Ladies and gentlemen, thank you for standing by. And welcome to the Brandywine Realty Trust First Quarter 2020 Earnings Call. At this time, all participants' lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded [Operator Instructions]. I would now like to hand the conference over to your speaker today, Mr. Jerry Sweeney, President and CEO. Sir, you may begin.

Crystal, thank you very much. Good morning, everyone, and thank you for participating our first quarter 2020 earnings call. On today's call with me are George Johnstone, our Executive Vice President of Operations; Dan Palazzo, our Vice President and Chief Accounting Officer; and Tom Wirth, our Executive VP and Chief Financial Officer. Prior to beginning, certain information discussed during our call may constitute forward-looking statements within the meaning of the federal securities law. Although, we believe estimates reflected in these statements are based on reasonable assumptions, we cannot give assurances that the anticipated results will be achieved. For further information on factors that could impact our anticipated results, please reference our press release, as well as our most recent annual and quarterly reports we filed with the SEC. Well, this is no ordinary time, and first and foremost, all of us at Brandywine sincerely hope that you and yours are safe, healthy, and sheltering in places happily and as productively as possible. The pandemic has disrupted everything and presented a new landscape for everyone and every business. While the duration of the crisis remains unclear, we have assessed the crisis' impact on every element of our business, employee, tenant, vendor safety and security, a return to save building operations, construction schedule delays, forward leasing pipeline and renewal activity and of course, all the related financial implications. Additional details on these and other topics are outlined in our COVID insert found on Pages 1 to 13 of our supplemental package. Looking at the first quarter, we open the year strong. Our first quarter results were among the best we've had in recent years. We had excellent leasing activity, rental rate mark-to-market was almost 16% on a GAAP basis and 8% on a cash basis. Same-store numbers were tracking slightly ahead of…

Thank you, Jerry. I wanted to start off with a review of the net income. We came in at $7.9 million or $0.04 per diluted share. FFO totaled $61.4 million or $0.35 per diluted share. Some general observations of the first quarter, operating results were generally in line with our fourth quarter guidance. Operating expenses from lower G&A expense was a $1 million as compared to the forecast. That’s due to some timing of some compensation and professional fee recognition. Interest expense lower due to the lower rates that we had forecasted and slightly higher capitalization of interest. First quarter fixed charge and interest coverage ratios were 3.7% and 4.0%, respectively. Both metrics improved, as compared to the first quarter of 2019. Consistent with prior years, our first quarter annualized net debt-to-EBITDA did increase, as G&A increased to 6.7. It was primarily due to higher sequential G&A, cash used for our stock repurchase, and this is partially offset by nice proceeds from the sale of our non-core asset not included in our 2020 business plan. Looking at 2020 guidance. As Jerry outlined earlier, we're reducing the midpoint of our guidance by $0.05 per share. The combined $5 million reduction in spec revenue is $0.03 per share. In light of the increased economic concerns from our tenants we increased our forecasted reserves by $0.02 per share. We did that on a general basis, so not included in our revised same-store for now. The non-core asset sale in the first quarter also including the JV in the fourth quarter, which we didn't adjust guidance for, is about a $0.01 a share. We anticipate similar leasing slides at MAP our JV where we're 50% owner, and some slides as well at 40-40, which did open and get its CO in February of this…

Tom, thank you very much. We're sorry, we ran a few minutes over our normal time in our prepared comments, but that was important to frame out the thought process and the new business plan. With that, Crystal, we're happy to open up the floor for questions. And as we always do, we’d ask that in the interest of time, you limit yourself to one question and follow-up. Thank you.

Thank you. [Operator Instructions] And our first question comes from Jamie Feldman from Bank of America. Your line is open.

Thank you, and good morning. And thanks for all disclosure, it was really helpful, both on the April payments and then just the addition to the supplemental. So thanks for doing that. I guess my first question is on the insurance policy. Can you talk more about how that's going to work and how much it might cover? And is it per incident per building? Or is it a blanket coverage of $5 million just as much color as you can provide? And do you think it's something that's common across the sector?

