Phillips Edison & Co Inc

NASDAQ:PECO

Earnings Call Transcript 2020-Q3

[Operator]

Good afternoon, and welcome to Phillips Edison & Company's Third Quarter 2020 Earnings Presentation. My name is Nick, and I'll be your conference operator today.

I would like to remind our listeners that this conference is being recorded and simultaneously webcast. The webcast and slide presentation can be accessed by visiting the Events & Presentations page in the Investor Relations section of Phillips Edison & Company's website at www.phillipsedison.com or at www.phillipsedison.com/investors. A replay of today's presentation will be available following the conclusion of the call on the aforementioned website. If you're participating in the website -- the webcast, excuse me, please note that the slides are user controlled.

Now I'd like to turn the call over to Mr. Koehler with Phillips Edison & Company. Sir, please proceed.

[Michael Koehler, executive]

Thank you, operator. Good afternoon, everyone, and thank you for joining us. I am Michael Koehler, Vice President of Investor Relations with Phillips Edison & Company. Joining me on today's call are our Chairman and Chief Executive Officer, Jeff Edison; our President, Devin Murphy; and our Chief Financial Officer, John Caulfield.

Please turn to Slide 2 for the agenda. During today's presentation, Jeff will begin with a portfolio overview, provide an update on COVID-19 and touch on our highlights for the quarter. John will then speak to our financial results as well as our balance sheet and debt profile. Jeff will then provide commentary on our December 2020 distribution, our active tender offer and then give an outlook for the remainder of 2020. Upon the conclusion of our prepared remarks, Jeff, Devin and John will address your questions.

Before we begin, I would like to remind our audience that statements made during today's call may be considered forward-looking and are subject to various risks and uncertainties. Please refer to Slide 3 for additional disclosure and direction on where you can find information regarding potential risks.

In addition, we will also refer to certain non-GAAP financial measures. Information regarding our use of these measures and reconciliations of these measures to our GAAP results are detailed in the appendix of the slide deck, which is available on our website.

Now please turn to Slide 4, and I will turn the call over to Jeff Edison, our CEO. Jeff?

[Jeffrey Edison, executive]

Thank you, Michael. Good afternoon, everyone, and thank you for joining us today. Our core philosophy of owning and operating grocery-anchored real estate is proving its resilience in the midst of the ongoing pandemic. We have always known the importance of the grocery anchor and other necessity-based businesses to our local communities. These retailers provide essential products and services and act as the lifeblood of our communities, especially in times like this.

At the end of the quarter, our portfolio consisted of 283 wholly-owned properties, 97% of which were grocery anchored. Our centers are located in 31 states, totaling 31.7 million square feet of gross leasable area. This is down from 294 properties a year ago. Our disposition activity over the past year has improved the quality of our portfolio. We have invested the disposition proceeds into better growth opportunities through 1031 exchanges, and we have also used distribution proceeds to reduce our debt.

At quarter end, our lease portfolio occupancy was 95.3%, and our in-line occupancy was 89.5%. This compares to 95% and 89.2% respectively, at the end of the third quarter of 2019.

In Q3 2020, 76.6% of our total annualized base rent came from grocers and other national and regional neighbors, 77.2% of our total ABR came from service and necessity-based neighbors, representing businesses that are more likely to be considered essential and to have remained open during the pandemic. Our top 5 markets by property count are Atlanta, Chicago, Tampa, Dallas and Minneapolis. All 5 markets fall within the top 20 MSAs in the United States.

Before we get into more detail on our results, I will provide a portfolio overview and briefly discuss our diversified portfolio of tenants, who we call our neighbors.

Please turn to Slide 5. Kroger and its brands are collectively our largest neighbor, accounting for 7% of our ABR across 65 centers. Today, we are Kroger's largest landlord. Publix is our second largest neighbor, accounting for 5.6% of our average base rent across 56 centers. We are Publix's second largest landlord. Ahold Delhaize, which owns Giant, Stop & Shop and Food Lion; Albertsons/Safeway; and Walmart round out the top 5 anchored neighbors. Subway, Anytime Fitness, T-Mobile, H&R Block and Starbucks make up our top 5 in-line neighbors.

