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Retail Properties of America Inc (NYSE:RPAI)
Q3 2020 Earnings Call
Nov 3, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to Retail Properties of America Third Quarter 2020 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your host, Mike Gaiden, Vice President of Capital Markets and Investor Relations. Thank you. You may begin.

Michael Gaiden -- Vice President of Capital Markets and Investor Relations

Thank you, operator, and welcome to the Retail Properties of America third quarter 2020 earnings conference call. In addition to the press release distributed last evening, we have posted a quarterly supplemental information package with additional details on our results in the Invest section on our website at www.rpai.com.

On today's call, management's prepared remarks and answers to your questions may include statements that constitute forward-looking statements under federal securities laws. These statements are usually identified by the use of words such as anticipates, believes, expects and variations of such words or similar expression. Actual results may differ materially from those described in any forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including without limitation those set forth in our earnings release issued last night, and the risk factors set forth in our most recent Form 10-K, 10-Q and other SEC filings. As a reminder, forward-looking statements represent management's estimates as of today, November 3, 2020, and we assume no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise.

Additionally, on this conference call, we may refer to certain non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP numbers, and definitions of these non-GAAP financial measures in our quarterly supplemental information package and the earnings release for the fourth quarter 2019, first quarter 2020 and second quarter 2020, all of which are available in the Invest section of our website at www.rpai.com.

On today's call, our speakers will be Steve Grimes, Chief Executive Officer; Julie Swinehart, Executive Vice President, CFO and Treasurer; and Shane Garrison, President and Chief Operating Officer. After their prepared remarks, we will open up the call to your questions.

With that I will now turn the call over to Steve Grimes.

Steven P. Grimes -- Chief Executive Officer and Director

Thank you, Mike, and good morning, everyone. I appreciate you joining the call today. Given the developments and the broader macroeconomic environment since early this year, the third quarter of 2020 posed a unique set of circumstance for us to address. And I am proud to report that our teams delivery across every aspect of our business made the third quarter a success on many different measures. As noted in our Q2 call, we took a patient and pragmatic approach to addressing the rent relief requests of our tenants and, as some of you would observe, had a tougher hill to climb given our mix of assets and therefore higher concentration of non-essential tenants.

Improving the quality of our assets, our team and the concentration of our asset base, we took base rent collections up from 74% rate in the second quarter to 84% in the third quarter with September finishing at approximately 89%. Non-essential categories, which moved from 58% collected in Q2 to 78% collected in Q3 catalyze this portfoliowide improvement.

Drilling down further into specific use types offers even more telling statistics. Collections in apparel, our largest non-essential use category, rose from 46% in Q2 to 82% in Q3. Services moved from 65% last quarter to 85% in the current quarter. And of course, the dramatic improvement in our collections statistics was in no small part due to the efforts across our platform. Finally, with open and operating portfolio ABR at 95%, up from 90% as of July 31, we have seen these collective trends continue into October, for which we are 87% collected as of October 26.

Continued normalization in consumer behavior as well as broad-based adaptations to the current operating environment from retailers in the quarter brought rising top line trends to retail overall. And our tenant improvement initiatives magnified the impact of these improving trends. Our focused marketing efforts like our Picnic To Go campaign at Southlake Town Square added incremental revenue for our tenants there, helped by integrated social media initiatives.

Our drive-in movie theater showings at One Loudoun, for which we partnered with Alamo Drafthouse brought not only incremental ticket receipts to our theater tenant, but additional fee income to us and extra orders to our restaurant tenants at the property. Outdoor exercise events and open-air exhibitions at Plaza del Lago increased foot traffic for all of our tenants there.

These property-specific events were additive to our existing portfoliowide efforts related to dedicated curbside pickup, social media campaigns, enhanced signage and other similar initiatives. And the substantial exposure of our portfolio to warmer climates in the Southwest and Southeast continues to provide for welcome operational flexibility at the property level as we head into the fall and winter months.

Later in our prepared remarks, Shane will be detailing the specifics behind our rent addressed statistics, which stand at 94% for the second quarter and 93% in the third quarter. Furthermore, he will detail specifics on our highest leasing volumes in the last four quarters that included addressing a number of bankruptcy backfill and tenant negotiations that bring incremental visibility to our broader outlook for our Company.

On the redevelopment and expansion front, we signed a leading national salon at Circle East during the quarter that advances our ability to merchandise the rest of the asset following the earlier anchor leases with Shake Shack and Ethan Allen. We delivered the grocery space at the reconfigured Shoppes at Quarterfield in October in time for this anchor tenant to open before Thanksgiving, and we remain on schedule with expansions of One Loudoun at Pads G & H as well as Southlake Pad development. These high visibility, derisk densification opportunities remain a key differentiator in our long term growth plans and commitment to prudent capital allocation that will in turn drive value for our shareholders.

We also continue to maximize the elements within our control from a financial and capital allocation perspective, demonstrating additional prudence and discipline. In the first nine months of 2020, our maintenance and tenant related capex is down nearly $11 million year-over-year and we have trimmed our property-level operating expenses by $4 million. In March, we announced the halt of our Carillon redevelopment, which reduced our redevelopment outlay expectations for 2020 by $75 million to $100 million. And thanks to our successful issuance of $500 million in public bonds during the third quarter and related payment of existing debt, we now hold no maturities coming due until 2022 and $877 million in total available liquidity.

The broad initiatives undertaken year-to-date helped to strengthen all aspects of our business, enabling us to reinstate our quarterly dividend in September. We understand the importance of this action to our equity investor base and this move further signals our confidence in both the short- and long-term outlook for our Company. Our Board will continue to monitor our financial performance and related minimum taxable distribution requirements, and we look forward to making progress on our goal to grow our quarterly payout amount in time as conditions further warrant.

