Q1 2020 Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Simon property Group incorporated first quarter 2020 earnings Conference call. At this time, all participants I know listen only mode.
After the speaker presentation, there will be a question and answer session ask a question. During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you acquire embedded systems. Please press star Zero I would now like to end the confidence here because today Tom Ward.
Senior Vice President of Investor Relations. Please go ahead Sir.
But your jewel could be rewarded busy pejorative food presenting on todays call David Saloon, Chairman Chief Executive Officer impose Lou.
Little bit coal are going to do to foods will offer a ruling to security little.
Before we begin a quick according to the student move during this call may be deemed forward looking statements within the meaning of the safe Harbor of the private Securities Litigation Reform Act of mobility phones.
Actual results may differ materially due to a variety of risks uncertainties and other factors. We refer you to today's press release, when or if you see filings for a detailed discussion of the risk factors related to those forward looking statements. Please note that this code crews information that may be accurate only as of today's date.
Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release in the supplemental information in todays form 8-K for.
Both the press release of the supplemental information or available on our IR website at investors that Simon dotcom for those who would like to participate in the question answer session. We answer you. Please respect the request to limit yourself to one question. One follow up question for you might allow everyone with interest the opportunity to participate.
For our prepared remarks for President Bruce David Simon.
Good evening and thank you for joining us today.
I wish everyone listening today, the best in the challenging times.
Before I turn over to our first quarter results I want to express my sincere gratitude to the tire Simon team for the work that are done.
And continue to do since the co. Good 19 prices began.
The team has adapted to a constantly changing environment.
We may difficult decisions and successfully transitioned to remote to a remote work environment and our corporate and regional offices.
We implemented new protocols to adapt how we operate our properties for the safety of our shoppers employees in tenants.
And I'm frankly, very proud of the entire team Simon team now turning to our first quarter results. They were largely in line with our expectations reported FFO funds from operation was $980.6 million or.
$2.78 per share as reminders of prior year period included 24 cents per diluted share from insurance settlement proceeds and again on a sale of our interest in a multifamily residential property.
And the current period the operations of our investment in retailers.
Were negatively impacted by approximately six cents per share pretax due to store closures as a result of the co bid 19 government shutdown.
Just seem to current period for the covert 19 impact our investment in retailers and the prior year period for the insurance proceeds and the residential assets sale gain that I mentioned above comparable funds from operation for the current year period.
His $2.83 compared to last year of $2.80 Continental why was flat in the quarter and portfolio and Hawaii decreased 20 basis points year over year occupancy. It does at four are.
Premium and mall.
Portfolio at quarter end was 94% average base minimum rent was $55.76.
And our mall and outlet portfolio recorded leasing spreads of $2.80 per square foot or an increase of 4.6%.
Reported retailer sales per square foot for our malls and outlets were $703 for the trailing 12 months ended February 29, compared to $6 and $660 in the prior year period, an increase of six and a half.
Percent. When you include March even though we were shut down since March 18th reported retailer sales still increased 2.1%.
Our portfolio is performing well, we saw solid trends in shopper traffic tenant demand retail sales in our results, including our retail investments until the covert 19 stay at home recommendations and orders began to be issued in the middle of March.
Now, let's talk about some of the actions. We've taken we were the first large retail owner and operator to close our property system wide to address the spread of the pandemic. We're the first to reopen our properties of course subject to government stay at home orders and restrictions.
We took immediate and decisive actions to aggressively reduce our operating costs and increased our financial resources, including but not limited to some of the following suspended or eliminated more than $1 billion of capital for redevelopment and new development projects.
And the U.S. and internationally.
Current investment focus is on projects nearing completion, we will reevaluate all suspended projects over time importantly, our share of remaining net cash funding Rick required to complete the new development or redevelopment projects under constructions.
Under construction is approximately $160 million, we significantly reduced property property property operating expenses and NOL non all non essential corporate spending. We also made some very very difficult decisions regarding our employees.
Adding a reduction in force and furlough to certain of our field and corporate personnel due to closures of our properties as a result of government stay at home orders, we implemented a freeze on all hiring efforts, we lowered base salaries across the senior executive team.
And implemented a shared salary reduction plan for higher compensated employees in deferred.
Certain executive bonuses. Our board also played a part by agreeing to separate temporarily reducing their cash retainer fees and we drew down.
3.75 billion under our revolving credit facility, which increased our cash position, including our share of joint venture cash to over $4 billion as the end of March.
Now some some positive news on reopening the health and safety of our communities of course will always be our highest priority last week, we started reopening our properties in markets, where local and state closures.
Orders have been lifted and will and we are retail restrictions have been need it's part of the ongoing reopening process. We published our comprehensive cope with 19 exposure control policy that was developed in connection with a leading experts from the field of epidemiology and environmental.
Ill health and save yet safety experts in order to ensure the highest possible safety standards at our properties.
You can see these on our long online, but let me just.
Name a few our safety protocols include preemptive employee health screening employee safety protections promotion and enforcement of social discovery seen practices enhance sanitizing and disinfecting and of course shopper safeguards these protocols knee.
Or exceed the guidelines published by the CDC and are more robust and many of the measures deployed by essential businesses and online fulfillment centers that have remained open during this pandemic.
We implemented the temporary closures of our centers to protect our shoppers into communities in which we serve from the spread of the Corona virus and we are now leading the effort for these local economy to get back to business, while delivering a new elevated standard of say.
Safety for all now we have open as of today.
77 of our properties and are planning to have approximately half of our us portfolio opened within the next week.
We are of course, working in conjunction with state and local governments and our reopening plants shopper response to our Reopenings has been positive and sales at many tenants had been better than their initial expectations. Additionally, we know we have opened 12 of our designer and Internet.
Additional premium outlets.
Now, let me turn to our tenet update of course, we're in the midst of discussions with our tenants regarding their individual situation.
And as such it is not appropriate to comment on specific details or terms at this point do the confidential nature of those discussions each situation is that analyzed individually based upon our tenants market funded position their financial status and.