By industry, 36% of our ABR comes from our grocery anchors, 26% comes from service providers, 23% comes from traditional retailers and 15% comes from restaurants. By neighbor type, 30 -- 36% of our ABR, again, comes from our grocery anchors, 41% from our national and regional neighbors and 23% from local neighbors. While we have seen a number of retailers filed for bankruptcy protection since the onset of the pandemic, our portfolio has been minimally impacted. We believe our neighbors currently in the bankruptcy process represent exposure of only 1.2% of our ABR. We're accounted for this -- have accounted for this in our reported revenue for the quarter.

Slide 6 illustrates a more detailed breakdown of our neighbor type as we consider how different retail uses are impacted by the pandemic. Approximately 51% of our ABR comes from neighbors that are considered to be essential and remained fully open for business during the pandemic. Grocers make up 36% of that. Banks, Dollar Stores, medical facilities, hardware stores and other essential businesses comprised approximately 15% of that ABR. Restaurants account for approximately 16% of our ABR. Most of our restaurant neighbors are offering carryout and delivery during the pandemic. We have worked closely with them to add outdoor seating, while their indoor dining rooms have been impacted by the social distancing. Approximately 33% of our ABR comes from other retail and services. This includes 16% from personal and professional services like barbershops, hair salons and nail spas. Another 13% comes from soft good retailers, 3% comes from fitness and 1% from entertainment.

The diversity of uses and concentration of necessity-based Internet-resistant retail have provided stability in our collections and our operating performance.

Turning to Slide 7. At the onset of the pandemic, there was incredible uncertainty about the virus' potential impact. Because of this, our top priority became preservation of cash. We implemented multiple measures to manage the negative financial and operational impacts of the virus. We reduced compensation for our executive management team and our Board of Directors. We delayed capital investments where possible and reduced expenses at the property and corporate level, including reduction in employee headcount. And we made difficult decisions like temporarily spending our monthly distributions and share repurchases. These measures to preserve the principal of your investment have allowed us to retain cash. In turn, this helps support the net asset value of your investment. The value of this retained capital is not lost.

Thankfully, 100% of our centers have remained open and operational throughout the entirety of this pandemic as noted on Slide 8. At the peak in April, approximately 37% of our neighbors were temporarily closed, meaning only 63% were open for business. We have seen neighbors reopen every month since the onset of the pandemic. At the end of October, 98% of our neighbors were open for business.

Additionally, we have worked with our neighbors to accommodate new social distancing guidelines and indoor dining restrictions. Our property management and construction teams currently have 79 projects completed or underway, including new drive-throughs, walk-up windows and outdoor patios and dining spaces. Not to mention the 1,300 Front Row To Gos parking spaces we have added at the front of our centers that customers can utilize when ordering online and picking up at the store.

Our collections have increased to 94% during the third quarter, which compares to 88% for our public peers. And our collections for the second quarter have increased to 90% up from our originally announced figure of 86% during the second quarter. This compares to 78% for our public peers.

Further, our October collections continue to remain strong at 94%. The consistent dialogue and open lines of communication we have established with our neighbors have been critical since the pandemic began. Our hard-working associates and commitment to working with our neighbors has been critical to these improving statistics. They don't just happen by themselves.

Slide 9 summarizes our highlights for the quarter, which were meaningfully impacted by the ongoing COVID-19 pandemic. Our same-center NOI decreased by 4.1%. This was a result of lower rent and recovery collections stemming from the COVID-19 pandemic. This was partially offset by lower interest rate expense and reduction in G&A expenses.

Core FFO increased 1.1% for the quarter, and core FFO per share was flat to last year at $0.18 per share. Importantly, our Board approved the reinstatement of a monthly distribution, commencing December 2020 at an annualized rate of $0.34 per share. I will share more about this decision shortly.

Lastly, on Tuesday, we launched a tender offer to repurchase up to 4.5 million shares of common stock at $5.75 per share during December of 2020, which will provide an option for shareholders in need of immediate liquidity.

Before I go further, I'd like to turn the call over to John Caulfield, our CFO, to cover our financial results. John?

[John Caulfield, executive]

Thank you, Jeff, and good afternoon, everyone. I'll start on Slide 10. Same-center NOI decreased 2.3% when compared to the first 9 months of 2019. The decline in our year-to-date performance compared to 2019 was entirely due to the impact of the COVID-19 pandemic on our portfolio. The restrictions enforced across the country as well as the consumers' changing behavior have greatly impacted our portfolio. Many retailers and restaurants are still operating at reduced capacity, impairing their sales, which is driving lower rent and recovery collections. While our neighbors are contractually obligated to fulfill the terms of their leases, we've increased our collectibility reserves related to unpaid billings and are currently working diligently with those neighbors with a balance due. Our leasing efforts and occupancy gains throughout 2019 positioned us favorably heading into this crisis. Additionally, leasing activity has been stronger than expected in the third quarter and continues this quarter as well.

