Q1 2020 Earnings Call
See, please go ahead.
Thank you operator. Good morning, and welcome to today's conference call to review the operating results of Consolidated to mokal and Company for the first quarter ended March 31st. My name is John Albright president and CEO of the company on the call with me is Mark Patton our CFO and Dan Smith our general counsel. I'll turn it over to Mark to provide you with a customer disclosure off in our comments on this call today. Thanks, John. Good morning, everyone during our call. Today. We may make certain statements that may be considered to be forward-looking statements under Federal Securities Law companies actual future results May differ significantly from the matters discussed in these forward-looking statements. We may not release for revisions to these forward-looking statements to reflect changes after the statements were made Faith in risk that could cause actual results to differ materially from expectations are disclosed from time to time and greater detail in the company's filings with the SEC and in our earnings release issued last night club.
Also, we filed our first quarter 2020 investor presentation last night, which is now available on our website our presentation provides additional information. You may find useful and that we may reference this call Will. That'll turn it back over to John. Thanks Mark at this time. We'll open it up for questions operator.
We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys off. So, it's draw your question, please press * then two. We will pause for just one moment to assemble our roster.
Our first question today will cover on Craig to Sarah. Please proceed with your question.
Hey, good morning, guys.
Mark can you there was a fairly significant increase in real estate operational expenses this quarter. Can you can you talk about what drove that real estate operational expenses? Well, I think first and foremost, give me a second. The first piece would just be the fact that in adding Crossroads in Perimeter off to you know, large multi-tenant. That's that's one piece of the puzzle. Give me one second if you want if you got another question, I'll just look something up real quick. Yeah, that's fine. That's fine. I just was was curious cuz but that that makes sense side of those new acquisitions. I guess certainly to the to the rent deferrals wage, you know where the categories fairly similar as far as where there was concentrated relative to to what we saw with pine maybe a little heavy on, you know, entertainment etcetera any color there would be helpful.
Yeah, so Craig is John obviously. Yeah, it's it's basically the categories that you would assume restaurants Fitness that sort of thing but we did have some you know, very, you know, fairly large cap companies that you know didn't pay which we expect. We we know we'll get a payment from them one way or the other so, you know, so it is some of the unexpected ones as well.
Got it and just thinking about your liquidity. I know you improved things with the with the disposition of the the CVS here early in the second quarter and I'm looking to to dispose of assets. But but with so little room left on the line of credit. Is there any thought to you know, maybe putting some fixed-rate dead on on some of the properties or do you feel pretty comfortable with with sort of selling some additional assets to to maintain a quiddity improve it? Yeah. So obviously we stacked a bunch of cash on the on the balance sheet and we we have perimeter which as you know, we paid off for unlevered so we could easily go get you know, Thirty forty million dollars at very low leverage there. And so we do have a lots of opportunity within the the balance sheet. Um, and there's there's in as you notice as far as you putting fixed rate debt we did.
Basically proactively swap out the Libor on the on the credit line, which effectively gives us that fixed rate exposure or or mitigates are floating wreckage and at a very favorable rate. So actually we were able to to effectuate a fixed-rate financing at better rates than than certainly the cmbs market cuz you know, Jim Dale's Market is closed right now and life companies are maybe a little bit active, but we certainly were able to to get better rates just through the credit line.
It Craig, but let me come back to if you don't mind. I'm sorry. I thought maybe you said income property. You meant real estate office expense. Yes. Yeah. Yeah. So basically that's a unique item. We we have acquired some mitigation credits from the mitigation bank and in connection with one of the land transactions, we basically conveys some of those credits to the tune of about a million five to the buyer of the land parcel.
And so those were more or less expense than for the quarters at the case. That's right. Yeah, so it was a really kind of a one-time unique thing related to a land deal. So it's not you know, in terms of real estate Ops. We're probably not going to see much by way of expense there on a regular basis.
Okay, that that makes sense cuz we weren't we weren't looking for that level of expense there and then go into the the potential for monetizing the loan portfolio page, you know, just can you give us some color there? I know that that was not really going to be a growth engine of dto. But you know had the generating decent returns. Can you give us kind of some colors while you're thinking about maybe monetizing those today? Sure. Yeah. I mean look there uh High yielding we like them and they're all paying but they're the duration is less than a year on Thursday. And so it's really about you know, being ready for opportunistic Investments where we can we can buy something that you know, very cheap or reputable E versus a couple of months ago. That would be an investment that will have four or five or ten years. So it's really, you know, stacking more Capital being ready for a real real good authors.
Thirties, I'll give you an example. There was a when we were trying to we bought a perimeter.
