Q2 2020 Brandywine Realty Trust Earnings Call
2020 earnings conference call.
That's fine all participants' lines willing to listen only mode.
The speakers presentation, there will be a question and answer session. The asked the question. During the session. You want me to press Star then one of your telephone.
Please be advised that today's conference is being recorded if you require any further if this thing we first started in theory.
I'd now like turn the conference over to your Speaker today, Mr., Jerry Sweeney, President and CEO, Sir you may begin.
The crystal. Thank you very much good morning, everyone and thank you for participating in our second quarter 2020 earnings call on today's call with me are George Johnstone, Our executive Vice President of operations Damper lives, where vice President and Chief Accounting Officer, and Tom worth or exact.
<unk>, Vice President and Chief Financial Officer.
Prior to beginning certain information discussed during this call may constitute forward looking statements within the meaning.
Securities Law.
Although we believe estimates reflected in these statements are based on reasonable assumptions, we cannot give assurances that the anticipated results will be achieved for further information on factors that could impact or anticipated results. Please reference our press release as well as our most recent annual and quarterly reports that we filed with the FCC.
Hey.
So as we began our prepared comments first and foremost all of us at Brandywine sincerely hope that you and your continued to be safe healthy and is engaged as possible. During this challenging time. This pandemic continues to disrupt all of our lives and has resulted in Luton.
In a new landscape for everyone, including every business or the duration of this crisis is increasingly unclear.
On our April 23rd earnings call, we did expect a return to the workplace environment by mid summer.
Given the advanced Sip recent weeks, however that timeline has been extended.
We are continually assessing kobin nineteens impact on every element of our business and based on this detailed review we remain confident in our ability to execute all components of our 2020 business plan.
Additional details on our approach to this crisis are outlined in our cobot 19 insert that is found on pages one to five of our supplemental package.
So during our prepared comments as they always there will review second quarter results and an update to our 2020 business plan I will also review.
The announced joint venture of on our one and two commerce square properties in the Central business District of Philadelphia, Tom will then summarize our financial outlook and update you on our strong liquidity position.
After that Dan Tom George and I are certainly available to answer any of your questions.
So looking at the second quarter, we continue to execute on every component of our 2020 business plan for spec revenue, we're 99% complete with only 69000 square feet and $300000 remaining to achieve our spec revenue target for the year.
We had good second quarter leasing activity that 400000 square feet of both new and renewal activity was strong rental rate mark to market up 19.4% on a GAAP basis, and 10.3% on a cash basis.
Same store numbers had been tracking in line with our business plan, but the delayed opening of Philadelphia, resulting in about $2 million NOI declined from our parking operations for the balance of the year.
Our parking operations are included in our same store pool and as such this NOI decline has reduced our cash and GAAP ranges by about 100 basis points. Each office operations are progressing in accordance with our business plan.
A cash collection rates continue to be extremely good and we have collected over 99% of our second quarter billings and our July collection rate tracks very well also with about 98% collected as of yesterday.
Capital costs were at the low end of our target range and we have lowered our estimated full year 2020 capital ratio by 100 basis points down to 11% to 12% really reflecting the experience, we're having with generating short term extensions that require minimal capital at without.
Ladies and I'll touch on that in a moment.
Retention was only was only 37%, which was mainly driven by known the known move out of essayed Shine, our Austin portfolio as it began occupying their newly own building that we built for them at our Garza Ranch project.
As noted previously we have backfill 80% of their space can which will commence later this year at a 19% cash mark to market and look while SH I was the primary driver in our occupancy decline we had several other tenants expirations all of those move outs were known and.
Part of our plan.
And of the known move outs to 183000 or 51% has already been re led and we'll read commence in 2020 I should also note that about 70 basis points of our occupancy decline were due to remove and commerce square from our same store pool.
Importantly, though we do expect occupancy returning to our target range of 90% to 93% by the end of this year. We did post fell 34 cents, which is in line with consensus and Tom will amplify that net and during his comments.
And I'm looking at our 2020 business plan.
As we talked about on our last call.
This crisis really embodies both danger and opportunity for our company are clear priority has been to assess all elements of risk and its institute plans to effectively mitigate any anticipate any adverse impact we do remain focused forward on opportunities to enhance our business.
Plan execution, whether that be by at least early lease renewals margin, improving rebidding programs or working with institutional partners to seek investments, where we can create growth opportunities and just a quick recap of our cobot 19.
Key components, we have maintained in accordance with all local state and CDC guidelines eight doors open and lights on approach to our building operations, while it's a little bit difficult to quantify and some of our buildings. We estimate the current occupancy range of our buildings is around 5% to 10% in CBD Philadelphia.
Up to about 20%, our DC assets Austin is around 10%.
With some pullback in that given the situation down there and the Pennsylvania suburban operations seem to be around 15%.
Secondly, the stability of our operating platform remains a top priority with particular attention on rent collections and rents deferrals all of which are amplified on on page one of our supplemental package one of our real top priorities has been a strategic outreach to all of our tenants.
So we are in extremely close touch with all of our tenants.
Understanding their concerns listening to their transition plans and providing help wherever we can so we fully understand their objectives as such as part of that program. While we reached out to our entire tenant base. Our particular focus has been on those tenants who space is rolling.
Next two years the results of those efforts or frame dead on page three of our supplemental and have resulted in 73 active tenant discussions totaling about 950000 square feet that to date have resulted in 28 tenants totaling about 216000 square feet execute.
Adding leases since since March 15th.
These leases have an average term of 24 months with a 4.2% cash mark to market and a 5% capital ratio.
On the construction from all of our markets are allowing construction activities.
And we've not program any additional pullback in construction activity delays. This year on a positive front, we are beginning to see downward pressure in select circumstances on construction costs hard construction costs as well as some sauce soft costs as the overall forward construction pipeline.
Continues to shrink.
Our leasing pipeline stands at 1.5 million square feet, and we've actually had better than expected progression in that pipeline during the quarter.
Once again, our team has been an extensive touch with every prospect and the breakdown of the 1.5 million square feet is as follows deals progressing but execution uncertain.
The timing of that uncertain and we're targeting the next 90 day about 24% or 354000 square feet.
Deals progressing but too early to tell when they would actually to execute it about 900000 square feet or over 60% of the pipeline and that's really the note noticeable change.
Since april's call. Many more deals have advanced from the on hold due to co bid, which right now comprise about 14% of that current pipeline into the deal progressing but too early to call. So tenants are slowly beginning to refocus their attention on their office.
Base requirements.
