American Assets Trust, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Q1 2020 American Assets Trust, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press Star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press Star 0. I would now like to hand the conference over to your speaker today, Adam Weil, EVP and COO. Thank you. Please go ahead, sir.

Thank you. Good morning, everyone. Welcome to American Asset Trust's first quarter 2020 earnings call. Yesterday afternoon, our earnings release and supplemental information were furnished to the Securities and Exchange Commission on Form 8K. Both are now available on the Investors section of our website, AmericanAssetsTrust.com. A telephonic replay and on-demand webcast will also be available for this call over the next week. During this call, we will discuss non-GAAP financial measures, which are reconciled to our GAAP financial results and our earnings release and supplemental information. We will also be making forward-looking statements based on current expectations. These statements are subject to risks, uncertainties discussed in our SEC filings. Your caution not to place undue reliance on these forward-looking statements. Actual events could cause our results to differ materially from these forward-looking statements, which we undertake no duty to update. And with that, I'll turn the call over to Ernest Frady, our chairman and CEO, to begin the discussion of our first quarter 2020 results. Thank you.

Thank you, Adam. That was especially eloquent. And good morning to everybody. We recently released our 2019 annual report that we prepared during the first quarter of 2020 prior to the COVID-19 pandemic. The theme of our annual report was being grateful. During these unprecedented times, we are even more grateful, great for our colleagues, investors, banking relationships, research analysts, and our families, and our great portfolio. We are grateful for the first responders and healthcare workers on the front lines and the research taking place to find a vaccine. We are grateful for all the little things in life that we have often taken for granted. One thing is certain, that together we will get through this period of history. The question is how we will be impacted and what we will look like on the other side. We are not immune from the pandemic. We too feel the bumps and bruises along the way, which Bob will talk about in more detail. But overall, our expectation and confidence is that our high-quality portfolio in coastal West Coast markets, combined with a low leverage balance sheet will pull us through this period in history and come out better on the other side. As we mentioned on our earnings release, the board of directors reduced the dividend from $0.30 per share to $0.20 per share for the second quarter. Reducing the dividend is heartbreaking for me. It's not the track record that we wanted. And we've done it with regret and humility. But in the absence of caution during these period times, the Board thought it was the thing to do. We will ask the Board of Directors to reconsider making up the shortfall in subsequent quarters as soon as we can see the retail sector starting to rebound. I'm going to turn the call back over to Adam Weil, our EVP and Chief Operating Officer, who will give us a quick update on our operations during this pandemic. following Barb Barton, our EVP and Chief Financial Officer, and we'll end with a quick update on the office leasing success that Steve Senter, our Vice President of Office Properties, is seeing. Adam, thank you, sir.

Thanks, Ernest. From an operations perspective, in early March, we quickly mobilized to implement our business continuity and crisis management plans to help protect the health and safety of our employees, tenants, and vendors. and to maintain consistent open communications both internally and to our stakeholders. Our entire employee base continues to either work remotely or onsite at one or more of our properties. Employees are generally only onsite if necessary to either maintain critical building systems, ensure any essential businesses at our properties are properly accommodated, and to provide resident services at our multifamily properties with skeleton rotating crews when feasible. Each of our properties remain open and operating while following all local, state, and federal directives and mandates. Across the board, we have increased security and implemented additional health and safety protocols at our properties. However, we have scaled back other property management services to be more in balance with the current needs of those essential tenants that are open, which we expect will help reduce property operating expenses. Additionally, we have determined to delay most nonessential building improvement in common area projects except for work already under contract. As expected, we have received a myriad of rent relief requests, the vast majority from our retail tenants, many of which we believe to be opportunistic in nature. The majority of such requests are from restaurants, salons, fitness centers, gyms, and apparel stores. Not all tenant requests will ultimately result in rent modification agreements, nor are we foregoing our contractual rights under our lease agreements. However, for those tenants that we agree to modifications or concessions, we may support them during the short term, in ways that we believe will benefit us over the longer term. We are also asking for some cash or other consideration from our tenants as part of the modifications or concessions. Finally, we have begun preparing our return to office plans in each of our office markets so that we can quickly disseminate such information to our employees and tenants once regulatory authorities begin to lift or relax stay-at-home orders and implement market-specific restrictions. With that, I'll turn the call over to Bob to discuss Q1 results and the impact from COVID-19.