Slide 11 outlines our year-to-date net income and core FFO results. Core FFO increased 1.1% to $171.6 million, compared to $169.7 million in the same year ago period. And on a diluted share basis, core FFO decreased to $0.51 from $0.52 compared to the same year ago period. We understood at the onset of the pandemic that it was going to have a material impact on our portfolio, and we immediately began to analyze areas where we could lower expenses. After a thorough review across all departments within the organization, we implemented intentional expense reductions, which resulted in a 17% decrease in general and administrative expenses compared to the third quarter of 2019. This reduction, coupled with lower interest expense, mostly offset the negative impact of COVID-19.

Our year-to-date performance is lifted by positive first quarter results before the pandemic hit our centers. This is illustrated by our 2019 quarter-by-quarter performance on Slide 12. Our same-center NOI growth and core FFO growth for the first quarter of 2020 were relatively strong at 2.6% and 8.4%, respectively. Then, during the second quarter, the pandemic and severe economic disruption drove year-over-year declines in our results. In the third quarter, we saw consecutive improvement as same-center NOI decreased by only 4.1% and core FFO increased 1.1%, but we have not returned to our Q1 2020 levels.

We continue to expect our results will be negatively impacted for the foreseeable future. With the current level of uncertainty, rising COVID-19 cases and economic slowdown, we will continue to manage our cash and properties conservatively.

Slide 13 outlines our debt profile and maturity ladder as of September 30, 2020. Our net debt to total enterprise value was 43.8% at the end of the quarter, which includes the impact of our reduced estimated value per share on our total enterprise value. This compares to 39.5% at December 31, 2019, despite our net debt decreasing by $129 million during 2020. At September 30, 2020, our debt had a weighted average interest rate of 3.1% and a weighted average maturity of 4.3 years. Approximately 75% of our debt was fixed rate.

Last quarter, we introduced a metric called net debt to adjusted earnings before interest, taxes, depreciation and amortization for real estate, also known as adjusted EBITDAR. This metric is widely used by publicly traded REITs, including our shopping center REIT peers. In effect, net debt to adjusted EBITDAR expresses a REIT's total debt as a multiple of its annualized adjusted earnings and is not impacted by valuation, which can be subjective. Our net debt to adjusted EBITDAR on an annualized basis was 7x at September 30, 2020, improved from 7.2x at December 31, 2019. Our publicly traded peers have comparable ratios between approximately 5.9x and 7.8x, with an average of approximately 6.9x. While we would like a lower net debt to adjusted EBITDAR ratio in the long term, we are comfortable with our leverage in the current environment. Our diligent laddering of maturities has given us a debt maturity profile with no material maturities until April of 2022. Time is very important here. The pandemic has severely impacted the loan portfolios for lenders, particularly for lodging and retail. We are actively communicating with our lenders about the stability of our portfolio.

We continue to maintain ample liquidity with access to $490 million on our $500 million credit facility and $103.9 million in cash, which we believe is critical as we manage through this uncertain environment for a sustained period of time.

I'd now like to turn the call back to Jeff for an update on COVID-19 and a discussion on our remaining outlook for 2020. Jeff?

[Jeffrey Edison, executive]

Thank you, John. Now turning to Slide 14. We know that our regular distributions are important to our stockholders. Making the call at the onset of the pandemic to suspend the distribution was a very difficult decision. Since then, we have implemented a number of prudent measures, which give us confidence in our ability to manage our cash and protect the principal of your investment. While there is still uncertainty about the timing of a full economic recovery and a potential vaccine, our Board of Directors approved the reinstatement of our distribution. We intend to continue the distribution thereafter, but our Board will evaluate on a monthly basis throughout 2021 given the uncertainty in the market.