The history in depth of our relationship I am sure you can respect. This these discussions are ongoing and as we complete them. We are more than prepared to share the appropriate information our tenants are eager to reopen their stores and we are working with them to do so.
We are also very focused on helping local entrepreneurs reopened and are also supporting our restaurant operators, both nationally and locally.
Now, let me turn of the balance sheet, we have always maintained a strong balance sheet in order to capitalize on opportunities, but also to withstand economic downturns on March 16th.
Two days before we shutdown our portfolio.
We amended and extended our $4 billion credit facility with a 6 billion dollar facility that includes a $2 billion delayed draw term loan at quarter end. Our total liquidity was 8.7 billion consisting of 4.6.
Million of available credit facility borrowing capacity and the 4.1 billion of cash mentioned earlier as a reminder, the 8.7 is net of $1 billion of us in Euro commercial paper that was outstanding at quarter end covered.
So paper market is open and continues to find stability investment demand for our paper has increased allowing us to successfully issue over $375 million. During the last couple of weeks. We currently have approximately 500 million.
An outstanding between our us in Euro CP programs for the remainder of the year, we have $900 million of unsecured notes maturing and a limited number of maturing non recourse secured loans to single purpose entity borrowers are.
Debt covenants remain well above well above the required levels with significant headroom.
Now given the evolving nature of covert 19, and the global economic disruption. It has caused it is not currently possible to predict.
With certainty that pandemics impact on the rest of our years financial results.
As a result.
We are withdrawing our full year 2020 guidance for estimated nine estimated net income attributable to common stockholders per diluted share estimated FFO per diluted share and comparable property NOI growth, which we provided on February four two.
20 as of today over 700 public companies have withdrawn their full year guidance, let me turn to the dividend. The board will declare the board will declare a second quarter dividend before the end of June and that dividend will be paid in cash.
We expect to pay out at least 100% of our taxable income and 2020 in cash as a point of reference there have been over 175 public companies, who have either suspended or reduced their common stock dividend by.
50% or more we will not be one of those companies.
Let me turn to the Taleban transaction as you know, we announced a transaction with Calvin on February 10th 2020, and we will not make any comments or provide any updates on this call about the status of the Calvin transaction, we will provide information as and we.
When appropriate finally, concluding.
Before we turn it over to Q1 two in a most importantly.
I want to thank all of my colleagues for Boston Thereafter, I also reflect on the last few weeks and how our company has responded towards come to mind resilience and innovation, we have managed through many severe crisis over the decades, whether natural disasters Bob.
Well burst numerous recessions et cetera, each prices had its own unique circumstances, just as we face today with us pandemic, but one thing I know a certain assignment team will be focused on the long term needs of our stakeholders and once again, we'll come out ahead of weren't.
Now ready for questions.
Thank you as a reminder to ask a question you any tapas style one on your thoughts on.
Sure, let Jay question pest apparently.
And just a timely assets you please limit yourself to one question and one follow up.
Please stand by the capacity today roster.
Our first question comes from Alexander Goldfarb with Piper Sandler Your line is now open.
Hi, Good evening, good evening, David out there.
So to two questions from us and first David on the dividend out good to hear you talk about cash given what we've heard from others on the whole offset between accrued rents.
Joe mandating taxable income versus cash so good to hear that you guys are are going to pay cash odd. Just a question is you guys have seen reopenings in Asia and your overseas.
Centers, what lessons have you learned there and what have you seen as far as shopper rebound has it been more the core shopper coming back have people been pretty open to accepting all the accommodations and and getting back to sort of normalcy or your view is from what you've seen overseas that may take longer for the shopper and the tenants to rebound.
Well I think in.
It's actually we've been pleasantly surprised we would you like.
I think the.
The retail community in Europe.
Was a little bit more prepared to open so they've had a higher prepare a higher percentage of retailers open.
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Alex and I think the.
The biggest reason has been the rules there have been a little clearer and.
They don't have different municipalities.
Basically directing different rules so to speak so they were a little bit more prepared plus and a lot of cases their employees were not on furlough. So was easier for them to to get us at I think our sales.
I've been somewhat better than what we're seeing in Europe.
And Asia, we've been basically open except recently, Japan closed.
But.
We were doing.
Believe it or not reasonably well and Asia until kind of the last month, when both Malaysia, and Japan had a shut down South Korea has been fine.
So I think as.
I think I think the retail community Didnt anticipate we were going to open we kept telling them we were going to open we opened but the consumers actually been very.
Supportive you know obviously they want to see more stores open as do we.
But I think it's a process and you got to get started in you know you go from there. So some of the sales have been much better than what we expected and in some cases cost higher than last year, but.
That I'm not I'm not.
You know I do think for the retailers that are opening they're gaining market share there taking advantage of pent up demand.
Add.
Now I think others that are ready or are missing that opportunity, but that's up for them. We are not forcing the issue at all.
But.
In terms of whether our retailers open or not but we want it we want to help these local communities.
Because frankly, they depend on our sales tax and our real estate tax.
I think the municipalities and the government's ultimately as it appreciate what we've done over year after year delivering sales and property tax.
Payments as they don't have that.
At the rate that they're used to and I think finally will will garner some respect that we deserve.
Okay and then the second question is you know is obviously a lot of tenants I guess have have not paid you haven't disclosed the level, but I'll, let that be.
But you have you noticed your tenants reaching out to their banks, there lenders to get default waiver stope theyre not paying you the landlord, they're not being a default of their own lending standards or have you seen most of your tenants not apply for those.
Waivers from therein.
Oh, Yeah, now I I think they generally what I hear for the.
For the.
Financially.
Solid retailers there there there's not an issue in terms of them getting the capital in and.
Look I will I will tell you I mean, we're not giving a percent of what we've collected.
And let let me just expound on it for a second if I could first of all we're we're we're much better than what it.
Agnostic hitters I've read some things thinking well this is where we're at we're doing better than that but I also don't think it's it's appropriate.
