Q1 2020 Earnings Call

R&D Group first quarter 2020 earnings Conference call. Today's conference is being recorded at this time I'd like to turn the call over to Stacy Slater. Please go ahead ma'am.

Thank you operator, and thank you all for joining bricks more its first quarter conference call with.

With me on the call today, or Jim Taylor, Chief Executive Officer, and President and Angela Aman Executive Vice President and Chief Financial Officer, as well as Mark, Oregon, Executive Vice President and Chief Investment Officer, and Brian Finnegan Executive Vice President leasing who will be available for acuity before we begin let me review.

Hi, everyone that some of our comments today may contain forward looking statements that are based on certain assumptions and are subject to inherent risks and uncertainty as described in our SEC filings an actual future results may differ materially we assume no obligation to update any forward looking statements also we will refer today.

A certain non-GAAP financial measures further information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in the earnings release and supplemental disclosure on the Investor relations portion of our website.

Given the number of participants on the call. We kindly ask that you limit your questions to one or two per person. If you have additional questions regarding the quitter. Please re queue at this time, it's my pleasure to introduce Jim Taylor.

Thank you Stacy and thanks to all of you for joining our first quarter goal.

Ross said each of you and your family's hearsay.

I'm grateful to report that the bricks more team has named cases, it pay that 19, although tragically some of our teams have lost Mann family members and walk.

Needless to say we are beyond grateful to goes on the frontline fighting the virus from the first responders to the healthcare workers to importantly, those of our central tenants, who have remained open throughout the crisis ensure that we all have essential supplies. Thank you.

Given the advances the last several weeks, it's first quarter, which would typically predominate our discussion seems like a distant memory well. That's the case, it's important I understand the first quarter's performance in the context of our business going forward.

That's been the case for the last four years, we continued to deliver industry, leading leasing volumes and spreads and value added reinvestment.

We signed 1.4 million of new and renewal leases at average cash on cash spreads of 10% overall in 24% for new leases.

We delivered 41 million of reinvestment projects at an average incremental return of 11% significantly beating our pro forma we produce 3% same store NOI growth or over 4% before taking reserves for cousins 19 into account.

And perhaps most importantly, we ended the quarter with 43 million in signed but not committed stay the AR, which we expect to commence over the next six day quarters as well, it's a significant pipeline of new leases than otherwise that we expect to execute upon as we moved to the other side of this crisis simply put needs.

Results underscore our confidence that our platform built to handle this disruption.

In early March as the outlines of the pandemic came into view, we immediately in for Matt implemented a comprehensive response strategy consistent with our cultural tenants I couldn't be more proud of how our team responded to ensure that we proactively address the impacts of the crisis and importantly position ourselves for outperformance as we emerge.

Our operations team moved quickly to curtail operating expenses by 15% without sacrificing service levels at the property level, they're not only reduce cam leakage, but also reduce the expense burden for those non essential tenants forced to close.

They also immediately implemented additional signage very essential in hybrid tenants, who remained open as well as provided signage and set aside mark spaces for curbside pickup and delivery.

The response from our tenants for this additional supported their businesses has been overwhelmingly positive.

With a priority on liquidity and an eye towards a more favorable cost environment as we emerged from the crisis, our construction and redevelopment teams worked with tenants to extend certain opening timeframe from 2020 into 2020 watt.

Reducing our forecasted capital spend for value enhancing reinvestment and maintenance capital in this year by over 110 million.

And again, our spend is for projects that are pre lease, which underscores the low risk conservatism of our investment pipeline.

Our collections team working with our leasing and marketing teams implemented our bricks assist program, providing our small shop tenants with assistance in accessing federal and state release programs, including paid Sta consulting was for health and accessing the PPP program.

At this time, we believe that over half of our small shop non essential tenants have applied for release and many of those have received funding.

Importantly, we've been in dialogue with each of our small shop tenants for us to close and applying lessons learned in other natural disasters are working to ensure that they have access to all available resources and that they are reopened it as soon as it is safe and practicable.

Because of these efforts of our leasing in collection teens, we've collected over 66% of our April rent, including over 50% of Brad from our non essential and hybrid small shop tenants truly an outstanding result.

Our leasing team has also been engaged with those non essential national and regional tenants that have been forced to close.

Negotiating the exchange of rental for all of one to two months for very valuable concessions in the underlying leases. These concessions include the elimination of restricted use clauses as well as early option exercises and renewals are guiding principle. In these discussions is then that the value receive not only exceeds the cost of the.

Deferral, but said these are deals that we would have deemed favorable prior to the crisis. This is a key point because these concessions will act as an accelerant for our performance as we emerge from the crisis.

We strongly believes that a refusal to engage with tenants in this environment is not only a lost opportunity. It's just not smart business, but let me be clear those tenants who are proposing unreasonable accommodation will be addressed through the fall in the other leases rights we have in our leases.

As Angela will cover in more detail in a minute our financing capital teams.

Have successfully ensure that we have more than ample liquidity to fund our business for the next several years without having to access to capital markets.

We also took the extraordinary measure of suspending our July dividends.

As many of you know, we believe that our primary product to investors is the dividend that as well covered and that growth.

We enjoy one of the lowest payout ratios in the sector. One of the lowest watch list, great tenant and geographic diversification, but strong fully unencumbered balance sheet and a prelease reinvestment pipeline.

