Earnings Call: Q3 2020

Nov 6, 2020

Greetings. Welcome to Federal Realty Investment Trust Third Quarter 2020 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Leanne Brady. Begin. Good morning. Thank you for joining us today for Federal Realty's Q3 2020 earnings conference call. Joining me on the call are Don Wood, Dan Gee, Jeff Burkus, Wendy Seher, Dawn Becker and Melissa Solis. They will be available to take your questions at the conclusion of our prepared remarks. A reminder that certain matters discussed on this call may be deemed to be forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements include any annualized or projected information as well as statements referring to expected or anticipated events or results. Although Federal Realty believes that expectations reflected in such forward looking statements are based on reasonable assumptions, Federal Realty's future operations and its actual performance may differ materially from the information in our forward looking statements, so we need no assurance that these expectations can be attained. The earnings release and supplemental reporting package that we had yesterday, our annual report filed on 4 10 ks and our other financial disclosure documents provide a more in-depth discussion of risk factors that may affect our financial condition and results of operations. Given the number of participants on the call, we do highly ask that you limit your questions to 1 or 2 per person during the Q and A portion of our call. If you have additional questions, feel free to jump back in the queue. And with that, I will turn the call over to Don Wood to begin the discussion of our Q3 results. Don? Thank you, Leah, and good morning, everyone. FFO per share of $1.12 in the quarter was right about where we thought it would be, and while pretty miserable compared to the pre COVID past, pretty good when you consider the progress we've made over the Q2, and this is important that a full third of our tenants are now on a cash basis, and therefore get no benefit from unpaid accrued rent or straight line rents. As an interesting point of reference, the last time Federal Realty was routinely putting up quarterly FFO in the dollar teams was back in 2013 when the stock was trading at or above $100 a share. And while our 2 3 year growth prospects back then were pretty good, they were nowhere near as good as they are from today's quarterly levels moving forward. Let me explain why I think that's the case. Firstly, we solidified the monthly collection of rent as a percentage of the total rent, Collected 84% of July billings, 85% of August, 86% of September and so far 85% of October. November has started out solid too, better in all months than we had expected at this point. And importantly, we're fast approaching sufficient cash generation to fund our dividend completely out of operating cash flow. Secondly, we're attracting lots of leasing interest in our properties as exemplified by the volume of deals we did in the quarter and even more so based on the high volume of tenant conversations we're having that will likely result in the deal to come once occupancy troughs, which we believe will be in the first half of twenty twenty one. And thirdly, the lease up of our development pipeline in 5 major markets will be added fuel to the core portfolio lease up for which we're already seeing strong demand. Of course, there's plenty of uncertainty that remains. There's a lot of wood left to chop in the execution of this growth plan, especially in new development lease up, but the initial signs toward a successful path are clear. That's the 50,000 foot view. Let's get a bit more granular. So, the heart of the operational stress in our tenant base lies with the futures of few business categories. As we all know, beer and gym businesses remain question marks as do some percentage of sit down restaurants and full price apparel. Every one of these companies management teams are searching and modifying their business plans to some extent to find a way to survive, thrive and not only today's but in tomorrow's world, whatever that may be. Obviously, the jury is still left. But in our case, most of our tenants in these categories at our locations were strong performers coming into COVID. Therefore, when some percentage of these businesses inevitably fail in the coming months, the previously profitable and proven locations will either be in demand to successfully restructure by them or will be in demand by subsequent owners as they transition. The power of strong real estate and that's what we're seeing already. Short term disruption for sure, but proven desirable real estate nonetheless. Let me give you a couple of examples. No fewer than 7 COVID era restaurant deals from well known Downtown Washington DC restaurant tours have been signed or are far down the road to either move or add another location in Bethesda Row, Village of Sherlington, in Pike and Rose or in Patagonro. And in several health club locations in places like Hoboken, New Jersey and others, we've received unsolicited offers from healthier rivals aiming to improve the real estate location. These are interesting times for sure and we're encouraged by the demand we're seeing for our space. Let's talk about that. I hope that the volume of new and renewed leases that we did in the quarter is encouraging to you as it is to us. 98 comparable deals was more than double the 2nd quarter and back to a normal quarterly run rate. 172,000 square feet was more than 70% higher than the 2nd quarter. But, you say, the new rent on those deals was basically flat with the old rent, actually down 1%. Well, of