Q1 2020 Earnings Call

Did you mean, starting on your pets.

[music].

Good morning, and welcome to the Eastgroup properties first quarter 2020 earnings Conference call. Currently all phone lines ARNA listen only mode. Later, there will be an opportunity to ask questions. During a question answer session. You may registered ask your question that anytime by pressing the Star then one on your Touchtone phone.

Please be advised stays program maybe recorded it has now my pleasure to turn the program over to Marshall Loeb President and CEO.

Good morning, and thanks for calling in for our first quarter 2020 conference call. It's always we appreciate your interest.

Brent would our CFO is also participating on the call and sense will make forward looking statements.

Ask that you listen to the following disclaimer.

Please note that our conference call today will contain financial measures such as you know and emphasize that are non-GAAP measures as defined in regulation G.

Please refer to our most recent financial supplement into our earnings press release, that's available on the Investor page of our website into our periodic report furnished are filed with the FCC for definitions and further information regarding our use of these non-GAAP financial measures and a reconciliation of them to our GAAP results.

Please also note that some statements. During this call are forward looking statement as defined in within the safe harbors under the Securities Act is 1933, the Securities Exchange Act of 1934 in the private Securities Litigation reform that 1995.

Forward looking statements in the earnings press release, along with our remarks are made as of today and we undertake no duty to update them, whether as a result of new information future or actual events or otherwise such statements involve known and unknown risks uncertainties and other factors, including those directly.

And indirectly related to the outbreak of the ongoing current of ours pandemic that may cause actual results could differ materially we refer to certain of these risks in our FCC filings.

Thanks, Ghana, Good morning, and thank you for your time, we hope everyone and their families are well and out of harm's way.

This is the most atypical script I've written as it touches on the past the president and the future, making it feel a little bit like writing a Christmas Carol I want to start by thanking our chain.

They've done a great job transitioning our operating strategy quickly and doing so while working remotely.

I will touch on first quarter briefly we had another strong team performance this quarter producing such that says funds from operations coming in above guidance up 9.2 per cent compared to first quarter last year.

This march 28 consecutive quarters of higher AFFO per share as compared to the prior year quarter.

Our quarterly occupancy was strong averaging 96.8%.

Leaving us, 97.3% leased and 96.7% occupied at quarter end.

We also set a quarterly record with releasing spreads of 24.6% gap and 14.1% cash.

I was first quarter feels years ago today.

It certainly does to me, but it's a great reminder, that in a steady open economy. Our strategy works and has served our shareholders well over the years.

I'm Grateful we ended the quarter generally fall at 97.3% leased.

During 2020 will likely have three different operating strategies first quarter being the end of the last cycle.

One for today during the locked down and later one during the recovery.

As we entered the corn gene our focus shifted from accommodating expansions and growth.

Maintaining occupancy in cash flow.

In terms of liquidity I'll think brand and our finance team at quarter end, we had the highest availability on our line and the company's history.

And one of the lowest percentages drawn on airline since 2006.

Given the economic uncertainty, we're expecting higher retention rates.

And it's needing economic health until the economy reopens.

And some tenants who simply can't survive the shutdown.

That teams have been working long hours with those tenants is asked for health.

To gain an understanding of each particular situation, we've assisted them in obtaining P.P.P. loans and where needed with banking relationships.

Well this won't be an easy task to things that gives me comfort or the quality of our portfolio.

Our property serve its key essential infill locations for our tenants businesses.

And the experience and trust our team as.

Well hard to calculate in terms of the bottom line. Our team has a lot of tenure together at East group.

For example at the VP level, one above the average tenure is 15 years within accounting, it's 13 years.

And eight years for property management, that's a lot of teamwork trust and experience that's been built to weather uncertain times.

We know one another we know our markets our properties and most importantly, we felt long term tenant relationships, that's not to say the road won't be rocky and have potholes, but experience in relationships are most valuable in a downturn.

Today, we've collected 94%.

And we expect so this percent modestly rises sta loan proceeds received and payments process.

We also expect the economic impact to be cumulative sort of later months will also be challenging the unknown is when the economy reopens and how fast it reopens.

We and everyone else simply have less clarity than normal.

I will speak more about our guidance update, but they're not revision, we increase bad debt projections.

100 basis points, along with an occupancy decline of 110 basis points.

That's the economy reopens and we collect rents will update these projections accordingly.

Our goal in working with tenants and accommodating a rent releases to collect those funds.

Soon as their business allows.

Thankfully, we have the most diversified rent role in our sector with our top 10 tenants only accounted for 7.7% of rents.

As we've stated before our development starts are pulled by market demand.

With the shutdown, we reduce projected starts to <unk> reflect first quarter starts and prelease conversations that are underway.

In other words, we're not forecasting news spec developments.

We're also looking at acquisitions dispositions and value add and that same light.

Other than what doesn't happen, we're not projecting new activity.

We view operations working with our tenants and maximizing liquidity as key goals until we reach the next market phase and now Brent will review a variety of financial topics, including our updated 2020 guidance.

Thanks parcel and good morning, our first quarter results continue to reflect strong overall performance of our portfolio prior to the pandemic.

Yeah, so per share the first quarter mid to high end of our guidance range at $1.31 career and compared to first quarter 2019 ever dollar twinning represented an increase of 9.2%.

Unfortunately, the current economic turbulence as the result of coal at 19 War era, our record setting momentum.

I will center my comments around our capital status.

Collections and deferment requests.

And assumption changes that lowered the midpoint of our Ethernet brokers your estimate.

During the first quarter, we said 15 million of equity at an average price of 142 per share and closed or 100 million seven year unsecured learn with a fixed interest rate 2.39%.

Better activity combined with our already strong and conservative balance sheet has placed us in a position stream entering this sudden period of economic uncertainty.

At March 31, East group had the most capital available its revolver and history of the company and one of the least growing percentages over the past dechert.

