Q1 2020 Earnings Call
Good day, ladies and gentlemen.
Thank you for standing by welcome to the Paramount Group first quarter 2020 earnings Conference call.
At this time, all participants are in listen only mode.
Question, especially will follow the formal presentation. Please don't just conference is being recorded you put thirtyth 2020.
I would now let's turn the call over to Rob small.
Direct visit to the limit and Investor Relations. Thank you you may begin.
Thank you operator and good morning.
By now everyone should have access to our first quarter 2020 earnings release in the supplemental information both can be found under the heading natural information quarterly results in the Investor section of the Paramount website at Www Dot Paramount Heighten group dotcom.
Our comments today will be forward looking statements within the meaning of the federal Securities laws.
Forward looking statements, which are usually identified by the use of words, such as well expect should or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.
Including without limitation.
Going to impact the CRO to virus koby likes him on the U.S. regional and global economies and our tenants financial condition results of operation.
Therefore, you should exercise caution interpreting and relying on them.
We refer you to our actually see filings for a more detailed discussion of the risks that could impact our future operating results and future international condition.
During the call you will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance.
These measures should not be considered in isolation or as a substitute natural results prepared in accordance with yeah.
A reconciliation of these nygard.
Most directly comparable GAAP measure Isabel bought our first quarter 2020 earnings release, and our supplemental information.
Hosting the call today, we have Albert Behler, Chairman, Chief Executive Officer, probably another company.
Well the pace Executive Vice President Chief Financial Officer and Treasurer.
And Peter brand weight Executive Vice President please.
Matt will provide some opening remarks, well open the call it the question.
I will turn call over to Albert.
Thank you Rob and thank you everyone for joining this morning.
First and foremost all of us at Paramount Hope that you and your family are safe and healthy.
We're currently in the midst of an unprecedented crisis.
The outbreak up Cobot 19 has cost and continues to cause severe disruptions in the global economy, including that of the United States.
The circumstances surrounding cobot 19 continue to evolve at a rapid pace.
Specifically in New York in San Francisco, the markets in which we operate and bear a majority of our assets are located.
Let's have reacted by instituting current change and post all does shelter in place rules restrictions on travel at restrictions on the types of business that can operate.
It has that's all dealing with extra ordinary level itself change and uncertainty in every facet of our daily lives.
Well all buildings remain open and operating responsibly.
Navigating this crisis is our highest priority.
All while ensuring their health and safety up all tenants and employees.
We're doing everything we can to support CDC guidelines and comply with all directives from federal state and local health and safety all fish votes to help protect those most at risk.
I'm incredibly proud off every one or the problem on team that have taken extra ordinary matches to ensure we don't Miss a beat as we manage through this extra ordinary time.
With that backdrop I'd like to spend a few minutes talking about our business be reported <unk> first quarter results last night, which were solid and in line with all internal expectations.
M. Its these uncertain times, we've found it prudent to withdraw our twentytwenty guidance, we provided free covert 19.
Liver the cover all financial results and guidance in greater detail.
From an operational viewpoint, there has been much focus on the health of our tenants and their ability to pay rent.
As you can expect we have been very focused on this as well.
To date, we have received some form of.
Rent relief requests from tenants, representing approximately 16% of our pro rata annualized rent.
Some of these requests I, what I would characterize as opportunistic in nature and up from kinda. Instead, we believe have the ability to pay their contractual rent obligations in a timely manner.
We are in the process, although evaluating these requests on a case by case basis.
Not all off these requests, but ultimately translate into modifications to leases already deferrals.
Notwithstanding these requests we have thus far collected April rent at a pace that is in line with all March collections and prior month.
To quantify we have collected approximately 94% of a broker total monthly billing stood tenants.
Our office tenant specifically I collected at a rate of 95%.
This was all that reflects the benefits of our building.
Hi, quality office centric portfolio, well retail shops, as an amenity to the office tenants and total rents we collect from retail us it's less impactful for Paramount overall.
That being said the next several months, but undoubtedly be more relevant to monitor as the impact obviously spend that make continues to be to reveal itself.
Unfortunately, the extent off the economic impact the lengths of this crisis and most importantly, the trajectory to restart the economy remain unknown so as of today.
But what we do know they said we have built a high quality portfolio comprised of Blue chip credit tenants no exposure to co working and very limited exposure to retail.
