Greetings, and welcome to the Federal Realty Investment Trust second quarter 2020 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Mike Ennes, Senior Vice President. Thank you. You may begin.
Good morning. Thank you for joining us today for Federal Realty's second quarter 2020 earnings conference call. Joining me on the call are Don Wood, Dan G, Jeff Berkes, 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 the 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, and we can give no assurance that these expectations can be attained.
The earnings release and supplemental reporting package that we issued yesterday, our annual report filed on Form 10-K, and our other financial disclosure documents provide a more in-depth discussion of risk factors that may affect our financial condition and results of our operations. We've also posted on the website a slide deck that has more detailed information on the impact of the COVID-19 pandemic on our business to date and various actions we've taken in response to COVID-19. These documents are available on our website. Given the number of participants on the call, we kindly ask that you limit your questions to one or two per person during the Q&A portion of our call. If you have additional questions, please feel free to jump back in the queue. With that, I will turn the call over to Dan G to begin our discussion of our second quarter results. Dan?
Thank you, Mike. Good morning, everyone. We're going to change things up for this quarter's call, and I will kick things off before handing it off to Don. There's a first for everything. I will take you through the results for the quarter with an initial focus on the major impact facing Federal and every company in the retail sector, collectibility of rental income, and the reserves we are taking due to the impact of COVID-19. Our approach at Federal to collectibility and revenue recognition has historically and consistently been more conservative than the balance of the retail sector. To provide clarity on that point, let me refer you to our most recent 10-Q, which includes our disclosed policies around revenue recognition and accounts receivable on pages eight and nine.
I'm reading, "When collection of substantially all lease payments during the lease term is not considered probable, total lease revenue is limited to the lesser of revenue recognized under accrual accounting or cash received. If leases currently classified as probable are subsequently reclassified as not probable, any outstanding lease receivables, including straight-line rent receivables, would be written off with a corresponding decrease in rental income." What that means from a practical perspective is when we move a tenant from accrual accounting to cash accounting, we do not view the rent owed to us as necessarily uncollectible. It just means that the probability of collection of the contractual revenues under the entire term of the lease is below the threshold of what we deem as probable. We will continue to fight to collect every penny of rent due from that particular tenant for that particular space.
It is simply based on our judgment, a decision to recognize revenue for those tenants when the cash is actually received in accordance with the relevant accounting standard, as opposed to recognizing the revenue on an accrual basis when the cash has yet to be received. For the second quarter, our FFO of $0.77 per share was meaningfully impacted by a collectibility adjustment for the quarter of $55.2 million, or $0.73 per share. This collectibility adjustment can be broken down into two components. The first component, $45.8 million for uncollected rents from tenants that, one, we already have on a cash basis, primarily most of our restaurants, and two, tenants that we switched from accrual to cash accounting over the course of the second quarter due to the impact of COVID-19 on their business.
The majority of that second group is comprised of tenants in the fitness and entertainment categories, but also includes tenants who have declared bankruptcy during the quarter, or others who we deem to be below the probable threshold. Additionally, there was a $9.4 million write-off of the straight-line rent receivable essentially associated with tenants in that second group I just mentioned. Other drivers which impacted the quarter include $0.08 of drag due to the impact of COVID-19 on our hotel joint ventures, parking revenues, and percentage rent, and $0.07 of drag due to the higher interest expense given the incremental liquidity and balance sheet strength we are carrying during the pandemic. This was offset by $0.05 of positives from lower expenses at both the property and corporate level. As a result, including the collectibility adjustments, this totals a net $0.83 of COVID-19 related impacts for the quarter.
I'm going to stop here and hand the reins over to Don for his remarks. I will be back, however, to close things out before Q&A.
Thanks, Dan. Good morning, everybody. I certainly hope all of you and your families are doing well in these crazy times. I do hope that Dan's remarks were helpful in understanding the accounting conventions that we applied this quarter on a tenant-by-tenant and a category-by-category basis, as well as the in-depth and detailed supplemental statistical disclosures that we made in our 8-K and on our website. As Dan said, you just have to keep in mind that no matter what the accounting, nothing changes with respect to the vigor that we'll go after the rent that's due to us by right. I don't envy the jobs of the investment analyst community in parsing through the many judgmental decisions that every company needs to make about their future income stream during this pandemic.
Frankly, it all comes down to the estimated probability of a tenant being able and willing to honor its lease commitment over its remaining term, which often spans five, seven, even 10 years. Think about that. Making a judgment today that it is probable that a fitness tenant, big or small, will fulfill its obligations for the next 10 years. Probable. 75%, 80%. That's a high bar. Obviously, those judgments are made with the best information available today, which as you all know, could not be more cloudy at this stage of the pandemic. What I want to talk to you about this morning is the future. On what we see happening today and what we're betting on happening tomorrow. Let's start with liquidity and reiterate what we said on the May call and at the Nareit Investor Conference in June.
We remain confident in our ability to weather this pandemic and come out the other side an even stronger and further differentiating company. That is the key premise to every decision we're making. We project having approximately $1.3 billion in cash and unused credit line available to us six months from now on February 1st, 2021, even when and assuming that the declaration and payment of our next two full quarterly dividends, which could be declared in August and November and paid in October and January. Even assuming the continued and unabated construction at the partially completed projects at Santana West, Assembly Row, Pike & Rose, and CocoWalk. Even assuming the collection of rents only marginally better than the 76%+ that we collected in the last month of July, and assuming no asset sales or equity issuance during that period.