Our debt to total market capitalization is 23.5%.

Got to EBITDA ratio was 5.2 terms and our interest and fixed charge coverage ratios or over seven times.

Our recollections were equally strong at quarter end, we have list a 1% of March or earlier rent outstanding that wasn't either covered by security deposit or was only because it doubtful account.

As for April we have collected 94% of booked so far and today, 26% of our tenants have requested some form of rent department.

We have only entered into so I've written deferral arrangements does for that represent a half percent of April rents, we have to not over half of the request or indoor in various stages of consideration on 40%, which represent approximately 11% of monthly rents.

Probably the first mark that we truly encountered the barrick related headwinds Anda said, there's very little actual data available could draw definitive conclusions for the near term.

The depth and duration of the economic event is on determinable.

However, we anticipate some degree of kinda financial distress and decrease in leasing velocity, which resulted in thinking assumption that lowered our aircraft, though earnings guidance by 2.5% from a midpoint of 530 per share class 17, or 3.8% increase over 2019.

Among those changes where a decrease in average occupancy from 96.3% to 95.2% and an increase in reserves for uncollectable rent from 800000 to 3.8 million.

The new reserve represents approximately 120 basis points of income from real estate operations, which is like what we experienced during the great recession on average.

Also note that this reserve potential bad debt is not specific to any tenants.

Rather it is a general assumption that there will be some companies, who simply aren't able to bridge the gap to the reopening of the economy.

Other notable assumption revisions include the removal of an identified acquisition disposition and equity it's your because for the remainder of the year [noise].

In summary, I'm optimistic that pretty pandemic trends that were directly beneficial to our sunbelt markets multi tenant strategy, along with potential new transpose pandemic will benefit us long term.

Meanwhile, we rely on our financial screen.

Experience of our team and the quality of our portfolio compared to navigate us through the near term now Marshall will make some final comment.

Thanks Brent.

In closing I'm proud of our first quarter results. We've said the past few years, our fear wasn't oversupply as much as a black Swan economic event, you don't want to either but now we have just that.

Company in our teams have worked through these before and while certainly different we'll work through this event as well.

And as the economy stabilize it's the future that makes me most excited for each group.

Our strategy has worked well the past few years.

Coming out of this pandemic the trends we are hearing of our company's carrying additional inventory.

Increased U.S. manufacturing or near shoring and Mexico.

Shopping habits that have changed accelerating the consumer to E Commerce and new industrial users. A result, as a result of those shopping habits.

Meanwhile, our bread and butter traditional tenants will reopen and continue needing last mile distribution space in fast growing sunbelt markets.

These along with the mix of our team our operating strategy and our markets has us optimistic about the future and we'll now open up for any questions.

At this time, if you'd like to ask a question. Please press. The Star then one on your Touchtone phone.

You may withdraw your question at any time by pressing the punky again. It is star then one to ask a question and we will take our first question from Jamie Feldman with Bank of America. Your line is open.

Jamie Your line is open please check your mute function.

Once again, Jamie Feldman.

Thank you sorry, I was muted can you hear me yes. Please go ahead there can be are easy question of the call right.

It was a great question I see I don't know phone asking again [laughter].

So I guess can you just talk more about some of the markets I think we're all a little bit more concerned about here.

Yeah.

Houston with energy exposure, and then probably Orlando with tourism exposure, even Las Vegas, I know, that's a small market view around 1% of revenue, but maybe if you could just give a little more color.

In terms of what you're seeing across.

The different types of markets with different types of autonomy.

Okay sure Jamie good morning.

Good question and I'll try to touch on all three without without going on too much and maybe talk to the market is top of mind for a lot of people is Houston.

[noise] throwing a few statistics that you to start all star globally on the market and then a little bit on our portfolio that Houston ended first quarter, 6.6% Vegas, there's roughly 22 million square feet under construction, which is a higher number than typical for Houston, maybe the good news as we dig into that likely.

Okay.

Typically say a lot of that is not competitive properties in terms of both buildings for example.

Side buildings, if we pull those out that's about six and a half million square feet or about 30% of whats under construction. So thankfully a lot of what's being built or larger big box spaces out in Kt are down in southeast markets, where we're not but that's certainly oil and gas and coal in Houston is an age.

Local market and it is getting hit with both both in gas nicely our team.

We ended the quarter 98, 798.7% lease was just under 6.5% rolling and update as.

Today, Thankfully, we're a little over 90, 797.1% leased with 4.8% Rolling So we've made some headway in the last month so were.

In in good shape their April rent collections in Houston, where 97% so actually higher than our portfolio. Today. We have we have literally it's about a handful of tenants that are and so we're working on the ASP loans and things like that so we're well probably houston's about 13% of our.

Hi.

Earlier projections and at this year's little more obviously more uncertain than others had its dropping below 13% in fourth quarter. So we'll keep working on our exposure there are kind of work with wiggling it down but Houston is probably you know I guess on all three markets, what I would say or any of the tourism markets things are too.

Basically.

Never as good as people think they are under usually never as bad as people think they are the Houston I know you all the Brad its fourth largest city in the country. It's had a lot of in migration in the last several years, it's getting here right now as you as you mentioned with Corona virus in oil and gas, but it's awfully resilient market.

And we think long term, it's a it's a really strong market. We've got a great team there and we'll manage our our size there but have activity in Houston, a little bit at the same in Orlando is in Las Vegas, certainly tourism markets, the probably Orlando, a little more than Las Vegas is real.

Become kind of the E commerce hub for Florida.

We'd like them work at long term where are we.

We don't have that much direct tourism exposure in Orlando, where we probably have some it's it's really more I guess that is its convention space and things like that it's not as much Disney Universal Studios, all the things like that but Orlando and we just signed a 20000 so at least in Orlando I guess it was Wednesday, we we got old.