Jamie, thanks for those comments. Our team really has been working very hard to make sure that we're able to present a high-level of transparency what we're thinking about. On the insurance policies, it's kind of a new territory for me as well. I think we kind of verified that the standard property policy doesn't really provide us the ability to get reimbursed. This coverage we think is somewhat unique, but I really can't speak to what other companies do. And it would provide us up to the $5 million of coverage in the aggregate. Because, we're not sure how insurance companies will respond to this, we excluded that from any reimbursement from that into our numbers. We certainly think that given the provisions of that policy, that where we've had a loss of revenue due to a force majeure events, where we had to shut down due to the virus and regulatory directive, that loss of revenue would be at least a claimable item under the policy. And when Tom and I were both talking about kind of the work stoppage number we have a couple of million dollars, we think that would certainly be something that we would be working with the insurance companies on. But, I really do think honestly, this is a whole new area for insurance companies and how everyone responds to this and whether, State institute reimbursement legislation for insurance companies remains to be seen. We've seen that in a couple different states. But, it's something that we're fortunate we had within as a rider in a supplement our policy. And, certainly to the extent we think we have a great direct path to get money, we will certainly do that.

Okay. Thank. So just to be clear, it's $5 million total revenue coverage if it plays out.

That's correct.

Okay. And then can you talk more about the 405 Colorado lease break? Was there any kind of break fee? And then is this typical, like for tenants to be able to walk for this kind of delay? And do you think -- and do you expect to litigate and how do you think this will play out? And is this another thing we need to be watching across the sector?

Yes. Look, I think this is not something you need to be watching across the sector. I think this is a very unique situation. I will tell you, it's the only time we've ever done a transaction where a tenant had a Right-to-Terminate, based on interim milestone date. We did that really, I think due to market pressures in Austin to meet market conditions, whether the landlords are willing to offer. And I think we assessed it -- it's 405 is only a 200,000 square foot building. They were 70,000 square foot tenant. We felt as though there was a huge pipeline of demand. We know this building architecturally and from a floor plate standpoint should resonate very, very well in the marketplace. When we agreed to do that, we had plenty of cushion built into the schedule to make sure that we had a good safety margin. As things turned out, the contractor did fall behind on meeting this interim milestone. We're still on track to deliver, as I mentioned, the project on schedule. And of course, we'll have a claim. But, right now, the focus is on getting the project delivered. We've reinvigorated our marketing efforts. We have a great team working on it. But from our perspective, Jamie, look, it's a disappointment, truly. It's a very, very unique set of circumstances. We've never done another development deal where we've had any kind of termination right by a tenant based on an interim milestone date. So, whereas we thought we made a good judgment going in, so it certainly turned out not to be the case as things evolved. And again, I think as we looked at it, it's not anywhere near a good news story for us, particularly given the dynamics of the marketplace today. But we do feel as though the pipeline will reemerge. And I frankly, also, one of the things we were happy about was our ability to get 3000 Market Street fully leased, just as we're starting the renovations. From an economic standpoint, it really helped buffer whatever impacts would be in 2021. So, I'm going to give you an example. The trade-off between that lease tenant and in Austin at 405 and 3000 Market, the 3000 Market Street tenant will generate more than $800,000 in additional cash NOI than we would have received from the 405 project. So, not a great circumstance. We had disclosed as soon as we got notification on it, but rest assured, it's a very, very unique situation for Brandywine, and I would expect throughout the rest of the real estate community as well.

Okay. Thank you.

Thank you. Our next question comes from Craig Mailman from KeyBanc Capital Markets. Your line is open.

Thanks, guys. Just one quick clarification on the 405. Did they even try to kind of retrade you on rent or anything? Or they just walk immediately?

No. There were discussions, Craig, where we worked to provide them a number of alternatives relative to short-term extensions to address their concern, and a few other things. And I think they just simply made the determination that it was in their interest to terminate the lease.

Got you. And then just more broadly on the leasing pipeline. That was helpful kind of going through it. Are any of those deals related to the commerce space as you guys are going back to the Macquarie Reliance? Could you just give us an update on kind of your thoughts on timing on that now, just given what's going on?

