Welcome to Washington Real Estate Investment Trust Second Quarter Earnings Conference Call. As a reminder, today's call is being recorded. Before turning the call over to the company's President and Chief Executive Officer, Paul McDermott; Amy Hopkins, Vice President of Investor Relations, will provide some introductory information. Amy, please go ahead.

Thank you and good morning, everyone. Before we begin, please note that forward-looking statements may be made during this discussion. Such statements involve known and unknown risks and uncertainties, including those related to the effects of the ongoing COVID-19 pandemic which may cause actual results to differ materially, and we undertake no duty to update them as actual events unfold. We refer to certain of these risks in our SEC filings. Reconciliations of the GAAP and non-GAAP financial measures discussed in this call are available in our most recent earnings press release and financial supplement, which were distributed yesterday and can be found on the Investor Relations page of our website. Participating in today's call with me will be Paul McDermott, President and Chief Executive Officer; Steve Riffee, Executive Vice President and Chief Financial Officer; Taryn Fielder, Senior Vice President and General Counsel; Drew Hammond, Vice President, Chief Accounting Officer and Treasurer; and Grant Montgomery, Vice President and Head of Research. Now, I'd like to turn the call over to Paul.

Thank you, Amy and good morning everyone. Thanks for joining us on our second quarter earnings call. We delivered strong second quarter financial performance against the backdrop of the ongoing economic disruption, highlighting the resilience of our portfolio. As the local economy gradually reopens, our primary focus continues to center around the health and safety of our residents, tenants, employees and their families. Over the past several months WashREIT created and implemented a comprehensive reentry plan to mitigate the spread of COVID-19 at our properties. We connected with our office tenants through personalized outreach to understand their needs and discuss our approach, making sure that they are comfortable with the protocols that we have implemented. We are fortunate to have not experienced material bad debts to date alongside reentry planning, we've been diligently working with tenants who have been financially impacted by the economic shutdown to discuss and finalize deferral arrangements. As of today, we are pleased to report that we have substantially completed that effort. There is no doubt that these are trying times. However, we have adjusted to the new demands of today's operating environment, and have taken swift and deliberate action to protect and support our residents and tenants. I could not be more proud of the dedication shown by the WashREIT team during this challenging period. Furthermore, these times have highlighted the importance of social fairness, equity and justice. Our company has responded with a refocused commitment to improving diversity, inclusion and belonging within our company and our community, creating long lasting, positive change. As we enter the second half of the year, we are increasingly confident in the resilience of our region and our portfolio. Our Washington metro focus provides economic stability compared to other major metropolitan areas. This is true both historically and during the current downturn. The Washington Metro Area continues to experience fewer job losses since the pandemic hit than other large metro areas in the US overall. Washington Metro employment declined 9% during the second quarter compared to over 11% for the US overall. A recent analysis completed by Delta Associates determined that the Washington multifamily market is better positioned to weather a down cycle than nearly all the nation's other large metropolitan areas. This is due in large part to the presence of the federal government and the corresponding stability of the professional business services sector, which together comprised 46% of the DC metro economy, compared to 25% to the 30 largest metro areas. Furthermore, our professional business services sector is more heavily weighted towards the professional, scientific and technical subsector, which has fared very well during this crisis and generated year-over-year job growth of 1.6% in June. This sector was expected to bounce back much quicker than other sectors and continues to be the primary private job creation source in the region over the long term, according to Delta Associates. Unsurprisingly, the federal government sector has been the least negatively impacted by the pandemic thus far. Many federal agencies actually received a funding boost, which could lead to additional hiring, especially at critical agencies such as the FDA, NIH, and others. Government contractors have seen $1.2 billion in contracts awarded year-to-date that are directly tied to the COVID-19 response according to JLL. Employment trends for the regional information sector reflect limited disruption and major tech industry investments, including Amazon's HQ2 campus construction and Virginia Tech's Potomac Yard campus continue without disruption. The Washington Metro Area led the country in Q2 leasing activity, driven by 1.6 million square feet of positive net absorption in Northern Virginia. Despite the stay-at-home orders, office leasing activity in Northern Virginia declined only 12% in the second quarter compared to the five-year trailing quarterly average according to CBRE. Over half of the leasing activity in Northern Virginia was driven by government contracting services. Government contractor awards are up 4% year-over-year due to the government's response to COVID-19. Tech and government contracting drove 60% of our office leasing volume in Northern Virginia last year, and looking forward, we expect demand from these sectors to continue to grow. Unsurprisingly, Washington DC office leasing activity has slowed more than it did in Northern Virginia, due to lower momentum leading into this downturn. However, the impact of local job losses for office-using sectors in DC has been limited, with no office-using sector being more than 5% of the total workforce during the second quarter according to BLS data. Additionally, the number of tours increased substantially in July. We expect our DC office portfolio to act defensively against this backdrop. Maryland, Virginia, and DC each took a phased approach to reentry beginning at the end of May. DC and Maryland are currently in phase two with limited re-openings of shops and restaurants and Virginia is in phase three, which has allowed all retail and public services to resume with social distancing measures in place. With the implementation of phased reentry protocols, we are seeing increased activity across all of our asset classes. Multifamily touring and application volumes have increased threefold from early April for both our same-store and non-same-store assets