Q1 2020 Earnings Call

Good afternoon. My name is <unk> and I will be your conference operator today at this time I would like to welcome everyone to the Q1 Twentytwenty Acadia Realty Trust earnings Conference call. All lines have been placed on mute to prevent any background noise.

The speakers remarks, there will be a question and answer session. If he would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press. The pound key. Thank you at this time I would like to turn the conference over to Ms., Amy Racanello you may begin.

Good afternoon, and thank you for joining us for the first quarter 2020, Acadia Realty Trust earnings Conference call.

Before we begin please be aware that statements made during the call but are not historical maybe deemed forward looking statements within the meaning of the Securities and Exchange Act 1934, and actual results may differ materially and those indicated by such forward looking statements.

Due to a variety of risks and uncertainties, including those disclosed in the company's most recent form 10-K, and other periodic filings with the FCC.

Well, we're looking statements speak only as of the date of this call May six 2020, and the company undertakes no duty to update them.

This call management may refer to certain non-GAAP financial measures, including funds from operations and net operating income.

We see a KBS earnings press release posted on its website for reconciliations of these non-GAAP financial measures, but the most directly comparable GAAP financial measures.

Once the called becomes open for questions. We ask that you limit your first round to two questions for color to give everyone the opportunity to participate.

You may ask Furtherquestions by Reinserting yourself into the queue and we will answer as time permits.

Now it is my pleasure to turn the call over to Ken Bernstein, President and Chief Executive Officer, who will begin todays management remarks.

Thanks, Amy good afternoon, everyone. As we get started today I think it's important that we first and foremost remind ourselves that this.

Is the health crisis, So I hope everyone on this call all your loved ones. Your friends. Your colleagues are safe and healthy thankfully from health crisis perspective, our team is safe and working remotely the transition was not easy certainly wasn't fun.

What I'd been incredibly impressed with how smoothly how professionally or team has made that transition.

So today.

We're going to try to update everyone as to what we're seeing in the retail real estate market as well is with respect to our portfolio.

First.

Give an overview of how we're thinking about the current situation then John Gottfried will discuss our quarterly results or portfolio breakout our balance sheet in our liquidity and then finally, Andy will discuss and update you as to weapon platform.

As we think about Acadia and our portfolio.

We feel we remain.

Well positioned to navigate through incredibly challenging time.

First of all we have a portfolio that diverse both in tenant base and geography.

Secondly, we have a strong balance sheet with adequate liquidity.

Third we have limited exposure to new development and us any need for significant development capital.

And then finally, we have access to our discretionary institutional capital through workloads.

So that being said retail is clearly at the epicenter of this crisis and no retail will be a meal.

We're off to some degree.

Bill fighting through the fog of the current health crisis and its simultaneously trying to gauge the short term the medium term and then the long term impacts to our economy.

Tour industry has little to our portfolio.

Now on the short term understandably.

All eyes are focused on collections, which doors are open and operating.

But then in the longer term to real value of our businesses.

Is the quality of our real estate and we're not to lose sight of that.

So as we think about our portfolio from a cash flow in collections thesis, we break it into three general buckets.

First.

A third of our portfolio based on revenue.

Is essential necessity based with tenants ranging from targets a trader Joe's to old supermarkets. These tenants are open and they're paying rent.

And while longer term.

Necessity based retailers are going to continue the need to adapt to changing landscape in the short run.

They've been able to state open and busy during this crisis.

The next largest group for US is just over an additional 40% of our rental days.

This group consists of non essential.

But high quality tenants, we generally strong credit.

In high quality locations.

These tenants ranged from TJX to older from Chipotle latest Starbucks from Lululemons Nordstrom rack.

Our April collections in this group have been less consistent but even here, we're seeing progress on that front.

Now assuming an economic recovery consistent.

With the current sober forecast.

This group should have the liquidity issues the liquidity.

And we expect them to.

Honor their obligations.

For the majority of these retailers, it's not a matter of if.

But one.

This is we think about our portfolio from a collection perspective over 75% or retailers that are either a central and open.

Or national tenants with the high likelihood of making it through this crisis.

Then the final 25%.

Our roughly in three sub components first or local tenants that were deemed non essential in this closed.

Second or younger national brands.

And then third or those tenants that entered into the crisis on weekly.

Now in terms of the local component.

This group represents about 10%.

Of our rental base.

Our collections rate on this component was low in April.

This is frankly secondary.

To our ability to get those tenants with previously strong businesses reopened.

Re stabilized and then succeeding in whatever the new normal lists.

And while this 10% component maybe a relatively small portion of our portfolio local small businesses are critical to our communities and getting them reopened is critical to our economy.

The next.

Segment.

Is young brands or digitally native brands were those newer retailers growing their direct to consumer channel. This approximates about 5%.

Of our rental days.

Here the range of outcomes will vary based on the strength of the retailer for those startups without differentiated product and in need of several years of investor funding to get to breakeven. This new environment is going to be tough.

But for young but exciting brands, whether they be Warby Parker are all birds, great locations like we have in our portfolio will likely be of increased importance.

It is become even clearer that physical real estate is the pathway to profit ability for these brands.

