Q1 2020 Earnings Call

[music] good morning, ladies and gentlemen, and welcome to the coming off first quarter results Conference call. [laughter] takes time all lines are you listen mode only.

Following the presentation, we will conduct a question and answer session.

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Operator.

This call is being recorded on Thursday March 7th Twentytwenty.

I would now like to turn the conference over to exactly.

Please go ahead.

Thank you Dan Good morning, and walk into todays conference call, where we will be discussing our financial results and highlights for the first quarter 2020.

The presentation for this call is posted in both English and French and the Congress called section of our website.

Inline with our disclosure principles access to this call is open to financial analysts investors the public and the media.

The question period will be open to financial analysts.

Before I begin I would like to draw everyone's attention to the notice concerning forward looking statements on page two of the presentation.

With me today is our CFO had their Kirk members of our executive management team not you know they would pay easy pay retail and bout now how do you can easily be office and industrial.

We're also here with us.

Although we are here today to discuss the Q1 2020 results, which were only negligibly impacted by the Colgate 19 pandemic. There was no doubt that our Q2 results will be materially affected by measures aimed at containing the virus. We'll have more comments later on this.

Matter.

On page three please let me run you through our Q1 2020 highlights.

We delivered strong organic growth of 4%, a 17.4% increase in rental rates on renewal and are committed occupancy rate remained around 95%.

Our leverage stood at 51.3% in line with year end 29 team.

On page four our portfolio remains diversified with office at 38% retail that 34% and industrial at 27%.

Treat cove, it we were slowly making progress in our retail portfolio.

It goes without saying that the impact of that pandemic will be felt most in our retail portfolio as enclosed malls are currently closed.

We are waiting for further details on the small tenancy rent relief program and we are hopeful that there will be an additional program for larger tendencies.

We're also working closely with our provincial government on operating in house protocols for malls upon their reopening.

Interesting to note.

In industrial leasing activity is ongoing during coated.

From a geographical standpoint.

Montreal represent 67% of our portfolio, Quebec City, 26% and auto was 7%.

In terms of reopening of the Quebec economy.

Cut back city and smaller centers are reopening your head of the greater Montreal area, where Covanta remains a greater issue.

On page five in addition to maintaining our committed occupancy at close to 95% are in place occupancy rate was 91.3% at quarter end down 40 basis points since yearend 2019 up 160 basis points.

Year over year, and 90 basis points above our historical average.

On page six our efforts associated with these strategic plan put in place in 2019 deleverage delivered results with solid organic growth of 4% for Q1.

As previously mentioned leasing activity was strong with a 17.4% increase in rents on renewals 1.2 million square feet on new leases signed and both committed and in place occupancy up year over year.

Moving onto page seven in our office portfolio committed occupancy improved to 93%.

70 basis points year over year, and not 10 basis points since Q4 29 team.

The net rent on renewed leases increased 19.1% versus 2.1% in Q1 2019.

Our committed occupancy rate for Montreal further increased to 91%.

Part of the 6.8% ESP NOI growth in Q1 was fueled by 7.9% growth for our Montreal office or Bourbon portfolio.

Significant leasing transactions. During Q1 included a 320000 square foot lease renewal at 550 doing less state and gets no with the federal government.

Moving onto page eight in our retail portfolio.

Committed occupancy stood at 92.8%.

70 basis points year over year, and down 130 basis points since Q4 2019.

Our in place occupancy was 86.3% up 90 basis points year over year and down 100 basis points since Q4 2019.

Due to the pandemic and the shutdown of construction, we're experiencing delays of two to three mines in the opening of some major tenants, including essential services grocers I GA in Rockland and man in my shopping.

Moving onto page nine our industrial segment recorded the highest committed occupancy at 97%.

200 basis points year over year, and down 10 basis points since Q4 2019.

In place occupancy stabilized that 95.9%.

Most importantly, the growth in the average net ran a renewed leases reached 27.8% in Q1.

Heather will now discuss our financial results.

Thank you so that the good news and we had strong quarter validating the soundness of our strategic plan and the bad news as you're probably flipping to our April recollection page and ready to press Star one.

