Rithm Property Trust Inc. Q1 FY2020 Earnings Call

Greetings, and welcome to the RPT Realty First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference call is being recorded. I would now like to turn the conference over to your host Vincent Chao. Thank you. You may begin.

Good morning and thank you for joining us for RPT’s first quarter 2020 earnings conference call. At this time, management would like me to inform you that certain statements made during this conference call, which are not historical, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Additionally, statements made during the call are made as of the date of this call. Listeners to any replay should understand that the passage of time by itself will diminish the quality of the statements made. Although we believe that the expectations reflected in any forward-looking statements are based on reasonable assumptions, factors and risks could cause actual results to differ from expectations. Certain of these factors are described as risk factors in our Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the first quarter 2020. Certain of these statements made on today’s call can also involve non-GAAP financial measures. Listeners are directed to our first quarter press release, which includes definitions of those non-GAAP measures and reconciliations to the nearest GAAP measures and which is available on our website in the Investors section. I would now like to turn the call over to President and CEO, Brian Harper; and CFO, Mike Fitzmaurice, for their opening remarks, after which we will open the call for questions.

Good morning and thank you for joining our first quarter 2020 conference call. I'd like to start by thanking all the frontline workers helping us all get through this unprecedented period in time. Our employees who are working tirelessly to ensure that our centers are safe, operational and ready for the reopening of the economy. Our tenants are doing everything they can to continue to support their customers despite widespread store closures. And to our investors, lenders, and vendors who are taking a pragmatic view of the situation to ensure that we can all prosper coming out of this pandemic. Ultimately, our success through the pandemic lives in ample liquidity, excellence in the operations, business continuity, and a strategic outlook for the future. These four principles have driven what we have done and will continue to do throughout this pandemic and in the post-pandemic environment. Led by an operationally hands-on proactive motivated management team, we sit in a position of relative strength following a two-year transformation of our organization to a predominantly grocery anchored and value-oriented portfolio and our flexible balance sheet. Combined with recent actions, we believe that RPT will be able to weather the current storm and thrive once it passes. Regarding our financial liquidity, we took a number of quick and decisive steps when the severity of the pandemic became apparent, which we described in our earnings release and our COVID-19 update from late March. In short, the actions we took increased our cash to over $320 million at the end of the first quarter, which would allow us to weather the downturn created by COVID-19. Looking forward to better align expenses with the current revenue stream, we made the difficult decision to reduce some of the development functions and temporarily reduce executive officer cash salaries as detailed in the earnings release. As a management team, we see tremendous opportunity ahead and are in this for the long haul, and we felt that the salary adjustments were a proactive step that created alignment with our employees and our shareholders. Combined, we expect to save about $1 million in cash from these actions. Lastly, the Board recently made the decision to temporarily suspend the quarterly common dividend, preserving roughly $18 million per quarter. No decisions regarding dividend payments beyond the second quarter 2020 have been made. Future dividend decisions will be made based on liquidity needs and REIT taxable income distribution requirements. Management and the Board did not take the decision to suspend the dividend lightly. We are committed to providing investors with a healthy and sustainable dividend as cash flow visibility improves and the longer-term impacts of COVID-19 are more apparent. Currently, all 49 of our properties are open and operational. As of May 7, 53% of our tenants by ABR are open. As of May 8, we collected 58% of our April rent and reimbursements largely from open tenants. Of our top 25 tenants based on the ABR, over 86% have paid or have agreed in principle to some form of short-term deferment. The majority of April uncollected rent was tied to the non-essential and experiential tenant categories with whom we are in active conversations. Not surprisingly, these categories comprise the vast majority of our rent relief requests that we have received to date. In terms of May collections, it is too early to comment given the fluidity of tenant negotiations. While the segmenting of our portfolio has importance and provides transparency into our business, the single best predictor of collections remains whether or not the store is open for business. As such, we are encouraged that some states have begun to lift lockdown orders, allowing more tenants to reopen their doors. That said, every tenant has different circumstances, and each rent deferment negotiation has different considerations. There are still elements of uncertainty in all cases given the rapidly changing health environment we are experiencing today. In order for us to clearly evaluate our cash flows by risk level, we have classified our tenants into four tiers based on our assessment of their ability to pay rent near term and the sustainability of their rent payments long term. In Tier 1, our tenants have both good long-term business models and have largely been able to remain open through the pandemic. These include essential businesses as well as QSR and fast casual restaurants that remain open, even if only on a takeout, drive-through, or delivery basis. 