Q2 2020 Site Centers Corp Earnings Call
Good day and welcome to the same center second quarter 2020 operating costs.
All participants will be in listen only mode should you need assistance, please signal copper, especially snarky followed by <unk>.
After todays presentation, there will be an opportunity to ask question.
Good question sorry.
Ben <unk>.
<unk>. Your question. Please press Star then to lead that is being recorded.
During the conference they would your bread and <unk> Investor Relations. Please go ahead.
Good morning, and thank you for doing enough on todays call you will hear from Chief Executive Officer, David Burke, Chief operating officer, Michael knocking them and Chief Financial Officer Cotter affinity.
Please be aware that there never statements today may constitute forward looking statement, but then I mean other federal Securities law.
These forward looking statements are subject to risks and uncertainties and actual results may materially differ materially from our forward looking statement.
Additional information about these risks and uncertainties maybe found in our earnings press release issued this morning.
And then the documents we file with the I see including the most recent reports on form 10-K and kind of Kelly.
And I decided we won't be discussing non-GAAP financial measures on todays call.
Including how we operate in AFFO and same store net operating income.
Reconciliation of these non-GAAP financial measures for the most directly comparable GAAP measures can be found in today's press release, that's really our quarterly financial supplement and the accompanying slide may be found on the Investor Relations section of our website at www dot height centered dotcom.
At this time as my pleasure to introduce our executive off Chief Executive Officer, David Brooks.
Thank you Brenda good morning, Thank you for joining our second quarter earnings call. Once again I'd like to thank my colleagues at site centers for their tireless work over the course of the quarter. Our team has been dealing with a litany of unique situations with our tenants and our properties and they've certainly earned our admiration during this period of remote working.
I'll start today with a brief summary of the events during the quarter then give some thoughts on what we're seeing and hearing from our tenants and conclude with some comments around the dividend and recent transactional activity.
As I stated on our first quarter call, 100% about properties have been open and operating in accordance with the ever changing local and state guidelines.
This is important as 84% of our centers are anchored by the central retailer and our responsibility at the landlord what do you continue to provide access and the necessary operations.
Unfortunately, many tenants were not able to be remained open and as of April 4th our low point.
Only 45% of our tenants we're open for business.
Over the course of the quarter, we saw a gradual increase in tenant openings and as of this past Friday were 92% open.
For the most part the remaining close tenants, our fitness and entertainment businesses, which have struggled to open with social distancing requirements.
Significant reopening activity has allowed us an unusually high degree of communication with all of our tenants and two topics have emerged that are whats sharing with you today.
First payment of contract ran remains front and center in our conversations and almost all tenants have acknowledge their obligation to pay under their lease contracts.
Many however have asked for health and spreading those obligations over a period of time as they work to get business operations back on track and better match their cash flows.
This is proven to be no small feat as it means both tenant and landlord need to review several thousand leases even in our focus portfolio of only 69 wholly owned assets.
We've been very happy with the agreements with executed so far where we're providing a deferral of some or all rent for a few months in return for true financial benefits to our company such as options exercised lease terms extended or restrictive covenants loose and to our benefit.
As of today, we've come to agreement under federal programs that equals 17% of second quarter rent and 10% of July right.
Whereas rent abatement or forgiveness agreements are negligible at only 40 basis points, a second quarter rent.
We have many ongoing discussions with tenants that are quite complex, which helps explain the fact that our tenants are 92% open but our July collections are at 71%.
Would expect this gap to close as we execute more agreements, but we will remain patient and our approach and we'll provide more detail in the next few quarters.
Some categories, such as fitness and theaters are likely to remain challenged for some time.
But these two groups represent only 7% of our abbey are.
The national profile of our tenant roster has proven to be a benefit, especially considering that 20 of our top 50 tenants have raised over $40 billion of debt and equity over the past four months, which has substantially improved liquidity positions for March and April.
As you can imagine the amount of dialogue with tenants during the quarter has been high and if the topic first has been about rent during the pandemic.
Second topic topic is the tenants view of trends they see emerging from the pandemic.
Since our properties are substantially all in high income suburban locations. Our tenants are consistently mentioning the following two themes.
First work from home is increasing in this country.
Whether it's one additional day per week or one per month employees are spending more time in their communities, which is leading to more balanced traffic over the course of the weak and increased visits per week.
For our suburban base properties, even the smallest change in shopping pattern can have an outsized and positive impact on sales and ultimately leasing prospects.
Second the value of convenience is increasing.
Accessibility and he's a parking is crucial to tenants and customers alike.
This is leading to additional opportunities on two fronts.
First as I mentioned last quarter, we started to see increased demand from traditionally mall based retailers.
This activity is accelerating with tenants attracted to our open air footprint lower occupancy cost and proximity to many of the same customers.
Second the demand for convenience is increasing our ability to adapt our real estate and profitably convert existing square footage in the pads or shop runs unlocking accretive investment opportunities.
Adaptations of valuable square footage will be an important part of our future and we feel confident that we've selected the right real estate, but also realistic that growth will not be linear given the increase in tenant bankruptcies.
We're in the early stages a building this pipeline and our expectation is that we'll have a chance to execute a number of value enhancing tactical redevelopment in the coming years.
In order to maintain maximum flexibility for these endeavors. The board of directors has agreed to suspend the third quarter dividend.
We remain optimistic about our company's outlook and know that a strong balance sheet is crucial to capitalize on opportunities that will be available to us.
We've worked tirelessly over the last three years to improve both our balance sheet and our liquidity and retained cash flow from the suspended dividend along with our maturity profile eliminates any near term financing risk for the company.
Before turning the call over to Mike I wanted to address the agreements with Blackstone to unwind, our tune joint ventures, which were announced in connection with earnings.
