Q1 2020 Earnings Call

<unk> at the end of the presentation during the question and answer session.

At this time I'd like to turn the conference over to Miss Sera Buddha VP of Investor Relations for Boston properties. Please go ahead.

Hi, Thank you welcome everybody to the Boston properties first quarter 2020 earnings Conference call Todays press release and supplemental package were distributed last night in furnished on form 8-K in the supplemental package. The company's reconciled all non-GAAP financial measures to the most directly comparable GAAP measure and Nick.

Ordinance with Reg G. If you did not receive a copy. These documents are available in the Investor Relations section of our web site at investors that the equity dotcom.

The webcast of this call will be available for 12 months.

Just one we would like to inform you that certain statements made during this conference call, which are not historical may constitute forward looking statements within the meaning of the private Securities Litigation Reform Act.

These statements involve known and unknown risks and uncertainties and although Boston properties believes the expectations reflected in the forward looking statements are based on reasonable assumption, we cannot assure you that the expectations will be obtained.

Risks and uncertainties that could cause actual results could differ materially from those expressed or implied by such forward. Looking statements. We are detailed in yesterday's press release and from time to time in the company's filings with the FCC in particular, there are significant risks and uncertainties related to the scope severity and duration of the cobot 19 condemn the actually.

We have taken to 10 days the pandemic l. mitigated the impact and then direct and indirect economic effects of the pandemic and containment measures on Boston properties and on our tenants.

Boston properties does not undertake no duty to update any forward looking statements I.

I would like to welcome Owen Thomas Chief Executive Officer, Doug Lindsay, President and Mike Labelle, Chief Financial Officer during the Q and a portion of our call raise Richie senior Executive Vice President and our regional management teams will be available to address any question.

I would like to turn the call now over to Owen Thomas for his formal remarks.

Right.

Thank you Sarah good morning, everyone.

I'm dialed in from Westchester County, New York I would normally point out at the start of our earnings call that we once again beat our estimates and explain to you how well we performed in the first quarter as well as our growth expectations for 2020.

However, we recognize all our world changed in March and our focus this morning will be on the state of the Cobot 19 pandemic.

Impact on markets and Boston properties business.

What we're doing in response and how we see the future unfolded.

Despite the near term challenges of the crisis, which I'm about to describe I'm optimistic about the future and remain confident for Boston properties ability to both rather current and coming market uncertainty as well as the pursue overtime new opportunities that will undoubtedly present themselves as a result.

The crisis.

Recovered 19 pandemic took the world you asked the business community and the real estate industry by surprise.

It's a good last one on the difficulty in predicting downturns in the importance of always being prepared for them.

Recoveries 19 recession is different from past downturns and that it was sparked and is driven by science not economics, making its future course more difficult to predict.

The precipitous drop in economic activity globally has had significant negative impact on many industries, such as energy retail and travel and 26 million U.S. jobs have been lost at least in short term.

So how does this economic downturn progress from here.

The answer is science based and the tire really driven by the fight against desire.

Economy cannot fully return to normal Intel individual feel safe, which can only come with the development of a vaccine therapies testing and or a better understanding of the dangers of the buyer.

With these solution with likely months down the road our elected officials at the federal and state levels are faced with very difficult decisions as they analyze imperfect data and balance the disease that meter extend the lock down for health safety or reopen the economy risking further outbreak.

So the strategy to shut the economy through and wrote work has been.

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Thank you for calling me I have your conference I'd number.

Yeah, I'm, sorry, it's the Boston properties earnings call.

Thank you a moment.

Okay me I have to spend link of yours.

Person last name.

Yes, its Conor C O N O R Mcdaid M.C.D.A.D.

You have your company name.

It's era A.I.E.R.A. J.

Thank you all doing so the conference.

Thanks.

Good giving you the building blocks, where you can pretty quickly come up with your own views on what you think the economic impacts will be a cobiz 19, and provide yourselves with estimates for our earnings in 2020 should you do see should you choose to do so as well give you a sense of the baseline for 2021.

I'm going to stop here.

Hand, the call over to Mike who is in that field, Massachusetts.

Home of that infamous Disney movie, the computer that worked tennis shoes.

Putting 1969, starring Kirk Russell as a student at midfield College, Mike go away.

Thanks, Doug.

Oh, you know I really thought you'd go with the Shaggy dog.

But you know I'm just I'm, just happy to see that you're spending your time well at home catching up on your Disney Classics.

Hi, good morning, everybody.

You know first we truly hope that old you and your families are safe and healthy as we experienced this really took on this morning I'm going to go through three topics.

Our first quarter performance.

More details on changes from our prior guidance and our balance sheet and access to liquidity.

With a strong first quarter reporting that's a little bit dollarseighty three per share would just two cents greater than the midpoint of our guidance for about $3 million.

The office portfolio exceeded our assumptions by approximately $6 million for three cents per share.

About two cents of this was from lower expenses, primarily utilities due to the milder winter and lower aren't andexxa and a penny per share was from higher rental revenues.

It was offset by $3 million of lost income related to the shelter in place orders from Covidien, 18, which impacted parking income by $2 million and caused us to close our Cambridge hotel touching a million dollars compared to our budget for the quarter.

Doug did a great jobs grabbing a revenue profile.

Our current exposure is during this crisis or primarily retail parking and our hotel, which as of the first quarter comprised 11% of our consolidated revenue for the first quarter.

To assist you with your model I want to summarize what we expect the impact on our quarterly run rate will be from these exposure areas. So you can get a sense of the change from our guidance last quarter.

What does not clear is how long the shutdown a businesses will last but this information will help you calculate the impact on us based on your own views.

Retails about 7% of revenue Doug described their segments of our retail portfolio with tenants that have justifiable financial needs, where we're actively working on lease amendments.

For a number of alternative structures, but in most cases, there will be a pause in cash rent followed by a future increase in rent from or both.

The result will be the law of near term cash income, but a more modest impact on GAAP income as we straight line rent for those tenants, we believe will resume operations.

We estimate the impact on our quarterly GAAP revenue related to our retail exposure will be $3 million to $5 million for core.

Parking is typically about 4% of our revenue were $28 million per quarter.

Definitely $17 million. The this is a mix of longer term corporate tenant leases and month to month leases, where today, we've seen only modest impact.

The remaining parking revenue with daily transient, which is more heavily impacted and totals about $10 million per quarter.

Our hotel is currently closed.

The negative quarterly impact to our I suppose approximately $7 million versus our prior assumptions.

With regard to office leasing.

Doug also describe the impact of the turn environment on tour activity that is affecting the pace of new leases for Bacon and expiring space.

In addition, he described the construction delays and like we did impact our revenue recognition related the tenants who are currently building out space.

We expect a reduction of $25 million to $35 million revenue for the full year 2020.

From a slowdown and the pace of new leasing and T. Construction delays combined with because this is compared to our prior assumptions for 21.

On the positive side lower interest rates should result in reduced interest expense on our floating rig that.

The vast majority of our debt is fixed rate, but we have $750 million floating rate corporate debt and approximately $200 million in our share of floating rate joint venture debt, where interest is not being capitalized.

The drop in one month LIBOR to approximately 50 basis points is expected to reduce our interest expense assumption, but $7 million to $10 million from our prior assumptions for the year.

These numbers do not include the risk of reserves, we may take associated with the accrued rent for tenants, where we may see a dramatic change in their business prospects.

