Eastgroup Properties Inc Q1 FY2020 Earnings Call

Good morning, and welcome to the EastGroup Properties' First Quarter 2020 Earnings Conference Call. Currently, all phone lines are in a listen-only mode. Later there will be an opportunity to ask questions during the question-and-answer session. Please be advised today's program may be recorded. It is now my pleasure to turn the program over to Marshall Loeb, President and CEO.

Good morning. And thanks for calling in for our first quarter 2020 conference call. As always, we appreciate your interest. Brent Wood, our CFO, is also participating in the call. And since we'll make forward-looking statements, we ask that you listen to the following disclaimer.

Please note that our conference call today will contain financial measures, such as PNOI and FFO that are non-GAAP measures as defined in Regulation G. Please refer to our most recent financial supplement and to our earnings press release, both available on the Investor page of our website and to our periodic reports furnished or filed with the SEC, for definitions and further information regarding our use of these non-GAAP financial measures and a reconciliation of them to our GAAP results. Please also note that some statements during this call are forward-looking statements as defined and within the safe harbor under the Securities Act of 1933, The Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements in the earnings press release along with our remarks are made as of today, and we undertake no duty to update them whether as a result of new information, future or actual events or otherwise. Such statements involve known and unknown risks, uncertainties and other factors, including those directly and indirectly related to the outbreak of the ongoing coronavirus pandemic that may cause actual results to differ materially. We refer to certain of these risk factors in our SEC filings.

Thanks, Keena. Good morning, and thank you for your time. We hope everyone and their families are well and out of harm's way. This is the most atypical script I've written as it touches on the past, the present and the future, making it feel a little bit like writing a Christmas Carol. I want to start by thanking our team. They've done a great job transitioning our operating strategy quickly and doing so while working remotely. I'll touch on first quarter briefly; we have another strong team performance this quarter, producing such stats as funds from operations coming in above guidance of 9.2% compared to the first quarter last year. This marks 28 consecutive quarters of higher FFO per share as compared to the prior year quarter. Our quarterly occupancy was strong averaging 96.8%, leaving us 97.3% leased and 96.7% occupied at quarter end. We also set a quarterly record with re-leasing spreads of 24.6% GAAP and 14.1% cash. Our realized first quarter feels years ago today; it certainly does to me. But it's a great reminder that in a steady open economy, our strategy works and has served our shareholders well over the years. I'm grateful we ended the quarter generally full at 97.3% leased. During 2020, we'll likely have three different operating strategies: the first quarter being the end of the last cycle, one for today during the lockdown and later one during the recovery. As we entered the quarantine, our focus shifted from accommodating expansions and growth, to maintaining occupancy and cash flow. In terms of liquidity, I'll thank Brent and our finance team; as of quarter end, we have the highest availability on our line in the company's history, and one of the lowest percentages drawn on our line since 2006. Given the economic uncertainty, we're expecting higher retention rates, tenants needing economic help until the economy reopens and some tenants who simply can't survive the shutdown. Our asset teams have been working long hours with those tenants who asked for help to gain an understanding of each particular situation. We've assisted them in obtaining PPP loans and we're needed with banking relationships. While this won't be an easy task, two things that give me comfort are the quality of our portfolio. Our properties serve as key essential infill locations for our tenants’ businesses, and the experience and trust our team has. While hard to calculate in terms of the bottom line, our team has a lot of tenure together at EastGroup. For example, at the VP level and above, the average tenure is 15 years. Within accounting, it's 13 years and eight years for property management. That's a lot of teamwork, trust and experience that's been built to weather uncertain times. We know one another. We know our markets, our properties and most importantly, we've built long-term tenant relationships. That's not to say the road won't be rocky and have potholes but experience and relationships are most valuable in a downturn. To date, we've collected 94% of April rent and we expect for this percentage to modestly rise as SBA loan proceeds are received and payments processed. We also expect that economic impact to be cumulative, so later months will also be challenging. The unknown is when the economy reopens and how fast it reopens. We and everyone else simply have less clarity than normal. Brent will speak more about our guidance update but in our revision, we increased bad debt projections by 100 basis points along with an occupancy decline of 110 basis points. As the economy reopens and we collect rents, we'll update these projections accordingly. Our goal in working with tenants and accommodating rent really is to collect those funds as soon as their business allows. Thankfully, we have the most diversified rent roll in our sector, with our top 10 tenants only accounting for 7.7% of rents. As we’ve stated before, our development starts are pulled by market demand. With the shutdown, we reduced projected starts to reflect first quarter starts and pre-lease conversations that are underway. In other words, we're not forecasting new spec developments. We're also looking at acquisitions, dispositions and value add in that same line. Other than what is in hand, we're not projecting new activity. We view operations working with our tenants and maximizing liquidity as key goals until we reach the next market phase. And now, Brent, will review a variety of financial topics, including our updated 2020 guidance.

