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spk05: Welcome to Armada Hoffler's third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, you will be invited to participate in a question and answer session. At that time, if you have a question, please press star 1 on your telephone. As a reminder, this conference call is being recorded today, Thursday, November 5th, 2020. I will now turn the conference call over to Michael O'Hara, Chief Financial Officer at Armada Hoffler.
spk03: Good morning, and thank you for joining Amada Hoffler's third quarter 2020 earnings conference call and webcast. On the call this morning, in addition to myself, is Lou Haddad, CEO. The press release announcing our third quarter earnings, along with our quarterly supplemental, were distributed this morning. The replay of this call will be available shortly after the conclusion of the call through December 5th, 2020. The numbers to access the replay are provided in the earnings press release. For those who listened to the rebroadcast of this presentation, we remind you that the remarks made herein or as of today, November 5th, 2020, will not be updated subsequent to this initial earnings call. During this call, we'll make four looking statements, including statements related to the future performance of our portfolio, our development pipeline, impact of acquisitions and dispositions, our mezzanine program, our construction business, our liquidity position, our portfolio performance, and financing activities, as well as comments on our guidance and outlook. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond our control, particularly in light of the adverse impacts of the COVID-19 pandemic on the U.S. and global economies. These risks and uncertainties can cause actual results to differ materially from our current expectations, and we advise listeners to review the forward-looking statement and our press release this morning, and the risk factors disclosed in documents we have filed with or furnished to the SEC. They'll also discuss certain non-GAAP financial measures, including but not limited to FFO and normalized FFO. Definitions of these non-GAAP measures, as well as reconciliations to the most comparable GAAP measures, are included in the quarterly supplemental package, which is available on our website at amadahoffer.com. I'll now turn the call over to Luke.
spk04: Thanks, Mike. Good morning, everyone, and thank you for joining us today. As we all continue to work through the pandemic in our own ways, we express our gratitude to all those who are making a positive impact in the fight and pray for those who have been affected by COVID-19. We are thankful that our employees have remained healthy throughout the pandemic and pray our good fortune continues. We continue to be pleased with the resilience of the company and our tenants and vendors during this uncertain year. While Mike will update you on our results and financial metrics, I'm going to use my time today to update you on the progress of our repositioning plan and the long-term value that we intend to create. As many of you know, last fall we embarked on a multi-year strategy featuring several key initiatives that were designed to increase equity value, create higher quality earnings in NAV, and ultimately move a then current share price of $18 or so meaningfully higher by the end of 2022. Although we could not have foreseen the intervening disruption and precipitous drop caused by the pandemic, the plan as well as the timeframe and end goal remain the same. While we abhorred the human and economic cost of the virus, it has enabled us to accelerate several aspects of our plan. Let's take the various facets of our strategy one at a time. beginning with the goal of reducing our retail segment to less than one-third of property NOI. This process is well underway, beginning with the sale of seven of our older retail centers last spring and the planned disposition of a few more in the coming several quarters. Selling quality centers that have performed well through the pandemic has been and will continue to be a significant source of balance sheet strength with a large portion of the net proceeds likely to be redeployed into new development opportunities. These dispositions notwithstanding, we expect the retail segment of our business to remain an important and growing component of our business model that we believe will increase in value with the market's eventual recognition that quality retailers in prime locations are a durable source of future income. Also, As you saw by our recent press release, we have terminated our two Regal Cinema leases and intend to proceed with mixed-use developments that will feature a large component of multifamily units on these well-positioned sites. As we have mentioned on several earnings calls, these properties were designated for redevelopment for quite some time. While we would have been fine with letting the leases run to completion, the terminations enable us to move much more quickly to capture the true value of this prime real estate. We believe that the underlying raw land in both these locations is worth more than that of the previously leased assets, not to mention the ultimate value creation of the new mixed-use apartment communities planned for both sites. These redevelopments from older retail into new multifamily assets will meaningfully accelerate the rotation we desire into higher-quality assets. We're already in the preliminary