Especially.

As the department store and wholesale channel has become even more challenged.

For instance, even during the cold the crisis, we executed two leases with Veronica beard, and exciting up and coming brands. These leases for rush and Walton in Chicago as well as Greenwich Avenue in Connecticut, and then in the works prior to the shutdown.

But we got them over the finish line recently and we're very pleased to have them as a tenant.

Then the final component.

Are those tenants on our watch list, which represents somewhere between five and 10% of our portfolio.

While everyone's watch list is likely growing.

Heading into the crisis, we had very strong interest for many of these locations given the high quality of these locations and based on very recent conversations we expect most of that interest to continue.

Importantly in many of those instances, there's embedded upside such as Kmart in Westchester New York, We're the tenant is clearly struggling.

But their rent to significantly below market, even in today's new world and when we're finally successful and recapturing the space it'll be in that benefit.

We also think of our portfolio in terms of geography, and product type our street and urban portfolio represents about 60% of or otherwise.

Somewhat surprisingly given the shutdown of our gateway cities, our April collections for Street and urban.

We're fairly similar to what we're seeing in our suburban portfolio now much of this is driven by the essential component.

Our urban centers.

Well the non essential component of our street and urban retail was shutdown in many of our markets. Once these stores are reopened our retailers are telling us that these stores will likely be an increasingly important part of their recovery.

Additionally, keep in mind.

Street retail does not have the headwinds of being exposed to department store closures or co tenancy headwinds that are traditional shopping centers might face.

Being said.

For as long as shutdowns or severe social distancing is a reality, we're going to need to be taken on this piece.

Our collection rate for Street and urban also varies based on tenant make up for instance.

Our Street collection rate in Chicago was 45% due to a large percentage of essential and opened tenants.

Whereas in Manhattan.

Which represents approximately 10% of right away.

Our.

Collection rate was lower.

In the short.

And maybe even the medium term.

Concerns around dense major cities are legitimate.

And in the medium term, it's very possible.

We're going to see a relative lift to the lower density components of our street retail portfolio, whether it be Armitage Avenue in Chicago, Greenwich revenue in Connecticut, or a Melrose place in Los Angeles.

So if your view is that more people return to living in the suburbs of our major cities well, we're well positioned from that perspective, because frankly, our retailers don't really care, where you sleep.

But if this health crisis causes you to conclude.

The everyone's going to move to Vermont, well were less well positioned as we only have one center in Burlington, Vermont.

So to be clear.

Just because collections are front and center and the essential and necessity component of our business is providing us very important stability.

In the long term, we still believe that mission critical gateway locations are going to rebound nicely.

And as we think about our core portfolio.

Well, we're very sober about the realities of this crisis, we think we are well positioned as we cleaned out of the shutdown.

This crisis has been a massive accelerator of prior trends impacting retailer. It further accelerates the separation of the hasn't have not for both retailers and retail real estate.

Retailers are telling us that it is very likely that they will do even more with even less.

In many respects location will be of increased imports to their brand.

Yeah rent will always be an issue.

But what retailers are continually telling us is that quality of location being close being convenient to their customer reducing customer acquisition costs, increasing customer loyalty are also critical maybe even more so.

And as we think about the future it is likely to be the retailers, who we're leading the charge prior to this crisis that continue to gain steam.

Whether through strong omni channel or simply best in class execution. It will likely include our key tenants like target like TJX trader Joe's for their convenience and their value, but also lululemons and all birds for their energy in their excitement.

Then as it relates to our fund platform as Amy will discuss we have plenty of dry powder for the last several years, we've been buying out of favor assets with high yields attractive cash flow and most of that cash flow look stable.

While the fourth quarter.

Hey of last year in first quarter. This year have been quiet from a new acquisition perspective, we think our patients will be well rewarded.

We commented on prior calls.

We thought we were late cycle and thus in both our core and fund over the last few years, we have not had it new developments and does have limited new development exposure.

And with 40% of fund five.

Available for future acquisitions, we can go on offense as soon as the opportunity arises.

So as we think about our positioning and an incredibly challenging period, we believe.

That the diversity of our tenant base and the quality of our location.

That the strength of our balance sheet.

With limited exposure to developments.

That our fund platform with plenty of dry powder.

All puts us in a solid position.

And then as important as anything.

As we work our way through this crisis.

We have to remind ourselves we have been through cycles before.

Okay got it start in the.

Real estate crash of the early 19 nineties, we navigated through the collapse of the Riet market in the late Ninetys, then there where the harbors of 911 in the recession from the bursting has a cut the dotcom bubble.

That was followed by the global financial crisis and over the past several years more recently absorbing the headwinds of hub the retail arm again.

Bottom line is we know how to deal with recessions, we know how to deal with headwind.

They're never fun and each time is different but many of the steps we need to take or the same.

And often.

Out of these cycles come seems unique opportunities as well.

So with that I'd like to.

Thank the team for their hard work.

And bringing their eight games during an incredibly unsettling time.

We're going to get through this and when they get through this together and with that I'll turn the call over to John.

