Q1 2020 Earnings Call
Good afternoon, welcome to <unk> first quarter 2020 earnings conference call all participants will be in listen only mode should you need assistance space. They know what comes from specialist.
I seem to start key salad by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your telephone keypad to withdraw your question press to press Star then too. Please note. This event is being recorded I would now like to turn the conference.
So what to Bonnie Wilson head of Investor Relations.
Please go ahead.
Thank you for joining us today for the Verint 2021st quarter earnings call. Joining me today, our Glenn Rufrano, Our Chief Executive Officer, Paul Mcdowell, Our Chief operating Officer, Mike BARDA lot of our Chief Financial Officer, and Tom Roberts, Our Chief Investment Officer, today's call is being webcast on our website at <unk> Dot com.
And the Investor Relations section there will be a replay of the call beginning at approximately two thirds <unk> PM eastern time today.
Well in for the replay is 18773 fourth for 75 to nine with the confirmation code of 101 for 3075.
Before I turn the call over to Glenn I would like to remind everyone that certain statements. In this earnings call, which are not historical facts will be forward looking burrito actual results may differ materially from these forward looking statements and factors that could cause. These differences are detailed in our STC filings, including the quarterly reports filed today.
In addition, a stated we're fully in our FCC reports verint disclaims any intent or obligation to update these forward looking statements, except as expressly required by law.
Let me quickly review the format of today's call first Glenn will begin by providing a brief business summary, followed by Paul who will give an operational update with Mike I'm, presenting our financials and balance sheet.
We will then wrap up with closing remarks, we will conclude today's call by opening the line for questions, where we'd be where we will be joined by our Chief investment Officer, Tom Roberts, Glenn Let me turn the call Liberty.
That's funny and thanks for joining us today.
The World is changed and while we know the normal first quarter results will not be at the forefront of this call.
There are few quick highlights.
Oh, absolutely there for the quarter was 17 cents.
Year to date acquisitions totaled <unk> hundred 46 million. In addition, the office partnership acquired a 33 million dollar property, which the company cash contribution was 2.7 million.
Dispositions totaled 180 million, including the company share of dispositions contributed to the office partnership of 70.2 men.
As the impact of Koby thinking grew in March we paused the balance sheet acquisitions to better understand the current environment.
Net debt to normalized EBITDA was unchanged from last quarter and 5.7 times.
What do we have been thinking about since the quarter it.
We are certainly happy that our team together since 2015 executed a number of strategies and transactions as a prerequisite to begin growth in 2020.
We believed it was prudent to sell the non traded REIT business Cole capital.
Great need reduced the concentration and our largest tenant and generally diversify the portfolio.
That'll all outstanding litigation.
And obtain an investment grade rating balance sheet.
Our business model Diversifies, our capital sources to include institutional partnerships.
King assets, which pose no conflict.
However, every our disrupted economy, we now have for overriding goal.
Keep our employees say.
And provide a work environment and tools to be productive.
Recognized the extent of telling the tenant challenges and interact.
And they collaborative fashion.
Maintain the progress we work so hard for especially the resulting investment grade balance sheet.
And use the business model, we built to grow way AFFO.
When the market stabilize.
We understand there are a number of portfolio factors you are interested in.
And I will let our chief operating officer Palmer, though.
What's been working closely with our tenants bring you up to date.
Paul.
Thanks Glenn.
As already mentioned, we know the focal point for this call is how the portfolio is performing during the cold 19 pandemic.
However, our teams are still very focused on normal asset management, which is also very important.
Leasing for the quarter was very strong with over 2 million square feet least of which 1.4 million square feet were early renewals.
Total activity included 1.3 million square feet of industrial.
498000 square feet of office.
190000 square feet of retail and 73000 square feet of restaurants.
Our renewal leases, we recaptured approximately 94% of prior rents on an initial cash basis.
Many of these newly extended leases have additional built in rent increases.
Importantly, we were able to finalize leases we had in process prior to the pandemic disruption along with some dispositions and some of that activity has carried further into Q2.
Occupancy ended the quarter at a healthy 99.1%.
Now, let's talk more specifically about our portfolio performance and where we are today.
Our April rent received came in at 81%.
So far rent for May is that 78%.
Which includes 2% to be paid from a government agency tenant that pays in arrears.
The underpinnings of these relatively strong collection results were driven by our property type diversification.
Industry breakdown.
Investment grade tenancy.
Public versus private ownership and geographic diversity.
Our allocation to office industrial and necessity based retail, including our top industry exposures, such as discount pharmacy grocery warehouse clubs and convenience has helped in our rental collection.
Overall.
17 of our top 20 tenants effectively paid full rent in April.
In may so far.
