Q1 2020 Earnings Call

Good morning, and welcome to seek holds first quarter 2020, earning conference call.

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Today's conference is being recorded.

At this time for opening remarks, and introduction I'd like to turn the conference over to GE.

Senior Vice President of Investor Relations and marketing.

Please go ahead Sir.

Thank you Jamie good.

Good morning, everyone and thank you for joining us today for staple during school.

While we are all social distancing and working remotely, which we sincerely hope you and your families are well during these challenging times and we look forward to better days.

On the call today, we have Jay Sugarman, Chairman and Chief Executive Officer, Marcus Alvarado, President and Chief Investment Officer, Jeremy Fox schemes, our Chief Financial Officer.

This morning, we plan to walk through a presentation that details our first quarter 2020 results presentation can be found on our website at staples Inc. Dot com.

By clicking on the investors link.

There'll be a replay of this conference call beginning at one PM Eastern time today.

I went for the replay is 86 620 7.10 for one.

With the confirmation code of 7359 470.

Turning to lead the replay can also be found on our website.

You also be able to see on our side. Our recently published 2019 annual report or 2020 proxy statement and our inaugural yes. She reports.

Before I turn the call over to Jay I'd like to remind everyone that statements in this earnings call, which in all historical facts maybe forward looking.

Our actual results may differ materially from these forward looking statements and the risk factors that could cause. These differences are detailed in RCC reports.

Staple disclaims any intention or obligation to update these forward looking statements, except as expressly required by law.

Now with that I'd like turn the call over to chairman and CEO, Jay Sugarman Jay.

Thanks, Jason.

I'll just start by expressing our sympathies to those of experience loss Kroger 19.

And our gratitude to those on the front lines of this fight every one is working to mitigate the impact of this global crisis has our thanks and our support.

Like most of you we entered this you're confident our strategy and excited to continue building upon our successes in 2019.

Our pipeline looks to be growing nicely and our teams are engage with customers across the country.

Even as the impact of the virus began to be clear we work to be in a position to close deals if our customers wanted to close them and raised additional capital during the quarter to ensure our ability to be there what our customers needed those.

However by the end of the quarter. It was clear most transactions were being halted or postponed until things become more settled.

We closed a handful of small multifamily and office deals there were near the finish line when things started to unfold, but larger ground. These deals that we're well along were put on hold by building owners and acquirer.

We continue to be engaged in conversations with customers on a number of from.

And would expect our better price more efficient capital to be in demand when theres more clarity about the future.

We expect deals put on hold may very well come back and that existing customers will find opportunities to deploy capital and seek are helping capitalizing those opportunities.

As a result, we expect to be able to give a better sense of what new transaction volume might look like for the rest of the year by next quarter.

As for the existing portfolio all of our ground leases paid in April was expected.

100% payment is of course natural given a ground leases place in the capital structure.

No that did not stopping very small percentage less than 2% of customers from asking if any deferral of rent where possible.

Well, we give these requests due consideration we also try to share with customers that one of the reasons. We can provide long term low cost capital for them is the steady performance of our ground lease portfolio and circumstances like the.

Turning to the value of our existing portfolio, we are witnessing historic low yields in bonds of similar quality and maturity.

Recent trades in our competitive set comprised of a highest quality long maturity bonds had been in the low 3% area.

And together with tips bonds trading at negative rate.

Suggest our portfolios mid 5% yield.

Become increasingly valuable.

This is one reason, we believe the value of our portfolio and our share price increased further during the quarter.

Through other positives for the quarter I Wanna mention.

First with the addition.

Of our new CFO.

Jeremy Fox gain at the end of March.

Jeremy comes to Us from Mckenzie, North America, and has already proven a valuable member of our senior management team.

Second Brett as this was promoted to ETP head of capital markets.

He continues to drive access the innovative capital to grow the business.

Both moves me, we are well positioned to pursue future growth once the virus impact debate and transact transaction activity return.

And with that let me turn it over in Germany.

Thank you Jay and good morning, everyone.

It's good to be hang onto the circumstances and I'm excited to join such a game changing companies. This important time and its development.