On the leasing front the first two month of 2020, they're off to a solid start.
For both the broader markets in which we operate and for all portfolio.
Needless to say the onset off the cobot 19 crisis has led to a pronounced slow down and leasing activity as it dropped off tremendously, particularly in March.
Regardless, we had a decent first quarter leasing all but 200000 square feet.
We continue to have active conversations with the couple of tenants, which we hope to report on during our next quarter's call.
Yes, hi, about being a pause on new leasing at leasing tours have come to a halt it goes without saying, but all original goal to lease 50% off the Barclays space by year end, which was a tall order in itself pre covert 19, just got incredibly taller.
As I said it my Chairman's letter most likely this will now be a 2021 achievement, although it remains our immediate priority.
You are doing everything we can to lease the space why there is no substitute for a presentation from our leasing team during life tourists and the absence of being able to physically tourist space, we will provide virtual tours to prospective tenants.
That said, we believe much like during the great recession of 2008 tenants are less likely to invest major capital and make big decisions on space needs until there's more clarity in the economy.
So in the near term our expectation is that renewal activity, but outpaced new leasing activity.
It also means that's capital outlays will be less than would otherwise be required for new deals.
On the capital allocation front, we remain very active cure into first quarter.
In early March we entered into an agreement to sell our last remaining acid in Washington, D.C., 80, 99, Pennsylvania Avenue for $115 million.
The sale off this asset effectively completes our exit from Washington, D.C. market, making us a bike coastal read in two of the most resilient markets around the world.
As previously reported to be expect this transaction to close to the fourth quarter.
Beginning in late February began to see the severe dislocation in our share price and be aggressively and Opportunistically began repurchasing our shares by the end of March we repurchased another 100 million if our stock at a weighted average price of $9 21.
As we have stated in the past our goal is to execute on our share buyback program, you know leverage neutral Romano.
In this instance, we choose to take advantage of this opportunity you know share price by effectively prefunding the buyback from the sale of 80 99 by using existing cash from a balance sheets.
Additionally, on April 1st amidst all the market volatility and severe dislocation of our stock price, we announced a 10% sale of 16 33 Broadway.
Transaction, well use the property at $2.4 billion on $960 per square foot and is expected to close next month.
16, 33, it's the largest asset in our portfolio boasts size wise and from a valuation perspective.
It should certainly give our shareholders great comfort that knowing the underlying value of our real estate versus a level. It's at vigil Stockers currently trading.
Notwithstanding all the great feedback we received from the Investor community with respect to this transaction. The one thing. The also hurt from investors is why 10% and not more.
The reality and simple answer is tax planning.
They set before its 16 33 is the largest asset in our portfolio and also happens to be the longest owned paramount assets.
So you can imagine it also has the largest tax gain associated with it given its basis.
We needed to ensure that we had the ability to retain the proceeds from the sale, while taking some chips off the table at the full and fair valuation.
The importance of retaining proceeds and maintaining liquidity is even more essential in today's environment.
Our focus at this point is two minutes and improve on the Archibald business, we can control.
Since we obviously cannot control the economic fallout from covert 19.
Oh shareholders can be assured that their company as end at this period of uncertainty in a strong financial position.
Oh liquidity position is substantial and built support our efforts to navigate this crisis.
At the onset we drew down 200 million dollar so 20% of our revolving credit facility, bringing cash on balance sheet to roughly 400 million and that is after the 100 million dollar that was deployed into share buybacks.
Oh liquidity at quarter end was $1.2 billion, including the additional 800 million of Undrawn capacity on a 1 billion credit facility.
And our liquidity position would only be enhanced upon closing the 80, 99, and 16 33 transactions, which will yield additional proceeds in access of $250 million after transaction cost.
You severe volatility in the stock markets has been subsiding off late however, the dislocation in the stock price is off New York City, and San Francisco focus CBD office suites, including ours is not.
Why did this frustrating we also recognize the uncertainty in the current economic outlook, which is why we look to maintain a more defensive posture of being measured and prudent.
A priority today is to maintain ample liquidity.
At the preservation of capital will be all fall. Most go until we have better visibility on the economy as a whole.
As I stated earlier I'll focus during this period of uncertainty you some controlling those areas up all business that we can.