and same-store applications are trending above prior year levels. Following the closure of our leasing office, we took advantage of our virtual touring capabilities and continued leasing in April and May, and once social distancing requirements were eased locally, we began offering self-guided tours in June. Just recently we have opened our multifamily amenities in common areas and started offering in-person tours with additional safety precautions. Lease-up of Trove continues to progress and is expected to reach stabilized occupancy in the fourth quarter of 2021. While the economic shutdown has impacted the original expected pace of lease-up, we averaged approximately 16 leases per month during the second quarter, and expect to reach break-even levels of occupancy by year end, followed by steady quarterly NOI growth thereafter. Our total lease rate growth for the quarter was a positive 40 basis points, which combined with our sequential decline in ending occupancy of less than 80 basis points for our stabilized properties demonstrates the resilience of our value-oriented multifamily portfolio. Lease rates for our non-same-store portfolio, which includes strong performance from our Class B suburban communities grew over 2% during the quarter on a blended basis, comprised of 2.6% renewal lease rate growth and 1% new lease rate growth. Both our suburban garden-style apartments offer larger unit sizes, open-air hallways, and less density compared to mid or high rise buildings, allowing us to participate in the increasing demands for these qualities over the near term in the wake of the pandemic. Over the long term, the expansion of our multifamily portfolio to growing suburban markets in the DC metro suburbs positions us to capture an increasing share of regional household formation and job growth. We began to experience an uptick in utilization at all of our office properties towards the end of the quarter, most notably at our Northern Virginia office assets, as Northern Virginia is now on phase three of reopening. In preparation for the repopulation of our properties, we prepared a detailed property reentry plan that emphasizes employee and tenant health and well-being as top priority. We have reached out to our tenants to discuss the plans and protocols that we have put in place. The feedback regarding our collaborative approach has been very positive, and in many cases, we've strengthened our relationships with our tenants. We've upgraded our office buildings to MERV 13 ventilation filters, which is the standard for superior commercial office buildings, installed directional safety practice signage, contactless opening technology and proactive shield around front office desks in addition to a variety of other measures taken to facilitate safe reentry. We have also established enhanced cleaning protocols that include more frequent cleaning and the use of electrical static cleaning machines, and have developed elevator and common area safety protocols designed to mitigate the risk of virus transmission. Our tenant experience app began rolling out in January, keeping us connected with many of our tenants despite working remotely. The concierge program has continued to provide a wide range of on-demand services and partnering with local vendors and farmers to provide grocery and other essential deliveries. We couldn't have picked a more critical time to roll out this technology to assist our tenants both professionally and personally during this challenging time. Our Space Plus program has allowed us to meet changing tenant needs more efficiently with flexible lease terms. Our spaces offer tenants quick movements, all-in pricing, flexibility for short- and long-term planning, as well as privacy and independence. Not just for brand building, but now more importantly than ever for control over the health of the tenant office. All of our Space Plus tenants have control over their private space, which is becoming increasingly important in this COVID-19 environment. In an environment where many tenants are moving slower on larger and longer requirements, flexibility is key and Space Plus is playing a crucial role in meeting tenant needs. We entered 2020 expecting to see sequential quarterly growth driven by renovation-led value creation and commercial lease commencement. While the pandemic has disrupted the timing of that growth, our key growth drivers remain intact. In multifamily, we have positioned our portfolio to retain the growth drivers that we may capture that value for our shareholders as normal activities and opportunities return. We've allocated capital to Class B properties in sub-markets with wider than average gaps between Class A and Class B rents and limited competitive supply, which sets us up for a quick recovery and preserves the value-add rent growth from renovations for the future. Through our 2019 strategic allocation, we increased our renovation pipeline to over 3000 units, which represents five years of growth at compelling return on costs. While most of our portfolio does not directly compete with new supply, deliveries in Northern Virginia, where 80% of our multifamily portfolio is located, are expected to decrease by 24% over the next 12 months. Furthermore, the pandemic will likely cause delays in projected construction starts in the second half of 2020, which will reduce the number of deliveries in 2022 and into 2023. Overall, there is an acute housing shortage in the Washington Metro region. Our in-house research affirms our confidence that growth opportunities are still ahead of us. We also have a tremendous opportunity for growth, having substantially made the capital outlay for Trove, with phase two delivering in a couple of months. While the disruption certainly changed the initial pace of lease-up, we expect to reach a break-even occupancy level in the fourth quarter and thereafter achieve quarterly sequential NOI growth through stabilization in 2021 and into 2022. In the office portfolio, our embedded growth is comprised of future commencement for high-quality space at value-oriented pricing and move-in ready space with flexible lease terms. We expect signed leases to continue to occupy and we expect to benefit from higher occupancy in the fourth quarter and throughout 2021. Many of our speculative leasing opportunities for which we had excellent momentum before the pandemic hit are located in our best assets, including Watergate 600, Arlington Tower, and Silverline Centre, as well as our Space Plus program, which is positioned well to meet demand in these early cautious transition months. While physical touring did pause, it is now resuming, although decision-making remains slower than normal while reentry is being worked through by prospective tenants. We believe those leasing opportunities are a matter of when, not if they will commence. And with that, I'd like to turn it over to Steve to review our collection performance, balance sheet, second quarter results, and our outlook.