While focused on these many key tactical deliverables, we also have kept an eye firmly on other items of long-term importance. Most notably, we published our inaugural corporate sustainability report last week. This document serves to reinforce and advance our long-standing framework of responsible stewardship. The Board of Directors and I look forward to delivering further progress on the many key environmental, social and governance topics detailed in our CSR during the coming years, including our commitment to green initiatives in our expansion and redevelopment as well as our diversity goals.

In all, the body of work is accomplished over the last 90 days here at RPAI once again highlights the strength of our platform and our people. Moreover, these results serve to underscore the merits of our strategy and asset base. While no doubt more twist and turns lie ahead in the current consumer environment, my already high confidence level in our battle-tested team has only increased with the results we have delivered in the last quarter.

I will now turn the call over to Julie.

Julie M. Swinehart -- Executive Vice President, Chief Financial Officer and Treasurer

Thank you, Steve. This morning, I will review our third quarter and year-to-date financial results including some updated disclosure items, our rent collection and tenant negotiation progress, and our capital structure positioning. During the third quarter, we generated operating FFO per diluted share of $0.21, down $0.06 year-over-year and importantly, up $0.04 sequentially, underscoring the positive momentum in our business quarter-over-quarter.

The impact of the pandemic is evident in our third quarter year-over-year lease income decline of $12.4 million or $0.06 per diluted share, explaining our operating FFO decline. This $12.4 million year-over-year delta improved by $9.2 million or 43% from the second quarter's comparable amount of $21.6 million. We provided much detail in our supplemental information package again this quarter to facilitate analysis, but I'll break down the key components of the year-over-year change in lease income for purposes of this call.

First, we executed certain tenant lease concessions in the third quarter that directly decreased base rent by $6.1 million. These lease concessions did not qualify for deferral accounting treatments. As shown on Page 20 of our supplemental, a substantial portion of this amount, $4 million, was already recorded within bad debt in Q2 as these concessions were agreed in principle, but not yet signed by June 30. So, there is no impact to Q3's results as the previously recorded bad debt was reversed during Q3.

Second, we increased our net allowance for uncollectible lease income by $4.5 million year-over-year as base rent collection levels improved in the quarter, but remained below historic averages. The net uncollectible lease income amount recorded in Q3 reflects the unwinding of the aggregate $4 million I just mentioned and therefore, is lower by that amount.

And third, net straight-line rental income decreased by $900,000 primarily driven by changes in our assessment of collectability of certain straight-line rent receivables as we now have approximately 10% of our tenants in terms of ABR accounted for on the cash basis. These components make up the vast majority of the $12.4 million year-over-year decline in lease income.

Year-to-date through September 30, we generated operating FFO of $0.65 per diluted share, which measures $0.15 below the $0.80 per diluted share we delivered through the first nine months of 2019. The year-to-date decline in operating FFO can be explained by the decline in lease income in Q2 and Q3.

Same-store NOI in the third quarter declined 12.4% or $10.1 million compared to Q3 2019. Year-to-date same-store NOI decreased 11.1% or $27 million as declines in Q2 and Q3 more than offset our Q1 same-store NOI growth as well as our base rent expansion from contractual rent increases.

In an effort to provide additional clarity, this quarter we have combined two concepts previously shown separately into one renamed caption uncollectible lease income net. Our effort which also enhances comparability across several peers combined what we historically have called bad debt with cash basis tenant adjustments that were previously shown as direct reductions to base rent and tenant recoveries.

For Q3 2020, net uncollectible lease income was $5 million and the recast figure for Q2 2020 is $19.5 million, which is an amount we discussed on last quarter's call. However, we continue to capture adjustments to base rent that relate to certain types of tenant concessions, including abatements, deferrals with modest term extensions, combination deals containing both abatement and deferral, and concessions accounted for as lease modifications as direct reductions to base rent. These are the concession types that do not qualify for deferral accounting treatment. Like last quarter, we have disclosed these amounts in the supplemental.

When aggregated with uncollectible lease income, these figures totaled $11.1 million for Q3 and $19.5 million for Q2. This quarter-over-quarter improvement of $8.4 million goes hand-in-hand with our $0.04 sequential increase in operating FFO, driven by our higher collection levels, which accelerated in each month of the third quarter, culminating in our September base rent collection of 89%. Our essential and office tenant categories continue to lead our collection stats, but I'm pleased to highlight that both restaurant and non-essential category collections increased each month of the third quarter.

Importantly, not only did collections improve, but our progress in executing tenant concessions was significant, offering more clarity around amounts billed, but not yet collected. Shane, will provide additional color around these third quarter successes in just a few minutes.

Given the current prominence of cash collection in investor thinking, and the likely diversity and practice as to how the metric is computed, I wanted to take a moment to outline how we calculate our collection statistics. The numerator is solely composed of cash receipts from tenants paying base rent that applies specifically to the month for which it was built, regardless of when received.

The denominator represents the base rent originally built for the given month and includes amounts due from tenants that have signed or are negotiating concession agreements that relate to that month. We do not reduce the denominator for signed or anticipated agreements whether they contain deferrals or abatements, nor do we reduce the denominator for tenants in bankruptcy, unless the tenant has moved out during the relevant quarter.

As additional context, collection rates for tenant recoveries for Q3 are in line with our base rent collection levels. And I mentioned on last quarter's call that the Q2 tenant recovery levels were only slightly lower than our reported base rent collection levels. Given our monthly cash breakeven level of approximately 60%, our improving collection rates have provided rising headroom to fund both our reduced level of development expenditures anticipated for the year and our third quarter reinstated dividend.

