Q3 2021 Macerich Co Earnings Call

November 3, 2021

Please standby we're about to begin. Good day and welcome to the Macerich company third quarter 2021 earnings conference call. Today's call is being recorded.

Good day and welcome to the May search company third quarter 2021 earnings conference call today's call is being recorded.

Now at this time, I'd like to turn the conference over to Samantha Greening, Director of Investor Relations. Please go ahead, ma'am.

Thank you for joining us on our third quarter 2021 earnings call. During the course of the call we will be making certain statements that may be deemed forward-looking within the meaning of the safe Harbor of the private Securities Litigation Reform Act of 1995, including statements regarding projections plans or future expectations.

Actual results may differ materially due to a variety of risks and uncertainties set forth in today's press release, and our SEC filings, including the adverse impact of the Coronavirus COVID-19 on the US regional and global economies and the financial condition and results of operations of the company and its tenants.

Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the earnings release and supplemental filed on form 8-K, with the SEC, which are posted on the investors' section of the company's website at macerich.com.

Joining us today are Tom O'Hern, Chief Executive Officer, Scott Kingsmore, Senior Executive Vice President and Chief Financial Officer, and Doug Healey Senior, Executive Vice President leasing, with that I'd like to turn the call over to Tom. Thank you, Samantha.

Thank you all for joining us today. After navigating almost two full years battling the impact of Covid, we're very pleased to report an outstanding quarter with almost no COVID-19 related restrictions in place.

After navigating almost two full years battling the impact of Covid.

Very pleased to report an outstanding quarter with almost no COVID-19 related restrictions in place.

As you read in our 8-K this morning, we had a very strong operating quarter and we're pleased to report excellent results. We're seeing huge retailer demand.

We're seeing huge retailer demand.

Shoppers have come roaring back as the US consumers are continuing to shop with a purpose and we see a higher capture rate than pre COVID-19.

Sales are exceeding pre COVID-19 levels with double digit gains in the past two quarters compared to 2019. And that momentum is carrying into the fourth quarter.

And that momentum is carrying into the fourth quarter.

Retailer demand is at a level, we have not seen since 2015. We expect traffic to continue to increase the current level is over 95% of the 2019 traffic levels.

We expect traffic to continue to increase the current level is over 95% of the 2019 traffic levels.

Some of the second quarter highlights include on a sequential-quarter basis, we had occupancy gains of 90 basis points. And that's on top of the 90 basis point gain we had in the second quarter.

And that's on top of the 90 basis point gain we had in the second quarter.

At quarter-end, our occupancy was 90.3%. We have a ways to go there, but we're making great progress.

We have a ways to go there, but we're making great progress.

We saw robust leasing volumes for the quarter and year to date. Both were in excess of 2019 levels. Year to date, we've executed leases for over 3 million square feet of space. And that compares very favorable to full-year 2019 level of $3.3 million square feet in a full year 2015 level of $3.4 million square feet.

Both were in excess of 2019 levels.

Year to date, we've executed leases for over 3 million square feet of space.

And that compares very favorable to full year 2019 level of $3 3 million square feet.

Full year 2015 level of $3 4 million square feet.

Once we include the fourth quarter our full-year 2021 leasing volumes. We will exceed not only 2019, but the prior high of 2015. We saw same-centre NOI growth of 21% in the quarter and expect the fourth quarter to continue with the double-digit growth we've seen in the past two quarters.

Our full year 2021 leasing volumes.

We will exceed not only 2019, but the prior high of 2015.

We saw same center NOI growth of 21% in the quarter and expect the fourth quarter to continue with the double digit growth we've seen in the past two quarters.

We're obviously optimistic about the fourth quarter as we raise the FFO guidance mid point range to 196, a 3% increase on top of the increase in guidance last quarter.