course, it was. That's a function of our negotiating and leasing philosophy and leverage in the middle of COVID. But note the average term, 5.6 years versus the normal average of roughly 8 years or 30% shorter on average. Basically, we're trying to lock in strong financially desirable deals for longer term than usual and limiting terms on deals where we're trying to bridge a tenant to the other side of COVID to 2 or 3 years. But in all cases, we want the most desirable retailers and restaurants in our shopping destinations. The right tendency is the single most important factor in attracting new class leading retailers and restaurants to fill the inevitable vacancy. Why? Because retailers and restaurants considering new locations today want to know who their neighboring tenants will be and how well leased up the center will be over the term of their lease, providing clarity relating to that tenancy is paramount. I'll give you a big point. COVID has accelerated everything. The consolidation of retail is the best centers in the trade area that began COVID and will continue to accelerate during and after COVID. If you believe that as I do, then you know how important it is to have the best in class tenants and not just any tenant in those centers. Accordingly, as we've said since our Q1 call, we're willing to structure deals with those successful and important retailers and restaurants, allowing them contractual flexibility so that they remain the attraction for new class leading tenancy on the other side of COVID. That means some deferrals, some of payments, some percentage rent deals that convert to the old rent at the time or unnatural breakpoints, etcetera, all negotiated 1 on 1 based on a tenant's importance to the center and their financial viability. Dan will provide more details on this in a few minutes. So let me move to our construction in progress where the completed lease up timing of the office portion of our large mixed use developments is less clear than the retail or residential components because of the pandemic. While the 375,000 Square Foot Santana West Office building is in the earlier stages of construction and won't be ready for occupancy until 2022, the 212,000 Square Foot Pike and Rose Office Building is complete today. 45,000 Square Feet serves as Federal Workplace new headquarters, Benefits Advisor 1 Digital took most of another floor and moved in next week. We just signed a deal with co working leader Industrious for 2 full floors or 40,000 square feet, leaving about 110,000 square feet to be leased. And an assembly row where Puma will anchor that 275,000 square foot office building beginning in late 2021, 110,000 remain business. And while the long term impact of the pandemic's work from home mandates have created uncertainty in office leasing, so timing is hard to predict, there's clearly a growing sentiment as to the necessity of the office collaboration for most business plans. And in our view, we have the best and most desirable product in the market. Come see for yourself at our new headquarters at Pike and Rose. All of these new buildings are expected to achieve legal status. They're state of the art buildings with enhanced clean air system and affluent suburban communities, most of job centers that have both access to public transportation, but are also drivable with convenient parking. Most importantly, they're integrated in fully amenitized mixed use environments that business leaders say is essential. So what else gives us confidence to continue to operate as we have? Frankly, it all comes down to our conviction, not only in that 1st ring suburban location of our real estate, the sweet spot in our view, but also in the dominant open air heavily amenitized product type of environment that we've created in those locations over the last decade or more. Evidence of the desirability of those 1st range suburbs comes not only from our leasing volumes and relocation and expansion of Downtown Central Business District retailers and restaurant store properties, but also from single family home sales data. In the Q3, U. S. Home sales volume was up 12% according to Ritzman's residential database, yet the number of homes sold in Bethesda, Maryland were up 26%. Falls Church, Virginia up 18%, Bally Cynwyd, 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 CBDs to 1st 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 that space with great retailers and restaurants and 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 post COVID. I know that the decades of focus on creating comfortable and attractive open air places at those centers will further enhance their viability. Consider that nearly every discussion we've had or are having with brokers and prospective tenants in every major market that we do business, The prospective deal is premised around tenants improving their real estate, their location, their co tenants, their environment and importantly, their landlord. Tenants want to be with landlords that have money, investable financial wherewithal, vision, execution prowess and 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 will 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. It's no secret that we've struggled realizing our vision of a redeveloped mixed use community since we bought it back in 2015. First, the fits and starts to the entitlement process with Citi resulted in precious time lost securing existing tenants and setting up new ones in the strong retail market of 2015, 'sixteen and 'seventeen. By the time those entitlements received were received, box rents were under more pressure, construction costs continued to rise, skidding down by creation estimates. But even with all that, we were hopeful that we had a viable project with some reconfiguration in the master plan. Then came COVID. The previous strength of the anchor system, a full size gym in LA Fitness, a big AMC theater 2 large entertainment tenants named 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 didn't pay at maturity our $60,000,000 non recourse note in September and the lender has declared to fall. Given the other opportunities within our existing portfolio to invest capital, we've decided not to pursue redevelopment any longer there. Accordingly, we're evaluating all of our disposition options. 