18 of our top 20 tenants have paid rent.
Our approximately 37% of investment grade tendency for the total portfolio and 46% within retail we're a strong component of April rent collections at almost 100%.
And well over 95% so far in Bay.
Over 60% of our tenants are public in the overall portfolio and over 68% or public within the retail portfolio, which we view very positively.
Fortunately, we have a lot of geographic diversity with many of our property spread out in areas of the country that have had less impact from the virus and many are in states that have started to reopen for business.
Although there remain a patchwork of restrictions.
Based on regions of the country open now we're opening soon in some capacity, we have 3393 properties or 88% in these open locations.
Only about 9.6% of our portfolio is in the hard hit northeast.
With 2.3% and 3.1% in the hardest hit stage of New York, and New Jersey, respectively.
The largest real estate teams in our company have always been are strong.
There are very experienced asset management and property management departments, which have served us well.
These teams have been augment it in the past two months with personnel from underwriting and acquisitions.
Collectively they have been doing an outstanding job in trying circumstances, and our collections to date or partially reflective of those efforts and I will take this opportunity to thank them.
Our dedicated property type asset management teams have been in discussion with our tenants to understand the impact of cobot 19 on their businesses.
Rent relief requests have been received from tenants representing approximately 34% of rental income on an annualized basis.
We've been evaluating each request on a case by case basis based on each tenants unique financial and operating situation.
Analyzing metrics such as industry segment.
Geographic locations, where they are low operating.
Corporate financial health rent coverage and attendance liquidity.
Our goal has been to help those tenants, we think need and deserve it in the short run.
Well at the same time pressing for payment from those tenants, who we judge do not merit rent relief.
Have access to other forms of capital or being opportunistic.
Of the received requests to date.
A little over a third have been approved.
About a third or in negotiations.
And about a third have either been denied or we have taken no action.
The deferral agreements we have made generally had been in a two to four month range and pay back within 12 months with interest as appropriate.
Well, we have generally structured any rent relief as deferral not abatement.
In a small number of cases, we have traded rent for term for tenants, we think will be here in the long term.
And where we think we created value at a longer lease.
It is worth noting again.
But the vast majority of our of our Eri comes from large public and private companies.
That have the financial resources and access to capital necessary to weather the storm.
We do however have some smaller tenants and so we've also been monitoring the various government assistance programs, which we think can be helpful to some of our most impacted industries, such as franchise restaurants and entertainment related retail.
About half of the tenants within the restaurant portfolio have applied to the Paycheck protection program.
And we expect some of them out will have access to these funds.
We also have been monitoring the new governmental initiatives such as the main street lending program, which may help some of our larger tenants.
Finally, as I noted above.
Rent collections, so far from bay or 78%.
Which is about 1% ahead of where we were during the same time period in April.
As others have pointed out.
Many tenants went into April with some momentum from the first quarter.
With maybe in the month, where the full impact of the shutdown that's been felt.
With that in mind, we are very gratified with our collection levels so far from day.
Our current expectation is that total collections for may will be approximately where April and.
Industrial is so far coming in a bit lower than April primarily to one tenant which paid in April and we believe can continue to pay.
We're currently in discussions with that 10.
At this point, we think June collections will be in the range of collections for April and May.
Further portfolio segment information and details can be found in our investor presentation filed today.
I will now turn the call over to Mike Mike.
Thanks, Paul and thank you all for joining us today.
Our first quarter numbers really we're on target. However, we recognize the going forward for sometime it's a different environment and what's most important is our balance sheet and liquidity.
Before I get into that though let me quickly discuss how we prepared as a company to ensure the smoothness transition to our virtual environment.
Currently operating essentially 100% remotely.
Anticipating that an office shutdown was probable alright, TTM quickly mobilized our business continuity plans and make sure we had equipment for all employees, who are able to work effectively from home.
Employees are utilizing virtual private networks in their homes to maintain a high level of security and we prepare training and awareness materials from place to help them get set up and they continue to have access to a 24 seven I to support this.
In addition, the management committee participates in daily virtual meeting space or the businesses operating efficiently.
I've been impressed with how well everyone has been able to adapt during this difficult period and I'd like to thank our entire team for all of their efforts keeping the business running as normal as possible.
Turning to about you know the company remains well positioned with net debt to normalized EBITDA unchanged from year end at 5.7 times.
A key focal points for us as a company has been maintaining a strong and liquid balance sheet and we worked very hard over the last few years began back on investment grade rating.
As a colder 19 pandemic continues to unfold, we initiated additional draw in excess of normal operating requirements.
$100 million on our revolving line of credit to enhance our cash position.
As of May 15th three rigs had corporate liquidity of approximately $1.2 billion buys of 600 in 1 million in cash cash equivalents.
