Q2 2020 Macerich Co Earnings Call
Let me switch company's second quarter 2020 conference call at this time last 90 days out instead of having to wait shortly we appreciate your patience and please remain on the line.
[music].
Please standby.
Welcome to the May switch company's second quarter 2020 earnings conference call today's call.
At this time at the turn coverage over to Jim Vice President Investor Relations. Please go ahead.
Good morning.
Our second quarter earnings call. During the course of this call will be making.
Statements that may be deemed forward looking like.
I would say Harper.
Litigation Reform Act 95, including statements regarding projections, I am or future expectations.
Actual results may differ materially different varieties.
And then start teaching worth in todays press release number at CP.
Including the.
Impact there's been no go kind of.
19 of the U.S. regional and global economy.
Conditions in Brazil, and operation because the company.
[music].
Reconciliations of non-GAAP financial measures.
The most directly comparable GAAP measures are included in our you really and supplemental filed on form 8-K.
Which are posted in the industry fraction of the company website <unk>.
Oh.
Joining us today.
Tom Ohern, she thinks that Oh.
Scott can Clarke senior executive Vice President and Chief Financial Officer.
Usually you're exactly like the company.
With that I'd like turn the call and purchase tall.
Thank you gene.
Thank you all for joining us today, and I really hope all of you and your families are safe in saying healthy.
As you read in our earnings release. This morning second quarter was a very unique and challenging quarter as we continue to battle the servicing cool 19.
Early April older tell centers will close by government mandate.
Our results will obviously adversely impacted in the quarter, you're most of the centers being closed or two thirds, but the core.
Our number one priority during the quarter was the safely reopener centers there get our tenants.
Opens you can get their employees rehired safely dr. worked in a welcome back or shoppers.
I'm very appreciative of your entire research team did a tremendous job getting our centers reopen safely.
By July 10th all but two of our assets both in New York City at reopened.
This was gradually returning in her centers open for at least eight weeks sales were returning to near pre cobas levels.
Shoppers were back in most of our tenants at reopened.
Well in July 13th do much spiking Kogan infections in California, the governor mandated a second partial closure of the stage, specifically closing churches fitness centers indoor dining stores an enclosed malls.
We are searching goals in California, nine of which are in cost.
Tenants and those malls. However, if they have a direct insurance from the outside can remain open which includes 38 of the 45 anchor stores in their centers.
At this time, there's not a specific timetable for reopening the California centers, we do expect or to New York City, New York City centers to open within a month.
[laughter] similar significant measures we've undertaken to improve the safety of all of our town centers, including those in California are we significantly upgraded our air filtration systems in our clothes malls to leverage level considered to be hospital quality.
We had a gauge the clinical ahead of infectious disease that you see Olay Medical Center would you want advisors that are protocols and policies as it relates to opening and maintaining our centers in the safe manner.
We hired nationally renowned engineering firm to advice and advanced age CAC infection control in our enclosed malls.
We get summit implemented modified hours, new operational rules regulations and protocols.
We're accommodating curbside pickup for retailers.
Given that most of our centers were closed in April and May.
Rent collections were a challenge.
About 40% of our tenants paid rent for April and May.
Jim cash collections came in at 58% in July is currently at 66% increasing every day.
Sure just the first week of August collections are 51%, which puts us on pace to be much better than July.
So most of those tenants not paying people they read.
Generally come to terms with them on deferring those months with repayments and 2021 in many cases in exchange for landlord favorable amendments to leases.
There were some large reserves from collectible rents in the quarter, which Scott will come in.
In a few minutes.
Cash flows improving by the month as we move into the third quarter I expect that to continue.
As of today, we have some significant liquidity and currently have approximately 600 million the cash on the balance sheet and that will increase as recollections growth third and fourth quarter.
As well as when we get 45 million or so in loan proceeds when we closed the financing of the apartment tower at Tysons.
The tenant reaction has been good to the reopening.
10, it's almost without exception were eager to get reopened.
By mid July.
For centers open at least eight week sales were about to 90% of pre covance levels.
Consumer shopping with purpose and there's pent up demand in some revenge bike.
Our second quarter was more about getting centers open safely and getting our tenants open.
And less about leasing.
Focused in the third quarter is back to focusing our leasing and Doug will elaborate on that in a few minutes.
[noise]. This crisis has shown the importance of brick and mortar locations as a key channel of distribution.
Although it has accelerated sales of many digitally native brands increased sales cannot make up the lost profits from the physical stores.
E Commerce is an expensive business model due to high delivery costs greater product returns.
Hi, consumer acquisition costs.
Let me channel business models have become critical to almost all retailers, including most of the digital brands.
You were drilling in accelerating ecommerce sales it cannot make up for the loss sales and profits from the physical stores.
