Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the first capital read Q1, 2020 results conference call.
During the presentation, all participants will be any listen only mode.
Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press star one on your telephone keypad I would now like to turn the conference over to Alison. Please proceed with your presentation.
Good thank you and good afternoon, everyone.
In discussing our financial and operating performance and in responding to your questions. During today's call. We may make forward looking statements.
These statements are based on our current estimates and assumptions many of which are beyond our control and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements.
A number of these underlying assumptions risks and uncertainties.
Summary of these underlying.
Assumptions risks and uncertainty is contained in our various securities filings.
Including our Q1 M. deals.
Our mdna for the year ended December 31st 2019, and our current yes, which are available on SEDAR and on our website.
These forward looking statements are made other today's date and except as required by Securities law, we undertake no obligation to publicly update or revise any such statements.
During today's call. We will also be referencing certain financial measures that are non I FRS measures.
You do not have standardized meanings prescribed by I forever.
And should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with <unk> for us.
Management provides these measures as a complement <unk> for us measures to aid in assessing the company's performance.
These non IRS measures are further defined as discussed in our ambient.
Which should be read in conjunction with this conference call.
I'll now turn the call overtime.
Great. Thank you very much Allison good afternoon, everyone and thank you for joining us today.
After I speak he will take us through the quarter and there are other members of our management team joining us as well for the Q in a section.
Q1, really does seem like a distant memory. The world has changed so much. Since then so my comments today will focus on the state of our business in light of the environment brought about by covert 19, and a related government imposed shutdowns.
Offering the discussion by starting with the current shut down phase followed by the reopening Saes and conclude with some thoughts we have as we look into the future beyond cobot 19, as it relates to Fcr.
To be able to current phase.
I'd like to start by acknowledging the efforts of the first capital team.
Done a remarkable job in responding to the pandemic as a result of their focus agility and dedication.
When this first hey.
One of the first the act was our I teach him.
Within 48 hours, they had 100% of our staff up and running with the tools needed to work safely and effectively and remotely.
Oh property operations style has been exceptionally busy as well, ensuring the safety and security of our tenants and properties.
Yes yards frontline workers are our property operations team.
He's dedicated employees continue to be front and center at our properties to ensure they are safe secure.
Not maintenance standards are met in order for our essential tenants to continue serving their respective communities, who are relying on them more than ever.
Communication with tenants, it's been a big priority.
This is not business as usual.
The focus on direct communication has been increased.
Everything from dealing with tenant requests.
Helping them navigate available government programs and sharing links and information on cold 19 best practices among other information.
Our accounting valuations in finance teams Didnt, Miss a beat and completed Q1 results and reporting while working together, but apart.
Our leasing illegal teams continue to work with operations and with many tenants directly.
In addition to our small business support program. This team has also been negotiating and completing lease renewals and even a handful of new lease transactions.
Our branding culture team has been providing employee support and implemented a communications hub for information on the Corona buyers as well as a resource center for Webinars on topics, such a leading teams remotely and enhancing mental wellness.
And our development and construction teams are doing their very best to move our active projects along while keeping the sites safe, whether they're open or closed.
Furthermore, this team is preparing for the full reopening of our sites in projects, while still working directly with city officials on high priority files. The city is kept working on remotely such as the rezoning of our Christy Cookie site [noise].
In terms of our portfolio.
Its foundation it necessity based which has provided us with some cushion.
Through the locked down.
There's obviously been bifurcation between retail that is designated essential versus non essential.
Fcr Cozby and remains focused on providing communities with essential services through our properties, including groceries pharmacy liquor stores restaurants for curbside take out or delivery certain medical uses among others.
Yes, combined with our urban locations should serve us well as we slowly commenced reopening.
Our portfolio today can be summarized as follows.
Approximately 1700 tenants representing 54% of total rent are fully open.
Approximately 330 tenants representing 7% of total rent are partially open.
And roughly 2300 tenants representing 39% of total rent are close.
Although we still consider these tenants an important part of our tenant mix going forward.
In terms of April right, we collected 74% of the total gross rent payable before adjusting the rent roll for rent deferrals that had been agreed to such as those under our small business support program.
At this stage, we believe that a significant portion of the uncollected April Ray will ultimately be collected.
Aside from small business tenants subject to deferral arrangements tenants that have not paid generally fall into one of two categories.
The first our large companies, who we believe have the means to pay rent.
Aside from whether or not they are operating their covenant stream and access to liquidity are important factors to us in assessing their ability to pay.
We will take an aggressive approach to collect the rent Oh from these tenants.
The second our tenants, who we believe do not have the means to pay for right.
Many of these are small business tenants, who are among the most vulnerable.
To help them, we launched F.C. ours small business support program in March that provided immediate relief grew up to $30 million in the form a rent deferrals.
Thus far approximately 1400 qualifying tenants the total monthly rent obligation of $9.3 million have applied.
We launched this program to provide immediate relief.
Since then government has announced additional support.
Such program is the Canada emergency commercial rental assistance program or Sekerak for short.
Well well intentioned.
Important details need to be finalized and understood before we definitively understand the impact to fcr.
However at this stage, we believe that roughly 25% of our tenants may qualify for the sector program, including substantially all of our tenants qualify for Fcr small business support program.
Sector, a may prove to be a better option than fcr small business program, both for Fcr and the tenure.