These agreements effectively swapped the value of our preferred investment for equity and cash and replaces fee and interest income with higher multiple operating cash flow.
We are excited about the transaction and the property level opportunities, we will be able to provide much more detail about our business plans for the properties post closing.
And with that I'll turn it over to Mike.
Thank you David in the second quarter activity from National tenants picked up from pandemic lows. The overall volume is still below pre pandemic levels as tenants prioritize their existing operations.
We signed for anchor leases in the second quarter, and 114000 square feet of total space with spreads on new leases of 17% for the trailing trailing 12 month period.
Subsequent to quarter end, we sign sprouts at Lake Brendan village and have a number of other anchor leases near the finish line.
Active sectors remained the discounters grocery beauty quick service restaurants and banks.
Local tenant activity has also picked up from March and April though it remains much more submarket specific with cobot outbreaks interrupting activity.
In terms of quarterly results the leased rate for the portfolio was down 50 basis points from the first quarter largely due to the reduction of to 24 hour fitness leases.
In addition to 24 hour fitness natural bankruptcies. This year, where we have exposure include pure one gold's gym, GNC Tuesday morning, Chucky cheese, and a sina, which in aggregate totaled 2.3% of base rent, including leases that have been affirmed.
For leases rejected to date in bankruptcy, we expect backfill timing on average to be longer than the last few years, given the slowdown and leasing velocity that said our team has an active discussion with a variety of quick service restaurants and service users to backfill these locations, which have largely been shops.
Moving to construction activity until the deliveries for consolidated anchors started paying rent in the second quarter, including total wine Wando crossing and we have another non consolidated anchors signed but not yet open with rent commencement dates expected in 2020 and 2021.
Total base run from tenants signed but not opened as of quarter end was $11 million.
Construction activity on these spaces remains largely uninterrupted with no material impact to work from recent shutdowns.
Lastly, led by our property management team, we continue to improve our efforts to assist our tenants with marketing delivery and curbside pickup a recent tenant survey we conducted indicated that over half of our tenants are interested in curbside service with 80% of our National restaurant, which is the majority of our restaurant exposure currently utilizing works.
Acted to rollout curbside service in the future.
As David mentioned, our assets are located in affluent zip codes and provide excellent curbside visibility and access we continue to work with our tenants on a one off basis to make sure. We're tailoring services to fit their needs Connor. Thanks, Mike I'll comment first on quarterly earnings discuss the Blackstone transaction and conclude with our balance sheet and liquidity.
Second quarter results were primarily impacted by uncollected rent and reserves related to pandemic. We've adjusted our income statement presentation. This quarter to help clearly identified impact in prior periods revenue deemed that risk was reserved and labeled as bad debt.
In our adjusted presentation. All billed revenue is included in base rent and recoveries with an offset or reduction for revenue deemed uncollectible, which includes bad debt and unpaid rent from cash basis tenants among other items.
This change does not impact and NOI same store NOI or operating margins and is merely a change in presentation.
Unpaid contractual revenue at sites share for the quarter, including deferrals totaled $44 million with 15 million of this amount deemed at risk or uncollectible, which was an eight cents per share hit to AFFO.
We also wrote off $3 million, a pro rata straight line rent, which was an additional two cents per share headwind.
There were no other material onetime items that impacted second quarter of AFFO. So.
Subsequent to quarter end 4 million of the 44 million of unpaid revenue was paid reducing total unpaid revenue from the second quarter to $40 million at sites share as of Friday.
Moving forward, we're not providing an updated outlook at this time. However, there are few items to consider for the third quarter and back half the year.
As I mentioned last quarter as a result, the pandemic. It is likely that disposition volume will be lower than our initial 2020 guidance, thereby reducing downward pressure on management fee revenue from 29 team, which will help partially mitigate the impact from uncollectable revenue and reduced occupancy from bankruptcy related closures.
Interest expense is also expect to be lower in the third quarter due to a lower average line of credit balance.
In terms of uncollectable revenue cash basis tenants have paid 19% of quarter billed revenue.
To date. These same tenants are paid 36% other bill July revenue.
If July trends remained constant for the entire third quarter, which is not our assumption, but simply a point of reference third quarter net revenue would be approximately $2 million higher than the second quarter.
Monthly cash basis collection trends are detailed on page 11 of our earnings slots.
On the agreements with Blackstone to terminate the two joint ventures as David outlined upon meeting certain closing conditions site centers will collectively acquire a 100% ownership of nine properties, including two properties that the company previously did not hold immaterial entrust and receive based on the balances at quarter end approximately $20 million of unrestricted.
Unrestricted cash.
The properties to be acquired are secured by a $197 million a debt with an average interest rate of 3.3%.
In the second quarter management fees from the two Blackstone Joint ventures were just under $500000 and interest income from our preferred investments was 3.5 million.
We expect both closings to occur by the fourth quarter and will provide additional details once they occur.
Turning to our balance sheet the company remains well positioned with no debt maturing in 2020, no unsecured maturities until 2023 and minimal future development commitments. Additionally, we repaid 400 of the $500 million from our first quarter lineup credit drawn June and have $685 million availability on our lines of credit.
And $128 million of consolidated cash on hand at quarter end.
We have no material uses at this time, but expect to maintain excess cash on hand for the foreseeable future in light of the macro environment.
In terms of our covenants there were no material changes from the first quarter with just two of our 69 wholly owned properties encumbered today, providing future potential sources of additional capital and substantial capacity on each of our public bond and bank covenants and our earnings slide deck. We again provided pro forma covenants to just for cash on hand, as our real estate assets.
And unencumbered assets covenants do not net out cash in the calculations.
Lastly, as David mentioned, the board suspended the third quarter dividend.
