Q3 2020 Regency Centers Corp Earnings Call
Greetings and welcome to Regency centers Corporation third quarter 2020 earnings call.
This time, all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Christy Mcelroy Senior Vice President of capital markets. Please go ahead.
Good morning, everyone and welcome to Regency centers third quarter 2020 earnings Conference call. Joining me today are Lisa Palmer, President and Chief Executive Officer, Mike Myers, Chief Financial Officer, Mac, Chandler, Chief Investment Officer, Jim Thompson, Chief operating Officer, and Chris Love, It SVP and treasurer.
As a reminder, today's discussion contains forward looking statements about the company's future business and financial performance as well as future market conditions. These are based on management's current beliefs and expectations and are subject to various risks and uncertainties. It is possible actual results may differ materially from those suggested by the forward looking statements we may make.
Factors and risks that could cause actual results to differ materially from these statements are included in our presentation today and in our filings with the SEC.
The discussion today also contains non-GAAP financial measures the comparable GAAP financial measures are included in this quarter's earnings materials, all of which are posted on our Investor Relations website.
Please note that we have again provided additional disclosures and this quarter supplemental package related to COVID-19 and its impact on the company's business and have also posted a presentation on our website with additional information Lisa.
Thank you Christie and welcome to Regency were really glad to have you on the team good morning, everyone.
I want to start by again thanking our regency team for all the amazing work they have done for our company our tenants and our communities over the last eight months.
I cannot be more proud and appreciative of the dedication and commitment that our employees continue to demonstrate.
As many of you have heard us say throughout the years.
We do believe that bigger can be better better is always best particularly in an uncertain environment.
And while we did see enjoys the advantages from our size scale and national presence one of the things that makes us better are the people in our 22 offices across the country.
Our local presence provides us the boots on the ground in close proximity to our properties.
Enabling us to act small it to take a personalized relationship driven approach with our tenants.
But the challenges we're all facing our ability to provide focused attention to our tenants is really important to the improving current performance as well as to future results.
We are encouraged by our meaningful progress as demonstrated by increasing cash collections and productive tenant discussions over the past few months as of the end of October we collect at 86% of third quarter. It.
Importantly, and Jim will discuss this in more detail, we have seen a direct correlation between tenant reopenings with increased reflections and execute a deferral agreements.
Restrictions are lifted as tenets are able to reopen even with capacity restrictions they gain the visibility they need to start paying their rent or to enter into a deferral plan that both they and we can feel confident in.
In many cases tenets that we originally thought we might have to defer.
We're collecting rent instead, and we're always remembering that our goal is to maximize the likelihood of long term success for our tenants.
Where tenants are able to open and operate safely we're seeing customers return engaging with their local neighborhood businesses and community centers. We hear this from our tenants and we see this in recovery foot traffic in regions around the country that have continued to gradually reopened and lift restrictions such as Colorado.
Parts of the northeast, Texas and most of the southeast.
The experience maybe different today in fact, we know it is different today versus pre pandemic, but we've been impressed by the resiliency of our tenants.
The value placed on local retail shopping dining and services by the American consumer.
These results give us confidence that the improvement we've experienced over the last several months will continue as more markets and businesses find a pathway to reopening safely and operating successfully in the new normal.
This is especially relevant as we think about the Pacific coast, and particularly California, where the most restrictions on non essential business isn't restaurants remain in place.
The geographic and category concentration comprises the majority of our uncollected rent and we expect continued improvement in our results as California reopens.
Supported by the continued improvement in our cash collections and overall financial performance consistent with our longstanding commitment to building total shareholder value over the long term, we have again maintained our quarterly dividend, which has remained consistent throughout the pandemic.
As always on a quarterly basis, our board and management team will continue to monitor and revisit all relevant metrics in factors, when making future dividend decisions.
Well, we are pleased with the improvements in the progress we also recognize that meaningful uncertainty about the future remains.
The restrictions that remain in place in some markets are putting a strain on the health of the impact of tenants and in that context, while our tenant fallout has been limited to date, we're mindful of both the cyclical and structural challenges impacting many tenant categories and.
We acknowledge the risks of further tenant bankruptcies and store closures in this environment.
But again there are clearly visible green shoots and we are on the road to recovery.
Still likely to be an extended one and the likes of which could be dependent on the existence and timing of medical solutions.
Well, we certainly can't control the hand, we've all been dealt what we can control is that regency came into this pandemic as prepared as we possibly could have been due to our unique combination of an equal strategic advantages, which include and have never been more critical.
Our geographically diverse portfolio of high quality grocery anchored open air centers that serve as the backbone of our communities with a focus on necessity service convenience and value.
Our sector, leading balance sheet and liquidity position affording us financial flexibility.
Strong about flexible value, creating development pipeline that has allowed us to quickly adapt to the evolving retail landscape.
Finally, our people its times like these when the value of experience and relationships become most apparent unimportant.
