Earnings Call: Q2 2020

Jul 23, 2020

Ladies and gentlemen, thank you for standing by, and welcome to the Brandywine Realty Trust Second Quarter 2020 Earnings Conference Call. At this time, all participants' lines are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Jerry Sweeney, President and CEO. Sir, you may begin. Crystal, thank you very much. Good morning, everyone, and thank you for participating in our Q2 2020 earnings call. On today's call with me are George Johnstone, our Executive Vice President of Operations Dan Palazzo, our Vice President and Chief Accounting Officer and Tom Wirth, our Executive Vice President and Chief Financial Officer. Prior to beginning, certain information discussed during this call may constitute forward looking statements within the meaning of the federal securities law. Although we believe estimates reflected in these statements are based on reasonable assumptions, we cannot give assurances that the anticipated results will be achieved. For further information on factors that could impact our anticipated results, please reference our press release as well as our most recent annual and quarterly reports that we filed with the SEC. So as we begin our prepared comments, 1st and foremost, all of us at Brandywine sincerely hope that you and yours continue to be safe, healthy and as engaged as possible during this challenging time. This pandemic continues to disrupt all of our lives and has resulted in a new landscape for everyone, including every business. The duration of this crisis is increasingly unclear. On our April 23 earnings call, we did expect a return to the workplace environment by mid summer. Given the events of recent weeks, however, that timeline has been extended. We are continually assessing COVID-nineteen's impact on every element of our business. And based on this detailed review, we remain confident in our ability to execute all components of our 2020 business plan. Additional details on our approach to this crisis are outlined in our COVID-nineteen insert that is found on Pages 1 to 5 of our supplemental 2nd quarter results and an update to our 2020 business plan. We'll also review the announced joint venture on our 1 and 2 Commerce Square properties in the Central Business District of Philadelphia. Tom will then summarize our financial outlook and update you on our strong liquidity position. After that, Dan, Tom, George and I are certainly available to answer any of your questions. So I'm looking at the Q2, we continue to execute on every component of our 2020 business plan. For spec revenue, we are 99% complete with only 69,000 square feet $300,000 remaining to achieve our spec revenue target for the year. We had good second quarter leasing activity, that 400,000 square feet of both new and renewal activity with strong rental rate mark to market of 19.4% on a GAAP basis and 10.3% on a cash basis. Same store numbers had been tracking in line with our business plan, but the delayed opening of Philadelphia resulted in about a $2,000,000 NOI decline from our parking operations for the balance of the year. Our parking operations are included in our same store pool and as such this NOI decline has reduced our cash and GAAP ranges by about 100 basis points each. Office operations are progressing in accordance with our business plan. Cash collection rates continue to be extremely good, and we have collected over 99% of our 2nd quarter billings and our July collection rate tracks very well also with about 98% collected as of yesterday. Capital costs were at the low end of our targeted range and we have lowered our estimated full year 2020 capital ratio by 100 basis points down to 11% to 12%, really reflecting the experience we're having with generating short term extensions that require minimal capital outlays and I'll touch on that in a moment. Retention was only 37%, which was mainly driven by the known move out of SHI in our Austin portfolio as they began occupying their newly owned building that we built for them at our Garza Ranch project. As noted previously, we have backfilled 80% of their space, which will commence later this year at a 19% cash mark to market. And look, while SHI was the primary driver in our occupancy decline, we had several other tenants expirations. All of those move outs were known and part of our plan. And of the known move outs, 183,000 or 51% has already been re let and will recommence in 2020. I should also note that about 70 basis points of our occupancy decline were due to removing Commerce Square from our same store pool. Most importantly though, we do expect occupancy returning to our target range of 92% to 93% by the end of this year. We did post FFO of $0.34 which is in line with consensus and Tom will amplify that during his comments. And then looking at our 2020 business plan, as we talked about on our last call, this crisis really embodies both danger and opportunity for our company. Our clear priority has been to assess all elements of risk and institute plans to effectively mitigate and anticipate any adverse impact. We do remain focused forward on opportunities to enhance our business plan execution, whether that be by lease early lease renewals, margin improving rebidding programs or working with institutional partners to seek investments where we can create growth opportunities. And just a quick recap of our COVID-nineteen key components, we have maintained in accordance with all local, state and CDC guidelines, a doors open and lights on approach to our building operations. While it's a little bit difficult to quantify in some of our buildings, we estimate the current occupancy range of our buildings is around 5% to 10% in CBD Philadelphia, up to about 20% in our D. C. Assets. Austin is around 10% with some pullback in that given the situation down there. And the Pennsylvania suburban operations seem to be around 15%. Secondly, the stability of our operating platform remains a top priority with particular attention on rent collections and rent deferrals, all of which are amplified on Page 1 of our supplemental package. One of our real top priorities has been a strategic outreach to all of our tenants. So we are in extremely close touch with all of our tenants, understanding their concerns, listening to their transition plans and providing help wherever we can so we fully understand their objectives. As such, as part of that program, while we reached out to our entire tenant base, our particular focus has been on those tenants whose spaces roll in the next 2 years. The results of those efforts are framed out on Page 3 of our supplemental and have resulted in 73 active tenant discussions totaling about 950,000 square feet that to date have resulted in 28 tenants totaling about 216,000 square feet executing leases since March 15. These leases have an average term of 24 months with a 4.2% cash mark to market and a 5% capital ratio. On the construction front, all of our markets are allowing construction activities, and we've not programmed any additional pullback in construction activity delays this year. On a positive front, we are beginning to see downward pressure in select circumstances on construction costs, hard construction costs, as well as some soft costs as the overall forward construction pipeline continues to shrink. Our leasing pipeline stands at 1,500,000 square feet and we've actually had better than expected progression in that pipeline during the quarter. Once again, our team has been in extensive touch with every prospect and the breakdown of the 1,500,000 square feet is as follows: deals progressing, but execution uncertain economy uncertain, and we're targeting in the next 90 days about 24% or 354,000 square feet. Deals progressing, but too early to tell when they would actually get executed, about 900,000 square feet or over 60% of the pipeline. And that's really the noticeable change. Since April's call, many more deals have advanced from the on hold due to COVID, which right now comprises about 14% of that current pipeline into the deal progressing, but too early to call. So tenants are slowly beginning to refocus their attention on their office space requirements. On the capital front, we're really delighted to announce a joint venture on our 1 and 2 Commerce Square Buildings in Philadelphia. The joint venture is with an extremely high quality global