Macerich Company (The)

Good day and welcome to the Nice Rich Company Third Quarter 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jean Wood, Vice President of Investor Relations. Please go ahead.

Thank you and good morning. Thank you all for joining us on our Third Quarter 2020 Earnings Call. During the course of this call, we will be making certain statements that may be deemed forward-looking within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995, including statements regarding projections, plans, or future expectations. Actual results may differ materially due to a variety of risks and uncertainties set forth in today's press release and our MCC files. including the adverse impact of the novel coronavirus, COVID-19, on the U.S. regional and global economy and the financial condition and results of operations of the company and its tenants. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the earnings release and supplemental filed on Form 8K with the SEC. which are posted in the investor section of the company's website at makesrich.com. Joining us today are Tom O'Hearn, Chief Executive Officer, Scott Kingsmore, Senior Executive Vice President and Chief Financial Officer, and Dex Healey, Senior Executive Vice President Policy. With that, I would like to turn the call over to Tom.

Thank you, Jean. and thank all of you for joining us today as we continue to navigate through these unprecedented times. As you read in our earnings release, the third quarter was a challenging quarter, albeit better than the second quarter in most respects. We had releasing spreads of 5% and occupancy at nearly 91%. At the end of the third quarter, most of our town centers were open, with only our three enclosed centers in Los Angeles remaining closed by government mandate. Those centers reopened in early October, so as of today, all of our centers are open and our tenants are eagerly planning for a busy holiday season. Most of the results were better than the second quarter, but we were obviously adversely impacted in the quarter due to COVID in general, and specifically due to the protracted California and New York City closures. The number one priority during the quarter was to safely reopen all of our centers, get our tenants open, and get the employees rehired and back to work and to welcome back our shoppers. I'm very appreciative of the entire Mace Ridge team that did a tremendous job of getting our centers reopened safely, in some cases for a second time. Some of the self-help and safety measures we took went way beyond CDC recommendations and included significantly upgrading our air filtration systems to include hospital-quality air filtration with more than 13 filters, who engaged the Clinical Head of Infectious Disease at UCLA Medical Center to review and advise us on our protocols and policies. We hired a nationally renowned engineering firm to advise us on advanced HVAC systems and protocols. We implemented modified hours. There are increased cleaning and sanitizing protocols, CDC guidelines, and approved products that are baseline for our services. In terms of rent collections, we were much better off in the third quarter compared to the second quarter. During the third quarter, our average rent collections were 80%. October was trending above 80%. For most of the tenants not paying rent during the closure period, we would generally come to terms with them. In general, we agreed to rent relief usually in the form of deferred rent for the closure months for prepayment in 2021. In many cases, in exchange for landlord favorable amendments to leases. There were some large reserves for uncollectible rents in the quarter, which Scott will comment on. Cash flow continues to improve by the month as we move into the fourth quarter, and I expect that to continue. As of today, we have significant liquidity and currently have approximately $675 million of cash on the balance sheet. The tenant reaction to reopening has been good. The tenants, almost without exception, were eager to get reopened. By October, after centers opened, at least eight-week sales were up to 90% at pre-COVID levels. The consumer is shopping with a purpose, and there has been kept-up demand. Our second quarter was more about getting centers open and getting our tenants open safely and less about leasing. The focus in the food court was collecting capacity rents and started to shift back to leasing. Looking at traffic in general, it's running about 80% compared to a year ago. Some of that has to do with capacity limits, particularly for restaurants, and also for having no seating in the food court. Sales, on the other hand, are running on average 90% of a year ago, which means there is a higher capture rate. This year will be a different holiday season. We believe it's going to start earlier. Operating hours will be shorter. There will be capacity limits, and most stores will be closed on Thanksgiving Day. With consumers not spending money on vacations and entertainment during COVID, most of our consumers in our markets have money to spend this holiday season. Top categories are expected to be fitness and wellness, home furnishings, electronics, and athletic leisure. There will be Santa Fiasca photos, but with lots of social distancing. We've had a number of questions about potential for property tax increases in California. Although small in the political scheme of things, there was a proposition in California that would have increased property taxes on commercial property. It's known as Proposition 15. That proposition would have removed the protection of Prop 13 from commercial properties in California. For us, generally, we structure our leases to pass through taxes to the tenant as a recoverable expense for the significant bottom line impact if the trial vote shows Prop 15 passing. As of today, it is trailing. The yes votes stand at 48.7 and the no are at 51.3%. So hopefully that means no increase for commercial taxes in California. Looking at the balance of 2020, the pandemic has shown that good retail is not going away, especially in inequality centers. These new native brands appreciate more than ever the profitability of their physical stores. Big film out retailers got active again in the third quarter, and you'll hear some of the specifics from that. Although we are still in the midst of COVID, our centers are operating at 90% capacity, sales levels of 90% pre-COVID, and even if you look at one of the more challenging categories, restaurants, in our portfolio, we have 247 restaurants, and 94% of those are open today. The second quarter was an extremely unique quarter, and some of the second quarter challenges carried into the third quarter and may even carry partially into the fourth quarter. But many metrics got better in the third quarter, specifically collections and the member of tenants open and the progress we're making on leasing activity. The impact on reserves for doctoral accounts was less than the second quarter of 2020, but still much higher than normal. We expect to gradually improve to a more normal level in the first quarter of 2021. Although there are still too many uncertainties to give guidance, we expect the fourth quarter of 2020 and the year 2021 to be much better than the second and third quarters of 2020. And now I'll turn it over to Scott.

