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Brixmor Property Group Inc (NYSE:BRX)
Q1 2020 Earnings Call
May 8, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Brixmor Property Group First Quarter 2020 Earnings Conference Call. Today's conference is being recorded.

At this time, I'd like to turn the call over to Stacy Slater. Please go ahead, ma'am.

Stacy Slater -- Senior Vice President, Investor Relations and Capital Markets

Thank you, operator, and thank you all for joining Brixmor's first quarter conference call. With me on the call today are Jim Taylor, Chief Executive Officer and President; and Angela Aman, Executive Vice President and Chief Financial Officer; as well as Mark Horgan, Executive Vice President and Chief Investment Officer; and Brian Finnegan, Executive Vice President, Leasing, who will be available for Q&A.

Before we begin, let me remind everyone that some of our comments today may contain forward-looking statements that are based on certain assumptions and are subject to inherent risks and uncertainties as described in our SEC filings, and actual future results may differ materially. We assume no obligation to update any forward-looking statements. Also, we will refer today to certain non-GAAP financial measures. Further information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in the earnings release and supplemental disclosure on the Investor Relations portion of our website. [Operator Instructions]

At this time, it's my pleasure to introduce Jim Taylor.

James M. Taylor -- Director, Chief Executive Officer & President

Thank you, Stacy, and thanks to all of you for joining our first quarter call. I trust that each of you and your families are safe. I'm grateful to report that the Brixmor team has no known cases of COVID-19, although tragically, some of our team have lost family members and loved ones. Needless to say, we are beyond grateful to those on the front lines fighting the virus, from the first responders to the healthcare workers, to importantly, those of our essential tenants who have remained open throughout the crisis to ensure that we all have essential supplies. Thank you.

Given the events of the last several weeks, this first quarter, which would typically predominate our discussion, seems like a distant memory. While that's the case, it's important to understand the first quarter's performance in the context of our business going forward. As has been the case for the last four years, we continue to deliver industry-leading leasing volumes and spreads and value-added reinvestments. We signed $1.4 million of new and renewal leases at average cash-on-cash spreads of 10% overall and 24% for new leases. We delivered $41 million of reinvestment projects at an average incremental return of 11%, significantly beating our pro forma. We produced 3% same-store NOI growth or over 4% before taking reserves for COVID-19 into account. And perhaps most importantly, we ended the quarter with $43 million of signed but not commenced ABR, which we expect to commence over the next six to eight quarters, as well as a significant pipeline of new leases and LOIs that we expect to execute upon as we move to the other side of this crisis. Simply put, these results underscore our confidence that our platform is built to handle this disruption.

In early March, as the outlines of the pandemic came into view, we immediately implemented a comprehensive response strategy consistent with our cultural tenets. I couldn't be more proud of how our team responded to ensure that we proactively address the impacts of the crisis and, importantly, position ourselves for outperformance as we emerge. Our operations team moved quickly to curtail operating expenses by 15% without sacrificing service levels at the property level, to not only reduce CAM leakage but also reduce the expense burden for those nonessential tenants forced to close. They also immediately implemented additional signage for essential and hybrid tenants, who remained open as well as provided signage and set aside marked spaces for curbside pickup and delivery. The response from our tenants for this additional support of their businesses has been overwhelmingly positive.

With a priority on liquidity and an eye toward a more favorable cost environment as we emerge from the crisis, our construction and redevelopment teams worked with tenants to extend certain opening time frames from 2020 into 2021, reducing our forecasted capital spend for value-enhancing reinvestment and maintenance capital in this year by over $110 million. And again, our spend is for projects that are pre-leased, which underscores the low-risk conservatism of our investment pipeline. Our collections team working with our leasing and marketing teams implemented our BrixAssist program, providing our small shop tenants with assistance in accessing federal and state relief programs, including paid SBA consultants for help in accessing the PPP program. At this time, we believe that over half of our small shop nonessential tenants have applied for relief and many of those have received funding. Importantly, we've been in dialogue with each of our small shop tenants forced to close and applying lessons learned in other natural disasters, are working to ensure that they have access to all available resources and that they are reopened as soon as it is safe and practicable.

Because of these efforts of our leasing and collection teams, we've collected over 66% of our April rent, including over 50% of rent from our nonessential and hybrid small shop tenants, truly an outstanding result. Our leasing team has also been engaged with those nonessential national and regional tenants that have been forced to close, negotiating the exchange of rent deferral of one to two months for very valuable concessions in the underlying leases. These concessions include the elimination of restricted use clauses as well as early option exercises and renewals. Our guiding principle in these discussions has been that the value received not only exceeds the cost of the deferral but that these are deals that we would have deemed favorable prior to the crisis. This is a key point because these concessions will act as an accelerant for our performance as we emerge from the crisis.

We strongly believe that a refusal to engage with tenants in this environment is not only a lost opportunity, it's just not smart business. But let me be clear, those tenants who are proposing unreasonable accommodations will be addressed through default and the other lease rights we have in our leases. As Angela will cover in more detail in a minute, our finance and capital teams have successfully ensured that we have more than ample liquidity to fund our business for the next several years without having to access the capital markets.

We also took the extraordinary measure of suspending our July dividend. As many of you know, we believe that our primary product to investors is a dividend that is well covered in that growth. We enjoy one of the lowest payout ratios in the sector, one of the lowest watch list, great tenant and geographic diversification, a strong, fully unencumbered balance sheet and a pre-leased reinvestment pipeline. Each of these factors put us in the best relative position possible to fully reinstate the dividend. However, as this crisis plays out, we will see elevated levels of tenant failure across the industry and not addressing the dividend puts any platform in a position of emerging from this crisis with more leverage and less flexibility to reinstate the dividend and importantly, capitalize on the recovery. As we've seen in previous dislocations, the greatest value destruction occurs through unwise balance sheet decisions. So on balance and in an abundance of caution given the uncertainties presented by this crisis, we made the tough but, we believe, responsible decision of suspending the dividend this quarter.

