Q1 2020 Earnings Call
Good morning, ladies and gentlemen, and welcome to essential properties Realty Trust first quarter 2020, <unk> earnings Conference call.
Lines have been placed into listen only mode and the floor will be open for questions. Following the presentation.
Should require assistance during the conference. Please press star zero on your telephone to reach a life operator.
This conference call is being recorded and a replay of the call will be available two hours. After the completion of the call for two weeks the dial in details for the repair play can be found in today's press release.
Additionally, there will be an audio webcast available on essential properties website during.
You W Dot essential properties Dot com.
An archive of which will be available for 90 days.
It's now my pleasure to turn the call over to Dan Donlan, Senior Vice President and head of capital markets at essentially property. Please go ahead. Thank you operator and good morning, everyone.
Appreciate you joining us today for a central properties first quarter 2020 conference call.
With me today discuss our first quarter results people bodies are president and CEO, Gregg Seibert, our COO and Anthony Dobkin or interim CFO.
During this conference call will make certain statements and maybe considered forward looking statements under federal Securities law.
These actual future results may differ significantly from the matters discussed in these forward looking statements and we may not released revisions to forward looking statements reflect changes after the statements were made.
Factors and risks that could cause actual results to differ materially from expectations or disclose from time to time in greater detail on the companys onto the FCC and yesterday's earnings press release that.
Pete Please go ahead.
Thank you Dan.
Thank you everyone, who has joined US today for your interest in the central properties.
First off we would like to extend our thoughts and prayers to all of those impacted by cobot 19 pandemic.
And thank all of the frontline workers that are working hard to keep our country safe and healthy.
Starting with the current situation.
We wanted to highlight what has changed since we first provided a business update on April 15th.
As of today, approximately 71% although portfolio.
As a percentage of Hbr is opened or operating on a limited basis, which compares to 66% as of April 15th.
April recollection came in at 61%.
In comparison to 53% at April 15th.
Well, it's still early to tell we forecast may rent collection to be a few hundred basis points lower and June right collection to be a few basis points higher the neighbor.
Consistent with past practices, we're committed to providing investors with current and important transparency regarding our portfolio performance. So you should expect to see timely business update.
As a situation continues to evolve.
Moving on to rent deferrals.
Approximately 33% of our April rent was deferred versus 29% as of April 15th.
With that in mind, we have noticed that many market participants are looking at a level of rent collections versus rent deferrals as an accurate indicator of tenant credit and portfolio help.
We believe it is much more an indication of how management has approached the crisis.
When tenants requested potential rent deferrals in response to their operations being shut down or severely limited as a result of government mandated stay at home waters.
We took a very accommodative approach.
As a result, we increased our rent receivable.
Approximately $16 million.
Which represents an average accommodation.
Roughly a $180000 across 88 individual tenant and 320 properties.
Yeah, very easily could have family exerted our rights under our lease agreements to minimize deferrals and maximize cash collections in April.
We felt it was a more prudent business decision.
Given the extreme nature of the circumstances to work constructively with our tenants with a longer term view rather than a focus on short term rent collections.
Specifically, we believe our more accommodative stance has resulted in one tenants with a healthier liquidity position.
That are better able to maintain their workforce and invest in restarting their businesses when stay at home orders are left.
To stronger long term and differentiated relationships with our tenants, which should result in a more constructive relationship going forward.
And three a better position in the event that a tenant needs to file for bankruptcy as these rents now survived with the lease as opposed to petition obligation.
Again, we did not take the shorter term view of maximizing a number to create an inflated view of credit worthiness in our portfolio.
Instead, we took a longer term view.
Elected to invest in our tenants and our relationships during this unprecedented time a distress.
We firmly believe this dance will benefit the company in the long run.
In terms of the first quarter, we ended the quarter with investments in 1050 properties that were 99.5% leased to 212 tenant operating in 16 distinct industries.
Our weighted average lease term stood at 14.6 years with just 2% of our AB are expiring prior to 2024.
Our same store portfolio represented approximately 58% of our Avi or at quarter end and includes five Bacon restaurant properties experienced a 1.8% year over year decline in cash rents.
This quarter was heavily impacted by the art than bankruptcy, which was protracted by the shutdown of nonessential businesses and the state in Michigan.
When excluding the impact of art van our same store cash rent grew nearly 1%.
