SL Green Realty (NYSE:SLG) Q1 2020 Earnings Call

0:00 Thank you everybody for joining us and welcome to SL Green Realty Corp's first quarter 2020 earnings results conference call. This conference call is being recorded. At this time, the company would like to remind listeners that during the call, management may make forward-looking statements. Actual results may differ from the forward-looking statements that management may make today. Thank you for your time today. Thank you for joining us.

1:15 Chairman and Chief Executive Officer of SL Green Realty Corp. I ask that those of you participating in the Q&A portion of the call, please limit your questions to one per person. Thank you. I'll now turn the call over to Marc Holliday. Please go ahead, Marc.

1:31 Okay. Well, what a difference a couple of months make. If we had this call at the beginning of March, I would have told you all about the great things happening in New York City and and at SL Green, recapping another very strong year of accomplishments and a stock price performance relative to our New York City peers that was very strong. I would have told you about our record low unemployment and record high leasing pipeline, near zero vacancy across our portfolio, incredible progress on the construction and leasing of one Vanderbilt and a sense of growing stability in the retail sector. and I would have highlighted our plans to continue executing on our very defined corporate strategy of asset dispositions and stock buybacks.

2:19 But that was eight weeks ago and for all intents and purposes a lifetime ago. Suddenly we are living in unprecedented times experiencing a disruption to our lives and businesses the extent of which most of us have never seen. The COVID-19 pandemic and the subsequent dramatic reduction of global economic activity have rendered the best laid plans and projections uncertain and injected volatility into the marketplace. We don't yet know how long it will take to bring the pandemic under control, nor whether New York's economy will rebound quickly as it often has in the past or face a more protracted decline. What we do know, however, is that SL Green is built to withstand these times. It's in moments of crisis and market disruption that our team shines the brightest. Thank you very much.

3:38 and our tenants and their employees well informed. New York City office buildings house many essential businesses, organizations and agencies that work in our portfolio that are critical to keeping this city running. Medical offices, healthcare companies, visiting nurses, major media outlets and broadcast studios and governmental agencies all have offices in our buildings. These tenants simply don't have the option of working from home They are the people on the frontline who need assurances that they can operate in buildings that are open, operating, secure, serviced, and free from COVID-19. So we have viewed our role these past few weeks as doing everything we possibly can to support the heroes who are tackling the crisis and ensure that our facilities are ready when they need them. We are tremendously grateful to our own frontline employees, from property managers and building engineers to security guards and cleaning staff, who continue to make our buildings best in class even in this environment.

4:41 With our buildings and construction sites secured, we have turned our attention to the business of welcoming our tenants back into the portfolio as soon as the workforce limitations are eased. While no one yet is certain how and when the restrictions will be lifted, we are planning for a partial return to offices sometime in the second half of May with ramping up occurring over June and July. are here with us today. Count me out as someone who believes the future of work will be at home in a bedroom with a laptop computer and spotty Wi-Fi connections with family members doing video bombs. But undoubtedly, COVID-19 has changed the perception of what businesses want in work environment. As businesses reopen and we begin the process of getting back to work, we will implement new standards in the workplace to satisfy office workers. With more on that, let me turn it over to none other than and our very own Ed Piccinich, SL Green's Chief Operating Officer.

6:10 Thank you, Marc. And I echo your sentiments. We couldn't perform at the level we're performing in this emergency if it wasn't for yours and Andrew's leadership as well as full support of the board. Here we are seven weeks and it feels like seven years. As many of you have been through your share of crises and emergencies throughout my career, Everything from 1993 World Trade Center bombing, 9-11, Northeast Blackout in 2003, the steam blast in 2007, H1N1 in 2009, and who can forget Superstorm Sandy in 2012. When COVID-19 first hit, it was about initial risk containment, and we immediately formed a steering committee to understand and address the evolving situation.

7:00 And we were early in implementing that expanded cleaning system and protocol identifying how to quickly isolate and sanitize areas exposed to COVID-19. We made sure that we were managing and disseminating information real time and that our tenants were fully informed, but also our employees while keeping the building fully operational. We took our in-house technology group, John Matthews, Jeff Karachian, A.J., and the rest of the gang with Brian Alleycock to make sure that we were connected, zoomed in like a sniper's crosshair. Governor Cuomo's directive to restrict nonessential workers from reporting to the office was reflected in our building occupancy. As a result, we needed to make some very difficult decisions, but we held out for as long as we could because of the loyalty of the workers that Mark referenced and we scaled back accordingly.

7:57 Our frontline people kept the buildings running, safe, sanitized, and clean. We're not only looking forward to ramping up operations as soon as this mandate is lifted, but we are ready, and I can assure you that the team's been manning, training, equipping, and as soon as this mandate is lifted, we will be ready. The team's been working hard, running like human calculators. Greg McManus and our head of HR, Lynn Courtney Hodges, running necessary algorithms that track our expenses and frontline head counts as though we had a mounted GPS tracker on everyone. A few weeks ago, we shifted our focus from risk containment to risk mitigation mode and formed what we're calling our SLG Forward Task Force to establish the foundations of ideas and recommendations that will guide us through with a detailed roadmap of our entire portfolio reopening.

8:50 Megan Gill and Laura Bouaille are literally our in-house cartographers navigating us through uncharted waters. This virus may be new, but we have always been preparing. Once a year we close shop for a couple of days and run tabletop exercises to understand exactly how our buildings work inside and out. Richard Currenti puts our buildings to sleep like a board certified anesthesiologist and he's behind the controls to get them ready for their wake up call. Never have I been more proud of our property management team and their laser focus. As you know, we oversee a behemoth of a portfolio with Some 24 BMS systems, hundreds of fans, almost 20,000 square feet of coils, nearly 60,000 tons of refrigeration machines, and 200,000 tons of cooling capacity. I say all that because when you're behind the controls and you can bring that, throttle it down, and be ready to ramp it up, that's where everyone that's key has to step in. On the construction side of things, we had Bob DeWitt.

9:53 He's perfected the ability to execute virtually. and has filled more exception applications than probably 20 owners combined. He has consistently maintained a construction workforce, albeit fluctuated at times, but kept construction crews with hammers in hand. There's been much work completed since we jumped on this in January, and of course, we're still not out of the woods yet. We've grouped our efforts into half a dozen or so categories, which comprises some 100 different line items that we considered. We evaluated each and every one of them to exhaustion. Nonetheless, knowing that communication and safety would be the most critical aspect of our program and that providing everything with confidence that our best-in-class staff and facility were up to the challenge. So as industry leaders, we set the standards for managing this crisis in the days and weeks following the first cases reported in New York City.

10:47 Topics that I'm referencing, we looked at everything from How we're going to communicate with our tenants on captivate screens through building engines, making sure that our communication order from managing elevator occupancy, reducing conference room capacities, restricting outside visits, promoting teleconferencing, all the things you can think of. And this toll order is being tracked by Alicia Gabenchin, who brought her ingenuity and leadership across the project and forms of communication, dubbing her flawless execution on each and every one of them. When it comes to the actual lobbies, we're ready. Our signage will be ramped up for corridors, turnstiles, freestanding dispensers, and trifold handouts to our tenants so they understand exactly what we're trying to achieve. And everything from hand sanitizers to lobby queue markers in the elevators, as well as commanding traffic control, everyone is going to be on hand. on call, understanding how these floor decals will indicate where you go and how you get to your destination.

