Earnings Call Transcript - BXP Q1 2020

Operator, Operator

Good morning, and welcome to Boston Properties' First Quarter Earnings Call. This call is being recorded. All audience lines are currently in a listen-only mode. Our speakers will address your questions at the end of the presentation during the question-and-answer session. At this time, I'd like to turn the conference over to Ms. Sara Buda, VP of Investor Relations, for Boston Properties. Please go ahead.

Sara Buda, VP of Investor Relations

Hi. Thank you. Welcome everybody to Boston Properties' first quarter 2020 earnings conference call. The press release and supplemental package were distributed last night and furnished on Form 8-K. In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Regulation G. If you did not receive a copy, these documents are available in the Investor Relations section of our website at investors.bxp.com. A webcast of this call will be available for 12 months. At this time, we'd like to inform you that certain statements made during this conference call which are not historical may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements involve known and unknown risks and uncertainties and although Boston Properties believes the expectations reflected in the forward-looking statements are based on reasonable assumptions, we cannot assure you that the expectations will be attained. Risks and uncertainties that could cause actual results to differ materially from those expressed or implied by forward-looking statements were detailed in yesterday's press release and from time to time in the company's filings with the SEC. In particular there are significant risks and uncertainties related to the scope, severity and duration of the COVID-19 pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures on Boston Properties and on our tenants. Boston Properties does not undertake a duty to update any forward-looking statements. I'd like to welcome Owen Thomas, Chief Executive Officer; Doug Linde, President; and Mike LaBelle, Chief Financial Officer. During the Q&A portion of our call, Ray Ritchey, Senior Executive Vice President and our regional management teams will be available to address any questions. I'd like to turn the call now over to Owen Thomas for his formal remarks.

Owen Thomas, Chief Executive Officer

Thank you, Sara, and good morning everyone. I'm dialed in from Westchester County in New York. I would normally point out at the start of our earnings call that we once again beat our estimates and explain to you how well we performed in the first quarter as well as our growth expectations for 2020. However, we recognized our world changed in March, and our focus this morning will be on the state of the COVID-19 pandemic, impact on markets and Boston Properties' business, what we're doing in response and how we see the future unfolding. Despite the near-term challenges of the crisis, which I'm about to describe, I'm optimistic about the future and remain confident in Boston Properties' ability to both weather current and coming market uncertainty, as well as to pursue over time new opportunities that will undoubtedly present themselves as a result of the crisis. The COVID-19 pandemic took the world, the U.S., the business community and the real estate industry by surprise. It's a good lesson on the difficulty in predicting downturns and the importance of always being prepared for them. The COVID-19 recession is different from past downturns in that it was sparked and is driven by science, not economics, making its future course more difficult to predict. The precipitous drop in economic activity globally has had significant negative impact on many industries such as energy, retail and travel and 26 million U.S. jobs have been lost at least in the short-term. So how does this economic downturn progress from here? The answer is science-based and entirely driven by the fight against the virus. Our economy cannot fully return to normal until individuals feel safe, which can only come with the development of a vaccine, therapies, testing and/or a better understanding of the danger of the virus. With these solutions likely months down the road, our elected officials at the federal and state levels are faced with very difficult decisions as they analyze imperfect data and balance the need to either extend the lockdown for health safety or reopen the economy risking further outbreaks. So the strategy to shut the economy through remote work has been successful so far in reducing infection rate. The process is slow and economically challenging for many industries. If proper balance is achieved, the economy will likely be opened up slowly over the next few months. But new normalcy cannot be achieved until a medical resolution is discovered and distributed, probably in 2021. A downside case would be the economy opened too swiftly and we have another spike in infection causing further shutdown later in 2020. Its upside case is the more rapid achievement of a medical solution sometime this year. And lastly, the new normal economy will likely be reset below pre-pandemic levels given elevated unemployment and restructuring in many sectors. These science-driven scenarios, which are difficult to predict, create a wide range of macroeconomic outcomes and resultant operating environments for Boston Properties in 2020. And lastly on the economy, rapid intervention by the Fed and Treasury with aggressive monetary and fiscal stimulus have been impressive, important and very helpful in mitigating the impact of the crisis as has the relative health of the U.S. banking system. The Fed quickly reduced the federal funds rate to zero and has provided significant liquidity through a number of measures to ensure functioning markets across the capital market spectrum. Fiscal stimulus, including the Treasury-led CARES Act has brought so far over $2 trillion of needed financial support to small businesses, individuals and industries most affected by the crisis. So now moving to the impact on the markets, let me start at the property-level. As in past recessions, an economic slowdown creates uncertainty, which reduces some users' need for space; business leaders can become more cautious and reluctant to invest capital in new offices. Incremental growth slows, putting pressure on market rents, and renewal probabilities for expiring tenants will likely change. It is currently very difficult to determine where market rents are today or where they will settle as a result of the crisis as leasing volumes have slowed and very few new leases priced after the onset of the pandemic have been completed. The good news is that the majority of our core markets were healthy entering the pandemic. Further, not all markets will be impacted equally and regions with industries less affected by the crisis such as life sciences, government and technology should outperform. In terms of private capital markets for real estate, there were a number of sales of Class A office buildings completed in the first quarter in our core markets and pricing consistent with 2019 levels. But these transactions are not particularly relevant for thinking about current valuation. As of late March, building sales have essentially stopped, offerings have been withdrawn and most buyers for deals agreed before late March have either walked on contract deposits, sought price reductions or delayed closings to seek financing. With the prospect of lower rent expectations, expected future property cash flows will be reduced and, coupled with decreased access to secured financing and nervous buyers, private market values for assets with leasing risks have likely fallen. We are still very early in the correction; sellers are probably still in the denial phase and there are limited post-pandemic transactions to provide new pricing guidance. Low interest rates