Based on our estimate of taxable net income today, we continue to believe that no further dividends are required to be paid in 2020 to satisfy our REIT requirements, which will result in almost $80 million of additional retain free cash flow in the second half the year.
There will likely be a need to declare a dividend in the fourth quarter. So that will be paid in 2021.
That said no decisions around future dividends have been made at this time.
We continue to believe our financial strength will allow us to take advantage of future opportunities some of which David outlined to create stakeholder value.
That I'll turn it back to David.
Thank you Connor operator, we're now ready to take questions.
Thank you and we will now begin the question answer session. You ask your question you mean Star then one on your question Ben.
If you're using speakerphone, please pick up your head pressing the key.
So withdraw your question. Please press Star then to at this time momentarily.
Sure.
And our first question today, we will come from Christy Mcelroy with Citigroup. Please go ahead.
Hey, good morning, guys. Thanks, Conor I know you mentioned that there was an additional 4 million it sounded like it was paid on Friday. So it didn't impact the numbers. The question numbers that you had in there. So this number may be different but with regard to the 19% that remains unresolved in July.
That implies that patents are reopened but still not paying rent can you just talk about how you guys are dealing with this unresolved bucket, which seems to be primarily national tenants, especially as we get closer care.
I'll give stars rent payment how are you thinking about lawsuits and is that refusal to pay rent driving that 8% that are still not open.
Good morning Christie.
I'll turn it over to kind of second this is David.
You know if you think about.
The last couple of months I think a lot of this comes down to the philosophy of a deferral program and you can tell that the amount of rent abatement. We've done it's been de Minimis, it's been 40 basis points of of of second quarter rent.
But the deferrals are certainly growing as time goes on and I would expect that to continue.
The majority of the uncollected rent is from tenants that we have ongoing dialogue, but we have yet to paper a resolution.
You ask about what's our thinking or how do we think about the deferral.
There's there's a bargain to be had between the landlords and the tenants and I think we've gotten past the point where.
The ask from the tenants side is abatement.
And what we've gotten into is a realistic dialogue about how we can effectively lend to them space.
For a period of time and in return they can loosen some restrictions at work in agreed to additional terms in their leases and I think as the initial shock of the pandemic has started to subside a little bit calmer heads have prevailed and I think both sides are realizing that there is a pretty good deal to be had.
And there are tradeoffs that makes sense so.
So I would say that you know we will start to close that gap between those that are opened and those that are paying but I don't think the gaps gonna be entirely closed in the month of July Chris you just to clarify the Formula and also talked about the reason I included that as a reference point was I think about same store on our balance sheet all as of June thirtyth.
Our payment data is as of last Friday, and so my point is simply just in the month of July we've collected another $4 million out the second quarter contractual rent.
And then just to expand on David's last point, if you recall for first quarter. We reported April collections on April Thirtyth of 50% today were 67% right. So 17% increase over the last three months I don't know if you will see as dramatic of an increase over the next three months for July but I do think it's an important point on on David's that it's an honor.
Selling effort and we're into the dialogues.
We're active dialogue vast majority of our tenants who haven't paid and some are just simply folding that palin say, okay. What I'll just go back to Pang, others are saying that new deferral and others are holding out. So it's a really it's fairly dynamic and give our concentrated tenant profile one tenant can swing in the percentage is fairly dramatically.
Okay Gotcha, and then just on the Blackstone unwind what can you just talk a little bit about Genesis of that transaction. How did the two sides think about attributing value to the assets in this environment and how after closing how how does the transaction impacts your pro rata, what Rob <unk> leverage.
Sure I can cover the first in the third part of that but not too much on the middle the the Genesis of the dialogue with simply the fact that this joint venture has been formed I guess it was almost six years ago and it was significantly larger at the time as you know and as the.
As the portfolio that smaller smaller it was simply not efficient for either party.
So we made it a joint goal to split up the assets and this is months ago. So I would say was a pre pandemic desire to resolve the joint venture in that way that was.
It's beneficial to both sides.
Going forward.
The difference for US is that it's a lot simpler to have a focused effort on nine assets that we know well and I think that the business plans that we have for those assets.
Most likely are different if there are wholly own than they would be in a joint venture.
So we feel really great about the resolution and I would hope that closing would occur sometimes toward the back back ended a year.
And the leverage impact.
Yeah, Chris is for a leverage will move up about a quarter of a turn maybe modestly higher than that closing the assets have a modestly higher growth rate than our current portfolio. So we think that there'd be some natural deleveraging from from those assets kind of at least occupied got closing and then to David's point, there's some other items from our business plans, which will.
Further impact leverage that we can discuss post closing.
Okay. Thank you all know thing I'll, just add as it at all secured debt and obviously, it's non recourse that so that's another point to consider.
Great Okay. Thanks.
Your next question comes from Samir Khanal with Evercore.
Good.
Good morning, everybody so corner when I look at the leasing spreads eminent they've held up here, but I think they were negotiated sort of pre co. Good here.
I guess can you give us an idea how and negotiate syncrude negotiations are going.
At this point Cove language is being implemented and just kind of maybe.
Deals that are assigned or kind of under negotiation sort of subsequent to quarter end year.
Share similar it's David good morning.
Good morning, the the anchor leases as you as you point out having four anchor leases signed during this quarter is pretty substantial and then one post post quarter about the reality is that you as you point out correctly, those negotiations where months ago.
And so they're not necessarily a reflection of anticipated leasing spreads going forward and to be perfectly honest I don't think theres enough current activity too.
To give a good.
Hello, emotional idea as to where rents are going in the future.
It's just not current enough data to to let us know.
I think that it's probably fair to say that in a portfolio. That's now as small as ours with only 69 properties out of more than 30000 strips in the United States.
We're not a great indicator of macro trends.