Looking forward, perhaps the best way to determine how well this platform is positioned both to weather and emerge from the pandemic is to look at how we enter. Approximately 60% of our ABR comes from essential uses such as grocery and drug stores and hybrid uses like crafts and electronics. 83% of these essential and hybrid tenants have remained open during the crisis, as have all but two of our 400 shopping centers, and our core tenancy is very strong as 80% of our top 40 tenants have paid April rent in full and those same 40 tenants have raised collectively in excess of $35 billion of liquidity to weather this storm. We also enjoyed strong tenant diversification, with no single-tenant representing more than 3.4% of our ABR and our top 40 tenants averaging less than 1%. We are also diversified from a geographic perspective, particularly as certain markets have been disproportionately impacted, with no market representing more than 8% of our ABR. When you look at those sectors most at risk to this disruption, you'll note that only 2% of our ABRs from entertainment uses, including theaters, less than half of our restaurant exposure is full-service casual and only 5% of our ABR is from fitness.

As we further reflect on how we will emerge from this crisis, note also that we benefit from low rent basis and low occupancy cost ratios. These will be incredibly critical in providing us the flexibility to respond to changing market conditions and still make money, just as we have over the last four years. We believe that the crisis has and will continue to showcase the resiliency and attractiveness of our community, necessity-based retail centers, and we believe that over the next 18 months, we're going to see an acceleration of some of the trends that have favored our centers over the last four years. In fact, you can already see these shifts in the composition of our forward leasing pipeline, which not only includes new essential uses to our portfolio but other retailers fleeing obsolete product types in favor of being within the last mile of their consumer. Finally, I would note that every decision that we've made as a company, from selling $1.7 billion of noncore assets, to deleveraging and unencumbering our balance sheet, to maintaining discipline and focus on value-enhancing low-risk reinvestment, to capturing increased market share with tenants who will thrive long-term, to how we are leveraging this disruption to further enhance our leases, all point to a future for this company that will be even stronger on a relative basis. As the impacts of COVID-19 play out and cause many to reset their business plans, I believe Brixmor will stand apart with the platform, portfolio quality, rent basis and track record to drive tremendous value creation.

Thank you for your interest and support. And with that, I'll turn the call over to Angela.

Angela M. Aman -- Executive Vice President and Chief Financial Officer

Thanks, Jim, and good morning. I will briefly walk through our first quarter results before discussing the important steps we have taken over the last several weeks with respect to our liquidity profile and balance sheet positioning. Despite a macroeconomic backdrop today that looks very different than the one where we're operating in for the majority of the first quarter, the results we reported last night do serve to emphasize the strength of our portfolio and platform.

NAREIT FFO in the first quarter was $0.46 per share, and same-property NOI growth was 3%, driven by a 400 basis point contribution from base rent. These results reflect additional reserves taken in light of COVID-19 with respect to certain nonessential watch list tenants based on a comprehensive financial and liquidity review. These reserves are included in both revenues deemed uncollectible and straight-line rent, totaling $2.6 million and $3.8 million, respectively. Absent these reserves, same-property NOI growth would have been 4.3% and NAREIT FFO would have been $0.48 per share. These are outstanding results that speak directly to the successful execution of the business plan we laid out several years ago, focused on transforming our portfolio of well-located neighborhood and community shopping centers through strategic reinvestment intended to drive growth and long-term value.

Across every facet of our business, we believe that the steps we've taken over the last several years to strengthen the portfolio and the platform have dramatically improved our ability to navigate this period of disruption. Specifically, as we've executed on our reinvestment and capital recycling plans, we've also worked to create a balance sheet that could weather any storm. We reduced leverage ratios and improved coverage metrics, but also importantly extended the weighted average duration of our debt maturities and reduced our reliance on short-term bank debt. The result is a capital structure with $1.2 billion of liquidity and no maturities until 2022. In addition, our portfolio is now fully unencumbered, which provides an invaluable degree of financial and operational flexibility as we navigate an exceptionally dynamic environment. Importantly, I would note that based on current rent collection rates and the adjustments we have made in opex and capex, we are fully funding the recurring operations of our platform without utilizing any of our substantial available liquidity. More specifically, our breakeven cash collection rate is approximately 50% before capex or approximately 60% after a normal course maintenance and leasing capex.

While the liquidity we have in place today and the flexibility afforded to us by our current capital structure position us very well, we also believe that our stakeholders will ultimately be best served by additional efforts to bolster liquidity, given the unknown scope, severity and duration of the pandemic and the resulting economic disruption. As a result, we completed a broad-based assessment of our capital needs, included including anticipated spending levels on recurring capex and on our value-enhancing reinvestment pipeline, which resulted in a deferral of approximately $110 million of anticipated 2020 capital expenditures, further bolstering our near-term liquidity and flexibility. With respect to our value-enhancing pipeline, the granularity and low risk, pre-lease nature of our projects allowed us to work closely with our retailer partners to find mutually beneficial solutions for the execution of these projects. We will preserve precious liquidity in 2020, without sacrificing the contractually obligated revenue associated with signed leases at these projects or the long-term values that will ultimately be created.

In mid-March, as our offices around the country closed and the potential magnitude of the current crisis became more clear, we suspended activity under our stock repurchase program, which was funded in the quarter with disposition proceeds and drew a total of $550 million under our revolving credit facility, which remained in cash on our balance sheet at the end of the quarter. In addition, last night, we announced the Board of Directors has temporarily suspended our dividend. As Jim discussed, this is not a step we take lightly. That said, we are dedicated to taking the actions necessary to ensure that we emerge from this difficult time, a stronger and better platform. In conclusion, I'd like to reiterate Jim's appreciation for the efforts of the entire Brixmor team over the last two months. The dedication and perseverance shown at every level of the organization has been humbling, and we're truly grateful for everyone's efforts.

And with that, I will turn the call over to the operator for Q&A.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Craig Schmidt of Bank of America.