Turning to our balance sheet positioning, I'm proud to report that we delivered material positives from a capital structure standpoint in the third quarter through two underwritten public bond offerings. First, as we discussed last quarter, we successfully raised $100 million in July through a reopening of our 4% unsecured notes due 2025, RPAI's first public bond offering since 2015. We undertook this transaction not only to bolster our balance sheet standing, but also to reestablish the 2025 notes series as index eligible in an aim to improve liquidity and tightened spreads. Trading in those bonds, subsequent to that reopening has validated that thesis.

Then, in August, we harnessed the momentum of that successful reopening to raise another $400 million through a new issuance of 4.75% senior unsecured 10-year notes due 2030. These two transactions have reopened the door to the public bond market for RPAI, bringing access to a wide and deep pool of capital. We have been pleased with the improvement we continue to see in spreads, in the trading of these bonds, validating our decision to turn to this capital source.

Now that we have reestablished RPAI as a market participant, we look forward to returning to the public bond market in the coming years. We utilized the substantial majority of the nearly $500 million raised to further strengthen our capital position as we repaid the full $135 million outstanding on our unsecured revolving line of credit, a $250 million term loan that was coming due in January 2021 and a $100 million private placement maturing in June 2021. Now, we hold no debt coming due until 2022 and no unsecured debt maturing until the tail end of 2023, along with an undrawn $850 million revolving line of credit.

Our aggregate debt obligations now hold a 4.17% weighted average interest rate and 6.1% weighted average years to maturity, an extension of two years resulting from the issuance of these bonds and the related extinguishment of shorter-term debt maturities. Our ongoing progress on the operating side of the business punctuated by accelerating collection trends in each month of the third quarter and growing progress on tenant negotiations has further complemented our balance sheet health, reinforcing my confidence that we remain positioned to deliver growing value for our stakeholders.

And now I will turn the call over to Shane.

Shane C. Garrison -- President and Chief Operating Officer

Thank you, Julie. Our third quarter progress reflects our deliberate and comprehensive approach to balancing collections and leasing progress across our platform in the current operating environment. Our pragmatic plan for supporting our tenants and incremental mindset to addressing tenant negotiations drove base rent collections steadily higher through the quarter and into October, as Julie outlined. Our collection gains, and non-essential and restaurants, some of the categories hit hardest due to COVID-19, the base rent collection improvement in our portfolio overall.

The contrast in sales performance and rent payment willingness between essential and non-essential continue to compress from pattern seen in April and May as our portfolio ABR is now approximately 95% open. A testament to the quality of our properties, the viability of our tenants and the strength of our communities and team.

Our methodical patient and balanced approach also helped us to reach agreements with tenants to bring our total addressed rent to over 93% in Q3, while modifying leases for a long-term strategic flexibility. These modifications include co-tenancy removal or reduction, prohibited use modification, exclusive use removal and situationally removal of outlaw restrictions, including the ability to add drive-through lanes on certain of our lots as well as reducing parking count mandates, which now provide for future flexibility in regard to densification and curbside pickup.

For the remaining 7% of the unaddressed Q3 base rent pool, 1% are active bankruptcy filings that are unresolved. And within our remaining 6% of unaddressed base rent for the quarter just over half is composed of tenants in the hardest hit categories of restaurants, health clubs and theaters, and the balance composed of a mix of local tenants and conversely, national tenants that are current on certain locations and have not become current on others.

Continued progress at reaching agreements with these tenants springs needed incremental visibility, specific to occupancy and cash flow, going into 2021, as well as further flexibility as we look to remerchandise and situationally redevelop in future months and years. Notably, these negotiations also served as a key component in our accelerating leasing velocity, which measured our highest level since the third quarter of 2019 at 810,000 square feet across 105 transactions.

Signed tenant concession and extension agreements account for 35 out of 74 or 47% of our total renewal leases in Q3. And while bankruptcies drove 120 basis points of our 140 basis points sequential decline and retail occupancy to 92.2%, bankruptcy backfills represent 26% of the new leases signed in the quarter. These new leases are indicative of the ongoing demand for great real estate as well as our demonstrated ability to upgrade tenancy and cash flow stability while improving the merchandising mix and experience with patrons and the communities we serve. While COVID hastens the need for retailers to continue to adopt malleable business models, our dexterity will continued to prove a key strength in the coming quarters.

Looking into next year, our meaningful leasing progress and focus has now reduced our pending 2021 ABR expirations by 16%. We achieved this velocity with a blended positive releasing spread of 2.6%. Excluding one larger flat theater renewal or an incremental 14-year term for the quarter, our spread would blend to a positive 3.5%. Importantly, our comparable new leases signed during the quarter include an average 200 basis points of contractual rent growth that add to our effort to drive recurring top line expansion in an accretive fashion over the long term.

Looking at asset segments, while we generated positive leasing spreads across all three of our property types, our lifestyle and mixed-use assets outpaced both neighborhood, community and power with a positive 6.4% spread for the quarter. This result serves to reinforce our confidence in this asset class, despite some of the challenges presented by the pandemic.

Turning to development and expansions at Circle East. We continued incremental leasing progress with a signed lease for in-line space with a national salon and subsequent to quarter end, we executed one additional small shop lease. With retail construction complete, but for tenant specific build outs, Circle East velocity continues to expand rapidly toward stabilization as many retailers and uses focused on those spaces with more street presence, profitability and brand value. And we now have approximately 50% of the space in the project leased under LOI or in negotiation.

Turning to our significant residential densification at Loudoun, construction continues on plan for Pads G & H with the multifamily portion of the project on track for a spring opening. In many ways the event since spring that have strengthened many aspects of the technology sector and overall residential demand drivers for this suburban urban project have reinforced our decision to continued with our largest project to date. Further, our perseverance on this expansion project through the many unknowns of this year enabled us to avoid substantial increases in lumber costs and continues to position this asset for significant growth in the not too distant future.

At the Shoppes at Quarterfield, we delivered space to the small format grocer that anchors the site in October, and we remain on schedule for the pad development in Southlake that will serve to further activate an already dynamic asset. We also updated the range of returns for this $2 million to $2.5 million project in the supplemental to better reflect the previously disclosed range of costs.