Thanks, Marshall and good morning. Our first-quarter results continue to reflect strong overall performance of our portfolio prior to the pandemic. FFO per share for the first quarter met the high end of our guidance range at $1.31 per share, and compared to the first quarter of 2019 of $1.20, represented an increase of 9.2%. Unfortunately, the current economic turbulence as a result of COVID-19 will interrupt our record-setting momentum. I will center my comments around our capital status, rent collections and deferment requests and assumption changes that lower the midpoint of our FFO per share estimate. During the first quarter, we issued $15 million of equity at an average price of $142 per share, and closed on our $100 million seven-year unsecured loans with a fixed interest rate of 2.39%. That activity, combined with our already strong and conservative balance sheet, has placed us in a position of strength entering this steady period of economic uncertainty. In fact, at March 31, EastGroup had the most capital available in its revolver in the history of the company, and one of the least strong percentages over the past decade. Our debt to total market capitalization is 23.5%, debt-to-EBITDA ratio is 5.2 times and our interest and fixed charge coverage ratios are over 7 times. Our rent collections were equally strong at quarter-end. We have less than 1% of March or earlier rent outstanding that wasn't either covered by security deposits or reserved as a doubtful account. As for April, we have collected 94% of rents thus far, and to date 26% of our tenants have requested some form of rent deferment. We have only entered into five written deferral arrangements thus far, that represent 0.5% of April rents. We have denied over half of the requests and are in the stages of consideration on 40%, which represent approximately 11% of monthly rents. April is the first month that we truly encountered the virus-related headwind. And as such there is very little actual data available to draw definitive conclusions for the near term. The depth and duration of this economic event is undeterminable. However, we anticipate some degree of tenant financial distress and a decrease in leasing philosophy, which resulted in changing assumptions that lowered our FFO earnings guidance by 2.5% from a midpoint of $5.30 per share to $5.17, or a 3.8% increase over 2019. Among those changes were a decrease in average occupancy from 96.3% to 95.2%, and an increase in reserves for uncollectible rent of $800,000 to $3.8 million. The new reserve represents approximately 120 basis points of income from real estate operations, which is in line with what we experienced during the great recession on average. Also note, that this reserve for potential bad debt is not specific to any tenant, rather it is a general assumption that there will be some companies who simply aren't able to bridge the gap to the reopening of the economy. Other notable assumption revisions include the removal of unidentified acquisitions, dispositions and equity issuances for the remainder of the year. In summary, I am optimistic that pre-pandemic trends that were directly beneficial to our Sunbelt market multi-tenant strategy along with potential new trends post-pandemic will benefit us long term. Meanwhile, we rely on our financial stream, the experience of our team and the quality of our portfolio to navigate us through the near term. Now Marshall will make some final comments.

Thanks, Brent. In closing, I'm proud of our first-quarter results. We've said in the past few years our fear wasn't oversupply as much as a black swan economic event. We don't want either, but now we have just that. Our company and our teams have worked through these before. And while certainly different, we’ll work through this event as well. And as the economy stabilizes, it's the future that makes me most excited for EastGroup. Our strategy has worked well the past few years. Coming out of this pandemic, the trends we are hearing of are companies carrying additional inventory, increased U.S. manufacturing or near-shoring in Mexico, shopping habits that have changed, accelerating the consumer to e-commerce and new industrial users as a result of those shopping habits. Meanwhile, our bread and butter traditional tenants will reopen and continue to meet last mile distribution space in fast-growing Sunbelt markets. These, along with a mix of our team, our operating strategy and our markets, have us optimistic about the future. And we'll now open up for any questions.

And we will take our first question from Jamie Feldman with Bank of America. Your line is open.