Craig Schmidt -- Bank of America -- Analyst

Thank you. I was wondering, was there any difference in April rent collections by geography?

James M. Taylor -- Director, Chief Executive Officer & President

Craig, it's Jim. Actually, we were struck that it was pretty well balanced with each of our four regions being pretty close to what we've reported overall. If there was any region that was impacted slightly more than the others, it would be the Northeast, which certainly was the region more impacted by the virus, but it's a slight difference.

Craig Schmidt -- Bank of America -- Analyst

Okay. And then I just I'm assuming you've seen in some of your markets the easing of the mandated closings on nonessential tenants. I just wonder, what has the consumer's reaction to those more discretionary retailers in terms of consumer acceptance?

James M. Taylor -- Director, Chief Executive Officer & President

Well, I think as you've seen in the general media and we've certainly seen it with our openings, folks are being cautious. Some users, particularly those that provide pickup and delivery have been more prominent. But we have started to see rapid reopenings across the portfolio in those jurisdictions where the restrictions have been lifted, be it Colorado, Georgia, now in Texas. But I do think that you're seeing the consumers continuing to be careful as they should be and I think our tenants also responding in a way to provide their customers with a safe experience, which I think is going to be critical over the next few months.

Craig Schmidt -- Bank of America -- Analyst

Thank you. You bet.

Operator

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

James M. Taylor -- Director, Chief Executive Officer & President

Hey Todd

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Hi thanks good morning. Jim, you spoke about the forward leasing pipeline in terms of seeing demand from essential retailers and others that want to be closer to their customers. Can you just describe what you're seeing there in a little bit more detail around that demand?

James M. Taylor -- Director, Chief Executive Officer & President

No, I'd be happy to. But maybe, Brian, I can turn it over to you?

Brian T. Finnegan -- Executive Vice President of Leasing

Yes. Todd, it's a great question. One of the things that's been exciting for us just in terms of some upside during this period has been the fact that many of these essential businesses continue to move leases forward and actually continue to sign leases. Think about the at the end of the third quarter, while our leasing certainly moderated a bit, the team was able to sign 38 leases and almost 250,000 square feet in March, 60% of that was in the last two weeks when we were effectively shut down. So if you think of the categories like grocery, value, personal electronics, which we still continue to sign leases with and then QSR restaurants, we've been pleased with the pipeline. We certainly do expect it to moderate a bit and many of those tenants who we had large pipelines with have taken a bit of a pause. But Jim did mention the pipeline in his opening remarks for a reason, it's actually up 25% from the end of last quarter. So many of those deals that were moving toward execution have simply been put on hold, even for those nonessential retailers that haven't opened yet. So while we do expect it to be a little choppy, we are pleased with the activity that we're continuing to see during the slowdown here.

James M. Taylor -- Director, Chief Executive Officer & President

Yes. And I think, Todd, importantly, it puts us in a position, particularly with respect to those leases in the pipeline to ramp up pretty quickly. And as I alluded to in my remarks and Brian, we did as well, we are actually seeing new essential uses, new types of grocers as well as certain tenants that are fleeing products that aren't close to the consumer. And those were trends that we've been talking about for the last several quarters. I think you're going to only see that accelerate in favor of open-air retail.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. And then, I guess, sort of following up on that a little bit, maybe thinking about grocery, specifically, right? We've seen stores shift to curbside pick up and do a lot more delivery than ever before, and those trends have really accelerated meaningfully here over the last two years last two months, sorry. Do you have sort of a view on how grocery will look going forward? We've seen grocers resort to testing all types of concepts and strategies since March, whether it's in the traditional store itself with micro-fulfillment, using dark stores for curbside and delivery only. Do you have a view on what might materialize going forward here? And how that might impact your portfolio and shopping centers more generally?

James M. Taylor -- Director, Chief Executive Officer & President

Yes. I think that the curbside pickup and delivery is something that's here to stay. I think that the consumer adoption of it has been incredibly strong. And I think it's also a profitable format for the grocers because the customer still carries the cost of the last mile. I think what the grocers have seen is also that their average basket sizes have increased markedly. So I think that you will see, to what you were alluding to, some of the store formats begin to change a little bit and also, the grocers looking at their footprints and designating more space within those footprints for micro-fulfillment.

Where I think we stand very well to benefit from that trend is both our relationships and market share with some of the grocers who are leading in that area, but also the low rent basis that we have and the flexibility, generally speaking, that we have in the format itself to accommodate those changes. I think that the other thing that this disruption has pointed out is actually the importance of the proximity to the customer, and flaws in the overall logistics pipeline that really get dealt with when you're able to have a significant amount of inventory near where the customer is. So I think all of those things are going to accelerate some of the changes in the grocer format. I think we stand pretty well positioned, given our relationships with the grocers and importantly, given our low rent basis and the flexible nature of our assets.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. Thank you, Ron.

Operator

Our next question comes from Samir Khanal with Evercore ISI.

Samir Khanal -- Evercore ISI -- Analyst

Good morning. Jim, sorry if I missed this, I joined late, but did you provide any early color on sort of May collections at this point?

James M. Taylor -- Director, Chief Executive Officer & President

I haven't. What I can tell you is that month-to-date, we're sitting pretty well, a little better than we were in April but we do expect that to moderate. As I mentioned in our comments or in the opening comments, we are negotiating rent deferrals where we see value in doing so. So with those tenants that we have negotiated rent deferrals with, there may be only partial payments in May. So I feel good about where we are month-to-date. In fact, I think we're ahead of where a lot of people were for the entire month of April. But do I expect to be where we were in April, probably not. I think it's going to moderate a bit.

Samir Khanal -- Evercore ISI -- Analyst

Okay. And I guess shifting gears a little bit. On the leases that you've signed in March, I mean, what are sort of tenants asking for in these leases today that maybe you weren't seeing, let's say, six months ago, kind of pre COVID? I'm trying to understand if there's any kind of COVID language attached in these leases. So just trying to get a sense of that.