All in, while certain elements of the COVID narrative still posed challenges to a finite outlook, our execution this quarter reinforces our ability to navigate the changes taking place in the consumer landscape, while positioning for future success. Our well located assets with exposure to compelling demographics will continue to drive interest from retailers who have placed growing emphasis on those locations that provide for distribution, visibility and profitability in the ever-evolving landscape.

And with that I will turn the call back to Steve.

Steven P. Grimes -- Chief Executive Officer and Director

Thank you, Shane and Julie for your reports. As usual our prepared remarks contain a significant amount of information about our quarterly and year-to-date performance, showcasing our commitment and perseverance to delivering solid results and transparency among these unprecedented times. We look forward to your questions.

Operator, I will now turn it back to you to poll for questions.

Questions and Answers:

Operator

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Hi, thanks. Good morning. First question. So, in terms of the tenants that you're not collecting rent from where it's not been addressed, so 6.7% in the quarter, where do you stand on the timeline to either recapture space or pursue legal remedies. And then do you have a sense around how much of that space may ultimately turnover?

Steven P. Grimes -- Chief Executive Officer and Director

Todd, good morning. So just to go back and probably stratify, I guess, a bit. So Q3, we're a little over 93% addressed. We've got another 100 basis points or so in bankruptcy, that remains fluid. And then we have 50 basis or 100 basis points of what I'll call brinkmanship and that national tenants are paying in one MSA and not paying in another, and that is really just due to kind of local law as it relates. So we have tenants that pay in Texas and have not paid in New York as an example.

So, we intend to if we haven't already initiated breach of contract on a one-off basis situationally in that bucket. And we fully expect to recover that rent longer term, so now you're down to 4.5%, 5% remaining and that again is a few of our theaters, certainly the gyms as well as restaurants, smaller format restaurants, generally dine-in, as well as a few of our entertainment center.

So, as far as when this turns over, I think we again, like we have in the last quarter are pushing now that we're down to this last 5% or so [Indecipherable] pretty rapid resolution. Whatever that resolution may be, we are just looking for some finality on a better feel or footing under us as we go into winter around what our stabilized occupancy is and continuing to compress our collections and really win out of the space between collections and that finite occupancy numbers. So, very rapid progress in the quarter and will continue into the fourth quarter.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. And Julie, I think you said that roughly 10% of billed base rent is related to tenants on a cash basis. I know there's a lot of detail here on Page 20, which is helpful, but what's the collection rate like for those tenants and how has that trended from sort of 2Q to 3Q?

Julie M. Swinehart -- Executive Vice President, Chief Financial Officer and Treasurer

Good morning, Todd. In Q2, we had about a little over 8% of our tenants on the cash basis and you're right, now we've got 10.2%, we've got that footnoted in the supplemental early on in the deck. I think last quarter we talked a little bit about cash basis tenant collection levels being just a smidge under 30% as of June, 30. I think it climbed a bit, maybe 35%, not quite 40% as time went on. So, we did see some recovery of, I'd say, a very modest amount of cash basis tenant revenue that was, of course, recorded in the third quarter because of the nature of it being cash basis. When I look at the population, so that 10% population that's, as of September 30, we did collect more in the third quarter, but only about 53%, 54%. So improving, but you can see why we have them on the cash basis. So hopefully that's helpful context.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. Yeah. And then sort of a technical question, I guess on the security deposits. You applied deposits last quarter a little bit more this quarter against the billed base rent. It sounded like that was sort of a liquidity measure for those tenants to, I guess, bridge from sort of point A to point B. Are those tenants now expected to true up their deposit accounts and is that happening? And are you -- or are you starting to see a higher rate of vacates from that bucket of tenants now?

Julie M. Swinehart -- Executive Vice President, Chief Financial Officer and Treasurer

Yeah, I think generally we're expected -- expecting tenants to repay those probably over say 12 months or so.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay, all right. And just one last question about the sort of segmentation around the portfolio. Just given the exposure that you have to the mix use and some live work and play properties, are you approaching the non-payment and tenant merchandising differently at those assets that have a focus on sort of food, fitness and entertainment tenants, which are challenged today. I guess, how are you thinking about balancing the near-term and long-term risks that those tenants pose with the importance that those tenants have to those types of properties in the long run? I guess, are you sort of more patient or willing to work with those tenants then you would in other community or traditional strips? I'm just curious how you're thinking about that?

Shane C. Garrison -- President and Chief Operating Officer

It's a good question, Todd. I think that very situationally we've seen again that occupancy come down quarter-to-quarter as expected. We still -- obviously, we'll work with tenants to the extent we feel that not only financially, but emotionally at this point, they are willing, able and understand kind of the new environment from an operating perspective. We are not interested in just leaving a light on outside of the space to portray occupancy at this point, regardless of center type. But it's been interesting and I would just go back and say that -- I think one of the most compelling aspects in our business has been what you've seen in the last 90 to 120 days.

If you think about the macro environment and the economy more broadly open, but generally at 50% occupancy restriction right across the United States and look at just our portfolio loans, your point with a heavy exposure to mixed use and we started at what low-70s a quarter ago, we're now 93-plus-percent addressed just quarter-to-quarter with a fairly de minimis fallout in occupancy. You can see how quickly sentiment and overall collections and call it, functionality has recovered again with 50% occupancy restriction.

So, on that in the quarter, lifestyle as an example in our portfolio, which just to stratify our rents, lifestyle on average is low- to mid-30s a foot. Our community and neighborhood is call it mid-20s and powers $13 to $14 a foot on average. So when you think about that stratification, our lifestyle put up the highest comps in the quarter and also had inordinate demand in restaurants and service. So yes, the collections have been challenged, when you look at kind of the second quarter. But again overall, in the third quarter, we saw a significant ramp across the portfolio, not only in new demand, but also obviously leasing velocity and collections.