We acknowledge the challenges facing our industry accepting that we're not unaffected, but the game is always changing and our playbook will continue to evolve along with it as it has throughout the years, we're not standing still reading she is working with partnering with and helping our tenants adapt to the new normal we're certainly in a relative sweet spot with a seasoned team high quality.
This record portfolio and a strong balance sheet Jim.
Thanks, Lisa and good morning.
I reiterate Lisa sentiments regarding our appreciation for the regency team and.
All of their incredible efforts this year.
Particularly our operations team members are 22 field offices across the country, we've been in constant communication with our tenants throughout the pandemic to ensure we don't all we can to enable them to open and operate safely.
It's hard to believe more than seven months of pass that's the shutdowns began and I continue to be amazed and inspired by our team's capacity to deliver results, while keeping our energy and spare time.
I'd like to provide some color on the investor presentation, we posted yesterday.
As of the end of October 97% of our tenants are open up modestly from a quarter ago and compared to 75% open as of the end of May.
At this point the limited number of tenants that remain closed are generally comprised of entertainment restaurant fitness service users in certain regions of the country, where stricter government mandates are still in place.
We continue to see improving base rent collections and most importantly, our collection rate has improved sequentially with each consecutive month or.
Our strongest categories in terms of collections remain grocers drugstores banks.
And home improvement, while not surprisingly, we continue to see our lowest collection rates among those kind of categories that have not been able to fully reopened or operate due to local restrictions.
This is also evident in our collection rates by geography, there are many markets, where our collection rate recovered to 90% or above the third quarter.
This is encouraging as we think about the opportunity for continued improvement in markets like California, and the Pacific Northwest where collection rates continue to weigh on our portfolio average.
It's important to highlight to the Pacific coast comprised nearly half of our uncollected rep in the third quarter.
As we've communicated previously we have been implementing a very intentional strategy with regard to our tenants during this time and pushing for rent payment deferral agreements.
Our first priority has been getting tenants open and operating.
And then working on them with the fully plans that maximize their potential for your success, which in turn improves our likelihood of ultimately collecting that rep.
The majority artificial agreements have been with not a central tenets in our most challenged categories and we continue to see the greatest success getting to full agreements executed. Once these tenants are able to open and operate.
Our execute a deferral agreements as of today require payback predominately during 2021.
We have also been successful at negotiating concessions from certain tenants in exchange for rent deferrals.
This includes nonmonetary concessions like landlord recapture rights sales reporting requirements and modifications to co tenancy and use restrictions as well as some lease term extensions and early renewals.
What was most encouraging this quarter with the rebound the new leasing activity following much softer volume is in the second quarter together with renewal volumes remaining consistent with expectations.
Retailers are most active in categories with little to no restrictions in place as well as those operators that have successfully adapted to the current environment and are performing well.
We're signing new leases in categories, such as grocery bags beauty restaurants and medical.
Some of these leases were originated pre coated but we're also executing new deals that were initiated well into the pandemic.
Well this activity is encouraging as we noted on last quarter's call. We are seeing pressure on rents in this environment, especially on tougher to lease space.
Due to a lack of legacy anchor deals in the mix this quarter, which typically have strong mark to market upside our new lease spreads were impacted.
Also we remind everyone that our new lease spreads include all comparable space leases executed in.
Including those older spaces that have been vacant for greater than 12 months.
As category geographic restrictions continue to ease we see a runway for continued recovery.
Tenets are learning to adapt and succeed in the new norm and are taking extra precautions to make sure customers feel safe we've.
We've seen so many examples of that in the restaurant space, where in many markets capacity restriction of indoor dining remain but restaurant operators are flipping the script and we are helping them to do that by enabling greater common area access through our pick up and goes zones as well as help with space and permitting.
Outdoor dining.
In summary, we're very happy with the improvements we're seeing in recollection on leasing activity.
Customers are back shopping as evidenced by the continued improvement in foot traffic trends nearly all our markets.
Well, we are far from declaring victory. We are encouraged by the resiliency of our merchants are saying and more visible road.
To recovery.
[music].
Thanks, Jim Good morning, everyone.
While our financial results continue to reflect the impacts of the pandemic on our tenants our collections and operations are moving in the right direction as I'll discuss in more detail.
Third quarter neighborhood AFFO includes a debt extinguishment charge this quarter of $19 million or 11 cents per share associated with the previously disclosed redemption of our senior unsecured notes originally due in 2022.
Maybe to AFFO was also impacted by $8 million or five cents per share non cash charge taken against straight line rents receivable.
These charges, which are not included in core operating earnings are in addition to uncollectible lease income of 29 million or <unk> or 17 cents per share in the third quarter.
This quarter's decline in same property NOI was driven predominantly by uncollectible lease income.
Before we dive deeper into rent collections, let me touch on DNA, which in the third quarter is elevated as compared to the to the year ago quarter.
The primary driver continues to be reduced capitalization of development related overhead similar to our results in the second quarter.
