Q2 2020 Columbia Property Trust Inc Earnings Call

[music].

Good afternoon, and welcome to be Columbia property Trust second quarter 2020 conference call.

All participants will be in listen only mode.

After today's presentation there'd be an opportunity to ask questions.

Please note that this event is being recorded.

I'd now like to turn the call over to Matt Stover Director of Investor Relations. Please go ahead.

Thank you operator, and welcome everyone to the second quarter 2020, Columbia Property Trust Investor Conference call.

Call with me today are Nelson Mills, President and Chief Executive Officer, Jim Slimming, Executive Vice President and Chief Financial Officer. Other members of our senior management team.

You really start result, this afternoon or quarterly supplemental package, which can be found on the investor Relations section of our website on file with yes, you see on form 8-K.

We also filed or 10-Q with yes, you see this afternoon and an audio replay of this call will be available by this time tomorrow.

Statements made on todays call regarding expected operating results and other future events are forward looking statements that involve risks and uncertainties.

A number of factors could cause actual results could differ materially from those anticipated, including those discussed in the risk factor section of her most recent form 10-K and form 10-Q, which include specific risks pertaining to cope with 19.

Forward looking statements are made based on our current expectations assumptions and beliefs as well as information available to us at this time.

Columbia undertakes no obligation to update any information discussed on this conference call.

During this call. We will also discuss certain non-GAAP financial measures reconciliations to comparable GAAP financial measures can be found in our supplemental for anybody else mills.

Thank you, Matt and thank you everyone for joining us today.

The hard work dedication of our talented team, we again generated solid performance during the second quarter as we successfully navigated this challenging market environment.

Our second quarter performance demonstrates not only the strength of our unique portfolio, but our ability to remain focused deeper while prioritizing the health and wellbeing of our employees and those we serve.

Building on our performance over the past year, we produced strong second quarter results.

We achieved normalized FFO of 40 cents per share and drove robust same store NOI growth of 20% on a cash basis.

Despite the Coca shut down and even with limited vacancy and near term rollover our team least another 87000 square feet.

Which is more than the second quarter of last year.

We ended June with a leased rate of 97.2%.

We also produced strong leasing spreads of 12% on the cash basis.

28% on a GAAP basis.

That 28% represents our 10th consecutive quarter of double digit leasing spreads.

While we haven't limited available space across the portfolio of leasing accomplishment worthy of note with our extension and expansion with Berkeley Research group at 1800 industry in Washington, D.C. Golden Triangle.

We extended this global consulting firms 57000 square foot lease signed additional five years until 2030.

We also expanded their space by an additional 11000 square feet.

Just gives Berkeley, a total of 68000 square feet at this fully modernized class a property.

Rounding out our second quarter operating performance, we collected 97.2% of all rents for the second quarter.

Including nearly 99% of office rents.

These amounts increased by another 26%, if we take deferred rent into account.

In a moment, Jim will provide further detailing a rent collections as well as our updated full year guidance.

Which we're pleased to raise significantly due to our continuing strong execution.

Now turning to our current market environment.

Dependent its effects on economic conditions.

Including real estate occupancy and operations remain fluid.

However, we remain optimistic for an eventual restoration and recovery.

Of course, we're likely many months away from returning to anything resembling our pre cobot environment.

And there could certainly be longer term effects on the degree and form of office tenant demand.

But we are well positioned to whether these conditions to maintain financial stability and to merge with opportunities for future growth.

I'd like to provide five reasons why the Columbia property Trust team remains confident in our ability to create shareholder value.

The first is the quality and position of our portfolio.

Our well leased unique properties set us apart.

Were concentrated in Submarkets that attracts some of the most dynamic tenants, particularly in tech and media.

Located within the most vital gateway markets. We're confident that these neighborhoods will retain their strong appeal beyond this crisis.

Weve curated a portfolio of attractive modernize properties with efficient floor plates and desirable amenities.

Our portfolio has limited exposure to street level retail and transient parking and features low and mid rise buildings that allow for less crowded elevators and greater social distancing.

And our modern office layouts feature flexible open floor plans to accommodate adjustments to density and configuration as required by our tenants.

The second reason is our roster of tenants.

Our buildings have attracted some of the most innovative and financially resilient companies in the world and we're proud to partner with them.

Many of these dynamic growth companies understand that innovation is driven by collaboration.

Around which they built their businesses and culture.