Well, we further details on sacra to make that determination.
Now I want to me.
It does take a bit of time to get an accurate picture <unk> accurate picture on multi right given the timing of when tenants pay or obligated to pay timelines for checks to clear timelines for electronic fund transfers to clear and so on.
However, based on the three business days incurred to date to start the model.
May rents collection is shaping up to be very similar to April.
Nevertheless, well wafer funds to clear before making that final determination.
Speaking of me I'll move into the reopening fees with preliminary plans already in place in certain provinces.
The only thing we know for certain that the reopening phasing and timeline will vary by province.
Our team will be supporting our tenants with health and safety requirements customer physical distancing control TP ease where applicable designated curbside pickup areas anymore.
Wonderful tenant base.
However, we can't predict how different retailers will adapt to a graduated reopening but some tenants may not survive, causing vacancies.
Well endeavor to work with our tenants to ensure their success failing, which we're very confident in the quality of our locations and our ability to really space.
Now looking beyond the immediate future.
Our team's focus is now turning to how best to harvest the learnings from this global tragedy and to develop a plane to enhance our current property attributes and business in general.
We're more convinced than ever that are super urban strategy of creating thriving urban neighborhoods positions fcr wells for the future.
We know that essential service tenants have fared better in close proximity to higher or more dense population.
We know what foodservice locations, while impacted by the loss of seating in in dining availability, we're able to shift a larger portion of their business is to take them through delivery again because of their proximity to higher and more dense population.
More than ever we also know the value proposition of our real estate being centrally located in the heart of the last mile a major factor in the future value of real estate.
Walkability of our property should also result in better performance coming out of this.
From a financial perspective.
Objective to lower our debt through dispositions remains however, we recognize the property transaction market is largely pause as was the case during the initial phase of every previous crisis.
We haven't had great success over the last year, so selling over $900 million of our least urban properties.
Fortunately, we were ahead of our disposition plan coming into this.
We will not be inclined to dispose of high quality properties undervalued pricing and accordingly, we expect our dispositions program to pause for the time be.
Capital allocation always a very strong focus will be up paramount importance.
It's too early to talk of any specifics in this regard as a lock down to remain in place and the reopening timeframe lacks clarity.
But we're not coming off our objective to reduce debt in the short to medium terms.
Before I conclude I would like to again reiterate fcr deepest sympathy to those who have been victimized by this pandemic.
I would also like to express thanks, and gratitude to the many frontline workers or the true heroes of this pandemic.
As a means to support Fcr independent two tenants through this and to express our appreciation to frontline staff.
Fcr is proud to be providing thousands of healthy and delicious meals to frontline workers in several cities in which we operate.
I will then where I begin.
With the F. CRT.
Through video calls phone calls town halls, and emails we have kept connected as a team and we've accomplished an awful lot.
I'm tremendously proud of how the Fcr team has lived our values and worked as one team with one purpose through this.
I'll now turn things over to K K.
Thank you Adam good afternoon, everyone and thank you for joining us on our call today.
Adam mentioned due to the world's like pandemic, we are operating in a very different environment today.
Never hasn't been any clearer how important are properties are to the communities and which we operate.
Many of our tenants are providing everyday essential in the midst of a global pandemic.
The daily essential we've always assumed that we would have ready access to literally cannot live without.
We would like to recognize and they all of our team members and our tenant for how quickly they have transitioned to the new requirements for social dispensing and operating our property.
Which has allowed the residents of our communities to safely acquired the products and services they need.
I wanted to touch on our balance sheet and liquidity position leading into depends on Nick.
Prior to discussing our results for the quarter.
In 2019, we completed 835 million of dispositions, which put US ahead of our internal targets.
Early in Q1, we closed on another 81 billion of dispositions and had another disposition go from clothing expected in Q2.
Given the significant amount dispositions completed over the past 15 month.
Combined with our investment activities, our asset quality has never been higher and we were in a positive cash position with 800 million.
Undrawn operating credit facility heading into the big pandemic.
We had approximately 7 billion or 70% of our assets unencumbered, including the vast majority of our very best asset.
Additionally, our near term maturities were very manageable with about 6% of our debt coming due in 2020 and another 7% in 2021, which is well below the 10% target we set for our annual maturity.
Overall, a very solid position.
I would like to briefly touch on our results for Q1, which for the most part.
Impacted by the pandemic with the exception of 119 million noncash adjustment to the fair value of our property as described in our in DNA.
We've posted our conference call data on our website, which presents the quarterly results in detail.
I will briefly summarize the result, rather than taking you through the Jack to allow more time for acuity.
As we expected our Q1 episode decline versus the prior year given the success of our disposition program over the past 15 month with 916 million of complete it gets position.
As well as the year over year reduction in our outstanding loan receivable.
The loans that were repaid primarily in Q3 last year generated very attractive returns for us and supporting our de leveraging objective.
But as we previously indicated.
This has and will result in lower interest and other income in 2020.
We also had higher other losses in the year, which included 1.4 million of selling costs related to our Hopper town condo project, which has reached presales at 50%.
It is slated to begin construction in 2021.
As well as 900000 of non reoccurring meet conversion costs. That's we closed out this project.
Same property NOI growth was negative as expected due to an unusually large piece termination fee received in the first quarter of last year from a tenant which we have sent back field.
Our occupancy declined 50 basis points from Q4.