Or actual default, we may encounter Judy the economic impact would be environment, our tenant space.

Hopefully the information we provided on tenant collection leasing and development provides perspective on the current impact to cope with 19 our business.

Overall I would say we are fortunate VSP was built to withstand such situations.

We've always maintained a conservative balance sheet, a base of strong credit worthy tenants and an appropriate level pre leasing to mitigate development risk.

Given the uncertainty associated with the timing and pace of returning to work and the unknown depth of the economic recession. We believe there are too many variables to provide prudent guidance for 2020 at this time.

As a result, we are withdrawing our 2020 died and we will revisit this decision in future quarters as we develop more clarity on the economic trajectory of dependent.

I also want to remind you of the trend in our same property performance in the first quarter. Our same property NOI growth was up 4.8% over 2019, which was slightly better than our expectation.

As we described last quarter, we have known move out in the second quarter, including 250000 square feet in Reston Town Center, and 85000 square feet at the gym building.

This combined with losses related to cope with 19 is expected to turn our same property NOI growth negative in the second quarter.

The last thing I want to cover the strength of our balance sheet and our liquidity.

As a core philosophy, we prepare our balance sheet to fund new investment in good times, but also to be ready for an economic disruption. So the we're not in a position to be forced to raise capital in a bad Mark.

As evidence, we raised $2.2 billion of debt capital in 29 team to refinance our 2020 unsecured debt maturities and put cash on our balance sheet to fund our future development investments.

We currently have $661 million of cash and $1.25 billion available under letter of credit. We also had a $151 million from the sale of our new Dominion property sitting in a 10 31 escrow account.

So in aggregate, our current liquidity exceed $2 billion.

We're also working on the dispositions that own described it to raise another 250 million.

And our external funding needs for the rest of 2020 include approximately $500 million for development that we currently have in our pipeline and $130 million for the land acquisition fourth and Harrison San Francisco that we expect to fund with the 10 31 escrow account.

Our 2020 debt maturities are modest with only $200 million, representing our share of five joint venture mortgages that we expect to extend or refinance our next sizable debt maturities not until may of 2021.

When we have $850 million of unsecured bonds expiring that have a gap interest rate of 4.3%.

The investment grade unsecured bond market has been one of the most resilient capital markets. During this crisis. The market has remained open throughout providing liquidity to corporates and while tenure credit spreads for us widened from the low one hundreds pre crisis to a wide point about 400 basis points. They have now settled down into the.

Hi, two and.

Based upon where treasuries are today, we can price a 10 year bond it under 3% to 5%.

Still near historic lows and lower than the yield on a 10 year bond we issued in mid 2019.

We will continue to monitor the market the potential to layer in additional liquidity in 2020.

In conclusion, I want to reiterate that what we're certainly not immune to the economic impacts of cobot 19.

Office rents comprised 86% of our total revenues come from an array of mature primarily credit companies with long term leases in diverse industry groups.

April collections from these clients exceeded 95%.

And our balance sheet liquidity and access to capital remain a string of the company, providing us with comfort and our ability to ride out a challenging time period and to be ready for opportunistic investment when the cloud clear.

Thank you got a that completes our formal remarks.

Operator can you open the line for acuity.

Certainly at this time, if he would like to ask a question. Please press Star then the number one on your telephone keypad again, let us start than the number one. Your first question comes from the line of Jamie Feldman with Bank of America.

Great. Thank you and we appreciate all the detail thoughts.

I guess just to start out you know as you think about you know the fact, you don't you could see more reserves going forward you could see tenant bankruptcies going forward. It you know you pulled your guidance just you know how do you think about how long how long your tenants that kinda are on that list that watch list I can make it before you really do start to see the wave of ER.

Hey way, but maybe just a pickup in bankruptcy volumes and greater.

Reserves on your end.

So Jamie this is Doug I think that.

We we are we're we're we're not I'm, saying when about about whats going to likely to happen a week, we do expect there to be some amount of.

Restructuring going on with summer with some of that the tenants that I described.

But we also think that that's the office space that they have in our locations maybe.

Critical to their ongoing.

Restructuring to the extent that they're able to do that and so so we think we're gonna see some of this over the next couple of months or or quarters. As you know people understand the severity of situation, but its you know it's it's hard for us to to tell you one where another with their particular tenants restructuring is going to involve.

A major disruption in there their use of office space at this point because they are using it. Although every one is effectively you know done the sheltering space shelter in place our workflows and so they're not currently using that space today, but we expect they'll go back to it.

And then what about the retail side.

So our our retail is I would say in terms of what where are we you know where we've collected and we haven't collected again, we have an awful lot of uggs service and or.

Rest restaurants that are sit down or fast casual and we recognize that that's going be a slow come come back and so we are we're really trying to work thoughtfully and constructively with those organizations to make sure that we're not a problem that that puts them into a more difficult financial situation and.

I think that our locations from you know from a from a.

Business perspective are good ones for those businesses, where they were doing very well and I think it's a question of how long, it's gonna be before people get comfortable going back and and being more crowded areas with regards to eating and getting take out and so I think it's gonna be a longer road.

For those companies to figure out whether or not their businesses are gonna be quote unquote sustainable into our you know, they're just they're kinda, they're gonna just sort of you know decided it's not prudent for them to move forward, but where you know again, we're having very constructive conversations with those operators and where you know we know that they in all.

Most every case they want to come back.

Okay. That's helpful. And then I guess just a second for me. When you had commented on you know initially you think tenants come back with much less dense layouts can you just provide more color on the kind of on the conversations you're having in terms of the amount of space that they do you feel like they will need per employee.

And just you know that seems like the pendulum has gone too far here at density just what the initial discussions on that and even from work from home on the longer term.

Yeah.

So Jamie I, I think theres, a speculation and some of that question and the way I tried to focus my remarks is you know acknowledge the questions out there and then focus on what we know today and I do think there's some short term and long term answers. So first on the Densification.

There is there it's going to social distancing, you're going to continue in our core markets. Even after we go back to work. So employees are gonna have to work you know plus minus six feet apart.

Even in our own work spaces, we're looking at that and trying to figure out how we're going to configure space or how we're going to have our workers come to the office such that that distancing can be.

I can be accomplished and again I think it's a little bit early days I think I, both landlords and customer they're figuring this out right now because the returned to work is happening, but you know we've seen some customer literally just going to going to take out chairs or you're not going to rebuild their space, they're gonna take out chairs.

Or in some cases, they may take more space where figure out temporary.

So that's what we know today.

You know longer term assuming that the virus goes away, we get a vaccine and we're in a real post pandemic period. You know my guess is the six foot distancing won't be as important they'll always be sensitivity to you know I.

To the virus into health I think everyone is focused on health security will be greater but I doubt that six foot.

Social distancing requirement will remain and but I don't think that in general our companies are going to be seeking to densify further from where they were in February of 2020, and frankly as we've said on these calls before.

We thought that trend was.

Subsiding anyway.

And I think your last question was on the work from home and how what impact that going to have again, we don't know there's lots of speculation about it I think there's no doubt that we all are better at it we have the tools, we understand that value, but I also don't think there's any doubt that every anecdotally all of my.

Speak with wants to go back to their office, they Miss the efficiency of it the come Rhodri of it.

So I don't certainly don't think the the need for office space is going to go away, but I do think that work for home is going to accelerate a trend.

