Q1 2020 Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to the National retail properties first quarter 2020 operating results conference call. All lines have been placed on to listen only mode and before we open for your questions and comments following the presentation.
At this time and it's my pleasure to turn the floor over to your host Mr., Jay Whitehurst, President and CEO, Sir the floor is yours.
Thanks, Jeff Good morning, and welcome to the National retail properties first quarter 2020 earnings call. Joining me on this call is our Chief Financial Officer, Kevin Hovick.
For some opening remarks, I'll turn the call over to Kevin for more details on our results.
First let me say that our Hearts go out to all the families affected by the Cobot 19, Corona virus and the related economic dislocation across the country. We also want to offer our profound thanks to the medical professionals and first responders, we're putting themselves in harm's way every day in order to keep the rest of the safe and healthy.
With that so bring perspective in mind today's first quarter earnings release reflected another steady consistent quarter for national retail properties with high occupancy continued transaction activity and a very well timed to issuance of 10 year in 30 year debt that raised $700 million.
All of that steady execution occurred largely prior to the unprecedented spread of the corona virus across the United States and the related global financial market instability that exploded in March.
Based on the current uncertainty about the depth and duration of the economic turmoil that almost all companies are enduring at the moment, we have withdrawn our guidance for 2020 results.
We hope to be able to provide updated guidance later in the year, but for now there's simply too much uncertainty to project held 2020 will play out.
Before discussing our quarterly performance, let me highlight some of the attributes of our long term strategy that position national retail properties to whether the current disruption.
First our balance sheet remains in excellent shape.
We ended the first quarter with $217 million cash on hand, and as zero balance drawn on our 900 million dollar line of credit.
Our next debt maturity is not until 2023.
And we've taken a pause in our acquisitions in order to Marshall our cash in this uncertain moment.
Second our portfolio consist primarily of large well capitalized tenants our largest tenants operate over 1000 units each on average and are typically the leaders in their respective lines of trade. These are large regional and national companies that are generally better positioned than smaller operators to with.
Stand a major disruption in their business such as occurring at the moment.
Third our well located real estate parcels remain integral to our tenants business six cents. Once this disruption has passed.
As we've often said national retail properties is at its heart of real estate company. Our properties were highly occupied before all this started and we're confident that those saying well located properties will continue to be in high demand. After all this passes.
And lastly, we've been here before.
Our entire management team was with the company during the great recession in 2008, and most of US have been through a number of other major downturns in the past.
We're a seasoned real estate company with in house expertise to handle all the issues that might arise.
Turning now to our first quarter 2020 results our portfolio of 3125 single tenant retail properties ended the quarter with an occupancy rate of 98.8%, which is consistent with our long term average occupancy.
We do expect our occupancy rate to fall in the second quarter, but we're working with many of our tenants to structure rent deferral programs that we hope will enable them to get through this period of business interruption and get their businesses back in full operation.
We acquired 21, new properties in the first quarter investing slightly over $67 million at an initial cash cap rate of 6.9%.
As usual about two thirds of our investments were with our relationship tenants with whom we do recurring off market business.
Our acquisition volume was muted compared to prior quarters.
We elected to postpone or cancel some acquisitions scheduled for late in the quarter as we saw the economic downturn beginning to grow.
We also sold 14 properties during the quarter generating proceeds of just over $36 million at a cash cap rate of 4.7%.
Once again, our ability to raise capital for accretive recycling highlights of strategic advantage of national retail properties over many other Reits.
Due to the sudden impact of the cobot 19 pandemic on retail businesses and the economy beginning in mid March we are reporting today that we received approximately 52% of our rents due for the month of April.
We also entered into rent deferral agreements or are currently negotiating such agreements with tenants representing approximately 37% of our annualized base rent.
While we are dealing with deferrals on an individual case by case basis.
Generally our rent deferral discussions in fall deferring one to three months of second quarter base rent.
The deferred rent to be repaid commencing in late 2020 through late 2021.
Generally the tenants remain responsible for paying the triple net charges on a current basis.
We are not discussing or agreeing to rent forgiveness with tenants.
Nor are we advancing funds to tenants to be repaid as rent.
As to the balance of the tenants, which did not pay or agree to deferral arrangements, we are pursuing our legal remedies.
Many of those cases involve tenants that we felt could pay some or all of their April rent, but have so far chosen not to do so.
Or tenants that insisted on some immediate rent forgiveness, which as I said was not the way we wanted to approach this fast moving and fluid situation.
We remain in dialogue with many of these tenants and are hopeful about our ability to reach some agreement for payment with many of these tenants over time.
Consistent with our long term practice of reporting results only quarterly we do not anticipate reporting monthly rent collections for may or June in advance of our second quarter earnings release.
Lastly, before turning the call over to Kevin I want to remind you all that we declared our regular quarterly common stock dividend in April.
Our board will continue to review our dividend policy as we work through the current economic turmoil and by no means is our dividend untouchable.
We do believe however that our impressive streak of continue consistently increasing the dividend for 30 consecutive years is a powerful indicator of the value of our consistent conservative balance sheet philosophy and business model.