The majority of this decline was intentional as we are making room for new tenants, taking occupancy throughout the remainder of the air.
For the eighth consecutive quarter, we achieved double digit increases on or lease screen, all great with an overall lift up 18% in the quarter.
This is a testament to the quality of our asset.
We continue to advance our Super <unk> urban strategy in Q1 like further enhancing our portfolio quality through the disposition of property inconsistent with our strategy.
While at the same time investing capital in our targeted high growth urban neighborhoods.
As a result, the average population density surrounding our property increased to 293000 at quarter end.
Which is very close to our 300000 target and up 42% from January of 2017.
Additionally, our average rental rate grew by 5.5% over the prior year.
Record growth and well above our five year historical average growth rate of 3.2%.
During the quarter because he sold its remaining interest in Fcr, which further increase our public float.
Looking forward our latest liquidity position as of May fast remains strong and include approximately 680 million of cash and Undrawn credit facility.
Our debt maturities for the remainder of 2020 totaled just 80 million with 310 million maturing in 2021.
And our unencumbered asset pool exceed 7 billion and 70% of our asset.
To further enhance our liquidity we are implementing a 75 million dollar cost reduction program.
Which includes both proactive and naturally occurring reduction in spending over the remaining quarters, but the year.
This program includes the reduction in property operating costs and in general and administrative expenses totaling approximately 15 million.
As well as a reduction in development spend an elective maintenance capex of approximately 16 million.
We will also be taking advantage of the government support programs that are available to us.
Including the ability to defer certain payments like HST.
And real T. talk.
And we'll continue to evaluate the potential merit.
The secular program Adam touched on earlier.
As well as any other programs announced by the government is detailed become available.
Well it is too early to predict the full impact as a pandemic, we are actively monitoring and evaluating all aspects of our business.
As the impact of this crisis continues to unfold.
During this time of uncertainty we continued to be guided by our valued at our corporate responsibility and sustainability programs.
I am proud of our employees to now more than ever demonstrate day after day, our core values of collaboration innovation.
Excellent accountability and passion.
And I'm confident that the superior quality of our portfolio and our tenants.
Vast majority of whom offer everyday essential.
Well differentiate us in the month and years to come.
At this time, we would be pleased to answer any questions do you have.
Now let me put you please open the call for questions.
Certainly once again, please press star one at this time, if you have a question.
The first question is from Mark Russell. Please go ahead.
Thanks, and good afternoon, Adam maybe on her cards to your comments about reducing leverage you also said that probably will not be selling assets in the near term. So outside of the cost reductions can you maybe just talk little bit about how you plan on what you're saying.
Leverage in the near term.
Thanks Mark.
It's a very good question editor, it's a topic that we're spending a lot of time on as a management group and a board and you know I think I would I would first come back their capital allocation in general.
And despite the intent short term focus that the pandemic is forcing on all companies, including ours.
Our approach, meaning management and the board.
Ah approach, we're taking extends beyond the short term and.
A lot of the discussion at the board level is geared to the best long term interest of the company. So it's it's being discussed within that framework and certainly our board's been and we'll continue to meet more frequently than normal to consider all courses of action.
Nothing's off the table for consideration I I can tell you I think it's an obligation of the board to can make sure nothing is off the table and capital allocation decisions are being discussed and we'll continue to be discussed that every meeting and you know whether there are decisions to change certain courses or not.
We'll do some discussed each month in there as we need on the most relevant information, we have and the future visibility that's available at the time and that's continuing to unfold. So you know this very fluid situation. So I can point to one specific lever today that I can tell you over the next few months.
We're going to execute on.
Because there's so much volatility in the world and in our business.
But we're looking at all of the potential options and we will come through all of the potential options.
And then we will act accordingly, where we have a firm belief that it is in the best interest. So the company. So certainly dispositions as our preference. We've said right now that's on pause we don't know how long that will be on pause for and a bunch of other factors that.
And how will unfold over over the short to medium term, but we're going to look at all.
Okay. Thanks, and you you also said that you expect to get most of the rent from the <unk>.
And then second retailers that haven't paid yet in general, but clearly some of our likely to need some help and not able to pay much of it what extent are you willing to accept vacancy and just you know not allow the tenants to get by or are you willing to.
Work with them and understand that they might be able to operate their business and pay rent once we come through this but in the near term they will need additional help than just the deferral.
Yeah, it's a very Ah, it's a very complicated scenario or institutes degree time consuming endeavor, because I did the it we don't believe that you know a cookie cutter approaches is the right approach to this and so unfortunately I. Unfortunately from a time for.
Back to we have kit really analyze each situation individually.
We created a small business program that actually provides for a lot of efficiency and you know you can make a case for some of the tenants that are qualifying for this like you know a doctor lets say well, we know that a lot of medical practitioners like doctors in our portfolio I can probably.
Fine a means to pay their rent and get through this differently than certain small businesses.
That may be in a different scenarios, we have not segregated boats and so we said look.
The dentists are the Doctor. We've said, we're gonna give it to you were not overly route scrutinizing. It you know differently than other small business tenants and you know kind of the worst case scenario is we have a higher probability of collecting before rent from that type of tenant.
But it is a case by case basis, and we look at the space, but they occupied we look at their business heading into this we look at their history with first capital their payment history, there sales history.
