Federal Realty Investment Trust
Q1 2020 Earnings Call Transcript

Published: 7 May 2020

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Q1 2020 Federal Realty Investment Trust Earnings Conference Call.At this time, all participants are in a listen-only mode. After the speaker presentation there will be a question-and-answer session. [Operator Instructions]I would now like to hand the conference over to your speaker today, Ms. Leah Brady. Please go ahead.

[Leah Brady:]

Good morning. Thank you for joining us today for Federal Realty’s first quarter 2020 earnings conference call. Joining me on the call are Don Wood, Dan G, Jeff Berkes, Wendy Seher, Dawn Becker, and Melissa Solis. They’ll be available to take your questions at conclusion of our prepared remarks.A reminder that certain matters discussed on this call may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any annualized or projected information, as well as statements referring to expected or anticipated events or results. Although Federal Realty believes that expectations reflected in such forward-looking statements are based on reasonable assumptions, Federal Realty’s future operations and its actual performance may differ materially from information in our forward-looking statements and we can give no assurance that these expectations can be attained.The earnings release and supplemental reporting package that we issued yesterday are in a report filed on our Form 10-K and other financial disclosure documents provide a more in-depth discussion of risk factors that may affect our financial condition and results of operations. We have also posted on the website a slide deck that has more detailed information on the impact of the COVID-19 pandemic on our business to-date and various actions we have taken in response to COVID-19.These documents are available on our website. Given the number of participants on the call, we kindly ask that you limit your questions to one or two per person during the Q&A portion and you should feel free to jump back in the queue if you have any additional questions.And with that, I will turn the call over to Don Wood to begin the discussion of our first quarter results. Don?

[Don Wood:]