and historically wide cap rate spreads will undoubtedly influence values. Public market re-trading values could provide a marker though the magnitude of the price reduction due to the pandemic will be tied to potential reforecast cash flows. Now turning to impact on Boston Properties' business, let me start with operations. The most notable change for the majority of us is working remotely for the last six and a half weeks, though the arrangement is clearly less efficient and all of us are anxious to return to the camaraderie of our offices. We have been able to effectively operate our business and accomplish important goals. Our buildings have remained staffed and open throughout the crisis for customers who need access. I want to thank Boston Properties' essential workforce and our heroes of the COVID-19 crisis, our property management organization, for their can-do attitude and vigilance under stressful conditions. Our most important activity at this time is planning for the safety and health security of our customers and employees as they return to work in our buildings likely in the next few months. We have formed an internal cross-Regional Health Security task force that is ensuring best practices, which Doug will cover. On leasing, as of late March new requirements and tour activity largely disappeared. But we continue to close many of the deals we had negotiated before the crisis. There are significant pending leases underway, particularly for our Reston portfolio. The other significant leasing activity has been restructuring short-term cash payment requirements for our customers experiencing financial difficulties, largely in our retail portfolio. These deals generally entail deferring several months of 2020 rent into 2021 and later or abating rent in return for lease extension. Non-essential construction activity has been halted by government order in all our markets except Washington DC. Assuming the orders are lifted in the next couple of months, this delay will offset some of the schedule cushion on our base building projects outside of the Washington DC region. But we still have sufficient contingency in our project schedules to meet customer delivery dates. The greater impact from the construction halt is on tenant work for customers planning to occupy or vacate our portfolio in the coming months. This will cause delays in revenue recognition for several new tenants and holdover rent opportunities for tenants who have delayed leaving. Moving to financial impact, Boston Properties has the scale, market diversity, revenue stability, credit and access to liquidity to navigate the turbulence of the current market storm. First, we have a very high quality portfolio of buildings in the most vibrant cities in the U.S. filled with industry-leading tenants. This is demonstrated by the fact that we have collected 95% of April rent due in our office portfolio as of yesterday. Office tenants represent 86% of our total revenue. Further, only 5% of our portfolio rolls between now and year-end. The balance of our revenue comes from retail and residential tenants, parking, service fees and a hotel which are more economically sensitive. Doug and Mike will be providing more detailed building blocks for our revenue stream. Our access to liquidity is also very strong at over $2 billion with $661 million of cash on our balance sheet, $151 million in a 1031 escrow account, and $1.25 billion of funding available in our credit facility. In terms of need, we have $1.2 billion remaining to fund on our development pipeline over the next three years and our next unsecured debt maturity of $850 million is not until May of 2021. The unsecured debt market is also available to issue notes at low coupon rates. In terms of Boston Properties' investment activity, we raised $254 million from the sale of Dominion Technology Park in February. We intend to complete a like-kind exchange with this asset for 880 and 890 Winter Street which we purchased last year and the site underlying the 4th and Harrison development in San Francisco that will generate substantial tax gains. We are also negotiating the sale of a small number of additional assets, which, if completed, would raise over $250 million in net sale proceeds; further disposition activities are essentially suspended given market conditions. In terms of new investments, our focus at this time is preserving resources and managing our buildings to ensure health security. We have limited new investments under consideration. So I would expect that will change later in 2020, as the crisis will likely create interesting acquisition opportunities that reset pricing levels. We continue to formalize relationships with private equity partners to help capitalize new investments down the road. Our existing development pipeline, which currently stands at 11 projects, 5.2 million square feet, $2.9 billion in total investment and 73% pre-leased will continue to be a strong growth driver for Boston Properties. We just delivered into service last quarter 1750 Presidents Street, a 276,000 square foot office building located in Reston and 100% leased to Leidos at more than a 7% initial cash yield. Due to the pandemic, we are suspending investment in new vertical development for projects with material market uncertainty. As you know, we have two significant projects we are planning to launch in 2020, subject to market conditions. The first is our 835,000 square foot 4th and Harrison project in Central SoMa, where we have completed entitlement and plan for the first phase and expect to purchase the site later this year. We have responded to RFPs from potential anchor tenants, but will not commence vertical development without a significant pre-leased commitment. The second is Platform 16, a 1.1 million square foot three-phase office development in San Jose, where we have entitlements, plans and own a 55% interest in the site. We have completed site preparation work in consultation with our partner, we have paused construction activities and we'll revisit our plans once we get through the current phase of the crisis. As a final point, much is being written and speculated about the future use and need for office space as a result of the pandemic. Several business leaders have commented on their success operating remotely and claimed to be reevaluating their future office space needs. Further, urbanization as well as office densification have been questioned, given the imperative of spacing during a viral pandemic. Though no one including myself knows the answers to these longer term questions, it is instructive to focus on what we know today. The biggest impact to the office market near-term is recession, which as I discussed previously will adjust rent and capital value. Low interest rates definitely help. Second, our customers with dense layouts including Boston Properties are removing workstations and will return to work in a less dense environment. Some of these users will have a portion of their workforce continue to work remotely and some will require more space. Third, modern healthy and well-managed buildings with state-of-the-art health security will be at a premium like never before. Lastly, anecdotally, this practice has improved our skill at using remote work tools and procedures. It has also made apparent the collaboration, productivity and cultural benefits of working with others in an office environment. So in summary, the widely speculated market correction has arrived, though in a form few predicted. As we've communicated to you over the years predicting downturns is difficult and you must always be prepared. As a result Boston Properties is ready for the COVID-19 recession given our high quality tenancy, long-term leases, modest leverage, access to liquidity and pre-leased development pipeline. Let me turn it over to Doug in Western Mass.