On page 10, operating revenues of $176 million, but the first quarter of 2020 decreased by 5.2% compared to the first quarter 2019. This decrease across $10 million resulted mainly from a 7.3 million dollar decrease attributable to properties sold in 2019 and a one.

$3 million decrease in same property operating revenue.

Net operating income of $88.3 million decrease by 0.9% year over year. This decrease in zero point $8 million, playing by the fact that operating expenses decreased by 9.2% well operating revenues decreased by a lesser 5.2%.

Moving on page 11 for Q1, our same property NOI increased by a solid 4% to $87.5 million.

Q1, 2020 grew up in same property NOI was driven by a strong 6.8% increase for the office portfolio supported by 6% increase for industrial.

And slightly offset by a 0.6% decrease for the retail portfolio.

On page 12 same property NOI growth of 4% was largely driven by a strong 5.1% decline in same property expenses, which came from all property type and reflect initiatives related to our strategic plan.

On page 14, FFO for Q1, 2020 was $45 million a decrease of 3.9% compared to the same period in 29, excluding infrequent items FFO adjusted reach $49.7 million at 3.6% increase year over year.

AFFO for the quarter was $32.8 million, a decrease of 2.2% year over year, including or excluding the same infrequent item.

AFFO reached $37.4 million, an increase of 8.2% year over year.

On page 15, if you look at numbers on a per unit basis for adjusted for the quarter was 27 cents an increased 3.8% over Q1 2019.

AFFO adjusted when for the quarter was 20 cents, an increase of 5.3% over Q1 2019. Despite dispositions completed during the year as a result, the payout ratio declined to 90%.

Moving on to page 16 in Q1, 2020 with prepaid closer to $100 million of mortgages with proceeds from new mortgages with a higher loan to value longer term and a 243 basis point lower interest rate.

That ratio was 61.3% our debt to EBITDA remains stable at 10.6 times are unencumbered asset pool stood at $2.3 billion, representing 1.91 times, our unsecured debt.

Further improvement from 1.82 time at year end 2019.

On slide 17 investments in Q1, and income properties, including capital expenditures leasing cost and leasehold improvements totaled $34 million up from five point up 5.5% from $32 million for Q1, 2019, including development activities Capex in Q1 totaled 41 million.

In dollars up 23% from $33 million in Q1 2019.

Ill now pass it back to Sylvain to give you additional color on the way we are handling this unprecedented endemic.

Thank you Heather on page 18, we put in place that crisis management plan aimed at ensuring the health and safety of our employees minimizing the negative financial impact of that pandemic on our business first enhancing our liquidity to ensure we have sufficient financial flexibility to navigate the uncertain.

The market environment, including potentially a second phase of that pandemic pressures on our cash flows and declines in property values.

Second adapting to the situation by granting rent deferrals that our agreed on a case by case basis with the goal of supporting smaller viable independent retailers are tenants. We have done next steps extensive stress testing various scenarios to assess the impact on our business.

Third accelerating our cost reduction program and putting on hold discretionary maintenance capital expenditure or new developments and fourth.

Managing our staffing level, which implied originally 200 temporary layoffs.

Which 65 were subsequently pack after quarter end converted to permanent layoffs.

In addition to the 200, we reduced our construction workforce by 75.

We take no pleasure in these head count reductions and are very focused on supporting our staff during this difficult time.

We're also assessing and getting prepared to adjust our staffing needs. Upon recovery. We also currently have more than 290 employees intelli work and around 100 employees at physical sites.

On page 20.

As that May six comment our had received 71% of contractual rents for April including 92% in office, 40% in retail and 83% industrial.

As previously mentioned for April we evaluated rent deferral requests on a case by case basis.

We have agreed to defer April rent for approximately 9% of total April rent.

We expect that certain tenants will also require deferrals support for may rental payments and we continue to monitor the situation.

We're also monetary rent relief programs.

As that May six we had received approximately 57% of the contractual rents for the month of me.

The could that government began a gradual reopening of the economy, including permitting per and permitting retail establishments with exterior access to resume business as of May 4th except for Montreal, where the date was originally may 11.

This now may 18th.

And with manufacturing and construction to resume May 11.

Our enclosed malls remain impacted pending or further announcement from the come back government.