On the capital front, we're really delighted to announce a joint venture on our one into commerce square buildings in Philadelphia. The joint venture is with an extremely high quality global institutional Investor who is making their first office investment in Philadelphia, which from our perspective further damage.
Just rates the attractiveness of our Philadelphia market to in institutional investors and really validates investors' perception on brandywines ability to create value.
Our investor has requested that we do not disclose their name and certain terms. The agreement at this point in time, but the general framework of adventure.
Meets many many of our key objectives. It's a 115 15 million dollar preferred equity investment, which represents 30% adventures capitalization at a total value of $600 million for $316 per square foot, which we believe is exceptionally strong pricing the going in.
Cap rate is 5.1% that cap rate improves based upon the rollover, but we really view that is simply a data point due to the pending level of vacancy and the value creation opportunities. So right now what were 97% that does drop to 70% over the next.
18 months.
After providing for a payments were transitional leases and closing costs Brandywine received over $100 million of net proceeds which as Tom will amplify added to our excellent liquidity position.
The transaction is a 70 30 joint venture we shared control on on decisions and while we quite can't close.
Some of the specific terms, we can share that our partners targeted rate of return.
On an all in basis is the very low double digits. So we view it as very effectively priced capital. It provides for the same level of returns on preferred equity with a liquidation preference upon a capital event to our partner and in return for that preference Brandywine receives a significant promote structure.
Upon a capital and that.
Both Brandywine and our partner had each committed $20 million of incremental capital to reposition the properties and re tenant known vacancies, we will continue to manage at least the property.
Frankly, do the leasing status and the price the transaction will have minimal dilution less than a penny a share onto on 20 earnings primer.
And we'll improve our net debt to EBITDA ratio by approximately between three and four turns between now and the ended the year.
The transaction does reduce our afford rollover exposure by 1.8 million square feet in our wholly owned portfolio and Brandywine will also recognize a gain of about $270 million on this transaction.
Very important points structure, given the state of the debt markets and the near term rollover profile. This property, we closed the venture with the existing $221 million mortgage in place at selling at 37% loan to value as leasing progress is and the debt markets continue there.
Recovery, we plan to refinance the higher LTV, thereby affording, both brandywine and it and our partner another opportunity to generate liquidity.
And speaking of liquidity the company is in excellent shape as outlined on page four of our supplemental package. We are projecting to have a 500 million dollar line of credit availability at year end 2020, and if we refinanced rather than pay off and $80 million mortgage later this year that liquidity increases to $580 million.
We have only 110 million dollar mortgage that matures in 2021, we have no unsecured bond maturities until 2023.
We anticipate generating $55 million of free cash flow after debt service and dividend payments for the second half of 20, and our dividend remains extraordinarily well covered with a 56% FFO and 75% CAD payout ratio.
So with those items address let me just spend a few moments on our development set first of all all of our production assets, that's Garza and four points in Austin.
650 Park Avenue and.
In King of Prussia, and 155 in Radnor are all fully approved fully documented fully ready to go subject to identifying pre leasing and as we've noted previously these are near term completions that we can complete within four to six quarters and their individual costs range, which.
Clean 40 in $70 million as you might expect as you might expect we didnt really make any significant advancement in our deal pipeline of almost 600000 square feet during the quarter and frankly don't really anticipate any significant advancement of some of these major discussions until the crisis begins.
To abate and there is more focus on return to the workplace and looking at our existing development projects for on four or five Colorado look. This exciting addition to Austin Skyline remains on track for completion in the first quarter of 21.
At a very attracted eight half percent cash on cash yield we have a pipeline of 125000 square feet, but but frankly as I noted on the production assets. We don't expect any significant decision making to occur until after the crisis begins to abate.
On the Bulletin building delighted to report that's now been placed in service at 94% occupancy 98% leased.
The property will stabilize on schedule in the fourth quarter of 2020.
3000 market Street is 64000 square foot life science renovation that we undertook.
And we've been school yards as noted last quarter, we did sign a lease with one of our existing life science tenants Spark therapeutics, who has taken the entire building.
On a 12 year lease we expect that lease will commence in the third quarter of next year and deliver development yield slightly north of 9%.
Quickly looking at broad more inscrutable yards at broad more.
We continue fully advancing our development plans on block, a which is 360000 square feet of office and threatened 340 apartment units.
And we've gotten through final design in pricing and will be enough such that all that ready to go by the end of Q3, this year subject to financing and and pre leasing schuylkill yards within school yards. We really continue we're very very strong life science push the overall master plan for school.
In regards provides it at least 2.8 million square feet can be life science space. So we really do view that we have a tremendous opportunity to establish a full ecosystem.
Yes, 3000 market in the bullets in building conversions I just mentioned to that to life science really evidence is the first part of that pivot to create a life science hub. We're also well into the design development and marketing process for 400000 square foot life Science building.
With the goal of being able to start that by Q2 21, assuming market conditions permit.
Finally, we are converting.
Several floors within our Cirrus Center project to accommodate life science use.
That the aggregate square footage for that converted space is 56000 square feet and we have a current pipeline of 137000 square feet for that space.
Schoolyard West our residential office tower is fully approved the go and ready.
Ready subject to finalizing our debt and equity structure. We have also modify the design of the office component to accommodate some level of life science use.
As I mentioned last quarter I will mention again this quarter.
The Koby 19 crisis has clearly had a big impact upon the timing of moving forward. This project and getting the financing in place we continue to work with our preferred equity partner.
But the crisis clearly slowed the place at procuring and finalize the both equity piece as well as the debt piece, we do remain optimistic that will get this across the finish line as soon as the situation returns to some level of normalcy in general we do continue to maintain a very active dialogue with a broad cross sell.
Action of institutional investors in private equity firms.
In addition to our Commerce square announcement, we continue to explore other asset level joint ventures that will both improve our return on invested capital.
We continue to enhance our liquidity and provide growth capital for our development pipeline. These discussions are active and ongoing and they certainly encompass both our broad more in scoop. We arch projects. One final note is that we noted our press release is we normally provide 20 won't we would normally.
Have provided 2021 earnings forecast to our third quarter earnings cycle.
Based on the current uncertain business climate, we will not provide that 2020 guidance as part of our third quarter third quarter call, but we do plan on issuing guidance no later than our fourth quarter earnings cycle now turn the.
Mike over to Tom will provide an overview of our financial results.
Thank you Gerry.
Our second quarter net income totaled 3.9 million or two cents per diluted share and FFO totaled 57.7 million for 34 cents per diluted share. Some general observations regarding the second quarter results operating results were generally in line with our first quarter guidance.
