No. of Recommendations: 11

I created a spreadsheet with categories and top customers to try to estimate the impact on REITs of the Covid19. Trying to get a feel for the overall impact on retail REITs and the prospects for recovery.

Two worksheets.
Category: Contains business by category.
Top Customers: Contains top customers. This won't have 100% of business for the REIT.

CV19 Status: This column is my guestimate of the business percentage being done by the category or business. Not a lot of business are running at 100% IMVHO.
CV19 BK%: Really SWAG guestimate of business closures as a result of CV19. Only by Category.
x PCT: This is the percent of the REIT's business for the category or company from their website.
x CV19%: This is the computed percent of Status * x PCT. Hoping this reflects the current viable business of the REIT without government aid.
x CV19 BK%. Impact of bankruptcy on the REIT. CV19 BK% * x PCT

I did O and NNN.

You can copy this spreadsheet to make your own changes. I'll be happy to consolidate if someone wants to volunteer to do others. SRC, STOR, STAG might cover the S's.

Feel free to comment on my "CV19 Status" and "CV19 BK%" SWAG Guestimates.

Be careful out there, John
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Great spreadsheets, John. Both NNN and O look like they will weather the crisis well.

Thanks for sharing your work product.

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The easy part is getting the data from the web sites.
Any conclusion about the quality of REITs from this spreadsheet is based on the quality of over 100 SWAGs used to make computations. Certainly some of my SWAGs are way off and some input would be appreciated.

I know of several mostly dine-in restaurants that tried carry-out but decided it wasn't worth it. Hard to know how many of these may never re-open under their current format.

I can't imagine a scenario where JC Penny's or Sears/Kmart survive even a couple of months. Neither is worth rescuing. Must be lots of others in dire condition before CV19.

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On the electric utility category I think the CV19 status probably won't be 100%.

First, for the first 3 months of this year U.S. electrical consumption is down approximately 5%. I know this from following the natgas industry. For the first couple of months it is primarily due to a mild winter and in March probably the COVID-19 economic slowdown has had some effect on electrical consumption.

Second, a lot of utility providers have discontinued disconnects for non-payment. I know that our local electric utility, which is a part of the larger AEP, has discontinued such shutoffs. I help run my town's water & sewer system. In mid-March, just after the due date, but before the cutoff date, we announced that we would not be disconnecting service for non-payment. We have approximately 3700 customers and normally we have 60-80 disconnects each month with 90%+ of those paying within a day or two after shutoffs. This month on the cutoff date, we have 130+ that we would normally have disconnected. That was with our announcement after the final due date. We expect non-payment to grow in both April and May. We may never collect all of it.
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Thanks for the info and Excel SS.

As to CAREs Act provisions for corporate funding and SBA loans through the Payback Protection Program, here is a summary...

The program has been designed to make funds available to qualifying businesses quickly through approved banks and nonbank lenders, such as credit unions.

•Under the Act, qualifying businesses include:
....- Businesses with up to 500 employees or which meet the applicable size standard for the industry as provided by SBA's existing regulations.
....- Businesses in the accommodation and food services industries with more than one physical location but no more than 500 employees at each location.
....- Nonprofit organizations.
....- Eligible independent contractors and sole proprietors with supporting 1099 or payroll tax filing information.

•Loans will be available through SBA and Treasury approved banks, credit unions, and some nonbank lenders

....- The time period for the "covered loan" is the period from February 15, 2020, ending June 30, 2020. The loan must be applied for prior to June 30, 2020.

•Borrowers can borrower 2.5 times their monthly payroll expenses, up to $10 million with an interest rate not to exceed 4%, deferred payments and a maximum maturity of 10 years.

•Applicable uses for the loan proceeds include: (1) qualified payroll costs; (2) rent
(emphasis mine); (3) utilities; and (4) interest on mortgage and other debt obligations. However, employees earning in excess of $100,000.00 are excluded.