We were also uh pursuing another transaction of similar size and that deal never sold for obvious reasons and you know, like the institutional holders who really wants to get out. So the price the price is probably going to be reduced, you know, fairly significantly, so you're going to start seeing more and more of that. So it's just really about being ready for wage those opportunities.
I got it. And and when you think about you know, making Acquisitions sort of passed what we're all going through right now. Are you are you thinking maybe pivoting a little more into to office because that has been a little bit more defensive or or kind of car. Were you thinking about from that perspective and asset allocation? Yeah, certainly we will we will definitely have a more open to office than we have in the past not that office isn't going to come out of this unscathed. But certainly, you know having Wells Fargo has a very large tent of ours and Fidelity and you know just on a side note is an is in the press and in uh, New Mexico and Albuquerque that Fidelity is hiring additional people for their facility. And so yeah these you know, the Dynamics property we have in in in Virginia, you know, those type of assets we certainly wage
Will be a lot more open to those assets as uh, as you know retail is going to go through the grinder, um coming up but you're still going to be opportunity on the retail side. So, you know, for instance perhaps, you know, we're we're you know this actually, you know demek so unfortunate as it is is is probably going to turn out to be, you know, a little bit of cycling out some tenants that we wanted out, you know a little earlier than than the plan which is going to actually be better for the property. So, you know, so not all retail is the same I guess.
Right, right. No, absolutely. And and and when you think about the types of assets that you're looking to sell and I think you know that in your presentation that they're going to be sort of low cap rate, you know single-tenant, but are those are those skewed to any type of category or or have you sort of soft circled what you're looking to sell? Yeah it certainly we're we're actively discussing on for instance off of a in Monterey as a ground leave, you know, certainly with interest rates. So low those cap rates are are going to be very creative opportunities for us a call. So there's still some 1031 money out there. So these are perfect 1031 sale candidates to buyers that have need to place their their Capital we have issued no juice and those are perfect examples of very low cap rate, you know ground leases. We have the Chase Bank ground lease in Jacksonville and some other Thursday.
Is that uh, we'll we'll take this opportunity to cycle through that and just be more prepared for for opportunities, you know, Craig.
You probably noticed that the one of the Waze is held for sale as of 331, right? Okay. I think that's it for me. That guy's great. Thanks.
Our next question will come from Craig Gilbert of Lyndon advisors. Please proceed with your question. Thanks for taking my questions. The first one is just on the edge. It doesn't seem like you've paid a lot of taxes in in the past. You just talk about if there any specific benefits that accrue to you from that.
Yeah, so great question. Thanks for thanks for being on the call. There are a few elements of the cares act where we really kind of don't benefit either directly or at all. The payroll taxes and example probably is you know, the nineteen twenty thousand dollar kind of opportunity for us in terms of deferring those taxes. The bigger one frankly is the Carey back of the nols. So to the extent that for whatever reason we have an opportunity in 2020 where we would have a a loss that we could carry back carry that back into 18 or 19 in terms of when we were a taxpayer so that would be an opportunity.
Okay, and and I think you paid a couple of million dollars of taxes and those years total maybe so that kind of the opportunity that's actually a little bit above that. Probably about two and half million. Okay? Okay, and for your multi-tenant properties, do you have any co-tenancy provisions there that you know could result in more percentage of rents versus kind of what you you know, the fixed rents that you have right now. No, we don't not we don't have that problem. Okay, and then the the disclosure about the the the bank line about how you can if if there's no if you don't receive rent they can pull out properties, but you don't think that is triggered by deferral. Can you speak a little bit more to that? Have you been in discussions with the banks over that and is that I guess it doesn't sound like it's something you're concerned with. But you know any more color would be helpful.
Absolutely great question. We we definitely have been in discussions with the lenders to make sure we're on the same page with them. But we think that you know, the intent of that provision is, you know a property that's that's truly kind of in trouble as relates to the tenant. We're a deferral or any other kind of contractual adjustment where it's agreed upon by the two parties basically doesn't create a past due to circumstance and I think that's that's consistent with what we both are are are interested in
Okay, in in in for the for the for the folks that have deferred rents are you seeing request is it is it more for deferrals or is it rent rent relief in general? I guess we've you know, we've we've heard mixed, you know mixed. I I think you know Burlington had a call and I I think they were talking about not just deferrals but also offer, you know outright rent release and I I know that's one of your tenants.
It's it's a majority of it's been been deferrals. I mean, there may be one or two that have you know, ask for free rent. But I mean it is that's a non-starter. There's absolutely no no no reason for that. So so yeah, there could be some that have asked for it. But most of them are realistic ones have been deferrals. Okay. And the last question is just on capital capital allocation. It sounds like you still going to be active trying to pick up properties. But what about share repurchases? Is that still something that you opportunistic Lee? Do you know as you know, we do have a a still a buy back program in place? And it's something that the board will you know does consider each quarter. So it's you know, it's it's something that certainly is on the agenda agenda to discuss.