I will turn to slide four in our earnings deck, which summarizes the highlights for the first quarter.

We saw meaningful revenue growth over the past year as we continued to scale business.

We strengthened our balance sheet by raising 150 million of equity capital.

And 259 million of long term debt.

And I'll stop performed well as we continue to execute our strategy and reinforce with our shareholders the value scaled and diversified portfolio of ground.

Turning to our earnings on slide five.

Revenues for the first quarter grew to 40.2 million up 84% from the first quarter last year.

Revenues. This period included the 3.6 million of annual percentage rent, we received related all hotels.

In line with percentage rent, we received a year ago.

Not including the park hotels consenting trend our revenues grew by 24% sequentially.

As we benefited from the new deals closed this quarter and a full quota of earnings related to the deals closed during the fourth quarter of last year.

Net income for the quarter was 17.4 million up 56% versus 11.1 million in the first quarter last year.

Earnings per share with 36 cents per share versus 36% share for the first quarter last year.

Slide six provides an overview of recent capital markets activity.

We continue to enhance our liquidity profile, we raised 259 million of long term debt through two asset level financings, one closing during the quarter and the other in April.

The financings the interest only with a weighted average maturity at 35 years.

The ground leases Collateralizing these financings generate a weighted average effective yield of 5.6%.

While the weighted average effective cost of the debt is 3.7%.

Providing us with an approximate 190 basis point spread.

This debt has a weighted average cash starting interest rate the 2.8%.

And similar to other recent financings has stepped rate structure provides for the cash interest rates to grow in line with all ground lease rents.

We also successfully completed all for follow on equity offering you much raising 150 million by issuing 3.2 million shares at a price.

Of $46, an 88 cents a shop.

We were able to upsize the deal based on strong investor interest despite challenging market conditions.

As Jay mentioned, the purpose of the offerings to provide sufficient capital to be able to close on deals with in our pipeline and take advantage of future investment opportunities.

Slide seven provides a little more detail on our capital structure. Following these offerings our liquidity position is strong with $338 million of cash available capacity under our revolver.

Which is levered at about two to one.

To equity target would give us purchasing power to acquire approximately $1 billion of ground leases as opportunities arise.

Inclusive of the debt raised subsequent to the ended the quarter, we have approximately 1.7 billion of outstanding debt.

With a weighted average effective interest rate of 4%.

Cash interest rate of 3.1%.

And 31 years of average remaining.

Other than our revolver, we have no debt maturing for at least seven years.

And the revolver currently has zero balance as it was fully repaid after April long term financing closed.

We have a 1.4 times debt to equity ratio.

Based on 1.2 billion of GAAP book equity.

And 0.6 times leverage when using our current market capitalization of 2.7 billion.

Slide nine highlights our investment activity.

During the first quarter, we closed three new ground leases totaling $77 million.

These ground leases underlying.

Two multifamily properties and one office property.

They have a weighted effective yield of 5.8% 3.7 times rent coverage and 36% ground lease to value based upon our underwriting it kind of close.

Covert 19 has impacted our entire industry, resulting in a material slowdown in real estate transactions.

Uncertainty in the market is high refinancing has softened in closing deals is challenging.

As a result, we think it likely that our second quarter originations will also be below prior expectations.

As you can see on the right hand side of the page.

Folio currently stands at 2.8 billion.

Slide seven shows the diversity in our portfolio.

Our portfolio, 63% office, 19% hotel, 17% multifamily and 1% other property types.

We remain focused on scaling our business across the top end assays in the United States.

And building, a knowledge and diversified portfolio of ground leases.

Slide 11 presents key metrics of the portfolio.

Rent coverage with 4.1 times in ground lease to value was 37 cents.

I should note that these calculations the based on data and underwriting assumptions prior to the impacts of Cobot 19.

Given the uncertainty in operating outlook, we expect these metrics to be adversely affected for a period of time going forward.

For the quarter annualized GAAP rent off the depreciation and amortization was 149.6 million.

5.5% yield.

This compares to the 4.0% effectively to vote.

Annualized cash rent was $95.4 million, representing a 3.5% cash yield for the ground leases in our portfolio at quarter.