588 million of availability under our credit facility.
Our fixed charge coverage ratio remained healthy increasing to 3.3 times at our net debt to gross real estate investments ratio was 39%.
Our unencumbered asset ratio increased to 81% the weighted average duration of our debt was 4.4 years and we are 86% fixed which reflects the higher utilization of our line of credit this quarter.
Additionally, we have a very manageable amount of debt coming due in the near term.
As of quarter end, we had 90 million of mortgage notes payable due this year at a weighted average interest rate of approximately 5%.
And we had a 322 million convertible bonds due at the end of December.
In 2021, we have 299 million in mortgage notes payable do throughout next year and no other corporate bonds coming due until 2024.
Based on what I see now.
We see no issues with our covenants.
Moving to our outlook, we were through guidance in April and are not providing an update at this time due to the uncertain market. We all face the board of directors is reducing the second quarter dividend.
13.75 cents to 7.7 cents, representing a decrease of 44%.
Actually it was determined after extensive financial analysis.
This allows us to prudently manage our debt levels and the balance sheet stability. We worked so hard for over the last five years.
One of directors has not made any decisions with respect to its dividend policy beyond the second quarter and.
And we'll continue to monitor the current environment and its impact on our tenants and business.
Thanks than our estimate of taxable net income today, we see new issue no issues with this reduction and satisfying our lead requirements.
With that I will turn the call back to glut.
Thanks, Mike.
Our defined corporate commitment is to always served as the best of our ability three main constituencies.
Our stakeholders tenants and employees.
Our combined efforts continue to focus on all three.
We transitioned our employees to fully virtual work from home environment in the middle of March.
Quickly new processes and business intelligence tracking tools are developed to assist in monitoring our tents and potential risk that can come our way.
We have a deeply experienced team here at the company.
Not only on the executive management side, but within all of our real estate groups.
As leasing and asset management becomes even more important during this time.
We have transition some of our acquisition personnel as well as others to assist with navigating the challenges or tenants will be facing.
Our legal staff attorneys and paralegals are working to support our efforts.
I also said on daily calls, where we strive to come up with the best tenants solutions.
Every request goes through a process and ends with the sign off from our investment committee consisting of myself full time and Mike.
Our dedicated employee teams have collectively exhibit green energy unresolved and we think them.
I presented a current balance sheet statistics of note, we maintain net debt to EBITDA of 5.7 times.
Our cash and revolver liquidity remains sufficient in our assets are highly liquid with 81% unencumbered.
With exception of our converts later this year, we have no corporate bonds due until 2024.
The board's decision to reduce the dividend for this quarter is not based generally upon a micro review of our business.
But more importantly on a macro view Glenn uncertain economy.
The difficulty in predicting the duration of this economic disturbance is glaring.
Possibilities are extraordinarily wide.
When you know where you are you can better judge what to do and how to do it.
Well, we are getting a better view of tenant receipts with April in May.
Duration can have a variety of outcomes.
Our view is that with such uncertainties strong balance sheet maintains stakeholder value.
Sizing of the dividend was based upon a series of financial analyses <unk>.
That being a range of possible outcomes throughout this year and next.
We chose this base amount on which to build the dividend while protecting against any increase in debt.
As more information is available in each of the next two quarters. This decision will be under constant review.
As you heard and Paul's presentation, our portfolio diversification to serving as well.
Not only by property type, but also investment grade percentage credit industry and geographic limits as well as a high percentage of public companies.
We will of course reevaluate the portfolio parameters as we move throughout this year.
Well, we are in a very difficult environment.
Business model provides the ability to grow and thrive once we get pass this.
Although disappointed that 2020 will be a transition year.
Our experience in transforming the company over the last five years.
Well provide strength to get us through this.
Our expectation for the future is that our liquid balance sheet diversified portfolio experienced team and partnerships will perform in reignite hopefully in 2021.
Before ending I would like to applaud those in the health care profession, and all first responders sort of made such a difference in our lives certainly mine.
I also want to take this time to thank everyone for their kind notes during my recovery from the virus.
They were great pick me ups.
Very much appreciated.
I'll now open the lines for questions.
We will now begin the question and answer session to ask a question you meant press Star then one on your Touchtone phone. If figures you know speakerphone. Please pick up your handset before pressing the keys to withdraw your question Press Star then Tim.
This time, we will pause momentarily to assemble a roster.
Our first question is from Haendel St choose from Mizuho go ahead.
Hey, good afternoon, and Glenn good to hear and once again I'm glad that that's a fact and well again.
So.
First question is.