And in the interim, directly to your point, we'll continue to work with tenants again that show the durability, financially and emotionally to kind of get to the other side wherever that point may be, it remains fluid. But again we are -- we certainly feel that the environment has changed dramatically quarter-to-quarter. And if you look out on the horizon and think about the prospect of a vaccine or whatever the resolution is, generally, next year at some point I think is the expectation. I think that the ramp across almost all categories should be significant. And when you think of an environment with less viable retail overall, I think that those companies that have great balance sheets, teams and real estate will have inordinate success and we think we'll be part of that.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay, thank you.

Operator

Our next question comes from Katy McConnell with Citigroup. Please proceed with your question.

Katy McConnell -- Citigroup -- Analyst

Thanks and good morning, everyone. I was wondering if you could just update us on your total exposure to bankruptcy tenant at this point. And of the 120 basis point occupancy impact from fallout in 3Q, could you provide some color on progress you've made so far looking really such space or from leases being [Indecipherable]. Just help us get a sense for backfill demand and potential timing of retenanting as we look to next year?

Julie M. Swinehart -- Executive Vice President, Chief Financial Officer and Treasurer

Good morning, Katy. I'll start off with responding to your question regarding bankruptcy exposure. I think we talked about on last quarter's call 3% to 3.5%, I think it was 3.5% bankruptcy exposure. In terms of ABR, that has come down as you would expect with the move-outs that we described in the release. So we're down to about 2.6% of our ABR at this point.

And for color on -- and thoughts on backfills, I'll turn it to Shane.

Shane C. Garrison -- President and Chief Operating Officer

Sure. Good morning. Our -- look, our anchors are still 97% leased. We haven't seen other than the last quarter, which was 120 basis points of that occupancy dilution was directly bankruptcy related and 80 basis points was really three or four tenants. We haven't really seen a large impact in our anchors to date. In line has taken most of the impact, bankruptcy and non, to be honest.

But I think that the velocity in the quarter, which is highest it's been in four quarters at over 800,000 square feet, over 50% of that volume has been in renewal. So I think it's indicative of again broader sentiment and occupancy trends just in a quarter, a dramatic turn. And almost 30% of our new volume was very short order bankruptcy backfills, call it two or three quarters on average. Though, there are tenants generally that are at this point looking to upgrade space, whether they're in centers that are just not viable or do not have the ideal configuration or co-tenancy, or they are looking to kind of increase or reconfigure market spacing.

So that's the dynamic that continues. And again, it's what you would expect in a volatile environment with asset attrition, which will continued for the foreseeable future, even on the other side of COVID. So, long story short, again, I go back to quality, balance sheet, team and we expect again fairly rapid progress on bankruptcy backfills given generally the tightness in the market of anchor space for quality centers.

Katy McConnell -- Citigroup -- Analyst

Okay, great. And then just a quick follow-up. Can you update us from where rent collection levels stand now from small shop versus your anchor space?

Julie M. Swinehart -- Executive Vice President, Chief Financial Officer and Treasurer

Collection levels for small shop versus anchor, yeah, so last quarter we did include some additional disclosure on Page 19 of the supplemental. And frankly, we were running out of room this quarter and hopes that the bifurcation of our deals between deferral accounting treatment and the non, would be helpful to the investor. But what we saw last quarter in small shop -- local small shop in fact was ahead of our Q2 collection average. And at Q3, local small shop is just pretty much on par with the 84.2% collection. So, what we saw last quarter was mid-tier being the laggard and we see that again with Q3 stats. It's more the mid-tier sized space, but it's a much more narrow gap. So, mid-tier has improved relative to the rest of the portfolio since Q2.

Katy McConnell -- Citigroup -- Analyst

Okay, great. Thanks.

Operator

Our next question comes from Derek Johnston with Deutsche Bank. Please proceed with your question.

Derek Johnston -- Deutsche Bank -- Analyst

Hi, everybody. Good morning. Lease growth was 2.6% in 3Q. Is this a level we should expect given the tug of war between occupancy and rent growth? Is occupancy more important in this environment as you kind of look to stabilize post the pandemic and then resume growth from a lower base?

Shane C. Garrison -- President and Chief Operating Officer

Hi, Derek. Good morning. It's a balance to your point, when to push rents and when to pull on occupancy, I think situationally is the best answer I can give you. And we've really just continue to think about it strategically in a very dramatic and volatile environment. We've talked about continuing to be positioned for the future and I'll just kind of give you some context here.

We were -- again, we were very vocal on the front end of this that we view this as an opportunity. We were slower out of the gate, being more mindful, I think purposeful on trying to understand what the scope and depth of this was at beginning of Q2 or end of Q1, and then being mindful of taking it as an opportunity to really position our leases that really were kind of 10 years looking in reverse, when you think about restrictions and in some cases prohibited uses and really exclusives. And taking that opportunity to the extent that we're going to modify and extend deferrals or really invest any additional capital tenant-by-tenant and modifying those leases to better reflect the next 10 years.

So, that would certainly involve temporary co-tenant fee waivers, which in general have averaged, call it 12 months to 24 months for our modifications. But, that's an interim bridge stuff to get to the other side. I think that more purposeful and the longer-term focus was really specific to prohibited uses that better reflect tomorrow exclusivity -- right to removal of exclusivity and our ability to lease to redundant uses and just broader flexibility, again, in an environment that we think has just markedly less viable high-quality centers and pretty short order is even more important than it was a year ago.

And then when we kind of thought about and looked at the leases and really the dynamic, which we think is -- has relative stickiness or certainly permanency patio space, open space and caps, the ability to walk up windows and really reduce parking flexibility and outlay height was a big focus. And then additionally because of our overall model, which is longer-term densification, removing any restrictions that were non-retail related.

