Q2 2020 Whitestone REIT Earnings Call

Welcome to the <unk> second quarter Twentytwenty earnings Conference call. Today's conference is being recorded at this time, let's turn the conference over to Kevin Retrenchment Investor Relations. Please go ahead Sir.

Thanks.

Good morning.

Joining me second quarter.

Earnings Conference call joining.

These college, Sanjay <unk>, Chief Executive Officer.

Okay.

<unk>.

Some statements made during this call or not.

<unk> looking statements actual results may differ materially.

These.

I'm sorry.

Please refer to stop <unk> earnings press release finally.

Yes.

<unk> for that.

[laughter] pretty detailed discussion these factors.

No it's called maybe webcast for a period of time.

Importantly noted these calls each time sensitive information may be accurate only as of today August.

2020.

The company undertakes no obligation to update you have to me.

Second quarter earnings press release, and supplemental operating and financial data package.

C C are available on our website.

Yes.

So.

<unk> Investor Relations section.

During this presentation.

In certain non-GAAP financial metrics.

We believe allows investors to better understand that position.

So the company.

You didn't see earnings press release and settling at the base package.

The leadership not just measures, yes, the national mattress.

That's cool concerns.

Thank you Kevin. Thank you all for joining us on our second quarter Investor call today.

So they have like the share of what I believe one.

Interesting business.

It wasn't.

New York.

Our last week and financial performance.

As well give more details.

Given that the Goldman Sachs.

And.

Okay.

This is.

These days.

That's true once it's been relatively challenging certainly going across the country.

The U.S. economy. So this is more HM.

We reacted quickly safeguards in place.

In terms of our markets specifically as it relates to our community Center shopping centers located in Texas nerves and.

Me too much staged extra ordinary challenges he wasn't being somewhat less than others.

The country operations takes the forces and suddenly characteristics as New York.

That's one of my words called back Disney really early stages of the president.

63 person where tenants.

And they put collections were 64%.

As I was supposed to maybe I'd say.

94% about businesses.

I mean to what do you need 1%.

Right so the second quarter.

Collective 86%.

Slide.

Well, there's a small which is impressive lessons we learned there into 2008 reception.

Sure.

Uh huh.

Performed exceptionally well in good times in minimum license.

The softest at times.

Our vision suffers from some previously exceptional compounded field for instance, winterized fuel.

Yes. This trend continues is there a relatively strong performance in the second theater.

So it's very difficult decisions.

Whitestones Foundation is built on Threed.

Yes.

First he said, our first weights and philosophy.

Moving.

The right, you'll see that how we effectively so please.

These managers.

Second is our entrepreneurial culture.

Could you maybe ecommerce your fingers.

It's a big shoulder to shoulder is our shareholders.

Do you feel free.

There are experienced management team that extends beyond the 12 years he's worked together.

Reducing results for investors.

At least demonstrating an ability to capture to capitalize on opportunities.

Others Me, yes.

The first point is that our philosophy provides us with its one of them either [laughter] decisively.

Before the pin debit transactions shifts toward online shopping.

The preferred distribution channel.

Taking a huge tools.

Looking into two groups and we feel good.

Over time.

And then make on this or that you have to fly that trend.

We need all Whitestone standpoint, our strategy.

Our business strategy, which was formed in an economic down cycle, the great recession of the density drilling.

It's pretty easy to understand sometimes you see the structured to boost the hasn't made significant.

Alex will change the disruptor I've heard industry.

Commerce.

Okay, very which focuses on buying open here copied in Texas in Arizona.

Each state has less disease population growth and small business wouldn't agents over the past several years.

These steep welcome releases.

Actually it's been reduced regulations compute.

Especially didn't really see eat steak wants more freedom.

The trading backlog or use the leasing damage.

[noise] this affords the flexibility to make decisions I can be implemented quickly.

Yeah.

They tend not to says well, we can expand them you other medications.

If you've not succeed.

No.

Hi stage.

Keep in mind that we have a large tenant base and those independent can impact our revenue stream and more.

Smith.

He goes R.

If you want to properties the business owners visits innovating growing and contribute to the communities.

Our diversified mix with tenants that provided some conservatism is what needs that can't easily acquired online.

If at all.

As a result, our open air center to body.

Experiences that cater to the adjacent neighborhood.

Extension the residents lifestyle.

[noise], we continued to take the proactive locations with BG repair can.

Always looking for ways, that's good businesses.

Our market level of T D.

We have developed long time relationships that they want to consumers.