Comparing to the cash interest rates on our debt of 3.1%.

Our weighted average lease term is 89 years.

Moving to slide 12, a quick update on the unrealized capital appreciation in our portfolio.

You see a stood at approximately $5 billion at the end of the course.

This calculation is also based on data and assumptions prior to the impact Kogas 19, and this amount may decline in future periods with respect to certain properties.

However, we have a long term view on our properties on a less focused on quarterly fluctuations.

We used this metric as both a measure of the first quarter estimated value of the buildings, we offset to inherit at the end about leases as well as a measure of the aggregate value of the subordinate capital protecting all ground leases.

Before I turn it back today I will just conclude by saying I look forward to meeting many of you in the coming weeks and months, perhaps virtually at first but hopefully soon enough in person.

Jay.

Thanks, Jeremy.

I just want a quick final thought.

Long lived assets in long life that mean, we're much more focused on long term values than any quarter to quarter moves through most cycles. Good assets in good locations went out and that's certainly true for ground leases as well.

This pandemic will pass and what would be extremely painful and tragic in many ways. Our long term view of the United States and real estate in top markets in the country remains undiminished.

Okay with that operator with go ahead and open it up for questions.

Thank you to ask a question. Please press one zero at this time.

We will take as many questions as time permits.

Once again, please press one zero to ask a question.

We will pause a moment to assemble the roster.

Our first question comes from Rich Anderson with SM BC. Please go ahead, hey, thanks, good morning, everybody.

Hey, rich.

So.

On the on the topic of rent coverage and the.

4.1 times and 37% growth.

Ground lease to total value what is your sensitivity telling you how those can change in this environment.

Particularly in the rent coverage side, given the changes that are happening on top of your land.

Sure I mean look the obvious a category that has seen a.

Almost complete ammunition to revenue is the hotel side.

And so as Jeremy said, we caviar <unk> those are first quarter numbers, we will see how long it takes for the economy to reopen or some of those.

Hotels the come back to.

Pre kobin kind of numbers and we don't expect that to be them.

Snap back fashion so.

Again, I think our messages starting a yeah were 35% of value four times coverage.

There were sitting well below the surface. So the wave in well things are certainly very choppy.

Let me take a while to recover and get back to where they were.

It doesn't really change our viewpoint on where we sit.

In terms of safety so difficult period.

Certainly for hotels, it'll take quite a bit of time to see how this is all going to shake out, but realistically Richard hotels close.

Rent coverage doesn't doesn't mean, a whole lot yeah. Okay.

All right and I guess the follow on to that question is are you are you anywhere near a scenario, where you know you start to see you getting buildings back because of the.

Because of your your rights to take over leasehold if that are not paying the rent or or is that even not in the conversation at this point, perhaps your.

You is as owners the land would.

Prefer not to go that route anyway.

Yeah, the pretty remote possibility.

Certainly I've not heard anybody even remotely.

30, 40 days into.

Scenario, where they've got.

65% of the capital subordinated to us.

And where you think about give you some metrics on that.

That's a 100 million dollar building.

Our rent represents one 1000.

Oh, the value that building inland per month.

The idea that they would give a you know.

65%.

Between the lender and the equity and handed the keys to avoid a one you know.

Tiny fraction of that value.

Yes.

We don't even think that's going to be a conversation or was this isn't apocalyptic kinda.

Scenario playing out.

<unk>.

We did we dig generated a one or 2% ask the question of could we get at least get a deferral and again, our messaging and it's important to kind of say this is.

We are very different than typical.

No single tenant net lease portfolio were 35%.

Well the capital stack at three and half percent not 100% other capital stack at seven and a higher percentage.

Just the size of our rent checks are so much smaller our place our seniority in the capital structure is so much more significant.

And then of course, we generally remind them.

On the whole purpose of our strategy is to provide long term quiet passive capital.

No no no no phone calls on the way up hopefully no phone calls and the way down.

We are.

Neither required part of the the capital structure.

Okay and last question for me, obviously pipeline is has diminished in this environment.

But is there still something out there.

Of an involuntary nature say theres, a a forced refinancing or are those deals still sort of percolating for you that you can get involved with or.