Doug Linde, President

Thanks Owen. Good morning, everybody. I'm in suburban Boston. If you hear noise behind me, it's the robin that keeps smacking against the window in my study. I want to make a few comments on what we're doing to enhance our health security activities as our buildings begin to refill as well as our current leasing activity, but I'm going to focus my remarks this morning on the context behind our decision to withdraw our guidance for 2020. The health and safety of our employees, tenants, service providers and visitors is first and foremost on our minds. Over a month ago, we formed an internal Health Security Task Force comprised of Boston Properties employees from around the company, as well as outside experts in industrial hygiene, cleaning and security. We designed standard operating procedures that will include but are not limited to air filtration, water quality, janitorial products and procedures, social separation during building access and use of vertical transportation, the use of PPE, signage and management of construction activities in our in-service buildings. All of these activities are currently being validated by outside experts. It's possible that some of our procedures may get relaxed over time. We are being guided by the health and medical experts and acting with an abundance of caution. We will be releasing our plan over the next week to our entire community. Leasing activity for the first quarter was anticipated to be like pre-COVID-19. We ended the quarter just under 93% occupancy and from a seasonal perspective, the first quarter is typically our quietest period. Recognizing our occupancy levels, leasing in Boston was concentrated on renewal at our Walton asset. In San Francisco, we also had a number of renewals and one modest recapture and re-lease where the rent increased by 50% on a net basis; this was negotiated in late 2019. In New York, we completed our forward lease at 399 Park Avenue on an October 2021 expiration, with an 8% increase on a gross basis, again negotiated in late 2019. In Washington DC, more than 50% of our leases were GSA renewals. I think a little more interesting perspective is really what's going on right now. As Owen clarified, what we know is that the economy is in a recession and many organizations have either laid off or furloughed their staff. There are no in-person tours of space and the implications of social distancing on space planning and utilization are uncertain. In spite of this, during the month of April, we signed another full-floor lease at 399 Park Avenue with a hedge fund. The office space at 399 is now 100% leased. We also signed a full-floor new tenant lease at Time Square Tower with a law firm. We completed the 20,000 square foot extension and expansion with an investment banking firm at Embarcadero Center. We completed a 135,000 square foot relocation and 11-year extension in the Reston Town Center with a defense contractor. And we have captured 120,000 square feet of space in suburban Boston with a late 2022 expiration and did a new 12-year lease with a technology company starting in June of 2020. We are actively working to find the leases that are in progress. So the paper is moving back and forth on 50,000 square feet of leases in New York City, 40,000 square feet in San Francisco, 235,000 square feet in Boston, 200,000 square feet in Los Angeles and almost 900,000 square feet in Northern Virginia, including backfills for significant portions of our Leidos expiration in Reston Town Center and an additional occupant at our Reston mixed-use development. Separately about 300,000 square feet of signed LOIs are currently on what we refer to as COVID-19 pause across our regions. So let's discuss our 2020 revenue. We have a very strong base of revenue, but the economic uncertainty that Owen described, coupled with the variability that has created in certain areas of our revenues is simply too unknown for us to provide a tight forecast at this time. And as you know, quarterly and annual guidance is all on the margin. I believe that if we provide you with the data for 2019, you will be able to make individual judgments about the COVID-19 impacts on 2020, and more importantly, have visibility on 2021. If you start with our supplemental disclosure, we break out revenues into four categories: leases, parking, hotel, development and management services. I'm going to comment on those first three. In 2019, the lease category made up the majority of our revenues at 93% of the total. And if you break that down a little bit further 92% of that 93% is office and represented retail, and 1% is our apartments. So in bottom-line, office revenues make up 83% of our total revenue base including our unconsolidated asset JVs. So let's focus for a few minutes on that office portfolio. The composition of that office portfolio — I'm going to use data from our April 2020 cash billings to give you a perspective of the segmentation; again, this is a cash perspective based upon this last month of collections and billings. Financial services make up about 25%, technology and life science companies make up about 24%, the legal profession makes up about 22.5%, other professional services which are accounting firms and major consulting firms and engineering firms make up about 8.5%, manufacturing and retail companies that make things make up about 4.6%, real estate and insurance 4.2%, media and telecommunications or flexible office space providers 2.5%, government 2.5% and education (0.3%). So that's a good sense of where our money is coming from a revenue perspective. 2019 revenues from office leases, including our share of unconsolidated JVs totaled more than $2.657 billion. Office portfolio ended the first quarter 2020 at 92.9% occupied, essentially flat to the end of 2019. Owen gave you our baseline April collections for the company. We collected rent in 95% to 100% of all of those office buildings that I just described with the exceptions of our flexible space operators and manufacturing/retail. The manufacturing/retail category includes retail and consumer product tenants with office leases. So those are companies like Aramis & Parters, Taylor, Macy's.com, Saucony, Clark Jewelers and JAKKS Pacific, which is a toy company — those are some of the larger ones in that category, as well as industries as diverse as the defense sector and electric battery manufacturing. So it's a pretty broad base. Our share of the accrued rent balance of those manufacturing/retail tenants that did not take a grant and are all in the retail-oriented businesses stood at $7.6 million at the end of the quarter. Our share of unpaid flexible space operator accrued rents stood at $4.5 million. 29 days into the quarter, it's not clear whether those tenants simply are not paying but will catch up, have a short-term liquidity issue, or face more significant business challenges. We've reviewed our accrued rent balances and our accounts receivable, but the full impact of the COVID-19 shutdown on many businesses is still not yet happening. While we've increased our reserve this quarter and written off some AR, we have additional reserves we expect will be required over the next quarter that we really can't identify today. And those decisions will impact our net income and our funds from operations. But bottom line is, we have a really strong set of tenants where we collected the vast majority of our cash rent in April 2020. I want to repeat that the foundation of Boston Properties' ongoing revenues and cash flow is our contractual office lease book with an average lease length of approximately eight years. One challenge with forecasting short-term revenue of our office leases is knowing the revenue recognition timing on many of the newly signed leases. At the moment, we have over 500,000 square feet of spaces with annualized revenues of $37 million that we have delivered in shell condition and are being constructed out by tenants. We are receiving cash rent for some of these spaces, but not booking any GAAP revenue yet because they are not occupied. As Owen mentioned, construction has been shut down in New York, Boston and San Francisco and we don't have clarity on when local authorities will allow a restart, how long it might be before contractors can fully mobilize on in-service assets, and most importantly, when those tenants will complete their work and we could commence revenue recognition. So again, on an annualized basis, about $37 million of uncertainty is in play there. Our current baseline office revenue for 2020 assumes virtually no additional leasing other than the volumes I described earlier, the deals we're working on and no contribution from this 500,000 square feet of space that have been delivered in shell condition. Occupancy at year-end is assumed to be modestly lower than our current level. The revenue fixtures include annualized contribution from properties that were brought into service in 2019, as well as eight months of contribution from 1750 in Reston. The baseline consolidated office rental revenue contribution including our share in consolidated JVs is approximately $2.683 billion. So 2020 is about 1% higher than 2019 — that's sort of our baseline building block for the company's revenues. Okay, so that's the office side. After breaking out financial institutions, telecom and technology tenants from the retail operations, our remaining retail exposure is about $144 million annually and $108 million for the remainder of 2020. This is made up of 275 tenants with more than 40% of the revenue in the fast casual and sit-down restaurant sectors. Logically, we have a lot of urban buildings with street-level retail and the majority of that is in food services. In April, we collected 23% of rent from its main retail group; again, this is after having broken out all the banks and the telecom and the technology companies, the Apples and the Microsofts and the Verizons and AT&Ts. So with that group of tenants where we collected 23% of rent, we have an accrued rent current balance of about $30 million for those retail spaces. Now if you add back all the other retail categories, our collections jump to somewhere between 35% and 40% depending upon the day; we collected some more money yesterday. We are working proactively with many of these tenants on lease modifications to ensure their continued operation when we get back to the new normal. We also earn percentage rent in some of the retail leases that we have with high performing tenants. We don't expect to receive any percentage rent in 2020. Okay, so I talked about office revenue, then I talked about retail revenue, next is parking. Total parking revenue in 2019 was $113.5 million. We have two primary components of parking: monthly passes and transient or hourly/daily parking revenue. Consolidated transient parking in 2019 totaled $40 million. In April and May with stay-at-home orders and business closures, we expect our transient income to be non-existent. Some of our monthly parking revenues are contractual, investor leases, and some are at-will individual agreements. In the short-term, we have seen some monthly agreements cancelled as well. We don't know if the gradual build up of office occupants will coincide with a slow ramp up in transient and monthly parking or potentially a much more rapid increase as our customers choose to drive to work as opposed to take public transportation. Our apartments portfolio only contributed $35 million in consolidated revenue in 2019, again roughly 1% of total lease revenue. Virtual leasing is occurring across the portfolio, but not at the pace of in-person leasing that we experienced in early 2020 or 2019 and we are in the initial lease up of Hub House and had hoped to commence leasing at Skyline in Oakland in May. Construction stoppage of those new developments will impact leasing and delay it and the additional contribution from this portfolio that we had expected in 2020. Finally, we have one fully-owned hotel that contributed $14 million of net operating income in 2019. The hotel closed in early March and it's running at a monthly deficit. It's unclear when it will reopen and what's the ramp up in business travel, leisure travel and tourism will be in 2020. Mike will discuss our liquidity and capital commitments in a few minutes. But suffice it to say our development capital spend has slowed in New York, Boston and San Francisco. Construction activities have continued, as Owen said, in Greater Washington DC, albeit with significant health, safety precautions and intermittent work stoppages necessary to clean sites due to COVID-19-impacted workers. So again, I think I've given you the building blocks where you can pretty quickly come up with your own views on what you think the economic impacts will be of COVID-19 and provide yourselves with estimates for our earnings in 2020 should you choose to do so as well as give you a sense of the baseline for 2021. I'm going to stop here and hand the call over to Mike who is in Medfield, Massachusetts, home of that famous Disney movie, The Computer Wore Tennis Shoes, put out in 1969 starring Kurt Russell as a student at Medfield College. Mike, take it away.