In terms of art than we have reached an agreement last week, the new operator to lease all four of our sites under a new master lease at a recovery, 70% versus prior rent and we expect rent to commence later in the third quarter.
Due to an end place confidentiality agreement, we cannot comment further.
From a tend to have perspective, our portfolio has a weighted average rent coverage of 2.9 times was 73.4% of our AB are having rent coverage ratio of two times or better.
Looking out over the next 10 years less than 1% of leases that expire have unit level rent coverage below 1.5 times, which we believe indicates a high likelihood of lease renewal at expiration.
Additionally, only 2.9% of our tenants have both an implied credit rating lower than single B for Moody's risk health and a unit level coverage below 1.5 times, which represents a very manageable number of tenants and properties with elevated risk characteristics.
We anticipate these characteristics and the profitability of our tenants to protect our collateral value and allow our tenants to perform under their lease obligations as our operations began to normal.
Turning to investment activity in the quarter.
We invested $167 million at a weighted average cash cap rate of 7.1%.
Approximately 88% of our first quarter investments were directly originated sale lease backs or mortgage loan subject to sale leaseback transactions.
84% contain master lease provisions and 100% are required to provide us with corporate and unit level financial reporting on a regular basis.
On a disposition front in an effort to proactively mitigate risks and exposures. We sold 10 properties at a 7.1% cash cap rate during the quarter generating 19.6 million net proceeds.
Looking out to the balance of 2020.
Well, we have deliberately slowed our investment activity, we do plan to invest on a highly selective basis.
I will largely be funded through our accrete its capital recycling program.
Additionally, given the high level of uncertainty in the capital markets, maintaining a conservative stance towards our balance sheet and liquidity remains paramount importance to us as Anthony will discuss momentarily.
With that.
I'd like to turn the call over to Anthony.
Take you through the balance sheet and the financials for the first quarter.
Tony.
Thank you Pete and good morning, everyone I would like to start I thinking Hillary for years, an excellent work with the company and make my transition into the interim CFO role as seamless as possible.
As a member of the PR keyboard and audit Committee I've worked closely with Hillary in the past and when I joined <unk> PRT as interim CFO I was pleased to confirm the she had built an extra one accounting and finance organization.
Lastly, before I move out to the financials I would like to say that as a board member and a shareholder I have been extremely impressed by the entire PRT organization and how they have effectively managed to do this unprecedented crisis.
Now onto the first quarter.
Starting with the balance sheet, we ended the quarter with low leverage and significant liquidity I continue to reduce secured debt and grow our unencumbered asset pool.
At quarter end, our total underappreciated asset base was 2.4 billion and we had 871 million of debt, implying 36.2% debt to gross assets.
Gross unencumbered investments stood at 1.8 billion, representing 82% of total gross investments.
Secured debt was 7.3% of gross assets down from 11.6% you're right.
Net debt the annualized adjusted EBITDA, Ari, which is our preferred leverage metric was 4.6 times as of March 31st.
Our total liquidity, which consisted of 214 million of cash 335 million availability under our line of credit.
Well it is 549 million as of quarter end, and we have no debt maturing prior to 2024.
This approximate 550 million of liquidity is a key differentiator for us given our size as it represents 26% gross investments. It's 3.4 times, our annualized base rent is almost four times, our annualized cash fixed costs.
Leverage liquidity have not been that's important to the market factors since the financial crisis that I cannot emphasize our balance sheet strength it off.
During the quarter, we raised approximately 198 million of net equity at a weighted average price of $25. A 19 cents drew the remaining $180 million available under our term loan facility retired 62 million of our secured.
Yes notes without penalty and ended the quarter was 65 million outstanding on our line of credit.
As a result due to the uncertain capital markets environment, we were intentionally carrying a larger than usual cash balance at quarter end.
Well, we may choose to carry a lower cash balance and the second quarter, you should expect us to continue to manage our balance sheet in a very conservative manner until the environment improves so that we are prime to capitalize on future investment opportunities.
Turning to the piano AFE AFFO was 27 million during the quarter or 29 cents per share representing a 7% increase over the first quarter of 2019.
We had several nonrecurring expenses during the quarter all of which are detailed on page three of our supplemental.
Gionee during the quarter was higher than usual both on a reported basis, an after backing out the nonrecurring impacted employee severance expenses.
This was largely due to elevated costs associated with the Sarbanes Oxley for all four be audit along with Frontloading. Some employee related expenses and we expect that recurring gionee will be lower on a notional basis for the remaining three quarters of a year.
