Q1 2020 Earnings Call
Welcome to Armada Hofflers first quarter Twentytwenty earnings conference call.
This time, all participants are in a listen only mode.
After managements prepared remarks, you'll be invited to participate in a question answer session.
At that time, if you would have a question. Please press star one on your telephone.
As a reminder, this conference call is being recorded today Thursday April Thirtyth Twentytwenty.
I would now I'll turn the conference over to Michael O'hara, Chief Financial Officer at Armada Hoffler.
Please go ahead and good morning, and thank you for joining a lot of Hofflers first quarter 2020 earnings conference call a webcast.
This call. This morning addition, myself is only had to add CEO.
The press release announcing our first quarter earnings along with our quarterly supplemental package and our 2020 covered 19 presentation well distributed this morning.
A replay of this call will be available shortly after the conclusion of the call through May 30, if 2020.
The numbers to access the replay are provided in the earnings press release.
So those who listened to the rebroadcast of this presentation remind you that remarks made in here in our as of today April Thirtyth 2020, well not be updated subsequent to this initial earnings call.
During this call will make forward looking statements, including statements related to the future performance of our portfolio.
Development pipeline impacts of acquisition dispositions and mezzanine program, how construction business liquidity position.
Portfolio performance and financing activities as well as comments our outlook.
Listeners are cautioned that these statements are subject to certain risks and uncertainties many of which are difficult to predict and generally beyond our control, particularly in the light at the adverse impacts of the coded 19 pandemic on U.S. and global economies.
The risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review the forward looking statement disclosed in our press release. This morning, and the risks factors disclosed in documents, we have filed with a first the FCC.
I'll also discuss certain non-GAAP financial measures, including but not limited to FFO normalized AFFO.
Definitions of these non-GAAP measures as well as reconciliations to the most comparable GAAP measures are included in the quarterly supplemental package, which is available on our website.
Hofler Dot com.
We will start the call today by discussion October 19 update at this time I'd like to draw your attention to our cobot 19 presentation that we published this morning.
I'll turn the call over to live.
Thanks, Mike.
Good morning, everyone and thank you for joining us today.
As we all continue to fight the pandemic than our own ways. We express our gratitude to all those who are battling for us on the front lines.
And pray for those who ever been affected by Cobot 19.
As you saw from our earnings release this morning.
The first quarter was another strong period of performance of the company.
Normally this call would beat your much attention on such impressive results.
As we all know the situation at hand is far from no.
My primary focus today will be on the current status of our business.
And the steps, we're taking to mitigate the near term effects of this disruption on our company.
As the company's largest equity holder.
The decision to suspend the common dividend was not taken lightly and affects the board and management as a group.
More than any other shareholder.
Our board made that decision as well as the adoption of substantial cuts and board compensation and acceptance of my voluntary reduction in salary.
Despite the fact that the company remains cash flow positive for the foreseeable future given at the current reduced level of rent collection.
We view these conservative moves as first reaction to the uncertainty over the actual level of rent collection over the next few months.
But much more importantly, as an investment in the long term value of our company.
We want to being the strongest position possible to take advantage of the many opportunities that are almost certain to arise once conditions improve.
This is consistent with the formula that we have successfully employed over the last four recessions.
Simply put.
Pay your bills.
Work with your tenants can serve your cash.
And be ready to outpace your peers and the subsequent recovery.
What a difference a quarter mix.
Three months ago on our last earnings call. We were on the cost of achieving one of our long term goals.
Financial metrics consistent with supporting a share price in excess of $20.
And we were well on our way to a second billion dollars <unk> equity market cap.
Although we could not foreseen the subsequent disruption caused by the pandemic.
I can tell you that we have not changed either of those goals and we look forward to their attainment and then not too distant future.
Management firmly believes the current share price does not come close to representing the value of our diversified high quality portfolio and our construction and development businesses.
This is why you have seen me, our chairman and our lead independent director, adding to our already substantial positions in late March.
Over the next several quarters.
We believe that investors will recognize that the monster will strength of our diversified model.
The quality of our portfolio the value of our construction and development platforms.
And it's a termination of our management team.
We expect they will reward the company in much the same way as they have in previous years.
As most of you know do 2019, we more than tripled the returns of the read index over the preceding five years.
And we intend to rival that performance over the next five.
The rig count a little bit of our corporate history.
After the recession caused by 911.
We emerged as one of the strongest commercial real estate concerns in Virginia.
Following the great recession of 2008, we emerged as one of the strongest commercial real estate firms in the southeast.
We feel strongly that once the current downturn is behind us.
We once again demonstrate our abilities.
We will be recognized as one of the country's strongest small cap rates.
And all this will be the fifth <unk> severe economic disruption that our leadership team will navigate.
And I expect the same long term positive results that we produced in the first for.
Here at the company. The team has continued to function well over the last two months, despite working remotely and under unprecedented conditions.
We've made significant investments in our I T systems over the last few years.
