Good morning, and welcome to the Vornado Realty Trust First Quarter 2020 Earnings Call. My name is Sydney, and I will be your operator for today's call. This call
is being recorded for replay purposes.
All lines are in a listen only mode. Our speakers will address their questions at the end of the presentation during the question I will now turn the call over to Ms. Kathy Creswell, Director of Investor Relations. Please go ahead.
Thank you. Welcome to Vornado Realty Trust's 1st quarter earnings call. Yesterday afternoon, we issued our Q1 earnings release, and filed our quarterly report on Form 10 Q with the Securities and Exchange Commission. These documents as well as our supplemental financial information package are available on our website, www.vno.com under the Investor Relations section. In these documents and during today's call, we will discuss certain non GAAP financial measures.
Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10 Q and financial supplement. Please be aware that statements made during this call may be deemed forward looking statements and actual results may differ materially from these statements due to a variety of risks, uncertainties and other factors. Please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10 ks for the year ended December 31, 2019, and our quarterly report on Form 10 Q for the quarter ended March 31, 2020 for more information regarding these risks and uncertainties. This call may include time sensitive information that may be accurate only as of today's date. The company does not undertake to update any forward looking statements.
On the call today from management for our opening comments are Stephen Ross, Chairman and Chief Executive Officer and Michael Franco, President. And our senior team is on the call and available for questions. I will now turn the call over to Steven Roth.
Thank you, Kathy, and good morning, everyone. Before we begin, I ask for a moment of silence in honor of the lives that have been lost during this COVID-nineteen pandemic, including Chaim's beloved father and my dear friend, Stanley Cheerer. Thank you. We now find ourselves in almost total shutdown and never before situation. Life as we know it is upside down, people are hurting, business protect our employees, our tenants and our communities.
We pray for the health and safety of all and we commend and admire the talent and courage of our healthcare providers. In their honor, the crown of 731 Lexington Avenue, our Bloomberg Tower is now flying scrubs blue as is our block long Times Square sign and also the light projection on the mark. Our entire organization is working remotely and doing a remarkable job keeping the trains running and on time. They have our thanks. Our office buildings remain open, safe and sanitized with a right sized operating staff.
Building census is currently less than 5%. All but essential retail is closed, dealing a lethal blow to some in an already challenged industry. We have taken the following operating steps to reduce expenses and preserve cash. We have placed 1800 employees on temporary furlough, including 1300 employees of BMS, our wholly owned subsidiary, which provides cleaning, security and engineering services to our properties, 400 employees at the Hotel Pennsylvania and 100 of our corporate staff. We have deferred certain capital projects to the tune of $125,000,000 We have closed the Hotel Pennsylvania temporarily.
Effective April 1, 2020, for the remainder of the year, our executive officers waived portions of their annual base salary, beginning with my 50% reduction in scaling down from there, and each member of our Board of Trustees will forego their annual cash retainers. Now let's talk a little about the mass of this COVID-nineteen situation as it affects our business. I see it in 3 parts. 1st, we expect the $9,000,000 average monthly income reduction from 1, the Hotel Pennsylvania being closed 2, the March canceled trade shows 3, reduce revenue from BMS cleaning services 4, reduced income from our garages and 5, reduced third party spot signage rentals. All of these businesses are variable depending upon economic activity as opposed to fixed price leases.
They represent only 6% of our overall revenue and all of these businesses will rebound to prior levels when life returns to normal. 2nd, our rental revenue stream is supported by over 1,000 office leases with an year, total annual rent due from all tenants is over $1,700,000,000 or $142,000,000 per month. As is normal, we have collected virtually all rent due from January through March. For April, we collected 90% of office rents and 53% of retail rents or a combined 83%. Interestingly, of the unpaid office rents and coincidentally of the unpaid retail rents, almost 2 thirds is due from creditworthy tenants.
So in April, we have uncollected rents of almost $24,000,000 and that's calculated as 17 percent times $142,000,000 which will become a receivable on our balance sheet in effect a loan to our tenants. We have $302,000,000 of tenant security deposits protecting bad debts, of which $51,000,000 is from tenants who have not yet paid April's rent. As you would imagine, we are in discussion with almost every one of our tenants. We are confident that we will ultimately collect most of this receivable. By way of further information for the 1st 4 days of May, we have collected 53 percent of office and retail rents, which is very slightly ahead of the 1st 4 days of April.
Here's the punch line of my first two points as they affect valuation. If April's run rate would continue for say an entire 12 month year and we surely hope it will be shorter than that, the cost or earnings dig from the variable businesses I mentioned, plus from our educated guess as to what bad debts might be is a one time cost of around $1 per share and that would be for a total 12 months. This does not give any credit for security deposits. And my third point is the larger issue affecting valuation. What will our world be like when COVID-nineteen passes?
We can each estimate or guestimate what will be tenant demand, rents and building values, how many tenants will not survive and how many retail tenants will seek bankruptcy. The stock market has voted by taking the price of our stock down $25 or $5,000,000,000 I think this is a gross exaggeration. Our current liquidity is $3,400,000,000 including $1,700,000,000 of cash and restricted cash and almost $1,700,000,000 undrawn under our $2,750,000,000 revolving credit facilities. In addition, we are scheduled to receive $750,000,000 from 220 Central Park South closings from May through the balance of this year. So you might say our liquidity is really over $4,000,000,000 Interestingly, since the heat of the crisis in mid March and through April, we closed as scheduled 5 units for net proceeds of $210,000,000 We remain committed to our redevelopment and capital plans for the Penn District Farley, PENN1 and PENN2.
These projects are center point of our PENN district vision to the new epicenter of New York where we will be delivering for tenants cutting edge, next generation amenities and services unmatched anywhere. Each project is progressing, albeit at a somewhat slower pace due to government mandated construction restrictions. As we have said before, these 3 large Penn District projects are debt free and are being funded off our balance sheet and from the aforementioned proceeds from 220 Central Park South closings. No debt, no joint ventures and Vornado shareholders keep 100% of the upside. We have built Vornado to weather the storm and importantly to flourish as it passes.
We have a cycle tested management team. We are always laser focused on our balance sheet and liquidity and in recent years have been aggressively selling and spending assets aggregating over $19,000,000,000 pushing away from top tick acquisitions and pushing away from stock buybacks. As cycles go, all of a sudden, it is now surely a better time to buy than to sell. The next few years should be great vintages for investors. So you might say, I am ringing the bell.