Hi loves thing about the portfolio and curious on how you know coated and the lights in the aftermath of cobot might be impacting your view on your portfolio allocation and subcategory exposures going forward.
Clearly, having a bit more often and industrial have been beneficial Oh I'm curious, how how the thinking yours the board Nike evolving here on portfolio balance effect allocation Costco broken.
Sure thing set things hand on thanks for your kind note as you know we.
Have you follow it as handle and others, we've been pretty disciplined since 2015 to portfolio at that time, we generally not understood and so we we tried to make sure the market understood. What we were thinking in the future we put metrics around a number of elements here.
Percentages of property type.
Tenant credit investment grade rating geography.
In a number of others.
Oh, all to provide diversification. So we have always thought that understanding the portfolio long term has the right thing to do and will continue to the future. So that's before now that's if I took us to just January 1st than we thought about where our portfolio should be we'd be saying so things like.
Experiential real estates, a good idea because it's a bridge against E Commerce and restaurants and entertainment is pretty good. We also had a number of conversations on these calls about pharmacies, well what would pharmacies be best or not the best in the portfolio.
It's turned around today, we're all turned around today based upon this pandemic in terms of what property types may or may not perform over periods of time.
The one thing today.
Say for US now thinking about the portfolio.
Is that we're not going to make decisions based upon whats happened today, we're in the middle of the store.
We're going to wait for some of this storm to subside before we make decisions on where the metrics will be in how we will reshape the portfolio I believe there will be some reshaping.
But how we will shape is very hard for us to judge right now to your point. Some property types like office are now performed well our industrial performance is very good and the only thing the old constant denominator that I can take out of what's happened over the last five to six years is that diversification.
It's a plus will always be diversified, but we may change some of our metrics in the future. We're just not ready to do that yet handle.
Thank you for the second appreciate it and then one of the dividend appreciate your comments earlier, but I was hoping becomes a bit more more perspective on the thought process to cut the second quarter, specifically about what percent. Some some reason other sectors, the opposite to cut the dividend or or suspend.
Until the end of year and make a final determination others are accretive immediately so I'm curious on you know why 44% to second quarter of versus these other options and perhaps you know and are we try to read too much into it.
Just to think that does this suggest an estimated recovery of maybe 90 plus percent of your costs less of a power kaslow pre pre corporate so ER and the other topics around your your thinking here and what maybe we should we be going into it. Thank you.
No no good another good question.
Certainly that was the differences quarter you first I'd say, it's not easy it's not an easy decision to.
To reduce the dividend, it's just not bigger feet burn in your stomach stern when you have to make a decision like that but we as a company and the board thought it was necessary to make that decision.
The decision itself as I mentioned wasn't only based upon the macro view whats happening today.
More importantly, it was really based upon the uncertainty of what's happening in the economy <unk>.
It's a very very difficult to predict duration here.
And we have we'll all have a hard time on duration and that will play a very important role and what are on how our tenants will run their businesses.
So what we decided it was that we would take a look at.
Various outcomes.
Of what can happen over the next year. It too we have a basis in April and May which is helpful that it was better than the start of able to sort of April I'm not sure. We knew what was going to happen. We have a better feel for April and May and you've heard Wholl talk about June.
And if we if we looked at the uncertainties in the future. The the common denominator. We saw was that we needed to maintain a strong balance sheet.
But at the same time since we had.
I'd say substantial cash level over the last couple of months, not 100%, which is what we want it but cash flow. We thought it was fair to pay some of that cash flow to the shareholder.
A question now was the balance of the too.
The balance of the to kinda Besides the dividend, which is really a question.
And we did that bye bye bye, starting and reviewing a series of financial analyses.
We really did dissect possible outcomes through this year indexed.
And our guiding light was can we come up with a base amount of a dividend.
To build on.
But at the same time.
Protect against any increase in debt.
And those with the two relationships that we work towards and if you if I wish I tried to describe our analyses.
I would try to describe them.
<unk> be a you and a Wi.
Yeah, the V. being a quick recovery you being a slower recovery and perhaps the beginning of the you higher than the end of you.
And it W. were clearly the middle of the W. It was not going to be equal to the left hand side of it.
You know just reading an article and it's almost the discussion between men nutrition and power.
No one would say, it's a v. piled, let's say to you were W.
We seriously look at all three of those which is really.
Views on duration.
And based upon those views we thought dividend.
Which was 7.7 cents this quarter.
Represented a sustainable dividend to build on now we're not we just provided second quarter dividends.
We're not approving a third and fourth quarter dividend by any means and clearly if theres any real big disturbance in the economy.
We're not sure that base, but right now we think that's a very solid base.
On which to build a dividend and that build will occur when we think it's appropriate relative to what we're seeing in the environment on a day to day basis.