Thank you, Tom. Disruption from COVID-19 continued to severely impact 2020 results in the third quarter. Plans from operations for the third quarter was 52 cents per share, down from the third quarter of 2019 at 88 cents per share. James Cernan that operating income for the quarter is down 29% and year-to-date is down 17%. Changes between the third quarter of 2020 versus the third quarter of 2019 were driven primarily by the following factors and the numbers I'm going to quote are at share for the company. One, $20 million, $21 million in bad debt allowance in the form of $13 million of increased bad debt expense versus the third quarter of 2019 coupled with are all accounted for in the cash basis per gap within the third quarter. Two, over $20 million of short-term non-recurring rental assistance. Three, a $9 million decline in common area and employee revenue as well as percentage rent. Four, a $20 million decline in parking income driven by protracted property closures and reduced parking utilization. at our urban centers in New York City and Chicago primarily. Five, interest expense increased $4 million due to a decline in capitalized interest. Six, net operating income declined from the Hyatt Regency Hotel at my corner. It was about a $2 million decline. Seven, a negative 3 cents per share diluted impact from shares issued in the second quarter relating to our stock dividend issued in the second quarter. These factors were all offset by increased lease termination income of $7 million and land sale gains totaling $11 million in net impact. Revenue declines from occupancy loss also contributed to claims in both net operating income and FFO within the quarter. As Tom mentioned, we are not providing updated 2020 earnings guidance given the uncertainty. We do anticipate continued volatility operating results in the fourth quarter, While we're not providing guidance for 2021, as we mentioned last quarter, we still believe that 2020 will be a trough in the company's operating results, including primarily to the following factors. The pandemic has effectively accelerated the financial trouble of numerous retail companies, resulting in a wave of bankruptcy filings that were funneled into 2020. We do not anticipate this going to occur in 2021. The majority of the filings have resulted in reorgs and not full fleet liquidations. We do expect approximately a 3% cumulative drop in occupancy from lease rejections, approximately half of which is already embedded within the 90.8% reported occupancy during the third quarter, and the balance of these fillers will close within the fourth quarter. We have recorded $57 million in additional bad debt reserves in versus 2019, including $50 million of bad debt expenses and $7 million of lease revenue reversals for tenants accounted for on our cash basis. Similar levels of reserves are certainly not anticipated going forward. We've recorded well over $20 million in non-repairing short-term rental assistance year-to-date, and we expect those to continue into the fourth quarter of 2020. And then lastly, we anticipate increases to transit revenue lines going forward into 2021, namely the percentage rent, temporary tenant income, parking garage revenue, advertising, sponsorship, lending, and other ancillary property-driven revenue. We look forward to providing 2021 guidance on our fiscal cadence this time next quarter. Given the continued improvement in rent collections of 80% in the third quarter and over 80% in October, liquidity continues to improve. Cash on hand has increased from $573 million at June 30th to $630 million at September 30th, and as Tom noted, liquidity continues to improve to this day. This improved liquidity is certainly due to improved operating cash flow and is a testament to the hurtful efforts by our people to both secure the right to open all of our properties and to negotiate thousands of agreements with our retailers. With continued progress in these negotiations, which Doug will soon elaborate upon, we anticipate further improvements to operating cash flow throughout the year. We are focusing on a 10-year, $95 million financing on Tyson's Vita, the residential tower at Tyson's Corner. The loan will have a fixed rate of 3.3% and will include interest-only payments during the entire loan term. This will provide approximately $37 million in liquidity to the company, and we expect the loan closing to occur within the next several weeks. We secured a short-term extension on Danbury and Ferris through April 1, 2021. The loan amount and interest rate remain unchanged following that extension. We've agreed to terms with the loan servicer for a three-year extension on Flash Mallet with Niagara, which will extend the loan maturity through October of 2023. We expect the loan amount and interest rate also to be unchanged following that extension. And then lastly, we continue to work with our lenders to secure loan extensions for the non-request mortgages on each of Flatiron Crossing, Green Acres Mall, and the power center adjacent to that, Green Acres Commons. And we anticipate securing an extended term within the coming weeks. Now I will turn it over to Doug to discuss the leasing and operating requirements.