You know to air our discussions in the public format.
And also you have to put in mind what percent week, we we collect in April or May.
And almost in a sense, it's not something overly to focus on because the reality is we have a lease and they have to pay so we don't have to get semantics and the way I also think about it yeah, obviously if they.
They decide they're going to they are in bankruptcy then that's when they get that you know the rice said to.
You know reject to lease but but he is also how I think about I just want you to understand this Alex same we got 50%.
And you know it's a hypothetical.
If I was a retailer and I paid to 50% I'd be basically upset that there were 50% that didn't pay on one hand on the other hand, if I didn't pay the 50% I almost feel justified in that pain, because the reality is I've got another 50% of the retailers that didnt pay.
So.
We know what we're doing here, we will navigate this is not easy, but I just think is better to have our discussion.
You know directly with the retailers and the bottom line is we do have a contract.
And we do expect to get paid AD and that but.
I know some have a market morphed into.
You know into this number but the reality is our business is a lot more complex than some of these others and and remember you know our rent roll is a month of our rent roll.
Sometimes greater than these guys for the entire year. So you know.
We're a little more complicated little bigger and work I think we're navigating it appropriately. So again I wanted to give you contact to that and I hope that was helpful.
Yes. It was thank you. Thank you David.
I also want to say the only reason I'm yelling because I'm.
As far away from the speaker in this also distance seen in our board room for whatever reason the guys put me away from the speaker.
I can't imagine why they did that [laughter].
Okay next question.
Our next question comes from Christine Mcelroy with Citi. Your line is how open.
Hi, good afternoon. Thanks.
Understanding that you have significant liquidity through your cash balance to New York and credit facility as you get closer to the expected current thinking of the timing merged or can you talk about your desire to issue longer term that we've seen.
The other hiring accrete to access the unsecured bond market. If that's something that you at Christina near term and where do you think that you can shoot that today.
In terms of accessing permanent capital in this market.
Well again, I I don't I Hope you heard my opening remarks, but I I had no. Okay. So we I have nothing to say on the a further on Talbot and we'll let you know when you know when the win win.
We have information to to provide so there's not much more I can say on that front.
Well I guess just in terms of accessing that capital in this market have you looked at doing fine deal.
Well at some point, we're going to do a bond deals because its natural for us to do one every.
Every year. So you know what were no rush to do one.
We're constantly marketing or manage ER.
You know reviewing the market.
We can issue paper.
But we're going to be smart about it we're certainly not.
Under the gun to issue any paper.
You know our ratios are you know, it's as strong as anybody that's out there.
And you know, we'll just continue to monitor it the good news is the markets there and that's why you know in.
A company like ours to have access to both private capital unsecured public debt market mortgage market, having all of those available to us as a real advantage.
And then your contribution from straight line rent it looks like it was down from the recent quarterly run rate to what extent with that impacted by a write off of straight line rent receivables to what extent have you moved any of your tenants to cash basis accounting and how are you thinking about that collected already assessment and the current environment versus previously.
Yes, that's essentially the new accounting rules that we enacted last year and we don't get into specifics about writing off straight line rent receivables.
And there wasn't there wasn't okay.
Okay. Thank you.
Thank you.
Our next question comes from Rich how with Morgan Stanley. Your line is now open.
Hey, Good evening, David two questions for me first I noticed in your supplement that you did not discuss occupancy costs I was hoping you could maybe update on what you saw in the first quarter, 2%.
Brian I was about 30%.
Thank you I wish we fired.
Yeah.
Perfect. Thank you very much thinking from a very much Brian Hey, David and I. Once it may take a bigger picture question. You know you look in the past you've been active with retailers both Airbus talent Forever 21.
Obviously, some distress in the retail market right now I can't help but things that you see this as a as a medium to long term opportunity I'm could you maybe update us on your thinking on retail investments at this point in time.
Well look I think our number one priority.
If you saw or you listen to the early.
The call I mean.
Our retailer investments were significantly impacted.
You know because of the they're having to close stores and I mean, the company's nautica arrow to sell and F 21.
Our in good shape, we have plenty of liquidity to managing situation, but if not you know I mean, it's our focus is to make sure that there.
You know there they're doing what they need to do to you know to position their business for profitability. They were not profitable in the first quarter. That's why we pointed that out last year was basically breakeven. So we have basically.
Six cents.
Change year over year quarter over quarter, I think our focus right now is.
On rich is on those operations, we're not going to rule it out or we're only taking in you know inbound calls. So you know if people want us to think about something we're happy to do it but we're not out there are running around soliciting them investments prior.
Our already is on what we got a across the board.
And Ah, but you know if I'm sure there will be opportunities and you know we're in a position to be opportunistic if if we think it helps our business.
Got it that's that's helpful and maybe just one more quick question. If I may our capacity do you ever since you ever since to pay 100% of your taxable income what percentage of your rent you need to collect and into Q.
Well I mean, frankly, we don't to collect a nickel I mean, but we are but we don't.
We we you know.
Obviously, it's going to impact our taxable income over the year, it's not a quarter to quarter issue, we're going to make an estimate.
Bye.
Basically June ish mid June what our taxable income looks and won't be smarter a month from now and that's basically why we're doing what we're doing and we will I think we will have been through most of whatever discussions we're doing with our retail.
Others will know at that point, how many properties are not open.
So we'll be able to narrow that down.
We have a decent handle on it now but the fact is a matter is as long as we declared a second quarter I'd, rather be smarter on it and.
We think another month of you know, making sure we know what's gonna open win.
Will will will give us a chance to really fine tune that and then we'll go from there.
Well in our alright, well again and again in my text I gave I gave you an indication of.
What it wont be okay. So.
I'm not really certain what it will be but I toll I gave you a really good hit you know what it won't be so I hope you understand that.
But I think in another month or so we'll be able to fine tune it.
Got it David Thank you very much a good luck I hope you in your team and your families are all a safe and healthy you as well. Thank you.
Thank you in our next question comes time, Mike when you have with JP Morgan.