The strength of their business and then we make a call and you know Unfortunately, there's some tenants that perhaps were a week heading into this and it wont make sense for us to do extraordinary things to keep them a life.
And the space is really good and we'll say you know look there's not much more we can do here and we will look for an alternate tentative required and we're very comfortable with our ability to secure another 10 into your given the quality of the space and you.
You know generally more rent and of course, you've got downtime and other things so.
And then others. We we May say look this has been a long term retenant. The business has been a great business. They didnt plan for pandemic, where their revenues went from a certain level to near zero and they really do need some help and we will we will work with those tenants or to get them to help and to get them back to where they work if we.
Leaving them and there's a demonstrated track record so it's a bit of a long winded answer, but it's it's really been done on a case by case basis, and there's a lot of factors that we consider and making the decision including compassion.
Part of it.
Can tell you we go the way tenants are approaching this with US does have an influence over the type Adeptus health that we're prepared to provide including large tenants large tenants.
That are being very transparent and respectful and reasonable on the situation you know, we're going to get to a meeting of the mines between awesome them much more quickly than some others, who have taken a I'll call. It a more opportunistic approach.
Okay, great. Thank you.
Thank you Mark.
Thank you.
The following question is.
Damiani. Please go ahead.
Thanks, Good afternoon, everyone.
First of all maybe just on the fair value losses that you booked in the quarter.
It seems like a pretty pretty substantial number $129 million.
Relative to the quarterly revenue run rate for the reach a especially when you think about the pretty high collection rate that the Rita has enjoyed for for April.
And what did you could just give a little more color as to how you arrived at that that's a fair value loss.
Sure Hi, salmon, Okay. So we adjusted the value of certain assets that had a lower percentage.
Tonnage of essential tenet.
Hi, adjusting the growth in market rent and vacancy rents in the near term years than our tenured DCF model.
We didn't make any adjustment to cap rate since you know that when reviewing material. We really felt there was a lack of objective evidence of that the reporting to date.
To conclude on an overall change in cap rate.
However, we did feel there was evidenced a change in cash flow, we had announced our small business support program. Prior to the end of March which is why we made a look at all of our DCF model and selectively meet those adjustments.
It's obviously, a very fluid environment as Adam said, so we'll be reassessing cap rate take Q2 based on the information that's available at the time, but overall that that was the approach that we took is to look specifically at and near term assumptions and our DCF models for certain assets within the portfolio.
Okay that I think I was thinking the impact of the rent deferrals was the primary driver, but it sounds like a there was obviously a lot more but were soft into with them that.
It looked like Calgary occupancy declined almost two percentage points quarter over quarter is that was really is particularly driving that then it looked like a good chunk of the fair value loss was actually within that market as well.
Hi.
All lot start that and then I'll turn it over to arm and just to dovetail on back of K.'s comment I can tell you that our auditors.
Comments to our audit committee was that the gold standard was demonstrated in terms of our approach to ice for us valuations in the quarter, so or they were very happy that we did a D a dog and cat.
He's got a property level versus taken macro assumptions and so that's why.
You may have seen a larger decline than perhaps one would expect but it was a result of a pretty deep type work in terms of the decline in a in Calgary, Oh pardon speak to the details, but Ah Theres, a tenant who are who we have re let their space and terminate early but car.
The details if you have them please.
Sure Hi, Simon.
We had a tenant and one of our properties and anchor tenants that we have decided to.
Negotiate a buyer with them because we had another national tenant TJX banner that wanted to space. So we ended up backfilling that.
And now we're in the progress of getting the space ready for that tenant.
So we purposely.
Make that 40000 square feet come available and ended up doing to deal with at a significantly higher market.
It was home outfitters requirements with tenants that went out yes.
Okay, Yeah sure.
Maybe just one last one if I if you if I could I noticed today, the Ontario government is allowing more stores to open up over the next few days, including basically any store with a with outside it wasn't outside entrance.
And you know for curbside sales so what percentage of your of your tenants that are today closed would then be allowed to open in Ontario as a result of this this change I'm thinking it would be the vast majority of them. Just just curious what the answer is yeah. We're trying to <unk>, we're trying to understand the full details of which.
Ah has been a a routine thing a when some of the government announcements come out because ER and look I just about inopportune spend it's just we want to make sure we get the details right and.
It's it's based on a the stores that have been exterior access it's well over 90% of our tenants by revenue and tenant count fall into that category.
That's helpful I'll turn it back thank you.
Thank you Sam.
Thank you.
Oh and question is from Joann Rodriguez. Please go ahead. Your line is now open.
I don't but just kind of going back to my next question just on the did two buckets you'd mentioned about those that had the means to pay a and those that don't.
You know I can appreciate its Chymiak says you mentioned, but what excellent metrics do you use to determine whether a company and kind of Hudson means to pay or not.
Markets at market cap is one of their public company or access to liquidity is another.
Demonstrating their true there truecar financial position through sales and things like that is another.
So look we were asking in some cases for nonpublic information, but we're being asked to amend the contract. So we want to make sure that we have adequate information to make the right decision.
To do that so.
Look I, obviously, we're dealing with a lot of tenants who dirt sales a in April.
Would render the not being able to pay rent, but you know we could stay the same thing on certain properties. We all in that we can't afford to pay certain things there, but the expectations that we pay them, we pay our loans when they come due and when they are scheduled to be paid and we enter into contracts with a strong covenants as and that's part of the decision making process and.