Thanks, Scott. Like the second quarter, the majority of our efforts in the third quarter involve getting our retail partners open as quickly and as safely as possible once our centers were allowed to reopen. To date, all of our properties are open, and I'm happy to report that 93% of the square footage that was open pre-COVID is now open today. As I discussed on our last call and has been the case in the third quarter, much of our time and energy was spent working with those retailers that did not have the ability to pay rent while closed. and we've made great progress. In fact, if we look at our top 200 rent-paying retailers, we've either received full rent payments or secured executed documents with 147 and they're in LOI with another 23, all of which totals approximately 93% of the total rent these top 200 pay. Consequently, collections continue to improve. Third quarter saw an average collection rate of 80% That's compared to 61% in the second quarter. And as of today, as Tom mentioned, our collection rate for October stands at about 81%. But the third quarter wasn't all about collection. As our centers continue to open, and as our retailers opened and were able to trade with some consistency, the leasing climate began to improve. Retailers began executing leases that have been out since before COVID. But most importantly, the retailers began committing to new deals again, a true sign that for the first time in months, they're now looking forward rather than solely focusing on the past. I'll expand on this in a moment, but first let's take a look at some of the third quarter metrics. Related sales for the third quarter were $718 per square foot, and that's computed to exclude the period of COVID closures for each tenant. The 718 is down from $800 per square foot at the end of the third quarter of 2019. Percentage opened the entire month. Sales in September were actually 92% of what they were a year ago, once we exclude Apple and Tesla. Occupancy at the end of the third quarter was 90.8%. That's down 50 basis points from last quarter and down 3% from a year ago. And this is primarily due to slow closures from bankruptcies, and from our local tenants that couldn't survive the pandemic. Temporary occupancy was 5.7%. That's down 70 basis points from this time last year. Growing 12-month leasing spreads were 4.9%. That's down from 5.1% last quarter and down from 8.3% in Q3 2019. Average rent for the portfolio was $62.29 found from $62.48 last quarter, but up 1.8% from $61.16 one year ago. As I mentioned earlier, the leasing environment continues to improve. In the third quarter, we signed 120 leases to 342,000 square feet. This is over three times the number of deals and square footage that was signed in the second quarter. And these stats do not include any COVID workouts. Some leases signed in the third quarter of note include Gucci, Fashion Outlets of Chicago, Ducati Paris at Scottsdale Fashion Square, Kids Empire and State 48 Brewery at Santan, Barberies Grill at Danbury Fair, Starbucks at Fashion District Philadelphia, Madison Reed at 29th Street, Full Star at Village of Porta Madera, and finally Lucid Motors at Scottsdale Fashion Square and Tyson's Corner. both Lucid and Polestar are new additions to the electronic car category and first to the Mayswitch portfolio. As we head toward the end of the year, much of our focus is on our 2021 lease expiration and finalizing deals in order to secure as much expiring score footage in 2021 as possible. At this point in time, by virtue of COVID workouts and through the normal course of leasing, we have commitments on 26% of our 2021 expiring score footage, with another 67% in the LOI stage. This brings our total leasing activity on 2021 expiring score footages to just over 90%. Turning to openings in the third quarter. We opened 4,400 tenants and 276,000 square feet, resulting in total annual rent of $11.3 million. This represents 65% of the openings we had at the same quarter last year, but with 15% more square footage and virtually the same total annual rent. Given the conditions our industry has faced over the last several months, I think this speaks volumes to the strength of the leasing pipeline we had pre-pandemic. Notable openings include Adidas and Tory Burch at Fashion Outlets of Niagara Falls, Perry at Vintage Fair, West Balm at La Encantada, and Golden Goose, Capital One Cafe, and a new Levi's store at Scottsdale Fashion Square. In the large-format category, we opened Dick's Voiding Goods at Deptford Mall in a portion of a former Sears store, Saratoga Hospital at Wilton Mall, also in a former Sears store, a new and spectacular-looking restoration hardware gallery at Village at Fort Madera. And all this was in the third quarter. In October, we finished the repurposing of Sears at Deptford with the opening of Round 1. And also in October, we remained active with Dick's Sporting Goods, opening them at Vintage Fair in a portion of Sears and at Danbury Fair in the former Forever 21 box. The digitally native and emerging brands continue to expand their omnichannel presence by opening stores. The third quarter was no exception. We opened Amazon 4 Star and Indochino at Scottsdale, two Warby Parker stores at Scottsdale and 29th Street along with Amazon Books and Temple Pedic at Flatiron Crossing. And our pipeline remains strong. At this point, we have signed leases with 190 retailers scheduled to open throughout the remainder of 2020 and into 2021. This totals 1.7 million square feet for a total annual rent of $63 million. And since the pandemic, Only nine of these retailers with signed commitments have informed us that they won't be reopening. The total impact of this is only 60,000 square feet of the 1.7 million square feet, and only 3 million of the $63 million in total rent. Lastly, I want to address the issue of traffic. There's been a ton of focus on traffic, and the fact traffic is down compared with last year. And it is. There's no arguing that. However, I struggle with the notion that traffic seems to be perceived as the sole means to a retailer's success. Why are we talking more about conversion or sales than the combination of both? Despite less traffic, the Macewich portfolio has seen tremendous success in the reopening of stores that were forced to close due to COVID. Like Primark at Danbury, being the number one store in its region since reopening. Or like Bath and Body Works at Freehold, beating last year's sales three months in a row with capacity limited to 50%. For home goods at Atlas Park, outperforming last year by 15% while also at 50% capacity. For Burlington, reopening at Kings Plaza and selling through inventory that took a month to replace. For Sephora at Broadway Plaza, which is currently ranked as one of the top stores in their company by virtue of conversion rates, that are 20% to 30% higher than last year. And round one at Deptford and Valley River, operating at full capacity with hour-long waits at night and on weekends. For house luxury retailers at Scottsdale Fashion Square, such as Gucci, Louis Vuitton, and Golden Goose, all exceeding planned by 25% to 40%. On North Italia, a restaurant at La Concatata, back to pre-COVID sales, even at 50% occupancy. and Tilly's at Arrowhead who reported double-digit sales increases since reopening in May and is expecting the best holiday season ever at this location. And the list goes on and on. Unfortunately, these success stories are too often overshadowed by the overwhelming focus on the effect this pandemic has had on traffic in the short term and pre-vaccine. Make no mistake, traffic is important. There's no denying that. Barbara, I do think it's time we stop thinking so one-dimensionally and focus on other metrics in addition to simply traffic. And when we do, I think we'll all find that we are in a much better place than many think. And with that, I'll turn it over to the operator to open up the call for Q&A.

