Q3 2020 Federal Realty Investment Trust Earnings Call
Our family home sales data.
In the third quarter US home sales volume was up 12% according to Retrophins residential database yet.
Yet the number of homes sold in Bethesda, Maryland were up 26%.
Falls Church, Virginia up 18%.
Alex Wynnewood, Pennsylvania up, 38%, Downers Grove, Illinois up 39%, Los Gatos, California up 60% all first tier suburbs that are home to big federal properties.
It really feels like this migratory trend from downtown CBD is to first tier suburbs is going to stick for a while.
Of all the things that worry me as a result of this pandemic and there are plenty filling.
Filling that space with a great retailers and restaurants at good economics that provide future growth is not one of them.
I know that our properties positioning in those first ring suburbs of major metropolitan areas will be more desirable postcode I.
I know that the decades of focus on creating comfortable and attractive open air places at those centers will further enhance profitability.
Consider that nearly every discussion we've had we're having with brokers and prospective tenants.
We do business the prospective deal is premised around tenants improving their real estate their location their co tenants that are environment and importantly, their landlord.
Tenants want to be with landlords that have money investable financial wherewithal vision execution private prowess in a pedigree of partnership with.
Long term customer friendly service improvements like a coordinated customer pickup program matter today a lot.
All of these considerations are more important now and we'll certainly be on the other side of this than ever before and we're set up for that.
And before I turn it over to Dan Let me address sunset place impairment loss that we recorded this quarter.
No secret we struggled realizing our vision of a redevelop mixed use community since we bought it back in 2015.
First the fits and starts of the entitlement process with Citi resulted in precious time lost securing existing tenants and setting up new ones and a strong retail market of 2015 16 17.
By the time those entitlements received were received box rents were under more pressure construction costs continue to rise skinning down value accretion estimates, but.
But even with all that we were hopeful that we had a viable project with some reconfiguration of the master plan that came code.
The previous previous strength to the anchor system, a full size GM and la fitness, a big AMC theater and two large entertainment tenants name Splitsville and game time, along with the required hotel component as part of the intensified site became obvious weaknesses that are likely to continue to remain so for some time.
Accordingly, our partnership Didnt pay at maturity, our $60 million nonrecourse note in September and the lender as declared to fall.
Given the other opportunities within our exists portfolio to invest capital, we've decided not to pursue redevelopment any longer there 40.
Accordingly, we're evaluating all of our disposition option.
Okay. That's about all I have for my prepared comments, let me turn it over to Dan for some final remarks, and we'll be happy to entertain your questions after that.
Thank you Don good morning, everyone.
We are very encouraged by the progress in construction and as we saw in our business over the course of the third.
All of our centers remain open for the half throughout endemic and over 97% of our tenants are open and operating.
FFO per share for the quarter from feet sequential progress over second quarter's number of 45% to $1.12 per share while still off from 2019 third quarter level. We are encouraged by the progress as our Collectability adjustment was almost cut in half from $55 million in Twoq.
$29 million in the third quarter.
Other drivers, which impacted the quarter includes seven cents of drag due to higher interest expense given the incremental liquidity and balance sheet strength, we are carrying during the pandemic.
On the other side of the pandemic, we expect this drag to be nonrecurring.
Six cents of drag to to the impact of COVID-19 on our hotel joint ventures parking revenues and percentage rent.
And this was offset by three cents of upside from lower expense at the corporate level.
As a result this totals a net 48 cents of COVID-19 related negative impact for the third quarter.
Meaningful improvements over to accuse negative from an impact of 83 cents.
Collections continue to improve from the 68% level reported on our second quarter call.
Up to 85% for this call for the third quarter as of October 30.
Putting our uncollected rent by more than half.
Progress continues in October with 80% already collected.
But ahead of the September collection page at September Thirtyth.
Please note that.
That the denominator for our collector net collections metric includes all monthly recurring rent bills and base rent plus charges for Cam and real estate taxes and.
And is not adjusted for deferrals animations and as it relates to the numerator all deferrals and abatements are classified as uncollectible.
Also note that the denominator.
Has remained fairly consistent throughout the first nine months of the year at roughly 70% to $71 million per month.
We have continued to take a tactical approach as we negotiate and worked with our tenants through this challenging period.