Mike LaBelle, Chief Financial Officer

Thanks. Thanks, Doug. I really thought you'd go with The Shaggy Dog. But I'm just happy to see that you're spending your time while at home catching up on your Disney classics. Good morning, everybody. First we truly hope that all of you and your families are safe and healthy as we experience this really tough time. This morning I'm going to go through three topics: our first quarter performance, more details on changes from our prior guidance and our balance sheet and access to liquidity. We had a strong first quarter reporting FFO of $1.83 per share, which is $0.02 greater than the midpoint of our guidance or about $3 million. The office portfolio exceeded our assumptions by approximately $6 million or $0.03 per share. About $0.02 of this was from lower expenses, primarily utilities due to the milder winter and lower R&M expense, and $0.01 per share was from higher rental revenues. This was offset by $3 million of lost income related to the shelter-in-place orders from COVID-19 which impacted parking income by $2 million and caused us to close our Cambridge Hotel, costing us $1 million compared to our budget for the quarter. Doug did a great job describing our revenue profile. Our current exposure areas during this crisis are primarily retail, parking and our hotel, which as of the first quarter comprised 11% of our consolidated revenue for the first quarter. To assist you with your model, I want to summarize what we expect the impact on our quarterly run rate will be from these exposure areas so you can get a sense of the change from our guidance last quarter. What is not clear is how long the shutdown of businesses will last. But this information will help you calculate the impact on us based on your own views. Retail is about 7% of revenue. As Doug described there are segments of our retail portfolio with tenants that have justifiable financial needs and we are actively working on lease amendments. There are a number of alternative structures, but in most cases there will be a pause in cash rent followed by a feature increase in rent, term or both. The result will be the loss of near-term cash income but a more modest impact on GAAP income as we straight-line the rent for those tenants we believe will resume operations. We estimate the impact on our quarterly GAAP revenue related to our retail exposure will be $3 million to $5 million per quarter. Parking is typically about 4% of our revenue or $28 million per quarter; approximately $17 million of this is a mix of longer-term corporate tenant leases and month-to-month leases, where today we've seen only modest impact. The remaining parking revenue is daily transients, which is more heavily impacted and totaled about $10 million per quarter. Our hotel is currently closed; the negative quarterly impact to our FFO is approximately $7 million versus our prior assumption. With regard to office leasing, Doug also described the impact of the current environment on tour activity that is affecting the pace of new leases for vacant and expiring space. In addition, he described the construction delays likely to impact our revenue recognition related to tenants who are currently building out space. We expect a reduction of $25 million to $35 million of revenue for the full year 2020 from a slowdown in the pace of new leasing and tenant improvement construction delays combined. This is compared to our prior assumptions for 2020. On the positive side, lower interest rates should result in reduced interest expense on our floating rate debt. The vast majority of our debt is fixed rate, but we have $750 million of floating rate corporate debt, and approximately $200 million in our share of floating rate joint venture debt where interest is not being capitalized. The drop in one-month LIBOR to approximately 50 basis points is expected to reduce our interest expense assumption by $7 million to $10 million from our prior assumptions for the year. These numbers do not include the risk of reserves we may take associated with the accrued rent for tenants where we may see a dramatic change in their business prospects or actual defaults we may encounter due to the economic impact. Hopefully, the information we provided on tenant collection, leasing and development provides perspective on the current impact of COVID-19 on our business. Overall, I would say we are fortunate. BXP was built to withstand such situations. We've always maintained a conservative balance sheet, a base of strong creditworthy tenants and an appropriate level of pre-leasing to mitigate development risk. Given the uncertainty associated with the timing and pace of returning to work and the unknown depth of the economic recession we believe there are too many variables to provide prudent guidance for 2020 at this time. As a result, we are withdrawing our 2020 guidance and we will revisit this decision in future quarters as we develop more clarity on the economic trajectory of the pandemic. I also want to remind you of the trend in our same property performance. In the first quarter, our same property NOI growth was up 4.8% over 2019, which was slightly better than our expectation. As we described last quarter, we have known move-outs in the second quarter, including 250,000 square feet in Reston Town Center, and 85,000 square feet at the GM Building. This combined with losses related to COVID-19 is expected to turn our same property NOI growth negative in the second quarter. The last thing I want to cover is the strength of our balance sheet and our liquidity. As a core philosophy, we prepare our balance sheet to fund new investment in good times, but also to be ready for economic disruption so that we are not in a position to be forced to raise capital in a bad market. As evidenced, we raised $2.2 billion of debt capital in 2019 to refinance our 2020 unsecured debt maturities and put cash on our balance sheet to fund our future development investments. We currently have $661 million of cash and $1.25 billion available under our line of credit. We also have $151 million from the sale of our properties sitting in a 1031 escrow account. So in aggregate, our current liquidity exceeds $2 billion. We're also working on the dispositions that Owen described which can raise another $250 million. And our external funding needs for the rest of 2020 include approximately $500 million for development that we currently have in our pipeline and $130 million for the land acquisition in 4th and Harrison in San Francisco that we expect to fund with the 1031 escrow account. Our 2020 debt maturities are modest, with only $200 million representing our share of five joint venture mortgages that we expect to have extended or refinanced. Our next sizable debt maturity is not until May of 2021 when we have $850 million of unsecured bonds expiring that have a GAAP interest rate of 4.3%. The investment grade unsecured bond market has been one of the most resilient capital markets during this crisis. The market has remained open throughout providing liquidity to corporates. And while 10-year credit spreads for us widened from the low 100s pre-crisis to a wide point about 400 basis points, they have now settled down into the high 200s. Based upon where treasuries are today, we could price the 10-year bond at under 3.5% — still near historic lows and lower than the yield on a 10-year bond we issued in mid-2019. We will continue to monitor the market and the potential to layer in additional liquidity in 2020. In conclusion, I want to reiterate that while we are certainly not immune to the economic impacts of COVID-19, office rents comprised 86% of our total revenues and come from an array of mature primarily creditworthy companies with long-term leases in diverse industry groups. April collections from these clients exceeded 95%. And our balance sheet liquidity and access to capital remain a strength of the company providing us with comfort in our ability to ride out a challenging time period and to be ready for opportunistic investment when the clouds clear. Thank you. That completes our formal remarks. Operator, can you open the line for Q&A?

