Q3 2020 Macerich Co Earnings Call
Good day.
Welcome to the research company third quarter 2020 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to <unk> Vice President of Investor Relations. Please go ahead.
Thank you and good morning. Thank you all for joining us on our third quarter 2020.
During the course of this call, we will be making certain scale, but may be deemed forward looking within the meaning of the paper.
<unk> Litigation Reform Act.
1995.
Looking statements regarding projections plans for future expectation Act.
Actual results may differ materially due to a variety of risks and uncertainties that 14 states I freely.
Finally.
Including the adverse impact of the Naco kind of virus covered my team I mean.
Regional and global economy.
The financial condition and results of operations of the company.
[laughter] reconciliations of non-GAAP financial measures. The most directly comparable GAAP measures are included in the earnings release and supplemental filed on form 8-K.
B, which are posted in the investors section of the Companys, Hi, I speak French Dot com.
Joining us today are Tom O'connor, Chief Executive Officer.
The appeal to more senior executive Vice President and Chief Financial Officer.
Got you Lee.
In your executive or the like.
With that I would like to turn the call Oh.
Thank you James.
All of you for joining us today as you continue to navigate through these unprecedented times.
As you read in our earnings release there.
Third quarter was a challenging quarter, albeit better than the second quarter in most respects.
You had releasing spreads and 5%.
Occupancy at year end.
The 91%.
At the end of the third quarter most of hotel change were open.
There's only three closed centers in Los Angeles, we are getting close but doesn't it.
Hey centers reopened in early October so as of today. Our centers open you know tenants are eagerly waiting for a busy holiday season.
Most of the results were better than the second quarter.
We were obviously adversely impacted in the quarter due to cold it in general and specifically due to the protracted, California, and New York City closures.
Number one priority during the quarter to safely we opened all their centers you know tend to Jason.
Employees, we hired them back to work and to welcome back of shoppers.
I'm very interested to get the entire research team that did a tremendous job of getting are set or should we say actually in some cases for a second plant.
But so health and safety measures, we trip went way beyond shouldn't she recommendations that included significantly upgrading our air filtration system.
Do you include hospital quality Air filtration worked with Jim filters.
Engage the critical head of infectious disease. It use your medical center to meet with you added by just want our protocols and policies.
We hired a nationally renowned engineering firm to advise us on advanced age CHP systems.
Systems and protocols.
We had some added modified hours.
<unk> increased cleaning <unk> sanitizing <unk> protocols she did she guidelines.
The crude product set or bit baseline for services.
In terms of rent collections.
We are much better off in the third quarter compared to the second quarter.
During the third quarter, our average rate collections were 80% October is trending above 80%.
But most of the tenants not paying rent during the closure period generally come to terms with them.
But in general we agreed to.
Well each usually in the form of deferred revenue for the closure modes, which we paid 2021.
In many cases in exchange for land landlord favorable amendments to leases.
There were some large reserves for uncollectible accounts in the quarter, which Scott will cover though.
Cash flow continues to improve but the month as we move into the fourth quarter and I expect that to continue.
As of today, we have significant liquidity and currently have approximately $675 million of cash on the balance sheet.
The tenant reactions are reopening it's been good.
That said, it's almost without exception were eager to get reopened.
By October for centers opened at least eight weeks sales were up to 90% recall that levels.
Consumer shopping with a purpose there's been pent up demand.
Our second quarter. It was more about getting centers open and getting your tenants open safely and less about leasing folks.
Focus in the third quarter was collected pass to watch it started to show that the leases.
Looking at traffic in general, it's running about 80% compared to a year ago.
Some of that has to do with capacity limits, particularly for restaurants and also for having no sitting in the food court.
Sales on the other hand, they're running on average 90% of a year ago, which means they are actually higher capture rate.
This year will be a different holiday season, we believe it's going to start earlier offer.
Operating hours will be shorter.
Capacity limits, because those stores will be closed on Thanksgiving day.
Consumers not spending money on vacations and entertainment during coated most of our consumers and our markets have money to spend this holiday season.
Bob categories, you're expected to be fitness wellness home furnishings electronics that lot of glacier.
It will be Santa kiestra photos, but with lots of social distinction.
We've got a number of questions about potential for property tax increases in California.
Although small in the political scheme of things there was a proposition, California that would have increased property taxes on commercial property.
It's not as proposition 15.
That proposition would have removed the protection of prop 13 for commercial properties in California.
For us generally restructure our leases to pass through taxes.
To the tenets of recoverable expense.
Yes, the significant bottom line impact if the boat shows prop 15 caching.
As of today. It is trailing yes, they would stand at 48.7 window.
Alright, 51.3%.
Hopefully that means no increase for commercial taxes in California.
Looking at the balance of 2020.