11:55 We've been running algorithms on our elevators, and there will be staggered shifts as needed, but for the most part, we've changed and ensured that our wait times will be manageable while maintaining social distancing, and we'll get people exited in and out through the elevators, listening to anything and everything that has to be done in order to make it happen. We've also looked at consumables, and we're making sure that all these consumables, everything from surgical masks to latex gloves, Rachel Boniello's tracking that with her unrelenting encouragement, proving to us during this time that there's more than 24 hours in a day. We evaluated passenger elevator proctors that are going to be pushing elevator buttons, directing tenants into cabs, and reducing density as necessary.

12:46 These are passive and non-evasive of dealing with the situation at hand. We've looked at overhead thermal scanners as well as handheld thermal scanners. And although there's something to be said about the interpretation of how you use these, we're currently using them successfully at our construction sites. And the volume we expect here to detect anyone with high body temperatures and the accuracy will be done to perfection. Look, no one is perfect, but I've been talking to my contemporaries, Real Estate Board of New York, Real Estate Advisory Board, Building Owners Management Association, and our tenants. And they understand how critical their behavior is. And I'm sure they'll be implementing that in the weeks to come. Additionally, we looked at some long-term items, everything ranging from nano vapor, many of you have seen televised, as well as photo hydronic technology, to blue light, to tracking frontline employees, to hands-free Turnstile Enhancements. We've looked at and already and have started ordering for retrofitting of our turnstiles. Even though we have a card-recognizing system, we want to create a Bluetooth system that can universally pick up your approach to the turnstile and allow you access, once you're within feet from the turnstile.

14:08 Shout out to Tony Iacuinto, Dana Rainey, and Sam Yui that are led by Ari Maharis. walking our portfolio every day, seven days a week, and really redefining what real estate and security are all about. They tell me it's a contact sport, and no doubt it's proven to be such in these last seven weeks. As far as occupancy protocol, we're working with our own in-house specialists to determine what antibody tests, any vaccination stations we might consider, but We will be surrounding our lobby with the necessary support to understand exactly how everything should flow through. Getting back to some of the other things that we're doing to make sure that we are understanding how our protocol throughout the buildings is aligned.

15:05 We're going to also be looking at our tenants back to work and making sure that when we greet them, Thank you very much. Real-time monitoring, UV emitters, bipolar ionization. We've looked at it all, and we expect to be able to cover each and every aspect, and it's like anything else.

15:55 I don't want to go off and say that we're better at containment and risk management. We were always good at risk management and containment, but we are better today. It's like anything else in life. We've proven that through our shelter in place, that we're all respectful of each other's well-being. And I'm confident that when the tenants return to our buildings and we get full occupancy, there will be a continued improvement in the way we do things. I can't help but think of Vince from our mailroom. Every time I've seen him over the past two decades, I pass him up and run into him and he always turns to me. Hopefully he's trademarked this little phrase. He tells me, maintaining, not complaining. And through it all, He's not wavered. He's been here every day.

16:43 So on that note, Marc, life doesn't take a day off. No matter how you slice it, people want to do the right thing. We thrive during these challenging situations, and I assure you and Andrew, me and my team remain committed, and we got this.

17:00 Thank you. There's no question about your passionate commitment to the task at hand, and you've got a great team on it. and we thank you for it. The tenants are going to be better off for it. And now it's time for us to look ahead. As you can imagine, we are completely reassessing our business plan for 2020 to recognize and adapt to the current situation and to be prepared to move decisively as conditions continue to evolve through late spring and beyond. Fortunately, the moves we made over the past four years now look prescient and put us in a position to come out of this crisis stronger than ever. By monetizing nearly $10 billion of real estate since 2016, deleveraging our balance sheet with proceeds and buying back stock on an accretive basis, we have created a more streamlined company that is narrowly focused on our very best Manhattan office assets. We couldn't have predicted the current moment, but we're comfortable with where we sit today with substantial cash and liquidity, generally long-dated assets and liabilities, and a stable base of credit tenants.

18:07 On the tenancy and leasing front, we are very fortunate to have largely credit-worthy office tenants and long-term rent rolls. And accordingly, we did not experience significant delinquency or fallout on office collections in April, having collected over 90% of our office rents, over 60% of our retail rents, and we will exceed 86% of collections overall. Those are stats we are enormously proud of. Not only because of the tenant base that we built, knowing that they were built like we are to withstand times like this, but also we've had conversations with every single tenant in the portfolio, and everyone who can pay for all intents and purposes has. April is not over yet.

18:58 We think we're going to end up April office collections around 92%. We think retail rents based on the commitments we have in place today will approach 64% and we will actually end up at around 87% overall come April 30th. So we've got still a week left. We're working with these tenants and we understand the challenges that some of them are facing, particularly our retailers. They'll be extraordinarily challenged during these times and we're attempting to work with those smaller tenants that have been most impacted during this time. We certainly have asked that our larger tenants and credit tenants pay their share as it was evidenced they did so that it gives us the latitude and flexibility to work with the most impaired, generally smaller tenants, generally in the retail community who right now have been shut out of business.

19:54 And we've been doing that. We've been doing that well. We work for the shareholders, but tenants and their employees are our customers. and we will try to be there for them throughout. One great example of this is the Food First Initiative we launched this week in partnership with Danielle Balloud to help alleviate the ongoing food shortage in New York City that has now been further amplified. Our mission is to help feed emergency service workers and our neighbors who have limited access to food by partnering with SL Green's food service tenants across our entire portfolio in a way that we believe will also help to revitalize our food and beverage tenants at a time when the industry needs it most. We kicked off phase one of this initiative this morning by firing up Danielle's Lower East Side Prep Kitchen with the objective of initially cooking 1,000 meals a day for nurses and first responders in New York City.

20:48 SL Green has contributed a million dollars as a down payment to the Food First Initiative, an investment that we expect will, in and of itself, enable the preparation and delivery of over 150,000 meals to the frontline heroes and those New Yorkers in need. Of our more than 30 food service tenants in our portfolio, we expect nearly half of them to join us in this initiative and open their doors during phase two of this program next week to help feed local community and bring workers back into the kitchen for the purposes of beginning the process of reemergence from this pandemic and serving the people of the city that we love. Pre-COVID, We had an extremely robust leasing pipeline, and while much of that is temporarily on hold, we had a strong first quarter of leasing nonetheless, and we know we will rebuild that pipeline once this crisis passes. In fact, our current pipeline, exclusive of all the COVID delay tenants, still stands at an impressive 815,000 square feet, and that's on top of the 400 and 26,000 square feet of leasing. We've already concluded year to date with over 100,000 square feet of that leasing occurring in April alone.

22:06 So, in fact, we know that in situations like this, companies will want to work with trusted partners and will move toward the quality, service, capabilities and experience that SL Green best exemplifies. In a moment of uncertainty, you can count on us, we will ride out the storm together. I want to now just take a moment to focus in on debt and preferred equity. Andrew is going to give you sort of an overview of the accounting charges that took place during the first quarter. I saw a lot of commentary on that. I thought for a program that has delivered to us $1.8 billion of revenues over the past 10 years, not including 2020, $1.8 billion, 2010 to 2019. We took total losses in that period of time $32 million, I believe, about $3 million a year against a billion data revenues.

