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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Greetings, and welcome to Regency Centers Corporation Third Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Christy McElroy, Senior Vice President of Capital Markets. Please go ahead.
Good morning everyone, and welcome to Regency Centers' third quarter 2020 earnings conference call. Joining me today are Lisa Palmer, President and Chief Executive Officer; Mike Mas, Chief Financial Officer; Mac Chandler, Chief Investment Officer; Jim Thompson, Chief Operating Officer; and Chris Leavitt, SVP and Treasurer.
As a reminder, today's discussion contains forward-looking statements about the company's future business and financial performance as well as future market condition. These are based on management's current belief and expectations and are subject to various risks and uncertainties. It is possible actual results may differ materially from those suggested by the forward-looking statements we may make.
Factors and risks that could cause actual results to differ materially from these statements are included in our presentation today and in our filings with the SEC. The discussion today also contains non-GAAP financial measures, the comparable GAAP financial measures are included in this quarter's earnings materials, all of which are posted on our Investor Relations website. Please note that we have again provided additional disclosures in this quarter's supplemental package related to COVID-19, and its impact on the company's business and have also posted a presentation on our website with additional information. Lisa?
Thank you, Christy, and welcome to Regency. We're really glad to have you on the team. Good morning, everyone. I want to start by again thanking our Regency team for all of the amazing work they have done for our company, our tenants and our communities over the last eight months. I could not be more proud and appreciative of the dedication and commitment that our employees continue to demonstrate.
As many of you have heard us say throughout the years, we do believe that bigger can be better, but better is always best, particularly in an uncertain environment. And while Regency enjoys the advantages from our size, scale and national presence, one of the things that makes us better are the people in our 22 offices across the country. Our local presence provides us the boots on the ground and close proximity to our properties, enabling us to act small and to take a personalized relationship driven approach with our tenants. With the challenges we were all facing, our ability to provide focused attention to our tenants is really important to the improving current performance as well as the future results.
We are encouraged by our meaningful progress as demonstrated by increasing cash collections and productive tenant discussions over the past few months. As of the end of October, we collected 86% of third quarter rent. Importantly, and Jim will discuss this in more detail, we have seen a direct correlation between tenant reopenings with increased rent collections and executed deferral agreements as restrictions are lifted. As tenants are able to reopen, even with capacity restrictions, they gain the visibility they need to start paying their rent or to enter into a deferral plan that both they and we can feel confident in.
In many cases, tenants that we originally thought we might have to defer for collecting rent instead. And we're always remembering that our goal is to maximize the likelihood of long-term success for our tenants. Our tenants are able to open and operate safely. We are seeing customers return engaging with their local neighborhood businesses and community centers. We hear this from our tenants and we see this in recovering foot traffic and regions around the country that have continued to gradually reopen and lift restrictions such as Colorado, parts of the Northeast, Texas and most of the Southeast.
The experience may be different today. In fact, we know it is different today versus pre-pandemic, but we've been impressed by the resiliency of our tenants and the value placed on local retail shopping, dining and services by the American consumer. These results give us confidence that the improvement we've experienced over the last several months will continue as more markets and businesses find a pathway to reopening safely and operating successfully in the new normal. This is especially relevant as we think about the Pacific Coast and particularly California, where the most restrictions on non-essential businesses and restaurants remain in place.
This geographic and category concentration comprises a majority of our uncollected rent and we expect continued improvement in our results as California reopens. Supported by the continued improvement in our cash collections and overall financial performance and consistent with our longstanding commitment to building total shareholder value over the long-term, we have again maintained our quarterly dividend, which has remained consistent throughout the pandemic. As always on a quarterly basis, our board and management team will continue to monitor and revisit all relevant metrics and factors when making future dividend decisions.
While we are pleased with the improvements in the progress, we also recognize that meaningful uncertainty about the future remains. The restrictions that remain in place in some markets are putting a strain on the health of the impact at tenants. And in that context, while our tenant fallout has been limited to date, we're mindful of both the cyclical and structural challenges, impacting many tenant categories. And we acknowledge the risks of further tenant bankruptcies and store closers in this environment. But again, there are clearly visible green shoots and we are on the road to recovery, still likely to be an extended one and the length of which could be dependent on the existence and timing of medical solutions.
While we certainly can't control the hand we've all been dealt, but we can control is that Regency came into this pandemic as prepared as we possibly could have been due to our unique combination of unequaled strategic advantages, which include and have never been more critical. Our geographically diverse portfolio of high quality, grocery anchored open-air centers that serve as the backbone of our communities with a focus on necessity, service, convenience, and value. Our sector leading balance sheet and liquidity position affording us financial flexibility. Our strong but flexible value creating development pipeline that has allowed us to quickly adapt to the evolving retail landscape.
