Q1 2020 Earnings Call
Good day and welcome to the Spirit Realty Capital first quarter 2020 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to pure riffle SVP of strategic planning an IR. Please go ahead.
Thank you operator, and thank you everyone for joining this year.
Presenting on today's call will be president and Chief Executive Officer, Mr. Johnson shirts and.
Sure Michael Hughes, so they can find what kind of asset management will be available puts you at all.
Before we get started.
I would like to remind everyone that this presentation contains forward looking statements.
Although the company believes these forward looking statements are based upon reasonable assumptions you are subject to known and unknown risks and uncertainties that could cause actual results could differ materially that's currently anticipated due to.
I just for each of the Safe Harbor statement todays earnings release and supplemental information as wasn't much recent filings with you actually see for a detailed discussion at the risk factors relating to these forward looking statements.
This presentation also contain certain non-GAAP measures reconciliation of non-GAAP financial measures most directly comparable GAAP measures or even in today's release and supplemental can make sense furnished to the FCC under form paycheck.
Well todays earnings release, and supplemental information or available in the industrial relations page of the company's website.
I had enough to eastern produce Mr. Johnson <unk> Johnson.
Thank you.
Good afternoon, everyone.
So as a follow ups was $1.10 minutes to the least Q1 2020, let me pull back on vehicles to change.
I wanted to show just to be called that since that call shake a few questions.
So just a few comments.
Today, I feel better about the health portfolio and tenants since your last April 15th Okay Cool.
As you Brad was collected over 70%.
Contractual work for the month of April.
Nine of our top 10 tenants.
The team that's up 20 tenants page so people that.
Other where that was the high end.
So that's what we've said because what we could collapse.
Second or if that's your kids cool.
And she is a kid can you try and some of our smaller tenants deliberate secure PPP launch and the government.
Let's see the increase in terms of properties opened and partially up and are currently at 77% versus 72%.
I don't know coal on April 13th.
We've also process the vast majority.
Up to four weeks since our last previous call.
On the pitches and finally I'm happy to say they closed another $50 million.
Turning on financing.
Yeah colder than that cumulative total.
The change no.
So with that I'll take a while you can open up for questions.
Thank you if he'd like off a question. Please press star one on your telephone keypad, if you're using speakerphone. Please make sure that for me. Its function is turned off to a like a signal to reach our equipment.
At this time, we do ask that you limit yourself to one question and one follow up and then reenter the queue.
Given that its star one for questions.
[noise] and we will go first to quickly get to support your bank.
Hi, Jeff.
<unk>.
<unk>.
Uh huh.
Absolutely.
No no any thoughts as to what the incremental impact maybe.
Sure.
Sure I'll be glad you broke up little bit just hold the connections I think you're asking about mall.
But what I can give no.
He also.
No we don't know discipline I would say.
We collected 70% jump off things have improved a lot since we started the sponsors a couple of weeks ago.
My guess is itself or maybe slightly lower than.
April in terms when collection.
But so a lot of these programs that have been put in place of improved but that's kind of see that we're dealing with.
That's what was somebody's openings in those states have also accelerated so give us to encourage upsides.
Okay.
There 64%.
My answer one once deferrals.
That kind of Smokey Hills.
Sorry, Yeah, what would be about something that's going on I would just described it in.
I think if you put somebody said because they've been in the range of one between lunch.
I'm really pay back.
Given the 12 month period.
We've tried to keep these deferrals simple.
It's to lose a lease itself.
Such as <unk> average in the door number from the last time, we talked about in the one month category.
Actually the average duration is probably just slightly over two years.
Total component of it and we're still.
Scope dealing with some kind of small cell the over the two specific yet because.
Good good shot a one off case by case basis, but still at the average the weighted average should be it just a little more to too much.
Okay. Thank you.
Thanks.
And we'll hear next from Anthony how long of JP Morgan.
Hi, Thanks, Hi, Jackson.
Pardon me.
If I get it sounds like you've gone through the majority of these deferrals as you mentioned can I just like.