Maybe you could just comment on on that perhaps much smaller piece of the puzzle.

Yeah, let me throw that the markers I will say as you heard from Jeremy We got a lot of dry powder.

Certainly in touch with a lot of customers, but let me throw it to Marcos could you be a little more fine tuned answer.

Hey, rich area.

So if you remember at the end of last year.

Sort of talked about rebuilding our pipeline.

And if you look at the public filings for equity offering we had I.

I think done a pretty good job of that.

Excess of 750 million of of transactions in new markets.

And then we sort of at this reset that both Jay and Jeremy obviously that mentioned with co big So we're engaging with all of our customers.

You know, we're optimistic and hopeful that within the track transactions within the pipeline that some of those get over the finish line, but I do expect there to be some pretty significant fall out.

That being said on the offensive front, which was the other theory behind raising capital not just for the for the pipeline, we look at our capital solution.

Today in this dislocated market.

Precluded we thought it was a.

An attractive efficient efficient solution for our customers and clients and today.

When I look at.

People don't even really know how to price equity.

The credit markets there is limited availability.

And so when I think of our capital solution and our long term view on these assets.

I think we'll have some opportunities come our way.

And so the team has done a really really good job of continuing dialogue not only with our existing customers, but branching out.

To all the bankers to although the brokers and continuing to push up product as a solution because that gap.

In pricing is so much more significant so I'm optimistic that will will gain some share from the second after that you.

Gotcha, Thanks very much.

Our next question comes from Cowen.

Raymond James Please go ahead.

Thanks, Good morning.

Good morning.

First question, Jay just going back to your prepared remarks on but the deferral requests.

I did what 2% of customers after deferrals and it sounds like you're standing pretty firm on tenant.

Meet their obligations to you.

That said could there be potential opportunity to get more favorable terms black the granting some temporary relief and some of these one off.

Situations.

Yeah sure I look I think we're 30 40 days into this and people are still sorting through where things shake out and we would expect the normal hierarchy of.

Yeah, the equity in the lenders to figure out where they are first.

Like I said before given where we are on the capital structure, given the relatively small size of or.

Okay, great small size of our.

Rent check.

Strategy, which is really could be.

So quiet and passive over long periods of time.

Your first thought is you know that called not appropriate to us, but certainly there there maybe opportunities where we can.

Great and win win scenarios. It's just you know it's not something that its first on our list, but or can't ever rule something like that out.

Got it okay helpful.

Going back to Rich's question, just to clarify have you actually closed on any incremental investments here in Twoq you so far.

Okay.

Yes, we have now.

Yeah, and there was a small deal about the close but other than no.

Okay.

Going back to your comment, though as far as the hospitality assets just on the percentage rent front can you just remind us the mechanics, there with park, especially as we think about potential impact.

Looking ahead actually two I guess, what would be one Q2 thousand 21 at this point.

Yeah sure. So we have Uh huh.

Percentage.

Dollars revenue dollars above a certain baseline.

Ah portfolio has there been handily, beating benchmark for years and years.

We definitely think there's going to be a fairly significant impact to the revenue line Uh huh.

Each of those hotels.

So we would be cautious on the expectations around that number.

Okay.

And then no one one last one from me and I'll turn it over and again going back to the comment about recognizing.

Obviously, they call had some capacity for growth and has been pretty active in the capital markets recently, just maybe talk a little bit more about what you're seeing in terms of the financing markets I know that you close on.

Some financing earlier this month, but just maybe elaborate a little bit more on your access and cost the debt how about the ball here over the last month or so.

I think the good news as I said as interest rates have continued to come down for.

Ultra high quality and.

Credit and we still see on the screen the comp set that we follow.

Still trading around 3% right now.

Which is dramatically lower than it's been in the you know really in during good times April existed. So we think that has a positive impact on values of the things we've already done.

And also makes the kind of long term attractive.

Enhancing we seek.

Which again, we are willing to share some of the <unk>.

The benefit of.

Our business with our liability providers.

So we think it's on track that piece of paper for them as well.

Ill transaction gets a little hard to know exactly where the market is we did recently close.

Fairly large deal.

One of our.

Core providers.