And finally, our people, it's times like these, when the value of experience and relationships become most apparent and important. We acknowledge the challenges facing our industry, accepting that we are not unaffected, but the game is always changing and our playbook will continue to evolve along with it as it has throughout the years. We are not standing still. Regency is working with, partnering with and helping our tenants adapt to the new normal. And we are certainly in a relative sweet spot with a seasoned team, a high quality grocery-anchored portfolio and a strong balance sheet. Jim?
Thanks, Lisa, and good morning. I reiterate Lisa sentiments regarding our appreciation for the Regency team and all of their incredible efforts this year, particularly our operations team members in our 22 field offices across the country. We have been in constant communication with our tenants throughout the pandemic to ensure we've done all we can to enable them to open and operate safely. It's hard to believe more than seven months have passed since the shutdowns began. And I continue to be amazed and inspired by our team's capacity to deliver results while keeping their energy and spirits high.
I'd like to provide some color on the investor presentation we posted yesterday. As of the end of October, 97% of our tenants are open, up modestly from quarter ago and compared to 75% open as of the end of May. At this point, the limited number of tenants that remain closed are generally comprised of entertainment, restaurant, fitness and service users in certain regions of the country where stricter government mandates are still in place. We continue to see improving base rent collections. And most importantly, our collection rate has improved sequentially with each consecutive month.
Our strongest categories in terms of collections remain grocers, drugstores, banks, and home improvement, while not surprisingly, we continue to see our lowest collection rates among those tenant categories that have not been able to fully reopen or operate due to local restrictions. This is also evident in our collection rates by geography. There are many markets where our collection rate recovered to 90% or above in the third quarter. This is encouraging as we think about the opportunity for continued improvement in markets like California and the Pacific Northwest, where collection rates continue to weigh on our portfolio average. It's important to highlight that Pacific Coast comprised nearly half of our uncollected rent in the third quarter.
As we communicated previously, we have been implementing a very intentional strategy with regard to our tenants during this time and pushing for rent payment and deferral agreements. Our first priority has been getting tenants open and operating and then working on them with deferral plans that maximize their potential for future success, which in turn improves our likelihood of ultimately collecting that rent. The majority of our deferral agreements have been with non-essential tenants in our most challenged categories and we continue to see the greatest success in getting deferral agreements executed once these tenants are able to open and operate. Our executed deferral agreements as of today require payback predominantly during 2021.
We have also been successful at negotiating concessions from certain tenants in exchange for rent deferrals. This includes non-monetary concessions like landlord recapture rights, sales reporting requirements, and modifications to co-tenancy and use restrictions as well as some lease term extensions and early renewals. What was most encouraging this quarter was the rebound and new leasing activity, following much softer volume in the second quarter together with the renewal volumes remaining consistent with expectations. Retailers are most active in categories with little to no restrictions in place as well as those operators that have successfully adapted to the current environment and are performing well.
We're signing new leases in categories such as grocery, banks, beauty, restaurants, and medical. Some of these leases were originated pre-COVID, but we're also executing new deals that were initiated well into the pandemic. While this activity is encouraging as we noted on last quarter's call, we are seeing pressure on rents in this environment, especially on tougher to lease space. Due to a lack of legacy anchor deals in the mix this quarter, which typically have strong mark to market upside, our new lease spreads were impacted. Also we remind everyone that our new lease spreads include all comparable space leases executed, including those older spaces that have been vacant for greater than 12 months.
As category and geographic restrictions continue to ease, we see a runway for continued recovery. Tenants are learning to adapt and succeed in the new norm and are taking extra precautions to make sure customers feel safe. We've seen so many examples of that in the restaurant space where in many markets capacity restriction on indoor dining remain, but restaurant operators are flipping the script and we are helping them to do that by enabling greater common area access through our pickup and go zones as well as help with space and permitting for outdoor dining.
In summary, we are very happy with the improvements we are seeing in rent collection and leasing activity. Customers are back shopping as evidenced by the continued improvement in foot traffic trends in nearly all our markets. While we are far from declaring victory, we are encouraged by the resiliency of our merchants and are seeing a more visible road to recovery. Mike?
Thanks Jim. Good morning, everyone. While our financial results continue to reflect the impacts of the pandemic on our tenants, our collections and operations are moving in the right direction as I’ll discussed in more detail.
Third quarter Nareit FFO includes a debt extinguishment charge this quarter of $19 million, or $0.11 per share associated with the previously disclosed redemption of our senior unsecured notes originally due in 2022. Nareit FFO was also impacted by an $8 million or $0.05 per share non-cash charge taken against straight-line rents receivable. These charges, which are not included in core operating earnings, are in addition to uncollectable lease income of $29 million or $0.17 per share in the third quarter.
This quarter’s decline in same property NOI was driven predominantly by uncollectable lease income.