Lastly, given the economic uncertainty caused by the covert 19 pandemic well withdrawing our 2020 guidance as Pete mentioned, we will continue to provide the market with portfolio performance updates on a timely basis with that I'll turn the call over toward Chief operating officer.
Her Gregg Seibert.
That was closed and.
In terms of rent selection, 61% of R.A. for rent was paid 33% was deferred and 6% was unresolved.
With over 210, it's in our portfolio.
I'd like to think both our credit and asset management teams for their diligent efforts in coming to terms, but the vast majority of our 10 at base in such a short period of time.
For greater context, we have agreed to defer April rent either in full or part for any eight tenets across 320 properties. The deferrals total 16.1 million and red or 10% of our annual contractual chat shrimp.
The average different period is 3.1 months, we've been average payback period of 12.7 months.
Breaking down the unresolved portion of April read A.M.C. theaters, and art and furniture.
Represent 73% events cohort.
<unk> mentioned, we reached an agreement last week to re let art that.
The remaining 27% unresolved rent, it's spread out across nine different restaurant operators at 26 properties with average rent per site of 106000.
Coupled with a bite size nature of these properties.
Minimum rat leakage <unk> she'll be not coming to terms with the current pennants.
Moving onto investments during the first quarter, we invested 167 million in the 32 transactions and 63 properties and a weighted average cash chap rape of 7.1%.
These investments her made within nine different industries with early childhood education quick service restaurants medical dental and auto service Rep, 75% of our investment activity in the quarter.
Weighted average least term of these properties. The 16.1 hears the weighted average annual rent escalation was 1.4% the weighted average unit level coverage was 2.7 and our average in an investment property. It was 2.7 million.
Since they woke our investment strategy approximately 88% of our first quarter investments for originated through direct show at least back.
And mortgage loans subject to sail leaseback transaction, which are subject to our lease harm with ongoing financial reporting requirements.
From an industry perspective quick service restaurants remained our largest industry at 14.3% of A.B.R., followed by early childhood education at 13.3% car washes at 11.8%.
Medical dental at 10.9% and convenience stores at 10.6%.
From a tenets concentration perspective, no 10, it represented more than 3.2% of R.A.B.R. quarter N. with our top 10, representing 23.1% of A.B.R., which was down 30 basis points quarter over a quarter.
Looking at the portfolio more broadly approximately 94.4% of R.A.B.R. is derived from tenets that operates service oriented and experienced based businesses plus several businesses within these industries have been severely impacted from coven 19, we continued to.
<unk> tenets in these industries and more importantly, real estate occupied by these 10 minutes.
Session resistant and better insulated e. commerce pressures, which have accelerated by the current situation.
Moving onto asset management, our portfolio remains healthy with a weighted average rent coverage of 2.9 times and 73.4% of R.A.B.R., having it rained coverage ratio of two times are better.
In addition, with 98% of our tenets required to report you know level financials to us we have near real time transparency into the health of our tendency, which isn't important component to managing risk in our portfolio.
In terms like this <unk> this quarter, resulting properties and different industries for 19.6 million native transaction cost.
Despite having 0.7 times you know level of coverage, we achieved a 7.1% weighted average cash Capri, which equated two or 3.2% realize game versus are allocated purchase price.
<unk> altered it back to peak periods, concluding remarks.
Thanks Gray.
This past month has certainly been a trying time from many if not all of us.
I believe it is during times like these that management team underwriting and investment strategies are tested.
I would like to thank all of our team at essential properties for readily adapting to the challenges and constructively working with our tenants to managed through this difficult time.
I'm confident that overtime.
The strength of our investment strategy and durability of our portfolio.
<unk>.
Central properties going forward.
With that operator, please open the call for questions.
[noise]. Thank you.
No in fact questions of you'd have a question. Please pass star one on your telephone keypad I've any time to try next year.
If you're using a speaker phone please pick up your hand fat typified <unk> found comedy.
Oh about take our first question from neat cross that with banning park place kind of <unk>.
Good morning, guys, how you doing.
Doing well nice thank you.
I appreciate the the comments on higher.
Wanting to touch on and see I mean, there's some news out there that Amazon may be interested.
I'm not expecting you to comment on that but just how she do we think about your and see here.
Maybe you could characterize your current discussing with them you know how would you decide to string for their locations that you have.