Thank you Ken and good afternoon, I hope, everyone is safe and healthy and I look forward to seeing each of you in person sometime soon.

Let's start off with a discussion of our first quarter results along with additional commentary on our April collections and that moving into a discussion of our balance sheet and liquidity.

Before getting into the details of the quarter I'd like to start off with a few observations as to what we're seeing in our business prior to the onset of code.

Our business is performing in line, if not actually exceeding our expectations for the NFL and same store NOI trending towards the upper end of our expectations.

We were seeing strengthen our leasing discussions throughout our portfolio, which is further driving an increased level of optimism.

But without a doubt tobin abruptly shut that down resulting in our cautious decision to increase our tenant credit reserves.

Which is I will get into in a moment. It resulted in a four cents decline in AFFO.

300 basis point impact in or same store NOI during the first quarter.

In terms of relative performance notwithstanding the 1.4% overall decline in our same store NOI, we continued to see differentiation within our product mix with our street and urban portfolio outperforming suburban by approximately 200 basis points.

So while it's too early to predict a lengthy and severity as to what comes next we entered this unprecedented era in a position the strike.

And while it remains challenging at the moment, we remain cautiously optimistic that this benefits us when the new normal emerges.

Now moving into the details in terms of same store NOI or 1.4% decline in the quarter was driven by true two primary items, neither of which were contemplated in our initial guidance first we did not place any new properties into redevelopment this past quarter.

As a reminder, we had a single forever 21 and for pure one locations along with 12000 square feet a street retail.

All of which and as we discussed on prior calls we got back in late 2019 in early 2020.

Given the current environment, notwithstanding our belief that some of these locations may ultimately be redevelop.

Vacancies are currently reflected in our first quarter same stressful same store pool.

More specifically this includes 11 these walton in Chicago as Ken mentioned, we successfully signed a lease with run a computer.

It took a significant portion of the space that was previously occupied by Marc Jacobs.

We had contemplated a variety of formats for 11, these while some of which would have required redevelopment.

Notwithstanding the current Tobin shutdown Ronnetta beard is moving forward with permits and is still geared up towards a late 2020 opening.

Secondly, as I previously mentioned as a direct result of co bid, we cautiously reserved approximately 300 basis points of core credit loss and build rents and recoveries, which equates to roughly $900000.

In terms of a force Corp, first quarter full results of 30 cents a share we recognize kobin related credit reserves totaling approximately $4 million or four cents a share.

This reserve is comprised of two parts first the previously discussed $900000 or 300 basis points that we took on build rents and secondly is $3 million reserve against our straight line receivable balance.

I'd like to provide a little more color on the straight line rent reserve for those non accounts on the call I thought it may be helpful. Just to point out at the $3 million that we took this past quarter is enough itself somewhat meaningless.

Represents the cumulative difference between the cash and GAAP rents that are built up on our balance sheet over several years. However, it is indicative as to how we're assessing credit risk within our portfolio.

And it reflects our current thoughts on the 5% to 10% of our tenant base that we believe it or heightened risk of recovery post pandemic, which I will discuss shortly.

Now moving onto tenant profile in cash collections.

As Ken discussed a third of our portfolio was open operating and deemed essential and we have collected ran on virtually all of this space.

In the aggregate we have collected.

Absolutely, 50% of our April rents in recoveries and it's worth highlighting that any 50% collection rate given our prudent cash capital structure, we breakeven, meaning we meet all of our operating expenses and service our core debt obligations and this is before we factor in any cash flows from our profitable phone business.

Obviously, breaking even is not something we aspire to but rather it reflects our ability to withstand the pressures. We are currently patient facing should this continue for an extended period.

As it relates to the 50% of our tenants that have not paying their April rents one of the benefits of a relatively small portfolios that we can actually do you tenant by tenant store by store analysis to form a reason opinion on the financial strength of each of our tenants and the underlying value of their locations.

Sort of break down to 50% of April rents that we have yet to collect we put these into two distinct buckets.

First as Ken mentioned, 5% to 10% of our <unk> of our tenants either entered this crisis in an already we can position.

Or are we believe they will become so as a direct result of code.

This bucket as a management manageable challenge and we believe the credit reserves that we have taken this past quarter appropriately reflect that risk.

Second as it relates to the remaining pull of unpaid April rounds.

Our tenant by tenant store by store analysis tells us that the vast majority of these have the financial wherewithal to pay us whether that's backed by an actual investment grade rating or through our knowledge of their business and profitability as a brand as well as the importance of our location to their business.

Keep in mind this isn't to suggest that we won't negotiate payments or other deferral plans to bring their accounts current.

Based upon our discussions to date.

We anticipate that we get made whole and the vast majority of these outstanding receivables.

I also want to give some color on our April collection experience for the top 20 tenants that we have listened within our supplemental.

Our top tenants represent approximately 35% of our core revenues.

With these revenues being split fairly evenly amongst our street urban and suburban locations and target being the look one of the largest tenants within each of these.

In the aggregate we have collected over 67% of April rents from our top 20 times with a 75 collection rate in urban 66% on the street and followed by 63% from Citi.