Given our proven ability to successfully navigate to other challenged economic cycles in history, I'm very confident oh prospects for the future because.
We have thoughtfully and deliberately built a portfolio of high quality Trophy and class a assets into off the most resilient markets and the world.
Oh portfolio is 96% leased to diverse mix of larger high credit quality tenants with weighted average lease terms of over seven years.
Our business is office centric, which accounts for about 95% of our annualized rent.
You have very limited exposure to retail and other incidental operations, which together account for only 5% of our annualized rent.
We have a strong balance sheet with ample liquidity, which stood at approximately $1.2 billion at quarter end.
We expect to realize additional cash proceeds of approximately $250 million from asset sales further enhancing our liquidity position at the strengths of our balance sheet.
We have no near term debt maturities and our next debt maturity isn't until the fourth quarter of 2021.
And all of our debt secured and non recourse.
That being said challenges no doubt lie ahead for us economy, and the country as a whole.
But in light of the thoughtful and decisive actions being taken around the world and the public and private sectors I'm confident that together we've overcome this adversity.
With that I would turn the call to Peter to provide additional insights of our leasing.
Thanks, Albert and good morning, everyone.
During the first quarter, we leased in excess of 206000 square feet at a weighted average starting rent of $91.59 per square foot.
Approximately 30% of this leasing addressed immediate vacancy in the portfolio or space scheduled to expire during 2020 and another 67% address space expiring in 2021.
At quarter end, we were 96% leased on a same store basis unchanged versus year end 2019.
For the remainder of the year end through 2024 hour portfolios near term lease role is a very manageable, 7.5% expiring per annum.
We continue to execute on our strategy to de risk the portfolio by proactively pre leasing space to credit tenants a strategy that we have always focused on and is even more important than today's environment.
Given cobot 19, and the public health crisis, we face it has become increasingly apparent that limited lease role in the near term and the portfolio comprised a best in class tenants will serve us well as we work through these difficult times.
Before I address the results in each of our markets I would like to reiterate what Albert said about virtual tours in his remarks.
We are in the process the filming our available space as a way of it actively engaging with prospective tenants.
The ability to show the quality of our spaces. During this time will ensure that we keep our buildings top of mind with all current and future requirements.
Let's review our results by market, starting with New York.
The Midtown Manhattan office market performed reasonably well through most of the first quarter prior to the outbreak of Cobot 19, with total leasing activity of over 4 million square feet up 4% year over year, but roughly 7% below the five year quarterly average.
Tenant demand decelerated significantly as a result of the New York State on pause order issued by the New York State Government on March 20, yet and related social distancing measures taken in Manhattan.
With all nonessential businesses order to close through May 15th at the earliest.
Tenants began to take a wait and see approach to their real estate decisions.
Well tenants continue to focused largely on the well being of their employees and the stabilization of their business. During this crisis, we have been able to advance several of our lease negotiations.
It is our expectation that the majority of the market's leasing activity in the near term will be lease expiration driven with renewals representing a larger percentage of total leasing activity in the near term.
Turning to our New York results, our same store portfolio was 95.5% leased at quarter end unchanged from our yearend results.
During the first quarter, we leased approximately 49000 square feet at a weighted average lease term of approximately four years, including an approximately 30000 square foot extension with Goldman Sachs at 903rd Avenue.
We are in the late stages and executing another 50000 square foot extension with an existing tenant and hope to report on it on our next conference call.
Looking ahead, the New York portfolio is very well positioned with approximately 6% of currently leased leased space expiring per annum through year end 2024, which figure excludes the lease expiration of Barclays 500000 square foot block it's.
Got it in our 2021 lease expiration schedule.
As we have stated previously 30, you know one avenue of the Americas remains our primary focus as we market the Barclays block of space.
The sixth Avenue sub market remains among mid town strongest sub markets and we remain confident that the strength of the sixth Avenue Submarket, coupled with 30, no one's central location large inefficient floor plates building quality and the size of the block will yield and accretive result, despite the challenges we now.
Faced with Cobot 19.
As Albert mentioned, while it remains our highest priority. We believe it is now more prudent to expect that our goal of leasing up half of the Barclays block will extend into 2021.
We continue ongoing discussions with tenants we were in discussions with prior to covert 19, and we're in the process. The filming our marketing floor to ensure that we do not miss an opportunity. During this period of time when tenants are unable to physically tour space.