With all of those assumptions, we still wind up with $1.3 billion worth of cash on February 1st, 2021. Obviously, we're going to look at these and other ways to improve on that liquidity position in the second half of this year. The point is simply that we have great flexibility even if we can't. Let me move to our construction in process, where the completed lease-up timing of the office portion of the large mixed-use development is less clear than the retail or residential components because of the pandemic. While the 375,000 sq ft Santana West office building is in the early stages of construction and won't be ready for occupation until 2022, the 212,000 sq ft Pike & Rose office building is nearly complete today.
40,000 sq ft will serve as Federal Realty's new headquarters beginning next Monday, benefits advisor One Digital took most of another floor with a lease signed in March, as did a couple of smaller tenants. We still have 150,000 ft to be leased there. At Assembly Row, where Puma will anchor that 275,000 sq ft office building beginning in late 2021, 125,000 sq ft remains to be leased. The long-term impacts of the pandemic's work from home mandates have created uncertainty in office leasing, and so timing is hard to predict. Yet, having said that, it's our view it's the best and most desirable product on the market. All three of these buildings are state-of-the-art new construction with enhanced clean air systems in affluent suburban communities close to job centers, and most importantly, are integrated into the fully amenitized mixed-use environments that business leaders say is essential.
By the way, during this incredibly uncertain time, we signed nearly 100,000 sq ft of new and renewed office deals in the second quarter. That's in addition to the 277,000 ft of retail deals that I'll talk about in a bit. Where? At Willow Lawn Shopping Center in Richmond, where security company SimpliSafe took all of the 58,000 ft of available office space that Virginia Commonwealth University previously vacated at 28% more rent. At CocoWalk, where our office component is now 84% leased with the latest signing for 13,000 sq ft by Florida law firm Weinberg Wheeler Hudgins at pro forma rents. At Bethesda Row, where our comprehensive retail amenity base assures a historically low office turnover rate in that community for us.
We think that our office offerings, all of which are an integral part of our mixed-use communities, have been and will be the product of choice among business leaders on the other side of this pandemic. What else gives us the confidence to continue to operate as we have? Frankly, it all comes down to our conviction. Not only in that first-ring suburban location of our real estate, the sweet spot in our view, but also in the dominant open-air, heavily amenitized product type and environments that we've created in these locations over the last decade or more. Consider that during the most disrupted quarter in this country's history, we still signed 47 leases for 277,000 sq ft of space for 11% more rent than the previous tenant was paying in the same space.
Three of those deals were for strong credit grocers at really well-located non-grocery anchored shopping centers. Lidl for Stein Mart at 29th Place in Charlottesville, Virginia. Whole Foods for Bed Bath & Beyond and buybuy BABY at Huntington Shopping Center in Long Island. A third great credit grocer for Barnes & Noble at Willow Grove in suburban Philly. Consider further that there have been 15 notable Chapter 11 bankruptcies filings between April and July of the pandemic that have affected us. They are J.Crew, Neiman Marcus, True Religion, Creative Hairdressers, its Hair Cuttery and related brands. Tuesday Morning, Le Pain Quotidien, 24 Hour Fitness, GNC, Chuck E. Cheese, Lucky, Brooks Brothers, Sur La Table, Muji, Ascena, and Tailored Brands, Men's Wearhouse. Combined, they represent nearly 650,000 sq ft of space in 110 locations.
Yet only 110,000 sq t and 28 of those locations have been identified by those firms for closure on their initial list. That means that 83% of that square footage and 75% of those stores are at this point expected to remain open by those merchants on the other side of bankruptcy. Heck, of the 11 J.Crew concepts that we have in our portfolio, none were on the closure list. None. Who knows how that all ultimately turns out and under what terms, it sure is a pretty strong indicator of the obvious desirability of our real estate. Since then, Lord & Taylor filed, as many of you know, occupies the east side of our Bala Cynwyd Shopping Center in suburban Philadelphia. Getting this store back unlocks one of the best six-acre future development sites in our entire portfolio.
If future desirability of retail space is really the most pertinent question that needs to be asked and analyzed today. Demand simply has to exceed supply to create value in this business, and yet we entered this crisis as a country in an over-retailed position, and we're definitely exacerbating that oversupply position because of the pandemic. Obviously, not everybody can come out a winner here. Vacancy is going up, and I expect it to peak in the first half of next year. We're likely to be in the 80s by then. Yet, 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 at good economics is not one of them. I know that our property's 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 desirability. Consider that in nearly every discussion we've had or are having with brokers and prospective tenants in every major market we do business in, the prospective deal is premised around the tenant improving their real estate locations. Improving not only the location, but their co-tenancies, improving their environment, and most importantly, in some respects, improving their landlord. Tenants want to be with landlords that have money, investable financial wherewithal, vision, execution prowess, and a pedigree of partnership with them. Long-term customer-friendly service improvements like a coordinated customer pickup program matter today. They matter 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 it.
That's all I have for my prepared remarks. Let me turn it back over to Dan for some final remarks, and we'll be happy to entertain your questions after that.
Thank you, Don. Just jumping back into details from the quarter. With respect to our tenant activity across the portfolio, we made great progress in light of the fact that most of markets in which we operate were the first to shut down and effectively the last to begin reopening. Due to this fact, the percentage of tenants that were open as a percentage of ABR was only 47% at May 1st and 54% at June 1st. As reopenings accelerated in June and July, as of July 31, 92% of our retail tenants are now open. As a result, our cash collection has shown strong momentum tracking those reopenings. Cash collection for the second quarter finished at 68% as we made continued progress with our tenants on unpaid rent. Collected rent for April ended up at 65%, up from 53% at May 1.