Each of these factors put us in the best relative position possible to fully reinstated the dividend.

However, as this crisis plays out we will see elevated levels of tenant failure across the industry.

And not addressing the dividend puts any platform in a position of emerging from this crisis with more leverage and less flexibility to reinstate the dividend and importantly, capitalize on the recovery.

As we've seen in previous dislocations the greatest value destruction occurs through unwise balance sheet decisions. So on balance and in an abundance of caution given the uncertainties presented by this crisis, we made the tough, but we believe responsible decision a suspending the dividend this quarter.

Looking forward, perhaps the best way to determine how well this platform is positioned both to weather and emerged from the pandemic is to look at how we enter approximately 60% of our Hbr comes from essential uses such as grocery and drug stores and hybrid uses like crafts and electronics, 83% of these essential and.

Hybrid tenants have remained open during the crisis as have all but two of our 400 shopping center.

And our core tendency is very strong as 80% of our top 40 tenants at April rents fall and those same 40 tenant to raise collectively in excess of 35 billion of liquidity to weather the storm.

We also enjoy strong tenant diversification with no single tenant representing more than 3.4% of our HDR and our top 40 tenants averaging less than 1%.

We're also G diversified from a geographic perspective, particularly at certain markets have been disproportionately impacted with no market representing more than 8% of our hbr.

When you look at those sectors most at risk to this disruption you'll note that only 2% of our AG ours from entertainment uses including theaters.

Less than half of our restaurant exposure is full service casual and only 5% of or a the ours from fitness.

As you further reflect on how we will emerge from this crisis note also that we benefit from low rent basis, and low occupancy cost ratios.

These will be in credibly critical and providing us the flexibility to respond to changing market to market conditions and still make money just as we have over the last four years.

We believe that the crisis has and will continue to showcase the resiliency and attractiveness of our community necessity based retail centers and we believe that over the next 18 months, we're going to see an acceleration, but some of the trends that have favored our centers over the last four years. In fact, you can already see these.

Shifts in the composition of our forward leasing pipeline, which not only includes new essential uses to our portfolio, but other retailers fleeing obsolete product types in favor of being within the last mile of their consumer.

Finally, I would note that every decision that we've made as a company from selling 1.7 billion of noncore assets, the deleveraging and unencumbering, our balance sheet to maintaining discipline and focus on value enhancing low risk reinvestment.

The capturing increased market share with tenants, who well thrive long term.

How we are leveraging this disruption to further enhance our leases all points to a feature for this company that will be even stronger on a relative basis.

As the impacts of Cobot 19 play out in caused many to reset their business plans I believe bricks marble stand apart with the platform portfolio quality rent basis, and track record to drive tremendous value creation.

Thank you for your interest and support and with that I'll turn the call over to Angela.

Thanks, Jim and good morning, I will briefly walk through our first quarter results before discussing the important steps we've taken over the last several weeks with respect to our liquidity profile and balance sheet position.

Right the macroeconomic backdrop today, it looks very different than the one we were operating in for the majority of the first quarter. The results. We reported last night do serve to emphasize the strength of our portfolio and platform.

Yes, I fell in the first quarter was 46 cents per share and same property NOI growth was 3% driven by a 400 basis point contribution from base rent.

These results reflect additional reserves taken in light of covert 19 with respect to certain non essential watch with tenants based on a comprehensive financial liquidity reveal.

These reserves are included in both revenue and uncollectable straight line rent totaling $2.6 million and $3.8 million respectively.

Absent. These reserves same property NOI growth would have been 4.3% and they read I thought I would have been 48 cents per share. These are outstanding results that speak directly to the successful execution of the business plan, we laid out several years ago focused on transforming our portfolio of well located neighborhood and community shopping centers through strategic reinvestment in 10.

To to drive growth and long term value.

Across every facet of our business, we believe that the steps we've taken over the last several years to strengthen the portfolio and the platform has dramatically improved our ability to navigate this period of disruption.

Specifically as we've had.

Executed on our reinvestment in capital recycling plans. We've also worked to create a balance sheet that could whether any storm, we reduced leverage ratios and improved coverage metrics, but also importantly extended the weighted average duration of our debt maturities and reduced our reliance on short term bank.

Result is a capital structure with $1.2 billion of liquidity no maturities until 2022 in.

In addition, our portfolio is now fully unencumbered, which provides an invaluable degree of financial and operational flexibility as we navigate an exceptionally dynamic environment.

Certainly I would note that based on current rent collection rates and the adjustments we have made an opex and capex. We're fully funding the recurring operations of our platform without utilizing any of our substantial available liquidity.

More specifically our breakeven cash collection rate is approximately 50% before capex or approximately 60% after normal course maintenance and leasing capex.

Well the liquidity, we have in place today and the flexibility afforded to us by our current capital structure position us very well. We also believes that our stakeholders ultimately be thought served by additional efforts to bolster liquidity given the unknown scope severity and duration of the pandemic and the resulting economic disruption.

As a result, we completed a broad based assessment of our capital need included and including anticipated spending levels on recurring capex and on our value enhancing reinvestment pipeline, which resulted in a deferral of approximately $110 million anticipated 2020 capital expenditures further bolstering our near term liquidity and flexibility.

