Q2 2021 Macerich Co Earnings Call
Good day, everyone welcome to the May stretch the company second quarter 2021earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Jean Wood, Vice President of Investor Relations. Please go ahead.
Thank you for joining us on our second quarter 2021 earnings call.
During the course of this call we will be making certain statements that may be deemed forward looking within the meaning of the safe Harbor of the private Securities Litigation Reform Act of 1995, including statements regarding projections plans or future expectations.
Actual results may differ materially due to a variety of risks and the start to achieve set forth in today's press release and our FTC finally.
The adverse impact of the.
Novel Coronavirus, COVID-19 on the U S regional and global economies and the financial condition and the results of operations of the company and it's China.
Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the earnings release and supplemental filed on form 8-K, with the FTC, which are posted in the the investors section of the company's web site at the stretch dotcom.
Joining us today are Tom O'hern, Chief Executive Officer, Scott <unk>, Senior Executive Vice President and Chief Financial Officer, and Doug Healey Senior Executive Vice President of Leap day with that I will turn the call over to Tom.
Thank you Jane.
And thanks to all of you for joining us today.
As you read in the 8-K. This morning, we had a very good quarter.
As we pass the midpoint of the year, we find ourselves at an inflection point.
As we said of our last call we expected occupancy the hit a low point at March 31 of 2021 and that appears to be the case.
As we look today almost all of our operating metrics have started to trend positive, including the including occupancy.
And many of these metrics or even trending positive compared to the pre pandemic second quarter of 2019.
Improving operating results, including leasing volumes occupancy gains and most importantly tenant sales.
You have trended very positively in fact.
To give you some month by month numbers March tenant sales were up 8.6%.
Sales were up 9.9%.
May and June were both up of strong 15 per cent.
Those increases are versus the same periods in 2019, we're not comparing sales. The 2020 of those are compared to 2019.
Traffic is still lagging a bit at around 90 per cent of pre COVID-19 levels on average.
So what we're seeing is an improved capture rate for the retailers compared to pre COVID-19.
We do expect traffic to continue to increase in the second half of the year.
I would say brick and mortar mall based retail is back with a vengeance.
Albeit helped to some degree by stimulus checks and revenge buying.
Because of the robust leasing environment.
It feels much better to us than when we emerged from the great financial crisis in 2019 to thousands of Chad.
Some of the second quarter highlights include on the sequential basis occupancy gains of 90 basis points.
Leasing volumes for the quarter and year to date were in excess of 2019 levels.
We saw the same center NOI growth of 11.5 per cent.
We expect the second half of 2020, 1 to be even better.
We raised the bottom end of our <unk> guidance range and moved the midpoint up even factoring in the impact of issuing the equity during the second quarter.
In terms of balance sheet activity, we use the ATM to of small degree in June.
Since our last earnings call, we issued $6.4 million shares at an average price of $18.20.
We raised 114 million of capital and that was used to reduce debt.
Trading was good for us in the quarter and in June and we ended the second quarter is the second best performing REIT of 58 per sale.
The other balance sheet activity. In addition to our sale of Paradise Valley Mall in March we're still expecting to close on the sale of another non core asset or 2 in the second half of 2021 and that's in our guidance.
The net proceeds expected to be in the $100 million range.
The balance sheet moves we made in the first half have significantly improved our leverage metrics year to date, we've paid down over 1.3 billion of debt.
Focusing for a moment now of leasing we're seeing incredible demand for space include.
Including big box space and perimeter of locations and that includes multifamily healthcare fitness wellness uses food and beverage.
Other traditional non traditional retail uses.
The Great example of the latter is that during this past quarter, we announced the 222 thousands of square foot.
Sporting goods lease in the former Nordstrom's box.
She had the fashion center.
This store will be their first in Arizona. It will feature of 16000 gallon saltwater aquarium of Wildlife Mountain of.
The restaurant and more.
Non traditional mall retail demand in smaller format also continues to accelerate with the digitally native brands getting active again on brick and mortar locations.
After a hiatus during COVID-19.
Other interesting additions include a host of new electric car companies, taking space in many of our malls, including Pollstar elusive.
We've done multiple deals with us this year.
Many of our traditional retailers are back with even greater demand.
For space and pre pandemic and Doug will elaborate on that in a few moments.
We are very optimistic about our business as we move forward to the balance of the year and into 2022.
For the most part in the U S with 58 per cent of the population vaccinated. The worst of the pandemic is behind us the leasing environment is strong and getting better by the month and we expect significant gains in occupancy net income of <unk> growth as we move through the year into the next year.
And now I'll turn it over to Scott to discuss in more detail the financial results for the quarter.
Thank you Tom before I reported on the financial highlights of the quarter I would like to making the announcement at the end of this year, Jean Wood will be hanging up her investor relations cleats and stepping gracefully into retirement.