Well I appreciate it.
Thank you.
Our next question is from Sheila Mcgrath from Evercore.
Yeah.
I guess good afternoon welcome back Glenn.
Thank you give us give us some perspective on credit loss typically for your portfolio, maybe historically over time and how you view the credit loss.
For the portfolio and then <unk> near term and just following up on on that do you expect to be converting some leases to cash accounting in the near term.
Good I think that you know there those are two two very good question, Sheila and I'm going to have the first one on credit to call and then Paul I would ask you to pass on in terms of accounting Tonight, but all but to take that person.
Sure of course, Hi, Sheila.
With respect to credit losses in the portfolio, we've been pretty fortunate in that we've had very low credit losses over the past few years. So we haven't had much in the way of credit losses. We have had the few small bankruptcies as you know from time to time and we've generally.
We've lost that that credit, but we've also been able to read like the properties and regained cash flows.
From a going forward perspective here are you know, we don't know exactly where this all ends up and as Glenn mentioned.
In his remarks, you know that the key here is duration. We went into this pandemic with a credit watch list that generally runs between two and 2% of adjusted brands and now suddenly we have a lot of credits in our.
Portfolio that are very healthy companies that are through no fault of their own suddenly under a significant amount of credit stress and the question is how long does that stress last.
We're fortunate that most of the portfolio is made up of public companies and they've got access to capital. So Weve you know, we're pretty confident that most of our tenants will be able to jump to ditch here and resume being the healthy companies. They were before but it's a little too early to give you a sense at this moment about where we expect credit.
Losses to to come to rest since we don't yet know the duration.
Right.
And I think with that I'll give Mike the accounting question.
Hi, Sheila it's Mike I'm I think the accounting.
Accounting question is really going to come down to the fact that typically before we had the pandemic. If we had some deferrals or some changes to any of our leases we would have treated as a lease modification under 842.
Yes, the Fas they came out with what they're calling that expediency, because they understood that everyone who's going to or many people were going to be dealing with deferrals situations and what are the new Fas be says is the expediency says you have a situation where you have no real substantial change in the original contracts cash.
Slow, but rather just typically you have a 234 months deferral and then you collect that rent, let's say over the next six months or a year that that can be handled under this new expediency expediency has a couple of this decision points one is.
Is it reasonable that you're going to be able to make that collection during that period. If the answer is yes.
You can then simply treat the revenue as you normally would and establish a receivable during those before periods.
And you would record the revenue during a difficult periods as regular revenue revenue set up a receivable.
And your assets all your NOI and your normalized EBITDA would all reflect it as if it were included in those amounts which is different than if there was a lease event.
They do give you the option of something called variable accounting, which is very similar to cash accounting I'm not quite sure.
Well I want to want to use that given this other treatment.
But you do have to first make a decision about collectability. If you think there's some doubt about collectability that you account for it on a cash basis and then the last option is if you're actually changing the terms of the lease.
And that could be typically a blend and extend it for some reason someone is getting a month or two free rents in Ics and extreme say for three to five year extension on the lease you do have to go back and do the normal a 42 lease modification accounting so.
That decision trees, something we'll be going through every completed transaction and deciding which bucket. It belongs in and how we account for it.
Okay. Thank you very much.
Thank you.
Our next question is from Joe Jeremy Metz, Some B M. Oh go ahead.
Hey, guys.
Oh I was hoping you could.
Two parts just one could you give us an update on the latest with art, Dan and your boxes, there and then going back to the rent relief requires.
Yes, Im just curious how do you balance the fine line between granting deferrals and not granting I mean, arguably just because someone could pay many retailers who didn't know.
Others, getting deferrals or how do you balance cute then you know those tenants how are you happy I didn't play so, giving others breathing room, particularly on the retail and restaurants drunk.
Just wanted to go straight into this Glenn.
Yeah.
Okay.
Yeah, I thought journey that they certainly for you directed it and I should have redirected it to make sure Paul gets it entry because well answer that question better than I will.
Sure sure.
With respect to our advantage as you may remember, we have eight stores art van declared bankruptcy pre co bid and their bankruptcy had nothing to do with co bid.
Subsequently they have decided to liquidate we have got all those stores on the market and we have an l. why in place at the moment with a very experienced operator for four of the eight and the remain at about 70% of the previous rents and the remaining.
For our on the market.
With respect to the delicate balance between how do we manage you know deferral requests from tenants.
I touched on it in the script and I think you're accurate in calling it a delicate balance because there's a lot of things that play.
We have what is the size of our balance sheet liquidity and on the one hand, what does the size of the tenants balance sheet and their liquidity on the other what I was just what what are the.