May was 66%, up from 54% at June 1. June was 72% for a blended collection rate of 68% for the quarter. July collections further accelerated to stand at 76% at July 31st. August collections are off to a promising start. While only one day of collections, August 1st, 2020, collections were roughly 85% of August 1st, 2019, levels, were 60% higher than July 1st, 2020, levels. Of the 32% of uncollected rent for the second quarter, roughly $68 million, our $46 million collectibility adjustment accounted for 2/3 of that amount. With respect to executed deferral agreements, we've taken a very tactical approach. With a portfolio of only roughly 100 properties, we are able to treat every negotiation on a tenant-by-tenant and a space-by-space basis. $21 million of rent have been deferred for the second quarter under executed agreements with our tenants.
This represents 31% of uncollected second quarter rent and 10% of total billed 2Q rent. Of that amount, almost 2/3 of $13 million is with accrual-based or probable tenants, and negotiations continue. As we did last quarter, we have provided new and additional disclosure relating to the impact of COVID-19. A summary of collectibility and accounts receivable is provided on page 10 of our 8-K financial supplement, and a new investor presentation, which incorporates an update for COVID-19, can be found through a link on our investor website. Just to revisit the balance sheet and liquidity. During last quarter's call in May, we had just closed on a $400 million unsecured term loan with a one-year maturity and a one-year extension option into 2022. This provided us with pro forma liquidity of $1.4 billion in cash on hand and available credit capacity at that moment.
Following the May call, we immediately raised an additional $700 million in the bond market in two tranches with 7+ years of blended maturity and a 3.3% effective yield. As a result, at June 30, we have almost $2 billion in liquidity, with $980 million of available cash and an undrawn billion-dollar credit facility. We remain well-positioned to manage through the challenging environment we currently face, like we have done time and time again over our 58-year history. Deleveraging the balance sheet will continue to be a priority as we look to opportunistically issue equity, as well as sell assets and/or raise joint venture capital, leveraging the quality of our best-in-class asset base. As you saw yesterday, our board made the decision to declare a regular cash dividend of $1.06 per share payable on October 15th.
Given decades of maintaining a fortress balance sheet and having the ability to build a significant liquidity position, even in the most challenging of capital markets, we felt it was appropriate to lean into this strength and capital position and declare a modestly increased dividend this quarter and extend our increasing annual dividend record for a consecutive 53rd year. Given our high margins at the property level, cash collections and store openings showing great momentum, and collections comfortably in excess of our break-even collection levels, coupled with the quality and productivity of current leasing discussions with our tenants and the implicit demand for our real estate that provides, all drove the confidence in the strength of our portfolio performance coming out of this environment.
As a result, based on the information we have today, we believe we should be able to support an annualized $4.24 dividend from adjusted FFO on an ongoing basis post-COVID-19. However, as we stated previously, that perspective could change in the coming quarters as the length and the ultimate impact of the pandemic on our business and our tenants' business become more visible. Know that the management team and our board of directors will be extremely disciplined in setting our dividend policy moving forward. With that, operator, please open the line for questions.
Thank you. We'll now be conducting a question and answer session. As a reminder, in the interest of time, we ask that you please limit yourselves to one question and one follow-up. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for your questions. Our first question comes from the line of Craig Schmidt with Bank of America. Please proceed with your question.
Thank you. My question, I'm just wondering what Federal can do in the short term to increase traffic and sort of remove the caution from shoppers. It seems like your centers were places that people wanted to congregate, and now you have to fight against that. I'm just wondering in terms of new services, anything structural, marketing that you can do to get people to be more comfortable with shopping your centers.
I'll tell you, Craig, I appreciate that question a lot because if you could be around.
Centers, certainly the mixed-use centers, and even the more lifestyle-y other centers that we have, you would be blown away by the traffic. Because they are open air, because they are part of the community in which people already are living in, and frankly, because of the markets that we're in, you see masks everywhere. People being extremely diligent with what they're doing. Specifically in the markets that we're in, which were closed first and opened up really very recently in terms of that, what I'm most thrilled about is their comfort with our places. Now, we're also, I think, very early in putting out almost completely across the portfolio the pickup, which allowed for a landlord-coordinated effort for consumers to pick up goods from merchants. That landlord-coordinated piece goes right to the heart of your question. That's what's necessary.
I can tell you, no matter how much it's being used or not being used based on any particular shopping center, you know who it really helps? It really helps prospective tenants because those tenants say, "This landlord gives a crap and is in it with us." That notion of partnership throughout this, I honestly think is going to be one of the most critical parts of who wins, if you will, on the other side of this. That's what we're executing on.
Great. Just maybe on the longer-term focus, what are some of the tenants you would like to add that are new to the merchandise mix that you have at your centers?
That's a TBD. One of the things that I think as you kind of think about longer term here, and I made a point about the tenants who are really struggling and the fact that they want to stay in our centers generally, and that's the case. In the short term, we're going to want them to stay in our centers. Failing tenants are not who we want over the long term to create value in our shopping centers. We do want to see who emerges here. I can't give you specific names. If I gave you the specific names, it would sound very much like the lifestyle type of tenants, the Warbys of the world that we've been talking about in the past. It's not about that.
It's about over the next year or two, the opportunistic money that gets behind new concepts or reinvigorates old concepts that choose the best real estate in the marketplace. That's what we're seeing, Craig. The conversations that Wendy Seher here or that Berkes and Sweetnam on the West Coast or Stew Biel here on the East Coast are having are all about how do we get better real estate and who's going to be in there with us, and what do you guys do to make this all work together? Frankly, they're playing right to our strengths. The combination of all those things, not one piece of it, is what, in our view, gives us the confidence that we will be a more differentiated company, not less differentiated on the other side of this.
Great. Thank you.
Thank you. Our next question comes from the line of Daniel Santos with Piper Sandler. Please proceed with your question.
Hey, good morning. Thanks for taking my questions. My first one is on the dividend. How does the increased dividend align with taxable income for the year?