Here is a thought for you. We invest not for quarterly returns, but for 2, 3 and even 5 years and we hope you do too. Buying right and the passage of time and patience beget outsized rewards. I'll now turn it over to Michael Franco for our Q1 financial results.
Thank you, Steve, and good morning, everyone. I hope you're all safe and healthy. As we expected, our Q1 FFO as adjusted was $0.72 per share compared to $0.79 for last year's Q1. 1st quarter cash basis same store NOI performance was as follows. New York office was up 2.1%.
Street retail was down 1.9%. The Mart was down 11.8%, resulting from the cancellation and postponement of trade shows due to the pandemic, a positive 2.2% excluding trade shows and 555 California Street was up 3.7%. New York office occupancy stood at 96.9% at quarter end. In the quarter, we leased 311,000 square feet of office space at a very healthy initial rent of $90.47 per square foot. The gap in cash mark to markets on 2nd generation space were negative 3.3% and positive 0.8% respectively, negatively affected by a short term renewal and expansion with Citadel at 350 Park Avenue as we line up that building for potential ground up development to start in 3 years.
Without this one lease, the gap in cash mark to markets would have been positive 5.2% and 10.7 percent respectively. New York retail occupancy stood at 94.9 percent at quarter end. In the quarter, we leased 15,000 square feet of retail space and an initial rent of $416.36 per square foot. The GAAP and cash mark to markets were positive 126.6% and 104.6%, respectively, driven by our lease with Sephora at Union Square. At the Mart, occupancy was 91.9 percent at quarter end.
In the quarter, we leased 231,000 square feet at an initial rent of $47.31 per square foot, including an important long term renewal with PayPal for 148,000 Square Feet. The GAAP and cash mark to markets were positive 2.6% and negative 1.2%, respectively. At 555 California Street, we are full at 99.8% occupancy at quarter end. In the quarter, we leased a small 6000 square foot unit at an initial rent of $117 per square foot with GAAP and cash mark to markets of 44.5% and 29.7%, respectively. As to our New York office pipeline, leases that were already in progress pre COVID-nineteen are moving forward.
They amount to 1,700,000 square feet. Our first quarter non comparable items consisted primarily of a $59,900,000 after tax net gain on unit closings at 220 Central Park South, partially offset by $56,200,000 at share of write downs from our real estate fund and $7,300,000 of credit losses on loans receivable resulting from the adoption of the new CECL GAAP accounting standard. We have 3 loans receivable totaling $52,000,000 consisting of 2 partnership loans and a purchase money mezz loan provided to facilitate a sale in 2014. We have no loan book. Now back to Steve to wrap up our opening remarks.
Thanks, Michael. New leasing activity in New York and just about everywhere has slowed to a trickle. This next year or so will be very challenging, a lost year, a tragic abyss. But we must look to the other side. COVID-nineteen will have an end date.
When we get there, I am actually quite optimistic. Folly will be generating income and PEN1 and PEN2 will be coming to life. These will generate large accretive earnings for us. Further, our New York office expiries for the next 3 years portend well for both stability and growth, amounting to only 1,900,000 square feet for the 3 years or 12% of our portfolio, an average of only 4% per year at a weighted average expiring rent of only $74 Now we're worried about our common dividend. We pay out at least 100% of our taxable income.
A few days ago, our Board declared a regular quarterly dividend of $0.60 per share payable on May 22. So far this year, we have paid 2 66 quarterly dividends amounting to $252,000,000 We do expect our dividend to exceed that this year. Without telegraphing any intention, we will, as we must, reevaluate our 3rd and 4th quarter dividend based upon financial and economic conditions at that time and our then estimate of taxable income. Here's some final thoughts for you, actually a plug for New York. We continue to believe in New York and all it has to offer.
Its large and highly educated workforce, paid professional sports teams, concerts, Lincoln Center, Carnegie Hall, Broadway, great museums, great restaurants and nightlife, the best hospitals and universities, and of course, the largest concentration of Fortune 500 headquarters, the world's banking center, the world's media center and now a growing tech center. You get the message. New York's human infrastructure is unparalleled and New York is the business capital of the world and New York has always come back bigger and better from every crisis. While we are now working from home, we do not believe working from home will become a trend that will impair office demand and property values. The socialization and collaboration of the traditional office is the winning ticket.
Also, I believe the densification trend has bottomed, the victim of lots of things and now including social distancing. In sum, we are respectful of the severity of the current situation and cautious for the next couple of years. We are actually optimistic after that and excited about Vornado's business prospects. Lastly, we look forward to welcoming our tenants as they return to our buildings. Our operations teams are hard at work preparing protocols to ensure the health and safety of our tenants, their visitors as well as our staff.
Gaston Silver and Lisa Vogel are our team leaders here. With that, operator, we're happy to take questions.
Our first question comes from Jamie Feldman with Bank of America. Your line is open.
Great. Thank you and good morning.
Steve, I want to go back to
your comment that you're ringing the bell finally might be a good time to start buying. Can you talk through your thoughts on what you might expect to see, what the landscape looks like in terms of troubled balance sheets and competitors? And also how you think about capital availability to fund big acquisitions?
I didn't understand what you meant about the competitors and competitive balance. What do you mean by that?
Well, where you just might see some distress in types of opportunities.
Look, obviously, there has been a sea change in the actually it's a global sea change in the economies of the world. We can we do expect and we can already see that there is a fair amount of disruption and distress out there. I've said before, we push away from top tick prices. This cycle may very well give us the opportunity to buy at fair prices and maybe even good prices, okay. So our antenna is very alert.
We are very actually enthusiastic about the prospects of growing and expanding externally. And it's very high on our radar stream, okay. We feel that we have the financial capacity to partake. So I can't predict where it's going to go. I can't predict what we're going to invest in, but I can say that we are anxious about the potential opportunities going forward.
And by the way, this is a totally different environment than we have perceived as a management team for the last number of 3, 4 years.
Okay. And then just when you think about your liquidity and balance sheet, I mean, how do you think about how much you'd want to keep for the long term funding, the Penn Plaza redevelopment? It just seems like there's a lot of different needs over the next several years. And if there's big opportunities out there, how do you think about what you would use to fund?
The answer is, we think our balance sheet is in very good shape. We have access to all different phases of the capital markets. And we think that our internal capital requirements for the next number of years are fully funded already. And we think we have capacity. Okay.