Which is paying off handsomely in this extreme environments.
And our Tech staff has seamlessly integrated the new technology into all operating groups.
All divisions are running smoothly and their professionalism of our team is on full display.
Each and every employee of the amount of Hopper team is fully engaged and many of worked tirelessly to produce this interim update.
My sincere thanks to all of our staff and I look forward to seeing you all as soon as possible.
Turning to the April update that that we published this morning.
I'll walk you through the various components of our business and the current status.
Let's begin with slide three.
Which illustrates the strategy we've employed across all our divisions to help ensure the health and safety of our team members clients tenants and subcontractors.
Well as our posture with respect to rent collection and deferments.
What we've learned through the last four recessions is that how you conduct yourselves during the crisis has a lot to do with how quickly and robustly you come out of it.
We intend to make the best long term decisions for our staff and the company, while maintaining the integrity and compassion we're known for.
Page four offers a snapshot of our construction business.
This substantial income generator is uniquely hours across the REIT universe.
You'll recall that we entered the year with one of our largest third party contract backlogs ever.
As you can see we ended the quarter with $236 million and remaining contract value.
Total that will take us well into 2021.
In addition to adhering to all local guidelines, we have initiated protocols for temperature testing protective procedures and safety gear as construction proceeds uninterrupted.
Our construction group has maintained its high rate of production and profitability despite the difficult conditions.
This performance is no different than what we have come to expect from these professionals and we greatly appreciate their dedication to the company.
Assuming no change in government guidelines, we expect this division to contribute $7 million to $8 million of gross profit.
Which is in line with our previously disclosed estimates.
Turning to page five.
We've outlined the status of our rental income collectively and across all asset types.
As you can see we're ending April with nearly 80% of our expected portfolio wide rents collected.
This level of cash flow, while obviously not ideal is more than adequate to sustain the company over the medium term.
We offer these facts is further testament to the strength of our diversified platform.
Mike will give you more specifics on our financial status a little later in the call.
Let's look at the sectors individually.
Starting with multifamily on page six.
As you can see these assets are performing at a very high level, despite the economic circumstances.
April rent collections top 97% and the remaining tenants who have asked for rent relief due to loss of employment.
Being placed on reasonable payment plans.
Turning to page seven.
You'll see that the office sector also had strong rent collections through April with only a few tenants requesting rent deferments, while all of our top 10 office tenants remain operating and current on their obligations to us.
We expect this component of our NOI to remain fairly consistent with our previous expectations, assuming offices reopened and the reasonably near future.
Several several of you have inquired about our exposure to we work.
We believe that there are some misconceptions in the marketplace about this topic and we wish to clarify the facts.
To be clear.
We have one active lease with we work.
They occupy 60000 square feet at our city Center asset in Durham, North Carolina.
We expect them to stay current on their lease commitment or we will use the remedies available to us under the weeks, including invoking their corporate guarantee.
This lease constitutes 1.6% of our annual base rent.
That said.
There are two additional pre commencement leases with we work.
One it Wills warfare, the inner harbor in Baltimore, and another with our partners SJ Collins at the Interlocken Atlanta for which we are a mezzanine lender.
As neither we nor Collins have expended any tenant improvement funds in either space and occupancy is several months to a year away.
We open discussions with we work early this year to reduce or eliminate their leases in these two locations in order to limit our exposure to this tenant.
We work is also interested in reducing their exposure to us as all three of these locations carry a multi year guarantee from the corporate entity.
We expect to announce the results of these discussions within the current quarter.
We're very confident in the lease ability of any additional space that we may retain as a result of these negotiations and hope to provide an update on that aspect at that time.
Moving onto the retail portfolio detailed on page eight.
As most of you know we feature a high number of neighborhood centers anchored by high credit grocers.
These stores, along with convenience stores pharmacies fast food outlets and other essential businesses.
Are performing well during the crisis and are largely responsible for the 57% of retail rents that were collected in April.
We collected 87% of rents due from our top 10 tenants.
This is not surprising given our nearly 40 year history as an owner of grocery anchored neighborhood centers and their performance in recessionary periods.
The deferred rent is largely attributed to full service restaurants personal service outlets entertainment venues and junior anchor stores.
Virtually all of these establishments are closed or operating at greatly reduced capacity and have requested April rent deferments aggregating some $2.8 million.
We're working with these tenants commensurate with their financial status and their potential access to government assistance.
At this time, we believe that the vast majority of these departments are collectible in most cases by year end.
Until we know the timing and conditions of reopening we intend to stay flexible in these agreements in order to avoid further negotiations.
Page nine give some further detail in the makeup of our retail sector and a breakdown of collected April winds.
Notable here, it's a somewhat counterintuitive fact that our regional and local tenants paid rent on par with a national tenants.
We believe that this is indicative of the fact that our southeast markets are a bit stronger than those other regions represented in the nation as a whole.