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 and constructiveness we saw in our business over the course of the 3rd. All of our centers remain open as they have throughout the pandemic and over 97% of our tenants are open and operating. FFO per share for the quarter showed great sequential progress over 2nd quarter's number, up 45% to $1.12 per share. While still off 2019 Q3 levels, we are encouraged by the progress as our collectability adjustment was almost cut in half from $55,000,000 in 2Q to $29,000,000 in the 3rd quarter. Other drivers which impacted the quarter include $0.07 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 non recurring. $0.06 of drags due to the impact of COVID-nineteen on our hotel joint ventures, parking revenues and percentage rent, and this was offset by $0.03 of upside from lower expenses at the corporate level. As a result, this totals a net $0.48 of COVID-nineteen related negative impact for the Q3, a meaningful improvement over 2Q's negative COVID impact of $0.83 Flex has continued to improve from the 68% level recorded in our 2nd quarter call, up to 85% for this call in the 3rd quarter as of October 30, cutting our uncollected rent by more than half. Progress continues in October with 80% already collected, but ahead of the September collection page and September 30. Please note that the denominator for our collection metric includes all monthly recurring rent billed and base rent plus charges for CAM and real estate taxes and is not adjusted for deferrals and abatements. 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 1st 9 months of the year at roughly $70,000,000 to $71,000,000 per month. We have continued to take a tactical approach as we negotiate and work with our tenants through this challenging period. $34,000,000 of deferrals were executed in total for the Q2 and Q3 combined. Of that amount, almost 2 thirds or $22,000,000 is with higher credit pool basis tenants. With selected agreements and through our anchor restaurant program, we also abated $21,000,000 of second and third quarter rents. In conjunction with all of these negotiations, we have restructured many of these deals so often include 1 or more of the following: enhanced credit of the guarantors backing the leases incremental percentage rent upside where we have abated rent removal of development, parking and lease restrictions and other tenant approval rights, eliminating or pushing out tenant lease termination and co tenancy rights, reduction or deletion of below market tenant extension options and we were even able to finalize some agreements to open new stores at federal centers, all of which enhances the long term value for our assets in exchange for these near term concessions. As we did last quarter, we have provided disclosure relating to the impact of COVID-nineteen and a summary of collectibility and accounts receivable, which is provided on Page 10 of our 8 ks financial statements and an updated investor presentation, which incorporates an update for COVID-nineteen that can be found through a link on our investor website. As Don mentioned, leasing volume was back in full swing with over 480,000 square feet of retail deals in total, adding in over 60,000 square feet of office lease bringing a total of almost 545,000 square feet of deals signed, our highest combined quarterly volume since 2018. We are also encouraged by the level of activity in our leasing pipeline. This activity buttressed our lease 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 80s at the trough as we talked about on our Q2 call. We do expect to see meaningful growth from those levels starting late in 2021 given current and projected demand. We are seeing 3 very specific leasing demand drivers in our portfolio. 1st, in the category of urban to suburban, specifically the restaurant deals in DC that Don mentioned that are in the works at the Desborough, McConroe, Pike and Rose and Village at Shirlington, 2 best in class restaurants and 2 primarily urbanmall retailers planning openings in Spokane as well as numerous concepts in downtown Boston in discussions at both Assembly Row and Linden Square. 2nd, upgrading real estate to best in market open air locations, including a Marshalls deal where they are moving from a 2nd tier lower rent location next to a failing B Mall to our Gaithersburg Square asset, a main to main location in that submarket, replacing a Bed Bath and Beyond at better economic terms to us and higher rent 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 vein. 