Before we dive deeper into rent collections, let me touch on G&A, which in the third quarter is elevated as compared to the year ago quarter. The primary driver continues to be reduced capitalization of development related overhead, similar to our results in the second quarter. As discussed previously, we extended the timeline of approximately $150 million of investment in our pipeline at the outset of the pandemic. This flexibility and action, allowed us to preserve liquidity, as well as adjust to any changes in tenant demand.
Longer term, the teams continue to work diligently to bring these value-add projects back into production when design and tenant demand thresholds are met. This shift in investment timing will continue to impact overhead capitalization from an FFO perspective, but importantly, reduce capitalization does not impact our total cash flow.
Moving to NOI, as Jim discussed, we continue to see improvement in the base rent collection rate, from 72% as reported last quarter, to 87% in October.
We ask that you refer to our updated COVID-19 disclosures on Page 32 of the third quarter supplement. The tables provide a good reconciliation to pro-rata billings showing what was collected and of the uncollected amounts what was accrued versus reserved. Uncollected pro-rata billings in the third quarter totaled $41 million, which is down by nearly half when compared to Q2.
In accordance with our lease-by-lease collectability assessment, we reserved nearly 70% of that amount. As evidenced by the additional $8 million write-off of straight line rent receivables this quarter, we did move some additional tenants to cash basis accounting.
In accordance with GAAP, we are not recognizing any uncollected revenue on these tenants, even if rents have been contractually deferred.
As Lisa and Jim both discussed, the continued tight restrictions that remain in place in certain markets have disproportionately impacted specific categories of tenants. However, despite adding tenants to the pool, we saw a 30% sequential quarter-to-quarter decline in our third quarter reserve for uncollectable lease income. Driving this with a meaningful improvement in collections on the entire cash basis of tenant pool, rising from 46% in the second quarter to 64% in the third.
Importantly, the improvement we are seeing in collections is driving an increase in our revenue recognition. In the third quarter, we recognized revenue equating to 90% of pro-rata billings and other income. That's up from 86% in Q2. This sequential improvement aligns with what we are experiencing in the portfolio. Improved collection rates on both current and Q2 billings, as well as quality deferral discussions with credit worthy tenants.
Moving to our balance sheet, as Lisa spoke to earlier, we are fortunate that despite the disruption of the last nearly eight months, our balance sheet remains in a position of strength. Including the full capacity on our credit line and cash on hand, we stand today with immediate liquidity of nearly $1.5 billion, easily covering if needed development, redevelopment commitments, and debt maturities over the next four years.
We raised $600 million from our bond issuance in May at a time of especially heightened uncertainty to pay down the credit line and shore up our cash position. And as previously disclosed, in September, we used a portion of those proceeds to redeem $300 million of notes originally due in 2022. We will continue to monitor the evolving landscape, but given the continuing positive trend, we expect to use remaining cash on hand to repay our $265 million term loan due early 2022. This repayment would likely be in the December, January timeframe and would result in Regency having no significant debt maturities until our next bond maturity in 2024.
During the third quarter and subsequent to quarter end, we also closed on $25 million of dispositions at a 4.5% average cap rate. These transactions align with our continuing objective to improve portfolio quality and divest of non-strategic, lower growth assets. We would opportunistically look to sell more assets like these on a limited basis with an eye on preserving balance sheet strength.
Taken together, our low payout ratio coming into the year, our very strong balance sheet position, our flexible approach to developments and redevelopments, and our improving collections have enabled us to maintain our dividend at its pre COVID level, which is a critical component of total shareholder return.
Thank you, Mike. And thank you, Jim. Before we turn it over to questions, I really did just want to reiterate my appreciation of the dedication and commitment of the Regency team during this challenging time. I know many of you are listening, so thank you.
Looking back on the last eight months, our primary focus has been on NOI and balance sheet preservation, while continuing to prioritize the safety and wellbeing of fellow team members, our tenants and our communities. I believe the results of these efforts are evident and I'm really proud of that. We are navigating through this pandemic with the long-term in mind, for which I'm confident we are well positioned.
That concludes our prepared remarks. So we now welcome your questions.
Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] One moment, please, while we poll for questions. Your first question comes from line of Katy McConnell with Citi. Please proceed with your question.
Great. Thanks and good morning. I’m wondering if you could provide some color on what the new backfill leasing pipeline looks like today? And given the negative new leasing spreads this quarter, can you discuss how you are thinking about balancing rent versus occupancy as you address your lease negotiations in this environment and whether that had an impact on the shorter lease terms?
Katie it’s Jim. You got a lot packed in that question. On the lease terms I would say that that kind of goes back to the mix. In our new leasing for the quarter, which I indicated did rebound pretty nicely, 108,000 feet in 72 deals, only two of those were anchor deals. So the majority of that population are shop spaces, which generally have shorter terms.