And so we want to make sure that it's not just the boat you know we've had a really.
Really bad month that no one plan for that doesn't necessarily mean, you can pay your rent for the month. So so it it's a typical financial analysis that I pick one would book to in the metrics and you know access to liquidity things like that.
You know private equity you look at what type of distributions are capital's come out of the company recently, if theres a major amount. If there is a major sponsor a we incurred that tenant to use their sponsors and owners balance sheet to finish their rent not ours.
So these are some of the things that you obviously thinking boat.
Okay. Okay. Thanks, and then of the 26 that.
Haven't paid it for rent what percentage of that would would fall under the the government small business program to.
That was announced last week.
The the circa program yeah the circa.
Yeah, I Jordi you may have more info I think it's roughly half because we believe a quarter of our total tenants.
Would qualify and we think roughly 15% of our tenant base is small business that qualifies for our small business. So those would all qualify for it and then they'd be another 10% of our tenants that we believe would qualify for it because I answer your question.
So then <unk> roughly half of the group that haven't paid you think would would fall under this program that and then and then presumably the other half would be.
You know ones that would maybe fall under a larger retailers program that is rumored to be being developed right now.
That's correct.
Okay. Okay.
And then last I know you said it was similar but but.
As of May 15, what was the rent paid versus April 5th.
Identical.
Okay. Okay. Thanks, I'll turn it back.
Thank you.
The following question is from Janney Mom. Please go ahead. Your line is now open.
Thanks. Good afternoon. So just one more question on the wrench collection. It looks like that the April number you guys revised up a little bit I mean, it's not that much but I'm. Just wondering is that just a matter of accounting for it or what are some sort of change on the part of a few tenants who decided to pay their April ranch.
Yeah. They go there it's not accounting the numbers are apples to apples so.
We we announced a whenever we announced that it was mid April we said it was 70% since then a 4% of the rent payable or by the end of the month, 4% of the rent payable that was not paid was paid.
So that pick a 74.
Is there anything behind that or was that just some tenants getting around to paying or was it a gen wants to see yes, sorry shortages to educate or anything at all have either got good. Thanks, good so a lot of it.
There's really was also tenants paying by virtue of the fact that we issued a person demand levels on a default notices and so.
Certain tendons responded I guess in fear or losing.
They are unique and I would say urban in high performing locations.
And and paid the rent, albeit later than they typically do but it was.
More often than not in response to our discussions with us and or a response to having received developments.
Yes to expand this expanded again so our approach in early April.
Was one that applies a high degree of a patients and so.
When some of the large tenant the dog pay rent or in general it could doesn't necessarily have to be large, but when some of the tenants who are viewed to be able to afford to pay rent, which mainly the large ones did not.
We did not default them out of the gate, Okay, and so we tried to work with them for a while and some of them. We felt that it was inappropriate for them to pay no rent at all and so we moved to default okay and.
You know because we've got a lot of letters like many others and sometimes in some cases there was a paragraph some days it was four pages, but they'll send the same thing we're not paying rent. So when we drilled into that you know landlord actually has a lot of rights when the attendances in default and.
And so we started it could take a harder line towards Oh, the latter part of April and that certainly has brought some of those large tenants to the table and I think I think it's one of the reasons why may is shaping up to look similar and not worse.
At this stage because there's no tenants a must reopenings commence which it looks like some will and we're hopeful that continues but at this point that hasn't really happen. So no. One is doing more sales generally and made and they didnt April if they were close so.
But now it's now it's a function where the landlords right sargent to be exercise.
And you know to lose I could be locked out of some of the locations that we have in our portfolio would be a very significant problem for a lot of tenants because in many cases there there are amongst their most productive stores. So so that's part of the back then and gives you a little bit of color. We were very patient at first we would.
Trying to figure out who is.
And you know dire Straits, and perhaps who was being more opportunistic and trying to take advantage and where we're convinced that can answer retailers are more in that take advantage cap and <unk> like I said in my opening remarks, we become more aggressive with them.
Great I really appreciate all the color around right collections and also about May moving on to the same property number I see that there's a little bit footnote referencing the residential contribution to same property NOI and I'm not sure I can't find in India, India, India name, but once the residential piece.
I know, it's small but that negative impact on same property because I noticed that the operating costs went up so I'm wondering if that's coming from Bakken, perhaps hotel, but I know, it's very small piece as well maybe some color on that would be useful.
Hi, Jamie its k.. So Qinghai line residential is our largest residential project, but it.
Just gone online so it wouldn't be part of our same property NOI at this time.
We didnt have higher operating costs in same property NOI. It does relate to a our property in development. So as a number of those have transition into IP, we have tenants, who may not be paying cash rent yet, but we're not we're cap.
Liking the last of the operating cost as results of that and King Highline residential a good portion of that no longer and new D. So we are seeing those operating costs come through as well. So I would say those are the factors that are increasing the operating costs year over year that you're seeing in Hawaii.
Okay. So is the so is it fair to say that all the op costs are being captured now with the rents contribution on the top line coming in in the next few quarters.
Yeah rent collection, and we continue lease up of the residential and as tenant start paying cash rents in some of those development properties, you'll see the end of life flow and.