The depth and breadth of the leasing demand has us very optimistic about the future. Some of the larger deals recently signed include Target. Which is at Kings Plaza, replacing Jcpenney Shields, all sports Megastore, replacing Nordstrom at Chandler. Primark at fashion district of Philadelphia. Primark at Green acres. Pinstripes at Broadway Plaza. And lifetime fitness at Broadway Plaza, and Scottsdale fashion square. And that's just to name a few of the bigger deals. Doug will comment in detail shortly on more of the third quarter leasing activity.

Some of the larger deals recently signed include target.

Which is at Kings Plaza, replacing Jcpenney Shields, all sports Megastore, replacing Nordstrom at Chandler.

Prime market fashion district of Philadelphia.

Market Green acres.

Pinstripes at Broadway Plaza.

And lifetime fitness at Broadway Plaza, and Scottsdale fashion square.

And that's just to name a few of the bigger deals.

Doug will comment in detail shortly on more of the third quarter leasing activity.

In addition to the big box deals, non-traditional mall retail demand in smaller format continues to accelerate with a digitally native brands getting active again on brick and mortar locations.

After stepping back during COVID-19. Other interesting additions include a host of new electric car companies taking space in many of our malls, including Pollstar and Lucid.

Other interesting additions include a host of new electric car companies taken space in many of our malls, including Pollstar and lucid.

Many of our traditional retailers are back with even greater demand for space than pre-pandemic.

With retailer bankruptcies down to a record low level and demand for space very strong. This is an excellent leasing environment, which we expect to carry into 2022.

Although leasing spreads were down slightly we expect that trend to reverse itself in the upcoming quarters.

During the quarter. We also continued our strategy of selling non-core assets. During the quarter, we sold La Quinta, a lifestyle center in Tucson, Arizona.

During the quarter, we sold La Quinta, a lifestyle center in Tucson, Arizona.

We generated net cash of 100 million, you open Eric 246000 Square foot Center sold for 165 million gross.

That transaction builds on the March 2021 sale of Paradise Valley Mall, another non-core asset in Phoenix, which yielded net proceeds that may stretch of $95 million.

The cash proceeds from both of those sales were used to reduce debt. The balance sheet moves we've made in 2021 have significantly improved our leverage metrics.

The balance sheet moves we've made in 2021 have significantly improved our leverage metrics.

Year to date, we've paid down debt of over $1.5 billion and reduced net debt to EBITDA by over two full turns. And drop debt to market capitalization to 61%.

And drop debt to market capitalization to 61%.

We're very optimistic about our business as we move through the balance of the year and into 2022.

Not only is the leasing environment is strong and getting better by the month, but we expect significant gains in occupancy net operating income and free cash flow.

And now I'll turn it over to Scott to discuss in more detail the financial results for the quarter.

Thank you, Tom. Now onto the highlights of the financial results for the quarter we. We posted extremely strong operating results in the third quarter with same-centre NOI, increasing 21,4% relative to the third quarter of 2020, including lease termination income and if we were to exclude lease termination income, same-centre NOI is still increased 26%.

We posted extremely strong operating results in the third quarter with same center NOI, increasing 21, 4% relative to the third quarter of 2020, including lease termination income and if we were to exclude lease termination income same center NOI is still increased 26% funnel.

Funds from operations for the third quarter of 2021 was $18 million or 22% higher than the third quarter of 2020. FFO per share for the quarter was 45 cents. This was 2 cents or 5% higher than consensus estimates of 43 cents per share and represents a 7 cents decline from the third quarter of 2020 at 52 cents per share. EBITA margin has increased 1.2% from 57.5% at the third quarter of 2020 to 58.7% at the end of the third quarter of 2021.

<unk> per share for the quarter was 45.

This was <unk> <unk> or 5% higher than consensus estimates of <unk> 43 per share and represents a 7% decline from the third quarter of 2020 at 52 per share.

EBITA margin has increased one 2% from 57, 5% at the third quarter of 2020 to 58, 7% at the end of the third quarter of 2021.