Now moving beyond our top 20 tenants I also wanted to highlight our April collection trends for all of our tenants across the different segments of our portfolio.

As a reminder, our street and urban portfolio represents approximately 60% of our revenues was 40% coming from a suburban book.

We collected nearly 65% of urban ranch, 65% on suburban and 40% on the street.

I wanted to highlight I wanted to spend a moment to drill a bit deeper into our urban portfolio.

Notwithstanding the locked down and our major cities, our urban assets assets have proven to be the most resilient during the pandemic.

I wanted to highlight the impact that our city center redevelopment project in San Francisco will have on some of our go forward urban metrics.

As a reminder city centers anchored by an open in thrive in target along with the expected addition of whole foods and we've already funded the vast majority of redevelopment cost.

Upon the expected stabilization of city center in the next year or so our percentage of both urban ally along with a portion deem to represent a central tenants will increase by nearly 5%.

Lastly, I want to highlight a few items on our balance sheet.

As we had highlighted in an earlier release, we have no material core maturities for the next several years, nor do we have any material non discretionary capital commitments for development or construction.

Based upon my earlier comments regarding our ability to breakeven occurring collection levels. We're comfortable that we have ample liquidity to not only the weather. The storm, we are facing but the sufficient ability to deploy destruction discretionary capital towards any required leasing efforts warfare acquisition opportunities within our phone should we decide to do so.

At the ended the quarter, we had an excess of $100 million of liquidity comprised of pro rata cash on hand, along with remaining capacity on our core and fun facilities.

In mind that given our size and relatively low leverage our multi core interest cost is less than $3 million a month.

Further adding to our flexibility and opportunity for further liquidity, it's worth pointing out that we have roughly 90 core properties that are currently unencumbered.

Unencumbered pool generated nearly $25 million of analyze this past quarter, representing an access a 70% of our total core in a life.

Which one compared to our current unsecured obligations generates a very healthy interest coverage in excess of five times.

So while we are truly facing unprecedented times a difficult decisions. We believed that our balance sheet is built to weather. The storm we are facing.

Now moving onto our dividend.

As highlighted within our release, we have temporarily pause or quarterly dividend.

While our balance sheet remains solid in light of the unprecedented lack of short term visibility in cash flows. This pause enables us to preserve capital and thus enhances our near term liquidity.

Well, we and our board will continuously review our dividend policy, it's worth highlighting that giving our 2020 tax position, we expect to have the flexibility to pay out our taxable minimum while at the same time enhancing our liquidity.

In summary, it's been a challenging few months with a lot of hard work still in front of us.

We're off to the challenge and our team is looking forward to getting our portfolio back up and running safely and fully cash lines as soon as possible.

I'll now turn the call over to aiming to discuss our fund business.

Thanks, John.

Today I'll provide an update on our platform.

First with respect to the balance sheet.

Well, they're all each of our son aren't balance from a leverage perspective.

Yeah, no material secured or unsecured debt maturities in 2020 in our fund portfolio inclusive of extension options, which are subject to customary conditions.

This includes our 200 million dollar financing at city point, which has an extension option to at least to May 2022.

You May also note in our supplemental posted on our website that are 150 million dollar fungicides subscription mine had less than $5 million drawn on it as the first quarter 2020. So he has a lot of dry powder.

No. Its previously disclosed there's no ground up construction currently underway in our fund portfolio.

In general for the foreseeable future, we expect that the only material capital expenditures in the funds will be tenant improvement indoor leasing cost.

So see added with the installation of new tenants with executed leases.

It's also includes city point.

With respect to our capital allocation strategy our funds our next at Street urban and suburban retail.

Several years ago, we pivoted away from taking on new somewhat riskier development projects in favor of acquiring more stable, but out of Steve her shopping centers.

Instead of simply targeting our nation top 20 markets.

Focused on two key types of properties.

First is the only game in town that into shopping center with virtually no competitive properties.

Your tenants have you relocation options and your number and then in less dense market home delivery is even more extensive.

Yes, assuming the stores profitable with an appropriate rent to sales ratio among other things that store becomes a critical part other retailers distribution channel.

The other type of property is the best scheme in town that is the top property among a handful of competitive properties.

Here.

More headwinds to growth, but our thesis never relied on rental growth.

Most importantly, we have been picking needles fund a haystack.

Cash flow stability is key to this strategy. So it's important that we select properties with a strong tenant line up and adequate backfill candidate and be then to recapture any tenant spaces.

For example at some side.

Tony Square in Frederick, Maryland, We recaptured a 95000 square foot Kmart and at two executed leases for a total of two thirds of the space.

Both leases were signed in 2020 with one execute as opposed to pandemic in mid April.

Over the past few years, we've successfully obligated and approximately 650 million dollar portfolio, a 14 open air suburban shopping centers on behalf of fungicide.

Tenants include the TJX companies Ross dress for less that's spy Walmart and target.

The portfolio has strong geographic diversity.

We acquired these properties that an unleveraged yield of approximately 8% and that's substantial discount to replacement cost.

This means that our fund size portfolio has approximately $50 million at the end of life when everyone is paying rent.