87.9% of this tier remains open and 83.9% paid April rent. Tier 2 consists of tenants with solid long-term business models and good balance sheets pre-COVID but that sell more discretionary items. The discount apparel retailers like T.J. Maxx and Ross fall into this category along with other investment-grade quality tenants not included in Tier 1. Our Tier 2 tenants paid 78.7% of April rent, but only 27.2% by ABR were opened in April. Tier 3 tenants offer more commodity-like products like full-line apparel and accessories, and Tier 4 tenants are more experiential in nature, including full-service restaurants, and in many cases were key drivers of traffic pre-pandemic. Collectively, Tier 3 and Tier 4 tenants paid 36.1% of April rent, and 35.6% by ABR remained open. Turning now to tenant negotiations, I would characterize our approach as firm but fair. Our size is an advantage right now, as our top executives are directly involved in negotiations. We understand that many of our tenants are in an extremely difficult position relative to their businesses and sales channels being turned off overnight. We are working in good faith with them to get through the current turmoil in a way that both the tenant and landlord can be successful beyond the crisis. To assist our tenants, we started the RRT tenant concierge service to support our small business partners in gaining access to various government assistance programs by hosting educational webinars and providing and paying for direct access to legal resources. Of the 275 tenants that we targeted, nearly two-thirds have told us they applied for the PPP loan. Application for an SBA loan for eligible tenants is a prerequisite for consideration of any form of deferral. That said, let me be clear: while we are empathetic to our tenants’ current situations, we are actively pursuing collections and will pursue all remedies where we believe tenants have the capacity to pay rent. We are not sacrificing long-term cash flow just for short-term April-May rent gain. April rent is still coming in, and we will continue to pursue collections aggressively. Getting through this will take the collective efforts of the entire ecosystem, and there is no place for bad actors. For our part, we continue to service our debt, pay our real estate taxes and insurance, and are maintaining the assets to operate safely during the mandated shutdowns while preparing for the reopening of the economy. As we negotiate any form of rent relief, we are using our tiering process to guide our decision-making process and focus on deferrals to support tenants in need or granting rent relief abatements judiciously. To this point, only 127 rent relief requests have been approved: 121 have been in the form of deferrals totaling $3.8 million, and only six abatements have been granted totaling less than $71,000. Typical deferral terms call for repayment by the end of 2020 and range from one month to three months. Please know that neither deferrals nor abatements are being granted for free, and we’re using them as currency to improve lease terms that will add significant value down the road. Some examples include cleaning up co-tenancy clauses, eliminating no-bills, and extending terms, to name a few. We have proven to be exceptional on the operational side of the business and will navigate this storm through that exact same lens. Although much of the focus has been on who is not paying rent, it’s important to keep in mind that the pandemic is also highlighting the importance of key tenant categories, specifically the grocery channel. We are seeing incredible demand at our non-grocery anchored centers from grocers and are currently in negotiations with seven top-tier grocers at non-grocery anchored centers in our portfolio that would improve the durability of cash flows at these centers, if we close, and increase the number of our centers with a grocer or grocery components by 14%. Turning now to RPT’s response, the pandemic at the organizational and community levels is a strong reflection of the caliber and quality of the company. At the organizational level, we responded quickly and definitively in response to what was a rapidly escalating situation to ensure the safety and health of our employees and to provide uninterrupted service to our tenants. We shut down our New York office in early March, followed shortly by the closing of our Michigan office. Our employees have now been working safely and efficiently from home for almost 10 weeks, but a year ago, we established an option to work from home program, which made the transition to a full work-from-home environment quite smooth. Our technology, tools, and processes allowed us to rapidly evolve with the situation in real-time and with limited disruption. While we are all looking forward to the day we can return to the office, we are prepared and ready to continue to work remotely as long as it takes to ensure the health and safety of our people. In addition to our work-from-home programs, we have also been working diligently to protect the ongoing health and well-being of our employees through weekly wellness emails, COVID-related seminars, and weekly company-wide virtual happy hours. At the tenant and community level, RPT has been actively engaging with and supporting both our tenants and those on the front lines of the pandemic. Today, we have donated over 20,000 meals to support school lunch programs, at-risk populations, essential workers, and nursing home employees in local communities. We have also matched employee contributions to support hospital workers and volunteers. In anticipation and preparation for the reopening of many of our tenants in the coming weeks, we have developed plans for several key initiatives at our shopping centers to keep customers and tenants safe. Some examples of how we have and are preparing for the reopening of the economy are summarized in our press release, but include things like adding nearly four miles worth of social distancing markers, curbside pickup, distributing over 120,000 masks, and increasing health and safety protocol signage at our centers. The current health crisis has caused us to reshape our business plans quickly and refocus our efforts in the near term. Our response to the pandemic has been focused on the health and safety of our employees and their families, our tenants, and our shopping center customers, maintaining business continuity during and after the pandemic, and increasing liquidity to withstand the near-term financial impact of the health crisis while positioning the company for long-term success after the crisis passes. Though the pandemic is having a profound impact on how we think about the business, we remain confident that at its core, the value and service-oriented as well as the grocery-anchored shopping center model is one that will stand the test of time as we all seek out common ground upon which to gather, experience life, and yes, shop. With that, I will turn the call over to Mike.