Holders of record on December 28, 2020, will receive a distribution payable on January 7, 2021 of approximately $0.028 per share or $0.34 per share on an annualized basis. When evaluating the appropriate level of our distribution, there were several determining factors. First, we wanted to establish a distribution that would likely be sustainable even with the prospect of future market uncertainty. Second, we wanted our distribution to be in line with that of our publicly traded peers. Our distribution yield to our estimated value per share is 3.9%, which compares to the mean and median yield of our peers of 3.9% and 3.7%, respectively.

And third, we wanted our distribution to allow for the retention of some cash flow, which we can use to invest in order to drive further growth in the net asset value of our stock. We can use this retained capital for a number of purposes, including deleveraging our balance sheet, providing liquidity through stock repurchases and investing in property acquisitions, development and redevelopment.

Additionally, with continued improvement in our collections and growth in our portfolio, we will have the potential opportunity to increase the distribution rate in the future.

Turning to Slide 15. In addition to the distribution, our Board of Directors authorized a tender offer to repurchase 4.5 million shares or approximately $26 million of common stock at $5.75 per share. We need to deliver a full cycle liquidity event for all investors. However, the public equity market has been severely impacted because of the COVID-19 pandemic and concerns about retail. At the end of October, our public shopping center peers were trading at an average discount to NAV of 41% and a median discount to NAV of 39%. This is on top of the year-to-date decline in their net asset values of about 25%. If we were publicly traded today, we believe we would be subject to a similar discount to net asset value per share. Based on feedback, we have been gathering for many financial advisers and investors, the liquidity is desired at a value close to our estimated value per share. Full liquidity is not desired or advisable at this steep discount, and we agree. Our monthly distribution is more important, and we're taking that first step.

That said, we also know that some investors require immediate liquidity. A tender offer at $5.75 per share is a 34% discount to our estimated value per share of $8.75. As I said, this compares to the average discount of 41% of our peers. The tender offer price is in line with where our shares might trade if we were listed on a national exchange today. In other words, this is an option to sell for a market price.

Additionally, we are aware of a secondary market for our shares. Transactions volume has not been very high. As a reference point, about 67,000 shares have traded over the last 6 months with an average trading price of $5.27 per share. Tender provides liquidity for those that need it now, and we believe is an accretive use of capital for those stockholders that remain invested as our NAV per share will be positively impacted by the tender. Our Board intends to consider periodic tender offers going forward with pricing, timing and terms, subject to market conditions and other demands for capital. Our current expectation is that these repurchases will be considered at least annually going forward until we were able to execute a full cycle liquidity event.

I would also like to point out that our executive management team and our Board will not be participating in this tender offer as we believe in the long-term value of our shopping centers and their ability to deliver strong, resilient cash flow. We do not know how long this market disruption will last, and we are dedicated to improving the long-term value of your investment and delivering that value in a full cycle liquidity event.

Slide 16 provides key dates for the tender. The offer formally launched Tuesday. A letter with details on the tender is being sent in the mail to each of the stockholders' address of record and related materials and details have been posted to our website, www.phillipsedison.com/investors. Please note that all tender offer paperwork must be on file and in good order by 5:00 p.m. Eastern Time, Tuesday, December 15, 2020. We have a dedicated phone line for the tender offer, which is [phone]. Again, that is [phone]. Our investor operating team is standing by. Should the offer be oversubscribed, repurchases will be made on a pro rata basis. Further tender offer rules set by the SEC, we may increase the size of the tender by up to 2% of the total shares outstanding, which is an additional 5.8 million shares at our discretion.

Now turning to Slide 17. Please note that during these unprecedented times, our management team is aligned with our stockholders. When we merged with our external adviser, Phillips Edison Limited Partnership in 2017, we became a fully internally managed REIT. As a result, no asset management fees or any other management fees are being paid to a third party. Our management team is collectively the largest shareholder owning approximately 7% of the company, totaling $215 million. Despite the reduction in our estimated value per share that was announced in May, we are pleased with our track record of creating and protecting stockholder value. The first common share purchase in our initial offering has received distributions totaling $6.32 per share. And the last PECO common share purchase in our initial offering has received distributions totaling $4.17 per share.

Further, we have made distributions of over $1.3 billion to our stockholders, representing approximately 45% of all capital that we raised. Depending on the timing of your investment and treatment of your distributions, Phillips Edison & Company common stock has returned between 29% and 65% of your original investment, inclusive of the adjustment to our estimated value per share. For our former REIT II stockholders, your investment has returned up to 10% on your original investment.