$34 million of deferrals were executed in total for the second quarter and third quarter combined of that amount almost two thirds are $22 million. This was higher credit pool basis tenants.
For selected agreements and throw our anchor restaurant program. We also have aided $21 million of second and third quarter winds.
In conjunction with all of these negotiations we have restructured many of these deals too often include one or more and more of the following.
Enhanced credit of the guarantors backing the leases incremental percentage rent upside, where we have abated rent removal of development, marking these restrictions and other tenant approval rights, eliminating or pushing out tenants lease lease tenant lease termination and cotenancy rights reduction or deletion, a below market tenant extension options.
And we were even able to finalize some agreements to open new stores the federal centers.
All of which enhances the long term value for assets in exchange for these near term concessions.
As we did last quarter, we have provided disclosure relating to the impact of code to 19 in.
And a summary of Collectability and accounts receivable, which is provided on page 10 of our 8-K financial supplement and an updated investor presentation, which incorporates an update for COVID-19 that can be found through a link on our investor website.
As Don mentioned leasing volume was back in full swing with over 480000 square feet of retail deals and total debt in the over 60000 square feet of office leasing, bringing a total of almost 545000 square feet of deals signed our highest combined quarterly volumes since 2008.
Okay.
We're also encouraged by the level of activity in our leasing pipeline.
This activity buttressed, our leased percentage occupancy metric, which stood at 92.2% at quarter end. However, we still expect continued pressure on our occupancy metrics over the next several quarters and expect to dip into the mid to upper Eightys.
At the trough as we talked about on our second quarter call. We.
We do expect to see meaningful growth from those levels starting late in 2021, given current and projected demand.
We are seeing three very specific leasing demand drivers our portfolio.
First in the category of urban to suburban.
Specifically the restaurant deals in DC that Don mentioned.
That are in the works at the Hasbro Pentagon row, I can rosen diligent shirlington too.
To best in class restaurants, and two primarily urban slash mall retailers planning openings and focus as well as numerous concepts in downtown Boston in discussions at both Assembly row and limited square.
Second upgrading real estate two best in market open air locations.
Including a marshals deal.
Where they are moving from a second tier lower rent location next to what failing B mall to our gainers Bird square asset a main and main location in that sub market, replacing a bed bath and beyond at better economic terms to us and higher rents than they were paying.
Several additional deals involving other best in class discount apparel mass merchandisers and grocers are in the pipeline along that same date.
And third new to market lifestyle, and digitally native tenants targeting our best in class open air mixed use and lifestyle locations.
Santana row, attracting Nike lives.
Morning, our Terex fairy oak.
And new restaurant concept chica.
Assembly row landing new deals with support and Shake Shack. In addition to the CBS and soon to be delivered Google with several other deals in the pipeline.
Hi, can rose and attracting a new concept from the founders of column also when four deals in the pipeline overall this activity is diverse and very encouraging.
Now to a discussion of the balance sheet.
And are further enhanced liquidity position.
As you saw in early October we raised 400 million of unsecured notes due 2026, and a 1.38% yield bringing our total pro forma liquidity at September thirtyth to over $2.25 billion comprised of 1.25 billion of cash plus our undrawn $1 billion credit facility.
We did this as a green bond, which I will discuss in more detail a bit later.
With our $1.2 billion in process development pipeline continuing to be executed on we.
We have only $500 million left to spend against.
As roughly two plus billion dollars of dry powder.
Note that this pipeline is forecasted to deliver $70 million to $80 million of POI when it fully stabilized outlook stabilizes added 23 and into the 22024 timeframe.
As evidenced by our decision to not move forward on the Sunset place redevelopment rest assured that we will continue to demonstrate disciplined with respect to all capital and resource allocation decisions moving forward.
As a race relates to managing the balance sheet, we will continue to be opportunistic in pursuing equitization through asset sales.
With over $200 million deals under active discussion at blended yields in the fives, we'll see how those progress however.
As we discussed on the last call. We world means we remain well positioned to manage through the challenging environment.
Deleveraging the balance sheet will continue to be a priority as we look to opportunistically, bringing down leverage levels over time.
As for our historical.