With respect to our value enhancing pipeline, the granularity and low risk preleased nature of our projects a lot as to work closely with our retailer partners to find mutually beneficial solutions for the execution of these projects, we will preserve precious liquidity in 2020 without sacrificing the contractually obligated revenue associated with sign leases at these projects.

For the long term value that will ultimately be created.

In mid March as our offices around the country closed and the potential magnitude at the current crisis became more clear we suspended activity under our stock repurchase program, which was funded in the quarter with disposition proceeds Andrew a total of $550 million under our revolving credit facility, which remained in cash on our balance sheet at the end of the corner.

In addition last night, we announced the board of directors has temporarily suspended our dividend that Jim discussed. This is not a step we take lightly that said we are dedicated to taking actions necessary to ensure that we emerge from this difficult time, a stronger and better platform.

In conclusion, I'd like to reiterate Tim's appreciation for the efforts of the entire bricks more team over the last two months the dedication and perseverance shown at every level at the organization has been humbling and were truly grateful for everyone's efforts.

With that I'll turn the call over to the operator for killing it.

Thank you if you would like to ask a question for you signaled by pressing star one on your telephone keypad and if you are using a speaker phone today. Please make sure that your mute function is turned off to larger signal to reach our equipment again not a storm on the signal. Our first question comes from Craig Smith of Bank of America.

Thank you I.

I was wondering were any difference in April rent collections by geography.

Hi, Craig It's Jim you know actually we were struck that it was pretty well balanced with each of our four regions being being pretty close to what we reported overall its there was any region that was impacted slightly more than the others. It would be the northeast switch.

I'm certainly was the reason more impacted.

By the virus, but it it's a slight difference.

Okay, and then just I'm, assuming you see HM coming in markets the easy no.

Mandates closings on non essential kind, that's just wonder what has to consumers reaction to those more discretionary oh retailers.

In terms of remote consumer acceptance.

Well I think as you've seen in the general media and we've certainly seen it with our openings are folks are being cautious some uses.

Particularly those that provide pickup and delivery.

I have been more prominent but we have started to see rapid reopenings across the portfolio and those jurisdictions, where the restrictions have been lifted be it you know, Colorado, Georgia now in Texas.

But I do think that you're saying that consumers continuing to be careful on as they should be and I think our tenants also responding in a way to provide.

There are customers with a safe experience, which I think is gonna be critical over the next few months.

Thank you.

You bet.

Our next question comes from Todd Thomas with Keybanc capital markets.

Hey, Todd.

Hi, Thanks, Good morning, Kim you spoke about the forward leasing pipeline in terms of seeing demand from central retailers and others that want to be closer to their customers can you just describe what you're seeing there in a little bit more detail around that demand.

No I'd be happy to that maybe Brian I can turn it over to you.

Todd It's it's a great question one of the things it's been a exciting for US just in terms of some upside. During this period has been the fact that many of these essential businesses continue to move leases forward and actually continue to sign leases big about B D ended the third quarter, while our leasing certainly moderated a bit the team was able to.

Signed 30 leases and almost 250000 square feet in March 60% of that was in the last two weeks. When we were effectively shut down. So do you think of the categories like grocery value personal electronics, which we still continue to sign leases with amend QSR restaurants, we've been pleased with the pipeline we certain.

We do expect it to moderate a bit and many of those tenants, who we had large pipelines with have taken a bit of a pause, but Jim did mentioned the pipeline in his opening remarks for a reason, it's actually up 25% from the end of last quarter. So many of those deals that were that we're moving towards execution, it's simply didn't put on.

Old even for those non essential retailers that have been opened yet so while we do expect it to be a little choppy. We are pleased with the activities that were continuing to see during the slowdown here.

Yeah, and I think Todd importantly, it puts us in a position.

Particularly with respect to those leases in the pipeline to ramp up pretty quickly and you know as I alluded to in my remarks, and Brian We did as well we are actually seeing new essentially uses new types of grocers.

As well as certain tenants that are fleeing products that arent close to the consumer and you know those were trends that we've been talking about for the last several quarters I think you're going to only see that accelerate in favor of open air retail.

Okay, and then I guess sort of following up on that a little bit maybe thinking about grocery specifically right. We've seen store shift the curbside pickup and do a lot more delivery that than ever before and those trends have really.

Accelerated meaningful year over the last two years last few months, sorry, do you have sort of a view on how grocery will look going forward. We've seen grocers you know resort to testing all types of concepts and strategies.

In March.

You know, whether it's a you know in the traditional store itself, but micro fulfillment.

Using dark stores for curbside delivery only do you have a view on.

And what what might materialize going forward here and how that might impact your portfolio and shopping centers more more generally.

Yeah, I think that the curbside pickup and delivery is something that is here to stay I think that the consumer adoption of it has been incredibly strong and I think it's also a profitable format for the grocers because the customers still carries the cost, but the last mile I think what the grocers have seen is.

Also that their average basket sizes of increased markedly. So I think that you will see to what you were alluding to some of the store formats begin to change a little bit and also the grocers looking at their footprints and designating more stays within the footprint for Microsoft fulfillment, where I think we.