I'll let Melissa add to this or Dan add to this if they want. The notion, and I'd like you to think about this first, is our dividend, okay, this was the last dividend for 2020 that counts in taxable income for 2020. Our November dividend will be paid in January, so that'll be the first one for 2021, and that's a little bit different than other companies. I want to give you that perspective. Certainly, with respect therefore to the roughly $320 million of dividends that were paid this year, the fiscal 2020, that is in excess by something like $40 million of our taxable income and what that would be, okay? First of all, it's August 5th, and a lot has to happen between now and the end of the year from a taxable income perspective.
Some of it could be surprising good, some of it surprising bad, but we've got a lot of flexibility there. Did we pay more than we had to pay in 2020? The reason for that, and I'm glad you asked because I really want to get into this a little bit, is that we built this company to be able to power through recessions. When I say the company, not just the balance sheet, the quality of the assets, the diversity of the real estate. This is a recession, albeit a very unusual one. I got it. We went into this with one of the lowest dividend payout ratios going in, so certainly we can pay it. You got to ask, well, why would we pay it if we don't have to?
At the end of the day, it's all about our belief in the outlook and where we're going. It's all about our belief in effectively not only being able to getting back to not paying more than we have to as we did in 2020, but more importantly, growing and creating value. I would have to be a whole lot more pessimistic about the future than I am today for us to have cut that dividend. Everybody always says they're long-term in focus. Let me tell you, we're long-term and focused. We know what has to happen on the other side of this. Sorry to be a little long-winded about that, Dan, but I'm pretty darn passionate about this company's ability to come out of this crisis really strong.
That's why, and it's a little more than your taxable income question, but it all ties together.
I appreciate the answer, the passionate answer. My second question is, I was wondering if you could give some color on leasing demand in pace of reopening in some of your traditional suburban shopping centers versus your more sort of infill assets.
Yeah. Let me give you two people. Let's have Wendy talk about that from more of our traditional shopping centers and Berkes maybe on the West Coast in terms of some of the street retail stuff and mixed use stuff.
Well, thank you, Dan. As I look at kind of our pipeline that we have going, I look at a couple different things, and one of the things we're focused on obviously is what are the deals that were pre-COVID that we still have that are now picking up momentum, and we see them coming to fruition to executed leases. That seems very strong. What I'm also looking at, and this is what I'm encouraged by, is that we have a lot more deals in the pipeline and deals going to lease negotiations that were during COVID and now post-COVID. That makes me feel very good about our pipeline. When I look at the diversity of the deals and the properties that we have specifically on the East Coast, it's fairly distributed well between our traditional grocery anchors to our lifestyles, to our mixed use.
Yeah, Dan, I'd echo that out here on the West Coast. Very impressed by kind of how tenants have behaved since getting through April and May when a lot of them were really trying to figure out where their business was headed. It seemed like a little bit of a corner was turned in June and the volume of serious discussions picked up, and activity on LOI and lease negotiations picked up. As Wendy said, we have a pretty robust pipeline of those discussions and negotiations going on right now, and it is broad-based, not only in our more traditional community centers, but also in our mixed use and lifestyle properties. What we're seeing in the latter really is two things.
Continued interest to expand their fleet within our portfolio from tenants that we've done deals with before, as well as a lot of new conversations from tenants that don't have a lot of legacy issues, but understand that if they are going to open a handful of stores, opening them in the best possible locations is critical. Discussions with those tenants in both groups have picked up and are progressing well over the last couple of months. Too soon to tell, obviously, if all the deals that are in the pipeline get done. I'm sure a few will drop out. We're pretty impressed with the discussion so far. Hopefully that shows up in the results in a couple of quarters.
Thank you.
I guess, Dan, I want to ask.
Go ahead.
I want to add one thing to both of those comments. Maybe I'll throw a little cold water on it. I don't want you to think we are pollyannaish and don't understand the severity of what's going on in the country. Of course, we do. Of course, we don't have great predictability of when things turn and really what that means. Obviously, the timing of a vaccine, all the stuff that obviously we don't know. All we can do is make business decisions today based on what it is that we know. All that Wendy's conversation and Jeff's conversation and ours has been about is we see a path. We see a path forward. We know what to do to try to be able to execute to get there. There's enough raw material that suggests that there's a good probability that that can happen. Again, who knows?
Today, which is why you see the results you see in the second quarter, you bookkeep based on what you know today, and then you work for tomorrow.
Got it. Thank you. I appreciate the thoughtful responses.
Thank you. Our next question comes from the line of Haendel St. Juste with Mizuho Securities. Please proceed with your question.
Hey there. Sorry, just getting myself off mute. I wanted to follow up on that a little bit, the last question by Daniel here. Wanted to get a bit more color on the conversations with the tenants you're having today, how they compare versus pre-pandemic from a demand, willingness to sign deals, and deal terms perspective. What are you hearing in these conversations with tenants as they make space decisions? Are they seeking value? Are they more biased to the location of the first-ranked suburbs that you talked about, asset type? What are the things that seem to matter most as they think about space needs in a post-COVID world? Thanks.
I think that what we're hearing a lot of is that some retailers are going to make fewer new openings, right? They're going to make decisions based on, in my view, a criteria that has just doubled. Every box is going to have to be checked. When they're thinking about do they need to be in strong centers that have great landlords that invest in their properties, that have co-tenants that meet who their customers are, where they can ensure the ability to do stronger sales. That is going to be a must. With that criteria, we feel like we're very well positioned because of the ability to have strong occupancy, strong sales, and a landlord that has a strong balance sheet that's going to continue to invest and look towards the future.
We're not having as many discussions as I would like to have, but the ones that we are, they want to upgrade their real estate.
Are you getting the sense that you're losing any leases due to price, to rent, or perhaps there's a search for value that may be making certain tenants more inclined to seek secondary locations as they think about the costs that are involved?