Having said that on the micro basis, we are seeing demand from all types of tenants at our properties.
I think only the next six to nine month is really going to shake out where rents are going and you know how desirable our land is and what people are willing to pay for it.
Got it and I guess my second question is on the our Cds or rent commencement dates for.
Some of the tenants over plan there sort of open later this year I mean is it fair to assume that the bulk of those are being pushed out into next year at this point, how should we be thinking about them.
It's reasonable to assume that because especially all of us working from home I think we assume that everyone's working from home, but the construction industry has been surprisingly resilient everything's a little slower, but I think I can give I can let might give some more detail behind that yes, I think smear one of the most important things to point out is that while a lot of tenants were prevented from operating.
In the month of April our construction progress was for the most part with the exception of the state in New Jersey, and a few other local municipalities pretty uninterrupted and as a result, we've been able to deliver two tenants in a timely basis and while some of the tenants are certainly looking at the up pushing some rent commencement.
For the most parts.
We've maintained relatively stable a timeline.
Okay, even what sort of the flare up you're seeing there are we've heard about in California.
Arizona or even.
Florida, you think tenants are still the bulk of those would kind of it hasn't it would be of nuthrax zoning, none of the flare ups have affected our constructions on them I think what he's saying from here is that what has happened is we have not had much.
Negative impact on what do you did not say is that we don't expect there to be I think if theres flare ups in California, and the southwest in particular over last couple of weeks I think it's very reasonable to expect that attendance in the call up and say thank you for delivering on time can I. Please delay my opening because it's just it's a terrible time to open and I.
I think from our perspective, we're going to work very hard to make sure that the openings are strong. So I would expect that some of the RCB slip.
And some here just on the $11 million number we disclose do you think about the leases were signed today. Those RMB 2021, So don't think about I do not implying us, but don't think about all 11 million coming online bought back after year clearly the leases were signed today are for for 2021.
Got it.
Good.
And our next question comes from Todd Thomas with Keybanc capital markets.
Go ahead.
Hi, Thanks.
Good morning, first I'm just a follow up on on Christy's question I think David you said deferrals, where we're increasing.
As you move forward here, but that bucket decreased by 10% from from June to July so from 20% to 10% and the unpaid balances increased by it by a couple of percent can you just provide some detail on what's happening there with with that on paid.
Percentage, increasing and deferrals decreasing as we move forward and then as we think about the deferral agreements that you struck if you had to revisit any of those or or maybe write off any deferred rent since negotiations with tenants have begun.
Your Todd I think your second part of the question, which I. If you don't mind I'll I'll respond to first is really important because.
As we all know when you shake hands with someone at a certain point in time, it's based on the conditions at that time, if there's a second wave or there's a re closings.
In certain parts of the country. There's no question that we are going to have to reopen conversations because a payment plan is based on time and if the times changed I think the plans are going to change as well. So it's very hard to speculate right now we have not.
Had to revisit any of our.
Deferral programs and I'll add another point that of all of the deferral programs, we've done with existing tenants with existing term not one of them has had a reduction in base rent.
So to date I feel like it's been a very positive negotiation between a tenant that wants time.
And a landlord that wants control or term.
And so it's been successful to date to your point, if things change with the pandemic then I think.
Some of those deferrals might change as well.
With respect to your your first question, what I really meant when I was responding to Christy was simply that.
E three or four months ago, I think one would assume that you're working with tenants until they open and once they opened meetings back to normal.
And I think what I'm, saying is that the complexity of negotiating deferral programs and leases and trying to kind of work through all of the terms that are important to both side.
It is there's a did a lag period and so even though the tenants open we're still working with them to kind of resolve and help with the extension of those programs. That's why I think that July is not going to be the end of deferral programs will see them push a little bit into the fall as we as we work through the documents and then Todd just we have some disclosure on page nine.
Our slides on under full repayments.
85% of our deferrals executed today to greet you today are expect to repaid and I'm sorry, 89% in 2020 I want to be on so I think we're well aware of the ask our test deferred two months or three months whatever might be and then payback utilizing law unrealistic and so we're trying to craft that as part of our programs. Knowing that you know this is not a snap back economy.
Okay. That's helpful and then actually on so on page nine Connor.
Maybe for you if we look at the composition of the uncollected base rent and in the quarter.
How is that.
Changed in July.
Is that something that you're able to provide some some color on.
It's you know I don't have the exact data Todd. It my guess is it's probably not that dissimilar because it's the same tenants were discussing with the agreements or David mentioned.
During the final terms on agreement are the same ones, who are discussing July with us and so if you think about its part of negotiation. The tenants are looking at this on a month by month basis, and so I think they want to see some resolution for their second quarter before they're they're willing to bet on July.
So my guess is probably the same tenants that are kind of not bucket for for all four month that we have we seen to date.
Okay. Thank you welcome.
And our next question comes from Rich Hill with Morgan Stanley. Please go ahead.
Hey, good morning, guys wanted to just get a little bit more clarity.
On the leasing spreads it looks like new leases and renewals both increased prior to the last quarter, but I note that net effective rents came down. So I was wondering Conor if you could just help me walk walk through walk through that yes, a rich if you. If you look on page 14 on our net effective rents on the far right at the page we get the.
Percentage delay related to anchors greater than 10000 feet as you look at our net net effective rents you're right. There is a lowest in the last year, but this is our highest percentage of anchor deals and said kind of Jive with Mike's comments that were seeing anchors be active we're seeing or no actual tends to be active local tenants, which typically higher small shops and have a higher net effective.
Ryan there's a lot more volatility there in terms of their activities, so where we've seen a biggest decline in activity over the last four months has been jobs, which coincidentally had the highest net effective rent. So that's that's what the biggest driver. There is and my guess is rich you'll see that that trend continue over the course of the year as long as there's flare ups.