Thank you Leah and good morning everyone. There is a certain comfort in the familiarity of the [indiscernible] quarterly routine of the earnings call with each of you that oddly reassuring to me as we battle through this mess each day and preparation for advantageous positioning coming up the other side. First ,my heart-felt thoughts and prayers for good health to each of you and your families and friends in this crazy time particularly those of you hold you in small spaces in my favorite city [indiscernible] seven time world champion, New York Yankees.Next shout out to the immense respect and appreciation for the unity and the work ethic of the Federal Realty team on the front lines over these past six to eight weeks including our property management team who is taking care of our assets. So that essential business can provide those services to the community and also to those team members whose jobs weren't full time anymore and who volunteered for the numerous new areas where their help was needed; top to bottom everything in between. Thank you. This is one dedicated and talented team.And let me start with the few comments about the first quarter and then move on to today's situation and where we are headed from here. As I saw on our press release last night we reported FFO of $1.50 share in the first quarter compared with the $1.56 in last year's first quarter.Even before the COVID-19 crisis we are going to have a tough year-over-year comp because of the $5.4 million in lease termination fees in last year's quarter compared with $2.7 million this quarter a difference of $0.03 a share. But we are having a great start of the year up until the last two weeks in March and we are on track to grow FFO per share ex-termination fees by 2% to 3%. That changed in a blink with mandated shut-downs and fear of the uncertain future. The states that we do business in were among the first to close and by the second half of March we were really feeling the heavy drop off of an activity.Rent payment deficiencies and increased bad debt provision among either other items directly attributed to COVID-19 totaled $4 million or $0.06 per share in the first quarter. Still a pretty solid quarter which also included over 80 leases executed for nearly half a million square feet. So we went into this whole mess in a strong position from both an operational and most certainly a balance sheet perspective. So I guess the real question is will we make it through and what will we look like on the other side.First thing first, yes we will make it through. Dan will spend considerable time going through our current cash position, cash flow projections, our development spending flexibility and plans for additional financing.One comment from me in that regard, history and track record really matters at a time like this. A reminder that in 2009 in the depths of the recession when markets were closed to many, many borrowers we accessed the unsecured market, we accessed the, we secured bank debt from a consortium of lenders, we upsized our line of credit. We even issued a small amount of common equity.The point is that all of those markets were open to us then and our balance sheet and competitive position is even stronger today. Again the [indiscernible] in a bit. Our development spent which approximated $35 million a month coming into April has been paired to about $10 million a month with the Massachusetts and California shutdowns at Assembly Row in Santana West and a few other smaller projects saving cash currently.Construction at CocoWalk in Florida and 909 Rows at Pike & Rose in Maryland continue as both are nearly complete and in fact will be over the next few months. We have every intention to complete all of our development projects that are partially constructive. The start of construction on all new development projects are however on hold until we have some better visibility on the length of the pandemic effects.Okay. Rent collection. It's obviously impossible for a simple tell all statistics or metric to try to explain such a multifaceted and complicated phenomena as the virtual shutdown to the entire U.S. economy by pandemic. Our April rent collections certainly are not that metric but there are a relevant piece of data. They're easy to understand. They fit neatly on a matrix of comparative companies, like same store NOI, it's just not that simple and it's such a small part of a company's post-COVID viability and growth prospects. More on that in a minute.For the record, we collected 53% of our contractual rent in April which we expect to be better than the mall sector and a little bit less than the grocery anchored shopping centers who have a tented base more highly geared to essentials.Our portfolio is far more diversified which we see as a major strength not a weakness from any period in history and any economy in history other than in the quarter or two that a global pandemic literally shuts down the world.All 104 of our shopping centers are open and operating with about 47% of the tenants open and trying to do some level of business. About a quarter of our rent comes from essential services, grocery, drug, banks, etc. and that was largely paid in April.Another 20% comes from our residential and office tenants largely in our mixed-use communities. 95% of our resi-rent for April was collected as was 87% of office rent. Restaurants make up 15% of our rental base. About half full service and half QSRs and fast food. About a quarter of that rent was paid in April.Fitness and experiential tenants like theaters and bowling concepts comprise another 6% and very little April rent was collected in that category. Payment was sporadic on the balance of the portfolio.So our first response for non-payers was of course to communicate with clarity that we expect existing contracts to be honored and in many cases they were. Others did not pay have been put into fall and no active conversations are underway between the parties for a whole host of reasons. These are largely small tenants who were struggling pre-COVID-19 and will have a hard time reemerging on the other side.Vacancy will clearly be higher on the other side of this crisis. No good prediction on how much higher at this point. The remainder are those tenants who have the wherewithal to pay but we're looking for deferrals for the periods that they're closed and some for a couple of months after. These negotiations are complex and consider many fact including the easing of lease restrictions that may impair our ability to redevelop down the road.We don't have a blanket policy for handling these negotiations. This is a really important point. One of the many advantages of our platform is that we're small enough to have senior level experienced executives handled each of these conversations on a one-off individual basis. We believe that individualized approach will lead to the best result for Federal as a whole as we look to the coming years and not just months.So I think all of that is a pretty good summary of what's happening right now. You can find additional information in a presentation available on our Investor website. Check it out, it's [thorough] you haven't heard already.Let me move on to give you a few thoughts about where we see ourselves on the other side of this and as you would expect for me let me start with the short-term negatives.First geography. No surprise here, the states we do business in will largely be the last to reopen and likely with the most stringent conditions. California, Massachusetts, Pennsylvania, Maryland, etc. The list, clearly a negative relative to the middle of the country in terms of the second quarter and probably a third quarter activity.Second, our tenant make-up. More lifestyle and entertainment oriented restaurants and retailers that are not essential for consumers during a pandemic as I laid out the percentages above. So those two things geography and tenant mix are not conducive to our performance or accurately predicting performance at all in the second or third quarters of 2020 perhaps longer.Accordingly we're in no position to offer earnings guidance for any period at this point. What we can do however is share our thoughts as to a pretty compelling plan and vision for our properties enhanced growth on the other side of this.First from the demand side. We see the geography negative in the short-term as a huge positive on the other side of this. At the end of the day real estate needs to be near high-paying job centers to be able to grow in value. Ours are. There in densely populated in affluent first tier suburbs and major coastal cities but not in the central business districts of those cities plus they're open-air.Think Bethesda and North Bethesda Maryland relative to downtown DC. Coconut Grove to downtown Miami. Hoboken to Manhattan. San Jose to San Francisco. El Segundo to downtown Los Angeles. Somerville Massachusetts to downtown Boston. Bala Cynwyd Pennsylvania to downtown Philly you get the idea.Open air places not enclosed buildings that are easily accessible by car with convenient parking close enough to high wage job centers that are able to take to attract the latest tenants and this is really important, provide a full array of services.The luxuries and conveniences that both city and suburban people have grown accustomed to and in fact demand aren't likely to be given up on easily. It's kind of a Goldilocks scenario here not too close not too far just right in terms of those locations.Like what we've always believed to be the sweet spot that was close in first year suburbs be even sweeter in a post-COVID-19 world we think so. Second, landlord organized and integrated, curbside delivery programs. That's landlord organized and integrated curbside delivery programs at shopping centers and mixed-use communities and densely populated first tier suburbs need to be in our view a permanent component of a properties toolkit for attracting customers and not just for food, face it delivering goods and services to the end-user profitably has not been broadly solved.Customer pickup in an attractive convenient safe environment is the most important piece to economically delivering goods that last mile. We will be a leader in landlord integrated curbside delivery on the other side of this and third it's not hard to see how the steady drumbeat of enclosed mall tenants who have been moving at least partly to open-air shopping centers over the past several years doesn't accelerate meaningfully in the wake of COVID-19.When you think about which open air properties are most likely to garner a disproportionate share of that movement Federal formats, tenant mix and locations are pretty darn well positioned.We think this is one of the most important sources of where new tenant demand comes that's necessary to replace the COVID-19 retail failures.There's also a fourth and a fifth and a sixth set of initiatives that we're working on that are too premature to talk about at this point but they all relate directly to why all of us at Federal are while patiently working through this awful pandemic today extremely excited about what awaits as we work into the other side later this year and next and for many years after that.So as you sit back and take a break from compiling April rent collection stats and think about the future of 25 or so publicly traded retail oriented real estate companies in business today, I think you'd agree with me that our locations, our formats our diversity and innovative team should put us at the top of that list.Let me now turn it over to Dan before addressing your questions. Dan?

[Dan Guglielmone:]