So with the first quarter behind US you see national retail properties conserving its capital working with its tenants to address the reality of their current businesses disruption and planning ahead for the new normal.
Let me now turn the call over to Kevin for more details on the first quarter, our strong liquidity position and our thoughts around the balance of 2020.
Thank you Jay and as usual I'll start with my usual customary.
Statement that.
We may make certain statements that may be considered to be forward looking statements under federal securities laws. The company's actual future results may differ significantly from the matters discussed in these forward looking statements and we may not release revisions to the these forward looking statements to reflect changes after the statements remain.
Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in this mornings press release.
With that headlines from this mornings press release report quarterly core FFO results of 70 cents per share for the first quarter of 2020 units, 4.5% higher and prior year results and is consistent with our projections guidance.
Just a couple of comments about the first quarter, which I'm guessing fewer focused on at this point, but our AFFO dividend payout ratio for the quarter was 72.4% and that was consistent with full year 2019 levels occupancy was 98.8% at quarter end.
DNA expense was 5.8% of revenues for the first quarter in us flat with prior fourth quarter.
And we ended the quarter was $677.5 million of annual base rent in place for all leases as of March 31, 20 Twond.
As Jay mentioned on February 18th we issued $700 million of unsecured debt.
400 million with a 10 year maturity in a 2.5% coupon plus 300 million with a 30 year maturity and a 3.1% coupon.
We used about half of those proceeds to redeem our $325 million of 3.8% 2022 notes due in March we pay those off in March they weren't due to 2022.
I will note that first quarter interest expense includes $2.3 million of accelerated no discount and node cost amortization as a result of that early 22.
Note redemption absent this incremental noncash expenses would have allowed us to report 71 cents of core FFO per share representing 6% growth over prior year results.
But more importantly, though this transaction enhance our liquidity just as the flu pandemic was beginning to unfold in the United States and push downturn next debt maturity to 2023.
We ended the quarter with $217 million of cash on the balance sheet and we have no amounts outstanding on our 900 million dollar Bank line.
These transactions pushed our weighted average debt maturity to 11.2 years with a weighted average interest rate of 3.7%.
So were in our good liquidity position with very few capital obligations. During the next three years.
Leverage metrics remained very strong debt to gross book assets was 35.3% that was flat with year end net debt to EBITDA was 4.9 times at March 31 interest coverage was 4.6 times and fixed charge coverage was 4.1 times.
For the first quarter.
If you excluded the.
$2.3 million of no discount a node cost amortization in those two metrics would have been 5.0 times and 4.3 times, respectively for interest coverage and fixed charge.
Only five of our 3125 properties are encumbered by mortgages totaling $12 million.
Jay mentioned, we also announced this morning, we are withdrawing our 2020 earnings guidance in light of the uncertainty produced by the virus pandemic.
And the mandated store closures and associated economic and capital market turmoil.
So we get a better read on the duration of the shut down the shape of the recovery what the new normal might look like we're not.
Well to reasonably predict how things will play out.
While we are dealing with these deferrals on an individual tenant base is generally as Jay mentioned they involve one to three months of rent deferral with that deferred rent to be repaid over a period of months from late 2020 delay 21.
So we will be continuing to work with a number of our tenants to find a path forward for them to pay the rent owed to us.
Our approach has been to work with the tenants and allow.
Deferrals to help them get to the other side of the shutdown and then get repaid in the not too distant future.
So much depends on the duration of the shutdown and the shape of the subs subsequent recovery.
This level of uncertainty does not make it clear if we may have done too much or too little with our rent deferrals, but we're hoping we struck struck a reasonable balance.
As we work through what undoubtedly will be a difficult 2020 for the global economy. We continue to work to give and an end the best opportunity to succeed in the coming years and just with that we will open up to any questions.
Thank you ladies and gentlemen, if you do you have a question or comment.
Star one on your telephone keypad star one for any questions or comments today.
First to call in May.
Imaging.
Hey, good morning, guys.
Hey.
First question for me just you highlighted the dividend track record, but also acknowledged it wasn't on possible can you elaborate on how you plan to balance your dividend track record and potentially increasing elaborate on the margin for a few quarters versus aligning devin with cash flow generation and given quarter.
Yes, I guess.
The way I'd respond to that is our dividend policy is not set on the basis of one or two quarters, but rather on what we think is reasonably reasonably sustainable over the longer term. So one of the reasons you want to have a 72% payout ratio like we did going into this pandemic is to provide some cushion and ability to support the dividend as we go.
Through challenging periods like 2008, nine and like we're going through today.
So we were comfortable declaring our regular quarterly dividend a couple of weeks ago, and we'll evaluate things as we go.
Well clearly as Jay mentioned, we have a degree of pride in our 30 year consecutive years of increasing the dividend is obviously not sacrosanct.
The challenge with the current downturn is that it's driven by a healthcare that's more difficult to handicap, how it'll play out, but hopefully we're going to gain from visibility in the coming months as to the timing and shape of that recovery and that will help inform our thoughts about the appropriate dividend policy in the coming quarters, but I guess there.