Great question. And I'll start off and George, maybe you can pick-up. Look, I think we've got a great pipeline on commerce. Again, the virus has clearly had an impact on how people -- what people are focusing on, but I actually thought when we did our pipeline assessment Craig, from a broader standpoint, that more than half of that pipeline is still active, is really we thought very, very positive. And to be moving towards lease executions in the next call it 90 to 120 days we think is really encouraging. And certainly we think with some of these states beginning the process of reopening, particularly Pennsylvania, and Austin, Texas, we feel like we're in pretty good shape to weather the -- at least the initial blow. On the Macquarie space, we did sign a 38,000 square foot lease during the quarter, with the life science company, which we're really excited to bring into our portfolio as an expansion tenant. So that was about 25% of the space. We have that another 20% of the space in advanced lease negotiations that we feel pretty good about. And then we have proposals outstanding for that another 10% of the space. So, as we sit today, we feel we're in a very good position on a little more than 50% of that space. And certainly, it's a top priority for our company, but I think we're pretty happy with the results thus far. And the pipeline, we'll have to spend obviously sometime not just on Macquarie space, but on the rest of the pipeline, making sure that we can convert those to fully executed leases. But, George, anything else you wanted to add on that?

Yes, sure. Thank you. The Reliance space, as you recall, comes back to us 12/31 of 20, it's a 141,000 square feet. We've got about 200,000 square feet of prospects in that pipeline that the Jerry detailed in his commentary. So, certainly, expect conversations to kind of pick-you, as things start to come back some level of normalcy. And, again, we've got plans in place for what we need to repurpose that space once we get it back from that tenant. And we feel good about the pipeline we have. I think it'll just come down to how quickly some of those companies can make their space need decisions.

That's helpful. Maybe I can slip one more in. Just Jerry, as you guys have discussions with JV partners on development, any -- and I know it's early, but just any change in pricing there or how you think those partners may want to kind of price the risk?

Yes. Great question, Craig. And, I think the big wild card on pricing right now is, it seems to be what the cost of debt will be. So, we haven't really sensed from our discussions with the equity partners on these larger development deals, whether that’s Schuylkill Yards or Broadmoor. I think there's still a high-level of conviction that these projects will be extremely successful. So I think we're all kind of working through as what we think that cost of debt will be. And those markets clearly are a little bit dislocated. So neither, Brandywine or the partner are prepared to make any concessions on pricing until we see what the underlying cost of debt will be. So, I think in a broader sense, we've really been very encouraged with the number of institutional partners, equity sources, private equity firms that have reached out to us proactively to talk to us about, some type of a venture structure on some existing assets, where we think the pricing is very much in line with what we would have expected. And also starting to talk about how you can go more on the offensive side of the equation, if we start just any kind of dislocation in pricing. So I think the big hang up on the investment market right now, whether you call it a cooling off period or is Barry Sternick mentioned a kind of short-term coma, we just got to wait for some of these debt markets to unfreeze. And I think that will have an impact on where pricing winds up. What we're seeing from a rental rate standpoint, and again canvassing all of our team members and outside market experts is, we don't really see that big of an impact on rates. In fact, if anything -- we actually think that some of these high-quality existing projects we have will wind up being the recipient of some additional incremental demand, as tenants are starting to look at really the quality of the space. I mean, just to our ability to upgrade our HVAC systems to MERV-level filters is pretty significant. Some buildings can do that, not every building can, but certainly air flow controlling access points, the capacity for separation are all key things. So, a little bit of a rambling answer, but to answer your question directly, we've not really seen any significant change in pricing. What we have seen, is a significant influx of private equity sources looking to do transactions, obviously subject to what the overall pricing might be in the debt market.

Great. Thanks, Jerry.

Thank you. Our next question comes from Jason Green from Evercore ISI. Your line is open.

Good morning. On the collections of 95%, is there any level of security deposits within that figure? Or is the 95% pure collections similar to the normal course of business?

George, would you like to take that?

Sure. Yes. That was all cash collection. There was no application of security deposit to cover April rent.