Okay, and then make has shown that good retail is not going away, especially in a quality centers.
We made a brands appreciate more than ever the profitability of their physical stores.
Big format retailers got active again in the third quarter and you'll hear some of the specifics from Doug.
Although we are still in the midst of kogler setters are operating at 90% capacity sales levels of 9% recorded.
And even if you look at what are the more challenging categories restaurants.
In our portfolio, we have 247 restaurants in 94% of those are open today.
[noise] second quarter with an extremely corridor in some of the second quarter challenges carried into the third quarter in may they carry partially into the fourth quarter.
But many metrics got better in the third quarter, specifically collections and the number of tenants open and the progress we're making on leasing activity.
The impact on reserves for doubtful accounts was less than 20 taught by second quarter of 20.
It's still much higher than normal.
We expect to gradually improve though a more normal level in the first quarter of 21.
Although there are still too many uncertainties to give guidance.
<unk> fourth quarter 2020 in the year 2021 doing much better than the second and third quarters of 2020.
And now I'll turn it over to Scott.
Thank you Tom.
Disruption from carbon Nike and continued it severely impact 2020 of results for the third quarter funds.
Funds from operations for the third quarter was 52 cents per share down from the third quarter 2000, 1988 cents per share gains.
Same center net operating income for the quarter was down 29%.
And year to date is down 17%.
Jay This big thing that third quarter of 2020 versus the third quarter 29, two were driven primarily by the following factors.
Yes, I'm going to call it or a chair for the company as well.
$120 million $21 million in bad debt allowance in the form of 14.
$14 million of increase that debt expense versus the third quarter 29 flow coupled with $7 million at least revenue reversed for tenants that are accounted for on a cash basis per GAAP within the third quarter.
To over $20 million of short term nonrecurring rental assistance.
Three and.
9 million dollar decline in common area and ancillary revenues as well as percentage right.
Or a $4 million decline in parts of the income driven by protracted property closures reduced parking utilization urban centers in the New York City and Chicago, primarily.
Five interest expense increased $4 million due to a decline in capitalized interest.
Six net operating income declined from the Hyatt Regency hotel at Tysons corner, It was about $2 million decline.
Seven a negative three cents per share dilutive impact of shares issued in the second quarter relating to our stock dividend this year in the second quarter.
These factors were offset by increased lease termination or termination income of $7 million and land sale gains totaling $11 million net of tax.
Revenue declines from occupancy loss also contributed to clients in both net operating income.
Within the quarter.
As Tom mentioned, we are not providing update a 2020 earnings guidance given the continued uncertainties. We do anticipate continued volatility operating results for the fourth quarter.
While we're not providing guidance for 2021, as we mentioned last quarter.
We still believe that 2020 will be a trough in the company's operating results, including primarily to the qualitative factors.
And then Mike has effectively accelerated the financial troubles of numerous retail companies, resulting in a way the bankruptcy filings that were idle then due 2020.
We do not anticipate this volume through the curve.
2021.
The majority of the filings have resulted in Reorders and not full slate liquidations we.
We do expect approximately a 3% cumulative drop in occupancy for at least projections approximately half of which is already embedded within the 90.8% reported occupancy at the end of the third quarter and the balance of the stores will close within the fourth quarter.
Year to date.
We have recorded $57 million and additional bad debt reserves versus.
Versus what you like to including $50 million of bad debt expenses and $7 million of lease revenue reversals for tenants accounted for on a cash basis.
Our levels of reserves or certainly not anticipate it going forward.
Weve recorded well over $20 million and nonrecurring short term rental assistance year to date, we expect those to continue into the fourth quarter of 2020.
Lastly, we anticipate increases to transfer that revenue line items going forward under 2021, namely.
The percentage rents temporary tenant income parking.
Parking garage revenue.
Advertising sponsorship, they and other ancillary property driven revenue.
We look forward to providing 2021 guidance on our typical cadence this time next quarter.
Given the continued improvement in rent collections of 80% third quarter and over 80% in October.
Could it be continues to improve.
Cash on hand was increased from 573 million at June Thirtyth, two 630 at September Thirtyth and as Tom noted liquidity continues to improve to this day.
This improved liquidity is solely due to improved operating cash flow and is a testament to the herculean efforts by our people to both secured the right to open all of our properties that to negotiate thousands of agreements with our retailers with continued progress in these negotiations which doubled to elaborate upon we anticipate further improvements to operating.
Cash flow throughout the year.
We are closing on a 10 year $95 million financing tysons, either the residential tower Tysons corner.
The loan will have a fixed rate of 3.3% and accrued interest only payments during the party loads or.
This will provide approximately $47 million of liquidity of the company, we expect to why the closing to occur within the next several weeks.
We secured a short term extension our Danbury fair through April 120, 21.