Maybe you won't traveled to that next meeting if you can do it.

And then you know if someone needs to work from home for personal reason or otherwise one day a week, that's now going to be easier to accomplish so I think there'll be some trends like that you know as opposed to wholesale changes in office demand.

Okay, but I guess, you're you're not really having those initial discussions yet with tenants in terms of how they're thinking about the world. It's just too early as my guess.

Well the short Jamie one we're having that now that's why broken into two we absolutely no up customers that are taking out the.

Boston properties and taking out the.

And we also are having not a tremendous number at this point, but we are having conversations with customers that want more space to deal with distancing we know that.

And Jamie you know we've had conversations with some of our technology tenants and there's no question that the technology tenants are looking to increase the amount of space per employee and they're clearly think thinking about reducing the quote unquote areas of collaboration and increasing went out what you would refer to is.

Personal space.

Hi, My own my own personal view is the short term issue and then there's a much longer term issue I think a longer term issue is is less about other concerned because I do believe that they're you know once once we get through this particular virus on people will get back to being comfortable not wearing masks and their offices and being able to be in.

Close proximity to each other but I think that the that the what this crisis has created as a realization that you have to be prepared for something like this happening in the future and so I think that will impact densities and I'm in a more meaningful way because I think people are going to look and say okay.

I know that we don't have any problems now, but what if we get another one of these kinds of problems, we want to be position to be able to recover much more quickly from it.

Okay, great. Thank you appreciate the thoughts.

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And your next question, operator, Vikram Malhotra with Morgan Stanley.

Hi, Thanks for taking the questions and again, thanks for all the details.

And coordination or maybe just going back to you know one of the original comment which talked about certain markets ancestors would probably do better than others. I think that can government where mentioned I know why that's hard to comment on.

Kind of rent growth Oh that trend, maybe give us some relatives call relative color just thoughts on how you view your markets on a relative basis today on the rent growth and value prospectus.

Yeah, I think increments Owen.

That's hard to rank them up based on a future state that dependent on a lot of different factors that I outlined in my remark.

But I do think as you suggest that I think it is instructive to look at each region and understand what the industry drivers are for demand in those regions.

And as I suggested in my remarks, I do think there are industries like life science like technology like government that will likely outperform because they either been enhanced or not nearly as heavily impacted by the crisis you know and the converse is also true you know there industries like enter.

Good.

Like travel like retail that I think are more heavily impacted and I think those cities that have higher and lower percentages of those industries I think that's going to be instructive to think about how the office markets are going to perform over time.

Oh got enough, there's more you'd like to it.

Yes, I would just add that that you do have to look at the current condition of those markets from a supply perspective, as well and so markets like San Francisco and Boston in Cambridge, which are obviously very tight today.

We'll we'll have less of that there'll be less of an impact relative to the recession that a market like CBD, Washington, DC from a real estate perspective on the other hand, you know people people typically look at Washington, D.C. as a better market from a demand perspective during a recession and it'll be interesting to see.

See whether or not the government reaction to what has been going on will be to invest in in infrastructure that will be helpful to the United States in the world going forward and that would mean, you know office space and job growth and the question is where we're might that be if it if it's in the Washington DC area.

But I will tell you that we continue to get inquiries from both technology and life science companies.

In in interestingly in Reston and in Boston and aim to some degrees in the in the Silicon Valley about additional space requirements. None have been is moving quickly, but there are our tenants that are our thinking about growth at the same time. There are also tenants that are in a quote unquote.

New age economies like a you know in the travel industry or in the food industry that are that were quote unquote techno technology oriented companies that are obviously going in the other direction based upon their industry sectors.

That's really helpful. And then just maybe building on that on the inquiries can you maybe given that it more granular color on the kind of development pipeline than the lease up trajectory from here and given the inquiries can you maybe give us some color on you know how how how you were thinking about sort of.

New starts just prior to this and what we should be kind of viewing as we think about you know 2021 and 22 as well.

Sure. Let me answer the first question and then when you can pick into the second I'll just give you specifics so in our existing development platform.

The the only place where we have quote unquote available space today of any significance to the dock 72, which isn't the Brooklyn Navy yard and if you've noticed our supplemental our occupancy was down in raskin, because Fannie Mae gave back gave us back a couple of floors. Interestingly we are in our in lease negotiations for a 10.

Who would take that space plus virtually all of the remaining portion of rest. The next so aside from that the only other exposure. We have is in our city point property.

Where we have seen or two floors or 60000 square feet of space, So our existing development.

Type line.

Basically full or or close to committed other than dock 72.

Yeah.

And then become just to add to that to think going forward.

There are three projects that I would mention and you know I would just say as I mentioned in my remarks, as an overlay understandably given the crisis, we're much more reluctant to take speculative development risk.

And so when you look at our pipeline.

On the last quarter call, we mentioned two projects fourth inherits and and our platform 16 project in San Jose that we were considering launching at least in the case it platform 16 first phase.

Without tenet and we put that on talk because we want to see.

How this marketplace unfold before advancing either one of those projects. Further we are okay, we're going to buy the site under fourth inherent than we have all the plans on the entitlement for the first phase we own the land under platform 16 were ready to go.

But we're going to wait for in this market environment, a significant preleased. The other project that I'm sure if someone's going to ask about is three Hudson Boulevard.

In New York City, and that I would say had hasnt changed the as much because we've been saying on that project, we needed a significant pre leased to go forward and that continues to be the case.

Great. Thanks called the color.

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Your next question comes from the line of Steve Sakwa with Evercore I S. I.

Thanks, Good morning, I guess first as it relates to add to co working.

Realize it's a it's not a big.

It's not necessarily a big part of the portfolio, but could you just maybe to co working in general and how you guys are sort of thinking about that in the marketplace. The stage they could come back into the market the impact that could have in some of your a key gateway markets.

Okay.

Oh, you want to go first Yep Yep.

Sure I think Steve.

Sorry were in different locations. So I didn't know whether Doug your out we're going to address it. So look I think there's no doubt that this environment is challenging for co working.

And because you know there was always the debate before the crisis about how well co working would withstand an economic recession, but what none of us really thought about.

How would co working perform in not only an economic recession, but a recession that required social distancing, which you know is certainly counter to the approach of a co working so I don't think there's any doubt that is they.

Going to be a challenged industry.

During the term of this recession.

That being said I do think long term.

There is a there is a role in a place for shared workspace in the real estate market other individual small companies that that like the flexibility and the speed to market of that product and I don't think thats going to go away and I think there are cost there our enterprise customers larger companies that will come.

When you don't want to procure a small percentage of their space on a short term basis. So I don't think those demand drivers are going to go away. So I think that the industry over the long term will still be around but in the short term, it's challenge and clearly there.

Limited growth probably contraction you know amongst the co working operators.

And there may be some consolidation in the sector and it's not going to be a source of net absorption for the office markets for the foreseeable future.

And Steve relative relative relative supply I think it's a it's a fair question. There's no question that.

Some of the operators are probably going to reduce the number of locations that they currently have leases too and as you know they have the ability to do that relative to quote unquote.

We leaving their LLC out there and continuing to operate there there the quote unquote overall mother ship.

And that space in many in many cases is probably not as it's currently configured.

Very amenable to a new installation now that doesn't mean that can't be retro fitted with.