The crisis has emphasized the importance of brick and mortar locations as key sales and profit drivers for most retailers.
During the closure many of our retailer for filling orders out of their mall based stores.
Upon reopening buy online pickup in store has been even stronger than it was pretty cobot 19.
Certainly cobot 19 has accelerated bankruptcies that frankly, we're going to happen anyway.
Those tenants that have filed for bankruptcy this year role in our watch list for a number of years and their bankruptcies or not a surprise.
Good retail is not going away, especially in a quality centers.
China is a pretty good example, post Kogan example.
Hi, late March nine weeks after the country shut down 90% of the malls reopened and traffic had recovered to about 85% of the pre coded levels that is very similar to the numbers were seeing in the U.S.
Our town centers are vital part of their communities annually our portfolio generates 1.1 billion in sales tax revenues benefiting local and state governments in their communities.
Our centers employ approximately 110000 workers many of whom were furloughed are laid off and it's great to see so many of those people back to work.
The states and communities, we operate in benefit from 225 billion property taxes and it was.
Now as we look at the balance of 2020.
Second quarter was obviously extremely unique the likes of which we've never seen before.
The adverse impact of having all of our centers close for most of the quarter was significant.
We had some pretty significant bad debt reserves, which you'll hear about the moment.
And although there are still many uncertainties.
We can I think clearly say that the third and fourth quarter will be much better than the second quarter 2020.
With that I'd like to turn it over to Scott.
Thank you Tom.
Given the government government mandated property closures in our portfolio, resulting from cover 19, which on average have last in 71 days through today.
The second quarter reflected a substantial decline at financial results versus the second quarter of 29 team.
Funds from operations for the second quarter was 39 cents per share, which was significantly down versus the second quarter of 2019 at 88 cents per share.
Same center net operating income for the quarter was down 23% and year to date.
Same center NOI was down 11%.
Changes between the second quarter of 2020 versus the second quarter 2019 were driven primarily by the following these figures are at the company share.
One increased quarter over quarter bad debt expense of $37 million.
Bad debt expense and total company share was $40 million into second quarter. This represents a 14% reserve on second quarter leasing revenue and a 24% reserve on second quarter collected lease revenue.
Elevated bad debt expense alone caused a 17.5% decline in same center net operating income in the second quarter.
Secondly, minimum rents in tenant recovery income declined by 6 million.
Three the combination of specialty leasing revenue percentage rent and business development declined by $8 million.
These are line items that are very susceptible to decline when the assets are closed.
For other income and loss on the excuse me other income and loss on Declawed declined by $17 million driven by a decline in parking garage income and several of our urban locations a decline in food and Bev revenue at Tysons Hotel.
And due to certain invest adjustments to investment assets between the second quarters of 2020 and 2019.
Non cash revenue declined by $9 million, including 4 million from straight line rent.
As we assessed our receivables and by $5 million and as fast 141 revenue.
Jumping center expenses were favorable by $10 million that included $13 million favorable controllable expense savings, which was offset by $3 million of increased property taxes at the company share.
Then lastly increased interest expense contributed about $4 million of the FFO declined in the quarter.
This was driven by reduced capitalized interest given the decline in our development pipeline.
Somewhat also by the dilutive impact of 2019, refinancings and increased borrowings on the company its line of credit.
We had some favorable offsets and reductions in LIBOR on our floating rate debt.
In late March given that many uncertainties associated with cover 19, we formally went through our 2020 guidance, we're not providing an updated outlook at this time given continued uncertainties.
And why we're not providing guidance as I look forward and I I do believe 2020 will be a financial trough for the company.
While it is not realistic to assume that will be no further bankruptcy filings. The reality is as we look at our watch list as Tom mentioned the majority of those tenants that are on our watch list have have filed for bankruptcy.
We will certainly see some further occupancy loss and rental reduction as a result of these filings, but just pandemic has had the effect of accelerating a financial buyers of numerous troubled and overleveraged retail companies.
At this time, we do not anticipate similar volume a bankruptcy filings going forward.
And it is worth noting that the majority of the bankruptcies that have filed today, our reorganizations and not full liquidations of the change.
We have recorded significant adjustments and bad debts as I, just mentioned, an additional $37 million quarter over quarter.
Well there maybe some further volatility going forward in terms of bad debt allowance assessments, we certainly do not anticipate anything resembling this past quarter.
And then I'd also say that our transient revenue sources that are highly impacted by property closures should so significant improvement in 2021 and forward specifically, we would anticipate increases to percentage rent temporary tenant income advertising sponsorship vending and other.
Our ancillary property revenue and parking garage income as retransmission beyond 2020.
As I've outlined before we have taken considerable measures to preserve liquidity, including the following as previously reported we drew down the majority of the remaining capacity on our $1.5 billion revolving line of credit.