As discussed previously we extended the timeline of approximately $150 million of investment in our pipeline at the outset of the of the pandemic. This.
This flexibility and action allowed us to preserve liquidity as well as adjust to any changes in tenant demand.
Longer term the teams continue to work diligently.
To bring these value add projects back into production when design and tenant demand thresholds are met.
This shift in investment timing will continue to impact overhead capitalization from an F.L. perspective, but importantly reduced capitalization does not impact our total cash flow.
Moving to Hawaii as Jim discussed, we continue to see improvement in the in the base rent collection rate.
From 72% as reported last quarter to 87% in October.
We ask that you refer to our updated COVID-19 disclosures on page 32 of the third quarter supplement.
The tables provide a good reconciliation to pro rata billings, showing what was collected and of the uncollected a mouse what was a crude versus reserved.
Uncollected pro rata billings in the third quarter totaled $41 million, which is down by nearly half when compared to Q2.
In accordance with our lease by lease Collectability assessment, we reserve nearly 70% of that about.
As evidenced by the additional 8 million dollar write off of straight line rent receivables. This quarter, we did move some additional tenants tenants to cash cash basis accounting.
In accordance with GAAP, we're not recognizing any uncollected revenue on these tenants, even if rents have been contractually deferred.
As Lisa and Jim both discussed the continued tight restrictions that remain in place in certain markets have disproportionately impacted specific categories of tenants.
However, despite adding tenants to the pool, we saw a 30% sequential quarter to quarter decline in our third quarter reserve for uncollectible lease income.
Driving this was a meaningful improvement in collections on the entire cash basis talent pool.
Rising from 46% in the second quarter to 64% in the third.
Importantly, the improvement we're seeing in collections is driving an increase in our revenue recognition.
In the third quarter, we recognize revenue equating to 90% of pro rata billing and other income.
That's up from 86% in Q2.
This sequential improvement aligns with what we are experiencing in the portfolio.
Improved collection rates on both current and Q2 billings as.
As well as quality deferral discussions with credit worthy tenants.
Moving to our balance sheet as leases spoke to earlier, we are fortunate that despite the disruption of the last nearly eight months our balance sheet remains in a position of strength.
Including the full capacity on our credit line and cash on hand, we stand today with immediate liquidity of nearly $1.5 billion easily cover any if needed development redevelopment commitments and debt maturities over the next four years.
We raised $600 million try bond issuance in may at a time of especially heightened uncertainty.
To pay down the credit line and shore up our cash position.
And as previously disclosed in September we used a portion of those proceeds to redeem $300 million of notes originally due in 2022.
We will continue to monitor the evolving landscape, but given the continuing positive trend we expect to use remaining cash on hand to repay our $265 million term loan due early 2022.
This repayment would likely be in the December January timeframe.
And would result in regency, having no significant debt maturities.
Until our next bond maturity in 2024.
During the third quarter and subsequent to quarter end. We also closed on $25 million of dispositions at a 4.5% average cap rate.
These transactions along with our continuing objective to improve portfolio quality and divesting non strategic lower growth assets.
We would opportunistically look to sell more assets like these on a limited basis.
With an eye on preserving balance sheet strength.
Taken together, our low payout ratio coming into the year, our very strong balance sheet position, our flexible approach to developments and redevelopments and our improving collections have enabled us to maintain our dividend at its pre covered level, which is a critical component of total shareholder return.
Thank you, Mike and thank you Jim.
Just before we turn it over to questions I really did just want to reiterate my appreciation of the dedication and commitment of the regency team. During this challenging time I know many of you are listening. So so thank you.
Looking back on the last eight months, our primary focus has been on an ally and balance sheet preservation, while continuing to prioritize the safety and well being a fellow team members our tenants in our communities.
I believe the results of these efforts are evident and I'm really proud of that we're navigating through this pandemic with the long term in mind for which I'm confident we are well positioned that concludes our prepared remarks, and we now welcome your questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset.
More pressing the star keys, one moment, please while we poll for questions.
Your first question comes from line of Katy Mcconnell with Citi. Please proceed with your question.
Great. Thanks, good morning.
Wondering if you could provide some color on what the new backfill leasing pipeline looks like today and given the negative new leasing spreads. This quarter can you discuss how you're thinking about balancing brand burst documents.
No the negotiations in this environment, whether that had an impact on the shorter lead times.
Oh Kt is Jim.
Yeah, a lot packed in that question [laughter] pick on.
And on the lease terms I would say that that that kind of goes back to the mix.
And in this in our new leasing for the quarter, which which I indicated did rebound pretty nicely 180000 feet and 72 deals only two of those were anchor deals. So the majority of that that population.
Our shops basis, which generally have shorter terms.
As far as the rent growth associated with that again due to that small population of anchors.
We had to support which is great tenant that we we got it over Cameron village had nice rent growth baked into it but it was a JV deal. So we didn't get a win.