And we have just to add that, look, we have significant capital, Steve said, for the opportunities we've already identified internally. But we also we constantly have capital partners seeking to do things with us and many have reached out as soon as this crisis hits. So there are large opportunities we want to avail ourselves of capital beyond our balance sheet. We're confident we're going to have the capital to do so.
And then would you only consider New York City office or would you look at retail or things outside of the metro region?
We're going to look for value. We're not going to and we're going to look for value that is down the right down the middle of the road for our skill set. So we know what our skills are and we're not going to invest in Argentina and we're not going to invest in a steel company. We're going to what we know how to do. If it's and it doesn't necessarily have to be in the four corners of Manhattan.
And our next question comes from the line of Manny Korchman with Citi. Your line is open.
Hey, it's Michael Bilerman. Good morning. And my condolences to Chaim and his family. Steve, if you think about the investing of capital and you talk about the stock market being a gross exaggeration in terms of the stock being driven down $25 $5,000,000,000 How do you line up the external growth in terms of putting new capital to new deals versus your own company either in the stock or buying out venture partners' interest in some of your assets?
Good morning, Michael. How are you? Where are you, by the way?
We are upstate New York.
Lovely. Stay safe. Look, this is the old buyback question, I think, and again and again. I think I've been very clear in my thinking about that and being very transparent in communicating our company's thinking to you. And that is that if we buy back stock, first of all, we since we don't have a recurring earnings to continuously do that, it actually will sap our capital capacity.
We believe that the amount of wealth creation and the accretion that we can make to our NAV by buying back a chunk of stock is insignificant in relation to what we can do with a similar amount of capital investing in different situations. For example, and we said this publicly, and I think we even published it, the returns that we expect to make on 1 pen or 2penn based upon the capital that we have to commit exceeds by a multiple that which we might earn that which we might create additional it creates an NAV in buying back our stock. So we are not mindless of our stock. And we look at it continuously. We talk about it at every quarterly Board meeting.
And right now that's not number 1 on our hit parade. And by the way, we're actually not pleased that we pushed away from the many people that we buy back on $30 higher.
Going to the external growth in terms of where you may invest and I remember it was I don't know if it was last year's letter or maybe it was a year before, maybe it was a year before that you talked about diversification from the perspective of the company in sort of addressing the New York centric. And you basically said investors can make their own diversification choices by buying different companies. We're we don't think being a New York centric company, that's what we are. And so I guess from your perspective of looking for value and you wouldn't be confined to the four corners of New York. I guess why not why go and further be President of California?
We are a New York company, okay. We are a tried and true New York company. There is no doubt about that. We think we have the best skill set of any New York operator and there are plenty of opportunities in New York. I wouldn't even say enormous opportunities in New York, okay?
So our first, second and third priority will be to invest in what we know and where we know and where we have a powerful franchise, okay? Having said that, we will not preclude other things. So if you go back a long time ago, we were a New Jersey centric company in strip shopping centers and we made the better part of $10,000,000,000 by across the river and doing something that's different. So we are absolutely a New York centric company. Our number 1, 2 and 3 priorities is New York.
The prospects that we will meet outside of New York are low and it would only be for an absolutely extraordinary breathtaking opportunity. And there may be 1.
Okay. Thank you. We'll re queue.
Thanks, Michael.
Thank you. And a following question comes from the line of John Kim with BMO Capital Markets. Your line is open.
Thank you. I think Steve you mentioned that leasing has flowed through trickle and I'm wondering if that includes any leasing activity at Penn Plaza and Farley?
So as you would expect, this is an extremely disruptive, confusing, paralyzing time for everybody, including our tenants and our customers. Our tenants and our customers flow into basically 2 broad categories. There are those that are basically shut down where they have no revenue and they have no visibility into how long it is going to be and what the other ramifications are, including financial ramifications. There are others of our clients that are thriving in this period, including the FANG. So basically, now getting to Penn Plaza.
We've talked about 2 big leases in that area in the past. One of them is for a large block of space at 2 Penn with an incumbent tenant who basically is devoted to that building and has been forever and for obvious reasons. They basically are in pause waiting for their business to open up, which is absolutely understandable. And David and I and Glenn are sympathetic with that. Not going away, but in pause.
There's another large tenant that has been rumored to be that we've been in dialogue with. And that conversation is going forward aggressively and hopefully maybe even almost complete.
Are either of those tenants co working?
What are your views
on co working?
No, no and no. For sure, no.
Can I just ask one more? Of the 6% of non office and retail revenue that has been impacted, how much of this do you expect to recover in the second half of the year? It sounds like trade shows are off the table, but I'm just wondering about hotels, parking and cleaning services.
Well, I mean, with a less than 5% census, you can't have a full cleaning crew in the buildings. That makes no sense. The cleaning crews and the revenues from that will return based upon the tenancies that are returning. The garages, the same thing. The trade shows will be probably missed this year and we'll pick them up next year.
But basically all of that, what I call variable business will rebound back to where it was as shortly after this is open. There will be a ramp up period, but this all of those businesses will definitely leave out.
And our next question will come from the line of Alexander Goldfarb with Piper Sandler O'Neill. Your line is open.
Yes. Hi. Good morning. And echoing Michael Bilerman's comments, condolences to Jaime and his family. And then Steve, thank you for addressing the dividend upfront.
Appreciate it. So two questions for you. The first, happy to hear about 350
Alex, good morning. I hope you think I was clear on the dividend.
Yes. Yes. You were unambiguous. Good. Good.
You were clear. So one, obviously, good to hear about 350 Park that you guys are considering it. On the capital side, which has been one of the hallmarks of you guys with the balance sheet, your comments in the press release about 220 Central Park South potential for delays that could disrupt closings. And then also thinking broadly about the $2,000,000,000 Street Retail Preferred. So one risk on $220,000,000 And second on the $2,000,000,000 preferred for The Street Retail, is there a risk that that is somehow impaired or that's not the $2,000,000,000 of liquidity that we originally thought it was last year, but it could be something less than, which means as you guys think about funding these projects, that may not be the source of liquidity that we thought it was?
Thanks, Alex. First on 2 20, I was pretty careful to communicate to you all that notwithstanding the pandemic, since the middle of March, we closed actually 5 units on schedule for $200,000,000 So we do not expect, in fact, we are even more certain than that, that the scheduled closing for the remainder of the year is somewhere in the neighborhood of $750,000,000 will come off on schedule. The only little wrinkle in that is that we from a construction point of view, we have to finish lunch list and minor work in those apartments, maybe 30 days per apartment. And so right now, we don't have access to those apartments because of governmental mandated work stoppages, but that's going to come back pretty soon. So we are very confident that all of those closings will occur approximately on schedule and will give us the better part of $7,000,000 odd $1,000,000 this year.