So, can you just talk more about some of the markets? I think we're all a little bit more concerned about here. Houston with energy exposure and then probably Orlando with tourism exposure, even Las Vegas. I know that's a small market for you at around 1% of revenue. But maybe if you could just give a little more color in terms of what you're seeing across the different types of markets with different types of economies?

Good question, and I'll try to touch all three without going on too much. And maybe probably the market that’s top of mind for a lot of people is Houston. I’ll start with a few statistics; Houston ended the first quarter at 6.6% vacant, which is roughly 22 million square feet under construction, which is a higher number than typical for Houston. Maybe the good news is we dig into that; typically, a lot of that is non-competitive properties. For example, if we pull those out, that's about 6.5 million square feet or about 30% of what's under construction. So thankfully, a lot of what's being built are larger big box spaces out in Katy or down in southeast markets where we're not located. But certainly oil and gas and COVID, Houston is an atypical market and it's getting hit with both impacts. Thankfully our team, we ended the quarter 98.7% leased with just under 6.5% rolling, and an update as of today. Thankfully, we're a little over 97.1% leased with 4.8% rolling. So we've made some headway in the last month. Our April rent collections in Houston were 97%, so actually higher than our portfolio today. We have literally about a handful of tenants that are working on the SBA loans and things like that. So we're probably, and Houston is about 13% of our NOI. Our earlier projections and this year's a little obviously more uncertain than others had us dropping below 13% in the fourth quarter. So we'll keep working on our exposure there kind of working it down. But Houston's probably the most affected market. What I would say about all three markets is that any of the tourism markets, things are typically never as good as people think they are and they're usually never as bad as people think they are. Houston, as you all know, is the fourth largest city in the country. It's had a lot of in-migration the last several years. It’s getting hit right now as you mentioned with the coronavirus and oil and gas, but it's an awfully resilient market and we think long-term, it's a really strong market. We have a great team there, and we'll manage our size there. Regarding activity in Houston, a little bit the same in Orlando and Las Vegas. Certainly, tourism markets, but probably Orlando a little more than Las Vegas. It's really become kind of the e-commerce hub for Florida. We like that market long-term where we don't have that much direct tourism exposure in Orlando where we probably have some; it's really more in terms of convention space rather than Disney, Universal Studios or all the other things. But Orlando, we just signed a 20,000 square foot lease there last Wednesday. So there's some activity certainly. They’re discussing reopening Disney World, Universal Studios, and SeaWorld at basically 50% capacity, according to what we've heard. And then moving to 75% capacity later. Las Vegas is a bit more challenging given the strip is closed. Thankfully, we've got no lease expirations in Las Vegas for the balance of 2020. We bought three buildings last fall, and we got two of those leased really by the time they completed. We have activity on the balance, and that slowed down with the downturn, but we are working with a prospect or two on those buildings. So thankfully, I wish we were bigger in Las Vegas than we are, though we like each of those markets long-term. But they're all a little more affected than typical, but at least through April, they’ve held up well. I'm happy to be over 97% leased in Houston with under 5% rolling. So we’ll keep chipping away at it and working with our customers. Those markets are probably a little more challenged than typical, but so far, they’re doing well. And this is intuitive; our sense is the market thinks they're a lot worse than they've actually been today.

I guess just on Houston. Are you able to break out what percentage of your tenant base there is actually impacted by the price of oil versus what percentage is not related to the oil prices?

We went through and looked at it, and it gets a little tricky with some of the fields and things like that. But we estimated it's roughly 20% impacted in some form or fashion related to the oil and gas industry.

We will go next to Alexander Goldfarb with Piper Sandler. Your line is open.

Just continuing down on Jamie's question on the tenants. Brent, you mentioned that 40% of the people who raised their rent relief, you think are deserving of it. Can you just give a little bit more color as far as the tenants and what's going on? I'm assuming there were a bunch of people that just raised their hand because they could. Then you probably have some tenants who are probably on their last legs anyway, and I'm guessing that those are not part of that 40%. But if the ones who are impacted do they just merely need their businesses to reopen and then they're good to start paying? Or are those tenants where you think it's going to take longer to get back those rents?