The Green has been an incredible assets may stretch for the past 27 plus years, our dedication of the companies start of it than just a few months after may searches of IPO and 1994, and we sincerely appreciate her contributions her partnership and her friendship over these many many years.
Over the coming months gene will be transitioning her role to Samantha Greening, our new director of Investor Relations Samantha has been with mace rich for over 9 years in various capacities. We are very pleased to welcome Samantha and of this new role and during the balance of the year. Please join us by welcoming Samantha and by wishing gene all of the best.
The she approaches the new chapter in her life now.
Now onto the highlights of the financial results for the quarter.
Same center NOI rebounded very well in the quarter, increasing 11.5% relative to the second quarter of 2020, including lease termination income.
The prevalence of retroactive rent relief adjustments with that our 2021 results.
We believe it is appropriate to measure our 'twenty 1 same 2021 same center operating performance by including rather than excluding lease termination income.
If we were to exclude lease termination income.
Same center NOI growth still increased 10, 4%.
Funds from operations for the second quarter of 'twenty 'twenty..1 was 59 cents per share of 20 cents or 71% from the second quarter of 2020 at 39 cents per share.
The EBITDA margin has increased over 6% to 63, 9% relative to 57.7% at the end of the second quarter in 2020 and is approaching pre COVID-19 at EBITDA margin of 65, 3% at the end of the second quarter in 2019.
As Doug will share and explain our portfolio occupancy rate increased in the quarter and our leasing spreads showed sequential improvement relative to the end of the first quarter of 2021.
Suffice to say.
This was a relatively noisy earnings quarter with many moving pieces of supporting our positive earnings news that we've released today.
To expand on that was the primary factors contributing any of these NOI and that's S. O gains are as follows on the NOI front 1 of the quarter increased our the quarter increases include a 6% increase in percentage rents, resulting from the dramatic increase in sales that we reported earlier today too.
<unk> commentary of income has contributed another 4 cents of NOI and the F F O, including from our urban parking garages our.
Our common area of business has proven to be quite elastic and resilient and as of recovering very well in fact, our commentary of revenue performance has exceeded our expectations from when we entered into 2020.1.
And 3 bad debt expense represents a comparative $50 million or 23% improvement quarter over quarter, including a $40 million bad debt expense incurred during the second quarter of 2020 at the onset of Covid and a net $10 million of bad debt reversal within this last quarter of the second quarter of 'twenty or 'twenty 1.
Offsetting these NOI factors, where 1 of.
The $46 million or 21 cents and reduced the minimum rent and recovery of income from reduced occupancy as well as approximately $15 million of $15 million of retroactive rent abatements and rent relief for for primarily Twenty-twenty rents.
Pause on this point, the previously mentioned $10 million of bad debt reversal in the quarter should be viewed in tandem with the negative $15 million impact of rent abatements from the second quarter in other words, the net impact of Covid work out deals all of the same center NOI in the second quarter was a negative $5 million when considering both the.
Line items. So if you want to normalized same center NOI for what is essentially the majority of the remaining Covid work out deals then add back 5 million or 3 per cent roughly to same center NOI.
Also as I mentioned last quarter, we expected a reduced amount of retroactive rent abatements are in the second quarter and that was in fact, the case and I also expect that we are and I also said that we expect a very negligible impact in the second half of the year from such retroactive abatement concessions.
And we still expect that to be the case.
Secondly, the shopping center expenses increased by approximately 6 sense. It was driven by the widespread closures of our center in the second quarter of last year relative.
Relative to the full operational status of our portfolio throughout the second quarter of 'twenty 'twenty 1.
And lastly, a few other factors included 1.
The second quarter included an increase of positive 9 cents and valuation adjustments net of provision for income taxes from our indirect investments in various retailers that may switch has previously invested in through the venture capital firm.
This positive impact shows up in other income from unconsolidated joint ventures, and it is worth noting that this was in our thinking when we last updated guidance at the end of the first quarter.
And to the second quarter also included an increase in land sale income totaling approximately 5 <unk>, which was factored into our original of guidance and planning as we entered into 'twenty 'twenty 1.
This morning, we updated the previously issued 2021 guidance for funds from operations.
2021F. O is now estimated in the range of 182 to 197 per share.
Which represents the 3 cent increase at the midpoint.
While certain guidance assumptions are provided within our supplemental filing here of some further anecdotes of this guidance range assumes no further government mandated shutdowns of our retail properties the.
This guidance factors in the issuance of common equity to date, which I will further describe in a few moments and Tom also mentioned previously.
As I mentioned during the prior 2 quarterly calls we anticipate strong double digit growth in the second half of 2021 and we still anticipate that to be the case.