Turning now to San Francisco the.
The cobot 19 crisis, and the resulting stay home health order through the end of May have caused disruption to business in San Francisco, resulting in a slowdown of leasing velocity during the first quarter.
Similar to what we're experiencing in New York tenants are taking a wait and see approach towards committing to new space until there was more clarity around the economic outlook as well as when the orders are lifted.
As a result, San Francisco realized an uptick in vacancy negative absorption and a stabilization with average asking rents during the first quarter.
Despite this pause in the market we are believers in the resiliency of San Francisco and its ability to recover quickly a shelter in place and social distancing guidelines are gradually relaxed.
The market is better positioned versus prior cycles anchored by mature large captech financial services and the Lifesize, a sector, which will all be integral towards solving the current health and economic crisis.
Our same store portfolio in San Francisco was 97.4% leased at quarter end down 10 basis points quarter over quarter.
During the first quarter, we leased approximately 158000 square feet at a weighted average term of just over five years with initial rents nearing $102 per square foot.
The San Francisco portfolio is very well positioned with just 7% of currently leased space expiring per annum through year end 2024.
At one market Plaza, we completed three transactions during the quarter the largest of which was the 109000 square foot extension with Autodesk and the base of the building.
This space was set to roll in 2021.
In addition, we're currently in the late stages of executing an extension with another 100000 plus square foot tenet at initial rents of over $100 per square foot.
With this extension in place, which will also have addressed space that was set to expire in 2021, we will have de risked 2021 role by nearly 70% in San Francisco and by 17% for the entire portfolio year to date.
These extensions at Triple digit initial rents also reaffirm one market plazas appeal to leading businesses across a variety of industry.
One market plazas leased occupancy remains virtually full at 98.2%.
At market Center, we completed two transactions during the quarter totaling approximately 26000 square feet and stand at 95.6% leased.
The building is architecturally significant and appeals to creative tenants and traditional tenants alike.
We remain very excited about the long term opportunities at market center at the asset boasts unparalleled transportation access desirable amenities efficient floor plates and spectacular view quarters in the heart of San Francisco, CBD, all of which support our team's effort to create tremendous value.
Much like what we have done in the recent past with our portfolio in San Francisco.
With that summary, I will turn the call over to Wilbur, who will discuss the financial results.
Thank you Peter.
We had another solid quarter financial and operating performance.
Reported core a handful of 27 cents per share and same store cash NOI growth of 4.3%.
Same store cash NOI grew by 4.1% in New York and 4.9% in San Francisco.
Same store leased occupancy was unchanged at 96%.
During the quarter, we executed 12 leases covering about 207000 square feet of space.
Well bossed positive mark to markets of 31.3% on a cash basis and 38.2% on a GAAP basis.
Mark to market, the Neil what 3.9%, Josh and 8.7% yeah.
Mark to markets in San Francisco, well, 44.2% cash and 51.8% yeah.
Notwithstanding all solid first quarter, we have withdrawn our original guidance for 2020.
That was provided during our last earnings call why didn't you to covert 19 panned out.
Aside from the potential impact of caught with 19 on our future results of operations, we had announced two transactions. So she can do issue guidance that also has an impact to earnings and our previously issued guidance.
Let me help connect at least some of the dots.
Oh original guidance calls for core rough rule of the dollar tree per share at the midpoint.
We're going to issuing our original guidance, we entered into contracts to shell 80, 99, Pennsylvania Avenue and 10% of 16 33 Broadway.
These sales will result in reducing core earnings by three cents per share based on the timing of when we expect the closings to take place.
So that would bring our original core AFFO guidance.
Any potential covered 19 impact to one dollar per share.
Given the current environment and the uncertainty that lies ahead, we thought it to them to do all guidance at this time.
That's all been touched upon earlier, we're carefully monitoring when collections from our tenants.
That's fine April we have collected approximately 94% of total monkey billings to tenants, which is roughly in line with collections in the prior months.
Most of you know a portfolio is primarily office centric with office tenants, representing about 95% of our pro rata share annualized rents and the remaining 5%.
From a combination of retail tenants parking garage is and the two theaters in our portfolio.
A deeper dive into April when collections reveals that our office collections are in excess of 95% and collections in the retail garage in theater group were about 62%.