Thank you. Please note we will be limiting the call to one hour today. We ask that you limit yourself to one question with one follow-up question. And if you have more questions... Please queue up again so that everyone has an opportunity to ask a question. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad, and if they're using speakerphone, please make sure your mute function is turned off to allow your signal to reach your equipment. Again, star 1 to ask a question. Pause a moment so that everyone has an opportunity to signal for questions. And we will go to that first question from Craig Schmidt of Bank of America.

Hi, Craig. I was just wondering, given the late opening of some of the enclosed malls, are they able to get fully stocked in inventory for holiday dinners, or has this limited their ability to be closed up?

Hi, Craig. How are you? Actually, as a result of having closed once and reopened, most of the retailers had a little bit of experience in managing their inventory and being ready to go. In California, even though we didn't know exactly when the enclosed malls were going to open, the retailers had a decent expectation. They had their inventory lined up and were in a pretty good position, both in terms of inventory and employees, because most of the employees had been furloughed. And even with generous unemployment benefits, a lot of them found difficulty in getting their employees back. But they did, and most of our employees have been ready for the holiday season. Great.

And then a follow-up. Is Maystritch fully liable for all the debt and guarantees that fashion districts throw it out there?

No, Craig. That's a loan that is a several loan to half the obligations. It's 10-week, half the obligations, Maystritch.

Okay. Thank you.

And we'll move to our next question from Mike Mueller of J.C. Morgan.