While working from home has provided a necessary near term solution, it's becoming a hindrance to maintaining productivity and promoting creativity.

Recent articles, including one in the Wall Street Journal last week.

Point out that companies are finding that projects take longer collaboration is less likely.

And the recruiting and training of new employees can be a struggle and a virtual environment.

Some companies Google for example plan to extend work from home status well into next year.

While a relatively low percentage of our tenants occupy their space is today. The vast majority have indicated plans to phase back into the office beginning late summer early fall.

And of course, we are open and prepare for their safe uncomfortable return.

The third reason, we remain confident in our ability to create value for shareholders is our team and platform.

Our growth in recent years is the direct result of the talented men and women of Columbia property Trust.

Our accretive acquisition and integration of Normandy real estate management.

While a relatively modest monetary investment.

Substantially bolstered our capabilities relationships and competitive reach.

The expertise and experience the former normally team brings to the table has already helped US address many of the near term challenges brought on by Coca 19.

It should continue to prove invaluable.

As we navigate the evolving office landscape and creatively meet the needs of tenants.

We not only added a complimentary and profitable fund management business.

Capabilities in our company's history.

Including construction development.

Leasing and property management, all now fully integrated into our platform.

Fourth.

We agree with a growing number of voices expressing confidence in the resilience and expected recovery of our country.

And particularly our vital major cities, including New York in San Francisco.

Of course, there will be near term hurdles to restoration regaining confidence in mass transit foremost among them.

And there is some concern over changes in demand due to the retention of work from home policies.

Or shifts to secondary our suburban markets with less density.

After September.

For 11.

And at other times in our nation's history, we've heard a similar refrain.

But we expect the factors that drove many of the world's most dynamic and profitable companies.

As well as the talent they rely upon for their success to these great cities will remain.

This is a health crisis, driven event and solving the cobot threat is essential to return to normalcy.

So we're confident in that return in due time.

Could there be significant long lasting shifts in demand.

That's quite possible, perhaps even likely.

Economic downturns for one reason or another are inevitable.

That's why we continue to believe that portfolio quality location.

And the capabilities of our team are so important.

While not immune to market declines we believe we are as well positioned as any company in the sector to survive and thrive.

And the fifth reason for our confidence is our financial strength.

Colombia has maintained.

And in fact strengthened its financial position in recent years as Jim will detail in a moment.

We are over 97% leased with extended lease durations and very limited near term explorations.

This solid foundation should not only allow us to weather current conditions, but also continue to seek attractive value creation opportunities in the years ahead.

Let's review some of our current opportunities.

Our approach to development and redevelopment has always been highly disciplined.

And that now allows us to manage our project pipeline in response to changing market conditions.

799 Broadway is one of the best examples of new boutique office space and a Prime New York City location.

The construction schedule was delayed by a few months.

And physical tenant tours are limited.

So we're back up to speed on the project.

And have been virtually touring perspective tenants through this exceptional in design lost style office building.

It's important to note that we've recently enhance the design to include even more of the health and wellness features that tenants are now putting at a premium in a post coated environment.

We're also excited to move forward with ATM Street in Washington, DC Capitol Riverfront District.

Earlier this year, we preleased, 60% this highly innovative 105000 square foot vertical expansion.

Construction has continued unabated on this pioneering project, which will make 80 and street. The very first office building and our nation's capital to use environmentally friendly mass timber construction.

Rounding out our development pipeline our projects at 101 Franklin Street and terminal warehouse in Manhattan, both remain in the design and planning stage.

We have the flexibility to monitor market conditions and work with our partners to optimize future plans for these extensive projects.

Both of which we continue to believe will hold strong appeal for discerning high quality tenants.

Before I turn it over to Jim I'd like to draw your attention to our 2019 SG report.

Which highlights our focus on community diversity.

Environment and other important initiatives.

I encourage you to review a copy on our website at your coming.

I'm, particularly proud of our team for actively embracing diversity equity and inclusion initiatives.

Our team was spurred to action and a commitment to change by recent social unrest.

And the instances of racial injustice to trigger them.

We established teams.

With broad enthusiastic participation to address the areas that education awareness.

Opportunity responsibility.

And community.

We have high expectations for making a real impact and becoming an even stronger and more effective team.

In summary, we at Columbia property Trust are confident in our ability to successfully navigate these uncertain times.

We have a best in class high quality portfolio.

A tenant roster that second to none.