Thank you Don and good morning everyone. FFO of $1.50 per share represented a largely intact first quarter. As Don mentioned prior to the March impact of COVID-19 on our numbers we were on pace to outperform our internal forecast by about $0.03 or $0.04 per share with COVID-19 impacts representing roughly $0.06 of negative drag.Overall the numbers in the first quarter were driven primarily by Splunk taking possession on time at 700 Santana Row on February 1st, lower property level expenses and lower G&A offset by the aforementioned COVID-19 related impacts in the last three weeks of March which included higher bad debt expense than we had forecast, lower contribution from our hotel JVs and forecast, lower parking revenue and higher interest expense given the cash position we built.Our comparable POI metric came in at negative 2.5% for the first quarter but don't be alarmed excluding term fee headwinds which were expected of a negative 1.8% and COVID-19 related POI impacts in the same store pool of a negative 1.7% comparable POI would have been a positive 1% a result which would have also exceeded our internal expectations.Through March 15th, we were also having a solid first quarter on the leasing front with almost 500,000 square feet of activity, leases of note where merchandising was meaningfully enhanced and/or rents increased include T.J. Maxx replacing staples at Endora and Philly, Burlington taking the bond on box at bricks and brick in New Jersey. Old Navy at the old pier 1 and Mount Vernon Virginia a renowned South Miami restaurant group signing on with a new concept of the former gap ground floor space at Cocowalk and converting retail space to creative office space for a cutting edge cosmetic line at the collection at Plaza El Segundo in LA.All examples of our ability to drive demand from best-in-class tenants across property types due to the strength of our real-estate locations. This has continued into the second quarter with deal signed over the last 30 days with two top grocers as well as a major office tenant plus we have seen real estate committees at these retailers open up in recent weeks with site approvals coming in at several additional locations.Adding a bidding war for a fairway grocer location and our recently acquired Brooklyn asset and you see demand for our real estate from top tenant continues albeit at lower volume even in the midst of a global pandemic. Let me take a step back and take a few moments to comment on the overall profitability of federal from a fundamental perspective.We have a high margin business at the property level with POI margins just under 70%. Break-even cash collection for POI at the property level is right around 30%, break-even cash collection after G&A after interest expense after maintenance and leasing capital is roughly 60%, while our second quarter and the balance of 2020 will be challenging no doubt. Our cash burn rate from operations even in the second quarter should be minimal.Let me take a moment to highlight our updated disclosure both Leah and Don highlighted our COVID-19 business update and its availability on the front page of our Investor section of our website. Additionally, in our 8-K supplement you may have noticed an office tenant Splunk is now our top tenant. Albeit a very manageable exposure of 3.4% of revenues. For those unfamiliar Splunk is a leader in data software analytics, security and operations. A public company since 2012 Splunk has a market capitalization in excess of $20 billion roughly $2.4 billion of revenue last year and has a leading industry position and all things data.Lastly, in March, we posted on our newly designed Federal 1962 branded website our inaugural ESG focused corporate responsibility report entitled A Sustainable Mindset. It is a comprehensive overview of our long-standing commitment to ESG throughout all aspects of our business.Now onto the balance sheet and liquidity. In mid-March we drew down close to our entire $1 billion credit facility given concerns over the stability of the financial markets.At quarter end, we continue to have that $1 billion of cash on hand. Since that time we have raised an additional $400 million in an unsecured term loan. The term loan has a one-year maturity with a one-year extension option and an interest rate set at LIBOR plus 135 given our A minus rating.These moves provide us with substantial pro forma liquidity of $1.4 billion in cash on hand and available credit capacity as we navigate through these uncertain times. Our credit metrics remain strong with net debt EBITDA of 5.7 times, fixed charge coverage at 4 times and a weighted average debt maturity of 10 years. We remain well-positioned to manage through the challenging environment we currently face like we have done time and time again over our 58 year history and our 52 year track record of cash flow stability and increasing dividends.Our A minus, A3 ratings from S&P and Moody's respectively should provide us with continued access to the unsecured bond market at attractive interest rate levels. We expect to refinance our manageable debt maturities $340 million through the year-end 2021 primarily in this market.Our diversity of other attractively priced funding sources continues to be a differentiating factor for Federal. The quality of our real estate still commands premium pricing in the institutional sales market as evident by our most recent asset sell last week in Pasadena at a 4.5 cap rate. And the ability to partner with attractively priced passive joint venture capital remains high.Now let me provide you with a more fulsome update on our development pipeline. At 331, roughly $675 million is remaining to be spent on our in processed pipeline. That pipeline is disclosed in our 8-K on pages 16 and 17 and outlines our redevelopment and development respectively.Updated timing given the government mandated shutdowns at our two largest projects Assembly Row and at Santana Row push out the timeline somewhat. $250 million to $275 million is estimated to be spent for the balance of 2020 with most of our projected second quarter spend being pushed out at least a month or two on average.$250 million is now projected to be spent in 2021 with the balance $150 million to $175 million in 2022 and into 2023.Over 80% of that pipeline is non-retail with 55 plus percent amenitized office and 25 plus percent residential all of which are located in first tier suburbs and note that 50% of the commercial office and retail is pre-leased.Also note that we have the ability to hit the pause button on roughly $280 million of this existing pipeline which would reduce the in process pipelines remaining spend to less than $400 million.To clarify at the current time hitting the pause button is not our objective nor our current plan but as our hallmark we will maintain discipline in those capital allocation decisions as we move forward.As you saw yesterday, we declared a regular cash dividend of a $1.05 per share payable in July. Given the strength of our balance sheets and liquidity position our goal is to maintain a cash dividend and push our 52 year record of increasing dividends to 53. However, again the management team and our board of directors will be extremely disciplined and setting our dividend policy as we navigate moving forward.Lastly, FFO guidance for 2020 was withdrawn back in March. We hope to reintroduce guidance when we have better visibility on the impact of COVID-19 on our business over the coming quarters.And with that operator please open up the line for questions.

[Operator:]

Thank you, [Operator Instructions] Your first question is from the line of Craig Schmidt with Bank of America.

[Craig Schmidt:]

Good morning.

[Don Wood:]

Good morning, Craig.

[Craig Schmidt:]

Yes. In talking about the expanding and enhancement of the curbside service and delivery is any of that going to require any zoning differences that you might need to have to accommodate that or are you well within the balances staying within your current zoning.

[Don Wood:]

So, as you know Craig, we've got a lot of different property types, a lot of different places. And we don’t expect zoning to be an issue. There are clearly certain things that need to be done. For example, at Pike & Rose we needed to get the accounting to give up some parking spaces that they get paid on that they were able to do which I just loved.And most of our shopping centers, that's not a problem but we do have fire lanes and other reasons, change that we need to work through. What the most important thing I think to understand about this is that the evolution of curbside pick-up and the integration of it from the landlord's perspective with multiple tenants, I really think is something that we are just starting.But over the next quarters and years we'll become such an integral part to what we do that we'll solve the inherent issues that are bound to come up with a 100 properties and implementing this along the way. But zoning should not be the primary concern.