This is what differentiates as many of our peers.

After relationships, it's a mistake our national tenants.

Not the person fleet continues because they can daily tough decisions.

The business.

Yes.

Mhm strategic initiatives.

Property level.

Moving on site visitors to help customers feel safe.

Additional signings in the northeast many accomplishments and increase the takeout yield into their business.

And the outdoor spaces to generate linger.

I became even seats, which will visit.

As our tenant businesses returned to full capacity, we believe our initiatives will continue to perceives digital revenue sources for that.

Our philosophy has produced sustain profitability.

Turning to our propping, resulting.

Industry, leading returns.

Because it works.

My second point is that what's known to close our culture is our people.

He's going to be a strong culture makes for a strong business.

Our team members are committed to creating value for all shareholders.

Units into the extra now.

After two months of effective remote working our so to speak reporting for you listed.

As excited about in terms of the office.

We implemented safety records in our Austin.

Now we have our entire dedicated work.

Yesterday losses.

Well, they're beginning to depends on what's known associates with currency.

Continuing to manage in these properties.

Expansive periods of approximately 1400 tenants.

He conducted themselves with integrity Verisk health Penneast access PTP zones, providing temporary will be storage signs.

It's a major rental tools not sluggishness.

Pressure.

Dependence time to recover.

So the team.

Also.

Tough decisions that are the best interest.

Sure.

All right tended to succeed make it through these tough times given we've seen a few taking advantage of the situation.

Working collaboratively with us.

Not necessarily anxiously dealing with either brand.

We expect the on our commitments you expect there's been some are there.

Which we Havent really we'll plan to fully repaid.

During the quarter, you talked about it because it.

By the way I won't capitalize.

We assume they deserve innovate.

Most of these situations incentive fees associated with that.

We continue upgrading in space.

We repeated itself wasn't great several times, even really popular for collaborative approach resulted in 30 minutes.

Our leadership team has both the depth and breadth of experience in the industry, which leads me to my third point.

I would like to say that is not only what.

What we do with what we've done.

As a result, the skills and experience of our team we haven't you'll continue to identify structural shifts in the industry before they can.

Capitalize on those opportunities.

We think our markets even more properties.

No our tenants.

The consumer.

When you start we understood that moving enough for me you quality properties in those markets.

Absolutely consistent with the consumer preferences, and staying disciplined you could see key.

In closing.

Hosting our philosophy cultural experience underlines our bringing.

Indentified like some real estate industry with a formula they're producing this meeting investment results.

We called it hardware.

There are three have evolved in the industry. We believe our work will be recognized for the results we produce.

We believe that all shareholders should have the benefits.

We'll see.

Terrorism they still.

We also.

Continued to gain their confidence by delivering meaningful done.

[noise] stable predictable cash flow.

Depreciation three active management leasing that increase 2% to 3%.

And when appropriate way through acquisitions and development to achieve scale and long term sustainable.

With that I'd like to turn philosophy is always our chief Medical Officer News.

Thanks, Jim.

First I would like to take this opportunity to thank all of our associates to continue to produce the best results possible given very difficult time.

We have a highly dedicated team work every day to create local connection and communities to thrive.

And we feel strongly positioned to withstand the current headwind and five into the future.

Given that severe economic pressures caused by the staying at help orders during the quarter our portfolio has held up remarkably well.

Entering the pandemic our overall occupancy.

89.7%.

Despite having significant X significant amount of our tenant business is closed or severely impacted for all or part of the quarter. We only had a handful of tennis close for good such that the portfolio occupancy rate held up well ending the quarter at 89.2%.

Also our annualized base rents per square foot held relatively flat at $19.58.

While our square foot leasing activity was down 37% from the second quarter of 2019, we were pleased with positive leasing spreads a 13 and a half first fast and 3.4% on renewal and new leases signed in the quarter.

As Jim mentioned for the quarter, we collected at 81% of our rent.

Thanks, Clay, thanks, Brett and Triple net charge it builds monthly.

We also entered into rest deferral agreement.

Four or 5% of our second quarter right.

As part of the deferral agreement, we have negotiated beneficial items, such as entry into our online payment portal reporting of tenant sales.

Ben Shim co tenancy requirements.

Loosening of excludes then our restrictions.

The allowance further development and stronger guaranteed.

Today, 94% of our business that are helping as a result slide collection at showing improvement.

Thank you had collected 86% of our July brands, which compares favorably to Q2 and to be April collection of 64%. We reported at this time last quarter.