Sure as we said you know it A.M.C. as we said today, we have five properties less than 3% of R.A.B.R. They are in our unresolved buckets. So obviously, that's an ongoing situation in negotiations I'd be reluctant to comment on it you know I would say in general.
So we were really comfortable with the theaters that we own and you know we were very selective in the theaters that we purchased over the last three four years.
And you know as with in our van situation [noise].
Would expect that you know if if there is a bankruptcy filing all our assets would be assets that the company would choose to restructure around and we would emerge relatively.
Intact.
So you know we have confidence underwriting constant confidence in our assets selection and that pertains for the whole portfolio and specific for M.C.
Oh for the ran that currently under deferral is that just the straight there for our you guys getting any concessions in terms of extending at least term arrangements.
Yeah listen with 88 individual deferral terms <unk> agreements, there's a wide very <unk> excuse me.
In some instances were good and it's interest in some instances were getting extended terms or bombed but.
Oh say in general we tried to keep it plain vanilla and you know to the extent that we defer to quarter and we're getting it back in a reasonable time frame. There was no offsetting concessions, but you know there's a whole wide range of some.
Okay. Thank you bring it back in the key thing.
Yeah I think.
I'm Maxwell move to crank Mckenna plus shipping. Please go ahead.
Yeah. Good morning, just to follow up on that deferral question, our taxes and insurance part of the differed costs or how you guys treating that with your with the times.
Yeah, the treatment of taxes and insurance does not change <unk> 10, an obligation and certainly you know part or the the deferral discussion was insuring that our tenants remained.
Current on the all their lease obligations with the exception of base rent.
Okay, and then P., you mentioned potentially remaining active and the acquisition smart shit market contingent on disposition funding just curious what your ability is to sell assets right now or off load Bacon assets in this market and to add to that you know how is holding potentially more bacon assets gonna be in path.
Being a property cost leakage expectations this year.
In my commentary I said, you spoke about the important part of our investment strategy proving out and I think the liquidity in properties is going to be part of that.
And hand in hand in that is managing carry costs of those vacant properties.
Since inception, we've largely operated at a 100% occupancy this quarter, we dipped down to 99.5, but.
There's good liquidity if you think.
Not to go onto long, if you think about our unresolved bucket and the color that that Greg gave you there.
The.
26 properties at 106000 site.
Which is eminently manageable and granular.
Hi, Thank you.
And next well move Kristine Mcdonald with Baker. Please go ahead.
Hi, good morning, Thank you.
In regard to the deferral is the point about at post petition obligation as well taken.
The 16 million of right you have deferred thus far we know that it looks like 5 million of that was April rent how much of the remaining 11 million is associated with May and June and then do you expect to still accrue all of these rents for GAAP and an AFFO.
Yes, let anthony tackle the accrual question, but.
With that we gave you the average deferral of 3.1 months and so that'll give you the sense at the vast majority of that remaining.
11 is in April in May and June.
In some instances we've extended out.
Beyond that and that really was driven by a view of that specific industry in that specific 10 and their ability to to kind of ramp operations back up right. So really we tried to grant deferrals into specific needs around the operating considerations of that business in terms of the revenue recognition Anthony.
Sure.
As long as we believe that the.
The it is probable that we're going to receive those rents than we are going to book them.
As revenues.
Yes.
Okay, and then just with the with the QQ collection rate as low as its likely to be and you gave April and said that may would be lower in June higher how are you in the board thinking about that dividend payout.
This quarter I mean, we've seen many of the other rates and thinking about the strip center.
With collections that are at this level suspend the payout temporarily how are you thinking about the dividend or well.
We're not declaring a dividend on this call for small.
Our board of usually does that towards the end of the quarter and we're going to do that again this quarter. So we have a good amount of time too.
This is rapidly evolving landscape and we'll know a lot more by then.
So with that said, we do have a lot of liquidity and our dividends important to our shareholders.
As I mentioned, our prepare prepared remarks on what the clarify something our liquidity is over four times greater than our annual than our annualized cash fixed costs, including dividend payments and principal amortization. So we're sitting in a really good liquidity position and.
Do have.
Do have ample liquidity to to be patient.
Okay got it so yeah I wasn't expecting you to declare just wanted to get a sense for some of the factors around that but it sounds like you're comfortable with liquidity position regardless of the collection.
We argue.
Okay.
Next we'll move to Sheila Mcgrath with Evercore.