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 Live, Mori, Arc'teryx, Faridy, UGG and new restaurant concept Cheetah. Assembly Row landing new deals with Sephora and Shake Shack in addition to the CBS, the soon to be delivered Puma building with several other deals in the pipeline. Heiken Rose attracting a new concept from the founders of Cabo, also with more deals in the pipeline. Overall, this activity is diverse and very encouraging. Now to a discussion of the balance sheet and our further enhanced liquidity position. As you saw in early October, we raised $400,000,000 of unsecured notes due 2026 at a 1.38 percent yield bringing our total pro form a liquidity at September 30 to over $2,250,000,000 comprised of $1,250,000,000 of cash, plus our undrawn $1,000,000,000 credit facility. We did this as a green bond, which I will discuss in more detail a bit later. With our $1,200,000,000 in process development pipeline continuing to be executed on, we have only $500,000,000 left to spend against this roughly $2,000,000,000 plus of dry powder. Note that this pipeline is forecasted to deliver $70,000,000 to $80,000,000 of POI when it fully stabilize out stabilizes out in 'twenty three and into the 2024 timeframe. As evidenced by our decision to not move forward on the Sunset Place redevelopment, rest assured that we will continue to demonstrate discipline with respect to all capital and resource allocation decisions moving forward. As it relates to managing the balance sheet, we will continue to be opportunistic in pursuing equitization through asset sales with over $200,000,000 of deals under active discussion at blended yields in the 5s. We'll see how those progress, however. As we discussed in the last call, 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 bring down leverage levels over time to our historic levels. As you saw yesterday, our Board made the decision to declare a regular cash dividend of $1.06 per share payable on January 15, our first dividend of 20.21. Now before I hand the call over to Q and A, let me talk briefly about Federal's commitment to ESG. While ESG has always been a key part of our business strategy for more than a decade, Until 2020, we had never prioritized communicating the breadth and depth of this commitment to our stakeholders. Our inaugural corporate responsibility report was issued in late March 2020, unfortunate timing with the pandemic, but a publication we are extremely proud of nonetheless. Our Green Bonds in October further demonstrates that commitments in the form of green building design and construction with commitment to spend $400,000,000 on LEED silver, gold and platinum buildings, and we have a pipeline of comparable LEED development projects, which positions us to potentially issue more green bonds in the future. Furthermore, as you may have seen from NAREIT, we ranked 4th of roughly 100 real estate companies with on-site solar capacity and the Solar Energy Industry Association's, CEIA's annual list of top U. S. Businesses utilizing solar energy. More accomplishments and color to come on the ESG front and kudos to Dawn Becker and Emily Tasciola who lead this effort. With that operator, please open up the line for questions. At this time, we will be conducting a question and answer session. And our first question is from Greg Spinn with Bank of America. Please proceed with your question. Thank you. Federal's Q3 same store NOI, same property NOI was down 18.1%. That compares to our average for strips at about 12 point down 12.7%. What's responsible for the somewhat lower same property revenue versus some of your strip peers? Let me start with that actually, Dan, and then you go. 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. What we are trying to do is not to kind of get back to where we were, but to effectively in an over retailed environment, make sure that on the other side of this, we have better shopify. In order to do that, we're effectively cutting the deals that we need to cut with tenants that we think will be critically important on the other side. We are actively, frankly, not helping out the tenants that won't make it, and will 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 that's it. So from a comparative perspective, I know I have no answer to your question in terms of us versus the peers, maybe Dan does, but I wanted to get that out first. Yes, just from a kind of a mathematical perspective, the big driver is obviously the flexibility adjustment. And with 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 and appropriate approach, but that drives our collectability adjustment as a percentage of billed revenues to be one of the highest in the sector. And that's the biggest driver. Look, I think it's going to allow us to probably have less more transparency during this period and less impact going forward. Thanks. And then just as a follow-up, how is the leasing activity surrounding First Street Promenade and have leasing efforts been hindered by LA County's conservative reopening stance? Hey, Craig, it's Jeff Urquis. And I think that's absolutely true. We obviously have some space on Third Street that we need to deal with and we are. But until things are opened up and we can kind of see a little bit clearer to the other side of the pandemic, I don't expect a ton of leasing activity on Third Street Promenade, whether it's our buildings or anybody's buildings. Thank you. And our next question is from Ki Bin Kim with Truist. Please proceed with your question. Thanks. Good morning. So if you put aside SFO and things for Enola's performance, if we had a chance to be a fly wall in some of your 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 and portfolio today? Yes, that's a good question Ki Bin. If you're thinking late 'twenty one, 'twenty two, 'twenty three and you put yourself in the kind of position of a retailer trying to do a deal today. If you imagine them, we're asking them to commit to a period of payments for 7 years, 10 years, etcetera, where they have less visibility today of who their co tenancy is going to be probably than they 