James M. Taylor -- Director, Chief Executive Officer & President

Well, I'll let Brian comment on this. But as you could imagine, of course, tenants are looking as they negotiate leases to have some type of protection as it relates to future pandemics. But we've been taking a pretty hard line with it and importantly, have not had to, as of this moment, sign any such provisions. But as we look forward, we certainly expect it. And Brian, maybe you can comment on our approach?

Brian T. Finnegan -- Executive Vice President of Leasing

Yes. Samir, it's a great question. And in terms of leases that we signed in March, really weren't as much addressing it there as much as just looking at the build-out periods. So there were some adjustments, maybe 30 to 45 days in those, but weren't exactly COVID specific. And as Jim mentioned, we are starting to see it a bit. It's pretty clear in our leases today that the tenant has the obligation to pay rent. We do expect this to come up with retailers. And I think our guiding principle, and I think it's going to be if and when we do address this, it's look, acknowledge that they owe the money like they do today, limit the duration of really any type of deferral and then pay it back within a reasonable time. And that's how we're going to approach these going forward. And again, those will be exceptions, not the rule because today, we've taken a pretty hard line on it.

Operator

And we'll go next to Ki Bin Kim of SunTrust.

Ki Bin Kim -- SunTrust -- Analyst

Thanks, good morning. So you guys have about so you have about 10% of your leases expiring through 2020 expiries or month-to-month. How are you thinking about addressing some of these leases? Because I could imagine that during these times, there's probably some hesitancy for long releases from both your perspective and from the tenants as well.

James M. Taylor -- Director, Chief Executive Officer & President

Yes. We've really actually gotten after that pretty well, Ki Bin. It certainly is an appropriate thing to be focused on, but we have very little as a percent of our overall rent remaining that needs to be taken care of as we move through the year. And I think part of the reason for that, honestly, is that these tenants are making money in our spaces and they expect to make money in these stores as they move forward. And it really, more than anything else, points to the importance of low occupancy costs. We've talked about it for 16 quarters since we've been here. If this crisis points to anything, it's that tenants are more than ever going to be focused on the profitability of their stores. So while you quote the 10% number, I'm not going to quote you a specific number, but it's far lower in terms of what remains. And based on the tenants that are rolling and importantly, based on the rent, which is in the single digits that's rolling, we feel pretty good about where we'll continue to be from a renewal standpoint.

Ki Bin Kim -- SunTrust -- Analyst

Okay. And sorry, I was looking at the small shop tenants. So I guess you only have 7% rolling comp, to be officially correct here.

In terms of capital allocation, one of the key aspects of Brixmor has been your ability to allocate capital to anchor repositioning and redevelopment and very well leased, so lower risk. How do you think about this segment in during uncertain times? And if the rent will be there to justify the cost? And if the tenant demand will be there? If the small shop follow-through demand will be there? There's probably a lot of things you have to kind of think about.

James M. Taylor -- Director, Chief Executive Officer & President

Well, you hit the main point right on the head in your question, and that is that our investment activity is substantially pre-leased. So ironically, the business plan that we've been executing prior to this crisis is the exact same business plan that we're going to execute through and beyond the crisis. So obviously, with a continued focus on making sure that we're driving very attractive risk-adjusted returns on that capital, that not only it's great on an incremental basis but as we've talked about throughout, creates a tremendous amount of intrinsic value.

But I think in a strange kind of way, the conservatism and approach of our business model not only positioned us well to come into this crisis but it's going to be a very similar model that we execute as we emerge. And we're going to avoid, as we did before, ground up or significant speculative investment because you just don't get paid enough for it. And if anything, this crisis points that out that where you are putting capital to work, which we haven't, without those forward lease commitments, you're risking stranding significant amounts of capital. So I appreciate the question. And I think it just really highlights for us as a company, what our relative strength is.

Operator

Our next question comes from Hong Zhang of JP Morgan.

Hong Zhang -- JP Morgan -- Analyst

I guess what percentage of ABR do those tenants that you took the bad debt reserves represent in your portfolio? And looking into the second quarter so far, have you identified any other tenants that are at risk of going into cash accounting?

James M. Taylor -- Director, Chief Executive Officer & President

Yes. Thank you for the question. We did take a real hard look at our watch list tenants and we focused in for purposes of taking the reserve on straight-line and AR in the first quarter on those tenants that are higher at risk. I'll let Angela maybe provide a little bit more color, but these were tenants that we felt would be disproportionately impacted by the crisis, that were weaker going into the crisis. And we thought it was conservative and appropriate to specifically reserve for them.

Angela M. Aman -- Executive Vice President and Chief Financial Officer

Yes. I think Jim laid it out well. It was a pretty targeted assessment of the watch list, those tenants that were nonessential closed had disruption to their business. And as I mentioned in my remarks, we did kind of a thorough evaluation of their liquidity position to determine which tends to take ultimately take the reserves on.

I would say their exposure in the portfolio is low single digits. It was a handful of tenants that made up the reserves we outlined in the press release. But in total, it is low single-digit exposure to those tenants.

Hong Zhang -- JP Morgan -- Analyst

Got. Thank you.

Angela M. Aman -- Executive Vice President and Chief Financial Officer

Okay.

Operator

We'll go next to Shivani Sood of Deutsche Bank.

Shivani Sood -- Deutsche Bank -- Analyst

Yeah, good morning. Just curious in terms of the deferral conversations you're having with tenants. Can you give us a sense of how many of those are just for April versus maybe April and May? And Jim, you had touched on this in your opening remarks, but some color on the payback periods that you're targeting in these conversations?

James M. Taylor -- Director, Chief Executive Officer & President

Yes, I'm going to let Brian comment in more detail, but I do think it's important to highlight the principle with which we approach these discussions, and that is that these are deals that we would have done absent the crisis. So whether it's one month or two months, which we're generally holding to in terms of time period, we really are focused on looking into those leases and identifying those clauses, the restrictive uses and other items that there's real value, frankly, in lifting. And Brian, you may want to add some more?