Thank you, Paul and good morning everyone. I'll start off by discussing our cash collection performance before reviewing our second quarter results and outlook for the remainder of 2020. Our multifamily collections continue to be very strong, which is a testament to the resilience of our sub markets, the industry mix and lower average rent to income ratio of 26%. We collected over 99% of cash rents during the second quarter and over 99% of contractual rents. Our rent collections through the first three weeks of July have been strong also. While we are offering deferred payment programs to residents who've been financially impacted by the pandemic, today deferrals have been relatively low, representing less than 0.4% of total monthly rental income on average. Our monthly multifamily collection performance continues to track above national averages. We collected 99% of cash rents in June compared to 96% per NMHC. We attribute outperformance in part to high exposure to industries that have outperformed during this crisis and lower relative exposure to underperforming industries. The impact of COVID-19 on the Washington Metro market has been contained primarily to three sectors, representing approximately 75% of Washington Metro job losses, while the impact has been more broadly spread across a wider range of sectors in the US overall, as those same three sectors represented less than 60% of total losses nationally, through June. Thus, the US overall is experiencing job losses that are spread across more industries than our region. The Washington Metro market's relative strength reflects the stability and business revenue provided by technology and federal contracting. We track the industries our residents are employed in and our exposure is most heavily weighted to the most resilient economic sectors and likewise less weighted to the industries that have been most impacted, which has resulted in very high collection rates and stable cash flows. Turning to office, we collected 97% of cash rents during the second quarter and over 99% of contractual rents, which excludes rent that has been deferred. As of July 22, our collections for July are in line with the same period in June. Similar to our multifamily resident industry mix, our office tenants are relatively weighted to the stronger economic sectors than the US overall, which has helped us experience limited bad debt thus far. We've agreed to defer $1.2 million of rent for office tenants and we expect to collect over 85% of that deferred rent by year-end 2021, with the balance thereafter. We believe our efforts to substantially de-risk our portfolio by selling all single-tenant office assets and 75% of our prior retail exposure, including all the power centers and reallocating that capital to our multifamily portfolio is certainly proving its value in these economic times. Retail now comprises just 6% of NOI. And while retail tenants have struggled the most, we collected 72% of retail rents in the second quarter. Excluding deferred rent, our collection rate was approximately 90% during the second quarter and 91% during the first three weeks of July. Year-to-date, we've only incurred approximately $770,000 of bad debt expense related to retail tenants and $638,000 of that was related to COVID-19. We will continue to monitor their strength and ability as the economy progresses. We have agreed to defer partially $1 million of rent for retail tenants and we expect to collect over 50% of that rent by year-end 2021. This assumes that our region continues to gradually reopen through year-end. Today we've not incurred material bad debts related to COVID-19. Overall, we've only deferred a small portion of rent, and the expected cash NOI impact is less than a penny per share through year-end 2021. While we have possibly experienced the most disruptive part of the pandemic, uncertainty regarding its duration and future impact remains. We currently believe the second quarter represented the most challenging quarter. However, future and ongoing economic disruption could result in bad debt greater than what we've incurred today. We will continue to monitor future developments and proactively address them as they occur. Turning to the balance sheet, we have a strong liquidity position with approximately $530 million of available liquidity as of June 30, and no significant capital commitments for the balance of the year and the remaining maturities in 2020. As of June 30, our net debt to EBITDA ratio was 6.1 times at the lower end of our targeted range. We prepaid our $250 million, 4.95% bonds in early April. We can go to the capital market to further term out debt when it makes sense to do so. We expect to remain well within our bank and bond covenants, and have access to our mostly undrawn line of credit if needed. Based on our current projections, we have reduced 2020 assumed capital expenditures for the year by approximately $40 million compared to our initial 2020 guidance. Included in this amount is almost $30 million of lower assumed capital expenditures and $11 million in less development spending, because we no longer expect to break ground on the Riverside development this year. Our capital expenditure reductions include non-essential building improvements, tenant improvements, and leasing costs perspective of leasing, as well as lower multifamily renovation CapEx. Our future multifamily renovation pipeline remains