23:08 I think it's an extraordinary track record. I'm very proud of that. I think when you look around at what's taking place among some of the levered finance companies out there today, we really appreciate the The quality, the creditworthiness of our assets, our borrowers, our program, our underwriting that has created such an extraordinarily profitable program for us over that period of time. In the first quarter, as a result of CECL and some trading activity, we took some further reserves, and I'll let Andrew come in and shed some light on that, please.

23:45 Thanks, Marc. On the debt and preferred equity book, we received 98% of our scheduled interest payments in the first quarter with two positions representing approximately $25 million of book balance having not paid. Both the assets are retail assets where the tenants didn't pay rent. One of those interest payments is additionally backed by a debt service guarantee. We took some marks at the end of the fourth quarter and over the first quarter. partly attributed to CECL where we ran multiple different scenarios and based on percentage likelihood of each scenario adjusted book balances. Those reserves may or may not come to pass but it's important to note that we did take reserves through CECL against the two positions that did not pay in the first quarter that I just mentioned. There is obviously a lot of uncertainty surrounding rental payments over the next few months and if that choppiness continues It's possible that the rate of collections may temporarily fall below the level we achieved for the first quarter and that as in all downturns, some assets may end up in foreclosure.

24:53 That's part of this business and an outcome that we're comfortable with. That's the way we underwrite every position is to the worst outcome. Given that roughly 70% of our portfolio is comprised of loans secured by office properties and another 23% by residential properties, We wouldn't expect the level of nonpayment to rise dramatically, and any rise in nonpayment will most likely be short-lived. Additionally, we took reserves against assets that we anticipate selling in the second quarter based on management's best estimates of where the loans would price in today's market. Based on where we sit today, we hope to have $100 to $150 million or so of loan sales closed in the next four weeks and pricing may well exceed the levels we mark them to.

25:44 We don't see any debt assets trading below their marks. There's been a lot of chatter in the market with respect to loan sales. People are obviously free to believe what they want of press reports, but shareholders shouldn't confuse SL Green evaluating bids on multiple loans in our portfolio with a mortgage REITs must trade bid list in a forced sale due to repo debt margin calls. across the entire DPE portfolio, we have $140 million of total debt against only first lien debt positions. And as we sit here today, we expect that balance to be down to $50 million or so within the next couple of weeks based upon a repayment we expect to come in that's already been committed by takeout lenders.

26:32 If we're not in the market at least evaluating opportunities to optimize our portfolio or raising liquidity, Our view is we're not doing our jobs. With that, Matt, I'll turn it over to you to take us through earnings.

26:46 Thank you, Andrew. Before I get to guidance, I just want to touch on liquidity where an underpinning of our corporate credit profile has always been maintaining a sufficient amount of liquidity both as a protective measure and when market conditions dictate that it's prudent to be opportunistic. In the current environment, cash is king and we have taken our desire for liquidity one step further. by looking to increase our cash balances from the $580 million we had at quarter end to at least $1 billion over the next 45 to 60 days, the most cash we have ever had by executing a solid plan that we have a high degree of confidence in. We actually call this the billion-dollar plan. As a first step, we drew an additional $150 million off our credit facility in early April, bringing us to within $50 million of total capacity and putting our cash balance at $730 million.

27:36 Drawing down the credit facility seems to be the norm these days, but that's actually a playbook out of the SL Green playbook from back in the financial crisis and just protects us from any dislocation that may happen in the broader financial markets. That said, we always strive to keep our line balance as close to zero as possible, and we expect to pay down the facility with other cash sources in the near term, including the pending financing of 220 East 42nd Street, which will generate proceeds of about half a billion dollars. Also on the financing front, we are moving ahead with our refinancing of 410 10th Avenue, given the incredible leasing success we have had there. That closing will not only repatriate about $25 million of cash to us, but it will also cover any future spend that would have come out of our pockets.

28:22 In the debt and preferred equity portfolio, Andrew highlighted our active marketing of between $100 million and $150 million of sales, most if not all which we expect to close in the second quarter. In addition, repayments of existing positions will total another $100 million, allowing the DPE portfolio to bring in $200 to $250 million of cash in just a matter of weeks. And rounding out the plan, we have the expected completion of two joint ventures, one for Madison Avenue, which is in a very advanced stage, and another for 126 Nassau. These transactions in total we expect to generate about $40 million of cash proceeds just at closing. These activities put us comfortably at our billion-dollar target, and if we elect to sell more DPE positions, well above.

29:09 With our share buyback program paused, no material debt maturities until 2021, development projects requiring very little equity funding because financing is in place, and our operations generating free cash flow, having a billion dollars of cash provides us an enormous amount of protection for many years to come. Turning to guidance, given the incredible level of uncertainty in this environment, Many may have expected us, and some even encouraged us, to pull our 2020 FFO guidance entirely and revisit it when there's greater clarity. Obviously, many companies and REITs have done it, and many more are likely intending to. However, we believe that our shareholders and the broader investment community deserve and expect us to provide them with a confident view of the company's position and trajectory on a go-forward basis. So we undertook a full rebudgeting process in just four weeks.

30:00 It's an incredibly daunting task and a real credit goes to the entire company from our office and retail leasing teams to operations to our investments group and to the incredible finance team who have all been focused on the situation at hand and have worked 24-7 since mid-March to formulate this plan across all aspects of our business. Our new FFO guidance range of 660 to 710 reduces our midpoint 6% from 730 down to 685. and is wider than our customary 10 cent range to account for the high degree of uncertainty. Obviously, there are many assumptions incorporated into our revised guidance, so I'll summarize them in as concise a manner as possible using the same broad categories I do when providing our initial guidance in December.

30:46 First, I'll address our diluted share count on which all of our per share numbers are based. As I read some of the research out there, I believe there was confusion about the impacts of certain parts of our business because consideration was not given to the fact that our share repurchase program has been curtailed. Through early March, we executed $238 million of share buybacks in 2020, along with OP unit redemptions, anticipating the closing of 220 East 42nd Street and the Olivia. While the Olivia did close, without the proceeds from 220 East 42nd Street, we announced we would be curtailing our share buyback program until other sources of liquidity could be established. In our revised guidance, we have assumed no further real estate sales and therefore no further share repurchases. This leaves us more than $300 million short of the buybacks we included in our initial guidance and increases our diluted share count for earnings purposes by 2.1 million shares to 81.4 million versus the 79.3 we utilized in December.

31:46 This has a material dilutive effect which has been incorporated into each of the line items in the guidance roll forward in last night's press release. Now let's get into the components of the business starting in the real estate portfolio. where the assumption of no more property sales for the rest of the year is the driver of a positive contribution to FFO of between 3 and 16 cents a share. The largest contributor to this is obviously 220 East 42nd Street where the buyer's failed purchase allows us to retain over $45 million of GAAP NOI and ultimately the $35 million deposit as well. We've not included the deposit in our guidance as it is a long process to access the deposit. Within the now larger retained portfolio, and Brett Hershenfeld with their leasing teams have gone back and revisited every single leasing assumption on every single space for 2020 to reflect a slower pace of leasing, albeit not stopped, and a moderation in their view of rents. We then layered in a conservative view of early tenant vacates, predominantly in smaller tenant spaces, and considered the rent relief requests we have already received as well as a factor for additional rent relief requests that might come.