Lastly, if you will be a few of you have inquired about two tenants, specifically regal cinemas and bed Bath and beyond.
As a reminder portfolio wide, we only have two leases with Regal cinemas and four with bed Bath and beyond.
Those of you who have followed the company for years no that both of these tenants occupy prime real estate and the older Center, we purchased a few years ago adjacent to and now incorporated into the town Center in Virginia Beach.
You'll recall that the purchase was made for the expressed purpose a redevelopment and expansion of town center.
These are the only tenants on this 10 acre site, which we envision as prime for multifamily development.
The current crisis may well give us the opportunity to unlock the full potential of this site sooner than we had expect anticipated.
With regards to the other locations for these two tenants, we're working through agreements to pay for them to pay the deferred rent.
The next slide gives an update on our development pipeline.
Well I'll ask Mike to walk you through the particularly as of this graphic it's important to note that there aren't any further cash requirements and both our current projects under development or the mezzanine loan program.
Similarly, the previously announced development projects that have been placed on whole do not require any for any additional funds.
As we own the land parcels and we're not under any pressure to start construction prior to conditions substantially improving.
Remember.
Two of the three projects are predominantly multifamily assets. The third 10 try on in Charlotte North Carolina.
We'll be anchored by publics and a fortune 100 firm.
We don't expect any changes to the lease terms beyond added flexibility on the delivery date.
One silver lining that we hope to take advantage of when we do start.
Is the reduced construction pricing that in our experience over the last four downturns has been the norm.
Now I'll turn the call over to Mike for the rest of the update.
Thanks. Good morning. These are certainly unprecedented times and I hope you and your families are healthy.
With normalized FFO of 32 cents per share and positive same store NOI to first quarter results, where a good start to the year prior to the effects of the pandemic.
I cooperating portfolio occupancy for the first quarter was strong at 96% with opposite 97 retail at 96 and multifamily at 94.
Same store NOI was positive for first quarter GAAP was positive, 1.7% and cash was positive 3.6%.
As you're probably aware on April 2nd we list you out 2020 guidance because of the uncertainty surrounding the impacts of the pandemic.
For the details on the first quarter. Please see our supplemental package that we published this morning.
As a crown have already started to spread throughout country. We made the changes to operations Lou just discussed at the same time, we started to this position the company the anticipated recession.
He steps included suspending development projects, not essential capex acquisitions, lowering expenses, where appropriate and lastly, suspending the common dividend.
Now turning back to the deck.
Page 10 illustrates the future cash requirements on the development and redevelopment projects.
Currently two projects under development Wells War in summit place.
Both of which are nearing completion through.
The remaining cost to complete these projects will be funded by the construction loans, therefore, no future cash requirements.
The town center redevelopment projects are well underway Columbus village is night is now 95% leased and close to completion.
Renovations at the Cosmopolitan apartments continue but now at a slower pace.
We decided to take fewer units offline going forward with the anticipated slowdown and leasing activity.
You expected cash requirement for these projects is $9 million in 2020.
Due to the current environment three development projects were suspended prior to commencing construction.
The Coke total cost to date of these projects is 22 million, including $14 million for the cost of the land.
Other than minimally and carry costs there are no future cash requirements until construction is commenced.
In summary, the total cash requirements for the development and redevelopment projects are $9 million.
Please turn to page 11 relating to the mezzanine loan program.
Currently two projects are under construction, the interlock and the solus at Antilock.
Those are both of which are located in Atlanta and are scheduled to be completed in the second quarter of 2021.
We believe both projects a trophy assets that will sell for low cap rates, resulting in significant profits for our partners.
As with our development projects, we have no future cash requirements.
Project construction loans funding all remaining cost to complete.
But the sale in loan pay offs of the Delray whole Foods center, and Annapolis junction being delayed due to the pandemic.
We decided to stop recognizing GAAP interest income on these loans effective April onest.
We believe this is prudent to allow for an extended hold period.
The interest on the loans will continue to accrue with the expectation that the loans, we paid in full upon the sale of these properties.
As you can see on slide 11, including these changes expected net mezzanine income for 2020 $16.6 million versus $17.7 million from the February guidance.
This will reduce earnings in the current year by a little over one cents.
As discussed in the past.
Ill mezzanine projects were underwritten to the same standards as our own development projects. We believe these are all top quality assets, but long term value.
We are still planning on exercising our discounted purchase option on next in square once it's completed in stabilized.
And for some reason me to take over any of the other projects we are happy to do so.
Please turn to page 12 debt maturities.
As a reminder, during the fourth quarter of 2019, we completed the refinancing of the remaining 2020 loan maturities and closed on the recast of the unsecured credit facility, which extends the maturity of the revolver push into January 2024 in the term loan to January 2025.
In 2021 full loans mature, which are listed on the bottom to page.
Plenty of time before these mature we will start discussion will lenders soon on refinancing alone extensions.
With the decrease in April rent collections, we started the process of requesting temporary loan covenant modifications othree secured loans.