Hi. For the 91% of 2021 recent activity votes referenced, can you talk a little bit about how the spreads are on that is compared to what you just reported for this quarter?

I'm sorry. Could you repeat the question, please?

Yeah, for the leasing activity for 2021 that you walked through, what are the glimpsed threads on that?

Scott, feel free to jump in.

Yeah, so, Mike, good morning. The hazards of a call when we're all separated here. We haven't considered the spreads. I would say this, though. We're using this as an opportunity given in front of our 21X3s. Our largest focus right now is occupancy. Occupancy is critical, certainly more critical than the final dollar rate as a result of some of the declines in occupancy. I would expect perhaps our shirts to paper a bit. But we don't have that metric computed at this point. You know, bear in mind that the strategy we're taking right now, focusing on occupancy rather than every dollar rate, very similar to what we did about 10 years ago coming out of the recession, is actually to be a very good strategy. And so, you know, these renewals, I would say, are going to err on the side of being shorter rather than longer to give us an opportunity to reprice when the environment is better a couple years from now.

The actual spreads that we reported, though, to the extent a lease has been signed, even if it's a 2021 start, it's included in the leasing spread. So I think last quarter we were 7%, third quarter we were 5%. So to the extent any of those leases, Doug referenced, the 2021 openings are actually signed deals rather than letter of intent, they will be in our spreads that we reported in the second and third quarter. Got it.

And then to follow up, Can you talk about how strong the candidate interest is and the activity levels when you look at your top quartile portfolio compared to the bottom three-quarters of it?

Yeah, I can take that, Mike. You know, when the pandemic shut down the malls, our business really came to a screeching halt. I mean, nobody was really focused on real estate or leasing. The retailers were focused on their corporate offices, their employees, and getting their stores back open. But, you know, since the retailers have opened and, as I mentioned, been trading for 60, 90 days and understanding that they can get back to 90% of where they were last year, the interest has really started to peak. And it's interesting, our top, I think you mentioned our top quartile, our top 20 properties, you know, have normally been 16 or 17 properties. 95% and 96% leased. And now we see them 93% and 92% and 93% leased. So what that says really is the first time in years we have some real good space opening up in some of our top tier centers. And that hasn't happened in a while. And that's really piqued the interest of some of these retailers that are going to be and want to be opportunistic. Those that went into the pandemic with strong balance sheets Great product, and it's come out on the other side in good shape. I'm going to take advantage of that.

Got it. Okay. Thank you.

And we'll go to our next question. This is Laura from Compass Point.

Hi, guys. Thanks for taking my question.

I wanted to get a sense of how your third quarter

Billable rents compared to your first quarter billable rents. So the markets could get a sense of what is the run rate in NOI and how much has it declined.

And presumably with the leasing activity that you guys are talking about, you're setting yourself up for some increase off that date.

But if you can give some more color on that, that would be great.

Good morning. I don't have that figure handy. We can perhaps follow up offline. But I will say that, you know, the third quarter is certainly the going rate in the third quarter is down a bit. The first quarter, as one can imagine, you've got some short-term rental concessions that have backed at the end of the third quarter, primarily with locals in some challenge categories. And then We have some orchards as a result of the bankruptcy. So certainly that has reduced the billable rate in the third quarter relative to the first quarter pre-pandemic. But I do not have that factor in front of me. Maybe we can follow up offline. My follow-up question may be, you know, has your, you know, your pitch to tenants changed

Thank you, Boris. It's Doug. I don't think our position has changed really at all. Our focus has been and continues to be

We're morphing our malls into what we call town centers where there's something for everybody. That hasn't changed. I think it's slowed down the process in some of the categories where we look to bring entertainment, theaters, experiential concepts to the properties. That slowed a little bit, but it's not going away. It's going to come back, and it's going to come back in a different form. That category does still remain active. Our philosophy of town centers and creating such hasn't changed a bit.

Great.

And so we'll move to our next question, which comes from Michael Bellarmine of CITIC.

Hey, it's Micah Bowman here. My name is Tom. Tom, I was wondering if you can spend some time talking about sort of leverage levels. And, you know, I understand from the liquidity standpoint the company has a fair amount of liquidity and you've certainly shored that up by having the extensions on Danbury and Fashion Outlets and getting a new loan on Tyson on the Reggie Complex. And it sounds like you're doing the same for Flatiron and Green Acres. The overall leverage level of the company remains quite high. And so how are you thinking about addressing that element in terms of raising some additional equity capital, either through sales, maybe it's handing back keys of assets that may be over-leveraged, or are you planning on just waiting it out?