On page 21, our liquidity position was $524 million at quarter end, consisting of $124 million of cash and $400 million of undrawn capacity on our unsecured credit facility.

Subsequent to quarter end, we issued a new series 100 $150 million, a five year debentures at a coupon of 5.95%.

We also received approval from our lenders on a $120 million secured line of credit, bringing our pro forma liquidity to approximately $792 million.

Our 2020 debt maturities totaled $480 million, while our 2021 debt maturities totaled $460 million.

Including a $240 million mortgage on the CN Central station property in Montreal for which we are exploring options for an extension of the term.

On behalf of management I would like to take this opportunity to thank all our employees as well as our trustees for their contribution in the context of this of this very special environment.

I will now turn the Mike over to the operator for the question period.

[noise]. Thank you.

Ladies and gentlemen, we will now begin to question answer session should you have a question. Please press the star followed by one on you touched phone.

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One moment. Please for your first question.

Oh.

Your first question comes from Jonathan Culture.

The company TD Securities.

Thanks, Good morning.

Good morning.

First question I know it's early in May.

If I heard correctly, you said, 57% of of rents are in.

What what's your expectation in terms of total payments you think you'll you'll be in and around where you were for for April.

It is early but I expect we'll be slightly below for the time being I have pending and now I'll pick up one big caveat I think pending clarification of the rent relief program.

It is our take that many tenants are just holding on until that day clarification, the program announced eligibility or not.

Okay.

And then secondly, I guess.

10 million in.

Cost savings you highlight baby's Q2.

How much not 15 would be.

Sort of property tax deferral and stuff like that and how much would be more permanent that you could sort of carry through so we're back to whatever the new normal is.

I must say probably there.

50, 50 split with deferral I'd have to come back and with some more specific numbers, but you know as we've modeled it out there's 15 million in Q2, you probably have that declined to about six per quarter after quarter for the last two quarters of err on the year. So some of that if that is that.

Delta between as permanent and stuff that's coming back on.

Which is why you see that app that number collapsed a little.

In the quarters.

Okay that makes sense and that's an up the of the permanent savings.

How much will will benefit your tenants just through the pass through there and how much will will flow to your margin.

[noise] most of it will flow to margin.

Yeah.

Okay. That's.

And so I guess summed it up with the layoffs and stuff would be more permanent.

Almost no matter what happens or.

Yeah, the lay off the so we're not that level is going to say, but I'm going to say about $3 million for 2021. So that's like a run rate going forward in terms of the savings and then we're gonna have to pay about probably someone in the range of a million dollars of indemnity.

Okay. Thanks all.

Right.

Your next question comes from much Cornell.

From the company National Bank.

Good morning.

John.

[laughter] surviving.

[laughter] with regards to.

And I don't have you done any work on this front in its early days, but with regards to.

Who ultimately will reopen and where you will get collections have you started to think about what is maybe permanently impaired from a vacancy standpoint on some of your tenants either.

It's still too early to figure that out given that because that is starting to reopen I'll let Matt.

Give you and the high level answer, Matt, but we've done fairly extensive stress testing around our especially in our retail portfolio.

And in these very unique times, we as many entity and her team has been having.

Extensive discussion in dialogue with and retail base. So I think that we've got a pretty good grasp of worthy distressed point guard, maybe what I'll do it on how asked many on today just to segregate for you.

What we have an essential services.

Where we think the.

The basis of a.

A have a tendency lying in the CCR, a which is what I call the small tenant program.

And no room or has it though there will be a second call. It no bigger tenant bigger landlord program to be announced shortly hopefully.

I'd say, the faster program, which will be the key to help that more significant retailers, which are exposed like for example, if you take a.

Hey, Reitman state when fall within the small tenant program. They fall within that that second program hopefully to come so many on be David can they be skin, Matt some high level, where we're at [noise].

Hi, Matt So when you look at our portfolio.

We are of course very dependent on what the future government announcements are going to be as far as you know reopening retail is concerned.

So in the central services about 24%.

Of our portfolio at this point and.

When you look at the stores that were able to open in AG convexity, you can add a 4% to that and then you know there's an additional oh.

14%, that's coming with the opening of Montreal.

In on May 18, so we would be like 42.