Operator, Operator

Your first question comes from the line of Jamie Feldman with Bank of America. tal revenues and come from an array of mature primarily creditworthy companies with long-term leases in diverse industry groups. April collections from these clients exceeded 95%. And our balance sheet liquidity and access to capital remain a strength of the company providing us with comfort in our ability to ride out a challenging time period and to be ready for opportunistic investment when the clouds clear. Thank you. That completes our formal remarks. Operator, can you open the line for Q&A?

Jamie Feldman, Analyst (Bank of America)

Great. Thank you and we appreciate all the detail and thoughts. I guess just to start out, as you think about, you could see more reserves going forward, you could see tenant bankruptcies going forward, you pulled your guidance. Just how do you think about how long your tenants that kind of are on that list, that watchlist can make it before you really do start to see the wave of — or I shouldn't say wave but maybe a pickup in bankruptcy volumes and greater reserves on your end?

Doug Linde, President

So Jamie, this is Doug. I think that we are not sanguine about what's likely to happen. We do expect there to be some amount of restructuring going on with some of the tenants that I described. But we also think that the office space that they have in our locations may be critical to their ongoing restructuring to the extent that they're able to do that, and so we think we're going to see some of this over the next couple of months or quarters as people understand the severity of the situation. But it's hard for us to tell you one way or another whether particular tenants' restructuring is going to involve a major disruption in their use of office space at this point because they are using it — although everyone is effectively under shelter-in-place workflows and so they're not currently using that space today, we expect they'll go back to it.

Jamie Feldman, Analyst (Bank of America)

And then what about the retail side?

Doug Linde, President

So our retail side is, I would say in terms of where we collected or we haven't collected — again, we have an awful lot of service and restaurants that are sit down or fast casual. And we recognize that that's going to be a slow comeback. And so we are really trying to work thoughtfully and constructively with those organizations to make sure that we are not the problem that puts them into a more difficult financial situation. And I think that our locations, from a business perspective, are good ones for those businesses where they were doing very well. And I think it's a question of how long it's going to be before people get comfortable going back and being in more crowded areas with regards to eating and getting takeout. And so I think it's going to be a longer road for those companies to figure out whether or not their businesses are going to be sustainable indoor or they're going to just move to takeout. But again, we're having very constructive conversations with those operators and where we know that they — in almost every case they want to come back.

Jamie Feldman, Analyst (Bank of America)

Okay. That's helpful. And then, I guess, second for me, Owen, you had commented that initially you think tenants come back with much less dense layouts? Can you just provide more color on the conversations you're having in terms of the amount of space that they do feel like they will need per employee? And just, it seems like the pendulum has gone too far here in density; just what the initial discussions are on that and even from work from home on the longer term.

Owen Thomas, Chief Executive Officer

Yes. So, Jamie, I think there's speculation in some of that question. And the way I tried to focus my remarks is acknowledge the questions out there and then focus on what we know today. And I do think there's both short-term and long-term answers. So first, on densification — social distancing is going to continue in our core markets even after we go back to work. So employees are going to have to work roughly six feet apart. So even in our own workspaces, we're looking at that and trying to figure out how we're going to configure space, or how we're going to have our workers come to the office such that that distancing can be accomplished. Again, I think it will be early days; both landlords and customers are figuring this out right now, because the return to work is happening. But we've seen some customers literally just removing chairs; they're not going to rebuild their space, they're going to remove chairs, or in some cases, they may take more space, or figure out temporary measures. So that's what we know today. Longer term assuming that the virus is controlled, we get a vaccine and we're in a real post-pandemic period, my guess is the six-foot distancing won't be as important. There'll always be sensitivity to viruses and health security will be greater, but I doubt that a six-foot social distancing requirement will remain permanently. I don't think companies are going to seek to densify further from where they were in February of 2020. Frankly, as we've said on these calls before, we thought that trend was sliding already. I think your last question was on work from home and what impact that's going to have. Again, we don't know — there's lots of speculation about it. I think there's no doubt that we all are better at it. We have the tools, we understand its value. But I also don't think there's any doubt that all of whom I speak with want to go back to their office. They miss the efficiency of it, the camaraderie of it. So I certainly don't think the need for office space is going to go away. But I do think that work from home is going to accelerate a trend — maybe you won't travel to that next meeting if you can do it on Zoom. If someone needs to work from home for a personal reason one day a week, that's now going to be easier to accomplish. So I think there'll be some trends like that as opposed to wholesale changes in office demand.

Jamie Feldman, Analyst (Bank of America)

Okay. But you're not really having those initial discussions yet with tenants in terms of how they're thinking about the world. It's just too early, is my guess.

Owen Thomas, Chief Executive Officer

Well, the short-term conversations we're having now. That's why I broke it into pieces — we absolutely know of customers that are taking out space and taking out seats. And we also are having, not a tremendous number at this point, but we are having conversations with customers that want more space to deal with distancing. So we know that. We've had conversations with some of our technology tenants, and there is no question that the technology tenants are looking to increase the amount of space per employee and are clearly thinking about reducing the areas of collaboration and increasing what you would refer to as personal space. My own view is there is a short-term issue and then there's a much longer-term issue. I think the long-term issue is less of a concern because I do believe that once we get through this particular virus, people will be comfortable again — not necessarily wearing masks in their offices and being in close proximity to each other. But I think what this crisis has created is a realization that you have to be prepared for something like this happening in the future. So I think that will impact densities in a more meaningful way because people are going to want to be positioned to be able to recover much more quickly from a similar event.

Operator, Operator

And your next question is from Vikram Malhotra with Morgan Stanley.

Vikram Malhotra, Analyst (Morgan Stanley)

Thanks for taking the questions. And again, thanks for all the detail and coordination. Maybe just going back to one of the original comments, which talked about certain markets and sectors will probably do better than others. Tech and government were mentioned. Maybe give us some relative color. How do you view your markets on a relative basis today from a rent growth and a value perspective?

Owen Thomas, Chief Executive Officer

Yes. I think Vikram, it's hard to rank them up based on a future state that depends on a lot of different factors that I outlined in my remarks. But I do think it is instructive to look at each region and understand what the industry drivers are for demand in those regions. As I suggested, industries like life sciences, technology and government will likely outperform because they either have been enhanced by or not nearly as heavily impacted by this crisis. Conversely, industries like energy, travel and retail are more heavily impacted. Cities with higher percentages of the resilient industries should perform better. Doug, anything to add?

Doug Linde, President

Yes. I would just add that you do have to look at the current condition of those markets from a supply perspective as well. Markets like San Francisco and Boston and Cambridge, which are very tight today, will have less of an impact relative to the recession than a market like CBD Washington DC from a real estate perspective. On the other hand, people typically look at Washington DC as a better market from a demand perspective during a recession. It will be interesting to see whether the government reaction will be to invest in infrastructure, which would be helpful to the U.S. and the world going forward and could mean office space and job growth. And the question is where might that be. We continue to get inquiries from both technology and life science companies — interestingly in Reston, in Boston, and to some degree in Silicon Valley — about additional space requirements, none of them moving quickly. But there are tenants thinking about growth. At the same time, there are tenants in the travel and consumer sectors going in the other direction based upon their industry sectors.

