Q1 2020 Earnings Call
Good morning, and thank you for Dirty Whitestones, reaching their first quarter 2020 earnings conference call.
Entities call arching, the Sandra right, our chairman and Chief Executive Officer, and Dave home in our Chief Financial Officer, Oh, No hand over the call to Kevin read. Please go ahead.
Thank you <unk>. Good morning. Thank you for joining lights are each first quarter 2020 earnings conference call. Joining me at today's color, Jim staging a cheap hi, Chairman and Chief Executive Officer, and Dave home that Chief Financial Officer.
Please note that some statements made during this call a knock historical and maybe Dean forward looking statements actual results may differ material from those forward looking statements due to a number of risks uncertainties and other factors.
Please refer to the company's earnings press release and filings with the S. he'd see including White stones at most recent form 10, Q. inform 10 k. for detailed discussion of each factors.
Acknowledging the fact that this call maybe what cats for a period of time. It is also important to note that this call includes time sensitive information that may be accurate only as of today's date may 8th 2020, the company had to take no obligation to update the information.
Since first quarter earnings press release, and supplemental operating in financial data package, having five the S.P.C. and are available on our website W.W.W. Dot Whitestone week Dotcom any investor Relations section. During this presentation, we may record certain non gap financial measures, which we believe allow investors to better understand.
In financial position in performance of the company.
<unk> supplemental data package or the reconciliations of non get measures to get financial measures with that let me pass picault digit understand you.
Thank you all during that's on our first.
What do you miserable.
I will put butter overview on whitestone, our business as it relates to covert 19 in the first quarter.
Yeah.
Financial update on how we did during the first quarter 2021 could be equal employment every look at 820 20.
Then we will open it for questions.
Yep.
<unk>.
The health concerns and again.
Work with anyone have good economics.
Stretched across the United States impacting the five with our business and postings U.S. Congress.
Well why supposed to be built during the recession in 2008.
And in many other lessons we learned during that time, we wobble incorporate into the fiber of the company.
Well these are extraordinarily kind to continue to evolve our focus.
Barely on the health and wellness of our employees are tenants and communities.
The Powerpoint bakes is sacred focused.
In our 10 minutes or tenants.
Back to operate in their businesses full time.
Our portfolio Bydesign has well located community centers.
Fixes in Arizona.
<unk>.
The real estate, Jason too high in communities with parents to provide necessities then essential.
Since Mark all of our standards have remained open today, many tends to a limited between 70 and acted during the 10 dynamic.
Art community centers are yet to be operated get normal capacity.
Executive team employees have continued to work at full strength.
Recently, both Texas in Arizona have begun phase the opening for business.
Will provide more call on these openings.
<unk>, we collected approximately 64% of our rent for the month of April.
40%.
For me that's far.
All of our centers are anchored by neighborhood of high quality incomes and many of our senators have grocery stores and pharmacies that continues to stimulate traffic.
Most of our center to have restaurants, and some have divided takeout curbside service during the pandemic.
Well in my career of over 40 years in real estate industry I have experienced multiple down cycles and why don't I learned from the past we've incorporated into whitestone over the last 14 years as we have grown.
We built a culture of politics, good processes that enabled us to grow with safeguards to react quickly and decisively.
Within the structure of White stone the policy could processes were we created it became a de facto firewall that would prove to be somewhat beneficial in resilient to operations when we face the condemning.
Whitestone was built by acquiring properties that were located in business friendly states fast growing and heavily populated cities.
Like creating an internet resistant business model that focuses on services and beads, what the consumer.
Like structuring leave his with tenet older. We course at minimal Cotenancy and candid approval rights.
Like reading a diverse tenet.
Mix.
By providing annual rent increases or 2% to 3%, while passing through triple mats.
And I'm, making a commitment to train and the golf or people.
First two and a half months of 2020 Whitestone was off to a solid start highlighted by an increase in E.D.R. purely square foot of 1.1% and continued strong with leafing spread of 7.2% and 10.4% on new and redo all easily assigned did 2020.
However, it mark it became clear to us.
Our business was going to be disruptive and on March 24th.