As previously discussed Weve used approximately two thirds not branch at a blended interest rate of 3.7%. This resulted in approximately $16 million a debt service.

To date, we've collected 55% of equal rents and beloved recoveries in this fund.

From a downside perspective at this collection rate were to continue at 27 and a half million dollars at the end of life. We can still cover our 16 million a debt service.

When you add in open balances from credit tenant the minimum projected collection rate increases to approximately two thirds.

On the acquisition some tweaks that the transaction markets to remain quite in the near term, we have approximately $200 million of dry powder or approximately 600 million unleveraged basis, and we have more than a year to invest it.

Given increased headwinds in the near term due to Cold then 19, we will remain appropriately disciplined.

On the disposition front in mid April fund for completed the sale of KONI Plaza one other originally eat property in our northeast grocery portfolio investment.

This transaction with teed up at the beginning of year.

As a result of coal then 19, we granted the buyer and approximate 5% credit at closing.

Credit aside we believe it was prudent to proceed but that's still profitable $15 million sale and take some chips off the table for this 2012 vintage fund.

In the first quarter. We also thought it was prudent to record an impairment charge related to certain fund properties impacted by Kobin 19.

The number unlike properties and infinitely vehicles, where impairments or less kannan. These properties are in finite life vehicles with anticipated sales over the next few years once the capital markets we stabilized.

I touched on city point earlier in the call, but I'd like to add at the property has remained committed to serving the needs of the downtown Brooklyn community. During this time with target and trader Joe's open and operating.

Just prior to the pandemic, we were experiencing strong leasing momentum with the opening up Mcnally Jackson Bucks and execution of a lease with London in mid February.

We look forward to building upon this momentum one Brooklyn begins to reopen.

In conclusion, our fund platform remains well positioned to successfully weathered the storm with a strong balance sheet minimal construction and the ample dry powder to continue to execute our thoughtful investment strategy.

Every night at seven P.M. My family and I had to our Windows in cheer for New York City is essential workers a big Thank you to all who are keeping our <unk> up and running during this challenging time entity Acadia team for remaining incredibly productive communicative and upbeat now we will open the call to your question.

Wins.

At this time I would like to remind everyone. If he would like to ask a question. Please press star one on your telephone keypad. Once again that star followed by the number one on your telephone keypad <unk>.

POS for just a moment to compile the coupon day roster.

Your first question comes from a line of Christy Mcelroy with Citi.

Hey, good afternoon, guys. Thanks.

John I just wanted to follow up you talked about the accounting adjustments that you made in the first quarter and just given your conservatism.

On that fine early in the process when you're considering the 50% collection rate for April how do you expect to approach Q2 from a collectibility perspective in this environment as you assess you know what reserves might be appropriate and and whether to move leases to a cash basis sort of in this new environment of uncertainty.

Yeah, Hi, Christine So I think it's a bit early and into may where wherever seats are so I think where well have a lot more detail as to where we are and how tenants open up but to answer your question, which is actually at a technical accounting question for for the non accounts on the call them would Christy referring to is when we moved to a cash.

Basis versus an accrual basis, and you know what I will explain what we do is that from from me for me tenant perspective, we look at each and every single one of our tenants we know the profitability at the store we know there their financial backing we know their ability to to continue or having a good view on it and we're going to assess that.

As we as we move through this and I think as I laid it out in and in my prepared remarks, we think 5% to 10% either started with a with it with with something that need to work through or has it was all to covert became became so so that's the bucket as of right now we're going to continue due to focus on and those would be the ones that are at the heightened risk of a moving to a cash.

So is that 5% to 10% that that we have currently identified as being most trust.

And can you talked about you know the digitally native retailers as a group these sort of young brands a it's been a big part of your leasing efforts on the street retail side.

Can you say, sorry, if I Miss it can you say what the collection rate was at for April for that group what are they communicating to you in this environment and we have seen some press on the has it didn't see if some of these retailers to take government stimulus funds. So just wondering you know what you're hearing from that side.

Sure. So so first of all.

Keep in mind as I said it represents 5% of our overall.

And it's exciting because I would argue if you walk on Armitage Avenue pre coated some of these young brands are acting like the larger inducement tenants of the last century and so that's why we're excited about it not because of.

Their credit quality war, HM because we ever thought they would be a significant part of right away. The collection rate Christy I don't have it broken out and but you should expect it was low that being said a bunch of them have reached out and set the following.

Because they started online and omni channel they had especially for some of the more mature young brands.

They had and continue to have through this solid online sale.

Now to the extent that half of their revenues were coming prior to co that from the stores that obviously got hit.

To the extent that they were not yet profitable or were in need of additional capital just to stay alive, those it'd be more fragile but.

But.

When I think about them when we talk to the retailers about what the future would be having strong omni channel capabilities.

Having the ability to use real estate space more thoughtfully. So all birds doesn't care, whether you buy their shoes online or in their stores, but they recognize that those are more prop profitable on so the retailers have been coming back to us already over the last several weeks to talk about how they get reopened and how.

They get current on rent and I find that encouraging.

Thanks for the color.

Right.