In June the company paid to reduce quarterly dividend of 50 cents per share of its common stock on June threerd, and a combination at 20% cash and 80%.
As of the company's common stock.
July 24th the company declared a further reduced third quarter cash dividend.
15 cents per share of its common stock, which we paid on September eightth to shareholders of record on August 19th.
When combined with the cash portion of the second quarter dividend totaling 10 cents per share if the third quarter dividend rate of 15 cents for to be paid for the next two quarters.
The company would retain approximately $370 million of cash on an annualized basis.
These dividend changes allow the company to preserve liquidity and financial flexibility given the continued uncertain economic environment, resulting from covered 19.
We have significantly reduced our development pipeline for the balance of the year.
The company anticipate spending approximately $90 million less than previously anticipated on its 2020 redevelopment pipeline in total.
Including approximately $30 million expected to be spent on one west side.
Which is independently funded by a construction loan we anticipate development expenditures of approximately $150 million.
During 2020.
By the end of the year, we will have significantly reduced variable controllable shopping center expenses.
Operating capital expenditures as well as leasing capital at our properties by a range of estimated $70 million to $80 million versus our original plan.
During the second quarter 2020, and in July of 2020, the company secured agreements with its mortgage lenders on 19 mortgage loans to defer approximately $47 million of second and third quarter debt service payments at the company's pro rata share.
37 million of which will be repaid by the end of year with the balance repayable in the first quarter of next year.
As of June 30, the company had $573 million of cash on its balance sheet.
We do expect to be in a positive cash flow position for the balance of this year.
On the financing fronts as Tom previously mentioned, we are negotiating terms with the life insurance company on a mortgage financing on Tysons via the residential tower at Tysons corner.
The proposal provides for an approximately 95 million dollar loan and an expected rate.
Of approximately 3.3% for 10 years.
Full term interest only we anticipate this loan will close in the next 60 to 90 days.
We are actively working with our secured lenders on extending five non recourse secured mortgages.
These loans, which uncovered denbury fair fashion outlets of Niagara.
Flatiron crossing and Green acres mall had very healthy underlying.
Underwriting metrics.
Even taking into account the impacts of cover 19, and the underlying assets are generally institutional quality, we anticipate securing short term extensions on each of these loans very similar to the many loan extensions we secured following the GFC over 10 years ago.
Now I will turn it over to Doug to discuss leasing and operating environment.
Thanks Scott.
Normally I began my remarks by elaborating on the statistics in the metrics that.
Comments got touched on but given the state of our business I think it more appropriate to focus on what leasing has been doing during the last four and a half bonds in order to navigate through these unprecedented times.
First and foremost as our malls began to open it was our primary goal to ensure that our retail partners open to see the safely as possible as I mentioned last quarter retailers are used to being closed only a few days a year mapthree much easier so getting retailers open trading again.
And paying rent was and continues to be our top priority.
As our malls open started the vast majority of our retailers.
In fact, the 40 retail properties, we have opened on average 90% of Ngls that was opened pre kogut is now open today.
This was accomplished by almost daily communication with all of our tenants, including the nationals regionals and the locals.
Conversations included the readiness of our properties at opening.
We could assisting staffing.
What we could do a supplement individual store marketing.
And the case of certain uses like restaurants, a fitness, how we could assist in reorienting their operation.
In order to comply with the new regulations as a result corporate Medicaid.
Second would be issuer Brent.
Many of our retailers, especially the nationals had the ability to open quickly and began paying rent immediately.
Others could open but found the ability to pay rent difficult since they have not been trading for months.
This of course is exacerbated by those retailers would not have an adequate omnichannel platform.
So we worked with many of our retail partners to come up with economic agreements to ensure they could open and paid albeit under modified terms.
Most of these arrangements resulted in red deferrals for finite period.
Posed to reduced or three right.
And limited instances and primarily with local tenants, we are granting abatements for a portion of second quarter right.
Negotiations remain ongoing.
However, there are simply some retailers out there that refused to accept that we believed to be.
Very fair terms and conditions.
Those we have and will continue to enforce our contractual rights from a legal standpoint.
As Tom mentioned, we've collected 66% of the rack built in the month of July.
The Washington improved dramatically relative to the beginning of the quarter.
We believe this statistic to be a positive indication of retailers health.
In their confidence in the future and in our properties.
As we look at our top 100 rent payers, we've agreed to repayment terms Ando received rent payments from 60% of these top 100 and Thats based on leasing revenue generated.
We're in active negotiations with another 22%.
The balance of either filed for bankruptcy.
Or are those for which we expect to legally enforce our contractual rights.
Clearly leasing deal flow during the quarter with reduced as retailers were solely focused on getting their store doping and your salespeople back to work.
However, there were some bright spots.
We remain optimistic on our 2020 lease expirations.