Your line is high.
Yes.
Okay first what does the reopening expectations for the tenants that are on month to month leases in quite some she asks.
I'm sorry, you weren't you did we got we didn't get all of its Mike can mean something about loan.
So one more time, yeah, I was going to say.
Yeah, what are your expectations for the tenants that are a month to month leases and memory opening.
Well most of those are local and entrepreneurs and actually.
I mean, that's the great thing about America, they want to open.
They don't you know they want to go to work they want to open.
We're very focused on.
You know healthy men I mean, obviously will screw somebody up somewhere just because we're you know where Ah you though.
You know because of our you know we won't do everything perfect, but we're going to help that that group they want to open and I've been very pleased.
And our team has been very pleased by the amount of local and month to month people that want to open.
So I think that's their livelihood and boy do we appreciate that and you.
No we want them now again summer waiting for you know PPP and so on and so forth, but but a pretty good pretty good.
You know pretty good or or interest on that front.
Got it and for the centers that you really think about what percentages would what percentage of the tenants opened up as well.
It varies all over the place and every week will get better again, we it was very interesting I don't I don't think that community, even though we were trying to keep them up to speed and even though some days we had to change what we thought was going to happen because it change.
And it was a very chaotic up and down waiting for for governors to order.
Real real actions some doing it so I'm not doing it some different it's a municipality.
I think we manage it as well I can't tell you how across the board.
The many states that really were impressed by our Cobiz response efforts.
Across the board and I talked to many governors many chiefs of staff, a and I think it was universal and praise and and frankly, our team a work very hard to do that but I think our retail community just was not waiting a little bit and now it's.
I mean, and you know I'm feeling good about it but every property is different I don't have a number that says of the 77 here it is ah, but it'll get better each week.
And the good news is on their part okay. So.
I will tell you are department stores.
You know.
We're actually Dillard department stores or was ready with us.
Macy's is or is there with us Belk is opening Nordstrom is gonna be opening the next few weeks, even neiman Marcus is opening so you know that that whole group Kohl's, we saw really good.
Reception communication and wanting to get open I think I think people want to get open. They want go up we have Oh, we have a job to do in how we operate differently than what it was a year ago, we understand that we've got a monitor that but.
You know people are ready to open and and that compete with you know the broad array of options.
That the consumer has you know you know the biggest misnomer in this whole thing was that industry was shut down not really just certain industries were shut down and you know our our.
I think our folks are ready to compete and we'll see what happens.
Got it thanks David.
Sure.
Thank you. Our next question comes from when the size of Jefferies. Your line is how open.
Hi, I'm trying to clear stock trades on implied cap rate basis, what's your willingness to buy back shares at the current levels.
Well I think we're going to be relatively conservative.
Just given kind of the nature of.
You know.
You know the pandemic and making sure we get the portfolio open.
Well, we did buy shares back in Q1 early.
So we believe in our business we also.
I will say that you know when we looked at what we're.
Planning to earn.
And again this is subject to change, but what were looking.
To probably earn this year in next year, obviously subject to fine tuning, we're tremendously undervalued, but the though but we get it right now we're going to be conservative and.
There's just no reason why we should be trading at this multiple but you know we get it and won't be conservative and you know it is whether this.
That's not our primary focus right now.
Getting the portfolio open taking care of our employees.
Dealing with ER and other retailers in the community that's the primary focus.
That makes sense and then I realize you delaying the bulk of redevelopment spend that how do you feel about 7% to 9% yields on redevelopment longer term.
Well I still feel reasonably good that you know our our pipeline that we had was something that would it'll be beneficial to the company name and its shareholders. I mean, obviously, we've got a you know we've got to.
See where we are we're still early in this even though I think we've turned the corner because were almost half open but you know we still got a lot of the a lot of properties to open.
We do think this pandemic will.
In fact certain properties differently.
Obviously, you've got the you know the northeast, where we don't know when we're going to open there.
And some of those projects that were focused on.
You know will be well, Mike My change of property and you know, Oklahoma that I'll, maybe all systems go when our property.
Somewhere else because of.
You know.
You know various factors you know we may we may put on hold for awhile. So it's really going to be it's really going to be like it always has been but even more.
You know even more today than ever it's gonna be.
Its going to be really focused on the nature of that particular property.
Where it's located the consumer demographics all this stuff.
You know is.
You know is changing and we'll just have to have to have to see it's also going to be impacted by you know is it an indoor center and outdoor center. So you know all these things are at least currently.
You know with the pandemic all basically.
Things that we're gonna have to take into account.
You know for the future and things that things are different we recognize that.
Thanks for those additional insights I just have one last one what are your expectations for remaining 2020 lease expirations.
Well I mean, it's going to be at retailer.
So.
It's going to be retail I'm, sorry retailer by retailer I'm sure we'll have some follow up.
But generally we have a you know a prosperous portfolio for the retailer I think you know the big issue is what they estimate or their sales to be in it or this year and obviously the more.
They get comfort in that I think the higher probability that we'll have the success that we've had historically.
Thanks.
Sure.
Thank you and next question comes from Dan Johnston with Deutsche Bank. Your line is now open.
Hi, everyone. Good evening.
So David your sub sector has enjoyed a heavy toll and you know being at home for Awhile I think people, probably do want to get out and hopefully shop. So I mean, the question is how does your cycle tested team Pullets Atlas and what are the plans to make customers and retailers comfortable and.
I guess more importantly excited to get back to balls.
Well I just there when you say subsector, what what are you referring to.
I just mean malls in general has really taken I know.
They're Derek we are not I'm all company, we are predominantly a retail real estate company, but.
We're not you know I wouldn't by any stretch of the imaginations you know considers a mall company. So.
No that's essentially how I would answer I mean, we are focused on retail real estate, but.
We are not we are not a mall company and I think we've been consistent on that for you for years.
Okay.
Second and then I think on your I think the other point on your answer is.
You know I I think it's got to certain properties in certain areas.
