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Songy Highroads – COVID-19 Investor Report

16.3.2020

Dear Investors,

We hope everyone is safe and doing well.  Our thoughts are with those who have been impacted by the COVID-19 global pandemic.  As we head into Spring 2020, we would like to share our insights regarding the COVID-19 outbreak, including its potential impact toward your real estate investment portfolio with Songy Highroads. 

As you know, over the weekend, many local governments have begun to issue mandates to postpone classes at schools, close down bars and restaurants except for minimal capacity, and avoid unnecessary gatherings to prevent the spread of the virus and exercise “social distancing”.  We remain vigilant and are diligently tracking updates and information on COVID-19 and evaluating its impacts on a continual basis while local, regional, and national governments are revising policies on a daily basis.  We are here to keep you informed and are available as a resource to discuss any questions you may have.

Prior to the outbreak, many reputable third-party sources suggested a well-positioned US economy, with low unemployment, above average corporate sales/earnings and high consumer confidence.  However, the spread of COVID-19 has sparked fear, causing significant declines in the stock market, global uncertainty, and driving interest rates to a record low.

At this time, it is still difficult to predict the overall impact to our economy and how each of our individual real estate investments will be affected over the coming months.  We are beginning to see significant impacts to demand as large gatherings scheduled for the next 30-60 days for both business and leisure have been postponed or canceled. The risks associated with our assets vary based on their respective industries.  In this letter, we share the short-term risks we have identified. 

  • Hospitality – Our hotel assets will be impacted most severely as business travelers and tourism change travel plans.  We have experienced a notable increase in transient and group cancellations – there are many large companies, government sectors, sporting/entertainment events, and tourism/leisure events cancelling reservations nationwide.  These cancellations will negatively impact our business and ability to achieve our financial targets.  Group sales, convention sales, and F&B revenues have decreased significantly and will continue to decrease in the upcoming months.

    As a result of these declines, we are taking proactive measures in cutting expenses in all categories to remain lean.  Additionally, we are working to ensure our hotels meet the latest guidance from the CDC and WHO on hygiene and cleanliness.  Further, on a forward-basis we will be working on marketing endeavors to regain occupancy as the pandemic cycle matures.

  • Office – For our office assets, we expect a more moderate impact as office lease terms are longer (often 3 years or more) with staggering maturity dates.  In the short term, we expect many prospective tenants may postpone their expansion plans for the time being and elect to renew in-place or seek to consolidate within a lower-cost option.  We  constantly evaluate the risk profile of each of our current and prospective tenants – we expect many of our larger corporate tenants are in a position to withstand any short term financial set back and will continue to satisfy their lease obligations.  We will monitor our smaller tenants and tenants who are in industries which are at a higher risk of being impacted by COVID-19 (travel, leisure, etc.).

    From an asset management perspective, we have been proactively conducting additional cleaning services and enhancing janitorial specifications to minimize any risks of exposure to both our tenants and our teams on site and have been in constant communication with tenants regarding notices from government agencies etc.

  • Multifamily – We expect our multifamily asset to have moderate impact from the pandemic, with most tenants on 12-month leases.  We will actively seek to renew in place tenants.  Our tenants have varying employment backgrounds with no significant concentrations among impacted industries (entertainment, airline, hospitality, etc.).  Our property management staff are routinely sanitizing amenity areas, public / common areas and frequently touched elements (i.e. door handles) and placing hand sanitizers in common areas. 

  • Other Initiatives – We note the following initiatives as it relates to our funds and properties:
  • Communication / Data Gathering – Ensure monitoring and information gathering from reputable agencies including the CDC, WHO and local and state health departments.
  • Recovery – Analysis of business interruption policies to determine potential recovery, if any.
  • Staffing, including GC and subcontractors, premises – Ensure safety of staff and implementation of procedures to ensure proper sanitation / hygiene practices.  Create contingency plans in the event an individual becomes infected.
  • Development / Construction – Ensure construction materials, equipment, transportation and FF&E are readily available through existing channels.  We must have the ability to create new channels to recoup shortfalls, if any.  Analyze our development timeline to ensure pivotal hurdles are achieved.  Analyzing “what if” scenarios if shortfalls occur.
  • Forecasting – Prepare routine cash reforecasts as we obtain more economic news / data (global, national, state, local, asset level).
  • Lenders – Maintain open communication with lenders regarding status of properties.  Under an adverse scenario, we would develop an asset-specific strategy to actively work with our lenders to maximize the value of our asset on a revised timeframe.
  • Investment Members – Maintain open communication with investment members regarding status of properties.  Ensure all aspects have been considered and evaluated.  In planning for a worst case scenario, we will postpone all Q1 distributions.  For certain hotels, an equity infusion may be required to fund operations / debt service as a last resort.  More information will be forthcoming .

As we weather this pandemic storm, please reach out to us if you have any questions regarding your investments.  We are committed to protecting your investment dollars and making decisions to optimize adverse scenarios.  Thank you for your loyalty, trust and confidence in our Songy Highroads management team.   

Sincerely,

Songy Highroads Team