Q1 2020 Earnings Call
Good day, ladies and gentlemen, your current downhole today's conference call at this time.
Yes, that's already on some plants around the world. Shortly I appreciate your patience. Some please continue.
[music].
[laughter] Good day and welcome to the base Rich Company first quarter 2020 earnings Conference call.
Today's conference is being recorded I would be caps to one hour.
At this time I would like to trying to call French toast, a gene Board Vice President Investor Relations. Please go ahead.
Good morning, Thank you for joining us on her first quarter 2020 earnings call. During the fourth of this call, which will be making certain statements.
Forward looking within the meaning of the Safe Harbor, the private Securities Litigation Reform Act of 1995, including statements regarding projections plans for future expectations actual results may differ materially Detroit Friday.
In a certain cheap set forth in todays press release and are STG filings.
Moving to hurt the impact of the new Bell kind of Iris Cobiz 19 saw the U.S.
Regional and local economy I.
I think financial condition results of operations as a company I'm just trying to.
Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the earnings release, some supplemental filed on form 8-K, with the FTC, which are posted Indian faster section of the company's website, that's matrinch dot com.
Joining us today or Tom Ohern, Chief Executive Officer.
Got you for senior Executive Vice President and Chief Financial Officer.
And John Healy senior executives [laughter] with that I'd like to turn the call over to Tom.
Thank you Jamie.
Let's take all of you for joining us today.
Oh, you wouldn't families are safe sex healthy.
That's your friend our earnings release, the first quarter was a good quarter that exceeded expectations with generally good operating metrics.
Today as we thought it was terrific code at night, you can't Delek.
First quarter results frankly, she's not that role.
It's a crisis, that's impacting our way of life and touching almost every facet of the global economy.
The fourth liner company and reshaping our strategic plans to status unprecedented.
We're closely monitoring the situation.
Wishing or reopening strategies and protocols and working with local and national afterwards to ensure our number one priority is the health and safety.
He's senates service providers and shoppers.
Our employees have done a tremendous job managing through this crisis situation that is changing not only day by day, but even hour by hour.
Going back to mid March we instituted some liquidity measures, which Scott will elaborate on later.
That allowed us to accumulate 735 million of cash on balance sheet.
[noise] somebody operational things we have done we're arguing include hosting a weapon to our with Pwc and U.S. thing for retailers to explain the stimulus package and help them access to some of those phones.
Donated food and supplies to support first responders donated our real estate for central functions, including love what drives right through testing facilities.
First responder parking.
And drive through first mortgage.
We made available or billboards and other media for campaigns about staying home healthy hygiene protocols is what drives.
We decided implemented a web site to provide retailers with a library of information on the stimulus package.
State local governments.
Close the totaled 43 up or 47 centers, except for a sexual businesses.
We started reopening centers last week with more in process. This weekend throughout me.
Reopening plans include finalizing guidelines and criteria for reopening our centers in alignment with government requirements.
We will implement modified hours new operations.
Communication protocols.
There will be increased in highly visible cleaning <unk> sanitizing protocols.
CDC guidelines will be followed closely.
We are addressing passive travel vertical transportation and delivery issues.
We will accommodate curbside pickup for retailers.
We are assessing GP equipment requirements do you in solutions restroom configuration.
One area to court seeding solutions and restart that kind of construction.
There will be touchless fan sanitizing stations entrances and exits and throughout the centers.
Meanwhile, our retailers are making changes to allow for safe reopened in their stores.
Putting removing or resetting store fixtures installed against sanitizers, placing social distancing markers for fitting rooms, installing plexiglass shields, its checkout counters and.
And reducing occupancy generally to 50% the maximum allowable.
We currently have 13 centers reopened in Arizona, Texas, Colorado, Missouri, Indiana.
Most counties have their own approach to how and what will open initially.
We expect this to evolve daily can be a phased approach.
California has very gradually started is a phase reopening of the state late last week.
Putting not essential retail, including a girl and sporting goods for curbside pickup only.
We expect almost all of our centers in most of our tenants to be opened by the middle of June.
One of our liquidity measures was to defer most of our redevelopment where possible.
Well finish up fashion district in Philadelphia, and Scottsdale fashion square the luxury way.
But most of the redevelopment is have been deferred beyond 2020.
We anticipate spending about 60 million in the last three quarters of this year, which represents a $90 million reduction from our previous redevelopment pipeline.
This reduction excludes the joint venture with HCP.
Chose the project one west side Googles, New class a creative office campus.
Work continues on that project during the pandemic.
Which is fully funded by non recourse construction.
This crisis has shown the importance of brick and mortar locations as key channels of distribution.
Although it has accelerated sales as many digitally native brands increased sales cannot make up for the lost profits from physical stores.
Ecommerce has an extensive business model.
Due to high delivery costs in customer acquisition costs.
Omni channel business models have become critical to almost all retailers, including most of the digital brands.
Even with rolling and accelerating ecommerce sales.
Make up for lost sales and profits from physical store closures.