As Doug will explain our portfolio occupancy continued to increase in the quarter and is up nearly 2% over the past two quarters, given the extremely robust and resilient leasing volumes generated by our high-quality leasing team and real estate portfolio.

This was a very strong earnings quarter primary factors contributing to these NOI and FFO gains are as follows.

On the NOI front. One, the quarter included a $15 million or 7% increase in percentage rents, resulting from the dramatic increase in sales that we reported earlier today and that Doug will soon expand upon. Two, bad debt expense represents a comparative $15 million or 7% improvement quarter over quarter.

One.

The quarter included a $15 million or 7% increase in percentage rents, resulting from the dramatic increase in sales that we reported earlier today and that Doug will soon expand upon.

<unk>.

Bad debt expense represents a comparative $15 million or 7% improvement quarter over quarter.

And three commentary income has contributed another four cents of NOI and FFO, including from our urban and parking garages. Consistent with what we reported last quarter. Our commentary business has proven to be quite elastic and resilient and is exceeding our early 2021 expectations.

Offsetting these NOI factors, where shopping center expenses increased by $8 million or 4 cents.

This was driven by the closure or partial closure of many of our town centers during the third quarter of last year relative to the full operational status of our portfolio throughout the third quarter of 2021.

And lastly, a few other factors included. One, a decrease in straight-line rental income of $10 million or 4 cents as a result of significantly reduced abated rent in the third quarter of 2021 relative to the third quarter of 2020. Two, the third quarter was lower due to land sale transactional timing included a decrease in landfill gains totalling $12 million or 5 cents.

One a decrease in straight line rental income of $10 million or <unk>.

<unk> as a result of significantly reduced abated rent in the third quarter of 2021 relative to the third quarter of 2020.

To the third quarter was lower due to land sale transactional timing included a decrease in landfill gains totaling $12 million or <unk> and.

And then three. The third quarter included a decrease of approximately 12 cents in FFO per share, resulting from increased share count due to common stock sold earlier this year through our ATM programs, offset by decreased quarterly interest expense from significant debt paydowns in 2021 as a result.

The third quarter included a decrease of approximately <unk> <unk> per share, resulting from increased share count due to common stock sold earlier this year through our ATM programs offset by decreased quarterly interest expense from significant debt Paydowns in 2021 as a result.

This morning, we updated our previously issued 2021 guidance for FFP. 2021 FFO is now estimated in the range of $1.92 to $2 per share.

Which represents a 6 cents or 3% increase versus the midpoint of our previously issued FFO guidance range.

While certain guidance assumptions are provided within our supplemental filing from earlier this morning. Here are some further anecdotes. This increased guidance is reflective of an operating environment that is improving better and faster than our prior expectations and is due to increases in same center NOI.

Here are some further anecdotes. This increased guidance is reflective of an operating environment that is improving better and faster than our prior expectations and is due to increases in same center NOI.

This guidance range assumes no further mandated shutdowns of our retail properties and it assumes only the previously reported $848 million issuance of common stock with no further issuance of common equity through the balance of this year.

As I mentioned during the previous two quarterly calls, we anticipated strong double-digit NOI growth in the second half of 2021.

And in fact, that is now playing out and we expect strong same center growth in the fourth quarter likely surpassing the levels we just reported on for the third quarter of 2021.

More details of the guidance assumptions are included on page 18 of the company's form 8-K supplemental financial information. And onto the balance sheet.

And onto the balance sheet.

As part of our continuing commitment to deleveraging our balance sheet in 2021, we have repaid approximately $1.5 billion of debt. In the third quarter those efforts were buoyed by the sale of long cantata in Tucson, Arizona.

Which resulted in a repayment of approximately $165 million of debt. As previously stated, we expect to generate free cash flow after payment of dividends and recurring capital expenditures exceeding $200 million per year over the next few years.

As previously stated.