institutional investor who's making their first office investment in Philadelphia, which from our perspective further demonstrates the attractiveness of our Philadelphia market to institutional investors and really validates investors' perception on Brandywine's ability to create value. Our investor has requested that we do not disclose their name and certain terms of the agreement at this point in time. But the general framework of the Venture meets many, many of our key objectives. It's $115,000,000 preferred equity investment, which represents 30% of the Venture's capitalization at a total value of $600,000,000 or $3.16 per square foot, which we believe is exceptionally strong pricing. The going in cap rate is 5.1%. That cap rate improves based upon the rollover, but we really view that as simply a data point due to the pending level of vacancy and the value creation opportunity. So right now, we're over 97%. That does drop to 70% over the next 18 months. After providing for payments for transitional leases and closing costs, Brandywine received over $100,000,000 of net proceeds, which as Tom will amplify added to our excellent liquidity position. The transaction is a seventy-thirty joint venture with shared control on decisions. And while we can't close some of the specific terms, we can share that our partners targeted rate of return on an all in basis is in the very low double digits. So we view it as very effectively priced capital. It provides for the same level of returns on preferred equity with a liquidation preference upon a capital event to our partner. And in return for that preference, Brandywine receives a significant promote structure upon a capital investment. Both Brandywine and our partner have each committed $20,000,000 of incremental capital to reposition the properties and re tenant known vacancies. We will continue to manage and lease the property. Status and the price of the transaction, we'll have minimal dilution, less than a penny a share on 20 20 earnings and will improve our net debt to EBITDA ratio by approximately between 3 and 4 turns between now and the end of the year. The transaction does reduce our forward rollover exposure by 1,800,000 square feet in our wholly owned portfolio. And Brandywine will also recognize a gain of about $270,000,000 on this transaction. Very important point to note in the structure. Given the state of the debt markets and the near term rollover profile of this property, we closed the venture with the existing $221,000,000 mortgage in place. That's only a 37% loan to value. As leasing progresses and the debt markets continue their recovery, we plan to refinance at a higher LTV thereby affording both Brandywine and our partner another opportunity to generate liquidity. And speaking of liquidity, the company is in excellent shape as outlined on Page 4 of our supplemental package. We are projecting to have a $500,000,000 line of credit availability at year end 2020. And if we refinance rather than pay off an $80,000,000 mortgage later this year, that liquidity increases to $580,000,000 We have only $110,000,000 mortgage that matures in 2021. We have no unsecured bond maturities until 2023. We anticipate generating $55,000,000 of free cash flow after debt service and dividend payments for the second half of twenty twenty and our dividend remains extraordinarily well covered with a 56% FFO and 75% CAD payout ratio. So with those items addressed, let me just spend a few moments on our development set. First of all, all of our production assets that's Garza and Four Points in Austin, 650 Park Avenue in King of Prussia and 155 in Radnor are all fully approved, fully documented, fully ready to go, subject to identifying pre leasing. And as we've noted previously, these are near term completions that we can complete within 4 to 6 quarters and their individual costs range between $40,000,000 $70,000,000 As you might expect, we didn't really make any significant advancement in our deal pipeline of almost 600,000 square feet during the quarter. And frankly, don't really anticipate any significant advancement of some of these major discussions until the crisis begins to abate and there's more focus on return to the workplace. And looking at our existing development projects on 405 Colorado, look, this exciting addition to Austin's skyline remains on track for completion in the Q1 of 2021 at a very attractive 8.5% cash on cash yield. We have a pipeline of 125,000 square feet. But frankly, as I noted on the production assets, we don't expect any significant decision making to occur until after the crisis begins to abate. On the bulletin building, delighted to report that's now been placed in service at 94% occupancy and 98% leased. The property will stabilize on schedule in the Q4 of 2020. 3000 Market Street is a 64,000 square foot life science renovation that we undertook within Schuylkill Yards. As noted last quarter, we did sign a lease with 1 of our existing life science tenants, Spark Therapeutics, who has taken the entire building on a 12 year lease. We expect that lease will commence in the Q3 of next year and deliver development yields slightly north of 9%. Quickly looking at Broadmoor and Schuylkill Yards. At Broadmoor, we continue fully advancing our development plans on Block A, which is 360,000 square feet of office and 3.40 apartment units. And we've gotten through final design and pricing and we'll be in a position to have all that ready to go by the end of Q3 this year subject to financing and pre leasing. Schuylkill Yards, within Schuylkill Yards, we really continue a very, very strong life science push. The overall master plan for Schuylkill Yards provides that at least 2,800,000 square feet can be life science space. So we really do view that we have a tremendous opportunity to establish a full ecosystem. 3,000 Market in the Bulletin Building conversions I just mentioned to life science really evidences the first part of that pivot to create a life science hub. We are also well into the design development and marketing process for a 400,000 square foot life science building with the goal of being able to start that by Q2 2021 assuming market conditions permit. Finally, we are converting several floors within our Sierra Center project to accommodate life science use. The aggregate square footage for that converted space is 56,000 square feet. We have a current pipeline of 137,000 square feet for that space. Schuylkill Yards West, our residential office tower is fully approved to go and ready subject to finalizing our debt and equity structure. We have also modified the design of the office component to accommodate some level of life science use. As I mentioned last quarter and will mention again this quarter, the COVID-nineteen crisis has clearly had a big impact upon the timing of moving forward this project and getting the financing in place. We continue to work with our preferred equity partner, but the crisis clearly slowed the place of procuring and finalizing both that equity piece as well as the debt piece. We do remain optimistic that we'll get this across the finish line as soon as the situation returns to some level of normalcy. In general, we do continue to maintain a very active dialogue with a broad cross section of institutional investors and private equity firms. In addition to our Commerce Square announcement, we continue to explore other asset level joint ventures that will both improve our return on invested capital and continue to enhance our liquidity and provide growth capital for our development pipeline. These discussions are active and ongoing and they certainly encompass both our Broadmoor and Schuylkill Yards projects. One final note is that we noted in our press release is we normally provide 'twenty one we would normally have provided 2021 earnings forecast during our Q3 earnings cycle. Based on the current uncertain business climate, we will not provide that 2020 guidance as part of our 3rd quarter call, but we do plan on issuing guidance no later than our Q4 earnings cycle. Now turning the mic over to Tom, who will provide an overview of our financial results. Thank you, Jerry. Our 2nd quarter net income totaled 3 $900,000 or $0.02 per diluted share and FFO totaled $57,700,000 or $0.34 per diluted share. Some general observations regarding the 2nd quarter results. Operating results were generally in line with our Q1 guidance with a couple of items to highlight. On our portfolio operating income, we estimated $80,000,000 in Portfoli Illini I, and we were $1,100,000 higher than that. While we did have parking being about $1,000,000 below our anticipated reduced parking level, primarily due to the transit and monthly parking, we did have lower physical '20, offsetting the lower parking income. Interest expense improved by $800,000 primarily due to lower interest rates than forecast. Our 2nd quarter fixed charge and interest coverage ratios were 3.4x and 3.7x respectively. Both metrics were similar to the Q2 of 2019. As expected, our 2nd quarter annualized net debt to EBITDA increased. The increase to 7.0x was primarily due to the lower anticipated sequential EBITDA outlined in the prior quarter. Adjusting for the Thomas Square transaction on a pro form a basis for the 2nd quarter, that 7.0 would decrease 6.7. 