This crisis has emphasized the importance of brick and mortar locations as chief sales and profit drivers for most retailers.
During the closure many of our retailers have been fulfilling orders.
Of their mall based out of their mall based stores.
Upon reopening we expect buy online pickup in store to be even stronger than it was free covance.
Some examples that are currently underway at Tysons corner.
24 tenants are fulfilling orders averaging over 8000 packages per day.
That's fair fashion outlets of Chicago coaches and number one curbside delivery storing their carefully.
At Scottsdale fashion square, one of the department stores and continues to be one of the top locations for online fulfillment within their chain.
And what are the newly opened restaurants at Scottsdale fashion square was the number two location for curbside pickup from the nation.
At Washington Square retailers are fulfilling an estimated 28000 by like wars per day there's.
Good retail is not going away, especially at a quality centers.
In China as opposed to Cobiz 19 example by March 22nd.
Nine weeks after the country shutdown, 90% of the malls had reopened in traffic as since recovered to an average of 85% of the prior years traffic.
Many of their retailers are also big in the U.S., including HCM Apple the 11, Adidas Uniqlo among others.
I've experienced opening after cobiz related closures.
Our town centers for vital part of their communities.
Our portfolio generates 1.1 billion sales tax revenues benefiting local and state governments in their communities.
Our centers employ approximately 110000 workers many of whom are for loader layoffs.
In the United States pre cobot, what out of every five workers head of retail jobs.
We need to get those people back on the job.
The station communities, where we operate benefit from $225 million property taxes, we pay every year.
Our retailers are eager and ready to get open for business and to bring their employees back in a safe and well thought out manner.
That is what will be happening throughout our portfolio over the course of next four or five rigs.
Now I'd like to turn it over to Scott.
Thank you Todd.
The first quarter reflected good financial results and typical times, we would consider this a solid starts when you fiscal year and we'd be looking forward to capitalizing on many opportunities during the balance of the year.
But of course nothing is typical about the current climate.
Now, let's start by providing a few highlights for the quarter and I will then provide some details about the environment, where now facing and how we have bolstered our liquidity to withstand the pressures we now face.
Funds from operations for the first quarter was 90 art excuse me 81 cents per share, which was flat versus the first quarter 2019, and which is six cents higher than corporate monitor consensus of 75 cents per share.
Same center net operating income for the quarter was up 1%. This was a sector hi. This is on the high end of our previously issued and sense withdrawn same center NOI guidance for 2000, 20.5% to 1%.
EBITDA margin increased by 44 basis points to 62.6%.
At first quarter revenues were generally unaffected by Kevin 19, given the mid to late March timing of property closures within our portfolio.
In late March given the many uncertainties assessing that cover 19, we formally ritu. Our 2020 earnings guidance, we will provide updated guidance when we gain more clarity into year end. When we are in a position to do so.
For April we collected 26% of our build rents, including both permanent and temporary revenues.
Through last Friday may eight we as collected 18% of our built they rent and we estimate that may collections are trending slightly better than April.
As our centers continue to reopen we anticipate improved collections in June and thereafter.
As a reminder, while many of our retailers where compelled to close during this period.
Last majority of our leases do not to beat our tenants obligation to pay rent as we all continue to navigate these difficult and very unprecedented times, we understand and appreciate the challenges that many challenges our tenants are facing in light of covered 19, we will work in partnership with our tenants to collect pass to rent.
You have taken considerable measures to preserve liquidity as previously mentioned the company has drawn the majority of its remaining capacity on its 1.5 billion dollar revolving line of credit.
We have reduced our dividend from $3 a share to $2 a share per year annually. This preserves approximately $150 million of cash.
The upcoming dividend, we will pay 80% of that and stock.
For each quarter that the board chooses to pay the dividend in stock and additional $60 million or more of cash will be preserved.
Collectively these two movies preserve a $100 million per quarter or more.
As Tom mentioned, we have significantly reduced our development pipeline for the balance of the year.
The company anticipates spending $60 million in the last three quarters on 2020 redevelopment.
Also as Tom mentioned that is about a 60% or $90 million reduction versus.
Versus the previous previously estimated 2020 redevelopment expenditures for the final three quarters.
All told including one west side, which again is independently funded.
Well as the first quarter redevelopment cost, which totaled $45 million, we anticipate development expenditures will be approximately $150 million for 2020.
We have reduced variable controllable shopping center operating expenses by nearly 50% during the period that our assets have been substantially closed except for a central retail in services.
As of March 31st 2020.
The company had $735 million a cash on its balance sheet, including our JV share.
Recently, the company exercise this option to extend the maturity of its revolving line of credit to July 620 21.
Now I will turn it over to Doug to discuss the leasing and operating environment.
Thanks Scott.
Using momentum again, the first quarter were left off in 2019.
Strong and velocity was on the rise.
However, economic conditions caused by covert 19, and the government mandated shutdown of our shopping centers put downward pressure on leasing activity as the quarter came to a close.
That said there were several bright spots, including rising cells strategic lease signings.
And many exciting and much anticipated store openings.