Got it. And then in your deck, you guys talked about some capital improvements that you're making to assets to position them for reopen. Are you able to provide on a total dollar figure and then a per square foot basis kind of what that spend is?

Yes. We're actually computing that. I mean, the increased filtering is about a 50% premium to existing filters. But when you layer than in it, I think it's $100,000 increase. The issue there is that can your systems support the new filtering systems. If they can, it's a fairly straight forward improvement. If they can't, it's a big retrofit. So we've been fortunate that we had always invested a lot of money into our HVAC equipment and in our mechanical systems. So we're in pretty good shape on that. But Jason, that's certainly something we're going to be focused on over the next couple of months. So, we don't want to really give you a number, but we do view it as an opportunity for us to reinforce the high-quality of our assets and also lay whatever derivative concerns or tenants have may about the security and health of the workplace. George, I don’t know, if you have anything else you want to add to that.

No, I think you covered most of it. The filtering just a little bit of a small incremental increase, but again, I think as we assess that cost there maybe some other normal projects that we’re able to kind of substitute to stay hold.

Got it. Thank you.

Thank you. Our next question comes from Emmanuel Korchman from Citi. Your line is open.

Hey, good morning, everyone. Gerard or Tom, I guess you guys touched on this a little bit, but in terms of the buyback, I was just wondering how you are thinking about using money that was probably more delayed right in the CapEx spend on both the in place expenditures and also the development spend to buy back stock which feels more like a permanent event. So, aren't you just going to need to either raise that money through new equity when the time comes to you? Do you want to sort of build out whatever that CapEx spend was going to fund or find other ways of finding that capital?

Well, Manny, Tom and I will tag team. A lot of the deferred capital spend related to the sequencing of some of the spend on our development projects. So, those projects, as I mentioned, they're really elective at any point in time, but certainly at this point in time. So, we were able to save some dollars by deferring one of those starts until we get more visibility on leasing activity. Obviously, 3000 Market turned out to be a great transaction force. And certainly by deferring early release packages, some site preparatory work, I mean, all those things cost a lot of money and we deferred those until we're actually ready to start the project. We had a number of a base building projects, but they only aggregated $7 million or $8 million, and we deferred about six of those, because, we were able to defer those without creating kind of safety issues or preventive maintenance issues. And we'll take a look at that in 2021. But look, as we looked at this, the share buyback program, number one, we thought we had plenty of liquidity and I think the numbers support that we have plenty of liquidity, to certainly focus on our near-term growth opportunities. Secondly, given that the pace and tenor of our discussions with a number of institutional investors and private equity firms, we felt that at some point in near future again, as I mentioned to on the last question about the timing of debt, we have the ability to recycle some capital within the organization to provide additional liquidity to meet some of those for growth opportunities. And I think thirdly, and I guess fundamentally, we did take a look at the trading metrics of our company, took a look at the cap rate, the price per square foot. And I think just really objectively sat back and said, at these levels, given what replacement cost is, I think I referenced in the comments, we took a look since the great financial crisis, what the trading ranges of assets have been. So even if you go back to the great financial crisis, to have cap rates for asset sales well below the trading cap rate for our stock, gave us a lot of comfort that we could generate some incremental liquidity by doing spot asset sales and recover that. So I think we had a unique circumstance with the sale of the assets, the ability to defer some development spend, that created the liquidity for us to go ahead and do that net $55 million share buyback program.

And what was the cap rate on the Melbourne sale, Jerry?

Oh, I'm sorry. I actually forget what that was. Tom, do you know?

On the in-place, Manny, it was fairly high, upper single digits. But, we have some roll coming over on that building, which is why it's non-core and we did the sale so. So, in my -- in looking at what I said in the remarks, we lost about $600,000 of income in the first quarter, which would imply a pretty high cap rate. But, there is some roll coming that was going to roll out. So, kind of hard to peg a cap rate, but it was in the upper signal digits when you normalize it.

Thanks, guys.

Thank you.

Thank you. Our next question comes from Michael Lewis from SunTrust. Your line is open.