2 reporting items to highlight for the Q2, cash collections. As reported, our overall collection rate for the Q2 was a very strong 99.6% based on actual quarterly billings. However, if we did include the 2nd quarter deferred billings, our core portfolio collections rate would still have been a very strong 97%. In addition, cash same store, as outlined on Page 1 of our supplemental, we have included $2,300,000 of rent deferrals in our 2nd quarter results. While not billed during the quarter, we feel this presentation is more accurately representing our current same store metrics with normalized ongoing forward results not inflated by the subsequent deferred cash receipts. Looking then to 3rd quarter guidance. Looking forward, we have portfolio operating income will total approximately $74,000,000 and will be sequentially lower by $7,100,000 This decrease is primarily due to Commerce Square JV. The joint venture will result in deconsolidation of the property and that will lower the NOI by $7,500,000 One good pickup on the other side is there's $1,200,000 of incremental income for the bulletin building, which has been placed into service in June, and the building is now 94% occupied. FFO contribution from our unconsolidated joint ventures will total 6,500,000 dollars for the Q3, which is up $4,100,000 from the 2nd quarter, and that's primarily due to Commerce Square joint venture, which is being deconsolidated effective with our earnings yesterday. For the full year 2020, the FFO contribution is estimated to be $19,000,000 G and A for the 3rd quarter will total 7.3 and will be sequentially $1,000,000 lower than the 2nd quarter. This is primarily due to lower compensation, award amortization and is pretty consistent with prior years. Full year G and A expense will approximate $31,000,000 Interest expense will be $1,500,000 sequentially compared to the 2nd quarter and will total $18,000,000 for the 3rd quarter with 94.5 percent of our balance sheet debt being fixed rate at the end of the second quarter. The reduction in interest expense is primarily due to the $100,000,000 of net proceeds received from the Commerce Square joint venture, paying off our line of credit at Commerce Square mortgage debt and then also the Commerce Square mortgage debt will now be deconsolidated. Capitalized interest will approximate $1,000,000 for the 3rd quarter and full year interest expense will approximate $76,000,000 We plan to extend our 2 Logan mortgage beyond the August 1 maturity date, and we are looking to either pay that off or have it extended, and we'll be working on that during this quarter. Termination and other fee income, we anticipate terminations and other income totaling $2,200,000 for the 2nd for the 3rd quarter $10,500,000 for the year. Net management leasing and development fees will be $4,000,000 and will approximate $10,000,000 for the year. We have no planned land sales and tax provisions of any significance, no anticipated ATM or additional share buyback activity. In our guidance for investments, we have only the 2 the one property in Radnor, Pennsylvania that we will acquire for $20,000,000 dollars and that is scheduled for redevelopment. So we know generating of earnings of any kind in 2020. Looking at our capital plan, as we outlined, we have 2 development projects in our 2020 capital plan with no additional developments planned for the balance of the year. Based on that, our CAD range will remain at 71% to 78%. And uses for this year will total 285,000,000 dollars 67,000,000 of development, dollars 65,000,000 of common dividends. We retained revenue creating will be $25,000,000 dollars Revenue maintained will be $27,000,000 Mortgage amortization of $1,000,000 We are including the $80,000,000 payoff of the mortgage at 2 Logan and the acquisition of 250 King of Prussia Road. Sources for all those uses are cash flow from after interest payments, dollars 115,000,000 100,000,000 of net proceeds from Commerce, Square, Geo and Venture. We're going to use the line of credit for $39,000,000 cash on hand of $21,000,000 and land sales of $10,000,000 Based on the capital plan outlined, we're in excellent position on our line of credit and liquidity. We also project that our net debt will range between 6.3% and 6.5%. It will likely be at the low end of that range as a result of the Commerce Square joint venture, which has reduced our leverage in the Q2. In addition, our net debt our debt to GAV will approximate 38%, which is down from 43%, primarily again due to the joint venture improvement in that metric. In addition, we anticipate our fixed charge ratio will continue to approximate 3.7 on an interest coverage basis and 4.1 3.7% on a debt service coverage and interest coverage would be 4.1%. I now turn the call back over to Jerry. Great, Tom. Thank you very much. Thanks. With that wrapping up, we're delighted to open up the floor for questions. As we always do, we ask that in the interest of time, you limit yourself to one question and a follow-up. Thank you. And our first question comes from Steve Sakwa from Evercore ISI. Your line is open. Please check that your line is not on mute. Sorry. The Commerce Square JV, I know you provided a bunch of detail there. But obviously, the preferred structure is a little bit different than what we've seen on kind of straight up joint ventures. So I'm just kind of wondering how the discussions went when you went bring this asset to market and sort of the pros and cons of doing it this way with maybe a bigger upside promote versus maybe protecting kind of the investor on their return? It seems like they wanted a little bit more downside protection. Yes. Hey, Steve. Great question. I think certainly the macro environment played into the overall structuring of the deal. I think from our perspective, Congress Squares a wonderful trophy quality asset. We have a lot of churn, as everyone on this call knows, over the next several years. We knew that that would have a call on capital as well as an earnings impact over the next couple of years. And we knew that was creating a bit of an overhang in terms of a catalyst for moving our stock price. So we were certainly motivated to try and find a co investment partner who would help us, number 1, recognize attractive point of entry pricing 2, create an opportunity for us to both through the creation of the venture as well as from the leverage aspect of it created a capital capacity increase for us overall as a company. And I think as the discussions progressed, our investor who again when they announced it will be a well recognizable and incredibly well regarded name. Their focus given the rollover in the portfolio coming up was to have some level of liquidation preference that would provide them some downside protection. And from our perspective, given the point of entry pricing we were able to achieve, the low cap rate going in, the amount of liquidity this would generate for our company, the capacity to delever and then also provide some liquidity for other uses for the organization. We thought that was a fair trade, particularly given our ability to create a significant promote structure that we think will deliver significant returns to our shareholder base once we're able to execute on releasing that space as we know that we would. And I think the when we looked at the overall cost of this equity being the very low double digit, we thought that was very effectively priced