Weingarten Realty Investors
Q2 2020 Earnings Call Transcript

Published: 1 Aug 2020

[Michelle Wiggs:]

Good morning and welcome to our second quarter 2020 conference call. Joining me today is Drew Alexander, Johnny Hendrix, Steve Richter, Joe Shafer. As a reminder, certain statements made during the course of this call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results could differ materially from those projected in such forward-looking statements due to a variety of factors. More information about these factors is contained in the Company's SEC filings. Also during this conference call management may make reference to certain non-GAAP financial measures, such as funds from operations or FFO, both core and NAREIT, which we believe help analysts and investors to better understand Weingarten's operating results. Reconciliation to these non-GAAP financial measures is available in our supplemental information package located under the Investor Relations tab of our website. I will now turn the call over to Drew Alexander.

[Andrew Alexander:]

Thank you, Michelle, and thanks to all of you for joining us. I want to stress our first priority is the safety and well-being of our associates, tenants, stakeholders and the broader community during these challenging times. Let me also remind you of the forward-looking disclosure Michelle just mentioned. Considering the severity of the pandemic, I think WRI performed well this quarter. While we're pleased, relatively speaking with our cash collections and rent deferrals to date, the significant increase in COVID-19 cases in the last several weeks is obviously a cause for concern. Johnny will get into our ongoing efforts with our tenants. But I can assure you, the Company is engaged in extensive tenant communications as we do what we can to assist them in this difficult time. Our collections were good for the quarter and July is continuing the upward trend. While we will have challenges as we move forward, the multi-year transformation of our portfolio has certainly made the road ahead easier. Our transformation resulted in a much higher percentage of grocery-anchored centers, a much improved tenant base and most importantly a much stronger balance sheet with little near-term debt maturities. And our 2020 dispositions have further strengthened our liquidity position, while further derisking the portfolio. While the timing of the recovery is uncertain, we are confident that we have more than adequate liquidity to weather the storm. Consistent with our message in the first quarter, we announced a dividend of $0.18 per share for the second quarter. Given our dispositions of $131 million to date, it's likely that we will also pay a special dividend near year-end. Later in the year, we will know more about 2020 dispositions and the performance of the portfolio. We will carefully monitor our cash flow and liquidity and further adjust the dividend as appropriate. All three of our new development projects are progressing nicely. There is minimal additional investment at Centro and West Alex and D.C. and leasing is continuing to progress. Construction is ongoing at The Driscoll and Houston with leasing recently under way. These are good projects and while there may be some short-term issues, longer term these are great properties. Steve?

[Stephen Richter:]

Thanks, Drew. Core FFO for the quarter ended June 30, 2020 was $0.34 per share compared to $0.53 per share for the same quarter of the prior year. The decrease is primarily due to the impact of the pandemic, which resulted in a charge to income in the quarter of $19.3 million or $0.15 per share related to the collectability of revenue, which includes $4.8 million or $0.04 per share for non-cash straight-line rent receivables. As a reminder, we also recorded reserves for uncollectible revenue in the first quarter of $9.4 million, which included non-cash straight-line rent receivable of $7.6 million. A reconciliation of net income to core FFO is included in our press release. Let me add a little color on our bad debt expense we realized for the quarter. From a business perspective, we look at operations on a pro-rata basis. At quarter-end on a pro rata basis, we recorded a reserve for bad debt of $14.7 million, which excludes reserves for straight-line rent and unbilled accruals. Our cash collections at quarter-end, again on a pro-rata basis, were 73%. So with the remaining 27% of uncollected rents, we reserved 46%, a little less than half of that rent, which includes deferrals. Subsequent to quarter-end, we collected an additional $4.4 million of cash, improving our pro rata cash collections for the second quarter to 77%. We have provided some additional details of our collections that can be found on Page 41 of the supplemental. With respect to our balance sheet, during the second quarter we paid all amounts outstanding under our credit facility. Based on our current projections, we will have more than adequate liquidity even after the payment of dividends to comfortably sustain operations. I want to remind everyone that we have no material maturities till October of 2022. Currently we have $498 million of current capacity under the revolver and about $24 million of excess cash. Johnny?