5% open we have another 6% to 7% that is you know Cindy Mccann and restaurants that do not do any kind of take out and the rest is part of the enclosed mall.

Strategy. So if you convert it into the programs on which where you're waiting detail.

Look at our portfolio, you, probably going to have 18.6% from our kind of which will not benefit from anything because they were not partly reopening like restaurants with takeout or whatever but let me open and operating you have about 28% of our portfolio that we benefit from you know into small and tenants program for changed.

That are doing less than 20 million that there are other conditions attached to that and 56% of the portfolio will be part of the.

Larger program on which we are awaiting detail.

Do you have a sense as to the breakdown of maybe U.S. the base the tenants versus domestic them, even tabak base the tenants.

You know I would have to get back to you on this in terms of that revenue you know what I would say, it's not very large I would say maybe 15% maximum if you were facing our tendency yeah.

Based.

Okay. So that makes sense, so I know part, which started tied not to the statistics, but to reopening is key to the the data point, we've assumed a and we've been very proactive with people that government and.

Diet discussing with them what happened in Asia in U.S. and Europe in terms of Molla openings and we've been.

Exchanging ideas with them and we're trying to take a leadership role to.

Establish an operating protocols to accelerate the real thing your mouth, starting regions I mean, Montreal is like a real hot spots for them right now, but I said theres a bit of openness to consider how we can navigate in regions. So we're trying to assist the government and protocols on that basis with public health.

And with regards to your industrial portfolio for for maybe non payments there, but the good quality covenants are reasonable quality covenants.

I mean, it was a hot market going into this you had a pretty juicy renewal spread on your portfolio. There I mean at what point do you take sort of action to to force them today.

I didn't get their time, I think I'm not on on the industrial portfolio first of all of the we have a small tick up just a punctual impact due to comment because we have a lot of people for example, who supplies restaurants.

Who supply retailers and smaller distributors. So there's been an impact which I consider to be more short term, but in terms of leasing activity through co that'd be then truly surprised us to the leasing activity and it's a very present market still for us and no we want to maintain that.

Same type of leasing strategy and approach than we had going into this prior to Cove. It is we're sitting on a very quality based asset pool portfolio.

And we want to be very cautious and protecting our rental rates. So maybe if I'm not asking when it give some color as to what we've done recently so yeah. You know like selling says the activity has been a surprisingly.

Hi during a during the month of April.

Both on the renewals side and also a interest for the little vacant space that we have because our portfolio was essentially almost fully leased.

Having said this in terms of a in terms of the our success at a collecting rent.

You know what do you have to understand is the 80%.

Of our no more than 80% of our tenant base is 50000 square feet or less and therefore many of them. A you know once we get more information. The federal program you know would qualify. So so we've agreed with them we've talked to every tenants in our portfolio I mean, we've been very very.

Because of interacting.

And a lot of them are waiting for more information and we're going to decide whether it makes sense for them and us too to subscribe to the program and if not there is going to be.

Another type of agreement a that's we're going to have one thing that I can tell you.

Nobody wants to lose their space because the level of vacancy.

In the you know and both my trail in Qubec City, where we have a dominant position.

As a very low and every space that becomes vacant we've got a we've got a prospect for essentially so that's that's pretty much the situation.

All right there, they're right taxing times for us administratively because where we already increased dialogue with all our tenants and if you take him just roughly for asset card category. It's easily around 800 days per categories have lots of discussions to had right left in center, but it's been a very good time to dialogue with.

When tenants and it's going be interest interesting to see how the rent relief program plays out with.

Tenants in the office industrial side, because these are not <unk> clients were used to Sherry financial information. So it's going to be very interesting to see how this this plays out.

And then I guess, it's I read into your comments here, you're you're not necessarily worried about the renewal spreads I mean, you've got a fair bit of industrial that's coming up for renewal this year.

And it's if you are do you do a short term leads the bridges that gets us a higher rents or how you're thinking about that given that the units. If it was six months ago evidence that the amount of industrial space, you had coming due as a positive for filter.

You know you got to be very careful with the numbers on give you a Mac because there's just like very small stockpiling seems to be careful about it but in industrial we're talking like plus 20.