And just to punctuate, what our updated <unk> guidance means subsequent to our first quarter earnings release, we have issued an additional $6.4 million shares of stock at $18.30 per share.
And we are not reducing our <unk> guidance for this additional share issuance in fact, we've increased the midpoint of 5.3 <unk> per share.
Yeah.
Which is also of <unk> or 2% greater than consensus estimates. This is due primarily to a much stronger operating environment as reflected within the second quarter results.
More details of the guidance assumptions are included in the companies form 8-K supplemental information, which was filed earlier this morning.
As for the balance sheet within our first quarter filings again, we disclosed that we had sold 732 million of common equity through our Atms ATM programs are again last quarter. Since then we sold an additional 116 billion and the average price of 18.20.
As part of our continuing commitment to deleveraging our balance sheet since the end of the first quarter and through today, we have repaid approximately $1.3 billion of debt.
To accomplish this include common stock sold through our ATM programs and dispositions of various assets, including Paradise Valley at the end of March.
And the numerous sales of undeveloped land parcels in the Phoenix marketplace as EBITDA continues to improve and as our deleveraging efforts continued in the second quarter. The companies debt service coverage ratio improved to 2.5 times at the end of the second quarter of 'twenty 1.
And as previously stated on many occasions, we still do expect to harvest positive operating cash flow after recurring capex and dividends of well over $200 million per year from 2021 through 'twenty 'twenty, 3 which supports the path to continued leverage reduction in the range of 8 times by the end of 2020.3.
This relative to the leverage in the Middle Evans at the end of 'twenty 'twenty on the heels of Covid.
Including Undrawn capacity on our revolving line of credit of which 200 million of the 525 million aggregate capacity is currently outstanding we have approximately $500 million of the liquidity today.
From a secured financing standpoint.
We are working on an extension of the loan on Danbury fair through the middle of the 'twenty 'twenty 2 and we are currently of marketing the shops at Atlas Park for a refinance loan those of the companies final 2 remaining loan maturities within 2021 and as the year has progressed and as reported to you last quarter. We do continue to see green shoots in the debt.
Capital markets with the execution of a growing number of retail deals on sequentially improving terms.
Now I will turn it over to Doug to discuss the leasing and operating environment.
Thanks Scott.
The leasing environment continues to improve with leasing productivity outpacing COVID-19.2019 levels.
In 2019 was our highest leasing volume year since 2015.
Yeah.
Sales were strong in June and this is on top of the very productive April and May.
June small shop sales were up 15% when compared to June 2019.
Most importantly, all categories, including food and beverage showed positive comps for the first time since the beginning of the pandemic.
Looking at the quarter, the second quarter small shop sales were up 13% over second quarter 2019.
And year to date through June small shop sales were up 5% when compared to the same period in 2019.
Occupancy at the end of the second quarter was 89, 4% that's up 90 basis points from 88.5 per cent of the first quarter.
On our last call. We stated that we thought the first quarter would be our trough and we still believe that to be the case.
And given the healthy retailer environment that exists today, coupled with our strong leasing pipeline, we anticipate the occupancy to continue to increase.
Throughout the remainder of this year and into 'twenty 'twenty 2 and beyond.
Bankruptcies.
Pace of bankruptcies continues to decrease.
Fact year to date bankruptcies within our portfolio are the lowest we've seen since 2015.
In the second quarter only 2 tenants filed for bankruptcy 1 of the 2 tenants with the theater chain and had just 2 locations with us.
Both locations were rejected and 1 of those locations has already been released.
The other was a small tenant that had 8 locations with us totaling just 9000 square feet.
Trailing 12 trailing 12 month leasing spreads were negative 2% and that's an improvement from negative 2.1% last quarter.
Average rent for the portfolio was $62.47.
As of June 30 of 2021 and.
And that's flat on a year over year basis.
2021 lease expirations remain an important focal point and we continue to make progress.
To date, we have commitments on 81% of our 2021 expiring square footage with the night with another 19% or the balance and the letter of intent stage.
And we're well on our way into 2022 business with 27% of the expiring square footage committed and 64% at the letter of intent stage.
In the second quarter, we opened 251000 square feet of new stores, resulting in total annual rent of $6.5 million.
Notable openings in the second quarter include Lulu lemon at fashion outlets of Chicago.
American Eagle's new concept offline by Aerie at Freehold Raceway mall.
In the Chino at Washington Square.
Starbucks at fashion District, Philadelphia.
Blue Nile and Psycho Bunny at Scottsdale fashion square.
Verity and up West.
The village of Corte Madera.
And vre and 29th Street.
We also opened 7 locations with charming Charlie and for location with FY.
We opened the 24000 square foot office for the county of San Bernardino at Inland Center.
Lastly, we opened the 95000 square foot shoppers world at Fashion District, Philadelphia, and the former century 21 space, which we lost last year due to a bankruptcy liquidation.