design phase for these properties and expect to commence construction on both by the end of 2021. This brings us to our second goal, increasing the contribution of our multifamily sector to over one-third of property NOI. With the off-market acquisitions of the Edison Apartments and Annapolis Junction, we've added nearly 600 units of stabilized apartments, bringing our portfolio to over 2,300. exclusive of our student housing assets. This total, combined with the development of the Gainesville apartments and several other sites in pre-development, including the former Regals, virtually assures us of achieving this goal. In fact, our expectation is that the apartment portfolio will grow to over 3,000 units in the next few years. We are extremely fortunate that our markets are included in the areas of the country, specifically the Mid-Atlantic and Southeast, that continue to experience strong population growth and an influx of economic activity. For example, in the third quarter, Atlanta alone had absorption of over 8,000 units. One need only look at the high occupancy and financial performance of our apartment portfolio for validation of our belief in these regions. Next, we outlined last fall our intention to reduce the size of our mezzanine lending program over a 24-month period. While we have great faith in the program and its results to date, this reduction is in keeping with our stated intent to allocate more of our investment capital to equity positions on future ground-up development projects. I'm pleased to report that by year end, the only outstanding mezzanine loans will be at the Interlock in the heart of West Midtown Atlanta. These two loans will run through 2021 to allow for completion and stabilization. With this position planned for the first half of 2022, It is unlikely that we could bring those projects on balance sheet, given the low cap rate prevalent in that market. However, if for some reason our partners cannot achieve full value for these mixed-use and multifamily trophy assets, we would be glad to acquire them at a discounted price. This flexibility, made possible only through a diversified model, has already allowed us to acquire two top-quality assets, Nexton Square and Annapolis Junction. As for the last remaining loan, we have a signed letter of intent to purchase the Delray Beach Florida Whole Foods at a significant discount to pre-pandemic value. Although the decreased mezzanine book should still yield some $15 million of interest income next year, both the size of the program and the income will be meaningfully less than the 2020 levels. For the payoffs of the interlock loans slated for the first half of 2022 and our desire to only use the mezzanine program on smaller, shorter-term assets, this sector should produce interest income in the mid-70s figures that year and probably thereafter, thereby providing a meaningful yet lower-risk adjunct to our development and construction activities. Perhaps the most important component of our strategy is the commencement of a pipeline of new development projects. As most of you know, the primary driver of growth in our company has been and will continue to be the development of high-quality assets at a wholesale cost to be delivered into our portfolio at a retail value. Last spring, we were poised to begin a new pipeline when the pandemic hit. In fact, we had already closed on three parcels of land for those announced projects. We prudently paused those developments but preserved the ability quickly restart the process at a more appropriate time. With the groundbreaking of the Solis Gainesville Apartments, we have initiated new development activity, which, assuming conditions continue to improve, we intend to ramp up over the next several months. This will entail our previously announced projects and perhaps one or two more. These assets are predominantly multifamily in nature, with the balance being office and a small amount of retail. All are located in high-growth submarkets in the southeast. Also, as I mentioned on our last call, our expectation is that our construction group will ultimately be able to achieve more advantageous pricing than was anticipated prior to the pandemic. These lower costs have been the case coming out of the previous four recessions, and preliminary data shows a slight but measurable positive impact this time around. This should only add to already healthy development spreads. Another aspect of our plan was to reduce our exposure to potentially unstable business models, particularly in the retail space. Fortunately, the vast majority of our tenants have proven to be fully capable of surviving the pandemic to date. Obviously, it's too soon to sound the all-clear. However, as you've seen by our 96% rent collection rate in both the third quarter and in October, Along with the collection of nearly all the deferred rent due under payment plans through October, our tenants are adapting quite well to the current environment. That said, the termination of the two Regal leases, two Bed Bath leases, as well as WeWork at Will's Wharf, substantially mitigates potential material threats to property NOI within the portfolio. In addition, our partner is closing in on the reduction of the WeWork space at the NOI. Assuming the economy continues to heal at a slow but reasonable pace, we anticipate strong portfolio performance to continue and ultimately improve through 2021. Additionally, based on the encouraging amount of activity around nearly all