So we are very happy with that. I think that by end of the year, Derek, we'll have some kind of a tally as to what that looks like and how successful we were and what that relates to, or looks like from a incremental value creation standpoint. But the long-winded answer or the end of it is that we are still trying to balance it, but I think we are positioned much better than we ever have been as it relates to all of those efforts when we come out the outside of this again hopefully next year. But in the interim, again you've continued to see collections now are addressed as 93%-plus and we're now at 92% occupancy.

So the spread in dollars relative to what it was at the beginning of Q2 is probably 30% of that number now. So, market progress, we are admittedly down to that last 5% or so that again are the tenants and [Indecipherable] talked about that are a bit tougher. And those are the tenants, assuming that they are economically viable and are willing to kind of co-invest in that effort, we are more likely to push on occupancy and try to bridge to the other side.

Julie M. Swinehart -- Executive Vice President, Chief Financial Officer and Treasurer

And Derek, just to highlight, you had mentioned the 2.6%, which is the stated metric. We did feel it was worthwhile to highlight the significant impact that one singular lease was having on that metric. I think Shane alluded to it in his prepared remarks, a 14-year theater renewal. So we do have some footnotes on Page 17 of our supplemental that recasts that 2.6% figure to 3.5%, and then that also improves the renewal from the stated rate of 3.2% up to 4.4%. So I just wanted to flag that for you.

Derek Johnston -- Deutsche Bank -- Analyst

Okay. Thank you. And look, a bright spot this quarter with strong leasing volume and that shouldn't be overlooked at over 800,000 square feet. So can you give some further specifics on where demand is best and how leasing traction is continuing into year-end. And then the second part would be, given the COVID-related disruption are there tenants looking to renew or extend early in hopes of gaining favorable terms now versus later? Thanks.

Shane C. Garrison -- President and Chief Operating Officer

Thank you. From a segment standpoint, again, we're 97% leased in the anchors, so we still have fairly tight inventory. I guess that's [Indecipherable] problem at this point. But to the extent we did three or four anchor deals in the quarter and again, it's fairly typical of what we've seen, discount soft goods, discounters in general and I would say, home-related as well as grocery, those continue to be, at least in our portfolio, the biggest anchor drivers.

But we are -- again, going back to to sentiment and how quickly it recovered at basically 50% occupancy restrictions. The in line activity, the pipeline is the best it's been in at least three quarters and again there is restaurant, a significant focus on QSRs, especially for again any end cap space or space that has the ability, whether it's wider sidewalks or adjacent parking that the tenant can conceivably stretch into open-air feeding. Health and beauty and just services in general has been very robust in the last quarter or so.

Anything home related, boutique, cabling, Internet, that's the local regionals that have kind of a showroom concept now whether it's Infinity here or our Spectrum in Texas has been very busy. And again, smaller format home furnishings design. So that has been kind of the broad-based anchor and in line demand. And again I think that, while it will be volatile here for a while, as sentiment comes and goes, it recovers quickly, and we expect that demand to continued on the other side.

Derek Johnston -- Deutsche Bank -- Analyst

Thank you, everyone.

Operator

Our next question comes from Linda Tsai with Jefferies. Please proceed with your question.

Linda Tsai -- Jefferies -- Analyst

Yes. Hi. Good morning. Of the 15% of ABR up for renewal in 2021, how much of that has been addressed?

Shane C. Garrison -- President and Chief Operating Officer

So, we are down to 10% now. We had a very robust quarter, some of it was options. I think we indicated that almost half of our renewal activity was in conjunction with lease modifications. So back to Derek's other question, we see a willingness for tenants and I guess in this case a mutual willingness to extend those tenants that have shown the ability to be successful in this environment and still pay what we think is market rent on a stabilized basis and that was a significant initiative and achievement in the quarter.

Linda Tsai -- Jefferies -- Analyst

Thanks. And then in terms of the lower maintenance capex is implemented this year, how would you think about that for next year?

Shane C. Garrison -- President and Chief Operating Officer

I think that it's malleable at this point. Situationally -- demonstrating situational awareness and understanding to the extent we've had, when we budgeted at the beginning of the year to kind of unintended vacancies. And I'll just use roofs as an example, in that capex number, we've pulled roofs where we now have vacancy, because we obviously did not want to roof an anchor where we will literally have to go back in and put up a new roofing system for a tenant. So, just pulling back where it makes sense and that is not just related to roofs but just broad based capex, so we are obviously running $11 million under this year. We'll see what it looks like next year, but generally, we have invested in our centers on a very kind of stabilized recurring basis and because of that we can pull back for multiple periods if we need to.

Linda Tsai -- Jefferies -- Analyst

Thank you.

Operator

Our next question comes from Chris Lucas with Capital One Securities. Please proceed with your question.

Chris Lucas -- Capital One Securities -- Analyst

Hey, good morning everybody. Shane a couple of questions for you. I guess as you guys think about the the match up between sort of tenant demand and some of the vacates, the sizes of the boxes, should we be thinking about the the releasing of that space as being backfilled as the space size or will there be some requirements to cut box -- spaces up at this point. Do you have a sense as to where if there is a mismatch in the demand relative to the boxes?

Shane C. Garrison -- President and Chief Operating Officer

Sure. Good morning, Chris. I think that the 20,000 square footers to 30,000 square footers, which we have very low inventory in at this point have generally been single-tenant backfills and that continued in the quarter. I think the toughest space as it relates to just a single tenant backfill is really, call it, 10,000 feet or so. Those, we just took back nine peers in the quarter. We did turn one of those instantly in the quarter and that was single, but generally I think that space at least from our lens, Chris, is the toughest that 10,000 feet. I think that luckily, generally for us that 10,000 feet now from a configuration standpoint is more of a rectangle and less of the square. So, we don't have depth issues there. So to the extent we split it two or three ways, even looking at bifurcation costs and TI, when you split it, I think the rents are up considerably and it still pencils, but obviously takes a little more time to fill.