It's an immediate plan.
Spend all acquisitions postpone all read development and development projects.
Down $30 million under our revolving line of credit.
Reduce our dividend freeze all current employees salaries and board.
Creases reduce our overhead by 10%.
Minimize all unnecessary expenses in cost including travel.
Me Swift action strengthened our balance sheet or liquidity in our financial flexibility.
These are unpredictable times with regard to how long portions of the country will be closed off indoor business viewed it.
Are concentration of high quality properties in high growth markets are showing strong.
Signs of early recovery.
However, what we don't know is how long the recovery will take.
What we do know is that we are navigating an unfamiliar path towards recovery too uncertain times.
We also know that we'd have a strong balance sheet and liquidity.
We are focused on revenue collections, we know our 10 minutes, we know our markets we know the consumer.
No our properties no our business ball and we know our people.
Let me turn it over a day Colin Dave.
Thanks, Jim.
Let me first speak to our current markets in operations and then I will discuss our financial results in position.
In our in Texas markets, which make up about 60% of our revenue.
State has begun steps to open up the economy.
He at home orders are no longer in place.
Retailers and movie theaters are allowed to be open up to 25 per cent of capacity. So long as they followed social distancing guidelines.
Restaurants can open.
Dining services.
25% of the listed occupancy of the restaurant.
As early as May 18th, we expect retail and restaurants she'd be allowed to expand their occupancy 50 per cent.
It is not clear wouldn't it capacity may exceed 50 per cent to bounce the orange spacing requirements will be further east.
Hair salons Barber shops nail salons are open on may 8th with social distancing guidelines.
That centres, Jim can reopen on may 18th.
Customers will be required to wear gloves and maintain six feet of distance into the ability.
Buildings are open but must maintain social distancing.
In our Arizona markets, which make up about 40% of our revenue.
Has also begun steps open up the economy.
They fly to stay at home orders are in effect until may 15th However, some restriction have been lifted.
On may 8th.
Retail businesses may resume in person operations as long as sanitation measures and safety guidelines are followed it <unk>.
Cosmetologist and Barber shops can resume appointment based services also.
Starting may 11th in areas in Arizona restaurants in coffee shops can resume dining services with physical distance measures.
There is no timeline, yet in Arizona regarding Jim and movie theaters or when spacing spacing requirements will be further east for retail in restaurants.
A day and throughout this crisis all of our centres have remained open and operating and we expect them to come to greater life in may.
In each of our center.
We have implemented protective measures which include enhance cleaning procedures.
Our grocery tenants are experiencing record sales volumes and we are encouraged by the efforts of many of our restaurants in its provided needing providing needed food. It did surrounding neighborhoods for creative takeout income side solutions, which could become future additional revenue sources.
For them.
Our monthly operating expenses.
Looting property operating expenses taxes general and administrative expenses, Yes service and cap X. run about 69 per cent of our revenue.
So our April shortfall of collections operating expenses is about $800000 I will touch further on our liquidity later in my remarks.
Approximately 40% of our tenets have requested help and we have been actively working to understand their individual financial and operating situations and assist them in accessing financial resources, including the governmental assistant assistance program that are available.
We believe that a large amount of our candidates have applied for these programs and will ultimately receive funds, which will help them to pay salaries rent and other obligations.
We are working with those tenets, who have requested help on a case by case basis.
Expect that these discussions will lead to agreed upon payment deferral plans largely completed in the second quarter as we have a better understanding of the tenets financial resources and the amount of financial laid bare receiving.
And their ability to get back up and running quickly.
We expect the deep payment Perl agreements will generally result in short term payment plans for unpaid rent not payment forgiveness.
While most of our tenets that have not paid us have been significantly impacted by the <unk> 19 crisis, we do have less impacted tenets with significant financial resources.
I believe are acting in an opportunistic manner and we intend to aggressively pursue the amounts to do us under our contractual agreements in these situations.
Generally speaking.
That's of working with tenets on rent deferrals, it's very fluid and difficult to to fully predicted this point.
We can not yet no what may and June could bring in terms of collected rant and associated additional rent deferrals.