It's a good question. I think based on what we just talked about, which is that it's so important that these locations come out strong, that what we've seen is that tenants are willing to pay more to have that insurance that they need, that the location that they either relocate or they open hits the gates strong right from opening. We've found that they will pay more to be in the right location.
Imagine this. They'll just think about this for a second. If you're looking to do deals right now, you're certainly looking for value, for deals. That's frankly not much different than it's ever been. The big thing that Wendy's talking about that's so critical is you don't really know who your co-tenancy is going to be. You really don't know today if you're getting a cheap deal, who you're going to be doing business next to, what that shopping center is going to feel like and look at. There is a big risk to signing for any anchor or even mini anchor, a 15-year deal when you don't have that visibility. The additional rent to be in the dominant centers seems to pale in comparison to the sales being able to underwrite what you think you're going to do in business.
Got it. Thanks, Don. My second question is on the leasing spread. Understanding that look-back indicator, a lagging indicator. Yeah, 10% on the new lease side, pretty consistent with-
Sorry, Haendel, take your mask off. I can't hear a word you're saying.
A question is on the leasing spread. The new leasing spreads have been consistently in the 10% range. I'm curious if your view is that clearly, it's a lagging indicator, but what bottoms first, occupancy or new leasing spreads? Thanks.
I don't know. I think they kind of go together. With us at least, we're certainly a smaller company than some of the big guys in terms of GLA, a few deals make those leasing spreads be what they are. You'll see volatility in that. The strength in the second quarter was a couple of deals, the single biggest one was taking very old Bed Bath & Beyond, buybuy BABY space at Huntington, which is a great shopping center in terms of location, trading up for Whole Foods at a big rent. That moved the needle in this quarter. Hopefully, every quarter, there's a few of those. Sometimes there are, sometimes there's not. What we're working hard to do is to maintain occupancy, that does mean we'll defer or abate or change contracts more readily. Certainly on the restaurant side.
The idea of a restaurant where you're going to defer your money and they're going to have to pay it back next year, that's a fool's errand in most situations, except for a large, well-capitalized company. If you were running a restaurant, would you take your last few hundred thousand dollars of savings and try to open back up, only to know you're going to pay it all to your landlord in next year? No. There has to be a realization, an honesty about assessing the current situation. Then know that you'll make your money with that occupancy, with the deals that give you a chance to make it back, and with new deals because tenants are looking at well-occupied shopping centers. That's our MO in terms of how we're approaching this. You're certainly going to see higher vacancy, a lower number there.
You're certainly going to see pressure on rents in certain places. Overall, you got to feel really good about the demand drivers of a portfolio like this.
Thank you.
Thank you. Our next question comes to line of Christy McElroy with Citi. Please proceed with your question.
Hi. Thanks. Good morning. Don, just to follow up on those comments. You talked about your willingness to defer or abate and the potential pressure on rent. If I think about the categories where you're seeing those below 50% collection levels, and you talked about them, fitness, experiential, restaurants, full-price apparel. These categories comprise a good portion of your write-offs. How should we think about sort of the rent levels that many of those tenants can now pay given their reduced revenues, right? It seems like a lot of these problems aren't going away until we have a vaccine. How do collections rebound for those tenants without some sort of reset to their rent levels currently, right?
Yeah.
Is it a matter of just re-leasing that space, or is it working with them to get to the right rent level, given that restaurants and experiential are part of what makes your centers what they are today?
No question about it, Christy. It's interesting. I'm going to start with the more obvious ones. Restaurants are not so obvious. Restaurants, I'm feeling pretty good about, frankly, in terms of not only their importance to our centers, but their ability to generate business and pay us rent on a percentage basis. It will be a number of them going forward. Again, in our places, I think we can make money that way. I do think the harder ones are theaters and fitness centers. I do think that. The reason I think that, in fact, I'm actually going to take a little tangent as you would expect me to, Christy. Everybody keeps saying our second quarter was conservative. Even Dan said in his remarks, "We're conservative." I got to tell you, I don't see it that way. Let me tell you why.
I mean, first of all, the punch in the gut ought to be bookkept in the period that it's been incurred. That's the second quarter. If you sit there and say today that theaters or fitness operators have figured out what their business plan is on the other side of this and what rent they can pay us, I would tell you, "Really?" To your point, I'm not sure what a movie theater's ability to pay the rents that are in place or a fitness center's ability to pay the rents that are in place over the next decade, which is what you're being asked to say in accounting by straight lining that stuff. I don't think you can. I don't think that's conservative. I think that's realism. Sitting and saying, okay, that piece of our income, which is a few percent, right?
I don't know what theaters and.
Yeah. Fitness is four, experiential is two.
There's 6% there that I agree with you. We do not have the visibility. Restaurants are so different in terms of each one of them, what they are, what their owner's financial position looks like, what they're willing to do, et cetera, and frankly, so critical to how the entire place works, that we are absolutely working with those important restaurants. We identified this on March 18th, that that was going to be a critical group for us to effectively go. Those are more individual answers to your questions. I'm sorry to tell you, I'm not sure of the answer on the theaters and on fitness, but I think that's the only honest answer that's possible today.
Thank you. Then Dan, you talked about the drag associated with the liquidity that you're maintaining right now, given the debt raises that you did last quarter. Don, you talked about the $1.3 billion in cash and the importance of having that liquidity by February. I know that you don't know what will happen, right, with collections and occupancy. As all of that plays out sort of over the next six, 12, and longer months, how do you think about the balance sheet management aspect of that on a go-forward basis in maintaining that level of liquidity?