The loan amount in interest rate remained unchanged following that extension.
We have agreed to terms with the loan servicer for a three year extension on fashion outlets at my other which will extend the loan maturity through October 2023.
We expect to learn about and interest rate also to be unchanged following that extension.
Lastly, we continue to work with our lenders to secure loan extensions for the non recourse mortgages on each a flatter crossing green acres mall or the power center adjacent to that Green acres Commons.
And we anticipate securing extended term what does the coming weeks.
Now I will turn it over to Doug to discuss the leasing and operating margins.
Thanks, Scott like the second quarter, the majority of our efforts in the third quarter involve getting our retail partners open as quickly and as safely as possible once our centers were allowed to reopen.
Today, all of our properties are open and I'm happy to report that 93% of the square footage that was open pretty coal that is now open today.
As I discussed on our last call and it's been the case in the third quarter much of our time and energy was spent working with those retailers that did not have the ability to pay rent while close.
And we've made great progress in fact.
As we look at our top 200 rent paying retailers.
Neither received full rent payments or secure executed documents with 147.
And our in L. Allied with another 23.
All of which totaled approximately 93% of the total rent these top 200 pay.
Consequently collections continued to improve.
Third quarter, so on average collection rate of 80%, that's compared to 61% in the second quarter.
And as of today as Tom mentioned, our collection rate for October stands at about 81%.
For the third quarter wasn't all about collections.
As our centers continue to open it.
Retailers open and we're able to trade with some consistency the leasing climate began to improve.
Retailers began executing leases that have been out since before Kobe.
But most importantly, the retailers began committing to new deals again the.
True signed up for the first time in months, they're now looking forward rather than solely focusing on the past.
Well expand on this in a moment, but first let's take a look at some of the third quarter metrics.
Pro rate of sales for the third quarter was $718 per square foot and.
And that computer to exclude the period of colder closures for extended.
718 is down from $800 per square foot. If you ended the third quarter 2019.
For centers opened the entire month sales in September were actually 92% of what they were a year ago once we exclude Apple and Tesla.
Occupancy at the end of the third quarter was 90.8%.
That's down 50 basis points from last quarter and down 3% from a year ago.
And this is primarily due to store closures from bankruptcies.
And from our local tenants that couldn't survive the pandemic.
Temporary occupancy was 5.7%.
It's down 70 basis points from this time last year.
Trailing 12 month leasing spreads were 4.9% that's down from 5.1% last quarter.
And down from 8.3% in Q3 2019.
Average rent for the portfolio is 60 to $62.29 down from $62.48 last quarter.
But up 1.8% and 60 $1.16 times, one year ago.
As I mentioned earlier, the leasing environment continues to improve.
The third quarter, we signed 120 leases for 342000 square feet. This is.
Is over three times the number of deals add square footage that were signed in the second quarter.
And these steps do not include any cold workouts.
Some leases signed in the third quarter of note include Gucci fashion outlets of Chicago, Ducati, Paris at Scottsdale fashion square.
Kids Empire State 48 Glory at Santana.
Burglaries grill at Denbury fair.
Starbucks at fashion District, Philadelphia.
Madison read at 29th Street.
Well start build according to Dara.
Finally, lucid motors.
At Scottsdale fashion square and Tysons corner.
Oh, lucid and Pollstar, our New addition to the electronic car category and first to the May switch portfolio.
As we head towards the end of year.
Much of our focus is on our 2021 lease expirations and finalizing deals in order to secure as much expiring square footage and 2021 is possible.
At this point in time by virtue of cold and workouts and through the normal course of leasing commitments at 26% of our 2021 expiring square footage with another 67% and yellow I stage.
This brings our total leasing activity and 2021 expiring square footage it to just over 90%.
Turning to openings in the third quarter.
We opened 44, new tenants and 276000 square feet.
Resulting in total annual rent of $11.3 million.
This represents 65% of the openings, we had at the same quarter last year, but the 15% more square footage and virtually the same total annual right.
Given the conditions our industry has faced over the last several months.
I think this speaks volumes to the strength of the leasing pipeline, we had pre pandemic.
Notable openings include Adidas and Tory Burch at fashion outlets of Niagara Falls area.
Area vintage faire west Elm at locking Tata.
In Golden Goose capital, one cafe, and a new device store in Scottsdale fashion square.
Well our spread in the large format category, we opened Dick's sporting goods at Deptford Mall, and a portion of a former Sears store.
Saratoga Hospital wasn't mall also when a former Sears store.
The new and spectacular looking restoration hardware gallery ability Corte Madera.
And all this is in the third quarter.
In October we finished the repurchasing of Sears it Deptford.
With the opening of route one.
And also in October we remained active with Dick's sporting goods opening them at vintage faire and a portion of Sears.