Great result for April however, the next several months will undoubtedly be more relevant to monitor.
We look to provide you an update on collections guidance and our results of operations during our next earnings call.
Turning to our balance sheet, we ended the quarter with approximately 1.2 billion in liquidity comprised of 400 million cash unrestricted cash and 800 million enough capacity under our revolving credit facility.
Furthermore, we expect to realize over 250 million additional proceeds from asset sales.
Outstanding debt at quarter end was 2.96 billion and includes 200 million that was board under our revolver.
Other than the borrowings under our revolver all of our debt secured and non recourse debt.
This debt has a weighted average interest rate of 3.28% and a weighted average maturity over five and a half years.
84% up our debt is fixed and has a weighted average interest rate of 3.3 percentage and the remaining 16% is floating and has a weighted average interest rate of 3%.
We have no debt maturing until the fourth quarter of 2021 and beyond that our maturities Oh well laddered.
With that operator, please open the lines for questions.
At this time, we will be conducting a question and answer session.
If you will act as question. Please press star one on your telephone keypad a confirmation so indicate your line is and the question Q.
You mean for start to fuel that your move your question from the Q.
For participants using speaker equipment, and maybe netsuite to pick up your head simple for personal Nike.
Our first question comes on line of Jason Green with Evercore. Please state your question.
Good morning, or just a question on share buybacks and capital allocation broadly I guess given you know your shares are trading around the same level you repurchase shares how you're thinking about deploying capital burst building up a cash position to address potential bad debt.
Well I think at this point Oh, we want to be totally totally open as to what we do I think with the share buyback program be but we have focused really on liquidity.
And saving liquidity on balance sheet. So I think it's not the time to aggressively go into the market, but once 80 99 and 16. So it takes we have closed <unk> in a different situation.
Got it and then just on the Barclays space, If we do find ourselves in a prolong recessionary periods is that still we sell to two or three tenants or do you think you'll break it up even further to get at all.
I think it's still the same.
At this point, but you know we can lease it floor by floor, we want to be totally opportunistic on this and we are still quite confident from the call to come in a as we said in our pet.
Remarks that we that because only con have physical tours help the space, but Peter can speak to that a himself the ESCO calls coming in so.
I would say.
As we mentioned the the achievement of initially wanted to lease 50% that might be a tall order to achieve at this point, but we're still confident that began leasing during the course of 2021 a decent level.
Got it thank you.
Sure you look up.
Our next question comes on line of Rick Vikram Malhotra with Morgan Stanley. Please state your question.
Oh, thanks for taking the question.
On the on the portfolio Oh, I know, it's uncertain, that's a tiny win win folks could return and and and when things started going again some of your Piazza talked about plans. They have and things are doing to sort of so I do we opened them at the same time monitor.
And then.
You know make it see a quick so can you talk about something maybe somebody initiatives you're thinking about.
As when an open kind of how much would you need to spend what did you wouldn't be initiative to monitor you know coax as they come in and make it safer.
Yeah first of all as I mentioned in the prepared remarks, our team is really.
Keeping all of our buildings entirely open currently so the tenants they'll come to a into this space. We have been proactively working on Clinton notice and safety. That's the most important part and we have put a task force in place, it's a spearheaded by Peter and I'll ask Peter.
ER to comment or additionally.
Yeah, Vikram its something that we're thinking about really in two parts, where <unk> first were preparing the buildings.
In advance of the majority of tenants are returning we're training building staff on paramount's newly augmented safety and hygiene protocols were replacing air filters on fan systems, mostly with Merv rated filters.
For improved air quality, we're increasing the frequency of cleaning and in common areas and high touch points.
Increasing when appropriate fresh air intake into the building doing a number of things in advance of their return and then once once we do a welcome tenants back into our buildings, we have really refined and establish guidelines and protocols that require participation in collaboration by both landlords antenna.
As we of course will reinforce governmental mandates.
But we have our own protocol as well and all of this really is intended to reduce anxiety and ensure a safe and comfortable physical environment for all building users. Our intention is to be safe best in class and welcome tenants back.
In that.
Manner.
That makes sense and then maybe just a bit on the deferral requests that you had received so far can you give us a bit more color if there's any.
Segmentation in any specific sectors or tenant sizes are types and the breakup between San Francisco in New York.