Well, Michael, much as we saw the great financial crisis, the capital markets have a have basically shut down, so now isn't a particularly good time to be raising capital to deliver. That'll change, we start changing in 2009 and 2010, and that'll happen again. The same will happen with Apple Part 4 assets. As you recall, we sold 25 balls coming out of the financial crisis starting in 2011, generated about a billion and a half of liquidity, so... We expect post-pandemic, post-vaccine, things will return to a more normal level and we'll have the opportunity to dispose of non-core assets and use that capital for reducing leverage levels. One thing I would point out is given the current Thank you for watching.

You've given an update on the line of credit which you extended this past July. You used your linear extension to push it out to next July. It's obviously predominantly all drawn. Can you just help us sort of understand whether we'll be able to get the full $1.5 billion of proceeds as you look to refinance that? And if there's any sort of capital commitments You know, that your joint venture partners, because you give a lot of joint venture assets, you know, are not willing to fund them anyway.

I'll take the first part of that and then the last part of that, and then you can elaborate, Stunt. As Jim came back, we extended our line of credit, and we're currently in conversations with our line lenders to... We've got some time. We've also got a 22-year relationship in that bank group, so this will be the seventh time we've recast that line of credit. So those discussions are early on. It's too early to tell you what the terms would look like and the overall amounts, but obviously we have a fair amount of cash on the balance sheet as well, and at some point that would be used to reduce the amount of credit balance. But that's early in the discussions, and then And so far, I think all of our joint venture partners have been similar to us in terms of being cautious about capital spending during the pandemic. Very similar to what we saw in the financial crisis, and that has been said to improve capital spending increases, and I would expect to see that post-COVID as well.

And so we will move on to our next question from Caitlin Burroughs with Goldman Sachs.

Hi, good morning. I was wondering if you could talk about your current watch list with occupancy down 300 basis points as of 3Q, but then you talked about leasing progress combined with the watch list. What does that mean for your future occupancy expectation?

I can't. As Scott mentioned, I think in his presentation, We had an acceleration of our watch list into bankruptcy as a result of COVID. So, you know, bankruptcy, you know, failures or rewards that would have happened over the course of the next two or three years happened over the course of the last eight months. And so, frankly, our watch list is pretty short. Obviously, the tenants that are in New York right now, we keep an eye on them. Most of them, as Scott indicated, were not liquidations, but reorgs. And in our case, we typically keep roughly 65% of the stores open post-encryption. About a third are rejected. And that's similar to what we're seeing here. So the watch list is actually fairly short today as a result of COVID. Doug, do you want to elaborate further on that? Sorry? Greg, do you plan to elaborate further on the watch list?

No, I think we're spot on. The only thing I would say of all of the bankruptcies that we saw this year, I think there were probably 38 or 39, I think only six or seven weren't on our watch list, which means two things. We keep a pretty good watch list, and the fact that so many of them weren't on it means our watch list has decreased significantly, similar to what Tom said.

Thank you. We'll move then to our next question from Alexander Althoff of Piper Sandler.

Hey, good morning out there. Just two questions. First, just following up on the balance sheet, you guys have extended, you know, a few of the maturities right now. I don't know if that covers the full $800 million that we talked about on the last quarter, but then there was also another 19 malls that were discussed last quarter that were in forbearance. So can you give us an update on the forbearance process, and if it's still 19 malls, has that shrunk, has that increased?

Yeah, sure, Alex. Scott here. As I mentioned in my opening remarks, we closed our secure terms on two of our five more-term secured maturities to working on Flatiron, Greenacres Mall, Greenacres Commons. So that's what comprises the 800. Again, so far, pretty successful efforts, terms ranging from short-term extensions to longer-term extensions. Thus far, no change in principal or interest rate in The remaining assets has been flat ironed and greening for high quality institutional assets. So I think we'll be successful on those as well. The 19 assets that you mentioned, we agreed on in the referral arrangements for another . It was a very amicable process with the loan servicers or with the balance sheet vendors to agree to defer the service payments. We have extensive disclosures in the field, which cover how long those lasted and what the repayment periods are. Now that we're in November, I believe we have about two or three months worth of remaining, I'll call it, catch-up debt service deferral payments to make through the first quarter of 2021. So very amicable process. Thank you.

Okay, so Scott, just so I make sure I understand you. So those 19 assets that went for Barron, basically you got, and we'll see when Steve comes out, you guys got deferred debt service through the end of first quarter 2021, is that correct?