Area, where started we were not going on.
Decide our dividend policy based on one or two quarters of results.
And just to highlight again call on where we are in a very very strong liquidity position that helps make that decision a lot easier recently.
Got it.
Well color there.
Yes, I recognize you aren't going to provide monthly update but just any additional color you could provide on collapse in burn will pay debt collection. Your may relative to all based on what you've received or heard from tenants and other many can't that may be paid in April that have indicated they don't plan to pay and bank.
Well Collin, there's no real color I can give you on on May.
I think it's.
If you think about as though to the extent you've agreed to.
Rent deferrals in April and May then.
You would expect that that.
Sure good may ramp will be deferred.
You know one thing to follow up on your question, though just to talk for a moment about our approach to all of this I think I mentioned it a little bit in my comments sneak and Kevin mentioned, a little bit ahead.
Just taking a very long term view toward our tenant relationships. These are our customers and.
In many many cases, they've been our customers for a long time, and so we want to be from but fair with our long term customers, but we're not looking to punch anybody in the nose in the middle of this unexpected unforeseen a disruption so we're taking a very collapse.
Veritiv approach to working with our our tenants through all this.
Jay just to that point that you've negotiated apparel.
You agreed to or have you tend to agree to any sort of additional being in exchange for you grant the deferral or is it simply just switching off the payment for now.
Generally Collin what we wanted to do it at this moment, while things are moving so fast is to just deal simply with short term Rand deferrals that as Kevin talked about get paid back relatively soon and relatively fast.
And so we did not look at this.
This initial.
Situation as as something that we wanted to again try to it.
Push push more onto our tenants, we just wanted to work with them at the moment and deal with these short term deferrals.
Thank you may thanks.
Thanks Bye.
Well go next to Christy Mcelroy at Citigroup.
Hi, good morning, Thanks, guys.
It looks like straight line rents were lower than the normal pace in the first quarter did you write off any straight line rents receivable associated with converting any leases the cash basis accounting.
Just in the context of the current environmental among trend toward non payment of ramp how do you think about the potential for needing to convert.
Cash basis converting more.
Yes.
Yes, no there wasn't any notable write off of accrued rent in the in the.
First quarter.
Mostly to the given we have.
Meaningful amount of deferrals and process for second quarter straight line rents on lease we will be.
Materially higher going forward.
And sorry, what was the last part of that question well I guess is how you how you're thinking about the potential for meetings.
Illegal tasks. So as we think about this second quarter and.
You had 40% nonpayment of Ryan.
You know how are you thinking about.
Well for on Collectability.
Right, Yes, yes.
Yes to your point yet at the moment, we don't think.
That that will become a material amount but.
That's something we're just going to add to evaluate as we go along the collectability of these deferred amounts and if in fact, we get to a point where as you know if it's not.
Probable then we may need to go to a cash basis.
Kind of recognition, but right now.
We are presuming that the vast majority of these deferrals will get accrued and unpaid in accordance with a deferral plan.
Okay, and then just of the of the 40% it Didnt pay rent on April do you have a sense for how many also did not pay their operating expenses like utilities and property taxes, so for us and trying to think about the potential cash burn.
As rents are not paid and from our deferred.
How do we underwrite the operating expenses that you may have to cover that has not historically run through your PML and how are you tracking that non payment of expenses.
Yes, no we the.
Vast majority of those are still paying for the expenses generally and our deferral agreements.
We are requiring that those expenses get paid.
We're looking to only differ base rent.
And just one metric that we use internally.
For for thinking about that.
And Thats only if word.
Tenants not paying rent we tend to assume that the property level expenses are going to equate to about 15% of the rent. So lets say rent was $1 million year, there's probably $150000 of property expenses that might go along with that so thats one way to estimate.
If and when that ever comes into play that's the way, we we internally budget or project that.
Okay. That's helpful. And then just lastly follow up on Collyns question, you know understanding that.
You're taking a balanced approach to the deferral.
Negotiations and recognizing you're taking a long term view, you've got kind of relationships and you need to be collaborative. It can you can you kind of breakout that 40% I know you've had 37% of your ranch requesting deferrals, but also as you pointed out a lot of these are national tenants.
Hey ramp right. So how would you break out that 40, 40% between what you're actually.
Having negotiations on deferrals person so is that you're playing more harder ball right in terms of ultimately wanting to collect does run from you talked about pursue all legal remedies.
Yes, Chris the I guess the way to to we Havent quantified the the answer to your question, but I think that if you look at the tenants, where we that that didnt pay and we don't have deferral arrangements with I feel like that.
Anecdotally I think the vast majority of that our tenants that we think could pay and.
And have so far felt like.
They were they weren't willing to and and so we're taking the steps we need to take but we're still in dialogue with those folks and.
And.
Optimistic may be too too.
Did you go too strong of a word at the moment, but certainly hopeful probably optimistic that a lot of that will get.
Turn into a payment at some point.