Got it that that's a very helpful. Just a quick follow up to that on lease terms are you seeing any differences.
In Twoq you for that for the terminal lease that's being signed or has that been relatively consistent.
That's that's been relatively consistent we really haven't seen many changes in the lease term.
Got it and then just one follow up question for me I I think you addressed this but.
Just humor me for a little bit can you just walk through the difference between cash base basis tenants paying 19% of Twoq 20 versus the 64%.
That that that was collected in twoq.
So cash basis tenants rich if you look on page 11 of our slides they represent about 10% of our income. So if you think about I'm sort of our base rent I'm, sorry for the second quarter and so you look at the and that you can back into what they represent as presented unpaid rent and not surprisingly good to decent chunk.
I can go into more detail with you off the call I don't know if that answers.
A question Yeah, maybe would just follow up afterwards, but thanks for that guys. That's all for me. Thanks.
Thanks Rich.
Our next question will come from Alexander Goldfarb hybrids and.
Ahead.
Hey, good morning already done there.
So she question first I, just sort of going back to a it's a Christine Todd's question con or can you.
Just on the on the accrued but not collected rents in the supplemental it talks about 25 million that was accrued but not collected in second quarter, but then you talked about the net 40 million that remains to be resolved.
So can you just just so I'm clear can you reconcile those two and then with the write offs that you took in the second quarter does that mean that this $25 million of accrued but not collected you a high degree of confidence that that is in the that that the negotiations will work out such that that is all collectible Ryan or should we.
Think about further write offs coming.
Yes, that's a good question Alex I'll start with the last one so on the if we're accruing revenue and not collecting and there's a high degree of probability require there to recognize that revenue.
So our view today is that that revenue that were accruing, but not collecting is collectible in terms of your question. How do you kind of bridge the gap between the 44 million of unpaid rent and the 25 million. The 25 million on page 12, our supplement is related to same store NOI. The 44 million dollar is related to the entire and tire out portfolio.
Well if you look at page 10 in our slide deck. It lays out for the consolidated portfolio the JV portfolio at share and for the total company and how you can bridge from GAAP revenue.
You are saying I'm, sorry, billed revenue to GAAP revenue on our income statement. So happy to spend more time has a lot of moving pieces. This quarter. So happy to spend more time to give you like.
No that that's helpful color. So basically you know from an earnings perspective, we want to think about the larger number not but not the smallest same store number you're absolutely right. Okay. And then the second question is David.
I you know hopefully your tenants have submitted so that will help answer. This question, but you know clearly curbside has been a huge success.
Rapid adoption.
I have the tenant given any indication of how much curbside has been able to offset sales loss by traditionally customers going in walking around the stores picking up product and walk me out. So just trying to get a sense for where tenants sales are now want to net basis and how they think curbside is helps if they can quantify how much they think.
But it's helped offset traditional shopping patterns.
Alex I, it's a great question I wish that we had the the secret algebra behind that success.
If you look at our tenants survey in the last month.
Well, we reached out to thousands of tenants I mean, the number that wanted curbside access was significant not surprising I think everyone that has a family. That's been shopping last couple of months has probably done some sort of curbside pickup themselves. So it hasn't very successful.
Back that strip centers are mostly parking lots and curb cuts.
Make it pretty easy for landlord to adapt the site plan to whatever the tenant wants for the most bar.
We've seen anecdotal information and empirical information about tenant sales which has been.
Very positive on the ones that are using curbside.
What we don't have is the relative impact of.
The the curbside to the overall sales. Unfortunately, Alex this is Mike one other thing I could point out is that when you look at the grocery business and our centers one of the things that we routinely do as evaluate the customer draw looking at cellphone App data and what we've seen is that while several grocery.
Operators have had increased sales we've looked at the overall component of customers in the store versus in the parking field and while the customer count in the stores may be down 30, 40% the sales could be up 25% yet the amount of customers that were seeing in the parking lots are actually.
We increasing so it's clearly clearly a strong phenomenon and we're all over it as far as working with our tenants to help them maximize that.
Okay. Thank you.
And our next question will come from given good.
On trying to go ahead.
Thanks, Good morning.
He just popped little bit more about.
Your philosophy when it comes down so deferral agreement, obviously, we're going to see a very numbers and different company and know what goes into making that thought that could be very different.
I'm just curious about what how did your approach it what type of customer got it and.
And things like that.
The the one thing I will say is that as as you've seen we really were very deliberately patient in dealing with deferral arrangements waiting for to see how things shook out because the initial stage of the pandemic. There were so much uncertainty, we weren't going to jump into deferral arrangements right away. So what we effectively.
Did was to take a look at the tenants performance as they reopened and a lot of the deferral arrangements came from that stage of the game. The most important thing for US was that if we're going to effectively be lenders to these tenants for a few months of rent that we were going to have to have a win win scenario and as David mentioned in his prepared remarks.
That's really what's the philosophy came down to was looking at it from a bottom up approach space by space lease by lease looking at overall restrictive covenants that were in the leases seeing where we could get those relaxed in exchange for a deferral there were new options exercised and things like that but the bottom line is there is no formula that is Oh. Please.
Doubled every tenant every single tenant had a very different discussion every single tenant had a completely different approach and that's one of the reasons that you were at the end of July and we're still working out all of these.
So I mean, that's a good analogy right so.
Is that correct if they are assumed that.
The most credit worthy or and credit union aspects meeting.
Hi belief that both survive and then come out of those are those dependence I've got deferrals or is there a deeper fight bucket of kind of that.
That need that deferral.
But are not.
Yeah, I, probably might not to buy next year.
Those kind of deferrals as well or how does your post that that that's segment.