Leasing there. So there are some activity there certainly and they're talking about at least now talking about reopening Disney World Universal Studios Sea World. So maybe 50% capacity is what we've heard I believe the governor was saying and then moving to 75%.

Capacity, there so hopefully slowly reopening.

It's Vegas with the should close thankfully, we've got no lease explorations in Las Vegas for the balance of 2020, we bought three buildings last fall and maybe an early fourth quarter got two of those least really by the time they completed.

I have had activity on the balance and that slowed down with the downturn, but are working with a prospect or two on the on those buildings. So thankfully again as you say I wish we were bigger in Las Vegas than we are we like.

Each of those markets long term, but right now, they're all a little more being a little more hit but at least through April they've held up well you know I'm happy to be over 97% leased in Houston with under 5% Rolling and so we'll keep chipping away at it and and working with our customers those markets are probably a little more challenged.

Typical but so far are good and probably a month and.

This is intuitive our sense is the market thinks there a lot worse than they actually down today.

Okay. That's helpful. I guess just on Houston are you able to breakout what percentage of your tenant base. There is actually impacted by the price of oil versus what you know what percent is not.

You know they visit.

Prices.

Yeah, we went through and looked at it you know when it gets a little tricky with some of the three feels and things like that but we estimate it's roughly 20%.

Some form or fashion didn't related to oil and gas industry.

And once again as a reminder, if you'd like to ask a question. Please press. The Star then one on your Touchtone phone, we ask that you limit yourself to one question and one follow up if you have additional questions you're welcome to re queue with the Star then one afterwards, we will go next to Alexander Goldfarb with Piper Sandler Your line is.

Open.

Hey, good morning morning down there or just continuing down on a daily Jamie's question on the on the tenants.

Right, you mentioned that 40% of the people who raised their hand for rent relief. You think are actually you know, we'll get it and it sounds like her deserving of it can you just give a little bit more color as far as a the headwinds and what's going on I'm, assuming there are a bunch of people that just raised their hand, because they could.

And then you probably have some tenants you were probably on their last lags anyway, I'm guessing that those are not part of that 40%, but if the ones who were impacted do they just merely need their business. It to reopen and then they're good start paying or those are tenants, where you think it's going to be longer to get back those rent.

Yeah. Good morning, Alex, Yes, maybe clarify that Sam. So today, you know, we said 26% of our tenants if requested for some form of relief certainly some of those are just putting their handsets. They don't like they should we've already denied 58% of those requests.

We've executed some Forbes form a short tend to fall arrangement with 2%, a which represented just a half percent of April rents for example.

The remaining 40% of those request that doesn't mean that were in fact, we won't grab that many that just means that 40% is in some stage of we've requested additional information we're doing additional background, where maybe waiting to hear to see if they got PPP loans.

So so that just simply means that 40% is continuing to be monitored and watched some of that percentage will be wind up in the denied bucket and some smaller percentage that perhaps we'll wind up in the executed agreement bucket, but that 40%.

As of April only represented about 10.5% of April rents and again, the 40% is just a monitoring watch list you know talking to group.

No you know yet to be determined if they'll wind up in the denied or executed agreement, but certainly not all of that will be agreed upon so hopefully that clarifies that a little bit.

Okay and then the second question is as far as leasing goes you're you guys are fortunate in that a lot of your exposures in states that are starting to reopen I'm not sure how much in person leasing is going to happen you know in the near term, but do you guys need in person transact in it.

Do you need people on the ground to be kick in like looking at space or are transacting on buildings or because a lot of warehouse can be done through Google or if there were virtually you could actually resumed you know a lot of leasing and baby even start due diligence on on buildings to you a buyer or seller or.

Can you can do that virtually so basically how much.

The resumption of your business depends on in person travel versus how much can you actually do virtually.

Okay. Good question and you.

You know because it really a lot of will be driven by the prospect or the tenant, but it's not needed you can certainly do it I mean, we have virtual chemours and photos and.

Drone aerials and things like that so weekend.

The tenants have a broker and that broker is usually local or at least working with another someone else in their shop and the in the Orlando and Austin or whatever market at the property has to be and so it can be done I think the other thing I like about five times each day sense its own separate insurance, there's not a common area say like.

Office building or shared restrooms, and things like that so it can be done remotely and virtually and certainly a lot of national companies, where we've seen a lot of our activity as they roll outs kinda, they're smaller last mile delivery. They know what they need and you know how many doors.

[laughter] all the things like that so I won't say is cookie cutter, but at least they you know it's like opening a new regional still you kind of have your format. So we can be done virtually it just depends on how comfortable they all with that we've certainly been pushing in the brokers group says that we got to third parties that we use all realize that so they've ramped up there basically there too.

Allergy and virtual ability to just shows say so it's it's not as ideal is in person and things like that kind of the traditional model, but it certainly can be done and certainly one of the world seems to be evolving the last couple of months a lot more so.

Okay. Thank you Barschel. Thank you Brent.

Yes. Thank you.

And we will take our next question from Manny Korchman with Citi. Your line is open.

Hey, Marshall can you maybe go through any commonalities or or sort of just you know the flavor of both the companies that have requested it relieves some companies that Youve granted relief and also just how you're thinking about.

Yeah, incorporating that the relief for the extensions or the new lease terms what is that.

Yes. Good question, it's been a mixed bag so far for the most artistically where where people have asked for release. It's it's usually you know Tonight.

Month of April and May and I'll pay you back over the balance of the year I'm thinking of one in particular, we did and they were near the port of L.A. in long Beach, so with a slowdown in China. They needed. Some help there and I think we ended up giving them negotiated like to half months rents and then we'll typically a again you don't want to put someone in a payment.

And that they can meet in a set them up the failure, but our goal is to collect it back as fast as we can so it's not been I need out of my least thankfully, we did not adjust our termination income for the year me.