Organic are gonna be just fine you know and then others might takes a longer.
Now you know to to get up to speed and you know.
Are you know indoor outdoor centers in.
That are dependent on tourism you know.
It could be different I think every property.
Nick you cannot first of all you got to understand where we're not them all company.
And number one we've never said that even you know for years and years and years and number two every property.
Yeah, it's gonna be somewhat differently, and and the demographics or what happens and that local trade area. You know is this oil go back up to 50 Dot you know again, there's no blanket statement everything looks you know really has to be looked at in you know kind of.
Regionally and so on.
Okay understood and thank you so.
A lot of investors are going to green negative assumptions and speculation on your lack of commentary on the Taliban merger, so without talking about how women at all what would you say to those investors here and now directly.
I said, what I have to say.
There.
Okay. Thank you.
Thank you.
Thank you and next question comes spend and keep them late teens CIT advisors. Your line is kind of okay.
Hi, good afternoon, but what's the rationale for reducing the redevelopment pipeline. So drastically was it primarily a balance sheet related decision and how do you think about the impact is taking a pause redevelopment.
Could have on the long term positioning on some of these properties.
Well, that's you know believe it or not I'm, a grizzly veteran and I've seen a.
You know.
I am proud that we've always been able to flip our toggle switch on and off.
You know depending upon you know economic scenarios and the reality is.
We have a great pipe it'll it'll end up being dependent upon the particular property.
And we can switch it on completely also remember that fact is construction was.
I was a lot of places.
Forced to shut down.
And Ah we felt it was appropriate to be conservative in the stat.
And the reality is you know we can turn it off we can turn it on we're never going to get over our skis on that front and you know won't have as I think about it will add two or three bigger decisions to to make.
Are you know in Q3 Q4 on a couple of projects one internationally to domestically and the rest of them you know all whoa I'm you know restart when we feel good about the environment.
That makes sense so to staying on redevelopment for second I mean, how do you see anchor redevelopment changing post cove, it and when the economy starts to rebound diseases discussed its kind of some high level Backfilling plan. If there was an acceleration of department store closures.
Well I mean, that's you guys are smart I I'm not sure I believe I I'm not sure I agree with a Lotta research, but I do appreciate you do a great job.
Well, it's in variable that.
There will be some.
And it all depends on the opportunity all depends on property specific.
Information.
We do think that.
Department stores still play a meaningful role in a number of properties are they also whether through lease or not there's some good real estate there and you know we were as you know on that on the a very focused.
I'll bring those boxes that we'll continue to be a long term focus for us.
Without question, we have great real estate were more than a mall company.
And the ability to redevelop are great real estate, you know is a hallmark of this company and something we will continue.
There's nothing wrong, we're taking a pause while we you know short our way through a pandemic yeah. We've dealt with a lot I honestly say I haven't dealt with this but we're back up and running almost half the portfolio. We're feeling good about what we've done feel good about.
The balance sheet feel good about our people and what they're trying to accomplish.
And again I think the ability to redevelop real estate that we get back will be an important component.
What we do that add value going forward. So we're not that hurt.
By the current events, but we are taking a pause as it sorts its way through.
Okay that makes sense I appreciate the color no worries.
Thank you and next question comes from Craig Smith with Bank of America. Your line is now open.
Thank you.
Even open for two weekends I wonder if you could comment on how the consumers are.
Being received by the different formats outlet malls, whatever and by the different geography.
Well I would certainly say outdoor.
Folks outdoor centers feel a little bit.
I'm more comfortable and I, obviously would say you know.
That the states there were opening that you know.
You know it is so dependent upon those you know kind of the state and the the.
Where things are and generally the suburban.
Outside of kind of the major dense areas seemed to be.
Doing better I do think there's pent up demand I'd say the.
You know the consumer is probably a little more.
Moderate as opposed to high end yet in our outlets were seeing some really good traction with some of the higher end brands.
As they as they sell their goods. So I do think that maybe from a moderate customer that's having the ability to.
Just to shop, there, but to little early to say, but you know some of our good bread and butter states.
You know, we feel pretty encouraged by.
Great and then I just wondered if there any plans to expand or extend curbside shopping helping the consumers transition to shopping in store, Oregon.
Well sure I mean in some cases.
That's that's all that you can do and.
So to you know we're there to help the retailer if they.
You know they need our help.
But in a lot of cases, they you know they've already have their own protocol. So.
Walk I think it's it's a helpful and beneficial but you know it's more important ultimately for us to get you know to get our properties open.
Full.
Okay. Thank you.
Sure.
Thank you Yeah. Our next question comes Sanjay I mean, that's the PMO capital markets. Your line is how often.
Hey, Thank you.
David I was hoping you can maybe discuss the reduction in the operating costs or one or more in terms of what you've been able to do and if you can quantify the actual savings that you expect your on the full year of operations versus maybe your initial budget and along those same line.
And with most of your tenants on fixed Cam reimbursement or is there any carry through there are no and maybe you can just also quantify the reduction corporate spending just help us get a better shield to what that actually looks like.
Yeah Jeremy.
You know as you know we were three guys and so we really can't do that but obviously when your property is not allowed to operate and open and you know we have the ability to reduce all sorts of cost and that's really yeah.
On one hand on the other hand.
If you've taken if you've seen our protocols and we do open.
Yeah, we're gonna have a additional cost of running the centers.
And I'd say, it's hard for me to give you a number because the reality is I don't know when we're gonna be eligible open the entire portfolio.
But as soon as we do that you know we're going to oriented we'll try to give you the new normal.
But you know we are when we are opening we are one shift.
So that does save US you know I'm hopeful that at some point, we you know will come away with that because that that's just good sign but we're not quite there yet.
But you know when we do open we you know we have extra.
Maintenance cleaning et cetera. So you know it's it's there's so many variables right now that you see it just I can't really do it and it's hard to do it right now without without knowing the entire when the entire system opens up and Howard open.
Ends up and what our restrictions are gonna be by the way, we don't think they should be.