With the pro rata growth was not as impactful to the pool.
And then the second one which I'd like to highlight just because I think it's a great deal.
Yes, you have see Jim backfill, a 30000 foot 24 hour fitness rejected lease in southern California.
The reason I say its a great deal.
It was a mid Twentys lease we were able to sign U.S.C. at par so as a flat deal.
But the best thing about it was we executed that deal before the lease was actually rejected so our guys in southern California hats off to those did an outstanding job getting out of that BK.
As to pipeline, what I've seen in as far as color in the pipeline.
Really from a from a national regional anchor home improvement off price is TJ says the Burlington Sierra trading.
We're gauge with P.J. superstore.
On the shop side, the pet sectors still pretty solid Mansfield.
Sports bike shops, or our Red Hot Uh huh.
Price five below fast casual food is still very good chipotle, the Burger King Chick fillet.
Medical obviously is a medical medical support for our hot Hot categories.
And then obviously in the pads, we're seeing Starbucks very aggressively with in order to buy as well as some of the autumn servicing and parts group. So as I look as I look at the pipeline I'm I'm really very encouraged by the level and quality of tenants.
No we're seeing in the pipeline.
Thank you, Greg and I get them all.
[laughter], Yeah, I think you got a law. Thank you.
And then just wondering if you can update us on the de leasing impacts that you might expect to see into 20 Twond that you've got some of your larger development projects and have your thoughts around timing of any of those loans.
[noise] up I think you are highlighting kt that projects that we've been speaking a lot about what should be the abbott and because the veritaaq in particular nothing.
Nothing's really changed in that regard those those impacts to forward looking earnings would be the same as we've talked about in the past I think it was about a million dollars up the Abbott of lost NOI on and that has in fact occurred we are working on that building to bring it back up.
Total leasable condition that at some point when that demand appear.
Appears to US and then because of M&A, we continue to pursue the redevelopment of that project as well. So we do anticipate that same trajectory of lost NOI from.
That number will will not occur in one year thatll be strung out over multiple years and Uh huh.
I believe that number was in the $2 million to $3 million range. So no changes in that regard.
Okay, great. Thanks.
Your next question comes from the line of Nick Yulico with Scotiabank. Please proceed with your question.
Hi, This is Greg and Dennis on Nick given the improving rent collections, what's your expectations regarding that trend heading into year end and this point you have a better sense for what we should maybe expect regarding permanently lost rent leases in place.
Hi, Greg its lease I'll take that.
Hello, It's still I'm going to go back to what Jim said in his prepared remarks, and what I said in my prepared remarks, we're really pleased and encouraged with the improvement that we've seen yeah from wafer shut down in March and then picking up throughout the year.
There's still some uncertainty and and as we said in our remarks, there's a there's a really high correlation between opening and lifted restrictions with rent collections and that's why we feel really good if things were to stay and gradually improve and these markets and we see a pathway to more openings.
We would expect that we should see some improvement in our numbers and but the reality is none of US really know that are sitting around this table are that are on the call as to what may happen with the virus and with lifted restrictions. So.
I'm not a lot I can't possibly give you guidance I think thats. The best answer I can give you we feel really good about the quality of our real estate about the fact that we're close the neighborhoods that we have a lot of essential tenants and for the retailers even in the non essential categories in restaurants have really learn to adapt in this new normal and our have creative new way.
Ways to service their customers.
And our team in the field is doing a fantastic job of actually helping them do that as well with a lot of curbside pickup and dedicated parking spaces and looking to use technology to help connect the consumers with the merchants.
So I expect we should see margin.
Marginal improvement from here and the significant improvement will come when there was a medical solution.
Okay. Thanks, Lisa and then on leasing I did appreciate the disclosure on rent collection by geography, I thought it was very interesting, but I was wondering if you could also discuss whether you are seeing differences in leasing productivity in spreads.
Geographically as well.
[noise] [noise], our productivity I would say I would I'd have to say, yes again it gets back to we have found even in deferral in the federal program until tenants are open in some of these folks can get back and have have visibility towards reopening and.
What what the environment looks like it's.
It's very difficult to do deferral deals let alone new leasing so where we have opened and were 90 plus percent collection put traffics back.
We're seeing good activity we're seeing.
Hey, closer return to normalcy in markets, where we're.
Still operating under mandated closures activity is probably slightly less however, one thing that I will mention is.
In this in this group of of local tenants in Q3, we had about 25% that were.
Really more non essential.
Mom and pop in nature.
We saw several of these in some of our tougher markets.
We saw him and some are tougher spaces.
And at the end of the day.
The way I looked at that was I felt like it was a very positive sign that those retailers in my mind have learned how to adapt our looking at the future and are making.
Making their way that that demand is really.
In those non essential categories is is stronger than I would've guessed at this point in time, so I found that to be kind of a positive in our in our sample size of leasing.
Q3, so I guess given that you've had maybe more limited leasing where there's been greater restrictions and a little bit now.