Change, but we really haven't thankfully seen any rush for people, saying I'm going out of my lease it's been I need a month or half a month here or there and we'll make it up later in some cases those tenants have been able to get an SDK loads in a sense that original requests came in and they since withdrawn their rent relief.

Thankfully and so that that's still in process, what some of the tenants.

It's been a mixed bag I'd say those that are related to that kind of mentioned between Orlando and Las Vegas that are in.

It's usually the convention type business, we've seen them be impacted fairly fairly quickly. Another 10 is they move people for the military and the military has put moves on hold so I got you know something that you certainly get and there's a backlog supposedly for military moves and once that reopens there.

Our qualified and have done it for years and years I think their business.

Picked back up but it'll be a month or two or half month or two here or there and then hopefully will the goal would be to be back to for us to be back to hold by year end, but a little bit you know will also work with them and again, if they need some more time or if we end up extending the lease term or some things like that that's kind of where we're going okay. If we do this.

For you what can we gain in return and Brent.

Yes, just one thing I'd point out, we do look at and and segregated our tenants into in a assay as codes and globally about 22% of our tenants wholesale and retail trade about 18% transportation and warehousing.

Construction related around 18% in our rent relief of course today literally almost mirror those percentages identically. So you're really what it shows US is you know impacting all tennis equally as Marshall said, there's some individual specific 10. It certainly is greater more maybe quicker impacts but.

For the portfolio as a whole it really there's been no one.

Large taking a percentage you say wow that really jumps off the pages those percentages or you know eerily similar to you know to to make.

Makeup of our tenant base so it's been.

Yeah front been pretty.

<unk> from that standpoint.

Thanks, guys.

Oh.

And we can take our next question from Bill Crow with Raymond James Your line is open.

Good morning, Thanks, a couple of questions what percentage of your current portfolios just closed where they're not operating.

Estimate, it's a very small percentage I mean, it [laughter] I'd say under 2%. We've got some you know what kind of shows where the market was one of those were leased it maybe like a a volleyball training facility or alliance CIA or some things like that it's small 10.

This year, there, but for the most far thankfully our markets have not been hit by the construction shutdowns and a few in markets around the country.

And I'd say, it's probably under 12 tenants out of 1600 that would be closed at this point, yeah, just to be clear on that bill you're all of our buildings or from our perspective or quote open meaning we haven't put any restrictions thankfully the way industrial works, we really don't have into your common areas. Each tenant has its own.

Separate accessible space. So it's really our 16 or 1700 customers, it's really each their own as to how many people working if the road and how many are there steps there taking obviously, we're communicating with them, but thankfully from our standpoint, we you know we haven't had to step in and say, we're going to close this or do they.

Got it it's really a you know the each 10, it's kind of make their own judgment calls on that.

Yeah. Okay, you could go back to 2008 in 2009, one of the challenges was.

Decent amount of exposure to.

Smaller homebuilders and that business, you know had had gone down dramatically.

Certainly it looks like homes disruptions going to hit a pause, but at least how is your exposure to local construction companies contractors, how has that changed since then.

[laughter] selling homebuilding is never really I guess, good analogy never come back the way it was.

Back in 2007, eight we have some exposure there although I think you know a lot of ours. It it may be and maybe that's where the industry is consolidated things like H.D.A.C. contractors and things like that which is a.

Pretty you know a central business as you know if you're in San Antonio and it's July and August and its Baker or carrier or train Goodman somebody hvdc contractors as things reopen are certainly even residentially. That's there it's a high teens at around 18% related and then directly.

In the construction categories. We've code it is but today that has not jumped out you're right homebuilders and even in markets like when I think of homebuilding Fort Myers is a market where were in which got good for during the last downturn, but were 100% leased in Fort Myers delivering a building this.

Pre leased to home depot, there in a bad good activity just signed a lease I can kinda with.

Construction in the last 30 days with Ferguson, forming an expansion and activity in in Fort Myers, and that's a market where we felt like what you know the last downturn, we really learn it was very much second homes at home building, but today is holding up fairly well and they'll still be some bumps you're right, but knock on wood.

<unk> that category hasn't been hit really hard just yet or at least it hasn't rippled its way to us yeah.

Yep.

One more if I could it if you talked about this earlier and I missed it or just move on but.

Is there opportunity here, where construction costs could reverse some of the gains over the last few years.

[laughter] no good question and yes.

What we're hearing is there's labor is more available, although a little bit less efficient because of the.

Social distancing and it's shown cost has come down one to $2 per square foot. So that you know one and against picking out kind of our construction guys brains. The other thing.

I think all the industrial developers almost all of its a large national ones everyone's pretty much foot spec development on hold and then the other types of construction that when it was going on the hotels the retail the entertainment all that is really stop so I think you know we need the demand to be there but.

I think the construction prices, it's come down a little bit and we'll probably continue to come down over the next two to three months that.

Everybody seemed to hit the has hit the pause button for a little bit and some other sectors will come back more slowly than industrial and I and I hope, we'll be able to benefit from that.

Thanks appreciate your time today.

Sure. Thanks.

And we will go next to Jason Green with Evercore. Your line is open.

Good morning, I know that all your transactions are locally sourced I'm curious if you're starting to see any local owners looking for liquidation event and do you anticipate starting to see some attractive acquisition opportunities as a result, with some of them like a distress.

Hi, Jason Good morning, you know for the time being we're still you know looking but not nearly with the same intensity. We had you know maybe ended the year. The first part of the year.

<unk> kind of fit this always ask hurricanes keep a list of the things that are off market that you life or there's some deals that were on the market that got older Kinda quietly on the market I think about who will be there, although and talking to one of the national brokerage groups. This week, just kind of before the call and getting a sense from them what they're seeing they.