Now, let's look at leases that we signed in the second quarter.
And this is where it gets really exciting because unlike store openings, which represent past leasing recent signed leases represent what we're doing in real time.
Signed leases define leasing velocity.
The leading indicator of the leasing environment that exists today.
That said, we see the leasing environment is robust and dynamic.
This is confirmed by our leasing activity, which is stronger than it's been in recent history.
And let me be clear when I say recent history I'm.
I'm not talking about the 16 months, we've been dealing with Covid I'm comparing back to 2019, which again was our highest leasing volume of year since 2015.
So said another way we're currently on pace for our highest volume leasing year.
Since 2015.
In the second quarter, we signed 223 leases for 692000 square feet, resulting in $37 million in total annual rent.
In the first half of this year, we signed 488 leases for 1.9 million square feet, resulting in $88.7 million in total annual rent.
Now this represents 18% more leases.
34% more square footage and 11% more rent during the same period from 2019.
Noteworthy leases signed in the second quarter includes several new roommates, which retailers, including the.
The Sochi at fashion outlets of Chicago.
Christian Louboutin L O yoga and forward at Scottsdale fashion square and avocado of village of Corte Madera.
These and others bring the total square footage of new domains streets deals either signed or in lease in the last 12 months to just over 530000 square feet.
In addition of shoppers world opening of fashion District, Philadelphia, which I mentioned earlier, we signed the second lease with them. The takeover the 72000 square foot location at Green acres mall. The century 21 also rejected in bankruptcy.
So by the end of this year, we will of filled the 2 century 21 boxes, we lost in bankruptcy.
And this totals approximately of 170000 square feet.
An impressive feat considering century 21 liquidation occurred just 10 months ago.
Other notable leases signed in the second quarter include free people movement of Carolyn comments worry Parker of Washington Square in long Qatada.
Williams, Sonoma and lucid motors at village of Corte Madera.
The Wheeling henkels at Tysons corner, and peloton at Washington Square.
Turning to our leasing pipeline.
At the end of the second quarter, we had signed leases for just over 500000 square feet of New store is still the open in 'twenty 'twenty 1.
And looking into 2022 in 2023, we have signed leases for another 935000 square feet of new stores to open.
In addition to the assigned leases. We're currently negotiating leases for new stores totaling $1.1 million square feet.
The majority of which will open in 2021 or in early 2022.
So in total that's over $2.5 million square feet of signed an in process leases for new store openings throughout the remainder of this year and into 2022 and 2023.
The stated on our last call. This is the trajectory we expected and it's the only going to improve as we are constantly reviewing and approving new deals on a regular basis.
Yeah.
So in conclusion.
Sales are higher than they were of pre COVID-19.
Occupancy is up from last quarter and is expected to continue to increase.
Bankruptcies are at their lowest levels since 2015.
Leasing velocity is the strongest it's been in recent history.
So if I sound overly optimistic it's because I am.
Maybe it's the stats and the metrics, we talked about they don't lie.
Maybe it's the mood out in the field it feels really good.
Maybe it's the many different uses we now have to choose from to fill our space.
Maybe it's the best in class portfolio of shopping centers, we have.
Maybe it's all of the above I don't know, but what I do know because we find ourselves in a very good place and extremely well positioned to take advantage of the strong leasing environment that exist out there today.
Now I'll turn it over to the operator to open up the call for Q&A.
Thank you, ladies and gentlemen, if you'd like to ask a question at this time. Please press star and then 1 on your phone we do ask that you limit yourself to 1 question and 1 follow up questions in order to give everyone. A chance to ask a question today again that is star and then 1 if you would like to ask a question.
We will start with our first question from Derek Johnston with Deutsche Bank.
Hi, everybody. Thank you.
You know, we get a lot of questions from investors regarding the balance sheet.
Which we view as materially the rest with the 1.3 billion year to date.
Debt repayments and really banks of overall willingness to extend maturities and work with you guys. So the question is what's in store of the second half of the year and has the 10.4 times consolidated net debt to EBITDA at year end 'twenty, 1 target changed at all.
And thank you for the $183 million Cadbury fair of maturity call out, but you know maybe if you can touch on the $670 million for 2022, and really give any further color on second half balance sheet options would be welcome.
So the Scott to get into some of the specifics of the.
The the maturities.
We continue.
The continued to.
Focus on selling non core assets, we think we'll have another transaction or 2 by year end. So that's another hundreds of millions of liquidity.
In all likelihood would be used to deleverage and.
As Scott mentioned, we expect cash flow from operations after the dividend.
Recurring capex.
To be in the neighborhood of the 200 million. So that's additional deleveraging to get to towards our goals.
Scott you want to comment on some of the specific maturities that are coming up yes sure. Good morning Derek.