With respect to the retail preferred, which I think is $1,800,000,000 we have never used that in public or in private as a source of capital for any of our investment opportunities or our ambitions or whatever. So we have looked upon that as just an asset on our books, which will generate interest. Now you remember that this was a highly structured tax driven deal that we did probably, I don't think it's quite a year ago. And that $1,800,000,000 of preferred, if we were to sell it, triggers a 100% tax. So basically it is it's an asset on our book.
It's a liquid asset on our books. We have never in our plans we have never had in our plans to sell it or to use it for augment our capital.
Okay. And then second question, Steve. From your initial conversations with tenants, what are they saying is the crucial thing for them to sort of reopen their office? Is it solving mass transit? Is it providing PPE for their employees?
What is it that because obviously New York's harder hit. What are the key items that tenants are telling you we need to solve these issues before we can start to have reopen the buildings and get employees back into New York?
That's a good question, Alex. And that sounds like something for Glenn and David.
Alex, good morning. It's David. Listen, I think everybody recognizes that this is a physical and a psychological issue. So as you as we have continued to speak to major events during the building shutdown process, I think as the world begins to reopen, it's going to be a very gradual process. Tenants are anticipating a we talked earlier about garages.
I think we're going to be seeing fewer people using mass transit. People are going to be driving in. And I think initially, when we open up, most people are either going to be walking to work, bicycling to work, or driving to work. So it is going to be a process that's going to take some time. But as we see this unfolding, we are hopeful that it's going to be a gradual process as people become acclimated coming back to work, which I don't know about everybody else on the phone, but we are all anxious to get going.
Okay.
Alex, look, this will have an end date. So the COVID pandemic prices will have an end date. Now the end date will be when there is a therapeutic and maybe even a vaccine. So as I understand it, a therapeutic treats you if you get infected, a vaccine prevents you from getting it at all. But every medical scientist in the world is working 24 hours a day on this problem.
And hopefully, there will be a medical solution at some finite period. In between, when there is still risk of infection and there is still there will be we will just crawl back to regular behavior, okay. And regular behavior will be disrupted, okay. The subways are going to be disrupted. Baseball is going to be disrupted.
So I can't predict what's going to happen, but I do know that in some finite period of time, we will very quickly revert back like a rubber band back to normal.
Well, not having to take the 5:30 am train is certainly a help. So there is at least there's something there. Anyway, listen, thank you.
So by that, I take it you're going to continue to work from home?
It will be me and David in the same town. But yes, it's much more efficient. It is much more efficient.
Thank you. And our next question comes from the line of John Guinee with Stifel. Your line is open.
Great. First, very saddened to hear about the furlough of over 1800 people And I want to congratulate you on a brilliant execution of selling 50% of your retail about a year ago. Thinking about Hotel Pennsylvania and the Manhattan Mall, I know those have been on the redevelopment page for a long time. Is there any thought to just using this opportunity to decommission both of them and demolish them sooner and sooner or later?
First of all, thanks for your comments about the furloughing. The facts of the matter are under the new unemployment insurance augmented by the PPT federal program, almost everybody that was on the furlough list is getting the same or maybe even more in terms of wages than before. So we did this with a great deal of sensitivity and care for our employee group. And this was done not to hurt anybody. In fact, we cut the furlough list off where we thought that people would not be able to get recompensed by the government programs.
So I thank you for your sympathies, but we did this very carefully with a great deal of feeling and care for our folks. The Hotel Pennsylvania has been an enigma for a long time. It's obviously a parking lot for a development site. We've closed it in the pandemic because the occupancy rates went down to low teens, single digits. So it was uneconomic.
We have thought internally about using this and just never reopening it. And that might happen, but I doubt it. So that's step 1. The Manhattan Mall, the Manhattan Mall is really a building with 2 components to it in one building. There is a large office building on top of it, which is fully lit and performing well.
And then there is a mediocre retail of a couple of floors below it. So you can't really you can't really you can you could shut down the retail, but you can't really demolish it because of the office building up above. So in our development plans, the first and by the way, as you know, the Manhattan Mall backs up to the Hotel Pennsylvania. So that's one giant, giant lock that would support 3000000, 4000000 square feet, maybe even more of development. So the first that's going to go is Hotel Pennsylvania at some future date and the Manhattan Mall is way, way in the future.
Second question, I think everybody is a big believer in the resiliency of New York. But the last the number of issues New York has had, you had mayors by the name of Giuliani and Bloomberg there. Now you've got an incredibly different political environment. Can you talk about that current political environment, how that changes and how that helps or hurts the resiliency of New York?
John, that's a good question. And we think about this a lot obviously. For all the issues that New York has, which is a political leadership and a political orientation, which is extremely liberal and left leaning, homeless issues, other things like that. The best real estate city in the country right now is San Francisco. In each point, San Francisco is worse than New York.
It's further left leaning, the homeless situation is worse, etcetera. So the political situation is important, but it's not definitive. It's not dispository. So we think New York's resilience will continue. We think New York's infrastructure in terms of human infrastructure, cultural infrastructure, business infrastructure, finance, etcetera is extraordinary, the best in the world and we do that and we believe in its resilience.
I would love to get Mr. Bloomberg on his landlord, so we know each other very well. I'd love to get him back, but that's not going to happen.
Thank you. And our next question comes from the line of Vikram Malhotra. Your line is open.
Thank you and thanks for taking the questions, Mike and sits to Hyatt's family as well. Hope everyone else is well and safe. Steve, maybe just a high level question. I know you've addressed this in prior questions. But you said many years ago that New York was sort of moving to South and West, or South and West given sort of Huttinyar and other developments.
If you were to just sort of have a high level view of what work from home could do to the office market, maybe New York or more broadly, what would that be?
We think about that all the time. It's a very important question. In fact, I gave that question a couple of sentences at the end of my prepared remarks. So here's the way I see it. At the margin, there will be I mean, now that we've experienced this, at the by the way, we talk to all of our tenants, we even talk to all of our employees.
There's a very small majority, which I guess includes Alex, and that prefer to be working at home. Most people are dying to get out of home into the office, okay? So the difference is that working from home, you're in isolation. And the only benefit that I can see of working from home is you save the commute. And I guess depending upon who you are and where you live, that could be an important thing.