And you know while the pricing was certainly wider than it had been.

The base rates falling so much that's still made it very accretive to our assets.

So.

Our viewpoint is.

People are going to look for safety, they're going to look for you only ability you can make good returns in this market and when yields become hard to find we think we're creating a very attractive place before.

Companies and others to deploy capital in a very very safe space.

Okay. Thank you Jay I'll turn it over.

Thanks.

Our next question comes from Anthony Paolone with Jpmorgan. Please go ahead.

All right. Thanks, So just a couple aquarefining items. One is did you end up granting those request and deferrals or you do that abstain from it got your money.

Got 100% of or payment.

I just wanted to highlight that we have a number of people you're going to asking is minimal.

Got it and same with that percentage rents like that you actually got there's cash it wasn't so you have an accrual at this point.

Yeah. The park hotels money is cash.

Okay.

And with that.

Deal. There there was this I guess relatively fair to a relatively near term opportunity to to kind of rework that and your year lease was under market does is there any chance that this situation. This brings the whole thing back to the table early or anything we should expect there.

Yeah, Let me I think you've seen what park has done in the capital markets and.

If we can provide some attractive alternatives to them on.

No not sure exactly.

What kind of timing of out, but we've had conversations with.

Parties in and around that transaction to say you know we think we can do some good win win opportunities that theres a desire to do so but I think they've been focused first and foremost on building a.

No real war chest of liquidity and.

Went to market relatively quickly.

I think our solution is probably not.

A very long term solution, so it'll take a little bit more time to think through with them or their advisors, but it's definitely something that you know is on our radar and were open then ready to do business.

Okay, and just kind of staying at the sensitivity around the roughly $4 million that you been getting and percentage rents on that.

Is it.

Where does occupancy need to be or at what point because that 4 million just just kind of go away 'cause it.

75%, 40% like what's the order of magnitude.

Yeah I think.

Give your very rough number or is it those hotels are closed for five to six months with zero revenue.

The hard to see them recover.

Pay anything on a percentage rent basis.

We again 30, 30, plus day them so.

We're just we're using a very rough estimate.

In terms of revenue impacts and.

Yeah certainly.

Concerned, but the hospitality industry is going to struggled to come back as quickly.

Some of these assets are in very good markets, but.

You are reading the tea leaves from all the hospitality folks we talk to.

No, it's not going to be a snap back here.

Okay.

Then just last one I guess for or to maybe Collyns question on the debt that you've been able to procure add that ties with your bomb team has been very attractive and long dated what's.

Sort of approach rising matrix or what are your partners looking at where it when they price that in terms of spreads I guess, it AAA CMBS or is it some other group of corporates or.

Hi, just trying to get a sense as to how much maybe spreads.

You may or may not offset the change in just base rates.

Yeah to look I think the glass.

You know deal we did they definitely increase spreads relative to other things they could invest them. So it definitely depends on where they see the ability to invest.

And then sort of the ultra high quality long term sector. I would also tell you that we have been.

Viewing that you I think you use the term partners.

We have not been nickel in timing to build this business.

We think a.

The spreads were getting too are always on our assets or attractive and work for our model and so we don't we don't.

Try to push them to the very edge all the time, we're looking for ways to make this a long term symbiotic relationship and so I think.

We've built up some goodwill in terms of.

Being able to approach them when prices are moving the right way and say, we're not going to ask you to reprice. It in our favor or we think the same will be on the other side. So I think it's been a really good relationship. The bread is built with a you know a growing list of.

The company that do see this is an attractive place for them to put capital.

Lending it you know what is effectively 20, 25% or the values of land and building combined.

And it seems like a really safe place.

And ladies kinda moments.

So I'm going to tell you, yes, we are susceptible to spreads widening what is the whole market widens.

We also typically we'll get the benefit of.

Base rates falling, but it's not a one to one correlation.

Okay. Thanks for the car.

Thanks.

Our next question comes from Cuban Kim with contract. Please go ahead.

Hi, good morning.

Morning.

A lot of questions have been asked already so maybe we can take just take a step out again.