Do expect actually leverage to be and the you know probably the 9 to 9 and a half of banned by the time, we get to the end of the year.
Subject to some of these transactions closing, but derik I think will improve on the number that you mentioned earlier as far as transactions through the balance of the year I did mention Danbury of which we'd expect to extend the IND to 'twenty 'twenty 2 some great things happening in that project and I do think we'll be able to achieve a very successful refinance.
Into the next year.
The 1 thing to note as I look at the the low levels on all of our secured debt Derek I think they're very well positioned in terms of loan to value in terms of debt yield and all of the traditional metrics that are secured financing of lender, but luck cat. So I do expect those financings that occur next year of roughly 6 to 700 million too.
To transact quite well we have seen continued improvement continued increase in the number of deals that have gotten done.
A lot of those are within the C. N B S community, we've seen deals ranging from $600 a foot in the north so in terms of the quality of spectrum. We've seen you know the the quality of spectrum shift down a lot of bets. So that the you know 600.650 Bucks a foot projects are getting financed than I do.
We will be as successful as you had mentioned earlier, we are getting a lot of cooperation from our secured lenders its carrying extensions, which I think is appropriate for us to do at this time and I do think we'll be successful at getting our maturities executed an extra I'm not that concerned about that in and of punctuate you guys know our history in terms of financing secured assets we've got.
Great access to capital.
And we'll take our next question from Craig Schmidt from Bank of America.
I just wanted to the.
It's the very impressive list of tenants that Youre readability.
Starting with shield the free.
The primer and the 3 of the excitement lytic.
I'm just wondering I noticed you still think you are going to be able to do all of these redevelopments with less than 100 million for each of 2021 and 'twenty 2.
Yeah.
Yeah, We do Craig you know not every redevelopment of requires an N of an inordinate amount of capital. So we do feel confident that our will be under $100 million for the next couple of years, where we're certainly game planning for the future of as well, we're getting other projects entitled including.
Some of more major expansions at low Cerritos in Southern California, and Washington Square in Portland, The Flatiron crossing in Broomfield, Colorado, and as well as Tysons corner with the Lord <unk> Taylor box that we have control of so.
And you can expect the line, 8% to 9% yield on this or make some of them be higher because of the single box.
Okay.
Craig at various but I'd say on balance it's gonna be a high single digit type of chart, but it certainly varies and some you know some actually do require no capital so.
So it's a it runs the gamut.
Yeah.
Yeah.
And we'll take our next question from Floris Van <unk> from Compass point.
Morning, or afternoon, I guess, it depends on which time zone, you're in thanks, guys for taking my question.
I just wanted to just go through the the leasing pipeline and a little bit more detail are not necessarily the the names of et cetera, but are you you talk about a $2.2 million square foot per.
Line of deals under negotiation.
Hmm.
What what NOI impact would that be and and what what percentage of NOI. I mean, if you were to put an average rents on there of <unk>.
The 55 Bucks, which is your a b R. Obviously, it's significantly hybrid presumably these include a number of anchors, which are lower but just if you can quantify that net lease pipeline in terms of the NOI impact that'll be a there'll be a I appreciate it.
Yeah.
Florida. Good morning, we don't have that figure of readily available for you. As you mentioned it does include a variety of of our small shop as well as larger format of leases, including some deals that are sitting in our redevelopment pipeline.
And the bear in mind for instance, we have a single tenant credit of for Google on the 1 Westside campus, which is a component of that number as well. So you know we do have some redevelopment leasing pre leasing that's already in that number but we don't have a of rental impact number the disclosed here at this time.
Yeah.
Well take our NAV.
No. Please go ahead.
Yes.
Yes, sorry.
If I could if I can ask a little bit more on the the outlook as you guys look at recovering.
The 19 level of occupancy.
Obviously, we've seen of.
We're sort of at the trough right now can you give any more color on when you think it will it be you know.
20, <unk> end of.
The 22 or something in that neighborhood win when we can expect you know to get back to pre COVID-19 level Occupancies.
Okay.
Of course, if we look back on our progression of post great financial crisis that was about 3 years from now.
When we started at 89 per cent coming out of the G. F. C..2 when we got full occupancy of about 94 per cent.
And based on the leasing environment today, I think we're probably going to do better than that so I would expect by the third quarter of 2023 will probably be back to.
The $93, 94% level.
And we'll take our next question from Katy Mcconnell of Citi.
Great. Thank you.
I was wondering if you could walk us through your expectations for landfill income then.
The retail line.
Potentially see in the back half.
Just given all.
All of my life.
And are there any of the offsetting items of guidance you can highlight that could be headwinds.
Yeah.
Hey, Katy this is Scott good morning.
We do have some additional transactions for the balance of the year that are in our in our thinking these are deals that are under contract.