Vikram Malhotra, Analyst (Morgan Stanley)

That's really helpful. And then just maybe building on the inquiries. Can you give a bit more granular color on the development pipeline trajectory from here and given the inquiries, how you are thinking about new starts, what to view for 2021 and 2022?

Doug Linde, President

Let me answer the first question and then Owen can take the second. So in our existing development platforms, the only place where we have available space today of any significance is Dock 72 in the Brooklyn Navy Yard. Our occupancy was down in Reston because Fannie Mae gave us back a couple of floors. Interestingly, we are in lease negotiations for a tenant who would take that space plus virtually all of the remaining portions of Reston mixed-use. So aside from that, the only other exposure we have is in our CityPoint property where we have two floors or 60,000 square feet of space. So our existing development pipeline is basically full or close to committed other than Dock 72.

Owen Thomas, Chief Executive Officer

Yes. And then Vikram, to add, there are three projects I'd mention. As I said earlier, given the crisis we're more reluctant to take speculative development risk. On the last quarter call we mentioned two projects, 4th and Harrison and Platform 16 in San Jose, that we were considering launching; we put those on pause because we want to see how the market unfolds before advancing either. We are going to buy the site under 4th and Harrison; we have plans and entitlements for the first phase. We own the land under Platform 16, we're ready to go, but we'll wait for significant pre-lease. The other project that comes up is 3 Hudson Boulevard in New York City. That hasn't changed much because we've always said we needed a significant pre-lease to go forward and that remains the case.

Operator, Operator

Your next question comes from the line of Steve Sakwa with Evercore ISI.

Steve Sakwa, Analyst (Evercore ISI)

Thanks. Good morning. First as it relates to co-working, I realize it's not a big part of the portfolio. But could you just speak to co-working in general and how you guys are thinking about that in the marketplace, the space that could come back into the market, the impact that could have on some of your key gateway markets?

Owen Thomas, Chief Executive Officer

I think there's no doubt this environment is challenging for co-working. There was always a debate about how well co-working would withstand an economic recession, but no one expected a recession that required social distancing — counter to the approach of co-working. So in the short-term it's a challenged industry. That said, long-term there is a role and a place for shared workspace. Small companies like the flexibility and speed to market of that product and enterprise customers will continue to want a portion of their space flexibly procured. So I think the industry over the long-term will still exist but in the short-term it's likely to contract, there may be consolidation, and it will not be a source of net absorption for the office markets for the foreseeable future.

Doug Linde, President

And Steve, relative to supply, some operators are probably going to reduce the number of locations they currently lease. That space in many cases is not as currently configured to be amenable to a new installation. It can be retrofitted, but landlords will need to decide whether to invest to recondition those floors. In markets like Boston and San Francisco, the relative amount of that space compared to the total market wasn't that great because the markets were so tight. New York City obviously has more of an issue with the number of co-working installations. Some other markets where co-working had a larger proportion of absorption are going to see some impact as well.

Steve Sakwa, Analyst (Evercore ISI)

Okay. And just maybe as a follow up, to the extent that you did get back co-working space, would it be your intention to reconfigure it into a flex-by-BXP product, or do you think you'd have to reconvert it to traditional office space and release it in the market?

Doug Linde, President

It'll depend on what and where it is. We're relatively little exposed and the spaces we do have are relatively small — a floor here and a floor there — so we feel like we'll be able to adjust appropriately. Today, we're not entirely sure what the right configuration for new floor space is; we'll have to figure that out based upon customer demand. We'd be somewhat reluctant to take one of these spaces back right now and immediately put it into a selected BXP configuration in the short-term.

Steve Sakwa, Analyst (Evercore ISI)

Okay. And then just one question for Mike, on the retail you've talked about troubled operators — how are you thinking about structuring new deals? Are you moving to percentage rent deals or lower base rents? How are you thinking about flexibility on new lease terms going forward?

Doug Linde, President

Steve, the conversations we're having of that nature are with food-service operators. We're not having those conversations with Sephora or Bank branches. With restaurant tenants we think making sure that they are not overpaying when they start to operate makes a lot of sense. We're orienting deals into percentage rent structures for periods of time with an expectation that as sales reach certain levels, we'll start to be paid back.

Operator, Operator

Your next question comes from the line of Craig Mailman with KeyBanc Capital Markets.

Craig Mailman, Analyst (KeyBanc)

Hey guys. Just circling back to density. Thoughts as it relates to development, demand and pricing — the ability to pack more people into less space brought down occupancy cost and allowed new supply at higher rents. Curious what the impact could ultimately be on your portfolio and on projects like 4th and Harrison or Platform 16.

Owen Thomas, Chief Executive Officer

I think it's too early to address that. We haven't seen that impact in negotiations for those projects yet. It's early; we haven't observed rents being materially affected by changes in potential density choices. We'll continue to monitor.

Craig Mailman, Analyst (KeyBanc)

Do you have figures for where average tenant densities have gone this cycle? Given law firms and removing law libraries, any sense of impact on your portfolio?

Doug Linde, President

We did a study for our board last year. Density has come down over time but not nearly as much as people thought. There are very different density levels for different industries. An interesting realization was that density is hard to define because there are traditional workers assigned to spaces and dynamic workers who use different kinds of spaces. The real issue is how working from home and remote work will impact overall density. Our expectation is there will be more people assigned to a space, but the way the space is built out will give people more elbow room and the spaces will be used differently — not necessarily on a day-to-day basis. It is hard to know exactly how those relationships will work in the future but prior to COVID-19 we were seeing a lot of assigned seats that weren't being used frequently.

Owen Thomas, Chief Executive Officer

To summarize, physical densification was likely over before COVID-19. Occupancy increases were the driver. I think densification will go the other direction which might increase space per employee. Work from home tools will facilitate different occupancy patterns.

Craig Mailman, Analyst (KeyBanc)

Thanks. Quick for Mike — how are you thinking about bad debt? You didn't give a specific number, but any sense of what could ratchet up this cycle? Any significant tenants going on non-accruals we should worry about with cash accounting versus GAAP?

Mike LaBelle, Chief Financial Officer

We evaluate on a tenant-by-tenant basis. Doug provided some guideposts for exposed industries. He estimated accrued balances in the low $40 million for those areas they focused on, which is the number we're looking at. It's early to determine the full amount. Overall, we feel good about the credit quality of the portfolio. The top tenants are very strong, mature and long-term. That doesn't mean nothing will happen — unexpected defaults can occur — but overall we are well positioned. We're monitoring a few areas closely and wanted to give you that insight.

Operator, Operator

Your next question comes from the line of Rich Anderson with SMBC.