Today, we have commitments from almost 87% of the expiring square footage in 2020.
We continue to focus on our leasing pipeline.
Which we define is fully executed leases scheduled to open in 2020 and 2021.
Currently our pipeline is comprised of 130 retailers totaling 1.3 million square feet.
As of today only six of these retailers have indicated they no longer planned to open.
And this equates to only 47000 square feet of the 1.3 million square foot pipeline.
Some examples of new stores that have recently opened in 2020 and some that will open by year end include restoration hardware Galleria village According to Dara.
The two level flagship Tesla at the front door, Santa Monica place in directly across from Nike.
Model land by Tyra banks also in Santa Monica place.
Dick's Sporting goods and Rob one bowling Deptford mall.
Industrious DSW fashion District Philadelphia.
Gucci and relocated and expanded Stuart fashion outlets of Chicago.
Tory Burch, Adidas fashion outlets of Niagara Falls X linked Fresno fashion.
Baldry, Francine and capital one cafe at Scottsdale fashion square.
Free people West Elm, and Madewell long Qatar.
Two warby Parker stores in Mexico fashion square and 29th Street.
And the relocated and expanded Lululemons also 29th Street.
In addition, Saratoga hospitals, now paying rent and under construction in the former Sears box and will Mong Saratoga Springs.
So what are we seeing as retailers, we opened after forced cold and closings.
Clearly pent up demand for consumers to get back into stores, so they could touch and feel rather than quick and look.
Conversion is higher even though traffic is still ramping to pre koby levels.
Theres less dwell time and consumers are shopping more with the purpose.
Sales and occupancy our approving week by week.
There's been a significant increase in fulfillment from stores for goods that were purchased online including pick up in store delivery from store and curbside pickup.
Retailers were promotional when they first opened in order to move excess inventory.
But what time in the evolution of BOPUS and online fulfillment from stores inventory levels quickly became leaner and retailers became less promotional which should relieve some of the pressure on their margins.
Restaurants have quickly adapted to modify exceeding it operating plans and have come up with very creative ways to expand enhance your outdoor dining experience.
Given the work from home is a shift towards casual apparel from occasion to work where.
Activewear remained the area of strength.
Lastly back to school is expected to be bifurcated.
You will most likely be an uptick for laptops and remote learning tools and a downtick in apparel spend.
As Tom mentioned corporate 19th celebrated bankruptcies and closings.
Basically creating excess inventory.
As a result pop up to more prevalent than ever.
Every retailer, they're taking advantage of this unprecedented vacancy to move excess inventory and test new concepts.
This increased inventory will ultimately be utilized and re purpose as we continue to transform our traditional retail based properties.
Into town centers.
Look for failed anchor stores and failed specialty stores to morph into mixed use developments.
Their office residential Andrew hospitality.
Very similar to what we've done in Tysons corner Center.
Inventory will also provide opportunities for large format categories, such as sporting goods off price value fitness co working healthcare and grocery.
All categories that have struggled to get into our top to top tier centers due to space constructions.
It's also an opportunity for strong brands wanting to expand their existing footprint. When they may not have been able to do so in the past.
Lastly, digital emerging brands are not going away.
Just the opposite.
Got it definitely increased online shopping and introduced many new online brands to the marketplace.
Although the success that digital brands experience, when they add or expand bricks and mortar as another source of distribution.
To this point, we'll certainly be some great second generation space coming available in some of our best centers.
This will allow these brands to add stores in an efficient low cost and low barrier to entry manner.
So does this disruption change our leasing strategy from what it was pretty cold it now.
In fact, our leasing strategy remains the same.
As I've stated on this call and Ive stayed on several recent calls our primary goal is to transform our properties into town centers with many diverse uses and unique attractions that will provide something for everybody.
And I'll add one campus.
This is that our strategy in this remains our strategy regardless of the disruption our industry is currently facing.
Now I'll turn it over to the operator to open up the call for Q name.
Thank you if you'd like to ask a question. Please signal by pressing star wind on your telephone keypad, if you're using speakerphone. Please make sure. Your mute function is turned to optimize snow tree try equipment.
Well be limiting the cost of one hour today. Therefore, we ask that you limit your questions to one question with one follow up question. If you have additional questions you make you up again.
Once again star one to ask a question.
Well take our first question, Dave from Craig Smith with Bank of America.
Yes.
Thank you.
I was wondering.
What's your expectation inventory levels in holiday 20 comparison, although the 19.
Given some of the disruption for those ordering.
Inventory.
Craig I think the retailers are going to.
Work off most of the inventory that excess inventory that they had built up during the closure.
And I would expect them actually there would be running a little bit leaner at year end than they were a year ago in terms of the amount of inventories are probably less promotional gum holiday season.
Therefore better margins.
Okay and then.