compared to a number of other options that we see out in the marketplace. Okay. Thanks for that color. And I guess maybe just circling back, obviously, there's a number of leasing issues that you need to deal with. You've been pretty transparent on laying those out. Can you maybe just walk through some of the kind of major timelines? And you've sort of talked about new leasing kind of being on hold until there's a lot more clarity on the pandemic. So how much longer do you think or how further out do these leasing assignments take? And just trying to sort of think about 2021 and sort of the risk to earnings at that point, if these things aren't going to get leased this year sort of makes maybe the 2021 numbers a bit challenged? Yes. I think it's premature to preclude that because we're number 1 in such a dynamic climate that no one's really sure exactly what the acceleration will be. I mean, I will share with you, I mean, a lot of our senior executive, my conversations with both tenants and with brokers who are repping those tenants, really do expect there'll be an acceleration in demand in a compressed period of time because we're essentially looking at almost 2 quarters of definitive activity being delayed. That doesn't change the reality of the platform these companies face in terms of their office requirements. So that's honestly Steve one of the reasons why Workday is so active in talking to not only our tenants but also really maintaining very effective dialogue with our prospects because those decision points will come. They may come they didn't come by July, but maybe they come by September. And I think we want to make sure that we've advanced all of those discussions to the point where we can execute fairly quickly. Look at that stat we gave on a percentage of deals that move from on hold from COVID to basically in process but timing uncertain. View that as a very good harbinger for the office market in general that a lot of tenants are really focused on. Okay, I've got a lease coming up in 'twenty one or I've got this happening, what am I going to do? And we think that's a very positive sign. But I think when you bring that back to kind of the Brandywine landscape and George maybe you can chime in here as well. When we take a look at our larger leasing exposures, particularly now excluding Commerce Square, which will not be a wholly owned asset. SHI, as I mentioned, we've got 80% done, most of that will be occupying. We had a major rollover in Conshohocken. That's for next year that's been pretty much all put away. So George, maybe fill in some of those other blanks. Yes, I think at the Macquarie space, albeit down in a joint venture, 35% of their 150,000 square foot rollover, we've relet at favorable terms. We feel, again, high quality space. Northrop Grumman, obviously, is a large one in Dulles Corner, expiring twelvethirty onetwenty. And again, I think we're leaving all of our options in play there, whether that's renovating the building, potentially doing a joint venture or an outright sale of that building. And we've started to see some level of touring down in that Northern Virginia market, in particular at that building as some large requirements are now starting to at least surface, albeit their timing still to be somewhat undecided. The balance of the FHI space, which is about 35,000 square feet, we've got good levels of pipeline there to kind of put the rest of that away. The 80% we've already leased there commences in the Q4, so we get the occupancy pickup again when that rolls around. And then we've had, as Jerry alluded, a lot of conversations with our larger 2021 expirations and even some that are now on the 'twenty two horizon, who are now starting to think about what do I need to do. Maybe it's just kick the can down the road 12 months to 24 months and then some actually talking about doing something longer term. Great. Thanks a lot. Thank you, Steve. Thank you. Our next question comes from Jamie Feldman from Bank of America. Your line is open. Thank you and good morning. Hi Jamie. So I guess you had $100,000,000 of net proceeds from the JV, a big conversation has been raising capital for development at Schuylkill Yards and Broadmoor, bringing in JV partners. I mean, how do you think about that $100,000,000 and where does it get you in terms of your ability to finance more than maybe you previously expected on your own balance sheet for these developments? And then can you expand the JV to raise more capital and do you think we'll see more like in the future to help? I guess, Jamie, a couple of observations. One is we felt as though raising liquidity through one of our existing assets that was really turning into a value creation opportunity was a good thing for us to do right now. It helped us again create capacity and cash and did so on a property where we had a very large fortunately a very large embedded gain, and it's a great price point for I think this marketplace in terms of the cap rate. We would certainly hope we have the ability to do some other things with this partner. And as I kind of touched on it from a broader standpoint at the end of the comments, we have a whole range of discussions underway with potential partners for Broadmoor, Schuylkill Yards. Certainly, the life science element of Schuylkill Yards has been a major drawing card for broadening our potential investor base. And it's still an opportunity zone fund. And while I think some of those deals honestly, Jamie, have been a little slow in the gestation process, They're really beginning to re ramp up as people are focusing on potentially a different tax climate over the next couple of years. So I think we're very encouraged with the level of private equity institutional partnership potential we have out there. And we thought that getting the Commerce Square transaction across the finish line really to our shareholders would show that number 1, we've really further enhanced what we thought was a very strong liquidity position. And as you know in times like this that having the stronger liquidity the more opportunity set you have, whether that's for us increasing our ownership stake in some development projects, whether it be Schuylkill Yards or Broadmoor. That has a lot of value when we're talking to some of these investors who are really focused on how committed this sponsor is economically to the project. So we thought by having some additional liquidity optionality for us in these venture discussions that would help us improve the overall economic returns we could craft because we had more liquidity to commit to those projects. It also does provide the additional liquidity for us to look at other growth opportunities whether that's on deploying these production assets which we have focused on being wholly owned or other options that may come our way in this type of market climate. Okay. Thank you. And then, we appreciate the color on lease discussions over the next year or so. Two questions on that. Number 1, as tenants have come back to you and confirm their space needs, I mean, are you seeing a change in how they're using their space in terms of redesign more based on either more work from home or just a different build out that they plan longer term? Has that led to either more or less taking down more or less space? And then secondly, you have this 13% likely to vacate about 100,000 square feet. How does that compare to a normal year at this time? Okay, great question. George, why don't we start off and look, I think one of the interesting things we did, Jamie, a couple of months ago was as part of our reach formal reach out and survey to tenants was asking them about their space. Based upon the when I say space, their space configuration. Based on a lot of the feedback we've got, we've actually launched an initiative to provide free space planning services to any of our tenants who request. Now certainly, look, some of our large tenants have their own infrastructure in place. But in a company like ours where the average tenant size is 8,000 square feet or so, a lot of those tenants are looking for guidance. I think general themes we're hearing are that tenants are looking for ways to create more distancing within their space, whether that is changing the profile of their workstations or increasing their 6x6 workstations to 8x10 and a higher profile, higher walls is a key consideration. We're certainly spending a lot of time working with tenants on creating demandable partitions that we can put up within their space. So there's a clear bias, I think, on the part of a lot of our tenants to look at how they can reconfigure their space. It's too early frankly for us to tell whether that will generate net new space requirements, but I think it will create situations where probably some of the common area space allocations and some of our tenants will be compressed and be redeployed to create workstations or private offices. We would hope to have more visibility on that in the next 60 to 90 days as we're now really at the early stages of getting some definitive feedback from our tenants. Yes. And I think Jamie, this is George, to amplify on some of that. So likely to vacate look, I think it was only 8 tenants that clearly as of today said we're going to leave. 