Hey, look, I think we've spent years and years building the credibility we have, and I think it's evident that we were able to in the midst of all the uncertainty of early May and was able to raise the capital that we did, over $1 billion from our banks. Our access to capital continues. I think that we will, like we've done in the past, show balance. I think we are going to be opportunistic with regards to keeping leverage kind of in line with kind of our long-term goals, our long-term metrics. Yeah, our metrics are going to be impacted. Our net debt to EBITDA will go up. Our coverage ratios will go down as we work through over the next few quarters.
We will be opportunistic, whether it be through asset sales or joint venture capital or even issuing equity when we see opportunities in the market. We will keep a diversified source of the spectrum of capital sources available to us. As we work through it, we'll avail ourselves to kind of all of those sources as we move forward. Our intention is to kind of take advantage of the market as it's available while keeping our long-term focus on our leverage profile in line with historic levels.
I'll say one more thing to you, Christy, on this. You know that a very long-term problem that we always have to deal with asset sales is covering the tax gain. We have to 1031 everything, and it's hard. The idea of looking at that as a potential source of a piece of our capital is on the table for us right now, which I think is an interesting additional tool in the toolbox that we didn't have as easily before.
Okay. Thanks for that. Appreciate it.
Thank you. Our next question comes from the line of Vince Tibone with Green Street Advisors. Please proceed with your question.
Hi. Good morning.
Yeah. Hi.
Good morning, detail just what types of joint venture structures could you see most probable as a source of capital? I'm trying to get at is almost how would you weigh selling an interest in an individual component of one of the big three projects where maybe you can get stronger pricing today than retail versus having interests aligned in an entire mixed-use property?
Vince, I don't know. That's a hard one to answer because it depends on a specific deal and a specific circumstance. You know I think you know how strongly I believe in the integration of those uses at the big mixed-use properties. It's important. Now, is that different for a standalone office building across the street from Santana Row? Maybe. Right. It's just it's not as integrated as the office buildings that have retail under them and are part of it. We could look at that differently, for example. I'm not saying we will, not saying we are, but I'm trying to give you the level of detail and the considerations that have to be thought through, because there's not a direct answer to your JV question.
I would really have a hard time at Assembly Row effectively selling off an office building or a residential building that was part and parcel of our project. I would much rather, if it came to any need to look at it, we would look at it as a passive partner that bought a percentage of the whole thing. It depends. I don't know, JB, if you want to add anything more to that. That's kind of how I see it, though.
Yeah, I don't think there's too much to add. Vince, one other thing, obviously, would be looking at a portfolio of our more stable, slower growth, non-mixed use assets and does it make sense to bring somebody into that in some sort of way. All things we're thinking about, but like Don said, nothing really to talk about at this juncture and haven't made any decisions or, quite frankly, any real progress other than kicking it around internally here.
Thanks for that. Shifting gears a little bit. I'm curious, has the lease dynamic of leasing negotiation shifted at all in recent months with e-commerce getting another leg up with COVID? How much do four-wall occupancy cost ratios matter anymore given the benefits of having a brick and mortar store on online sales?
You're right on it, man, and I've been preaching on this for a while. I mean, does four-wall occupancy cost matter? Of course, it matters. Does it matter as to the level that it used to in a lot of businesses? Uh-uh. When you sit and think about it, all the stuff that Wendy talked about earlier on this call and Jeff talked about earlier on this call in terms of the considerations of what makes a business profitable, obviously including the online business, the ability to pick up goods in the store. I'm telling you, man, this notion of what we're doing with respect to the pickup and having a landlord-coordinated effort here is really big, and it's big in what you're asking about, and that is, what are the tenants asking about in lease negotiations? What are the differentiators that matter?
We always knew it was the location, obviously. But more and more, it's about the co-tenancy, it's about those other services, it's about that tenant being comfortable that the landlord is working part and parcel with them to make them successful in total for their businesses. It's a more holistic approach.
Great. Thank you for that.
Thank you. Our next question comes from the line of Nick Yulico with Scotiabank. Please proceed with your question.
Hi, this is Greg McGinniss. I'm with Nick. I just had a few questions on the tenant bankruptcies. I understand the expectation is for the majority of those stores to remain open. I'm just curious with total exposure to those 15 bankrupt tenancies, and if they've all been taken to a cash basis, and then also curious on how much of an impact those tenants had on Q2 collectibility?
Yeah. Roughly the exposure, total exposure to all 15 names that we had on that list was roughly call it a little over 3% of our total revenues. Not a huge number. All of the tenants on that list have been taken to cash basis with the exception of one, because it just happened right at the end. That's Men's Wearhouse or Tailored Brands.
What was the impact on the collectibility for Q2 from those tenants?
We don't know right here. We can get back to you.
Okay. I guess just a follow-up question on kind of the restaurants, and Don, I appreciate comments you gave that can't really predict the percent rent trends. I believe that you previously mentioned abating rents for your best restaurants. I think it was the top 60, if I recall correctly. We were just wondering how that abatement program may have evolved since you last spoke about it, what that impact was on Q2, and if all those tenants are on a percent rent basis now.
No, certainly not all those tenants are on a percent rent basis. That's still the exception rather than the rule. Greg, I don't have a number for you all the way through here. As you correctly point out, the 60 restaurants that we had identified initially as critical to the property we worked with early, that has continued and grown through the portfolio. As in certain of the situations, it's useless, we're not working with them. We're simply holding the line and trying to get paid contractually with whatever they've got left because they're not going to make it. It really gets down to a one-by-one basis.
The next time you can travel and we can move around, let me walk you through a Pike & Rose or Bethesda Row or Santana Row certainly, and kind of just show you the broader issue in terms of how this stuff works. I know you're trying to put numbers in a model and make percentages work and somehow tie to something in the second quarter that I could care less about any longer. Nonetheless, the real key is kind of understanding how those deals are going to financially work going forward. Got it. More importantly, what they're going to do for other tenants in that shopping center going forward. I don't know, Dan, if you've got anything specific for this question.