As you saw yesterday, our board made the decision to declare a regular cash dividends of $1.60 a fair payable on January 15th our first dividends of 2021.
Now before I hand, the call over to Q and eight let me talk briefly about federals commitment to guest check.
While ESG has always been a key part of our business strategy for more than a decade until 2020, we had never prioritize communicating the breadth and depth of this commitment to our stakeholders.
Our normal corporate responsibility report was issued in late March 2020.
Fortunate timing dependent.
But a publication we are extremely proud of nonetheless.
Our green bonds in October further demonstrates that commitment in the form of Green building design and construction was commitment to spend $400 million on lead silver gold and platinum buildings.
And we have a pipeline of comparable leased development projects, which positions us to potentially issue more green bonds in the future.
Furthermore, as you may have seen from Navy, we ranked fourth but roughly 100 real estate companies with on site solar capacity in the solar energy industry associations.
She is annual list of top us businesses utilizing solar energy.
Our accomplishments and color to come on the SG front and kudos to Dawn Becker and we pass yield of lead this effort with that operator, please open up the line for questions.
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 code will indicate your line is in the question queue. You May Press Star two if you would like to remove your question. Thank you for participating in the speaker equipment. It may be necessary to pick up your handset before Christmas turkeys.
One moment, please while we pull for questions.
And our first question is from Craig Schmidt with Bank of America. Please proceed with your question.
Thank you.
The federal second call, our third quarter frame during the same property NOI was down 18.1%.
That compares to our average score scripts at about 12 point down 12.7%.
What's responsible for the both of whom have lower same property revenue versus some of your script peers.
Let me start with that actually Dan and then you go different you know Craig.
Dan is going to follow but I don't know and I almost don't care.
And I don't mean that tongue in cheek guide.
Hi.
What we are trying to do is.
Is not to kind of get back to where we were.
But to effectively it and over retailed environment to make sure that on the other side of this we have better shopping center.
In order to do that we're effectively cutting the deals that we need to cut with with five tenants that we think will be critically important on the other side. We are actively frankly not helping out the.
The tenants that.
Don't make it.
And we'll produce more vacancy and so there is very little focus in this company right now.
On comparable POI because in our view, it's not relevant it's relevant from the standpoint of overall cash flow to make sure. We can pay our bills, we can pay our dividend and set ourselves up for the future, but thats. It so from a comparative perspective, I know I have no answer to your question.
And in terms of the us versus the peers, maybe Dan Doug, but I wanted to get that effort.
Yes, just from a kind of a mathematical perspective like the big driver is obviously the collectability adjustment.
And look our approach I mean, the fact that we have more.
The highest percentage of tenants on a cash basis and take what we feel is a very prudent approach in an appropriate approach, but that drives our collectability adjustment.
As a percentage of build revenues to be one of the highest in the sector.
And and Thats the biggest driver.
[music].
Look I think it's going to allow us to probably have less more transparency. During this during this period and and less.
And less impact.
Going forward.
Yes.
Thanks, and then just as a follow up.
How is the leasing activity surrounding third street promenade and have we leasing efforts been hindered by La County concern.
Conservative real dance.
Hey, Craig its John Bercow, So, yes, I think that's absolutely true.
We obviously have some space over history, the way to deal with it and we are.
Yeah, but until things are open now.
We continue to see a little bit clearer to the other side of the pandemic I'd have expected sales total waste activity, our third straight product idea, whether it's our ability to absorb anybody's buildings.
Thank you.
And our next question is from Ki bin Kim with TUI. Please proceed with your question.
Oh, Thanks, good morning.
So if we put aside FFO and same store NOI for a moment.
If we had a chance to be applying to law enforcement or meetings and what you're seeing on the ground. What do you think is the most underappreciated aspect of what's happening with your tenancy in the portfolio today.
Yeah. That's a good question Kevin you know the speech, if if you think of if you're thinking.
20 late 21, 22, 23, and you put yourself in the.
Kind of position of a retailer trying to do a deal today if.
If you if you imagine those and.
We're asking them.
To commit to periods of payments for seven years 10 years et cetera.
Where they have less visibility today.
Of who they are co tenancy is going to be probably than they've ever had.
And so the notion of the work that we're doing today to make sure the right tenants are there.