Additionally, we do expect that some businesses will not reopen and this could impact our near term results and cash flows.
Jim said, we remain confident in our long term prospects did a great properties, great markets and strong team.
Now, let me turn to our operating results for the quarter.
Our results for the quarter were largely in line with our expectations through mid March prior to cope with 19.
As a result of the <unk> 19 impact on our Kennett base, we stress testing collectability of our impacted tenets.
As a result of <unk> review, we have recorded a 900000 dollar credit loss and straight line rent reserve primarily associated with the cope with 19 pandemic.
Collectibility will be a fluid process over the next court several quarters, and we'll be adjusted as facts and circumstances change.
October 19 revenue reduction in the first quarter impacted net income funds from operations and funds from operations core by approximately two cents per share any impact in our same store net operating income growth by approximately 180.
Basis points.
A short summary of the key highlights for the quarter included occupancy of 89.3%.
An increase in our Annualised base rent or lease square foot 1.1%.
From $19 and 58 since the 1977.
Leaping volume of 56 renewals of 168000 square feet.
Total lease value of 15.9 million and 24 new leases.
<unk> 53000 square feet with a value of 6 million, a total lease value of $6 million.
Are leasing spread.
Trailing 12 months ended with Q1 2020.
Increased 7.2%.
<unk> and 10.4% for renewal leases.
Our same store net operating income decreased 0.9% for the first quarter, primarily as a result of the credit Las reserve of approximately 180 basis points associated with the Kobe 19 pandemic.
General and administrative expenses improve as a percentage of revenue to 15.6% in the first quarter and improvement from 18.3% a year ago and any improvement from 15.9% into fourth quarter of 2019.
Oh now turning to liquidity.
Over the past 60 days since the pandemic, yet we have been carefully analyzing the company potential liquidity need in terms of this year as well as 2021.
Taking into account numerous factors, including debt maturities.
Potential revenues versus expenses.
Terms of debt maturities, we have one 9 million dollar mortgage loan matures in 2020 and no maturity in 2021.
In terms of potential revenues versus expenses, we need to collect approximately 69% of our rents the cover our operating expenses.
Service G.N.A. and cap X.
In April we have collected 64% so far.
May we have collected 40%, which is about the same amount we had collected in April at this point in time. So at this point or make collections are running largely in line with the percentage we saw in April.
Taking all of these factors into consideration we took the decisive steps Jim discussed, including drawing 30 million on our credit facility.
Reducing our annual dividend by approximately 31 million.
Lastly, enlighten of the current circumstances, we have withdrawn previous takes stated guidance for 2020.
We hope to have greater clarity on to cope with 19 impact on a short term and long term basis as we move throughout the year.
With that we will now take your questions.
Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad.
Thing is speaker phone. Please make sure your mute function is turned off colors in the future equipment again for star one to ask the question plus for just a moment.
Mm.
Alright, well not take our first question from Craig's Sarah I.P. right <unk> STR. Please go ahead.
Okay. Good morning, guys. Appreciate the color on how you managing that the cash rank collection, but I had a a few follow up questions I I guess as you're working with 10 minutes that are that are having trouble engaged.
At least have requested to <unk> are you asking for any better terms and beliefs. As you think about them, whether that's a lot longer term or maybe increased escalators or just any color that would be helpful.
Sure.
Thanks, Craig Yeah. These are all very fluid discussions and one of the things. We will look for is if there are.
These terms that we feel like need to be improved those will also be part of the discussions Jim mentioned, we really have very few cotenancy and restrictions in our leases, but if we do have some of those that.
Getting pretty we would love to do that throughout the process. We you know we intend to work with these 10, it's many of them have been significantly impacted and so we're looking for a win win for both attended and for whites down.
A great.
We have we have a great tennis base and we very specifically, we'll go out and as we buy a property we'd look at the socio graphics around mean that property from three to five miles. So we understand how to slice and dice are tenets in terms of what the needs are and so it wouldn't be picked.
He picked dependency also mix them very well into the centers.
As I said my remarks, with all of our leases had the 2% to 3%. That's later in it.
Manual basis.
And that that has.
Very sounds.