Thanks, Brian, and good morning, everyone. Over the last several weeks since the pandemic gained force, many of our key decisions have been through the lens of liquidity. Our goal is simple: focus on what you can control and prepare for what you can. As we outlined in the earnings release last night in detail, since the pandemic started, we have taken actions that are expected to supplement our cash position in 2020 by at least $380 million relative to our pre-pandemic plan. A significant contributor to this was our recent borrowings on our line of credit. Out of an abundance of caution and after analyzing our potential cash need, we drew down $225 million from our line during the quarter, bringing our total cash position to over $320 million at the end of March. Based on all the steps we have taken over the last two years to solidify our balance sheet, we are fortunate to not have any debt mature in 2020, only $37 million maturing in 2021, and just $53 million in 2022. If our cash collections remain at the April level of 58%, we would be able to fund our ongoing operations without utilizing much of our cash on hand. Our breakeven cash collection rate is roughly 61%. In short, we believe we have more than enough liquidity to withstand the impacts of COVID-19, despite the severity of the situation. While we have no material use for cash today, we will continue to balance our future cash needs and debt covenant compliance requirements to ensure we have optimal liquidity and flexibility to operate our business. It is also important to note that 46 of our 49 properties are unencumbered, providing us with the optimal operational flexibility to make decisions quickly without the burden of servicers or lenders. Quickly on our first quarter results, operating FFO for the first quarter was $0.26 per share, which was in line with our internal projections. During the quarter, we recognized about $800,000 in costs related to the suspension of our acquisition and disposition program, which have been excluded from operating FFO as they are non-recurring in nature. Same-property NOI growth for the first quarter 2020 was 2.3%, which included a 120-basis point drag from rent not probable collection reflecting the initial impact from COVID-19 attributable to a conservative approach we took with an entertainment center that had a substantial open AR balance that we deemed uncollectible. Absent this, same-property NOI for the quarter was in line with our expectations. We ended the quarter at an occupancy rate of 93.3%, down 100 basis points sequentially, given typical seasonality and recapture of an expected anchor space, which was down 150 basis points year-over-year. On a leasing front, volume dropped in early March due to COVID-19 impacting our new lease volume. As a result, we had a much higher mix of renewal activity during the quarter. In total, we signed 46 leases comprised of 558,000 square feet, of which 60,000 square feet were new leases and 490,000 were renewal leases. We experienced blended leasing spreads of 6.2%, with 36 comparable leases, including a 6.2% renewal spread and a 5.2% new lease spread. Turning now to our outlook for the remainder of the year, in late March, we pulled our 2020 guidance given the lack of visibility created by the coronavirus. While we are not reintroducing guidance today, we want to provide some additional points to think about as you attempt to model the balance of the year relative to our previously provided guidance. We entered the quarter with open ABR of about $2.1 million. Despite the pandemic, we have been able to continue most of our construction activity associated with these leases. While we have seen a slight delay with rent commencement dates, we expect new rent over the next 12 months. Regarding near-term rent expirations, we only have 3.4% of our ABR expiring in the balance of 2020, mitigating some near-term tenant retention risk. From a capital perspective, we have only $14 million of remaining committed capital spend in 2020 of which $11 million is related to our signed-up open backlog, and the residual capital for recently opened tenants with the balance largely related to essential maintenance capital. Turning to the common dividend, as Brian mentioned, once the dust settles from the current disruption and longer-term implications for the market become clearer, subject to approval, we expect to reinstitute a sustainable dividend that will again provide a stable income stream for our investors. Extrapolating that $18 million quarterly common dividend we were paying, it would equate to $54 million in potential capital preservation through the next three quarters. Lastly, in the spirit of transparency, it's worth noting that we provide additional detail on our peers that Brian discussed earlier, in addition to more information on our merchandising mix and performance as it pertains to recollection in a quarterly investor deck posted on our website. And with that, I'll turn the call back to the operator to open the line for questions.