Stand very well to benefit from that trend is both our relationships and market share with some of the grocers, who are leaving in that area, but also the low rent basis that we have in the flexibility generally speaking that we have in the format itself to accommodate those changes I think that the other thing that this disruption.

Has pointed out is actually the importance of the proximity to the customer.

And flaws in the overall logistics pipeline that you know really get dealt with when you're able to have a significant amount of inventory near where the customer is so I think all of those things are going to accelerate some of the changes and the gross reformat I think we.

Stand pretty well position given our relationships with the grocers and importantly, given our low rent basis in the flexible nature of our assets.

Okay. Thank you.

Our next question comes from Samir Khanal with Evercore ISI.

Good morning, or Jim sorry from this procedure and repeat or did you did you provide any early cooler on sort of make purchases at the school.

I Havent, what I can tell you is that.

Today, we're sitting pretty well a little better than we were in April, but we do expect that to moderate as I mentioned and our comments or in the opening comments, we are negotiating rent deferrals, where we see value and doing so so with those tenants that we have negotiated rent deferrals with there may be only pay.

Personal payments in May so.

I feel good about where we are month to date in fact, I think we're ahead of where a lot of people work for the entire month of April but do I expect to be where we weren't April probably not I think it's going to moderate a bit.

Okay, and I, just shifting gears a little bit.

On the leases that you've signed in March I mean, what are sort of tenants parents groups wouldn't be squeezes today that maybe you weren't.

Seeing let's say six months ago, you know kind of pre Cobra I'm trying to understand that there's any kind of cold and language attached in these.

Leases, so just trying to get a sense of there.

Well I'll, let Brian comment on this but as you could imagine of course tenants are looking as they negotiate leases to have some type of protection as it relates to future Pandemics.

But we've been taken a pretty hard line with it and importantly.

You know have have not had to as of this moment sign any such provision, but as we look forward, we certainly expected and Brian maybe you can comment on our approach.

Yeah. So it's a great question and in terms of leases that we signed in March really weren't as much addressing it there as much as just looking at the build out periods. So there were some adjustments maybe 30 45 days in those but weren't exactly coded specific and as Jim mentioned, we are starting to see it a bit.

It's pretty clear in our leases today that the tenant has the obligation to pay rent. We do expect this to come up with retailers and I think our guiding principle amount I think it's going to be from when we do addresses since look acknowledged that they own the money like they do today women the duration of really any type of deferral.

Paid back within a reasonable time and that's how we're going to approach. These going forward and again those will be exceptions, not the rule because today, we've taken a pretty hard line on it.

And we'll go next to keep bin Kim of Suntrust.

Thanks, Good morning, Alright, so more to talk about pepper good morning.

<unk> of about 10% of your leases expiring through 2020 expiring or a month to month, how you're thinking about addressing some of these leases because I could imagine that during these times, there's probably from has a tendency for longer leases from both your perspective and from that kind of as well.

Yeah, you know, we didn't really actually gone after that pretty well key then it certainly is an appropriate thing to be focused on.

But we have very little as a percent of our overall brand remaining a that that needs to be taking care of as we move through the year and I think part of the reason for that honestly is that these tenants are making money and our spaces and they expect to make money.

And these stores as they move forward and it really more than anything else points to the importance of low occupancy costs. You know we've talked about it for 16 quarters. Since we've been here. If this crisis points to anything it's that tenants are more than ever gonna be focused on the profitability of their stores. So.

While.

You close to 10% number I'm not going according to a specific number but it's far lower in terms of what remains and based on the tenants that are rolling and importantly, based on the rent which is in the single digit that's rolling.

We feel pretty good about.

Where we'll continue to be from a renewal standpoint.

Okay and.

Well, it's I was looking at the small shop tenants I guess, you already have no 7% rolling comp.

To be partially correct here.

In terms of capital allocation.

You know weren't the.

Key aspect for brick more has been your ability to allocate capital to anchor repositioning and redevelopment and very well leased so lower risk.

You think about this segment.

And during uncertain times and if the rent will be there to justify the concept of pent up demand will be barrier for small shop follow through demand will be there I'm just highlighting what you have to think about.

Well you know you hit the you hit the main point right on the head in your question and that is that our investment activity is substantially pre leased. So ironically you know the business plan that we've been executing prior to this crisis is the exact same business plan that we're going to execute through and beyond the crisis obviously.

The continued focus on making sure that we're driving very attractive risk adjusted returns on that capital that not only is great on an incremental basis, but as we've talked about throughout.

Creates tremendous amount of intrinsic value.

But you know I think in a in a strange kind of way that conservatism in approach with our business model I'm not only positioned us well to come into this crisis, but it's going to be a very similar model that we execute as we emerge and we're going to avoid as we did before.

Ground up or significant speculative investment because you just don't get paid for it.

And if anything this this crisis points that out that where you are putting capital to work, which we haven't.

Without those forward lease commitments.

Your risking stranding significant amounts of capital so.

Appreciate the question and I think it just really highlights for us as a company what our relative strength bills.

Our next question comes from Hong Shang JP Morgan.

Hi, I guess, what percentage or 80 aren't tutors tenants that you took the pagette reserves represent what your portfolio and working into the second quarter. So far has either side any order tests that are at risk.

Going into cash counting.