Okay and then my last question is more like an operations question in the context of coal bed. So when you've done leasing you talked about the property that you're doing out for TJX, but if it's if the presumed opening date or or transfer data started in the middle of this how does that happened in terms of lease.
But it's like are they paying anyway, and then they just have to work with the conditions, we have now where there.
The other terms he can walk around to sort of delay handovers or openings or rent payment I'm just trying to understand how that works in this environment.
No. It's an older we'll try and give you an answer I mean, it's not business as usual, but the business is my quote so.
You know and Oh look for a lot of reasons. It's it's a it's terrible what's happened in the world but.
Can you imagine if this happens that 10 or 15 years ago, you know before things like food Burritos, and the technology that we have and that's flow through with the properties to so look most businesses are focused on the here right now and so the new leasing.
It is definitely slowed down so I don't want you to Miss I understand what we said Fortunately it hasn't stopped yet and in fact, a you know karmas had a number of of inbound inquiries from tenants that are hoping some of our space shakes loose and they've expressed strong interest, including some of the hardest hit a industries.
Or sectors within our tenant base, so that's an encouraging sign but.
It's through the use of technology were respecting social distancing were not forcing our leasing stats out to the property you can use lock boxes. We can use virtual things you can use face time technology and and that's what are you know, where we've implemented where appropriate and I would assume for the foreseeable future.
We're going to continue to leverage that as part of our overall leasing marketing program in terms of tenants that are slated to take occupancy we've been fortunate by and large that our construction group has done a remarkable job at keeping our those timelines for a landlord work on a generally on track and so.
We haven't I to exercise like a force majeure clause or anything like that to delay occupancy. Our approach is if we meet our timeline for tenant turnover, we bought fulfilled our obligation or expectation from the attendance because that they fulfilled theirs.
[laughter] can the tenants come to you and say look we don't want to open. This month can we push it out by a couple of months.
Do they stopped to just fulfilled the terms of at least.
Oh, the I'm, you know leases a binding legal contract and so the lease will outline how all of these things are dealt are dealt with and <unk>.
You know, it's it's not in frequent for at least the say your rent commencement starts at the earlier aisle and outside date or the day you open and Ah you know like we're not we don't lock compassion. So we understand the environment, we're in and so if it hadn't comes to us and they've got a legitimate issue with opening that they.
I want a bump out by a month or two I mean, they can't even open now depends on the tenant if it's a really well capitalized tenant then you know our expectation is that a we go by the lease if it's a small business tenant who is really stretched on a you know investing in this new new store and it's going to put a lot of pressure on them then we're probably going.
To work with them.
Okay, Great. That's very helpful. Thank you.
Thank you Jim.
Thank you.
The following question is from Tony Blair. Please go ahead. Your line is now open.
Thanks, Hi, everyone.
Can you maybe just to comment on any updated conversations that you man.
The ratings agencies and your thoughts on staying on side with respect to their requirements.
Hi, Tom U.S.K., we're in regular discussions with the rating agencies. We have provided both of our agency with a current update skin or evolving environment will continue to do so so those discussions are.
Ongoing and a as I've said you know we are still looking to de leverage over the medium term and we'll look to restart our disposition program as soon as market satellite.
Has there been any I guess indication of potentially for perhaps relaxing some of the.
Some of the timelines or even the goalposts.
They had the currently being or previously indicated.
I'm I'm not sure hold onto <unk> I'm not sure. That's an appropriate question for us to answer part I mean, we have a a lot of discussion and UK you feel differently go ahead, but I would imagine that's not an appropriate question first answer.
Yeah, I think they've made some comments publicly about the entire real estate industry and how they plan to read it through the cycle I would I refer you to their public comments on record for that.
Okay.
And just.
With respect to the.
The reconversion costs.
You know carried over into Q1 on Sunday, and a condo selling costs.
Are those you know for something to be conversion cost it was pretty much where there was done at this stage or will they be some additional amount so going forward.
We've concluded the projects so I would not expect additional <unk> conversion costs going forward.
Okay, and then just on the condo selling the condo sales I guess at AMR town.
Those are carry on I guess I guess, if the sales process continues and that's sure where you are it whether that's still happening or the sales that are still open.
Oh, Yeah as I mentioned in my comments, Oh Presales are continually continuing we are over 50% at this time and I'll hand, it over to Jodi to give a little mark colour on the project.
Hi, good afternoon I think.
Does continue.
Sales center onsite did close and try dollars is our partner consolidated a number of their sales centers.
Ah ones it seems.
Yeah, physical distancing measures and to keep everyone. Thanks, but the projects from the selling perspective is going to continue I would you expect to start next year and 2021 and I think it's important to note that the purchaser for hunger town or local they're not investors living and the neighborhood of course remains one of them.
Desirableness <unk>.
Thanks, very much I will turn it back.
You.
Thank you.
The following question is from Cowen.
Please go ahead. Your line is now open.
Hi, good afternoon.
Adam.
Mentioned earlier like the product receiving communication from its kind of.
You know you're getting letters.
From short term log in those letters or the tenants are saying, yeah. We're not paying you or are they trying to use like lead clauses.
Not that.
Yeah.
I should qualify or not I'm not all of our tenants have their respective send doxil, let her although they weren't that enjoyable letters to read but some of them just didnt pay rent than didn't send us a letter, but no to your point.
The leases are pretty clear. So we have not had tenants tried to challenge the requirement to pay rent.