Yes, I had around the idea that like you had about 30% in your your cabinets not paid rent after a few weeks or disruption to their business.
Right, Yeah, there's a high corporate level. That's you know the next six months or 12 months or whatever they're going to be able to come up with enough to kind of get that all you have to get these deferrals all pay back and just walk us through like that that walking I get that cover all.
Yeah, well, they maybe just what the.
Yeah, that's just bear with me I kind of.
I wanted to leave there just like giving some color because this is real so I won't mention the name.
Oh, the restaurant group, but.
Ill people 17, so few days after we had done at last call.
We had gotten note from one of our restaurant tenants all this regarding.
People that payment in fault on so this is a restaurant group in Oklahoma.
But I'll just give me some she all social that's what we're saying so it's catching a book so in this case steer long or you have applied for versus just the P to P stimulus money should be above captions restaurant.
Now we are still close for the states in which we operate well not habit that sort of the coal because the opening for a few more weeks.
In closing the April Webshots will be about capturing property.
Negotiation of old close shut acknowledges waiver of any late fees or penalties associated with a pull that up to sweat.
Let's see the month of May well be paid as usual.
Waiting for the guidance for the Treasury Department regarding the use of the remainder of the stimulus funds.
We've also closed the previous <unk>, let us will reflect regarding difficult goods to cope with no tool so I wish on their business.
Appreciate your understanding all your goal.
All the double also took a toll the business interests of all parties in Chile.
So that was kind of just.
For example of many examples of sort of a restaurant that thought TPG money.
As you know was asking for actually several much Stifel isn't going to pay it just doesn't make sense of their clothes.
Well just another example of accept this tariff cuts, we just spoke to last week.
Well I know me the name of the tend to be opted in 45 locations six states that all high volume low price operator.
They're up about 50% of their units. This weeks a they pulled opened the other house by that totally called the chip.
And when we talk to it and this is like you did I get this is this would be one of the three month deferral coal judge players, we'd love to fall.
Back over 12 months.
Basically they had short sleeve scenario. So in terms of opening scenarios source all employees would get temperature checks. The box phase one was on the opening no good classes.
Oh, yeah half of the Cardium equipment, that's in the digital space, So nothing which they all have to call the equipment from the current space that they operated and no child care services.
Page to wood, which would would be good classes result child care also among those three would be bad its usual.
It was interesting about this operator was they were going to turn on them up in memberships at the lowest cheer price point isn't it just makes it yet.
Customers come back again so.
But they had sort of had a big detailed.
Operational Chuck just a hobby, we're playing a role yelp into different states.
Give another example about early education operated everybody is a big ones sports at school so nationwide.
14 of the schools have been opened since you know the whole coated well over the last couple of months.
Because of a number of storm is that we'd of course respond or central workers.
So they were working out sort of how to operate this cold at a bar that called a portion of the portfolio.
So there were 40 to 50 click on the school. This is kind of early education, so under or over six years old.
So the personal lives said, it's on the safety protocols obviously.
Oh, Yeah, it's called Washington Cleanliness.
The checks for any parent child coming into the center.
Paul stuff numbers were both down well masks are they utilize Jim space for education functions as opposed to play.
And they said look it's challenging to.
A minister social justice intellectual yields, but it did they said they tried to open up the space within the school and they were seeing good results.
And what the school that the goal this off the they've been staying in contact with all the parents and their various schools that leads to the two times a week, which is online parents how to help children at home.
The plan was up 15 of the schools will open in the Texas. This week seven in the Dallas area.
I know kind of going on a rolling program, but they're very focused right now on sort of the summer camp, but.
Cautiously optimistic about you know.
Going back to work and some students coming up.
Getting another it got quite a bit about casual dining out later and I want to talk about PT too as well. So this is an operator that operates in a state what gets all the other stuff there should have all midstates 20 jobs from called it in the entire state.
She had a.
He basically it's supposed to portfolio.
His plan was to not opening so actually July either life and sort of said.
She had full all those employees including themselves.