Yeah, you know thank you for the question, we did take a real hard look at our watchlist tenants and we focus then for purposes of taking the reserve on straight line and they are in the first quarter on those tenants that are higher risk.

I'll, let Angela you know maybe provide a little bit more color.

But you know these where tenants that we felt would be disproportionately impacted by the crisis that were weaker going into the crisis and we thought it was conservative inappropriate to specifically reserved for them.

Yeah, I I think Jim laid it out well it was a pretty targeted assessment of the watch list. Those tenants that were non essential close I had just trups into their business and as I mentioned in my remarks, we did you know kind of a thorough evaluation of their liquidity position to determine which tend to take ultimately take the reserves on I would say there their exposure.

During the portfolio as its low single digits. It was a handful of tenants that made up the reserves we outlined in the press release, but in total I was just low single digit exposure to those tenants.

Got it thank you.

Okay.

Well go next to Shivani suit of Deutsche Bank.

Hey, good morning, I'm, just curious in terms of the deferral conversations you're having with tenants can you give us a sense of how many of those are just for April versus maybe April and May and Jim you touched on this in your opening remarks that some color on the payback periods that you're targeting these conversations.

Yeah, I'll, let Brian comment more detail, but I do think it's important to highlight the principle with which we approach. These discussions and that is that these are deals that we would have done absent the crisis, so whether it's one month or two month.

Two months, which were generally holding to in terms of time period, we really are focused on looking into those leases and identifying those clauses. The restricted uses and other items that theres real value frankly, and lifting and Brian you may want to add some more.

Yeah, Jim you covered most of it I again. These are generally been a month or to pay back at the end of 2020 into early 2021, and again that guiding principle is the value. We're getting are receiving is greater than or equal to the cost of the deferral and we've been able to lift restrictions get extension.

So far those discussions have been productive with several retailers. So we're we're getting to a place that makes sense. We're we're entering into agreements when we're not he's a tenants paying rent. We're we're making the decision to pursue our Lugo <unk> legal rights under the lease as you mentioned in his opening remarks, but.

In terms of the total amount of deferrals, we're still early each of those negotiations as specific with many of those tenants. We expect to have more color as we move forward, but we're making some good progress and really appreciate the efforts just of our national account team. They're report in dialogue with these retailers is helping us get too.

Place, where as Jim mentioned it makes good business sense co good or no coated with whether or not we done are these deals.

Thanks, so much for that color and then crazy original disposition strategy I think with a lot of markets, where you don't need you have that.

Kinda corporate that's and a lot of conversations I've been having at least the bricks more bricks more diversity has decided that the positives. So appreciate it's very early days still not just curious how you might be thinking about this longer term and terms M.D. size or the scope of the portfolio.

Well the diversity is one of our strengths and I think it really goes to yeah, we think theres several markets across the country, but some have red lines, where we think there great risk adjusted returns.

But our focus is always on having enough presence in those markets, where we don't hit the geographic diversification scale, but we do provide ourselves with the synergies of more than one center in a particular market and so we've done a tremendous amount of pruning.

No single asset market. Since we started we have a few more some of them do represent markets, where we will add exposure over time, but you know that drew that geographic diversification because we're not for example, just trying to be in certain coastal markets. I think is going to be a continued strength.

This company.

And we'll go next to Greg Mckenna Scotiabank.

Hey, Jim just going back to a another question just a draft on markets you can targeting and geographic diversification. So how many shares. This environment has created some strain hurdles I'm just curious if the potential for changes to physical called standards or at least in a very near term has changed your investment philosophy on University.

It's a near term risk I mean, you're spot on many of these university town.

Our our saying you know.

Hi Tech reductions in their populations that the students have gone home and they're learning remotely I don't think it's a long term issue.

But we're certainly focused on those markets like you see day, this or Ann Arbor, or college station, where we have assets and making sure that our tenants are getting to the other side of this but we believe very strongly and the long term vitality of those markets and as we emerge on the other side.

Side of this crisis and.

Students get back to school I think our tenants are.

Going to thrive.

Okay. Thanks.

Angela at this point must be thinking about <unk> suspended dividend versus taxable income in Q2 in 2020, maybe a delay in helping us out of <unk> what level of gap linked collection do you actually need <unk> reached zero taxable income.

Yeah. Thanks for the question, Greg I'm, you know, we're continuing to evaluate and obviously monitor closely taxable income as we mentioned in the press release I'll be a key consideration the board considers when determining you know when or how to reinstate the dividend as Jim talked about in his prepared remarks, a key focus for us.

We're navigating the crisis.

Really in every way across the board is to put us in the strongest position possible coming out of the credit crisis and to be able to reinstate the dividend fully on the other side at this point, there's just too much uncertainty in the environment to give anymore specific color I think as it relates to 2020.

Right.

Thank you.

Well go next to force Randy's come of Compass point.

They florist hey, good morning, guys.

Thanks for thanks for taking my question.

Quick.

Quick question here on your small shop leasing historically your small shop occupancy has like a sector peers.

Obviously be cold, but it's likely to have a greater impact.

On a on the small shop, what do you see as this strategy going forward and you see that your occupancy could dip or how do you look at the growth opportunity in the portfolio as a result of Ah Ah the impact on your small shop.