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 give 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're 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. If you're 93% leased and you're trying to lease up to 95 or so, you have we have 23,000,000 square feet. So every point of occupancy is roughly 230,000 square feet of space. And you do that on shopping, a lot of deals, etcetera. If you're down at 88% leased and you're going to get back to 95% over a period of time, then for the first time, we've got the ability to put tenants in that have tried to move up to a federal center, but have been unable to. For that to be successful, we better have the right end of the foundation in each of those shopping centers. And that effectively where we spend all of our time. And I truly wasn't being snarky with respect to Greg on the first question. Trying to compare that to what other people are doing and how they're doing it is not something we're focused on. So that I think is truly, I think it's the secret, if you will, to value creation on the other side of this. We don't intend to be $70 on the other side and not be and we don't intend to be back where we were. It's heading more and better. So it's not 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 that's a little different. Okay, thanks. That's helpful. And the second question, for the tenants, I think it was mostly restaurants that you had belief in that was doing really well before COVID and that you're providing some financial support. I know it's a very short timeframe to gauge any results or activity, but how does that feel right now? Do you feel like you've made the right investments and are those tenants starting to show signs of life where they're going to come out? Yes, very much so. Now look, the big question there is, will we feel the same way through January February March, right? I mean that is still whether anybody wants to talk about it or not, that is certainly with respect to that category, the period of time that will see whether the prudence, if you will, of keeping them strong was smart or not. But it's been an amazing weather year on both coasts, frankly. The production of our restaurant product has been ridiculously strong. At Assembly Row, they're operating 80%, James, 85% of where they were. At Santana Row, numbers of them are more than 100% of where they were because we've done so much outside seating and expanded their capacity, etcetera. So, how does it work so far? Sure. But the real test will come in the next few months. Thank you. And our next question is from Katie McConnell with Citi. Please proceed with your question. Great. Thanks and good morning. So assuming that you're longer moving forward with the Sunset 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 other investments given all the disruption that's going on? Yes, it's a good question. First of all, we have a lot of development in progress. And so certainly we have used to that capital that are certainly identified for. Do I expect over the next year or 2 for there to be opportunities with assets that we'd love to own? You bet you. I do. I really hope we see that. We're starting to it'll be interesting even with our on the other side of that with our asset sales to see what the market value of them are 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 yes, we do see opportunities that way and we're too vicious users of capital. I mean, there's nothing more embarrassing to me than the Sunset Place failure. There's a lot of good reasons for the failure, but it's still a failure. So we take very seriously where we allocate capital, why we think the dividend is so important from that perspective. And to the extent we find as we expect to additional opportunities with great real estate going forward, you'll see us acting on it. Okay, great. And then since you kind of basically the reason to walk away from that, I'm curious if you're thinking about your exposure to fitness or other experiential tenant categories differently today, and if those are going to be some of the positive asset sales going forward? Yes. No, I don't so there's a couple of things about that in the fitness category, in fact, in the theater category. Do I believe both categories will exist? Do I believe both categories are important for communities going forward? You bet I do. But certainly the jury is out on what their business models will be able to be, what they will need to be profitable, how they will be able to what levels of rent they'll be able to pay. So you bet you that's what I worry about. It's one thing when you're talking about an established retail center that's got a place and is important to a community to have a tenant like that where you can back or you can do another use in our case in other ways. It's completely different than starting afresh and building a new one. And obviously, the Sunset investment would be putting a lot of faith on those uses in terms of what they can pay and what their draw is going to be in the future, while there's completely new investment and that was just a bridge too far for us to take. Okay. Thank you. Thanks, Katie. And our next question is from Haendel St. Juste with Mizuho. Please proceed with your question. Hey, good morning. Hi, Haendel. Don, I guess, I found your earlier comment on the dividend intriguing. I believe you said your fast approaching sufficient cash flow to fully cover the dividend. So I guess I was hoping you could round upon that a bit more on how you and the Board are thinking about the dividend. You obviously you don't want to cut it like most of your peers have, but 3Q GAAP FFO of $1.12 implied