intact, although we are suspending the program until after the market disruptions subside. We plan to allocate the renovation capital at a later date when the market allows for rent increases to deliver the appropriate ROI. As we navigate through the second half of the year, we will continue to explore opportunities to further reduce non-essential CapEx spending to further bolster our liquidity. Looking forward, we feel confident in our ability to execute on our short-term goals, providing payment flexibility to residents and tenants while retaining the operational flexibility necessary to execute our long-term goals. As Paul mentioned, we posted a solid second quarter despite the challenging operating environment. I will discuss those results before addressing our future outlook. We reported core FFO of $0.39 per diluted share. Overall same-store NOI declined 4.5% year-over-year on a GAAP basis and 3.5% on a cash basis due to a same store office NOI wide decline of 4.8% on a GAAP basis in 3.7% on a cash basis, as well as bad debt expenses related to COVID-19 of approximately $720,000. The same-store office NOI decline was driven by expected decline in parking income, as well as an increase in bad debt expenses related to COVID-19. Excluding the decline in parking income and the increase in bad debt expenses compared to our prior 2020 expectations, same-store office NOI would have increased slightly on a year-over-year basis. Our multifamily same-store NOI increased by 0.7% year-over-year on a GAAP basis and 0.8% year-over-year on a cash basis. The company achieved 40 basis points of blended year-over-year lease rate growth driven by strong performance from our suburban assets in our non-same-store portfolio. Same-store new lease rates declined by just under 4% while renewal rates increased by over 1.4%, reflecting blended lease rate decline of approximately 40 basis points. Non-same-store lease rates grew over 2% during the quarter on a blended basis, comprised of 2.6% renewal lease rate growth, and 1% new lease rate growth. Our same-store multifamily portfolio is currently partially 94% occupied and our total stabilized portfolio is over 94% occupied and 97% leased. Same-store NOI decreased in our residual retail centers which we report as other at 24.6% on the GAAP basis and 22.1% on a cash basis, driven primarily by higher credit losses, which included amounts due from tenants impacted by COVID-19 being likely not collectible and lower recoveries compared to the prior year period. The combined write-off impact of COVID-19 in the quarter was approximately $560,000, which included straight-line rents and lease intangibles. The cash impact was approximately $335,000. Turning to leasing activity for the quarter, while velocity and touring were hit during the economic shutdown, we signed approximately 20,000 square feet of new office leases and 15,000 square feet of office renewals in the second quarter. We achieved rental rate increases of 0.8% on a cash basis and negative 2.3% on a cash basis for new leases and 19.4% on a GAAP basis and 1.9% on a cash basis for renewals. The impact of operational cost savings initiatives reduced operating costs by approximately $848,000 during the second quarter net of tenant recoveries and expenses related to preparing our office buildings for reentry. Second quarter operational cost savings primarily included reduced utility consumption, lower RNM, security expenses, and lower tenant event and amenity expenses relative to our original forecast. Now, I'd like to discuss our financial outlook. We are now four months into the pandemic. While we're not in a position to predict the ongoing magnitude of the pandemic or durability of the recovery, we believe that we were able to forecast, subject to certain caveats, the impact of COVID-19 for the balance of 2020 on our NOI and interest expense, exclusive of future bad debt. Today, I will describe the impacts that we're experiencing on various financial performance metrics. Our expectations are based on the assumption that the gradual reopening will continue uninterrupted through year-end. Multifamily occupancy dipped to 94% in June and has remained stable through July. With the easing of confinement measures and increased staffing in our leasing offices, we've seen touring and application volumes increase substantially. Total application volumes have increased by three times from early April lows and same-store applications have trended over 30% above prior levels since the end of May. We expect the continual increase in leasing volume to drive a gradual increase in occupancy to 95% by year-end. We did not increase rents on 12 plus month renewals for the second quarter, which impacted our NOI growth as we normally would be achieving significant rent increases during the strong second quarter leasing season, especially since we had such strong lease rate growth in March. As a result, we experienced an increase in renewal retention of 60%. While this higher renewal retention has helped us to maintain occupancy and preserve our seasonal rental during these uncertain times, it did not fully offset the impact of occupancy and lower new leasing volumes. Lower new and renewal lease rate growth as well as lower move-in and other fee income were partially offset by operating expense initiatives during the second quarter. The majority of the expected full-year impact of operating expense savings