After you get into New York City exits open and the nine includes California malls.
That provide a lift your when collection and you're seeing some of the line.
Yes, there's there's no question Craig.
Yeah, we've seen that as the tenants get open and were able to resolve.
Handle the rent during their closure.
The cash flow starts starts coming in.
So I would expect to see accelerating collections.
When we opened those 11 centers, but I'd expect to third quarter accelerate from what we saw in the even in July.
So far August collections have come in and a stronger pace than July to.
Thank you.
Next we'll hear from Jim Sullivan with BTG.
Thank you per person I am as for Doug.
Doug you you went through the.
Status.
Though the.
The leasing.
Hey that situation in terms of.
Elds may deals under negotiation.
Two.
Filed or otherwise you every day that and then the final category with the tenets that you have apparently rates kind of a roadblock and looks like you might be heading for legal action, but I wonder if you could just to repeat what percentage of the leases or revenues or fall into that last category.
I don't have data at my Fingertips, Scott do you have that yes, Jim.
I'd say, roughly now 5% to 10% fall into that category its.
Certainly the exception not the rule.
Okay and follow up question for me and again.
You were talking about it being.
Paul obviously for.
Those who are looking to expand their store days I know the.
Yes, I think most switches.
Multi unit deals with Amazon, albeit for their retail floor that.
I Wonder if you could just.
About the appetite for Amazon to get in the press, obviously about interest in anchor boxes.
Any comment on site you could provide would be appreciated.
Hi, Jim I'm, not going to comment on anything related to Amazon I've discussed on prior calls stores that we've opened.
Short of that I would leave that to our Amazon to speak too.
Okay very good books.
Okay.
Now here from Christy Mcelroy with Citi.
Hey, good morning.
Just sat Scott following up on your comments with regard to the inability to turn it from me a close mortgages maturing near term are these currently with CMBS or life insurance companies that you're having these I just mentioned negotiations with and would be 57 straight forward extension or would there.
No Danny Turner right Paul.
And I'm imagining that you get gets more broadly on that Youve explored all options here in terms of refinancing either is it just doesn't make it doesn't matter. If price are you just finding there's just no demand to widen that kind of money, while I'm sorry.
Sure Good morning Christie.
It's a combination of those CMBS as well as life company I expect to the short term extensions without getting into too much detail because were in negotiation on on each one of these I would expect him to be very straightforward I don't expect.
Significant changes and economics whatsoever, as I mentioned in my prepared remarks.
Even taking into account the impact of of the pandemic.
These loans have healthy underwriting metrics. These all were part of a plan as we came into the year to raise has a pretty significant amount of excess capital certainly that environment has changed a little bit as a result to kind of it but the underwriting metrics are healthy.
You know really is just a function of similar to the GRC, although that was more widespread across multiple real estate sectors I just a capital markets are.
You know not as receptive to our product right now so that's really what the function as its not.
We're not trying to shop for better price in weight is really just trying to get to that credit climate.
And I do think will be successful. These again these are healthy loans. If you look at the malls that we're talking about their between 600 650 Bucks a foot so.
Healthy product.
On average is currently leverage less than 40% I would say today.
Yep.
Got it and then just your revolver, obviously call each on coming up next year are you already looking at sort of Repatha options. How are you thinking about that.
Yeah, we're in the middle of it right now.
It's obviously, a big point to focus for us that new maturity as July 2021.
We then.
Frequent contact with our banks throughout this pandemic period, keeping them update on.
On the operating portfolio on where we stand so were you know retina mill other right now.
And then it's fair to say you feel pretty good about it or or you could have some of the same concerns that you have that on your marketing.
No I feel good about it I feel good about it.
Thank you.
Mhm.
Samir Khanal with Evercore has our next question.
Yeah, good afternoon guys.
You mentioned to me the 24%.
For the reserve.
Collected or rent can you maybe break that down for sort of what are you. What's included in that bucket not to get tenant that's a big part of these categories or any color would be helpful. As you think about.
Incremental reserves over the next few quarters.
Yes, sure Samir I'd say half of the reserve is half of our allowance is bankruptcy related.
Significantly elevated bankruptcy environments. So thats a good portion of the reserve.
And I'd say the balances primarily focused on some of our local tendencies.
Tenants that are less financially healed than some of the nationals.
You look at those two categories. That's the majority of the allowance and restaurants and restaurants are that categories as well.
I guess as a follow up to that what is your exposure to.
Sort of local tenants.
The malls today.
Our local tenants make up about 8% to 10%.
Okay, and then do you think about sort of that segment.
With the burn off of the PPP loan is that fair to say that that's going to be another segment to worry about for the second half yeah.
Well no I think the fact that they're open to doing business and have cash flow.
They are much better positioned than they were in the second quarter.