On the renewal spreads in an office, where around plus six plus seven so the small samples, but I mean, its but I'd be very prudent with the numbers and now that the points year also as we're not going to get pressured into ER and dealing with rented in a moment of crisis, where the news.

Keep our floating and who we may keep people more short term wait for this to play out.

Look at the strategy on a case by case basis, and retails and deferred.

Situation, because we're talking about assessing.

Viability and survival of tenants and working with them on an office industrial I mean, we're sitting on good assets.

No. That's that's good color and last question for me with regards to the C. N mortgage I mean, presumably that's is that the only encumbrance on that asset because it's a low LTV I would think.

But that shouldn't be an issue and if anything that's a source of funding. Even if you are the refinance at some point in the future.

Yeah. So yes, the only theres no other debt on C.N. aside from that market and we just want to make sure that you know as the market gets better and we can come back and and complete our strategic review of the assets that we have some flexibility in our ER Doc out where you know yield maintenance and stuff like that so that that's the idea was.

We're in discussion to extend it hopefully for a 12 month period I'm just to provide us the extra flexibility.

That answer your question.

Yeah. That's perfect then it makes sense and I just want to say congrats to you guys and the team notwithstanding the current health crisis that this would have been a pretty good quarter. So.

Congrats.

Hi, This is a good quarter, there [laughter] corridor their fleet, Florida, [laughter] understand it a little depressing inside yes.

Well, we're not there fracmax, where or wherever fighting we're fighting through this and we have a lot of energy, so where did it get through this.

Sounds good thinking about.

Thank you for him.

Your next question comes from Jenny not from the company BMO capital markets.

Good morning, driving good morning, Thanks, everyone. So I would echo what Matt said I think we're all looking forward to a a good 2020, so hopefully once installed over will pick up where we left off a couple of questions around the enclosed malls.

So then you talked about being in conversations with the government opening shopping centers I'm, just wondering if you're able to share sort of what the parameters are the milestones would be to start discussing how to open and.

I'll just give us an idea of what the government just looking for in terms of all think shopping centers, Okay, and I'll take a step back JV and I first of all I'm not a scientific or medical person says a us one caveat you had time going to give you, but ER the government look at the governments in Threeq.

From ways, Hey, look at no one and you have the prime minister whose needs to run a whole social flash political environment and other group you have is.

Administered economy and.

Climate, who is working in tandem.

Together with the cabinet the Prime Minister Andre reopening plan for Quebec.

And third way is really public health.

And it and say literally a and discussion between the three constituencies and public health has a very important saying this what they're lucky and you look at come back and if you look I'd come back simply a you take the greater Montreal area for us.

Purposes of discussion, which is really Montreal, and my though which has very difficult numbers on covance in part.

Due to.

Our.

Got a state of art logs are trying to say, it's an English long term anchored care long term care facilities and very similar to the situation I think you're living in Ontario, but ours has more acute.

We also have a couple of hot spots now, which have migrated time and DG and Cotellic, which was originally.

Starting point in Montreal, and we're now in another hotspot, which has more Montreal, Montreal, and north and not area.

We the rest of Quebec, it appears to be pretty clean or within arms and the way the government's looking at it is.

On a factor of not not exceeding a factor one person being able to in fact another person. So as soon as you go over the what they call I guess NR factor of one.

The light light up.

So anywhere outside of Montreal Love out they I think what you're seeing it. The government is starting to feel very comfortable about that are factor is manageable.

And they reopen the economy.

In the brake control than progressive manner, where even within sectors that they have reopened my for example manufacturing.

They have limitations on the number of employees second reintegrate.

A different sectors.

So when it comes to retail they opened a street facing retail and what we've been dialoging with and as you know why are you concerned with with models.

And for example, they they they have this vision or just sometimes be lack of information, where they say a month or like a hockey game, where there's 20000 people in the quarters at the same time.

So it's part of that is educating.

The the eco system as to what exactly the traffic is how we can introduce safety standards, we spend a lot of time discussing with other colleagues in Asia, how they reopen milestone for example miles in Asia were opened 30 days after.

The place like Chen Zhou for example.

So we we've been taking taking that forward and Ironically, you know you if you take foot traffic on a place like salmon around Boulevard.