32:56 The fact that early tenant vacates hits earnings, but rent relief that comes in the form of a short-term deferral has little to no effect on GAAP NOI because that rent will be paid. It simply sits on the books as a receivable. The conservatism we have built into our real estate revenues are partially offset by operating expense savings that Ed Piccinich and his team have implemented over the last few weeks while the portfolio is at low occupancy and savings that can be implemented on a more permanent basis while also factoring in any additional costs, we will need to incurred our properties to operate at a Class A standard in a post-COVID world. All told, on a dollar basis, at the midpoint of our new guidance range, GAAP NOI increases by $28 million. In the debt and preferred equity portfolio, we see a portfolio size that will be trending lower from the $1.8 billion at the end of the first quarter as we have assumed no new originations for the balance of the year. just the funding of future funding obligations along with $222 million of repayments and the aforementioned $100 to $150 million of sales.

34:03 This results in a projected year-end balance of between $1.5 and $1.55 billion and an average balance during the year of $1.65 billion versus an average we showed back in December of $1.85 billion. Lower balances coupled with lower rates reduces investment income to the tune of about $23 million at our guidance midpoint. With regard to reserves, we've taken an even closer look at every single investment in the DPE portfolio as well as any other loans we have to partners as part of the implementation of the new current expected credit loss or CECL accounting rules that Marc and Andrew have both referenced. Recall that CECL rules were being implemented over the course of 2019 by all institutions that have a loan portfolio.

34:51 So this is something we've been working on for a very, very long time. As a result of these reviews, in the first quarter we recorded $43.5 million of total reserves related to CECL, the bulk of which is recorded through equity, and only $4.3 million of which was recorded through earnings, reflecting any changes in the views from 1231 to 331. In addition to reserves for CECL, we also recorded $6.9 million of reserves related to positions that we have a high degree of confidence we will sell. Could we sell more? Definitely. And that's what we have left room for in our guidance on reserves. Rounding out the revenue side and other income, we model a reduction of $4 million at our guidance midpoint as we did not recognize any lease termination income during the first quarter versus our expectation of about $2 million per quarter.

35:40 So we have reduced our generic full year projection down to $6 million from eight. We've also reduced our assumption of leasing commissions at joint ventures where we earn them due to a slower pace of leasing and reduced other fees from transactions that we don't expect to move forward. Moving to the liability side, after refinancing Tennis 53rd for a fresh five years and repaying $250 million of unsecured bonds, during the first quarter, we have no meaningful debt maturities until 2021. That further maximizes retention of liquidity. While an interest expense, rates have clearly taken a huge plunge, falling LIBOR benefits us as we have a meaningful level of floating rate debt On average over 2020, LIBOR is about 100 basis points lower than it was in our initial guidance.

36:27 Modeling the forward LIBOR curve plus our customary 50 basis point cushion on top of that curve saves us a meaningful amount of interest expense. While we feel our level of floating rate debt and where it's used is appropriate, you may see us take advantage of low fixed rates as well. We did recently when we executed $350 million of fixed rate swaps against an issuance of corporate bonds that mature next year. Thank you very much. with additional asset sales. In total, the combination of lower rates, higher debt balances, and the cost of new financings increases interest expense by $12 million at the guidance midpoint.

37:32 And finally, we expect to reduce G&A by at least another $5 million on top of the nearly $2 million reduction we originally projected versus last year. This reduction reflects the underperformance of our stock as well as deterioration in our operating performance both of which will have a direct effect on cash and stock-based compensation expense as the vast majority of executive compensation is performance-based. This reduction also takes into consideration the million-dollar seed funding of Food First, which Marc discussed earlier, as well as additional COVID-related charitable contributions we expect to make this year. Concluding with revised FAD guidance, or AFFO, depending on what you want to call it, We did not highlight that in our earnings release, but at our investor conference in December, we projected a FAD of just over $380 million, a very healthy number.

38:25 After taking into consideration all of the FFO impacts that I've outlined thus far, which totals $28 million of decline at our guidance midpoint, we are actually increasing our FAD guidance by $20 million to $400 million, reflecting a substantial reduction in second-generation capital both leasing-related and elective-based building and recurring capital at our properties. Even after considering additional investments, we will make it the properties to enhance the safety and security of our tenants, a testament to our ability to manage costs and cash flow.

38:59 Marc? Okay. Well, you know, this was a little longer than usual. We had a lot to say, not only in Matt's detail on the revised guidance, but also sort of the state of the market as we see it, steps we've taken to reopen the portfolio, to welcome back tenants, which I think is the most exciting thing we have to look forward to in May right now is just getting people back into the city. And I think the governor and mayor are hopefully committed to doing that if the trends keep going in the right direction for the next two to four weeks. So We want to open it up for questions. We're going to, you know, let's take two questions per operator.

39:47 We'll try it, but let's try and cut through it quickly. I know there's a lot of people on the line, a lot of questions. It's already quarter to three. So let's start out with two questions each and we'll see if we can cut through it. So turn it over for questions. Ladies and gentlemen, if you have a question at this time, please press star then 1 on your touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue, please press the pound key. As a reminder, please limit yourself to two questions each. Our first question comes from the line of Michael Lewis from SunTrust. Your question, please. Great. Thank you. My first question, I wanted to ask a little more about the DPE book and the decision to sell some loans here, presumably below par. When you have some investments maturing anyway, you have some cash built up, so maybe just talk about the decision to do that and kind of the direct use of proceeds beyond growing the cash balance.

40:47 Well, I think they break down into a couple of different categories. Some of the sales that we're doing are of senior positions where we're optimizing our retained yield. some of the sales we're doing are just opportunistic where they're assets that we feel we want to trade out of and we have better use of the cash and then some of them are strictly for liquidity purposes so it sort of cuts across those different categories we have discussed with the board a plan as Matt said to have a billion plus of cash liquidity available to us and are unencumbered DPE positions, our best source of shorter-term liquidity.

41:35 So we have turned to that book, and the market is going to mandate less than par just based on required yields on some of the assets. Some of the assets we expect to clear are very close to par.

41:50 Yeah, that's billion dollars of liquidity that Andrew references. It's a measured number. but it's also an arbitrary number. It's the number we think if we have that kind of liquidity in the bank with our liability structure and our asset structure, it makes us as close as impenetrable as we can get and that's where we want to be. Could it be 900? Sure, it could be 800. We're cash flow positive so you can argue it would be a lot less than that but with that, we feel like anything beyond the billion which we will raise and probably be raising those monies after the second half of the year. That's offensive capital. I mean, we will be in this market in the future with offensive capital after we have what we consider, you know, what I would refer to as the impenetrable hard deck. And just recognize that we were obviously there with the closing of 220's 42nd. We were there and more.

42:47 So all we're doing really is substituting different forms of capital and for a sale that didn't go as planned, but we still have the asset and it's a great asset and it's long-term lease and it's credit tenants. So I think it shows the testament to the program that even in this market, which is a tough market, we do have extraordinary liquidity in that debt book, which I don't think everybody can say. So I think it's a testament to New York City and many more. Thank you. and a number of other people.

44:19 There are people, we have a fairly robust crew on site right now because remember there's a lot of transit work and public improvements and other site and safety work that is being undertaken. We probably have 200 people plus on site today and that will grow as the construction sites reopen in May. So we've lost some time. Some of that we can make up. by going to multiple shifts starting in May, June and hopefully the city of New York will consider in the right locations waiving some of the after hours work rules. That's one of the things that we and a lot of others in the industry will be pushing for. I think a lot of the workers will waive premium time or substantially reduce premium time so as not to get people that working working through shifts.