Yes, maybe to clarify that some. So to date, we said 26% of our tenants have requested some form of relief. Certainly, some of those have just put their hands up as they felt like they should. We've denied 58% of those requests. We've executed some form of short-term deferral arrangement with 2%, which represented 0.5% of April rents, for example. But the remaining 40% of those requests does not mean that we're going to agree to all of those. That just means that 40% is in some stage; we've requested additional information, we're doing additional background checks, we're waiting to hear to see if they received PPP loans. So that just means that 40% is being monitored and observed. Some of that percentage will wind up in the denied bucket and some smaller percentage of that perhaps will wind up in an executed agreement bucket. But that 40% as of April only represented about 10.5% of April rents. And again, the 40% is just a monitoring watchlist; we're in touch with them and it has yet to be determined if they will wind up in the denied or executed agreement, but certainly not all of that will be agreed upon. So hopefully that clarifies that a little bit.

And then the second question is, as far as leasing goes, you guys are fortunate that a lot of your exposures in states are just starting to reopen. I'm not sure how much in-person leasing is going to happen in the near term. But do you guys need in-person transactions, like basically do you need people on the ground to kick in like looking at the space, or can you transact on buildings? Because a lot of warehouse can be shown through Google Earth or virtually, and you could actually resume a lot of leasing and maybe even start due diligence on buildings to buy or sell or land; you could do that virtually. So basically, how much of the resumption of your business depends on in-person travel versus how much can you actually do virtually?

I think really a lot of that will be driven by the prospect of the tenant, but in essence, it's not needed. You can certainly do it; we have virtual tours and photos, drone aerials and things like that. All the tenants have a broker and that broker is usually local, or at least working with someone else in their shop in Orlando, Austin, or whatever market the property is in. So it can be done. I think the other thing I like about our product type is that each space has its own separate entrance. There's not a common area, say like in an office building, or shared restrooms and things like that. So it can be done remotely and virtually. Certainly, a lot of the national companies where we've seen a lot of our activity as they roll out kind of their smaller or last mile delivery know what they need and how many dock doors, all the things that are vital to their operations. I won't say it's cookie-cutter, but at least it's more standardized spaces. It can be done virtually. It just depends on how comfortable they are with that. We've certainly been pushing and the brokerage group has ramped up their technology and virtual abilities to show space. It's not as ideal as in-person and things like that in the traditional model, but it certainly can be done and that's where the world seems to be evolving over the last couple of months.

And we will take our next question from Manny Korchman with Citi. Your line is open.

Marshall, can you maybe go through any commonalities or sort of just the flavor of both the companies that have requested relief and the companies that you've granted relief? And also just how you're thinking about incorporating the relief into the extensions or new lease terms?

It's been a varied situation so far. Generally, when people ask for relief, it's typically for the months of April and May, with a promise to repay over the remainder of the year. I recall one case near the ports of LA and Long Beach, where due to the slowdown in China, they sought assistance, and we negotiated two half-months' rent. Our aim is to ensure that the payment plan is manageable for them and to avoid setting them up for failure while collecting repayment as quickly as possible. We're not seeing a trend of tenants wanting to exit their leases, which is fortunate since we haven't had to modify our termination income for the year. Instead, the requests have been more about needing temporary relief of a month or half a month, with commitments to make up for it later. In some instances, tenants have managed to secure an SBA loan after their initial request and have since retracted their need for rent relief. The situation varies; for example, tenants in areas like Orlando and Las Vegas have felt the effects more acutely. Additionally, we have a tenant that facilitates military relocations, which are currently on hold due to a backlog. While we understand some tenants' needs, others are expected to maintain their leases, albeit with occasional requests for a month or two of relief. Our objective is to be back to normal by year-end, but we are willing to accommodate tenants needing more time or considering adjustments to lease terms in exchange for their cooperation.

Yes, just one thing I’d point out. We do look at and segregate our tenants into NAICS codes. Globally, about 22% of our tenants are in wholesale and retail trade, about 18% in transportation and warehousing, and construction-related around 18%. Our rent relief requests today literally mirror those percentages identically. This shows that the impact is being felt across all tenant types. As Marshall said, there are some individual tenants who are certainly experiencing a greater, more immediate impact. But for the portfolio as a whole, there's been no one large segment or percentage that stands out as being particularly affected.

And we can take our next question from Bill Crow with Raymond James. Your line is open.

What percentage of your current portfolio is closed, where they're non-operating?

I’d estimate it's a very small percentage. I mean I’d say under 2%. We've got some and kind of shows where the market was when those were leased. It may be like a volleyball training facility or a YMCA or something like that. It's small tenants here or there. But for the most part, thankfully, our markets have not been hit by the construction shutdowns in a few places around the country. I'd say it's probably under 12 tenants out of 1,600 that would be closed at this point.