With a couple of items to highlight on our portfolio operating income we estimated 8 million 80 million in portfolio any I and we were up 1.1 million higher than that while we did have.
Parking being about a million below our anticipated reduced parking level, primarily due to the transit monthly parking we did have lower physical occupancy and therefore sequential operating expenses were lower we experienced higher operating margins into Q 20, offsetting the lower parking income.
Interest expense improved by 0.8 million, primarily due to lower interest rates than forecast, our second quarter fixed charge in interest coverage ratios were 3.4, and 3.7 times respectively. Both metrics were similar to the second quarter of 2019 as expected our second quarter annualized net.
EBITDA increase the increased to 7.0 times was primarily due to the lower.
Anticipated sequential EBITDA outlined in the prior quarter adjusting for the commerce swear transaction on a pro forma basis for the second quarter that 7.0 with decreased 6.7.
Two reporting items.
To highlight for the second quarter cash collections as reported overall collect sure wait for the second quarter was a very strong 99.6% based on actual quarterly billings. However, if we did include the second quarter deferred billings, our core portfolio collections rate would still have been a very strong 97%.
In addition, cash same store as outlined on page one of our supplemental we have included $2.3 million of rent deferrals and our second quarter results, while not build during the quarter would feel this presentation is more accurately representing our current same store metrics with normalized ongoing forward.
Results not inflated by the subsequent deferred cash receipts.
Looking then to third quarter guidance.
Looking forward, we have portfolio operating income will total approximately $74 million there will be sequentially lower by 7.1 million. This decrease is primarily due to.
Commerce Square JV the joint venture will result in deconsolidation of the property and that will lower the NOI by 7.5 million one good picked up on the other side is 1.2 million of incremental income.
For the bullets in building, which has been placed into service in June and the building is now 94% occupied.
FFO contribution from our unconsolidated joint ventures with totaled 6.5 billion.
For the third quarter, which is up 4.1 million from the second quarter over quarter, and that's primarily due to commerce square joint venture, which has been deconsolidated effective seventh with our.
Earnings yesterday for the full year 2020 of the FFO contribution is estimated to be $19 million.
Gionee for the third quarter will totaled 7.3 and will be sequentially 1 million lower than this than the second quarter. This is primarily due to lower compensation award amortization and it's pretty consistent with prior years full year DNA expense will approximate 31 million.
Interest expense will be 1.5 million sequentially compared to second quarter and will total 18 million for the third quarter with 94.5% of our balance sheet that being fixed rate at the end of second quarter. The reduction in interest expense is primarily due to the 100 million of net proceeds received for the Commerce square joint.
Sure paying off our line of credit.
Commerce square mortgage debt and then also the commerce square mortgage debt will now be deconsolidated.
Capitalized interest will approximate $1 million for the third quarter and full year interest expense will approximately $76 million.
We extend we plan to extend our two Logan mortgage beyond the August Onest maturity date, and we're looking to either pay that off or have an extended and we'll be working on that during this quarter.
Termination and other fee income, we anticipate terminations and other income totaling 2.2 million for the second for the third quarter antenna and a half million for the year.
Net management leasing and development fees will be 4 million and will approximate 10 million for the year.
We have no planned land sales and tax provisions of any significance no anticipated ATM or additional share buyback activity.
In our guidance for investments.
We have only the to the one property in rather Pennsylvania that we will acquire for 20 million and that is scheduled for redevelopment. So we know generating of earnings of any kind in 2020.
Looking at our capital plan as we outlined we have two development projects in our 2020 capital plan with no additional development plan for the balance of the year based on that our CAD range will remain at 71% to 78%.
And.
Uses for this year will totaled 285 million 67 million of development $65 million of common dividends.
Retained revenue, creating will be 25 million revenue maintain will be 27 million mortgage amortization of a million.
We are including the 80 million payoff for the mortgage at two Logan and the acquisition of 250 King of Prussia Road sources for all those uses our cash flow from interest after interest payments, one 1500 million of net proceeds from Commerce square joint venture where to use the line of credit for 39 million.
Cash on hand of 21 and land sales of 10.
Based on the capital plan outlined we're an excellent position on our line of credit and liquidity. We also projected our net debt will will range between six three and six five it will likely be at the low end of that ranges. The results of the Commerce square joint venture, which has reduced our leverage and the second quarter. In addition, our net.
Our debt to JV will approximate 38%, which is down from 43% primarily again to the joint venture.
Improvement met in that metric. In addition, we anticipate our fixed charge ratio will continue to approximate three seven on an interest coverage basis and for one.
About three seven on a debt service coverage and interest coverage would be for one.
I now turn the call back over to Jerry.
Great Tom Thank you very much.
Thanks.
With that wrapping up we're delighted to open up the floor for questions.
As we always do we ask that in the interest of time, you limit yourself to one question and a follow up.
Thank you.
Thank you.
Ladies and gentlemen, if you have a question at this time construct the star followed by the number one key on your touchdowns telephone. If your question has been answered or you wish to remove yourself from the Q. Please press the pound key once again ask a question. Please press Star then one now.
And our first question comes from Steve Sakwa from Evercore ISI. Your line is open.
Please check that your line is not immune.
Sorry.
The Commerce square JV I know you provided a bunch of detail there.
But obviously the preferred structure is a little bit different than what we've seen on kind of straight up joint venture.
So I'm just kind of wondering how the discussions when when you went in this asset the market and sort of the pros and cons of doing it this way with maybe a bigger upside promote versus maybe protecting kind of the investor on their return seems like they wanted a little bit more downside protection.
Yes, Hey, Steve.
It Great question, I think I certainly the the macro environment.
Played into the overall structuring of the deal I think from our perspective.
Commerce, whereas.
A wonderful trophy quality asset we have a lot of a churn as everyone is on this call knows over the next several years, we knew that would have a call on capital as well as an earnings impact over the next couple of years and we knew that was creating a bit of an overhang in terms of a catalyst for movie.
Our stock price.
So we were certainly motivated to try and find a coinvestment partner, who would help us number one recognized.
Attractive point of entry pricing.
To create an opportunity for us to both through the creation of the venture as well as from the leverage aspect of it created a capital capacity increase for US overall as a company and I think as the discussions progressed.
Our investor who again when they announced so you will be a well recognizable and Nick for incredibly well regarded name.
Their focus given the rollover in the portfolio coming up was to have some level of liquidation preference that would provide them some downside protection and from our perspective, given the point of entry pricing, we're able to achieve the low cap rate going in the amount of liquidity this would generate for.