For them to be less impactful than the.
Then the year to date impact, but we probably have if I had to circle a number of maybe 3 sensors so of impact for the balance of the year 3 or 4 sent something like that.
We are when the great detail to talk about the quarter because admittedly there were a lot of moving pieces. You know we do expect again just to emphasize what I I underscore it again 10 minutes ago, and what I mentioned of the last couple of quarters. We do expect strong double digit growth in the second half of the year I mentioned that.
In February I mentioned and again in May and in here. We are in August of matching it again, so I think that speaks to our conviction about the operating environment. We.
We saw what frankly, it was a stronger recovery in the second quarter.
To line items like percentage rent driven by the robust sales growth we've seen in the second quarter and to our commentary and I think that's going to help us to feel really really strong growth in the second half of the air I did call out some of the line items that that could be nonrecurring I mentioned the investment earnings that we.
Having our unconsolidated line item, we are not carrying any any of those further into the second half of the year.
Well look it's very possible that we could continue to see some earnings accretion from those investments. It's just not captured in our guidance at this point.
So I really think it's really a it's about operating performance in the second half of the year and we feel very good and very strong and very bullish about that.
Yeah.
And our next question comes from Linda Tsai from Jefferies.
Hi, what's the average lease term for the portfolio versus a year ago.
Yeah.
Yes, Linda I don't have the figures quite in front of me I'd say, it could've ticked down nominally but generally we're talking about 6 to $6 of half years.
When I say ticked down nominally maybe it went from high sixes to low sixes and that's the function of as we mentioned in the past as per transacting with tenants if we didn't feel.
We were accomplishing what we thought was representative of the full market. The way it may have gotten shorter in duration, but that's a that's not necessarily of the rule I'd characterize that more as the exception Doug.
I agree with you Scott on that yes.
Thank you and then realizing you're still in the recovery period, what percentage of leasing is temporary versus a year ago, and then maybe versus the March quarter.
Yeah temporary occupancy ticked up I think a 20 of 30 basis points.
Linda I think that will continue to tick up as the year progresses, we may get into the high sixes or 7% range in terms of temporary occupancy which.
Again, you know we've seen the volumes coming from our local merchants really bounce back quite well.
Much better than what we thought it was going to be in December of last year January of this year. So I think we'll see that tick up and then we've got maximum flexibility to relocate those tenants and put in permanent tenants and given the volume as were seeing on the permanent pipeline I feel very good about our opportunity to replace that temporary occupancy with permanent.
Very soon.
Yeah.
Our next question comes from Greg Mcginniss from Scotiabank.
Hey, Thanks for taking the question.
And just thinking about E. All your guidance of <unk>.
To imply Q3 and Q4, so per share of <unk> 43 cents.
From 59 this quarter, so I assume the valuation adjustments for retail investments as nonrecurring and then there's that additional 3 per cent.
The dilution from the ATM issuances, but what are the other items, we should consider going into the back half of the year.
Yeah, Greg I think it touched on a few of them right. There obviously the equity we've issued to date.
Excuse me delude, our share count for the balance of the year, So youre going to have that impact for the second half.
The investment income that we've recognized I just mentioned to Katy that we are not building any of that into our thinking as we go forward, it's very possible.
Given the I T O activity, where some of those retailers and the investment from special purpose acquisition of companies that we've seen you know of.
Coming through venture capital invested firms.
We could see some growth there, but it's not in our thinking.
It's it's the the first half has been weighted for things like debt investment income and as I mentioned land sales were a little bit of heavier in the first half then they will likely be in the second half. So those are all of the factors I think we've we've already touched on.
Yeah.
Okay. Thanks, and then Doug I'd like to touch on leasing as well.
I'm trying to dig into the leading indicator of Q2, the leasing I'm just curious what spreads are.
The pieces are being signed at most recently and if theres been any change in the types of leases 10 of their signing as it appears tiers of it appears that peers are starting to rely on per cent rent leases are more and more.
So I'll I'll touch on the latter Scott I'll, let you take the the spread portion of it but.
What I would say is you.
You know the the leases that we're doing right now are a combination of short short term leases and long term leases you know like we've talked about in the past and sort of taking a chapter of out of what we did coming out of the great financial crisis if.
If our goal is to maintain occupancy and we believe we're leasing of space at what we believe is below market. We're doing it out of short term basis, and we will come back in.
18 months or 2 years and and do it again when the when the climate is better and.
So people have a better outlook on on where we're going.
The second part of the question was a.
Percentage rent variable rent you know like.
Like short term deals.
If 1 of our goals is to preserve occupancy.
And we are forced to take less rent.
We will decrease the breakpoint and increase our percentage of pay so that we don't capture from of fixed standpoint, we are going to capture from a variable standpoint, but I would say that is the exception not the rule, although all of our leases or the vast majority of our leases do have percentage rent.