Keep in if you had stated if you had to put it in buckets I would say, there's three one our small shop businesses that need it.
And irrespective of their credit worthiness its in our best interest to keep them solvent.
In our portfolio that happens to be a very small component of our rent roll.
But it's there the second group are those that it's more of a credit play than anything else, where they're a great customer of ours, a big tenant.
There are some things that we need from them and their credit worthiness is such that we feel very confident that the loan is money good.
And I would say the third category has led to do less it with credit more to do with control I am willing to trade a couple of months of rent for certain loosening up restrictions on properties, because the financial gain to us whether they paid back or not I is far superior. So if not all credit it's not all control and there is.
Some calm some component of need.
But.
It doesn't necessarily fit neatly you know some of them have two of those are three of those categories at lunch.
Right.
And just last question.
How should we think about the same store NOI.
Going forward because you did include accrued, but unpaid rents which is understandable.
If I think about the pace of improvement for same satellite does it really only stem from.
So I'm resolve bucket.
And that becomes smaller.
Kevin I think the reality is that we're not thinking about same store NOI. It's just not it's just not that relevant Fred for the foreseeable future.
Yeah. Thank you and there's a there's a bunch of things and we provided some bread crumbs on on an ROI. We provided from an earnings perspective not for same store.
To see cash basis tenants to rich Rich's question matters, the $11 million have signed not open Hbr is obviously very immaterial to our bottom line as well we took a number of reserves this quarter related to uncollected, Ryan how that occurs or the pace of that over the course years manpower same store, but to David's point I mean, it's not.
We've never operator business for same store NOI, we certainly budgeted and forecasted and provide guidance for it typically but just not how we typically run our business I would just tell you from my seat I think the relevance of the metric is kind of thrown out. The next two plus years because of cash basis tenants because of accruals because of deferrals, it's really all over the place.
To your point on just depending how people structure deferrals when those are repaid et cetera.
Okay. Thank you guys.
And our next question will come from Linda with Jefferies. Please go ahead.
Hi, Thanks.
In terms of the unpaid contractual rent at 44 million, but then you got the 4 million that was paid recently, what merchandising category to those tenants falling.
Yeah, I learned I don't know, it's all over the place.
Again, just the formula and Theres not it's just let people know there's a difference between our payment data timing I as of last Friday, and the balance sheet income statement from the second quarter. So over the course of the quarter and expect that number to increase based off David's comments on Mike's comments about coming to agreements with more tenants some of which.
You know, we'll just see a tenant pay their full rent, but it's all over the place I mean, it's there is no one category that's jumping out per se.
Got it and then in terms of the comment about rejected leases from bankruptcy today, taking longer to backfill than average can you just put some parameters around that how long would it take four versus your expectation now.
Is that no somewhat a function of the nature of the boxes being back filled or is that just environment.
I think Linda it's really the environment I enough, we had to any.
Information that we could share that would give you a little bit more insight, we would certainly do sell but the reality is.
Getting an idea as to how much leasing is going to be done over the next year. So I think is entirely dependent on how the reopening occurs across the country and we just don't really have a very good.
Window into that into that future.
Yeah, ironic part isn't and Mike and Dave alluded to this one of those that were seeing more velocity on the anchors in shops right. So from a from a box perspective, you might actually see box back those get get done quicker or at a similar pace to where they were a year ago that said, we haven't had many boxes get rejected today to mikes comments all of our bankruptcy reductions have really been costs.
Straight and shops.
Thanks for that color just one final one in your earlier comments about broader trends you know you're talking about people working from home more.
The stuff.
Lines of convenience demand coming from lobbyist retailers.
How do you think merchandising might change or what kind of tenants looking to attract.
That's a good question, let it go ahead, Mike I think what we're going to see the for first of all I think we're going to continue to see a lot of convenience and service based tenants, which has been the trends, but I think that trend will continue.
Financial institutions quick service restaurants that are focused on drive thru and carry out.
I also think that from the standpoint of anchors, we're still going to continue to see the off price and discount category being the strongest driver.
Thanks.
And our next question will come from Mike you were with JP Morgan.
Ahead.
Yes, hi.
Talked about very few abatements and the lease greet only went down about 50 basis points sequentially. So we're looking at that 15 million of at risk or uncollectable number in the quarter I mean, how should we I know thats looking at Q2 collections, but I mean, how should we think about that.
As a rearview metric versus.
Something that's going to be recurring over the next few quarters or so and is that a function of stuff that tends to be you think you really not getting paid youre not going to get paid on it it's truly rents or it's the documentation isn't there yet so I mean, yeah. So how should we think about that bucket going forward.
It's a really good question, Mike and it's really hard to answer without guidance. What I would just tell you is the biggest factor that's going to drive it as the payment rate, which sounds kind of silly, but if we just had a 71% payment rate over the course of the third quarter I'm, sorry, third quarter, which is what we have July today, we'll have a lower unpredictable revenue line item.
The second quarter, just because of higher paying right. So there's a number of items to go in there. If you think about three biggest numbers are the three as drivers just say excuse me our cash basis tenants.
Reserves, we make against individual tenants and a general industry reserves and so our moves our feelings on certain tenants or certain industry is going to is going to dictate that number as well as cash basis tenant payment rates, but I would just tell you. The easiest way to think about it is your view on collection rates is going to dictate the revenue deemed uncollectible.
I know is a bit of non answer, but you know obviously in the middle to pandemic without guidance, it's challenging provide a visibility on that collection rate.
Got it okay.
And one other question I think you think you had about 3.8 million of fee income tied not to RV <unk>.
So how much of that goes away with the Blackstone Unwinds.
So blackstone fees in the second quarter, Mike were about $500000.
Non interest income related to those joint ventures was about 3.5 million.