But in all other regards, in terms of the socialism, sociality, the collegiality, the interaction, the creativity, the office wins is the winning ticket in every regard. If you are ambitious and want to get ahead and you work from home, you're not getting ahead. If you're in the office and you are performing with all of your colleagues, then you can get ahead. If you are a leader of a team of people and they all work in they all work from home and you can't have be in contact with them, it's an almost impossible job. So we find in terms of controlling your employees and controlling it, we find there's enormous number of benefits to the traditional work at home, like the traditional office.
I mean it's lasted for 1,000 years, it will continue. At the margin, there will be a little bit of an incremental Nick. This is kind of like a trend, okay. There are trends, they happen all the time in relation to crisis and then they go back. The reaction to 911 was nobody wanted to rent space in the upper reaches of buildings because it was dangerous.
And now the only space that the space that's the most valuable is the upper reaches of the buildings. So this will pass, okay? At the margin, there are some people who want to work from home, continue to spend the day in their pajamas and continue to have their kids running around, But I don't think that's a trend that is going to impair the macro demand for office buildings nor impair values. I mean, for example, let's think about the densification. The densification, it went to a certain level and it went from whatever to, I don't know, now maybe the average densification is 160 feet or 170 feet something like that.
We were gang, tried to take it down to 60 feet and that was the justification for their pricing. That didn't work. So anyway, that's where I am. I think the office is the right ticket.
That makes sense. And then just on street retail, given sort of, again, sort of the social distancing, maybe higher e commerce penetration as a result of this, Can you give us your thoughts on sort of pricing power, meaning kind of rents holding up over long term on sort of your core upper fifth markets, Madison, etcetera? And for Haim specifically, any thoughts on sort of what where taking rents could shake out over the very near term in these core markets?
Vikram, that's another good question. Look, give you a perverse thing, which is a secret. I don't want this to get any to go around, okay? I have said and I have written, And you got to remember, we made the early call on the secular decline of retail 5 years ago or 6 years ago, and everybody laughed at us, and here we are. I have written that there are 2 huge problems with retail.
The most important is that there are maybe 2 to 3 times as many square feet of retail space in the country as there should be. So I think as I do the math, there's 50 square feet per capita and I think the number should be like less than 20. So and then I said that it would take, I don't know, 15 years for that excess space to work off and evaporate. So in a perverse way, it may be that this pandemic is going to get us into alignment much more quickly. Okay, so we'll see.
I don't think that the retail that the physical retail store is dead, but I do think it's certainly injured. I can't really give you math as to what's going to happen in the very short term to rents. I can only tell you that they are down and they're going to and they are I have a negative outlook for rents over the short term, okay? Over the medium term, I think there will be some adjustments for great property. I think great property will always be in demand.
And I think, Haim will tell you, Haim, will we ever get to the peak pricing that there was 3 years ago on Fifth Avenue? I don't believe so. And that is our firm view.
Okay. Thank you. Thanks for that. Just last clarification. The 53% rent collections seems pretty strong given where we are in May.
Can you clarify, is that 53% on average across office, retail, parking, etcetera? Or could you just break that up between office and retail?
It is 53% on average. It's obviously much higher for office and lower for retail.
Agree. Thank you. Steve, let's just
clarify. Vikram, the 53% is retail. It's just retail.
No, no, no. I think Vikram, I think your question was the May collections, not the April.
For May, yes. For May, it's been. Okay.
So the math is, in the 20s for retail right now, which is tracking exactly what happened in April, and it's in the 60s for office with a weighted average of 53
percent.
And I think the exact math is, I think David told me this morning that our collections in May are running $1,000,000 which is significantly insignificant, better in May than in April.
And our next question comes from the line of Manny Korchman with Citi. Your line is open.
Hey, maybe one for Glenn. Glenn, with the path to sort of coming back into the office and companies targeting what sounds like 50% for the far near term, if you will. How do they think about either leasing or renewing renewal decisions in that context? So if you sort of you're planning for half your workforce to be in, you don't know how long that'll last. How do you make any kind of leasing decision in that environment?
Look, I think the answer is for the 1st, call it 6 months plus or minus, the market is going to be quiet as it relates to new leasing decisions, meaning people moving out of their existing building or expanding within their existing building. Renewals keep going because we have expiring leases and people need their leases. So we are in discussions on a lot of renewals. With that being said, there is some action. We've been receiving some proposals during this shutdown for people looking to change their life and move to another building within our portfolio.
But generally, I would tell you, during the ramp up of getting back in, you're going to see slow demand for new deals and expansions.
And I guess more so from a question of those decisions more sort of from a focus level, how are they going to think about the number of square feet per person when the person counts are just so drastically off? I guess it's a question of how do they even think about how much space they need?
I think it's too soon to say. No one knows. I mean, we're going to get back into the buildings between the summer and the winter. I think things have to settle back in. We get back to normal, so to speak, and then people see how their table is set.
I think right now, it would not be fair to project how people are going to look at how much space they need, how many chairs they're going to fit per foot, etcetera. I just think nobody knows until we get back and people get settled back into their offices during the year.
Randy, large tenants that I speak to and I try to speak to as many as I can frequently, they are looking past this period. They don't really they're really not focusing hard on saying, oh my God, what a great thing, I can save 7,000 square feet of office space. That's not in their upper mind. What they're trying to do is get their businesses back and they really basically the ones I speak to, they want all their employees back. They want all the desks slow and they want to go back to where they were 6 months ago.
And with respect to the deals by the way, Glen and David will tell you this, This is not a good time for a tenant to be making a deal other than a renewal or other than a important space need that he has. And it's not a good time for us to be bargaining with the tenants, okay? So everything is going to come back to normal at some period, hopefully within a year from now and then we'll get back to business.
Thanks. And then maybe flipping to street retail in a similar context. A lot of the larger deals we saw were probably more showroom in nature than a productive retail environment and a lot of that was based on tourism and the like. I guess, do you guys think about a sentiment shift or a psychological shift among shoppers where they're not going to go shopping as a pastime and so that showroom or flagship concept becomes harder to pitch to a retail tenant?
So I actually think the street retail format will prove to be more resilient and more important to the ecosystem of connecting with the consumer. I think e commerce will continue to grow and gain market share. But I also think that free retail will prove more resilient than other physical retail formats like the mall.
Thanks, Michael. I think there could be counterintuitively, I think there could be an opposite, okay? My wife is a shopper. And she is very frustrated. She can't wait to get out and walk up and down Madison Avenue, walk up and down Fifth Avenue.