Good morning and thank you, Adam. Last night, we reported first quarter 2020 FFO of 56 cents per share and net income attributable to common stockholders of 20 cents per share for the first quarter. As previously disclosed, we withdrew our 2020 guidance on April 3rd due to the uncertainty that the pandemic would have on our existing guidance. At the time we withdrew our 2020 guidance, we believed that we were on track to hit our 2020 midpoint of $2.42 of FFO per share, which would have been a 10 percent growth from our 2019 FFO per share. Unfortunately, the economy continues to change day by day with the current outcome uncertain as to impact and duration, which is why our 2020 guidance has been withdrawn. As Ernest mentioned earlier, the Board of Directors reduced the second quarter dividend by $0.10 per share to $0.20 per share, which is approximately a $7.6 million reduction in our dividend distribution from Q1. The Board decided to do this out of an abundance of caution due to the uncertainty during this pandemic, even though we believe our balance sheet and current liquidity remain strong. There is actually some science or math that supports the reduction that was made in the dividend. What we did was to multiply each sector's cash net operating income by the percentage of cash collected on April rents billed through April 15th. Office is 49% of our cash NOI, and we had collected approximately 90% of April billings. Retail is 31% of our cash NOI, and we had collected 43% of our April billings. Multifamily is 12% of our cash NOI, and we had collected 92% of our April billings. We have one 369-room hotel in our portfolio, which has been the number one performing embassy suites hotel in the world since we opened the doors in December 2006. It is known as the Embassy Suites Waikiki that sits on a retail podium referred to as Waikiki Beach Walk. The Embassy Suites Waikiki is 5% of our cash NOI, which is currently running on a skeleton crew with a minimal occupancy ranging from 5% to 15% based on Hawaii's shelter-in-place order that has been issued through May 31st. Accordingly, we are not expecting any increased occupancy until this order has been lifted. When you add these percentages up, it is approximately 68% of cash NOI, and applied to a 30-cent dividend, it supports a revised dividend of approximately 20 cents per share. We also believe that from a risk perspective, diversification is a plus and lessens the impact from uncertain times like this. It is also worth noting that since our board determined our dividend in mid-April, we have seen an uptick in April rent collections, such that we have now collected approximately 94% of office rents, 47% of retail rents, including the retail component of Waikiki Beachwalk, and 94% of multifamily rents that were due in April 2020. Other than our one Embassy Suites Hotel that represents approximately 5% of our NOI, our retail sector, which represents approximately 31% of our NOI, is obviously feeling the most impact with approximately 47% of April buildings collected. Approximately 24% of our retail tenants are considered to provide essential services and remain open during this period of time. and the balance of tenants are considered to provide nonessential services, which we are working with to create a positive outcome for both parties. We expect the second quarter will be the most difficult, but we believe that we are well prepared with a strong balance sheet. As we look at our balance sheet and liquidity at the end of the first quarter, we had approximately $402 million in liquidity in comprised of $52 million of cash and cash equivalents and $350 million of availability on our line of credit, and only one of our properties is encumbered by a mortgage. Our leverage, which we measure in terms of net debt to EBITDA, was 5.6 times at the end of Q1. Our focus is to maintain our net debt to EBITDA at 5.5 times or below. our interest coverage and fixed charge coverage ratio ended the quarter at 4.3 times. Additionally, in early April, we drew down $100 million out of the $350 million revolving line of credit under our line of credit for working capital and general corporate purposes and to ensure future liquidity given the COVID-19 pandemic. And finally, with respect to the $250 million of unsecured debt maturities that come due in 2021, we have options to extend the $100 million term loan up to three times with each such extension for a one-year period subject to certain conditions. And the remaining $150 million unsecured Series A notes do not mature until October 31, 2021. I'll now turn the call over to Steve Sander, our Vice President of Office Properties.