Your next question comes from a line of Craig Smith of Bank of America.

Thank you.

I wanted to know.

The difference for reopening a high street location from let's say your suburban shopping center snow what is required from Acadia to get these tenants open.

As a few things obviously.

The.

Cover and rental requirements will change jurisdiction to jurisdictions I assume what you're saying is once a given city or county has said it is okay to reopen what does it take a in the case of.

Street and urban assets since really all were able to be in charge of is the sidewalks, we'll make sure. The sidewalks are fine we'll work with the retailers in any way, we can to make sure that they're set up safely, but most of that is incumbent on the retailer when TJ Maxx decides they want to reach.

Open.

We have a great relationship with them our team will be in conversation with them, but TJ, we'll figure out how to jail.

Now in terms of suburbia, when we're working with local retailers.

Mom and Pops, who.

Need to figure out so much so fast there our team.

We'll bring whatever resources, we have to help them get safely reopened they may need.

PPP they may need.

Various different types of a pickup abilities and our team is working to make sure that our parking lots are set up so that if someone is ordering and picking up that they're able to do that but it's in the very and it's gonna be shopping center by shopping center in case by case.

Great and then you had mentioned obviously, the 600 million dry powder.

In your fund.

What do you think the transaction markets will be like and what is your strategy going into it as it opportunistic or or you know just what what do you expect to do with the 600 million dry powder.

Sure well.

I think cost of capital has gone up for everything.

Then the treasury markets.

And.

It would be in prudent I'm very happy with the investments our team has made and fun five to date.

It would be in prudent to spend that.

40% remaining in ways that we didn't think.

Rewarded.

Our investors and us for having that kind of available discretionary capital here is on my checklist, Craig things I think about yeah. We're still early into both the health crisis, and then the reopening of the economy into a severe recession.

The amount of unemployment <unk>.

The impact to a variety of shoppers is something that we're gonna have to take very seriously as we think about where we'll ran three settle on a.

Give it asset.

And then similarly, we have to watch the debt markets.

Thankfully as opposed to the G.S.C.

Our lenders all seem to be and substantially good health.

They are co-operative very cooperative.

With respect to existing loans, but the new debt market for new acquisitions is somewhat limited.

We have a line of credit.

That Amy pointed out is.

Virtually fully available I think we have $3 million drawn on it. So we can certainly bridge acquisitions, if they make sense, but I would also want to make sure that there is a healthy reasonable debt markets. So that when we acquire assets.

We can take into account what the cost of new that might be and that we make sure that we get rewarded on the equity side, so a bit early.

We need to have somewhat better understanding what this recovery will look like and where the distressed then opportunities will be and answer your question about how opportunistic I would assume we're going to be very opportunistic with the remaining capital.

Thank you sure.

Your next question comes from the line of keeping Kim of Suntrust.

Thanks, Hello out there.

Can can you talk about when you look at your portfolio. What percent you think is luxury or Aspirationally couple, Tennessee, and I realize not these might not be to 5% to 10% of tenants that were kind of getting into trouble or heightened risk, but you know you could also make argument that if there is <unk> economic slowdown.

The last a little bit longer you know can you keep rent integrity in those segments.

Sure. So let me talk about it in terms of luxury.

Big Picture and then Sean maybe trying in chime in as the percentage I don't think luxury as a percentage of our overall portfolio is necessarily.

Large, but it's important but other than even if it is or is not relative to our portfolio. I think it's important that we correctly think up though.

Each of these segments and how they are.

Poised in a recovery.

So.

Interestingly after the global financial crisis.

Luxury froze for about 12 months and then in terms of retail real estate. What we found was it was one of the quickest to rebound and grow.

Now we're in a different economic cycle different time period.

Keep in mind, what we saw over the last several years.

For luxury at least in our portfolio.

It was one that even though international tourism.

Held up until recently.

International tourists were not.

[laughter] shopping in the U.S. as aggressively as they used to partially because of the strong dollar.

Now fast forward to today.

A few different things as we think about luxury rebounding.

One is we don't expect.

Any significant immediate international tourist shopping we also don't expect.

The U.S. shoppers to go abroad as quickly to take advantage of their strong dollar and shop abroad.

So when I talk to our retailers there balancing the pros and cons on that side. The other thing to keep in mind is this economic recession will impact.

Dear friend.

Segments of our society in economy differently, and I'm, not suggesting that the luxury shopper is not going to become the Ross dress for less shopper for a while HM, but let's be careful and not assume that it's going to treat every one equally.

The last thing is one of the headwind for luxury.

Prior to coexist.

What's the concept that's the consumer was interested in sending money more on experiences on luxury travel on a whole host of other thing.

That's also going to be temper.

And so I can't predict exactly how this plays out.

But I would be very.

Cautious in assuming.

That the luxury segment.

Is going to the.

Impacted necessarily the same way that our restaurants, especially our local rough.

We're going to really feel that or other segments that maybe a more exposed to the deep recession, John how much is luxury as a percentage or otherwise.

Yeah, Hi, Ki bin so yeah luxury of overall portfolios about 77% just under 7% of our total total portfolio.

Okay and just some second question here.