Well, it's a great question and you know everything that we've done from a strategy perspective has been geared towards utilizing that small shop vacancy as an additional growth lever, particularly as we're repositioning anchors and leasing off the strength of some of that redevelopment capital and you've seen that trajectory.

In our small shop occupancy over the last several quarters, we did see a dip in the first quarter due to dressbarn, but that underlying momentum, we think well continue and be an important part of our growth strategy going forward and.

You know I think that.

Are you seeing actually interestingly, if you dig into our April collection numbers, some real strength and the amount of red paid by or small shop tenants, including our small shop tenants than on a central tenants that have been forced to close and I'm real proud of that statistic because I think it pays.

Thanks to what has been over 16 quarters of work is continuing to upgrade the quality of the portfolio upgrade the anchors and so as we emerge on the other side of this.

We think will be positioned to continue to.

Use that as an opportunity.

Thanks, Jeff <unk> and let me just ask you want one more question regarding the suspension of dividends trips.

You mentioned it again your payout ratio was very low going into this obviously, we're not quite sure how things will look goal coming out but the expectation is ads.

You will you would still be able to.

Service a given in similar to what you are paying for.

Would you.

To spend the or not pay dividends for a couple of quarters and been resumed that seem quarterly payment potentially going out of this once you have more clarity or a would you consider paying doubled the dividend that youve skipped a as a result of the suspension.

Well you know our product at the end of the day is a dividend that grows and so we take that decision very seriously and we made the decision to suspend it in an abundance of caution in with really the focus of being able to fully reinstate that dividend and as you mentioned, we enjoy one of the lowest payout ratios in the sector. We're now.

Taking significant risk from a redevelopment perspective, it's all prelease, we have huge amount of liquidity far more liquidity than we need over the next several years and this is really a decision of conservatism as we look at the potential for tenant failures in the potential to be on the other side of this.

If you haven't addressed the dividend of needing to raise equity and what could be possibly the worst potential time and when you look back to 2008 2009.

Huge amounts of shareholder value were destroyed by companies putting themselves in that position as meeting to issue equity at the wrong time. So it is a conservative decision given our low payout ratio, but it's one with an eye towards emerging from this not only being able to fully reinstate the dividend, but also being in a position.

To capitalize on what we think are gonna be some very attractive investment opportunities because of this dislocation and also florists because of the competitive advantage. We believe a platform like ours will enjoy going forward. So.

Not an easy decision.

But we believe you know on balance at the right decision.

Well go next to Christy Mcelroy with Citi.

Good morning, Thanks, Angela years sitting with a good amount of liquidity today in the context of how you're thinking about the environment I'm arrests. How do you think about the potential for holding that larger cash balance a if our position for a longer period of time and sort of solidifying that by accessing that market to pay down the line.

Have you looked at you know term loan our unsecured markets for pricing indication.

Yeah. Thanks, Christine we're certainly looking at all our options from a capital availability perspective, you know I do think we're starting to see you know more retails at the unsecured bond markets, we'll be evaluating that closely we're very focused on duration also so <unk> I don't know that we gain control.

And this amount by adding incident, you know some short term bank that to the capital structure at this point, but that's obviously something we want to evaluate and consider as well in terms of that the balance on the credit facility and when we might be in a position time to address that I think it's just you know it's an ongoing evaluation of where we sit from a business person.

Good how things play out over the coming weeks and months and then as you mentioned kind of the capital availability picture and what that looks like going forward as well.

Okay, and I'm, sorry, if I Miss first you you discuss that 15% reduction in operating expenses, how much of that will actually fall to the bottom line in terms of benefit Q and Hawaiian after soundbar persisting passed on to tenants in the form of lower Cam recoveries.

Yeah, it's about I'm Gonna say you know these are kind of rough estimate, but it's probably somewhere in that I'm 60, 65% range that number is going to end up I'm really being reflected in lower a tougher income and being passed through to the tenants in the remainder which would would accrue to brick smart as a benefit in terms of ready for it.

Leakage on the net recovery side.

Yeah, I did that presently are.

Im sorry that Chris they are our focus there is really to make sure we're reducing the burden on there's not a central tenants that have been forced to club.

Yeah I was just wondering how temporary that is is that sort of like a quarter second quarter thing or more ongoing.

While we had the ability to continue it as long as we need to during the duration of these closures.

As I as I mentioned before we are seeing an accelerated rate of reopening across the portfolio and of course will pivot.

As appropriate based on the level of businesses that are open in each of our centers.

Thank you.

Well go next to Jeremy Metz BMO capital markets.

Hey, your branch or just a couple.

So I didn't hear you mentioned, Jim to strengthen shopper behavior.

So what we've been percentage of collections across shoppers hearing Kerr I've learned to that 66% and then implied in your comments earlier about married moderating or potentially moderating the class you negotiate for older tenants.

Maybe pay reduce Murphy.

Maybe cherilyn.

I'm quite inhabit either deferrals.

As we turn into actually already who'd here in April.

Let me, let me hit both of those so you know look as it relates to the deferral discussion that we're having now on some of them did pay in April on some of them didn't.

What's interesting is when you look at the collection rates.

Small shops, particularly those non essential and hybrid small shops that are forced to close they were actually higher than some of the national anchors in the same categories and you know we've obviously been engaged in what I believe are generally very constructive discussions with some of those.