related to COVID-19 was recognized in the second quarter. Excluding the impact of bad debt, we expect the impact of COVID-19 on our multifamily NOI to translate to a reduction of approximately $0.03 per share relative to our initial core FFO guidance for 2020. Overall, we have previously expected significant multifamily growth in 2020, and that growth is likely now going to be deferred until 2021 and thereafter. As Paul said, we have a five-year pipeline of value-add renovations once conditions improve and it is appropriate to resume such growth. We still expect future NOI growth from Trove, which I will cover next. Trove is on pace to deliver phase two in the fourth quarter. Our lease-up had just begun when social distancing measures drew onsite touring to a halt. However, we've been successfully converting virtual tours into signed leases. While virtual touring is having continued success, we expect lease-up to take longer than we had originally guided, and we are likely to incur a loss of between $600,000 to $700,000 in 2020, translating to a negative impact on core FFO relative to our initial guidance of approximately $0.01 per share. As Paul also said, we expect to reach breakeven occupancy near this year's end and to reach stabilization in the fourth quarter of 2021. Therefore, Trove should not only provide substantial growth in 2021, but also further year-over-year growth in 2022. Now moving on to commercial, tenant improvement build-outs for near-term lease commitments are expected to continue uninterrupted. We have over 55,000 square feet representing approximately 150 basis points of future increased occupancy of signed leases that have not yet been commenced. Although physical tours had stopped, they've resumed towards the end of the quarter and have substantially increased through July to just below pre-COVID-19 levels. Overall, decision-making has been slower. As the pace of phase three reentry has in many cases allowed prospective tenants more time. Additionally, we're in lease extension negotiations with a handful of tenants who were previously expected to vacate. Our previous revenue expectations for 2020 included speculative office lease commencements that have been impacted by the current economic disruption and are now likely to be substantially executed in 2021 for leases not signed as of today. The majority of this leasing was expected to occur during the third and fourth quarters and high-quality spaces across Watergate 600, Silverline Centre, Arlington Tower, and Space Plus leasing momentum had been the strongest. We expect the impact of lower speculative leasing to be only partially offset by higher revenue from lease renewals and extensions. We have minimal commercial lease expirations for the remainder of 2020, limiting the downside risk of our internal leasing estimates. Office lease expirations represent approximately 4% of our office revenues and less than 2% of our overall revenue. Many tenants are opting to delay long-term decisions, and short-term lease extensions and renewal activity could transpire as the year progresses. Parking revenues are down as people are not driving to their offices. Our current projection is that parking revenue will decline by over $1.3 million over the remainder of the year. However, that estimate could change if the shutdown is more protracted—we've assumed likewise, once the economy returns, we could experience an increase in parking income from higher utilization, as tenant transportation preferences shift away from public transportation. We're already seeing signs of increased transit parking at many of our properties. Currently, we are assuming that we may achieve additional operating cost savings of approximately $750,000 for the balance of the year, assuming a gradual increase in office utilization over the remainder of the year. This amount is net of expenses associated with preparing our buildings for reentry and the cost savings that we expect to pass along to our tenants. Excluding future bad debt, we expect the impact of COVID-19 in our office and other NOI to translate to a negative impact of approximately $0.08 per share relative to our initial core FFO guidance for 2020. Most of that impact will occur during the second half of the year, as we previously expected a ramp-up in that timeframe that we now expect to occur throughout 2021, offsetting a part of the negative impact of COVID-19 on our businesses with a reduction in our expectations for interest expense by $0.04 per share relative to our initial core FFO 2020 guidance, excluding any future re-financings to further term out debt. On a combined basis, we expect the impact of COVID-19 on NOI and interest expense to translate to a negative impact of approximately $0.08 per share relative to our initial guidance for 2020. We're not updating other guidance assumptions at this time. The majority of the impact will occur during the second half of the year as we previously expected a ramp-up in that timeframe that we now have expected to incur throughout 2021. Overall, we're actually slightly ahead of our original budget for the first six months of 2020, despite going through a historically challenging four-month period. As we've just explained, much of the growth we've planned for the second half of 2020 appears to be deferred, but we believe still impactful for the future. And with that, I will now turn the call back over to Paul.