[Johnny Hendrix:]

Thanks, Steve. First I'd like to take this opportunity to thank all our associates who produced the best results possible given very difficult circumstances. We have a highly motivated team along with a strong, diversified, transformed portfolio. 80% of our annual base rent comes from shopping centers with the supermarket component. Pre-pandemic those supermarkets averaged very strong sales of $712 per square foot. Not only have our supermarkets been thriving during the pandemic, they are poised for the future. Over 75% of all our supermarkets have some sort of online component offering curbside pickup and/or delivery services and we worked with them to improve these logistics during the pandemic. We feel strongly that our team and our portfolio are positioned to withstand current headwinds and drive into the future. For the second quarter, we collected 77% of the rent billed. This includes triple net charges billed monthly and base minimum rent. We've accounted for over 90% of the rent owed during the second quarter with either rent collected or some other agreement like deferrals. 13% of the second quarter rent was deferred. In broad general terms one could think of two types of deferrals, strategic or lifeline. Strategic deferrals are generally with major tenants, mostly in our top 25, where we've been able to support their cash flow while negotiating beneficial amendments that will help Weingarten in the future. This could be suspending co-tenancy, loosening exclusives or restrictions or allowing future redevelopment. Lifeline deferrals are mostly with smaller tenants who just need help. About a third of our deferrals in this quarter are strategic deferrals. We feel strongly these will be repaid. It's challenging to estimate how much of the lifeline deferrals will ultimately be repaid. Today, about 95% of our tenants are open. As a result, July collections have shown improvement. To date, we've collected cash for 82% of the July rent bill. We obviously are concerned about the bankruptcies over the last several months. We do not have a lot of exposure to any single tenant, but the collective weight of the bankruptcies is impactful. 24 Hour Fitness terminated three leases. We have three remaining. We had six Stage Stores, four in ventures and two, 100% owned. Initially they have closed one store and plan to liquidate the company over the next several months. We have nine Tuesday Morning stores. None of those have been rejected today. We have three Sweet Tomatoes, all were rejected. We had 23 GNC stores, three have been terminated today. We also had 10 leases with the SINA. Two leases are on the rejection list filed last week. Finally, we have one Sur La Table [ph] which we think will be affirmed and one New York & Company store, which will be terminated. These bankruptcies represent $3.4 million in annual base minimum rent being terminated. Going forward, we are particularly concerned about large health clubs, theaters and high-end restaurants. Fortunately, our exposure to these tenants is pretty small. Combined these three categories are only about 3% of our ABR. The Company currently has contractual commitments for leases signed and not commenced for $9.1 million that we expect to commence over the next four quarters. Some of these commencements have already been delayed. But together with our tenants, we continue to move forward plans and construction spaces. During the quarter, we executed 27 new leases for $1.8 million in base minimum rent. While this is less than previous periods, we see some demand returning. Currently, we have 62 new leases being negotiated in our legal department. This is slightly higher than our 12-month trailing average, which is very encouraging. We're working with discount clothing stores, hardware stores, banks, dollar stores like Five Below and Dollar Tree, restaurants, mainly QSRs, and medical tenants. The Company is already ramping up leasing production capabilities, adding leasing, construction and legal personnel so we will be prepared when we get to the other side of this pandemic. Weingarten has always excelled at leasing and we will again as we release our very strong properties. Drew?

[Andrew Alexander:]

Thanks, Johnny. For years Weingarten Realty has been known as a great operator of real estate. While our current situation is challenging, I'm confident that we will once again rise to the occasion. A heartfelt thanks goes out to all our associates who are working so very hard right now and a genuine thanks to our Board of Trust Managers who have provided constant quality feedback throughout these difficult times. Great people, great properties and a great platform equals great results. I thank all of you for joining the call today and for your continued interest in Weingarten. Operator, we would now be happy to take questions.