So I think that there will be a when this opens up and the population which has been shut down, they want to go out, they want to go out, they want to shop, they want to go to restaurants, they want to have their life back. So I think this is not as dire as some of the commentaries I've read. I think they all
just really want haircuts, but Michael has a couple of follow ups.
I had just 2 follow ups. Manny, when you get your haircut, take one from me, please.
I had 2 follow ups. One was just on the density question, which I think part of the move to having much more dense populations was the cost of things, right? It allowed the tenants to be able to afford the rents that are paid because they were able to jam more people into more seats. How does that equation change in terms of you as a landlord being able to get the returns that you need and a tenant's affordability because they now have to take more spaces at the same number of people?
David, you want to try that?
Again, I think we're focused as it relates to that question. You're focused on a period of time, which is today. So today, people are talking about social distancing. Today, people and they're not talking about it, it's being mandated by the public authorities. So obviously, today in an office, couldn't bring back 100% of your workers, you couldn't fit them within the office and properly socially distance.
But as people, I think, Michael, are looking at long term decisions for themselves. I think people are recognizing that ultimately it may take 6 months, 12 months or 2 years. We don't really know. As Steve said, ultimately, we're going to have to find an antidote to the virus. When that happens, I think what we're going to be seeing substantially is effectively going back to much like we were.
People are going to want to come to offices, as Steve said. And as it relates to some of the density that we've seen, nobody ever believed that we were going to get to 60 feet a person as some of the co working companies had aspirations to densify. But in terms of what today is in our portfolio, the way we've seen both financial services, technology, other service companies in terms of changing the use of their space, Do we expect that is going to radically, radically change long term? I think our view of that is we don't think so today.
And then just a follow-up on the retail joint venture, given the fact that only 50% of the tenants have paid rent, how does the cash flow distributions work within the venture to be able to afford paying the 4.5% on the preferred on your preferred security in that venture? What's the cash flow waterfall today with only 50 percent of rent paying tenants?
Michael?
Yes. Yes. Michael, good morning.
The other Michael. Thank you.
The other Michael. So, look, the way the preferred is structured is that, as you know, we have 2 third party pieces of debt on the portfolio as well on the venture. All the cash is effectively aggregated for purposes of paying the preferred. And so at the current time, there's sufficient cash to pay the preferred. Now to the extent that cash collections fall off to the point that's not the case and that will accrue.
But as of today, the preferred is being paid and we think it continue to be paid for the near term. But all, there's a deficit in one and there's excess in the other, then that cash is sort of aggregated across the different instruments.
Okay. Thank you. I mean the answer is that the preferred gets first call on the income. But the percentage of rent collection in the JV assets was approximately 60%. And that swung negatively by 1 big, very creditworthy tenant who decided not to pay, which we will undoubtedly collect.
So it's not as bad as you think the numbers are.
Right. So there's more cash coming into the venture than it would be for the portfolio overall?
Let's hope. Yes. Okay. Thank you.
Thank you. And our next question comes from the line of Steve Sakwa from Evercore ISI. Your line is open.
Thanks. Good morning. Most of my questions have been asked. But I guess I had one question just on some of the newer developments like Farley and the work you're doing at 2 Penn. What sort of changes do you need to make in order to deal with sort of the issues at hand today and how costly might those changes be and kind of the design for the base building, maybe thinking about the elevators and some of the stuff that might take place in the floor, the air handlers and all that kind of stuff?
Who wants to handle that?
I can take a shot.
Okay. Please do.
So Steve, thanks for the question. First, I would tell you is we design these buildings as what I will call forward thinking buildings. So in terms of the air handling systems, in terms of the filtration systems, all of this pre COVID was being engineered state of the art in terms of having the ability to use the highest rated MERV filters. There are other technologies that potentially are available. Some of them have not even yet been tested in the United States.
There's an ionization type of technology as it relates to having the airflow through tubes. It's not enormously costly. In fact, it is relatively efficient. It's something that we're currently looking at. But first, we're working with obviously our engineering experts thinking about potential technologies like that.
In terms of touchless entry systems, we have facial recognition systems in the portfolio. We have the ability to walk in the portfolio with your iPhone to get access through turnstiles similar for visitors. So again, the types of systems that people are thinking about, in fact, our systems that pre COVID, we have thought about the buildings themselves are being designed realistically for the next generation. And then the nature of the spaces, the communal spaces that we have designed in the building, obviously, today would not comply with social distancing. But again, we are designing these buildings not for the next 6, 12 or 18 months.
We are designing these buildings for long term and there is really no change that we would make to any of the communal spaces from a long term perspective, whether it's the auditorium space, that's great space in PENN2, the Grand Stair in PENN1, these are spaces that we think tenants long term will continue to want in the buildings. We think the buildings have been designed right spot on for the future.
And just a follow-up, David, would that include things like large conference rooms or I know there was a point in time you were looking at large gym for kind the 2 Penn buildings? Do things like that still work in your mind today longer term? I know they don't short term, but
Yes and yes.
Okay. Thanks. That's it for me.
Thank you. And our next question comes from Jamie Feldman with Bank of America. Your line is open.
Thank you. So I'd like to get your latest thoughts on long term tenant credit quality, especially in retail coming out of this, when we've seen now headlines of several bankruptcies coming through in the last week or so. Just what I know we'll get through this and things will get back to normal, but how do you now feel about the tenant credit default risk? And then I guess any changes to your reserve balance? I know you don't give guidance, but to the extent that that's changed at all.
The question is as to our thinking about retail credit,
Sammy? Just risk that more of your retailers may go bankrupt or even some of your small businesses may go bankrupt making it through this and how have you reserved for it?
Well, the answer is that I think I've read most of the transcripts of all of the gang that have had the conference call so far. I think we're the only one that raised the point of a bad debt reserve in our remarks. So we periodically, we will see this is a new new thing for us and everybody. This is the first time we have ever had accounts receivable of any moment. So when you have accounts receivable, you have to go down into the weeds and figure out what our debt reserve will be, which we I think I gave an inkling of what our thinking was in my prepared remarks when I got to the dollar a foot for 12 months might be the cost of COVID so far.
So we don't have anything to say about a bad debt reserve yet. When we published our financial statements, we will of course.
But I guess taking a step back, just kind of your view of whether it's your retail tenant base or even some of your office tenant base that may not make it through this downturn. How have your views changed from say a quarter ago?