I am very fair in the former Forever 21 box.
Digitally native in emerging brands continue to expand our omni channel presence by opening stores.
Third quarter was no exception.
We opened to Amazon Forestar and in between on Scottsdale tumors.
Two warby Parker stores at Scottsdale in 29th Street.
Along with Amazon books, and Tempur Pedic I thought our crossing.
And our pipeline remains strong.
At this point, we have signed leases with 190 retailers scheduled to open throughout the remainder of 2020 and into 2021.
There's totals 1.7 million square feet for a total annual rent of $63 million.
Since the pandemic.
Only nine of these retailers with signed commitments have informed us that they won't be reopening, but they won't be opening.
Total impact of this is only 60000 square feet of the 1.7 million square feet.
And only 3 million.
Of the $63 million in total rent.
Lastly, I want to address the issue of traffic is.
There's been a ton of focus on traffic. The fact traffic is down compared with last year and it is there's no arguing that.
However, I struggled with the notion that traffic seems to be perceived as a sole means to a retailer success.
Why are we talking more about conversion for sales of the combination of both.
Despite less traffic the matrix portfolio has seen tremendous success in the reopening of stores that were forced to close due to covert.
Like prime market Denbury being the number one store in its region since reopening.
What happened body works at freehold, beating last year's sales three months in a row with capacity limited to 50%.
For home goods at Atlas Park, outperforming last year by 15%, while also at 50% capacity.
Burlington reopening at Kings Plaza, and selling through inventory that took a month to replace.
First a four at Broadway Plaza is currently ranked as one of the top stores in their company by virtue of conversion rates that are 20% to 30% higher than last year.
Rob I want to separate it Valley River.
Operating at full capacity with our long rates at night and on weekends.
Well, it's a luxury retailers at Scottsdale fashion square, such as Gucci lose retard.
Golden Goose, all exceeding plan by 25% to 40%.
Our north Italia restaurant at long Qatar to back to pre cobot sales, even at 50% occupancy.
Antilles at Arrowhead.
Reported double digit sales increases since reopening in may.
And it's expecting their best holiday season ever at this location.
And the list without an odd. Unfortunately these success stories are up too often overshadowed by the overwhelming focused on the effect. This pandemic has had on traffic in the short term and pre vaccine.
Make no mistake traffic is important there's no denying that well.
However, I do think it's time to stop thinking so one dimensionally and focus on other metrics in addition to simply traffic and.
And when we do.
I think we'll all find that we are in a much better place than many thick.
With that I will turn it over to the operator to open up the call for Q and a.
Thank you.
Please note, we will be limiting the call to one hour today, we ask that you have in your top one question with one follow up question.
If you have a question that's true up again, so that everyone has an opportunity to ask a question.
If you would like to ask a question. Please signal by pressing star one on your telephone keypad and if they're using speaker phone. Please make sure. You mean function is turned off to allow your signal to reach our equipment I guess I wanted to ask a question.
At the moment, so that everyone has an opportunity to signal for questions.
And we will go to that first question from Craig Smith of Bank of America.
Okay. Thank you.
I was just wondering though given the late opening some of the enclosed malls are they able to get fully stocked inventory for holiday 20.
The limited their ability to that because that.
Hi, Craig how are you so I'm.
Actually as a result of having closed towards and reopen most.
Most of the retailers.
Had a little bit of experience in managing their inventory be ready to go so.
In California, even though we didn't know exactly when you close malls, we're gonna open retailers had a decent expectation other inventory lined up and we're in pretty good position both in terms of inventory and employees because most of the employees have been furloughed and.
Given the generous unemployment benefits alone had difficulty in getting their employees back, but they did and most of merger are poised and ready for the holiday season.
Great and then my follow up.
It makes it fully liable for all the debt and guarantee that fashion just get Philadelphia.
No.
No Craig, but say that's a loan that is a several loans or half the obligations. This pen recap the obligations may search.
Okay. Thank you.
And we'll move to our next question from Mike Mueller of JP Morgan.
Hi, so the monkey one person of 2021, new leasing activity books reference can you talk a little bit about how the spreads are on the pooled leases compared to what you just reported for this quarter.
Well, let's do that.
I'm sorry could you repeat the question please.
Yeah for the leasing activity for 2021 thing that you walk through what are the rent spreads on that.
Scott feel free to jump in.
Well I'll grab something like that.
Spreads we report.
Right so.
Yeah, So Mike good morning sales.
ER the hazards of callers overall separated here.
So oh, yes.
Well you know, we havent touched it had the spreads I would say this though.
Using this as an opportunity to get in front of our 20 Onex Breeze.
Largest focus right now is occupancy occupancy as critical certainly more critical than the final dollar of rates as a result of.