And just to be clear on that, Bill, all of our buildings from our perspective are 'open.' We haven't put any restrictions. The way industrial works, we really don't have interior common areas. Each tenant has its own separate accessible space. So really our 1,600 or 1,700 customers, it's really up to each tenant as to how many people are working, if they're open or how many are there, and the steps they're taking. Obviously, we're communicating with them. But thankfully from our standpoint, we haven't had to step in and say we're going to close this or do that. Each tenant is more or less making their own judgment calls on that.

If we go back to 2008 and 2009, one of the challenges was that you had a decent amount of exposure to smaller home builders. And that business had gone down dramatically. Certainly, it looks like construction is going to hit a pause button at least. How has your exposure to local construction companies and contractors changed since then?

Certainly, homebuilding has never really, I guess a good analogy, never come back the way it was back in 2007-2008. We have some exposure there. Although, I think a lot of ours is in the more essential service categories. If you're in San Antonio and it's July and August, the HVAC contractors are key. So we're exposed to about 18% of our tenants being directly related to construction. To-date that has not jumped out. You're right; homebuilders and even markets like Fort Myers, which got hit back during the last downturn, but we're 100% leased in Fort Myers delivering a building that’s pre-leased to Home Depot and have had good activity, just signed the lease. So that’s the market where we felt like in the last downturn, we really learned it was very much second homes and homebuilding. But today it is holding up fairly well. And there'll be some box arrivals but knock on wood that that category hasn't been hit really hard just yet, or at least it hasn't rippled its way to us yet.

One more, if I could. You talked about this earlier and I missed it, just moving on. But is there an opportunity here where construction costs could reverse some of the gains over the last few years?

What we're hearing is labor availability is picking up. Although, it's a little bit less efficient due to social distancing and that shell costs have come down by $1 to $2 per square foot. Again, our construction guys bring us other news; most of the industrial developers have put spec development on hold. The other types of construction that were going on like hotels, retail, and entertainment have really stopped. So I think we leave the demand there, but I think construction prices have come down a little bit and will probably continue to come down over the next two to three months, assuming everybody has hit the pause button for a bit. With some other sectors coming back more slowly than industrial, we hope to benefit from that.

And we will go next to Jason Green with Evercore. Your line is open.

I know a lot of your transactions are locally sourced. I'm curious if you're starting to see any local owners looking for a liquidation event. And do you anticipate starting to see some attractive acquisition opportunities as a result of some of the market distress?

So for the time being, we're still looking, but not nearly with the same intensity we had at the end of last year and the first part of this year. We're gathering our team's insights on off-market deals or those that were on the market and got pulled. I think that will be there. Talking to one of the national brokerage groups this week, they mentioned that there's a lot of dry powder waiting for distress in the industrial space, but thankfully, so far no one has seen it. We hope for some distress, but so far we haven't seen it. Most of the projects are owned institutionally, and the challenge is that development stops quickly with that ownership. We haven’t experienced the distress that we are looking for, but we’re hopeful for it. The good news is the demand for product is still there, but it’s not as clear as it used to be.

Yes, I would say we're always looking at both avenues. We did execute some debt in the first quarter at 2.39, which was a good spot for us. But we keep an eye on it and we have an internal NAV that's probably the metric we look at the most; we're concerned with how we're trading relative to NAV, and it certainly doesn't have to get back to where we were. We're fortunate in that we traded at a premium. So, you saw from the guidance that we did pull equity issuance; it’s just given the environment, however that’s just for this point in time. If the price were to show some strength and the economy were to get stronger, we would consider that lever available. We've been more in capital conservation mode over the last month. Thankfully, we're in great shape for the near term, but it is conceivable to either issue debt or equity depending on what's most attractive at that time.

And we will take our next question from Craig Mailman with KeyBanc Capital. Your line is open.

Marshall, I know you said you don't want to do spec construction here. But could you give us just a little bit more detail on the $70 million of additional starts you have in guidance and whether those are more built to suit or are they just a placeholder?

No, it could turn out to be speculative development. If it does, it would likely be more realistic. We have no planned starts for this quarter; it really reflects pre-leases. We are still having productive discussions with active tenants, and that $70 million balance is primarily expected between now and the end of the year if conditions improve faster than anticipated. I would like to believe we are seeing development again, driven by tenant demands. If we have three tenants looking for expansion space, you would see us pursuing new developments there.