For our company.
The capacity to de lever and then also provide some liquidity for other uses for the organization. We thought that was a fair trade, particularly given our ability to create a significant promote structure that we think will deliver significant returns to our shareholder base. Once we're able to execute on re leasing that space.
Since we know that we well we would and I think the we looked at the overall cost of of this equity being the very low double digit that was very effectively price compared to a number of other options that we see out in the marketplace.
Okay. Thanks for that color and I guess, maybe just circling back obviously, there's a number of leasing.
Issues that you need to deal with you've been pretty transparent on laying those out can you maybe just walk through some of the kind of major timelines and you've sort of talked about new leasing kind of being on hold until there's a lot more clarity on the pandemic, so how much longer DS inc. or how further out these leasing assignments take.
Again.
Im just trying to sort of think about 21 and sort of the risks the earnings at that point.
Things aren't going to get lease this year sort of mix, maybe the 21 numbers at the challenged.
Look I, it's premature to preclude that because we're number one in such a dynamic climates.
That.
No one's really sure exactly what the acceleration will be I mean, I will share with you I mean, a lot of our.
Senior executive my conversations with both tenants and with brokers who are wrapping those tenants.
I really do expect there'll be an acceleration in demand in a compressed period of time because were essentially looking at almost two quarters of definitive activity being delayed.
It doesn't change the reality is of the platform. These companies face in terms or office requirements. So.
That's honestly, Steve one of the reasons why we're paying so active in talking to not only our tenants, but also really maintaining very.
Very effective dialogue with our prospects because those decision points will come they may come the income by July but maybe they come by September I think we want to make sure that we've advanced all of those discussions to the point, where we can execute fairly quickly look at that stat. We gave on a percentage of deals that.
From on hold from co bid to basically in process, but timing uncertain, we view that as a very good harbinger for the office market in general that a lot of tenants are really focused on okay got at least coming up and 21 or I've got this happening what am I going to do and we think thats, a very positive sign but.
I think when you bring that back to kind of the Brandywine landscape and George maybe you can chime in here as well I think we when we take a look at our larger leasing exposures, particularly now.
Excluding commerce square.
Which will not be a wholly owned asset SHR high as I mentioned, we've got about 80% done most that will be occupying.
We had a major rollover in conshohocken, that's for next year, that's been pretty much all put away, but George maybe fill in some of those other blind, yes, I think.
Let them the Macquarie space, albeit down a joint venture 35% of their 150000 square foot rollover.
We've re let at favorable terms we feel.
[music].
Again high quality space.
Northrop Grumman, obviously is a large one in and Dulles corner expiring 12, 31 off 20, and again I think we're leaving all of our options in play there whether that's renovating the building.
Potentially doing a joint venture or an outright sale of that building and we've started to see some level of touring down in that northern Virginia market.
In particular at that building as some large requirements are now starting to at least surface, albeit there timing still to be somewhat undecided.
The balance of the stage I space, which is about 35000 square feet. We've got good levels of pipeline there to kind of put the rest of that away. The 80% we've already leased their commences in the fourth quarter. So we get the occupancy pickup.
Again, when that rolls around and then we've had as Jerry alluded a lot of conversations with our larger 2021 explorations and even some that are now on the 22 horizon, who are now starting to think about what do I need to do maybe it's just kick the can down the road.
12 to 24 months and then some actually talking about doing something longer term.
Great. Thanks, a lot.
Thank you Steve.
Thank you. Our next question comes from Jamie Feldman from Bank of America. Your line is open.
Thank you and good morning, Hi, Jamie.
So I guess.
$100 million of net proceeds from the JV big conversations been.
Raising capital for.
Development its quickly yards and broad more bringing in JV partners I mean, how do you think about that $100 million.
Where does it gets you in terms of your ability to.
Finance more than maybe you previously expected on your own balance sheet for these developments.
Yes.
Can you expand the JV the raise more capital and do you think we'll see more like this in the future to help.
Hey, Jay I guess.
Jamie couple of observations.
One is we felt as though raising liquidity.
Through one of our existing assets that was really turning into a value creation opportunity was a good thing for us to do right now it helped us again create capacity in cash.
And did so on a property, where we had a very large.
Fortunately very large embedded gain.
And it's a great price 0.4, I think this marketplace in terms of the cap rate.
We would certainly help you have the ability to do some other things with this partner.
And as I touched on it from a broader standpoint at the end of end of the comment we have a whole range of discussions underway with.
Potential partners for broad more scoopable yards.
Certainly the life science element of Scoop, we ours has been a major drawling card for broadening our.
Our potential investor base in its is still an opportunity zoned fund in what I think some of those deals honestly, Jamie had been a little slow in the gestation process. They are really beginning to re ramp up as people are focusing on a potentially a different tax climate over the next couple of years.
So I think we're very encouraged with the level of private equity institutional partnership potential we have out there and.
We thought that getting the commerce square transaction across the finish line.
Really to our shareholders would show that number one we've really further enhance what we thought was a very strong liquidity position and as you know in times like this that having the stronger liquidity to more opportunity set you have whether thats for us increasing our ownership stake in.
In some development project would that be brand or whether it be scoopable yards or or broad more that has a lot of value. When we're talking to some of these investors who are really focused on how committed this sponsor is economically to the project. So we thought by having some additional liquidity optionality.
Ready for us in these venture discussions that would help us improve the overall economic returns we could crack because we had more liquidity to commit to those projects.
It also does provide the additional liquidity for us look at other growth opportunities whether thats on deploying these production assets, which we have always focused on being wholly owned or other options that may come our way in this type of market climate.
Okay. Thank you.
And then.
We appreciate the color on leased discussions over the next year. So.
Two questions on that number one as tenants have come back to you and confirmed their space needs.
Being a change in how they are using their space in terms of redesign more.
Based on either more work from home or.
Just a different build out that they plan longer term and is that led to either more or less taking down more or less space and then secondly.
You have this 13% unlikely to vacate about 100000 square feet, how does that compare to a normal year at this time.
Okay, Great question, George why we attacked.
Start often.
Well I think we know we one of our one of the interesting things we did Jamie.
A couple of months ago is as part of our reach formal reach out and surveyed attendance was asking them about their space.
Based upon the.
Hey space there space configuration.
Based on a lot of feedback we've got we've actually launched an initiative to provide.