To date, we've executed modifications on them Premier retail and apartment loan and a 249 Central Park have found plaza in south retail loan.
Turning to page 13 as discussed in the past.
Strategy has been a targeted mix at 50% fixed and 50% variable rate debt along with interest rate hedging strategy.
At December 31st 51% of our debt was fixed and 77% of was either fixed or hedged.
Last quarter, we discussed being patient with interest rate hedging due to falling interest rates.
During the first quarter, we took advantage of the interest rate environment.
We bought 200 million of LIBOR caps and swap block to $145 million of debt to fixed LIBOR at a blended rate of 51 basis points for four years.
But these transactions I total debt is now 57% fixed and 97% is fixed or hedged.
The weighted average interest rate as of March 31st was 3.2%.
With these moves and the current LIBOR for yield curve interest expense is expected to be low for the next couple of years.
Hello has a fixed charge coverage.
In time, such as these this metric becomes more relevant than overall leverage.
Using april's estimated cash flow from operations, a fixed charge coverage ratio is 1.6 times, including Capex in the preferred dividend.
At this level of lower cash flow continues to seeable future, we can operate out business NPL obligations.
In March we drew the remaining balance available under our credit facility.
Resulting in a current outstanding balance of $355 million.
At March 31st to credit facility ratios will within the loan covenant requirements.
If april's rent level of rent.
Collection continues through the second quarter.
We believe the won't be within the required covenant ratios, but the possible exception of leverage.
Discussion have begun what lenders request and temporary covenant modifications with expected approval before the end of the second quarter.
Based on our conversations to date, we are confident that our lenders with who've had relationships spanning years in some cases decades will accommodate us upon this request.
With April is level of rent collection in construction gross profit the company's cash flow is positive after paying current levels of DNA staffing paying all debt service and the preferred dividend.
This week the board approved the July 15th preferred dividend payment.
And these uncertain times, we will continue to be transparent and keep you informed as it affects our company.
Now I'll turn the call back to live.
Thanks, Mike.
Before we start the question and answer period.
I'd like to thank our board for the significant governance enhancements that were approved at our February meeting.
Although it might have gotten lost in the midst of the pandemic.
The decision to opt out of Muto as well as the adoption of several other best practices.
Served to enhance what we believe was all an already stellar SGS dance.
I hope you can find time to take a look at our 2019 sustainability report and related enhancements on our website.
The current state of affairs will end and when it does.
Good corporate citizenship, we'll be back and focus.
As it always should be.
Operator, we would now like to begin the question and answer session.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press star one on your telephone.
Your question has been answered and you wish to withdraw it you may do so by pressing star too.
If you are using a speaker phone today, please pick up your handset before entering or request.
Our first question today comes from Dave Rodgers of Baird. Please go ahead.
Yeah. Good morning, Lou Mike. Thanks for all the added detailed on collections and the color that you gave on the call.
Maybe wanted to start with Mike and just kind of go back to the liquidity picture overall, and just kind of shore that up you did a good job of explaining uses I think in terms of development redevelopment.
And next in square, but can you talk about kind of the remaining sources that you would have to tap. It. If this continues and kind of where you get that additional capital from.
Hi, Good morning, Dave I'm, sorry at this point in time, we don't think we need to go a cap anything certainly if we see an opportunity to do that through selling assets.
Certainly we had the purchase and sale agreement to sell those seven shopping centers. It Unfortunately fell through.
But there is still people looking to buy assets. So when people look at is that.
Nothing as we do have some as money being pay later in the year as well.
And then in terms of credit line capacity and cash on hand kind of post quarter end weren't where are you sitting today.
Like I said, we fully drew our credit facility, we've got about 25 million in cash today.
Okay.
Maybe you go into your comments Lou on the Mezz projects and Mike Yours, as well you kind of talked about maybe the exit plan or how you would think about each of those but maybe give us a little bit of color is if you had to step into though is once you're kind of last dollar LTV exposure.
No it's more of what would that due to the balance sheet overall are kind of cash flow from your perspective, if you had to step into those and I realized maybe not a specific answer on each one but just some broad comments about kind of where LTV would be net about everything.
Well broadly Dave as as Mike said.
On the phone.
We believe in the long term value. These assets as we've said every quarter for last several we'd be happy to own them.
We don't.
We don't wish it will have our partners, but I think it's important to note.
You don't build real estate for or would you think is going to happen over the next few months.
That's a fools errand, we underwrite projects for the long haul long term value in good locations.
Which is why we decided to undertake those as well as our development projects.
We've been right for 40 years, we expect to be right. This time.
I don't know what's going to happen over next few months.
But I do know good real estate holds value over the long haul. So I don't expect there being any impact to the balance sheet other than positive if we're able to own these over the long term.
Okay. So the loan to value on each of those is in the 60% to 65% range, that's about where construction lending was when those were done.