Leasing vacancy numbers no could we potentially see productivity increasing over the next few quarters and as they are now.
Interest out in the market from tenants right now to support that.
I I'm going to I'll, just interject here, because I had a conversation just this week with one of our leasing agents here in Florida.
And.
He very encouragingly told me that he was working on getting some more transactions finished by the end of the year and if he was able to get them across the finish line, but she was really optimistic about that he would actually meet his goals for the for the full year. So that that tells me that yes. We are seeing some an increase I picked up where markets are again that was your Florida.
Where we may see where we see more openings I do think that that's that will be the case and you. Obviously also salaries are declining and percent leased which means we do have more space to lease as well and that obviously also will translate to higher volumes and higher productivity.
Okay. Thank you.
Your next question comes from the line of Rich Hill with Morgan Stanley. Please proceed with your question.
Hey, good morning, guys, Lisa I just wanted to follow up on that point about where do you where you stand today and I recognize that you have here you're not.
A position to give a guide nor am I asking for one but it's if we think back to maybe where you were in Twoq you and then.
You know where it where you were at the next meeting in June.
You had a bull case scenario a base case scenario in a bear case scenario.
Where do you think you're falling out on that today versus your expectations a couple months ago.
Well you just gave me a great opportunity to to give a shout out to the tremendous state to the tremendous team. We have here at regency. So thank you for that because the information from the field from our finance team from everyone that was really the inputs into how we thought about those scenarios was fantastic and I would say.
That we've.
It was it was a lot more uncertain three months ago. So we have a lot more certainty and visibility today and I would say that we're we're slightly slightly better than perhaps even what are kind of base case was a in terms of cash collections.
And we've taken that data and then I would just reiterate what I just said to answering the last question, there's still a lot of uncertainty and with what we know today, we expect that as if we if it's status quo. Then we expect kind of status quo and if we see improvements and restrictions lifted a mark.
Its reopened and we would expect marginal improvement.
Got it and then you know at least.
What you said at the beginning with bigger is better but better is better.
I'm sure you've learned a lot.
Better as best excuse me I I am sure Youve learned a lot of lessons as we all have on the other side of co bed.
But as you think about your portfolio right now do you do you still love all your assets or are there any sort of assets that maybe you'd look to dispose of given market that seems to be holding in there and what are the attributes that that you might be looking for to make you less than.
Less bullish on an asset that maybe were this time last year.
Well, let me answer that first us even just broader I think when you look at how our entire sector has performed throughout the pandemic.
Institutional quality shopping centers are performing well I think beyond that.
As you asked the question kind of the bowl versus bear I think probably beyond what anyone would ever imagined when I speak to friends and.
Neighbors and family that are kind of outside of our business and you tell them that you're recognizing 90% of your revenues there like Wow Thats amazing and this type of environment I do try to remind them that we typically we collect 99.5%.
But.
I think that that alone says that we do have really high quality <unk> properties in good neighborhoods and that's across the sector. Its institutional quality with that said I mean for as long as I've been in the business and it for as long as reasons. He has been a public company retail is always evolving and you're always going to see changes within neighborhoods within the merchandising.
Tenants and that is why we always remain really committed to a kind of portfolio culling, if you will and disposing of 1% to 2% a year an active asset management. So there's always going to be centers that we don't necessarily love as much as some of our best centers and we rank them appropriately.
I'm comfortable owning everything that we own long term, but there'll be some that we will target for disposition.
And I don't think that the nature of those has changed we still really like about neighborhoods with the buy their averaged demographics, we still like shopping centers with a merchandising mix that's going to appeal to all to the consumers that has a high percentage of the central tenets that asset that is not unchanged from where we were pre code.
But and with that fresh look there's so much competition in today's retail environment that we need to ensure that we are working with our tenants with our merchants with our retailers to create a thriving gathering place for consumers to give them a reason to come in.
Great. Thank you, Lisa and Christy if I didn't mention that congrats on the new seat and if you are sitting in Jacksonville today.
The NBS so look forward to working with you.
Sam.
Your next question comes from the line of Craig Schmidt with Bank of America. Please proceed with your question.
Okay. Thank you.
Your your second quarter and third quarter same store NOI were somewhat lower than the average for your peers. I'm wondering you know what are the factors that are resulting in that spread.
Hey, Craig This is Mike I appreciate the question.
Listen.
It's hard for us to compare ourselves to our competitors. It is for you.
What I can say is whats significantly driving our results as our uncollectible lease income estimates.
And if I think about those uncollectible uncollectible estimates and where they're coming from it is at this point in time is coming from the.
A collection of of of tenants that is really coming from three different types of categories, whether it's geography, those those regions within our portfolio that are more restricted and those tenants or are unable to operate at full capacity and within that those regions.
Tenant categories matter significantly so are you in a fitness many restaurants, where those restrictions are even more Dan.