Portfolio sales as of February 29, 2020 were $801 per square foot and never up is that into 7.4% increase from $746 per square foot at the end of Q1 2019.
It's noteworthy that we experienced new sales increases from top to bottom.
Maybe these increases weren't just concentrated in our better centers and driven by one or two tenants.
Economic sales as of February 29 to $939 per square foot.
That's a 7.1% increase over $869 per square foot at the end of Q1 2019.
Occupancy if you ended the first quarter was 93.1%.
90 basis points from last quarter down 1.6% from a year ago.
This is primarily due Joe almost 900000 square feet or 4% of RG L.A. got was rejected and close through bankruptcies in 2019, and then into the first quarter 2020.
Temporary occupancy was 6.2%.
And that's down 20 basis points from this time last year.
Trailing 12 month leasing spreads were 6.5%.
Up from 4.7% last quarter, but down from 11% in Q1 2019.
In addition to affecting occupancy 900000 square feet of our Gtld that was rejected and close through bankruptcy also put downward pressure.
Leasing strides on a year over year basis.
Average rent for the portfolio was $62.44 and that's up 2.8% from $60.74 one year ago.
As I mentioned earlier, our leasing momentum carried over into 2019 into the first quarter.
Velocity continued and leasing volumes were strong.
During the quarter hundred 94 leases were signed for 740000 square feet totaling $38 million in total revenue.
Deals have no include free people at Wonka, Tata Rolex at Scottsdale fashion Square, Kate Spade fashion outlets of Chicago.
Losch at Santana village luxury dose.
We also signed for more deals with Lisa Chandler, Deptford flat iron and freehold.
Bringing our total number of recent deals with this retailer to 13.
And the large.
Format category.
We signed a new 75000 square foot lease with Dick's sporting goods or Denbury Fair mall.
This is an expansion of its existing store it will take over a portion of the space recently vacated by Forever 21.
And it Eastland mall, we signed a new news from Sterne Department Encore and that will open later this fall.
In the food and beverage category, we signed a deal with Jolly be a green acres.
And then the international category, we sign title with yolks and for more deals with caught non Deptford freehold vintage faire and Tysons corner.
We remain active with the digitally native in emerging brands, signing new deals with parity at village According to Dara.
The Golden Goose at Scottsdale fashion square.
Last quarter, we discussed the importance of getting out in front of our 2020 expired square footage.
To that and I'm pleased to report, especially in the current environment.
We have fully executed leases on almost 60% of our expiring square footage in 2020 and this is up from 38% in Q4 2019.
And another 25% of our 2020 expirations are already at least documentation.
At the end of the quarter, our leasing pipeline, which we defined by fully executed leases scheduled to open in 2020, and 2021 was approximately 125 retailers comprised of 860000 square feet.
After speaking to each retailer at this point in time on before have indicated they no longer planned to open.
And this equates to only 8000 square foot square feet of the 860000 square foot pipeline.
In the first quarter, we opened 49 comics totaling 311000 square feet for a total cost of occupancy of $12.8 million.
And this compares to 37, new openings totaling 130000 square feet for a total cost of occupancy of $9.2 billion. During the same period last year.
I'm not going continue that fashion district, Philadelphia highly anticipated openings of supply and Kate Spade.
Other notable openings include all the green acres lifetime fitness that Biltmore fashion Park and route one at vintage Faire all in large for format category.
In the food and beverage category, we opened nobu at Scottsdale fashion square, the first and only in the state of Arizona.
Perfectly situated at the front door fashion square as new luxury Wang Nobu opened at the end of January was immediately book well into March.
Also opening and you have to be category were breakfast club.
Billboard battles, implying that the Oaks and shake shack at Santana village.
The digital emerging brands continue to expand their omni channel presence.
Portfolio.
The first quarter was no exception.
We opened Casper Fabletics at Scottsdale fashion square.
Morphine Arrowhead and Travis Matthew Broadway Plaza.
Turning from metrics and statistics for a moment.
Over the last 30 to 45 days I've spoken to many many retailers and there are several consistent themes out there.
It's all about liquidity and cash is king.
Retailers have never operated with all stores closed typically they're just three days during the year when stores are closed Christmas Easter and Thanksgiving.
We just want to open as soon as it's safe to do so.
Inventory levels are high and Reopenings will be very promotional in order to move this inventory.
Obviously there'll be some great incentives for shoppers to return to our malls.
Stores will look and feel different as retailers begin to open.
Common themes are reduced hours limited occupancy.
Strategic placement of inventory on the Florida create space.
Fitting rooms being planed after each juice and contact was payment to eliminate the physical approach.
Curbside pickup, especially in the beginning will be a seamless option it will be phone to truck.
Hi online pick up in the store will become even more popular.
Bottom line is retailers want to get their store opening.
The big lesson learned and all the retailers are saying it.
Is that online business will never replaced the importance of the physical store.
So as I reflect on the current retail leasing environment.
I can't help but think how critically important our strategy permit pruning our portfolio over the last several years really was.