As far as the rent growth associated with that, again, due to that small population of anchors, we had two Sephora, which is a great tenet that we got at over Cameron Village, had nice rent growth baked into it, but it was a JV deal, so we didn't get – with the pro-rata growth, it was not as impactful to the pool.
And then the second one, which I'd like to highlight, just because, I think, it's a great deal, is a UFC Gym backfill, a 30,000 foot, 24-hour fitness rejected lease in Southern California. And the reason I say it's a great deal, it was a mid-20s lease, we were able to sign UFC at par, so it was a flat deal. But the best thing about it was we executed that deal before the lease was actually rejected. So our guys in Southern California hats off, kudos, did an outstanding job of getting out of that BK.
As to pipeline, what I see as far as color in the pipeline, really from a national, regional anchor home improvement, off-price, TJs, the Burlington, Sierra Trading, we're engaged with PGA Superstore, on the shop side, the pet sector is still pretty solid Mansfield, sports bike shops are red hot, our price Five Below, fast casual food is still very good to Fort Lee Burger King, Chick-fil-A, medical obviously is – medical support are hot categories. And then obviously in the pads, we're seeing Starbucks very aggressive when order to buy, as well as some of the auto servicing and parts groups. So as I look at the pipeline, I'm really very encouraged by the level and quality of tenants that we're seeing in the pipeline.
Thank you, Jim.
Did I get them all?
You did.
Yes, I think you got them all. Thank you. And then just wondering if you can update us on the de-leasing impact that you might expect to see into 2021 if you prepped some of your larger development projects? And have your thoughts around timing of any those changed?
I think you're highlighting Katy the projects that we've been speaking a lot about, which would be the Abbot and Costa Verde in particular. Nothing has really changed in that regard. Those impacts to forward-looking earnings would be the same as we've talked about in the past. I think it was about $1 million at the Abbot of lost NOI. And that has in fact occurred. We are working on that building to bring it back to the lease-able condition at some point when that demand appears to us.
And then Costa Verde, we continue to pursue the redevelopment of that project as well. So we do anticipate that same trajectory of lost NOI. That number will not occur in one year, that will be strung out over multiple years. And I believe that number was in the $2 million to $3 million range. So no changes in that regard.
Okay, great. Thanks.
Your next question comes from the line of Nick Yulico with Scotiabank. Please proceed with your question.
Hi, this is Greg McGinniss on with Nick. Given the improving rent collections, what's your expectation very in that trend heading into year-end and at this point, do you have a better sense for what we should maybe expect regarding permanently lost rent from leases in place?
Hey, Greg, It’s Lisa, I'll take that. Here – it's still, I'm going to go back to what Jim said in his prepared remarks and what I said in my prepared remarks. We're really pleased and encouraged with the improvement that we've seen from – we first shutdown in March and then picking up throughout the year. There's still some uncertainty. And as we said in our remarks, there's a really high correlation between opening and lifted restrictions with rent collections. And that's why we feel really good if things are to stay and gradually improve in these markets. So we see a pathway to more openings.
We would expect that we should see some improvement in our numbers. But the reality is none of us really know, that are sitting around this table or that are on the call as to what may happen with the virus and with lifted restrictions. So I'm not allowed to – I can't possibly give you guidance. I think that's the best answer I can give you. We feel really good about the quality of our real estate, about the fact that we're close to neighborhoods, that we have a lot of essential tenants. And for the retailers, even in the non-essential categories and restaurants have really learned to adapt in this new normal and have created new ways to service their customers.
And our team in the field is doing a fantastic job of actually helping them do that as well, with a lot of curbside pickup and dedicated parking spaces and looking to use technology to help connect the consumers with the merchants. So I expect we should see marginal improvement from here and the significant improvement will come when there's a medical solution.
Okay. Thanks, Lisa. And then on leasing, I did appreciate the disclosure on rent collection by geography, which I thought was very interesting, but I was wondering if you could also discuss whether you're seeing differences in leasing productivity in spreads based on geography as well.
Productivity, I would say – I'd have to say yes, again it gets back to, we have found even in deferral – in the deferral program until tenants are open and some of these folks kick back and have visibility towards reopening and what the environment looks like. It's very difficult to do deferral deals let alone new leasing. So where we have opened and we're 90% plus collection, foot traffic's back. We're seeing good activity. We're seeing a closer return to normalcy in markets where we're, still operating under mandated closures. Activity is probably slightly less. However, one thing that I will mention is, in this group of local tenants in Q3, we had about 25% that were really more non-essential, mom and pop in nature.
We saw several of these in some of our tougher markets. We saw them in some of our tougher spaces. And at the end of the day, the way I looked at that was I felt like it was a very positive sign that those retailers in my mind have learned how to adapt, are looking at the future and are making their way, that demand is really in those non-essential categories is stronger than I would have guessed at this point in time. So I found that to be kind of a positive in our sample size of leasing in Q3.