Thanks Steve. In closing, while we are operating in a challenging environment, we're confident in our ability to effectively manage through this period of uncertainty while preserving the embedded growth of our assets. Our value-oriented portfolio has demonstrated resilience as we absorb the near-term impact, which is further underscored by our strong rent collection performance and the proven stability of the Washington Metro economy. Furthermore, our sustained multifamily lease rate growth and stabilizing occupancy trends highlight the value of our research-driven capital allocation strategy, which has led us to invest in well-located residential units that will be in the path of growth once the economy resumes. Now, we would like to open the call to answer your questions.

At this time, we will be conducting a question-and-answer session. Our first question comes from Antony Paolone with JP Morgan. Please proceed with your question.

Thank you and good morning. My first question is with regards to the multifamily portfolio. Can you give us a sense as to what's happened to market rents in the last say a month or two, where your new lease spreads are trending right now?

Tony, it's Paul, I would say market rents right now, I mean, we're just in the overall portfolio, we're seeing concessions rise in the market, but not materially. The market has become more concessionary as properties kind of open up. I'm just giving an example throughout our portfolio depending on the respective sub market, we've seen concessions range from $250 to one month. The largest concessions we're seeing are really at Trove, at that the markets move from one month to two months free. We're also offering up to three months for a 24-month deal to Trove. I don't see that materially changing in the future in terms of spreads.

Yeah, I would say, Tony, we did pretty well in the second quarter. We are – on renewals, we've now started in August, increasing rates on renewals for 12 months plus leases that we were holding flat. We're doing okay on new lease rates in recent weeks. Although I will say for us, we're going to emphasize holding occupancy and keeping our leased maturity ladder intact so we might have a little bit of trade-off on new leases. So maybe in the most current month, they blend to slightly negative of new and renewals, but we feel they're holding very well.

Okay. And then on the office side, any – I know there's not a ton of volume, but just any color on what's happening there with net effective rents or how those tenants that may be in the market are behaving in terms of what they'd like to see to get a deal done.

Tony, I wish I had a better fact pattern to really articulate the second quarter. I would say overall what we're seeing in the market in terms of leasing is a lot of short-term, a lot of two to three-year deals with extensions. Definitely seeing a bit of an outmigration from co-working. I think in DC the activity probably dropped 50% in the second quarter in terms of leasing volume. Thus, I can't really provide you a great track record there. I think the thing that we were probably most impressed about in this region was Northern Virginia leaving the US with 1.6 million square feet absorbed. I would also comment that in July, both in downtown and in Northern Virginia, our traffic and our velocity picked up notably. We hope that a lot of that will crystallize for us; realistically, it's probably post-Labor Day. That's what we're getting from a lot of our tenants when we think there's going to be a lot more decision-makers waiting back in, but we're optimistic about the balance of the year.

Okay, thanks. And then just last one again, I know it's early, but just anything on the investment sale side or any commentary on early indications of price discovery or anything being brought to market?

Let me split that. I'll talk both about office and multifamily, Tony. On the office side, very low volume, obviously. Interestingly, I've seen some single-tenant credit deals where we see some investors trying to play the spread to fixed income, seeing a lot of recaps versus selling into this market right now. The key for investors and lenders in the capital markets execution has to be there, but is just the weighted average lease term. What we're hearing both from lenders and equity folks that are looking for seven-plus years on that. I think the big challenge right now, we haven't really seen a lot of multi-tenanted buildings come to the market. It is just the lack of traditional buyers. I think the good thing I would observe over the last 90 days, especially talking with the lenders, is there hasn't been any motivation on the lenders' part to take any of these assets back. They are working with deferral plans for their borrowers to try to do some type of bridge. Multifamily is a different story, obviously, with Fannie and Freddie being aggressively open for business. I think the biggest challenge, and we have seen definitely more multifamily deals hit the market in the last 60 days. Talking to folks, a definite notable pickup in BOV activity, probably with the top three brokerage firms in this region. The feedback we get is that the first two years are the challenging underwriting. People are always trying to make up for those first two years. Many are incorporating, I'd say, 2023, '24, '25 rent spikes between 5% and 8%. The convergence over the last 30 to 60 days has been around like a five cap. We've seen old deals that were pre-COVID being dusted off and re-looked at, seeing some small off-market activity. The debt some of these folks are getting is sub-three. Investors are clipping an eight. In DC, the biggest challenge will be turnover and product as you're aware, Tony, we have to go through a TOPA process. You can't submit TOPA until October 12, which is where the Mayor extended the state of emergency, so that's really put – tapped the brakes there. In Northern Virginia, we're not seeing any slowdown in appetites; people with investors still looking at that long-term debt changing the footprint, but there'll be a lot more product moving to the market post-Labor Day.

Okay, great. That's all I had, great color, thank you.

Thanks, Tony.

Our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.

Great, thanks. Good morning. Just a follow-up on the last question, do you think, Paul, that the fallout from the pandemic ultimately increases the spread between office cap rates that you'll be selling at and the multifamily cap rates that you'll be buying?

I think that – look, like I said earlier, Blaine, I think to monetize assets in this environment, especially the office environment, people are – both lenders and investors are going to be looking for duration. I think we're fortunate to have that at a number of our assets if we choose to do that execution. I do think when the dust does settle, you will definitely be seeing more activity in the multifamily space. There's still a lot of capital out there that was on the sidelines prior to COVID-19. In the last 30 days, I've seen activity and pricing people definitely becoming a little bit more aggressive. Like I said to Tony, it's really the separation gate; it’s how you're underwriting years one and two in multifamily. I would expect it to be, again, with the assistance of Fannie and Freddie, to see a competitive fall for multifamily product in the region.