They were getting some sort of books a week as you know sort of sets of about five another per week for the state.
Set certain number of employees that was more than does it make it you actually absent the come back yet.
So his idea was between the PPP money that we see which was about 5 million.
You would open up late July kind of about July timeframe.
He will lead to try to figure out how to utilize the full portion of the PPP towards appointment or would have looked at the walls are changing that he's plug jobs or he would look at that as a 1% loan to go back over two years.
He was talking about kind of dealing with tables.
And they did just that didn't include the 25% kinda opening.
Capacity than a lot of state your employee <unk>.
At this point, what do you didn't really want to open and be cut out have you.
Utilized otherwise he thought that was kind of done idea.
So I think it take away is because these are good examples is.
Somebody's programs are really helping these tenants.
A lot of them are trying to figure out how to open we're seeing a number of.
Its opening I mean at home for instance is opening.
After their stores you have this week, well actually I Miss for us the Mister car wash is opening more stores in Texas. So we're seeing.
Things improved he or she stores that you look at all or some stores are sold increased.
Travel over the last couple of weeks when it's another margins are pretty good so.
I'm sorry, that's you know even though it states are different.
High proportion states, where lets work where there are we opening yeah, we're seeing signs that are encouraging.
But that's where the pit.
I don't think it's well out of the woods, yet, but it's a whole lot better than say a couple weeks ago. So there's a long winded answer that question, but I wanted to give you some color on it.
Oh actually that's great. Thanks for that like off would just be on the dividend or any additional comments or color on how are you on boarded thinking about that together then they would have been yeah. So.
I got a careful not to squishy, we have an upward and analytic suite. So I don't want to get ahead of our board, but if you listened to my comments last time and you sort of just couple of the fact that you know I think things or better.
Just leave it that you could give it it's all going to be aboard discussion, but I'm I'm more encouraged now than I was a couple of weeks ago just play.
What's happening with the stimulus programs on.
And how operators there not only just trying to open there they're trying to open the right way and that he's examples like give you or kind of across the portfolio, where we have very sophisticated operators.
It's been quite helpful for us all to learn best practices, because we're trying to share that information, but we like what without additional tenants.
Thanks for the uptick.
Good.
[laughter].
And well hear next from.
Thanks, Mike.
Hi, actual hard to something that hey, I apologies, if I missed a fairly I can you give a sense or what percentage of your tenants might be able to access.
The P.P.P. or are the main street lending program.
Yeah, you know, it's hard to give a percentage should get field for show any a hassle for tenants.
Our public tougher than south of the rent comes from public. So obviously, a that's [laughter] if people got that money there probably given about just given a backlash yep.
And no roughly I think so 27%.
I'd like to like range or.
Yeah for private equity slash friendship private equity kind of.
That I'm aware of some of the private definitely trying to get it could be p. proceeds.
But you know it hasn't been substantial just given the feedback that I got from some of them and then a number of the small.
Companies like I, just mentioned like that restaurant, operator that P.P.P. Buddy.
The gym, operator that some money D. A unfortunately like early education.
That's kind of a bubble, but they don't get they're not eligible for PPP proceeds right now.
But it's.
Actually I'm in the gym operators that perhaps a little employees are excluded so like the PPP money really works well for like the.
Yeah for the rest of all operators QSR and casual dining there are some corplex I've gotten PPP money as well.
But yeah tenants like what the schools where.
There's a lot of employees that they don't qualify right now and if you have too many gyms, but that's such a problem because.
Yeah that designation I'm yesterday doesn't allow them that's flexibility like of because like the up at the restaurant chain given that designation.
Got it.
That's helpful color and then just right you guys have ample liquidity at that level, which is definitely key I'm. Just curious what you would want to see enter the broader environment before maybe be paying the revolver borrowings that are being held on the balance sheet, just sort of what would give you confidence that the worse than [laughter].
Yeah. So I mean again you know when you look at the revolver balance as of the close of Q1, you'll see it was sort of around 500 mold.
That was probably a little bit more my bias I was little bit.