Reasonable amounts of capital put into attempt to make it very functional but the landlords are gonna have to make those decisions as to whether or not they want to spend the money to reduce those have spaces. Because obviously they were they were constructed for a different kind of a utility and and so I do think that they will there will be some of that space in the major markets that will come back.

And now we will have to deal with that from a from a supply perspective. The good news is that.

I think we've talked about in the past.

In markets like Boston, and San Francisco, the relative amount of that stuff can pick compared to the total overall market wasn't that great. Because the markets were so tight I think New York City, obviously is going to have more of an issue with the number of installations that are there and then clearly some of the other markets, where you know that the co working flexible soon.

As operators had about how larger proportion of the absorption are gonna are gonna have coming back.

Okay, and just maybe as a follow up on that to the extent that you did get back any co working space is it would it be your I guess intentions to sort of reconfiguration Tesoro reflects by DXP product or do you think you'd have to sort of we converted to just traditional office space and release in the market.

I think it'll depend on on what it isn't where it is and will you know if if in fact, we were in a position where we get some of those space back I mean, you know, we're again, where we have relatively little exposure.

And the spaces that we do have you know are relatively small they're sort of a floor here in a floor there.

So we're we're where we feel like we'll we'll be able to adjust appropriately I would tell you that today.

I'm not entirely sure what the right configuration is for a new floor space and we're going to have to figure that out as time goes on based upon the way you know the customers are looking at what they want and what they need and so we would be probably somewhat reluctant to.

Take one of these spaces back and just and and.

Got it and put it into a quote unquote flex by DXP configuration in the short term.

Okay and then just one question for Mike I guess on the yet you know thinks we're laying out some of the retail that you talked about in some of the trouble.

Operators that you've got I'm, just curious could essentially care restructuring leases I mean, how are you thinking about.

Sort of thinking about what the right sales levels are for these restaurants or other retailers and are you structuring. These more as a percentage rent deals. So that you benefit as sales improved for them or are you trying to just recap sales at a much lower level and we said base rents I'm. Just curious how you guys are sort of thinking about the impact of the retailers and you know.

What sort of flexibility they have on new lease terms going forward.

Yes, so Steve this is Doug so so the only only companies work that we're having those types of conversations with our the the foodservice.

Operations, we're not having that conversation with a.

For a or with a.

Bona boes or or any of that sort of what I've heard was soft with retailers.

With regards to our.

Restaurant retailers, we think that making sure that they are not overpaying when they start to operate makes a lot of sense and so we are orienting our deals into percentage rent types of clauses for periods of time with an expectation that should sales good certain levels will start to get payback.

Got it okay. Thanks.

Your next question comes from the line of Craig Mailman with Keybanc capital markets.

Hey, guys I'm, just circling back to density and I'm, just curious kind of thoughts here as it relates to.

Maybe development demand and pricing here, you know the ability to to pack more people into less space clearly brought down occupancy cost and allowed.

On new supply some of these higher rents. So just curious what you think you know early thoughts on just the impact of that could be as you guys. You know look to start either forcing Harrison or platform 16, you. How you go about.

Designed in kind of coming to a potential yield.

On that.

I think it's too early to address that question I would I think there are as I mentioned, there are a handful of places, where we're talking to customers and responding to RFP.

For major requirements fourth and Harrison three Hudson Boulevard or two examples.

But I I'm not aware that we have had those kinds of impact in those discussions.

So I think it's too early to suggest that you know.

Rents are less affordable because of less density I, we certainly haven't seen that impact yet.

Okay, and then I Wonder if you guys have these figures handy, but I'm just curious in terms of your portfolio specifically.

Kind of where average tendon densities have gone this cycle.

Maybe knowing that you guys have more law firms in your portfolio that you know just getting rid of law libraries would naturally brought down density anyway.

Just curious as what you think maybe the impact.

Could ultimately be on on your portfolio, knowing kind of where tenants are today.

So we actually did a study.

For our board.

The middle of last year and it was I think it was surprisingly interesting to see that wall density has come down over time, it has not come down to nearly the extent that people.

I thought it would come down.

That you know there there are very different density levels for very different types of industries and and that the the the most interesting I.

I guess realization that we came to was that density is a definition that is hard hard to get your arms around because there are two different kinds of workers. There are people, who you are would refer to as traditional workers who are people that are.

Expected to quote unquote come to their space everyday and work on the in the same space and then there are what you would refer to is dynamic workers.

Who are people, who may not very frequently being in the office or when they are in the office to using different kinds of spaces for different kinds of needs.

And so.

The the real issue is gonna be how and.

No in talked about earlier as well as some of the other questions that were raised which is how it is working working from home and or working remotely impact overall density because I. Our expectation is they will actually be a lot more people who are assigned to a particular space.

But the way the space is built out may be much more wide wide open not in terms of open office, but in terms of giving people elbow room.

And the Nx space will will have.

Higher density of people, who are who are using it in a different manner not necessarily on a day to day to day basis, and so it's very hard to sort of understand how how those relationships are going to work into future, but we can tell you that prior to cope with 19.

We were seeing significant numbers of people on that were that were assigned to spaces and that we're not using those spaces on a frequent basis, but that's the view themselves is having an quote unquote office at a particular location.

Yeah.

I would summarize that by saying that and we were saying this before cobot 19.

Physical Densification is would likely over before cobot 19, densification with coming from increases in occupancy.

So I think that will accelerate I think the physical densification could actually go and the other direction and get more spread out and I do think they'll continue to be a focus on occupancy which will be partially facilitated by all the work from home tool that we're all uses.

That's helpful. Then just one quick one for Mike on you know as we think about bad debt. It really put a number out there just thoughts on you know where that could ratchet up this cycle, maybe look at what happened in the financial crisis, and just any significant tenants going on non accrual that we have to worry about was cash account mangers gap.

You know.

We do it on a tenant by tenant basis, and Dougs remarks, he really tried to provide some guideposts for those industries that we thought would you know potentially see more distress I think Doug came up with accrued rent penalties of somewhere in the low 40 million spur kind of those areas.

Is.

That.

We.

Weve focused on so that's kind of the the number that we're thinking about I mean is at this point, it's kind of early to determine overall.

I feel very very good about the credit worthiness of the overall portfolio and tried to go through that and you know you look at the top tenants that we have they're all very very strong again mature long term companies for the most part.

You know that doesn't mean that something is not going to happen right. I mean, if you looked at the last cycle does the last downturn, which was a different kind of downturn.

Certainly it was a financial downturn.

And I think the financial condition community is a much better shape. This time, so we did get.

Credit losses from places that you wouldn't necessarily expected like you know Lehman brothers for example.

Overall, I think we are well position and there's just a few areas where we're monitoring closely.

And we wanted to give you.

That inside there was a whole purpose of providing you some of those numbers to give you some insight.

Great. Thanks.

Yep.

Your next question comes from the line up for Rich Anderson with S. NBC.

Thanks, Good morning, just on further on that one Mike.

The $40 million accrued rent balance that Doug kind of went through in the office space and then you had this $25 million to $35 million.

It's a range for for the office sector that you went through is that incremental to the starting point I'm just trying to reconcile those two observations.

Sure there I mean, they are separate I'm still the 25 to 35 million that I described.

Basically a reduction of revenue from last quarter's guidance that we gave you. Okay. We think we are likely to have because.