So some of the declines in occupancy I would expect perhaps or starts to taper a bit but we don't have that metric could theater. At this point you know bear in mind that this strategy will take hold right now focusing on occupancy rather than every dollar rate very similar to what we did about 10 years ago coming out of the recession proof that show that the.
Very good strategy and so you know these renewals I would say, we're going to err on the side of being shorter and longer to get us an opportunity to reprice for the entire lives better a couple of years from now.
Got it no extra <unk> the spreads have been reported though.
To the extent at least has been selling even if it's a 2021 start.
It's included in the leasing spreads I think last quarter, we were 7% third quarter were 5% so to the extent any of those leases Doug referenced for 2021 openings are actually signed deals rather than one letter of intent they will be at or are the spreads that we recorded in the second and third quarter.
Got it.
And then a follow up can you talk about how strong the tenant interested in activity levels. When you look at your top cortile portfolio when compared to the bottom three quarters of it.
Yes, I can I can take that Mike you know when when the pandemic shutdown the malls our business really came to a screeching halt I mean, nobody was really focused on real estate or leasing the retailers are focused on their corporate offices that are employees and getting their stores back open but.
You know since the retailers have open and as I mentioned been trading for 60, 90 days and understanding that they can get back to 90% of where they were last year. The interest has really started to peak and it's interesting our topic I think you mentioned our top cortile our top up.
20.
20 properties, you know normally been 16, or 17 90, 596% leased and now we see in 93 and 90% to 93% leased so with that said is really is the first time in years.
We have some real good space opening up in some of our top tier centers and that hasn't happened in a while and that's really peak the interest of some of these retailers that are gonna be they want to be opportunistic those that went into the pandemic with strong balance sheets, great product and come out on the other side.
Side in good shape are going to take advantage of that.
Got it okay. Thank you.
And well go to our next question for Andy <unk> of Compass point.
Hey, guys. Thanks for taking my question.
God I want to get a sense of how youre <unk> third quarter billable rents compared to your first quarter billable rents. So I could you know sensor to be your markets could get a sense of what is the sort of the run rate in analyzing how much is it decline.
And then presumably with the leasing activity that you guys are talking about.
You're saying yourself up for some some some increase off that base, but if you can give some more color on that that would be great.
Yes, Laura <unk>, good morning, and I don't have that figure handy, we can [laughter], perhaps follow up offline, but I will say that the third quarter, certainly a bit below rate in the third quarter is down a bit relative to the first quarter as one can imagine.
Some short term rental concessions sort of factor that into the third quarter, primarily with local sales and challenged categories. And then we've had some closures as a result of the bankruptcy. So certainly that has reduced the doble late in the third quarter relative to the first quarter pre pembina, but I do not have that sector with some of the.
Okay, maybe we can follow up offline by my my follow up question, maybe and.
How does your Ah you know your pitch to tenants.
Changed as a result of the eat the pandemic in terms of you know Ah you know getting down you know signing up to your assets are or how would you change your the positioning of your assets as a result of this.
As far as its Doug I don't think our position has has changed really at all you know our focus is is has been and continues to be morphing you know our malls and do what we call town centers, where there's something for everybody and that hasn't changed I think it's slowed down.
Well the process and some of the categories, you know, where we look to bring 'em entertainment theaters Exterrans show concepts to the properties that slowed a little bit, but it's not going away, it's going to come back and it's going to come back in a different form and that category.
Still remain active but you know our philosophy of town centers, and creating such hasn't changed that.
Great.
And well move to our next question, which comes from Michael Bilerman with Citi.
Hey, its Michael Bilerman here, it's getting caught all [noise]. Tom I was wondering if you can spend some time talking about sort of leverage levels and you know I understand from a liquidity standpoint. The company has a fair amount of liquidity and you certainly should shore that up [noise].
By having the extensions on Denbury in fashion outlets, and we're getting a new loan on pricing on the rocky top likes it sounds like you're doing the same for flat iron and Green Green acres today [noise].
Yeah. The overall leverage level of the company remains quite high and so how are you thinking about addressing that element in terms of.
Raising additional equity capital either through sales made that handing back can easily of assets and maybe over leveraged or are you planning on just wait it out.
Well, Michael much as we saw with the great financial crisis, where the capital markets you know have a.
Basically shut down so now is in a particularly good time to be raised.
Raising capital to to de lever that'll change inside sales in 2009, 2010, and that'll happen again, the same level with appetite for assets as you recall, we sold 25 balls coming out of the financial crisis, starting in 2011.
Generated about a billion and a half of 'em of liquidity. So we expect post pandemic and post vaccine things will return to a more normal level will have the opportunity to dispose of non core assets and use that capital for reducing leverage levels. One thing I would point out is given the current.