Yeah, So [noise] well as we as we said also the collection is 95% of office or rent and or some of these requests are really opportunistic in nature and those will definitely get a very clear no value.
Aging, especially the some of the retail.
Request that from tenants that are really hurt by this situation.
What comes to mind restaurants, and we will be on a case by case basis or work with those tenants potentially but we haven't made the determination and so far we have given rent relief only in one or two cases, so we will be very very stringent we have.
Being through this during the last crisis, we understand this is a very difficult time for tenants.
But we have to run a business and we at the end of the day. We you selected our tenants very carefully when we signed these leases.
We are focused on credit tenants and and I know I think now it's a time that it shows.
Yeah, Vikram I was just going to add to what Albert said in terms of the 16% that Albert.
Referenced in his prepared remarks.
It is pretty split by region between New York in San Francisco fairly evenly. So it's it's not like it's 20% in one area and 10% it's fairly even between both regions.
<unk>.
Thank you.
Our next question comes on line up with Skidmore with Goldman Sachs. Please proceed with your question.
[noise] Rick is your line muted.
Our next question comes on line of Jamie Feldman with Bank of America Merrill Lynch. Please state your question.
Thank you and good morning.
I guess.
Sticking with the Barkley space.
Can you just talk about the tenants you've been speaking to I mean have any just decided given the uncertainty to just kinda renew in place.
Other than thinking about it moved to a new building.
Jamie Good morning. This Albert we have been talking to a number of tenants than I could say at this point.
Nobody is a reconsidering their they're discussions with us.
They some of them have really higher priorities currently but that is that as a current situation there.
Okay, but it sounds like none of the discussions I've just <unk>.
That's correct.
And then how are you thinking about your current leverage level given the uncertainty ahead.
Do you think you'll take steps to bring your net debt to EBITDA lower are you comfortable where it stands.
Look I think one other things Jamie we publish the leverage today net debt to EBITDA sits at 8.6 times. It's important to recognize that you know some of these assets were acquired in San Francisco last year that are fully not started to reach its EBITDA potential.
All right. So that's going to change and that will bring that number organically down, especially when you see the mark to market said, we've been posting in the San Francisco business. So you know two ways to do that obviously is one is your EBITDA increases over time, and that's where we are focused on we're not going to issue equity.
These levels to try to bring that down.
We have shown the ability to transact on the asset sales at <unk> at good values, if it came to that but these.
Oh some of the most desirable assets in some of the best markets in the World and you know not all debt to EBITDA ice created equal. So I think we're focused on that metric we're focused on bringing it down but I don't think that a trophy portfolio off our quality should also have in that that do.
EBITDA of six times as well.
So what's the glide path.
Net debt to EBITDA, you got to based.
<unk>.
You bet that growth you're talking about.
So I think when when you started to see some of this come into play will be into sevens.
Okay.
Mid Sevens low Sevens high Sevens <unk> mid Sevens, and I think we know what were comfortable operating at that level.
And then I guess, just going back to San Francisco.
Yeah that the statistics didn't move pretty sharply in the first quarter in the CBD. You know can you kind of maybe just help us understand from your perspective, how much of that you think is.
Kind of a pre March January February just kind of slow down in the market in space coming back on line.
It's really just kind of the shutdown impacting things I think having sort of at least I'm trying to figure out.
Had come at Nike not happened.
Francisco still be kind of slowing here.
[laughter] Jamie this is Peter I think it's difficult to say I think things really came to a screeching halt in March you know the fundamentals in San Francisco remain very strong you've got vacancy of 6% you've got a average asking rent up no.
12% year over year, the the fundamentals remain very strong I think we'll see how things proceed but generally what we fundamentally believe is that San Francisco is comprised of well capitalized technology companies financial service companies Life Sciences companies, we have a best in class leaders of industry in our portfolio.
Ill. So so we feel that San Francisco still has a lot to look forward to but it's too soon to say in terms of what the fundamentals will look like for the balance of the year.
And Jamie the portfolio is 97.4% leased it's very minimal exploration the only 1.8% of annualized rent for the remainder of 2020, Peter and his team have done a terrific job over the last couple of years to proactively lease. So space. It is very good rate that you could see from us.
Financially.
Okay. All right. Thank you fear out your color.
Sure look up.
Our next question comes on line up Blaine Heck with Wells Fargo issued your question.