The pace of leasing at slower. So you know we expected to have.

Tenants coming into either vacancy or expiring space, where we know tenants are leaving we may have expected those spaces to be filled and starting revenue in 2020 and with what's going on and you know the lack of ability to kind of do tours and our expectation is a lot.

That's going to be pushed off I think it will still be leased but it may not occur till 2021.

And then you know from a T.I. perspective, you know if we have a 30 to 90 day disruption of construction on tenants that we have to wait until they complete their spaces until we can start revenue we've got to push those dates out. So many of those tenants were expected complete the work at the end of the year another getting pushed down in 2021.

That was really the 25 35 million, whereas the accrued rent.

Is basically a separate item that at this point, we are comfortable with where our crude balance is on our balance sheet, but as I said, we're monitoring certain industry sectors that we think are little bit more exposed. Okay got it. Thanks. When you think when you think about.

The development pipeline is dock 72, as mentioned earlier, but are there any and you're in the a in the pipeline that you look at that maybe not right now, but perhaps down the road. If this thing drags out for any length of time that just fundamentally won't work and that you could be looking at like a stoppage in an exit from from.

From a project down the road or do you feel like everything you've got on the and the docket right now eventually some way shape or form will restart depending on how long this thing left.

Now we are highly confident that that the the developments that we have underway.

In in the Northern Virginia, and Maryland, marketplaces, and in the greater Boston marketplaces with the credits that we have you know in place are gonna be finished and those tenants are going to continue to payrock. Obviously, they haven't started their build out of their tenant improvement.

Construction, yet so it may very well be that the way they approach there their installation of their own spaces is going to change. So they use doesn't work I'm not sure how you're referring to from a financial perspective, they're going to work from how there how they're building out space I would expect that there will be lessons learned and there will be.

A pause in a review of those types of of improvement so that they can make sure that they're prepared for you know today as well as tomorrow, but where we have no concerns relative to the financial feasibility of the tenants that we have entered into leases with for any of those developments okay great.

And.

And also just I think part of your question was about the prospective pipeline and if it was as I just as I described we're spending significant investments in the future pipeline unless we get a material preleased such that the project would have the same characteristics that Doug described so they would have been quote the.

Risked that's now we do have a very significant land bank of over 10 million feet and as we've described before we control a lot of that land not true.

Not in all cases, but we try to minimize our cash investment in that portfolio and try to control and more through options or covered land place.

So you know I I don't think weekend at this stage piece through every one of those projects and tell you.

This is viable this is not but Mike.

Again, I remain optimistic about the long term.

This recession, we will work through it and my guess is these projects will be viable in the future.

Again, they are subject to entitlement planning and pre leasing. Okay. Last question for me you know the world famous NOI bridge over the past several years and I'm wondering do you feel like you kind of just got under the wire there in terms of completing that or will there be some lingering issues, perhaps at 399 Park, where you know that that might get.

Ticked down a little bit longer or do you feel like you kind of got that pretty much buttoned up you know the benign asset.

Every single space in every single one of those leases is done.

And the only question we have in front of US is when the tenants on some of the spaces will actually be occupying their space or having completed their T.I.s. So that from a revenue recognition perspective, we will have <unk> be able to start booking the rent interestingly, we will in many cases will start to see we may see actually start to see cash rent like.

We are now in certain cases on prior to when that space done so.

From an economic perspective, where we're you know were two years away two years past that those issues. Okay. Great. Thanks very much.

Your next question comes from the line of Alexander Goldfarb with Piper Sandler.

Hey, good morning.

Good morning.

A few questions first.

Doug in response to your development question on you, specifically said, Maryland, So I assume that you're comfortable with Marriott and taper their development headquarters in Bethesda, but maybe you could talk a little bit about under armour I don't know if that if that's part of the 40 million of rent accrual, but you know is is that.

Lease at the GM is that one of the leases that she didnt discussions for restructuring or as far as you guys are where they are current on their expectations to start paying cash rent.

At the end of the year.

So so we have not in had any additional conversations with under armour since there last quarterly call.

And and where our expectation is that obviously, they're not there's there's no cash rent right. Now. So there is no quote unquote collection issue and we fully expect that they will continue to be a thriving retailer and we'll be in a position to live up to all their cummins.

Okay. The second question is for Mike Labelle, Mike You guys. You can you walk through guidance and you walked through all the.

The variables and why you guys chose to rescinded at the same time, if we look at your development spending and the fact that you only through a little bit on your line of credit. It seems that you have a lot more confidence in your ability to fund development and the credit markets versus the variability and the income statement. So maybe you could just sort of juxtapose that because a lot.

Of companies are seeming very cautious on there on their balance sheet.

It it light up cobot, whereas you guys seem to have a lot more confidence in your balance sheet and your funding and not needing could drawdowns heavily have line of credit versus the variables that you outlined on rent collections.

You know Alex.

I think as I said, we feel like we entered this period of time in great shape from a balance sheet perspective, because we raised a lot of capital last year, you know that doesn't mean that we're not going to continue to think about ways to raise capital because in periods. Like this I don't think you can have too much cash per se.

So you know, we're never going to be evaluating all those things to make sure that we have as much liquidity.

You know as possible to.

Hi, good through this event and then be ready for what happens on the other side I mean, there was talk a minute ago about you know development starts and whether we would start developments during a recession or after recession and if you look at our history. Our history is that we don't really started a lot of developments in a recessionary environment.

That we hold those land parcels and things until things improve but there's other opportunities for the company to invest capital him.

Because there's there's certain situations, where we can be opportunistic. So I think we want to make sure that we have capital available for that we feel really good about where we are.

And we feel really good about our access so we're quite pleased with our partners.

That worked with us on those things.

Oh, Thank you Doug I didn't you shouldn't you Shouldnt construe ARD, our decision not to provide guidance with any discomfort with our income.

And our receipt of cash and our ability our abilities to forecast.

You should look at it as as the following you know in a traditional noncovered 19 environment, we would be giving guidance that has a pretty tight range and the things that we would be thinking about on the margin are are we going to be able to lease a little bit more space. This quarter or this this year win win of the seven or eight.

Projects that we have under construction going to be completed the when can we start recognizing the revenue how many of the renewal conversations that we're you know that are currently in place are going to happen in this month versus next month. So we can start recognizing you know the an accrued rent balance increase or things like that that those are the kinds of things, we sort of deal with more coming up with our numbers were not dealing.

We had $40 million of transient you know parking revenue.

And in the month of.

April and May it went to negligible numbers because people were told they weren't allowed to go to work or we we had a hotel that was operating instead of that $14 million 13, or 12 million in suddenly we closed the hotel Reits. So so the economic uncertainties.

Associated with what's going on or what is giving us a pause to provide quote unquote.

Hi guidance level and I don't think you should consider that that is is any reflection on our comfort level with our income.

On a relative basis relative to our balance sheet. So were you know there those are sort of two discrete issues.

Okay.

To add too I would add to Doug's point. The other thing I was trying to make the point my remarks. The future is also science driven.

You know, there's rumors about new therapy or drug for covert 19 in markets rally and everyone gets excited and then there's new news that it doesn't didnt work here. Just there are factors that are going to drive the economic outcome that are not economically driven there science driven in their harder for us to harder for us to estimate.

Timing and the impact so that was certainly a driver of the decision.