Cash flow, even though it's less than had been forecast at the beginning of the year, which significantly in excess of the current dividend level and that ought to allow us a fair amount of cash flow from operations to use or in the near term for de levering and that would be the play.
And then can you give an update on the line of credit, which you can didnt. This past July we use your one year extension to push that next July probably equally predominantly altron can you just help us sort of understand whether you'll be able to get the full wondering <unk> billion dollars of proceed.
As you look to refinance that and if there is any sort of capital commitment.
You know that your joint venture partners, because you do have a lot of joint venture asset [noise].
There are not willing to fundamentally.
I'll take the first part of that and then the last part of that and then you can elaborate show it.
As Jim said, Michael we extended our line of credit and I'm currently in conversations with her line lenders to do a new line of credit you know we've got some time, but we've also got a 22 the relationship in a day groups. So this will be the shop seventh time, we recast that line of credit So there's discussion.
These early on it's too early to tell you what the.
The terms would look like in the overall themselves, but obviously, we have a fair amount of cash on the balance sheet as well well get at some point that would be used to.
Reduce the.
Why that kind of balance, but that's really the discussions and.
And so far I think Oliver joint venture venture partners have been similar to us in terms of being cautious about capital spending during the pandemic.
Very similar to what we saw in the financial crisis and that as things start to improve.
Capital spending increases and I would expect to see that.
Puts code that as well.
And hopefully we'll move onto our next question from Caitlin Burrows Goldman Sachs.
Hi, Good morning, I was wondering if you could talk about your current watch sales on the occupancy down 200 basis points on as entry to you. But then you talked about leasing progress on combining the watch side, what does that mean, he or she can't oxygen the expectation.
Hi, Caitlin well as Scott mentioned I think in his remarks, we had an acceleration.
Of our watch list into bankruptcy as a result of coated so.
The bankruptcies, Ted Ted its failures more rewards that would have happened over the course of the next two or three years [noise] happy.
Happening of course, and <unk> peak months yeah.
And so Greg or or watch list is pretty short obviously the tenants that are in New York right now, we keep an eye on them.
Most of them as Scott indicated, we're not liquidations, but reorgs.
And in our case you know, we typically keep roughly 60 fives.
For some of the stores open.
First bankruptcy.
About a burger rejected.
Oh, that's similar to what we're seeing here. So the watch list is actually a fairly short answers.
As a result of coated.
Doug.
Robert <unk>.
Sorry.
Doug you care to elaborate further on the watch list.
No I think.
Finally were spot on the only the only thing I would say of all of the bankruptcies that we saw this year I think there are probably a 38 or 39, I think only six or seven weren't on our rocked watch list, which means two things we keep a pretty good watch list and the fact that so many of them were not it means I watch list has decreased significantly.
Similar to what Tom said.
And thank you for all that.
Moving on to our next question from Alexander Goldfarb Piper Sandler.
Hey, good morning, good morning out there.
Two questions first I just following up on the balance sheet.
You guys have extended a few that maturities right now I don't know if that covers the full 800 million that we talked about on the last quarter. But then there was also another 19 malls that were discussed last quarter that we're in for Barents. So can you just give us an update on the on for Ben process, and if it's still 19 balls.
Has that shrunk has that increased.
Yeah sure Alex Scott here.
We as I mentioned in my opening remarks, we.
Either closed or secured terms on two of our five near term secured maturities. So working on quite on Green acres Mall Green acres Commons. So that's that's what comprises the 800 again, so far a pretty successful efforts.
Those ranges from short term extensions to longer term extensions, thus far no change.
Change in principle or interest rate.
The remaining asset sales they were flat on a green acres Commons or high quality institutional quality assets.
I think we will be successful on those as well.
On the 19 assets that you mentioned on the agreed on a simply we agreed on pillar to fill arrangements that other parents, there's a very amicable process with the loan servicers are with the balance sheet lenders to agree to the CRE. That's service payments, we do have extensive disclosures in the Q.
Let's cover on how long those last it and whether the payment periods are not aware in November and I believe we have about two or three months worth of where NATO or call. It catch up debt service deferral pay looks like.
Through the first quarter of 2021, or so very amicable process.
I mean, it's it's got to sort of make sure I understand you said, there's 19 assets that went for Barents basically you got I almost even Q comes out we got you guys got deferred debt service through the end of first quarter 2021 is that correct.
We got deferred that service, which is now being a week. So all of those deferrals or during the summer months and we're now repaying that debt service those repayments Alex will extend into the first quarter of 2000.
Okay.
It generally a too much needed to make.
Agreements that we were able to defer debt service payments for two months in generally the rebates related.
In the fourth quarter or the first quarter of two children.
Okay, and then I, just Tom going back to the dividend.
The amount that you're paying right now does that actually against income driven or right now you don't need to pay a dividend for tax purposes.