Yeah, that's helpful. And clearly your retail and other allocation has decreased a lot over the years down to I think 6% of NOI now, but it continues to be a little bit of a drag on the rest of the portfolio and results seem to be getting worse as COVID disrupts those businesses even more. Can you just talk about your plan for that portfolio? Does it make sense to try to dispose of the rest as soon as possible, or do you think it's best to hold on to what you have in the hopes that you can backfill any sort of move-outs that you have and maybe get better pricing after the crisis?

Hey, Blaine, it's Steve. I'll start, and I think Paul will just tag team this. This 6%—we've had less than a penny share of bad debts. When we look at what we've contractually looked at, we've collected 90%, so it's really not that big a drag and some of our best retail assets. And there's probably not much of a market right now; I'll let Paul comment on that in terms of trading retail assets. But these assets we kept because they also have the ability to be eventually converted into multifamily and other mixed uses. So there's more than one path to some of those assets. Paul, I don't know if you want to add anything to that.

No, I'd say that the thing that's probably changed, Blaine, is obviously a pretty small pipeline of retail investors out there right now. We're obviously sensitive to dilution. First and foremost, we're happy we got rid of our riskiest assets with the most lease turnover last year. As Steve said, over half of the assets inside of that 6% have redevelopment potential, i.e., Randolph, Montrose, Tacoma, Chevy Chase Metro, and very good locations. We're comfortable with that. We're working pretty well with our retail tenants right now and I'm comfortable with some of the programs we've implemented with them, but also due to the quality of the locations if we did have some move-outs, I'm also equally comfortable with our ability to backfill the space. So right now, I think retail, given that it's only 6%, is a manageable situation.

All right, great, thanks, guys.

Thanks, Blaine.

Our next question comes from the line of Dave Rogers with Baird. Please proceed with your question.

Yeah. Good morning, guys. Maybe two on office. The first is, it sounds like Northern Virginia is recovering a little bit faster. By parking or any of your internal systems, are you able to determine what percentage of employees are kind of back in the office or where utilization has gone to? And then maybe a second question on office; what's been your experience with Space Plus in this current environment with collections, renewal, if you have any that are far enough along new demand for that product? Your thoughts around that will be helpful. Thanks.

Dave, I'll take the first shot at that and Steve can jump in. First, in terms of Northern Virginia and occupancy levels: Northern Virginia, we obviously track activity through our flops. I think Northern Virginia got up over 20% first. We've seen that dial back a little bit; I attribute a lot of that to we're in the month of August, candidly, and I think some folks are just kicking the can until past Labor Day. DC is a little bit different; DC probably peaked in the 12% to 15%. We think that that is probably going to remain at a lower occupancy level than Northern Virginia. I'd say the activity and I'm comfortable saying that people coming back, we want that to translate into leasing activity. Two of the three assets that we're focusing on are Arlington Tower and Silverline Centre, some of our best assets with some of our best space. So I think we're optimistic that will turn into something post-Labor Day just in terms of execution. I believe the second part of your question was Space Plus; without a doubt, we've talked to a lot of tenant reps and many of the larger shops, both on the agency side and the tenant rep side here, definitely seeing a bit of an outmigration out of the co-working space; folks looking for their own identity. As I made a comment earlier on leasing, Space Plus is kind of a slipper fit for people looking for two to three-year terms with flexible leasing. They also get to create their own identity and control the protocols in their own space. We've actually seen—the first deal we did at 2000 M Street was a Space Plus execution that I believe was coming out of WeWork, and we expect that trend to continue. We haven't had any—Steve, asking, I don't believe we've had any real material rent hiccups in the Space Plus space.

Not at all, let me—no credit. I mean, I think you've covered just about everything. Paul. The key words are flexibility. People are slow to make longer-term decisions, so Space Plus fits it really well. It fits for those that are worried about the health of the environment that they've been in, so they can have their own independent suite. It can be healthy and they don't have to interact like in co-working with others. It allows people who have longer-term needs to get started on the short-term basis.

Okay, that's helpful. And then maybe just one on the multifamily side: the 3000 units over five years. I understand taking a pause here, but as you talked about starting to push rents a little bit here into August, have you guys talked about the confidence in the broader economy with not having as many deliveries maybe over the next couple of years? When will we expect you to see more aggressive on the apartment renovations? It would seem like that trade-up today would make sense, especially as you get a little bit more vacancy in the apartment portfolio to continue through with that product. What would you want to see to get more aggressive there and get back on track?