In that center to effectively gives them confidence to be able to enter into an economically strong deal is something that you can't see in the results.
And philosophically, it's something in my view, that's very different to the extent, we do it because we are doing that everywhere every shopping center is about how to make sure the inevitable additional vacancy which by the way we've never had.
So this will be the first time, where the ability to get into a federal center is actually practical pure 93% leased and you're trying to lease up to 95 or so you have sales we have 23 million square feet. So every point of occupancy, it's roughly 230000 square feet of space and if you do that on.
Shop, with a lot of deals et cetera.
Youre down at 88% leased and you're going to get back to 95 over over a period of time and for the first time, we've got the ability to put tenants in that tried to move up to a federal center, but but have been unable to for that to be successful, we better have the right tenants as a foundation.
In each of those shopping centers and that's effectively where we spend all of our time and I truly I wasn't being snarky with with respect to Craig up. The first the first question trying to compare that to what other people are doing and how they are doing is not something we're focused on you know so that I think it's actually I think it's.
The secret if you will to value creation.
On the other side of this we don't tend to be a seven dollar stock.
On the other side of it and not because we don't see back where we were and tend to be more.
And better.
So it's not about a percentage of where we were the percentage of where we're going.
And that is a fundamental.
Way of management throughout this building that everybody is focusing on and I think thats a little different.
Okay. Thanks, that's helpful and just second question type credit tenants I think it was mostly a restaurant that view.
That belief and that was doing really well before overhead that you're providing for back support I know Hassan.
A very short timeframe to gauge and the results or or activity, but how does that feel right. Now do you feel like you've made made the right investments in our growth tenants.
Starting to show signs of life, where they're going to come out the other end.
Yes, very much. So now you know look the big question. There is is what will we feel the same way through January and February and March right I mean that is still.
Whether anybody want to talk about it or not that because that is certainly with respect to that category. The period of time that old Vettel youd see whether the prudence. If you will of keeping them strong what smart or not but you know it's been an amazing weather year on both coasts frankly the.
Production of.
Our restaurant product Thats better ridiculously strong at Assembly row, there are operating.
80%, James 85% of where they were.
At Santana row, none.
Numbers up and are more than a 100% of where they were because we've done so much outside.
Ceding it expanded their capacity et cetera. So so how does it work so far sure what the real test will come in the next few months.
Thank you.
And our next question is from Katy Mcconnell with Citi. Please proceed with your question.
Great. Thanks keep in mind.
Turning in their line here going forward from that redevelopment do you have any other plans for that capital or is it just reinvesting in leasing capex at this stage or are you seeing any interesting opportunities in the market right now for how then back to the knowledge of caption next commerce.
Yeah. It's a good question first of all right. You know we have a lot of development in progress and so certainly we have use of that capital that does that.
Yes, or certainly identified four do I expect over over the next year or two for there to be opportunities.
With assets that we'd love to love to own you betcha.
I do I really hopefully I hope, we see that we're starting to it will be interesting even with all right on the other side of that with our asset sales to see what the.
To see what the market value of them are.
As we as we sell a couple of them.
None of which have obviously closed yet at this point. So we'll see how that plays out but yeah, we do see opportunities that way and we're judicious users of capital I mean, there's nothing more embarrassing for me. Then then the sunset place failure. There is a lot of good reasons for the failure was still a failure. So the so you know we take very.
Seriously, where we allocate capital why we think the dividend is so important.
In that from that perspective and.
So the extent, we find as we expect to additional.
Opportunities with great real estate going forward, you'll see you'll sales acting on it.
Okay. Thanks, and then dependency we believe we will walk away from that.
I'm curious if you're thinking about your exposure to that Matt sorry, yes on experiential turning categories secondly today.
Yes, there is there any target and asset sales.
Fine.
Yes, no I don't have it so there's a couple of things about that in the fitness category, particularly in the in the theater category. Two I believe both categories will exist to I believe both categories are important for for.
For communities going forward, you bet I do but certainly the jury is out on what their business models will be able to see what they will need to be profitable, how they will be able to.
Levels of rent they'll they'll be able to pay so so you bet you that that's what I worry about it's one thing when you are talking about an established retail center. That's is that Scott you know a place and is important to a community to have a tenant like that where you can backfill you can do another use in our case and another.