While we are encouraged by how things are progressing the pandemic say toll on our business during the second quarter in terms of our financial results.

Funds from operations for for the quarter, what's nice about 6 million R 22 cents per share compared to 11.1 million.

Or 27 cents per share in the same quarter or the prior year.

The decrease is primarily due to the impact independently.

Which resulted in a charge of 2.8 million or seven cents per share related to the collectibility of revenue, which includes 500000 or one cents per share for noncash straight line receivables.

Let me add a little color on our collectibility analysis related to the pandemic.

For the quarter, we recorded a bad debt reserve of 2.3 million, which excludes reserves for straight line rent and Unbilled amounts are cash collections for the quarter were 81%. So with the remaining 19% of uncollected brands, which includes 5% of a grade right deferral.

We reserved 41%.

Additionally, we have converted approximately 70 tenants representing 3% of large you highlight.

And 3.2% of our revenue to cash basis accounting.

That was tennis paid 41% of their own brand in Q2.

We have provided some additional details on our collection that can be found on page 25 of the supplemental.

Turning to the balance sheet since March we have implemented various measures to conserve cash including further reductions in headcount today, we have approximately 45 million in cash representing an $8 million, 22% increase since March 31st.

We have one 9 million dollar mortgage loan maturing in 2020, which we expect to refinance in third quarter and no debt maturities in 2021.

Currently we have 110.5 million of capacity and 1.2 billion of borrowing availability under our credit facility.

I'm showing availability under the credit facility is largely driven by trailing 12 month net operating income for unencumbered properties.

Okay and alive for the third quarter at the same us in the second quarter, we project that our current borrowing loss will exceed our available borrowing at the next measure period, which is September 32020, we expect to remain in compliance with our debt covenants and continues to work closely with our bank.

We have seen pent up demand in our markets as consumers are leaving their home and retiring quickly and enforce parking lots are filling.

Stores and restaurants are active and figuring out creative ways to new business lifestyle is well positioned to capture this pent up demand and attempted to do so.

Our team has worked together for this ongoing crisis and our shareholders will reap significant future benefit third greater collaboration a more robust exchange of ideas.

Better and more effective communication and improve systems and processes that provide new actionable data and allow us to more efficiently scale our infrastructure.

Right. So it's continuing to perform.

And deliver on our strategic plan.

It is that many of the most highly desirable gross market and high population growth states.

I look forward to providing an update as we progress and with that we will now take questions. Operator, Please open the lines.

Thank you I'd like to ask a question for you signaled by pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure your mute function. It's turned off until late in the to ensure equipment I get that a star one say to ask your questions. We'll pause for just a moment.

Right.

Well I'll take a first question from Eric Hi, GMP Securities. Please go ahead.

You got me Doug.

Taking my questions.

Dave you may recall that about parking lots going back up.

Similar demand standing just wondering if you guys said.

How about that a little bit more do you have any metrics year over year on on the traffic that you're seeing a your community centers and.

It is that traffic you think that that supports.

Majority of the businesses that are operating.

Today in terms of the ramp profiles at the time.

Yes, Thanks, Darrin I'll comment Jim make comment as well.

A question, we didn't we do monetary the traffic at our but our centers as well as are our tenants and we have seen.

Significant increases obviously.

Since the beginning of and then they can continue to be increases.

We also as you know operating in states that have been probably a little less restrictive on some of the shutdown orders and continued to operate businesses. So we are we are monitoring the traffic we are seeing.

Increased traffic, obviously still down from a year ago, but I think the trends our bid in our market and like many markets. I think you have people that are that are anxious to get out and.

And along with life and very safe manner.

Right and this is Jim here, you've heard that Jim.

Pretty is being.

By some loss in our in our management team either property managers or did you guys should we still have activity as people interested in leasing space.

Some of our properties are busy weekly by corporate management.

Personally trends is there is not.

Four times a year.

What we're seeing is.

The significant pickup in the traffic getting out of some disease on some of our.

Tenants in particular is interesting time of year because in Phoenix is like 180 degrees. So it's relatively little caught at least you still see tenants who are we want our.

Visiting the properties in particular tenants you can tell when speaking now you see the traffic that's picking up it's sometimes hard to find the parking space.

Lastly, the obvious signs would happen smartest as David representing that.

The track it I think that.

Yes, collecting 81% of our billings for the second quarter really what's nice is the top the repeat in terms of Collectability and keep in mind that thats relative to having a huge thin bids that we have so we've great worth it.