Of free space planning services to any of our tenants who are request now certainly look some of our large tenants have their own infrastructure in place, but in a company like ours, where the average tenant size is a 8000 square feet or so a lot of those tenants are looking for guidance I.
I think general themes were hearing our that.
Tenants are looking for ways to create more distancing within their space whether that is.
Changing that profile, there workstations or increasing their six by six workstations to eight by 10 and a higher profile hire a higher walls is a key consideration. We're certainly spending a lot of time working with tenants on.
Creating demand level partitions that we can put out within their space. So there's a clear bias I think on the part of a lot of our tenants too.
Look at how they can reconfigure their space.
It's too early frankly for us to tell whether that will generate net new space requirements, but I think it will create situations, where probably some of the common area space allocations in some of our tenants will be compressed and be reduced redeployed to create workstations or private offices.
We would hope to have more visibility on that in the next 60 to 90 days as for now really at the early stages of getting some definitive feedback from our tenants.
Yes, and I think Jamie this is George to amplify on some of that both the likely to Vacates.
Look I think it was only eight tenants that clearly as of today said.
We're going to leave.
Three of them.
Qualitative into other lease space that had a longer lease life than what they had with brandywine to two of them. We're already subletting their space. So there was no hope of them renewing that our discussions now turn to the sub tenant to try and negotiate something directly there.
Two did identify that they are shifting to a work from home model.
And one had already vacated although still financially performing under the lease so I think.
In terms of where we would be in terms of some of that forward visibility absent covance, we probably have more of a sample size than eight at this point I think thats why.
65 prospects and almost 600000 square feet or it's just too early to make a commitment they need to kind of understand.
When it might bring you might people back how might bring you might people back and what accommodations will they have to make for their people once they do.
And back from that work from home environment. So.
Okay I appreciate the color. Thank you.
Thanks, Jamie.
Thank you. Our next question comes from Craig Mailman from Keybanc capital markets. Your line is open.
Morning.
I know you can't disclose all the details of the JV, but.
What is the first kind of re measurement period for the promote.
The re measurement period, when when would you guys being the promote ones the first opportunity to get.
Promoted interest I know you kind of said once you get some leasing done or is it solely on the sale of the asset it is primarily upon a.
Sailor recapitalization of the assets Craig.
Okay. So as you guys for the new financing on there at that point you could be in the promote.
It's conceivable you I mean, it certainly the one of the interesting bridges, we bill here is that.
Give even though the debt markets it really come back tribute for.
Office assets with with long tenured leases, it's still not quite there yet in terms of proceeds on value add transaction. So.
With our partner, we made the decision to kind of close the venture with the existing debt in place, which I think as I touched on is below 40% loan to value.
We've got new money capital committed by both Brandywine and our partner of $20 million to reach to reposition the asset. So we would think that certainly given the pipeline, even georgia touched on.
We should be any good position to look at refinancing this.
In the next 12 to 24 months.
Okay and then.
I know we've talked a lot about brought more in school and maybe putting JV financing on those assets, but in the past you've also talked a lot about sera and some other kind of stabilized assets, depending on when the debt market.
On the settles outerwear settles out there are talks about doing more of these type of Jvs to finance.
The developments and maybe not give up as much as you might.
Otherwise give up.
Preconstruction kind the joint ventures.
Yes, I look I think is.
We've talked before I think we're in an environment, where every options on the table I mean, we have that we have an excellent portfolio.
Great management.
Operating team in leasing team so.
Just is yes.
We did something on a on it on an asset like Commerce square were short looking at creating some other capital raising opportunities at other pieces of our portfolio.
Similar to what we do with rock point last year and Commerce. This year and we're very mindful of not creating any real complications in terms of our balance sheet.
We also recognize in today's environment, you know some of that capital is really looking for great partnerships. Good sponsorship in the ability to grow so.
We are having some discussions with groups on creating growth vehicles for certain certain submarkets in certain product types.
And to the extent, we were able to raise some additional liquidity for that I think certainly as as I mentioned to the other question having that additional liquidity.
Audience, our perspective on what we can and cannot there with some of these development transactions that certainly a big driving focus we have within the organization.
And then just lastly on the Seer conversion of life Science I mean, how.
Do you guys have the systems in place to convert easily or is this going to be kind of a minor overhauls.
Back in another kind of the systems and are there any other buildings you guys are looking to.
Kind of benefit from the life science demand in Philly.
To kind of broaden your your offerings.
Yes look and Sears Center, I mean, the infrastructure that building.
Can accommodate the life. So the the work to make that conversion is primarily upgrading the HD AC and some of the mechanical systems and maybe some additional power loads.
But fundamentally fairly easy conversion not too dissimilar quite frankly, Craig on a 3000 market I mean that was a building where if the infrastructure our superstructure. The building and its component parts are accommodative in terms of volume and capacity capability.
It's something we can certainly do.
And we are looking at other buildings within our portfolio, particularly some assets in the suburban counties.
Where there is in the Philadelphia suburban areas there is that theres off.
A growing presence by pharma and life science companies, there may be other opportunities for us to convert some of our existing assets to accommodate that use.
Okay, and I think you said in the past as you guys have looked at school. Some tenants don't want to mingle with life Sciences that issue at all as you have some legacy kind of office sense in these buildings or as you look to put a life science 10 are predominantly kind of just traditional office setting are there any issues with.
Attendance mixon.
Hey, I think it's really a tenant specific concern I think when we were talking about this before we're really engaged with one tenant who really was very focused on.
Not having.
Not being involved with life science or lab space I think that was more that's proven to be much more of an exception condition as opposed to a governing principle. So.
In all of our dispersion of discussions with folks with his life science tenants at Sears center or within schoolyard or some other locations, we've yet to really encounter any resistance.
To having their tendency in kind of in mixed use building its traditional office.
Incubator officer, or wet or dry lab office.
Okay, great. Thank you.
Thank you.
Thank you.
Our next question comes from Manny Korchman from Citi. Your line is open.
Good morning, everyone.
Morning.
Jerry when when we look at the Commerce JV can you just give us some color on on the timing of those conversations and maybe how they changed over time.
Sure they really commenced Manny.
Sometime in the March timeframe.
And as the.
Macro climate change I think we both pivoted to reach.
A structure at work for both of Us.
And what was there any part in those conversations to have the same partner look at school I see similar flavors right, it's an asset in Philly.
Theres lease up risk if you will.
Development dollars could put out obviously had a different scale, but what school part of the conversations with this partner.
School was not really other than being part of conversation that was not part of any negotiations.
And then Tom a question for you I guess Commerce now comes out of your same store pool.