When you look at you guys broke out your.

Industry exposures in the supplemental.

But when you break that out further like what percent of your restaurants are actually you think are pretty resilient.

And even the apparel section, which is up a fairly decent size bucket.

I'm sure. It's all different what is the person you think is more resilient versus at risk.

So can we did take the restaurant one first so keeping on the on the restaurant side. So I think as we laid out in our supplemental it's about 8% of our of our our revenues come from restaurant and I would say Oh that 8% 75% of that is what we think about in terms of quick service. So that's the Starbucks Tripoli's Burger Kings.

Et cetera.

So in terms of apparel and.

John if I get any of this.

Wrong chime in but we touched on the young brands the 5%.

Of our tenants on Armitage revenue grant revenue in Connecticut, some of the other areas.

And.

I think it's gonna be really dependent on those brands that have a highly differentiated product and ability to execute and I think the exposure there will.

Be partially about the economy, but also just of their overall capitalization and you'll be able in the next several months I think we'll have a better sense of who's going to make it an who's not.

And then there's a 7% luxury weird or I've already touched on that.

The most significant component.

Is our off price.

[noise] TJX Ross dress for less Nordstrom rack.

And what I would tell you is.

At least for the next season or to the amount of product that will be available to push through the system because it will not go full price is likely to be.

A significant tailwinds.

For those type of retailers and so I would expect them to once they can get.

We opened in a safe and productive way I would expect there to be a fair amount of resilience on I thought.

Okay. Thank you for sure.

Your next question comes from the line as Todd Thomas Keybanc capital markets.

Hi, Thanks, good afternoon.

Can I just wanted to follow up on some comments you made in your opening remarks about the balance sheet you mentioned the company has adequate liquidity.

And I'm just curious what you know with $250 million of total capacity on the revolver you know the company's liquidity appears to be a little tighter.

Relative to peers, despite having a strong balance sheet and leverage profile is is the size of the company's line appropriate is there is there room to increase capacity there in order to take advantage of you know both you know an increase of potential need for increased liquidity, but but also to take advantage of you know dislocations that might arise.

For the core for your equity contributions for for the funds.

Sure. So two ways, we think about a Todd and I think you phrased. It correctly in terms of is that adequate liquidity for where we stand now and where we're likely to stand for the next several months not in terms of being opportunistic but simply in terms of.

Yeah.

Treading water jogging places as John pointed out that 50% collections Todd we cover all our debt service our expenses et cetera. So we can tread water for a indefinite period at a horrific lilo collection rate.

But we're not particularly well built for just sitting around treading water.

Said differently I'd say treading water is like my least favorite swim stroke. So in terms of going back on off and we are talking to our lenders and and thankfully they've been very supportive and it is very possible that we will increase that capacity, but to be clear right. Now all we would do is drawdown on the line.

And put cash.

In deposit earning zero.

Uh huh.

Maybe a smart thing to do and we may do some of that but it's going to sit there, earning zero until we're ready to go back on off.

Keep in mind, when we go on off that.

Our funded business tends to two more or less be able to self fund and others. We have fees coming in we have capital coming in and then there's our pro rata share going out.

But the most likely place for Pos to go back on often says the utilization of the funds and that discretionary capital sitting there we would not need to expand our lines.

To go ahead and execute on our strategy on fund five and less.

Extraordinary circumstance circumstances.

Arose so I think we're I think we're in fine shape, maybe we increased the line whether it's just so that.

Everyone sleep better at night, but it is not a central for us to highs are tread water or to go back on off that for fun five.

Okay and then.

You know, Ken maybe maybe Amy can chime in here, but normally I think you'd be maybe drawing up documents or getting you know materials together for fun six at this point you asked with 200 million of equity capital left in infant five you know, perhaps you'd be fund raising a little bit here do you do you anticipate a move.

Going forward with fund six at this point is that is that possible in can you just share.

Some insight maybe I'm you know how your Lps are thinking today about the fun business and and you know what they're thinking about in terms of allocating capital.

Sure.

I'll go first Amy but at any additional color.

As you know we have until I think it's a year from August.

To spend.

Fun Fox capital Lps views right now or we would prefer you to spend the money we've already allocated to you before you come back.

Management's view is it's hard enough to raise money on the road, but trying to do it on zoom, which strikes me is even more difficult.

So first and foremost, we'll be spending fund five and our Lps and we're in constant contact with them appropriately. So remain very supportive fund five up until coated with is yielding mid teens returns as Amy walk through we're still covering very nicely and wall.

Those distributions will slow down for a while we feel pretty two very good about the overall success of that and so I think that will bode well for I phone six.

That being said my guess is until we get further into the.

Deployment of the 40% left in fund five and until frankly, we're on airplanes, it's a little harder so for the next.

Six months between now and year end, we'll be focusing on everything else. We've been talking about on this call plus deploying fund five and I.

At that fund six those conversations start at some point than 21.

Okay. Thank you.

Your next question comes from the line of homes Zhang of JP Morgan.

Yeah, Hi, its two questions for me.

One of the 5% to 10% of that.

At risk because that's you said that skewed one way or not or towards.