And I don't know that our strategy is that there from their comment was there's a lot of dry powder waiting for distress in the industrial space and thankfully, maybe or so far no. One has seen it. So we're hopeful that we'll wait until there's a little bit firmer footing I think though you know the hard part when you think about it we found the project in one of our.

Markets early on that we were looking at and we said is it was leaves it's awfully hard to know.

Which tenets are going to be there by the time, we close your what rent they may be paying that it's hard to underwrite the rent roll and so we've kinda. That's what we've said, let's keep an eye on things and as we get some maybe a little bit firmer footing in the economy reopens.

You know and pending we have access to debt today, we'd like to little bit higher stock price things on that we'll manage our liquidity and and hopefully there'll be some distress out there, but today, we haven't seen but we're we're hopeful everything's institutionally owners. So maybe the so much is the good news is.

Development stops pretty quickly because of that institutional ownership the downside to that as there's not a distress there they're used to be in a way back when Brent no earlier in our career when somebody thinks we're.

Jason Brent Marshall you know the local developer with the bank loan now, it's the local developer with Clarion or heitman or ADW as their partner type thing.

Yeah, and then I guess now that your stock is trading back above $100 again realize it's a significant discount from where you were earlier in the air but when you consider raising equity at these levels or at these prices I really just much more focused on debt financing.

Yeah, I would say yeah. We did were always looking at both avenues and as you saw we didn't do execute some debt in first quarter head. It 2.39, which was a good a good spot for us, but we keep an eye on it and we have an internal in a b and that's probably the metric that we.

We.

Look at the most is how we're trading relative to in a v. and it certainly doesn't have to get back to where we were we were fortunate to trade at a at a premium. So you saw from the guidance that we did pull it and that's just given the environment, but that's just at this point in time, obviously, if if the price where to to show some strength economy. Good luck.

Stronger and if the price did a at least probably at a minimum get what we feel that is that near or above in HIV. Then certainly you know we would view that lever as available we've been more like Marshall said over the last month or so we were going a little more capital conservation mode. We're in great shape.

For the near term, but yeah, it's certainly conceivable, but from a guidance standpoint, just given our current pricing we pulled it but.

Whichever ones most attractive at that time, we would ER, we would look to the source capital in that way.

Got it thank you very much.

Yep.

And we will take our next question from Craig Mailman with Keybanc capital. Your line is open.

Hey, guys Marshall I know you said you know you don't want to do spec production here, but could you give us just a little bit more detail on the you know the 70 million of additional starts you haven't guidance and whether those are kind of more built to suit or or just a place holder.

No. It's you know we could turn out to be spec development is if it was it would probably be more realistically. It's got nothing planned this quarter no starts and it's really more of a reflection of a pre lease along 100% are built you know I guess, we prefer the term.

I'm splitting hairs prelease over build to suit goes it sounds like it's a building that says you know just that tenant where are you typically will build something you know who's the next the second third fourth and it but prelease opportunity. So we have you know good handful of conversations ongoing with tenants that are still active and still seeing demand and that's that.

Really that 70 million balance for the most bar between you know here in the end of the year and you know things really came back.

And maybe more quickly than we all feel like today I'd love to think we'd start spec development, but.

Again, I like our model that it's really pulled off the field. So if the guys are saying I've got three tenants that need expansion space and I've got room, and my part, that's where you'd see us do a spec development or maybe have a building, but 50% to release when we when we break ground because it's an existing tenant when you know we're moving from one building to the new one.

Gotcha.

And then you'd mentioned you did a little bit of leasing.

In April in Houston could you just give us maybe an update.

Of kind of the volume you guys have done here quarter to date and you know historically you guys have been more of a regional tendency I would say, but you know more recently, you're getting more the nationals in E. Commerce type tenants can you just tell us kinda with what's in the pipeline how that mix has trended over time as well.

Sure I think you know a good good question and one O a little bit of a misnomer on these food or maybe I'll put it on myself something I.

Could or should articulate a little better I think a lot of times people think smaller tenant sizes means mom and pop tenants or more so than it really isn't a lot of cases, we have you know large national global companies that this is just what they need in that market given how there the other distribute.

As you enter service model is set up you know I guess as an example, we've gone Amazon in that space is it. So that's under 10000 feet. For example, we've got you know, we've seen them and Fortys and Fiftys and same with the best size the homes the Lowe's home.

Home depot lows those type tenants pellets on any number of Tesla. So I think our tenants we have more national tenants than we probably have articulated and even the local regional ones of you know have had been in business 2030 years, so pretty pretty well capitalized for what they do.

So we feel good about that perspective, we do see more and more what's interesting is the national tenants roll out their model kinds I touched on earlier then it almost seems to go to region by region that we're opening up our local distribution center for what we've heard about white goods, meaning a refrigerator.

Washer dryer and it will roll start in Orlando, maybe and then we'll see I'm in Miami and then you know the one we're looking in Las Vegas, you know today and things like that so it seems like the national tenants roll a rolling out there last mile platform, So where we've seen wayfair. Once then all of a sudden we're in for conversation.

He was with them and again, we won't land them in four markets, but we will we will get them. There. So there's activity has definitely slowed in the month of April renewals have been pretty high we had a good retention rates are higher than typical this quarter and we've kind of thought that where tenants would expect to move we you know.

I would say long term, if you're building a model use 70% retention rate for us or any of our peer should the most parts always seem to be kind of that.

Average and we were about 86% first quarter and that was really for the most <unk> pre coded so I wouldn't.

Expect a lot of more renewals in typical this year, because I think people who put their expansion plans on hold that they had last year for the most far April was slower but it's.

It's large E. Commerce is you know kind of large national companies for the most far that have requirements for the home goods or home improvement. It's the food and beverage is another category, where we've seen some decent activity outside of just kind of the bread and butter renewals and then we sometimes see some you.