Please go ahead I guess.
Yes, good morning.
Pete could you remind us what percent of tenants are master lease in unit level economics, and how that.
Is it.
An advantage for you when you're having these rental deferral discussions just want to understand that.
Sure Sheila Thanks, so 60% of our portfolio is subject to master leases and.
That.
Having the master lease really.
Perhaps the location.
Performance with others.
It makes that a singular negotiation.
The current situation when most of our tenants are operating regional and most of them are 100% shutdown.
You know it's it it doesn't help out a lot.
But clearly when you know operations and normalize and performance rebounds, having that kind of collective protection of a mass release is very important to us.
Okay, Great and one other question if you could just give us some insight on what percent of your tenant might have been eligible for the various government assistance programs and how that.
Playing into your.
Your tenants health.
Yes, so as we disclosed alright April 15th presentation, we estimated about 53% of our tenants.
We are eligible for the PPP program now obviously, that's not the only government program.
There is other government programs out there, but we've seen very positive impacts of that program specific you know tenants, where we had deferrals in place came back and rip the deferral of tens who had deferral requests were through those requests and.
We saw it really a lot with the first round and we continue to see benefits of that so.
We're happy to report that that government program has been very constructive.
Through our tenant base and to the overall economy in general.
Okay and last quick one actually.
Anthony seems to be doing a great job, but I just wondered if you could give us an update on the CEO search that must be difficult considering everybody's locked at home.
Yeah listen.
You know, obviously anthony's our interim CFO and.
That's broadly knowledge.
And we are conducting research.
The we retained a search firm that has reached out and surface day, a great roster of potential candidates and we're kind of running through that that process now and so.
A lot of in any search a lot of the.
Leg work is done up front and on the phone and so.
You know we're in a good spot and with Anthony kind of mining the shop to kind of take time and get to the right spot.
Okay. Thank you.
Thanks Sheila.
And next well move to Sam Choe with credit Suisse. Please go ahead.
Hi, guys. Most of my questions have been answered, but just going back to your comment about.
The may.
And June Red collections.
Just.
I wanted to run through like how the expectation is kind of working out is it like a function of what you're seeing in terms of the state reopening and the conversations with their tenants just just want to more color there.
Yes, so I mean listen you know with over 30% deferrals.
That span the entire quarter, you know a lot of the guys that are facing.
The the greatest stress or kind of put to bed.
You know we have a very manageable tenant roster with 200, plus tenants and we look at each one and have had ongoing dialogue with every tenant and so have an expectation about how they're operating what their capitalization is in their ability to pay.
Pay their obligations in both May and June as we sit here.
On the 10th of the months, we're sitting at over 57% of May rents paid.
Which is you know a long way towards our expectation and so we feel good about that if you recall in April on the 15th we are sitting about 53% so.
No. We think we have good visibility into good handle on who's going to pay us and who's been deferred and kind of where our collection shake out for the quarter.
Okay helpful color. Thank you.
Next we'll move Q, Brian Hawthorne with RBC capital. Please go ahead.
Hi, good morning is easier t. more likely to focus on re leasing vacant assets or selling them.
You know Ryan we're equally focused on both trying to find the best outcome for us for specific property, regardless, we just want to maximize the economic return of that asset and if it involves finding a new tenant.
We'll take that path and if it involves selling it to a selling it will take that pad in general you know one of the benefits of operating and 16 distinct industries is.
We have a good roster of operators and all our industries and so to the extent that a in operator is unable to perform in a specific site there gives us.
It does and other guys that we can call as a first kind of course action this to get them in those sites and so.
At the site works in that current use we're able to find and retenant relatively quickly.
If it needs to be re purpose that tends to be a longer more protracted process and more likely to result in a sale.
Okay. So then we shouldn't expect to see you are giving more kind of improved.
On your Bacon asset leases.
Yeah, I mean look if we have a vacant properties and it takes ti dollars to get a tenant and there then that's what we're going to do I would say.
We don't have a ton of vacant and we have ample capital our balance sheet to invest in our assets.
We should we choose to do so on and.
Determined that there is a justifiable economic return for that.
Got it thank you for taking my questions.
Got it thank you.
And our next question comes from Kevin Kim with Suntrust. Please go ahead.
Thanks, Dan Good morning.
My question is regarding deferrals.
And obviously a lot of company, if our making deferrals for tenants, but I'm curious.