Steve? Good morning. Thank you, Bob. We have continued to drive rents and further stabilize our office portfolio. We ended the quarter at over 94% lease with only 9% of the office portfolio expiring through the end of 2021. City Center Bellevue remains 99% lease, but we continue to expand and extend our existing customers at much higher rates. We completed a full floor renewal with a major financial firm at a starting rate is approximately 66% above the ending rate. Portland has also remained very strong for us. Our Lloyd District office buildings remain 100% leased. We recently completed a full floor lease with an energy-related company with a start rate approximately 28% above the ending rate of the prior customer. Similar to the 830 building at Oregon Square, we are currently redeveloping the 710 building, a 33,276-square-foot building that we hope to deliver in early 2021. In addition, due to the increased demand from our existing customers, as well as other tenants in the market, we are in the early stages of design development of two new office buildings on the two remaining blocks at Oregon Square, which we will continue to evaluate pending market conditions. At first in Maine, we succeeded in renewing a customer in 68,000 square feet with a rent increase of approximately 19%, and we are in discussions with them to take additional space. In San Francisco, Landmark is 100% leased to Google and Autodesk. At One Beach, we have intentionally let lower rent leases expire, and we are in the process of redeveloping the building, which includes the addition of a 4,000-square-foot elevator-served rooftop deck with panoramic views to Alcatraz and the Golden Gate Bridge. The fully renovated approximately 102,000-square-foot building will provide an 85,000-square-foot contiguous opportunity to hopefully be delivered in mid-2021. Finally, our San Diego portfolio stands at approximately 92% leased, versus the overall Class A market at 89% leased. Two of the 14 buildings at Torrey Reserve represent 65% of our San Diego vacancy. Both have renovations and design development, and we are aggregating spaces into larger blocks, which are scarce in UTC and Del Mar Heights. Solana Crossing now stands at over 95% leased, and Torrey Point is on track to be 97% leased with a recent expansion of one customer, a pending expansion of another, and AAT's move later this year. The two existing towers at La Jolla Commons stand at 99% leased. Additionally, we hope to have a building permit in the next few months for Building 3, and we will evaluate commencing construction as market conditions continue to evolve. That said, we remain bullish long-term on the UTC market. Direct vacancy in Class A buildings in UTC is just 3.3%, with only 0.5% of subleased space vacant, and we expect continued significant new demand driven by both life science and technology users. Operator, I'll now turn the call over to you for questions.

Thank you, sir. As a reminder, to ask a question, you would need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. I'm sure our first question comes from Craig Schmidt from Bank of America. Please go ahead. Morning, Craig.

Morning. Thank you. Thank you.

We have a cautious group here. Before we assembled to make this call, we took each other's temperature. Have you had your temperature taken yet, Craig?

I do have a thermometer, but I haven't taken it this morning.

Okay. We don't know if we can let you in the meeting, but go ahead.

Okay. Thank you. I was wondering, given that it's a couple days away, what are you expecting on May collectibles for retail?

You know, I don't know. I've never seen this circumstance before. We have identified the fact that our tenants are anxious to reopen. Some of them have limited financial capacity. They all have great desire. We don't know what our governor in California is going to do as far as opening up the economy again. I think when they open up, some of them will struggle and some of them will prosper. So that was one of the reasons the board took this conservative stance to make sure that when the opportunity does present itself, we're there to avail ourselves of it. So I just don't know. Is that a fair question? Sully, you've got a different opinion? Chris Sullivan runs our retail.

Hey, Craig. As Bob pointed out, the percentages of our collection, I imagine, will probably be potentially somewhere near those collections or somewhere a little bit less, but it's going to be a challenge for May when you consider that the majority of the tenants in the country have more or less been closed for six weeks.

Gotcha. And then on the rent negotiations, are you looking to get greater control or extend the term of lease when you're giving deferrals?

Absolutely. If we give something, we try and get something. And as you pointed out, those are the opportunities. Greater control of the property, extension of the lease, them putting up some money in addition. If they just throw up their hands, why do we want to work with them? So we've got to get something for giving something. Is that a fair statement?

Yeah, that's a very fair statement. As you know, Craig, in many of the big national tenants, you're going to have co-tenancies and sales terminations, exclusives, brokers. is just numerous encumbrances on those leases. So that's a time for us to comb back through those and see what we can do to improve our position so that, as Ernest said, we've got more control over the property going forward.

We have a committee to approve these deferrals of Adam, myself, and Chris, and nothing happens without the three of us approving those terms. So we're careful to make sure that we don't do something without merit.

Okay, thank you.

Thank you, sir. Thank you. I show our next question comes from Rich Hill from Morgan Stanley. Please go ahead. Hi, Rich.

Hey, good morning. Hey, good morning, guys. I guess I have several questions. First of all, on 1Q, I was hoping you could provide a little bit more detail on the same-store NOI performance of the multifamily portfolio and I remember that prior quarter you said that it was going to be a slight dip and maybe become a little bit better later in the year. So unless you want to give guidance, which I'm happy to take, I'm not asking about the rest of the year. But I am curious about 1Q because it was maybe worse than what we were expecting based upon your prior commentary. So if you can give us some thoughts about what drove maybe the further weakness in the apartment portfolio, that would be helpful.

Bob's been waiting for that question. Thank you for asking it.