As we look at the remainder of 2020 and into 2021, our goals remain consistent. First, preservation of capital and protecting the principal of your investment is our top priority. There remains a tremendous amount of uncertainty around the short and long-term effects of COVID-19 on the economy, consumer spending and retail real estate. At a time when our revenues have been impacted, cash conservation is paramount, and our unsecured capital structure has proven to be beneficial as others pay for expensive waivers or loan modifications. Protecting the value of PECO inherently means supporting and working with our neighbors. When the pandemic hit, we began dialogue with them to better understand how the new environment and government mandates impacted their businesses. When the shelter-in-place mandates were lifted, we worked with our neighbors to ensure they were aware of all the local safety rules and regulations, so they could reopen and run their business safely.

Now that most of our neighbors are back open, we have begun to work with them on a longer-term basis to plan for missed rent payments. As John said, our neighbors have binding contractual obligations to pay rent. We are carefully navigating this process with each neighbor in a one-on-one basis.

Our second focus for the remainder of the year is to position the company to capitalize on the strategic opportunities that may present themselves in the near future. We continue to patiently search the retail real estate landscape for attractive acquisition, growth and liquidity opportunities. The decisions and investments we are analyzing today will be made with the best interest of the long-term shareholder in mind.

Additionally, we continue to seek new investment and growth opportunities with our investment management business. Executing our objectives will help to preserve and grow our net asset value and to achieve our long-term goals. That said, the lasting effect the current environment will have on retail real estate or the economy as a whole is still unclear. Even though we are seeing businesses reopen, we do not know whether these businesses will regain traction, especially with newly -- with new daily record high cases of COVID-19 being reported.

It is too early to know how difficult it will be to collect missed rent, drive rent increases and sign favorable leases with new and existing neighbors over the long term. As you've seen this year, the financial markets remain volatile, particularly for the retailers and the retail real estate owners. We continue regular discussions with investment bankers, institutional investors and Wall Street analysts, which allow us to stay abreast of the public market conditions. We want to be able to act quickly when the opportunity presents itself to have a successful liquidity event, although it is unlikely that a full cycle liquidity event will happen in the near future.

In closing, we assure that our entire organization is working to protect and grow the long-term value of our stockholders' investment.

Now with that said, I will turn the call back to Michael Koehler. Michael?

[Michael Koehler, executive]

Thank you, Jeff. This concludes our prepared remarks. Our webcast listeners are able to submit a question via the webcast portal. [Operator Instructions]

One of the -- we've received many questions so far today. They've fallen for the most part into 2 categories. One is around the tender offer and the second is around the distribution. So we'll start with some questions on the tender, then we'll go to the distribution, and we'll take some more questions as they come in from there.

So the first question is that -- the person asking the question noted that Jeff and the management own about 7% of the company. What are they doing with their shares in the tender offering? Jeff?

[Jeffrey Edison, executive]

Thanks for that question. As I hope all of you know, since the inception of the combination of PECO with nontraded REITS, we have been the largest -- when I say we, the management team and myself, have been the largest shareholders of the company. And yes, we do own over 7% of the company. None of us will be trading into the tender. And we -- nor will our Board members. We think that's important. We're in this for a long-term -- as a long-term investment that we believe that the value of $5.75 is not representative of, but it is the market conditions today.

[Michael Koehler, executive]

Great. Thank you, Jeff. Another question related to the tender offer. Why is it a good thing for stockholders that instead of paying distributions, you've effectively used that capital to buy shares back? Can you provide some commentary there?

[Jeffrey Edison, executive]

Yes. I think the best answer to that is that our -- we have over 65,000 shareholders. They don't all have the same needs. Some of our shareholders need liquidity in a shorter time frame than the public company -- the public markets are going to allow. So our job is to balance that. We -- as we looked at getting the dividend going again and the liquidity needs of some of our shareholders, we thought that this was an appropriate balance of the 2. But this was a multiple discussion kind of a decision, but we think this is the right balance.

[Michael Koehler, executive]

Great. Thank you, Jeff. Switching gears a little bit to the distribution now. We've received 94% of our rent and have accumulated a decent amount of cash on the balance sheet. What are we looking for, for future months for the dividends payable in February and March -- the distributions, excuse me, payable in February and March. What are you looking for to continue that distribution rate through the remainder of the first quarter, Jeff?