So I guess given that you've had maybe more limited leasing, where there's been greater restrictions and a little bit increasing vacancy numbers. Could we potentially see productivity increasing over the next few quarters? Is there enough interest out in the market from tenants right now to support that.
I I'm going to – I'll just interject here because I had a conversation just this week with one of our leasing agents here in Florida. And he very encouragingly told me that he was working on getting some more transactions finished by the end of the year. And if he was able to get them across the finish line, but he was really optimistic about that he would actually meet his goals for the full year. So that tells me that, yes, we are seeing some pickup where markets are, again, that was here in Florida, where we may – where we see more opening.
So I do think that will be the case. And you obviously also saw a decline in percent lease, which means we do have more space to lease as well. And that obviously also will translate to higher volumes and higher productivity.
Okay. Thank you.
Your next question comes from line of Rich Hill with Morgan Stanley. Please proceed with your question.
Hey, good morning guys. Please, I just wanted to follow up on that, point about where you stand today. And I recognize that you're not in a position to give a guide nor am I asking for one, but as we think back to maybe where you were in 2Q and then where you were at the NAREIT meeting in June, if you had a bull-case scenario, a base case scenario and a bear case scenario, where do you think you're falling out on that today versus your expectations a couple of months ago?
Well, you just gave me a great opportunity to give the shout out to the tremendous team. Because the tremendous team we have here at Regency, so thank you for that. Because the information from the field, from our finance team, from everyone that is really the inputs into how we thought about those scenarios was fantastic.
And I would say that we've, it was a lot more uncertain three months ago. So we have a lot more certainty and visibility today. And I would say that we're slightly better than perhaps even what our kind of base case was in terms of cash collections. And we've taken that data. And then I would just reiterate what I just said to answering the last question. There's still a lot of uncertainty in with what we know today, we expect that as if it's status quo, then we expect kind of status quo. And if we see improvements and restrictions lifted and markets reopen, then we would expect marginal improvement.
Got it. And then, Lisa, I liked what you said at the beginning with the bigger is better, but better is better. And I'm sure you've learned –better is best, excuse me. I'm sure you've learned a lot of lessons as we all have on the other side of COVID. But as you think about your portfolio right now, do you still love all your assets or are there any sort of assets that maybe you'd look to dispose of given a market that seems to be holding in there? And what are the attributes that you might be looking for to make you bullish on an asset than maybe you were this time last year?
Let me answer that first, just broader. I think when you look at how our entire sector has performed throughout the pandemic, institutional quality shopping centers are performing well. I think beyond, as you asked the question kind of the bull versus bear, I think probably beyond what anyone would ever have imagined when I speak to friends, neighbors and family that are kind of outside of our business, and you tell them that you're recognizing 90% of your revenues, they're like, wow, that's amazing in this type of environment.
I do try to remind them that we typically, we collect 99.5%. But I think that alone says that we do have really high-quality properties in good neighborhood and that's across the sector. It's institutional quality. With that said, I mean for as long as I've been in the business and for as long as Regency has been a public company, retail is always evolving and you're always going to see changes within neighborhoods, within the merchandising of tenants.
And that is why we've always remained really committed to kind of portfolio calling if you will, and disposing of 1% to 2% a year and active asset management. So there's always going to be centers that we don't necessarily love as much as some of our best centers. And we ranked them appropriately. I'm comfortable owning everything that we own, long-term. But there will be some that we will target for disposition. And I don't think that the nature of those has changed. We still really like neighborhoods with above average demographics. We still like shopping centers with a merchandising mix. that's going to appeal to all to the consumers that has a high percentage of essential tenants that is not unchanged from where we were pre-COVID.
And with that fresh look, there's so much competition in today's retail environment that we need to ensure that we are working with our tenants, with our merchants, with our retailers to create a thriving gathering place for consumers to give them a reason to come in.
Great. Thank you, Lisa. And Christie, if I didn't mention it congrats on the new seat. And if you are sitting in Jacksonville today, I'm a little bit envious. So look forward to working with you.
Thank you, Rich.
Your next question comes from the line of Craig Schmidt with Bank of America. Please proceed with your question.
Okay. Thank you. Your second quarter and third quarter same-store NOI were somewhat lower than the average for your peers. I'm wondering, what are the factors that are resulting in that spread?
Hey, Craig, this is Mike. I appreciate the question. I mean, listen, it's as hard for us to compare ourselves to our competitors as it is for you. But what I can say is what's significantly driving our results that are uncollectable lease income estimates. And if I think about those uncollectable estimates and where they're coming from is, at this point in time it's coming from the collection of tenants that is really coming from three different types of categories, whether it's geography, those regions within our portfolio that are more restricted and those tenants are unable to operate at full capacity.