Yeah, good morning, Rich. Yeah, you know, it's similar to Q4, but let's say the majority of the dip in the same store for the multifamily really relates to, again, Haslow and Pacific Ridge. So we have lower revenue at Haslow and then higher operating expenses at both. And the operating expenses were, you know, spread throughout. You know, not only higher compensation for the people working at the sites, higher utilities. So that's primarily what is comprised of the – that's like 70% of the dip in the same store NOI for multifamily. Okay.

Okay, so if I'm inferring there correctly, it's sort of the same story of 4Q where maybe supply was a little bit of pressure and you had to focus a little bit more, driving operating expenses higher. Is that fair, Bob?

Yeah, that's fair. I mean, our occupancy is still high, but we're just giving a little bit less on the revenue in the marketplace and giving some more abatements.

Abigail, would you want to cover the occupancy of our San Diego portfolio?

Sure. Good morning. I think, you know, with the occupancy given present day today, the San Diego portfolio is ringing in pretty high right now. We're currently just about 96% occupied. We've got a little bit under 3.5% availability to rent. And we've got our renters who are paying their rent. So... I think we're doing as good as we can get given the current nature of the circumstances.

And did we have some good fortune with a neighbor at Pacific Ridge that you want to discuss?

We did. You know, kind of the highlight of Q1, really the tail end for us over at Pacific Ridge, was our continued engagement and partnership with USDs. We continue to fortify and strengthen that partnership with them. And as a result of COVID came across furthering our partnership with them and entered into a master lease agreement whereby USD had to move some of the units out of their dorms or the residents out of their dorms. And we were able to secure a good number of units at Pacific Ridge and over at our neighboring community at Loma Palisades. So we entered into a very short-term agreement with them from March 23rd through May 31st and gained a significant amount of money for that very short-term partnership. And that we will see further into Q2 for multifamily.

I'd like to point out that's USD, not USC.

Yeah. Got it. Got it. Helpful caller. Hey, Bob. maybe just accounting housekeeping. When you think about the deferrals you mentioned in your press release, if you give a deferral in 2Q or even maybe beyond, how are you going to account for that, and are you going to book it as straight-line revenue, thereby maybe top-line earnings won't be impacted as much, even though free cash flow will be?

Yeah, what we're going to do is under the accounting generally accepted criteria, accounting principles they refer to as 842, what we're going to do on a deferment is we're just going to readjust the straight line rent. It's going to be treated as a lease modification. And by the way, hey, I'm impressed with your accounting knowledge in your recent publication. You have no idea how grateful Bob is for you asking that question.

So, Bob, I'm sorry for belaboring this point because there's two ways you can account for it. Are you going to, it sounds like what you're going to do is adjust the straight line rent as if, and reduce it for variable rent. So there will be a reduction in revenue during that period of time. Whereas the other thing you could have done is just kept your straight line rent the same and then taken a reserve against receivables. So are you going to effectively be reducing the total rent received by reducing variable rent? Is that right?

No, that's not right. So you have an election, and that's one of the things that the SEC came out on, is that you can elect not to do the lease modification under 842, or you can treat it like variable rent. And if you treat it as variable rent, then you'll take the hit for it on a month-by-month or quarter-by-quarter basis. What we've chosen to do is because we think And the reason why is that we think that the collection is going to be, you know, we think that when we do these deferments, we're hopeful that we'll, let's say that we'll receive at least 95% of those remaining cash flows. And as a result, we're going to straight line that without taking any earnings hit from that methodology.

Okay, that's very clear. I would just ask you to be as transparent as you possibly can be in 2Q because I think it will help eliminate and avoid some confusion. Thanks, guys. That's all I have.

Sure. Good questions. And by the way, Bob, since we went public, I can't speak about that before that because he was probably in jail or something. So transparent and it's a touch point for our company is to be absolutely transparent. We'll continue that. Thanks for asking, Rich. Thanks for caring.

Thank you. Our last question comes from Handel Sanchez from Missoula. Please go ahead. Hi, Handel. Good morning.

Hey, good morning out there. So I guess I had a question going back to the dividend cut first. I guess I'm curious on the decision to only trim the second quarter dividend here, implying that it's more temporary than a permanent cut. How did you weigh that decision to trim just the second quarter versus perhaps suspending the dividend or maybe waiting until year-end to decide what level you wanted to or required to pay out, especially in light of the retail uncertainty you highlighted and the expectation that this likely continues into May and maybe even June?