to mid $4 share ish outlook for next year, which is pretty comparable to this year. So flat earnings and you're sitting here with AFFO coverage already above 110%. So I guess I'm curious if you guys, you and the Board think maintain the dividend here is the right move even if you can afford to given the strong liquidity you outlined before and how long you might be willing to pay it? Thanks. Yes, Haendel Ghosh, we talked so much about this over the past 6 months. But there has to be a guiding philosophy and ours may be a little different than ours. We believe that dividend that bargain that's been put out there for investors is a key portion of their total return. And at the idea on the other side of this and as I say, we certainly see a path to getting back to an 80% payout ratio or something like that. So the idea of giving up on that, as you say, when you can't 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 COVID will go and what the story is. And at some point, we may not be able to do that. But certainly in November of 2020, which is, as I think, the first quarter dividend for 2021, paying $80,000,000 in the form of a dividend, we'll certainly have to ultimately pay that anyway, because we'll certainly have more than $80,000,000 of taxable income next year and that probably applies at February 2. 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 hole into later in 2021, 2022, etcetera. And we'll make decisions at that point, as we do frankly every 3 months. But to me, the November 1 in particular was a pretty easy decision. I hope that's helpful. It is. Thanks, Don. And also you mentioned the 200 megapixel business, I'm curious if there's any commonality, the geographic NOI the buyers are underwriting? Thanks. Yes. Hey, Jamie? Yes. Hey, handle, it's Jeff. Look, we're maybe the best way to say it is testing the market 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 from 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, assets that you think would trade at high prices. We are seeing prices that we think are strong. We'll have more to talk about on it on the topic hopefully next quarter. But there are buyers out there, just like there are tenants that don't have legacy issues and have capital and they're doing leases. There are buyers that have legacy issues that have capital and they're going to be buying real estate. Got it. Got it. Anything under LOI? I'm not going to comment on that, Ed, Bill. Thanks. And our next question is from Alexander Goldfarb with Piper Sandler. Please proceed with your question. Hey, good morning. Good morning down there. Don, overall, as you look at your tenant base, one of your restaurant comments are definitely super helpful and impressive that your plan has really rebounded that way. But overall, as you look at your tenant base, which 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 maybe we want to dial back exposure to some of these areas, boot in these areas? Or do you think that your exposure that you had before really will continue to take hold on a go forward? Yes, it's a great question, Alex. And when you kind of think about those decisions and what you're doing, obviously, you're making decisions for a decade or more in that regard. The answer is not holistic as you might like it to be. It might be easier to understand it or holistic, but it's not. It really comes down to the individual shopping center, the individual mixed use project and what it needs for that community. And what is interesting to me is while 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 in the process of being figured out now all over the country. And I do think D. C. Is a little ahead of that because of the geography of D. C, what was downtown, what is in these 1st tier suburbs, there is really good product in the 1st tier suburb. Frankly, I think we've had a lot to do with that over the last 40 years. And so the ability of a restaurant tour who is really hot downtown, but whose customers are not coming there anymore, either because their offices are closed or because they're in the suburbs and there are choices there that they feel better about, are causing these restaurants to come and look at us, frankly, in numbers that have surprised us. Stu Beal is our key leasing person on that and they certainly don't surprise him. He's been telling me this was going to happen all the way along, but surprised me a little bit. And so overall, when you go kind of market by market and what product we have in each market, I think it's likely that we'll have a similar, diverse certainly diversify income stream 5 10 years from now. Might that change on the gym side 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 profitable business model is going to be. But in terms of food, it's always 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 part of the then you said necessity, but in actual retail is not a luxury, but restaurants are part of feeding people. So Certainly annoying, Marcus. Well, a lot of people, they spend money to have gorgeous kitchens, but keep them pristine, don't use them, go out. So second question is on, I think, Dan, you said that 30 year tenants are now cash rent paying. And if that's correct, so big picture, you've collected 85% of rents overall, presumably that is cash based tenant. But if 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 shakeout between the remaining 15% of tenants where you haven't collected rents and that third of tenants who are paying cash. Collectively, how do you think that will all shake out? I think, look, we're fighting for every dollar from every tenant, whether they're a cash basis