Thank you. At this time, we'll be conducting a question and answer session. Our first question comes from Derek Johnston with Deutsche Bank. Please proceed with your question.

Hi. Good morning everybody. Thank you. Can you give us an update on capital sources and uses, especially as it relates to the GIC JV? I do think the original plan was to partner with them on acquisitions, so maybe curious as to whether their appetite for retail real estate has changed since the pandemic. And then the second part of this question is the $200 million capital commitment from their end, has that been funded or what was the timeline to that?

Thanks Derek, and Good morning. Great to hear your voice. We're greatly excited about the GIC partnership. The timeline of that is we have three years from December 2019 when the JV closed to deploy that capital. To say the least, we have a strong relationship with them, and they view the grocery sector through the same lens as we do. I can tell you from an acquisitions perspective, it's much too early, but we expect to see a lot of opportunities with dislocations and pricing. And to say the least, this is a very unique relationship among our peer set, which gives us a major strategic advantage when the timing is right. Right now, it's liquidity, liquidity, liquidity, but that will serve us well in the near-term and be a differentiator for opportunistic opportunities in the future. Capital commitment was being funded acquisition by acquisition, so there's no overarching funding, but it's funded on an as-needed basis prior to the closing of HSF.

Okay. Got it. Thank you. And then of course the dividend suspension, it's no secret I feel that the coverage is stretched for a time there. So given where the portfolio is at today, could the suspension perhaps last for a few quarters longer as you guys work to shore up capital and further reduce leverage? And the second part of the question would be how much more do you guys have to pay out after the first quarter distribution to satisfy your reported requirements?

Thanks. Let me take the first part, and Mike can answer that the second. We believe first and foremost that paying a sustainable dividend level is important, and we were well on our way to cover our dividend before this pandemic hit. I mean you look at last year and sector-leading with 4% plus same-store NOI and take out COVID, this would have been north of a 3% NOI quarter. And we were well on our way to coverage. With that being said, we're in the situation. So once the dust settles from the current disruption and longer-term implications of the market become clearer, and obviously subject to board approval, we expect to reinstitute a sustainable dividend that will again provide a stable income stream for our investors. The timing of such remains to be seen and again is subject to board approval. When we do reinstate a quarterly dividend, it will be sized appropriately to meet our distribution requirements and at a level that is sustainable and can grow in conjunction with our earnings growth. As far as any sort of catch-up payment, that will be a board decision at the time we reinstate. But unlike the preferred dividend, there is no required catch-up payment with that. So Mike, do you want to touch upon leverage and the taxable income?

Yeah, sure. As far as taxable income goes, Derek, at this point, it’s a bit too early to know where our taxable income requirement will be for 2020. What I can tell you is that our taxable income in 2019 was approximately $34 million, and we have paid out approximately $20 million in distributions thus far in 2020. Based on this information, it gives you some sense of the potential taxable income in 2020 and the potential remaining distributions to meet our taxable income requirements for this year.

Our next question comes from Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.

Hi, thanks. Good morning. Brian, maybe for Mike also, you mentioned it's early in May in terms of rent collections. Can you share any detail on May either directionally or how collections are tracking compared to April at this time? And then, there seems to be a fairly strong co-relation between open and rent payment which makes sense. Do you know what their reopening timelines look like across the portfolio? Maybe how much ABR might be open by say June 1 or July 1 based on the plans retailers are discussing with you?