Tenants, who didn't pay.

In April as well as some who did a really with the guiding principle again of making sure that we're getting appropriate value for the agreement to defer I mean, one thing I want to make abundantly clear, we believe our leases legally entitle us to the rent for April and May and for those.

As tenants that don't honor their obligations under the leases and we don't have constructive discussions with we're going to pursue all the remedies that we have under those leases.

With many of those tenants as we get into negotiations with kind of interesting as they decide to go ahead and pay their ramp.

So, but given the actually the success that Brian and team has had with some of these larger tenants.

And negotiating deferrals that we think makes sense, because they unlock real value and the leases.

We do expect that rate of collection in May which is ahead of where we were in April and again better than many people reported entirely for April we do expect that to moderate a bit.

Sorry about good years comment on that's where it's more just on the breakdown of collections from shoppers drinkers.

I don't have those numbers specifically Angela.

Yeah, we were in the low 70% range for anchors in the low 60% range for small shop.

Right. Thanks, guys.

Our next question comes from Alexander Goldfarb of Piper Sandler.

Yes, Hey, a good morning.

Good morning up there are.

Two questions from for me first Jim.

Maybe this is a lay up but I hopefully there's some good color that you could provide as your retailers really thinking about the retailers would do who both who have both.

An active robust online platform and to compliment their their physical locations have what's in their feedback. So far you know everyone rushing to the growth the grocery store drug store et cetera, you know, whether it's Brad geese toilet paper whatever you had a by stop and obviously that's been stuff that the out of stock in store now to stock on like what's been the retailer.

Feedback so far as far as fulfillment have they found that certain categories are better actually build direct in your shopping centers and other things turned out to be easier on E. Commerce from their platform just sort of curious as they look at fulfill made during that time, what the feedback has been.

Well I think on balance they found that the store. It has been a critical mode at their overall fulfillment across a lot of different product type those retailers that do have online robots presences are saying much even higher rates of adoption of the pick up and.

Curbside delivery.

Outside your stores and as I mentioned before they're all very focused I think on that being a sticky part of what their business model will be going for Brian I don't know if you have any other color there.

Yeah, I would you say in talking to our retailers. It. It has been interesting that those that didn't have a full ship from store platform have have started to do it. It's been interesting here just looking at where they're shipping products from across the country somebody electronics retailers were.

Saying that you're wherever you can find whatever they can find the specific product. They are looking to do more of that from a ship from store perspectives and when I think you're gonna see coming out of this is just the further integration and acceleration for those retailers that haven't had as much of an omnichannel platform. Realizing the importance of the store realizing the importance of curbside.

Pick up and then doing more from a ship from store perspective, so coming out unless we expect a ton of innovation from our retailers there were a little bit further behind coming in.

A tough thing to negotiate though right Alex because what you're basically asking a lander to do is to look past you know they need to actually have units to sell product and we clearly believe and the impossibility of our <unk>, our Lisa and the remedies that we have under the.

Leases, which could severely disrupted retailers attempt of recovery, but we know some retailers are out there looking at it but from what everything that we see it's not been a broad taste trend.

[noise]. Thank you.

Hi next question comes from home don't just I've Mizuho.

I have no morning.

Glad to hear you and I hope everyone as well.

I think a follow up on the.

Germans question during the question on the small shop collapses. The on April and Martin is going to do that as a small operator, you got a kooky loans you have to use that loan money to pay rent to ultimately how could have forgiven. So it wouldn't definitely <unk> made because you have to use the money for rent so instead use them.

Well, if you need help <unk> per June and July which is just that collections. The pros could remain under pressure beyond second quarter. So I guess I'm curious on on your view on what's the level of Christmas presents a and you know what what steps you take into address another good stuff.

Well and now you're you're pointing to something very important and that is that the local mom and pop small shops, which for us in the non essential and hybrid category represent about 16% of our total A.B.R. that those are probably you know the businesses that are gonna be most.

Economically sensitive to the duration of this crisis right. So what ultimately place through and it's gonna be driven in part about you know by you know not only how long does this class, but what is the shape of recovery. The P.P.P. program has been embraced by many.

These pennants and they are allowed to apply a portion of those proceeds which are sized on payroll to business expenses, including round and get a full forgiveness that amount use to pay for qualified business expenses, but there are other forms of.

Belief that we believe these tenants, we'll be able to avail themselves coming behind the P.D. a program. The one that we're watching most closely and positioning to give our tenants meaningful access to is the main street lending program, which is for your dad money at very attractive.

Rapes far below where public companies like ourselves could borrow and that type of basis.

As a way to provide them <unk>.

Liquidity not just to get through the duration, but also on the other side to have the working capital to reopened and then finally, we're watching really closely the business recovery Act, which I.C.S.C. has been at the forefront amongst the number of different industry et cetera.

Patients, which would also provide some relief for small businesses for the business interruption that they've suffered who knows that that ultimately comes through but I do believe that the main street minding, it's gonna be actually and even more comprehensive.

Form of liquidity for some of these tenants and remember as I alluded to in in an earlier question. These were all businesses that were thriving as we went into this crisis you know the quality I think shows through and some of our collection raids, but it's something we're very focused on <unk>.