of our new vacancies, we are optimistic about fairly rapid backfill of second-generation space. In fact, several letters of intent are in negotiation now that we expect will turn into over 62,000 square feet of new leases in the near term. Back-filling these vacancies will demonstrate the strength of our retail portfolio and be a good source of increasing earnings. We also anticipate substantial progress on the lease-up of World's War over the next 12 months. Although the 2020 capital plan that we envisioned last year is largely complete, the future components will likely accelerate in their implementation. As Michael described to you a bit later, the results today have put the company in the strongest liquidity position in our history as a public company, with $200 million of cash and availability under our credit facility. That said, we continue to evaluate options to further increase liquidity and fortify the balance sheet in order to fund future growth. Once again, our position as the company's largest equity holder governs the critical decision of how best to source new capital, While we are pleased with the outcome of raising over $100 million in our preferred offering this past summer as a bridge over the pandemic, we do not intend to issue any more of these preferred shares, at least until the value of the common shares return to 85% to 90% of the whole capital stack. Likewise, we are not interested in selling any substantial amount of common stock at these discount prices. with the possible exception of a relatively small amount of activity on our ATM. Not only is our diversified business model and portfolio a key differentiator amongst our peers, it provides us with flexibility to take advantage of rapidly changing market conditions and identify alternative and cost-effective sources of capital. First and foremost, we feel confident in our ability to sell enough high-quality non-core assets upon the majority of our 2021 capital needs. We will be finalizing our 2021 disposition plan over the next few months, and we are evaluating several assets, inclusive of student housing, office, and a few more retail centers. Secondly, we will continue our longstanding practice of teaming up with trusted partners for joint ventures on some of the pipeline projects. The development and construction expertise we bring to a partnership adds considerable value in excess of a simple equity position. Perhaps most importantly, the influence we can exercise on the ground through our operating divisions gives us the confidence to assume a non-controlling interest in some cases, which provides even more balance sheet flexibility. As we have said on many occasions, a management team that is so well vested in the per share value of our company has no desire to expand the size of our asset base without creating significant equity value. Although recycling capital may slow the pace of our growth, the growth that does occur through our development spreads and profits reached from low cap rate dispositions will meaningfully contribute to NAV expansion and should allow for steady increases in the dividend over the coming few years. In short, we believe that our emphasis on value creation over growth will serve investors well in both the short and long term, much as was the case in the five years preceding the pandemic when our total returns more than tripled those of the REIT index. As we have seen over the last four decades, real estate is a long-term proposition. While quarter-to-quarter results may get headlines, long-term value creation produces durable returns. As I said, We expect that by the end of 2022, much of the development pipeline will be delivered, the existing portfolio stabilized and upgraded, and consequently, core debt to core EBITDA should fall to pre-pandemic levels. The makeup of our NOI and ultimately our earnings will be much more resilient to economic volatility and poise for further growth. In totality, these activities set up 2021 as a transition year for our company and will have a meaningful effect on 2021 FFO. However, we expect temporary drag will be once again partially offset with significant third-party construction income as our construction company continues to perform at an extremely high level. Although some temporary effects of our strategy negatively affect earnings, our responsible approach will yield several positives, even in the short term. With our liquidity position at an all-time high, Our fixed charge coverage ratio will continue to be very healthy, and dividend coverage will be robust with room for potential increases. We believe these metrics should give investors the confidence to align with management while we substantially increase the value of the company, much as they have done over the last several years leading up to the pandemic. To recount a little bit of our corporate history, After the recession caused by 9-11, we emerged as one of the strongest commercial real estate concerns in Virginia. Following the Great Recession of 2008, we emerged as one of the strongest commercial real estate firms in the Southeast. We feel strongly that once the current downturn is behind us and we again demonstrate our abilities, we will be recognized as one of the country's strongest small-cap REITs. In all, this will be the fifth severe economic disruption that our leadership team will navigate, and I expect the same long-term positive results that we produced in the first four. Now I'll turn it over to Mike.