Just to be gone the record we do think we should be able to be open. We have we have terrific protocols. There as good as you know any of our other competitors, which are you know the online only operators and that you know the big boxes and so on that no that continued.
Right you have the same distancing yeah, we're limiting the amount of not a personnel you know we have to one yeah. We were were handing out mass we're doing everything that all the other competitors are doing well.
Including the you know the the major Ah you know online competitors.
So we do think we should all I mean, I want to go on record, saying that.
ER and we do think we should calibrate that obviously, we're prepared to operate clearly within any any government protocols, but we do feel like we should.
We should we should open.
And as clearly you know you know if yeah, clearly our outdoor center should clearly open.
But in any event I just can't give you the number because I don't really know you know when were when we're opening we are saving some money, but as we get open you know a lot of that will go back into the property to maintain the.
You know the the protocols that we're you know we're we're hoping that can you know what we're doing our share in those communities.
Well I hope the communities appreciate what we're doing I hope. They appreciate you know what we do not only in sales tax but in property tax you know my favorite obviously is in long island.
You know were I won't name them, all but you know we send probably in total over $60 million and property taxes for a couple of properties. You know my guess is you know what's right protocols, we ought to get a chance to see what we can do especially as our competitors are opening.
You know selling.
Stuff this clearly more than non essential.
Clearly more than non essential.
So long winded said long winded answer to your.
Very straightforward question, which is I can't really didnt.
Okay.
No I think that's fair and argue or you. Just you are you willing to comment on their employees. So high that reopened property can take it employs our furlough have you seen any attrition or employees can play not returning that's something that's kinda percolated out there.
Hospital concerned.
Yeah listen I think.
You know ER.
Just a whole employee thing even in the.
You know when I went back to Indianapolis.
Was 1990, and obviously retail real estate, there that was a serious recession.
And we had to go through very painful downsizing.
This is a sense that basically 30 years ago, we've never really had a.
No reduction in force or even in the recession.
The great recession, and no eight or nine we didnt have a reduction in force. So we went through that I feel personally terrible for it.
And then you couple that with the furloughs that we had to do so.
Just a very painful.
Scenario and I do think we as soon as we.
Good our system open I'm hopeful that you know we're going to call as many people back as we can.
For a while I hope.
Hey.
I'm not that they should but I hope they.
Or at least can understand why we did what we had to do.
And I hope they do come back I do think we've been pretty good so far and what we've opened.
And then I and I think as our level of activity increases.
You know.
We're going to bring as many folks back as we can.
We did have a permanent reduction in force, we do not plan on bringing those folks back and you know obviously you know that's.
That's something we want to their do I didn't think I had to do that again, we built this company.
Not to do that yeah, but you know, but we felt like we had to do that and.
You know I apologize to the folks that were impacted by that no. There's no good excuse.
Yeah, now and and the second one for major so more positive to go back to your opening comments about innovation coming to mind the last few weeks.
Maybe you can just expand a little bit more what that means what you're doing differently and then just what else you know maybe bigger picture you're looking to do that you start to think about potential change it sort of modeling and how to capture the centers a cure rate down possibly differently.
Including you know just you were going down the path of adding some makes you see this change that aspect at all are just too early to make some of those calls no I.
As I mentioned earlier, Jeremy I do think.
The whole redevelopment of our properties will continue to be very important.
I would look to what we're doing now is that as a.
As a pause I'm, making sure that.
We have a better feel for the landscape and the fact is you can't redevelop anything if you can open you're probably okay. So Europe. Please understand we're still confronted with that with that Atlanta.
I think we've just been so innovative on how we opened the portfolio I mean.
I mean.
We've been no the ability to do what we did as fast as we did as high level as we did I don't think anybody.
Really.
Could appreciate that and in scale and scope or I think in what we're trying to do with our retailers again I'm sure there'll be a difference of opinion on that but but what we're trying to do in terms of.
No I'm listening to what their issues are maybe not a green, but certainly trying to have a constructive dialogue.
You know segmenting.
The retailers out in the various categories, putting the right people involved again you know, we're we're not going to bear a thousand we're going to have some conflicts.
Because we do believe in our contracts, but no we're clearly.
Trying to do that Innovatively were true really focused on the local community trying to be innovative there and then just listening to consumer what we could do and learn from there.
And then I think technology will be added to our properties to enhance their.
To enhance the consumer experience.
And certainly the keep them say, so there's a lot more to come but you know we are.
Basically eight weeks into this right almost eight week and we're learning a lot and doing a lot I expect that to continue.
Great. Thanks again.
Thank you.
Next question comes from Tecan Kim at Suntrust. Your line is challenging.
Thanks, and good afternoon.
So David whether or not a mall or because you will see centers open or not one of the challenges that you face is.
'cause diminished capacity right because less traffic than normal.
So I'm just curious just conceptually I don't I don't really care about the April Amazing collection.
Like of conceptually how are you thinking about what French should be coming to kind of front transitional phase and if your approach more along the length of hey, if the city's open in the ball is open to safely renters do or.
Things are the more accommodating.
Well again I I think the short answer is Ah I think I've addressed a lot of this but the short answer is.
It's very much shape.
You know property by property in a retail by retail.
Process that we go through we use the judgment.
That we've had 60 years of experience, we will not always get it right. What we try to rely on that we also know from the retailer what how they're treating us I mean, it's a two way street and.
You know, we try to put it in a blender and find out a solution I'm hopeful we can do that but there's no guarantee that that we are we can't and I think the receptivity.
From our properties is really going to be you know I mean, I I do think it's gonna be.
So a lot of it will depend on the consumer demographics.
And where that property is and you know one and you know what's the psyche.
Consumer you know really has been affected I can assure you.
At least based on what I'm seeing that certain properties that we opened the safety if that consumer.
Hasn't really been effect.
You know it may be affected elsewhere.
Okay and.
You've talked about the benefits of the find them path form at a scale that you haven't how much of an advantage. It is.
Hi, just broadly speaking do you think.