45:16 By working in shifts, you can keep distancing because you can allow them space. You don't have to be 100% for one shift. You can be 50% for two or three shifts or even less. So there's some changes that are going to take place. There are opportunities to make up time. We still expect to finish ahead of schedule. Whether, like I said, it's going to be August 4th or not, I think that's going to be a tough task. We're hopeful for August, hopefully not later than... beginning of September. So we're certainly not projecting more than a month or so of delay to account for what we've gone into. But look, we don't know until we're back to full complement and we see how the city operates through the summer.

46:02 But we're going into that time at the right period because with the summer hours, we can really make up a lot of time. So that's that. In terms of yield, I mean, we... We had a very substantial pipeline of leases going into COVID. We were on track to meet or exceed the guidance we'd originally given back in December. We nonetheless got some leases signed actually last week, increasing occupancy to 67%. Steve's got one more tenant pending that we hope is... can be rounded out in the near term. That might bring us closer to 70%. And then I think the goal for the year, Matt, was 82%. You know, we'll have to – there is a pipeline beyond. A lot of tenants still telling us they have every intention of going ahead with the leases we have been pre-negotiating, but I think people do want to, you know, take a month or two pause while we work through this situation.

47:03 Steve, can you hear us and do you have anything to add to that? Yeah, I'll add to the fact that pre-COVID we had another seven deals that were in ongoing term sheet negotiation covering about 150,000 square feet. We've kept in touch with those tenants, obviously. The larger ones of that group still are signaling that they want to re-engage once they have clarity when everybody's back in the office. So we closed these past two deals out in pretty quick order over the past 10 days. In the one other lease that we've got pending for about 27,000 square feet, we've had an ongoing series of meetings with them, video chats obviously, and that continues to move forward.

48:00 Thank you. Next question. Thank you. Our next question comes from the line of Derek Johnson from Deutsche Bank. Your question, please. Hi, everybody. Good afternoon. You know, I appreciate the strong liquidity position. However, what levers can you pull to raise further cash to reignite the buyback program, especially at this valuation? And I do mean besides the DPE book. And I guess it's really part of the same question, but what are your thoughts on the capital recycling environment going forward?

48:36 Well, I think we'll look to JVs most likely and potentially asset sales. We're out in a very soft way with some different scenarios trying to gauge the market right now. And obviously, most of the capital that's running around the market right now is sort of opportunistic capital or capital that's looking for distress-type situations. as in past cycles, that'll quickly turn to core buyers recognizing that they have a good opportunity to get into a market. This is the type of market where we bought in the last cycle 600 LEX and 125 PARC, really strong assets at good pricing.

49:22 So we've seen it turn quickly from sort of a distressed buyer environment to a more core stable buyer environment. and as those core stable buyers reenter the market, they'll be interested in the type of assets we'll be offering. Okay, great. And just a quick one for Matt. On the accounting and assumptions in place for the $11.2 million reserve set aside for DPE, does this only relate to the loans you're looking to sell and what's the time period this reserve covers?

50:00 So there are two components of that number that you referenced, the $11-plus million number. About $4 million of that is related to CECL. So CECL is implemented in two phases. One is a larger number that reflects your view as of December 31st and is recorded in the first quarter. That's basically the initial implementation of the rule. And then you record any changes in that view through earnings each quarter. That's the incremental $4 million that we took so we really thoroughly reviewed every position and beat them up pretty hard and took another $4 million charge for Cecil. The other $6 million and change is for the sale positions, the $100 plus million that we've talked about. We expect those to sell in the next couple weeks.

50:47 Those sale positions, by the way, I don't know if Andrew made the point earlier, he probably did, that they are credit-wise money good. These are It's a shame because not all reserves are created equal, and I guess we took about 10 million or so of reserves on trade assets, assets we intend to sell, is that

51:05 right? Yeah, well, the last six.

51:06 Last six?

51:07 Yeah, on trading.

51:09 And that's cost of capital. That's cost of capital to get to where we want to be, a little bit of a penalty for not having closed the 220 deal, but none of the assets we're trading are credit issues, and anything... In the portfolio, we largely dealt with prior to COVID because, you know, we had taken, we had pruned a lot of the portfolio. And I guess these CECL charges hopefully, you know, taking care of, you know, whatever else is in there on kind of a statistical basis. So, you know, that's where we are right now in that portfolio. And, you know, we will look at it as a source of continued liquidity for us, you know, if we want to monetize those assets and we have great places to deploy it.

51:54 into, as you mentioned, like our stock or otherwise. Thanks, guys. Thank you. Our next question comes from the line of Alexander Goldfarb from Piper Sandler. Your question, please. Oh, yes. Hi. Good afternoon. Just a few questions here, and thank you. Can you just talk a little bit – you mentioned about the JV that you're thinking about for One Madison and I forget the other properties. but maybe you could just talk a little bit about what percent of the property that you're planning on joint venturing in, specifically on One Madison. And then as we think about value creation, it would seem like you're better creating the value at One Madison 100% and then JVing later as you did sort of with One Vanderbilt. So thoughts on selling more down at One Vanderbilt versus initial JV at One Madison or maybe it's that the JV initially is a small part of One Madison and, therefore, SL Green is keeping most of the value upside.

52:54 Okay, compound question. I'm going to hit one Madison first. Forty-nine and a half percent is what we're anticipating to sell there, so I don't know if there was a further question on one Madison beyond that. One Vanderbilt, no intentions this year to sell any additional percentage of that deal now. complete the lease up there, finish the construction, complete the lease up. That would be something we explore for the future years. Beyond that, the rest of the question, Andrew, was there? Yeah, Marc, it was if you're doing that much JV at One Madison, you guys create a lot of value at One Vanderbilt, so why give up half of One Madison on the value creation before you do that?

53:42 By the way, we could have said the same thing on One on one Vanderbilt, and it's a good question. It's really how we intended to structure the deal where by contributing the deal as it sits and raising 49.5% via upfront equity, we don't have to fund any incremental equity. I think that's right. Either de minimis or no incremental equity on top of the construction loan that we're... that we intend to close on in the summer. So that's just how we conceive the deal, you know, right or wrong. I mean, yes, we're selling off upside in an asset we think, like one Vanderbilt, has tremendous upside, but also you've got to remember those dollars have been and will continue to go into the stock buyback program. I mean, we're still committed to that program, but we've always said we're only committed to it out of sale proceeds.

54:44 and many more. monetizations to redeploy into our own stock because we're just buying more of the best assets we own. And that really fundamentally hasn't changed. We've just taken a pause. Okay. And then the second question is, you gave rent collection for April.

55:31 Do you think that May will be the same? Do you think it'll be worse, better? Just some thoughts and maybe nuanced around office versus street retail.

55:41 Well, I mean, look, that's Conjecture, I mean, we hope it's the same, I guess. We hope it's not worse because hopefully in May there'll be movement towards a reopening. And I think just that sheer element of retailers being able to get back into their locations and restaurants being able to open and whatever else, if there's that much light on the horizon, then people who had a muscle through hopefully the worst of it in April will... will feel at least as good in May and see light at the end of the tunnel. I can't really give you a projection on that beyond that being our intention. We're not modeling improvement or unimprovement.