And that's that's the dead, but below your your portion of the stack or that's including your commitment.
No that is the underlying senior and then you have our Mezz and then our partners' equity didn't put in.
And your meditate.
Yes.
The underlying senior loans are in that 65% range.
Okay.
And then real quick question, Mike for you on bad debt expense than any straight line rent write offs I mean, how much of that have you seen so far what do you expect to kind of record throughout the year.
It seems like most of that's gone into deferral so far.
So far on the on the retail everything has been and deferment no abatements at this point in time certainly it at the end of the quarter and right now we haven't seen anything.
Large bad debt write offs.
But certainly that may change.
We change going forward.
Okay. Then obviously, we had the uncollectible on I'm, sorry, any we had the uncollectible, we're estimating on the multifamily around 30 grant.
Right Okay.
Last question for me just on the dividend, obviously prudent and this time I.
I guess when do you think about or when does the board think about kind of reinstating that in terms of timing and then from an amount perspective do you guys have you talked about changing the level of the dividend overtime just to support the ability to go out be more aggressive with development an acquisition hostess crisis.
Sure Dave Great.
Good question.
Now let me first say this.
I personally own.
Well over 2 million shares and Opie units of the company. Our chairman owns over 5 million shares and hope units and the company entire management team collectively is somewhere in the neighborhood of 10 million shares an open units.
So.
Suspending the dividend, obviously hurts us the worst in the short term.
But what we're much more concerned with is getting the value of our equity back to where it's supposed to be.
And so while we want to bring that dividend back prudently as quickly as possible.
Much more focused on getting us back to where we're supposed to be and beyond.
And we're going to use all available means to do that.
The great thing about the real estate business is that you get to prove what you say and there are several doubts just like there were when we came.
Public with our IPO and as we ticked off those doubts and put them. The bed. All we ask is that people recognize exactly what's transpired and I feel the performance will be where it needs to be.
I would love to think that the dividend is going to return with next quarter.
The reason for the suspension is that we want to see what happens in May and June we want to see the direction of the stay at home orders being lifted.
And with the ramp up looks like beyond that so.
As a as the saying goes no prepare for the worst and hope for the best.
And take advantage of everything you can on the other side, where our intent is to recover much quick much quicker than our peers and.
Like I said the good news is they don't have to prognosticate you actually does have to do it we're fully prepared to do that.
Very true thanks, guys.
The next question is from very Oxford of D.A. Davidson. Please proceed with your question, Great Hey load just to build on that dividend question. When you look at reinstating in it and we don't get let's say the worst case scenario. It doesn't happen. It seems like you would have to reach.
State that probably fairly close to two the old rate to maintain week status or not necessarily.
No we would we wouldn't need that to Rick maybe retain status go ahead, Mike. Yes. There are we made the first quarter dividend. So like each based upon taxable income. So we'll certainly take a look at that during the year, but I think that.
Well, we've made in the first quarter hopefully getting going later this year will be will have plenty of room there.
Right. Okay. Thanks, and then next question.
You know I appreciate the retention of cash and the conservatism, but are there some pockets of opportunity or had they not kind of presented themselves right now and you know maybe my question also is looking at the.
You know them as the market as far as opportunity.
Good.
Yes.
The answer is.
And go at home and a bunch of cash but yes.
Yep.
There there are huge pockets of opportunity.
And like I said this is.
This is our fifth recession.
Each one has presented its share of opportunities and when you have a platform that includes construction, where you take advantage of decreased prices and we haven't seen yet what happens to labor or when you have double digit unemployment to oil when you have 10 dollar a barrel cost.
That's all coming forward.
Between us and our joint venture partners.
We're going to be all over that.
And so we're really looking forward to what happens next.
It will take a little while to play out we've got to get passed the next couple of months and and keep the formula the same but.
Each and I don't want to waste everybody's time on on on this call.
But after 87 after 92 after 2001 after 2008, we had exactly the same formula and I have no reason to believe that it won't work exactly the same this time around.
Great. Thanks for the color guys.
The next question is from Rob Stevenson of Janney. Please proceed with your question.
Hi, good morning, guys.
What percentage of your commercial tenants, our electronic pay versus old school mailing in the Czech and how does that also compare and the apartment space.
Oh.
Gosh, Rob I'm, sorry, where we don't have that at our fingertips I'm sure we can get it.
And zip that to you.
I know the trend has been more and more electronic but I wouldn't want to quota a percentage as we sit here today I'm sorry.
I guess the other question would be like when did the month you basically no. What's your collections are gonna be what is it pretty well settled by the 15th of the month.
On may 15th or you're going to know what your may collections are like when you know because the stuff comes rolling in sometimes it's it's the first of the months sometimes its other points in the month you know do you have their visibility yet and that sort of.
That's a that's a better question, we can answer that way.
As as a rule, particularly with these national tenants they make use of their grace period. So it's usually between the first an intense that they come more back weighted to the 10, but we have a number of tenants.