Highly capable and motivated team.

Our strong balance sheet.

And a disciplined capital allocation strategy.

It's this combination that makes us confident in the future.

I want to again, thank my talented and committed team mates for their dedication.

We greatly appreciate our shareholders for their confidence in our platform and abilities.

We will continue to work each day to earn your trust and I look forward to updating you again as we move through this unprecedented year.

I'll now turn the call over to Jim to provide further detail on our results and our updated guidance for.

2020.

Thanks, Nelson and thank you everyone for joining our call today.

I too want to extend my appreciation to our hard working team.

This continued to perform during these challenging times.

Columbia had another strong quarter.

Generating normalized FFO of 40 cents, a highest level since 2018.

Despite the cobot 19 pandemic and recent dispositions.

We produced Saints a $57 million.

Up a robust 20% over the same period last year.

Which is some of the strongest growth in the industry.

During the quarter our team at least another 87000 square feet Us Nelson mentioned.

Which is more space than we leased in the same quarter last year. Despite Tobin 19, and our continued high occupancy and low rollover.

We ended June with the lease percentage of 97.2%.

We also produced another quarter of strong leasing spreads with an increase of 12% on a cash basis.

And as Nelson mentioned, an increase of 28% on a GAAP basis.

Our 10th consecutive quarter in double digits.

With our focus on liquidity and maintaining a strong balance sheet. During these uncertain times.

We did not repurchase any common shares during the quarter, even though we view our stock is a compelling value.

We have $143 million remaining under our current repurchase authorization.

Columbia's balance sheet remains a source of strength for us not only during challenging times such as these but also.

Capitalizing on future opportunities.

As a pandemic began to spread in March will recall, we grew $200 million on our credit line.

As we were selling our final two noncore assets for a combined gross proceeds of nearly 260 million.

We also have lower capex needs due to the current slower pace of leasing activity.

We ended June with over $300 million of cash, including our cash in joint ventures.

Plus nearly $150 million still available under our credit line.

Our net debt to adjusted EBITDA ratio improved slightly during the quarter to 7.3 times.

Our net debt to gross real estate assets held virtually constant at 35.2%.

And our fixed charge coverage ratio improved from 3.4 times to 3.7 times during the quarter.

We have more than $4 billion of unencumbered properties.

And our only debt maturities before 2020 to continue to be the modest loans at our share.

On terminal warehouse and 799 Broadway.

This Nelson mentioned, our tenant roster as one of the boss.

And we've collected over 97% of total rents for the second quarter.

Looking ahead.

We have long lease durations limited exposure the street retail and transient parking and limited rollover of just 1.8% before the end of this year.

With an additional 8.3% next year.

Before turning to our updated guidance I want to touch on one recent development.

As we announced earlier this month.

We terminated we works lease at 149 Medicine in New York cutting our overall, we work exposure roughly in half.

We received $6.4 million for the termination of the lease.

We now have the benefit of the base building lift that we work performed.

And we've been relieved of the obligation to pay 18.7 million.

For additional work much of which would have been we work specific build out.

We now have complete control and flexibility over what improvements to make and when the makeup.

Of course, we will need to finish the renovation at this building.

And lease it to others, but that was our original plan when we bought this building.

Turning to guidance.

I want to mentioned a couple of onetime items that are.

And our numbers first our second quarter results include a lease termination payment at 315 Park Avenue South.

We discussed it on our last call, but as a reminder, we replaced our tenant on the top two floors with a growing Amazon subsidiary under better terms.

And second.

As we also disclosed recently our termination of the we work lease at 149 Madison early in the third quarter.

Resulted in a termination payment equal to 10 months ramp instead of the six months of we work that we had expected this year.

Taking into account those onetime items as well as our ongoing performance.

We're raising our normalized FFO outlook from a range of $1.40 to $1.48.

To a new range of $1.46 to $1.51.

An increase of six cents at the low end.

And three cents of high end.

While economic conditions remain fluid, we feel very confident in this new higher range given the strength of our tenant roster.

And the continued strong execution by our team.

I'll close by echoing Nelson's comments.

That we understand how the present serious challenges for our industry and none of us knows exactly what the long term impacts will be.

We also don't know couple months ahead may hold any more than anyone else to us.

But despite all of this we've had a good quarter.

And we're navigating the challenges of this unusual year well so far.

And what Colombia has accomplished over the years.

Our best in class portfolio.