It was more Oh, yeah, we know we have a contract but were not.
I'm not going to pay rent anyways.
Okay.
Just bigger picture like you know I think we're also struggling with how to think about how.
The you know the sequencing of the reopening of the economy might go do you go public a base case like to try and like you know Marshall your resources in a coherent way like you know do you think like by Okay. By July we expect to have all of her shopping centers open we think there could be like a second wave of this.
Coming in but you know fall winter like have you have you sort of gotten to that level or how are you trying to think about the sequencing of older going forward.
Yeah, we had but because the reality is we don't know so we we've run all these scenarios and then we've looked at the impact of each of them.
But the medical experts don't know so how you know government doesn't know so we're not going to sit here and pretend that we know.
So we're planning for a variety of scenarios and some are a lot more challenging than others.
So.
I don't really know what to tell you beyond that I mean, we spent a lot notwithstanding the majority of this call has been spent on.
Items I'm actually surprised we're spending time on a like Q1 and things like that instead of the general outlook for real estate and our strategy of the impact on strategy in consumer behavior et cetera, but nevertheless, we're here to answer the questions about create them, but it's a we're spending a lot of time on it and.
We we don't know and that's that's you know that's one of the things that makes us most uncomfortable because we we are used to running the business with a lot more clarity and more information than we have now block two or three weeks.
Are you know cautiously encouraging in terms of things, but we are running a lot of scenarios and some of them are significantly better than others, but we have no idea, which one will unfold. So we're trying to prepare for all of them.
Okay.
[music].
And.
Just obviously like new leasing in the short run.
You know could be it'd be difficult I'm, just wondering if like you guys I think I've shown some willing to the path I think when you're about a year ago, you're talking about kind of a restructuring how you put a growth in Italy. The you know turbo renewal rates and how you would grow a rent over the term over the term.
I believe how are you thinking about managing that through the through this period train right.
You know do you think you might have to get a little innovative here to try and be able to find new deal.
Yeah, absolutely, especially coming out of this we will get to a state of normalization and stabilization in terms of our business.
We're not we're not there today and so it'll be a race to get there.
Two of our big advantages as our people flash platform.
ER and exceptionally importantly, our real estate or real estate, there's not a commodity and and we believe we have agreed portfolio and so we will use it to the best of our abilities. It will require creativity or we're spending a lot of time internally right now on.
And so one of one of the big things in our view of this is is that the bifurcation that's been happening in retail for several years now is going to dramatically accelerate so weak properties and weak retailers will likely not survive a or server.
Five in their current form and strong properties and strong retailers will find new opportunities to advance their business and become even stronger we think that's a good thing and we think that we're well positioned to provide their real estate component of some of these retailers strategy. So.
It'll be it'll be a bumpy road, but we've got great real estate, we got great people and walk to see if if we get into an environment, where you know potentially on us specific space, it's really the environment really tilted in the tenants favor then we'll push for shorter term a you know we will do things like that but there are other things that.
We're working on.
Innovation and creativity perspective that we won't get into now just from a competitive perspective.
But absolutely is going to require creativity hard work, great real estate, great people and if you have that you're going to come out as much stronger and if you don't you you'll get weaker.
Okay.
Okay.
I know, sometimes you guys will have like options to by Oh properties, where you're maybe got a joint venture or something like that you have any of those situations in 2020 that we should be aware of just for capital capital spending purposes.
Yeah. So in terms of acquisitions for the remainder of the year I think theres, a one or two potential acquisitions, but could come into the numbers later this year, but we'll continue to evaluate than as Adam said look very careful that any capital allocation decisions we make.
Okay, I'll give you order of magnitude K correct me, if I'm wrong, but the aggregate number of those two potential items are less than $20 million in aggregate.
That's correct like what we're talking pretty small properties.
Okay, and then just lastly, I'm on the fixed income side.
He quantitative easing program proposed by the government I think of using a sort of the triple b rating as a threshold or quandary repurchases.
I know you guys are split rated do you know what you qualify under that program.
Unfortunately trial, we have not received those details as of yet I think that remains a question out there.
It just said Triple B. So you know what does that mean Ah, yes, not the clarity at this time.
Perfect. Thanks very much.
Thank you Carl.
Thank you.
The following question is from can lever. Please go ahead. Your line is now open.
[laughter] Hi, my name. So can we raise this she said I'm from Alberta, I just got a.
Retail Investor I'm, just got a very general question.
It's a double whammy in Alberta coal that in the oil situation.
What percentage of your financial businesses in Alberta, and second part of the question is.
When you mentioned, 64% opened 7%, partially 39% closure do you have the numbers for Alberta for those percentages.
I think thank you very much mr. weaver the percentages.
In composition of our portfolio.
And many categories, including closure is similar across our portfolio, including a in a in Alberta.
We're really in two places in Alberta were in Calgary, and Edmonton and in terms of the first part of your question.
Terms of the concentration in those two market in those markets were about 20% of our total portfolio is in Edmonton and Calgary.
[noise], Okay [noise].
That's very much you've answered my question. Thank you.
Thank you very much.
Thank you.
The following question is deemed Wilkinson. Please go ahead. Your line is now open.
Thank you good afternoon, everyone.
I'd be Adam Adam I couldn't agree more with you on the issue of the myopic focus on you know there's been a 2% increase in rent collection over the past 24 hours you get to get a.