Bigger picture can you just talk about some of the conversations you're having with some of your prospective brownies customers Andreas Kobe 19 environment and I would suspect there some positives and some challenges coming out of that and also curious as the number of new faces coming to you has changed at all.

Marcus you want to give some color there can certainly.

Good my answer, but you're on the bonds right now.

Yeah. So so.

The first question on the existing customer base.

I think that and the psychology around paying ground rent, they're somewhat similar paying property taxes. So.

The fact that only 1.5%.

When they have to 2% app for any sort of rent the Berlin. They were obviously in the.

Asset classes that you would expect we didn't have much dialogue with our existing.

Customer base around their ground leases.

I expect that to you know continue going forward.

Given all the things that Jay discussed on the amount of value erosion that would have to occur and.

I think the way I I think about it we think about it is you can take a look at all the public company.

Reeks, we own a high quality portfolio and you look at the value erosion, if not even close to touching our business. So.

That's on the existing side, we and we all right away market hack Yeah, I was talking about talking about new deals not if there are paying wrapping that that to me I'm not sure about apart.

Got it so so with the existing customer base with those that have capital. We are engaged with those and I would say there has been a ton of new engagement with new customers.

Who are looking at their liquidity options.

Large owners with either redemptions in their core funds a public companies, who are sitting there and saying okay.

I can tap the unsecured market, but that cost me acts and this capital solution is hundreds and hundreds of basis points cheaper.

I maintain all operational and financial control it seems like a great option as I think about what to do so theres engagement there.

We've rolled out a new initiatives.

Safe as a corporate solution for.

Non real estate companies, who own high quality real estate, yes, as they think about their liquidity options. So we're taking advantage of the current dislocation.

And pushing our story across asset classes and across a broader diversified owner base than just.

Just in customer base, and real estate owners and operators.

And does this.

Coven 19 crisis environment had all changed.

What you want to buying going forward does that make you incrementally alter your investment philosophy.

I don't it doesn't we've always been focused on high quality land and.

Hi quality assets with high quality owners I think that the the fact that 100% aid and only 1.5% asked for relief is a testament to that.

I think we are taking a long term view across all these assets and so we've been proactive on pursuing office and multifamily and selective hospitality I think that you'll see that continue.

And weve been.

Discipline to not do any retail and you can imagine all the retail companies called and asked if we would be a solution and we've continued to say now.

Okay, and just one last question.

From a funding perspective do most of your lenders keep those loans on the books or.

Is there any percentage testing syndicated huh.

The all the recent financings for the last 24 months its balance sheet with insurance companies.

The we have one CMBS transaction or early on but quote unquote is syndicated out to the CMBS market.

Okay. Thank you.

Okay.

Ladies and gentlemen, if you wish to ask a question. Please press one zero at this time.

Our next question comes from Jade Rahmani with KBW. Please go ahead.

Thank you very much for taking the questions and I hope, they're all doing well I wanted to ask if you could give any thoughts on the outlook for commercial real estate prices, particularly in the New York Office market.

[noise], Hey, Jay Yeah look.

We see what's happening on the screen with some of the biggest owners.

There's a little bit of a battle going on in terms of.

Yeah, well people come back to work and want more space reconfigure the existing space to grow.

Great quote unquote, a little more safer environment will newer buildings with more extensive filtration systems and no touch systems become more attractive.

And all that offset by the you know the number of people who are working from home who are getting comfortable with video technology is that going to somehow change the working environment.

Our belief first and foremost as the New York is still one of the most important cities in the country.

Intellectually financially.

Culturally so again.

We look to do longer term investing so we're looking at those markers I'm more than we're looking at what what happens to.

Occupancy and rental rates in the next six to 12 months, but we'd like to keep a handle on that so we understand what our customers are thinking.

And right now what they're thinking is this is a shock to the system.

Clearly New York, even financially, it's going to take a pretty hard smac, but a lot of the up and coming companies that are proving themselves could be.

Stalwarts through this economy Amazon Facebooks the googles.

I have no major president who's in the city. We don't think those are going away. We do believe you know.

The work environment is a different environment than work from home and more productive environment.

So I guess.

Short term answer is clearly the.

The screen tells us that values are being impacted the near term.