Dennis doesn't you back and that one year timeframe on average.
Is there a significant penalty that dependent load with.
Be aside.
Because my kind of larger question and concern is that no. All these companies, including your your.
Making deferrals for a year, but.
But that also like maybe they will get feedback right.
So I'm just curious if there's a financial penalty that actually.
[music].
I would make a kind of feedback in that time period.
Yes, and listen I think you thinking about a wrong right. It's.
It's not about the deferred amounts that 60 million right, that's not a material amount to this balance sheet and so.
You know it's really.
When the tenant opens and is able to pay rent on an ongoing basis from a stabilized operations.
Whether thats base rent or base rent plus deferral, it's more of the base rent is really what's you're focused on I'd go back to our nearly three times unit level coverage.
Post pre crisis and.
You can make assumptions about how people respond and see that you know will still be in it in a healthy spot from a coverage perspective, specifically in terms of deferral, you know that obligation and and the proliferation of that obligation as additional rent is is cross to the lease and so we.
On this real estate, we believe we have good real estate app assets that are valuable to the tenant and you know if they don't pay us rent, we take the property back and put in another.
Tenant if that's the best course of action in that that rent now includes a deferred amount that is coming back to us, but it's really the stabilized cash flow that people should be focus on which is the ability to these tends to pay rent on a recurring basis.
I don't want the labor to point, but is there a penalty if they don't pay back within a year because yes, I can imagine that's being back further.
Yes, it's a lease default and property eviction.
That's the penalty.
We'll take the property stack and that's no longer operating that property.
Okay, well so it's I don't want briefing returns are open or on a limited basis.
Over the past few weeks that Apple as we've seen some locations open up.
Have you guys track or give a sense of the type of.
Improvement and traffic or business overall, your tenant or thing over the past few weeks.
You know listen we've been focused these last 30 days on getting these these 88 plus deferrals in place.
We have anecdotal information that spans you know our entire tenant base and some guys are doing great. Some guys are doing.
You know.
Less than that we hear a restaurant operators in Kansas City, where they are open are experiencing no foot traffic. Conversely, we hear you know restaurants opened in Dallas or are experiencing.
Massive foot traffic so.
Information really though keep minutes to anecdotal to draw any real conclusions from.
But you know, it's it's slowly evolving one of the reasons.
You see our deferrals span the entire quarter.
Is that we wanted to give our tenants time to come out and get open recognizing that June rent is really earned in may and and so it's early.
While our states are opening up our industries are opening up.
You know.
You can look through our industries and get a sense of what's opening sooner rather than later, but it's really it's two anecdotal to draw a material conclusions from.
Okay, and just quick one here the retail segment in your supplemental you show at negative 45% change and contractual rent is that our bad debt.
Just curious what else is going in that bucket.
Yeah, that's all our gen.
Okay. Thanks.
[music].
Yes.
Next well go to Collin me with Raymond James. Please go ahead.
Thank you good morning.
I wanted to go back to your comment.
Earlier in the one of the questions earlier about still plenty good better this year again, largely through capital recycling Pete just given the high probability that thoughtful but didn't think policies are likely to lap well beyond kind of widespread business slowed your can maybe just to expand on how you're thinking about sectors. The focus moving forward and into your point about investment strategy being tested in times like that.
Anything you want to adjust moving forward and then have you closed on anything but typically here in twoq you so far.
Okay.
Three questions.
In terms of Twoq, you will see as when we file our Q later in the day. Our subsequent event activity, we deployed roughly 17 million.
Into to investments.
Sold about 5 million I believe and that was largely stuff.
Construction investments that we've had a pretty wired.
You can see get a good sense of what's going on there.
In terms of our investment strategy.
Released from late.
We believe our investment strategy.
Is.
Is where we want to be from a risk returns perspective, and we don't see any material changes in the sectors or industries that we're investing in.
You know things like casual dining furniture health and fitness. These are all sectors that we have been lightening up on since coming public Anna and I think.
Those are the sector is likely to be impacted going forward and you should expect us continue lighten up there I would throw movie theaters.
In that but.
Our focus on owning service.
And experienced based real estate.
That is granular and bite size in nature.
We still think is the best place to be provides the best risk adjusted returns coupled with the best asset level liquidity. So.
This you shouldn't expect material changes in our investment strategy as a result.
This kind of onetime event.