Having a best in class pure play a portfolio is proven overtime to be extremely beneficial as retailers continue to reduce their fleets and focused on quality real estate.
And so as we look ahead the power of our portfolio becomes even more important what would be short term disruption of course, there will be.
Because leasing velocity flow post coated.
Yes it has.
But in a long run I'm confident that are that the town centers. We have worked so hard to develop.
We'll continue to be extremely well positioned.
Brick and mortar stores aren't going away and that's just the fact.
If nothing else the pandemic has confirmed this.
Yes, physical retail will continue to shrink.
And we'll do so what an accelerated manner given the current crisis.
But as you know, we generally all must have real estate.
And we have an extremely talented set of professionals that we'll continue to differentiate our company and our centers.
Even during these incredibly uncertain times.
Now I'll turn it over to be operator, toast enough to call for QNX.
Thank you.
And gentlemen, if you would like to ask the question. Please signaled by pressing Star Wars undertook.
Sorry.
If you're using a speakerphone. Please make sure your mute function, it's turned off to larger signal to reach our equipment.
Got it press star one swaps. The question, we'll pause for a moment, everyone opportunists used to seeking for questions and we assume that you limit yourself to one question and one follow up question.
[noise], let's take our first question.
Calling from.
Samir Khanal of Evercore. Please go ahead, Sir your line is that.
Oh, Hi, hi, there, but so I guess, Doug are you talked about the 60% of exploration that you've addressed.
You're currently sort of lease documentation for the other sort of 25% here.
Can you give us an idea of sort of the tenant negotiations you're having you know what are tenants asking for today that they weren't asking for maybe six months ago.
Are they being towards more percentage rents are there more short term deals just any color would be hills.
Well Samir first of all the 60% of of our committed square footage those are fully executed leases and shored up.
A bankruptcy or otherwise, we don't expect to renegotiate those at all leases that are out could be and future dealings RPD negotiated I think what I would say is the retailers are much more cautious they're much more conservative that's that's being.
Selected some of the clauses, they're putting in.
And to your point, especially with explorations, we are looking at shorter term deals and we have in the past.
Okay.
Thanks for that and I guess my second question as a follow up is it.
Maybe for Scott here can you provide any color around conversations with sort of mortgage mortgage lenders at this point.
Given the sort of lower rent collection levels, we've seen I guess, what's your ability to defer interest payments at this time its if needed.
Yeah. Good morning, Samir hope, you're well yeah, we continue to have conversations with lenders really the effort there is to defer the payments.
The outflows match, the inflows, which you're gonna be stronger later in the year. So those conversations continue today.
Okay. Thank you.
You bet.
Well take our next question, which comes from Craig Smith with Bank of America. Please go ahead. Your line is like.
Thank you.
Oh, the 70 plus percent events not collected in April.
Any of those tenants and negotiate and you would deferrals.
Craig we.
As you can imagine.
We are having literally hundreds of discussions with our retailers that are underway.
Many of them or asking for a red deferral.
These are individual discussions and we're not going to get into specific details of tenant by tenant basis here, but its a long process is still a fair amount of uncertainty as a lot of these tenants don't know it when exactly they're going to be able to reopen so those discussions are underway and as Scott said in his comments.
Collected about 26% to 27% of the April Red maze trending a little bit better. We do have 13 centers open. So some of the uncertainties that removed for at least some of the tenants, but I would expect those conversations to go on and stretch out into into June.
Great and then how many of your models have a significant curbside service available.
Now I do with open.
Doug you want to go on.
Im sorry, I couldn't hear the question Craig.
Oh, sorry, I was wondering how need your malls have the none at significant curbside service available either now or when they open.
A lot of the ones that are open can only opened with curbside.
Actually this is a trend that at started even before coated.
Really what started out as an amenity.
It's become a must have so while still in its early stages I think there's a future there.
And I think I think it's really important because really if you think about it gives our platform.
The node of another mode of distribution for these retailers.
And that can only increased the value of our real estate.
But again, it's early times.
Okay. Thank some comment.
We'll take our next question, which comes from Jim Sullivan I'd be show G. Please go ahead, Sir your line is now open.
Thank you.
The per person I had is the apartment tower at titles with the contract at year end in the 10-Q for the first quarter. It doesn't appear to be and it doesn't appear to be set been sold keeps getting set up data and what the story is there.
Jim we've been in discussions with our partner to sell to them.
And that was pre Covidien and then once the.
The entire market got volatile say mid March HM.
They decided to hold off and additionally, we like the asset we'd like to diversity the net operating income so.
We're just find hanging on to that 50% interest in the tower.
And Jim It and then it's very it's very possible Jim that we financed that asset within the next a few months.
Okay, and I Wonder if you can give us an update.
On the village strips decisions.
And I'd say three of your assets are on the list Nordstrom deals, where you know famously though to be expensive to make for loan or are they going to be it sets up to break for Nordstrom.
Jim you're right. It's you know really impacted.