Yeah, no. I think you answered that. Just to get back to your previous question. Roughly of the $55 million adjustment, roughly about 10%, $5 million or $6 million, was associated with the bankrupt tenants.
Okay. Thank you.
Thank you. Our next question comes from the line of Mike Mueller with JPMorgan. Please proceed with your question.
Yeah. Hi. I guess where tenants haven't paid rent and you don't have deferral agreements in place, what portion are you in back-and-forth discussions with versus really having no clarity on a resolution?
Well, I think call it 30% of our unpaid rent we have deferral agreements with. We probably have another 20% kind of in conversations and handshake agreements on even more with that. We're making progress. Negotiations are ongoing. We're trying to be really, really tactical and strategic with regards to those conversations. It's a bit of a moving target, but we feel good about the progress we're making in kind of resolving some of the unpaid rent and coming up with solutions. In some situations, we're kind of viewing it as, hey, look, you have a contract, you need to pay it. We'll fight that out. That's I think in process at the moment, Mike.
Got it. Okay. Out of curiosity, how has parking and hotel income been trending in the third quarter compared to the second?
Yeah, that's a good question. I don't know the answer to that, Mike. The two hotels were closed for most of the second quarter, obviously, have opened up now, are still trending at something like 20% occupancy, 30%, Mike, or so occupancy. Certainly not making any money, that's for sure. Parking revenue, interestingly, is coming back. I'm using that based on what I know and visually see at Pike & Rose, at Santana Row, at Bethesda Row, et cetera, because the traffic is up. Back to where it was? Of course not. Trending in the right direction.
Got it. Okay. That was it. Thank you.
Thank you. Our next question comes from the line of Ki Bin Kim with Truist. Please proceed with your question.
Thanks. Good morning. In regards to the 21% of the reserves that you took, I'm sure there's quite a different varying range of meeting that 75% threshold or not. What percent do you think, roughly, were tenants that were already living on the ledge or kind of in structural decline pre-COVID, that no matter how many deferrals you give, probably won't come out of it okay? I guess what the remaining bucket of tenants that were probably pretty good were not paying rent for a few months really helps them, and they can come out of this okay.
Yeah. Well, I don't think we have specific answers where we bifurcated kind of into those kind of buckets. Yeah, sure. There's a bunch that won't make it. There's a bunch that we think we can work with to get them through it. I don't have a specific percentage of what fall into each of those buckets.
Ki Bin, the bottom line is, this was from the beginning. We are not negotiating with tenants that we don't believe will make it. Right. We're looking at our best chance for success, and sometimes the best chance is to simply default the tenant, try to evict. Sometimes those are the best answers. We're using, generally, when you're talking about a tenant, the 15 tenants that filed bankruptcy, there wasn't one surprise on those 15 tenants that filed for bankruptcy. We didn't sit there and abate or defer rent with those tenants in any meaningful way. Why? Because it wouldn't help with respect to what they're going to do. The same applies to smaller tenants. Obviously I don't know the percentage differences, but I can tell you philosophically how we approach each of those guys.
I don't know if that's helpful to you or not.
How would you describe how private operators are behaving around your market? You can be very disciplined, you have great assets, and you have a great operating platform. If the surrounding private operators aren't behaving kind of rationally and undercutting rent or getting more TIs, some things are out of your control. How do you think about that?
Are you talking about the small shop tenants and how they're behaving?
No.
The private center.
Tenants next to you that are owned by private owners.
Oh.
Yeah. That's right.
I'm sorry. Yeah. I think, as we get post-COVID, we were over-retailed before, and we are definitely going to be more over-retailed now. There's going to be a lot of low-cost options out there. Again, as to my prior point, I think you'll have a very small subset of tenants that just go for a low-cost option. That majority of the tenants who really need to be opening stores that are productive and robust in terms of sales, the critical factors of creating that successful operation is going to be what we have to offer in terms of occupancy, in terms of co-tenancy, in terms of convenience, in terms of the location, and our investing in the property. I think that there's always been lower cost options, but I don't see that as a deterrent in our going forward.
The one thing I would say to you. I'm sorry, man. The one thing I would say to you, Ki Bin, is it's hard to imagine from my perspective that that has not been priced in the stock. We're off 40%, right, from six months ago. If you look going forward, will there be rent pressures? Of course, there will be rent pressures. We're up 40%. Do you think these properties are worth 40% less than they were six months ago? Would a billion-dollar Assembly Row be sold for $600 million today because of those concerns? Not at all. It's been over-priced. I get it. I understand the uncertainty and why, but I kind of think that's priced in, even if there is, and there will be, pricing pressure from lower cost operators going forward.
Okay. Thanks, Don.
Thank you. Our next question comes from the line of Linda Tsai with Jefferies. Please proceed with your question.
Hi. Thanks. The 3% revenue impact from the 15 bankruptcies, what would be the occupancy impact from that?
Ooh. Yeah. Well, we don't think that we're going to lose that many of them, candidly.
You said 28 of the 110 in the first.
Right. It's probably 1% from the closures that we kind of expect and know.
Thank you.
Most of those haven't happened yet.
Sorry, go ahead.
No. You go.
Okay. To the comment that the first half of 2020 may reach high 80% occupancy, the merchandising categories that end up going away, would you look to backfill with retail uses or look to pivot and diversify away to the extent that some of those spaces are flexible enough to do so?