Brian T. Finnegan -- Executive Vice President of Leasing

Yes. Jim, you covered most of it. Again, these are generally have been a month or two payback at the end of 2020, into early 2021. And again, that guiding principle is that the value we're getting or receiving is greater than or equal to the cost of the deferral and we've been able to lift restrictions, get extensions. So far, those discussions have been productive with several retailers. So where we're getting to a place that makes sense, we're entering into agreements. When we're not, either the tenant's paying rent or we're making the decision to pursue our legal rights under the lease as Jim mentioned in his opening remarks. But in terms of the total amount of deferrals, we're still early, each of those negotiations is specific. With many of those tenants, we expect to have more color as we move forward, but we're making some good progress. And really appreciate the effort just of our national account team. Their rapport and dialogue with these retailers is helping us get to a place where, as Jim mentioned, it makes good business sense, COVID or no COVID, with whether or not we'd enter these deals.

Shivani Sood -- Deutsche Bank -- Analyst

And then part of the original disposition strategy, I think, was the sell out of markets where you don't maybe have that critical presence. And in a lot of conversations I've been having at least, the Brixmor's diversity has been cited as a positive. So I appreciate it's very early days still, but just curious how you might be thinking about this longer-term in terms of the size or the scope of the portfolio?

James M. Taylor -- Director, Chief Executive Officer & President

Well, the diversity is one of our strengths. And I think it really goes to we think there are several markets across the country that some have red lined where we think there are great risk-adjusted returns. But our focus is always on having enough presence in those markets where we don't tip the geographic diversification scale, but we do provide ourselves with the synergies of more than one center in a particular market.

And so we've done a tremendous amount of pruning of single asset markets since we've started. We have a few more, some of them do represent markets where we will add exposure over time. But that geographic diversification, because we're not for example, just trying to be in certain coastal markets, I think is going to be a continued strength of this company.

Operator

And we'll go next to Greg McGinniss of Scotiabank.

Greg McGinniss -- Scotiabank -- Analyst

Jim, just going back to the question you just addressed on markets you've been targeting and geographic diversification. So obviously, this environment has created some strange hurdles. I'm just curious if the potential for changes to physical college attendance, at least in the very near term, has changed your investment philosophy on university towns?

James M. Taylor -- Director, Chief Executive Officer & President

It's a near term risk. I mean, you're spot on. Many of these university towns are seeing dramatic reductions in their populations as the students have gone home and they're learning remotely. I don't think it's a long-term issue. But we're certainly focused on those markets like UC Davis or Ann Arbor or College Station, where we have assets and making sure that our tenants are getting to the other side of this. But we believe very strongly in the long-term vitality of those markets. And as we emerge on the other side of this crisis and students get back to school, I think our tenants are going to thrive.

Greg McGinniss -- Scotiabank -- Analyst

Okay. And Angela, at this point, how should we be thinking about the suspended dividend versus taxable income in Q2 and 2020? And maybe as a way of helping us out of if you can, at what level of GAAP rent collection do you actually reach zero taxable income?

Angela M. Aman -- Executive Vice President and Chief Financial Officer

Yes. Thanks for the question, Greg. We're continuing to evaluate and obviously monitor closely taxable income. As we mentioned in the press release, that will be a key consideration the Board considers when determining when or how to reinstate the dividend. As Jim talked about in his prepared remarks, a key focus for how we're navigating the crisis, really in every way across the board, is to put us in the strongest position possible coming out of the crisis and to be able to reinstate the dividend fully on the other side. At this point, there's just too much uncertainty in the environment to give any more specific color, I think, as it relates to 2020.

Greg McGinniss -- Scotiabank -- Analyst

Thank you, Beth.

Angela M. Aman -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

We'll go next to Floris Van Dijkum of Compass Point.

Floris Van Dijkum -- Compass Point -- Analyst

Hey, good morning guys. Thanks for. taking my question.A quick question here on your small shop leasing. Historically, your small shop occupancy has lagged sector peers. Obviously, the COVID is likely to have a greater impact on the small shop. What do you see as a strategy going forward? And do you see that your occupancy could dip? Or how do you look at the growth opportunity in the portfolio as a result of the impact on your small shop?

James M. Taylor -- Director, Chief Executive Officer & President

Well, it's a great question. And everything that we've done from a strategy perspective has been geared toward utilizing that small shop vacancy as an additional growth lever, particularly as we're repositioning anchors and leasing off the strength of some of that redevelopment capital. And you've seen that trajectory in our small shop occupancy over the last several quarters. We did see a dip in the first quarter due to Dress Barn. But that underlying momentum, we think, will continue and be an important part of our growth strategy going forward.

And I think that you've seen, actually, interestingly, if you dig into our April collection numbers, some real strength in the amount of rent paid by our small shop tenants, including our small shop tenants, the nonessential tenants that have been forced to close. And I'm real proud of that statistic because I think it points to what has been over 16 quarters of work of continuing to upgrade the quality of the portfolio, upgrade the anchors. And so as we emerge on the other side of this, we think we'll be positioned to continue to use that as an opportunity.

Floris Van Dijkum -- Compass Point -- Analyst

And let me just ask you one more question regarding the suspension of dividends. You mentioned again, your payout ratio was very low going into this. Obviously, we're not quite sure how things will look coming out. But the expectation is that you would still be able to service a dividend similar to what you were paying before. Would you suspense the or not pay a dividend for a couple of quarters and then resume that same quarterly payment potentially going out of this once you have more clarity? Or would you consider paying some of the dividends that you've skipped as a result of the suspension?