In this type environment, where Chris kinda become economic challenges.
Many that don't have the same scale, maybe smaller could be disproportionately impacted.
Yes without question.
Okay. Thank you.
Thank you and next question comes from Nick You recovered Scotiabank Your line is Hamilton.
Oh, Thanks, I just wanted to go back to you know this this topic of rent to falls I mean, you do in the 10-K disclose that you have given some rent deferrals, you're not saying you know what they were or not but I guess I'm. Just wondering you know what what what drove the decision to do rent deferrals.
Which you did do some Ah so far versus you know conversations that you still have with tenants where you haven't made.
Decision, yet you know what the outcome is gonna be.
Well it so it's a retailer by retailer discussion I mean, we have we we went out of our way.
Knowing the extraordinary.
Yeah changes that this pandemic has created.
ER and given our financial wherewithal.
We went out of a way.
To offer deferral or for.
A lot of our retailers and.
No we felt that was.
We had the balance sheet and the cash flow and everything else to do it and we just felt it was.
The right thing to do or even though there's nothing on the contract.
That that a alleviate their contractual right to pay rat.
You know in the 90%, 95% hi, all of our leases. So you know we just felt like you know we can we can we can help simple as that.
And in terms of just going back to the timing of I think he says one by the time June comes around the board is going to have more information on taxable income.
Other items I guess about ultimate collection of rents.
What how much though is that going to depend on you know the reopening of younger centers, a and I guess as well you know how much of your if you have already giving some deferrals I mean, how how much of the portfolio is kind of thing question right now in terms of.
You know where ultimate rank collection is gonna be and and you know why is it that when you get to June you think you're going to have a board you have more confidence and ultimately where your income may satellite this year.
Well I mean, because the reality is we're opening centers now which was the first hurdle.
Well no you know every week, we're opening more centers or will make further progress on you know, where we are with or retailers.
You know I the amount of information that I have today versus what I had a month ago is exponentially higher.
I would expect the same thing do a core and and it's the most thoughtful thing to do since it will still be declared in our second quarter is to have another month of information or thereabouts on all the factors that go into our taxable income.
And again I mean, I indicated earlier I don't know if you listen to my opening remarks, where we think it is today.
You know, but you know another month or five weeks from now I'll know more not that complicated.
Okay. Thank you.
Okay.
And can I next question comes from last quarter, David IVC capital markets. Your line is now open.
Hi, guys I'm sort of a few quick modeling questions at the first one is you have much exposure to hotels I imagine, it's pretty small, but you know with Revpar down 90% of my start show up in the numbers.
A very small, but we are the ones that we do have are not open I.
I think one it's actually but yeah, it's very small very small.
Okay, and then a lean into your accounting expertise here now what should the pipeline is smaller will you be capitalizing costs going forward or with the projects.
Suspension MAU can you still capitalize the cost.
Well you can't capitalize the cost of its you know.
Suspended.
It's not going to be a material change one way or another.
Well actually would keep capitalizing costs on those projects that are still active as of right now.
Okay. Thank you very much.
No orders.
Thank you. My next question comes from Christine Mcelroy with Citi. Your line is how open.
Hey, it's Michael Bilerman Christie.
David I think they don't want to know how you do at home schooling.
Rather than what you're doing on the different site.
Oh home schooling.
Yeah, well, just what you're doing [laughter].
How you are as a teacher rather than the new ours.
Yeah.
Very good.
I'm not sure what I do well [laughter] show [laughter]. So as you think about on the dividend and you talk about the gene making decision decision why not wait until the end of the year, because it's an annual election out an accordion quarterly election, and trying to figure out when all said and done because I don't think any of us now.
The gap and length of this pandemic and things we could get out a resurgence in the fall.
When they get a research and small the reopening right now so why not wait until there's more perfect clarity.
For annual taxable income.
Well I think we'll be at a pretty good spot I mean, we haven't were bucketing. It now we just want to reaffirm our.
Buckets and get more information I I want to <unk>, you didn't say something about our openings.
But.
Unequivocally are not going to increase.
My opinion.
The potential spread of of cold.
And you know communities May go up but don't blame don't unless you have science don't blame it don't blame the old you know the or openings on an increase of mechanisms covert I I don't I'm not sure that I would create that causation, okay. No I'm not I'm not saying, it's your asset I I just.
Yes, that's something I just wanted to make.
No I'm, saying is generally [laughter] cannot only how many.
Well I think it's possible right I mean are there could be markets, where there is a spike and and its reduce but I mean.
No common sense would indicate we're just gonna have to figure out how to live with this a threat for awhile.
And again, I mean, I'm not I'm not in charge, but we'll do what we need to do.
And if there's better technology or if there's a better idea you know our protocols and I've said this to states municipalities and you know we study what everybody is doing but the reality is if there's a better way to do what we're doing well do it that simple yeah.
And because it will change I mean, no will be better protocols and what we initially set forth I'm right, but Michael I do like look I think it's important to the investment community to do the core I mean, it goes back to your.
Your first part I mean, I do I do think there's good it's good to have a quarterly cadence.
We're in a position financially to do that and the reality is we think it's the right thing to do just to fine tune it get more data.
Over the next four to five weeks and go from there right and paid in cash and had greater than 50% of weren't once before which is in your in your opening comments Wow I I think we said we want we won't be like the probably by the time its June it'll be over 200.
I said it won't be why not at least 200 companies that will be less than you know then 50% based on what we know today on our modeling so I will pay the cash as you know we're going to pair taxable income and we're not gonna do you know that you know.
The weird stuff that you know you pay the you know that whatever they call that thing what are they called it into straddling the one tax year to the next whatever [noise].
If you think about going into this pandemic, obviously the retailers a number of them weren't were struggling I think one of the frustrations you had was on the ecommerce businesses that a lot of these retailers are operating were generated a lot of the sales.
By your assets.
While the sale been take place.
At your mall or outlet.
Well No center.
They were developed.
From that interaction.