Uses kobin related hand, Sanitizers, one is portable medical testing equipment, we got to lease signed in Atlanta. This month. We competed for some space with the state of California was out looking for immediate so some of those will come out and it'll be basically an immediate requirements. So that if it helps.

That's kinda than the nature of our leasing the last month, where it's kind of than most people are like us kind of shelter in place literally and do a renewal of some sort or there are companies that are we think probably benefiting from this shift in or out looking for space now.

On the renewals what has been the conversation around kind of rent have you guys have been able to push through any bumps or how people pushed back can you kind of his talk about the direction of spreads and the pace of training you rank gross.

Probably go good news is we have embedded rent growth. So I think it will probably and this is more probably more forward. Looking then really April we just don't have enough probably enough data points to really draw. The conclusion, yet I think rent growth will obviously slow.

But thankfully, we'll be able to push ahead with rent increases in rent bumps are still there you know probably where it's most competitive or new leasing where you've got vacancy and I think those sentences push for a little more free rent and things like that is what we're hearing so probably seeing more competition makes sense on the new lease and then in a few.

Cases, where the tenants.

Said, you know I thought it was going to outgrow and I say something in a one in particular, where we had been vacating and they did a one or two year renewals just kind of stay in place and there was no free ran some lift bumps and things like that so.

Probably new leasing and you and you'll see loan growth slow inevitably, but thankfully Austin I would imagine most of our fears of.

Even better.

Gross given where the markets during the last few years.

But.

It seems like still just kind of usage of space in size requirements continue to Trump you know a couple of percent increase in terms of the conversation.

Yeah, if you've got I guess for them, if you've got the REIT space in the right number of doors and things like that you were not losing deals over Iran. I just think it won't be though.

Frenzies too strong of a word but it won't be as he did a market as it was in 18 and 19.

And then I think coming out of it it's going to pick up with no new supply, it's going to pick up and probably be I'm, an optimist I didn't even more demand market coming out than we had in 18 and 19 is depending on not sure when we get to that point in time, but that one time I think will be better for industrial.

No that's helpful. Thanks Marshall.

Well.

And we can take her next question from Eric Frankel with Green Street Advisors. Your line is now open.

Thank you. So my question I think you partially answered again for me replies.

I don't apply basis that maybe you could touch upon I'm just your bad debt allowance. So I guess in 2009, certainly different portfolio in a different time, then different tenant base, but I think your actual bad debt.

Experienced and with a little bit higher than what's your allowance allow shows for 2020. So I was hoping you could find a difference.

Yeah, Hey, good morning, Erik this is Brent.

In 2009, a we averaged for the year about a 122 basis points, a total bad debt a compared to our income from real estate operation and that really we've considered many factors that was probably the primary factor that we used in raising our.

Bad debt allowance for the year from 800000 to 3.8 million that 3.8 million takes it to right at 121 basis points almost the exact same spot I think a lot of our peer group have been in and around kind of guided to that same general range relative to their income stream and so that's really what we used as a guy that.

Would want to point out that that.

That allowances not tenet specific you know thankfully we entered.

April was very clean a receivable balance think a mentioned in the prepared remarks that.

March or earlier, we've got less than 1% that was due us at that time that wasn't either collected or are covered and some other way and so yeah. We you know based on that and whether it will be better than that or worse than that you know we're so early into this April was really the first month that we experienced you know any headwinds by that.

March came around and things got more dire for the most part March rent collections Thankfully, we're done for us. So I'm. The only other thing I'd point out on the 3.8 million is that you see in our guidance table 2 million of that is.

Based on just cash same store bad anticipated bad debt or budgeted bad debt.

And then 200000 or that is cash, but non same store property and then one point sixmillion of that bad debt total would relate to straight line, you're right off of potential straight line balances, but again those are not tenant specific that's other than the 500000 were recorded in the first quarter. The remaining 3.3 million is.

Complete.

You know budgeted.

Cover that we just we think is yeah.

Had to put something in assuming that that not every tenant unfortunately gonna be able to bridge the gap from here to reopening the economy. So we don't know who they're gonna be but we anticipate there will be some and so that was really the the impetus behind dialing that up a little bit.

Thank you for the clarification that's helpful.

Circling back quickly to Houston, maybe just talk about a little bit more just about what local leasing conditions generally look like and just how dependent leasing is on oil and gas specifically at this point and what the ramifications you think might be even if you're kinda basis, not you know both directly to oil and gas.

What it might look like in next couple of years, depending on how that industry kind of shakes out.

Sure.

I'll take a stab and Brent given your history color commentator.

They will supply is pretty much most should Houston like all markets. All I would expect we'll work our way through the 22 million that's under construction they'll be some downward pressure on requests.

And Houston, maybe the good news, what we like about our portfolio a footprint kind of short term and long term when you read about market share Yoni. It's you know, Georgia somewhat reopen last Friday, I think Texas will be a market that reopens their economy say, a little bit earlier than I've been in New York.

Probably a California, so I think a lot of our markets will be earlier in the reopening and then I think coming out of this that we expect the migration to the sunbelt will probably picked up.

On another topic, but in this short term, we think in Houston is oil and gas our tenants. It's not it's a big part of the Houston economy, but it's probably over exaggerated.

Generally I think kind of like tourism is in Orlando as we touched on but I think it'll be.

I will be a challenge in Houston, particularly compared to other markets for the next year and we'll probably be more cautious on spec development in Houston than we are in other markets and I'm really part of our Houston answers also just we're cognizant of our size there.

So we're going to manage the size where were down from 21% to 13% of our portfolio and we'll keep.

I like our entire team does a great job of developing buildings into the Sun's there, but will also keep trying to exit buildings and the somewhere in the four to five kind of cap rate range. So Brent color.

No I would agree with that just point out that Houston you know during the 14 15 downturn in the certainly is gone a little deeper than that.

But through the entire period Houston still added population and job growth. You know the question is can the remaining two thirds of the Houston Metropolitan area economy.