But they were based on the traditional market based fixed rent.
Do you want to take a crack at the spreads.
Spreads.
Yeah, I'm not quite sure I caught the spread question, perhaps you can repeat that correct yeah.
Yeah. It's just trying to understand you know, we get the kind of trailing low.
Look, but hoping to get more of the leading that leading indicator of luck in trying to understand kind of what the most current leases are being signed at you know whether or not retailers are kind of feeling stronger feeling better about signing leases today in the spread the reflecting that.
Yeah, I think probably the thing to point to again as the volumes we've spoken to the amount of signed deals as well as the deals that are being negotiated that are in the pipeline, which speak really to the willingness of the retailers step up not only the step up in terms of renewing but also step up in terms of opening up.
New stores spending capital, which is of great refresh of all of our storefronts at our properties. So they're very willing from the spread standpoint, you know our spreads include.
Include the impact of those deals what are spreads don't include the impact of some of the short term rental reductions you know to the extent during COVID-19 or within the last 3 to 6 months, we've been granting some short term relief for a few months or a couple of quarters.
That's not reflected on our spreads all of our spreads are intended to show our long term leasing business, both from renewal and new stores.
But you know what the impact.
Your line.
I'll jump in on this 1 of at this point of.
But the spreads are improving we're showing basically breakeven spreads for the trailing 12, but.
But included in that is for the second quarter, we had positive releasing spreads of double digit percentage increases so.
It went from a pretty.
Tough situations of the third and fourth quarter of last year. The very positive now that were in the first and second quarter. So it was much more of a balance between rate.
And occupancy than there was at the end of 2020 so.
It's hard to predict going forward, but certainly what we've seen in the first and second quarters far better than what we saw in the second half of 2020 and I think if you.
Take doug's words the heart.
The extrapolate that to be very positive for the second half of this year.
We'll take a question from Rich Hill with Morgan Stanley.
Hey, good morning, guys I'm sure I missed it in the past, but I was hoping to maybe hear a little bit more about these this retailer of investment where you had the valuation gain.
What is that and how should we think about that going forward.
The Richardson, it's an investment that we made starting about 5 years ago through of venture capital firm.
And it really was an investment we did too.
Help us gain access to the digitally native brands as they emerged I mean, there are hundreds and hundreds of them.
The V C firm does a pretty good job of evaluating the prospects due to not only grow and be.
Of increased value, but also of what might work well in our portfolio. So it gave us good access to a lot of the digitally native brands early on and continues to and you know a lot of those emerging companies today are finding good access to capital they're growing there.
The merging into specs theyre doing ipos and that's what's causing some of the of.
Mark to market positive mark to market there, but it's an investment we've had for the last 5 years drove through of it you've got Apple for the.
That's helpful, Tom and I guess that that debt.
Tease me up for for my next question.
Obviously, the retailers have done really well recently there is some there's an S..1 out there for at least 1 company. That's acquired some retailers recently had a big valuation range do you think theres more valuation gains to come on on that and I know you can't predict the future. But is is that 9 since you know all of it or should we expect.
The more going forward.
It's really hard to predict that.
Rich I think the good leasing environment is going to benefit of lot of these companies, but I wouldn't want of factor any more gains of indoor guidance for the year.
But when they happen, it's great and we take advantage of it but it's pretty hard to predict.
Got it and just 1 more quick question, if I may I noticed the lease termination income went up and your guide how should we think about that relative to the occupancy I know you noted that it's that's increasing and you expected. The continued to increase I think you put out a <unk> 23 number out there.
But how should we think about that relative to the increase in the lease termination income.
Yes sure rich.
As you can imagine, losing you now of 4% plus of our occupancy.
Certain tenants that do have credit Oh, we're going to negotiate termination settlement, so anytime you're seeing occupancy volatile environment Youll see a pickup in the termination income those are very tight.
Tightly correlated so I don't think this is any different than what we've seen in the past certainly coming out of the global financial crisis, we experienced some elevated termination income. So that's really what we see for the most part of it's embedded within our occupancy numbers today, but we're still continuing to negotiate those settlement outcomes.
And we can't bucket can't recognize revenue until we actually sign the agreement. So the revenue will follow later.
Yeah.
And we'll move on to your question from Alexander Goldfarb with Piper Sandler.
Oh, Hey, good morning.
2 questions.
Great.
All of that trailing 12.
Yeah.
And then also as part of that is true.
Correct.
That's correct.
Or is it.
Thank you.
Thank you.
Yeah, Alex I hope you're driving safely.
But yeah to answer your questions the.
The spreads don't include the Covid work out of adjustments, we don't calculate it that way, we frankly never included rent reductions. So I don't have that measurement for you. Our spreads are really focused on more of go forward business.