A superb tenant roster.

A scale than dedicated team and a solid balance sheet.

Meaning that we're operating from a position of strength and are well positioned to meet these new challenges.

We look forward to updating you on our progress as we move through the rest of the year and right now operator, if you could please open the lines for questions.

Okay. First question comes from the line of Vikram Malhotra from Morgan Stanley.

Thanks for taking the question Hi.

Can you hear me okay.

Yes, we can.

Hi, Thanks, Thanks, and thanks for taking the questions. So just maybe first one.

On the Costco and just the guidance.

I'm just wondering if you took any reserves for any bad debt related to any of the office or.

And since we do have exposure to or any straight line range that you may have written off.

During the quarter.

Hey, Vikram this is Jim.

[music].

Yes, there were couple.

The here is a straight line rent write off when we terminated the.

The with lease at the topic streak of theme Park Avenue shelf is it a little over $2 million. That's that's in the numbers, but then again, we got a termination payment.

A little over $6 million that more than covered that write off his walls to capital costs and I think as we've said before.

The rental rate going forward as a little bit higher loss in the past so that was really a.

Great outcome for us net I mean, it was a good outcome in the immediate sansone. It's also good going forward and its.

And Amazon subsidiary that get credit. So all good there that's really the only straight long run off that we've dealt with we have done some we have.

Written off some bad debt, it's just a little bit over $200000 within its very small number we really havent. We don't have a lot of retail exposure as you know and we really haven't.

And that much to deal with.

We have talked about that get falls, we've got about 500000 hours of deferrals that we do believe we will collect overtime. Some of those are retail and some of those are office, but again, that's a pretty small number I think it was 0.6% of our total.

And even if we exclude those to falls and even with the write offs, we still collected 90 over 97% of our mainstream quarter.

Okay, Yeah, I'm just wondering like.

Obviously today the amounts of small, but this is likely to have the current situations like that impacts over the next six to 12 month.

As we've heard from many of your peers. So I'm just wondering sort of looking at the portfolio a wet weather at school working or just.

I know we did is very small but is there do you just not see the need to date to take any any reserves yeah.

Well.

We have taken some and we renegotiated deferrals as Jim mentioned.

Several hundred thousand dollars, but.

And those cases, even in those cases, we have guarantees and other credit assets in place that we feel are adequate.

So we still think those are very collectible.

The portfolio, obviously Vicki from we we look very closely if this we know what's going on we see we see the pressure.

You know in the in the system in our sector.

But as we as we go through the portfolio today and this is after several months of discussion with tenants and looking pretty closely today.

We do not feel the need to write off more we have a well leased portfolio.

Good credit tenant as you know a lot of.

Hi.

Tech and media concentration, which a lot of something you're doing quite well, but.

But but we as we said on the call as we said.

We understand this could last much longer and could get worse.

But at this time from what we will we see we don't we don't.

We don't think there's a need for anymore given this.

State of the Ross tenant roster in the portfolio. We don't we don't see any to write off anymore. We think there collectible.

Yes, and then get comes joining me on and Vic and we've been very actively discussing with with all of our tenants.

So it's its a well educated position the points.

Yeah, just one more note as we go forward you're right there could be more.

It could be more pressure in the system, we really allowed for that in your guidance for the we feel confident center guys confident in our guidance range, but even if there was some more of that but again retail exposure is small transient parking and small part of their portfolio.

Okay.

And then just on a eat the guidance kind of you referenced heavy room in there if you ex out that termination fee or it's a net modest decrease to the prior guidance you look at the components of the guidance I'm, just trying to understand elite excluding that termination kind of can.

You give a little bit more of the puts and takes.

Yeah, the net termination was about.

Net of the straight line rent write off was about $4 million. So it moved us up a little bit.

But.

I would say the midpoint still moved up a bit even relative to that even without that.

And we have as I said, we do have confidence going forward.

That we've got enough room in there to take care of what May happen in the rest of the year. So it's definitely we're an uncertain times, but from where I'm. Okay. We're in a very unusual environment, but we we are we have been very proactive as Nelson mentioned in communications where tenants.

We're collecting very high percentage of our ranch and.

You know we feel.

Weve yeah, there's some there's some noise from termination fees and that sort of thing, but there. They are in typical year says that's not unusual we've seen it in prior years as well and so.

I'd say things have moved up a little bit in our view gotten a little bit better in our view still a lot of uncertainty, but little bit better in our view as we look into second half of the year.