Hello to some extent offset that that other third and it did in 14 and 15, it's to be determined here, obviously it had to covert mixed in with that which makes it even more challenging but.

It's a large city there are a lot of people there, which just prompt a lot of used for industrial space and having lived there had been there I know that the mentality of that area is to is sort of blue collar and just roll up and get it done. So yeah long term, we feel good about the city just.

Certainly reopening the economy in in having some oil and gas consumption is going to help things, but we've got a good team. Good experience team and we'll just continue to move very glad that we lowered our risk there significantly, but we'll just continue to a monetary to take it space by space and tenant by tenant.

Okay. Thank you for the color appreciate it.

Sure.

And we can take our next question from Michael Carroll with RBC capital markets. Your line is open.

Yes. Thank you I just wanted to touch on your comments about what your customers are telling you today on at least in the the press release has released last night it sounded like that you're more cautious going into May and June versus April a is that something that you're hearing from your tenants day or is that just what's your expectation on.

How the markets kind of unfolding right now.

I think it's more the latter and I'm kind of our thoughts it again as Brent mentioned earlier, none of our bad debt reserve is tenets specific it it's more a thought of you know businesses really designed for the economy to be shut down and so those things.

Didn't move to business is closed and things like that it's probably just.

Just cash on hand in availability, we thought and your ability to pay April rents, probably easier and then that financial burden you know almost regardless unless your some of the exceptions your business. It probably gets a little more challenging for them balance sheet wise in may and maybe even in June and that's why that you know.

The sooner we can safely we opened a better for all of those tenants that that's what we said, it's probably cumulative in terms of Tiering your employees and paying your rent and things like that it's probably easiest the first month in a little bit more to the south gotten a little bit harder still the third but.

That was more.

Yes, intuition more much more so completely than than really anything we've heard from many tenants other than it's good it's got to be I empathize with them. It's got to be hard when your revenue shore sources shutdown or things like that it depending on which then it is as to how much revenue, they're losing while the economy is kind of in a standstill.

Okay that makes sense and then it can be or can you talk a little bit about I guess the tenants mix I know that you said that you have more national tenants then people probably expect so what percentage do you say is national tenants versus the local tenants or regional.

Tenants within the portfolio I mean have you looked at that or is that data that you could provide us.

It's that the data on that is very tricky, obviously, the publicly traded companies it's easier to track because you can look them up but you know there can be very large private companies. For example that are well heeled, but we just don't have way or access to do that so we don't have specific metrics that you. Obviously, we have their trade groups, but in terms of.

You know broken down by balance sheet size or that type thing. We we really don't have that ER marshals mentioned, a couple times the quality of our portfolio I would just reiterate worry we operate and especially with our development having built half our portfolio. We operate a very high quality class a portfolio, obviously I think.

A lot of people, maybe think small tenant they begin to think that class B class C. Obviously as you go down the food chain in quality. A building then you're going down with quality of 10, except the lower price point and they can afford that more and.

It's it's not a lot different than say housing, whereas you go down it's just more challenging for people potentially with difficult times.

But we're in that class a really top end of the of the multi tenant space. So yeah, we fared well through the great recession I would point out we were one of the leaders coming out of that with regaining occupancy because that is the broadest base of the potential customers out there just from a pure pops.

Relation standpoint is that 20 to 50000 square foot tenets. So yeah, we feel good long term about where we are in and we've been through as a team several of these.

Downturns and and we feel you know wherein we'd rather not have to deal with it but we feel like we're in a good position to go to handle it.

Okay, great. Thank you.

And we will take or next question from Rich Anderson with SMBC. Your line is open.

Thanks, Good morning, everyone.

So Brent you mentioned that the bad debt of three.

Incrementally 3 million 3.8, total was not tenants specific and yet you are able to get to this break down between you know straight line rent you know collectability issue or and 2 million I think 2 million on the cash bucket 1.6 million in the noncash bucket. So how are you able to get that level of detail if.

If you didn't really you know kind of get into the weeds within individual tenants on it just curious how that.

You know, we've got bad debt stats going back for about 20 years in our average mix of cash to straight line is 65% 35%.

And that holds pretty you know, it's certainly varies quarter to quarter in maybe a little bit year to year, but on average it's very close to that and so we just replied relied upon that.

Yeah that historical break down I mean, obviously, if you get to point, where you're pulling the plug when a tenant and just determining that accounts uncollectable you. Obviously have the cash build up of just the rent. They only let's say they would you 90 days you've got that to write off but then you also have whatever their straight line rent balance at that point in time might be gets written off.

If you're lucky in your toward the end of that lease it would be a smaller straight line balance, but if you're on the front end of that lease or even towards the midpoint than they are likely wouldn't be a a balance there. So we knew that it wouldn't be 100% cash because and again just relying on our historical average 65 35 that seemed like a reasonable.

Way to break that out.

Fair enough, Okay, and then Oh, you know maybe broader question for Marshall or yourself.

You talked about some of the the positive elements that may come out of this in terms of onshoring or near shoring inventory increases changes in consumer behaviors, but in in the near term would you would you agree that sort of last mile sort of.

Component of the business might be little bit more expose only because you're still relying upon the the activity the local economies in the in the in the markets that you're serving in that sort of infill last mile product.

The big problem with larger assets is supply as you say a lot on these calls and I'm curious if if you feel like you're almost sort of hyper exposed to a recession because there's just people out of work in the markets that you're serving and just like to hear your comment on that yeah Justin.

Perspective, and probably a longer conversation in the last time this morning.

You know, we certainly need the consumer pick up market and Tampa in Phoenix, and San Francisco, but.

I'm actually saw the opposite of that and that people are at home now and getting more and more goods delivered or picking up curbside. You know when you think of how people are shopping I actually thought it puts pressure is not right word, but more and more value to last may.