tenant or an accrual basis tenant. And yes, we have more folks on a cash basis, in terms of from an accounting perspective, because I think we just we view them as not probable to be able to pay for their entire lease. But we're going to fight aggressively 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 shakeout in our local small shop through the pandemic. I think that we'll see continued pressure on some of the weaker retailers across the different categories into 2021, the first half. And then I think we'll continue to we'll see how things play out with regards to the theater and fitness tendency. But do you think Dan, is it reasonable just if we say half of each of those things goes away or is that not a reasonable supposition? I think it's really tough for some portion of that, we'll be looking to backfill. I can't give you a number now, Alex. But I think we're pretty well positioned even if they do go away, it's not permanent and we'll have demand to backfill at 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 McGinnis on with Nick. Could you just walk us through the impact that tenant bankruptcies have had on portfolio occupancy and ABR this year? And then kind of what's still left outstanding in regards to tenants still navigating the bankruptcy process? Also, any additional near term risk on your watch list or has that treatment taken hard enough this year already? Bankruptcy on, pull it on our occupancy rate is roughly about 80 basis points impact. So far, we've got probably exposure to about 4% of our revenues as it relates to all tenants who have filed this year. If you back out those tenants who have emerged from bankruptcy and have stayed open in our centers, it's probably total exposure of about 3%, 3.25%, and of those that we expect to close ultimately, it's probably in the 1.25% to 1.5% range, in terms of as a percentage of our total revenue. Okay. Thanks. And then on that yes, definitely. And then on the watch list, do you think more fallout this year or early next year? Or did we shake short enough during the pandemic that most of those things are already sold out at this point? Look, I think that the worst of 2020 has hit us, but I think we'll see another wave certainly in the first half of twenty twenty one of more pain to kind of hit and that's why we forecasted that our occupancy will go down below the 90 percent level certainly in the first half of twenty twenty one. Okay. Thanks for that. And I guess the other question I had was on, you've had fairly stable rent collection numbers for the last few months here. Are you expecting much trend up in the next few months into the year end? Or how should we be thinking about that? No, I think the high 80s is where we'll probably be if you're going to continue to calculate it the same way as it's been. And I think that's because there'll be some additional fallout, as Dan and I both said that we believe will happen this winter. And yet there'll be deferrals that are paid back that go the other way. So effectively a balance about where we are and probably a little bit better than where we are is what we're looking at right now. And our next question is from Vince Tibone with Green Street Advisors. Please proceed with your question. Hi, good morning. Good morning, Vince. How do you think increased working from home across the country has impacted foot traffic shopping centers? And then longer term, do you think more of this permanently could change the demand profile for suburban centers or the ideal merchandising mix? So I'd love to get your thoughts on that. It's so interesting to me and I'll just give you one example that kind of goes right to the point of your question. When we're underwriting Hoboken, our Hoboken investment last year, which is a lot of street retail and residential apartments on top of it, We said, gosh, the downfall of Hoboken is that there isn't a lot of office in Hoboken. And so daytime traffic is always the thing that we worry about there because it needs nights and weekends are where they make their money. Well, it's one of our better performing assets and it's one of our better performing assets because people are home. And so traffic during the day and during the street on the street and around is strong. Our collections are strong. Our tenants are relatively, I guess, there were tenants that are away like everywhere else and we'll 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 benefit. Now can you take that and extrapolate them all over the country to all kinds of centers? No, I think that's a bit bit of a stretch. But there is no doubt that some of the benefits of working for home are 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, 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 ability to effectively walk around what it's done outside and what it how people feel in here has been ridiculously encouraging. I didn't expect this much of a boost to morale, this much of a kind of a good feel from coming into a new office. So that doesn't mean that decision makers are deciding today to enter new office leases, but we do see everywhere the sentiment that a growing percentage of people want to be back and a growing percentage of employers are embracing that. So I think there'll be a balance then, as with most things between where we used to be and where we will be. And I think that diversity of opportunity is what protects the income stream. Yes. Thank you for that color and thoughts. One more for me. Can you discuss just the expected CapEx and leasing economics if you have to re tenant a former theater with another use? Yes, and it's a good point. It's hard to do