At the moment, my view is that regardless of the outcome on retail, that dividend should be sustainable for the next 12 months. So we asked the board to consider what we should do because we felt and they felt it would be illogical not to take into account the current environment for retail. On the other hand, it was equally illogical not to take into account the high quality portfolio in the rest of the company. So it was a token reduction. hopefully a temporary reduction, hopefully a reduction that can be made up if this retail does, they do open up and the retail does continue to function. But we have to send the message that we are not as perfect as we were before COVID-19 as we are after COVID-19. I hope that answers your question. I think that's, Bob, anybody else got any view of that? Yeah.

Yeah, I think that's right, Ernest, and that was well discussed at the board meeting. I mean, if you look back to Q4 or Q3 when we raised the dividend to 30 cents, that basically was based on the expectation or based on knowing that we had leases in place from all the strong office leasing that would take our cash NOI significantly higher. You know, our expectation is it's going to be over 280 million by the end of 21, and even higher than that in 22. And that's based on locked-in leases. So, the 30 cents going into Q1, I think our payout ratio was, what, 1.22 percent. And by reducing this dividend by 10 cents, If you applied a 20-cent dividend to Q1, let's say that we have the same results in Q2, that would be about an 80% payout ratio. So it's just a more conservative stance. It's not that we couldn't do the 30 cents because we have a very strong balance sheet, but I think it was the right outcome with an abundance of caution.

And, of course, the other side of the coin is we do conserve some firepower As Steve went through the opportunities in office, if we pay out a little less, we have a little more ability to take advantage of opportunities that may present themselves. So while it sends a negative message, I hope it also sends a positive message that if we do have opportunities, we're going to be prepared to take advantage of them and not have dissipated our firepower on the distribution of cash that could have otherwise been available to take advantage of those opportunities.

Got it. Got it. Thank you for that.

Thank you.

And then maybe a question on the retail, the rents that weren't collected in April. And it sounds like the early read for May is probably more of the same, if not incrementally a bit lower. How do you think about or how should we think about the collectability of that In the case of April, that other 53%, that wasn't paid. What does the path to recovering that uncollected rent look like?

How are you thinking about that? As we said earlier, we have a committee of Adam Weill, myself, and Chris Sullivan that reviews every deferral. We take into account whether the tenant will have the capacity to renew or is likely to have the capacity to renew and have they been a good tenant up until now. We also try and get some benefit out of it, either interest if possible or a rent, an extension, or some change of terms. And so I don't know what's going to happen. This thing may open up sooner, and this may have been a blip. It may open up a lot later, and it won't be a blip. So I'd like to tell you if I knew, but I honestly don't know. And that led to the action that the board took in sending a more conservative viewpoint than a more optimistic viewpoint that is everything's just the same as it's always been. Everything is not the same as it's always been. Do you want to add something, Sully?

Yeah, Handel, what I'd add to that is that collection percentage there in the high 40s, As we're still working through these receivables, we're still collecting some of that stuff. I mean, it's still part of the deferment process and working it out with tenants. If they hadn't paid in April, okay, here's what your situation is. We'll be able to do X, Y, and Z for you, but you're going to pay a chunk of that and a chunk of it later. So as I kind of used the expression around here, there's still a little more chicken on that bone to get an odd on. so that we can collect more of that April. That April 50% you're looking at is by no stretch gone. We're still working to get that as we move forward.

And I don't think our situation is any different from any other owner of retail, except perhaps our retail is, because of its position on the coastal west coast, barriers to entry, job creation, we probably have a better shot than most. and we hope that time will prove that out.

Well, and you're reporting earlier, so it gives us a chance to pepper you with questions first.

I'm sure all our peers are looking and saying, what did those guys do?

Hey, a couple quick follows if I may. Did you guys or have you shared or can you share what percentage of your your retail tenant asked for deferrals and what percentage of those you're granting, and then any color on concessions, how meaningful they are in terms of the prevalence, any size, or any parameters around what you're granting there. Thank you.

Sally's going to answer that, but I'll tell you, it's a war. I mean, if I was a retail tenant, I'd say, what can I get away with? And then as a landlord, we say, you can't get away with anything. And that starts the negotiations. It's war. I mean, I don't know how to describe it otherwise. You want to describe it otherwise, Sully?