And given the amount of vacancy that is going to come in that building.
How much of an impact is that have on the same source that or same store guidance that you guys have presented.
Well I think.
So with occupancy so we did talk about the occupancy number that it did.
So from our standpoint that that was the case.
When we looked at the.
For the occupancy on the same store, we do expect that there will be a pickup.
Your next year than this year on the same store impact as opposed to this year. So we didnt we moved our range on the same store by the 100 basis points, that's primarily due to the parking some of that parking is actually in Q.
Commerce square, but it really didnt have a dramatic impact this year in the hole on the full year. If we have put it into route that reduction the same store was mainly due to.
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The parking next year, though we would anticipate as we roll out guidance that we're going to see an improvement on the same store.
Because those no move outs will be out there and that would include reliance which released at the end of two at 12 31 of 20, so that space is going to go down about 140000 square feet.
Starting one one of next year, so that definitely vis a tailwind to our same store for next year with that coming out.
I guess, maybe I'm confused as to why commerce, given the size of the building and the contribution to your overall and alive.
And the changing in Hawaii situation, there why that wouldn't have provided some lift to just the guidance that just because the pool change not because anything happened with actual tenancy, which has the change in the pool wouldn't that have changed that guidance that more.
Well the guidance I'll, let George touched chime in I think on the guidance, though it's really we're giving guidance on sort of not with that.
As what the percentage change is it from year over year and with this year. When we look at the weighted average occupancy of where commerce was for 20 fit within all of 20, and then where it will be next year. It was going to certainly be a damper. If you took a look at how much.
Contribution it would have been to the same store pool between 20 and 21.
It was certainly going to go down with those will move outs at with Macquarie and reliance so.
I hope that answers your question on that side, maybe George can can chime in but thats, how I think of it for 21, how it's going to benefit I mean commerce is same store performance in 2020 was positive during the first half of the year because because some of the leasing that we had done on vacant space in 2019.
And then that same store characteristic kind of shifted to negative in the second half of the year with the known move out of Macquarie. So the two building cost cut combination was somewhat of a flat same store asset 20 versus 19, and then as Tom alluded it would have.
Ben.
Much more worst same store 21 versus 20 with the additional move out of reliance and Mccormick and Taylor, even though some of the backfill will commence in 21.
Thanks, guys.
Thank you.
Thank you. Our next question comes from Michael Lewis from UBS. Your line is open.
Great. Thank you.
Hi, Michael.
Hi, I'm Thomas Splaine, the structure of the lease expiration schedule how that impacts.
Cap rate and the pricing.
$315 per square foot no. It does this sale tell us anything about the value of the rest of your Philly CBD portfolio or do you think this is kind of.
He doesnt have as much information.
Yes look I think the the pricing, it's a $600 million in that 315.
Per square foot I think given the near term rollover in the port and that property.
Thanks says very good things about the stabilized returns that were realizing off of our other Philadelphia based assets.
I think we're frankly very happy with the pricing.
It's.
Not too far off we thought was very good pricing on the melon bank centered yields 17, 35 and that was a completely stabilized asset with no rollover at all that was.
20, or $25 square foot higher than ours.
So we thought it was very good pricing quite frankly, and certainly the the cap rate I thought spoke very well of the.
Hello.
Quality institutions, and certainly our partner is a top quality, one kind of view to growth potential.
Within the city of build obviously, so I think from our perspective, the point of entry pricing, where we're in that level.
With that kind of rollover exposure certainly from an investment base standpoint, as I touched on we are generating.
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$270 million gain or about $140, a foot and even on a gross basis based on acquisition all capital put in its $100 a square foot gain.
We felt that was very good Michael So we thought was a part we think it's a great read through tight issues on the strength of the market because the point of entry pricing is solid but more importantly, you take a look at the climate. We're in today to have.
The focus going forward of generating a great value opportunity value, creating opportunity we thought was very strong.
I think everybody was wondering about value. So it's good to have a data point.
And then my second question is there's about kind of a short term and long term luck.
The short term.
I think last summer score cracker and blanket Rome have been close to signing renewals I'm wondering if that's still the case and then.
Kind of broader George mentioned too.
Tenants that are moving to work from home.
And then signals in the portfolio that this is really.
Since moment in your business where.
There may be aware, but this has this common.
Any signals on that.
A couple of course that question, we'll take George I'll take that take that separately the.
I think on blank Rome, and dechert, we're continuing to have great dialogue.
So no real change on that other than.
The passage of time in summer vacation schedules for folks. So I think we continue to be it.
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Very positive on how those discussions will wind up.
Yeah, Michael on your broader question I honestly think it's too early to tell I mean, we're hearing very conflicting.
Data points and.
I think we haven't in the supplemental package kind of a a pie chart that talks about how tenants you the impact of the virus on their business and most folks are fairly positive or neutral.
We are hearing general from all of our tenants that they can't wait to get back to the workplace that wall working from home seems to be a.
And adequate way of tree arching business maintenance.
The level of of productivity that comes from working in a dynamic collaborative environment.
It far exceeds what I think people realizing right now so it's kind of incredibly incremental progress that companies are making right now I think certainly as I talked to a lot of our major tenants they can't wait to get back in.
I think that.
Phenomena of work from home had already been there, but it was at a lower pace I think it's open the eyes of a lot of companies that they can probably provide more flexibility the workforce and not have the productivity decline that they might have here before that they can maintain a level of card.
Typically by having work from home being part of their.
Kind of standard personnel protocols.
I think is we're talking to tenants today.
So obviously the macro situation is of concern, but then I think issues of mass transportation and schools seem to be the most often discussed topic. The topics that are governing when tenants view themselves returning to the workplace on modest so you know in Philadelphia metric.
While an area, we've got about 10% of the regional workforce uses mass transportation. We're certainly not as impacted is that as a new York city or San Francisco or some other major metro hubs.
That really.
Reintroduction of mass transit is going to be I think a.
A governor of when people return to the workplace.
But generally and George you're talking a lot of tenants as well.
The ones I talked to are very actually get back to work so they've been very.
Positive on all the steps at Brandywine has taken to ensure a safe return to the workplace.
Even be as I mentioned earlier with one of the questions on being very practice from space planning standpoint, we mean extend we can reconfigure space quickly I think thats brings people back even faster, but George yes, I think two to that point I mean, I think a lot a lot of tenants are really just thinking about how they can reposition their existing space.
Pace.
Turning radius is within workstation configurations, and the context of of the two tenants.
Out of the 673 that we conducted outreach to.