So that's where you'll see the biggest impact we do have a 5% stake and those joint ventures, and so there's a little bit of NOI running through our JV in Hawaii, but it's not it's not material the biggest impact you'll see as fees and interest income and obviously that will be replaced with with a an award from the properties.
Got it okay.
That's it thank you.
Welcome.
And our next question comes from Moore's Bendeka with Compass point.
Ahead.
Good morning, guys. Thanks for taking my question.
Ken.
David maybe can you try to quantify or some of the benefits maybe if some of the extensions and restrictions on on.
Easement of restrictions.
In your lease discussions.
Is it possible to do that at this point or or or how should we think about some of the.
The.
The value that's accruing to a two sites centers.
Oh floors that certainly possible when we when we work on a deferral arrangement, we're effectively creating a net present value analysis for each negotiation.
So that we can evaluate it financially.
I would hesitate to try and roll that all up and give guidance on that but I think we're making decisions that are financially beneficial to the company and I can I guess I'd leave it at that.
And.
But it is most of that benefit on any be basis or is it on a on in I O. Just so you know it an earnings basis, you are extending your payments going forward or is it because you can now creates additional space in your at your center or something like that most of you how do you guys.
Most of it is on the Navy basis, because most of the value is in restrictions that are east.
To the point that we can then do other things with the property.
Okay Thats certainly in other words, there are certain situations, where tenants can exercise an option or add term.
But you know our assumptions in our Argus models for our assets for the most part have a pretty high retention rate.
Absent bankruptcies.
Hi retention rate, just because of the profitability of the tenants.
And knowing the sub markets that we're in so I don't necessarily think that the extension of term is the number one goal. The number one goal is really gaining control back of the real estate.
And most that control comes in the lease restrictions that a tenant has.
Great. Thanks. So one other question, maybe what segment of what pending category had the greatest amount of deferrals as it is it is it apparel is that is a gyms or or have you written off most of your your Jim income.
Or how should we think about you know.
The various segments in your portfolio.
I think given the relative size of our tenants we havent, we haven't commented on.
The percentage of deferrals out of each category I mean, I think you can assume that there is a group of them that have need.
And those certainly would include entertainment and fitness then there are those categories that I think you are a pretty public in the fact that they have a lot of control over the real estate that would be a lot of discounters and grocer.
Categories, and so depending on the tenant we have exercised or.
And some thoughtfulness around the.
A deferral programs, but we really haven't quantified for you in terms of kind of category.
Okay. One maybe one last question for me in terms of you know reinstating guidance. Your your earnings were actually.
Even though you have given no guidance, we're pretty much inline with expectations.
Do you expect to do you think it at.
And at the end of fourth quarter you know.
Will you be reinstating guidance or or do you still you can't say at this point when you will do that yeah floors. I'll. Just say you know I think you appreciate as companies commitments are transparency and visibility and we think guidance as part of that.
Commitments unwavering, despite the pandemic and we'll cross that bridge when we get there I fully expect us to provide guidance at some point I. You know question. One is just unclear at this time.
Okay. Thanks, Thanks, Scott you're welcome.
And our next question will come from Christy Mcelroy with Citigroup. Please go ahead.
Hi, Good morning, it's Michael Bilerman here of Christie I thought that have come back on the Blackstone transaction just a couple of quick clarifying question.
I guess what were you solving for in the exchange.
The preferred had been written down to about $90 million from a face value of 200 and I can remember many years ago. It was almost 400 million.
Sales person to pay that down.
And as you were thinking of solving for that 89 million.
Got $20 million, a cash which means I guess you value the equity above and beyond the $200 million of mortgage debt at about 70 million or.
There are different way to think of what you were trying to fall for.
Well, Michael I'm going to try and thread the needle with side with what I can say pre closing.
But.
For the most part what we're trying to solve for is a.
Vacation of our business.
We're trying to solve for protection for our shareholders, who had a preferred they had a value on it and we were trying to solve for our opinion of the real estate, a which was encumbered and multiple different pools of loans, which is I think.
Public knowledge, and we were simply trying to find value on these business plans for each one of these properties and make a trade of our press a that was effectively secured by all the assets and concentrate now in the form of cash and a smaller group of assets.
On the debt what is the debt yield.
[noise] effectively.
On slide $200 million of outstanding mortgage debt for this asset.
Michael We haven't provided that you know, there's a property table, which you can piece together, probably a pretty good guess on Apple we can't disclose at this time.
Yes, so I get about $12 million sorry.
$10 million NOI.
And so from a debt yield perspective, and it looks like it's running about 9%.
I don't know if that in the ballpark of what you're thinking because I don't know if there are some operating facilities asset sort of get paid but.
Circa let's call it 18 million of an ally over 200 million with 9% is that a fair assumption.
Michael We just can't comment I don't I'm sorry, okay.
Okay. How do you think about the lost income right and I assume you talked about the preferred income that youre generating on 200 million rights, even though you've written down the value of the preferred to 90.
No, earning at least the cash interest I know you know, we're no longer earning to pick.
The cash interest, which is providing a $13 million of preferred.
Income.
On top of probably $2 million fees. So.
We think about cash flows.
Business net negative net neutral or net positive.
Relative to generating.
The current cash flow that you have coming off the preferred.
I want to we can answer so we think that transactions episode neutral in year, one Michael I'm, which will help I think bridge the gap on your NOI question.
From a cash flow perspective, it's going to depend on our our business plan. The Capex. We spent the properties obviously as you know and that's where after day David's point post closing will provide some detail on our business plan to the properties.
And just last question is on in terms of the effort so what would it be.
I don't know, if you're including marking to market because the debt I would just.
I guess would be a bit above market.
Or any leases in that calculation, so what would be like on a AFFO basis, it's immaterial from a non cash perspective, there's no benefit from that.