[Craig Schmidt:]

Okay. And then just real quick, are you having any discussions with retailers who are looking to move to an all percentage rent as opposed to fixed minimum rents?

[Don Wood:]

Sure. Let me put it via this way. Every tenant is trying to somehow renegotiate the contract. And all kinds of ideas are coming through what they would what it is that they would like to do. And I just cannot be I cannot state this enough. But unity of this place is that we do not have a policy of how we're going to handle certain types of tenants.Because of our size, which is relatively small and manageable, we can take a senior executive whether it's me or Wendy Seher or Jeff Berkes or Jan Sweetnam or Lance Billingsley, there are 10 of us at a senior level that can add each of these conversations with each different business, each different retailer specifically to come up with the best solution.All kinds of things are being asked as you can imagine. But at the other side of this, retailers need to be in productive shopping status. They need to be in places where they're going to be able to make money.We're at the top of those lists. So, our negotiating ability are certainly not perfect and our contracts well certainly not perfect or our pretty darn advantages to be able to allow us to get to an economic solution on the other side of this.Do I expect some percentage rent deal? Of course I expect them percentage rent deals. But I also expect different conditions under which you operate including some easing of restrictions that were hard for us to redevelop for example along the way. So, there's a lot there's a long way to play this stuff all out.Yet, over the next six months or so, we're not rushing. We're going to have one-by-one conversations to get them right.

[Craig Schmidt:]

Okay, thank you.

[Operator:]

Your next question is from the line of Nick Yulico with Scotiabank.

[Unidentified Analyst:]

Hey good morning, this is Greg McGinnis on with Nick. Don, I know it's early but how have rent collections trended so far in May. Give any rough estimate for expectations for final collection as well as of April.Then I'm sure you're spending a lot of time thinking about the financial solving your tenants. I'm more just curious what percent you think might not be recoverable in terms of rents and maybe another way to think about that is what percent of leases do you expect to switch to cash accounting?

[Don Wood:]

Gosh, I get it, yet so much in there. I'm going to go to the first part and see if Melissa and Dan want to add anything to it. I suspect and it's something now. But I could -- look, I could tell you that May have started out more ahead of April, not even why we're ahead of April.But where we were in terms of at this point in April and that's an important point to make. For the first few days that we collected more than we did in April at that point. Whether that's sustainable or not, I don’t know. Bold and obviously we'll have to see what happens all the way through.And in terms of the -- and I'll make one point on cash versus accrual and the accounting part of this. Where my focus is really not so much on where yours is in terms of those focuses. Mine's all about how on the other side of this we got a growth plan with new tenants and different places to get those new tenants as I lay that out.And those places that those tenants is that really have a business plan going forward. I'm not really all that about taking tenants that had a hard time coming in here and doing whatever we can to keep them in the shopping center. I don’t think that’s necessarily the best way to move forward.And so, all the focus here well is that day-to-day of negotiation is on 2021, 2022, where effectively we'll not only maintain but expand our leadership position. I don’t know you guys if you want to add anything to that at all but I got this.

[Dan Guglielmone:]

Yes, now. Hey look, it’s a moving target with regards to kind of what we see is a collectability from our tenants and we'll make assessments as we move forward. So, that's not much we can add there except to concur we've done.

[Unidentified Analyst:]

Alright, thanks. That's fair. And then, could you just speak into the restaurant rent collection were a bit more. What were the collections like on Quick Service versus Full Service? And what is the confidence that full service tenants can survive this or be able to pay back differed rent given what's likely to be a diminished business for a while?

[Dan Guglielmone:]

Yes. so, there was a differentiation between what was collected with regards to we had a Quick Service, we have essentially 27% Don mentioned a quarter about 27% total in restaurants. Roughly 37% with the QSRs and the fast food and then less than 20% from Full Service.

[Don Wood:]

And Greg, let me jump on the point about what makes us think we can move forward with respect to that because that's a real important one. We have circled about 35 tenants, restaurant tenants that were incredibly strong that we want to make sure open back up quickly.And when they do are they're such an important part of the shopping center. So, we've circled we've actually authorized a $10 million fund that is available for tenants to affectively reopen only select restaurant tenants that we've designated to affect the LEGO there.That we are at the early stages of that because that's not PPT money that we're talking about. It's not specifically tied to the employees of those restaurants, it's about getting them back open. And the working capital necessary to get them back open. We're not going to do that with failing restaurants.We're only doing that with our strong restaurants who come in but are challenged today financially to be able to get that initial start going back. So, it's an important part of what we do in terms of our merchandizing of a shopping center next to its property but it's one that we're highly focused on to make sure we're investing in the best ones.

[Unidentified Analyst:]

Alright, thank you.

[Operator:]

Your next question is from the line of Christy McElroy with Citigroup.

[Christy McElroy:]

Hi, good morning, thank you. Don, I just wanted to follow-up on some of the comments you made in the opening remarks about your market and demographics. And so, on one hand you're in coastal markets that it seems like things are shut down longer but you also have higher income demographics that may not be as impacted in terms of job losses.But you also have a longer-term trend here of potentially greater work from home trends that could result in more people moving to lower cost of living markets that could impact that historical high wage job centers that you discussed. How are you thinking about all these factors today, not just from a retail perspective but office and to right these loan?