James M. Taylor -- Director, Chief Executive Officer & President

Well, our product at the end of the day is the dividend that grows. And so we take that decision very seriously. And we made the decision to suspend it in an abundance of caution and with really the focus of being able to fully reinstate that dividend. And as you mentioned, we enjoy one of the lowest payout ratios in the sector. We're not taking significant risk from a redevelopment perspective, it's all pre-leased. We have a huge amount of liquidity, far more liquidity than we need over the next several years. And this is really a decision of conservatism as we look at the potential for tenant failures and the potential to be on the other side of this, if you haven't addressed the dividend of needing to raise equity at what could be possibly the worst potential time. And when you look back to 2008, 2009, huge amounts of shareholder value were destroyed by companies putting themselves in the position of needing to issue equity at the wrong time.

So it is a conservative decision, given our low payout ratio, but it's one with an eye toward emerging from this, not only being able to fully reinstate the dividend, but also being in a position to capitalize on what we think are going to be some very attractive investment opportunities because of this dislocation. And also, Floris, because of the competitive advantage, we believe a platform like ours will enjoy going forward. So not an easy decision but we believe, on balance, the right decision.

Operator

And we'll go next to Christy McElroy with Citi.

Christy McElroy -- Citi -- Analyst

Good morning. Thanks, Angela, you're sitting with a good amount of liquidity today. In the context of how you're thinking about the environment and risk, how do you think about the potential for holding that larger cash balance for a position for a longer period of time and sort of solidifying that by accessing the debt markets to pay down the line? Have you looked at term loan or unsecured markets for pricing indications?

Angela M. Aman -- Executive Vice President and Chief Financial Officer

Yes. Thanks, Christy. We're certainly looking at all of our options from a capital availability perspective. I do think we're starting to see more REIT deals at the unsecured bond market. We'll be evaluating that closely. We're very focused on duration also. So I don't know that we gained a tremendous amount by adding in some short-term bank debt to the capital structure at this point, but that's obviously something we would evaluate and consider as well.

In terms of the balance on the credit facility and when we might be in a position to address that, I think it's just it's an ongoing evaluation of where we sit from a business perspective, how things play out over the coming weeks and months. And then as you mentioned, kind of the capital availability picture and what that looks like going forward as well.

Christy McElroy -- Citi -- Analyst

Okay. And then sorry if I missed this, you discussed the 15% reduction in operating expenses. How much of that will actually fall to the bottom line in terms of benefit to NOI and FFO versus being passed on to tenants in the form of lower CAM recoveries.

Angela M. Aman -- Executive Vice President and Chief Financial Officer

Yes. It's about I'm going to say these are kind of rough estimates, but it's probably somewhere in the 60%, 65% range of that number is going to end up really being reflected in lower recovery income and being passed through to the tenants, and the remainder would accrue to Brixmor as a benefit in terms of reduced leakage on the net recovery side.

James M. Taylor -- Director, Chief Executive Officer & President

Yes. And Christy our I'm sorry, but Christy, our focus there is really to make sure we're reducing the burden on those nonessential tenants that have been forced to close.

Christy McElroy -- Citi -- Analyst

Yes. I was just wondering how temporary that is. Is that sort of like a quarter a second quarter thing or more ongoing?

James M. Taylor -- Director, Chief Executive Officer & President

Well, we have the ability to continue it as long as we need to during the duration of these closures. As I mentioned before, we are seeing an accelerated rate of reopening across the portfolio. And of course, we'll pivot as appropriate based on the level of businesses that are open in each of our centers.

Christy McElroy -- Citi -- Analyst

Thank You. We'll go next to Jeremy Metz of BMO Capital Markets.

Jeremy Metz -- BMO Capital Markets -- Analyst

Hey, thanks. Just a couple follow-up items here. You mentioned, Jim, the strength in shop payment. So what was the percentage of collections across shop versus anchor that have [grown] to that 66%? And then implied in your comments earlier about May moderating or potentially moderating in terms of collection and negotiating deferrals with tenants who maybe pay a reduced amount in May and maybe June. Is it implied in that, that these are deferrals being discussed with tenants who actually already paid in April?

James M. Taylor -- Director, Chief Executive Officer & President

Let me hit both of those. So look, as it relates to the deferral discussions that we're having now, some of them did pay in April, some of them didn't. What's interesting is when you look at the collection rates for small shops, particularly those nonessential and hybrid small shops that were forced to close, they were actually higher than some of the national anchors in the same categories. And we've obviously been engaged in what I believe are generally very constructive discussions with some of those tenants who didn't pay in April as well as some who did, really with the guiding principle, again, of making sure that we're getting appropriate value for the agreement to defer.

I mean, one thing I want to make abundantly clear, we believe our leases legally entitle us to the rent for April and May. And for those tenants that don't honor their obligations under the leases and we don't have constructive discussions with, we're going to pursue all the remedies that we have under those leases. With many of those tenants, as we get into negotiations, what's kind of interesting is they decide to go ahead and pay their rent. So but given actually the success that Brian and team have had with some of these larger tenants and negotiating deferrals that we think makes sense because they unlock real value in the leases, we do expect that rate of collection in May, which is ahead of where we were in April, and again, better than many people reported entirely for April. We do expect that to moderate a bit.

Jeremy Metz -- BMO Capital Markets -- Analyst

I'm sorry are you able to just comment on the first slide, just on the breakdown of collections from shoppers anchors?

James M. Taylor -- Director, Chief Executive Officer & President

I don't have those numbers specifically. Angela?

Angela M. Aman -- Executive Vice President and Chief Financial Officer

Yes. We were in the low 70% range for anchors and the low 60% range for small shop.

Jeremy Metz -- BMO Capital Markets -- Analyst

All right, thanks guys.

Operator

Our next question comes from Alexander Goldfarb of Piper Sandler.

Alexander Goldfarb -- Piper Sandler -- Analyst

Hey, good morning.

James M. Taylor -- Director, Chief Executive Officer & President

Good morning,.