What are their likelihood hubs getting capital from other sources and we also have tenant relationships to think about you know how often do we interactive that tenant how off when do we have renewals coming up and so on and so forth all of those factors come into play.
So and I'd say, we've had deferral requests across the range. We've had some sort of deferral requests that had been launched from tenants, who clearly have got the ability to pay and are just asking for deferrals because everyone else seems to be asking for deferrals and those we generally just simply denied and.
Then we have other tenants, where they're clearly insignificant distress and.
And we have to make a judgment about whether or not we are in a position to really help them.
And if we can help them for how much and for how long and so we make those judgments everyday we have a committee that meets several times a week I meet with our asset managers virtually every day to talk about each and every one of these and we go through a committee process and once we make a judgment.
Goes up and then.
Mike Glenn and I make a judgment about what to do.
Yeah, and I appreciate that color and if I could just go back to ask one follow up on airfare. They send your comments before going with a very experienced operator, it sounds like this or.
A different operator than the one we heard a couple of your net lease peers struck a deal it is that correct.
That's correct.
All right and then Tom I was just wondering on on the deal front. It seems like there are still assets that are out there you saw some 10 31 money sloshing around there. We're hearing about we're about two months ended there. So just wondering if there's any color on what's happening on the ground various scenarios.
Go under contract and what's the sort of early read on pricing how much are yields resetting at this point.
You know if there is activity that that's still happening.
You got to Tom.
Sure So as Glenn mentioned were on pod.
Yeah, as well as most of our peers, so not a lot of activity in the market right now, particularly in the retail sector I just think that's.
Too early to pick 'em pick a and impact on the market. Although you did mention there is 10 31 exchange activity in the market, which we've been active selling some assets are those type buyers.
By the five by far the strongest prototype is industrial which is where we buy in our partnership with our Korean partner.
There we've seen some pause in the market, but probably just maybe 10 20 per cent impact on pricing seller expectations have paid moderated slightly but we think there's going to be activity in that market as well office would be the same for single tenant long term investment grade credits I think that the market is.
Held up pretty well probably in that same.
Price range.
And yeah, we hope to be acted in both <unk> and partnerships in the second half a year. We do have a partnership transaction that we announced that are last call a very large industrial project by 2.3 million square feet. A 247 million dollar transaction that we anticipate will close here at mid year, we all.
So we'll have to other build to suits that were under contract what that would close and that third or fourth quarter. So we remain active they have been impacted by by coated but certainly we hoped at both partnership for reactive into second half a year. So I think generally too so too early to tell but I think generally in our space.
Send the industrial only office I didn't even be investment grade or higher quality retail will have very little impact on pricing very very very small.
And so no.
Right.
What's your sorry going right.
No just just wanted to make sure joining it but.
Tom said I think I I misunderstood. The time, you had mentioned 10 to 20 bips in cap rate not for sprint declined and yes, yeah, very small parts I misunderstood.
Just 10 or 20 basis points with is far less than five per cent impact on pricing and a lot of it. It's just have to deal with the deal. That's in place at the time, how badly does a seller want to sell but I think generally.
This this type product that is very stable long term credit leases no matter what the product type is a has held up pretty well I think at this point.
All right.
No that helps thanks, Dan graduates backlog I just couldn't hear back in house. Thanks, guys.
Thank you Jeremy I appreciate it.
Our next question is from Anthony Paolone from JP Morgan go ahead.
Okay. Thanks in graduate programs.
Question for Paul You mentioned your your view that June should or pretty close to April may I was wondering if you could just talked a little more detail in terms of as you work inside the portfolio on what's happening at the asset level, where where things were quite they might be improving versus areas of the portfolio where.
It could be worse, if things linger for a few more months like this.
Got it sure.
Yep.
Yeah. So we're we're.
You know we've been building up our our our point of view about where tenants are coming out we're very lucky in that most of our portfolio is very steady rights necessity based retail its office and industrial so most of our cash flows we feel very very comfortable about will continue no matter kind of no matter what.
Then it's really at the margin here, where we're looking which which tenants I paid which tenants haven't paid we're in negotiations with pretty much every single tenant.
Whose asked for a deferral requests so we are talking to them and by talking to them. The asset management teams are able to make a judgment about where they see.
You know payment streams coming in the coming months I'm. So in you know we've got April and May under our belts now.
We predicted where we thought those would come out they come out close to where we predicted they would and so we feel we have pretty decent insight into June.
June so far with respect to areas, where we see improvement I think when we look operationally the most market improvement is in the one that we would like to see improved the most that is in the restaurant portfolio.
Initially many of our restaurant tenants were hit very significantly by the pandemic slowdown and now many of them, particularly in the QSR portfolio sales are only down you know, 10% to 20%, which while still very very significant they can operate profitably at those levels.