Okay. Thank you, thank you and Doug and Mike. Thank you.

Your next question comes from the line of Jarrett Johnston with Deutsche Bank.

Hi, everyone. Thank you.

What are some of the increased expenses, including new technology systems that you expect to incur.

I'd say new processes are procedures.

Putting in place to fully open now can you share any details on on the expenses in systems and any options to reduce gene.

Really offset.

So so this is Doug let me let me just give you the phones comment so.

Much of what we're gonna be doing are going to be.

Precede standard operating procedures and uses of different materials and different processes in accessing and cleaning our buildings and moving air around our buildings. The vast majority of that will be showing up in changes to operating expenses.

And so there's not a lot of quote unquote, new technology associated with that.

The one area that we're considering and we haven't made final decisions on our our temperature Texan effectively thermal screening and again those are that is not a high tech.

Instrument at the moment, we're not looking at doing thermal screenings relative to have having that the types of of screens that you're seeing in in airports in China and things like that square because quite frankly, they're not available and the technologies not not at a point where we're comfortable.

Laying it out so I think in the short term.

The cost increases will will go will be seen in our operating expense.

Side of our income statement not on the Capex side of it and we have to be thoughtful about making sure we're doing the right amount of.

I have health safety work and knock off peak, so concerned about dollar cost I'm until we're really satisfied that we are giving people the best possible environment to working.

Yeah. There also have been as you suggested in your question.

Operating expense savings during the crisis, because obviously the buildings are less occupied power usage is down.

Certain tenants want it to.

Have left janitorial, so that expenses down so there have been some savings that have occurred on the opex related to the lower occupancy.

Okay, great and it can you comment on your pipeline, how it looks today versus how it looks pretty cold and do you believe demand will return to previous levels, maybe late 2020 or could that be pushed out to 2021 are there still maybe a disconnect.

I think the.

As I discussed in my remarks.

The the when I assume when you say demand you talk about leasing.

The the.

Well.

Since the crisis started as I mentioned new requirements other than a handful of developments that were working on our are few and far between very limited tour activity. We are having success completing leases that work underway before the pandemic.

So I think for leasing.

Volumes to return you have to decide what economic scenario is going to unfold over the next year. So I'd describe three in my remarks.

The base case being we have a slow return to work.

Over the next couple of months and then there's some kind of medical solution.

Or some kind of solution where people feel safe by 2021.

And I think if the safety occurred yes, I think we can go back to a pre pandemic level of leasing sometime next year, but there are other outcomes that could slow that down our speed it up.

And then the you know the financial projections that I that I went over.

What were the assumption that we made was that we were not going to be doing any additional incremental leasing in 2020. So that can sort of give you a baseline on that number relative to 19, and then obviously the extent that we're increasing occupancy in 2021, you can make an assumption for what that would that means from a revenue.

Perspective, but it looked like the fact that matter as its own said you know physical tour activity is non existant today, there's a little bit of virtual leasing that's going on and that just means everything is going to get postponed right and there, but there are lease expirations in the marketplace to happen every single year and those lease expirations are going to require.

Wire leasing activity be they renewals or or be they you know moves to different locations and again as Owen described the may be very possible that if we're in a recession. Many companies will say you know.

I'd, rather not spend the money on on the new installation I'm not entirely sure with a new installations. It looked like and I'm, just going to renew for a year or two years or three years or you know something short term. So it's hard to say how that knew that leasing activity will manifest itself, but it will happen.

Thanks, everyone.

Your next question comes from the line of Manny Korchman with Citi.

Hey, it's Michael Bilerman here with many I had a few topics I wanted to go over the first owned in your comments you talked about looking at potential acquisitions, Umeighty, maybe setting planting competes today.

Two.

Look at something maybe down the road.

And you also commented about reset pricing.

Referring to deal that happened pre coveted and when sellers need to reset their expectations.

You clearly we're active post the G.S.C. you think about the GM building the macklin portfolio.

That you purchased what do you need to see to become aggressive right. So what are the goalposts from a pricing perspective, what do you need to see in the market to actually go out and try to transact.

And how active are you doing that today.

Yeah.

So I would say that.

In general we are going into a recession and that usually create.

As I mentioned in my remarks reductions in rents and reductions in values for certain types of building. We do have a lot lower interest rate, which is very helpful.

So I do think that it's likely that as a result of this crisis, we will identify some interesting acquisition opportunities as a result.

So your question on timing today is too early.

This just started six weeks ago.

There's a period of time, where that where the market needs to settle and new pricing needs to be established so we are simply saying in the market, making sure we understand what's going on.

Trying to understand any new leases that get done where's the rental rate those types of things, but I think our desire to.

Pursue something is months away I think the drivers of it Michael will be first which of those economic scenarios that I described in my opening remarks, when do we know which one of those were on because that's going to have a big impact on how this recovery goes so we're going to wants more clarity on that and then second I think it would be helpful.

So to have some new leasing activity and maybe some other transaction activity. So we understand valuation.

But we think they're going to be interesting opportunities and we want to be well prepared for them.

You can you talk a little better they know the different sectors that are getting impacted by this energy in oil being one of them.

A number of your partners that you have in from a joint venture perspective.

Highly tied to the market, but in terms of there.

No there there are well and their denominator effect, obviously, it's taken us a pretty big hits.

How do you sort of see those sovereigns acting in that does that provide you opportunities.

To buyback stake.

Your existing ventures at attractive pricing they need liquidity will there be other sort of distressed sellers.

The out of this where you may not have all the answers.

To how everything is going to transpire, but you do have capital and history, where you may want to act before you have everything in place because by the way once everything known in the markets already corrected.

Yeah.

Yeah, No I look I'd I agree with what you. Your last statement is you can't wait for it to be perfect. Because it's too late look I think your question on different investors and what their behavior will be during this crisis. It's very case specific as he said there are certain sovereign investors that are driven by oil revenue.

And I My guess is that we'll have some bearing on their appetite.

To do new business or maybe even too.

Change the composition to their portfolios, we don't know the answer to that I think another factor is.

How is that what is the performance you know what did what did that sovereign invest in what did their portfolio look like how was it performed and how is that effect the appetite of that investor for further investment I think thats part of it.

We are can as I mentioned in my remarks, we are staying active in the private equity market talking to major.

Investors and understanding their interest level and I would say it before the most part.

There is still enthusiasm for investing in real in U.S. real estate and an appreciation for the dynamics of the market in the opportunities that are going to going to resolve so.

You know obviously not a lot of deals are getting done right. Now. So these investors have been able to demonstrate.

From in terms of writing checks you know their desire to do this but there's certainly a lot of enthusiasm and interest in pursuing the opportunities as they arise.

In the second topic is just going back to the whole office coffee utilization and I. Appreciate the fact that you split it into both the near term, which is clearly impacted by a recessionary environment as well to social different thing aspect and more the longer term and so I wanted to focus in on the longer term, where I think you've talked about that there would you.

Don't anticipate a wholesale change in the way office.

Demand is going to be used.

And.

I understand that from Boston properties perspective, your portfolio is very high quality and on a relative basis, you should fare better given the investments that you're making all the air quality and spacing and management of your building.

Putting that part of side really just trying to understand the dynamics from an office utilization perspective, you have 100% of corporate America that is going through this trial and experiment of having people work from home.

And.