You need to provide updates as we move through the crisis.

Yeah, I felt thanks, <unk> more to do how much financial assistance or you Brits more open to provide into a political you build a longer <unk> beyond the 12 months I'll do the pearls recruit interests or it could have discretion like loans and making.

<unk> you know how much help you actually providing.

You know, we're we're being very careful with different generally avoiding abatements across the board and we're we're trying to sides that affirmative what we think the tenants underlying need is and you know, Brian and David Gerstenhaber and our entire.

Leasing team in addition to our collections team is working with each of these tenants on an individual basis to make sure that we emerge on the other side of this crisis is intact as possible, whether or not we provide additional support and working capital loans. It's.

A bit premature to comment on at this point, particularly as we watched to see how broad than mainstream lending program would be a bug in certain circumstances, we would certainly sass, providing additional types of working capital. If ultimately that is a good business decision.

To get through to the other side of this crisis, but a little bit early <unk>, we certainly have that arrow in our clever we have more than apple liquidity to provide but we're going to try to make the best business decisions tenant by time.

And we'll go next different stuff I don't have Green Street advisers.

Good morning, what's he commerce penetration likely accelerating this year you see any of your vacant box based converting to dedicated macro facility and centers with with little to no selling space potentially.

You know, it's a really great question, we are saying from some of the usual suspects increased demand for micro fulfillment actually at Rand that in many instances exceed a underlying retail rents. So we are very interested in that as a trend I think then we're very.

Early and you know you need to make sure that you're doing it at properties that which support that type of use and also that you're not damaging the balance the use within the center, but it is a category that is we think undergrad significantly and.

We're having early discussions with different users on on that very type of use.

And you know I think honestly, that's what it points to really.

<unk>.

<unk> darn valuable these open air shopping centers are that are within the last mile.

Right and and I think it it's kind of coming through and the other.

This plans of that the main line retail tenants, we have particularly through this disruption.

Oh is it nice to be close your consumer.

No wonder scene in just one color one more for me would you consider temporary <unk> leveling up to go on off then you feel that or you know attractive this stuff investment opportunity even need how do you way potentially attractive under it and return, but maintaining all your liquidity and your current balance sheet.

Vision.

[noise], where we're going to take a real conservative posture through this crisis and I think that that really important because what may look like an attractive returned right now may not be further as we get and we're just not that smart. So we believe that by maintaining Ah Ah Conservative Balanchine frankly the action.

Tough with a dividend as we get to the other side of this puts us enough better position to do exactly what you're talking about and it really informed a lot of our decision around the dividend, but we're not going to <unk> I you know I just have too many scars from decisions like that that were made and.

Previous downturns that you know really destroyed a substantial amount of shareholder value.

Make kind of thing for the time.

You bet. Thank you.

And our final question today comes from Windows <unk> Jefferies.

Hi, I'm headed thing to come in there was equipped to tennis still looking for a little space like discount <unk> <unk> <unk> for the World you know understanding those conversations are probably on pause right now when you expect them to become more aggressive in their negotiations yeah. One says conversational started up again.

Actually Linda they're not on pause and maybe Brian I'll turn it over to yeah.

Yeah, Thanks, Jim they're not our pipeline if you've looked at it still includes many of those names that we were signing leases went that we signed leases with in March we signed leases in March with Burlington with Ross and those we expect those 10 minutes to continue to have robust pipe.

Particularly for the increased traffic that they're going to get with increased department store closures, we're already seeing what's happening in department store, so they're going to get even more traffic than they were getting before and from a grocery perspective, I think sprouts announced with their new prototype that they're going to be ramping up.

New deals were talking to Liedel, we're talking to all the if anything they want to see more opportunities and haven't come back to us with more aggressive terms or for anything like that so look from a timing standpoint, I think there is going to be a period of time, where many of these not essential retailers are focused on getting their stores open. So there will be okay.

Pause in that regard, but not until applause in terms of moving deals forward and bringing things into committee and our teams did a great job of continuing to move a number of those deals for it so that we're in a position that affect it will be when the lights get turned back on we're going to be able to execute on those leases and move those deals forward. So, particularly on those categories. You mention we're still seeing very.

Thrown demand.

Thanks for that color and then just one for Angela maybe this touches on earlier questions from Christie and Vince any sense of how overall leverage snake trend or we go through you know your end 2020 and into 2021.

Yeah. It's.

Thanks on that it's it's another one of those questions that you know, it's a little bit difficult given the uncertain in the environment to quantify very specifically were obviously focus on on managing not within you know I kind of a band as we can and as we've talked about coming on on the other side with as much capacity huh as.

As ultimately as possible I do think they're gonna be nuances in terms of Sun month up reporting from an accounting perspective associated with some of the files that were signing and that's going to have an impact on as well as our overall assessment level of Collectability, which as we get further on on into the recovery could could alternately change as well so.

It's it's it's a little bit difficult to predict, especially as we're looking at a short time frame through your hand, but I would just reiterate the commitment we've always had to continuing to work down to at least although six times level and that'll be our focus from a a medium to longer term perspective.

Thanks.

And at this time I'd like to trying to call back over to 60, Slater <unk> or closing remarks.

Thank you everyone for joining us today.

And especially today's call. We appreciate every once participation you may not disconnect.

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