Alexander Goldfarb -- Piper Sandler -- Analyst

Out there. Yes. So two questions from me. First, Jim, maybe this is a layup, but I hopefully, there's some good color that you can provide. As your retailers and really thinking about the retailers who do who both who have both an active robust online platform and to complement their physical locations, have what's been their feedback so far? Everyone rushing to the grocery store, drugstore, etc, whether it's bread, yeast, toilet paper, whatever, to buy stuff. And obviously, there's been stuff that's out of stock in-store and out-of-stock online. What's been the retailer feedback so far as far as fulfillment? Have they found that certain categories are better actually filled direct in your shopping centers and other things turn out to be easier on e-commerce from their platform? Just sort of curious as they look at fulfillment during this time, what the feedback has been?

James M. Taylor -- Director, Chief Executive Officer & President

Well, I think on balance, they found that the store has been a critical mode of their overall fulfillment across a lot of different product types. Those retailers that do have online robust presences are seeing much even higher rates of adoption of the pickup and curbside delivery outside their stores. And as I mentioned before, they're all very focused, I think, on that being a sticky part of what their business model will be going forward.

Brian, I don't know if you have any other color there?

Brian T. Finnegan -- Executive Vice President of Leasing

Yes. I would just say, in talking to our retailers, it has been interesting that those that didn't have a full ship-from-store platform have started to do it. And it's been interesting to hear just looking at where they're shipping products from across the country. Some of the electronics retailers were saying that wherever you can find wherever they can find the specific product, they are looking to do more of that from a ship-from-store perspective. And what I think you're going to see coming out of this is just the further integration and acceleration for those retailers that haven't had as much of an omnichannel platform, realizing the importance of the store, realizing the importance of curbside pickup and then doing more from a ship-from-store perspective. So coming out with this, we expect a ton of innovation from our retailers that were a little bit further behind coming in.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay. And then second question is have do you have a sense for how many of your tenants have gotten waivers from their banks or their creditors as far as if they are in default of their lease that it doesn't trip on their other covenant their other financial covenants with their lenders? Do you have any color on how many of your tenants have gotten those waivers?

James M. Taylor -- Director, Chief Executive Officer & President

It's a great question. Today, we don't believe it's a significant number but certainly, many of them are looking at that, particularly under the maintenance of properties, which requires that they be in compliance with their leases. I think it's a tough thing to negotiate though, right, Alex? Because what you're basically asking a lender to do is to look past the need to actually have units to sell product. And we clearly believe in the enforceability of our leases and the remedies that we have under those leases, which could severely disrupt the retailers attempt of recovery. So we know some retailers are out there looking at it. But from what everything that we see, it's not been a broad-based trend.

Alexander Goldfarb -- Piper Sandler -- Analyst

Thank You.

Operator

Our next question comes from Haendel St. Juste of Mizuho.

Haendel St -- Juste of Mizuho -- Analyst

Good Morning. Glad to hear you and I hope everyone as well. I'm going to I waned to follow up on, I think, with Jeremy's question on the small shop collections beyond April and May. My understanding is that as a small operator, you got a PPP loan, you have to use that loan money to pay rent to ultimately help get it forgiven. So it wouldn't necessarily make sense to ask for deferral in April and for May because you have to use the money for rent. So instead, you use the money to pay April and May. And if you need help, then you ask for deferral for June and probably July, which suggests that rent collections and deferrals could remain under pressure beyond second quarter. So I guess I'm curious on your view on what the level of risk this presents? And what steps are you taking to address and mitigate that risk?

James M. Taylor -- Director, Chief Executive Officer & President

Well, Haendel, you're pointing to something very important, and that is that the local mom-and-pop small shops, which for us, in the nonessential and hybrid category, represent about 16% of our total ABR, that those are probably the businesses that are going to be most economically sensitive to the duration of this crisis, right? So what ultimately plays through is going to be driven in part about by not only how long does this last, but what is the shape of recovery. The PPP program has been embraced by many of these tenants and they are allowed to apply a portion of those proceeds, which are sized on payroll to business expenses, including rent and get a full forgiveness of that amount used to pay for qualified business expenses. But there are other forms of relief that we believe these tenants will be able to avail themselves of coming behind the PPP program.

The one that we're watching most closely and positioning to give our tenants meaningful access to is the Main Street Lending Program, which is a four year debt money at very attractive rates, far below where public companies like ourselves could borrow on that type of basis, as a way to provide them liquidity, not just to get through the duration but also on the other side to have the working capital to reopen. And then finally, we're watching really closely the Business Recovery Act, which ICSC has been at the forefront, among a number of different industry associations, which would also provide some relief for small businesses for the business interruption that they've suffered. Who knows if that ultimately comes through. But I do believe that the Main Street lending is going to be actually an even more comprehensive form of liquidity for some of these tenants.

And remember, as I alluded to in an earlier question, these were all businesses that were thriving as we went into this crisis. The quality, I think, shows through in some of our collection rates. But it's something we're very focused on and we'll continue to provide updates as we move through the crisis.

Haendel St -- Juste of Mizuho -- Analyst

That's helpful. And I guess more to you, how much financial assistance are you, Brixmor, open to providing to your tenants? Are you doing longer-term deferrals beyond six to 12 months? Do these deferrals include interests? Or could they be structured like loans, making loans to your tenants? So just curious on how much help you are actually providing to your tenants.

James M. Taylor -- Director, Chief Executive Officer & President

We're being very careful with deferrals, generally avoiding abatements across the board. And we're trying to size the deferral to what we think the tenant's underlying need is. And Brian and David Gerstenhaber and our entire leasing team in addition to our collections team is working with each of these tenants on an individual basis to make sure that we emerge on the other side of this crisis as intact as possible.

Whether or not we provide additional support and working capital loans, it's a bit premature to comment on at this point, particularly as we watch to see how broad the Main Street Lending Program would be. But in certain circumstances, we would certainly assess providing additional types of working capital if ultimately, that is a good business decision to get through to the other side of this crisis. But a little bit early, Haendel. We certainly have that arrow in our quiver. We have more than ample liquidity to provide it. But we're going to try to make the best business decisions tenant-by-tenant.

Operator

And we'll go next to Vince Tibone of Green Street Advisors.