Okay. Thanks very much very much. Thanks.
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Our next question will come from Matt Warner of Chilton Capital. Please proceed with your question.
Morning guys, just looking at the presentation page seven specifically, I appreciate the update on the guidance on recurring cash and then Hawaii, but I was wondering what was specifically was driving the lower cash outflow guidance. Number one and number two given the public disclosures on rent collection. I'm guessing that in Hawaii number is a gap number, you know it gets what can we expect from a cash in a line number?
Well, I think from from the cash cash outflow side of things probably, you know to a degree it's going to be some some interest thought I'd say that actually when you look at it, other than that, maybe the income taxes, but that generally it's been pretty in line with it lines up with where we thought we would be in terms of just keeping that relatively flat, you know, fixing the rate at $73 bucks on our half of our credit facility is certainly helpful in that off dropping the convert interest into 3.875 vs 4 and 1/2 is really helpful in that regard buying back 5 million dollars worth of that convert is helpful in that regard. So that's that's some of the some of the pieces and parts, um, and and and a why I mean, we really try to drive this off a cash flow.
So I met on you know, why side either that's that's that's basically the appropriate.
Okay, that's helpful. I mean and I guess how and when are you going to provide updates to what that actual cash ends up being is this may be a just a a quarterly deal or you know, when do some of these deferrals that potentially turn into rent relief start to flow through to that number. Yeah. I think I think you know, basically we're in negotiations with you know, these tenants, you know, almost every day and so just so you let you know. I mean if we agree to a deferral, you know, there's really something we're getting out of it for instance, you know, whether we're really spreading that rent over the back half of the year or we spreading it over 20, 20 20 21. We're getting some sort of carried charge some sort of interest rate on that. So we're making a big if you will or we're basically getting a lease extension birth.
It could be and our end or at least extension and the lease extension obviously, as you know, npv value to to the portfolio so long as as we get kind of closer to wrapping this up. It's probably more of a, you know, next quarter kind of update. But if if it obviously if we we need to we would either of you know, kind of an update before the quarter but that's kind of where where the posture is right now.
Okay, and then just thinking is more of a a general question for all the retailers. I mean if it is a deferral that has to be paid back in the next year or so and these guys are starting to reopen at varying times over the next few months. I guess. What do you think gives them the confidence confidence that not only can they pay their current rent at the time but also have the extra cash flow to be able to pay, you know back rent plus some sort of big on it. Yeah, I mean, well, you know a lot of our tenants are you know, let's take on the on the restaurant side or something, you know, you know Outback, you know Chuy's I mean these are these are corporations that have liquidity and so, you know, I don't I don't really like for instance, you know Landshark, you know that, you know, I talked to
The Margaritaville folks yesterday and and they they basically did more business on take out this last weekend than they do when the whole restaurant is open Thursday. So, you know, we're pretty confident that you know that you know, basically people are going to be able to pay in in get back right now. Look there's going to be some that are that are losing jobs are going to perhaps reopen but they're all very much, you know, something you can deal with is not a it's not a huge rent payer in in a a good locations where other people would want to take it. It's really it would be something where the concept is older older and dated. I mean one example would be Macaroni Grill. I mean they're off after we bought that way so many Brokers calling us because their clients wanted that location if they don't make it in the we're fairly confident that somebody else is going to take that location dead.
so there is so it's all very, you know, case-by-case but you know, there are
very manageable and um in and can be dealt with
Okay, that's helpful. And I appreciate the the slides in the presentation as usual. I was just you know thinking about liquidity of the company and and you guys give him guidance on your on your debt targets is the percent of total Enterprise Value, which is obviously above.
The target, you know probably could argue that should be temporary given to pull back and the stock price but you know thinking about liquidity and going after Acquisitions. How much is that factoring ask you your desire to go and grow the company despite having higher than yeah. We're not going to we're not going to grow by leveraging up and we never really have I have done a lot of that and so it would really be driven by recycling proceeds. Whether it's selling some loans or loans payoff or we're selling some of these 1031 assets that would need to be replaced. So it's not it's not an opportunity set where we think we ought to lever up to to take advantage of opportunities. So so the leverage will come down. We hope it will come down from the stock price close to even Book value. But you know, we we won't count on that. So we'll we'll, you know, just be mindful of the of the leverage component.
Okay, great. That's all I had.
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This concludes our question-and-answer session. The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect.
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