[Don Wood:]

Yes. Chris, first of all who knows, right. This is really it's really hard to predict where we're going to go other than to say I believe if not yourself, then how and your team and how comfortable you've gotten with services, the level of services that you had over the past five or six or seven years.I don’t believe that those urban and you're not as urban that some of the folks in your spot but those urban folks are going to move out to second and third tier supports. It's just too much of a drop off in what was available to them. But I do believe in those first year severance which were we are.The ability to have it all, I do think this is going to be a resurgence for cars and your own personal transportation device as opposed to mass transit for a while and maybe longer in a while, I don’t know. Let's see how that plays out but I think that's critical.The other thing and I don’t know if this if -- I don’t whether we disclosed this or not but I find this interesting. In our big three, the Assembly Row, Pike & Rose and Santana Row, all of it all for in those first year suburban area, right, where we absolutely did not collect a lot of the lifestyle rent on the retail side.Overall, we collected 2/3rds of the rent due in those properties because of the residential, because of the office component to it. So, the notion of those places as kind of centers of jobs, those places that centers of living and the new style for doing it, I think we're right in the middle of right where we belong.So, this specific to your question, right we'll have to see, let's see how it plays out. But at the end of the day the real-estate is sure conducive to where the jobs are, whether they're at home or in the existing place that they're in or and certainly for the retailers to be able to create styles and value there.So, I'm feeling pretty good about the position.

[Christy McElroy:]

Okay, thanks for that. I agree, I'm probably an anomaly, here so frail. I understand your dividend payment track record and the importance of that. But the dividend can be an annual payment, just you're doing a lot to show up liquidity in terms of including the new term loan.Can you discuss the board decision not to just start to suspend the payment for now given the current environment and sort of take more of a wait and see approach?

[Don Wood:]

A very much self. Listen, a lot of people I would say and I've seen it in some of the notes, well Federal's very proud of their long-term dividend record and that's why they keep making their payments. So, that's why they made their payment. That's not true.It will, it is true that we're proud. But the reason, the biggest single reason to continue our dividend payment to the extent we can and as Dan said, we'll evaluate every three months and I'll get the your annual question and then it's because on the other side of this down the road this is going to have to be equity issued.And the ability to effectively look back at 2020 and say the company was able effectively to maintain that very important part of total return for a shareholder is really important in our view. And so today, as we understand where our ability to assess capital is how that is going and I think as Dan alluded to, we'll have more to say about that in the next couple of weeks or whatever with additional financing.Then we think it's important to at this point to clarify. Well, absolutely we assess that come August with respect to the next payment but the difference between simply annual and quarterly in the whole steam of what is now today $1.4 billion worth of capacity is made sense for us to make an $80 million dividend decoration.

[Christy McElroy:]

Okay, thank Don.

[Operator:]

Your next question is from the line of Alexander Goldfarb with Piper Sandler.

[Alexander Goldfarb:]

Good morning, Don and Dan. And hopefully Lebanese Taverna is one of your restaurants that you're looking that's on that 25 to 35 left. So, two questions from us.The first one Don, is have you when you're working with tenants, how do you make them realize that rents are contractual that this is not some new error we're suddenly stand in, I mean we've even seen some big tenants like ROSS where they suddenly can arbitrarily get this right to not pay.How do you enforce to make clear that tenants have to absolutely honor these contractual obligation and that this is not some new right that they now can use whenever they get into a distress situation.

[Don Wood:]

Hi, Alex. First of all I don’t know how to answer that question. I mean, they understand that, there is a it is a negotiation, there are businesses trying to take advantage of the situation to effectively word of contract that on I don’t know why anybody would be surprised as that in a time like this.And so, you take your legal rights, your contractual rights, you put them up against the viability of the company that you're talking about, your alternatives and where you think you can go and where you're going to be on the other side of this and you see what you get.What you can get or what you need because by the way we want some stuff out of that contract too and so the negotiation starts. It's not about explaining to them their legal obligations, they understand the legal obligations and that that the fault notices that we're sending make that very clear behind it.So yes, I don’t really know how much more to add to that, that I could.

[Alexander Goldfarb:]

Okay, that Don that's helpful. And then, the second question. You mentioned the value in the benefit of the office and the residential for your mix use as far as powering through the overall centers rent collection.As you look at your portfolio across your lifestyle projects, your row projects and your traditional shopping center projects. Are you noticing better trends with the mix use because of that commercial element or is it really coming down to the particular tenant mix in that one center just by nature of the tenant mix they had was really the overall driver why that center did better.So, I'm sort of curious if it basically is having the office and the residential provide more stability or if it really comes down to the tenant mix in which case our shopping center with a lot of essential well maybe do better and therefore if you guys think about how you're going to tenant projects.Tenant mix is you've always said tenant mix becomes even more important?

[Don Wood:]

Let's put this way. First of all, we do believe that the residence in particular in our mix use projects because of the rents are generally and where we are more affluent and at least so far have maintained their jobs more so than rental tenants in kind of a traditional user and apartment where you're in the apartment because you can't afford a house.We don’t generally have those type of tenants in the mixed use places we have. So generally, I'm not surprised that we're collecting as well as we're collecting throughout those uses. They are there for a reason. They are there because of that amenitized days.And so, most of them hand away with all the pay and they've got the amenitized days down below even though the amenitized base is less essential if you will as defined by grocer and drug in April and May believe me the stuff that's down there on the retail side of those mixed use project is essential on a longer-term basis.Because that's their life. That includes the right food, that includes the right shopping, that is all of those pieces are critical to why they chose to live there in the first place. We're in the first two months of a global shut down.Making long-term predictions about the collectability overall whether it’s both particular tenants or future tenants, it's you can't pay April rents to make that decision about going forward there. I feel in some mix that we have moving toward urban mix use and even our grocery anchored in fill locations are all the trends that were there before will only be solidified on the other side of this pandemic.So, that's how I view it.

[Alexander Goldfarb:]

Don, that's helpful. Thank you.

[Operator:]

Your next question is from the line of Savani Sur with Deutsche Bank.

[Don Wood:]

Savani?