3 of them consolidated into other leased space that had a longer lease life than what they had with Brandywine. 2 of them were already subletting their space, so there was no hope of them renewing it. Our discussions now turn to the subtenant to try and negotiate something directly there. 2 did identify that they are shifting to a work from home model, and one had already vacated, although still financially performing under the lease. So I think in terms of where we would be in terms of some of that forward visibility, absent COVID, we probably have more of a sample size than 8 at this point. I think that's why 65 prospects and almost 600,000 square feet are it's just too early to make a commitment. They need to kind of understand when am I bringing my people back, how am I bringing my people back and what accommodations will they have to make for their people once they do come back from that work from home environment, so. Okay. I appreciate the color. Thank you. Thanks, Jamie. Thank you. Our next question comes from Craig Mailman from KeyBanc Capital Markets. Your line is open. Good morning. Jerry, I know you can't disclose all the details of the JV, but when is the first kind of remeasurement period for the promote? The remeasurement period. When would you guys be in the promote? When is the first opportunity to get a promoted interest? I know you kind of said once you get some leasing done or is it solely on the sale of the asset? It's primarily upon a sale or recapitalization of the assets, Craig. Okay. So if you guys put a new financing on there at that point, you could be in the promote? It's conceivable. I mean, it's certainly the one of the interesting bridges we build here is that even though the debt markets have really come back typically for office assets with long tenured leases, it's still not quite there yet in terms of proceeds on value add transactions. So with our partner, we made the decision to kind of close the venture with the existing debt in place, which I think as I touched on is below 40% loan to value. We've got new money capital committed by both Brandywine and our partner of $20,000,000 each to reposition the asset. So we would think that certainly given the pipeline, even George had touched on, we should be in a good position to look at refinancing this in the next 12 to 24 months. Okay. And then, I know we've talked a lot about Broadmoor and Schuylkill and maybe putting JV financing on those assets. But in the past, you've also talked a lot about Sierra and some other kind of stabilized assets. I mean, depending on when the debt market kind of settles out or where it settles out, are there talks about doing more of these type of JVs to finance the developments and maybe not give up as much as you might otherwise give up in pre construction kind of joint ventures? Yes. Look, I think as we've talked before, I think we're in an environment where every option is on the table. I mean we have an excellent portfolio, a great management operating team and leasing team. So just as we did something on an asset like Commerce Square. We're starting to look at creating some other capital raising opportunities at other pieces of our portfolio, so much what we did with Rockpoint last year and Ecommerce this year. And we're very mindful of not creating any real complications in terms of our balance sheet. We also recognize that in today's environment, some of that capital is really looking for great partnerships, good sponsorship and the ability to grow. So we are having some discussions with groups on creating growth vehicles for certain submarkets and certain product types. And to the extent we were able to raise some additional liquidity for that. And I think certainly as I mentioned to the other question, having that additional liquidity broadens our perspective on what we can and cannot do with some of these development transactions. That's certainly a big driving focus we have within the organization. And then just lastly, on the SIER conversion of life science, I mean, how do you guys have the systems in place to convert easily? Or is this going to be kind of a minor overhaul to HVAC and other kind of systems? And are there any other buildings you guys are looking to kind of benefit from the life science demand in Philly to kind of broaden your offerings? Yes. Look, in Sears Center, I mean, the infrastructure of that building can accommodate the license. So the work to make that conversion is primarily upgrading the HVAC and some of the mechanical systems and maybe some additional power loads, fundamentally fairly easy conversion. Not too dissimilar, quite frankly, Craig, on a 3,000 market. That was a building where if the infrastructure or superstructure of building and its component parts are accommodative in terms of volume and capacity capability, it's something we can certainly do. And we are looking at other buildings within our portfolio, particularly some assets in the suburban counties where there's in the Philadelphia suburban area, there's a growing presence by pharma and life science companies. There may be other opportunities to convert some of our existing assets to accommodate that use. Okay. And I think you said in the past as you guys have looked at Schuylkill, some tenants don't want to mingle with life science. Is that an issue at all? Do you have some legacy kind of office sense in these buildings? Or as you look to put a life science tenant in a predominantly kind of just traditional office setting? Are there any issues with tenants mixing? I think it's really a tenant specific concern. I think when we were talking about this before, we were really engaged with one tenant who really was very focused on not having not being in an environment with life science or lab space. I think that was more that's proven to be much more of an exception condition as opposed to a governing principle. So in all of our dispersion of discussions with folks, whether it's life science tenants at CERA Center or within Schuylkill Yards or some other locations, we've yet to really encounter any resistance to having their tenancy in kind of a mixed use building that's traditional office, incubator office or wet or dry lab office. Okay, great. Thank you. Thank you. Thank you. Our next question comes from Manny Korchman from Citi. Your line is open. Hey, good morning, everyone. Jerry, when we look at the Commerce JV, can you just give us some color on the timing of those conversations and maybe how they changed over time? Sure. They really commenced MANI sometime in the March timeframe. And as the macro climate changed, I think we both pivoted to reaching a structure that worked for both of us. And was there any part in those conversations to have the same partner look at Schuylkill? I see similar flavors, right? It's an asset in Philly. There's lease up risk, if you will. There's development dollars we put out, obviously, at a different scale. But was Skookal part of the conversations with this partner? Skookal was not really other than being part of conversation, it was not part of any negotiations. And then Tom, a question for you. I guess Commerce now comes out of your same store pool. And given the amount of vacancy that was going to come in that building, how much of an impact does that have on the same store stat or same store guidance that you guys have presented? Well, I think, so with occupancy, so we did talk about the occupancy number that it did negatively