Yeah, and let me take the first question from May; it’s too fluid. We are still on track from April, but it's much too fluid, and we're still getting April rents as we speak right now. That said, we have a very detailed approach to our collections and have a cash team assigned, and I'm included in conversations with a number of C-suite level individuals on the retail side. So, I do think that's an advantage, as I said in my prepared remarks that our size is an advantage, where we get myself and Tim and others on the leasing team, David Ross, to speak with these retailers face-to-face and work out something that creates a win-win for both parties. As far as the opening up, I do feel optimistic that more rent will be coming in just based on the geography that we have. When you look at our concentration in Michigan, that's mostly opening up May 15th, with Georgia, Tennessee, Texas, Colorado, and St. Louis also opening up. So really, with the exception of Chicago, we're in a pretty good geographic footprint, with no concentration in the Northeast or California or the Pacific Northwest where it's going to be a little later. Retailers are opening based on what they feel comfortable with. Much more of the nationals have been doing curbside pickups and are much more aggressive with opening than the regionals and locals. That being said, in Florida and Georgia, we're seeing a good uptick with people planning for opening. We have a whole planned opening practice with best case practices and procedures from the CDC and local municipalities. So, we're there to help them, and our asset management team has done an unbelievable job in ensuring success.

Okay. And then you talked about the sort of balance or the ability of tenants to pay rent both near term but also long-term. How are you thinking about future rents for restaurants, theaters, maybe fitness, or other tenants that might operate at reduced levels going forward? How are you approaching those discussions?

Well, we’re being consistent with that approach, and this - in the Tier 4 category of what we described is being much more empathetic to their businesses where those are largely subject to government shutdowns. In the case of restaurants, it's a case-by-case approach. We look at sales pre-COVID and analyze their occupancy costs to estimate their future occupancy costs accordingly. We are in the details on a case-by-case basis for each restaurant. Thankfully, we have a lot of QSRs who are open with drive-through options and fast casuals as well. For sit-down and fine dining, we project they will likely be at around 25% occupancy for the near term over the next 60 days before they increase based on state orders or mandates. We're walking hand-in-hand with them. Theaters would fall under the same bucket along with fitness centers, which is one of our top 20 tenants. We are in great dialogue with them, and they have a sound plan in place with social distancing measures and turning their gyms into more cardio rooms to allow for more space. So, that category, we're in constant dialogue with, and it's a case-by-case basis influenced by the states and the operators.

Okay. And then just lastly, so the seven grocer deals that you commented on that you're negotiating, I'd imagine that there is an urgency for grocers to open and expand their footprints during this time. Are these discussions that might advance in the near-term to lease signing? And do you have space available to accommodate those grocers today? What do the restrictions look like across the portfolio at centers where you already have a primary grocer? Are there still opportunities for you to expand grocers or specialty food stores at those centers as well?

Yeah. I mean we're in a grocery renaissance. It's unbelievable the amount of demand, and I haven't seen this in my career. Early on, we met with grocers, discussed opportunities with our existing and new tenants, and saw this as a significant growth channel for them, which translates to internal growth for us as well. The LOIs and leases with these top-tier grocers are moving quickly, and I am optimistic they could turn into signed agreements very soon. We have a mix of vacant boxes that can accommodate them and iterations that may require some combination of spaces, while others can be a reload. These are strong balance sheets and household names, filling voids in markets they desire. So, I believe that's another reason why I'm optimistic about our current portfolio’s positioning. We are situated in the top 40-50 markets and don't have exposure to tertiary areas, which enhances our appeal to these grocers.

Our next question comes from Collin Mings with Raymond James. Please proceed with your question.

Thank you. Good morning. Brian, I just wanted to go back to Derek’s question regarding gating. You mentioned the three-year timeline, but can you just expand on what you'll look for to shift the focus back towards growth versus the current focus on liquidity? As you think about deploying capital either in conjunction with GIC or RPT, how do you perceive the potential to look at more distressed opportunities that might emerge as opposed to focusing on properties with arguably more durable cash flow?

Hey Collin. Good morning. Thanks for the question. I think I mean really with GIC, the JV was structured for grocery currently and from that channel specifically, and nothing's really changed. We're looking from the markets, the same markets, the same pro-business, pro-growth environments. We'll continue to pursue those markets as part of the strategy. For example, we have recently acquired property in Austin, which has been thriving and was actually our number one in April rent collection out of the entire portfolio. So, we feel really good about that market, having spent the last year building relationships with private owners in the area. As for the opportunistic aspect, we aim for stable cash flows, and if we can secure strong IRRs from durable cash flows at a higher yield, we’ll pursue that. If we identify distress asset opportunities where real estate is notably sought after—like an Amazon or Whole Foods in the market—those could be attractive as well. But I believe the GIC relationship is one that I'm greatly excited about and thankful it concluded when it did. I believe the future holds great potential for the company.