Okay. Thank you you walk.
And our next question will come from then to them with Green Street Advisors. Please go ahead.
Hey, good morning.
I have one additional follow up on the Blackstone deal I, just want to better understand how you thought about this transaction given your current cost to capital I mean, your positioning as a swap but.
This more.
Can do about 250 $270 million acquisition that is financed with existing mortgage debt and the book value of the preferred equity. So I'm just trying to get a sense of why growing the balance sheet in acquiring the right move now given where your stock is trading today and your current cost of capital.
And I'm not I'm not sure how.
You coming to conclusion.
So that as an asset purchase I mean, we were already on an equity position on these properties.
But it's really the because you're acquiring you basically had no share of the debt and you're going to be taking on additional roughly 200 million of debt onto your balance sheet. Your and then you're getting swapping the preferred for the you know the interest in the properties and you are growing both the asset and liability side of balance sheets ultimate.
Thats why how I came to conclusion that you are really a net acquirer here I mean leverage is going to go up so that I mean, that's that's why you that conclude.
I think the way that we have always looked at their preferred is that its subordinate to the mortgage debt.
<unk>.
And in many k. and in certain instances it subordinate to the common.
But it is equity and a and therefore it it is absolutely and a swap from.
Piece of paper is secured by numerous properties and it's simply concentrating it on a smaller bucket.
Okay. That's there and then just is there any color you can provide on the how the negotiate or excuse me how the valuation was negotiated relative to pre Coleman levels any color. Just on you know between you and Blackstone, how you thought about what's the right Mark for bid the two pools of assets.
And then any differences in cap rates you know.
From February to now.
I think it was two parties a you know at arm's length that had both of them had a lot of history on the properties for a greater than five years and.
It was simply both parties coming to an agreement as to what each party thought was fair.
Okay Fair enough and then lastly are you able to provide the decline in second quarter same property NOI on a on a true cash basis.
Events, we give you those pieces on I'm on the same store page if you look at footnote.
I'm sorry.
A footnote to I think as an earlier question from someone includes 25 million of accrued revenue on page 12, and so if you exclude that from the from the total revenue you'll get a cash basis same store NOI.
I think to our earlier comments, though you know you're going see incredible volatility in same store NOI just from the third quarter will over earn quote unquote by $4 million that I mentioned to an earlier question.
That was second quarter rent paying the in a in a third quarter. So I was just talking years you extreme volatility in same store for probably the next two years as we as we work through deferrals.
Okay got it makes sense. Thanks.
Okay.
Our next question will come from handles inkjet with Mizuho.
Go ahead.
Hey, there good morning, thanks for squeezing yen.
Wanted to get your view on the recent called a large private shopping center portfolio subjects.
You bet total portfolio.
And why.
Ross, 15% lower than pre cogan for recovery and that the recovery could take several years, how do you feel about that is that two bears.
How do I feel about his statement.
Not at all and statement as it relates to the industry.
I guess I don't have an opinion I I have an opinion about our own assets, but it's a pretty small component over the overall industry.
So.
Your portfolio over the next two three years, Oh actually two questions. How long do you think it takes for us to get back to a period or stabilization. It hit 2022 possible and as we think about the cash flows for your portfolio is 85% to burn Super expected to think of what that cash flow looks like.
Thats a pre.
Well I I have to tell you I wake up and think of that exact question most days.
I think you can also appreciate the fact that you know they.
The rolling pandemic through various communities and the lack of clarity as to when this a land how to land how long tenants can last.
Which ones are going to be profitable, which ones aren't is extremely unclear and so I think my desire to ER to guide to what I think a trough could be and when I think would be unwise.
And our next question will come from.
With capital one.
[music].
Yes. Thanks for taking my question I guess going back to the black from Jvs in terms of how the assets with what were you able to.
Identify each of those after as you know.
In total and sort of cherry pick them out or was there was sort of oh, a alternating sequence in terms of then picking an asset you're picking in Africa approach.
Chris I think there was enough flexibility.
For us bulk to have a very.
Positive and meaningful negotiation and for both parties to feel like they got what was important to them. So.
Yeah, I think there was plenty of flexibility I mean, as you noticed we didnt have and we didn't have an equity position in a couple of the assets.
And.
So I guess I guess, that's about as much of an answer as I can give it I do feel like we had enough flexibility.
Okay, and then just as it relates to you know either the rent obligations the deferral agreement obligations, but.
Yeah, we're satisfied during the quarter written security deposits are letter of credit use for it to satisfy either.
No okay.
Okay, and then as it relates to the deferral payback period to is there a weighted average sort of payback period, we can look towards sometime it obviously 21, but you know that middle of the year Bakken into your how should we be thinking about that yeah, Chris rather than a weighted average we provided a by year. So on page nine the purple kind of written chart in the bottom right corner, we give the.
Deferrals by year end as as we get more color on on the unresolved balances for the second quarter. In July you know, obviously that chart could change but to my fingers Todd's question from earlier, we as of today the lions share of that that repayment is really spread over the of 2021.
Okay, and then last quick quick one just on the bankruptcy process right now is it kind of gotten back into normal process or is there still some delays that we thought sort of in the first quarter and then the second quarter just the Dod Yeah. I think it's a good question. The delays have have a I would say moderated for said and what you saw from.
From pure one am o'dell's initially the process I think is probably prolong though versus pre coded just because of of obviously the lack of in person meetings and probably longer liquidation process, but I would say that kind of absolute pauses you saw from March.
Peer to peer it had been removed from the process.
Okay, great. Thank your call again.
And this will conclude our question and answer session I'd like to turn the conference back over to David for any closing remarks.
Thank you all in we look forward to talking you next quarter.
And the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.