Traffic on family runs huge and is totally disproportionate compared to like say traffic's up an a mall. So we've been we've been working on different types of actual assessments with <unk> and we're also trying to work with them to build whats called and guide an operating guide which will be comedy.

Industry Guy hopefully for opening models. So we I can't tell you win but the fact that we're having this dialogue for me is extremely positive and it's really helping them understand me the guy that under foot traffic and how we and our clients our tenants are going to police and monitor this.

On were far Cry, you look at what's happening we're far cry from the total client experience here. This is a totally different new way of looking at retail.

So it's all tied to like that from Quebec Undergarments point of view is tied to a community transfer.

Okay. So would it be fair to say, maybe the Quebec non greater bunch real area would inform how they would look at Montreal in terms of reopening.

Sorry your question again.

I guess I'm trying to think through this would it be fair to presume that called back we'll look at the like if you open shopping centers outside of Montreal to use that experience, perhaps inform have one month to Montreal shopping centers can real next and we are and Ah Ah what were trying to do is hopefully get them to a test case in there.

Region Okay.

Okay.

Oh, I'm wondering in light of unpaid rents and potential opening.

This is more of an operational thing, but I'm wondering like let's say the malls you're allowed to reopen do all tenants have to reopen like for example, if you have a store.

That said that some corporate decides to be extremely prudent they have to open if the mall itself open.

Well most of our pattern fact continuous operation Clos. So you know I would tell you legally wants them all and open here all of our tenants you know have to open but we still have to be you know sensitive to the fact that you know some you know the changes and the large reaching a filter.

And then the large retail operators are already really looking forward to de opening and are very very well organized that's how you're going to operate their stores.

During the copied period, we may have in our portfolio. Some smaller tenants that you know maybe afraid or may have stock issues. You know so we're really counting the relationship are shopping centers director and leasing agents have with those people to reassure them and have to dialogue.

Got how we're going to open the shopping centers and make it takes a guy. So that's basically how are we going to go about it but yes, they do have to open.

And how far can address the stocking issues jetting I think with no. It said in an example of part of the the issue is in lot of these stores are they employ summer students and under the federal government program on because given money to students without working in part problematic for them. So they they have.

To rework around staffing yet okay time at the beginning I think they'll do a slower start so they probably have less need for staff and start. So everyone is trying to adapt to this reality and nowhere we are being very attentive to how the first wave of retail which has reopened it's fun.

On the that's like a laboratory to see how these stores function with well count of staff and sound. So everyone is.

Oh, hi to close attention to the slow at progressive reopening of the assets.

Trees prime retail.

[laughter] invited Fad.

The conversation we have with the tenants that are operating in region with it and exterior door that are non essential there that the way. They prepare for instance, serving them very very well at this point you know their operation is running pretty smooth and they're doing it's very early to tell but they're doing better than expected.

Okay great.

In the interim while the malls are closed what has been the amount of operating cost savings to be able to gets or maybe put another way sort of how much of the cost base is fixed versus variable on the enclosed malls.

Oh, I don't have it on and close the and just a correction to my previous statement about what goes to the analyzing what doesn't other 15 9.9 million goes back to clients as well well hidden ally and if you break that out by asset class and our retail portfolio.

On that 8 million of the savings told all of which 3.2 in high free cash.

Okay.

That would mean that overall that's not Jack.

Yeah all portfolio.

Right. Okay. No. That's that's helpful. And then this was a double longer term question I appreciate that it's really early but prior to all this there was a big push toward evolving the malls to having more FNB and an experiential retail I know, it's early but have you had any thoughts about changing that strategy.

Gene or is it still mostly in place you know sort of.

Some tweaks are pretty cool I propose caldwell.

You know our strategy to you know evolved mall into you know FNB and be less dependent to you know and fast fashion.

Change a free now is not going to you don't change because of copies 19, it's way too early to say what the impact of this is going to be and this is a mid to long term strategy. So you can't really shifted because of you know any event, we need to understand how we will evaluate it dolphin, how restaurants will be able to operate.

And you know Tdrs and Jim and and that's kinda. Thanks. So for now no. We're not changing course, but we're monitoring all the upcoming changes it could bring yeah. We've started to slow down developments around those segments. However, trending in the midterm and short term and where we're sort of being prudent as to for example, we we had an initiative.