spk03: Thanks, Lou. Good morning. These are certainly unprecedented times, and I hope you and your families are healthy. With the continuing impact of the pandemic on our company, we have been busy improving our liquidity and positioning the company for future growth. In the third quarter, we put an FFO, a normalized FFO, of 24 cents per share. This includes a write-off of $1.1 million from the termination of the two Regal Cinema leases and an additional $1 million from various other write-offs. We're including an additional $500,000 in bad debt through the end of the year in our guidance. Without the effect of the Regal Cinema write-offs, our normalized FFO would have been 26 cents per share. The portfolio has performed well in the third quarter under the circumstances with rent collections of 96% portfolio-wide, but the same for the month of October. To date, we have collected $1.3 million of previously deferred rent. We expect to collect an additional $700,000 by year end, $1.7 million in 2021, and $100,000 in 2022. Please see the COVID update information in the supplemental package with detailed information on rent collections and deferrals starting on page 27. Our core operating portfolio occupancy for the third quarter was strong at 95%, with office at 97%, retail at 94%, and multifamily at 96%. Over the next couple quarters, we are expecting retail and overall occupancy to be lowered by 6% to 2.5%, respectively, due to known upcoming vacancies. We've come to an agreement with Bed Bath on the future of our four stores. All amounts due per the leases were paid, and two of the leases, the north point and window locations, will be terminated effective January 31st, 2021, and we were paid termination fees of $1.1 million. As part of the agreement, we are negotiating a relocation right for the town center location. This combined with the regal termination provides us with 10 acres a prime mixed-use real estate, including a large multifamily component. Please see the table on page 28 for more information on known terminations. The termination of the regal leases, along with the current and upcoming vacancies, our NOI will be lower, which we expect to have a negative impact on our leverage metrics and NAV. We are expecting our leverage to get higher until new tenants in place. But as Lou said, we are seeing a lot of leasing activity on the vacant space, so the higher leverage should be temporary. As for NAV, the land value of the regal properties is worth at least as much as capping the former NOI. In addition, the other vacant space has true value, and we believe it will be re-leased or redeveloped. As we've discussed, we had pre-development on the two regal sites. Please see our NAV component data on page A of the supplemental package. We've added a section on the bottom left of this page with information on management's estimate of value of the land in vacant space at September 30th. The 90,000 square feet of vacancies listed have active prospects along with potential rent ranges. In addition, it includes ranges of value for the regal parcels. We believe this is real value and should be considered when evaluating our NAV. The pandemic continued to negatively impact our same store NOI in the third quarter, Gap NOI was negative 8.7% and cash NOI was negative 5%. Multi-family same-store NOI was negative 2.5% this quarter due to a 68% increase in real estate taxes. Our releasing spreads were positive this quarter. Retail was positive 3.6% on a gap basis and 5.1% on a cash basis. There were no office renewals in the quarter. We continue to take action to increase our liquidity and strengthen the balance sheet. With our common stock trading at current levels, we have utilized other sources to raise capital, including asset sales. During the quarter, we sold one unencumbered retail asset and expect two assets resulting in a total of $106 million of asset sales in 2020. In August, we raised $86 million by reopening our original issuance of existing Series A preferred stocks. The shares were priced at $24.75, a 25-cent discount to par, which is a yield of 6.82%. We decided to issue preferred at the time and price due to it being less destructive to NAV and less costly than issuing common. We believe that enhancing our liquidity position in this environment is an important move to position the company for the recession and future growth. As Lou said, we believe preferred stocks should account for no more than 15% of our capital stack. This preferred raise was for liquidity and a bridge to get through the recession. We do not anticipate issuing any more preferred stocks in the foreseeable future. Going forward, we anticipate raising capital primarily through asset sales and to a lesser extent for our common stock ATM, depending on market conditions. In total, since the pandemic started, we have raised a total of $200 million through asset sales and preferred stock issuance. We now have total equity of $200 million combined in cash and availability through our credit facility, which is the highest level we've had as a public company. The credit portion of our credit facility has been completely paid off. Recently, two unencumbered Harris Teeter Centers, Hanbury and Sandbridge, were added to the borrowing base. We are now positioned to take advantage of the opportunities that we discussed. With rent collections in the high 90s and our current liquidity, we started our first development project since the pandemic started, the apartments in Gainesville, Georgia. At this time, we have not started any of the suspended development projects, but I hope to over the next several months if the economy continues to improve. As for debt maturities, we have no maturities for the remainder of 2020 and five loans mature in 2021. We have discussions with the lenders for all five loans and do not anticipate any issues getting these refinanced. This morning, we issued updated 2020 guidance of $1.10 to $1.12 of normalized FFO per share. This guidance includes an additional $500,000 in projected bad debt, selling two properties for $8 million, acquiring the Edison and Annapolis Junction Apartments. The details of our guidance are on page six of our supplemental package. We look forward to finalizing our future capital plan and discussing our guidance for 2021 on our next call in three months. Now I'll turn the call back over.
spk04: Thanks, Mike. Operator, we'd like to begin our question and answer session.