Got it and then just one point I'm not sure. If this was directly addressed or not but just as it relates to the tenant not paying orkins that you've agreed to deferrals, but is there any notable trend that you review it by unit Levered unit level coverage or credit quality or is there just solely focused around decker exposure to the pandemic.
Yeah, it's more how is that business specifically impacted by the pandemic.
And.
Than anything else theres, not a correlation to corporate credit, there's not a correlation to tenant size.
Some of our biggest tenants.
Have have had the most aggressive deferral requests and so.
It's just really the underlying operating fundamentals so thats sector.
And maybe to that point are you, having any conversations that you feel like that or maybe just opportunistic deferrals and maybe just any thoughts there.
Yes.
Not really Collyn I mean, if you think about.
Our unresolved bucket of 6% and then you know you're able to.
If I, 73% of that in art van at AMC.
The rest is pretty granular you know I think some of that could be.
Opportunistic and really be the reason, we haven't come to agreement.
But it's a small amount I would say more more times or not we can't got to a reasonable spot and were accommodative.
And we did have a ton of people being opportunistic I would also add from our perspective as a landlord.
We tried not to be opportunistic and you know extract undue economic terms.
On our side.
Thanks.
You got count Thank you.
Next we'll move to John Masako with Ladenburg Thalmann. Please go ahead.
Good morning.
Good morning, Jeff.
So I know you can't comment too much on our van but I guess and is there any potential that you can collect some kind of post petition rents and those properties kind of before the new leases come into effect in Threeq, you or is that all kind of been essentially waived as part of these new lease agreements.
I think thats, that's accurate we have no expectation to get any capital out of the our advantage stake.
Okay.
And then building kind of on earlier commentary on AMC. Another net lease we decided to move this tend to cash accounting basis is that something you guys considered and I guess, maybe what would you need to see will be kind of factors that will determine whether you guys would need to do that as well if you haven't already.
Yes, I mean today, we have not.
I counted on a cash basis.
But clearly there is still in our unresolved bucket and I think our determination on that largely end up depend on where we end up on on on that negotiation.
You know clearly, they're facing some challenges and their ability to pay rent has been compromise severely.
And that will weigh in as we look at that.
Okay.
And then with regards to unresolved bucket I mean, how do you expect it to try and intimation that remain basically kind of flat and with regards to kind of what you guys reported for April.
Yeah, I don't see that that bucket growing largely because most of the challenging.
Issues have been deferred if anything I would expect that to kind of work its way down clearly.
You know with our van in there that's going to go down a chunk from that.
And I would expect overtime.
The other operators will come to the table on we'll get to reasonable spot.
In general.
To the earlier questions as people.
And even if you think about it in the context of our May collections versus April.
It feels like the tenants are feeling more operator.
Optimistic about the benefit there their businesses right.
On April 15th where at 53% here here on May 11 towards 57%.
And people just have a better sense of the end and their ability to manage through it and so as people get a better sense on the breadth in the with the this.
This this situation, they're getting more comfortable and paying their rents and honoring their obligations.
Okay.
Makes sense that's it for me thank you very much.
Thanks, John.
And as a reminder, ladies and gentlemen, if you would like to ask a question. It is star one on your telephone keypad.
Well move next to Kevin Kim with Suntrust.
Thanks, a couple of quick ones here.
Are you, considering making any loans to tenant.
We have not today.
And if its makes sense and economic we would look at it.
Clearly, we've made more thats with exception of some mortgage loans.
And so.
I don't want to say no, but we would have to be economic and makes sense for us.
Okay, and I think you acquired a earlier early childhood education said in the first quarter.
That cater went up here at popped antenna.
Yes, I'm assuming that the acquisition just curious if they were correct on the rent.
We tend not we're trying to see.
Speaks specifically on.
Individual tenants.
But I believe we have into deferral agreement in place with cadence.
Okay. Thank you.
Yes.
Okay again, ladies and gentlemen, if you have any final questions Dan Star one on your telephone keypad.
Yes.
And I'm showing no questions from the phone lines at this time, so I'll turn the call back over to management for closing remarks.
Great. Thank you. Thank you everyone for for your time today.
I would reiterate this is certainly a unprecedented challenge times.
It's important not to take short term a measure of companies and their assets and really the I think the proof is really as this thing unfolds in the portfolios rebound and people continue there to prove their ability to operate and execute and an.
This team will be able to do that and again. Thank you for your interest in this company.
Thank you operator.
That does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and have a great day.
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