That also have mid mid month dates.
We published our update book as of April 24th and I can tell you those seven days preceding that were some fairly substantial rent collections.
So.
It's it's certainly weighted towards the first two weeks.
But the third week uneven and when we were collecting April rant as late as yesterday.
The third and fourth we still have a of some viability we've got a board meeting.
The last week in May.
And we may well put something out coming out of that coming out of that board meeting.
It's that the unknown here is well, obviously everybody knows what the on unknown Czar.
How long is the stay at home going to be in place, what's the ramp up look beyond that and the wildcard is how many of these tenants are accessing of the the government assistance, we have a number of tenants.
That have applied for only a few have gotten so far so as that comes through.
We may be pleasantly surprised with the may collections, but as Mike has said.
We're assuming it's not going to be better than it was in April.
Thats going to be our base case, and as I hope we made clear.
We are happy to sit here and tread water at that level, we don't have a need for capital.
At this stage of the game.
And again is that that Formula is the same is just pay your bills work with your tenants can serve your cash and be ready to pounce on opportunities.
You said that the there was some coming it in the last week since the your your numbers were cut off as of April 24th we look at that 78% today is that meaningfully change are we talking about a person or something like that yeah. It's a couple of percent. We I think we might have gotten to 80.
Okay.
But nothing that material, Okay, and then you'd you'd said that after the board meeting you you might wind up publishing some more stuff on May I mean, if that could it are you guys anticipating the that'll be while we're in this sort of environment that that will be sort of regular sort of monthly type of publication at some point at the end of the month or so publishing what you collected.
Yeah, we.
We want to make sure we are completely transparent in this period.
And there's no reason for us to afford that information good bad or in different we want to get our facts out as fast as humanly possible I think that that will be a good date I'm, hoping that.
I'm, hoping that we have some idea on the direction of some of these states that are opening up.
But you you can count on us too.
To put forth everything that we know because we think it's important that the debt investors now.
Okay, and then back to Dave's question about the the suspension of the dividend what measures. You know is the board going to need to see the reinstitute is it basically whatever month, we get to that 80% collections or so is up to 85 or 87 or something like that we're starting to trend in the right.
Direction do you guys hold off into the fall with Fallaci, saying that it's good to we're going to have a rebound of this plus the flu season, where you don't want to be reinstituting, the dividend and not having to spend to the second time, how's the what sort of.
Roadmap is the board sort of looking at the sort of as they reevaluate this thing overtime, not specifically, but sort of what are those sort of road barks, we sure markers that we should be looking out here.
Yes, it did so.
Yeah, Unfortunately, Rob my our crystal balls, not not better than anybody else's we.
We really want to look at directionality.
It's not so much whether we get 85 were 90% of Iran sort of 75 or whatever would be it really is are we on the back side of this thing.
The Fortunately, we're in the southeast markets, where the governors are already making plans to open up.
And we really need to see how that how that plays out.
We're not going to be overly conservative so where you know you can't do anything till they are the vaccine I think thats realistic and of course is not realistic for our tenants.
There's a the one thing about a crisis like this is that you get better information every day and so I'm counting on the fact that 25 26 days from now we'll have better information than we did like I said we're.
We want to bring the dividend back as soon as humanly possible.
At the same time, we want to 1950 stock price even worse than that.
And so.
We've got a way both those things get the thing that we all have to keep in mind just like for the last four recessions they do and.
Things typically go back to the center line. There are short term changes and there may be some long term trends, but they typically go back to the centerline.
And just like commercial real estate has been for the last 100 years, it's going to be extremely valuable again as long as its properly underwritten in in the right locations. That's what we've done since 1979.
We're not going to vary from that formula.
Okay, and then you know you're saving I guess somewhere around 74 million a quarter I guess with the suspension of dividend any plans to use any of that save liquidity to buy back stock at under 10 Bucks.
You know not not at this time.
You always have to weigh the best use of your capital.
There are some really good projects that are on hold out there right now that long term value wise are going to be better for us than buying back our stock.
Never say never.
But.
All I can tell you is our investor hat.
Is firmly on our heads.
And secondarily, our management hat is.
His on the desk so.
It's going to be something that of trying to stay in the middle of channel.
We know how important the dividend is particularly to our open unit holders about a third of the company is an LP units.
Those people are depending on dividends.
And so we understand that.
Uniquely.
But at the same time institutional investors are looking for overall return.
And I can tell you we're completely focused on that so.
Sorry, I can't give more clarity will will be as clear as we can as fast as we can but we really need to see the directionality of of the recovery.
In order to make a good a good decision.
Okay did you guys get the the deposit on the of on the retail sale.
That was forfeited is that money in your but in the bank for you guys and how much was that.
It's a it's a million dollars, it's still an escrow.
We fully intend to get it out of escrow.
I'm sure that there'll be some controversy about that from the from the buyer.
But.
As these things typically go.
You know how this works.