Yes, we have a good portion abatement of inventory of entering this year was variable as you go well leased in Bristol Roland.

And then good credit tenants as well so so just to put the.

The termination payments in perspective, though when capital was only three to four cents and we also had a termination payment from we work.

Equivalent to about six months of 10 months of rent.

But in our original guidance, we had we were counting on six months of rent anyway.

So that the impact of the termination payments are not they're not they're not just.

Pretty much steady state you know, it's what we expected with what we expected.

Okay, Great and then just last one from me can can you remind does what would view because you know sort of playbook, you know for them and if an asset that you've got back from we work and kind of how in your mind just I know, it's early and we're in good right now, but how would that how would that playbook in exchanges.

The plan going forward, yes, so when we originally bought the property.

Two years ago, the intention was always.

It's a terrific it's somewhat smaller side is one of the smaller properties under 20000 seat, but it's a it's a.

Oh, you know well configured boutique building in Midtown South it's just so right in the heart of what we do so we bought it.

Well before we were came along with hospital, we work deal was compelling.

Primarily we got them they got nice rate, we work, we've got our rental rate, we're asking but more importantly.

They went to build out until all the work right and that's what maybe that's what made US go that direction.

They've done most they've done the based on work or most of it and instead is very little of allowance.

For tenant improvements, which we've taken back right. So so we feel we feel good about it was a good win win deal for us and they were trying to reduce or exposure. So we feel good.

Yes on what about that deal as far as going forward.

Again, nice boutique property could be single tenant user.

More likely I think multitenant.

Well located a property.

We've got a bit more work to do on it we'll use that reserve plus maybe a little bit more to complete the building and obviously, we're in a slowdown right now with Cove it.

So as lot of questions about how you know rates and how fast.

And absorption so but again, we're optimistic about it being very fine property and be able to get leased in the next.

Year plus probably.

And yes, it should we're back to plan a essentially.

Okay, great. Thank you.

Thanks, Phil Thanks.

[music].

Our next question comes in a line of John Kim with BMO capital markets.

Hey, Hey, John and I didn't get started I went out with me here by that Ah you heard from Jim and myself, but Jeff Roni Our C. O is also normal.

So.

Are you doing John Hey, Jeff Good are you know.

Yes.

You had some operating expense savings this quarter, but not as much as committed off its peers. I was wondering if you could comment on that and also as part of your same store guidance for the year. What are you expecting as far as a additional opex savings.

[noise] I'll start us off on that and Nelson can comment as well or Josh I'm John.

But we did have some.

Mitch fairly modest we really stocked up on supplies and we increased our cleaning and did some other things, but you're right. It's that was more than offset by the fact that.

Very few very low occupancy in our building. So we just didn't need to use a lot of supplies.

My guess is that we'll have even more savings in the second half of the year, but we really havent budget is that at this point. So we don't need for that to happen in order for us to get you are going to us, but it's probably probably will happen because for wall supplied now we are doing a lot of cleaning.

But very low occupancy in the buildings right now.

Can you comment on tenant utilization rates and how that might differ by geography.

And where you think that goes after labor day yeah.

Yeah, So John today.

I'd estimate the where.

We're fibers or 5% or less utilization problem today, and we've been it's not anything back in the buildings and that was.

As stated we had early on since the shutdown we've been in regular active conversation with tenants, we felt town halls, we've been Barry.

Connected with them Mitt most of them have had planned all along to do does Reopenings late summer correct from Labor day, particularly in New York.

So but.

The vast majority.

Have indicated that the at least again reiterate you know about that Steven.

Even Twitter for example, who who came out and if they would consider work on longer term and even they will start to reenter around that time. So we do think the building start to the utilization starts to go up pretty dramatically. After after labor day, but but tenet just like all of US we're having to fill our way through it so it's hard to know exactly.

How fast that will come I do think we do believe that once it starts.

It may cascade, a little faster than in summer anticipating just because you know once you're back.

Your teammates are back you want me back your partners your competitors.

We think we thank you could start to pick up post post labor day, but even if it doesn't even if it's slower.

You know it's okay, we're ready we're prepared for reentry and.

Well no whatever pace it is we'll be ready for it.

That's 5% rate that pertains to D.C. as well I would have got.

In Washington, D.C. would event at a higher.

De random sequence because there is nothing about the.

We have more from talking to our heads of property management the basement and.