While.

Locations, because depending on what depending on what you're delivering you're not going to the another just opening we reopening some what Simon some of their malls and things like that but you're not going to the mall you may not be going and sitting in a restaurant. Your shopping has changed and you need that last mile.

Even more so than you did prior there so I think what we need the consumer we need demand to be there, but people are ordering things online and from their home or by phone and so the last mile picked up importance.

Yeah, I read a pattern that's kind of stick there that's the off that argument for sure I appreciate the color thanks very much.

Well.

And we will take our next question from Alina Chapas with Morgan Stanley. Your line is open.

I definitely not perfect. Thanks for taking the question does it take just a quick one I'm not sure. If he can provide or too early but do you know what percentage of me run collected so far in it that more or less than normal level.

Oh, it's a fair question and and preparing everything else, we we've not deep dive into that and you know the percentage at this point, but probably would be one where we wouldn't want to overly spoke someone just because that percentage at this point time isn't necessarily that high but I would say that our anticipation.

And just early look at it is similar to April may be slightly behind normal, but nothing that is that I, raising but really our experience has been you really don't get a good read on the on the month until about 10 or so because that's when some of the penalties in late fees and things would kick in and so it's it's not unusual to have.

Have you know pretty good velocity coming through on the cash receipts or you know about 10 days before quarter end all the way up to about 10 days after and said within about that 20 day period, you you're going to get a really good idea of whose paid who hasn't but we're just sort of mid way on that and in really no additional color to provide at this.

Todd.

Great. That's helpful. Thank you.

Yeah. Thank you.

And we can move next to Blaine Heck with Wells Fargo. Your line is open.

Great. Thanks, just following up on the tendency questions that you guys have gotten and this might be might be tough to answer too, but you know given the conversations you're having with tenants do you do you have any idea what percentage of your tenant base has received or will receive some sort of government, helping to the form of the grant or a few people.

Loan and you know is there any way to know how instrumental that is in their ability to pay rent or you know are they using balloons for other expenses.

Yes.

Good question, and then you're right probably all trickier, one of the answer where where we've gotten involved that 26% of you know say the tenets that may come to us and say we need help you know our standard form or list of questions of things or have you apply for an sta alone So and and we know you know that's kinda.

We don't want to be the lender of first resort is basically a we'd we'd rather if you can get the F.B. loan and.

Certainly not an expert on it but my understanding of those loans is it's really you know the amount you end up ultimately needing to pay back. If you can show it was going to pay employees and pay your rent that part is forget and so that's where we've had a number of cases, where tenants have asked for rent relief and subsequently.

So on their request because they didnt get yesterday loan and then the other thing Weve you know getting an S.P.A. long education through this so many of the banks as you saw the money ran out so fast and in some cases it up more of a political comminutes seem to be large companies with good banking relationships got those loans.

So some of our tenants were having trouble, we actually help them. What here is the here's the bankers the website, let US know we can help you with a banker specific bankers there. So in terms of percentages globally, it's hard to say how many as it does feel like those that didn't get the has the loans are using them to pay the route because that.

As you know what it was designed for and they my understanding is they won't have to pay that portion of the long back and we're trying to work with them as best we can you know, making an easier process. As it is we can as an outsider not their bank or not there attorney to obtain those loans and and I think there's some still going.

On email this morning going through that process, where someone has just gotten funding and so hopefully that's where that may June rent will come in and maybe they didnt have an april or maybe they'll just now getting so it's I think it's helpful and it's it's not the majority of our tenants by far but you know area. They all matter and so everyone that can kind of get us each month, you kind of sale.

Thanks for closer to the other side of this because we get excited about the other side of this and so each month, we collect chips away at our bad debt estimate our occupancy loss estimate thankfully.

Great. That's that's helpful. Marshall just one quick quick one Brent.

You guys have some upcoming maturities. Both this year next can you just talked about what you're saying that that markets today, and how you're thinking about addressing those maturities as it stands today.

Yeah, you know we.

I do have 40 million coming I think in August and then 75 million that's not coming till December. So we have some runway there and then a pretty typical year next year at 125 million maturing and we've tried to keep a very steady and you see in the supplemental very steady even evenly distributed maturity schedule.

Yeah, right now are really good timing with loan we did first quarter, but yeah right now things spreads really widened out right in the midst of all this and that's come back down and we think we can get 10 year long term money in the low 3% range, which.

You know it is not unattractive and hopefully as things go maybe even that will simmer down even more but that's as of the last few days and talking to some of our private placement lenders, we feel like given our size and rating in that type thing that we would be in that ballpark. So yeah. We certainly view that is accessible in it.

Although as needed and as you see in our guidance table, we although we pulled the equity issuance. We went to the other lever in bumped up our anticipated you know debt access this year and yeah. We've been building ourselves in a position even we have even been question about the the rate at which we were issuing.

Equity and.

Again, our philosophy has always been when it looks you know do it when it looks attractive in its available versus having to be reactionary. So Fortunately we're in a position where we can let the markets Colm and cool down and hopefully I think maybe third quarters first time, weve dial going back in but Oh, we certainly a feel like that that.

Yes that levers, becoming you know has become more attractive just in the last 30 days, which is nice to see.

Great. Thanks, a lot guys.

Welcome.

And this does conclude our question and answer session I'd like to turn the program back over to Marshall Loeb for any closing remarks.

Thanks, everyone for your time, I'm, certainly last and probably most importantly, I wanted to thank Bruce core attendees, our chief Accounting officer. He is now survived this last quarter in close out he's been with this over 25 years. So Bruce nights, just such a retired you're not giving away from us.

And and Meanwhile, the audience. Thank you for everyone. Thanks for your time, we're certainly available for any follow up questions or comment and we appreciate your interest in east. Thank you. Thank you.

Thank you for your participation. This does conclude todays program you may disconnect at anytime.

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