I would think that that's coming out of it that we're not going to go back to 100% of office normalcy that there could be some levels of more willingness to have people in remote location. So incremental net hiring a will not translate into the same level of square footage per.

Employee.

Again post Cove, and you're right, we're not having social distancing.

Just a level of willingness and then maybe there's more satellite offices because you realize you can get good employees.

That can be productive not have the can you time not have the cost of can you going on can you maybe we'll take care of.

More childcare and things like that I just.

I don't see why there wouldn't be a wholesale change in the way off there is being used in the future.

Yeah, So I would Michael I would address your question in the in the following manner in terms of thinking about the future. First question is are we in markets, where there are industries that are growing because that's the most important thing that the customers are growing their businesses and they are needs, they're going to hire new people and they need.

Need more space, So I think thats, a key driver number one number two.

What's the Densification of the Buildout and I firmly believe that the Densification I frankly, we thought it with over before the crisis. We thought occupancy is were going up but physical densification was stopped I think there's no doubt that.

Densification is going to go in the other direction as a result of this crisis and as a result of.

Some frustration some of our customers, we're having with their dance environment, even before the crisis, but I think thats a change and then the third is what you're talking about.

Which is work from home and the ability for companies or groups within companies to work together in remote location and look I agree with you I think that we've all gotten better at it we understand the power of the tool and I think we also understand what's not ran about it in terms of being with colleague.

Can you really manage and lead and organization or a group remotely over the long term can accompany build a culture.

By not being in person over the long term is it really more efficient for everyone to be were to be working remotely. I think these are the question that business leaders are going to have to answer for themselves as they work through the question that you postulate, so I'm, not saying things aren't going to change things always change in real estate energy.

Use of office building, but again I I think the viability of the office is not question you know by what were experiencing.

Okay, and then just on a short term basis, if you looked at the square foot per employee for your footprint today.

When you imposed social does something in that environment.

What percentage of the workforce and this could come back right. So do you believe in the current constructs that with a six foot.

Social distance and use of the assets that your current tenants can only bring back let's say, 50% of the employees and amount to it or is it 75 or is it only 25, where I guess in your planning what percentage of employees could come back and still be safe.

Yeah.

I think that is hard to answer Michael because it is highly dependent on the physical work space that a customer in I mean, we've got some customers that are primarily an individual offices and they don't have to adjust at all and there are others that are in bench seeding.

And packed in that 100 square feet per person or less so I can't give you a finite number answer to that question.

Okay, Doug. Thank you if you can't so yeah.

Okay, No I can't give a final answer I can tell you that the the issues with with People's installations, our customers installations are not necessarily.

Contained just in where their physical sitting there cedars right. It's how does this how is the space set up and are there you know what do you. How do you how do you provide services how do you deal with bathrooms, all the other sort of ancillary areas, which are the things that we're thinking about.

And so I think it's going to its going to be a little bit of a test case and people are going to sort of figure it out as they go and I would expect people have be operating with an abundance of caution and so they will make sure that they're they don't put themselves in situations, where lots of people are congregating I mean in enclosed small areas and.

So to the extent that their concerns about that that will limit the number of people who are coming back at any one particular time not necessarily during a day, but you know you may see people Elongating. The worked our on the workday indoor asking people to come in a different hours not necessarily moving.

From Florida floor, if if if at all possible I'm, there's all kinds of operating procedures that I expect people and businesses will create to allow people to come back before you feel comfortable most importantly in states, where they are and get accustomed to you know the situation where it until again, there's a there's a medical treatment indoor vaccine.

And that puts people in a much better I'm health safety perspective.

Right. That's a that's helpful. If I can just sneak one quickly for Labelle just in terms of.

The financing side of it.

From a non guidance perspective are you should we expect an unsecured a large unsecure debt offering to take out the 2021 bond and also build up additional cash liquidity.

And would you ever since the timing you talked a bit about sort of where rates are so I didn't know if you're sort of tipping your hand, a little bit to doing an unsecured debt issuance for that.

Michael We're always as you know almost every year, we're looking ahead.

To try to deal with our debt maturities before they happen. So this is the this year is no different than that.

No. We do think about what the volatility in the markets might be depending on different outcomes with respect to.

The economic environment, and you know the Tobin 19 virus, if you get bad news, what they're going to due to the bond market. What does that mean, so you know we're always thinking about those things.

I can't I can't say, whether we're going to do any kind of capital raise or not but.

Not out of character for us.

In the back half of a year, if we have debt maturity in the first half of the following year to be starting to think about that and thinking about what windows of time in the market might make sense.

Right. Thank you.

Your next question comes from the line of Blaine Heck with Wells Fargo.

Great. Thanks, Good morning, clearly, there's a more cautious stance emerging on the development side of things and you know land values are typically the first to decline in these situations. You know do you guys have any sort of thoughts on the magnitude of that decrease in land values and do you think there'll be any opportunity throughout.

This crisis defined land sites at significant discounts that maybe didnt want to reach for in the last few years to kind to lengthen that potential development runway as we come out of this or you know is your focus mainly going to beyond on more of the existing buildings, whether they be stabilize their value at.

I think the.

I think you're right I think the land values huge in a downturn get impacted more negatively than building understandable like they don't generate cash flow.

And it is a possibility you know that there may be sites that we identify at an attractive price.

During this downturn, so I think most of that remark that made about.

Chasing new opportunities that cycle were more directed at existing buildings, which is something that as you know we've been more reluctant to do in the up market.

So that could be a switch, but but yes, we will be looking at sites as well.

In any specific markets that you guys might might be targeting.

Well, we I think the.

Opportunities for new investment, whether they be site or buildings are are what I'd call bottom up they're very opportunity specific what is the building what is the opportunity what is the insight that we have what is the relationship we have with the seller those tend to drive the decisions as much as.

Anything, but as you know from our development pipeline and the deals that we've done pre pandemic.

We have been focusing on California, we havent, focusing on Boston and less so on New York and Washington DC.

And you know pursuant to my remarks earlier, where we think the industries that are going to perform better are primarily government and maybe more importantly life Sciences and technology I think the when we would have more confident than them. After the cycle that would probably dictate what areas would be up more interest to us on the margin.

Alright, great. That's helpful. Then maybe for Doug.

Can you just talk about Fannie Mae situation, you know how were they are able to decrease their commitment to the rest in gateway development. You know it was that's something you guys agreed on mutually just given some of the other activity you mentioned in on that project or was there. Some you know sort of construction milestone maybe the that wasn't meant that opened up at opposite.

Optionality just any color on that situation would be helpful.

Sure. So so the project is way ahead of schedule.

And Fannie Mae when they negotiated their their lease negotiated for the right to give back you know 85000 square feet of space I think I think that's right number.

And so they had a contractual right as part of their their big their original least discussion.

Interestingly you know we are we're in conversations with another tenant who wants all of that space plus the remaining space in the building and we're actually.

Try and trying to figure out whether or not well, we'll have enough space to accommodate both Fannie mae's growth in the future if they need to the as well as I attended and we're working actually going on on those types of issues as opposed to worrying about Fannie Mae.

Not meeting their space are having any outs and at least so there's actually a lot of positive thing going on with Reston next right now.

Yeah, Yeah, I think I will say.

One thing I would just say when you do a deal that size that was one of the largest non government leases ever in the state of Virginia, but if you do a deal that but it's not uncommon for the customer to have the right at some point during the development to give back or to take more space, It's usually a us obviously.