I think you think a lot of our tenants have somebody coming yet right.

Or at least they have access to the property.

But we just don't see we're just not seeing much traffic on elevators or in common areas at all and that includes DC.

I suspect Marcus whereas little higher than that but.

Yes, I was mostly men, referring to New York in San Fran and San friends, not even open at all so.

Yes, it could be a little higher DC.

There's been some media.

Equity firms and other non traditional.

Investors.

Investing in weeks that are trading at distressed levels and I think.

Your stock is isn't one of them I was wondering if you had been engaged in any discussions with somebody semesters.

Where we're aware that some of the non traditional investors.

Private equity investors.

Or investing in the stock.

Smartmove integrate by anybody.

Today, but no no no conversations nothing.

Nothing beyond beyond that.

We've heard from a couple just ahead.

Let me stop and take your GPS or whatever but.

That.

I think it's just you know it's a it's obviously something goodbye today.

Given the quality portfolio and.

And the news, we're giving you today for example, just helps to conclude.

From that so.

That's that's all it is at this point.

You have JV partners like Alianza, Blackstone, Oh I'd be after level have you.

Having conversations with them about taking a indefinitely in your head track.

No. So we.

We have we do have a perfect venture with both Alianca Blackstone and then other other capital partners from the enormity side of the this formula Pullman already side of business, but.

Yeah.

And and <unk> and I'm sure I'm sure some of them taking note of the share price but.

Not not any sort of strategic discussion about them coming in other than just to.

These are the open market.

Great. Thank you.

Thanks, John.

Our next question comes on line of Michael Lewis from Suntrust.

Thank you.

Hi, I'm first I just want to there's some crystal clear on the per term Susan the guidance and everything else that maybe I'll just tell you how I understand how does the company I got it right to 2 million dollar radar and 6 million term.

In park was already in the guidance, what's incrementally [laughter] for 6.4 million. We worked from too which is 10 months Grant you had six months into full guidance. So what we're looking at here you're less than three cents a fair.

You know the midpoint of your guidance is up a little better than that that is that correct.

That said Michael mentioned, that's exactly right [laughter], Okay, well you sound very well.

I'll move on [laughter].

So what's going on at 149, Madison, we intend to relax, how about competencies and others to rework leases you mentioned in the in the press release Tonight, but there was some rent to hurt us on nurse you know, what's kind of your confidence in in those other two rework leases.

So I caught this is very high there today as you know sandeep and and his team are working very hard to reposition your portfolio and.

And in our discussions with them about all three of our properties it became very clear.

Oh.

The committed to the San Francisco.

Good locations for them great buildings.

That's great.

And those are the very type properties and explain to us if there if they're building is they're building their base around so in terms of their commitment and their optimism about the space.

It's very high.

Who knows.

Who knows how the market how how Ah.

We work in other flex space operators will do in this environment going forward.

But at this successful, which we believe and hope they will be the successful they'll be successful. If these properties first and foremost itself. So we're confident in that.

We did provide a little bit of a restructure of their lease.

And.

But it's contingent upon them paying staying current right and in Dallas.

That that's the way, we tied that tie that together give them a little bit of a little bit of relief, but it but they have to say correct.

That's a collective so.

We feel good about those we expect those continue to.

Performed quite well and and as we've said I think over the last call. If they don't again, we're pulling for we work we it's a great. It's a win win for them at all if they don't.

Both those spaces, who will be terrific opportunities for police.

Okay, Great and then.

Lastly, Herman some of US agree that you're right. Your stock works cheap here, you mentioned, you're going to hear any buybacks during the second quarter.

How are you kind of thinking about your leverage your liquidity and <unk> and know how precious capital is on a situation like this versus the opportunity to buy back shares that whatever just how you think you're getting done that relative <unk> private market values and or any other you know opportunistic investments.

Right.

You know well.

Yeah, Mike Michael that's.

I mean, obviously, it's a great we see it is a great investment, but Lucky said right now in this environment preserving capital is this objective.

Beyond that there could be other opportunities down the road you know capitals precious and at this point, we even at this low price it's great value.

We believe.

We don't we don't believe we're not looking at it and we're not anticipating share buy backs in the near term. It's always a board decision. It's always some as Jim mentioned, we do have several.

We have 100 something million.

Remaining authorization.

The board could always said differently, but no.

No near term plans to do so for the reasons you mentioned.