Pretty closely.

Well you feedback from them in response to them.

So some distance even heard them in most of the things that we here is that they're looking forward to year end them in PBC silhouette.

Right and obviously some retailers.

Have performed better during this environment than others are you seeing.

Certain groups locally looking to expand their footprint and approaching you guys about that.

Our our their requests for or the market for space. It would that represent you know declined year over year. If you train is our retailers is.

The demand from the retailer side and the price.

Therapies home.

Yeah, I think a couple of comments.

We are.

There are certain groups that are performing better than others as fairly obvious that yet.

Look at our supplemental data page 25, you'll see on our break out of our tenant mix, which we think is it's well crafted. So there are groups that are performing a little better some of that like entertainment venues are having a little tougher in summer time getting back when we are seeing we're seeing demand from kind of creative and new uses I think I think one of the thanks.

We've seen and.

Some of the traditional mall tenants are looking for space has been open air centers. So that's something we feel very good about and looking reaching out some of those folks and then.

Our business model was crafted with the smaller spaces.

Very focused geographically know the markets really well in other tenants. So we're very comfortable in our and our ability to release quickly. If we do have some fallout and.

And so I think we are seeing that demand and as we mentioned one of things. We're doing obviously is looking for ways to help tenants.

Grow their revenues in these tough times at the expanding into parking lot, assuming thats kind of things being for any would benefit has gone a long way of showing our tenants that we are working with them.

Yes.

Ill add to that Aaron we're seeing is.

We have some small office space, it's called the cubic Jay.

It's an interesting, though because they're in closed they are basically.

Individuals working alone in the US with is a safe environment with the TLC, even as well we're seeing we're seeing that.

Continuing to increase in uniform locations in our centers like that.

We're seeing an interest in.

All things bodies.

There are starting to.

Branch out with our centers, which were having interest in commodity plenty in the form of exercise and that's starting to take on some more momentum today.

As mentioned is to Florida. Our conference calls. We're we're seeing is the cigar lounge is that we now which are usually in high income neighborhoods, we see them fairly well crowded.

Please see the required to know what.

In 2000, just as one of interest in that.

Some of the coffee shops, we have we're seeing someone to be leads to take even global being super beliefs that just kind of interesting.

The.

Take out service seems to be picking up vitamins and lose a tuck into one of their one of these that is easy to 50% of there. This is now is.

Email and hit their order and just walk in and picking up so we're still we're seeing it picked up we're seeing people.

We're seeing people just quite nicely and what does proceed with our properties. There all open air and opened their people feel very good.

We're only in Texas in Arizona, So there is.

Because we have much benefit by being just being the Ccs.

During the traffic, but good job on the collection thanks for taking my questions.

Thank you Aaron.

Once again that is star one on your telephone keypad. If you like to ask a question, we'll pause for just a moment.

Okay.

And once again that is star one.

Okay.

Yeah, No further questions I'll turn it back to James Sandridge 30 additional for closing remarks. Please go ahead.

Hey, well, we'd like to it we don't give a lot of questions. It's as we we've adequately covered the events with people would like to here.

No I think one one other thing just in closing I'd like say few things.

One is it we are in a very difficult industry and yet we've been able to performed relatively well as mentioned dinner in my remarks now.

I'm still trying to.

Thats why its brand and I think is investors beginning to understand what we do and how we do it.

I think there will be very pleased with their with their invested in which.

We recognize that these are really extraordinary tonight.

In the they continue to evolve evolve rapidly.

While the near term.

As is relatively difficult to predict.

We do believe it will come to pass and we do believe they're better times ahead.

Our platform is strong.

Business model is proven.

We remain resolute on our focus of while capital and value preservation.

Our team is passionate and committed to successfully navigating the prices the decisions.

Q on future opportunities, which I had that we're starting to see some really terrific opportunities in this marketplace.

We look forward to moving ahead, and we intend to stay true to our values, we want to do that as we see if you to our strategic plan. It Didnt work.

So why change it it's working.

And work with our.

The same standards that weve been implying since we've really with this company together 10 years ago the.

Please refer to it through this.

We've known that guidance again, we want our shoulders as we remain focused on serving our chairman moves and creating preserving for you long term value slow settlement just nicely. Thank you and.

For now in fiscal and would like to call needed to be ready when the company or visit our properties pleased with Brazil. Thank you.

This concludes today's call. Thank you for your participation you may now disconnect.

[music].

Uh huh.

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