[Leah Brady:]

Operator, let's move to the next question.

[Operator:]

The next question is from the line of Jeremy Metz with BMO Capital Markets.

[Jeremy Metz:]

I'm just following-up down on that last question and going back to the comments in the opening about the curbside and being a leader there. And as it's given all the projects underway new planning the developments, the redevelopments the vast repositioning.You're looking at some of these industries being impacted some time made somewhat how potentially worse off or just even we're just different future expansion plan. You've got any additional color here, I'm just are you in the team or maybe shifting your plans around it at all as you in the future I think some of these are or any additional on the design or redesign and just want to be on just the curb side case.With just on the margin or is there any wholesale rethinking any in some cases here?

[Don Wood:]

Yes, that's a good question, Jeremy. It is no there's been no wholesale rethinking. I mean, effectively and it says go back to what I was saying before. We if you think about physically where our places are and what advantages we have coming out of the recession based on those locations that and we want to exploit as best we can the advantages we see.Those advantages include obviously is service an enhanced level of service. Curbside's a big piece of it but it will be the way we do curbside going forward, that's the real differentiator. Think about how comfortable it is, if you live in a community to use your shopping center or if you could for all purposes for all services that you use.Sometimes if you're like strolling, sometimes you've got 20 minutes and you got to pick something up and move along and everything in between. So, we want to take advantage of our positions that way. Suddenly, open air versus enclosed are to imagine that's not an advantage.And so, we want to take advantage of the formats that we have. Now coming out on the other sides to the extent we're looking at new projects to your point. We will look at it with the best information we have at the time.But as I sit here on May 7th or whatever day it is, today in the middle of the crisis, I kind of like where we are and how we set this up but say where we'll clearly be at a much tougher environment to get produce results for the next quarter too.

[Jeremy Metz:]

Yes, that’s fair. And second one from me, just a quick one now on Hoboken. And I think you and your partner to have some additional assets on the contract, just wondering what the latest status is of those and possibly timing. And then that's part of the capital plan and we laid out that we have some liquidity for.And then, maybe on top of that, how should we think about executing one of the additional asset sales we had originally planned as the transaction markets opening back up here. Thanks.

[Don Wood:]

Sure. First of all, with respect to Hoboken, everything we thought going into Hoboken, we continue to think today. But as you would expect the deals that were not we're not done yet, we continue to look with our partner for other deals and have made some pretty good progress in moving some deals along.We're not going to close in right now, we're going to sit back, we're going to see how this all plays out. I believe on the other side we'll wind up picking that stuff back up and let's see where we are at that point. So, that's the Hoboken piece to it.What's the second part of your question, I have to do it again?

[Leah Brady:]

Property sales.

[Don Wood:]

The what?

[Leah Brady:]

Property sales that are in the pipeline.

[Don Wood:]

Yes, property sales in the pipeline. Again it’s in development.

[Company Representative:]

[Indiscernible]

[Don Wood:]

Yes, I got you. We're just going to take a pause on that right now. Hard to tell where those markets would be. You did even, we did close on Pasadena in the quarter by the way. And at a supply camp. Which it says something but obviously that deal was negotiated before.

[Jeff Berkes:]

But they had the ability with full visibility of COVID to back out of the deal and they didn’t. And you priced that at a 4.5 cap, I think says a lot about real-estate quality even in this environment.

[Don Wood:]

In terms of future asset sales around hold right now where we evaluate later in the year.

[Jeremy Metz:]

Yes thanks, Jeff.

[Operator:]

Your next question is from the line of Michael Mueller with JPMorgan.

[Michael Mueller:]

Tenant fall out and run rate NOI erosion. Do you think this is better, worse, or the same as the GFC?

[Don Wood:]

Oh Gosh Mike, so different. I don't know the answer to your question. I really don't know whether it's, it's not the same as a big recession obviously. It is the globe has been closed down economically. There is I don't think anything that's been like that.And so as things start loosening up, I do think as I said will be one of the last to effectively have people have those jurisdictions restrictions come off. But I can also think it's less about having the restrictions come off and more about the populace getting comfortable and feeling safe in coming back out into the community and that's going to happen.That's already happening in the markets we're in today. I know I come to work every day and I know that I've seen traffic in the states. I'm in Virginia and Maryland that has continued to build than sure most of you have seen and nothing's changed with respect for the restrictions specifically where we are.So, as that builds back the question is how can we get these businesses back up and effectively how soon will the market accept them. I'm optimistic but I do think we're talking about 2021 where we see some of the any kind of level of normalcy in activity.

[Michael Mueller:]

Got it, okay. And then, the press release you talked about our construction pace because the safety protocols and I guess do you see that is something that's just a temporary phenomenon or something along the lines of more of a new norm and what are some examples of what's changed on the ground for projects?

[Don Wood:]

Like everything else, I think you'll see a "slow come back" to normalcy but what those safety protocols are right now are specific distancing, specific rules with respect to cleanliness and masks and how many people can be working in a particular area.I do think that will work for the project that are closed down. As they come back up I do believe those protocols will be in place, whether they're in place forever or not remains to be seen. But it's stuff like that which is frankly the same protocols that you see in a grocery store or anywhere else during the crisis. A lot of consistency.

[Michael Mueller:]

Got it, okay. That is it, thank you.

[Operator:]

Your next question is from the line of Vince Tibone with Green Street Advisors.

[Vince Tibone:]

Hey, good morning. Given your ability to access debt capital, would you consider levering up to go on offense on the acquisitions front over the next say year or so if you think there are unique distress in investment opportunities out there?