Great, thank you. How does the IBM renewal impact the plans at Broadmoor? I know this has been a question for a while about whether they would stay or want a new building or move around. Do they still have optionality to get into a new building if one is built there? Or is there kind of uncertainty now?

Hi, Michael. As we laid out in the supplemental package, we can still build around 2.7 million square feet with the existing IBM buildings in place, number one. Number two, the programs we're moving forward with, by the planning for Block A in particular, then the remaining blocks along burnet, we can do all of those without really impacting existing IBM footprint. The renewal we do with IBM covered every one of the buildings with the exception of the 905 building, which is literally sits where we would be taking our Palmway Boulevard to the back of the site. We continue to work with them on what they want to do with that building. If they would like to stay, they're on a bridge base, I think we're fine with that, because there's other access points to the back of the site. We certainly have always indicated them the ability that if they would like to move into a consolidated, larger building like back on Block L at the back of the site towards the train line, we can do about 1.2 million square feet back there in 30 story building. So, IBM could consolidate into one building. So, we thought it was important to get them to commit to broad more for a period of time, which they've done. It's part a lot of great conversations with our team and IBM on what their long-term plans are. So, I think, we kind of threaded the needle by having them sign on for the base level of square footage. We'll continue the dialogue on that one building. But, I think the key takeaway point is that our current plans for developing kind of the burnet side of the site are not impacted by IBM being there.

Okay, thanks. And then on the 95% recollection in April was good. You mentioned the co-working in retail tenants, disproportionately asking for deferrals. Are there any other, trends emerging in the portfolio as you're having discussions with tenants in terms of strength or weakness of whether it be by tenant industry or CBD versus suburban or large spaces versus small anything notable there?

George, why don't you pick up on that, please?

Sure. Michael, good morning. Look, I think in terms of trend it's been more kind of the medium-size to smaller-size tenancy within the office mix. And again, I think as Jerry mentioned in his commentary, I mean, everybody is really just managing their own cash flow. So, they're trying to determine, where they can kind of shift dollars and rent obviously is a big piece of that puzzle. I think, as we evaluate these on a case-by-case basis, I mean, first and foremost, we've got to have a strong belief that the tenants viable for the long-term, and we try and get that deferment paid back within 18 to no longer than 24 months, with an extension of term at the same time. So, hasn't necessarily identified itself as particular to any one industry. I think it just has been more kind of the medium to smaller tenancies.

Any difference between Philly and Austin or no trend there you think?

I would say the overall volume of requests has been more heavily in Pennsylvania than it has in both DC and Austin.

Great, thank you.

Thank you. Our next question. comes from Omotayo Okusanya from Mizuho. Your line is open.

Yes. Good morning. Congrats on the pre lease at 3000 Market. Just curious if you could talk about who that tenant is? And if you can't, just kind of describe overall what kind of life science sector they may be in or their general size? I'm also curious how that makes you feel about potential to really kick off the rest of the life science projects in Schuylkill?

Good morning. We can't disclose who the tenant is. I think they want to do their own kind of announcements. They're a well-known tenant in the Philadelphia area. They are a major corporate credits. They are in the cell and gene therapy business. They do have other presences in the University City. And we were delighted to really bring them in and extend focus on them taking that entire building. It was, really a bit of an experiment for us, because we really did see a tremendous growing demand for life science, particularly cell and gene therapy companies in Philadelphia. And one of the challenges we were facing quite candidly, was that the time to build these bigger buildings were contemplating, put us at risk of losing some of that pipeline. So we were able to move very quickly with our development team, architects and engineers to really get the viability of converting 3000 to a life science facility. Fortunately, we were able to do it and do it in a very cost-effective way. And given that projects location, as a premier corner in Schuylkill, we had an immediate upsurge of activity for it and the fact that it could be delivered within nine to 12 months. So we've really used that as a catalyst to continue building a pipeline. We are looking at the potential of converting a couple other floors of our existing buildings into life science, which it appears we can do in a couple of cases to try and capture again, that near-term demand. But it certainly has reinforced, I think, the validity of our position of trying to really expand and expand fairly dramatically the life science component of Schuylkill Yards. Certainly, there's been a slowdown in overall activity. I will tell you there's been no slowdown in activity in terms of life science tenants, whether they be independent affiliated with the universities or healthcare systems. I think that location at Schuylkill Yards is really starting to generate a much more pervasive brand in those sectors. We were talking to a couple of incubator companies about setting up an incubation for life science companies at Schuylkill Yards. So we really do view that as one of the primary catalysts to start going vertical within Schuylkill Yards. Last point on that, our Schuylkill Yards West tower, we've made some modifications to that design to be able to accommodate several floors of life science space within the 200,000 square foot office component. Again, more in response to the kind of tremendous increase you've seen in demand coming from that sector. I hope that answers your question.