•Loan forgiveness is available for funds used to pay 8 weeks of payroll and other qualifiedexpenses. The amount of the forgiveness of the loan will be excluded from gross income to the employer.

•Loan forgiveness may be reduced by the number of full-time employees who are laid off during the "covered period," as compared to the number of full-time employees employed from January 1, 2020 to February 29, 2020. The amount of forgiveness may also be reduced by the amount of reductions in total salary or wages of the employees during the covered period as compared to the most recent full quarter during which the employee was employed prior to the covered period.

•Businesses receiving loans must use the money within two months to obtain forgiveness. Notably, the employer cannot pay any employee more than $10,000 in those two months, or the portion of the forgiven amount may be reduced.

•An employer may also receive forgiveness for additional wages paid to tipped employees during the covered period.

•If a company laid off and shut down its operations due to the crisis, it may still be eligible for the SBA loans on the terms above, though not forgiveness of a loan since employees were not retained.

These provisions are going to be the most important for hospitality and retail REITs who own restaurants, movie theaters, entertainment properties and other businesses that saw their revenues drop to zero due to social distancing.

But to the REIT itself, if it is experiencing loss of revenue from loss of rents, providing the provisions above are met, the REIT should be eligible for PPP loan assistance, if I'm reading the rules correctly. If so, two other important provisions of this Act is companies who receive the low cost/forgivable loans cannot pay a dividend nor buy back company stock up to the year following the payback/forgiveness of the SBA loan. I don't know what effect this will have on a REIT who is required to distribute not less than 90% of REIT taxable income to maintain REIT status.

There are also provisions in the ACT for healthcare relief.

The Act increases funding for the Public Health and Social Services Emergency Fund, by attributing:

•$75 billion in grants and other mechanisms to reimburse eligible health care providers for health care-related expenses or lost revenues not otherwise reimbursed that are directly attributable to COVID-19. Eligible providers are defined as public entities, Medicare- or Medicaid-enrolled suppliers and providers, and other for-profit and non-profit entities as specified by the Health and Human Services (HHS) Secretary

This may provide relief to HC REITs whose operators are likely being hit with very large added expenses

And this from NAREIT's site

[This year] began where REITs had the highest capital and lowest leverage that they’ve had in 20 to 25 years. They’ve lengthened the maturities on their debt, so they don’t have a whole lot of near-term obligations. They have a lot of liquidity resources; they have cash and securities but more importantly, they have lines of credit that are enough to handle a whole year, or even several years, worth of interest payments. Most REITs are pretty well covered for handling the immediate crisis. And their operating [statistics] were good; they’ve started the year with occupancy rates at or near record highs. Their tenants are going to come under stress, but they’re coming under stress from a position of good strength — but we’re going to see how that is tested — but they’ve had record earnings, so this is a much better position to face a crisis than if they had had mediocre earnings and a lot of vacancies. They’re well braced for this.

This assessment is broad and I'm sure it will vary widely by the REIT sector and individual REIT.

I would bee watching for info releases from REITs as they digest their tenents ability to pay rent, their own liquidity and the effects of the CARES Act on their operations.

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"I would bee watching for info releases from REITs as they digest their tenents ability to pay rent, their own liquidity and the effects of the CARES Act on their operations."

To my surprise after contacting all three of by borrowers, all three stated no need to go to interest only payments. None of their tenants are big nationwide businesses, but most of their tenants paid their April rents as agreed.

I think we (myself and my borrowers) got lucky. May not hold
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It is important to understand how business that are operating are doing during CV19.

I went to Taziki's Sunday for dinner and asked how business was doing.
They had 5 people working and all looked busy and it was 1/2 hour before closing. There were two other orders ready for pickup when I entered and another person left as I parked. Pretty orderly.
Was told that business was down, but good. Friday was almost normal sales.

I also note that the more upscale the restaurant the more likely it is to be closed.

Doing a critical physical and mental health activity today.
Be safe out there,John
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