We got deferred debt service, which is now being repaid. So all of those deferrals were during the summer months, and we're now repaying that debt service, and those repayments, Alex, will extend into the first quarter of 2021.

Okay. Okay. And then, Tom, going back to the dividend, the amount that you're paying right now, is that actual income driven or right now you don't need to pay a dividend for tax purposes? We always pay dividend for tax purposes if you have any taxable income. Last quarter, we maintained the same dividend limits coming up here based on estimation of taxable income for the balance of the year.

So, okay, but that's based on, so the 15 cents is where your taxable income is currently.

It's an annual number, Alex, and you'll recall we had higher dividends in the first half of the year, so it's not quite that simple. But yeah, we consider taxable income when we make our dividend payments.

Got it. So next year, it would likely then go up, just to get it back to what your taxable income would be. Is that how I should interpret that?

Sure, it depends on what taxable income is, yeah. You've got to pay out 90% of your taxable income, so that's a fundamental premise that all REITs have to follow.

And we'll go to our next question from Todd Thomas of KeyBank Capital Markets.

Hi there, this is Ravi Vidya on the line for Todd Thomas. Just looking forward here, given the stresses in large format fitness and theaters, how does the company look to backfill department store boxes? What's the appetite to use these spaces for non-retail purposes, perhaps distribution centers or otherwise?

I think Doug commented on that to some extent in his comments. We've done a handful of deals just in the past quarter with Dick's Sporting Goods. One of that was in the empty boxes, series boxes for the 21 boxes. We also did a deal with a hospital at one of our series boxes we replaced with a hospital. And that went well in New York. There's a lot of uses. In some cases, they'll be knocking down the empty department store and building multifamily. That's going to be the case in most Cerritos. The Russian Ski X Square will also knock down the Sears box and replace that with a hotel and entertainment complex. So there's a lot of demand in the big format, but it also will go non-retail. It'll go non-traditional retail. It'll go multifamily. It'll do a lot of hotel deals. and it's just repurposing the score footage and eliminating a certain amount of repeal. Thank you.

And we'll move to our next question from Greg McInnis of Social Bank.

Hello, good morning. We've got minimum rent in one solid portfolio down 9% from last quarter. Can you just help us understand the drivers of that change and what the expectation might be on any additional jet that you anticipate heading into Q4? Yeah, sure. This is Scott. I covered some of that in my opening remarks. You know, I certainly mentioned the bad debt allowance, which included a component of leasing revenue that had been reversed for tenants on a cash basis, so that was a component. We did grant some short-term non-retiring rental assistance primarily to locals and I'd say challenged categories. That was a factor. And then, of course, we reported occupancy down roughly 3% from a year ago, and certainly that was a factor quarter over quarter. So all of that factors in. I do think that some of that will certainly carry forward. We may have a little bit of that cash basis with revenue reversal noise in the fourth quarter. I certainly think we'll deal with a little bit more of rental concessions, especially when you think of some of our properties in New York City and California that were closed. for a second time or close for a very protracted period of time through the third quarter. So we may deal a little bit with a little bit of that there. And certainly the occupancy impacts that we're reporting on the third and the fourth quarter. So like I said, I think the operating results in the fourth quarter will continue to feel the impacts of COVID. Okay. And then I'm just trying to think about these recurring revenues a bit more just in clarity on two other items. First is on turn fees. I don't want to get specific with certain tenants. but I would expect in a heightened kind of volatility that the turn fees will continue to remain elevated. You think in prior moments in history where we've had heightened volatility, sometimes tenants want to buy out of their lease obligation an opportunity effectively for us to secure a nice termination fee and then be able to backfill and effectively You know, profit off that backfill. But I'm certainly not going to get into specific names. I would expect the termination fee to continue to be elevated relative to last year. Land sales did go through the P&L in terms of FFO. As I mentioned, it was up to $11 million after accruing for tax provisions. Okay, there wasn't going through other income or gains on the income statement for net income. That's correct. Yes, it was very reliant. All right, thanks.

And moving on, we'll go to a question from Rich Hill of Morgan Stanley.

Hey, good morning, guys. I wanted to come back to the early comments on the conversion rate, which I thought was pretty interesting. I recognize that that is a really important driver of sales

and why there's some retailers that are actually seeing really high conversion rates on the other side of COVID-19.

But I'm also wondering if you could speak to maybe conversion rates at the overall mall itself and some of the inline tenants and interns that you might be seeing there.