Well go next to have Vikram Malhotra at Morgan Stanley.
Thanks, taking my question.
Obviously wage rate challenging time for everyone.
Maybe just to.
Hi, expand or maybe a comment but I know you mentioned.
You won't be providing may or June, but sort of in this environment.
Given kind of historical stability.
The triple net model and discipline that neither be I'd. Just encourage you will be acuity good to get updates on me in June either way. So to the extent you can give any color that would be has over over the next few months.
Just on the.
On on deferrals, you've talked about having said that push them a couple of months, but I'm just wondering on the tenants that have not been paid and youre discussing would you be still willing to provide deferrals in exchange for seed term or something else given that if they have not beat it doesn't seem like there was some become around in the near term NP.
Vikram each each discussion with each tenant is on a case by case basis and so.
Yes, we would we may well enter into those kind of discussions about other.
Other approaches to two dealing with this and getting the there tend the rent restarted and the tenant back in in occupancy if the tenants choosing not to pay and we don't have a deferral agreement.
We do intend to to exercise our rights, but for the moment, we are keeping it simple with our tenants and recognizing that this is this is a challenging time for everyone. As you said and just trying to work with them on on simple deferral range.
Fronts.
Okay Fair enough and then.
Just on any does and then instead may have announced bankruptcy or some sort of restructuring I know what Chuck E. cheese.
As an article out that they may be in some sort of restructuring.
You did call. It a few tenants last quarter in any updates on doors and clustered ONTAP teaching specifically.
No nothing beyond kind of whats in the news there.
Okay Fair enough and then just last one on the.
The dividend.
Just I want to make sure I heard correctly. Obviously it is it is a key focus you have the track record it may not be sacrosanct, but given when you say liquidity position.
Is it fair to assume that if there is a shortfall over the near term lets say second and third quarter, you would be willing to.
Hypothetically lever up or use other proceed to.
Kind of keep the dividend intact as long as you. This is a one to two quarter issue.
Yes, I think as Kevin mentioned, we are dividend philosophy is is a multi year.
Gross and so no one month or one quarter or so.
We positioned ourselves so that the.
By month or quarter.
Situation doesn't affect that long term approach.
And I think what we're hoping in I think everybody hopes is that in a matter of month.
Hopefully not too many we'll all have greater visibility on how things are going to shake out and then once you.
Have a better sense for that than we have a better ability to inform our decision about the sustainable dividend over a long period of time.
But in the meantime for the next quarter or two we're very comfortable.
With our dividend.
Great and probably last one if I if I mean.
Just on on some color on the tenant requesting.
Well the sites that then.
Speaking I think that 18% of your tenants are to investment grade.
And that has that group actually paid rent.
Yes, we have very high success rate on getting paid by our investment grade tenants.
Yes.
Great. Thank you.
Well go next to Brian Hawthorne with RBC capital.
Hi, just one question for me all the tenants that are paying rent are they are they pang full month run or that any of them paying partial ramp.
Almost all our painful yep.
Okay. Thank you guys.
Well go next to Rob Stevenson at Janney.
Hi, Good morning, guys on the 11% non collections and non deferrals I mean, obviously AMC is a well publicized non payer, but can you talk about what.
Lines of trade that 11% is primarily aggregated in.
Rob.
These are different tenants that kind of.
Span through a lot of the.
The lines of trade that that you might expect would be more troubled when you looked at our.
At our our list.
Of lines that are in the portfolio, but theres no.
Other other than being in industries, where their business is pretty much shutdown I don't if there's any real common characteristics.
Okay and then when you look at the two different lines of trade in restaurants, maybe both full service and limited service.
Do you talking with the tenants.
You have any idea as to how much of their normal revenues, they're doing under a takeout only main is this 25% of normal revenues, tanami, where they sort of falling and what's our ability to pay rent if the in the if the in location dining does not come back very quickly.
Yes, I think it's too early to try to project, where it comes out at the end in some instances the takeout business is strong and others. It's not just kind of all over the ballpark.
Okay quick serve restaurants are doing relatively well on all of that.
And the casual dining restaurants are trying there they're working hard to make it work.
I will say just one thing in general about the tenants that is.
That's notable we talk to a lot of our tenants. They are all working very hard to figure out a way to get reopened and get business started again in a fashion the safe for their employees and their customers, but what we see our AR.
Good smart operators trying lots of different things to get themselves opened well what we are having any conversations with really are with companies that are just throwing in the town, they're all working on ways to get their businesses restarted.
Okay, and then last one from me.
Kevin what percentage of your tenants are paying electronically by some form versus the sort of old school mailing in a check at what point in the month given the various payment dates do you really know, what's you're going to get paid for that month normally.
Yes, I don't know the exact answer but as a very high percent that pay electronically in some form or fashion.
Call at 80% and.
Usually by you know the 10th or 15, we've got a good read on how it's going to go I mean, obviously.
April was doesn't didnt fall quite the norm, but.
Usually by mid month we're.