Two said that they were kind of ready to make that permanent shift. So I do think it's it's extremely early in the cycle that I'm not sure that.
That those two are necessarily a barometer for.
For the rest.
Got it thanks.
Thank you. Our next question comes from pay less Tanya Mizuho. Your line is open.
Hi, Good morning, just following up on that line of questioning the leases signed again.
The reason of 24 month, they go which is.
Pretty short.
Can you just talk a bit of.
That decision process of.
Brining the short leases, what exactly you're kind of decline of saying too.
In regards to different dimensions.
No tumbleson.
Yes.
Great question, and I think you know the general tone of those conversations in the fact that they averaged 24 months I mean, some some simply were 12 months. Some we're able to do kind of 36 48, but.
In the month for most of them. It was they've got something to think about relatively quickly because they've got a first quarter 21 expiration and not knowing necessarily when they will be fully returning and.
I understand everything about their own business. This was just a means to kind of move that decision down the line and as a result, we ended up.
Yes, with a lot of them just averaging that 24 month duration in softens the exploration curve for us gives them a little bit more time.
To understand how they.
Ultimately need to renew on a long term basis.
And as I think the magically, it's not that much different than.
A lot of companies like ours experienced during the great financial crisis, where you had a number of tenants who were.
Keeping an eye on on kind of the macro uncertainty, who just kind of did shorter term extensions.
For us it's a win win it preserves our our revenue stream with a little more certainty as George touched on it it.
Smooths out our rollover exposure and frankly it gives our leasing teams in our property management teams. Other 12 to 24 36 months to.
Keep working with that tenant to make sure they understand that brandywines their workplace solution.
So I don't think.
Looking at the size of those tenants and kind of composition I don't think theres any read through on that from the standpoint that tenants Rowley.
Willing to do short term expense I think these were tenancies that had.
Within 12, or 18 month exploration and given the pace of their business. They just don't want to deal with thinking about what they want to do on their office space. So we actually thought it was a positive sign that that many tenants renewed even for short period of time, but kept all their square footage in place.
So I think looking at from the up through the other window.
The fact that none of these tenants were pulling back, saying, hey already knew what I mean 10, I only one eight.
2000 square feet, we thought that was a good harbinger of the thought process that we know a lot of our tenants will go through as a start to think about their long term.
Space planning requirements.
Great just one quick follow up the cap rate on Commerce square the five on SAP that is last 12 months or NOI before they move out the right does that correctly.
Yes, Thats bets based on where is now its current okay.
Thank you.
Thank you.
Thank you.
Next question comes from Bill Crow from Raymond James Your line is open.
Thanks, Good morning, Jerry I built thats.
I appreciate the statistic on the 10% mass transit use.
Philadelphia, what is what does that rate for your CBD tenants.
Yes, the rate the rate for our CBD tenants is or what I could I might be off your by a little bit, but it's somewhere around 50% 55 zero.
Fives area, Okay great.
Ill shoot a pickup in.
Tours in suburban assets.
Current CBD tenets that might be looking for either either to move out to the burbs, you're maybe a satellite office closer to home.
No.
We I read a lot about that trend bill and honestly, whether it's in philly or DC or Austin, we haven't seen that.
Yes, I mean, there's only one example that I could give you our attendant who's a CBD tenant.
In a short term sub lease for several thousand square feet in the suburbs just to get people back into the into an office environment because they're there.
Their workflow really requires people to work together.
And they just they were meeting some resistance from their tenant base about using mass transit coming down 10, and interesting anecdotal data point is when we did.
Survey our tenants.
After a health and safety issues, which were obviously paramount.
The next most ask question, we got from tenants was could we provide short term parking for them.
As a opened up their offices downtown.
And.
That was one of the reasons why we were thinking that even with the.
The anticipate opening of those of the city kind of in the early part of the summer those parking numbers. We had last quarter were good because of feedback we're getting from tenants was hey, if they come back they're going to want to park drive in versus take the train.
With the delay of opening up the city I think that kind of.
Recreate the result, we have but look I do think there'll be a transition here.
Our regional rail authority is doing a great job trying to get at a message of it's safe to return activity is picking up within the mass transit system, but.
Until people get lot more comfort with.
With health issues, I think it's going to be a slow adoption slower adoption rate than you might expect for people to take mass transit, we're fortunate where we have a lot of parking capacity so to the extent that our tenants need to use parking we can do that we've run as you know several shuttle services within the city. So we can actually bring peace.
People into kind of University city to park and shuttle them down panel that we need to so we're we're looking at a number of different options to create mobility for our tenants other than just traditional mass transit to help them think through how they get their workforce back to our CBD locations.
Great and if I could just ask one more Jerry we've seen a lot of headlines.
Especially in some of the.
Northwest markets.
Skilled New York, Chicago, the government's maybe out of necessity, having to become less business friendly.
Heavier taxation thing can you just kind of I know you're bodies.
So the whole, but just give us an assessment of where Philadelphia is on that spectrum.
Well I think every city.
Facing some significant near term financial issues and I think almost every city is hoping that some level of.
A federal and potentially state support could augment that I think Philadelphia in particular, given our tax structure, where only about 20% of revenues coming from real estate taxes, the balance in from business and wage taxes.
You know is particularly susceptible to revenue variability. So if you think about you know the folks who are traditionally working downtown who live out in the suburbs. They pay wage tax for the time they work in the city to the extent they are not in this city in the working from home they are not paying wage tax so.
I think cities like filled up it have kind of a and I'll call. It in an inverted tax structure compared to most cities will probably face some more short term.
Budget issues filled up you did have a rainy day fund.
Going into the into the crisis. They did pass to stop gap budget that did include raising marginally at least short term a couple elements of taxation.
But I think thats it Thats a bigger question every city will face in terms of how quickly the revenue base comes back and how they want to deal with that from a structural standpoint, particularly given some of the social equity in economic equity issues that are rising on a nation wide basis. So we're staying in class as close.
Most touches we can with us city leadership.
Certainly very much focused on articulating a point of view that the best pathway to economic growth is a job and ensuring that the Philadelphia has a reasonable platform for job creation.
Well that's.
That's a much broader discussion of which.
Hi, I'm not even sure what all the issues our bill so what we're saying to close blessed with it and.
Filled up you had been on a very good economic growth plan with job creation employment growth and we're certainly hope in the once we get pass these hurdles presented by the the virus that we can get back on that.
For the time today.
Thank you.
Thank you. Our next question comes from Jamie Feldman from Bank of America. Your line is open.