Rich Anderson, Analyst (SMBC)

Thanks. Just on that one, Mike: the $40 million accrued rent balance Doug mentioned and the $25 million to $35 million range for office revenue reduction, are those separate? How do they relate?

Mike LaBelle, Chief Financial Officer

They are separate. The $25 million to $35 million is our estimate of revenue reduction for the full year 2020 versus our prior guidance, driven by slower leasing and TI construction delays. The accrued rent is a separate item reflecting tenants who are not paying currently and the accrued balances we have on the balance sheet. We're comfortable with current accrued balances but are monitoring certain sectors closely.

Rich Anderson, Analyst (SMBC)

Okay, got it. On the development pipeline, any projects that might fundamentally not work if this drags on — could you stop or exit projects down the road or are you confident they'll all restart?

Mike LaBelle, Chief Financial Officer

We are highly confident that developments underway in Northern Virginia, Maryland and Greater Boston with the credits we have in place will be finished and tenants will continue to pay rent. Construction stoppages may affect how tenants build out their spaces but we have no concerns relative to the financial feasibility of the tenants we have leases with for our developments. For prospective new starts we are pausing significant new speculative vertical investment without material pre-leasing.

Rich Anderson, Analyst (SMBC)

Last one — any lingering issues at 399 Park or are those assets buttoned up?

Doug Linde, President

Every single space and every single one of those leases is done. The only question is when tenants on some of the spaces will actually be occupying or completing their TIs. From a revenue perspective we may start to see cash rent in some cases prior to GAAP revenue recognition. Economically, we're past those issues.

Operator, Operator

Your next question comes from the line of Alexandra Goldfarb with Piper Sandler.

Alexandra Goldfarb, Analyst (Piper Sandler)

Hey, good morning. Doug, you specifically said Maryland so I assume you're comfortable with Marriott taking their headquarters in Bethesda. But maybe you could talk a little about Under Armour. Is Under Armour part of the accrued balances? Is their lease within discussions for restructuring or are they current on expectations to start paying cash rent at the end of the year?

Doug Linde, President

We have not added any additional conversations with Under Armour since their last quarterly call. There's no cash rent issue right now; we fully expect they will continue to be a thriving company and will live up to their commitments.

Alexandra Goldfarb, Analyst (Piper Sandler)

Second question for Mike. You walked through guidance and all the variables and why you rescinded it. At the same time, your balance sheet looks strong; you only drew a little on the line. It seems you have confidence in the balance sheet versus the variability in the income statement. Can you juxtapose that? Many companies are cautious on balance sheets, whereas you seem confident.

Mike LaBelle, Chief Financial Officer

Alex, we feel we entered this period in great shape from a balance sheet perspective because we raised a lot of capital last year. That doesn't mean we won't continue to think about ways to raise capital; you can't have too much cash in a period like this. We'll evaluate options to ensure we have ample liquidity to get through this event and be ready for opportunities on the other side. Historically we don't start many developments in a recessionary environment; we tend to hold land parcels until conditions improve, but there are opportunistic investments we might pursue. We want to have capital available for those opportunities. We feel good about where we are and our partner relationships.

Doug Linde, President

You shouldn't construe our decision not to provide guidance as discomfort with our income, cash receipts or forecasting abilities. In a typical environment we'd give guidance with a tight range and be managing marginal items like leasing timing or project completion. We're not dealing with marginal items today; we had $40 million of transient parking revenue that in April and May went to negligible numbers because people were told they couldn't go to work. We had a hotel that closed. The economic uncertainties associated with that are what give us pause in providing guidance. That's distinct from our balance sheet strength.

Owen Thomas, Chief Executive Officer

I'd add that the future is science-driven — rumors about therapies or vaccines can move markets. We're being conservative with guidance until we have more clarity on that front.

Operator, Operator

Your next question comes from the line of Derek Johnston with Deutsche Bank.

Derek Johnston, Analyst (Deutsche Bank)

Hi, everyone. What are some of the increased expenses, including new technology systems, that you expect to incur from new practices or procedures that you're putting in place to fully reopen? Can you share any details on these expenses and systems and any options to reduce G&A and potentially offset?

Doug Linde, President

Much of what we're doing are standard operating procedures and the use of different materials and processes for accessing and cleaning our buildings and moving air around our buildings. The vast majority of that will show up in operating expenses. The one area we're considering but haven't finalized is temperature checks and thermal screening. The technology and supply are not yet at the point where we're comfortable deploying airport-style thermal screening broadly. So in the short-term the cost increases will be on the operating expense side, not CapEx. At the same time some operating expenses have come down because buildings are less occupied; janitorial costs have decreased in some instances. So there are offsetting savings in the near term.

Derek Johnston, Analyst (Deutsche Bank)

Can you comment on your pipeline: how it looks today versus pre-COVID? Do you believe demand will return to previous levels late 2020 or pushed to 2021?

Doug Linde, President

Since the crisis started new requirements other than a handful of developments are few and far between — very limited tour activity. We are completing leases that were underway pre-pandemic. For leasing volumes to return you have to decide which economic scenario unfolds. The base case is a slow return to work over the next couple months and a medical solution in 2021 — in which case leasing could return to pre-pandemic levels sometime next year. Other scenarios could slow it down or speed it up.

Mike LaBelle, Chief Financial Officer

In the financial projections I went over our assumption was no additional incremental leasing in 2020, which gives you a baseline relative to 2019. Physical tour activity is non-existent today, virtual leasing is happening but everything's postponed. There's still lease expirations and renewals that will require leasing activity. How those manifest will depend on tenant willingness to invest in new installations during a recession.

Operator, Operator

Your next question comes from the line of Manny Korchman with Citi (represented by Michael Bilerman).

Michael Bilerman, Analyst (Citi)

Hi. A few topics. Owen, you talked about potential acquisitions and planting seeds today for something down the road. You also commented about reset pricing. What do you need to see to become aggressive? What are the goalposts from a pricing perspective? How active are you today?

Owen Thomas, Chief Executive Officer

In general we expect opportunities will arise as the recession progresses — reductions in rents and values for certain types of buildings. Low interest rates are helpful. Timing is too early; the period of market settling and new pricing needs to be established. We're staying in market, understanding leasing and any new deals. Our desire to pursue something is months away. We'll want clarity on which economic scenario we're on and some new leasing or transaction activity to help establish valuation. We think there will be interesting opportunities and want to be prepared.

Michael Bilerman, Analyst (Citi)

A lot of your private equity partners may be tied to oil; their wealth denominator is hit. How do you see sovereigns acting? Could you buy back stakes at attractive pricing if partners need liquidity? Would there be distressed sellers where you might want to act before everything is known?

Owen Thomas, Chief Executive Officer

Behavior will be case specific. Some sovereign investors are driven by oil revenues and that may affect appetite. It depends on each investor's portfolio and performance. We're staying active with private equity partners; most still show enthusiasm for investing in U.S. real estate and appreciate upcoming opportunities. Deals aren't being done yet, but there's interest.