But.
Other waste, it's completely different than starting a fresh and building a new one.
And the obviously the sunset investment would would.
Be putting a lot of.
Based on those uses in terms of what they can pay and what they're doing is going to be in the future. While there is from a completely new and.
Investment and that was just a bridge too far for us to to take.
Okay. Thank you.
Thanks, David.
And our next question is from.
Andrew seeing use with Meizu Hello. Please proceed with your question.
Hey, good morning out there.
No.
Hi, Doug.
Your earlier comments on the dividend increasing I believe you said you are fast approaching additional cash flow to fully cover the dividend. So I guess I was hoping you founded upon that a bit more on how you and the board of thinking about the dividend. He obviously you want you don't want to cut it like most of your peers have but.
Three q. gapped up until about a 12 implies a mid $4 service outlook for next year, which is pretty comparable to this year, So flat earnings and you're sitting here with Apple coverage.
Ready above 110%, so I guess I'm curious if you guys. Even the fourth is maintaining the dividend here was the right move even if you can afford to given the strong liquidity you outlined before and how long you might be willing overpaid. Thanks.
And though gas we talk so much about this over the past six months.
But the there has to be as a guiding philosophy and.
And.
You know ours, maybe a little different than yours, we believe that the dividend.
That bargain thats been been put out there for investors as a key portion.
Of of their total returns and.
Add to it.
The idea on the other side of this and as I say, we certainly see a path to getting back to <unk>.
An 80% payout ratio or something like that.
So the idea of.
Giving up on that.
As you say when you can afford to do so.
On balance seems premature.
Now the and that is exactly how the board and we talk about it we think about it.
It's clearly an important part of total return so nobody knows how long the total go and what story is.
And at some point.
We may not be able to do that but certainly in November 2020.
Which is as I think you know the first quarter dividend for 2021 paying.
Paying $80 million in the form of a dividend, we'll certainly have to ultimately pay that anyway.
Because we'll certainly have more than $80 million of taxable income next year and Thats probably applies to February two now by that point, we're going to have a whole lot more visibility as to whether we're able to.
Get out of that get out of that hole into later in 21, 22 et cetera, and we'll make decisions at that point.
As we do frankly every three months, but but to me. The November one in particular was a was a pretty busy.
I hope Thats helpful.
Thanks, John.
And also you mentioned the potential dispositions I'm curious if there's any commonality that geographic focus or product cycle to sell here and what you're seeing in the market today in terms of buyer demand and any insight into the cap rate the loan what level of analyze the buyers underwriting. Thanks, Yeah, Jamie Yeh aid handle its job.
Well there were.
Maybe the best way to say it assessing the market on a on a few assets right now they're all very different.
In terms of what they are and where they are.
So of course, we're seeing different responses for the market I don't want to talk too much about pricing because we're in the middle of negotiations on all of them.
But I will tell you.
The assets that you think would.
Would trade.
Hi prices, we are seeing prices that we think are strong.
More and more to talk about on that.
On the topic hopefully the next quarter, but.
There are buyers out there just like there are tenants that don't have legacy issues of capital alert releases. There are buyers about legacy issues that have capital in there they are going to be buying real estate.
Okay.
Got it got anything under LOI.
I'm not going to comment on that though.
Okay. Thanks.
And our next question now.
I'm going to go forward with Piper Sandler. Please proceed with your question.
Hey, good morning morning down there.
Don overall, if you look at your you look at your tenant base.
One your restaurant comments to our GAAP from Super helpful and impressive that experience will kind of really rebounded outside but overall as you look at your tenant base how much of a shift do you think that you'll expect going forward, meaning do you think that maybe it's just a little bit of a trim, where hey, maybe we want to dial back exposure to some of the hair.
Boosted in these areas or do you think that your exposure that you had before really will continue to take hold on a go forward.
Yeah, It's a great question, Alex and when you kind of think about it.
You know those decisions in what you're what you're doing you're obviously, you're making decisions for a decade or more.
And then in that regard the answer is not holistic as.
As you might like it to be I head might be easier to understand more holistic, but it's not it really comes down to the individual shopping center the into individual mixed use.