Well, I'd say, Dave, as you've heard from us before, the whole renovation pipeline is based on the affordability gap. We still see a good affordability gap, A and B. It's not like there's been a wide divergence, like A has come in and B has dropped precipitously. We've seen them kind of move lockstep. I'll defer to Grant Montgomery, our head of research, but we're going to evaluate it on a sub-market by sub-market basis. I think, as you're aware, we had achieved mid-teens return on cost metrics. We're going to reevaluate that—is that still appropriate in this environment? What type of movements are we seeing, particularly in the B space? We've been pretty pleased with the B space and how it's performed even on—not only on the collections, but on some rent movements, both on the renewal side of it. We're doing it on a monthly basis right now. I would tell you that if we saw an opportunity where we thought the affordability gap was intact, and we could achieve a suitable return on cost, we would move forward in the sub-market. Again, I'll defer to Grant; Grant, if you had anything you wanted to add there.

No, Paul, I think you said it well. I think we have seen very similar paths with A and B; through April, it’s really been within 30, 40 basis points in terms of their tracking, in terms of overall rent growth. That mid 20% rent gap that we have between A and B region-wide is still intact, and it really speaks to how B has held up during this time. The exposure of our residents to the stronger industries, which we've talked about in both last quarter and this, has impacted the strength of our Class B given the job losses in our region that were primarily concentrated in a couple of three industries, particularly retail and leisure and hospitality, which comprise only 60% of the job losses. But we only have about 13.5% exposure to those industries. That's really spoken to the strength of our Class B in light of what's going on broadly and has really held that up quite well, relative to what's going on the market.

The only other thing I'd add, Dave, is we've told you this before. We're very sensitive to the income to rent metric, and our average renter is around 26%. We want to keep that intact; we think that's important, given the economic disruption we're going through. I'm comfortable with that. We'll monitor that as we kind of move forward and look at reactivating our renovation program.

I appreciate all the detailed color guys, thanks.

Thanks, Dave.

Our next question comes from Bill Crow with Raymond James. Please go ahead with your question.

Hey, good morning, folks. Paul, on the multifamily front, if we see a big reduction in the unemployment benefits, would you anticipate your collection rate to decline in the next few quarters?

Bill?

Bill, this is Steve. I'll start it and Grant may be able to help out and follow as well. One of the things that we're really pleased with obviously, we've collected 99% of our rents, and there's a lot of information in our materials that we've put out. We’ve met with investors about the strength of the sectors that our residents are employed by and how they've held up so well on a relative basis to the US overall. One of the things that we noticed while looking at recent data, Grant, maybe you can comment a little further on it, but broadly speaking in terms of the large metro areas, the DC rent income is better than, say, New York or Los Angeles or the Bay Area. The CARES Act is much less of a burden here in DC, and that's not affecting many of our tenants as we're collecting 99%. It speaks to our region. I don't know if Grant wants to add a little about that or Paul.

I can just add to that, to echo what I said in a way, the way I answered the previous question: it really does get down to how our portfolio is somewhat insulated based on the employment distribution of our residents. Looking at it another way: within the Washington region, professional business services, government, and finance has on average declined less than 2.5% during the period we're going through, and those industries comprise approximately 60% of our tenant base in Class B. This really speaks to perhaps our Washington DC's Class B in particular; our Class B within Washington DC is somewhat different than the pressures that might occur in other markets, as Steve mentioned, that have higher rent-to-income ratios or alternatively a different employment base.

All right, thanks and one on office. I know it's early and I know one of the tenants are tied to the government in one way or another, but any buzz among the tenant reps that some of the CBD tenants might be looking for the suburbs, either to avoid mass transit or in reaction to some of the protest activities or anything like that?

Bill, I haven't seen that per se with an executed lease. I think that some folks just given the remote working paradigm we are going through right now, do think you're going to see a hub and spoke approach. I know a number of companies that have downtown presences are also going to be employing satellite offices in Virginia or in Maryland. I think we've definitely without question—we if you look at our same-store numbers in multifamily, I know you asked about office, but you look, people are definitely moving out there. I think folks want to live close to where they work. I'd anticipate some of that follow-on activity. I don't think there's some massive trend we're observing over the last 90 days, Bill, but that's clearly something we're going to keep our eye on moving forward.

That said, Bill, I'd say what—Grant, you can correct me if I'm wrong—around 70% of the job growth for the last period has been in Northern Virginia; it's been really the growth engine for our region for a while. Tech is a huge part of it, and the contracting and government contracting has increased that, hasn't decreased—many big tech firms that are moving in big ways, HQ2, Microsoft, Facebook, even Walmart Labs. There's just more job—there's just more growth coming in Northern Virginia.

Great, I appreciate the time and thanks.

Thanks, Bill.

As there are no further questions left in the queue now, I'd like to pass the floor back over to management for any closing remarks.

I would like to thank everyone again for taking time to join us this morning. We appreciate your continued support during these challenging times and look forward to talking with you over the coming weeks and months. Thank you and have a good day.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.