Vince Tibone -- Green Street Advisors -- Analyst

Good morning. With e-commerce penetration likely accelerating this year, could you see any of your vacant box space converting to dedicated micro-fulfillment centers with little to no selling space potentially?

James M. Taylor -- Director, Chief Executive Officer & President

Yes. It's a really great question. We are seeing from some of the usual suspects increased demand for micro-fulfillment actually at rents that, in many instances, exceed underlying retail rents. So we are very interested in that as a trend. I think, Vince, we're very early and you need to make sure that you're doing it at properties that would support that type of use and also that you're not damaging the balance of the use within the center. But it is a category that is, we think, going to grow significantly. And we're having early discussions with different users on that very type of use.

And I think, honestly, Vince, what it points to really is how darn valuable these open-air shopping centers are that are within the last mile, right? And I think it's kind of coming through in the other business plans of the mainline retail tenants we have, particularly through this disruption, boy, is it nice to be close to your consumer.

Vince Tibone -- Green Street Advisors -- Analyst

No, that's interesting, interesting color. One more for me. Would you consider temporary levering up to go on offense if you feel there are attractive distressed investment opportunities? I mean, how do you weigh potentially attractive underwritten returns with maintaining all your liquidity and your current balance sheet position?

James M. Taylor -- Director, Chief Executive Officer & President

We're going to take a real conservative posture through this crisis. And I think that that's really important because what may look like an attractive return right now may not be further as we get in. We're just not that smart. So we believe that by maintaining a conservative balance sheet, frankly, the action that we took with the dividend as we get to the other side of this puts us in a better position to do exactly what you're talking about. And it really informed a lot of our decision around the dividend, but we're not going to lever up. I just have too many scars from decisions like that, that were made in previous downturns that really destroyed a substantial amount of shareholder value.

Vince Tibone -- Green Street Advisors -- Analyst

Makes sense. Thank you for your time.

James M. Taylor -- Director, Chief Executive Officer & President

You bet. Thank you.

Operator

Our final question today comes from Linda Tsai of Jefferies.

Linda Tsai -- Jefferies -- Analyst

Headed into COVID, there was a group of tenants still looking for new space like discount grocers and the Rosses and T.J.s of the world. Understanding those conversations are probably on pause right now, would you expect them to become more aggressive in their negotiations once those conversations start-up again?

James M. Taylor -- Director, Chief Executive Officer & President

Actually, Linda, they are not on pause. And maybe Brian, I'll turn it over to you.

Brian T. Finnegan -- Executive Vice President of Leasing

Yes. Thanks, Jim. They're not. Our pipeline, if you look at it, it still includes many of those names that we were signing leases with, that we signed leases with in March. And we signed leases in March with Burlington, with Ross. And those we expect those tenants to continue to have robust pipelines, particularly from the increased traffic that they're going to get with increased department store closures. We're already seeing what's happening in department stores. So they're going to get even more traffic than they were getting before. And from a grocery perspective, I think Sprouts announced with their new prototype that they're going to be ramping up new deals. We're talking to Lidl. We're talking to ALDI. If anything, they want to see more opportunities and having come back to us with more aggressive terms or anything like that.

So look, from a timing standpoint, I think there is going to be a period of time where many of these nonessential retailers are focused on getting their stores open. So there will be a pause in that regard, but not a pause in terms of moving deals forward and bringing things in the committee. And our team has done a great job of continuing to move a number of those deals forward so that we're in a position that effectively when the lights get turned back on, we're going to be able to execute on those leases and move those deals forward. So particularly in those categories you mentioned, we're still seeing very strong demand.

Linda Tsai -- Jefferies -- Analyst

And then just one for Angela. Maybe this touches on earlier questions from Christy and Vince. Any sense of how overall leverage might trend as we go through year-end 2020 and into 2021?

Angela M. Aman -- Executive Vice President and Chief Financial Officer

Yes, it's Thanks, Linda, it's another one of those questions that is a little bit difficult, given the uncertainty in the environment to quantify very specifically. We're obviously focused on managing that within as tight of a band as we can. And as we've talked about, coming on the other side with as much capacity as ultimately as possible. I do think there are going to be nuances in terms of some of the reporting from an accounting perspective associated with some of the deferrals that we're signing, and that's going to have an impact, as well as our overall assessment level of collectibility, which as we get further on into the recovery could ultimately change as well. So it is a little bit difficult to predict, especially as we're looking at a short time frame through year-end. But I would just reiterate the commitment we've always had to continuing to work down to at least a low 6 times level, and that will be our focus from a medium to longer-term perspective.

Linda Tsai -- Jefferies -- Analyst

Thanks.

Operator

And at this time, I'd like to turn the call back over to Stacy Slater for any additional or closing remarks.

Stacy Slater -- Senior Vice President, Investor Relations and Capital Markets

Thank you, everyone, for joining us today.

Operator

[Operator Closing Remarks].

Duration: 62 minutes

Call participants:

Stacy Slater -- Senior Vice President, Investor Relations and Capital Markets

James M. Taylor -- Director, Chief Executive Officer & President

Angela M. Aman -- Executive Vice President and Chief Financial Officer

Brian T. Finnegan -- Executive Vice President of Leasing

Craig Schmidt -- Bank of America -- Analyst

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Samir Khanal -- Evercore ISI -- Analyst

Ki Bin Kim -- SunTrust -- Analyst

Hong Zhang -- JP Morgan -- Analyst

Shivani Sood -- Deutsche Bank -- Analyst

Greg McGinniss -- Scotiabank -- Analyst

Floris Van Dijkum -- Compass Point -- Analyst

Christy McElroy -- Citi -- Analyst

Jeremy Metz -- BMO Capital Markets -- Analyst

Alexander Goldfarb -- Piper Sandler -- Analyst

Haendel St -- Juste of Mizuho -- Analyst

Vince Tibone -- Green Street Advisors -- Analyst

Linda Tsai -- Jefferies -- Analyst

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