Project and what it needs for that community and what is what is interesting to me as well I'm sure for a number of years, there will be far less restaurants, effectively doing business and making money doing business, where will those restaurants go and where will they be it is.
Is is is in the process of being figured out now all over the country and I do think DC is a little ahead of that as of yet.
Because of the geography a DC.
What was downtown what is in these first.
Tier suburbs, there is really good product in the in the first year in the first tier suburbs frankly, I think we've had a lot to do with that over the last 40 years and so the ability of our restaurant tour who.
You know is really hot downtown, but whose customers are not coming there anymore, either because their offices are closed or because they are in the suburbs and they're all there are choices there that they feel better about.
Our causing these restaurants to come.
And look at us and frankly in numbers that have surprised us stoop deal is our key leasing person on that and they certainly don't surprise in Winston Salem is what's going to happen all the way along but has made a little bit.
And so overall when you when you go kind of market by market and what product we have in each in each market I think it's likely that we'll have a similar.
Diverse certainly diversify.
Income stream, you know five and 10 years from now.
That change on the Gen side or the or the theater side potentially because I think those are the ones. Those are the businesses that are less.
Predictable in terms of.
What the what the profitable business model.
It's going to be a button.
But in terms of food.
So it was going to be an important part of what federal does.
Okay, I remember a decade ago, you out of the credit crisis, you made the comment that food is a is part of that as Debbie said necessity retail, it's not a luxury but restaurants are part of feeding people.
So currently in our markets.
Yeah, well a lot of people they spend money to have gorgeous kittens, but keep in pristine using go out.
[music].
Second question is.
I think Dan you said that 30 or tenants are now cash.
And and if that's correct. So big picture you selected 85% of rent overall, presumably gotten.
Cash based tenant, but as you think about the outlook and the trough occupancy that you spoke about in the first half of next year. What do you think is both the checkout between the remaining 15% incentives, where you haven't collected friends and that third of tenants who are paying cash selectively out how do you think that will all shake out.
Well I think it really well we're fighting for every dollar from every tenant whether they're a cash basis tenant on an accrual basis and yet we have more folks on a cash basis in terms of from an accounting perspective.
Because I think we just we have we view them as as not probable.
To be able to pay for their entire lease, but we're going to fight.
Massively to make sure that we get back as much of that rent possible I think it remains to be seen there will be some shakeout.
I think that we will see some shake out in our local small shop.
Through the pandemic I think that we'll see continued pressure on some of the weaker retail.
Retailers across.
The different categories.
Into 2021 in the first half and then I think we'll continue that we'll see we'll see how things play out with regards to.
The the theater ends and fitness dense.
But do you think Dan is it is it reasonable just if we say half of half of each of those things goes away or is that not for reasonable for production.
I think it's really tough for top yeah, that's offset some portion of that oil will we'll be looking to backfill I can't give you a number now Alex.
But I think we're pretty well positioned that even if they do go away, it's not permanent and will have demand to come back.
Backfill backfill it.
No attractive economics.
Okay. Thank you.
And our next question is from Nick Yulico with Scotiabank. Please proceed with your question.
Hi, Good morning, this is Greg mcginniss on with Nick.
Could you just walk us through the impact that tenant bankruptcies have had on portfolio occupancy in Hbr. This year and then you kind of what's still left out standing in regards to tenants still navigating the bankruptcy process also.
Any additional near term risk on your watch list or has that treatment shaken hard enough that you're already.
Bankruptcy on.
Ill pull it on on our occupancy rate roughly about 80 basis points impact.
So far we've got probably exposure to about 4% of our revenues as it relates to authentic to a file dish.
If you back out those tenants who have emerged from bankruptcy and.
And ever stayed open in our centers in probably total exposure of about three three and a quarter per.
Per cent and of those that we expect to close ultimately it's probably in the one of the quarter to one that range.
In terms of as a percentage of our total revenue.
Okay. Thanks, and then on that Yeah definitely and then on the watch list do you think more fallout this year or early next year do we should treat hard enough during the pandemic that.
So thanks to sorry, so at this point.
No and I look I think that the worst of 2020, instead us, but I think we'll see another wave certainly in the first half of 2021.
Of of more more pain to kind of it and Thats why we forecasted that our occupancy.
We will go down.
Below the 90% level.