But long term, we would still make about on New York.

It was one of the key cities.

Okay and.

And then to and I agree with that in terms of and personally I can't wait to get back in the in the physically.

In terms of the three large deals you did last year 685 third Avenue 135, West 50, West 50, it and for 25 Park.

I believe that those buildings are not stabilized yet in terms of occupancy pre cove it.

So what would you your outlook for you know the lease up profile and the ultimate behavior. The equity sponsor be at this point do you think it has anything changed that would negatively impact the outlook for those products.

Jay you want me to know.

Yes go ahead of market.

Jay how are you I agree with you I would love to be back in the office versus the at my dining table right now.

So.

The we don't think anything changes. So if you look at for 25 part Park Avenue as an example, Ah Theres a belief in two of subordinate capital to US now do I think they're going to get there $200 plus rents I.

I think they'll have to wait.

For a while to get that as you know citadel.

As most of the building on a long term basis. So there is a casual bridge for them.

And I think from an equity standpoint, they may have to take.

Some slightly lower.

Rents, but as it relates to.

Our review of kind of the mark to market underwriting and any sort of risk.

It's limited.

195 Broadway was another large deal was 100% leased seven and a half years at weighted average lease to sort of put away nice rent roll that'll probably yeah.

You know.

Performed very well through this and then come out on the backend hopefully as a as New York recovers over the medium term 65 third was a stabilized asset as well they actually had 70000 square feet of positive leasing pre cove it at rents higher than we.

Expected, so that deal that pretty much put away as well and then 50 at street had done some pre leasing prior to covert as well, but I expect that went to probably take a little bit.

Longer.

To to execute there in the middle of their renovation and capital plan. So my my gut is they will probably slow down and wait for the market to recover versus signing leases today, which are probably at levels 15.

20% south of where they thought.

But again on that asset, there's hundreds and hundreds of millions of dollars of capital behind us large institutional core fund ownership.

So we even despite the volatility that may occur behind us.

We're not we're not paying too much attention to that.

[noise], Thanks, and then the last cycle multifamily performing.

Probably the best of all the asset classes, because there is excess.

Homeownership that filter then as an additional counter cyclical demand driver what do you what do you expect to take place and this and this cycle.

Yes. Good question, Jay I think you know, we do see multifamily still being a pretty solid.

Performer throughout this cycle and as people get.

No more uncertain.

They are temporary a choice that's much easier to make them, making a long term decision. If your job is not.

Certainly the or their economy is not certain so we'll probably see you know multifamily busy.

Living solution of choice for a while here yeah, we have been focused on multifamily because in good locations. Good good access good market.

We think those are good places for us to provide capital.

And we've been trying to get into some of the larger urban markets in the multifamily space.

One of the disappointments in the first quarters, we thought we'd been able to do that.

And that deals on hold so we'll continue to view that as a top choice market for us.

And thank you know again, there's different strout as of the assets in that we'll try to focus on a higher quality larger institutional sized assets as opposed to them.

It was smaller stuff that doesn't really fit us.

On the offense side I was wondering how are you getting any calls from reach or other players with unencumbered assets looking that potentially unlock capital without having to pursue forced asset sales.

And I thought that the comments around looking at non real estate owners, who.

Yeah, I have operating businesses, but also in real estate as a additional market was interesting.

[noise] I think if you're sitting in the you know CEO seat at a at one of the public's with the unencumbered asset base that you know you're surveying your options.

And I would tell you 12 months ago, we were not an option today, we are 100% an option.

You know selling assets you know if you think about the hospitality side, there park and bring Amar habit have assets on the on the market I don't think any of those sell because there's a handful of bolger bid that 65 cents.

Yes, 70 cents of value.

So taking that hit raising equity doing some highly structured convertible preferred versus getting liquidity from us.

Yeah, we're sort of telling our story here, but we think we're a much better capital solution than those alternatives.

So we are in the discussion.

You know trio of their option. So we're hopeful and optimistic that we'll find some solutions for those groups.

And is.

It is retail like necessity based retail strip centers that would include.

Grocery anchored and you know pharmacies in retail that's still performing that Red line just for you guys.