And within that, those regions tenant categories matter significantly. So are you in a fitness, many restaurants where those restrictions are even more damaging, and then obviously credit comes into the equation and those would focus us on more local shops, where the local credit may not have the ability to bridge those tenants from a pre-pandemic to after the fact. So I think that combination certainly has something to do with it.
Great. And then in terms of thinking about the new leases you signed in the third quarter, how long is it going to take for them to actually be open for business?
Craig, I think we're operating about like our historical averages. Let’s say we're generally from lease execution to doors open 90 days to 120 days, depending on the deliverable shape of the space.
So these new tenants are trying to wait – we laid out the virus.
No. The folks that are engaged today are engaged. We're kind of back in business. We're delivering as fast as we can. And the tenant expects the same.
Okay. Thank you.
Thanks, Craig.
Your next question comes from the line of Vince Tibone with Green Street Advisors. Please proceed with your question.
Hi, good morning. Could you elaborate on how tenant demand for new leases varies by region? And if any markets jump out as being particularly strong?
Again, Vince, good morning. I would say there's demand across the country, but again, the more open the geography is probably I would say correlates to the depth of demand. There's more comfort. There's more credibility, if you will that that people are comfortable there. They see the return of the consumer. They're seeing sales from their peer groups. And it just seems to make life easier as you would expect when things are open and operating closer to full capacity, you get better activity.
Makes sense. Thanks. Thanks for that. Switching gears a little, what needs to change in your mind to unfreeze the private transactions market? And could you also touch on just the current state of CMBS availability in terms for shopping centers for potential buyers of your centers?
Thanks. I'll direct traffic here. We'll let Mac answer the transaction part of the question, and then Mike will take the CMBS.
Sure. Thanks. Vince, we haven't seen a ton of transactions that have consummated, but you are seeing more and more of them. And those transactions are typically they're smaller sized centers because buyers just it's easier to get your head wrapped around a smaller rent roll. And they're typically transactions where tenants are open and they're essential tenants and they have vibrant grocers and generally markets that are less restrictive, the more restrictive.
So you are seeing more price discovery out there. What we've seen is, the premier high quality centers, the types of centers that we own for the most part. Evaluations really haven't moved internally. They're really pretty close to what they were before COVID. That does vary a little bit by geography, because in some areas, tenants are more open than others. But we've been pleased to see that there is demand from experience retail investors who were looking to expand their platform and they're able to underwrite transactions. And I think we're going to see an increased amount of that. We're not going to see the volume that we have last year, but the volume looks like it's going to get better month over month, and we'll see that continue into 2021.
Hi, Vince. It's Mike. Let me follow up on that from a financing standpoint. We have the benefit with our portfolio and our JV relationships to be pretty active in the secured debt market. And we're going through a financing at the moment and I'll tell you we've been very pleased to see that for our quality combination of the central retailers or grocery anchor doing very good business, great location in Northern Virginia. We're seeing good demand from the lending community to finance the project. It's not – the demand is not what it once was for sure. But I think sponsorship, asset quality and location are all proving that we can find pretty well-priced debt, all things considering.
I would say to specifically on the CMBS front. We are seeing CMBS lenders being very interested in this product type. And I would characterize their interest is from an economic perspective on a race spread as being tighter than that, of more of the classic secured lenders in the life company field. A lot more to go, we're still in the middle of the process, but feel good about finding a solution here.
Thanks for that. And just maybe one quick follow-up there. How about LTVs for that good – even the good combination of sponsor, quality location or LTVs where they were before COVID and how are lenders thinking about the V in that equation? Have they still using kind of January levels? Are they taking a small haircut?
There's a haircut. And we understand that the V in that equation is less than it once was. I'd say it's not materially so. And they're going to rely on the appraisal community, of course, as a backstop. And we know that in that regard that those Vs tend to move pretty slowly. But everyone's sizing to debt yields. What I'm seeing is, minimum thresholds that look like they did in the past. And I'd say, we're the type of borrower that's not looking for high LTV, so we're in that 50% to 55% range.
Got it. Thank you for all the color.
Your next question comes from line of Mike Mueller with JPMorgan. Please proceed with your question.
Yes, hi. I have two quick ones here. One, how confident are you in the 2021 redevelopment starts? And then do you still see Serramonte as a core long-term holding?
Hi, Mike, it’s Mas, happy to take those. We've – you've seen how our disclosure on Page 17 we've listed out are our projects that we expect to start. Obviously there's ones that are sooner, we're more confident in 2021 is right around the corner. And but they are still dependent on external variables. So I'll give you 22 example, Costa Verde, we have a hearing next week to get our entitlements, for example.
Until those things are done, you can't have a 100% confidence, but what we are confident is these are terrific properties that have great long-term potential for densification redevelopment, and there's great value creation in them. So we'll start these projects when we have real clear visibility on underwriting our NOI, a clear visibility to understanding the risk adjusted returns, and we'll use the same high standards that we've used in the past to underwrite them and make appropriate business decisions.