No, that's about right. But you asked a handout percentage. You figure probably about 50% have come asking for something, come just, there's a part I call just some counseling, you know, to see what's going on and what can I do. But, again, on these deferrals, as Ernest mentioned, you know, every tenant's, its own situation. You know, when you get the big guys coming that have some strong financial statements, that's a much different conversation than if you take it down to the extreme, you know, to the nail salon who hasn't seen a customer in six weeks. So it all varies through it, and we just got to work our way through it, and we will work our way through it. I would say the majority of them will make it to what I refer to tomorrow, but certainly there's going to be some that don't get to tomorrow.

It's been no fun. And I tell you, if I think about my career, I wish I could have been a stock analyst instead of a property manager because it's been tough.

And if I'd happily trade you jobs right now.

I'd happily trade with you.

Thank you. Thank you. Thank you. Our next question comes from Todd Thomas from KeyBank Capital. Please go ahead. Hi, Todd.

Hi, thanks. Todd, you'll have to start over because there's some interference on the call.

I don't know what it is.

No, no, nothing's happening.

It's feedback on his end. Sorry, Todd has a bad connection. If you could hang up and we'll dial back in. Our next question comes from Tammy Feek from Wells Fargo Security. Please go ahead. Hi, Tammy. Morning, Tammy.

Hi, good morning. I'm just wondering, just going back to the deferrals that you are granting, I guess do you have a policy in place on payback periods for those? Is it in six months, 12 months? Just curious if you have kind of a set policy on that.

It's war. Every armistice. as a truce treaty, and it's negotiated. We want the money back as quickly as we can. We have to take into account their willingness to give us it back as quickly as they can and their ability to give it back as quickly as we can.

So... No, I think it varies on the tenant situation.

Yeah. The ability to pay and how that... I think it was covered in the script that it's mostly restaurants, nail salons, who haven't seen a customer now in six weeks, and then assessing what their viability is going to be when it opens up. So it's so uncertain. I've never seen anything like this.

Okay. I guess are you getting any indications from tenants that they will no longer occupy their spaces at this point?

No. At this point, I haven't actually received that from, let's say, one of the more meaningful tenants. There's certainly some independent tenants that are on the margins of our property that won't make it because they just didn't pay. And we'll have to take care of that when we're able to. But I haven't heard from any of the big guys that we won't be there tomorrow.

And even little ones. I haven't heard anybody throw in the towel. Not anybody's actually thrown in. Nobody's thrown in the towel. They're all hopeful. We're hopeful. And so that gives me some encouragement. that, again, the quality of our property, the locations will allow our retail tenants to continue to prosper, at least survive anyway.

Okay. And then I guess based upon your more conservative stance on liquidity at this point, have you revised your cap expanding plans for 2020? I think originally it was $80 million to $85 million of spending.

Well, we're looking at every nickel, I'll tell you that. You know, every nickel that goes out of here, Bob groans. But we're not deferring anything that would reduce our productivity. So we're spending every nickel that we have to and not spending anything that we don't have to. And we're trying to do internally some of the things we would have normally hired out to do. Jerry, you want to cover that? No, that's absolutely accurate. That's where we are.

We're hopeful that it won't be what our original guidance was on that. It'll be less than that.

But a lot of the capex, of course, is tenant improvement allowance, and we have good tenants, and we have tenants moving in, and we'd be silly not to complete those projects. On the other hand, these projects are getting delayed because the permits are – the municipalities are closed down. So we don't know how much we'll spend because we don't know when we'll get to go ahead.

Very true. I guess maybe just office, I'm wondering what your views are on that segment, and I guess do you think this forced work-from-home trial has disrupted future office demand at all?

You know, there's two schools of thought. The one school of thought I hear is that everybody's used to working at home now. They're not going to come to the office. The other school of thought is that when they come to the office, they're going to require more spacing. We found that not coming to the office is not productive. Coming to the office is productive. We all work together. There is synergy. And, again, your guess is as good as mine, but things will be different for sure. I don't know what they're going to be, but they're going to be different. I think certain types of businesses will go one way and others will go another way. You know, I don't know.

Fair enough. All right. Well, thank you.

Thanks, David. Thanks, Tammy. Now, Todd, have you got the dial in? I think Todd gave up.

I don't show Todd Thomas in the queue at this time.

Okay.

With that, I'd like to turn the call over to Mr. Ernest Rady, Chairman, for closing remarks. Please go ahead.

Okay. Again, I want to tell you how grateful we are for, first of all, for the great team we have, you have at AAT, grateful for the great properties we have, the great locations. They're not going to get any worse. If anything, they're going to get better as this thing unfolds and some of our competitors are not as productive. So we look forward to the short term with great uncertainty and the long term with great enthusiasm. And thank you for your interest.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.