I mean, we're lucky had been doing their food card and add Alex's Dion said, we're taking a bit of a pause on slowing it down so until we see how this plays out but the other thing I think what is key looking and demolished and the strategy. We had a lot of that dollar and ideas and opportunities around our malls and.

Where we need to see and assess the market in terms of where the market will be on those opportunities, but we are continuing and to make progress with.

This apologies on Upzoning and changes, which are required so right. We're taking advantage of this time, it's really push the sounding agenda.

Okay, great job that was all really helpful I'll turn it back.

[laughter].

Thank you. Your next question comes from my LC yet.

So when you see a b C.

Thanks morning.

Morning, just firstly to touch on I guess suburban office. So some good progress initially in Q1 and I'm just given that all such has held up pretty well in terms of loved to collection.

What do you expect stairs or at least connectivity you. Once you know general activity resumes just based on the business of the Tibetans start showing interest that currently.

Okay.

Just before I have no non gives you the tactical answers man, there's an office.

And if this first fathers I think people or so.

Surprised by how easily many enterprises flipped into I'd tell they work and part and parcel of the reopening plan of the ER Kodak government and two they use the word encourage people to remain and tell the work where they can to reduce C.

The flow of people in and the urban environment.

In terms of and there are many schools of thought I mean, we're well well we have one per 100 or we're going back to it a one to 175 or more closed offices I mean, there's there's many schools of thought and discussion around that and I think right. Now is just too early to tell and I'd say what.

At our tenants on the office side or really just trying to understand is the basics of what will the health measures be.

In my office in my Tower, and how my employees get to work. So I think phase one right now and from our perspective and our discussions when tenants is concentrated around health issues how standards.

In terms of leasing activity may be found not keeping fill in the blanks yeah.

Thank you. So thanks, so you're right. So the conversations we've been having the sweet Kale essentially turnaround the reentry into our office buildings in the safety measures that we put in place in terms of activity I asked the sitting office, it's been pretty much a wait and see attitude in terms of Ah you know discussions for for new leasing although we.

You know a from a renewable standpoints a you know we've kept momentum the transactions that we were working on.

At the beginning of the year prior to two coated.

We're still are still progressing and we're in negotiations we've been exchanging documents during the month April.

And you know very little impact in terms of.

Okay bid on what we were already talking in terms of numbers. So that really is not a as not been an issue. The other thing that's a really interesting and I've made the particular attention to that with my team is following up on tenants that we were already in execution in terms of construction of their premises in asking.

You know what's a you know are there any issues what are your plans and all without exception are actually expecting us to deliver as soon as possible. So it's not like they're they're reviewing their their occupancy at this point I think what's going to happen at Sylvain just mentions instead of tenants.

Re entering their premises.

On a ratio of one 200 135 square feet. Some people are going to remain in a work from home mode and.

You know the called in the essential employees that need to be in the office will occupy the space. That's already you know a under contract, but our tenants. So I think there's an adjustment as is the case in retail on how people are going to behave.

But the actual occupancy at this point as.

You know from from what we're seeing early in the game is a there is no threat to the actual amount of square footage that a isn't a demand are required barton's.

Okay. So some encouraging sign sure thanks for that.

Just wanted to move on to ask about I know Youre fair value assessment and Grad, you guys release that annually and there's a lot of uncertainty at this point, but is there anything you can share here about just your internal discussions and its cash flow and cap rate assumptions are brought under review or just how you're approaching upon.

As of today.

Yeah, so although we don't.

Publish our appraised values every quarter, we do actually now didn't work currently and we set that last year to make sure that we were getting ready to do it on a more frequent basis.

So we will be revising our numbers June thirtyth for the March 31st you know appraisal.

We consulted with our auditors with a variety of appraisers accuracy, what approaches they were taking and we've really basically kept them a static.

In terms of Q2, clearly we're completely reviewing yeah, we use DCF primarily for us for our appraisal process and so we'll be reviewing return expectation right curves you know lease up all of that sort of thing and primarily from on a cash flow forecasting Ah.

Perspective, you know at this point in time, they really haven't been.