56:27 We're, I guess, thinking it'll be roughly similar. The collections were very good, as I mentioned, yes, about retail. I don't know that we have a breakdown between street retail and high street, regular retail, but the overall retail Thank you, Marc. Thanks. Thank you. And as a reminder, ladies and gentlemen, please limit yourselves to two questions each. Our next question comes from the line of Emanuel Clutchman from Citi. Your question, please. Hey, thanks for that. Maybe to follow up on Alice's question, Matt, the NOI projections and I guess the deferral projections you guys have given, all of those follow the guidelines that Marc presented with a partial reopening in May and then more fuller in June and July. Is that the right way to think about it?

57:31 That's accurate. Okay. And then, Andrew, are you and your team still underwriting new DPE deals for where you might actually have an opportunity to lend against or on assets that others aren't looking at in this environment? Or is the DPE program in contraction, no new investment mode?

57:53 Yeah, I think as Matt said, we haven't modeled new investments over the course of the year because the capital will likely be, you know, and David Schaumbach. Sure. Thanks, Andrew. I think our team is always focused on working and underwriting and making sure we see everything out there, whether or not the bias is to putting more money out or selling positions. We're always looking at things because at the end of the day, it's just cost of capital and where the best opportunities are. So we're always engaged in the market and seeing opportunities. I think right now, some of the bridge stuff has a real gap just because of the mortgage rates were levered and some of the other specialty finance companies can't put that money out and then some of the Mez guys are on the side and a local player who knows all the buildings like we do has an advantage because if people aren't able to tour right now or kind of travel to the extent people need to do something quickly we have an advantage

59:24 we'll see how much or if we take advantage of it but That's definitely a position we have that no one else does. Thanks, guys. Thank you. Our next question comes from the line. Jamie Feldman from Bank of America. Your question, please. Great. Thank you, and I appreciate all the detail on the call. So you had switched to a monthly distribution rather than quarterly, and you're talking about AFFO actually rising. So can you talk more about that decision and your visibility on the distribution going forward?

1:00:00 It was a question about dividend? Well, I mean, look, that's a board-level decision, so there's not much we can really add here. We did go monthly because we felt that for this period of time that we wanted to have, you know, very real-time visibility into collections as well as, you know, whatever kind of revised guidance we come out with. And you're right, we, you know, came out, you know, because we didn't know what was all going to come out at the end. We came out, we said, oh, my God, you know, AFO is up 20 million bucks. And we didn't really sacrifice anything, to be honest. I mean, a lot of it's really just deferred leasing capital. So, you know, it's called the good news money. When we do the leasing, there'll be the capital. If we defer that out, the AFO went up. We deferred a couple of projects, Ed, but nothing that in any way were of an emergent nature or anything we had to deal with this year.

1:00:53 So we feel like we're in a reasonably good position, but we think it's prudent to monitor this monthly. We'll have a conversation with the board more frequently than usual now on this monthly basis and come to a decision, but clearly – April, for all the things it could have been, we did reasonably well. Okay. And then how have discussions with some of your largest pending expirations changed in terms of likelihood of renewals or just maybe even across the market? Thank you very much. I think you're spot on. Your inquiry is that as a result of the current circumstance, we've engaged a number of those sub-tenants where previously we had expected them to vacate and are now in discussion with them about the potential of a good number of them staying for some significant pieces of space.

1:02:18 And I think we'll probably see some of that across the portfolio. Tenants that were thinking about consolidations or relocations We have an enhanced chance of retaining them in the portfolio. And probably doing on shorter deals, you know, two to five-year type deals from the tenant's perspective where they want to preserve their capital and to see where the world shakes out. But from our side of the table, with a 95% occupied portfolio, every tenant that we can renew and retain capital and cut those costs is big news for us. Thank you. Our next question comes from the line of Nick Gillico from Scotiabank. Your question, please.

1:03:04 Thanks. I'm just hoping to get a feel for how your cash SAMHSA and OI guidance might be changing.

1:03:14 I could generically say lower, but I assume you want more detail than that, Nick. It is as currently modeled adjusting for the two things we adjust for least termination income and the Free Rent at 1515 Broadway, we expect to be down between 1% and 2%. Okay, that's helpful. And I guess maybe just to follow up, some of the drivers that might be behind that in terms of how we should think about occupancy at the end of the year, how much loss you're expecting this year, and then also in terms of rents, Your mark-to-market assumption, I'm assuming, is also lower. It's kind of hard to guess where market rents are, but any info on that would also be helpful. Thanks.

1:04:09 Part of the things you're getting into there, Nick, deal with some of our goals and objectives. I think we had 16 or 18 of them that we set out at the beginning of the year. We're going to have to re-review those. We've did everything we could to come out with this updated guidance for this call and commend the team for basically doing three months of work in four weeks. We have not yet updated the goals and objectives. In looking at them, I think we're still optimistic we can achieve about half of them. Others like occupancy, we had out there aggressively in 96 and change. I don't know that we'll be able to get there by year end, although it's possible.

1:04:55 But I think we've got to wait until the next call. Our goal is to do revised goals and objectives in July, three months from now, when we have better visibility into that. And like I said, we're hopeful that half will hold and half will change, but we don't have those numbers exactly yet. But this is the type of platform where a stat-like occupancy Thank you very much. Ghost Space, Overlay, all the metrics for December, Jan, and February were very, very good.

1:05:58 So we're hopeful to still be able to come out of this thing over the summer and then start to rebuild and hopefully not lose much in the way of occupancy, but we'll have more on that in a few months. Okay, appreciate that. Thanks. Thank you. Our next question comes from the line. John Kim from BMO Capital Markets. Your question, please. Thank you. Just summarizing CECL accounting, so you assess the entire DCE portfolio to fair market value at least once a quarter, and you can only write it down, but you can't write it up in following periods. Did I summarize that correctly?

1:06:37 Generically, yes. I mean, the CECL requirement, I mean, even before CECL, we had to assess every position every quarter. What CECL requires is a much more robust process around it. much more analysis introducing probabilities and stress tests and things like that. And we pushed on those really, really hard at the end of the year to take the majority of the hit upon implementation through equity in the first quarter. Then you do reassess every position on a quarterly basis, position by position, but also market conditions. And so we stress them further in the first quarter. to come up with the incremental $4 million charge or so that we took through earnings.

1:07:23 Any charges on a go-forward basis are through earnings, but there is the chance that goes the other way too. So there are fluctuations in your thoughts around reserves that can cause you to reverse previously taken reserves. I'll also say even beyond Cecil, if we sell a position, because Andrew alluded to it, if we sell a position at a better price than where we marked it, we reverse that. and the rest of the reserve as well. So if in one of these loan positions we execute at better than where we marked it and there's a reasonable likelihood that we will, we would reverse that portion of the reserve. Does CECL change your views on the size of the DPE book? I know you're shrinking it this year already but going forward and also your views on reporting a core episode figure going forward?

1:08:10 So our view of DPE is separate aside from CECL. CECL is a rule that we and every other lender has to have abide by, you know, among other rules. That didn't influence our view of the size of the portfolio. You know, the market we're in, the size of the company, the opportunities that are out there really dictate, and our liquidity position dictate the size of the book. As to reporting core FFO, you know, we try to be very diligent about reporting FFO in accordance with Nareit's rules and not try to create our own. We do put the information out there in our release to say here are the things that are non-recurring. so that people can derive their own FFO if they want to. And we call out the reserves that you can add those back because they are non-recurring in nature. But as to presenting an unusual form of FFO, I don't know that that's the best practice.