Okay. Thanks.

Thanks, Mike Thanks, Mike.

Our next question comes from line as Sheila Mcgrath from Evercore.

Oh, I guess could after any good afternoon Nelson I was wondering if you think given some insight on how do you think that whole return to work will play out in terms that extend to it so.

You know extra sanitation and end of cleaning and all that can you pass that treated the tenant or how do you think that will shake out yes, so the way and our communication about tenants and expectations, there and per the lease agreement will respond access elevators.

You know.

Hi, Jim the general systems, and so forth anything done in their space is their responsibility I mean, obviously, we're going to work with them and partner with them.

Share information.

And maybe share.

Yes.

Sure ideas and so forth, but that's the way gets split traditionally and that's what we'll continue we are spending or we're not sparing any expense to make sure that that Delta air filtration go the best they can be.

We've been running HPC longer we're monitoring humidity.

You know cleaning cleaning cleaning.

Signage all those sorts of thing it's not it's not massive it's not huge dollars.

And but you know it does that up as Jim said.

You know, it's somewhat eaten into the savings we had come from heading into buildings, but.

We feel like it's proven proper thing to do a win win 10 start to re occupied.

That those expenses will continue.

Into where through this crisis of course.

But our responsibility is is the common areas switches will be relatively.

You won't really move the needle terms in terms of our numbers.

Okay, and then on I'm just wondering in your discussions with tenants have you had any examples where they are looking to did the opposite [laughter].

Densifying and just kind of spreading out I just wondered anecdotally if you could give it insights there.

Yes, so density as a concern, but everyone, including US right. How do you mentioned you can see obviously work from home.

At least short term as part of that solution.

But we we haven't had any body you know.

Well first of all we don't have a lot of space.

Animal or acquired Tencent spread out in today, which is.

I'm not the worst problem to have but we have has a couple of large specific tenants who has said.

I'll look we need to bring our people back work from home work for a while we need rare.

Neither here folks back we got to solve the density issue can you work with US can you help us do you have space when would that space.

Yeah, particularly in San Francisco toward as discussions I think there'll be more.

We move back to beyond the work from home environment and try to get we you know we all try to get people backing into the office.

I think we'll have more those discussions density is gonna be something that well smaller tenants are going to.

Reducing business, so I think will.

And.

We haven't seen.

Any new leases as a result of it yet, but if we just don't have the space, but it could happen.

And then on lease expirations, they're fairly manageable and certainly in 2020, there's not much coming but next year is about 8% can you remind us where.

Which markets that well over is the in next year.

So a lot of that is.

Even post cosan, even even in a post oak environment, where we all anticipate leasing short term net effective rents will probably come back pull back a bit but even with that.

We would anticipate most of those opportunities going to be roll ups.

Do you have helped me yeah.

Amazon and that University circle is one.

That's true so and Sheila.

I agree completely what Nielsen said, there's we get a 173000 square feet back from Pershing Middle of next year, obviously, we need to deal with that we think that we thought before covered that might be a slight rolled up you'll see a but that's relatively low rental rate.

In any case and that really the more significant one show that Nelson mentioned, Amazon, It's about 90000 square feet way under well under market.

At University Circle.

We've got at 25000 square foot user at 650, California, That's just similarly way under market.

We got a 20000 at 416, Huntington and in Boston and a 11000 at 116 Honey Boston that are.

We thought it before we're well into markets I really weak.

We were kind of that.

You know double digit rent roll up expectations next year I don't know clear that will how that will play out given coded and all that but I think we're pretty out position for the explorations next year.

Okay, Great and one last one there's a small amount of debt and it looks like secured mortgages, but they're in the 5% range in 2020, and 2021 right will that be an opportunity for you on the refinancing side.

And when you book just moved those tons carried out what's the plan.

Yeah. Those are both in joint ventures wants it 79 Broadway and others just terminal warehouse, which is why those are exist as you know secured debt because or other.

Other groups involved.

You're correct. That's there those are much more expensive than any of our other debt and we will look for ways to reduce the interest costs on home or at least 719 on Broadway I think we'll have a chance.

We may just let the existing loan.

Ah stay in place on turning a warehouse. It's a acquisition loan was an extension rights, but those are pretty small loans as you know Sheila in terms of our overall debt. So the cost isn't that big a deal for us, but overtime, we certainly could we do see interest costs.

Okay, great. Thank you.

Thanks, Sheila thanks.