Especially in early March a little bit concerned about what was going on the financial system that maybe it wasn't warranted, but that's that's experiences that are you seeing some bad things back to 2008. So we had drawn a little bit more proceeds that the full amount.
All the revolver going into the end of Q1, we paid those revolver proceeds substantially down so.
I think with this new 50 million dollar.
Term loan, but you can see it I mean should we be close another $50 million incremental about on their core game for the which is now a $350 million troubling.
Well, we'll pay will come we'll pay down the remaining proceeds of the outstanding revolver. So I think Mike I think there's very little out on it right now at this point when it.
Yes.
Okay.
Thanks, So much yeah, we were getting just yeah, we were just doing abundantly cautious.
And as a reminder, you May press star one on your telephone keypad. If you have a question at this time.
Well go next to handle think Oh myself.
Hey, Jackson.
Hi.
So sorry about that.
You met somebody I jumped on the labels on another call, but are you guys. Just any color would be providing longer term levels beyond say one to three months more in the six to 12 month term.
If you are charging interest and is that something booking as a deferral or is that more of alone.
Well.
Yeah. So went right now we were with 27 surety of over going gets to the least so we're not creating separate notes and things like that we actually think so our personal view.
Probably the deferral within at least gives us more rights to the landlord that's supposed to structurally I know, it's that's the way you definitely we've made.
No 110th of one instance, where we've got we're considering having.
Discussion around an interest payment that.
And that's just because of that nature, how long it might go but.
Oh really large majority of they're pretty straight down the middle lumber three months that deferral payback in 12 months you just starting later this year.
Or beginning of next year.
In the movie segments, and I don't Wanna get it too much detail because a lot of <unk> percent done in that group, but.
I'd say, we've got some different sizes, yeah. It's on a one size fits all for movies because.
That said that tenet health.
Of those operators are very different so depending on what kind of drives our deferral is sort of the the comprehensive package of their liquidity there what was happening in the business before what we think the ramped why does that get back to normal.
So to the movies will have.
I'd say some will be swim on some will be a little bit longer though slightly different.
But yeah, we don't have.
Yep and he just kinda strictures I mean, there's one that we might have a interest but I I don't think we can end up doing that's just for us good that it just keep it simple alone.
Got it though thinking a and.
Also in the category I'm, sorry, I missed it but could you talk much about the 30% of rent not where he'd been April.
Oh, what conversations you're having with that what type of recovery or how we should we thinking about that recovery from perhaps create a proportional or timeline.
Look I think the large majority we think we're gonna get paid back I mean, that's that's and that's sort of fits in that one or three months deferral range.
Well like I said some of these Mike.
There's some upside if somebody that's begins as this company is open.
Well a lot of a lot of tenants actually what surprises like if they get PPP money, but they don't want to most of us. They just want to get her try to figure out how to get that business up and running again.
So I would just sort of characterize that 30% couldnt get paid and that one to three months.
With the weighted average being just slightly north of two months that deferral that double payback kinda within 12 months.
Oh, either later this year or beginning of healthier 2021.
Well go next to calling from Raymond James.
Okay. Thanks.
Hey, Thanks, good afternoon.
Contacted you're relatively more optimistic Jack can you just maybe talk a little bit more about what you want to see to Reaccelerate acquisition activity. I think you noted on April call in particular the potential.
Opportunistic acquisitions, so just maybe update us on your thinking there.
Yeah, I think it's probably a twofold.
You know like I said I like what we're encouraged by what were so I'm just in terms of getting deeper.
Discretional. These tenants are also another statue that if we look at.
We looked at property tax payments, it's a pretty important part of what what what our team looks at ads.
Yeah, I'd say, we're like over 90%.
You know in compliance you know through the end of April not patches without getting too detailed.
You know some or annual summer pay twice a year.
Parts of our portfolio so.
It's not it's not straight line across the quarters, but it's it's roughly kind of first quarters figure in terms of tax payments through the portfolio fourth quarter will always good second third or little smaller but through the first quarter were like opened 90% and so we're monitoring that very closely.