Any transaction activity to peg any changes in ER in cap rates, but I think we're you know certainly doing a lot of work on that and particularly for obvious reasons any retail portfolio.

Okay. That's fair I just wanted to confirm the provision for at least in costs were lower in Q1.

It's a plan to lower the full year provision, but a same amount or will you be exploring that on a quarterly basis and just based on how run collection is looking.

It's based on Amortizations, and what would be a function of that.

Okay.

Unless you're just noise I think there was a new presentation of credit losses and no what's on the back.

Is this we will look to going forward for more disclosure around future rent collected.

Yes, definitely we're definitely looking at you know that type of additional closure, we cannot and I would say that if anyone on the call has feedback in terms of what would be helpful. We're certainly open to idea, but that's gonna be I think a big part of tracking the industries you know evolution to all of this going forward.

So that's definitely a plan change in our future free.

And I would say that in terms of that we did take a bit of a higher provision for bad debt in Q1, and you know clearly see that increase a in Q2.

Okay, Great. That's also meal trying to Buck.

[noise]. So next question comes from Mike Mckee This some additional debt.

Good morning. Good morning, Good morning, three areas of interest for me one of them very short term related and.

I'm just curious.

Heather and so that specifically with the 6 million I think you sort of benefit you'll get on the cost saving side and I know your allowance for bad debt will go up but you'll still be booking revenue.

It's safe to say that those two things will would do you think posting two things will level off or is that potentially could you potentially see or in a way actually go up sequentially outside of normal seasonal patterns.

Our ally go up no.

[noise] from my Q1 could you do perspective yeah.

I know.

Okay. So.

I think you know what we're really I always you know I kind of go out because I do want to be conservative about you know bad debt expense enrolling that through because there is uncertainty with respect to that but I would just saying anything that happens conversation with the team you were really focused on cash flow you know clearly there's gonna be revenue hole in Q2, so the whole.

The process of you know reducing expenses cutting back on the cap back is really about ensuring that our free cash flow, thanks, Pat or improve.

And that we're not I'm, leaving out in order to to find that that shortfall and I would also at that I think all of the hard work that the operating teams dead in the elaboration of the strategic plan. You know we went line by line pretty much everything in our business has certainly helped that the nimble in terms of.

Reacting to that.

Okay, and I'm not sure if you put this summer, but most of my apologies, but do you have a sense of what the decline in Capex, we're expecting if you will be.

Yes, 75 million [noise].

Okay, and not a budget so I I would say our budget was up a little because we had some extra expectations for spend on on the Sears.

Sorry, so $75 million off of where you would decline versus where your budgeting.

Let me just pulled a specific number for you so our.

[noise] give me a second here I think we should be in about what we had sectors. We had been targeting we've been talking about 125 million and then we had this extra.

At expenses related to Sears, So I think we should probably shake out in around that time.

That range total so if you take out by 125 million on the pre development Capex, we've put a halt on new development, but you'll probably see about $25 million just spend there are so when 25 plus 25.

Okay, that's great.

Just on the retail numbers that Mary.

Well they provided just confirms that total retail segment or specific parts for the total retail before it was a specific.

Those numbers for when number one.

The retail numbers you had provided with respect to just I'm, 24% Central services what percent of people can you add the total portfolio. Mike. So yes, okay. Thank you [laughter] and then just lastly from me on C. and central.

Able to give any color obviously the process has been delayed but are you able to give any color in terms of what stage you were at in terms of that review and then secondly, if the decision to put off there's more doesn't buy your needs to just focus on your existing operations or some sort of desire on the Uh huh.

Well.

What stage, we were at and Mike we were at the at market stage or pre Covance. So we were ready to be there and literally and had some.

Preliminary discussions around the asset.

And and we would just delayed or took that off that opportunity because it.

Portion of it is driven by the intensification value.

And is a good.

Chunk of the value there the unrealized value is there centers around intensification and Ah, We just decided to take a pause for a little while and they'll come back no. One day, but I think it's just right now we just want to concentrate on operations on [laughter], Heather mentioned on cash flow and and when the time.

I have is right, we'll come back the with the alternative.

If market conditions are correct.

Okay. That's fair that's very great color. Thank you very much.

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[noise] [noise] seems I could sit there no further questions at this time. Please proceed.

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