As you think about where we are today with most of the retailers on having access to their store front I'll because the E. Com activities are growing pretty substantially and getting a lot bigger adoption by consumers.
Is there an opportunity is you go forward in these restructurings or deferrals or whatever you're dealing with your tenant to restructure all of the leases with.
The retailers to bringing things to sort of the current to marketplace.
Relative to when it does leases were signed.
Well look I think the you know.
Lets just say this the internet.
For retail.
Whether it's a marketplace or the or the or direct to consumer any other.
Yes. It is this is a big competitor to our entire industry. It is part of our industry.
And you know we always have to you know compete with it and or our greatest asset is the physical one.
And service and and those kind of things and.
You know, we will have to see how that evolves I do think a number retailers are frankly, you know shipping right now even if we're in a in a place where we're not allowed to operate.
A lot of retailers are accessing their store in shipping.
You know shipping directly from that store or sort of interesting to see what happens with that.
Even though we were not able to operate you know there in their operating.
I'm sure there social distancing and all that stuff, but they're in their operating.
You know you know selling E commerce, so a lot it is the internet.
Certainly.
You know it would be hard to intellectually.
Argue that is.
This scenario has increased.
The option for it and you know woltz, no, but where we compete more figure out how to compete and.
You know the stores are important to the retailers that have both.
And I think that will remain the same.
I do think.
Perhaps there is some thinking out there that they don't need is bigger.
[noise] storefront or or or store that work I think that could backfire on them in the long run.
No because you know it's kind of out of side out of mine.
And but you know, we'll see I am sure there will be some retailers.
You know that will you know.
Just a sense that's the fleet the store.
That work is not as important as it was you know three months ago.
I think.
I, Yeah, we'll see how that shakes out what role we can play in that.
Mike you know I think they might be making the long decision, but that's not for me to say, that's just my own instead I.
I mean looking here do you hear about people, saying lets office space, we never have to go back to the office, there's like any stores. So I don't see us being in our homes, 100% at the time working in shopping I do think we live in society that.
Craig some of that.
But you know theres going to be significant change as we come through this because a lot of your tenants. Unfortunately don't have the wherewithal to get through a lot of tenants just don't have the wherewithal, whether their office tenant living in apartment I mean, there's a it's a real recession going on.
And so it's just getting from 0.8 a point b.
Where we are Oh, we are clearly a aware of that for sure yeah.
Last question and I get your comment no comment status update on common.
The question I have is like so what is the rationale you don't have a shareholder vote.
So I didn't think there would be anything restrictive on that.
You talked a lot about the.
Decisive.
Actions, you're taking immediate actions, you're taking aggressive actions you've taken to protect your enterprise why not mention anything about a pretty sizeable deal that you entered into where there is a proxy upstanding, what's the rationale for not providing any update.
Look.
Michael are the only reason why.
I love to get back on the cost because you know.
Your your your yeah. It makes me you make me laugh and your good guy, but the reality is I've already answered this question.
And you have anything else, let me know.
Right and that was just more so I didn't want to get the nice didn't know if there was a legal reason why that that's the only thing I didn't know if it wasn't legalities and you can't speak about it that's why acid in that way.
I appreciate.
The way you asked it was it was very gentlemanly, but I've already said, what I'm going to stay on top.
All right I appreciate the time David.
Thank you be well you too.
Thank you.
Our next question comes back on hand does seem just couldn't get hurt your line is now okay.
Hey, good evening out there thanks for coming my question.
David what can you tell us what can you update can you provide us on forever 21, specifically I understand your earlier comments on liquidity and you're not making any new retail level investments here, but I'm curious if you think investing capital today in the forever 21 platform specifically for the long term.
Still worthwhile in this environment.
But we actually capitalize it pretty reasonably well so.
You know we're in good shape right now and there's no need for additional capital.
So you know a obviously, it's important for them to get the stores up and running an operating Ah, but it's it's a between us and our partners of.
I think brands group and Brookfield, we're in pretty good shape, you know to to weather the storm.
Okay helpful. What can you tell us about the Carson outlet joint venture project you have with makes my understanding is a bit of a court battle with the city going on there and that the projects you can give a standstill, but I'm curious if you think the probably towards the future and if you still be.
Going to pursue this project once normalcy returns to the world and it might be a project you'd be willing to pursuing your own if need be.
Well look I I I will the only its census in litigation I really can't comment, but I encourage you to read the complaint that we and May switch filed against the the agency.
And Oh, it's all I mean, it's a lot, but it's all spelled out.
And plenty of time is path.
This was this has nothing to do with.
The pandemic.
This was going on for several months.
But I'd encourage you to read the complaint it's all spelled out.
No black and white lots of pictures too.
A couple I think the colored actually I'm, not even sure but some are colored.
Okay.
Sure sure I know we've taken a look we're just curious if there's something that perhaps has a long term future, but understand what's going on so lastly, any how should we think I'm wondering I guess, how your redevelopment approach overall might change your post Kirby Oh are going to require more of a premium spread the you'll spread versus a cap rate.
Even matter, a and any thoughts on what a more appropriate measure or how you would focus stuff quantitatively in determining whats project to pursue versus versus others.
Well I mean, it's a lot of its based on our years of experience and judgment.
No I, it's interesting to cap rates matter. That's a very good question. Okay put that aside you know we look at return on investment.
Well, obviously, if it's too low.
You're not creating value for the shareholders. So.
No cap rates are and art not necessarily a science, we tend to look on return on equity return on investment.
But walk I think right now we're just you know we're focused on.
Finishing what's really almost ready to complete.
We have.
And then we're focused obviously on on.
You know are getting our portfolio often running and that those are the priorities right now.
Fair enough. Thank you.
Thank you.
Okay. Thank you I appreciate your Oh.
Allowing us to move the call we change it up because we have our shareholder meeting tomorrow and that was the only where we could pull everybody together in the remote offices. So thank you.
Ladies and gentlemen. This concludes today's conference current thinking about that dissipating you may now disconnect.
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