We expect to see far less than way of.
Bad debt reserves in the third and fourth quarter.
Got it Okay next summer.
The next question will come from Mike Mueller with JP Morgan.
Oh, Yeah that was Fortunately my.
A question I'm, just trying to get a sense is that how much that gets could improve in Q3 Q4 based on what you've already seen for improvement in July and August collections.
I'm not sure if you've been adding powered would you just mentioned.
Historically, we've run between five and $10 million here.
So for us to have $40 million linked quarter is pretty extraordinary.
I don't think I've seen the pull us 35 years.
I would expect we would return to close to a normal level with.
You could see as having as much as you know.
Five 5 million per quarter in the third and fourth.
Okay.
In addition to the normal level okay.
No.
Just as getting closer to the normal level.
Okay.
And then slot each sleep one bite off.
Yes straight line was down about 4 million that was really predominately write offs associated with our assessments of receivables.
Got it sort of a formal okay. Thank you.
Yes.
Next we'll hear from florist vintage come with Compass point.
Right. Thanks for taking my question guys.
Well, maybe I'd love to get your thoughts is as where you're dealing with.
The potential revolver maturity and some of these other loan include lending markets or or.
Forgiving right now or left open to two retail.
As you think about some of your capital needs going forward and you have some cash and balance sheet.
When do you think.
Is the right time potentially due to raise equity and how do you think about that.
Going forward, what are the things that need to happen.
Well I can say now certainly isn't the right time to raise equity.
There are trading at turning it dollars.
Got to increased cash flow available cash flow as a result of reducing the dividend.
We will gradually be able to work the the leverage level Vale the capital markets, we back we've been through.
Other downturns, such as the great financial crisis in the debt markets shut for a period of time and then they reopened and there were never an issue we've got great relationships with our line base. We recast this line of credit seven times with the same lead banks.
As Scott said, we've been in communication with them and there's a very positive and supportive. So we're not worried about about the line that owner, we believe we'll get extensions on the near term maturities. This time until the debt markets return.
Right well, maybe one other question for me just wanted to get your thoughts on and you look at the mall.
Solving overtime what are your thoughts on on on grocery at the mall and do you see.
You know room for for enhanced grocery offerings that at your properties.
Oh, absolutely we think it's a great use we have been made in many cases, we've had interest by the grocers, but we havent had a space.
And so.
Given the fact that we'll get a few boxes back I think we're going to get one JC Penney back in one Macy's back it's going to give us the opportunity to do more of that and we think it's a great use.
Is there much.
Zoning or or or a reconfiguring of the box are you going to tier those boxes down.
It depends on the situation some cases, the grocers like to be freestanding. So we were just knocked the box down and re purpose.
The purpose of building somewhere else and some some cases some of the smaller grocers can go in an existing box.
I would have to have a prototype so its a little bit a little bit of both.
Thanks.
No I hear from Alexander Goldfarb with Piper Sandler.
Hey, good morning, good morning out there.
Alex just hey, how are you Tom.
Just wanted to follow up on not on Christys question.
So with regards to the bank line of credit. It's copy you discussed. The you guys are in discussions but are you thinking that that will stay on CAD or are you thinking for the bank odd thing that that would probably go secured.
Yeah, Alex terms or.
Still under negotiation I don't think it's appropriate to comment on that right now.
Okay, Okay and then.
With regards to you know just in general in looking at your at your at the debt you said that you're working with I think on the five love to your refinancing and then maybe your debt overall the pipeline I think you said or a mix of life and CMBS can you just give at least a little bit a color as far as you know I understand obviously you had long time like.
So they know you, but our understanding is the CMBS if it's just the much tougher.
Animal to deal with not because the people per se, but just because of that structure and everything that goes onto the securitization. So can you give maybe a little bit of nuance in how the discussions are going and they really like that no you that CMBS seems to be the harder one so just sort of curious what you can share with us on these loans.
Then you know that the other bonds that are coming up over the next year or two that maybe on the CMBS side.
Yeah sure Alex you know Renault forerunner two the CMBS world we've been.
Transacting in CMBS for you know as long as it's been around.
When it comes to relationships, we not only pride ourselves on our bank and life insurance company relationships, but also on deep servicing relationships now granted the dynamics behind the scenes or what have been different.
We're having you know frequent communication, but each one of our CMBS servicers similar to what our balance sheet.
Lenders are about what's going on at the assets keeping them all updated well informed we do have a voice on the other end you know so while it's more difficult to get things down and certainly not impossible and I do think will be successful and getting these extensions Don and you know.
Markets not gone Forever, Alex you know we've been here before.
We've demonstrated our ability to extend loans for short term period until the capital markets come back in fact, when we did it post P.F.C. recall that was on a much much lesser quality.
Type of product.