Linda, one of the things I think that's one of our strengths is that we really look at stuff from a real estate perspective. Having the expertise to be able to convert and redevelop and repurpose is something that I think is a real benefit to us. We look at it economically and try to figure out what the highest and best use of that piece of real estate is. Whether it's a second floor theater, the amount of fitness and other second-floor space that we've already taken out and created high-value office in is pretty interesting, certainly at Santana. With respect to the ability to have properties that now with more vacancy can be turned into residential and retail, more of a mixed-use property, we look at that stuff that way.
It very much depends on the property, but we can do all of those things.
Thanks.
Thank you. Our next question comes from the line of Floris van Dijkum with Boenning & Scattergood. Please proceed with your question.
Hey. Morning, guys. Actually, Compass Point. Just one question, I guess. On some of the opportunities that you're going to get as a result of bankruptcies, and you mentioned this, Don, I think earlier in your comments about the Lord & Taylor at Bala Cynwyd. How will you balance the incremental capital spend that that will require with the potential to create value and to grow your NOI going forward? Do you think about that differently today than you would six months ago?
Yes. That's a very good question, Floris. Look, the uncertainty of capital means that the bar is higher. You happen to pick one in Lord & Taylor at Bala, where I've been dying to do something on that piece of land for the better part of 15 years there. It's just an underutilized great piece of land. Now, what COVID just did was made Lower Merion Township more important than Lower Merion Township was pre-COVID. The answer is always going to start with the real estate. It's always going to start with the ability to create value on that real estate. That's an easier one. For some of them that are less easier, yeah, they have a higher hurdle that they've got to fight for. For us, it's not only that initial ability to redevelop, it's what is it that we see from the long-term growth.
I know you're familiar with Darien. I think you'll see what we're doing at Darien has been enhanced by COVID. Not hurt by COVID, because of where we are. I think we start with a leg up on that stuff.
Thanks, Don.
Thank you. Our final question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Hey, morning, thank you for taking the question. On the restaurant front, certainly hope Lebanese Taverna is one of the restaurants that survives. That place is great. Don, just a question on the dividend and how you think about it. In answering a bunch of the questions, there's obviously a lot of unknown. You guys have a lot of capital that you want to spend on projects like Merion or like Darien, places that you think will really reward investors. The decision to increase the dividend, was that based more on just the strength of Federal's balance sheet or the real-time improvements that you're seeing?
Is it just your general belief that there will be a vaccine, that 2021 will be a much better year, and therefore don't look at this year and what's happening, look forward, and with all that said, you guys feel comfortable that you can maintain that above taxable income payout?
First of all, Alex, I'm so glad you got a question in as the last question, because I was worried that for this call, I was missing you greatly. It's good to talk to you. I don't have an answer on Lebanese Taverna exactly yet, except we've gotten two new concepts from them that have just opened, so that's good. Getting that aside, I've spent a lot of time on the dividend because it's not just one or two or three things. It really is the myriad of everything. When the question came down about capital raising a little bit earlier, and Dan was answering how we look at the balance sheet going forward and how we're going to effectively finance.
I'd be lying to you if I didn't say to you that we have a level of confidence in our ability to raise money from a wide variety of sources, whether that's equity or debt or joint ventures or asset sales or whatever, because that all comes not only from our history of being able to do that, but at the end of the day, the conviction that this real estate is the best real estate out there is just real. We're going to have, in our view, more opportunities than most to be able to raise capital. That's an important component of what's happening here.
There's no doubt as I talked about, at the property level, if you were with us and you were working at Federal and you were meeting, as I do with Wendy every day or every other day at the least, and with Jeff and with Jan, you would have a good hands-on sense for the desirability of that real estate and the deals that are coming through and can come through on a long-term basis to be able to get that done. That would give you another level of confidence. There will be equity raises on the other side of this. This company has effectively been built to be able to provide an equity investor a return that comes from appreciation as well as a dividend.
It's a critical component to it, in our estimation, for the type of investors that we want, because those are long-term investors. The combination of those and five or six or seven other things suggest to us that at this point in time, we should continue the dividend. Now, the raise, the $3 million incremental cost that it cost us by going up $0.01, that's everything. That's the record, right? Gosh, if we're going to pay $80 million, the notion of ruining the record, we shouldn't do that. The incremental three, that's based on our history. That's it. It's the three in terms of the raise. The actual payment is on everything I was talking about previously.
Okay. The second question, Don. Next to your The Point in El Segundo, BXP announced a JV for that triangle. Was that something that you had considered, that maybe would be something that you would consider? I don't know if you were involved in that at all, but was that something that you guys ever looked at? Given everything else that was on your plate, you're like, "Look, it's across the train tracks," or separated, whatever, and we have more that we don't need to get involved in that.
Yeah. It's a real complicated one, and Jeff is on the phone, he can certainly answer. We've talked about that. I've stood on The Point, I don't know, at least a half a dozen times with Berkes, and we've stood there and said, "How are we going to figure out what to do on that?" Every time we looked at it, the costs and moving tracks and time and all that is just more than we want.
Yeah. Actually, just to weigh in quickly, Don and Alex, it's on the Air Products site, which is just east of The Point on Rosecrans.
Oh, yeah.
Where all the tanks used to be when we originally opened The Point. We talked a lot to Continental Development about doing stuff with them. That project, when it's built, and they're not ready to build it yet given what's going on in the market, but when it's built, will integrate very nicely with The Point and actually, we think, drive a lot of daytime demand for our restaurants and shops and services at The Point. We're happy to see them do it. It is 100% office, and I think there is, and I alluded to a little bit in the release, a longer-term, bigger view from both of those parties on how they work together that we just didn't really fit into. Great relationship with them, great developer, really happy to see what they're doing, but just not a fit for Federal.
Okay. Thank you.
Thank you. We have reached the end of our question and answer session. I'd like to turn the call back over to Mike Ennes for any closing remarks.
Thank you for joining us today.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.