spk05: Thank you. Ladies and gentlemen, if you have a question at this time, please press star 1 on your telephone. If your question has been answered and you wish to withdraw it, you may do so by pressing star 2. If you're using a speakerphone today, please pick up your handset before entering your request. Our first question is from Dave Rogers with Baird. Please proceed with your question.
spk01: Yeah, Lou, Mike, good morning. Lou, I wanted to go back to something you had said, and maybe I didn't hear it right, but I I thought you said in your prepared comments about growing the retail portion of the portfolio, it's becoming an important – well, it's always important, but becoming even a more important piece of that. But I look at the development pipeline, and I see apartments and office. So I guess I wanted to kind of understand that comment, if I heard that correctly.
spk04: Sure. Glad you heard it correctly, Dave, and good morning. As you know, our bread and butter is mixed-use developments. retail is always going to play an important part in those developments and adds, obviously, to the synergy of the entire development. We expect that that's going to continue. So that segment of the business is going to grow. It's just not going to grow at the same pace as the other segments.
spk01: So still looking at retail being a smaller component, which I think is what you had communicated over the last couple of years.
spk04: Yeah, exactly. As I think everybody knows, as a snapshot in time, we sold in 2016, we sold two big office facilities for some hundred and some odd billion dollars and bought several grocery anchored shopping centers with that money. That kind of threw us into a situation where nearly half of the portfolio was retail. and we've been whittling ways back to what we consider a normal mix ever since. But like I said, mixed-use retail is going to continue to be an important part of our business, as well as the grocery anchored neighborhood centers. Just about all the grocers we deal with are in expansion mode, so I'm looking forward to doing a few of those. It's just not going to grow as fast as the larger projects.
spk01: Gotcha. That's helpful. Maybe Lou or Mike, yields on Annapolis Junction and Nexton as you bring them on and kind of how you look at leverage with those two particular assets obviously coming out of the mezzanine book.
spk04: Sure. I'll let Mike answer the leverage question. Annapolis Junction is now sitting at 97% leads. We expect that it's going to stabilized in the six, six and a half million dollar range. Once it cycles through, it's leased up incentives, which are coming up here shortly. Mike, on the leverage?
spk03: On the leverage, we closed on a loan, which we got some really good terms, you know, in rates today, like 2.74%. And we've been working on, as you know, Dave, raising all this equity here over the last six months since the pandemic started to position the balance sheet to take on this additional debt with these new acquisitions.
spk04: Dave, on Nexton, we expected that to stabilize in the high sevens. We're very excited about that project, and actually we're very excited about that entire area. You may have... We have read last month that Boeing has decided that the entirety of the 737 MAX program is going to be handled out of South Carolina. And that's only a few miles from our site.
spk01: Okay, that's helpful. And then... I guess maybe just last for me, you guys have done a great job of creating liquidity here in the last quarter or two with the preferred, with the asset sales. But I guess as you look forward, the capacity that you have on the line, it sounds like you're committing a decent portion of that to be the equity of your future development pipeline. I guess how do you anticipate handling the re-equitization as those projects come online? You know, if the stock's not there, would we anticipate just more asset sales, run at higher leverage? How do you think about that kind of over a two- to three-year period?
spk04: Well, Dave, the short answer is we expect the stock to be back where it's supposed to be. Accepting that, we're in a great position in being able to cherry-pick only the top candidates for development. As I mentioned earlier, we're looking at extended spreads to skew into the higher end than has been traditionally we've been able to achieve. And so we suspect that a number of those are going to be right-sized equity-wise or close to it when they do come online and stay blocked. Our expectation is that a lot of that equity you're referring to will be created rather than picked up in the market.
spk03: Yeah, it's also going to take a long time. By the time you start these projects, you know, we've only started one at this point in time, so you can start them over the next three to six months, two years, year and a half development timeframe, and then real well into 2022 before you really need to be looking at this, you know, funding the equity on a stabilized basis of plenty of run time.
spk05: Okay. Thank you, guys. Thanks, Dave. And our next question is from Rob Stevenson with Janney. Please proceed with your question.
spk02: Good morning, guys. Luke, can you talk about how strong the theaters were prior to COVID? And just like how expensive is redeveloping a theater? I assume that as you're talking about doing mixed use here, that this is just a bulldoze? Because I think one of the axioms in real estate is, other than location, location, location, is once a theater, always a theater. So how are you guys thinking about that?