Damaging and then obviously credit comes into the equation and those those would focus us on more local shops, where the local credit may.
May not have the ability to bridge those tenants from pre pandemic two after after the fact.
So I think that combination certainly has something to do with it.
Great and then in terms of thinking about the new leases you signed in the third quarter, how long is it going to take for them to actually be open for business.
[noise], Craig I think we're operating about like our historical averages. So I'd say, we're generally from lease execution to doors open 90 to 120 days, depending on on the deliverable shape of the space.
So these new tenants on trying to weed out the virus.
No the the folks the folks that are engaged today are are are engaged.
Yeah.
That's kinda back back in business, where we're delivering as fast as we can.
Yeah.
The tenant expects the same.
Okay. Thank you.
Thanks, Greg.
Your next question comes from the line of Vince Bony with Green Street Advisors. Please proceed with your question.
Hi, good morning.
Could you elaborate on how tenant demand for new leases varies by region, and if any markets jump out as being particularly strong.
[noise] again very good morning.
I would say.
Theres demand across the country, but again the more open.
The more open the geography is probably I would say correlates to the to the to the depth of demand.
Theres more comfort there's more.
Credibility, if you will that that people are comfortable there's they see the return of the consumer their.
We're seeing sales from from their peer groups and it it just seems to make life easier as you would expect when when things are opened and operating closer to full capacity you get better you get better activity.
Makes sense. Thanks, thanks for that switching gears, a little what needs to change in your mind to unfreeze, the private transactions market and can you also touch on just the current state of CMBS availability in terms for shopping centers for potential buyers of your centers.
Okay, well that I'll direct I'll direct traffic here well, let Mac answer the transaction part of the question and then Mike will take the CMBS.
Sure thing.
I bet you know, we haven't seen a ton of transactions that have consummated, but you are seeing more and more of them and those transactions are typically.
They're smaller size centers, because buyers just it's easier to get your head wrapped around a smaller rent roll and they're typically transactions, where tenants are open and they are essential tenants and they have vibrant grocers and the more and generally markets that are less restrictive to more restrictive so you.
You are seeing more price discovery out there what we've seen is you know.
The Premier high quality centers, the types of centers that we own for the most part.
Relations really havent moved and clearly they are really pretty close to what they were before coated.
That does vary a little bit by geography, because in some areas tenants are more open than others.
We've been pleased to.
We see that there is demand from experienced retail investors, who were looking to expand their platform and they are able to underwrite transactions and I think we're going to see an increased amount of that we were not to see the volume that we had last year, but the volume looks like it's going to get better month over month, and we'll see that continue into 21.
Hey, Vince its Mike let me follow up on that from a financing standpoint.
We have the benefit with our portfolio and our JV relationships to be pretty active in a in the secured debt market.
And we're going through a financing at the moment and I'll tell you.
We've been very pleased to see that for our quality combination of central retailers are grocery anchored doing very good business great location in northern Virginia, where we're seeing good demand from the lending community.
To finance the project, it's not the the demand is not what it once was for sure, but I think sponsorship asset quality and location are all proving that we can find.
Pretty well priced debt all things considering I would say just specifically on the CMBS front, we are seeing CMBS lenders being.
Being very interested in this and this product type and I would I would characterize their interest is from an economic perspective on a rate spread as being tighter than that of more of the classic secured lenders and the Lifecoach life's company field a lot more to go were still on them in the middle of the process, but feel good about finding.
The solution here.
Thanks for that and just maybe one quick follow up there how about LTV, so that could even a good combination of sponsor quality location.
Or ltvs, where they were before Covidien Howard lenders thinking about to be in that equation and they still using kind of January levels are they taking a small haircut.
There's a there's a haircut and we understand that the that would be in that equation is less than it once was I'd say, it's not materially so and they're going to rely on the appraisal community of course as a backstop and we know that in that regard that those those these t. tend to move pretty slowly.
But everyone sizing to two debt yields what I'm seeing is minimum threshold that look like they did in the past.
And I'd say, we weren't the type of borrower thats not looking for high LTV. So we're in that 50% to 55% range.
Got it thank you for all the color.
Your next question comes from line of Mike Mueller with JP Morgan. Please proceed with your question.
Yes, Hi, two quick ones here one how confident are you in the 2021 redevelopment starts and then do you still see Serramonte is a core long term holding.
Hi, Mike its back happy to take those.
Weve you know you've seen how our disclosure on page 17, we've listed out our our projects that we expect to start.
Obviously theres ones that are sooner, we're more confident in 20 ones right around the corner and.
But they are still dependent on external variables. So I'll give you I'll give you a 22 example.
Yesterday, we have a hearing next week to get our entitlements for example until those things are done you can't have 100% confidence, but we.
We are confident as these are terrific properties that have great.
Long term potential for Densification redevelopment and there's great value creation. So.
We'll start these projects when we have real clear visibility on underwriting or in a Y a clear visibility to understanding the risk adjusted returns.