Great. Thanks. Good morning, So Peter you guys have done a good job of capturing some of the additional demand from tech tenants that is that's come to the city New York This cycle and I think you know before the Corona virus. It yeah. There was an expectation for a substantial amount of we seem to be done by some of the large tech players that were.
Growing their footprint in Manhattan.
Can you comment at all on on what you're seeing from those guys in tech tenants in general are they you know going ahead with any of that leasing is that on hold or is there any chance of them just backing away from those expansion plans.
I think.
I think every scenario is different some of the larger requirements that we are familiar with that we talked about in advance of this crisis remain a in negotiation and the expectation and everybody is watching closely I think we're all familiar with maybe who I'm referring to in several instances here or that these deals. We'll we'll get completed we know that that tech.
Allergy made up 25% of Manhattan's leasing velocity last year, a usurping financial services for the first time. So there as we all recognize are becoming increasingly important part of the tenants a diversity in the city, but what I can tell you is that we perceived that tech will be an industry that that may in fact, even thrive during.
This time and what we're seeing is ongoing discussions with these tenants to to transact and I think in the coming days and then the coming weeks, we'll see some of this ultimately be finalized and I think it'll be a very good.
Data point for our market.
Oh, great. That's helpful. Maybe for Albert can you talk about any risk you see associated with the sales that are under contract. Obviously, the the 16th 33 disposition is scheduled to close here soon but there's some time to closing at 18 99. So you know is that more at risk and then you know maybe can you characterize.
The buyers and whether they're relying on the debt markets to get the deals done.
Well I don't want to really comment.
No transactions that are in the middle of the both getting process.
But I can tell you that both parties are a reliable well finance institutions and we have no doubt at this point that there will be a closing.
Okay. That's helpful last one maybe Mr. Willed her can you just talk about what capital expenditures, you guys have or or might have coming up I'm imagining you guys that capex requirements at both you know 13, or one six and Henri Bendel space should you guys get those lease or maybe you have some work to do on the right.
Okay, That's 16, 33, and and I guess, there's probably some spend left that 111 setter <unk> ticket that one leased up you know can you just frame up the total capital requirements are those spaces.
Sure and you haven't gone in great detail to the portfolio to basically go through all of the capital requirements and and every nonessential project capital that we felt could be deferred has been deferred as a this point I'm clearly, there's a big focus for.
Just to preserve liquidity in this environment and also you don't make sure that our ratios or in line, because any sort of diminish and that it will be coming from but can show a rental lease that you give to tenants should get offset by the law capex from an f. whole standpoint.
And I'm, having said that we will continue to spend money with respect to leases that need to be done so timing else that will inevitably also get pushed up because if a leasing gets delayed.
And construction of T.I.s take longer than it otherwise would have given the current environment that whole organically also defer some of that capital into 2021.
Okay. So that's helpful, but I guess you know.
There are any way you can take a stab at kind of the total requirement is that 50 million show. We admit we know we haven't effectively deferred close to $50 million. Its capital that we don't otherwise thought would have been spent in 2020 into 2021 I won't go specifically by each building, but it's across the.
Portfolio.
Got it thanks.
[noise]. Our next question comes on line of Daniel Israel with Green Street Advisors. Please proceed with your question.
Great. Thank you good morning, I just two quick ones for me can you describe any perspective changes on the concession, France and understanding things are still early but just curious any he doesn't notice any changes, but there's not a T.I.s are pretty rides.
Yeah, It's a little early and normally what you what you want to give is maybe a little bit more free rent a but the market at this point it's it's.
Too early to say, but we would trend to give more free rent than anything else at this point the market seems to be still I think tenants will be more focus into future on quality assets and a it will not be too much of a hagel over the last nickel.
Because they want to make sure that there are putting the employees in an environment that safe and its run by high quality teams and I think we will fit pretty well in that segment.
Yeah, I think we likely would perhaps or have a discussion about concessions and some increased potentially on the concession side before we talk about a reduction on the rent as my guess, but I think there's frankly not a whole lot of clarity just yet in terms of what this all looks like in terms of.
Metrics, a transaction metrics going forward. So Dan it's a good question, but it's something that we're assessing real time with our conversations now.
Okay and HM last one from me can you maybe discuss out the fund business at this point. How are you guys are dealing gets maybe how your investor base is viewing U.S. office real estate and there's about something yourself surrealistic. These days.