Have a good read on that Rob Rob. Your question was what was the normal and that's Kevin's answer which what's normal in in April the discussions occurred all through the month.
Okay, all right. Thanks, guys.
The next to Spencer Alloway at Green Street.
Hi, good morning, guys.
Maybe proceed with this share what portion of your tenant base. Currently open I don't think we touched on that.
No we don't track that Spencer.
Real closely because it there's close there is partially open partially closed and there is fully oakland, but but I anecdotally, we think it's probably around close to maybe half.
Half fully open and another.
30, or so percent, maybe partially open and quarter, maybe fully closed but that's that's anecdotal those are very rough numbers.
Okay and yes just.
It was kind of.
Yes, that's kind of my second question you know just given the fact that some state.
Starting slowly opana lesser closure mandate I was just curious if you guys were encouraged aren't any sense as to what portion of your tenant base may be able to reopening reopen sorry, given that our our lifting up mandates.
Yes, no we are tenants.
The information that we've gotten is there to the extent to states are allowing more customers to come in.
Their positioning themselves to be able to take advantage of that so you're right. It is a fluid number that moves and so I think.
We we expect that will get better as if the openings continue.
Okay, Great and just one more if I may.
Asset.
He sold during the quarter and began and could you provide the disposition cap rate on those.
Hi.
Yes, I think the disposition cap rate, we reported at our Jay mentioned at 4.7% underway and.
On in terms of of the 14 properties sold six were vacant for total proceeds of about $8.4 million.
Okay. Thank you again, yes, Spencer there wasn't a cap rate on the vacant.
Yes of course Yep.
Well go next to Todd Stender at Wells Fargo.
They're open but traffic volumes must be down.
Comment on that space, just because it's your largest industry concentration and maybe any details.
Conversations you're having attendance thanks.
Todd I hate to do it too, but I need to start your question again, we it the first half of it was cut off.
A little mumbling on my end.
When it comes the convenience stores, just because it's your largest tenant.
Largest industry exposure.
Never open with traffic volumes must be down maybe just comment on what you're seeing what you're talking to the tenants about any details will be helpful. Thank sure no convenience store business remained one of the.
Much better more solid businesses.
During the month of April and yes, the traffic is down.
The number of gallons sold at a convenience store down but the margin on gasoline was up and and as you may recall about two thirds of the profitability of a convenient store is on inside sales and.
And.
Our convenience stores, our suburban kind of locations, where there were families go to get their necessities. So the inside sales with the convenience stores in our portfolio has been very solid. So we always felt like that was a good business as well as good real estate and.
So far through this pandemic thats proven itself to be visa case again.
Okay, and then can you share just some thoughts on rent deferrals, obviously your punching the cash for now.
But what are some outcomes that you can see happening you think you'll get more real estate from tenants.
Get more term.
Maybe describe some of the negotiations that are going on maybe some yeah right well right now we're not having those kind of negotiations about other things that might.
Other types of currency that might come into play down the road right now what we want to do is try to just be a good partner to our long standing tenants and craft these shorter duration deferrals.
Simply and quickly with them.
Down down the road.
We are assuming that we maintain a good relationship with our tenants as I fully expect we will then add just like always will be able to have a wide range discussion with our tenants about future business or changes in the least documents or.
Other.
Elements of back and forth with the tenant as as we get down the road, but for the moment as I said earlier, what we Didnt want to do right now was just punch our tenants in the nose in the face of the.
A disruption that they didn't cause.
And then Kevin.
I haven't tap the line of credit just to sit on cash right now.
Good to see dislocation in the credit markets.
He said and just kind of ride this out with liquidity, how do you think about tapping the line right now.
Yes.
And we got this question in 2008, nine as well and we Didnt drove down then either.
Obviously, the banks had a little bit more liquidity challenges back then than they have today and we've debated internally and we could change your mind, but we just don't feel a need to drove down the bank line today with 217 million a cash no material capital spending new investments or debt obligations, we really don't have a need to do that I know.
Number.
Of rights have done this and they may have a different view of their liquidity, but for now we're we're good where we are.
Touch and I think to your point also we we don't view the capital markets is being wobbly at the moment and so to the extent we felt like there was an issue about being able to draw on it we would most likely do that quickly, but but we're watching that but we don't have that sense at all right now.
Thank you stay well.
Thanks Bye.
Well go next to Josh I underlying.
End of America.
Hey, Kevin Hope you guys are doing well.
Just wanted to touch base on your comment in the opening remarks about.
See falling into Q2 or any particular tenets that that just kind of known move outs or was that something related to.
The pandemic.
No I guess, just two more general comment that we have been running at the high end of our occupancy rate for.
For a long time and so there may the it it seems reasonable to expect it in this current environment.
May go down so.
Okay. Okay. So nothing specific there.
Yeah.
For the one to three months of rent deferrals that your granting kind of what's driving that range and then how do you can come up at that range in this environment and.
Yeah, well, we are approach was that that to just do something short term and easy with our good customers for the at the moment. It is impossible, where he said certainly where we set a couple of weeks ago and even today to try to figure out when exact.