<unk>, yes for personal guarantees on every decently side.
You do they signed the lease personally are we going to guarantee on it.
These are that is.
They don't believe in their business.
And so on the smaller attendance because we got over a thousand at this time I think they're good very good to work with.
God, It and actually going through this process are you are you trying to destruction sets. It you get paid back the rent that's that's potentially deferred.
By your rent 2020 or or counted.
Getting 2020 water sort of how are those discussions moving along.
Yeah.
Good question as I said it is that it is a fluid process, Craig and we're an important part of the process is truly understanding the tenets divisions their ability to get back open and operate we are generally looking at short term payment verbal plans, but those will evolve as we.
No have further discussions but in general we are looking at at playing payment plans repayment plans that are short term in nature.
Yeah, I'll tell much Greg or wants to know worse and they're very nature is to get back to business and and get their business going again. So so that's really really important to emphasize in our business model would you have those kinds of tentative. They are working just as hard as we are to get them back in service. So there will be.
Some that they not make it through the crisis, we we estimate right now that's fewer than 10.
May not and these are that'd be a restaurant here restaurant, there, but other than that we think the tennis pace look pretty pretty sound.
God It soaks up based on that comics your eye.
Sort of assumed that the credit losses straight like reserve.
More tied to restaurants or or there's certain categories that that was more.
It's fun.
Sure as as I said, we we we get stress test the collectibility of our tenets given the impact and we identified about 40 tenets that we took an additional credit loss reserve as well as wrote off the street lying rent the nature of those tenets was you know.
A large amount were restaurants somewhere entertainment.
But but you know it was it was a a group of roughly 40 tenets that will continue to the changes. We go through this I think just to clarify one thing Jim indicated that we had 10 tenets that we know us today that are are probably not going to reopen that that number obviously mate.
May change as we go through the becoming quarters.
The additional reserve with taking through really taking your really hard luck and all of our candidates.
Understanding what we know and then looking at the the probability of them being able to to meet their long term.
Obligation and with that we were we did reserve.
We did book about an additional $400000.
In a bad debt reserve and about a 500000 dollar straight line ramp right off.
Okay, great. Thank you <unk>.
Any of those tenets may ultimately pay we just at this point in time, we determined that the probability wasn't what it needed to be so they will be you know obviously as they pay that will be recorded as revenue.
Alright, and once again that as star one if you'd like to ask a question full pause for just a moment and what's going that as star one on your telephone keypad.
[laughter].
Service to be no further questions I'll turn it back to the speakers for any additional closing remarks.
Okay, well, thank you for doing it today.
Closing I'd, just like to emphasize that.
We have a positive outlook on a long term bases and we're encouraged by what we're seeing in the short term. Although we're encouraged cautious manner. We do look at our cash position every day, we do have ongoing.
Discussions with the tenets every day until we are working very closely with.
With her operating tied to the business.
I would recognize these are extraordinary times and they're just going to continue to evolve rapidly you know, but while in the near term future. It's it's really difficult to predict.
But we do believe that it will come to pass and better times. Your head you know I've been through a number of these down cycles. The company was built.
Yeah during a down cycle and it has to be it has the ability to withstand this I think that are are quickly adjusting in March I think maybe that were evident to us at least.
Whitestone. During this time, we are really focused on the near term. We know that this is going to carry a sport meeting all as long term goals.
Our platform is strong.
Our business model is proven.
We remain.
<unk> on our focus.
Capital preservation.
Our team is really passionate and committed I work with them everyday and threw out too since our period, we could at least the senior team in here every day could successfully navigate.
Crisis, and being position to execute on future opportunities. That's what we're really looking for we think we're position to really you one of the company didn't capture these few few opportunities when this market starts burping some of these up.
We look forward moving ahead, and we tend to stay tuned to our values in our character.
Did you plan and I work.
And we do this with unwavering standards through this pen and a bank and just as we close it's just like you all to know that it's God's hand is on our shoulders. As we are focused we remain on serving our shareholders in serving him and meeting on long term goals. Thank you all.
It's not <unk> today's call. Thank you for your participation you may know disconnect.
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