Back then you know you're talking about assets that were down about 300 Bucks a foot that weve sense disposed of so.
We've ended this party before I think we will be successful getting this done today, Alex as an example, as Scott mentioned that we were we got low forbearance on 19 loads in a number of those loans or CMBS and frankly, the CMBS lenders were very cooperative they understood the situation.
We're all in and they were actually fairly efficient to work with.
Okay. So basically it felt like you have to go immediately put it into special servicing to get discussions underway with the CMBS got you could have sort of an active dialogue without taking that step that that that sounds like the best way to understand the Tom is that correct.
That's correct.
Okay.
Thank you.
Next we'll hear from Caitlin Burrows with Goldman Sachs.
Hi, I think really you mentioned what portion of bankers and.
California, New York City property by utilizing curbside pickup I was wondering if you could talk about whether any in mind, we tell it stops.
Right.
Hello.
You want to take that one.
Yeah, I will Caitlin.
Well, we can tell them from what we've heard and especially in conversations would be retailers curbside pickup has been much more effective for anchors or for tenants in power centers think about best buy think about target.
The inline tenants not so much.
They are integral staffing issue for them and especially when they have a store open and they have approached I'd pick up so that was an issue, but all in all it really hasn't worked out for the headline mall shop guys.
Much more effective for the anchors.
And the.
Large format tenants.
Got it.
And then separately I would assume that the July improvements that you guys saw in collection.
More stores being open so just wondering why be California centers that has unfortunately, we close.
Good question seems to be going in the other direction or.
Uh huh.
We haven't seen that play out Caitlin, California closures happened July 13, so most of those tenants it already teaser July red.
But August as I said was trending ahead of where we were in July so so far.
Okay, so going again.
Collections accelerated once we came to terms with the retailers on what to do about April and May there is an open dialogue Doug is in hundreds if not thousands active conversations with Tennessee, and his team and isn't myself as well, but I would expect that there would be some discussions from the California location.
And if they remain close much longer.
Got it thanks.
Next we'll hear from direct John sitting with Deutsche Bank.
Okay.
Hi, everybody. Thank you.
Yeah, continuing on the nine recently shutdown malls in California.
Have you guys then given any guidance as to when you can potentially reopened and do our anti viral metrics being monitored are tracked with reopening break points like new cases are hospitalization. So you can get somewhat of a glimpse.
So Derrick Thats a good question, it's something that we.
Continue to push the Governor's office for.
We had a conversation with them late last week, and we're going through our protocols are going through our very elaborate air filtration systems that has been improved almost hostile quality.
We've engaged the head of infectious disease that you see delay to advise us in so far we have not been able to get a specific set of metrics that the state is looking at.
Most of the metrics in the states have been improving.
Fewer hospitalizations slowing infection rate the positivity.
Percentages down to about 5.7% or they like to see or below five so things are moving the right direction, but do we have a definitive hurdles that we know about we don't we'd love to know that but we we haven't been able to get anything like that from state.
Okay.
I I understand.
And you know look art art chat do point to increase post co bid for online fulfillment at mall in line stores and we do here see brick and mortar as a key pillar to leading Omnichannel strategies. So you had the question is how do you.
View online sales in stores and our these online purchases being captured in reported sales were in this landscape for retail reads, perhaps move away from percentage rents if online activity.
Accurate we captured.
Those are good questions and observations I think.
Sales are going to be less of a black and white metric than they have historically been because of that it's all in negotiation on whether you can get the retailer to include to the sale is fulfilled out of the phone malls have included in the sales number and certainly that's a fair way to do it something we would push for but again I think I'm not only are.
Sales going to be store base sales per foot going to be.
Less black and white going forward, but occupancy cost as a percentage of sales is going to be.
Less relevant that it's historically been.
Because of this.
We want the retailers to be successful, we're just going to have to figure out how to structure our leases. So the recapture the appropriate economics.
Okay. Thanks very much.
Next question will come from Todd Thomas with Keybanc capital markets.
Hi, Thanks, Good morning up there Doug touched on the high.
You touched on the 87% a renewal rate with regard to the 2020 lease expirations and also the minimal fallout from from the in place pipeline that you've seen do you have a sense on retention around the 2021 lease expirations as you as you're having those conversations and also can you comment on how how rents.
Trending as the leasing pipeline built out now over the next several quarters for both renewal leases and also re tenanting spreads.
Well Todd normally this time of year I'd have a pretty definitive answer on where we where we.
Because we're going to be in 2021, but to be.
Honest you know for the last four months, there really hasn't been a lot of leasing conversations, whereas normally there would have been and we would have been well into 21. All the conversation does Tom is a little bit too earlier had been about getting tenants open and getting them paying rent and in some cases structuring deals so that they can.
Begin paying rent we have seen.
As.