[Don Wood:]

We are going to talk about that Vince later in the year. It's a good question. Now look, remember everybody's levering up whether they like it or they like it or not. Every retailer, every real-estate company, et cetera.From our perspective, I love that we came in here so well capitalized so that incremental levering up is not a strain on the business. So, we will be able to talk about that and think about that. And there may be distressed opportunities going forward.But as with everything, looking at those carefully and really deciding that that's where you're going to allocate your capital rather to kind of what you got and as we know we got a lot of stuff in the works and opportunities within the portfolio personally.That's going to take precedent because we know what is it we're getting and you never know what you're getting when you go after a distressed asset that way. So, too early to say but certainly something that will be on the radar later in the year.

[Vince Tibone:]

Yes. I think the way to think about that the way we think about that is balance and clearly kind of maintaining balance through that and look while we are not raising equity at the stock level.We have the ability to kind of tap our assets and raise equity at the asset level very cost effectively particularly even in this environment. So, I think there's going to be balance from that perspective. And hey look, we do hope to be able to play a little offense but we'll see and we'll know more as things unfold.

[Vince Tibone:]

Thank you and that's helpful color. One more of just switching gears a bit. I'm curious how do you see second quarter rent payment disputes between tenants and landlords being resolved if you don't reach an agreement on rent referral or rent abatement if a tenant just says I don't feel like I need to pay but you have a legal contract?I mean how does this get settled?

[Alexander Goldfarb:]

Hey Mike, how are you. Not much, I'm on the Federal call. Something you got.

[Leah Brady:]

Alex, can you please? Not sure, I've done. Vince, go ahead.

[Vince Tibone:]

I'm sorry, but did you hear my question?

[Alexander Goldfarb:]

Sorry, can you guys hear my question?

[Don Wood:]

We did hear, somehow Goldfarb. How he does this stuff, it's amazing.

[Alexander Goldfarb:]

Sorry about that, Don.

[Don Wood:]

Okay, Alex. Have me again, Vince, where we go?

[Leah Brady:]

Disputes of tenants who don’t do payment.

[Don Wood:]

Look, at the end of the day, there has not been a rent a non-payment of rent so far and we don't expect there to be for which we have given up our rights. This is not unilateral. And so, we preserved our rights either through defaults or effectively through the contract itself and so it has to be resolved.It'll either be resolved I mean the likelihood is that individual negotiations will resolve a vast majority of those contracts for those companies that frankly can't pay because they'll wind up filing. We've seen a bunch already, we'll continue to see that and the courts will effectively vet that out.Those are the two ways that effectively it happens and so you should continue to see that through May and June frankly.

[Vince Tibone:]

Okay, fair enough. If I could just sneak one more quick one in. Do you have any exposure to co-working operators in your office portfolio?

[Don Wood:]

We do. We've got to read this deal that is signed down at CocoWalk for 40,000 feet or so. Every indication is that deal continues to go through and then we have a small deal with them also I think at Pike & Rose on a floor and they're under contract there. So that it's limited but that's what we got.

[Vince Tibone:]

So, just to clarify, the one at Pike & Rose that's already in place so that's a new unobserved --.

[Don Wood:]

That's been in place for years. No, that's been in place for years; it's a small lease. And then the big one is down in CocoWalk that has not, that's still under construction being built out. And that's all we got.

[Vince Tibone:]

Perfect, thank you. Thank you for the time.

[Don Wood:]

You bet.

[Operator:]

Your next question is from the line of Chris Lucas with Capital One Securities.

[Chris Lucas:]

Good morning, guys. Hey Dan, on the credit facility balance I guess the question for me would be is there any plans to think about maybe locking that in longer-term with some long-term debt and if you did what sort of pricing would you get right now in the marketplace?

[Dan Guglielmone:]

Interesting. Our credit facility has a 2024 maturity. We have the right to extend it to 2025. So, it's actually pretty well out there and it's actually very attractively priced. So, we have maximum flexibility there. Clearly we are going to avail ourselves as an A-/A3 rated company.You've seen a lot of access, a lot of peer companies in that credit rating access the market on a relative basis very attractively. We'll monitor the market and look to be opportunistic and nimble, kind of in I think the same range that you've seen go Realty income, Boston Properties some of the other blue-chip A rated companies access the market and do it in an opportunistic way.So, clearly that's something that I think you've seen some data points out there and we would expect going to be in that in and around that range.

[Chris Lucas:]

Okay, thanks. And my other question, Don this may be a dumb question but I'm going to ask it anyways which is when you put a tenant into the fall, what are the consequences of that to the tenant and how does that help or hurt your ability to sort of get them to where you want them to from --.

[Don Wood:]

No, that's a great question Chris. It's not a dumb question at all and the answer is

[Wendy Seher:]

One of the things I -- just -- it's Wendy, I just wanted to jump in and stress is that while there are certain outliers certainly in the negotiations that we're having day-to-day which are numerous, as Don mentioned, the retailer's want productive locations. They need them. They want to work themselves out of this.We want to work out of this. So, there is what I found and again there are outliers. There is a balance in the approach that we're seeing in the negotiation. So, again everybody's trying to work out of this and gain production and I'm seeing that in our day-to-day conversation.The other thing that I want to point out one more thing is what we're learning about the retailer's has been beneficial to us because we're all in a time that we haven't been in before. So, we're learning things about the retailer. They're sharing more than they would share before and it's helping us as we think about how we want to move forward with our business plans.

[Chris Lucas:]

Thank you, for that.

[Operator:]

Your next question is from Linda Tsai with Jefferies.

[Linda Tsai:]

Hi, good morning. When you look at the low collection categories which are about a third of your ABR, what's the breakdown between national chains versus more local operators and then maybe investment grade versus not investment grade?

[Dan Guglielmone:]

Looking through reams of data to see if we carve that up with respect to some of that specificity.

[Don Wood:]

Can we just take it offline, Dan?