impact us for the Q2. It will not be an impact going forward even though we're taking a hit initially because of the no move out of Macquarie, which does happen at the end of July. So that move out would have been a negative impact to the same store. So from our standpoint, that was the case. When we looked at the for the occupancy, on the same store, we do expect that there will be a pickup more next year than this year on the same store impact as opposed to this year. So we didn't we moved our range on the same store by the 100 basis points. That's primarily due to the parking. Some of that parking is actually in Commerce Square. But it really didn't have a dramatic impact this year on the full year if we had put it in or out. But that reduction in the same store was mainly due to the parking. Next year though, we would anticipate as we roll out guidance that we're going to see an improvement on the same store because those no move outs will be out there. And that will include Reliance, which released at the end of at twelvethirty onetwenty. So that space was going to go down. That's about 140,000 square feet starting oneone of next year. So there definitely will be some tailwind to our same store for next year with that coming out. But I guess maybe I'm confused as to why Commerce given the size of the building and the contribution to your overall NOI and the changing NOI situation there, why that wouldn't have provided some lift to just the guidance that just because the pool changed, not because anything happened with actual tenancy, but just a change in the pool, wouldn't that have changed that guidance that more? Well, the guidance I'll let George chime in. I think on the guidance though, it's really we're giving guidance on sort of not what the is what the percentage change is from year over year. And with this year, when we look at the weighted average occupancy of where Commerce was for 'twenty, if it was in all of 'twenty and then where it will be next year, it was going to certainly be a damper if you took a look at how much contribution it would have been to the same store pool between 2020 2021. It was certainly going to go down with those real move outs with Macquarie and Reliance. So I hope that answers your question on that side. Maybe George can chime in, but that's how I think of it for 'twenty one, how it's going to benefit. Yes, I mean, Commerce's same store performance in 2020 was positive during the first half of the year because some of the leasing that we had done on vacant space in 2019 and then that same store characteristic kind of shifted to negative in the second half of the year with the known move out of Macquarie. So the 2 building kind of combination was somewhat of a flat same store asset, 20 versus 19. And then as Tom alluded, it would have been a much more worse same store 'twenty one versus 'twenty with the additional move out of Reliance and McCormick and Taylor, even though some of the backfill will commence in 2021. Thanks guys. Thank you. Thank you. Our next question comes from Michael Lewis from SunTrust. Your line is open. Great. Thank you. On Commerce Square, you explained the structure of the lease expiration schedule and how that impacts the cap rate and the pricing. At $3.15 per square foot, does this sale tell us anything about the value of the rest of your Philly CBD portfolio? Or do you think this is kind of unique and doesn't give us that much information? Yes. Look, I think the pricing is 6 $100,000,000 in the $315 per square foot. I think given the near term rollover in the property, I think says very good things about the stabilized returns that we're realizing off of our other Philadelphia based assets. I think we're frankly very happy with the pricing. It's not too far off what we thought was very good pricing on the Mellon Bank Center deal at $17.35 and that was a completely stabilized asset with no rollover at all. And that was $20 or $25 a square foot higher than ours. So we thought it was very good pricing quite frankly. And certainly the cap rate, I thought, spoke very well of the of how quality institutions and certainly our partner is a top quality one kind of view the growth potential within the city of Philadelphia. So I think from our perspective, the point of entry pricing where we're in that level with that kind of rollover exposure, certainly from an investment based standpoint, as I touched on, we're generating about a $270,000,000 gain or about $140 a foot and even on a gross basis based on acquisition and all capital put in, it's $100 a square foot gain. We thought that was very good, Michael. So we thought it was a we think it's a great read through to tell you the truth on the strength of the market because the point of entry pricing is solid. But more importantly, if you take a look at the climate we're in today to have the focus going forward of generating a great value opportunity value creating opportunity, we thought, was very strong. Yes. I think everybody is wondering about value, so it's good to have a data point. And then my second question is about leasing kind of a short term and long term look. In the short term, I think last time we spoke Decker and Blanket Rome have been close to signing renewals. I'm wondering if that's still the case. And then kind of broader, George mentioned 2 tenants that are moving to work from home. Are you seeing signals in the portfolio that this is really a sea change moment in your business where there may be a wave of this coming, any signals of that? Couple of parts to that question. George, I'll take it separately. I think on Blank Rome and Deckard, we'll continue to have great dialogue. So no real change on that other than the passage of time and summer vacation schedules for folks. So I think we continue to be very positive on how those discussions will wind up. Michael, on your broader question, I honestly think it's too early to tell. I mean, we're hearing very conflicting data points. And I think we have in the supplemental package kind of a pie chart that talks about how tenants view the impact of the virus on their business. And most folks were fairly positive or neutral. We're hearing generally from all of our tenants that they can't wait to get back to the workplace. That while working from home seems to be an adequate way of triaging business maintenance. The level of productivity that comes from working in a dynamic collaborative environment, it far exceeds what I think people are realizing right now. So it's kind of incredibly incremental progress that companies are making right now. I think certainly as I talk to a lot of our major tenants, they can't wait to get back in. I think the phenomena of work from home had already been there, but it was at a lower pace. So I think it's opened the eyes of a lot of companies that they can probably provide more flexibility to their workforce and not have the productivity decline that they might have feared before, that they can maintain a level of productivity by having work from home being part of their kind of standard personnel protocols. I think as we're talking to tenants today, obviously the macro situation is of concern, but then I think issues of mass transportation and schools seem to be the most often discussed topic, the topics that are governing when tenants view themselves returning to the workplace en masse. So in the Philadelphia metropolitan area we've got about 10% of the regional work force uses mass transportation. We're certainly not as impacted as a New York City or San Francisco or some other major metro hubs. But that reintroduction of mass transit is going to be, I think, a governor of when people return to the workplace. But generally and George you're talking to a lot tenants as well. The ones I talked to were very anxious to get back to work. So they've been very positive on all the steps that Brandywine has taken to ensure safe return to the workplace. Even as I mentioned earlier with one of the questions on being very frac from a space planning standpoint, the extent we can reconfigure space quickly, I think that brings people back even faster. But George? Yes, I think to that point, I mean I think a lot of tenants are really just thinking about how they can reposition their existing space, turning radiuses within workstation configurations. And the context of the 2 