Just when we look at that as part of the overall package of deferrals. So what I would tell you on that to answer. Your question. There's two things you know I want to make sure I continue to see positive signs you know I've got a calls at the gym operated I spoke to last week, let's see how its going and we look at CIT. Your hobbies discussions is that what's rolling out because that's going to tell us.
Whether or not they're going to cut to get back up to.
Back up to speed well call. It post the deferral period, but nothing that could be start field that positive sign and let them or the other coupled with.
You know a true we're trying to find out understand what is the right price for acquisitions in the market today.
I can tell you that it's not a free fall out there transactions are still pricings.
You have 31 market is still.
Stabilized and doing what it does.
Bureaucratic saw movie theater now that might go a difficult you actually yet, but the things that or normal things like industrial properties that we bought back in the first quarter.
We haven't seen gigantic changes in pricing yet to be unless you have so so I think we'd like to see two things a little bit more price discovery of where the market really is coupled with continued.
Positive feedback you you should suspect that all these credits that were a glance at deferrals will check along with another week just to see how its operating it because that's going to give us the confidence that the deferral, we put a place is good and they'll get hurt and.
And obviously, that's what we all want to see it up and in this portfolio all of it.
Thank you.
Mhm.
Well go next to John that's all kind of Ladenburg Thalmann.
Good evening.
Hi, John Sorry, I missed this.
Sorry, I missed this earlier in the call, but I guess and you look at that.
30% non <unk>, 3% of kind of cash rent that wasn't paid I mean, how much of that might you characterize it being at a more opportunistic and non payers have you seen that number maybe trend better.
Yes.
Yeah.
It's been a little pushback from landlords on pain, and four as you've been kind of economic outlook any cream.
And just any color you know, how that's trended well over the course in April in high speed going it to me.
Yeah, I would say like current girls you know look there's yeah, we have 30% of a portfolio that it's actually still close so I.
I mean it up.
Hi, good backlog you should suspect that that's a large portion of that the majority of that this is in that deferral universe.
I'd say that the conversations with tenants has improved over the last couple of weeks.
In early April people are really.
Quite scary and they were just not doing age old and not acting normally and try to understand what was available some government programs and other called the issue.
But the country's opening that so it's whether about people like it or not it's kind of happening.
So those that campaign or pay because they don't want to be cited with landlords now that being said.
Yeah, we've had to send out some.
You know some notices that are not as pleasant and so and that's getting some people to pay rent that should pay rent.
Might be a handful of others, we're gonna lots of kind of pick you up to the next that's called level.
But but I'd say generally people or.
Things are getting better yeah.
It's like I said, no 7% about our when Sir.
[laughter], 7% more of our web properties will now open versus two weeks ago. So your strongest see.
People kind of open up that there won't be especially out landlords they want to get their operations up and running so I think that's part of what what you're saying so.
I think one other thing just.
And that's not that's kind of drove it you guys don't forget parts, but.
You know we own understanding retail property.
And I don't want to say, we don't care, but we don't have responsibility for adjacent occupancy or tenancy.
We only care about obviously to contract between us and the tenant that's operating.
And I'm not so good one that's it that's what they're focused on so if you look at a large majority vote, we own it is truly sleep scan and it's not really involved with another man door mall or strip center, what how do you.
So hertz very much.
The good news a profitable operation for them and that's why we gave those coverage Scott when we gave the.
Yeah, the update a couple of weeks ago, because it's like 2.5 times.
Average coverage of tenants looking for rents across that comes together coverage. They were largely operating profitably. So so their focus is trying to get that possible not.
Deep fighting with landlords I can say, that's generally our experience now I.
I think it's different than the other kinds of retail in mortgage, especially the whole properties close, but I think it's a different issue.
So that's just one nuance that I think is really important one and I expect to seats faster.
Recovering some of that stabilization within our portfolio. That's just source that other people that companies as well.
I appreciate the color that's it for me. Thank you very much.
And we'll hear next from human Kim of Suntrust.