Actually.
This will start to lift and as Kevin said, what will be the shape of the recovery. So we said lets just.
Behave the way national retail properties, typically behaves which is take slow thoughtful methodical steps along the way and then the discussion with the tenants is really over just kind of.
Kind of one to three months, because we feel like that's a good reasonable time period to start with while while everyone tries to figure out. How this is going to play itself out a little bit yeah, I mean at them today, it's a judgment call. So it and it's it's difficult to.
To know where things are going to play out, but like I said, hopefully we've struck the right balance between doing too much in doing too little and.
Hopefully, we're about right, but we'll see.
Okay, all right that makes sense, but just maybe one follow up on that like seeing if we get three months from now and it's kind of pardon me pandemic extended the same as the.
Thank you another three months of rent deferrals.
How does that change kind of the payback the would we think like gets pushed out.
So any any general thoughts on that would be yes, yes. That's a that's just that's a lot of speculation that I'm hesitant to get too definitive about trying to answer that but to the extent we get to the end of these deferral period is and the tenant.
Tenants business is still struggling in a fashion that we need to have a discussion about.
Greater deferrals, then we'll just have those discussions.
They are made that as I mentioned in what are the other answers there is other currencies. Besides.
Just flat out rent that a landlord can talk to a tenant about to create greater value at the property either leased term or change in lease boxer change at least document.
Or some other things and so to the extent this extends longer and we have to have second discussion with any tenants. It maybe a more wide ranging discussion then the nice simple conversation. We wanted to have for this first problem here in April.
Okay.
One last question for me for for the renter hurdles that yield.
Like the 37% of AB are there any common themes as far as like industry exposure that you saw more requests from or or.
Just kind of curious on how that's playing out.
Josh I think you if you'd look to the list of lines of trade in our portfolio you'd you'd be it would be kind of common sense as to where they were coming from the sectors that were most affected by the shutdowns in the stay at home orders.
So in the restaurant sector in the family Entertainment and health and fitness.
And movie theaters those are the sectors where.
The tenants needed.
Definitely had their businesses significantly affected.
Got it.
Thanks, guys, but you've been talking loss you too.
Well go next to John Massocca Ladenburg Thalmann.
Good morning.
John.
Our understanding is.
Still pretty uncertain times.
What would you need to kind of maybe re accelerate your acquisition platform and activity.
Yes, It John is Theres no bright line answer to that we are as we've said we're in great financial position to kind of just.
Stay in position and see what how this recovery plays itself out we are anxious to get back to playing offense. So I will say and we paused some of our some of the acquisition deals that were scheduled for the first quarter have been paused and we're hopeful that would be.
What a restart those when that moment came where you said okay. This is the we received the light at the end of the tunnel, but it is definitely more of an art than than a hard science on on that moment.
Are you seeing maybe.
Do a lot of third party transactions, but are you seeing potential for deals out there potential deal flow either in the third party add transaction market or when some of your traditional net sale leaseback partners coming to you at yeah, John I'll say, so far we haven't seen much.
The way of of Busted deals that are coming back at higher cap rates or anything we still the.
The 10, 31 exchange market, where you get a lot of broker.
Add.
It does cap rates are still is still very low I think it hasn't really worked itself into the transaction market yet the effect of all this big gap between the bid in the ask right now I think.
Okay.
And then.
Yes, the in place portfolio any tenants that were looking for maybe kind of opportunistic deferral back off I mean, it's kind of fluid given the timing of expected receipt of rent, but did you have some people who they have been in that 11% bucket that kind of maybe saw the light and ended up paying laid on April or have indicated they're going to pay in may.
[music].
Short answer that yes, we did some of the discussions we've had with tenants that have that we felt were able to pay.
And wanted to see what kind of relief there was available after the conversation was over.
They were in the buckets that paid rent.
What we want to have is a good open candid dialogue with each one of our tenants were in this for the long term with these tenants and so this feels like the right way to go about this business is to work with them and have honest full conversations through this whole process.
Okay, and then one last quick one if I may.
Given the backdrop of the pandemic and has your outlook on leverage change at all.
No I don't think but clearly.
I think we're comfortable where we are and.
Obviously, when you come in and as you always wish you had less leverage more liquidity, but unfortunately, we don't have.
We're fairly conservatively leveraged and have a I think of above average amount of liquidity. So we're in pretty good shape.
And so.
I don't think theres much we would change in the way we operate the balance sheet at this point our RF our outlook on leverage is what has positioned us in the to be in such good shape right now for this.
Okay. That's it for me. Thank you guys very much for taking questions. Thanks John.
Well go next to Linda Tsai at Jefferies.
Hi.
First I know that tenant base has changed since then but can you remind us what trough occupancy was during the financial crisis.
Then second when you think about occupancy going down into Q likely have a sensor to this.
For those vacancies what do you think the mix would be more backfill options or disposition.
First off the at the depth of the recession in 2008, 2009 occupancy drop to 96.4% and it recovered in in a couple of years back into the 98% range and and as to your second question I think it's just too.