I can take that and Tom, feel free to jump in. I don't think we have, you know, specific conversion rates for each mall. A lot of what we talk about is anecdotal, but what we are hearing across the board is that while traffic is down and we know that our sales are up, it does relate to the fact that our shoppers are converting more. They're not necessarily going to the mall as much, but when they're there, they're buying, and that's what we're seeing, whether it's in traditional retail, luxury, or otherwise. We're seeing it across the board. I think a lot of their... A lot of their dwelling and a lot of their research is being done online so that when they get to the mall, they know what they're there for and they buy it.

Got it. That's helpful. Scott, one question for you. I think a lot of us would applaud a guide in the next quarter. But I'm curious, what do you think is going to happen over the next several months that will give you the confidence to guide for the full year 21, but maybe be a little bit reluctant to guide for 4Q? I'm not questioning why you're not guiding for 4Q, I'm more questioning, I'm more curious, what's going to change over the next three months to give you a lot of confidence on 21? So Rich, I would say fundamentally just the fact that our centers are open and trading gives you an underpinning of confidence. That combined with, as Deb mentioned, we've made tremendous progress with our national retailers, which number just a touch over 200 in number. So we're gaining visibility on that front. Collections continue to improve. I think all of those factors gives you some comfort that you could give guidance for the following year. You know, that's, again, fundamentally, the centers are open and your tenants are trading. It gives you a lot of confidence. Tom, I don't know if you want to add anything to that.

Yeah, I think where we're at today, we've come to terms with our top 200 retailers. We've come to terms with, you know, 90 plus percent of those. And so the balance of them, that's going to happen in the fourth quarter. That's creating some of the uncertainty in the political world that we don't think is going to carry over to 2021. And with each passing month, I think the retailers get more comfortable as they move through COVID, looking forward to the post-COVID era. And I think we're in a much better position 90 days from today to give guidance than we are today. I mean, in the COVID world, 90 days is like an eternity. And we need to learn Learn more and know a lot more than we did even when we did our roster install. So I think that's going to put us in position by January to be able to do it.

That's really helpful, Tom, and I echo your comment. Three months feels like an eternity. Sometimes a week feels like an eternity. So thank you. That comment on the cadence was really helpful. Thank you. You got it, Rich.

And we'll go to Linda. I have Jeff Rees.

Hi. At your public terms, what tenant categories are looking to expand?

Hey, Linda. It's Doug. You know, we're seeing it across the board. There's a lot going on in the traditional retail environment. You know, just some examples, American Eagle, come out with a new concept called Offline, which is a branch of their Aerie store, Women's at Leisure. And they're doing three test stores this year. We have one of them. And should everything work out, that's going to be a real rollout vehicle for them. Aritzia out of Canada is expanding. Levi's went public last year. They're opening another 100 stores between this year and next year. Lululemon is always expanding whether they're expanding their fleet or they're trying to expand their store size. J.Crews Madewell also and that list goes on.

I was wondering if you share any of the same lenders with two of your lower quality counterparts who recently filed and if you had a sense of what ultimately drove the decision to default those companies.

I'm sorry, Linda, could you repeat that? You broke up a little bit.

Sure. No, I was just asking if you possibly shared any of the same lenders with two of your lower-quality counterparts who recently filed, and if you maybe had a sense of what might have driven the decision to default those companies.

Was that shared lenders? Was that your question?

Yeah.

Yeah. We do. It's a relatively small group of REIT unsecured lenders, so I don't really want to speak for either of them. Obviously, we're a partner with P-REIT, and we're very well informed as they went through the process. And I think if you read the public filings, they had support of 95% of their lender group. There was a 5% holdout, and under their documents, that was relevant. I think that's why they went that route. I think they've put out press releases themselves that they expect to be going out of bankruptcy very, very quickly. So I'll defer to them. But, yeah, we know a lot of the letters they have. We know a lot of them. And I think they're the ones that were supportive of Dewey.

Thanks for that. And then just one follow-up. The denominator for collections in 2Q32 in October, did that change at all?

We've treated the collections consistently as we move forward, so the way we treated 2Q collections is no different today than it was five years ago.

And at this time, I would like to turn the call back over to Tom O'Hearn for any additional or closing comments. Please go ahead, Mr. O'Hearn.

I'm sorry. Thanks, everyone, for joining us today. We hope to see many of you virtually in a few weeks. Until then, take care.

And so this concludes today's call. Thank you for your participation, and you may now disconnect.