it profitably if it's not another theater. And the exception to that, maybe we're going back to our last question, 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 how a building is built and how it needs to be reconfigured. But to the extent you've got high rents in the area, whether you're talking about high office rents or otherwise, you can make the economics work. It's really tough because construction costs are construction costs to have low rents and to effectively, yes, you can get a bump up in rent, but pretty hard to get a bump up net of the capital. So high rents are your friends if you're in markets that can support that when you do have to reconfigure a space, any space frankly. Thanks. Is there any rule of thumb just for like the CatEx per theater or it's just too hard to generalize doing all this kind of specs in the weak details you mentioned? I can't get you there. I know that a number of places, whether we're looking at it and it's still being built out by the theater operator, our new development down in CocoWalk, That's one particular set of economics. Here at Pike and Rose 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 to I know I can't give you a number that you're asking for because they are very different. Makes sense. Thanks for the time. Our next question is from Linda Thabay 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 basis tenants in 3Q? Roughly about 60% kind of collections from cash basis tenants, 3rd quarter. And then how does it compare to 2Q? Significantly increased. It was about 40% collection for cash basis tenants in the second quarter. Thanks. And then just one more. How do you think the passage of additional PPP loans positively impact some of your tenants on the bubble and get some to the other side? Or do the pressures facing them in the current environment extend beyond what these loans can provide? It remains to be seen Linda, but the PPP loans were important. They were certainly important in this first phase. I think, you'll see I'm sure you'll 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 pickup in consumer spending. Normally, there's a pick 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 there'll be PPP money or something like that. That'll be a pretty, critically important. I do believe there'll be a vaccine, which even if it's not delivered or completely has total efficacy, etcetera, will still be very important. And I do believe that it will be a tougher winter than it normally is anyway because of the situation we're in. So PPP is just one piece of I think a number of catalysts that could really make that spring and summer of 2021 better than anything we're getting right now. Thanks. And our next question is from Chris Lucas with Capital One Securities. Please proceed with your question. Hey, good morning, guys. Hey, Dan, just on the cash position, I guess, just kind of curious, should we be thinking about utilization of that for the upcoming bond maturity and then the term loan into next year? Or will you be tapping markets again to maintain your cash position as you kind of face those maturities? Yes, Hilla, I think we're certainly going to use the cash we have to repay the bond that comes due in January. Look, we've got the flexibility to extend the term loan for another year from March. And so we're going to maintain maximum 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 keep cash in place for as long as we feel we need it. And then I guess just on the transaction side, you had gone under contract with a parcel at Grant Park earlier. I remember if it's earlier this year or last year, but is that transaction still proceeding to sort of close either later this year or into the Q1 of next year? Yes. It's still on track. It's probably going to push into kind of next year, kind of the first half of next year, but it's on track and we feel reasonably good that that's the I feel great about it. It will happen in March of 'twenty one. Okay. And then the pricing has kind of held up, nothing changed on that front? Yes, exactly where we connect. And then Don, I'm sorry if I missed this in your earlier comments, it relates to Sunset, have you guys stopped negotiating with the lender at this point? We have not yet at this point. We'll see where we go though. Okay, super. That's all I had this morning. Thank you. And our next question is from Mike Miller with JPMorgan. Please proceed with your question. Yes. Hi. I was wondering, can you talk a little bit about apparel collections? I mean, obviously, fitness and restaurants and everything comes up frequently with low collection rates. But when you have apparel that's been open generally since the spring and collection rates are in the 70s to 80s, I guess how broad based? Is the collection rate low? Or is it really just dragged down by the small subset of the tenants? Yes. No, it is. You're on it. I mean, that is absolutely another category. The thing is it really depends. There's more variability in what happened there, collecting the needs or something of the apparel tenants at pharmacies. It's certainly bringing up the overall collection. Yes. And then last question on that. Anecdotally, what are you hearing in terms of sales though, in terms of destinations there? Very much depends on the particular store. The small shops, full price apparel are probably struggling. Okay. Okay. That's it. Thank you. Thanks. And we have reached the end of our question and answer session. And I'll now turn the call over to Leah Brady for closing remarks. Thank you for joining us today. And this concludes today's conference and you may disconnect your lines at this time.