Yes.
We've also seen improvement in casual dining you know a lot of our tenants didn't really have large to go infrastructures in place.
Or were just developing them when the pandemic had they have hit obviously the fast forward button on those and it and it varies across the different brands, but they are improving there to go performance and so their sales while down initially you know sort of in the 80% range.
Now down sort of in the 50% range. So we are seeing some you know significant cash flow improvements in the casual dining and the casual dining sector, so and in the QSR sectors. So I think that's that's encouraging as we start to open back up.
Okay. Thank you for that and then and other question as I look at your exploration schedule.
Oh points this year and about 7% next year is there any portion of that that that you know at this point is is going to vacate that.
That can be a challenge or that's notable for us.
Yes, I mean, nothing particular as you note.
That we you know we do have 7% coming due next year and you know, we we work hard to chipping away at that stuff in you know in advance. So you know you noticed in my prepared remarks, and we had some early renewals and those early renewals actually hit even further out in 2022 in 2023.
In 2021, the expirations are pretty granular we have sort of 180 leases in total that will expire 70 to 75, each in retail and restaurants.
So.
At this stage don't see any particularly large holes, where we say up we think a large number those will not renew.
You know will move through the renewal process than we've been doing renewals, even during the pandemic and even in some of the restaurant.
Portfolio.
Have been reasonably routine so far I'm. So we'll see how that plays out in the coming months and I think you'll see us beginning to pull our 2021 expirations down as this year as a remainder of 2020 progressive.
Okay. Thanks, and just last question I'm in for Mike just with either about 80, 81%.
Collections seems like it's where you think the quarter will end up is anything you need to do from a debt or line covenant point of view that we should be watching out for.
No. We're we're fine on the covenants I mentioned that in our in my remarks and are fine from that perspective, and we believe that where we are right now we've drawn down the line. So that we have about 600 million of caching quite 600 available. So we feel comfortable with that mix of having 1.2.
Billion of liquidity broken into those those two pieces, so I don't see any issues on that.
Well we have.
Some debt coming due about 400 million in total this year and most of that is 320, some odd million right at the end of December on a convert so obviously, we'll be looking at how will refinance that going forward.
You know I go the GE markets for Triple B or Triple B minus were not as good in the last three weeks or so they've gotten much better so little bit pricey.
We have a lot of time between now and then to make that decision plus a lot of liquidity as we've always tried we'll keep our options open.
So that we make the right decision as to how we refinance that obligation.
Okay, great. Thank you.
Thank you.
Our next question from Chris Lucas from capital One Securities go ahead.
Well eight Glenn thanks, its good to hear your voice and then I guess just generally a couple of quick questions for you guys.
Mike You mentioned about the how you're thinking about the that that's coming due at the end of the year. If you. If you had to price your long term debt today, what sort of spread over treasuries do you think it would be up.
I think today, we're somewhere it for a 10 year was somewhere around 450 over over treasuries I mean that there's there's been.
Kind of a tremendous or is this the spread between the spreads of of say, a and and double and Triple B, plus and then where a mix of triple B minus and Triple B that we have one one triple b into triple B minus rating so.
Spread within within the and the net lease group in seems pretty wide. So I'd say right now we're somewhere in that 400 range.
On the tenure.
Okay. Thanks for that.
Hey, Chris can I make one comment there because it's a very very important subject for us in terms of pricing or capital and part of the balancing of the dividend that I discussed earlier, we hope will help us.
In the debt markets and if we have to get into those markets and we'd like to potentially this year, so the the spread and and and our ability to provide more cash flow in the balance sheet.
We are hoping we get some momentum that helps us there.
Okay. Thanks for that and then Mike just on the credit facility can you remind us as your EBITDA test is that a single quarter two quarters annualize four quarter trailing outlets that look like it's it's a quarter quarter agile US right now that that's the way we do the total assets.
Yes, you take the NOI.
And it's a 7% gross up and then and then you times about four.
Okay and then.
Okay. It we're well.
And then I guess, just going Paul maybe on the.
Rent relief mechanics, just so I understand them.
You're basically offering two to four months then there's like a one year payback or I guess im just trying to understand when when you guys starting to expect the payback period to start would it be after the end of the rent relief period or would be there'll be some sort of interim period before that would start up.
That's a good question and I would say that the.
The answer to that runs the gamut. So you know we have a variety of deferral requests and sometimes those deferral requests are for 100% of rent sometimes there for a percentage of the rent you know, 25% or 50% of the rent, we obviously negotiate each and every one.
And payback periods are sort of of the same kind of ilk. Some payback periods, we have running almost immediately after the deferral is over.