Oh My Gosh it comes from the line of rig Skidmore.

So Rick Nelson and Nelson Haight on.

Yeah.

Nobody wanted just to ask about the just following up on the lease expirations for the second half a 20 in the 21 are you sort of actively working on those at this point or is it you were really or is it just the markets not really very active how would you sort of gauge the activity level on renewing those expert.

Ration both in the back half 20 in 21.

Yeah. So Rick in all cases, we were really working on those we're always working on those right. But we were we were working on those we had conversations going we had been with existing tenants. We you know we will marketing several the spaces pre code.

The shutdown obviously.

For around the table to.

Two.

Negotiate.

So in tennis those those those expirations are coming it's an issue for US. That's also an issue for the tenants.

And.

So I'd say, we we for obvious reasons those those conversations have not stopped they've been disrupted a bit.

It it seems highly focused and I think you know I think is the is the those leases.

Elite is the termination expiration approaches.

Both we and the tenant are going to need to resolved so.

Yeah, we're on it it's hard to know exactly how you know.

How fast the things can move.

But we're confident we'll we'll be ahead of those will get into.

In terms of thank you and you know impact in terms of impact on effective rents and right I mean, certainly in this environment.

You know.

Conversations or you know are going to you know it.

Shifted a little bit in attendance favor in some cases right just because of environment. We're in it so.

We would expect that this postcode environment list for some period net effective rents will be a little tighter will lower but given the quality portfolio given where we are given the fact that we can be patient I think we'll come out it's not quite well there.

You Didnt ask about this one specifically, Rick but I don't want to get off the call without mentioning seven nine on Broadway it's a.

New construction just topped out per malls going up is can deliver second quarter of next year. That's been delay just a few months, but coated.

We were in very active discussion about active discussions that vary a lot of interested parties looking at looking at the property pre coated.

Several of those continue.

We're very optimistic about that proper wouldn't be exactly would be.

Quite as high rate that affected rate is we.

As pre cobot, maybe not but it could be could be very close and you know given the nature of that property and.

Special property that is so.

Very excited hopefully in this quarter to we'll have some some some movement on that one, but but as well as all these others.

So.

You anticipated my my next question so.

Oh, Alaska, an easy one to Jim and can you just Jim just remind us what your retail exposure is.

Yeah, it's about 4%.

Total revenues Rick.

Entry you didn't ask about changing parking, but it's about <unk> 0.6, 0.7%, it's a pretty small number also.

And and Rick even that 4% a large percentage of that.

Close to half was just cost is concentrated in just two or three retail tenants.

All of which are really good shape and you know so our.

Yeah. Some of the small retail may struggle and we may lose a couple of those but it's very very small percentage of.

Okay.

Other revenues.

And then Nelson just high level.

Just on the dividend side.

Look side, certainly covering the dividend now how are you thinking about the dividends feels like it's in pretty good spot, especially given near term.

Limited lease roll et cetera capital needs and maybe just any additional thoughts or color on the dividend.

Yeah, that's right Rick I'd say again, that's a aboard decision and will we discuss that quoted you know we always have.

The today, you know based on our outlook and expectations, we think it's very well protected.

But if you do we do take a long term view, we do look out.

Several years and.

On the dividend if things words is economy or our situation were worse in any way, we we would Ah we've addressed it but today, Jim can add whether you'd like but today we feel.

Based on where we are they we feel confident in it.

Yeah I. Thank you.

Thank you Rick.

Alright, there there are no calls on the phone line at this time I will now turn turn it back over to Mr. meals.

Alright. Thank you so much. Thank you everybody a great questions as always and we really appreciate those and.

We appreciate all of you are being with US today in the participating on our call I think you can see from our quarterly results in our near term outlook for this year.

That you know it reflects a portfolio and.

The company this is well positioned and obviously as we've said this these are challenging times and we don't know.

We don't know that anybody else, what the outlooks gonna be for our economy and are in our sector industry, but I will say, we have a good portion of having a very well positioned portfolio and we're gonna worked very hard to keep it that way and to grow from there. So we do appreciate your time and your interest we wish all of you in your family's could help.

In the very best as we move through the remainder of this challenging year Oh, Please call us any time, but any questions.

Otherwise, we look forward to further updates and the next in the coming quarters. Thank you.

Ladies and gentlemen. This concludes today's conference call. Thank you for participating can you may now disconnect at this time.

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