While they were quite well closed now that they're opening and trading and in most cases trading better than they expected to be trading the conversations have begun for 2021.
Okay outside of.
Closure is related to bankruptcies, we do expect the you know your retention.
At this point that to be any any sort of you know there would be like a meaningful difference.
You know relative to sort of historical years.
No and I don't want to give any guidance either but you know the the question was always with the comments on our watch list and you know now the majority of them off the watch list in the bankruptcy. So if you take those tenants out of the equation. The ones were left with you know for the most.
Our productive and we look to be renewing.
The vast majority of them, albeit probably in the third and fourth quarter. If this year.
Okay and then.
Follow up to I think Caitlin this question around curbside pickup in some of the comments there can you talk about.
Phil logic I believe that's being rolled out of one center today I think Deptford mall.
But there's certainly a lot of chatter and various headlines around a ways to capitalize on on available space. Today. So I was wondering if you could talk about that space requirement at that Ford and the economic contribution to May stretch and then are you working to roll out more philosophy pick a you know units.
I guess broadly across the portfolio.
Todd So the first one you mentioned that we're doing with them. So it's kind of a test case for us to see how it goes a little evolved from there, but there is not just for logic. There is a number of other.
Fulfillment enterprises, including MPS is looking to getting into the business and I think thats going to be away to make it more efficient for the inline retailers.
To use curbside pickup.
Yes, Doug mentioned it was pretty effective for the anchors and they get lives. This one step for us so we.
We think if we can bring in a fulfillment provider that it could be very effective very helpful for inline tenants. So it's in the early days of that but I could see that too I could see the evolving fairly quickly over the next six to nine months.
It did that space did that did they begin operations as expected I think early in July and can you talk about how much.
They said, they're they're utilizing.
Yeah, Todd they had they are open and they are operating it's a small space its inline space. They did not take a big box.
There are essentially acting as the delta between between the store and and packaging after product for delivery in shipments. So they did not have a huge space requirement again as Tom mentioned, it's a pilot and their space requirements may change as there.
As or prototypes evolve, but right now and it's not a very significant contributor and they are taking a lot of space.
Okay. Thank you.
Yes.
Greg Maginnis with Scotia Bank has our next question.
Hi.
So.
Just to clarify on the watch lets say you mentioned that you've got the 32 bankruptcy. This year, which were on the watch list. So I'm curious what the hbr percentage exposure. It there and we expect the boss obviously, they want to we already been there not just destinations and then you know where does that leave the watch list today.
Right and how it has actually involved regarding newly strep tenants because an academic.
Okay.
Oh, Yeah sure metric quite quite Scott.
Yeah.
Doug why don't we why don't we tag team on this one perhaps just in terms of stats roughly 6% of our 80 ours has filed.
You know as I would say the outcome is somewhat consistent with what we've spoken to in the past, we expect roughly a third of that too to reject.
And the balance will either be assumed as his or her assumed or some rental modifications. So it's going to be a combination but about a third is what we should expect to reject it kinda bracket, maybe 2% occupancy loss from bankruptcy fallout.
And as far as the watch list I mean quite literally.
We've got a primary watch list in the secondary watchlist quite literally vast portion of that has flowed through.
And discounting that I would say, it's a it's a relatively skinny west at this point.
You know, we're certainly keeping an eye on on the outcomes with all these retailers, but I don't.
It all see the the instance of bankruptcies going forward that we've seen this year.
If they flushed through the system they filed days oftentimes come with a pretty package solution with financing in place and we expected the occupancy loss will not be that significant.
Okay. Thank you and then just kind of moving on to a kind of foot traffic or tenant sales assets. You know we appreciate disclosure on the return of tenant sales.
From all that have been open.
Over the last eight weeks.
We're just wondering what the impact within the more tours and Coca centers, and whether or not you're experiencing issues. Like you know fifth Avenue, it's been in the news lately with certain retailers attempting to exit leases because of lower productivity traffic.
No you want to comment on that.
Yeah for sure in the tourist.
Centers tourist regions.
Luxurious suffered but interestingly enough what we're hearing out there is a decrease in tourism spend, especially when it comes to luxury is being mitigated by local spend on luxury.
Why that is I'm not I'm, not really sure, but I'm sure a lot of it has to do with stores being closed for a period of time.
And while they're not tourist the locals want to go out and treat themselves and that's been something we've been hearing a lot of lately, we've seen it at Santa Monica place and we've clearly seen it at Scottsdale fashion square.
Well thank you.
And now we at the top of the hour I will turn the call back over to Tom Ohern.
Thank you James.
Thank you for joining us today.
Yeah, I hope that you all remain safe and healthy.
And look forward to speaking with you later in the summer.
As we move through this challenging time.
Thank you.
That will conclude today's conference. Thank you for your participation you may now disconnect.
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