And we'll use the same high standards that we've used in the past to to underwrite them and make appropriate business decision. So.
We'll give more guidance as we get closer, but we really like these projects and we intend to start them.
Such factors are beyond our control.
Sure meditate, that's a property that we have great long term faith, and so we'd anticipate holding out for the very long term.
We like the fact above everything is that it's 80 acres are free.
Free and clear land, just south of San Francisco, and there's lots of various opportunities to create value in the short term and the long term.
For example, we're we're embarking on to drive through ground leases that will start later this year that have a very nice return to them and we also have an opportunity to re tenant the former JC Penney box, which is arguably our best space. So we're engaged with several retailers about that and we just think long term.
Just really that's it Richard unique asset that will continue to grow and do well for us.
Got it okay that was it thank you.
Your next question comes from the line of Linda Tsai with Jefferies. Please proceed with your question.
[laughter].
Hi, I'm can you talk about lease terms in the current leasing environment and how that plays into your negotiations with tenants.
Yes, Linda this is Jim.
What we're seeing in lease terms really isn't that much different than historical quite frankly.
I would say the only tweak to that might be in the.
More in the renewal environment.
Where there's.
Again in those non essential.
Smaller local tenants, there's probably more anx towards the future.
And.
They are less willing to potentially pop their option as stated.
Look for shorter term and I think we're both on the same page there let's.
We'd like to tenet, but let's let's go.
Let's see legs underneath us and and talk again in two three years, so that would be the only thing I would say that I've seen that's a little different than normal.
But new deals and in general essential non essential players are taken options stated options no negotiation business as usual and that'd be the same and new deals with those.
Essential non essential players.
Thanks, and then in terms of tenants facing higher pressures has it made sense to reevaluate your criteria for how you evaluate collectability, yes since the start of the pandemic given you know.
Various tenants performance to date, either on the upside or the downside.
Yeah, Hey, Linda it's Mike I.
I think you've kind of nailed the change in our intellectual lease income quarter sequentially from second quarter to third.
And we did in fact.
Change our assessment of certain tenants because of that time that you're identifying we moved about 4% of our SBR into cash basis tenants this quarter and that's translated into our uncollectible charge and that has driven that change in in mindset was driven by this you know I've used this analogy and.
Currently about this weight that these many of these times are carrying and with each month of these closures that goes by the weight is heavier and that is impacting our our thoughts and our ability to collect rent that is that is owed and that's why you're seeing that as I said in the in the front, that's where you're seeing the uncollected rents kind of cluster is then.
Certain geographies that are more close it's within certain types of tenants and then specifically within a local kind of credit quality. So.
So definitely changed on the flip side of that if you look at our cash basis tenants and the entirety of the pool. This we are also we see this positive in our collection rate, we posted a 46% collection rate in the second quarter in that pool, well, that's up to 64% this quarter and in fact looking into October it's up to 66%. So.
So while weve segregated those tenants into that cash basis pull we are seeing green shoots and productivity.
All of it as you've heard from all of US today tied to the restrictions and their ability to operate.
Thank you.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment. Please while we poll for more questions.
Your next question comes from the line of floors Van Dyke with Compass point. Please proceed with your question.
Taking my question guys.
Hi, I'm intrigued about the regional disclosure on Collectability.
And I'm, sorry, I'll, perhaps a little bit surprised that.
We'll work with the northeast didn't get mentioned in and lower collections as well how much of an impact in your view. It. It's the local governments are the ability for your for your tenants to operate and and where do you see the greatest impediment in the region that you mentioned.
I mean, we're all looking at it.
He wants to take this one I'll start.
So I think that Theres no question geography matters. So this percentage of essential versus non essential and you can't look at either one of them in isolation. So we have a higher percentage of essential and the northeast than we do in California, which is why it wasn't necessarily mentioned and kind of the opening remarks or some of the answers to the questions and the restrictions do.
Matter and this goes back to what we talked about on earlier calls specifically when it's for restaurants and for fitness and for those for the indoor activities or if you will where people need to come into the store because a lot of the non essential in the restaurants that are more fast casual and been able to have been able to really adapt.
And recover sales from a takeout and from a curbside, but the ones that you need to come into the store and for indoor dining.
In the driver in the areas, where the governments have imposed restrictions where capacity is still limited that 25%. It's just really difficult for those operators to make the numbers work and so it absolutely has an impact and as you as you increase 50% I think you get some that are more willing to lean in and try to make it work, but then if you.
The threat of a future shutdown again that could potentially wipe them out because it takes capital to reopen and that's that is what we're that's what we're seeing and that's what we're feeling but you can't look at geography in isolation. It absolutely has to you have to take into account the percent essential as well.
Thanks, Lisa maybe one follow up question in terms of I mean, you guys are in an enviable position in terms of your balance sheet clearly and in terms of your portfolio collections on the on demand as you as you stay on the road to recovery I think was your quote.