And then you mentioned you did a little bit of leasing in April in Houston. Could you just give us maybe an update on the volume you've done quarter-to-date? Historically, you guys have been more of a regional tenant base, but more recently you're getting more national and e-commerce type tenants. Could you just tell us kind of what's in the pipeline? How has that mix trended over time as well?

I think good question and one a little bit of a misnomer on EastGroup. Often we have large national global companies that this type of space suits their market needs. For example, we have Amazon in a space that’s under 10,000 square feet. We've seen many others like Best Buy and Lowe's; so our tenants comprise more national tenants than we probably have articulated. The national tenants seem to roll out their model in regions. That’s continued throughout what we’ve observed. Our last mile platform seems to have a significant demand especially with what we’ve seen in home goods or food and beverage. It seems that people are ordering online more as shippers become increasingly important. We’ve seen some new usages that are COVID-related, such as for portable medical testing equipment.

On the renewals, what has been the conversation around rent? Have you guys been able to push through any bumps or have people pushed back? Can you kind of just talk about the direction of spreads and the pace of rent growth?

Well, the good news is, we have embedded rent growth. I think it will probably slow, and this is more forward-looking. We just don't have enough data points to definitively conclude yet. Rent growth will inevitably slow. But thankfully, we’ve been able to push ahead with rent increases. Rent bumps are still there probably where the most competition is within new leasing, so we've seen tenants push for free rent and other concessions. There are some tenants who are needing to renew without the growth than they'd need otherwise; they wouldn’t want to seek out expansion. There haven’t been any new leases where the costs have become unattainable, and I wouldn’t say that we’ve drastically lowered our expectations.

And we can take our next question from Eric Frankel with Green Street Advisors. Your line is now open.

So my question, I think you partially answered in some of your replies, kind of on an applied basis. But maybe to touch upon just your bad debt allowance, in 2009 certainly a different portfolio and different time then and different tenant base. I think your actual bad debt experience then was a little higher than what your allowance now shows for 2020. So I was hoping maybe you could explain the difference?

In 2009, we averaged for the year about 122 basis points of total bad debt compared to our income from real estate operations. We considered many factors, but that was probably the primary factor that we used in raising our bad debt allowance for the year from $800,000 to $3.8 million. That $3.8 million takes it to about 121 basis points, almost the exact same spot. A lot of our peers have guided to that same general range regarding their incomes. That allowance is not tenant-specific; thankfully, we entered April with a very clean receivable balance. In that time, we had less than 1% due to us that wasn't collected or covered in some other way. So based on that and how this has played out, we’ve put together this allowance. The remaining $3.3 million represents anticipated cover that we just think we’ll need, assuming not every tenant will bridge the gap to reopening the economy.

Back quickly to Houston. Maybe talk a little bit more about what local leasing conditions generally look like and just how dependent leasing is on oil and gas specifically at this point? And what the ramifications you think might be, even if your current base is not exposed directly to oil and gas, or what it might look like in the next couple of years depending on how that industry shakes out?

Sure. I'll take a stab, and Brent can give more context. Thankfully, supply is pretty tight in Houston as in all markets. I expect we will work our way through that 22 million square feet under construction. There will be downward pressure on rents. And Houston may be a more challenging market, but importantly, when you read about markets reopening, it’s reassuring that Texas is a market that will reopen sooner than others like New York or California. This should aid us. I think there is a chance that the migration to the Sunbelt will pick up steadily again. In the short term, we think Houston's oil and gas dynamics mean it will face more significant challenges compared to our other markets.

No, I would agree with that. I'd just point out that Houston, during the '14-'15 downturn, faced many similar challenges. However, it still had population and job growth during that period. The question is whether the remaining two-thirds of Houston's economy can offset the impacts. We believe the experience of our good team will also help us navigate through this.

And we can take our next question from Michael Carroll with RBC Capital Markets. Your line is open.

I just wanted to touch on your customers' current perspectives. At least in the press release released last night, it sounded like you're more cautious going into May and June versus April. Is that something that you're hearing from your tenants today, or what's your expectation on how the markets are unfolding right now?