Early for us to talk about what.
What.
What properties might be become vacant in the second quarter or beyond or what the right strategy for.
Dealing with those properties to our our long term philosophy on vacancies is job one is to release those properties and so I would expect that our that will still be job one for any vacancies that come out of this pandemic.
And as you've seen us in the last couple of years, if we if if after.
Significant efforts to release the property, we conclude that.
It is we're better off to sell the vacancy then you would see us do that but theres nothing I think about what's out there now that would cause us to change our general operating philosophy about how to deal with.
With vacant properties in the portfolio.
Thanks for that and then in terms of transaction.
Well begin to open up our their thoughts on whether deals might be transacted differently do you think face to face is necessary.
We.
I think face to face we do think face to face is necessary early on in relationships for folks to get to know each other.
Down the road there may be less travel to visit at existing tenant for the 15th or 20 of time, but I think theres no substitute for folks visiting with each other in the early stages of building a relationship.
Thanks for taking my question.
Well go next to Michael Gorman at BTG.
Yes. Thanks. Good morning, just a quick housekeeping for me I just wanted to understand this 52% of rent collected in April did any of that then subsequently ask for a deferral. So is there any overlap between the 52 in the 37 that you reported in the release.
There there I think there is some overlap I'm not sure I don't think it's very much but theres, they're they're actually expect there is some small amount of overlap there.
Okay, and then just I guess could you talk procedurally, because obviously you mentioned during the great recession went down to 96.4 and.
Hello.
We lost you are right at the highlight.
All right. If you want to press star, one again, well move on to RJ Milligan with Baird.
Hey, guys. Just one quick question. Most my questions have been answered, but in terms of the dividend. How do you think about or have you considered the idea.
Stock.
And it may not seriously at no, but that's always an option on the table, but thats not not in our current on our radar today.
To the extent we.
Felt like we weren't any good position with the cash RJ just be one more thing we would analyze.
With that.
The happen before.
You reduce the dividend.
I would presume so yes.
If we were going to do that.
That could be an intermediate kind of step to take that doesnt.
Gets you to cut the dividend fully.
We didnt do that and no eight or nine we kept the dividend going up I know number reads did ship to that.
Stock cash combination.
The kind of bridge their way through the O. eight or nine.
Turmoil, but we havent talked too much about that at this point.
Okay. That's all I have thanks, guys. Thank thanks R.J.
And just a reminder, if you had a question our comments and a star one on your telephone we'll go next to Chris Lucas capital one.
Hi, good morning, guys.
Two quick ones for me Gary mentioned earlier.
Referenced the.
Correct.
Thats, great rated tenants with very correct.
Just in terms of how you think about.
Your credit profile of future acquisitions, you investment grade rated tenants sort of Tom.
Move up the latter if you will.
Yes, Chris we're always thinking about Ben and evaluating our acquisition strategy and we will continue to do that but the theyve focus for US has always been on well located in real estate parcels leased to strong tenants.
Reached at where we acquire them at reasonable prices and the tenant pays reasonable rents and for that we get.
Hi, occupancy rate and a high tenant lease renewal rate, 85% of the time, our tenants, we're renewing the lease without the landlord putting in any ti dollars or.
Other lease incentives and so you really should expected that we're likely to continue to follow that philosophy. The investment grade tenants that we have in the portfolio, we're not investment grade when we acquired.
Their properties they were regional tenants that grew an expanded or were acquired by investment grade tenants and so we've got the best of both worlds and a higher a better tenants a balance sheet along with good real estate at the right price, both we still view investment grade tenant credit.
Yes.
Expensive and possibly fleeting and so it's nice to have it win.
This moment, but it's so far hasn't changed our view that we should see to migrate to more of those properties, which have a lower initial yield lower growth and lower price per property. All that said, we're we're thinking.
About our strategy everyday and so, but but right now I would say we're.
More easily I feel more inclined to to stick with the strategy that we've got.
Okay, great. Thanks, and then just as it relates to do.
The rent deferrals that you're giving our those.
Being tailored individual tenants based on March 30, or their profit margin.
Remaining term or is it or are you trying to approach it on a simplified for from one size fits all approach.
It's not one size fits all but we've been trying to keep it simple and so we don't have too many sizes.
Small medium and large maybe size is but.
The.
We haven't.
We've had we've tried to just have direct candid conversations with our tenants to figure out what what works and asked for them and what seems to work for us and then structure the deferrals that way.
Okay, great. Thank you definitely have perform.
Well return of Christy Mcelroy with Citigroup.
It's Michael Bilerman Harris Christie.
Just in terms of your tenants obligations outside or the net lease payments.
Do you.
I guess, what security do you have that property taxes insurance, the capex that everything is being paid.
Yeah.
When half of your tenants are not paying rent to you.
Yes, Michael we've got as a group that tracks all of that is part of our discussion with the tenants at the front end to end. It is part of the documentation of the of the deferral. So we've got the we're tracking it but it is it is clear.
Early those those taxes maintenance insurance are clearly spelled out as being the tenants continued responsibility.