Certainly in the first half a 0.11.
Okay. Thanks for that.
And I guess just the other question I had was on.
You've had fairly stable rent collection numbers for the last few.
A few months here.
Are you expecting much trend up in the next few.
Few months into the year end or how should we be thinking about that.
No I think I think you know the high Eightys or is no.
Where will probably be if you're going to continue if we're going to continue to you know the.
Calculated the same way as it's been and I think that's because there will be some additional fall out.
As I as Dan and I, both said that we believe will happen this winter and yet still be deferrals that are paid back that goes the other way so.
You know effectively a balance of about where we are and probably a little bit better than where we are is what we're looking at right now.
All right. Thanks appreciate it.
Okay.
And our next question is from Vince to bone with Green Street Advisors. Please proceed with your question.
Hi, good morning.
I think Vince.
How do you think increased working from home across the country has impacted foot traffic shopping center for US and then longer term do you think more of that permanently could change the demand profile for urban centers for the ideal merchandise units. So I'd love to get your thoughts on that.
No. It's so interesting to me.
And I'll just give you one example that that.
That kind of goes right to the point of your question.
Well, we're underwriting Hoboken, our Hoboken investment last year.
Which is a lot of street retail and residential apartments on top of that you know, we said gosh in the the downfall Hoboken is that there isn't a lot of office in Hoboken, and so you know daytime traffic is always the thing that that we worry about there because it needs.
Nights and weekends.
Our where they make good they make their money.
Well, it's one of our better performing.
And it's one of our better performing assets because people are home and so traffic during this during the day and during the street on the street in and around is strong our collections are strong our tenants are relatively strong. Yes. There was a tenant that are going away like everywhere else and.
We will be able to backfill, but that kind of combination of being on that side of the river from New York and having people home.
That's been a real real benefit now is can you take that and extrapolate that all over the country to.
All kinds of says I don't know I think that's a bit of a bit of a stretch, but there is no doubt that that some of the benefits of working for home.
Our helping the community centers do I think it will stay at the level that it is no I do not.
And as I was saying before I.
As another example, we are in our offices now for 90 days.
We're not fully in but we've got about 50 or 60 people that come in each day for an office that is normally 150 or 160 people each day the experience here the the ability to effectively around what it's done outside Oh and.
What is how people feel in here has been ridiculous Lee encouraging I didn't expect this much of a boost morale. This much of a kind of a good feel from coming into a new office. So I.
That doesn't mean that decision makers are deciding today to enter new.
Office leases I, but we do see everywhere the sentiment that that.
A growing percentage of people want to be back in a growing percentage of of employers are embracing that so I think they will be about one fifth.
As with most things between where.
We used to be and where we will be.
And I think you know that diversity of opportunity is what the is what protects the income stream.
Yes, thank you for that color and thoughts on one more for me can you discuss just the expected Capex leasing economics, and you have to re tenant a former theater with another use.
Yeah, It's a good point, it's hard to it's hard to deploy profitably if it's not an up a theater.
And and you.
You know.
The exception to that.
Maybe were kind of going back to our last question Sam.
Tennis onset theaters on the second floor and things like that that are re tenanted, depending on how they were built whether the stadium seating is structural whether it's.
There's a lot of detail obviously into into how we're building is built now it needs to be.
Reconfigured, but to the extent you've got high rents in the Ed in the area, what you're talking about high office right.
Rents or or otherwise you can make the economics work gets really tough because construction costs or construction costs to have low rents and to effectively do you know.
Yeah, you can get a bump up in rent, but pretty hard to get a bump up netted the capital So high rents for your friends if your end markets.
That can support back when you do have to reconfigure space any space frankly.
Thanks is there any rule of thumb just for like the Capex per theater, or just too hard to generalize and all those kind of specs I.
Certainly in the we yelled at them.
I can't I can't get you there.
I know that in.
A number of places whether we're looking at it and it's still being.
Built out by the theater, operator in new development down at Cocowalk, That's one particular.
Set of economics.
You know here, if I can rose with with an Ipic and the way that is built out that would be a completely different set of economics. So I'm not sure I can get you I know I can't.
Give me a number that you're asking for because they are very different.
Makes sense thanks for the time.
Our next question is from then to say with Jefferies. Please proceed with your question.