So we'll give more guidance as we get closer. But we really liked these projects and we intend to start them. But some factors are beyond our control. On Serramonte, that's a property that we have great long-term faith in. So we anticipate holding that for the very long-term. We liked the fact above everything is that it's 80 acres of free and clear land just south of San Francisco. And there's lots of various opportunities to create value in the short term and the long term. For example, we're embarking on to drive through ground leases that will start later this year that have a very nice return to them. And we also have opportunity to retain it, the former JCPenney box, which is arguably our best space. So we're engaged with several retailers about that, and we just think long-term, there's really, that's a unique asset that will continue to grow and do well for us.
Got it. Okay. That was it. Thank you.
Your next question comes from the line of Linda Tsai with Jefferies. Please proceed with your question.
Hi. Can you talk about lease terms and the current leasing environment and how that plays into your negotiations with tenants?
Yes. Linda, this is Jim. What we're seeing in lease terms really isn't that much different than historical, quite frankly. I would say the only tweak to that might be in the more in the renewal environment where there's, again, in those non-essential smaller local tenants, there's probably more anxious towards the future and they're less willing to potentially pop their option as stated look for shorter term. And I think we're both on the same page there. We liked the tenant, but let's get our sea legs underneath this us and talk again in two, three years. So that would be the only thing I would say that I've seen, that's a little different than normal but new deals and in general, essential, non-essential players are taken options, stated options, no negotiation business as usual. And that'd be the same in new deals with those essential, non-essential players.
Thanks. And then in terms of tenants facing higher pressures, has it made sense to reevaluate your criteria for how you evaluate collectability, since the start of the pandemic given, various tenants performance to date, either on the upside or the downside?
Yes. Hey, Linda, it's Mike. I think you've kind of nailed the change in our uncollectable lease income sequentially from second quarter to third. And we did in fact change our assessment of certain tenants because of that time that you're identifying. We moved about 4% of our ABR into cash basis tenants this quarter. And that's translated into our uncollectable charge. And that is driven, that change in mindset was driven by this, I've used this analogy internally about this weight that these – many of these tents are carrying. And with each month of these closures, that goes by the weight is heavier, and that is impacting our thoughts and our ability to collect rent that is owed. And that's where you're seeing the – as I said, in the in the front, that's where you're seeing the uncollected rents kind of clusters in certain geographies that are more closed it's within certain types of tenants. And it's specifically within a local kind of credit quality. So definitely change.
On the flip side of that, if you look at our cash basis tenants and the entirety of the pool, this – we are also – we see this positive in our collection rate. We posted a 46% collection rate in the second quarter on that pool. Well, that's up to 64% this quarter. And in fact, looking into October, it's up to 66%. So while we've segregated those tenants into that cash basis pool, we are seeing green shoots and productivity, all of it – as you've heard from all of us today, tied to the restrictions and their ability to operate.
Thank you
[Operator Instructions] Your next question comes from the line of Floris Van Dijkum with Compass Point. Please proceed with your question.
Thanks for taking my question guys. I intrigued about the regional disclosure on collectability and perhaps a little bit surprised that New York or the Northeast didn't get mentioned in lower collections as well. How much of an impact in your view is the local governments on the ability for your tenants to operate? And where do you see the greatest impediment is it in regions you've mentioned?
I mean, we're all looking at each other, like who wants to take this one? I'll start. So I think that there's no question, geography matters. So does percentage of essential versus non-essential and you can't look at either one of them in isolation? So we have a higher percentage of essential in the Northeast than we do in California, which is why it wasn't necessarily mentioned in kind of the opening remarks or some of the answers to the questions.
And the restrictions do matter, and this goes back to what we talked about on earlier calls specifically when it's for restaurants and for fitness and for those – for the indoor activities, or if you will, where people need to come into the store, because a lot of the non-essential and the restaurants that are more fast casual have been able to have been able to really adapt and recover sales from a takeout and from a curbside. But the ones that you need to come into the store for indoor dining, in the areas where the governments have imposed restrictions, where capacity is still limited at 25%, it's just really difficult for those operators to make the numbers work.
So it absolutely has an impact. And as you increase, at 50%, I think you get some that are more willing to lean in and try to make it work. But then if you have the threat of a future shutdown again, that could potentially wipe them out and because it takes capital to reopen and that's – that is what we're – that's what we're seeing; and that's what we're feeling, but you can't look at geography and isolation. It absolutely has to; you have to take into account the present essential as well.
Thanks Lisa. Maybe one follow-up question in terms of, I mean, you guys are in an enviable position in terms of your balance sheet clearly, and in terms of your portfolio collections on demand, as you say on the road to recovery, I think was your quote. As you look at opportunities going into 2021? Do you think that there's going to be more opportunities on one-off assets with private owners, or do you think there are going to be portfolios or other larger transactions you could be looking at?