Chris Lucas -- Capital One Securities -- Analyst

Thank you for that and then I guess just thinking about the lease to commence spread in the sort of trajectory of that, should we assume that that's going to billed for a little while before it starts to come down or is it, or do you expect it to sort of stay at this -- at the current level?

Julie M. Swinehart -- Executive Vice President, Chief Financial Officer and Treasurer

The lease to commence spread of -- 160 basis points today.

Shane C. Garrison -- President and Chief Operating Officer

Correct. Yeah, I think occupancy is tough to call and obviously, lease rate on top of that is tough to call. But I would expect unsurprisingly occupancy to tail off through at least the end of the year. And I think that looking at the pipeline, we still have fairly favorable activity even at this point of the year, so I would expect directly to your point, Chris, that we would expand that -- that spread, at least through the end of this year, if not into the first quarter.

Chris Lucas -- Capital One Securities -- Analyst

Okay, thanks for that. And then last question, I don't know whether you have it available, but I'm just curious as to what your non-option renewal spreads look like?

Shane C. Garrison -- President and Chief Operating Officer

I don't have that in front of me. We can follow up though.

Chris Lucas -- Capital One Securities -- Analyst

Okay, great, thanks. That's all I had this morning.

Shane C. Garrison -- President and Chief Operating Officer

Thank you.

Operator

Our next question comes from Mike Mueller with JPMorgan. Please proceed with your question.

Mike Mueller -- JPMorgan -- Analyst

Yeah, hi. I apologize if you've touched on before, But if we look at, I guess, the collections for apparel and then quick service restaurants, out of curiosity, I mean, what -- why do you think collections are lagging there in the low-80s, especially for the quick service where people are just picking it out day-to-day?

Shane C. Garrison -- President and Chief Operating Officer

Hi, Mike, good morning. Look, I think functionally operationally as a segment, more of those tenants are in the mom-and-pop category, at least in our portfolio. So you're 1,500 square feet, 1,800 square feet. And I think that generally those tenants have had a lower access to liquidity, in some cases just dysfunction from an operational standpoint. So, we do have a clearer picture quarter-to-quarter. But, yes, that's in that last -- some of those tenants are in that last 5% that I referenced earlier and we continue to push through that.

Julie M. Swinehart -- Executive Vice President, Chief Financial Officer and Treasurer

And Mike, this is Julie. I would also just point out that our -- if you're referring to our October column on Page 19, that's as of October 26 and September obviously as the benefit of being through October 26 as well. What you can't see is our, yes, though it will be in our 10-Q at least in total, the September 30 collection stats are as of September 30 for apparel were lower than the 86.8%, they were lower than the 83% that we show as of October. So, apparel is actually ahead of the September pace, when I look at October. And when I look at restaurants in total, the 77.7% for October is pretty much on pace with September. So I just wanted to point out that those are, as we mentioned, two of the categories that seem to be taking a little longer and have a little longer tail on collection.

Mike Mueller -- JPMorgan -- Analyst

Okay. And then I guess on the next page, actually for the uncollectible reserve, looking at the two components for the abatement combinations, modifications for $2 million in Q3 and the $4 million in prior quarters, how should we think about those two items specifically trending as you kind of move into Q4? Does anything notable kind of burn off and headwind subsides or is it just -- we're going to push this, but they're going to kind of grind down based on cash collections? I mean, how should we think about that over the near term?

Julie M. Swinehart -- Executive Vice President, Chief Financial Officer and Treasurer

Thanks for the question, Mike. So we put -- we put a lot of granularity in the supplemental. We enhanced disclosure, expanded disclosure on the Page 20 you referred to. Also on Page 19, we've got some additional footnotes earlier on Page 4, for example. What you see there in the $2 million and the $4 million, where -- are these are deals that do not qualify for deferral accounting treatment. So, some of them are full lease modifications, where there is a little bit of benefit in straight line in the quarter when they're processed, some of them are abatements.

I would tell you that there is probably 20% or so of that figure is deferrals that didn't count for deferral accounting treatment. So there is some potential good news when those get repaid in the future. So those amounts were reserved in bad debt last quarter. So, we're trying to be -- I'm sorry, not those amounts, but the Q2 amount was. So we're trying to help explain with some of the tables here that there is no current quarter impact on that Q2 figure.

You're asking a little bit about what else you can expect going forward and similarly we've reserved for additional amounts within bad debt. And I think the easiest place to point you to see what we know today or what we're expecting today is back on Page 19 in the kind of call it second to bottom row. In the Q2 and Q3 tables, you see in-process lease amendments for abatements, combinations and modifications of 3.3% for Q2 and the 1.1% for Q3.

These are currently reserved for in uncollectible lease income and the mechanics of the accounting is you can't record them as presented on Page 20, at the top there, until they're signed. So again, these are not yet executed as of quarter end and we have reserved for them within uncollectible lease income and its essentially, the figure on Page 20 that's labeled estimated impact of lease concession agreements that have not yet been executed and it's $4.5 million. So I can point you to those pieces, again, it's a little bit of a puzzle, but all the components are there to tell you what we expect today for going forward for that concept. I know there was a lot -- always happy to follow-up on the phone too, if that's helpful afterwards.

Mike Mueller -- JPMorgan -- Analyst

Yeah, that was helpful. That was it. Thank you.

Operator

Our next question is from Floris Van Dijkum with Compass Point. Please proceed with your question.

Floris Van Dijkum -- Compass Point -- Analyst

Right. Thank you for taking my question guys. Julie, I noticed your recoveries in your same-store pool is actually up. What was behind that and what if you -- I know you're collection rates are based on rents, what if you included the recoveries. How -- would that change anything?

