit does that support more suburban.
Construction the urban construction.
And how do you think about before.
Oh plates in the future do we go to more formal offices and away from this collaborative space just as the first off his company to report I was just curious how you're thinking about that.
Yes, good morning, Bill, it's a great question and Oh.
We'll share with you what what insights we have at this point, Okay. We've spent a lot at time on it.
In fact, one of the things we did early on is that.
We went back to.
Five of the top architectural firms that we do business with.
Including on for the next round of our development projects.
And asked them to take a complete fresh look at.
What they think the post cobot office environment would look like and.
We've got some some very interesting feedback on on operations design elements.
HD AC increasing IP infrastructure.
The lighting and I think what it really comes down there, we actually felt pretty good coming out because I think we've always approach to our developments and any acquisition, we make from the standpoint like our job as an office companies to provided on below from which companies conductor business and deliver very high quality services to that.
So we have very efficient floor plates very few columns high ceilings lot of glass top grade systems high speed elevators.
And I think when we looked at it I guess a couple of things resonated one is.
And I guess that.
The overall comment is no one really knows I think everyone is kind of speculating.
But I think as we look at it they're certainly going to be a migration back to more square feet per employee now whether that's done via larger workstations. If the markets migrated from 10 by 10 to six by six.
Whether it goes back to 10 by 10 or there's separation between the workstations with entity panels.
The stronger be wider circulation patterns, we think theres going to be.
More drew more thought given to directional pedestrian flow employee flow within spaces.
You know some of the things we've looked at on some of our newer developments already.
Just creating as much of it touchless environment as possible.
So even in some of the new or new developments you know, there's we're we're creating small best of yields that provide a bandy relief as opposed to a door go into restrooms separating.
Sinks, a little bit greater.
We've always put high levels of Hvdc into our bathrooms. So I think we're being good shape on that.
I think lobby Redesigns will take place Bill I think there will be slightly smaller less of a gathering spot one of the things. We're really happy with this came back out of this study is are going be huge push for indoor outdoor space and that's exactly how we design our buildings, we care a lot of outdoor space attendant to our buildings to say.
Ability to kind of get access to fresh air, including some of our building to take a look in brand repricing based when do we put operable windows and but a lot of its going to revolve around the tenant experience and that's why we have spent a fair amount of time on that.
When somebody's signage markers.
Yes, I think there could be a need for more elevators.
But again, we put pretty high speed elevators, and said that the response time tends to be best of market.
So were thousand 1200 feet per minute. So we really move into good direction. There I think there's any more use of voice activated technology, we use destination elevators and all of our new buildings.
And there's no reason why we're exploring that being act voice activated versus touch activated.
Certainly the incorporation of you'd be lighting.
As and microbes.
Micro materials that are.
Anti microbial fabrics.
And our spaces. So theres a lot of I think this different thoughts of bobbing there.
What we do know with this with certainty is that and I know this we talked a lot of our tenants and great feedback from managing directors, who talked to a lot of our key tenants.
Quality space, Great Air flow rates security safe environments are going to be top of mind and I think.
Brandywine like lot of the other public comes I think will be extremely well positioned to take advantage that demand. There's certainly no different screen kind of deferred and destroy demand I think we're looking at a lot of this office required will be kind of deferred tenants will think through how they want their space to lay out we think we'll go through.
For a period, bill where they'll be a number of.
As short term extensions done as tenants think about how do you want to frame out their space requirements have they want to sequence spring in their employees back to work.
So our never is the time been more important for us to be great customer service side of our business and kind of both anticipating and servicing some of those tenants needs.
Okay. So hope that answered before you are quite yet.
No. It's a fascinating time, we'll see how it all holiday oil plays out but thanks for the information.
Thank you.
Thank you. Our next question comes from Daniel Ismail from Green Street Advisors. Your line is open.
Thank you good morning, I just a quick one from me Jerry you mentioned, Doug rental rates being relatively flat in this environment can you clarify whether that's on a net effective basis and maybe discuss.
What kind of concessions are doing this environment.
The understanding that of course, it's pretty early in the game, but any insight you can share helpful.
Yes, I'll share with you kind of real time news from the front because we this has been a topic of active discussion within our entire leasing and marketing organization.
We're seeing we're actually seeing very little impact on on on on on rental rates.
Probably see a little bit slower rental rate growth at least for the next 12 months.
We have not seen any big uptick in in a concessions again very very early to call and as I think I touched on with Bill I mean, we we do think there'll be a number of tenants that will shift.
From longer term deals right now to shorter term renewals, which tends at a much lower level of capital requirement, which frankly drives up net effective rents.