And they run sometimes you know a pretty short period of time a couple of months.
Other payback periods, we have where they start up after a couple of months with the tenant back at their normal rents to give them some breathing room and build up some capital and then start to pay them again, a few we have a deferred out into 2021 at least that C.
Idea right now, but again, it's very very dependent upon the tenant circumstance.
The tenants financial situation.
And sort of our <unk> our idea of how quickly we think how quickly we think they will recover and we as mentioned in my.
My remarks, too you know, we typically charge interest on deferral and sometimes that has an impact on that the tenants.
[noise] desire to pay but to pay back there deferred balances more quickly.
Okay. Thanks for that and then I guess, just when you're talking to tenants about their rent deferral requests.
Since the PPP program or Mainstreet lending program become a prerequisite for that conversation or how is that how are you factoring that into the conversation if at all.
No no we do factored in and because as I said before your most of our tenants are large public companies are large private company. So a lot of them except in the restaurant portfolio. You know most didn't really qualify for P.P.P., but what we have you now or agreements that were working on with our various tenants at the moment.
Is generally if they receive funds from the government that can be earmarked for rent they need to pay those they need to pay those funds to us in rent.
And that's not generally controversial as we've talked with these tenants say you know there say look if we get money from the government were happy to send it to you in the in the form of Brent.
Okay and then my last question just as it relates to the leasing activity.
Particularly the early renewals were there any sort of rent relief structures that were part of that or was or is it because it.
Truly just early renewal type activity.
Oh, yeah. There the early renewal activity, we had was sort of the standard early renewal activity that we have and you know we mentioned no recapture rates and so and so forth and so very often when we do what we would call a blended cloak really a blend and extend.
We typically.
Are we occasionally will grant some free rent or some rent reductions upfront in exchange for a much much longer lease which gives us obviously, an improved net asset value.
So sometimes will trade a little of upfront rent in exchange for the longer term lease, but the activity that we had in the first quarter on early renewals in that vein was completely routine.
Great. Thank you that's all I had this after that.
Thank you.
Our next question I know some Sheila Mcgrath from Evercore go ahead.
I guess I was wondering I know, it's early but I was just wondering what your expectations are for pricing on acquisition do you expect cap rates to increase despite the low interest rate environment and do you expect any differentiation between like restaurant or experiential tenants to widen out more than.
Sure you are pharmacy.
Tom Tom maybe I'll start that that I make a teenager chip.
It's a ton that mentioned before which I'd agree with retail is really tough you know I'm you know I'm not sure how you would price.
Some of the entertainment properties today or or even I'm sure. There's some pricing on a grocer anchored shopping center, but I think that's pretty difficult and I don't know I don't think theres a lot of comps there. So I would agree with what Tom said before retail right now.
If there is a bid ask its wide.
So very very difficult to figure out.
The only assets and I think Tom as has been looking at where there is some pricing is investment grade.
That's still an investment grade office and Tom why don't you just kind of come back on those two we see those two more often now because were still looking at them for industrial partnership in our office partnerships or Tom.
Yep, Yeah, Glenn I would agree and experiential retail any type of a fitness entertainment is just there's just not a lot of activity in the market. So I would agree that's just not been priced as Glenn mentioned, we are very active and the industrial in the office fronts with our partners and their again, there's not a lot of trades I think gena.
Really.
Unless you really had to sell it you're going to put things on hold for 60 90 days. There has been some transactions that have awarded a better and I think as I mentioned earlier, probably 10 20 basis point adjustment upward in the cap rate, which is a very small percentage below 5%.
So we think those are held up really well, let me just that the the product types industrial is generally probably down the number one product type in the market that has fared very well with E. Commerce. So those goes price at prices as you would expect have maintained very strong by comparison, it and I think offices as well are generally.
Long term decent credit good credit tenants that pricing hasn't moved much.
And I think going forward you know, we're obviously on hold and we'll just see where the market as you know goes between now and year end.
Okay. Thank you I guess, we need new business interruption insurance.
Yeah, well that the I see SCB I see I see as you probably know she is working very hard on that it's called the they don't want to call. It a business interruption insurance because the insurance companies don't want to think of it that way, but so it's called the recovery Act a business recovery Act and we've been before Congress as part of the I see us it Uh huh.
Well there at least in the last few weeks.
Trying to in the fourth phase of government subsidy.
To provide for some of what you're asking poor.
Okay. Thank you Karen.
Thank you.
This concludes our question and answer session I would now like to turn the conference back over to Glenn Rufrano for closing remarks.
I think everybody for joining us today and look forward to speaking to too many of you over the next few months, we'll talk it certainly and they read and Oh I wish you. The best Thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.