Most of the a quality operators in the sector in our case of the 16, they announced three were with US flat iron Chandler and freehold [noise].
And those are all stores that are owned by Nordstrom.
The good centers I would say, there's still a pretty good demand for the space, but it remains to be seen with what's going to happen with those boxes. They no longer had an operating covenant, Jim and that's why did show some of those centers on that list.
So they had so do they can sorry, they control the space I'm, sorry, if I just think.
So they can fill the state they don't have to offer can you first.
No that's typically what happens as you know.
Okay very good thank you.
Second.
We will now take our next question comes from Chris Mcelroy of Citi. Please go ahead or Christy Mcelroy with Citi. Please go ahead.
Hi, Thank you I'm just a follow up on some years question on the debt payment profiles are these deferrals are you working on any fall loan modifications as well and what do you also had discussions with your lenders to change your line of credit Covenant calculations, our threshold in this environment.
Hey, Christine good morning.
Those are just discussions about deferrals, there's no modification other than just a deferral till later in the air.
As it relates to the line of credit we have a lot of had room within our existing covenants and we're not focused on modifying our covenants whatsoever.
It's Michael Bilerman like good morning up there.
A follow up I was wondering Tom if you could sort of elaborate a little bit on sort of the dividend strategy on a go forward basis.
Yeah, I think if you look across recollect are right now the predominance level for the company in the more effective sectors like in retail lodging and health care.
I think outside of yourself from one out there has just basically suspended or reduced their cash dividend rather than paying it in stock.
And I wanted to know how you think about progression from here in terms of one split between stock in cash.
The level now that the IRS allows you to go to 90% and then whether you've already satisfied that's quite your full commitment and therefore, what pay a remaining dividend for the rest of the year getting just the taxable income.
Hi, Michael sorry.
That's a good question relatively complicated question well ticket a piece at a time.
Correct, we assess the size dividend.
Last time, we declared a dividend and we cut the dividend from $3 a shift too.
We also.
When we were in the beginning throws of the pandemic, we decided to preserve liquidity by using what was that allowed 80% of the dividends to be paid stock.
And in terms of that going forward, that's going to be a quarter, but by quarter decision of the board.
In terms of whether we would spend were cut further.
It remains to be seen at this point what kinds of impacts the closures will have on taxable income.
You are at this point under most of the leases even though there's the.
Calls were close to 10, it's always rent.
And again.
<unk> taxable income is based on accrual accounting that cash accounting.
So at this point is a little too early to determine what adverse effect cobot 19 will have on our taxable income, but that would be certainly something we'll assess I'm a little bit later in the year.
But that being said when we made original cut we expected to have $2 a share of taxable income or so maybe a little bit less.
That may be able to go down a little bit, but it's certainly not going to go to zero.
So we will continue to have a dividend in my opinion throughout the balance of the year.
The size and composition to be determined as we know more.
I would take our next question from Mike Mueller of JP Morgan. Please go ahead.
Yeah.
Just a little more color on the we opened so far maybe talk about the person can stores that have been open and how trups concealed stability.
Yeah, Hey.
Progresses day by day Bye.
And I think in the case of Ah.
Our mall in Texas, South Plains. It opened at about 25% of the tenants were opened and it's kind of evolved to closer to 50% in traffic picks up by day, but it's really going to be center by center region by region, how that happens I mean.
Fournier there was a very very gradual start to reopening that happened last Friday, and that's just a curbside pickup.
Other locations like in Texas, almost everything was able to open.
Obviously, there are some limitations to stick in many cases, they are limited to allow for social distancing.
There are limiting the number of people in a given store to 50% of the maximum capacity.
And there's also protocols in place procedures to make sure there's not a lot of people aggregating.
Common areas a lot of food courts seating has been removed and a lot of the centers.
So there's there's a number of changes, but each county is different than each county has different rules or regulations. So its a.
It's a bit haphazard, but but so far.
General feeling is that there's been pent up demand and <unk> in the retailers are eager to get open.
Neil ever strain on them is really when they feel they can do it safely and they've got over the precautions and protocols in place to do it safely.
And what do you would have you heard about sales traction.
A very gradual you know starting relatively light traffic in picking up every day so.
So we're only a couple of weeks into it so it's still pretty early to to make a draw any conclusions.
Thank you.
Thanks, Mike.
[noise] proving that move onto our next question from Alexander Goldfarb of Piper Cymer. Please go ahead your line.
Oh, Hey, good morning, pointing out there I'd just two questions first I just going back to a christys question on on the debt refinancings, They think lots and lots of spoke about inc. a putting I think maybe was done what are what are your centers appearances unencumbered odds encumber that and then use that those.
Currency to pay off Niagara you also have denbury maturing this year as well. So can you just update US you mentioned the tightens apartment tower that you can't put some debt there, but we just outlined your other thoughts sport Denbury Niagara and if you're considering.
The mortgage on Starwood.
Sure Alex Good morning, excuse me the on you know obviously the credit markets are locked up in our centers are are.