Thanks.
[music].
Jack and what do you think about <unk>.
Longer term the tenants that are getting ready for old I, if you're a smaller business.
To rectify it I know there I know they helped in the near term, but longer term I mean can be extended family have equity cushion to sustain because higher leverage back it's only more money or do you think and not just for a script, but to spend but through overall duties for old does end up being right really happened there today.
Look I meant to be sure like what we look at US and this is Ken this is sort of.
If we think it's going to go away, we don't characterize it as meant to fall I mean, we do look at a pretty seriously. So the first thing. We decide is as you know does it tell that werent rent control. If it is then I'll begin to characterize it as.
You know rent that won't go to get back that's probable or went that.
It's going to be kind of you attempt to get back if it falls in that tough to get back which is a small exception that all portfolio look tacking on the back of at least what I can recognize it as income.
And we'll start accruing you might even potentially start accruing taxes, you will see exactly.
But the large majority of what would go so.
I would say 12, a cap of that universe of 2.5 tells you that coverage than some of those were hired some of them or lower.
So you know they don't and I think your point is right. They don't have shown liquidity cushions.
But.
No there, they're pretty simple business is going to pick an open them and they've got some federal systems, especially like in.
In the restaurant area I think they have a good chance to come back to be solid again.
And the same goes for I think the fitness I mean, I do think.
People are going to want to get back on a Jim did Jim operators have to be smart about how they're creating social Justin so other.
I've talked to one of them like how are they think about pricing. It's it more elastic so they're looking at all those different options to try to get back to a stabilization.
I would say that a kind of keeping that was having problems before yeah. This is just going to exacerbated and you know our strategy for rent.
The call in that situation, but literally be.
You know probably stick on the backend that.
I'll start probably accruing.
Real estate taxes, and so you'll see that you know the two key with it.
Yeah. So of course is not a big portion but.
I don't if that helps you, but I think it board a prolonged look at what a prolonged economic downturn you know, we're gonna have pressure like like everybody else I mean, there's.
Whether it's a small tenant or big tenants, they tell us even industrial grade. They don't have the we'll talk to stay close for extended periods of time, So I think that.
He said I'm encouraged by the fact that the country is opening.
The people that feel safe or going out to people, who don't feel safer single.
And then the and we'll know more as the week score would begin to see very close.
Sure tenants and that's going to inform us on a lot of different things, but yeah. They love the kinetic itself.
That's pretty good.
And.
I think about half your attendance you have unit level reporting data for.
Do you actually do you happen to have.
Your tenants like pro forma look to leverage ratios as high level, what that looks like.
We were they when they report we do but I mean, we haven't really scrubbed it to that level I mean, if it's part of our.
Investment Committee review.
You know if you.
If you think about I think would describe to you all yeah. We have three investment committees, a week Monday Wednesday Friday now for tenant.
Lets deferral.
You know if you look at that distribution on page 13 portfolio Hell.
It gives you some idea like how big these from a revenue standpoint, where the percentage of bretts fall.
Most large majority are over.
Over 200 million a total revenues. So you know there does look they're actually allergic to some probably what you might think yeah. We have very few.
Paul sole proprietorships type tenants.
So.
Yeah, that's and that's why I think a lot about tenants where happily.
Yeah on the POS side, a lot of them got that PPP that Gabby, obviously had local banking relationships they figured out how to get it.
Yeah, they weren't asking for where the bathroom door was and that helped a lot. That's what got me a much more encouraged about.
What we're seeing right now and so.
No. We're still early days I would say they were spiked out of football yet, but it's it's better than it was a couple of weeks ago educated.
Okay. Thank you.
No I will turn the call back to Jackson site for anymore.
Okay. Thanks, operator in the third world out there will be all stay safe I'm sure. You guys are busy were worse, we're sticking to our living focused on.
They close what I'd tell that's working with them the I'm watching and seeing how their businesses are opening up.
Thank you.
That does conclude the call we would like to thank everyone for your participation you may now disconnect.
[music].