Great just a quick follow up.
Just can you give us your views on just the expenses.
Any kind of changes to buildings that tenants may require coming out of this pandemic I know you answered my question you talked about.
Moving space moving desks farther away partitions I assume that's not very expensive, but there is there anything maybe that you found since the last time since last quarter. When we talked about this isn't meaningful change.
And then also you think about year Newbuilding designs.
Even coming out that seems like it would be.
Standard inclusion into new building that wasn't necessary there before.
Okay, Great question Jamie.
On the ONGC on the operating front look Fortunately.
We've always had a real big focus in our company on.
Any paying all the mechanical systems. So we were able to really upgrade our filtration systems with really very little cost on a George if you have as much as pennies per square foot.
You know.
We were able to do things with our stairwells and and other kind of common areas to facilitate better pedestrian flow.
So we actually really haven't experienced.
Called significant structural cost increases to make our building safe and healthy we are looking at our there are situations, where we can use UBI technology, even improve the filtration sister systems is there are there robotic cleaning techniques, we can use that.
May have.
Some cost upfront, but less costs going forward. So we have a great operating team that works up through George It's looking at a whole range of different options.
Maybe you can amplify the second and then on the design standpoint, Yes, we have gone back and take a look at all of our development projects.
And identified where we think we can.
We should be thinking.
Some of those relates to I'll give you a good example, Jamie in a couple of our buildings were really taking a hard look at.
The size and speed of elevators.
People are concerned about getting in elevators.
And so there is easy fixes, we can have thereby dramatically increasing air flow in those elevators, but theres also opportunities to either double stack or increase the size of cabs or increase the speed.
And using destination technology create environments, where you really got it touches environment. So for example at FMC tower or elevator systems were always destination Weve Reprogram then that you.
He just wavier your security card to get into the building as a tenant you don't touch anything you just get you wave security Kartik part of the screen tells you would elevate our to go to get off and Europe, We think thats the way, but the future weve.
Kind of moving away from revolving doors in some of our new buildings to sliding doors. So again, there's more of a touch us environment looking at reconfiguration of some of the lobbies.
Certainly.
Moving to more of a well building standard.
Versus just the lead and looking at opportunities, where we are working kind of create indoor outdoor spaces that provide much more fresh share.
But that I think thats, a big topic, Jamie within just the architectural community as well.
So I know the council for tall buildings is looking at a number of different iterations to kind of think about the workplace and the apartment project of of post coven World.
Yes, Jamie I think just in terms of the cost I mean and gift given the size of the building the sophistication of the systems. I mean, we were looking at anywhere from half a penny a square foot to kind of three cents a square foot depending again on how much additional filtration changes we need to make.
And the like but again, a relatively inexpensive spend.
Offset by some other savings that we are able to generate.
While.
Density in occupancy within the buildings was lighter during the second quarter.
Okay. Thanks, and as you think about these new design I mean, what does that due to construction costs.
Meaningful change that not a meaningful change and I think one of the things you are saying I alluded to in my comments, Jamie was that a lot of forward pipeline.
Construction pipeline seems to be dissipating.
I mean look at you take a look at Philadelphia, I mean, 40%, 41% of our employment bases in eds and meds.
There have been large building campaign programs by a lot of the anchor institutions selling with what's going on in the in the academic and health care World. We see some of that slowing down that creates a bit of a window of opportunity for us to get marginally better pricing. So we were we priced up some of these changes they've not been.
So significant in scope that they've created.
Any material upward pressure on our harder software or soft costs.
Okay Alright. Thank you. Thank you Jamie.
Thank you.
Our next question comes from Daniel Ismail from Green Street Advisors. Your line is open.
Great. Thank you.
Based on your Mark to market results and guidance for the rest of the year. It doesn't appear there has been a material change in the rental rate environments.
Or your expectations for change in the rental rate environments is that accurate.
Also can you touch on the concession environments as well.
That is accurate.
And I know there's.
A tremendous amount of.
Commentary out there that.
The office.
Rental rate market will decline there was an increase in overall national vacancy in the second quarters, you would expect but Danny we have not seen that added ground level at all it doesn't mean it won't happen I mean, I think certainly there is a prospect for more sub lease space over the next couple of years, but again thats a prospect we havent seen.
That.
I think you know if you think.
Even on this early renewal program I think we were pretty happy that we were able we weren't really getting.
Companies come back, saying hail renew for another two years, but reduce my rent by 10%.
The leases, we haven't process and frankly, the leasing activity we've gotten done.
Has had really.
No coal bid.
Price concessions at all at this point, but George maybe films.
I think.
In in Austin in particular continue to see great levels of of rent growth again not.
Nothing yet that seems to be co that impacted.
Most of our CBD, Philadelphia rents still growing at a good pace.
And a lot of the activity.
This quarter was along the lines of renal so we haven't really even seen.
The impact if theres going to be a significant one on kind of tenant improvement as it relates to new space.
But again I think that will really come down ultimately too.
Existing conditions and how much of that ultimately needs to be.
Potentially.
Demoed and then kind of built built from new depending on whether it's going to be as heavy office environment or more of an open air workstation environment.
Yes, I mean look I think there certainly the possibility of some of those things happening. So I don't want to say that we're not focused on those we just haven't seen any direct evidence. We havent had discussions with brokers, who have indicated that they're going to be looking and along those lines and I do think that and this would apply not just the branding ones I think that a number.
Our public company Pearson have really good asset basis, I do think theres going to be a continued focus on the part of tenants to really upgrade their office stock.
And even the points it George was talking about in terms of our ability to upgrade our our MLP systems that has value and I think theres certainly a lot of office buildings in this country that don't have the same capacity that some of the higher quality owners have within their existing portfolio. So we do expect this.
And are beginning to see some of this signs of tenants who are kind of in b quality buildings looking to move up the quality curve because they need to deal with their employee basis looking for a comfort from them that they are operating in a safe and secure and healthy work environment.
So, we'll we'll add all those things that list of Tbds over the next couple of quarters.
Makes sense thanks, everyone.
Great. Thank you very much Danny.
Thank you and that does conclude our question answer session for today's conference I'd now like to turn the conference back over to Jerry Sweeney for any closing remarks, great. Thank you very much. Thank you all for joining our call Im sorry, we ran a little bit longer but I know there were a lot of really good questions.
We look forward to giving an update on our business plan in our third quarter call in the meantime police they self healthy and is engaged as you, possibly Ken. Thank you very much.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program you may all disconnect everyone have a wonderful day.
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