I think it's more of the latter. As we mentioned earlier, none of our bad debt reserve is tenant-specific; it's more intuitive that no business is designed for the economy to be shut down. As things moved into May from April, it bodes well for some businesses but raises sustainability issues for others. This is why reopening safety concerns are paramount in our consideration.

Then can you talk a little bit about the tenant mix? I know that you said that you have more national tenants than people probably expect. So what percentage would you say is national tenants versus the local or regional tenants within the portfolio? I mean, have you looked at that, or is that data that you could provide us?

The data on that is very tricky. The publicly traded companies are easier to track since we can look them up, but there can be large private companies that we don’t have data for. So we don’t have specific metrics. In terms of our balance sheet of tenants, we are at a high-class portfolio level and in that context, we do have a good blend of national and regional businesses that remain well-capitalized. We feel good long-term about where we are, and we’ve been through several downturns before.

And we will take our next question from Rich Anderson with SMBC. Your line is open.

So, Brent, you’ve mentioned that the bad debt of incrementally $3 million, with $3.8 million total, was not tenant-specific. Yet you're able to get to this breakdown between straight-line rent, collectability issues, and the breakdown of that bad debt. How are you able to get that level of detail if you didn't really kind of get into the weeds of individual tenants on it? Just curious how that works?

We have bad debt stats going back for about 20 years. Our average mix of cash to straight-line is around 65% to 35%. It holds pretty consistently, although it varies quarterly. By reliance on that historical breakdown and context, we determined our approximated allocation for the forecast. That allocation reflects clients’ behaviors historically, and is more statistical than solely reliant on specific recipient identification.

Rich’s question is about the resilience of our tenant mix, demonstrating how we’ve navigated it effectively in our various markets. It’s not totally clear how the impacts will manifest yet, but our foundations seem to hold well.

And we will take our last question from Elena Travis with Morgan Stanley. Your line is open.

This is Elina on behalf of Vikram. Thank you for taking my question. I have a quick inquiry. Could you share the percentage of May rents you have collected so far? Is it higher or lower than the usual levels?

It's a fair question; we’re preparing everything else; we've not just deep dived into that. The percentage at this point probably would be one we wouldn't want to overly spook someone just because that percentage at this point isn't necessarily that high. I would say our anticipation is slightly behind normal, but nothing that's alarming. By about the 10th day of the month, we will get a good read on the cash flow, and generally who's paid or not paid. This is typical and takes that length of time, but we are roughly about midway at this point.

And we could move next to Blaine Heck with Wells Fargo. Your line is open.

Just following up on the tenants that you've been looking at, and this might be tough to answer, but given the conversations you're having with tenants, do you have any idea as to what percentage of your tenant base has received or will receive some sort of government help in the form of a grant or a PPP loan? And is there any way to know how instrumental that is in their ability to pay rent, or are they using the loans for other expenses?

Good question; it's a tricky one to answer. Of that 26% of tenants that have come to us for help, our standard question inquires whether they have applied for an SBA loan. It seems from my understanding that if you demonstrate that you need pay structures in order to maintain employees and rent with the loan, the portion becomes forgiven. Therefore, many tenants who requested relief earlier withdrew their requests once funding got secured. An important note here is that the compression of time led to varied impacts on different tenants. Each loan application has different financial conditions, and those factors weigh heavily in their ability to yield support. If our tenants are benefitting from those programs, at least it drives consistent rents through this period, helping both parties keep warmth in the relationship.

Yes, we do have $40 million coming in August and then $75 million coming in December. So we have some runway there. And then a pretty typical year next year at $125 million maturing. We've tried to keep a very steady, evenly distributed maturity schedule. Right now seems to be a good timing with the loan we did in the first quarter. Things did spread right in the midst of all this and that’s started to come down. We think we can get 10-year or long-term money in the low 3% range, which is not unattractive, and certainly something we have confidence in exploring as time goes on.

Thanks everyone for your time. Certainly, last and probably most importantly, I want to thank Bruce Corkern. He is our Chief Accounting Officer. He has now survived his last quarter and closeout. He's been with us over 25 years. So Bruce, thanks. Just because you're retired, you're not getting away from us. And meanwhile, the audience thank you for everyone. Thanks for your time. We're certainly available for any follow-up questions or comments. We appreciate your interest in EastGroup. Thank you.

Thank you for your participation. This does conclude today's program. You may disconnect at any time.