We always have to pay dividend for tax purposes. If you have any taxable income.
We got.
Last quarter, I mean, they tend to send dividend limits coming up here based on an estimation of taxable income for the belts that either.
So okay, but that's based on sort of 15 cents is where your taxable income is currently.
Well, it's an annual number Alex and you'll recall, we had higher dividends in the first half of the year. So it's not quite that yeah.
Yeah, we considered taxable income when we when we make our dividend payout.
Got it so next year it would likely that go up just to get it back to what your taxable income would be is that how I should interpret that.
Sure it depends on what taxable income this year, we've got to pay out 90% of your taxable income. So that's that's a fundamental premises that all reach ethical.
Okay. Thank you Tom.
We'll go to our next question from Todd Thomas of Keybanc capital markets.
Hi, there. This is Ravi they are on the line for Todd Thomas just looking forward here given the stresses in large format fitness and theaters how does the company go live to backfill a department store boxes or what's the appetite to use these spaces for non retail purposes, perhaps distribution centers.
Oh I see.
Well I think Doug commented on that to some extent for his comments.
But a handful of deals just in the past quarter with Dick's Sporting goods, none of that was in the BNP boxes Sears boxes go to 21 boxes. We also did a deal with a hospital or.
One of our one of our Sears boxes, the place where they are in the hospital.
And that wouldn't know the New York and there isn't a lot of uses in some cases will be knocking down the it department store in building multifamily that's going to be the chasing those who we dose the Washington scripts were little also not down the sued box and the place out with a hotel or in their team of term contracts. So there's a lot of demand and the big format.
But it also will go numb nonretail non traditional retail because of multifamily you a lot of hotel deals.
And just re purposing, the square footage and eliminating a certain.
A certain amount of retail.
Yep. Thank you.
And from <unk> to our next question from Greg Mckinley Scotiabank.
Oh good morning.
No minimum rents and solid portfolio were down 9% from last quarter, just help us understand the drivers of that change and with the expectation that might be on any additional changes that you anticipate heading into Q4.
I'm not sure.
This is Scott I covered some of that in my opening remarks, you know I certainly mentioned the the bad debt allowance, which included a component of lease or revenue that I have the livers for tenants on cash basis.
It was a component.
We did grant some short term nonrecurring rental assistance, primarily the locals and I'd say challenged categories.
That was a factor and then of course, you know weve.
Reported occupancy down.
Down roughly 3% from a year ago, and certainly that was a softer quarter over quarter. So all of that all of that factors and I do think that some of that will certainly carry forward you know.
As these bankruptcies taper off those tenants that starts and now convert to accrual basis, a county, but we may have a little bit about cash basis.
Revenue reversal noise in the fourth quarter I.
I, certainly think that we'll deal with a little bit more or rental concessions, especially the focus some of our properties in New York City on California that were open for us because it closed at either for a second time or close for a very protracted period of time through the third quarter. So we may do a little bit or with a little bit about there.
That's certainly the occupancy on packs that were reporting on that will carry into the fourth quarter. So like I said I think the operating results in the fourth quarter will continue to feel the impact sort of.
Okay, and then just trying to think about these recurring revenue its a bit more I just think the clarity on two other items.
First is on the term fees curious that was associated with any large tenants in particular just across the portfolio and then kind of what you expect from that number heading into Q4, and then second on the land sale was that flowing through the income statement or just on Epicel.
Yes sure on the terminate.
I want to get specific with certain tenants, but I would expect a in a tightly tied to volatility that the term fees will continue to remain elevated.
Thanks, Ben and prior moments in history, there Weve had heightened volatility.
Sometimes tenants want to buy out of their lease obligation, it's an opportunity to effectively for us to.
To secure a a nice termination fee and then be able to backfill them effectively.
You know profit out that that backfill, but I'm certainly not going to get into specific names I would expect the.
Sure the nation for you to continue to be.
Elevated relative to last year.
Land sales did slow through the PML in terms of.
Oh.
As I mentioned, it was roughly $11 million or after.
After a coker tax division.
[noise], okay, but wasn't going through other income or or gains on the income statement current net income.
That's correct, yes, it was below the line.
Great. Thanks.
And moving on we'll go to question from Rich Hill with Morgan Stanley.
Hey, good morning, guys.
I want to come back to the early comments on the conversion rates, which I thought was pretty interesting recognize that that is a really important driver of sales and why there's some retailers that are actually seeing really high conversion rates on the other side of Coke in 19, and I'm also wondering if you could speak to maybe conversion rate, but the overall.
Mall itself.
The inline tenants and try and they might be seeing there.
<unk>.
Hey, I can I can take that and Tom feel free to jump in.
I don't think we have you know a specific.
Conversion rates for each mall.