Okay. Thank you. And then switching gears, I just want to talk a little bit more about your redevelopment opportunities. Recognizing clearly you're in a good position as far as flexibility going forward, can you touch on how you plan to adapt the physical layout of your properties as you consider social distancing measures going forward?

Yeah. Thankfully, we're not burdened with major redevelopment expenses right now. I've been cautious about capital allocation for the past eight months, reallocating our development funds to our merchandising strategy, resulting in solid yields. However, we are addressing how our shopping centers may look moving forward. Personally, I envision properties adapting to have two front doors: one inside the store and another for curbside. We're focused on enhancing our curbside program and utilizing analytics to monitor and manage capacity within the stores, parking lots, and patios. We've already implemented significant social distancing measures at our centers with safety protocols in place. Though it's too early to precisely determine further adjustments, I am confident in our operational savvy and proactive nature, as we expect the liquidity we hold today will distinguish us from our peers.

Our next question comes from Craig Schmidt with Bank of America. Please proceed with your question.

Hey, good morning.

Hey, Craig.

I was wondering if you knew to what extent the off-price retailers TJ Ross and Burlington are open? And then, it seems they have a real opportunity in terms of sourcing could be very opportunistic, but how do they balance that with the treasure hunt approach of shopping there? It seems to be at odds with the social distancing.

It’s a good question. We think there's going to be a grocery renaissance, and we think there’s going to be an off-price renaissance as well. Looking at the department store channel, TJ, Ross, Nordstrom Rack, and Burlington will be able to buy inventories at tremendous discounts, and we see that as a significant strength for them. How they'll manage the treasure hunt experience within the social distancing measures remains to be seen. TJ, in particular, is one of the greatest retailers in the world; they've demonstrated growth year after year. So with their operations and innovative strategies, I trust they will find a way. When they're opening, it all depends on geography. We are in constant dialogue, and I expect some of them to open in May across certain states, with many likely by early June.

And Craig, the only thing I would add is that 90% of our tenants who are favorable did pay April rent, and only 3% were open in the month of April.

Okay. And so I'm just curious, are there any half-price operators open in Texas?

From an apparel perspective, we don't have any apparel at that center. We have Dollar Tree. So Dollar Tree is open if you want to consider that half-price, but we don’t have any half-price operators in that particular center. Yeah. Thank you.

Our next question comes from Floris Van Dijkum with Boenning & Scattergood. Please proceed with your question.

Hey Brian, actually it’s Compass Point, but I wanted to ask you about your covenants. You're pretty tight on your unsecured covenants, obviously, because you drew down your line. As you think about deploying that capital, does that make you want to pay back that line immediately? If you're considering deploying that capital, am I correct in thinking that if you were to invest that into JV assets with the GIC joint venture, that would count against your leverage, whereas if you were to buy fully owned assets that are unsecured, that would actually improve your leverage ratios? Also, how do you think about potentially taking advantage of some of the price dislocations? Your preferred shares have sold off a lot. Would you consider buying back some preferred shares and reducing your leverage, even though that doesn't get counted in that covenant, I don't believe?

Mike, do you want to start?

Yeah. I can start, Brian, and you can discuss the acquisition environment long-term. But Floris, as I mentioned in my prepared remarks, we pulled the line down $225 million out of an abundance of caution, like many of our peers. Based on the line rate of 2%, it's an inexpensive insurance policy until we gain more certainty. We're going to hold tight because liquidity is paramount, and acquisition is a close second. In terms of our unencumbered leverage ratio, we can spend that $225 million back and get down to our previous debt levels at the end of 2019, right around 45%, while still retaining around $100 million of cash on hand. As I also indicated, our cash burn rate is quite negligible. We won’t even utilize that $100 million if we needed to.

And Floris, as I said earlier, we see huge potential dislocation. In my opinion, the private market is too early to comprehend, but we are constantly dialoguing with servicers, banks, as well as private owners who may be having financial issues or are already struggling with their CMBS loans. We're taking a consistent approach, but I do believe the opportunity could arise soon.