I would say the malls or Red line I would say, it's it would be very selective on that on the strip side very very selective.

Yeah.

I would tell you we're having looked at any.

Our next question comes from Zacks Other bank with Mizuho. Please go ahead.

Hi, Thanks for taking my questions, what everyone is doing well, but just a quick follow on question in terms of office real estate do you foresee a future where theres less demand for need for office space due to a cultural shift from working from home mortgage you to coded and companies realizing productivity hasn't declined too much.

[laughter].

Well I think that I'm going to be one of the base coming out of this but I can tell you are anecdotal. Your view is well productivity you know is impacted for.

Many of the types of office buildings that we are the logical capital provider for well certainly there are work from home solutions that will come out of is that.

We will be interesting but.

Just in terms of productivity I don't see.

Necessarily to the core office stuff that we deal in no radically changing.

Your work from home model.

We do see the marginal impact on.

Travel in the marginal impact on.

You know potentially some of Oh.

Hi friction.

Parts of our economy traveling across the country to have a one hour meeting on implying back I.

I think you'll start to see people do that through.

Technology more often that that's definitely going to happen but.

Daily work environment, the daily interaction with social.

Energy that's created that makes you know working for a company part and parcel will.

You know why you want to get up every day and given your all you just can't replicate it work from home.

So.

Highly engaged workers.

Still are important and we just think you'll lose quite a bit of that.

If you.

Maybe you know work environment that role.

Accustomed to working and so I think there's going to be impact, but at least at this point we are.

Optimistic that people will want to come back together, there isn't certainly an intangible value that we.

We can all talk about the dollars you say when you don't have office space are you done.

And get into that group environment, but you're definitely losing something as well and I think over a longer period of time people will start to realize but.

On that as an extensive cost.

To save a little bit office space.

Thanks, I appreciate the color Oh go ahead.

Besides the one thing I want to add to that which is that.

I realize and I've had this conversation with a lot of other counterparts, we all really like our co workers.

And that intangible benefit Jay referenced is a real thing.

Yeah, the culture of a company being altogether productivity. It's just more fun technology is great. It's a it's a good solution. It has made this entire difficult.

Environment easier, but I do think that intangible.

Benefit is a real real thing and then if you think about it from a health perspective, there maybe some reverse in the Densification of office space, you should usage, which.

Can potentially impact some of the demand.

Thanks appreciate the color and just one more for me you guys see an opportunity or as shifts emerges from this economic downturn in terms of your messaging or value propositions at year or two you're building owners as a safer and better way for them.

Secure financing.

The future deals.

Yeah look we're you know our three pillars are you know capital efficiency cost efficiency and risk reduction.

Certainly.

Having debt coming due in a in a tough struggling economy is going to be a real problem.

Whether you're in the CMBS world or.

No no any sort of debt situation, where you've got a large block of debt coming due the gonna be difficult.

Yeah, we often told our customers.

Interest rates are at historical lows, you can lock that environment in four.

100 years.

And take half year maturity exposure off the table.

And again, you know again.

Think about 35% no ground lease the value and sort of 3.5% starting day one Neil.

The actual rent payment to buy that insurance are extremely low.

So we feel like the story that we had been telling will serve you know a lot of people very well protect them from exactly that's kind of environment having to have.

You know a large amount of debt coming due maybe not you know.

As a parent today a month in here, but I think as is the rolling impacts.

Begin to play out over longer time period.

Nobody is going to want to have unnecessary friction costs.

Nobody is going to really be able to two you know picks up.

Mispriced inefficient capital structures.

And ultimately people are going to have less risk and perform a debt maturity.

So we think the story very much impact, we think customers will continue to see.

Places, where it's appropriate to work with both as a better solution.

But we're going to need to see transaction activity again, and obviously yeah.

Yeah, we are in the middle of April and you know.

Still too soon to see.

How how big an impact and you know where where there's all sorts out but.

The three pillars of our business, you know look ever more attractive than our minds right.

For a building owner who is going through.

And thinking about the future.

Thanks, guys.

Mr folks we have no further questions.

Great. Thank you should have any additional questions on todays earnings release, please feel free to contact me directly.

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