We're saying they are in default, they're going to come up with some reason some lawyers are going to make some fees and then we're going to get the money.
Okay, and then last one for me on the three developments that were suspended how long of a delayed you have before the tenants can back out or have you renegotiated already with them for more time I would think that somebody like publix would want the space as soon as possible.
Yes, sure do and we want to give us film as soon as possible other working with US we're in constant contact there as well as with the Fortune 100 the tenant.
That's a that's a timing question, we want to take full advantage of lower prices at the same time, we don't want to wait, but so long because you don't want to take advantage of tenants that are counting on you to produce facilities.
So we're looking looking forward to.
Is that going to be before the end of year I hope, so, but again, we need to see that directionality in terms of the two multifamily projects.
And plus two more multifamily projects that we have in predevelopment.
That timing is completely.
Completely within our or Bailiwick, and we're just going to we're going to try and figure out the exact right time.
Okay. Thanks, guys appreciate it.
The next question is from Jamie Feldman of Bank of America Merrill Lynch. Please proceed with your question.
Thank you and good morning, I was just hoping you could talk about capital sources I know you had talked about.
<unk> opportunistic investment opportunities coming out of this but then I think you also said you were 25 million of cash needs.
John Your credit line. So just how should we think about it.
External sources, you would caf.
Just to get into a position to be buying.
How do you how do you find that.
Sure.
Jamie.
Remember, our our models a bit different than other folks.
I'm not talking about buying facilities that are distressed or that someone's, having the fire sale, we're talking about development, adding value.
And the way you do that Theres, a myriad of ways you do that when you have a diversified model.
You know we have a number of joint venture partners. We may bring in some external equity we may be funded ourselves.
Well, we may have our partners take a bigger piece, we made pre sale.
There is any number of ways and it's going to be a mix and match I mean, we love to own everything.
At the same time, that's probably not realistic because the opportunities are going to be a lot more than we can swallow on our own.
This is where this is this is why we get paid.
We need to be flexible, we need to be smart and and we need to act quickly where it makes sense to act quickly and we can have our eyes be bigger than our stomachs. So.
You may see us sell a couple of opportunities you, it's either presale or sell dirt.
But I don't know that's going to be the case. Our first posture is the quick this road back to $20 their share price.
His valuable real estate in house.
So we'll see how that all develops over the next six months or so.
Okay, and then as you think about.
The retail tenants that have paid rents are those that haven't I mean.
How do you think about the timeline I.
Yeah, I guess the better. The first question is really can you maybe just give an update.
Reopenings across your markets or maybe your largest markets just what the latest is and how that goes comes into your thinking and then I guess the second part of the question.
How do you think about the ability of your tenants to survive.
Goes on for several more months.
Think about the credit quality and their liquidity.
Sure.
Well first of all it's I mean, everybody is still the again were mainly talking about Georgia, North Carolina, South Carolina, Virginia, and Maryland.
And and as you as I think everybody knows Georgia is at the forefront right now.
And we have not seen the.
We have not seen the results of them opening on this very limited basis, yet I think it's too early to tell.
It seems like those four or five states are going to be amongst the first on the eastern seaboard.
That get going we don't know what that ramp up looks like it just reminds me a lot Jamie of the 2008 recession.
You probably heard Micronized say before our portfolio went all the way down to 92% occupied.
And which astonished an awful lot of people.
I'm expecting the same sort of performance here in the reason for that is we take care of our tenants.
We're not interested and forcing them out of business, there's going to be a number of these people that are going to open and have limited hours are limited ability to put people in seats.
We're going to work with them.
At the same time, we want to make sure we don't get taken advantage of.
And I guess said the wildcard in all this is how much the government help.
It's going to accelerate their ability to pay back deferred rent.
No as always unfortunately, theres going to be casualties.
We have a lot of small shop tenants.
And some of them just can't handle being out of the commission for three months or six months.
And so they're there'll be some of that.
But.
But largely.
If we are if our country is back on its feet.
Albeit a little bit shake Lee come fall, then I think the vast majority of these guys are going to make it.
Think you'll also find that some of the national retailers that we're struggling might use this has the opportunity to do it.
Chapter 11 reorganization and shed some of their said some of their their underperforming stores.
You are saying some of the ones in your portfolio.
I am saying.
May I think everybody knows the names that big soft good guys.
Well, we again, we don't have department stores. It's we've got some of these junior anchors.
Well, we'll just have to see how they come through it.
Okay.
And then just to confirm on the accounting side.
It sounds like there's a decent number of.
Small shop mom and pop.
Retailers I mean did you have you reserved against those in terms of accounting.
Switching to cash payments or something like that you're moving straight line or I'm, just trying to figure out how it showed up in your numbers so far.
No. It has no effect in the in the first quarter, because everybody was paying their rent in the first quarter. It started with us in April.
The GAAP guidelines are today that as long as you don't do abatement in its deferrals is no change in the.