spk04: Well, thanks, Rob. That's a very good axiom. Yeah, there is no percentage to be gained in redeveloping a theater. Here at Town Center, it is a bulldoze situation. Interestingly, the first part of your question was how well did those theaters do. The one in Harrisonburg did extremely well. It's the only movie theater of any size for 100 miles, and it's next to the campus of James Madison University with 26,000 students. So you might expect, that that tenant is interested in trying to continue. And so we're going to try and work out a – it's a 10-acre site that just has the movie theater on it. So what we would like to do is enable them to come back when the theater business comes back, assuming that they've got their financing in mind, as well as doing a mixed-use facility on the same site. At Town Center, you're looking at relatively cheap redevelopment in that you're simply bulldozing it and carrying it away. But, again, that's an interesting – I don't want to get off on a tangent, but we're very excited about that site in conjunction with the FedVac and beyond. Those two parcels together are 10 acres that border on Town Center. The city of Virginia Beach is very interested in us redeveloping those into more town center type activities. As we said, it's going to have a significant multifamily component. So really excited about both of those projects and looking back to Dave's question, with that land already in hand and the kind of spreads that we think we're going to be able to achieve, I wouldn't be surprised if those are right-sized equity-wise as soon as we get them up.
spk02: Okay. And then in terms of the JMU location, does that campus need more student housing or is that likely to be mostly retail to support the surrounding area? How are you guys thinking about that and your appetite for student housing, you know, given the experiences of late and as well as the stuff with Hopkins, et cetera?
spk04: Okay. While we're in conversations with city officials in Harrisonburg, there's a need for housing in that corridor. I doubt we would do a purpose-built student housing facility. It could be more along the lines of what we have adjacent to Virginia Tech, where we have market-rate apartments that happen to have a lot of students in them, as well as faculty and everyday people. So there's going to be a significant multifamily component. The city is very much interested in mixed use and in walkability in that corridor, and we intend to work with them to really maximize the site. We've got 10 prime acres essentially at ground zero in Harrisonburg, and we want to make sure we do it right.
spk02: Okay. And then giving your comments before about asset sales being the primary source of capital until the common comes back to near previous levels, how are you guys thinking about potentially doing asset sales if that market continues to be decent and buying back stock given where the implied yield is on your existing portfolio of assets these days? at a $9 stock price.
spk04: We are not fans of buying back stock. We don't think long-term that's not the best use of our capital. We are in a real estate development game, and that's where this company is going to stay and continue to grow. In terms of the asset sales, I want to make sure we were clear, as Mike and I both tried to point it out, We are cash positive, even at the low level that we have in our NOI. Our fixed charge coverage is over two and a half. And even with the dividends, we're well over one and a half. So the $200 million that Mike referenced that's on our balance sheet, that's primarily going to take care of our needs for the foreseeable future. What we're talking about is further out. is going ahead with sale of some non-core assets. You mentioned student housing. We don't consider our student housing facilities to be core. And as you know, those are very low cap rate assets. But obviously, once the pandemic is over and needs to be stabilized, it's going to be a better time to look at whether or not you want to sell those.
spk02: Okay. And then last one from me. Mike, did you say that the $1.1 million of termination fees are just for the two Bed, Bath & Beyonds, or does that include BILO or anything with Regal as well?
spk03: Yeah, there's no termination fees with Regal since we terminated those. The Bed, Bath & Beyond were $1.1 million. But from that perspective, because they're going to be in the buildings until January 31st, it's straight lines until January 31st. We picked up just one month of that termination season, the third quarter numbers. Okay.
spk02: Thanks, guys. Appreciate it.
spk05: Thanks, guys. And our next question is from Bill Crow with Raymond James. Please proceed with your question.
spk00: Hey, good morning. A couple of questions for me. The watch list besides the tenants you've identified that are moving out, what's that look like? Good morning, Bill.