Your suburban portfolio.

And my second question would just be.

I guess you talk about how you expect to recruit.

The majority of the not rental payments have you entered into agreements one way or another your tenants on when do we paid back.

John why don't you take the first.

And then we can we can talk the coin for the second.

Good how are you. So I think in terms of the 5% to 10% I think it's it's fairly fairly evenly throughout our portfolio. What I would say is when we look at the replacement brands that we need to get on them. We're very comfortable that that wants to world gets back up and running again that we we replaced those.

It's been fairly.

As it relates to ongoing negotiations with retailers.

Notwithstanding early reports that were legitimate.

Oh very aggressive positions, we have found most retailers coming back to a.

Reasonable positions, there's always going to be outlier.

And so I I've been impressed with the job the team has been doing.

If there are rent deferral agreements that impact the collections and one given month, so be it but to the extent that it adds to clarity as to what the next year or five or 10 years look like.

We welcome that and so.

Those are those conversations negotiations are ongoing and we're finding most retailers to be realistic and reasonable respectful of the fact that we're not.

They lender a first the resort or a.

Business interruption insurer, but that we are in this to see that everyone gets to the other side successfully and that's our expectation.

Got it thank you.

Your next question comes from the Latino Linda Tsai of Jefferies.

[noise] Linda Tsai your line is open.

Hello.

Linda.

When we come back to Linda operator.

Your next question comes from the line of Vince to Bonnie of Green Street advisor.

Yes.

It's that's your line is open.

Your next question comes from a line of Floris van.

He of Compass point.

Great can you guys near me.

Thank you asked what have we were beginning to feel only [laughter].

Oh, sorry, I don't I'm not sure.

This remote thing could be a little more difficult.

The.

Question.

The write down the you took on your fund assets was that related to.

Increasing the cap rates on those assets or was it in relation to reduced and Hawaii or maybe it's a combination which one had the core the greater impact.

John you want to cover that sure yeah I floor. So keep in mind, just on and Amy highlighted this in her remarks that you know it's a it's a different model between what we hold in the core versus the fund so without going into a ton of details it's fairly difficult to get to on a long term hold within the core.

A an impairment charge, whereas on the funded it's much more its much closer to a two a mark to market. So you know to directly answer your question. The assets that we then we took apparently impairments on where a combination of really.

Where we shot thought thought we can sell these assets at an from holding period. So both primarily around the NOI I think is what the the key driver wells.

And for US just keep in mind.

If we plan on selling something two years from now and we believe this crisis results in a one year delay in getting to that stabilized.

Ramp that in of itself has a material impact and we have to account for that.

Got it.

Another question and can maybe this is more oh for you in terms of fuel were where you see the opportunity.

Going forward and and you know and as you rightly pointed out you've always intended to work in the past take advantage of dislocation to a two to create value and to increase the increase the company or grow the company going forward are you more excited right now with what you see.

And on on the Street, a retail portion of all of your portfolio or what you're seeing in suburban market given that.

So a lot of people are saying gosh look at that higher rents collection in the greater a higher percentage of of essential tenants, where where do you see a more upside.

Going forward for for yourself in terms of spot potential opportunities to grow.

So in in the first answer I think everyone needs to understand the short answer is it's still a little bit early.

And assuming we are going to be opportunistic and where there's dislocations.

Here's the issue with New York City.

I'm actually bullish as I pointed out for us, we only have 10% of or otherwise in Manhattan. So it's not that pounding the table on our book, but use even seen now recent transactions a couple of them involving public companies being sellers.

The worldwide demand for the key gateway cities.

May not result in the level of distress that we're all going to be looking for and so we just have to be cognizant of notwithstanding how horrific the screens look when you see.

Family step in and by New York City, you just saw or a recent announced transaction for retail on fifth Avenue, but if need be true for many of the city's while I salivate I thought of us being able to find real dislocation there. It just may not happen.

No. That's okay, because we have a broad skill set and if there's a private markets backstop the key gateway markets all the better for anything.

The second piece of this is my guess is there's maybe a fair amount of debt restructuring we've done plenty of those over the past decades existing lenders finding themselves in a position where they need rescue capital existing borrowers, maybe or either fatigue door in interested in.

Hey.

Hope certificate or just in need of the capital to Restabilize. It wouldn't surprise me that a lot of our transactions will be in that category again, whether its suburban core urban Oh, we can do both we'll see where the opportunities are and the final thing it either.

I Love. The fact that target is open and paying us rent, but I'd be surprised that I'd have a lot of opportunities to buy existing essential target or supermarket at prices that justify the kind of returns we want so we'll be prepared to have to roll up or sleeves.

And do more heavy lifting then just hiding behind the central.

Great. Thanks, guys for sure.

Thank you at this time I would like to turn the conference back over to Mr., Ken Bernstein for closing remarks.

Great well as I started the conversation hope everyone is safe and healthy can't wait to see everybody in person and until then we'll keep working and I hope fully everybody's stay safe and sound. Thank you.

Thank you for participating in today's conference. This concludes today's call you may disconnect at this time presenters. Please hold.

[noise].