Yes, that's very helpful. But the going vertical on the rest of Schuylkill Yards, is that more focused on landing a key tenant in the building or is it more focused on getting financing?

So, a little bit of both. I think on Schuylkill Yards West, that's a 200,000 square foot office component I just refer to, we can do some life science there, and 220 some residential units. That's we're ready to go on that, given the size of the office component and the residential component. There it's really a matter of getting financing pool together, and we're actively working on that, both from an equity and a debt standpoint. The other building we have programs Schuylkill Yards West which is a 800,000 square foot life science and office product, about a third life science two-thirds office. There, we are looking for an anchor tenant to move that forward. As we've outlined in the past, we are looking at a partner on both of those projects at Schuylkill Yards. And then as I mentioned earlier, we're moving forward on the planning for a life science dedicated building within Schuylkill Yards and that planning process should be completed within the next several quarters. And while we're going through that design development process, we’ll certainly be marketing that dedicated building to some of the emerging prospects that we’re seeing.

Great. Thank you.

Thank you. Our next question comes from John Guinee from Stifel. Your line is open.

Great. Thank you, and thank you team for doing such a great job on the sup and being the first office named [ph] to report. Probably just little nits. First, any change on Northrop Grumman's expected move out early 2021? And then can you give any detail on the 540,000 square foot IBM lease? And if it somewhere in the sup or in a previously released document, just let me know.

Hi, John. I'll take the first one and then George, if you don't mind picking up the second one. No change on their plans, John. I think they were planning on moving into an own facility. I think from our perspective, we have a renovation plan in process. But we're also as we mentioned on the last call, very much focused on whether we spin that asset out via sale or through some type of structured finance joint venture. But, we do not believe that this crisis or anything related to it will have any impact on them leaving by the end of the year. In fact, I think they've already started to move out to some of the space. George, do you want to pick up the IBM deal?

Absolutely. John on Page 14, in the supplemental, we did lay out some of the particulars, but there are 540,000 square foot tenancy pushed out five years to March of '27. We executed that with only a 4% leasing commission for transactional capital, and 12.5% mark-to-market on a cash basis and 22% almost 23% on a GAAP basis.

Great. Okay. And then I think you still have a lot more capacity on your share repurchase authorization. Any reason you wouldn't do that and if you already addressed that, let us know?

Well, we do have that capacity at the right thing. The one of the key drivers behind what we did in the first quarter was kind of kept it leverage neutral. So we're able to define a sources of capital to fund it. I think certainly we're very, very mindful of our balance sheet metrics. As Tom touched on, with the slide of income in Q4 into Q1 and Q2 of 2021, that creates a little bit of an upward pressure on our targeted range from an EBITDA standpoint. So, I think John, we're going to be going through the algorithm of figuring out what's the best way to deploy capital, keep forward capital capacity strong, keep our balance sheet strong. So we stopped at the net $55 million, because that we had full complete confidence in the coverage of that from a liquidity standpoint. To the extent, certainly that some of these potential other sales or joint ventures would proceed, which again is uncertain. I think we would certainly look at the current stock pricing level as a recipient of some of those proceeds.

Okay. And then regarding Schuylkill Yards, I mean, it sure looks like a great location for someone who rides the Amtrak all the time. How does it compare with the sort of the hearty University City a few blocks to the West? What are the pluses and minuses?