tenants out of the 673 that we conducted outreach to, 2 said that they were kind of ready to make that permanent shift. So I do think it's extremely early in the cycle and I'm not sure that those 2 are necessarily a barometer for the rest. Got it. Thank you. Thank you. Our next question comes from Tayo Okusanya from Mizuho. Your line is open. Hi, guys. Good morning. Just following up on that line of questioning, the leases signed, I guess, average duration of signing these short leases, what exactly your tenants are kind of saying to you in regards to the duration of the lupus and the Mayo time benefit? Yes, great question. And I think the general tone of those conversations and the fact that they averaged 24 months, I mean, some simply were 12 months, some were able to do kind of 36, 48. But for most of them, it was they've got something to think about relatively quickly because they've got a Q1 'twenty one expiration and not knowing necessarily when they will be fully returning and understand everything about their own business. This was just a means to kind of move that decision down the line. And as a result, we ended up with a lot of them just averaging that 20 4 month duration and softens the exploration curve for us, gives them a little bit more time to understand how they ultimately need to renew on a long term basis. And I think thematically, it's not that much different than a lot of companies like ours experienced during the great financial crisis where you had a number of tenants who were keeping an eye on kind of the macro uncertainty who just kind of did shorter term extensions. For us, it's a win win. It preserves our revenue stream with a little more certainty. As George touched on it, it smooths out our rollover exposure. And finally, it gives our leasing teams and our property management teams another 12 to 24 to 36 months to keep working with that tenant to make sure they understand that for anyone's their workplace solution. So I don't think looking at the size of those tenants and kind of the composition, I don't think there's any read through on that from the standpoint that tenants are only willing to do short term expense. I think these were tenancies that had within 12 or 18 month expiration. And given the pace of their business, they just didn't want to deal with thinking about what they want to do on their office space. We actually thought it was a positive sign that many tenants renewed even for a short period of time, but kept all their square footage in place. So I think looking at it from the other through the other window, the fact that none of these tenants were coming back saying, hey, I'll renew, but I'm in 10, I only want 8 1,000 square feet. We thought that was a good harbinger of the thought process that we know a lot of our tenants will go through as they start to think about their long term space planning requirements. Great. And just one quick follow-up, the cap rate on Commerce Square, the fiveone cap that is last 12 months NOI before they move out, did I hear that correctly? Yes. That's based on where it is now, right? That's correct. Okay, great. Thank you. Thank you. Thank you. Our next question comes from Bill Crow from Raymond James. Your line is open. Thanks. Good morning. Hey, Jerry. Hey, Bill. I appreciate the statistic on the 10% mass transit use in Philadelphia. What is that rate for your CBD tenants? Yes. The rate for our CBD tenants is I might be off here by a little bit, but it's somewhere around 50%. 50%? Yes, 50%, yes. Okay, great. Have you all seen a pickup in tours of suburban assets from current CBD tenants that might be looking for either to move out to the burbs or maybe a satellite office closer to their homes? No. I've read a lot about that trend, Bill. And honestly, whether it's in Philly or D. C. Or Austin, we haven't seen that. I mean, there's only one example that I could give you where a tenant who's a CBD tenant did a short term sublease for several 1,000 square feet in the suburbs just to get people back into an office environment because their workflow really requires people to work together. And they just they were meeting some resistance from their tenant base about using mass trees coming downtown. An interesting anecdote data point is when we did survey our tenants after health and safety issues, which were obviously paramount, the next most asked question we got from tenants was could we provide short term parking for them as they opened up their offices downtown. And that was one of the reasons why we were thinking that even with the anticipated opening of the city kind of in the early part of the summer, those parking numbers we had last quarter were good because the feedback we're getting from tenants was, hey, if they come back, they're going to park, drive in versus take the train. With the delay of opening up the city, I think that kind of create the result we have. But look, I do think there'll be a transition here. Our regional rail authority is doing a great job trying to get out a message of it's safe to return. Activity is picking up within the mass transit system. But until people get a lot more comfortable with health issues, I think it's going to be a slow adoption a slower adoption rate than you might expect for people to take mass transit. We're fortunate where we have a lot of parking capacity. So to the extent that our tenants need to use parking, we can do that. We've run, as you know, several shuttle services within the city. So we can actually bring people into kind of university city to park and shuttle them downtown if we need to. So we're looking at a number of different options to create mobility for our tenants other than just traditional mass transit to help them think through how they get their workforce back to our CBD locations. Great. And if I could just ask one more, Jerry. We've seen a lot of headlines of especially in some of the Pacific Northwest markets, San Francisco, New York, Chicago, the government's maybe out of necessity having to become less business friendly, heavier taxation things. Can you just kind of I know you're buddies with the folks down at City Hall, but just give us an assessment of where Philadelphia is on that spectrum? Well, look, I think every city is facing some significant near term financial issues. And I think almost every city is hoping that some level of federal and potentially state support could augment that. I think Philadelphia in particular given our tax structure where only about 20% of revenues come in from real estate taxes, the balance in from business and wage taxes is particularly susceptible to revenue variability. So if you think about the folks who are traditionally working downtown, who live out in the suburbs, they pay wage tax for the time they work in the city. To the extent they are not in the city and they're working from home, they're not paying wage tax. So I think cities like Philadelphia have kind of a I'll call it an inverted tax structure compared to most cities we'll probably face some more short term budget issues. Philadelphia did have a rainy day fund going into the crisis. It did pass a stop gap budget that did include raising marginally at least short term a couple elements of taxation. But I think that's a bigger question every city will face in terms of how quickly the revenue base comes back and how they want to deal with that from a structural standpoint, particularly given some of the social equity and economic equity issues that are arising on a nationwide basis. So we're staying in as close touch as we can with city leadership, certainly very much focused on articulating a point of view that that's pathway to economic growth is a job and ensuring that Philadelphia has a reasonable platform for job creation. But that's a much broader discussion of which I'm not even sure what all the issues are Bill. But we're staying close with it. And Philadelphia had been on a very good economic growth plan with job creation, employment growth and we're certainly hoping that once we get past these hurdles presented by the virus that we can get back on that. Thanks for the time today, Jerry. Appreciate it. Thank you. Thank you. Our next question comes from Jamie Feldman from Bank of America. Your line is open. Great. Just a quick follow-up. Just can you give us your views on just the expenses of any kind of