Julie M. Swinehart -- Executive Vice President, Chief Financial Officer and Treasurer

Thanks for the questions, Floris. I mentioned in my prepared remarks trying to address the recoveries component verbally earlier that it's on par for Q3 with the rent collection pace and that's for our collection on what I call our escrow billings. We have real estate tax billings that happen at certain points during the year, Q3 is one of those and those collections tend to be much higher. They're usually what we call to annual payers for taxes. So, the bigger boxes who just pay -- pay at that point.

You mentioned the recoveries being up or higher than you'd expect. I think it's always tricky to look at a singular quarter because you're always truing up or truing down on a year-to-date basis, but if I look at the nine months within the same-store I see we're recovering about 74.4% versus 75.9% in the 2019 compared to period, so down about 1.5% similar to the occupancy change, I guess when I look higher on the table. So we feel comfortable with what we show there. At any given time there can be a little bit of a mix issue with certain operating expenses that are more recoverable than others that can drive it in a way that's not necessarily intuitive, but that's what I can share on that topic with you for now.

Floris Van Dijkum -- Compass Point -- Analyst

Thanks, Julie. I appreciate that. One other question which I have, if we were to look at your recurring revenues for the third quarter relative to your first quarter, what would the delta be?

Julie M. Swinehart -- Executive Vice President, Chief Financial Officer and Treasurer

For recurring revenues, I mean I would look at ABR as the best indicator. ABR as of March 31 was just over $366 million and now we're just under -- we're about $358 million. So, the pandemic declined, the six month decline is about 2.3%.

Floris Van Dijkum -- Compass Point -- Analyst

And -- but is the right way to then look at it, OK, so, but what did you actually get. You collected 100% of your first quarter and now you're collecting -- is that --would that be the right way to look at it and you're collecting -- you're addressing 93% of that lower number, is that the right way to think about it?

Julie M. Swinehart -- Executive Vice President, Chief Financial Officer and Treasurer

I think that's the right way to think about it. And just to be clear on Page 19 of our supplemental, which is consistent with -- it's showing the detail behind our reported collections statistics. We make some notes. I mean, we had some disclosure at the top of the page to acknowledge that we are always choosing an anchor point for that -- for those reports, for those stats and it's always quarter end ABR.

So, quarter end ABR that's $358 million that I mentioned is the anchoring point for the Q3 comment as well as the September, August, July columns. Different way of saying the bankruptcies that moved out of Tier 1, they are not in any of the July, August or September columns or Q3 because they didn't make the cut because they weren't in on the last day of the quarter. But I think -- I think you've got a lot of pieces there and I think you're hitting on the right way to look at what ABR is there at the end of the quarter and what the collection levels were.

Floris Van Dijkum -- Compass Point -- Analyst

Great. One last question maybe for Shane. Shane, if you can give us a little bit of an update at One Loudoun before the residential rents. What has happened in that markets as a result of COVID? And are you still feeling pretty good about the lease up pace once the project gets completed?

Shane C. Garrison -- President and Chief Operating Officer

Hey, Floris. Good morning. Well, let me just go back I guess just kind of a macro of One Loudoun at this point that the corridor continues to be largely tech-driven as you are aware. When we deliver, we will be the only A-plus product in the corridor from a timing delivery standpoint and we will have the only multifamily adjacent to what we think is the best, a retail amenity in the quarter. So I think that's a pretty powerful combination.

I think as it relates to rents, we feel very comfortable with where we originally budgeted. We still anticipate 15 units to 20 units a month once we start delivering. And from a timing and budget perspective right now, we are on budget, very happy with KETTLER on the ground. They've done a phenomenal job in conjunction with our team. And expect to deliver two to maybe four-week early at this point. So, everything has gone very well to date. And again I think the macro sets up well, all things considered, when we start to deliver.

And then just while we're talking about it, we still have about 70,000-feet give or take in retail and office with office making up half of that, call it 35,000 feet. Again the suburban urban, especially with again our retail amenity driving interest in value longer term is still a very real dynamic. And just in the quarter or actually post quarter, we now have LOIs for about 75% of the office space at Loudoun. So again, all things considered, I think we are very happy with where the asset is going and the development overall and are excited to deliver it on time and if not earlier next year.

Floris Van Dijkum -- Compass Point -- Analyst

Thanks, Shane. That's it for me.

Shane C. Garrison -- President and Chief Operating Officer

Thank you.

Operator

Ladies and gentlemen, we've reached the end of the question-and-answer session. At this time, I'd like to turn the call back over to Steven Grimes for closing comments.

Steven P. Grimes -- Chief Executive Officer and Director

Thank you all for your time today. We understood today, it's probably going to be a whole host of questions that are very much focused on kind of modeling for the quarter and the end of the year. So, we appreciate your time and your detailed questions. We also understand there's some other newsworthy events going on today. So, we truly appreciate your time and attention. As always, and as Julie alluded to, if there -- after you've had time to digest this information and whether it's been published through the transcript or otherwise, we certainly welcome any follow-up questions to the extent that you need any further clarification. So, take care and be well, everyone.

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Michael Gaiden -- Vice President of Capital Markets and Investor Relations

Steven P. Grimes -- Chief Executive Officer and Director

Julie M. Swinehart -- Executive Vice President, Chief Financial Officer and Treasurer

Shane C. Garrison -- President and Chief Operating Officer

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Katy McConnell -- Citigroup -- Analyst

Derek Johnston -- Deutsche Bank -- Analyst

Linda Tsai -- Jefferies -- Analyst

Chris Lucas -- Capital One Securities -- Analyst

Mike Mueller -- JPMorgan -- Analyst

Floris Van Dijkum -- Compass Point -- Analyst

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