We don't we think they'll probably be some pauses on speculative office development and frankly, we're in markets, where there has not been alive that anyway.
I think one of the one of the risk that we do see and it'll be interesting plays out is that at what levels will landlords, who own lower quality buildings be forced to drop their rates and improved their concession packages to get deals.
Done in buildings that may not have the same level of.
Of capacity that our buildings other high quality buildings have.
We don't have any doubt that tenants would be migrating to higher quality buildings and.
The question on that when you're moving from.
A to a trophy or from the between a there's always that competitive pressure from a pricing standpoint.
To decide what the trophy or a quality of landmark except.
So we don't really see a big disruption at all I think.
In early warning signs of that really came out a lot of these discussions that tenants who are looking for rent relief pad and I think we're really pleased at such a low percentage of our tenants have asked for any kind of rent relief, but as part of those discussions we talking mostly about what their law with their their planning what they're thinking and I think we've been pretty pleased with the level of response, we've gotten back from.
The vast majority of tenants on their continued use of office space. There are concerns about sequencing in how we can help them.
But.
Topics of conversation and warm and had more been safety and security versus economic focused at this point.
That's helpful and show.
Thank you and we'll take our final question for a follow up from Jamie Feldman from Bank of America. Your line is open.
Great. Thank you.
What are kind of thing along the same lines, what are kind of saying about work from home longer term do they think they'll have keep a larger.
Percentage of their workforce under that arrangement or not necessarily.
Yes, Hi, Jamie.
Again, I'll share with you what we know.
Which is anecdotal not definitive but.
Every tenant that we talk to.
What we're hearing is they can't wait to get back to the office is a big difference psychologically being being having the option to work from home being forced to work from home.
So we view that as a real positives I do think that look this with the work from home dynamic has been evolving I think it's been accelerated with the rapid deployment of technology, enabling large domestic little work from home. So I do think that could have the muting effect on on on demand drivers going forward.
But I think.
From a from an office landlord standpoint, you know what this where you have globally, 81% of the workforce on kind of mandatory shutdowns I think we're seeing people really anxious to get back to a collaborative face to face or mass to mask environment.
And.
I think we're still working through that with some of the larger tenants in terms, how they face back in but I think as we look at it they're certainly going to be a higher percentage of people who will be working from home.
How that translates into whether they have they had desk or workstation or private office at their pets or their companies location I think all that remains to be seen.
But.
It's it's a.
The technology deployment I think has been good.
I think thats enabled a number of tenants to continue conducting their business.
I think most tenants we talked to its been a sub optimal outcome and they're very much looking towards getting back to the workplace.
Okay. Thank you and then as you think about the air quality upgrades are there certain ages of buildings or core styles of buildings that won't be able to do those kinds of upgrades how should we be thinking about.
I know you talked about filters and your supplemental but just generally I assume air quality is going to be a big seen going forward.
It will be I think buildings that 10 larger that have the good physical plants in chiller systems and.
Strong hvdc mechanical systems, I think would be more sued it I think where you have package rooftop units is a little bit harder to do some of that stuff.
So I know George if you want to weigh in with any of your perspective on this.
Yeah, I mean, when we kind of assess the the inventory class in Philadelphia.
Our folks felt that there probably was only about 25% of the stock.
Most of which is ours that could that could accommodate some of these.
Hey, see filter increases so [noise].
So thats kind of why we've been proactive about getting those.
Getting those installed so that when people do come back.
We kind of already have that box checked.
Okay, and you expect that to be like a standard that level or not I guess it can't be if it's only 25% stock.
Well I think what you see that most of the newer vintage buildings.
All are already designed and built for that so I think it's where where it's a little bit more challenging is.
On older inventory, where you would have to retrofit some of those systems.
Okay, but it's it's doable, it's just expensive.
Correct.
Alright, thank you.
Yes, I think James to wrap up I mean, I think when we're looking at our new development projects. All of this everything that we've all collectively learned over the last couple of months all those items are being fully factored into our development pipeline going forward as I would expect every landmark is doing as well.
Thanks for the question.
Ladies and gentlemen that does conclude our question and answer session for today's conference I now like to turn the call back over to Jerry Sweeney for any closing remarks.
Great. Thank you all for participating I'm, sorry, we ran a little bit longer but you would expect that in these kind of times.
We appreciate your engagement. So you have any questions on the on the supplemental package. Please feel free to reached out to us.
Well all get through this together, we're all working together they get through it and from our perspective, please stay safe and healthy and we look forward to providing it further business plan update you.
On a next quarterly call. Thank you very much.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program you may all disconnect everyone have a wonderful.
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