Michael Bilerman, Analyst (Citi)

On office utilization: do you see a wholesale change in the way office demand is used? Could net hiring not translate into same level of square footage per employee post-COVID?

Owen Thomas, Chief Executive Officer

First, markets with growing industries will lead demand. Second, densification is likely to retreat. Third, work from home may change patterns — we've gotten better at it and understand the benefits and limits. I don't see the office's viability questioned. There will be changes, but not a wholesale disappearance of office demand.

Michael Bilerman, Analyst (Citi)

Short-term, if you impose six-foot social distancing, what percentage of workforce can come back in current constructs — 50%? 75%? 25%?

Owen Thomas, Chief Executive Officer

Hard to answer; it is highly dependent on the customer's physical workspace. Some customers are primarily in private offices and won't have to adjust; others are bench seating and packed in at low square footage per person. Ancillary areas like bathrooms and circulation also matter. People will likely return in phases; employers may stagger hours or shifts and use operating procedures to limit congregation until medical solutions are widely available.

Operator, Operator

Your next question comes from the line of Blaine Heck with Wells Fargo.

Blaine Heck, Analyst (Wells Fargo)

Thanks. Clearly there's a more cautious stance on development. Land values typically decline first. Do you have thoughts on magnitude of land value decreases? Will there be opportunities to find sites at significant discounts to lengthen development runway? Or will focus be on existing stabilized buildings and value-add?

Owen Thomas, Chief Executive Officer

Land values often fall more in a downturn than building values because land doesn't generate cash flow. There may be sites at attractive prices. Most of my comments about opportunities were more directed at existing buildings, which we had been less inclined to buy in the up-market. That could change. We will look at land opportunities too, but everything is opportunity-specific.

Blaine Heck, Analyst (Wells Fargo)

Any specific markets you might target?

Owen Thomas, Chief Executive Officer

Opportunities will be very case-specific. Historically our development focus has been California and Boston, and less on New York and Washington DC. Post-cycle the focus will likely reflect where life sciences and technology demand remains strongest.

Blaine Heck, Analyst (Wells Fargo)

Any other situations with tenant commitments in the pipeline that have flexibility to decrease or increase requirements?

Owen Thomas, Chief Executive Officer

In our in-service properties most leases have normal contraction/expansion provisions and those are negotiated case-by-case. In our development pipeline we don't have many of those kinds of flexible commitments aside from the conventional lease terms; generally we require pre-leasing for speculative vertical starts.

Operator, Operator

Your next question comes from the line of John Kim with BMO Capital Markets.

John Kim, Analyst (BMO Capital Markets)

Good morning. A number of companies in the media/tech industries have announced employees won't return to work until at least September. Are you seeing this in your portfolio? If companies delay return, do you anticipate more tenants requesting abatement or deferral?

Owen Thomas, Chief Executive Officer

It's market-by-market. Some tenants have announced delayed returns; others plan to come back earlier. Abatement/deferral requests are not broadly occurring with office tenants — we handle unique situations where a tenant has significant near-term financial challenges and where it's constructive for us to be helpful. For most office tenants who can operate remotely, there's not necessarily a cash collection issue if their business continues to operate.

John Kim, Analyst (BMO Capital Markets)

For leases signed in April, are you seeing COVID-19 clauses (e.g., pandemic-related clauses)?

Owen Thomas, Chief Executive Officer

To date we have not seen many explicit COVID-19 clauses; going forward it's likely the industry will incorporate new provisions for pandemics similar to how terrorism or force majeure items have been handled previously. That will evolve over time.

Operator, Operator

Your next question comes from the line of Omotayo Okusanya with Mizuho.

Omotayo Okusanya, Analyst (Mizuho)

Good morning. A quick one: any thoughts about the Prop 13 split-roll potential ballot measure coming up?

Rob Pester, Senior Vice President, Government Affairs (Boston Properties)

Yes. It will be on the ballot. The polling we're seeing shows that it will not pass — Californians are tired of increased taxes, so we don't see it passing.

Omotayo Okusanya, Analyst (Mizuho)

Got it. And one other on accounting for the JV with Alexandria — with your 50% ownership, will you consolidate or treat it as an unconsolidated JV?

Mike LaBelle, Chief Financial Officer

We will treat it as an unconsolidated joint venture in our accounting. We contributed properties into it and recorded a significant non-cash gain on the contribution which went into acquiring their share of the assets.

Operator, Operator

Your next question comes from the line of Peter Abramowitz with Jefferies.

Peter Abramowitz, Analyst (Jefferies)

Hi, thanks. What's the breakdown for parking income between transient and monthly passes?

Doug Linde, President

In 2019 total parking revenue was $113.5 million and about $40 million of that was transient or hourly parking. That's the breakdown we provided.

Operator, Operator

Your next question comes from the line of Daniel Ismail with Green Street Advisors.

Daniel Ismail, Analyst (Green Street Advisors)

Thanks. Other than a few recent reports on the MTA sites, any update on the status of that transaction?

John Powers, Senior Vice President, Development (Boston Properties)

Yes — our governor and mayor dealt with tax revenue distribution which had been holding this up for a couple of years. We're moving forward but we have to go through a full entitlement process. This will be a multi-year project.

Daniel Ismail, Analyst (Green Street Advisors)

Okay. So still not close but advanced a little further?

John Powers, Senior Vice President, Development (Boston Properties)

Yes, advanced further; it'll take more time — multi-years.

Daniel Ismail, Analyst (Green Street Advisors)

Could state and local budget pressures create opportunities for you — e.g., Santa Monica Business Park or others?

Owen Thomas, Chief Executive Officer

It's an interesting question. It could create opportunities in different areas. The MTA example could be one of them. Too early to say exactly what those will be, but we don't disagree with the concept that other opportunities could present themselves.

Operator, Operator

Your next question comes from the line of Nick Yulico with Scotiabank.

Nick Yulico, Analyst (Scotiabank)

Thanks. Any update on sublease space in your portfolio — real-time pickup in sublease space?

Doug Linde, President

The only immediate pickup has been in San Francisco where some organizations planned to sublet space and brought it to market more quickly due to COVID-19. We haven't seen significant volumes in other markets yet. The lack of physical tours likely means tenants are not in a rush to put a lot of space on the market yet.

Nick Yulico, Analyst (Scotiabank)

Any update on Macy's at 680 Folsom and their sublease plans?

Owen Thomas, Chief Executive Officer

We checked in and there's no sublease yet for the Macy's.com space at 680 Folsom. The space was put on the market pre-COVID when they decided to move people to different locations. That space should still sublet; it's a great space. How the economics land relative to Macy's prior expectations is hard to predict.

Operator, Operator

And there are no further questions at this time. Would you like to continue with closing remarks?

Owen Thomas, Chief Executive Officer

Thank you very much operator. Our call is pushing two hours. I'm going to minimize my closing remarks and simply thank everyone for staying with us for all these minutes and for your interest in Boston Properties. Thank you everyone.

Operator, Operator

This concludes today's Boston Properties conference call. Thank you again for attending and have a good day.