The renewables of new deals not the short term negotiations, we've been doing but I'll direct you to our average base rent in terms of the impact of that.
And the second part of your question I'm, sorry, maybe you can repeat that provided you're driving safely.
Right.
Yes, Youre correct.
Back.
Thank you.
Alright.
Okay. Thank you.
It's a it's a 12 month look back.
Okay.
Okay.
The refinancings.
The next year, they will be long term refinancings.
The continued nature.
Short term extension.
I think the the majority of them will probably be long term financings will pick and choose the term, but I think they will range between 5 to 10 years are just dependent upon.
The credit markets at that time, we may do an extension or 2 but I think for the most part there'll be refinancings are Alex.
And our next question comes from Mike Mueller with Jpmorgan.
Yeah, just a quick 1 here I was wondering how close is your parking into the.
Business development income relative to pre COVID-19 levels.
Yeah, well I expect we will get back to pre COVID-19 levels by next year were not quite there, but it's bounced back quite well, but 2022, we'll probably get back to par of pre COVID-19 on both of those line items.
Got it so if we're looking at the 30 million for this quarter would you say, that's 75% of the way there have just rough magnitude.
The better better than half better than half, there's a little bit more to do on a run rate basis, but again I do think by the time, we get to the first half of next year, well, probably on a run rate basis be within spitting distance of where we were pre COVID-19.
Mike.
Got it okay. Thank you.
Yeah.
Our next question comes from Keybanc, Ken I'm true it.
Thanks, a couple of quick ones here.
What is the renewal rate for your portfolio today, and how has that trended.
Yeah.
He'd been I'm, sorry could you repeat that you said, what what is the leasing renewal every day.
The lease renewal per cent.
All of the percentage of tenants that are renewing.
Mhm Yep.
Yeah, sorry, it's it's it's Doug Yeah, I said in my in my remarks that in 2020, 1 we have commitments, meaning sign leases or leases that were negotiating an 81% of the expiring square footage and.
And the remaining 19% is in the letter of intent stage.
Okay and.
Any sense.
Can you provide some color on what your economic occupancy of today versus the signed occupancy just trying to.
Grasp what the embedded upside is in your portfolio.
Yeah, our leased occupancy I'm always exceeds physical the by roughly 2% to 3% I don't think that's too dissimilar you know it was probably less in the middle of the Covid last year because of the deal flow has slowed down, but I'd say, we're probably in that 3%.
<unk> right now.
Yes.
Yeah.
Okay.
And we'll take the question from Caitlin Burrows from Goldman Sachs.
Hi, there just as a follow up on 1 of the balance sheet questions. You guys had of March presentation that referenced an assumption of $700 million of equity in 'twenty, 1 and then $300 million in 'twenty 2.
Surpass the 21 amount already so just wondering if you can give some detail on what's driving your decision of how much equity the issue and when maybe the metrics that youre looking at and whether that 2022 issuance referenced in the March presentation is still relevant.
Caitlin that was the generic placeholder in the 3 year.
Forecast that Scott was using debt to illustrate deleveraging so that was kind of hard wired assumption.
We've been fairly active on the T M.
It's going to be dependent upon the share price, whether we use it again this year or not.
Many of remains to be seen whether we'll do equity again and the.
'twenty 'twenty 2 so those those are just some generic assumptions that he'd put into a the.
Slide the illustrate deleveraging.
Okay got it.
Then maybe just another 1 on leasing spreads that hopefully ask differently enough that it might still be interesting but.
The reported trailing 12 month number was about flat you mentioned earlier that in the most recent quarter. They were actually up double digits, but I would assume correct me if I'm wrong that more of leasing is getting done at some of the better properties. So just wondering if you could quantify what in place rents are for the properties that you might have historically classified as group 1 and group.
Versus the in place versus market for that kind of group III day group 5 properties.
Well I think we've seen good leasing demand across the across the board across the whole portfolio of so we don't really take a look at it at spreads based on you know whether they ranked in the top 10 or the the bottom 10, we've.
We've seen pretty good activity across the board I think the the big illustration is just the difference between what it looked like in the second half of 2020 of what it's looked like in the first half of 'twenty 1.
Typically.
And what you're going to be you're going to get some pricing power and I would not say that we had that at all of 2020 quite the contrary, but it does appear as if we're picking up some pricing power in 2021 day out based on demand and the leasing activity we've seen the date.
Yeah.
And.
That does conclude the Q&A session for today I would like to turn the conference back over to our speakers for any concluding remarks.
Great. Thank you well. Thank all of you for joining us today, and we look forward to reported good results of the balance of the year.
Okay.
And once again, ladies and gentlemen that does conclude today's conference. We appreciate your participation today.
Okay.
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