spk04: As you might expect, we have an active watch list that is predominantly the restaurants and personal services people. They're still under some restrictions. They've done exceedingly well. We lost a couple of restaurants here at Town Center actually pre-pandemic, and we already are in negotiations. I mean, we may even have letters and intent signed with replacements for those tenants. The list has shrunk considerably. Once we, you know, once the retails went away, the two bed baths and the woodwork has taken a lot off the table. We don't see anybody really material at this point. Like I said, we have a lot of small mom and pops that are still struggling. We're trying to help them through it. Everybody's working through. Everybody's honoring the deferred rent agreements. And obviously, we're very optimistic at the same time. We know that there's a lot of pain out there. We've worked with tenants for 40 years. We're going to continue working with them here. But we really don't see I really don't see any big bumps in the road that are out there.
spk00: All right. Thanks. And maybe for Mike, if you went back pre-pandemic and looked at where your share price was and your balance sheet and everything else, and fast forward to today with the preferreds, with the stock price and facing a handful of refinancings that I assume will bring some higher interest rates, and maybe I'm wrong there, but What do you think is happening to your cost of capital and, I guess, maybe to Lou, how does that impact your decision-making on external growth initiatives?
spk03: That's a good question, Bill. First, on the interest rates, what we're seeing with the long-term fixed-rate loans, interest rates are lower. We saw an AJ at 274, and most of what we're seeing in the long term are in that 2%. I think on consumerism, Construction loans, certainly rates are going up, but I don't know about on stabilized assets. One of the reasons that we did the preferred rates back in August is if you take a look at the cost of capital in the common, you know, your – I don't know how you look at it from an earnings standpoint, but it was getting up there pretty high. But if you take the preferred at 7% or less and then mix in with that 3%, interest, you're at a, you know, you're at a 5% cost of capital. The other one affects us is asset sales and to what extent does that affect your NED and all except that you get to a lot of cost of capital. So that's what we're looking at, especially with the preferred raise where the commonware it is so that we can work on these development deals and have them be accretive. Okay. All right.
spk00: Thank you.
spk05: Okay. And our next question is from Dave Rogers with Baird. Please proceed with your question.
spk01: Yeah, Mike, maybe just a cleanup question on the write-offs and the abatements. It looked like you collected about 20% of the prior deferrals, wrote off or abated another 40% or so. How much of that's related to the tenants you've already talked about versus tenants maybe that are just still in the wind? I guess I'm trying to gauge how much of that is still kind of at risk when we think about what could be written off or what may be abated here in the near term.
spk03: Yeah, certainly in the write-off, you've got, you know, the deferred rents like the regals and et cetera that we're part of that. And there's certainly a lot going on between where we were at the end of the second quarter and where we are today to work through everything with the tenants. I think where we are today at $2.5 million a year, we feel – we feel pretty comfortable with collecting this $2.5 million and where we are with these tenants now. Like I said, if we go back into lockdowns and all of a sudden we don't have another, you know, another bill with PCP money to help these people out, that could change. But from what we're seeing today, we feel good about the $2.5.
spk04: I think, Dave, I think it's important and we keep seeing headlines with people wanting to paint everything with the same brush. I tried to highlight in our locations there still is obviously a lot of pain, but you'd be amazed at the amount of activity that we have around these vacancies. People know that at some point this pandemic will be over. People know that in these markets people continue to move in and invest. So we're really anticipating a very quick turnaround in terms of getting that space back up and running.
spk01: Okay, yeah, thanks for that, Lou. Delray, you said that there's a signed letter of intent. You're not acquiring that, are you?
spk04: We are going to acquire that.
spk01: Okay, I wasn't clear, so thank you. Yeah, yeah.
spk04: We're able to acquire a significant discount to pre-pandemic value. We may well, once the pandemic is over, you might see us put that right back out on the block. But we're happy to take it in the midst of this. Like I said, the pandemic is god-awful, but at the same time, it has created some opportunities. And it's a There's very small consolation, but there are some.
spk05: Okay, thanks for the added color. And we have reached the end of the question-and-answer session, and I'll now hand the call back over to Lou Haddad for any closing remarks.
spk04: Thanks, everybody. We really appreciate your attention this morning. We're excited to talk. We can't wait for our next earnings call where we can talk about guidance and hopefully talk about the end of this pandemic and what it means for our company moving forward. We're excited about our position. We're excited about what lies before us. And we look forward to performing much as you've seen us do over the last seven years. Thanks very much, and have a great day. Bye-bye.
spk05: We have reached the end of the conference call. Thank you for dialing in. You may now disconnect your line.
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