Well, I mean, the history is that there are tenants who drop out every time that there is a severe economic traction. This may be the poster child to that, because not only is there an economic contraction, but there's a total shutdown. So I mean, we are expecting failures on the part of some of our customers and that's part of the business. So I can't quantify it. We have a watch list as you would imagine.
And so but that will all come out in the wash over the next months and year.
And our next question comes from the line of John Guinee with Stifel.
Great. Just a follow-up. I know Steve, Michael, you guys have been pretty negative on co working. If you look at WeWork in particular, how long do you see them in business indefinitely or is there an end insight?
Michael? I was going
to say as long as SoftBank funds
them. I don't think that that's a bad thing to say.
I mean, I think that's the reality, John. Their ability to survive is dependent on SoftBank's willingness to fund the deficits, which will probably be more significant near term given this crisis. So I don't know. Look, I think as Steve said a little while ago, their business model was driven by high density. Tenants actually were paying more per square foot than the normal tenant in a traditional landlord lease, but they were packing them in more densely.
So that's obviously challenged now. They're also paying for flexibility. And so obviously, there are elements that are attractive for certain types of users, particularly small users. But like I think in terms of their willingness to survive and to thrive, I personally view it as in doubt and I don't know whether it's beyond a couple of years, which is sort of their runway. But I don't want to prognosticate.
I don't know their balance sheet in detail, but I think it's a highly challenged business.
John, let me give you a few of my thoughts, if I might. So the co working business would have been just an evolutionary sort of non event were it not for the huge loaded market value that WeWork seems to develop. So if WeWork was had a mark had a in the venture markets had a value of $500,000,000 nobody would have paid attention. The fact that they ended up with some $60,000,000,000 or some whatever the crazy number was, that got everybody's attention. WeWork model contributed a couple of things, which I think might be here to stay.
The first is, is there short term lease or no lease, which gives total flexibility to a user, okay? So that's a very interesting thing and we've talked about that a lot. And that will be important to some people. The second thing is they developed a culture of informality and ear tags and ping pong tables and what have you. And if you look at the interior design industry for the conventional office space, a lot of their innovations have been adopted by conventional tenants because that's the way young people sort of want to work.
So those two things, the culture of work and the tenure of the financial commitment are 2 things that I think you're going to win. The third thing is that when you made when you use WeWorkSpace, you walked into existing desks and you took them as is. You didn't have to go through a 6 month period of hiring an architect and building out space. I think that's also a very attractive thing. The rest of it, I think, is all a lot of hogwash.
Good. Okay. A second question, maybe I haven't been in tune, but this is the first I've heard about a ground up redevelopment of 350 Park. Can you talk about the size and the scope and the timing of that?
Who wants to take that on?
I'm happy to do it, Steve. John, I think we've referenced it once or twice previously. We have an existing 570,000 foot office building. And with the Midtown East rezoning district, we have the ability to tear that building down and with the acquisition of air rights that are available to build a brand new 1,000,000 square foot building. We also have the option to combine with our neighbor to the West and build a combined 1,700,000, 1,800,000 square foot building, which again is expanded from the combined existing building.
So there's the ability and those air rights are available and cost effective. And so, we have a location that is preeminent and arguably the best in the city. We've had tenant inquiry previously looking for headquarters locations and dance with a tenant probably about 18 months ago. We continue to have interest in the site from others as Glenn and team have spent time educating the brokers on the possibilities there. And we have the ability to think is one of the best office buildings in the world and one of the preeminent locations.
So it's a building that has garnered interest and given the ability to upsize it, it is potentially economic if the market is there. And from a timing standpoint, one of the things we've done over the last several years is line up the leases so that we have that option, knowing that the Midtown East District was being finalized. So Glenn and all his leases has put in place demo clauses, including in the most recent one with Citadel, so that we have the option that all the leaders are lined up to tear the building down. And so that's the effect is that we have an opportunity in the next 3 years or so to create what is a 1st class building in a preeminent location.
So John, we're in
a very interesting position in that situation. Number 1, as Michael said, I think we have the single best location in Dallas. Number 2 is we have the flexibility to either A, stay where we are, which is a 40 year old whatever office building, which is perfectly serviceable and has a value of X. Or we can tear down and build a brand new soup to nuts building that Michael said is a 1,000,000 feet or we should combine with our neighbor, Michael said to the west, I would say to the rear, because I am always a little bit more difficult than Michael and build a much bigger building, okay. So the marketplace will tell us what to do based upon tenancies and inquiries and what have you.
And I want to emphasize one other thing that Michael said. He said that we danced with a very major financial services company to do the entire block and build a headquarters for them, which went fairly far down the line, but never materialized.
Do you have a no observatory pledge on that development?
I give you my word, they will do no Observatory.
Thank you.
Unless you think we should have an observatory.
No comment.
Thank you. And our next question comes from the line of Anthony Paolone. Your line is open.
Yes, thanks. I was wondering if we can go back, I may have missed this, but in the Q1, you had $284,000,000 of cash NOI. Can you maybe put some brackets around just what the drawdown to that could look like in the next few quarters from parking, signage, hotel, shows at the March or move outs, not so much the deferrals, but just the other things and where that goes?
Joe, if you would, please.
Good morning, Anthony. Yes, Steve did in his prepared remarks say that those elements of our business, which are variable, the hotel pens, the trade shows, the parking, signage, our run rate of $9,000,000 a month.
And so do you think those basically go away the next few quarters or?
They're closed today. The Hotel Penn is closed. The trade shows for the remainder of this year are not going to happen. Signage is at a standstill. So for sure, as long as COVID goes on, they're going to be that effect.
Tony, it's important to make this distinction. The $9,000,000 a month that Joe mentioned is the way we look at it is a one time hit, because this is going to spring back. And when the economy opens up and businesses open up and the COVID begins to open up. So basically, this is not as if you have empty space that will be it's not as if it's a permanent long term diminution in our values. So the way we've dimensioned it is, is if you take what our guess of bad debts might be for this for the coming 12 months, if it lasts that long and we hope it doesn't, and what the diminution might be for these variable businesses, it might amount to $1 a foot $1 a share or $200,000,000 one time hit.
Okay. I understand. And then sorry if you have to repeat this, but I don't know if I was just clear as many others on the dividend, but what is the plan for the rest
this year on the dividend? Tony, I think I said in my remarks pretty clearly that we paid the first two quarterly dividends. We paid the second we declared the Q2 3 or 4 days ago. So that's $250 odd 1,000,000 of dividends for the first half. With respect to the Q3 and Q4, we will look at them in light of the economy, market conditions, the world, our expectations of the future and most importantly in light of our taxable income.