Yes, I think the pluses are number one, it's closer to center city. Number two, it's closer to the mass transportation nexus i.e., the third busiest train station in the country. It has riverfront views, John. And it's also very close to Drexel University and University of Pennsylvania. I think the advantage is as we assess it further West out by 38th Street where design center is, they have what we're trying to build, which is they have a cluster. So they have a bit of a scale there already. It's a quality developments, I think it's additive to the city, and additive in terms of our plans of creating a larger cluster within University City. So they've had a bit of a head start on us, because they've been at it for about 20 years now. And they've got some life science companies there. I think they're doing thoughtful design. I think they have limited mass transportation access compared to where we are. I think we have comparable amenity basis. So, I think it'll be really a very interesting, I think, process over the next couple years, as we work collectively, collaboratively, competitively to try and create, we think, a significant life science cluster in the University City section of Philadelphia.

Great, thank you.

Thank you. Our next question comes from Bill Crow from Raymond James. Your line is open.

Thank you. Good morning, Jerry. When you think about the future of office right in this post COVID or hopefully post COVID world, beyond the signage that I saw in your sup and the filtration. Talk about things like, do you need more elevators, as you think about designing new buildings? Do you need more parking because of hesitancy to get back on mass transit? Does that support more suburban construction and urban construction? And how do you think about the floor plates in the future? Do we go to more formal offices and away from this collaborative space? Just as the first office company to report I was just curious how you're thinking about that?

Yes. Good morning, Bill. It's a great question, and we'll share with you with what insights we have at this point, okay. We've spent a lot of time on it. In fact, one of the things we did early on is that we went back to five of the top architectural firms that we do business with, including on the next round of our development projects, and asked them to take a complete fresh look at what they think the post COVID office environment would look like. And, we got some very interesting feedback on operations, design elements. HVAC, increasing IT infrastructure, the lighting. And I think what it really comes down to, we actually felt pretty good coming out of, because I think we've always approached our developments and any acquisition we make from the standpoint, like our job as an office company is to provide an envelope in which companies conduct their business, and deliver very high-quality services to that. So, we have very efficient floor plates, very few columns, high ceilings, lot of glass top grade systems, high-speed elevators. And I think when we looked at it, I guess a couple of things resonated. One is -- and I guess the overall comment is, no one really knows. I think everyone's kind of speculating. But I think as we look at it, there's certainly going to be a migration back to more square feet per employee. Now, whether that's done the larger workstations, the markets migrated from 10-by-10 to 6-by-6, whether it goes back to 10-by-10, or there's separation between the workstations with vanity panels. There's certainly going to be wider circulation patterns, we think there's going to be more thought given to directional pedestrian flow, employee flow within spaces. Some of the things we've looked at…

Yes. No, it's a fascinating time. We'll see how it all plays out. But thanks for the information.

Thank you.

Thank you. Our next question comes from Daniel Ismail from Green Street Advisors. Your line is open.

Thank you. Good morning. Just a quick one from me. Jerry, you mentioned on rental rates being relatively flat in this environment. Can you clarify whether that's on a net effective basis and maybe discuss what tenant concessions are doing in this environment, with the understanding that, of course, it's pretty early in the game, but any insight you can share will be helpful?

Yes. I'll share with you kind of real time news from the front, because this has been a topic of active discussion within our entire leasing and marketing organization. We're actually seeing very little impact on rental rates. We probably see a little bit slower rental rate growth, at least for the next 12 months. We have not seen any big uptick in any concessions -- again, very early to call. And as I think I touched on with Bill, I mean, we do think there'll be a number of tenants that will shift from longer-term deals right now to shorter-term renewals, which tends to have a much lower level of capital requirement, which frankly drives up net effective rents. We think there'll probably be some pauses on speculative office development. And frankly, we're in markets where there has not been a lot of that anyway. I think one of the one of the risks that we do see and it will be interesting how it plays out is that at what levels will landlords who own lower quality buildings be forced to drop their rates, and improve their concession packages to get deals done in buildings that may not have the same level of capacity that our buildings and other high-quality buildings have. We don’t have any doubt that tenants will be migrating to higher quality buildings. And the question on that when you're moving from an A to a trophy or from a B to an A, there's always that competitive pressure from a pricing standpoint to decide what the trophy or A quality landlord will accept. So we don't really see a big disruption at all. I think, an early warning sign of that really came at a lot of these discussions that tenants who are looking for rent relief had. And I think we're really pleased it's such a low percentage of our tenants have asked for any kind of rent relief. But as part of those discussions, we talked to them obviously about what their -- what they're planning, what they're thinking. And I think we've been pretty pleased with the level of response we've gotten back from the vast majority of tenants on their continued use of office space, their concerns about sequencing and how we can help them. But, topics of conversation have more been safety and security versus economic focus at this point.