[Jeffrey Edison, executive]

Well, let me step back. I mean, when I -- when we were making the decision on the -- on reinstating the dividend, we're faced with where we are right now, which is an increasing virus account, certainly political uncertainty and we have social unrest. We've got an awful lot of things going that are affecting our retailers. So it's important to know that we went in with wanting to have a dividend that was sustainable over a long period of time. We also want to have a dividend that was consistent with our peers. So that when the liquidity time is available, we would -- our dividend would not be necessarily be affected by a listing. And then we looked at our cash position with the uncertainty in the market to try and figure out what that balance was. And through that -- with all those factors, we felt that $0.34 was the appropriate level.

[Michael Koehler, executive]

Great. Thank you, Jeff. A related question, which you have touched on a little bit, but if you could provide some commentary on the following, I'm sure the listeners would appreciate it. We've collected 94% of the rent, yet we're paying out only 50%. What's kind of the justification around such a low-floor on the dividend?

[Jeffrey Edison, executive]

Well, first of all, it is at the exact same payout ratio of our peers or right in that range. And part of this is that we want to be in a position where we can adjust to the economic changes. We also want to have some cash flow that will be able to be reinvested in the company, so that we can continue to grow our net asset value. So it's those 2 things that really drove that and how we came to that decision.

[Michael Koehler, executive]

Great. Thank you, Jeff. A question here for John Caulfield now. Can you provide some color on the distribution program as it relates to maintaining your REIT status?

[John Caulfield, executive]

Sure. So a REIT is required to distribute 90% of their taxable income and based on our analysis for taxable income projections for 2020 as well as the distributions that we've paid through April, we do believe we will be in compliance with the REIT rules for 2020. That was one of the considerations that when we looked at setting the dividend rate, as Jeff articulated, in addition to the reason that he's provided, the other piece that we were conscious of is making sure that we were going to cover taxable income in 2021. And based on our analysis and projections, we believe that this dividend is consistent to do that.

[Michael Koehler, executive]

Great. Thank you, John. Moving on from the distribution and the tender offer, we've received some questions about the general state of retail real estate. One particular adviser asked the following question. With the potential glut in retail real estate as it relates to small businesses, how do you anticipate that impacting our in-line neighbors? Should we be concerned with this impacting the value of the portfolio? And also, there have been a few REITs that have filed for bankruptcy in the past few weeks. What are your comments on that?

[Jeffrey Edison, executive]

Sort of two answers to that. With regard to the bankruptcies, that is -- both of -- the most current bankruptcies were in the B and C mall business. And that was not unanticipated. The mall business has reacted very differently to the pandemic as well as to the last 3 or 4 years in the economy than grocery-anchored shopping centers have. One of our biggest problems is being painted with the entire retail brush. So any bankruptcy in retail is bad for us because it, again, cast bad light on retail. But the business that they are in of the mall business has been much more impacted both by the Internet and by the pandemic. Many of them have been closed. They were not a necessity-based like our shopping centers were. So they've been closed. And you put that on top of the stress that mall business is already in, it's been difficult time for them. And I would anticipate probably more bankruptcies in that area, particularly in the B and C Mall owners.

So with regard to what we kind of see as happening to our small stores. We -- I think our best example is, we're sitting at a point where the virus cases are going up. The deaths are going up. Europe is closing down. Those things are leading us to a place where we could be back into a March kind of a situation or we could be into a June, July, August kind of situation, which are very different. And we don't anticipate the entire country being shut down and -- like some of the European countries have done. But it will happen in certain states, and that will affect -- that has the biggest effect on our small store tenants. And the majority of our vacancies that have appeared, the stores that we got back were in states that were closed and with small entrepreneurs who were -- didn't have the capital to be able to sustain themselves through this. The government programs helped a ton. They kept a lot more of our guys in place. We do anticipate there will be another round of that. And hopefully, that will help us get through this next phase of the virus. And -- but it is definitely a time to be cautious in our mind as we all react to what is a really difficult situation.

[Michael Koehler, executive]

Thank you, Jeff. Our next question is for John. The question is how do rent collections of 94% compared to a pre-pandemic environment. John?