Yeah happy to comment you know the mezzanine business a mezzanine fund business is is going to get quite active I think there won't be demand.
But on the investment side of things. It's a main focus of your question on the fund investors side as usual in these kind of market cycles. So.
The investors are very busy with their own issues.
They're not really focused on new investment at this point in time. However, they have a lot of liquidity some of them and they have to invest them and to a positive yields returning assets and I expect that in the second half of this year. Once we have more clarity on the spend then make Uh huh.
Thank god that the money, but will be coming back also from abroad being invested the here in the United States because the returns.
It's still looking a quite attractive in comparison to other parts of the world.
Great. Thank you.
You're welcome.
Once again, if you like that's question. Please press star one on your telephone keypad.
Our next question comes the line of Tayo Okusanya with Mizuho. Please see with your question.
Hi, Yes, good morning, everyone.
The retail and the parking contribution to your bottom line I know you said, it's 5% of ranked <unk> do you actually help us breakout what's the retail piece on what's the parking piece.
And for your parking how much of it it's just tied to the rents bus. So that's more transient parking.
So to answer the first part of your question that break down roughly is about 4% retail on the remaining is is parking the remaining 1%, though it's between the parking into theater group.
And within the parking it's pretty much split evenly 50 50 between leasing in transit bucket.
Gotcha, that's helpful. And then <unk> doing the comments that will need a 16% of tenants have asked for rent really as you kind of think through that up do you can see more of a situation where it'll be more deferrals or where are you guys will you know deferred rent for that a bit hopefully to get it back in <unk>.
There are still or do you kind of seat more of abatements, where you may actually restructure the lease that in and I tried to get more time.
Well the requests or the majority of the because deferrals short term.
Tenants respect in general the the terms of the lease and that's something that historically, we have as I mentioned before have done and very very limited cases.
And we will look at a the cash flow position of the company and looking for financial statements and good reasons why we would.
Good for the right and are well those kind of tenants.
Rent forgiveness I think it's it's part of your question is is really not to know playbook.
Okay not in the thing I don't unless you me most of the request that coming from the retail portfolio.
Or are there any office tenants there.
The majority is retail as you might expect that's correct.
Great. Thank you very much.
You're welcome.
Our next question comes on line of Skidmore.
With Goldman Sachs. Please proceed with the question.
Hi, Good morning. Thank you can you hear me okay.
Yes for all great. Thank you know I'm, just maybe Peter in Albert what type of conversations are you, having with regards to tenants and and future space needs given the trends and work from home and and perhaps the often enough social distancing and perhaps needing more space in the office.
Well, it's it's it's a little early.
To.
We via informing although it has how a building so currently operating.
They are discussions by all property managers with the tenants.
To make sure that the tenants feel safe currently and everyday there most of the most of the tenants or represent essential business. So some of them are working in their office space, but it's a limited amount of Oh, so the employees.
And Ah we have fought the task force or that Peter is heading to to get ready.
To reopen entirely yeah, I would add to that by saying I think densification largely worked its way through the system over the last 10 years as tenants tried to become ultra efficient and collaborative and I think the pendulum as we pointed out previously started some come back and I think this crisis will only accelerate that I think you'll see.
Tenets requiring more space.
Perhaps six feet between one another which is certainly not the case nowadays so I think you'll start to see tenants.
I think about their real estate differently and a attribute more rentable square footage per employee to create a safe work environment. That's very much something that's now being discussed it may be such that a small percentage of the workforce can can work from home.
And and that may be a trend with some of the technology that enables that to happen.
But I think I think that remains to be seeing I think the experiment is is occurring at a time with children home and some other distractions and so generally when I speak with my peers I hear that it's very difficult to be productive, but that's not to say that people can't make it happen as we have here at Paramount, but I think those are two trends that I'm sure you've heard a bit about but I think.
The the Densification is over and I think you'll see the opposite occur on a go forward basis.
Thank you.
Good luck on.
[noise] since there are no further questions left in the queue I will let to turn the call back over to Mr. favorability for any closing remarks.
Thanks, everyone for joining us here today, we look forward to arm onto providing an update on a continuous progress of when we report our second quarter results during the summer stay safe and Goodbye.
This concludes today's teleconference. You may now disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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