changes to buildings that tenants may require coming out of this pandemic? I know in the answer to my prior question, you talked about moving space, moving desks farther away, partitions. I assume that's not very expensive, but is there anything maybe that you found since the last time you since last quarter when we talked about this that is a meaningful change? And then also as you think about your new building designs, anything coming out that seems like it will be a standard inclusion in a new building that wasn't necessarily there before? Yes, great question, Sami. On the operating front, look, fortunately, we've always had a real big focus in our company on MEP and all the mechanical systems. So we were able to really upgrade our filtration systems with really very little cost. I know George, it's pennies per square foot. We're able to do things with our stairwells and other kind of common areas to facilitate better pedestrian flow. So we actually really haven't experienced, call it, significant structural cost increases to make our building safe and healthy. We are looking at other situations where we can use UV technology to even improve the filtration systems. Is there are there robotic cleaning techniques we can use that may have some cost upfront, but less cost going forward? So we have a great operating team that works up through George that's looking at a whole range of different options that maybe you can amplify in a second. And then on the design standpoint, we have gone back and taken a look at all of our development projects and identified where we think we can we should be thinking. Some of those relate to I'll give you a good example, Jamie, in a couple of our buildings, we're really taking a hard look at the size and speed of elevators. People are concerned about getting in elevators. And so there's easy fixes we can have there by dramatically increasing airflow in those elevators. But there's also opportunities to either double stack or increase the size of cabs or increase the speed and using destination technology create environments where you really do have a touchless environment. So for example, at FMC Tower, our elevator systems were always destination. We've reprogrammed them that you just wave your security card to get into the building as a tenant. You don't touch anything. You just get your waste security card in front of the screen, tells you what elevator to go to, you get off and you're up. We think that's the way of the future. We've kind of moving away from revolving doors in some of our new buildings to sliding doors. So again, there's more of a touchless environment. Looking at reconfiguration of some of the lobbies, certainly moving to more of a well building standard versus just lead and looking at opportunities where we can kind of create indoor outdoor spaces that provide much more fresh air. But I think that's a big topic, Jamie, within just the architectural community as well. So I know the Council for Tall Buildings is looking at a number of different iterations to kind of think about the workplace and the apartment project of post COVID world. Yes, Jamie, I think just in terms of the cost, I mean, given size of the building, the sophistication of the systems, I mean we were looking at anywhere from $0.005 a square foot to kind of $0.03 a square foot depending again on how much additional filtration changes we need to make and the like, but again a relatively inexpensive spend offset by some other savings that we were able to generate while density and occupancy within the buildings was lighter during the Q2. Okay, thanks. And as you think about the new design, I mean, what does that do to construction costs? Is it meaningful change? Not a meaningful change. And I think one of the things you are seeing, I alluded to in my comments, Jamie, was that a lot of forward pipeline, construction pipeline seems to be dissipating. I mean, look, if you take a look at Philadelphia, I mean, 41% of our employment base is in Eds and Meds. There have been large building campaign programs by a lot of the anchor institutions. So with what's going on in the academic and healthcare world, we see some of that slowing down. That creates a bit of a window of opportunity for us to get marginally better pricing. So where we priced up some of these changes, they've not been so significant in scope that they've created any material upward pressure on our hard or soft cost. Okay. All right. Thank you. Thank you, Jamie. Thank you. Our next question comes from Daniel Ismail from Green Street Advisors. Your line is open. Great. Thank you. Based on your mark to market results and guidance for the rest of the year, it doesn't appear there's been a material change in the rental rate environment or your expectations for change in the rental rate environment. Is that accurate? And also can you touch on the concession environment as well? That is accurate. And I know there's a tremendous amount of commentary out there that the office rental rate market will decline. There was an increase in overall national vacancy in the 2nd quarter as you would expect. But Danny, we have not seen that at a ground level at all. It doesn't mean it won't happen. I mean, I think certainly there's a prospect for more sublease space over the next couple of years. But again, that's a prospect. We haven't seen that. I think if you think even on this early renewal program, I think we were pretty happy that we were able we weren't really getting companies coming back and saying, hey, I'll renew for another 2 years, but reduce my rent by 10%. The leases we have in process and frankly the leasing activity we've gotten done has had really no COVID price concessions at all at this point. But George, maybe Phil, I'll go to the price. Yes. I mean, I think in Austin, in particular, continue to see great levels of rent growth. Again, not nothing yet that seems to be COVID impacted. Most of our CBD Philadelphia rents still growing at a good pace. And a lot of the activity this quarter was along the lines of renewal. So we haven't really even seen the impact if there's going to be a significant one on kind of tenant improvement as it relates to new space. But again, I think that will really come down ultimately to existing conditions and how much of that ultimately needs to be potentially demoed and then kind of built from new depending on whether it's going to be a heavy office environment or more of an open air workstation environment. Yes. So I think there's certainly the possibility of some of those things happening, so I don't want to say that we're not focused on those. We just haven't seen any direct evidence. We haven't had discussions with brokers who have indicated that they're going to be looking along those lines. And I do think that this would apply not just to Brandy 1, but I think that a number of our public company peers that have really good asset basis. I do think there's going to be a continued focus on the part of tenants to really upgrade their office stock. And even the points that George was talking about in terms of our ability to upgrade our MEP systems, that has value. And I think there's certainly a lot of office buildings in this country that don't have the same capacity that some of the higher quality owners have within their existing portfolio. So we do expect to see and are beginning to see some of the signs of tenants who are kind of in B quality buildings looking to move up the quality curve because they need to deal with their employee base that's looking for a comfort from them that they're operating in a safe and secure and healthy work environment. So we'll add all those things to the list of TBDs over the next couple of quarters. Makes sense. Thanks everyone. Great. Thank you very much, Danny. Thank you. And that does conclude our question and answer session for today's conference. I'd now like to turn the conference back over to Jerry Sweeney for any closing remarks. Great. Thank you very much. Thank you all for joining our call. I'm sorry we ran a little bit longer, but I know there were a lot of really good questions. We look forward to giving you an update on our business plan on our Q3 call. In the meantime, please stay self, healthy and as engaged as you possibly can. Thank you very much. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a wonderful day.