I think that it's – I appreciate the question. Thanks, Floris. I think that it's still too early to know for sure, but I do like how strong we are positioned. And we've been, I think saying that consistently, that I feel really confident about how we will come out on the other side of this and how we will emerge position to continue to be a leader. And we will continuously look for those opportunities and take advantage where we can. And some of our – some of our really successful development, some of our really successful acquisitions came out of other cycles and it's being prepared to be able to capitalize on them. And I believe we are taking all the steps that we need to do in order to do that.
Thanks, Lisa.
Your next question is a follow-up from Katy McConnell with Citi. Please proceed with your question.
Hey, it's Michael Billerman here with Katy and I would be remiss if I didn't offer my own congratulations to the Christy in her new role. And definitely I think Lisa; you've made a wonderful decision in hiring her. So congratulations.
It's the best decision of 2020.
For you. So I wanted to sort of go-back to thinking about the whole JV partner side and putting capital out. You've obviously had very long-term relationships with a lot of different capital partners. I guess within your holdings today with them. How eager are they to create some liquidity in those verses, how eager are they to go out and put capital out alongside of you in potential acquisitions?
Hey, Michael; this is Mike, I'll start and Lisa can jump-in. We are very fortunate to have a very longstanding relationship with our existing JV partners. And they've been wonderful to work with in this environment. No eagerness at all from or nobody's crossed-off retail and put in sell orders, very, very patient. They've agreed with our approach to tenant negotiations, which has been, again, another testament to just the relationship we've built with them over time.
And I'd actually kind of flipped it on it [indiscernible]. I think across the board, they understand that grocery anchored retail in the best neighborhoods of the country is where you want to be in this space, and they believe in that on a long-term basis. And I believe if presented with the right opportunity where you have confidence in the forward income stream, they would be there to co-invest with us on a continued basis.
How do you think about perhaps larger scale opportunities and the discussion with Serramonte was a good one, and granted, I recognize that came from equity one, something that they had started. But there could be a fair amount of mall land and mall assets available around the country over the next little while, right? Because enclosed has not performed as well as, as outdoor. And you talked about Serramonte having 80 acres and you're right South of San Francisco. Is there a focus internally today about trying to source differentiated opportunistic value add type of deals where if you have strong partners, you're able to do those on a risk adjusted basis. But they're obviously these types of deals are not cookie cutter and maybe require a fair amount of work and time and capital.
Michael, Serramonte is unique and it did come through with a larger acquisition, and we do feel really great about the real estate. But I'll go back to our unequaled strategic advantages. And number one is a high quality grocery anchored portfolio and to the – and that is really our focus. So to the extent that we can continue to create value with that focus, that will happen, but it's not – we're not looking for 80-acre parcels to invest capital. We still have a lot of opportunities in front of us with our owned assets and with our own redevelopment pipeline. And that is really, as we think about risk adjusted use of our capital that is where – that is our focus today.
And then last question. If I go back to the Investor Day, which was, I think it's at the beginning of 2018. You talked a lot about sort of this whole asset quality DNA, both from a trade area DNA perspective, and then a individual asset DNA perspective. And you sort of went through and you graded all of your assets along those lines to eventually come out with that premier plus, premiere quality core, and non-core. I guess as you're seeing the markets evolve during this pandemic, is there anything as you run the portfolio, new markets that are coming up that would be stronger or markets that you're in today that are moving down the spectrum? Is there anything that you can tease out from that data at all?
I appreciate your remembering that Michael, I was with Mike again. We're learning a lot about our DNA model
Well to be fair, Katy remembered that I didn't. So let's get credit where credit's due. So...
We are learning a lot about that model and we study it continuously and it's a guide, it's not a rule for sure. We think the model is proving out what we believe, which is that our suburban, near urban locations as measured by the demographics and the really supply constraints that DNA produces are holding up very well in this environment and will benefit from any changing landscape with respect to where people work.
What I would also say at the same time is we didn't have a pandemic box in the math. And when you overlay – when you overlay a government imposed mandate that you cannot conduct business in a certain environment, it doesn't matter how much money the people make, or how many people are involved in that trade area, that the model will break down and we did – we have seen that. So this period of time, we'll have a lot of noise in the math but we are learning. I think what we're learning is that work from a location quality perspective, much of what we believed is confirming itself.
Great. Appreciate the time.
Sure.
Thanks, Michael.
[Operator Instructions] Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to Lisa Palmer for closing remarks.
Thank you very much all of you for your time today. Thank you to the Regency team one more time. And I look – it is Friday. So have a nice weekend and I look forward to seeing many of you, and I put seeing in air quotes in a couple of weeks. Thanks, all.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.