That's helpful. Thank you.

Thank you. And we'll take our final question for a follow-up from Jamie Feldman from Bank of America. Your line is open.

Great. Thank you. What are tenants saying along the same lines? What are tenants saying about work from home longer-term? Do they think they'll have keep a larger percentage of their workforce under that arrangement or not necessarily?

Yes, Jamie, again, I'll share with you what we know, which is anecdotal, not a definitive. But, every tenant that we talk to, what we're hearing is they can't wait to get back to the office. There's a big difference psychology being -- having the option to work from home and being forced to work from home. So we view that as a real positive. I do think that, the work from home dynamic has been evolving. I think it's been accelerated with the rapid deployment of technology enabling large amounts of people to work from home. So, I do think that could have a muting effect on demand drivers going forward. But, I think from an office landlord standpoint, with this -- where we have globally 81% of the workforce on kind of mandatory shutdowns. I think we're saying, people really anxious to get back to a collaborative face to face or mask-to-mask environment. And, I think we're still working through that with some of the larger tenants in terms of how they phase back in. But, I think as we look at it, there's certainly going to be a higher percentage of people who will be working from home, how that translates into whether they have a desk or a workstation or a private office at their company's location. I think all that remains to be seen. But, the technology deployment I think has been good. I think that's enabled a number of tenants to continue conducting their business. I think most tenants we talked to, it's been a sub optimal outcome and they're very much looking forward to getting back to the workplace.

Okay. Thank you. And then as you think about the air quality upgrades, are there certain ages of buildings or styles of buildings that won't be able to do those kinds of upgrades? How should we be thinking about -- I know you talked about filters in your supplemental, but just generally, I assume air quality is going to be a big theme going forward?

It will be. I think buildings that are larger that have the good physical plants and chiller systems and strong HVAC and mechanical systems I think would be more suited. I think where you have packaged rooftop units is a little bit harder to do some of that stuff. So I don’t know, George, if you want to weigh in with any of your perspective on this?

Yes. I mean, when we kind of assess the inventory class in Philadelphia, our folks felt that there probably was only about 25% of the stock, most of which is ours that could accommodate some of these HVAC filter increases. So, that's kind of why we've been proactive about getting those installed, so that when people do come back, we kind of already have that box checked.

Okay. And do you expect that to be like a standard, that level or not? I guess you can't be if it's only 25% of the stock?

Well, I think what you see is that most of the newer vintage buildings are already designed and built for that. So I think where it's a little bit more challenging is on older inventory where you would have to retrofit some of those systems.

Okay. But it's doable. It's just expensive?

Correct.

Okay. All right. Thank you.

Yes. And I think, Jamie, just to wrap up, I mean, I think when we're looking at our new development projects, all of this, everything that we've all collectively learned over the last couple of months, all those items are being fully factored into our development pipeline going forward, as I would expect every landlord is doing as well. But thanks for the question.

And ladies and gentlemen that does conclude our question-and-answer session for today's conference. I'd now like to turn the call back over to Gerard Sweeney for any closing remarks.

Great. Thank you all for participating. I'm sorry we ran a little bit longer, but you would expect that in these kinds of times. We appreciate your engagement. If you have any questions on the supplemental package, please feel free to reach out to us. We'll all get through this together. We're all working together to get through it. And from our perspective, please stay safe and healthy and we look forward to providing a further business plan update to you on our next quarterly call. Thank you very much.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program, you may all disconnect. Everyone have a wonderful day.