Brian, if I were to ask you, you presumed you were looking out into the market, you've had some dialogue for the GIC joint venture. So, what's your sense of how much pricing differences you think will occur in the valuations of properties you were considering?

It's tough because everything is so different. If you look at Austin's and Nashville's, Raleigh and Charlotte, given a property with a Whole Foods or Trader Joe's and a few small shop tenants, I think those tenants and cash flows are stable and secure. They remain open, thus potentially attracting capital. If you look at more opportunistic regional grocers with more small shop and 100,000 square feet, I believe cap rates could rise by one or two higher based on the current environment. It's still early, and it really depends on the market, intersections, and credit quality more than ever. We're on the sidelines watching but being vigilant for future opportunities.

One more thing to clarify regarding your question about our leverage ratios: buying JV assets would not impact the unencumbered leverage ratio. However, if we chose to put secured debt on those assets and utilize the proceeds to pay down unsecured debt, that would be helpful. But strictly buying JV assets wouldn't impact our leverage ratio as you mentioned.

Thanks, Mike. I appreciate that. One last question on your exposure to theaters: I know you didn't take down any receivables yet on your balance sheet for questionable financial credit, but you do have a fair amount of exposure to theaters. How do you think that's going to play out? What are your expectations for your exposure to Regal and some of your other theater tenants?

Thankfully, we don't have AMC, and Cinemark is a great operator. Regal is a key operator, which represents our largest concentration in the theater sector. We're actively engaged in conversations with them; they seem optimistic about the future and are implementing strategies within their operations for social distancing. They plan to open around June, from what they're saying, although that could change. From what they have communicated, I'm optimistic about our relationships with Regal. They have a solid outlook with robust financial backing and have new investors behind them.

Thanks, Brian. I appreciate it.

Our next question comes from Linda Tsai with Jefferies. Please proceed with your question.

Hi. How do you see leverage trending for the remainder of 2020 and into 2021?

Mike, do you want to take that?

Yeah, sure. Linda, it's challenging. In the absence of potential fallout from retailers due to the pandemic, at this juncture, given our liquidity position with over $320 million of cash and very limited committed capital, we don't foresee significant fluctuations in our debt levels near-term through the EBITDA perspective. Too much uncertainty is ahead right now, but we are committed over the long-term to maintaining leverage levels between 5.5 times and 6.5 times, as we’ve previously discussed.

Thanks. And then occupancy at 93%. Do you have any sense of how that will be by year-end?

No, no sense at this point, given the uncertainty in the environment.

One last question from the Tier 4 tenants: do you know what percentage has applied for PPE loans?

From Tier 4, which includes theaters, restaurants, and fitness, we don't have an exact percentage of those who applied for PPE loans. I can tell you that our local tenants, which represent 13% of our ABR, half have applied, and I believe this could correspond with our recent comp tiers program that we implemented. This data correlates to about low 50% of local tenants paying their April rent, which we attribute to the availability of the PPP loans.

Great. Thank you.

Thanks, Linda.

Our next question comes from Mike Mueller with JPMorgan. Please proceed with your question.

Yeah. Hi. Brian, you talked about wanting to get something in return for doing the deferrals. So for the 121 deferrals that you've mentioned, what sort of adjustments did the lease terms include? What percentage of 121 had adjustments made to the lease terms, and what were some of the common adjustments?

I don't have the exact percentage, Mike, but common adjustments would be co-tenancy clean-up, modifying old co-tenancy clauses, extending terms, exclusives opening up to allow maybe some competitors into the property, and adjusting radiuses. Overall, the terms are comprehensive: any deferral is vetted through a committee process, with legal, asset management, leasing, and finance involved. Everyone meticulously checks the lease agreements to ensure we extract as much value as we can while offering them deferrals. I'm proud of the team's proactive efforts.

We have reached the end of the question-and-answer session. At this time, I’d like to turn the call back over to Brian Harper for closing comments.

I’m sitting in my remote location separated from family, friends, and colleagues. I am sincerely grateful to be part of an organization that has risen to the current challenge in a way that exceeds all expectations. The caliber of talent at RPT, our portfolio, our processes, and balance sheet improvements made over the past two years, as well as our partnership with GIC, reinforces my confidence that RPT will emerge from this crisis ready and able to capitalize on opportunities that arise from this pandemic. Thank you all for joining our call this morning, and have a safe day.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.