In the straight line rent and obviously like you. We can any time has to evaluate each tenant to see whether or not the viable going forward and whether or not we have to write off to a bad debt, we haven't write them off or not.
So at this point, you're assuming all deferrals and no abatements is that right.
Correct. All those negotiations right now are all deferrals, we haven't had anybody say that they decided not to open so.
That they're all looking forward to get back to work just like.
All of our office tenants are chomping at the bit as well.
Okay.
And then I guess just last question on the office side, I mean, what our tenants telling you about what might need to be different about the buildings or their space buildouts when they do reopened.
Involved in that.
Managing some of those changes.
Yeah, we're working with a a couple of tenants that when it come into a and enter facilities.
I think the.
Despite the headlines what we're seeing it the ground level is people don't want to overreact to short term.
Set of circumstances.
Like I was saying earlier you do you don't build real estate for what's going to happen to next 12 months now theres. Some procedures that are going to be different once we open these offices obviously.
For at least some limited time and then if you've seen all that on the news cast.
With the additional cleaning and potential masks and spatial and social distancing, even within the office, maybe even staggered shifts.
We're going to be accommodative and every piece of that I don't know that anybody should be redesigning real estate based on that.
I've seen overreactions over the last 40 years and.
Very rarely see them workout.
Okay. All right. Thank you good luck with everything.
Thank you again.
The next question is from John Guinee of Stifel. Please go ahead.
Great. Thank you a smart smart decision on the dividend.
Question for you, Mike you mentioned.
We had 25 billion a cash today and your balance sheet as of the 331 was 48 million where did the 23 million go what were the major expenditures there that caused the cash to go from 48 to 25 in the last 30 days.
Well part was the payment of the dividend John as well as funding the.
Some of the ongoing redevelopment here at town Center.
Okay.
And then you off so I noticed a yearend book.
Value at the NAS.
Mezzanine program was up 159 million and at the end of the 331, it's 179, what caused the Mezz debt book.
Go from 159 to 179 million.
So they will be some draws on uniloc project and as well as the crude interest.
Okay. So the that's what we had forecasted at the first of the year John that does that those were those are now fully funded.
Okay.
Looking at your slide deck. The Mezz. The interlock is 67 million dollar number, but you expect to collect.
$12 million ish year.
My recollection is some of that isn't incentive payment and the rest is just ordinary income.
Do you still think that you're going to get paid off by the end of the year on that one and be able to collect all 12 million.
No we wouldn't get well on the in a lot we don't get paid off until it closes there our interim payments.
On the interlock alone on some transactions that are happening along amongst along the site during the year.
We expect to collect.
But but 12 million to be a number on the 67 million.
We believe yes and then.
And then if you look at your you said little bit your cash flow positive.
That is that when you treat the.
The mess collections as cash coming in the book.
Or are you still cash flow positive if you look at those Mora accrual accounting.
No cash flows cash flow John Thats, all that that's just strictly on a cash basis.
I'm glad you brought up that point.
Zone trying to make it clear Mike.
Said it in and in his in his comments.
The fixed.
The fixed charge coverage is extremely strong and that is based on cash not accrual.
Yes, we believe at this level, it's going to stay extremely strong and I wish people would pay more attention to that sort of thing that all debt is not created equal and we all talk about the base level.
Benchmarking check the box for debt to EBITDA.
But if you have.
Long term fixed rate debt and an extremely low rates.
Then that as an asset not a liability.
And while.
Obviously, we would prefer to have a bit more in cash reserves.
But I can tell you anybody that has excess cash reserves beyond a reasonable place is doing a disservice to as investors, making 0.1% on cast is not going to get use.
We think that will become important again, we're all convinced we're all completely wrapped up in what's happening over these next few months and obviously we have to be.
But everybody has to remember in the not too distant future earnings are going to matter.
And when you take into account.
3% debt out there and what our cash flows look like than than earnings are going to be extremely strong.
Okay, and then Mike if you look at 2019.
You know or do you recall, what your taxable income was per share. So we can get a sense for.
What the minimum dividend what should could have been minimum dividend.
Was for 2019 to get a sense for what 2020 might look like.
John I don't I don't remember.
Just seen really we pages 17 million in dividends in the first quarter and obviously the taxable income for this year is gonna be dependent on how much rent gets paid this year. So obviously, if the rent collection state a lower level of taxable income will be will be lower if we see is tax election start coming back up and our income goes up we can.
And then.
Take a look at the dividend as time goes on.
Great Okay.
Good luck guys. Thanks.
Thanks, John.
There are no additional questions at this time I would like to turn the call back over to Lewis the Dod for closing remarks.
I really appreciate everybody listening to the call we.
Hope everybody stays safe hopefully.
The next earnings call, we won't be just talking about pandemics.
Well look forward to keeping you guys updated and.
Stay safe and we'll talk to you soon thank you.
Okay.
This concludes todays conference you may disconnect your lines at this time. Thank you for your participation.
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