1:09:02 Thank you. Thank you. Our next question comes from the line of John Kiney from Stifel. Your question, please. Great. First, thank you very much for this much effort, particularly Ed. Nice job. Two quick questions. One is what you're thinking about the observatory at One Dandy these days. And then second, Andrew, when you had said that your DPE book was 98% collected, how much of that is PIC, payment in kind, or how much of that is out of a reserve account, and how much of that is actually the property generating the cash to pay the debt service?

1:09:43 Good question. On OBDEC, I'll just take that one. I guess David will give you a chance to try and calculate that number if you have the resources to do that. On the OBDEC, John, I think it's going to be spectacular. What we're designing and will unveil this December, we've always kind of sort of said, you know, not quite there yet, not quite there yet. This December, we will be able to share with you our plans. for not just the observatory per se, but the entire experience front to back. I think it will really find its place in the market of good objects throughout the city. The experience by its nature is, I think, is very conducive to whatever people's feelings are going to be about in 2022 about distancing.

1:10:41 because it is a large facility spread over three floors, column-free, tall ceilings, slab removed, and a lot of outdoor experience. So I think it's not a very congested experience by its design. It's intended to be almost what we call like a borderless or boundaryless experience, and people will have the opportunity to wander, to experience, and I think not to feel very compressed because we're only, I think our models, our underwriting, as I've mentioned to you in the past, is only 2 million people a year, which I think would put it at the low end of all objects in terms of occupancy. That's not because we don't think it'll be popular. It's just because that's, you know, the experience is not, we haven't designed it for a high volume, you know, close in proximity mass market experience.

1:11:34 So The launch of OBDEC is end of 21. I don't think we project stabilization into our five-year bridge. Seems like a long time ago we did that five-year bridge, but back in December. The real numbers for OBDEC kick in, I think, in 24 or 25. So I'm very hopeful that by then this will not only fare well, but it will actually be the kind of experience, almost like a form of escapism where everybody who's been I think this will play extremely well into that and we're still very optimistic. What was the other?

1:12:23 I think we've got to come back. I don't want to give you a number that's not completely accurate. The breakdown between what comes from reserves, what's paid.

1:12:30 I mean, the best, if you're funding, what's picked and what's, you know. I just don't want to make up an argument. All right, John, we're going to have to. We have a lot of funded reserves on the loan to pay interest, so is that, you know, that we would view as cash receipts, not.

1:12:41 Right, so, John, if somebody's put up as part of their closing equity reserves to pay interest, I mean, that's, We get our interest paid. It's just they put the money up in advance. That's prudent on our part. And then we draw from the reserve. I don't know if that's pick or not in your mind. Let's just do this. Do we know what's true pick? Forget everything else. What's pay and accrue? Forget everything else. I don't think it's much, John, but we'll have to come back to you. All right. Thank you very much. Well done. Thanks. Thank you. Our next question comes from the line of Peter Abramowitz from Jefferies. Your question, please.

1:13:28 Oh, yes. My questions were answered, actually. So, thank you.

1:13:31 Thank you. Thank you. Thank you. Our next question comes from the line of Craig Mailman from KeyBank Capital Markets. Your question, please. Thanks, guys. Could you give a little bit more color on the Nassau deal in terms of kind of dollars out the door? I think you guys said maybe you're going to have a a JV partner there and maybe just timing?

1:13:55 Sure, I think we're planning on starting construction on that project in the fall and we plan to put a construction loan and a JV partner in place before we start building there and we've made significant progress on both those fronts which we expect to be successful in announcing both a construction loan and a JV partner in the next three to five months, I would say. So it's a build to suit for a large institution downtown, and we don't expect to have a significant equity investment there. We expect to really be building it primarily on behalf of third-party capital.

1:14:42 Okay, that's helpful then. I know this one may be a little bit tough to answer. It's a little bit early here, but I guess if you guys were kind of trying to put out opportunistic dollars today, where would you try to underwrite market rents versus in-place rents and maybe kind of break that down if it was an office or a retail asset?

1:15:06 Yeah, I mean, I think we've got to let this market play out a little bit and see. I mean, I'm not... We're hopeful that rents are going to hold because I think what you're going to see is just a period of stalemate. It's not going to be a period of rent decline. I think you're going to see people who have put deals on hold and will revisit, and Steve, you can add on to this, will revisit. We're hoping they all come back. That pipeline I gave you earlier, I just want to be clear, that 815,000 pipeline, that was excluding... and many, many more. You know, that, Steve, you want to speak to that?

1:16:15 Well, let me, maybe it would be helpful to add a little granularity to our pipeline. You know, as we sit here today, we have 275,000 square feet of leases that are out for execution or in active document negotiation. We have another 540,000 square feet of term sheets. Those are term sheets that we think have a reasonably high probability of converting over to leases. But then on the transactions that were delayed as a result of COVID, we had 267,000 square feet of leases that were out in negotiation and another 340,000 square feet of term sheets. So another 600,000 square feet that make up the combination of all that is the million four that Marcus was talking about. That delayed amount of deals, I don't think those requirements are going away.

1:17:03 So we have a high degree of hope that Those tenants re-engage with us, and it's a matter of time and when. And I think Marc's right on. The feedback that we're getting from tenants right now is, you know, people are going to wait and see as far as where the market goes, but the immediate reaction is probably a push on the concession side, whether that's a few more months free rent or a little more NTI, and not as much as a dramatic drop in face rents. Great, thank you. Thank you. Our next question comes from the line of Steve Sackwell from Evercore ISI. Your question, please.

1:17:48 Thanks. Just a clarification on the collections numbers, Mark, that you provided. Are those pure cash numbers, or does that in any way include security deposits? I know one of your peers gave numbers kind of both ways.

1:18:01 That is pure cash, Steve. Steve, that hurts. Come on.

1:18:06 Come on, Steve. I'm just clarifying.

1:18:09 You really got to ask that question.

1:18:11 Dash. Okay. Dash rent. Thank you. And then secondly, Steve, just as it relates to tenants and kind of their space needs as they think about coming back and getting people into the buildings, how do you think they're thinking about sort of space? And I guess secondly, on the rent side... You know, you do so kind of mark to markets or at least projections of market rent against expirations in the supplemental, and those numbers did come down quite a bit from the fourth quarter. So I'm just curious, you know, how you're thinking about those declines, because it did seem there was about a 10% or 15% change in the spreads in 20 and 21.

1:18:57 Yes, let me take that one first. You know, I think from our perspective on the rent side, that's the – kind of the immediate quick shock to the rents. I don't think those are where we view the markets, certainly in the medium to long term. But as we come back to the office and over the next quarter or two, we take the rents down just I think as a measure of conservatism, not knowing where the world actually heads. As far as space needs, you know, it's an interesting conversation. There's a lot of discussion with tenants who are trying to figure out exactly how they're going to plan for their space. There's no doubt that the phenomenon of densification, which really started in 2011, had played itself out and that even before COVID, there were a lot of businesses that were starting to go the opposite direction where they were trying where they're going to assign more square footage per employee than before.