So that means you may have not paid on a normal course as you have been?
No, Tony, that's you're putting words in my mouth. I said very clearly, I think, at least I tried to be clear, without giving any indication as to where we might go, these are the parameters of the decision. That's all I said, okay?
Okay. So there is no clear decision. It's just the brackets around how you think about it?
This is a Board decision, which has to be made at the time. Okay? So we can't possibly have any we can't possibly forecast that now. The other thing is we have the financial capacity to do basically anything that we want to and we will do a combination of that plus what's prudent financially for the business.
Okay. And then just last question, just the idea of opportunities arising on the investment front. What would constitute an interesting opportunity in terms of the economics? Because I noticed in the Q, you changed IRRs and cap rates that you estimate value of the fund with. And I think you moved cap rates up by 200 or so basis points and IRRs by 4.50 basis points.
Is that kind of the order of magnitude or was that just an accounting matter? Just trying to get color on what would put something in the strike zone for you.
Michael?
Yes. I think, Tony, on the latter point, I think that was primarily accounting driven. And keep in mind on the fund, the largest asset is a hotel. And so obviously that's the most stressed category. And I think cap rates, discount rates have gone up there.
So look, I think in terms of opportunities, look, I think first of all, it's still early days, right? I mean, the opportunity not unlike the last crisis, the public markets react the quickest, some of the CMBS bonds trade off. Frankly, the Fed stepping in has helped to stabilize, I think, bond market quite a bit and the stocks have come back some. But on the private markets, it takes longer. A lot of lenders are forbearing right now and working with borrowers to just allow them to sort of stabilize during this time frame.
But when you get to the other side of that, either projects that were being developed that maybe we got wind of a situation in other city that the developer had was out of balance on their capital ratios, maybe they'll lease up assumptions. But we're looking for value and where we can buy at discounts or replacement cost, high quality assets, where we can apply our skills and make some real money. That's the essence of it. You sort of know when you see it. We're out looking both at debt and assets, but I would characterize it as still early days.
That's correct. It's absolutely early days in terms of this acquisition cycle to the extent that there is an acquisition cycle. But clearly, the playing field is much more attractive for acquisitions today than it was 3 months ago.
Okay, got it. Thank you.
Thanks, Tony. Where are you, Tony?
I'm on Long Island.
Good.
Our last question comes from the line of Daniel Ismail. Your line is open.
Just a big picture question here. New York City budget is clearly under strain like many others across the nation, which might have several ramifications for landlords in the markets. Are there any near and long term opportunities or threats emerging as the cities look to fix their fiscal situation?
Huawei, Danny, that's a question. Look, the next thing that's going to rear its ugly head is the fiscal condition of every single one of the 50 states and every single one of the 100 largest cities in the United States, every single one of those governmental entities is in a disastrous fiscal situation. In New York State, the Governor has announced that there's a $50,000,000,000 hold this year and over 3 years it will be $61,000,000,000 in terms of just the projection. And every other one of the big states are in similar conditions. New York, City and New York State are not isolated.
So the only place that they can plug that hole is either a, by cutting expenses radically or by going hand in mouth to the federal government, because the federal government is the only government in the country that can have a deficit budget. The other guys have to balance their budget somehow. So I think the majority leader of the Senate made a statement 2, 3 weeks ago that got national attention that said, let them go bankrupt. And I was appalled at that. I mean, I just, oh my God.
But really what he was saying, if you give him his due was that there has to be something for these governments to start to get their budgets under control. There has to be some pressure. So I don't know what's going to happen. I believe that the biggest single fight in the next presidential election, which is almost upon us is whether the federal government is going to spend $2,000,000,000,000 to base. So we'll see.
But clearly, I don't believe that they're going to go crazy and raise taxes. I don't believe they're going to do anything. The only way out is for the federal government to come to the rescue. And God only knows what conditions the federal governments are going to put on that rescue money and that will depend upon a lot upon the outcome of the election.
Okay. So you're not anticipating any rezoning of areas in New York, additional air rights, speeding up permitting processes, anything like that, at least in the near term?
I think that will all happen, but that all takes if they change the zoning, it takes 5 years to make anything happen.
That's fair. And then just lastly for me, the projected cash yield on the in process development pipeline didn't change quarter over quarter. Is that is it still your anticipation that for the redevelopments and developments in your pipeline still hitting those pre COVID development brands?
The answer is yes, with 2 caveats. Number 1, we believe that leases in process will conclude, which was the basis for those projections when we put them out last year. Now there's 2 variables to those. The first is, is if Barry does a Superman job and gets the and buys better so that we build for less, which is absolutely a possibility in this environment. And that's a plug I'm giving to Barry.
And the second is what the rents will be. We just don't know yet. Okay. So we will adjust them when we get visit we will adjust our projections when we get visibility, but we're not going to react precipitously to a change to a newspaper article this week or next week or the week after.
And our last question comes from Steve Sakwa. Your line is open.
Thanks. Just one follow-up. I know you don't have that much debt coming due this year, but you do have, I think, north of $2,000,000,000 of mortgage debt coming due next year. And I'm just curious if there are things you can do kind of this year to take advantage of the low rates and perhaps credit spreads narrowing over the next 6 months? And how early can you get to some of that debt and kind of lock it away?
Michael?
Yes. Good morning, Steve. Look, we are always out ahead of trying to refinance our debt. And so, we're working on those already in the process of both refinancing and extending some of those. So like we agree with you, there's an opportunity given that both LIBOR and the 10 year treasury are down dramatically.
And even though spreads may have gapped out, all in borrowing costs are quite attractive. And we think there are opportunities, particularly if you look something like a 555 California, we're paying north of 5%. Clearly, that we're going to bring this down. So the answer is we're on it, Steve. We're comfortable and I would point out that the assets or the loans that are maturing next year happen to be on some of our premium office assets, low loan to values and highest debt yields.
And so we're confident in those refinancing executions.
Thank you. And I'm not showing any further questions at this time. I would like to turn the call back to your speakers.
Thank you. Thank you, everybody. We're grateful for everybody joining us this morning. Please don't get too comfortable working from home, Alex, that's it you. We need you back in the office and paying rent in our buildings.
Please stay healthy and safe. Our Q2 earnings call will be on Tuesday, August 4th, and we look forward to your participation. Again, take care, stay healthy.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.