[Dan Guglielmone:]

Yes, we could probably take it offline, Linda. I don't think we've got that sliced and diced in that way with regards to just our the lower quality, I mean the kind of the lower collection tiers. I mean if you look at Page 3 on our portfolio composition in our COVID business update, that gives you kind of the overall portfolio but we don't have it necessarily carved up.So, let's follow-up offline.

[Linda Tsai:]

Okay. And then, as the states are concentrated and start to open up, it seems like restaurants would see their businesses recover faster since a lot of them already open. But any sense of the pace of topline, how the pace of the topline would recover for the other low collectors or what these tenants are saying in your conversations with them?

[Don Wood:]

Yes. I just think it's different by jurisdiction-by-jurisdiction. It's just too early to tell kind of how that topline is going to come out of it. I think it's too, we'll see.

[Wendy Seher:]

Yes. It's ultimately based on what the consumer, how the consumer feels about coming out and re-engaging. So, that's why it's so important from an operational standpoint that we're taking all the steps with the curbside pickup and all the operational initiatives that we're taking so that that customer can feel comfortable and safe and re-engage as soon as possible.

[Linda Tsai:]

Thanks, just one final one. What's your longer term perspective on fitness tenants? I know it's only 4% of ABR and you have a mix of traditional and boutique fitness chains but what's the right mix in your view as it relates to customer demand and then also the credit worthiness of these tenants?

[Don Wood:]

Linda, it depends. In lifetime fitness is a good example of a company that paid their obligations. We don't have any lifetime fitness but they pay their obligations in April. They're very optimistic about where they're going to come out on the other side.When I look at fitness, I think it's a critically important category in the type of shopping centers and mixed use properties that we have. Do I think that people are getting used to exercising at home, will that stay there? I'm a big social guy, so I very much believe in the re-socialization if you will and the importance of health clubs.Now when they open up obviously they're going to open up with restrictions in terms of the capacities and the number of people that can be in there in the space between them. How that plays out over time, I don't know. Is there are place for fitness in the long-term future? Absolutely; from my perspective.

[Linda Tsai:]

Thanks.

[Operator:]

Your next question is from the line of Floris van Dijkum with Compass Point.

[Floris van Dijkum:]

Hey good morning, guys. Thanks for taking my question. A question I had on the PPP funds and particularly regarding your restaurant business, the fact that you're setting up your own $10 million funds, presumably those are loans or grants that you're going to give to your restaurant tenants.Does that, how what percentage of your restaurants have applied for PPP loans? Do you have any insight into that and then what they've been granted as well and is this to replace the or to augment the PPP funds potentially?

[Dan Guglielmone:]

Yes. No, I understand your question and these are completely separate. So, I don't have an answer to the applications. I don't think we do with how many of our restaurants have applied or received.

[Leah Brady:]

Yes, that's all we've applied.

[Dan Guglielmone:]

That's about we've applied.

[Floris van Dijkum:]

But received?

[Dan Guglielmone:]

We don’t know.

[Don Wood:]

And then we don’t know, right?

[Leah Brady:]

We have.

[Dan Guglielmone:]

Really?

[Leah Brady:]

Yes.

[Don Wood:]

I just got some good news here. Half of our restaurants have received PPP loans. But what we see in our -- what we're doing it's a different purpose. First of all, they are loans and not grants under our program.And what they're about the PPP money is in order for it to be forgiven has to be used largely but for retaining employees. In our jurisdictions they're not open yet. And so, one of the things we saw as a problem with the way PPP was working was a timing issue.The difference between when that money would be available, what it could be used for versus what we're trying to do is pick our best players. Not it's not available to everybody, just our best players and effectively make sure that we can shorten the time by giving them or loaning them those proceeds for equipment startup restocking inventories things like that so that they can get open sooner.So, it's a very different purpose and obviously it's very limited relative obviously to the PPP program.

[Floris van Dijkum:]

Got it. One other question maybe, for me. I note that J. Crew has crept into your Top 25. Can you maybe comment just generally on your what you deem to be your at-risk tenants whether on average they have rents that are above or below market and what kind of potential impact it would be to re-tenant some of those.And maybe and how many of the J. Crew locations do you expect to retain following the bankruptcy?

[Dan Guglielmone:]

Still early to tell but we've got about 11. We've got five J. Crew's and six made wells. When I look down the list, they are all productive places. And so, I would expect I don't know for sure yet but I would expect J. Crew to want to restructure those deals and not reject those deals which really makes them just like everybody else out there who's entering the negotiation phase.So yes, I don't know but when you look at where ours are, we've got both a made well and a J. Crew at the Grove in Shrewsbury at Barracks Road in Charlottesville and Third Street Promenade. And then, another at Santana, another at the point.These are, they're at really at good locations and so in terms of being able to either cut a deal with them or backfill them, I feel pretty darn good. They're in our best places.

[Floris van Dijkum:]

Great. And in terms of your other at-risk, do you feel as comfortable about those or –-?

[Dan Guglielmone:]

No.

[Don Wood:]

I don't feel comfortable about anything. We're in the middle of a pandemic year for peace sake. And so, we've got tenants that haven't paid and we're working through the negotiation.So no look, I can't on the call go through the Top 25, 1 through 25 with you, Dan can do that with you separately. But at the end of the day, I got to look at the real-estate and I feel pretty darn and good about the real-estate. I hope that helps.

[Floris van Dijkum:]

Yes, that's great. Thanks, Don.

[Operator:]

There are no further questions at this time. I would like to turn the call back to Leah Brady.

[Leah Brady:]

Thanks everyone for your time today. I hope everyone stays safe.

[Operator:]

Thank you, ladies and gentlemen. This concludes today's conference call. We thank you for your participation and exit you now, disconnect your lines.