1:20:06 And I think now as a result of COVID, there's a consistent message that we're getting back from tenants that they're going to come back, they're going to redesign spaces, they're going to allocate more square footage in order to provide distancing between employees. And so does that mean that tenants actually end up taking more space in the long run? Maybe yes, maybe no. It will probably be offset by some tenants that then don't do consolidations but split their operations for diversity. So I think the story still needs to be written, but clearly the phenomenon of densification, that's gone. Great. Thank you.

1:20:57 Thank you. Our next question comes from the line of Vikram Malhotra from Morgan Stanley. Your question, please. Thanks for taking the question. So I just wanted to clarify that more so on street retail. You talked about just those numbers and the expressions being conservative, but maybe just give us some specific color around your views on street retail rents and then specifically the deferrals in street retail, any sense of payback, the length of the deferral, any more color on that would be helpful.

1:21:31 So what's the question? Street retail?

1:21:34 Directionally, rents, we are most focused on getting the businesses back open, getting the customers back in stores. And so it would be premature to really speculate at all about the direction of rents. I mean, there's no retail pipeline right now. There's office pipeline. There's no retail pipeline. It's a business in transformation and we have a lot of very strong tenants that we're hoping will reopen and customers will get back in their stores. So that's the primary focus right now in terms of market rent direction. The collections and retail were all over the spectrum in terms of most of our big credit tenants and many more.

1:22:59 How April collections went on the retail front?

1:23:03 Retail was tenuous as we went into COVID. We felt like we had found a reasonable place. This certainly is not going to be helpful. Most of our retail portfolio is long-term credit lease. What is interesting, sort of an interesting commentary, we had good collections in April. and that doesn't include some of the tenants who didn't pay who really are credit. You know, otherwise, I mean, these numbers would be higher. And again, I just want to, you know, state that I think it's unfortunate that larger credit retail tenants, be it office or retail, you know, don't step up to the plate like almost everybody else in this portfolio and pay because all they're doing is making it harder for us to work with the smaller guys.

1:23:51 It's not just us. I mean, it's everybody in this industry. So, I mean, it's The latitude's got to go to the small guys who need it the most. By and large, everyone did that, but as Andrew referenced, there were a couple, count them on one hand or less, five fingers or less, who didn't see it that way. That rent is still money good and those collections would be higher because they will eventually have to step forward. and that's the way it should be because we need to focus whatever resources we have. We have our own obligations as you know and whatever resources we can focus to help the street retail community who needs it the most, we're going to do that.

1:24:42 Thank you. Our next question comes in line from Wells Fargo. Your question please. Thanks for taking the question. So to me, it sounds like you guys aren't too broken up about not getting the 220 deal done, and you're expecting to close on the new financing in the near term. I guess, how should we think about that asset longer term, maybe when the investment sales market comes back? Is that earmarked to be put back on the market, or is there any sort of change in strategy at that asset?

1:25:13 Well, yeah, I think it's because of the long-term nature of the leases there, it's a great JV asset coming out of sort of the tumult in the market. We do intend to put the financing in place, as Matt said. Obviously, preference would have been to close the deal that we contracted on, but the buyer didn't perform, and it's our job to adapt and react and we did that in terms of lining up financing and ultimately we'll probably look to JVVS. Okay, that's helpful. And then just wanted to ask about WeWork in particular and maybe you can comment on co-working in general but obviously it's been widely reported that WeWork may not pay rent at some assets. You guys have two leases with them so are they current on rent and is your expectation that they'll continue to pay rent for the remainder of the year?

1:26:16 Yeah, I think they're current on two of their leases with us, or they're current on one and not current on the other, and there's discussions ongoing, so probably can't comment beyond that. All right, thanks. Thank you. Our final question for today is a follow-up from the line of Emmanuel Cutchman from Citi. Your question, please. Great, thank you. It's Michael Billerman. Marc, I wanted to ask you sort of a big picture, more strategic question, taking off your comments about the future of office space needs from corporates. And I do agree with you. In a remote environment, it's really hard to have the team building, the collaboration, the creativity, the camaraderie.

1:27:05 But the COVID-19 pandemic has basically forced a trial of work from home for every single office tenant that's out there. I would imagine that there's a lot of chairmen, CEOs, boards that will look at something financially and say, you know what, and I'm going to put aside the social distancing and the density part because we're going to hopefully get over that. But I would think a lot of corporates will say, let's see, let's try more remote, let's use less office space and see how it goes and then react to see if they're not getting the right outcomes. What gives you the confidence that there's not going to be a bigger shift because we're going to start from a base of 100% of tenants that are working remote that a portion of them, I would assume, are going to try to do it more effectively going forward?

1:28:03 Part of it is my opinion. Part of it is what I'm hearing from our tenant base. We're talking to these guys. There's always someone who... If people want to be at home, even before COVID, there are people who want to work from home. I mean, there's some people who'd rather be home than be at work. Whether that's going to be heightened now or not, we'll see. But we're hearing from our tenant base, most people are saying, this doesn't work. How do you do new business solicitations? I mean, it's one thing to do internal meetings or or Friday happy hours amongst your employees or maybe having these virtual happy hours or maybe doing some other kinds of meetings with existing relationships.

1:28:57 But the business itself is a personal, physical business. It has to be done more safely because people, especially with COVID being as virulent as it is, but I haven't heard anybody say, Thank you for joining us. What I've done 50 to 100 times previously and never liked it then and don't like it now.

1:29:49 So, you know, look, now everyone's been exposed to as opposed to some people and maybe there'll be some people who say, well, it works or maybe even preferable. But I think the combination of what we're going to benefit by from the lack of densification, with the pendulum that was already swinging back in the direction of de-densification. The pendulum was already swinging. Now it's just, you know, as I think Steve said, as he was, I could see him on the video, he was saying rest in peace densification. And that's, you know, I think what we're, you know, how we look at it. So whatever we gain there will hopefully more than offset whatever we might lose to work from home technology. But there's nothing, we have room for work from home. If people, you know, It's technology, it's efficiency.

1:30:43 We don't want tenants to take more space than they need because that only creates problems down the future. They should only take what they need. And more often than not, they don't take enough and they need growth space and that causes problems for them. If they feel that 5% or 10% of their workforce can work from home on a video screen, then have at it. But it's just not, like I said, it's not for us. We are office-centric people. We believe that people are at their best in the kind of space we have at One Vanderbilt. It's not even just is it okay, it's enhancing to the experience. Natural light, tall ceilings, collaboration with bigger workstations, the ability to mix in cafe, conferencing, workstation. It all, I think, still works.

1:31:38 It's just going to have to be done Well, I was... You don't always have to be right for the right reasons. Steve is again mouthing rest in peace. I see him right now. I'll add briefly to what Mark was saying. There's one other component of that that people aren't thinking about. A lot of big companies do hoteling.

1:32:26 The concept of having 120 employees but only 100 seats. That phenomenon, too, is going to start to go away such that every employee is going to want their own seat. I'm not going to want to share my seat with somebody else because everybody's going to have a heightened sense of cleanliness. That plus de-densification will add to the space allocation per employee as we go forward and help to offset any of the small amount of employees that work from home. Yeah, well, clearly the element of being together and collaborating, I think we all want to get back to that point.

1:33:14 That's for sure, Michael. Well, thank you for the question. Thank you, everybody. This was a little longer than usual, but it certainly, I think, was warranted and hopefully informational, but most importantly, hopefully everyone found and many, many more. Thank you, ladies and gentlemen, for your participation in today's conference.

1:34:01 This does conclude the program. You may now disconnect. Good day.