As you look at opportunities going into 21, do you think that there could be more opportunities on one off assets.
Private owners or do you think they're going to be a yelp portfolios or or other larger transactions you could be looking at.
I think that it's I appreciate the question. Thanks, Lars I think that it's still it's still too early to know for sure, but I do like how.
How strong we are positioned and we've been I think saying that consistently that I feel really confident about how we will come out on the other side of this and how we will emerge position to continue to be a leader and we will we will continuously look for those opportunities and take advantage, where we can and some.
Of our some of our really successful developments some of our really successful acquisitions came out of other cycles, and it's being prepared to be able to capitalize on that and I believe we are taking all the steps that we need to do in order to do that.
I suppose.
Your next question is a follow up from Katy Mcconnell with Citi. Please proceed with your question.
Hey, its Michael Bilerman here with Katie and I.
I would be remiss, if I did not from my own congratulations to the Christine in her new role.
Definitely thanks, Lisa you made a wonderful position and hiring here so congratulations.
The best decision of 2020.
For you [laughter] [laughter].
So I, yeah, I wanted to sort of go back to thinking about.
Yeah, the whole JV partner side, and putting capital out.
You've obviously had very long term relationships with a lot of different capital partners.
I guess within your holdings today was there and how you are are they to create some liquidity.
In those versus how eager are they to go out and put capital out alongside of you in potential acquisitions.
Hey, Michael.
This is Mike I'll start and and and Lisa can jump in.
We are very fortunate to have a very longstanding relationship with our existing JV partners and they've been wonderful to work with in this environment no eagerness at all from a or nobody's crossed off retail and put in cell orders very very patient.
They have agreed with our approach to tenant negotiations.
Which has been again another testament to just the relationship we built with them over time and I'd actually kind of flip it on on it said I think across the board they understand that grocery anchored retail in the best neighborhoods that the country is is where you want to be in the space and they believe in that on a long term basis.
And I I believe is presented with the right opportunity.
Where do you have confidence in the forward income stream they would be there to co invest with us on a continued basis.
How do you think about perhaps larger scale opportunities. That's the discussion on Serramonte was a good one and congrats and I recognize it came from equity one something they had started.
Yes, there could be a fair amount of mall land and.
In mall assets available around the country over the next little while records in clumps has not performed as well as outdoor and.
And you talked at the supermarket, having 80 acres and you're right South of San Francisco is there a focus internally today about trying to source differentiated opportunistic value add type of deal will swear if you have a strong partners you're able to do those on a risk adjusted.
Basis.
You know, but they're obviously these are these types of deals are not cookie cutter and they do require a fair amount of work in time and capital.
Ah Michael Cervantez is unique and it did come through.
The larger acquisition and we do feel really great about the real estate.
But I'll go back to our unequaled strategic advantages and number one is a high quality grocery anchored portfolio entity that is really our focus and so to the extent that we can continue to create value with that focus that will happen, but it's not.
We're not looking for 80 acre parcels on to.
To invest capital, we still have a lot of opportunities in front of us with our owned assets and with our own redevelopment pipeline and that is really as we think about risk adjusted and use of our capital that is where that is our focus today.
Okay and then last question if I go back to Investor Day, which was I think that's.
At the beginning of 18.
Hi.
A lot a lot about sort of this whole asset quality DNA.
From a trade area DNA perspective, and then a individual asset DNA perspective, and you sort of went through an integrated all of your assets along those lines to eventually come out with that Premier plus premier quality core and non core.
I guess as you're seeing the market's evolved during the pandemic.
Is there anything that you are running the portfolio new markets that are coming up that would be stronger or markets that you're in today that are moving down. The spectrum is there anything that you can tease out from that data at all.
I appreciate you remember that Michael this is Mike again.
We're we're learning a lot about our DNA material. That's me fair Kt remembered and I didnt. So [laughter], let's give credit where credit is due so [laughter]. We are we are learning a lot about that model and we study it continuously and it's it's the guide it's not a rule for sure. We think the model is proven.
It out what we believe which is that our suburban near urban locations.
As measured by the demographics and the really supply constraints that that DNA produces are holding up very well in this environment and will benefit from any changing landscape with respect to where people work.
What I would also say at the same time is.
We didnt have a pandemic box in the math and wind [laughter] everywhere. When you overlay a government imposed mandate that you cannot conduct business in a certain environment. It doesn't matter how much money that people make or how many people are involved in that trade area.
The model will break down and we did we have seen that so theres. This period of time, we'll have a lot of noise in the math.
What we are learning I think what we're learning is that we're from a location quality perspective much of what we believed is confirming itself.
I appreciate the time.
Sure. Thanks, Michael.
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As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment. Please.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Lisa Palmer for closing remarks.
Thank you very much to all of you for your time today. Thank you to the regency team one more time and I look at is Friday, so have a nice weekend and I look forward to seeing many of you and I put seeing in airports a in a couple of weeks.
Thanks.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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