Either shut down or they're just coming out of the thumb is periods. So we you know leading ended this period. We had started on the refinance pipeline and we were moving along on some but we're going to be some very attractive deals.
When the credit markets return I'm confident that we'll be able to finance those assets in the meantime, though.
We're going to extend the maturities that are rolling in 2020 and early part of 21. So that's our position right now and like I mentioned the apartment tower is a little bit of a different animal sort of expect that within the next several months, we'll be able to put some financing on that project.
Okay, and then on the Nordstrom closings for any of the other department stores that you had closed do any of those trigger any co tenancy with any of the line shops.
Curious.
Very immaterial impact Alex very immaterial.
Okay.
Thank you.
You bet.
It will take our next question which comes from <unk>.
Bodysuit of Deutsche Bank. Please go ahead your line is that.
Hey, Thanks for taking my question.
So in that 10-Q, there's no.
So to do shopping center expenses I, 45% on the property that Clinton I'm just curious on the other 55% how much is contractually reimbursable by the tenants.
Just payable by your team.
Yeah, most of our leases are fixed cam and nature. So every dollar falls to the bottom line generally speaking probably 85% to 90% of that falls to the bottom line.
So you know for that lots of April and May while our centers were substantially close to be made considerable progress in terms of reducing our operating expenses basically the variable expenses.
And as our centers ramp up we'll still see some savings until we get to a more fulsome occupancy level and and larger consumer traffic. So we'll still see some savings beyond the closure periods.
Thanks for that kind of an eminent tend to the shadow pipeline. Appreciate it's very early but you basketball is shared great transparency there in terms of how you're envisioning with Antares I'm just curious what element of flexibility you have to reallocate CLA later, so there's more experience all concepts as a product project that forgotten parents. For example, if there is.
Demand for Dave and Busters, right I would have you on the other side.
[music].
Yeah most of the.
Are you doing of the Sears boxes.
Particularly the more complicated was such as Washington square at loves to read those are fairly early and those are two projects, where we've got to go through the entitlement process. So we still have a fair bit of flexibility.
To re purposes square footage in fact, that's generally the planet at both of those centers were a significant amount of the retail will be something else.
There is a lot of flexibility and we do have the ability to pivot away from experience will and something else, that's what's warranties and that's where the demand is.
Thanks for your time.
Thank you.
We'll move on to our next question from Todd Thomas of Keybanc Capital markets. Please go ahead. Your line is now open.
[music].
Hi, Thanks, Good morning up there first question as your centers reopened.
Can you talk about the ability of your your tenants to pay rent as they reopen their stores and how those discussions have been I guess, primarily for maybe restaurants and and theaters and maybe some of the fitness users you know if they're operating at reduced levels going forward. How are you approaching those discussions.
Yeah as I mentioned Todd in my earlier remarks, we're having literally hundreds of discussions with our retailers and they're all somewhat unique based on the location of the center and the type of use you know obviously, there's a couple of categories that you hit on that are going to be pretty challenged restaurants, being one where they're not going to be.
Well to have as many tables, they've got to accommodate social distancing, that's going to put margin pressure on there. So.
Working through each each and every deal with our restaurant tenants as well as.
Our theater operators are going to fix the challenge with social distancing as well and that certainly was the case in China. When they tried to reopen so we fully expect to have conversations with those two uses and those will be you need to the operation and location.
Then in terms of the gyms most of the fitness operators that we've talked to have a pretty good plan for social distancing.
And they're eager to get open and their members are very eager to sit back and engine start work it out so.
I'd say, there's a significant amount of pent up demand I wouldn't expect any changes there and they seem well under way to having.
Procedures and protocols in place, whether they'd be removing a certain amount of the equipment or limiting the number of people that can come in at any given time.
With a heightened level of cleaning and a.
And sanitizing, so I'd say, the probably the two toughest categories are going to be the theaters and restaurants.
Okay, and then I'm just a follow up on a out this question regarding dependency.
Is that it was is that response, we that's specific to that Nordstrom closures that that you mentioned or was that a broader comment about the tendency exposure across the entire portfolio in terms of how many leases have dependency causes today and how much economic exposure that might be just across the portfolio more generally.
Yes, that's a broader comment about the co tenancy exposure, we see as a whole across the portfolio not just nordstrom specific.
Thank you.
You bet.
Right.
We'll now move on to our next question who comes from Rich Hill of Morgan Stanley. Please go ahead. Your line is now.
Hey, good morning, guys I want to maybe go back to some of the questions. There that were asked about the mortgage debt.
Yes, I'm, a little bit surprised that or you have had discussions with maybe some of the CMBS lenders I think about green acres small a pretty pretty high quality mall I think it matures in February of 21 side. So I'm curious is it because you know you haven't reached out to the CMBS lenders, yet or are they preoccupied I. It's it's all reasonable.
It's a it's preoccupied because you guys are focused on your business in CMBS lenders are dealing with their own issues right now, but but you know I I would think that something like green acres small who would be it would be likely modification candidate. So maybe if you can just help us walk through that a little bit more of that would be helpful.