When you look forward on a bigger picture and you know you, let's take the tenure Dcs. So lets ignore the next six months.
When you think the biggest change is that comes out of what we've seen here either for better or worse.
[noise] well that's exactly what we're working on trying to figure out because there's no question I I in my mind that.
Some companies strategies will there long term strategies will will be impacted by this.
We don't yet think ours is one of them, but we do think around the periphery. There are definitely things that will impact that but if you look at the underpinnings of our Super urban strategy. It's about the high density neighborhoods that are located.
Areas that have tremendous amenities in close proximity to employment centers and entertainment destinations in education, and culture, and transit and health care and so on and certainly at this stage. We certainly believe that those fundamentals remain in place over the long term and it's also jobs.
Because people are going to go over the jobs are and at this stage, we certainly don't see large sectors moving out of cities you know I've heard things like people are you know I had my mother told me last night.
Everyone.
He likes working at home. So you know offices are gonna be in trouble I said whoever told you that doesn't work in an office because everyone. I know that works in an office is fed up with working at home and wants to get back to the office and.
Right Yeah, Yeah, yeah. So so you know young people are a big part of the employment market and the the big growth drivers in the job market has been you know is a tech sector, which has attracted a lot but the young people. It's not lost on us but are all there. They are also the group that's lease browse will buy everything.
It's going on in the world there could be in part that you know there's a certain degree of invincibility that you have when you're younger that wins as you get older. Yeah. The hard evidence is such that young people are dramatically less affected by the virus if they get it an old people. So you know all of these are factors, but.
But we we will continue to studies as carefully as things evolve and we will we are.
We are looking for ways to tweak or things in our business to make it better that we believe will be advantageous versus trying to protect something that we thought you know.
It was not subject to change because this is a massive event and.
Yes, there will be things have changed in the world permanently, but we're not we're not at a stage, where we're prepared to tell you with a high degree of conviction that we hit the Bose, we haven't yet, but there certainly paying close attention to try and do that.
Yeah as we all are well that's a I appreciate the insight.
That's it for me.
Maybe the end of the thank you very much Steve.
Thank you.
The following question is from Sam Damiani. Please go ahead. Your line is now open.
I think so just wondering if any of your leasing discussions a recently or if you're thinking this might be an increasing trend no. If it seem tenants looking for larger stores because of the need for keeping customers have looked a little more physical distance is that something that you think is gonna be a trend have you seen any evidence of it but so far.
Well I'll, let Oh, let's turn my chime in as well, we hope, but as far as a I know we have not seen that we think that there's there's two phases that are important there's the phase between reopening and let's say when there's a vaccine.
And then there's the period beyond that and we think that behavior certainly the earlier part of the reopening a phase will will result in less density in certain.
Im sure in uses like fitness centers, and restaurants and things like that but we haven't yet got to the point, where you know tenants are saying, while I used to be in a format of X thousand square feet and now because of this we were going to increase it to you know why thousand square feet harm. If you have anything to I've. Please go ahead.
I think Adam you use you captured what's happening I I've not received any interest from tenants who want more space.
Because of it.
If somebody just follow on like what about the restaurants, that's the sizable component of your of your portfolio No. How do you see those businesses reopening successfully and generating sufficient sales to pay the rents that they've.
Agreed to.
It's interesting because we have some tenants that have Ah you know several locations with us and just in their business and the composition of the sales profiles unfolded very differently. It Oh, it's only reinforce our supervision strategy, but what they told US a lot of them is that.
In the urban centers.
A lot of their sales are down single digits, now, which is I think phenomenal given how the we're operating.
When they get into a the suburbs are secondary locations.
It's like way into the double digits in terms of the sales decline and so look I think.
I do think there's some pent up demand in the food sector in general I think a lot of people have been eating at home a lot.
I think that was nice for a short period of time take a lot of people are beyond that now I think it's one of the reason we have seen a spike in our own restaurant sales over the last three weeks or so and and I think coming out of this you know the great restaurants that are desirable and people want to you that assuming they feel safe.
In however, they consume the food, whether it's on site or not as long as they feel safe I do think that they will come back, but they're going to come back on a gradual basis and it will take some time could we get to same volume I don't see on the initial opening the same number of seats in the restaurant that they had before but the good thing is a lot of them.
This has really accelerated.
Integration of takeout and utilizing the food delivery services to complement their sales profile a lot of them, obviously ignored or we're not doing it at all in some cases about doing it to the same level that they're doing now and I think long term that should bode well for for the sector, but obviously, it's a really challenging time for restaurants.
Great. Thank you very much.
Thank you Sam.
Thank you there no further questions registered at this time.
During the meeting back over to Mr. Paul.
Okay. Thank you very much and thank you everyone for joining us today during this definitely unusual time.
We look forward to updating you on fcr as business over the coming months and in the meantime.
We'd like to thank you again stay safe and be while everyone. Thank you very much.
Thank you. The conference has now ended please disconnect your lines at this time, we thank you for your participation.
This conference is no longer being recorded known as you put modest single family homes that WP.
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Office people.
Please note that this conference call has ended please disconnect your lines at this time. Thank you.
That's because it had been.
Okay.
[noise] <unk> 50, though.
Please note that this conference call has ended please disconnect your lines at this time. Thank you.
Yes.
<unk>.
She was pending.
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