Small percentage of the total commitment, but it's not uncommon to provide that to a customer as they determine what their space needs. Our during the term of the development. So it's just wanted to add that to doug's remarks.

Yeah, I know that makes sense are there any other situations, where you have a tenant there's can that's committed just based on your either your development pipeline or maybe even signed leases that haven't commenced you know and they have the optionality to either decrease or increase their their requirement.

In our development pipeline there there is there a net no such requirements like that in our portfolio of.

45 million square feet. The in service properties lots of tenants have contraction rights in their leases based upon notice in time frames.

And those are just an ordinary course of business.

Lease.

Discussion that gets negotiated going out on a deal by deal basis.

Got it.

All right. Thanks.

Your next question comes from the line of John Kim with BMO capital markets.

Good morning.

Companies in the media Tech industries have already announced that employs should not coming back to work until at least September.

I'm wondering if you're seeing that portfolio at all and whether or not September earlier.

Just a paid more office tenants will be requesting thinkware base and so as deferral.

So so that's a very broad question.

I'll try and give a broad answer.

In some of our our markets some of our tenants have made those types of of I guess releases and in other markets. We actually have tenants, who are telling us that there are gonna be coming back earlier than than than we would have expected.

And we're actually making you know accommodations for them filling the buildings up before we're in a position where we can really roll out all the things that we would like to rollout. So it is very much a market by market determinant.

You know that the the concept of.

Have a bateman or deferment really isn't isn't one that we're we're talking about with regards to office tenants other than in in a very unique situation, where a particular customer has significant financial.

Challenges at the moment, and where we think its constructive for us to be helpful.

Yes, I'm just wondering if if that becomes industrial arm and a lot of companies not going back to the workplace in a five or six month timeframe.

How many of them can actually stay current on their rent.

Well, if if they're not going back to the office and they're actually working presumably they're working because they have revenues and or.

Business operations that would allow them to continue to work.

On a on a remote basis, so I'm not sure it necessarily impacts their financial viability and obviously, if it's a retail organization or consumer product organization that would have a brick and mortar.

Selling channel that's a substantial amount of what they're doing it that's a different situation, but I'm not aware for example about immediate company that telling their people.

They can't go back to work they should go back to their office that that is not in a very strong revenue situation.

Okay and the leases that you signed in April were there any changes to the lease terms.

Because the 19 to lift assigned.

Across so any kind of make related causes for instance.

So today, we have not seen any cobot 19 clauses, we do expect that going forward. There will there will be a realization that this this not and unlike.

Terrorism risk insurance and and issues associated with those types of problems will have to get addressed in leases and we'll we'll have to figure out what the REIT industry mechanism for dealing with those it will be in and to date. It has not occurred.

Thank you.

Your next question comes from the line of Tayo.

The same yet with Mizuho.

Hi, Jeff Good morning.

Just a couple of quick one that relies on it falls running along.

This may not be on People's minds anymore, given everything that's happened with a pandemic, but any thoughts about the you know the prop 13 split role now that we're getting closer and closer to the national elections.

Okay.

Bob Easter you online.

Yeah I'm here.

Property will.

Yeah, it will be on the ballot or the polling that we're seeing right now shows that it will not pass.

I think California per se people are tired of the increase taxes. So we don't see it passing.

<unk>.

Gotcha.

That's helpful. Other than the other question I wanted to ask this just appeal on the accounting for the JV with Alexandra could you just walk us through [laughter] would get 50% ownership <unk> are you going to consolidate that is not exactly where that's consolidate that or how how's that going away.

This is Mike I don't want to speak for what Alexandrias accounting is the you know our accounting is that we will treated as an unconsolidated.

Joint venture.

And so that's how we'll treated we treated it kind of a contribution.

50% of our properties.

Into that and as you might have noticed there was a pretty significant gain on that contribution for our gateway assets, which is really a noncash gain because it went right into acquiring their share their 50% shared their assets that's kind of how the transaction is accounted for.

Great. Thank you.

Your next question comes from the line of Peter Abramowitz with Jefferies.

Hi, Thank you I just wanted to ask.

My question on your parking other income what's the breakdown for the parking income or how much is month to month and how much is kind of built into the leases.

So so I think I gave a number for 2019 and I said, Hey, I think we had.

That's very different we had $113 million, a totaling $40 million, but was transient or Oregon hourly parking and that's about as much break down as we can give you.

Okay got it thanks.

Your next question comes from the line of Daniel Ismail with Green Street Advisors.

Great. Thank you other than a few media reports lately on the MTR sites I was hoping to see if you can provide any update on the status about transaction.

John John Powers, you are still on.

I'm still aren't yes, it seems that our government or what our mayor.

In the midst of this decided that they would move forward.

In may to deal on how the tax revenue would be distributed and that is that's what's been holding us up to the last couple of years, so where they're going forward, but we have to go through a whole EULAR precious there. So this is a multiyear project.

Okay. So it's still not close but advance a little further.

Advance further yes, it will take some it'll take more time.

Multiyear sorry.

And then just a follow on to match staying local budgets are clearly under pressure in this environment, which might be a driver of you permitting or rezoning are there any short or long term opportunities here for Boston properties say at the Santa Monica business Park for instance.

Danny I think it's an interesting question and I think you're right it could potentially create some opportunities in a lot of different areas I I I think the situation at the M.T.A. that John just went through perhaps is one of them.

In other words the project that all the sudden we've made a lot of headway on I think it's too early to conjecture, what those might be but I don't disagree with the concept.

Okay, great excess.

Yes.

Your next question comes from the line of Nick Yulico with Scotiabank.

Thanks, just wanted to ask about sublease space in your portfolio, you know and in new markets, where you are already on maybe on a real time basis, if you're seeing any pickup in sublease space.

Okay.

So Nick this is Doug the only place that that we have immediately seen some pick up has been in San Francisco.

Where where there were were actually some organizations that would that we're planning on subletting space and it's come to the market I think more quickly based upon cobot 19, and the here or there their employment.

Head counts, but we have not seen any sub significant you know blocks of space come on the market in our other locations.

To date, I mean, again that the fact that Theres no quote unquote.

Physical tour activity.

I'm guessing has probably you know created a situation where there's not a.

A EM.

Impending need to quickly put some space on the market. If a company is thinking about that because there's just nothing that it's not actionable at the moment.

Okay. Thanks, just just one follow up on that if you had any update on Macy's at Sixeighty Folsom I think they were planning to sublease that space or any any latest thoughts there.

Yeah. So so we know we actually we checked we checked in and they know they're there there's no Cohen quote unquote lease yet that were aware of on the Mason Dot com space, It's exciting Folsom Street.

I think that that you know again that space was put on the market Creek, hoping 19 as they made a decision to move those people to a different location from a regional perspective.

So what we anticipate that that space will still be on the sublet market, then and it's great space and that it will lease.

Whether the economics hold for what Macy's thought they were going to get relative to where they will ultimately do a deal.

That's hard to determine.

Okay. Thanks.

And there are no further questions at this time, we like to continue with closing remarks.

Thank you very much operator, our call the pushing two hours, so I'm going to minimize my closing remarks to simply thanking everyone for staying with us for for all these minute and your interest in Boston properties. Thank you everyone.

This concludes today's Boston properties Conference call. Thank you again for attending and half a good day.

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