Sure Rich you know I don't want to get into too many specifics we're in active discussions with the lenders.
Regarding the extensions, but I would agree with your assessment that a.
Leading into this period there was.
Very adequate debt service coverage on all these loans and in fact on balance I would consider that that group of loans to be very under leveraged that group of assets in so I think will be successful in achieving.
Extensions to light to gain some additional term give us flexibility to get to a better credit climate. You know this is a playbook of use 10 years ago coming out of the GFC.
Extended loans got to a better horizon in some cases, we sold assets in some cases, we refinanced assets and we paid loans.
It's a playbook are familiar with.
Understood and then going back to the comment about the covenants on the line of credit.
I recognize that you said that you're out focused on them and I'm, sorry, I'm, putting words in your mouth, but I think it's because they had a fair amount of cushion is that cushion primarily because of accrual accounting versus cash accounting or Chris could you maybe just walk us through why you feel so comfortable with it with the covenants at this point.
Yeah. The covenants are on our accrual based accounting correct. So we feel like there is plenty of room, you know there's going to be on a case by case basis concessions that we have to make.
But I do believe that she'll be isolated and there is plenty of room to absorb any of that impact.
Got it.
Well I think that's a that's all I have a I hope I hope all of you and your family our sake unwell. So thank you for taking my call.
Thank you very much rich.
We will take our next question from Greg My goodness of source Scotiabank. Please go ahead.
Hi.
Think about accounting treatment.
Getting young.
Mm hmm, both above and below market leases. So curious what drove that increase and then how should we be thinking about the impact that called the $19 million disruption.
May have on straight line rent and amortization market leases.
Yeah sure drag here. This is Scott good morning.
There are a couple of leases in particular that impacted the above below market revenue those for lease modifications. During the first quarter that resulted in a write off of those noncash revenues, which is the spike that you're seeing in our supplemental disclosures. So as a first point the second point.
Regarding straight line any impact on so you know of course will be assessing a in in much greater detail or the level of collectability for all of our retailers to the extent there is a collectability issue I think everybody now it's probably more educated on lease accounting than ever war and there's a potential for.
Some impact to straight line receivables as well as to the timing of rent recognition. If we end up five reserving somebody though so.
We will deal with some of that we certainly are providing guidance at this point, though but that will impact.
Every <unk> company.
And just to clarify there that the middle East modification doing anything until the 19.
That's it.
No. They were not they were not okay and then following up on somebody's question.
Isn't there of operating expense savings actually work out to an a dollar besides or maybe there any what percent of operating expenses are considered fixed versus variable.
Ah, yes about $8 million a month. So you know it's not inconsequential by any means on most of our expenses frankly, our fixed in nature. When you consider you've got a you know debt service first and foremost, but you've got property taxes in the next you've got insurance, which is certainly not a cheap line item. So.
A very significant portion our fixed and and you know non non adjustable.
Thank you.
Welcome.
Well take our next question from Brian Hawthorne of RBC capital markets. Please go ahead.
Hi, Good morning, guys and the thank you mentioned that want to expect the fed dialect contribute co policy.
Our loan well the of the pilots are the same page we bought it causes our proprietary and then they were a point, where where co tenancy could be care that I know you mentioned part of that closes could but it will sell up old appointed before that that could do it as well.
Yes, I think when were commenting I think would you referred to in the 10-Q's risk factor.
And [noise] those are usually drafted by the attorneys are they.
Everything in there, but the kitchen sink in our case, we specifically no we're going to deal with some co tenancy, but it's a relatively immaterial amount as it relates to Nordstrom closures.
As it relates to the temporary closures.
Generally speaking, we do not think we'd have a significant amount of co tenancy concern again, we don't know how long. These closures are going to last we think we shouldn't have everything up and running by mid June but we'll know more 30 days, we know more day by day and within 30 days were going to know quite a bit more so.
At this point, we don't think it's going to be material.
Well I guess, if any outlook. So yeah I got my question really trying to get more of as time goes one of the kind of expectation of religious we'll wait 30 days and then.
We'll talk about it would go or we can kind of federal.
No just said just to punctuate, we expect to co tenancy could have a very immaterial impact.
That's that's what we see that's the Nordstrom stores so.
We're already discussed in that's any other you know any other large anchor stores that that we believe our at risk right. Now. So we believe the impact is immaterial in terms of that temporary impact from the closures of covet. Our view is there is not.
Okay. Thank you.
We'll take our next question from two bin Kim of Suntrust. Please go ahead.
Thanks.
Hi out there.
Going back that Codependency I appreciate your comments regarding that it's immaterial or little impact, but you know I.
I think what the market is trying to do our domestic Tyler and it's kind of bracket. The downside. So instead of talking about the near term exposure, but can you talk about that in in totality. So what percent of your tenant actually have.
Co tenancy clock, whether or not that might be turned the near term.
The co tenancy is given by exception, it's not the rule.
So in any given center you might have five to 10 tenants that have a co tenancy provision.
And it's usually a multitude of things is not just one.