[John Caulfield, executive]

Sure, Michael. So pre-pandemic, you would expect to collect 99% to 100% of your collections. The difference would usually be in collectibility or bad debt reserves. So 94% is certainly an impact. And even if you look backwards, we're at 94% now. Many of our neighbors have been getting back to paying their rent and then paying us additionally, and then we're able to apply that to their outstanding balances. So they're working hard to repay us, but it was an impact and continues to be an impact, because the other piece is, when we look at those collections, not every dollar of that goes to the cash flow that we have. I should say, we have expenses to pay at the property and taxes and all of those things. So 94% is a very solid number, particularly on a relative retail landscape, but we would normally expect that to be 100%.

[Jeffrey Edison, executive]

Yes, John, let me add on there. It's important to note that we've had very few abatements where we've actually abated rent. Most of it has been deferred in a place that we will collect it in the future, which we feel is obviously very positive. And part of how we've been working with our neighbors as we've gone through this.

[Michael Koehler, executive]

To piggyback on that a little bit. We had a question come in that refers to the 94% collection rate, the cash on hand, fairly robust leasing activity. Those all seem fairly positive. Are there statistics that you're seeing with your boots on the ground at the center? Does that give you concern for the future?

[Jeffrey Edison, executive]

Yes, there are -- we're I mean and they all revolve around the customer and their reaction to the spiking virus. I think all of us probably at this point know someone who's gotten it. And it is -- it's very prevalent, and it is growing. And how the consumer reacts to that is going to be what we're -- what our eyes are on and continuing the process we've been doing now for 6 months, which is working neighbor by neighbor to help them make their business profitable and then for them to get to pay their rents. So we are -- if there's one thing we're watching, it's the virus rate. It's very complicated, because we aren't used to the number of states each having a different policy and that's made the process more complicated because of openings and forced closings. So we're -- that's the thing that I'm laser-focused on. Obviously, collections is a indicator of that. And if we see a drop-off in collections, that would be concerning.

[Michael Koehler, executive]

Thank you, Jeff. Final question for this afternoon's call related to full cycle liquidity event. Again, we've had a number of questions come in. Is a public listing your only viable option for a liquidity event? And if you could just provide some color and commentary around a full cycle event, Jeff, that would be appreciated.

[Jeffrey Edison, executive]

Sure. The -- with the market where it is today, it needs to repair itself a lot before we are -- where a public option is really viable at or near our NAV. So we're obviously disappointed in that, but our time frame's on a full cycle liquidity event are extended.

We are in constant conversations with almost all the major capital providers across the country in terms of other options to get liquidity. We've talked everything from mergers, to getting private equity to come in and buy the company, to working with pension funds and large institutional investors to sell a portion of the portfolio. And they've all -- they're all in a very similar wait-and-see mode. The risk in retail has not gone away. And until we get better -- we can derisk retail, I think we are in a mode of operating versus a liquidity event. And we'll continue to do that, but our eyes are open, and we are trying -- that is top of mind for us when the opportunity comes, as it has been over the last 3 years. But it's a very difficult environment, and we are not seeing a ton of change in that.

And I think your -- what we believe is that once the vaccine is widely distributed, we'll have a new normal. And that new normal will be driven 100% by what consumers do. And when that derisking happens and the market gets comfortable with what the risks of retail are, we believe we'll see significant improvement in the market. But until that time, we see more capital going out of retail today than going in, and that's obviously a bad sign for a full cycle liquidity event.

So we're obviously disappointed in that, but we're sort of dealt with the cards we've got, and we've got to figure out how to maximize the value of our company while we wait for the markets to get to a point where it's an option.

[Michael Koehler, executive]

Thank you, Jeff. This now concludes our question-and-answer session. For more information or for questions that we weren't able to get to today, please see our contact information on Slide 20.

And I will turn the call back over to Jeff for some closing comments.

[Jeffrey Edison, executive]

Thanks, Michael. On behalf of the entire management team, I want to express our appreciation for the continued support we're receiving from all of you. We really appreciate that. Our associates are going through really tough times, just like all of us are being affected by the pandemic. We're working through that. We're keeping laser-focused on trying to work with our neighbors, one by one in a really difficult situation without a lot of good news out there. So we're going to continue to do that and hopefully, we earn your support, and we will continue to be focused on that to the best of our ability.

So thanks again, and hope all of you stay safe, and we will continue to give you updates as -- on a quarterly basis as we get through this difficult situation. Thanks again for being on the call today.

[Michael Koehler, executive]

Thank you for joining us, everyone. You may now disconnect.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.