A lot of what we talk about is is anecdotal, but what we are hearing across the board is that while truck traffic is down and we know that our sales. It out are up it does relate to the fact that our shoppers are are converting more they're not necessarily go into the mall as much but when they're there they're buying and.
Thats what were seeing whether it's in traditional retail luxury or otherwise we're seeing it across the board I think a lot of there are a lot of their dwelling and a lot of the research is being done online so that when they get to the mall they know what their therefore they buy it.
Got it Thats helpful. Hey, It's got one question for you I think on a lot of us would applaud a guide and the next quarter or not but I'm curious.
What do you think's going to happen over the next several months that will give you the confidence to guide for the full year 21.
Maybe be a little bit reluctant to guide for Q and I come back I'm not questioning why you're not guiding for 41 more questioning but I'm more curious like what what what's going to change over the next three months to give you a lot of confidence and 21.
Well rich I would say fundamentally just the fact that are centers are open and trading gives you an underpinning of confidence that combine to there Doug mentioned, we've made tremendous progress with our national retailers, which number just a touch over 200, a number I'm sort of a general visibility on that.
That front collections continue to improve I think all of those factors are what gives you. Some comfort that you could do to give guidance for the following year.
You know that's again fundamentally the centers are open.
Your tenants are trading on that it gives you a lot of confidence Tom I don't know if you want to go and added over that yeah, well I think I think where we're at today, we've we've come to terms and of our top 200 retailers.
Come to terms with you.
The 90 plus percent of those and so this the barrels something that's going to happen in the fourth quarter, that's creating some of the uncertainty in the fourth quarter, but we don't think is going to carry over the 2021.
And with each passing month, I think the retailers get more comfort.
Comfortable as they move through co. Good I'm looking forward to the post code to there and I think there would be a much better position.
90 days from today to give guidance than we are today and they are in.
In in the Kogan World 90 days seems like an attorney and.
As we learn more we know a lot more than.
Then he did them even with her last earnings call. So I think that's going to put us in position by genuine to to be able to do it.
That's really helpful, Tom and I Echo your comments.
Pretty much feel they can kinda they sometimes we feel like in Canada. So I'm thinking that the comments on the cadence was really helpful. Thanks guys.
We've got rich.
And well go to Linda Tsai of Jefferies.
Hi, and you probably is true to leasing tenant categories are looking to expand.
Hey, Linda it's it's dog you know worse, we're seeing it across the board the its a lot going on in the traditional retelling retailer environment. You know just some examples aerie Oh I'm, sorry American Eagle, it's come out with a new car.
Stopped called offline, which is a branch of their aerie stores women's that leisure and they're doing think three test stores. This year, we have one of them.
And it should everything worked out that's going to be a real rollout vehicle for them.
Auryxia out of Canada, It's expanding Levi's went public last year, they're opening another 100 stores between this year and next year.
Uhhuh Lyman is always good standing whether they're expanding their their fleet or they're trying to expand their store size I'm.
J crews made while also you know and that.
And that list goes on.
Thanks, I was wondering if you share any of the senior lenders with two of your lower quality counterparts, who recently filed and you had a sentence that ultimately drove the decision to default because companies.
Oh, I'm, sorry, Linda could you repeat that you broke up a little but.
Sure no.
I was just asking if you possibly shared any of the same lenders with two of your lower quality counterparts, who recently filed and if you maybe had a sense of what might have driven the decision to stop us companies.
<unk>.
Is that shared lenders was that your question.
Yes.
Yeah.
We do it.
It's a it's a relatively small group of read unsecured lenders so.
I don't really want to speak for for either of them. Obviously, we're partnering with a good period. They were very well informed as they went through the process and I think if you.
Read the public filings they lend support of 95%.
There lender group.
There was a 5% hold out and under their documents that was relevant and.
I think that's why they went that route I think they put out the press releases themselves. It said they expect to be in and out of bankruptcy very very quickly. So I'll defer to them, but yeah. We know a lot of the lenders that have either been a lot of them and.
You know they are the ones that were supportive of subdued.
So that and then just one follow up on the denominator for collections down to Q3, two in October did that change at all.
The definition lifting.
Yes.
Went public we've treated retreated that collections consistently as we move forward. So the two Q.
Or did they retreated to Q collections is no different today than it was 90 days ago.
Okay. Thanks.
And at this time I would like to turn the call back over to Tom Ohern for any additional or closing comments.
Please go ahead Mr. huh.
Oh, I'm, sorry, I'm. Thanks, thanks, everyone for joining us today.
Hope to see many of you virtually it may result in a few weeks.
Until then take care.
I'm sorry, [laughter] today's call. Thank you for your participation and you may now disconnect.
[noise] HM.
[noise].
[noise] [noise].
[noise].