Anchor this names typically tied to multiple acres so.
This point again, we don't think it's going to be material Macy's announced closure of 125 stores.
We had one on that list that they were planning on converting to office space anyway. So at this point other than the three nordstroms, we're not aware of any and even even with that being said.
Co tenancy provisions are very very rare exception, rather than the rule as it comes to our portfolio.
Okay, and just going back to that that covenant a topic.
I appreciate that you have significant question I had with now.
But alcohol kind of relied on a couple of things right I'm more particularly interested in it the total liability.
Key B pack, making our unsecured debt the G D activation I believe the technique or pay politics and cap rate.
I'm just curious about the risk there it from lenders to adjust both cap rate.
Reflect a different world and practically speaking if you do biologic you covenant I realize hundred arts and we work with.
All the borrowers at this point, but what it that the consequence on filings as covenants my practical standpoint.
Well, we're nowhere near any of the covenants in the lenders can arbitrarily change that cap rate as part of the loan agreement.
Yes, it's a arbitrary number and as part of the calculation, it's not based on a market cap rate in any given month or quarter. So.
They can't arbitrarily change that and we've got plenty of room on our own leverage covenant.
Okay, all right. Thanks.
We will take our next question, which comes from had done so true of move how please go ahead.
Hey, good morning level.
Morning.
So oh.
On the you mentioned.
Four to five when we sit in the since you plan to adjust the large post close it and so.
I'm just gonna piece of the comments on the dividend earlier more of a quarter by quarter consideration.
The sizable reduction going to be dealt with development pipeline one of the plumbing mistreated, but not like I'm curious what else is on the table on some of the appeal.
As a result in some more.
But that's the Furloughing swaps cutting keep in mind is no longer board, so I'm curious what else.
On the global here from a capital preservation Costa system and overhead cost savings.
So and we took a look at the bigger line items, two largest line items for us to the top three four or.
Our interest expense as well as property taxes.
As Scott mentioned, who work with some of our lenders to defer some of the mortgage payments. That's a big number you know we don't have a lot of employees, we outsource the major head count areas of security and maintenance and housecleaning.
A lot of those are variable cost as Scott mentioned that we were able to reduce.
Somebody other mall owners do that in house and that increases the head count pretty significantly so.
We went after the big line items in terms of laying people off you know our hope going into this was that this would be a short term closure and we could get our centers up and open an operating.
And.
So Joe is not to do that it wouldn't have been a significant amount of saving so.
We didnt, we didn't do that we put in place a hiring freeze and you may recall a couple of years ago. We did a very significant reduction in force reduced our headcount by about 15%. So.
Thats still relatively a current and we didn't see a lot of room there.
To do there.
Got it okay. Thanks, Thanks at all and then maybe.
I don't think called out to the corner of the conversations you're having deployments you haven't paid maybe.
So.
Some broader timeline and that's the piece and per per resolution here, let me know more about but.
Certainly something that's going to take or is it a few months. He was a few quarters and then maybe it's part of that some commentary how much exposure to percentage.
Let's leases.
Comfortable with well enough postcode world and will be no well overall occupancy.
And a lot less should we be expecting no low 90, maybe even higher.
In a post go live world as well.
Doug why don't you take the first part of it.
During the conversations the first part of that was the conversations with the retailers and I pad.
I've had a lot of them the started out with the real focal point with the retailers doing everything they could.
Who maintained a sales force and a management force at the property level that was extremely important to them because when it came time to open they did not want to have to go out and hire and train. So they did everything they could maintain those employees and candidly that could have come at the expense.
Rental payments to the fact that I'm pretty sure.
Got it has but fast forward now the all the results are doing right now is focused on opening their stores as soon as it's safe to do so I mean, there isn't a built up pent up demand out there.
Shopping community and there's also as I've mentioned in my opening remarks, a lot of excess inventory.
I think we're going to see a lot of promotions upon opening and we are getting calls almost daily by retailers, who want additional space. They may want to put a second store and one of our centers to up sell inventory or they may want to put store it et cetera that they're not in.
Just a move inventory, but that's going to be a a big part of their reopening plant.
Tom.
Yeah.
And then in terms of the up the second part of your question you asked about occupancy.
It's really too early to tell you know I'm sure there's going to be.
Some tenants that as a result to covert into going bankrupt.
I haven't seen a lot of that yet you know we see a few obviously.
And that's going to affect occupancy. So you know, we're not giving guidance at this point because there's just too many uncertainties that would include all the the ultimate occupancy level as well.
But before I understand that on any income up on pump the level what percentage of won't be too will become more prevalent in the portal.
Well I'm sure. There's hundreds of conversations are leasing personnel asset management are having with tenants is there some of that discussion going on but again, it's too early to tell how much of that we're actually going to agree to if any.
Okay.
[noise] [noise] well. Thank you everyone for joining us here today, we look forward to speaking with many of you virtually at the May read coming up next month.
Stay well everybody.
Thank you.
Ladies and gentlemen, this concludes todays conference call. Thank for your participation you may know.
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