Right, but if you you only got 52% of the rents on April 37% of asked for deferral. Some of the 37 is in the 52.
But theres still.
You are you still got 15% of tenants that.
Didn't pay you ramp haven't asked for deferral, maybe even up to 20% how do you know that all of their other obligations, which could become your obligation have actually been paid.
Yes, we like I say, we've got to lease servicing group that that tracks those.
Track those responsibilities.
But at what point do they come what point do you find out that they haven't paid right, let's say, there's a group of 20% your tenants, but I'm not paid yearend are not working deferral might just taking a simple math.
The two plus 37 in some of the 37 being 52.
How do you when will you know that those tenants and havent asking for deferral haven't paid your rent haven't paid their local tax bill haven't paid their insurance Bill you know I.
And the one point does it come back because those are obligations that you were then going to have to fund.
Yes, Michael we will we typically find out.
After the tax Bill is do we are part of the noticed process for that so we.
We will.
We deal with large tenants that we think.
Our our highly likely to honor the commitments that they're making to us so I understand what you're saying, but we've got their tenets obligation to do it and and we find out when those bills aren't paid directly from.
The taxing authority or the insurance.
Vendor and if if if this is Kevin if it's a smaller tenant and it's one were.
Worried about what you're talking about we may end. This it does not often but we may structure in escrow situation, where they those funding for those items get escrowed on a monthly basis, rather than waiting to the ended the year.
Right. It's just a matter of your tenants of half your tenants have decided not to fulfill their contractual obligation with you who's to say that they're not making the same decision with other vendors unfair share right into that I think thats where the.
It starts to unravel pretty quickly.
Those obligations become part of yours.
From an opex perspectives.
Sounds like we'll hear more over the coming quarters, which sort of thinking my second question, which is the dividend and look I get the fact that your balance sheet.
Better shape I understand you have access to liquidity I understand the 30 year history.
I understand where the payout ratio was.
But to your own admission and everyone dealing with those we don't know how long we don't know how deep we don't know what reopening it's going to be like we don't know what the reinfection rate is going to be in the fall. There may come a time, where we look in hindsight that you would have preferred to have that cash in the company.
Because your dividend is an annual commitments based on annual Paxil net income not quarterly.
I guess I'm struggling to understand why even pay out of cash dividend on the quarterly basis, we're not only from your tenants are paying you rent right. You made look back on the since they know what God I wish I had that Twoq and Threeq you dividend payment because we're going to have to adjust our policy going forward.
Net cash would have been better staying within the enterprise for shareholders rather than being paid out.
Michael It's something that we think about long and hard they were talking about one month to month of April and.
The annual and I'm sure what do you would say is and as well as may because the deferrals are going to be call. It two months and on average.
But but for a couple of months, we do feel like we're in a in a solid enough liquidity position to make the judgment that let's let's see how these next couple of months play out certainly always keeping in.
Hi, and do we need to change our dividend.
Policy for the next quarter and at the next quarter, but but after just one month it seems like too soon to.
To make a dramatic change too.
Long standing dividend policy.
Yeah, I mean as you said.
Our dividend payout ratio liquidity, our balance sheet leverage metrics, we think afford us the ability to.
Buys us some time to see how it plays out before making a rash one quarter to quarter decision about the dividend policy and look at.
Sure if things if the shutdown last many more months and everything is worse than what folks are currently anticipating and you can always look back and say I wish I had the changing sooner but.
We're just not there today, we don't have that visibility and.
We'll see how plays out.
Right, but it appears the same token if you can even forecast your earnings for the rest of the year.
How can you paid quarterly dividend cash out of the company I think thats. That's the struggle I don't from my Vantage point is there are so much uncertainty about youre forecasting ability.
To pay out cash that you may have wanted to have 12 months from now or six months from now we're not even the required to pay it out because your taxable net income may be lower will be lower.
That to me maybe shortsighted.
Now, we totally understand what you're saying at the other day have been judgment call on its.
It's not an easy one.
At this point in time, but.
We're comfortable where we are yep.
Well take our final question as a follow up with Spencer Alloway at Green Street.
Hi, guys, sorry, just one more and so just curious if the deal that you went back to other than the first quarter was this decision primarily due to the fact that Kenyan plant industries, the same with perhaps a disproportionately hurt and strengthened our.
I wasn't more so to be preserving cash.
Yes, yes, such I wouldn't say, we back out of them I'd say, we paused for them and it was completely due to our desire to Marshall our cash.
That that we asked as the as the end of the quarter approach. We said we have.
A few significant deals, but we said as almost all on Michael's question, just a moment ago. We said when we look back later and say we should have preserve that money from these acquisitions and in that instance, we said, yes lets preserve the cash.
Okay, great. Thank you hit the car.
Okay.
And with no other questions holding I'll turn the conference back to management for any additional are closing comment alright. Thank you for joining US. This morning have a good day bye now.
Ladies and gentlemen that will conclude today's conference you may disconnect at this time and have a great Dane.
[noise] [noise].