Hi, Thanks for taking the question maybe following up on Alex's cash basis question, how much revenue did you collect from cash based tenants in thank you.
Yes, roughly about 60% kind of collections from cash basis third quarter.
And then how does it compare to Q.
Okay.
Significantly increased it was what it was.
About 40% collection for cash basis benefits in the in the second quarter.
Okay, and then just one more.
How do you think the passage of additional PPP learn positively impacts from your tenants on about doubling gypsum side or to the pressure sensing them in the current environment extends beyond what these loans can provide.
It remains to be seen Linda, but but the PCB. The PCB loans were important they were certainly important in this first phase I think.
You will see I'm sure you will see more.
Now in the second phase.
Probably in the January February timeframe.
I think they're very important I think particularly because of the time of year.
And I think if you sit back and you kind of think about it this will be a really interesting year. You know, how you and me and all of us feel coming out of winter into a spring normally and normally there's a there's a pickup in consumer spending normally the pickup and.
What's happening this year has that has the potential to be a really good one.
Because in addition to that normal feeling coming out of the winter into the spring I do believe they will be PPP money or something like that that will be a pretty critically important I do believe there will be a vaccine, which even if it's not delivered are completely as total efficacy et cetera, we'll still be very important and I do but.
I believe that that it will be a tougher winter.
Than it normally is anyway, because the situation where it. So PPP is just one piece I think a number of catalyst that could really make that spring.
In summer of 2021 better than any right.
Right now.
Thanks.
And our next question is from Chris Lucas with capital One Securities. Please proceed with your question.
Hey, Good morning, guys. This is Dan.
Just on the cash position I guess, just kind of curious should we be thinking about.
Utilization of that for the the upcoming bond maturity on the term loan in the next year or will you be tapping the market began to maintain your cash position us some kind of face those.
Maturities.
Yes, I think we're certainly going to use the cash we have to repay the debt the bond that comes due in January.
Look we've got the flexibility to extend the term loan for another year of margin and so we're going to maintain maximum flexibility based upon the visit.
Flexibility based upon the visibility we see as we go through and work our way through.
And so we'll be judicious in terms of managing our cash balances.
But we're going to we're going to keep the cash in place for as long as we.
We feel that we need.
And then I guess just on it on the transaction side, you had gone under contract with a portion of course, let Graham Parker earlier remember if its earlier this year or last year, but is that is that transaction still proceeding to the sort of close either later this year or into the first quarter next year.
Yeah, Yeah, I know its still on track.
Probably going to push into kind of next next year kind of the first half of next year, but it's on track and and we feel reasonably good that thats just a.
Yes, I feel great about what happened in March of 21.
Okay, and then in the pricing kind of held up nothings.
Thanks, Mike, Yes, our debt.
Exactly where we connect.
And then Don described.
Sorry, if I missed this in your earlier comment relates to Sunset have you guys stopped negotiating with the lender at this point.
We have not.
Yes at this point.
We'll see where we go though.
Okay.
That's all I had this morning.
And our next question is from Mike manner with JP Morgan. Please proceed with your question.
Yes, Hi, I was wondering can you talk a little bit about apparel collections, I mean, obviously fitness restaurants and everything comes up taking.
Frequently to flow collection rates, but when you have apparel that's been open.
Generally since the spring and collection rates are in the Seventys to Eightys I guess, how broad based is the is the collection rate low or is it really just dragged down by.
A small subset of those tenants.
Yes, no it is yes.
You're on it I mean that is absolutely. Another category is the thing is it's it really depends so there's there's more.
You know Barry ability and what happened there for collecting in the mid seventys or something of the of the apparel had a farm in stores and stuff.
Now, let's look at it, but certainly not bringing up the overall collection.
Okay, and then last question on that anecdotally what are you hearing in terms of sales, though in terms of sales conversion Sir.
I am very much depends on the particular.
The store the you know the small shops.
[music].
Full price.
How's our apparel sales are probably struggling them up.
Okay. Okay. Thank you.
Thanks.
And we have reached the end of our question and answer session and I will now turn the call over to lead a brief closing remarks.
And for joining us today.
And this concludes today's conference you may disconnect your lines at this time.
Absolutely.
Okay.