We expect to generate free cash flow after payment of dividends and recurring capital expenditures exceeding $200 million per year over the next few years.

Which with a quickly improving operating environment supports a path to continued leverage reduction to approximately eight times by the end of 2023.

This relative to leverage in the mid elevens at the end of 2020 on the heels of COVID. Including undrawn capacity on our revolving line of credit of which only $100 million of the $525 million aggregate capacity is currently outstanding, we have approximately $610 million of liquidity today.

Including Undrawn capacity on our revolving line of credit of which only $100 million of the $525 million aggregate capacity is currently outstanding we have approximately $610 million of liquidity today.

From a secured financing standpoint, last week, we closed on a 5-year $65 million refinance of the shops at Atlas Park, a lifestyle Center near Queens, New York and we are currently negotiating a commitment for a 5-year $200 million refinance of flatiron crossing and enclosed regional town centre in Broomfield, Colorado. In aggregate, both loans will take out the existing loans with no incremental capital outlay.

<unk> centre in Broomfield, Colorado in aggregate, both loans will take out the existing loans with no incremental capital outlay.

The debt capital markets continue to improve with each passing quarter and we are very pleased with the progress addressing these near term maturities.

As we have mentioned, we continue to see positive progress within the debt capital markets with the execution of a growing number of retail deals on sequentially favorable terms. And now I will turn it over to Doug to discuss the leasing and operating environment.

And now I will turn it over to Doug to discuss the leasing and operating environment.

Thanks, Scott. Thomas Scott did a great job of highlighting some of the leasing activity and metrics at a high level, and as Tom mentioned, I'll dive in a little bit deeper.

Thomas Scott did a great job of highlighting some of the leasing activity and metrics at a high level and as Tom mentioned I'll dive in a little bit deeper.

So the leasing environment continues to improve and the leasing productivity continues to outpace pre COVID-19 2019 levels. In fact, we're on track for our strongest leasing year since 2015.

Sales were strong in September and this is on top of a very productive July and August. September sales were up 17% when compared to September 2019, and once again, all categories, including food and beverage comp positively.

September sales were up 17% when compared to September 2019, and once again, all categories, including food and beverage comp positively.

Looking at the quarter, third-quarter sales were up 14% over third quarter 2019, and this is on top of the second quarter being up 14% versus second quarter 2019.

Occupancy at the end of the third quarter was 90.3% that's up 90 basis points from 89.4% at the end of the second quarter. As Scott mentioned over the past six months portfolio occupancy has increased to 180 basis points relative to the 88.5% occupancy rate on March 31st 2021.

As Scott mentioned over the past six months portfolio occupancy has increased to 180 basis points relative to the 88, 5% occupancy rate on March 31 2021.

And given the healthy retailer environment that exists today, coupled with our strong leasing pipeline, which we'll touch on in a moment, we anticipate that occupancy will continue to increase throughout the remainder of this year and into 2022 and beyond.

The pace of bankruptcies continues to decrease. And year to date bankruptcies within our portfolio remained at the lowest levels we've seen since 2015.

In the third quarter only two tenants filed for bankruptcy. Within our portfolio of these two tenants accounted for just five stores and only 13000 square feet.

Trailing 12-month leasing spreads were minus 2.5% that's down from minus 2% last quarter. And this is primarily a result of signing a 20 store package with one retailer totalling just over 100000 square feet.

And this is primarily a result of signing a 20 store package with one retailer totaling just over 100000 square feet.

The average rent for the portfolio was $62.58. As of September 30th 2021. And this is an increase when compared to $62.47 as of June 30th 2021.

As of September 32021.

And this is an increase when compared to $62 47.

As of June 32000, 2021.

And $62.29 as of September 30th 2020. We continue to make great progress on our 2021 lease expirations.

We continue to make great progress on our 2021 lease expirations.

To date, we have commitments on 91% of our 2021 expiring square footage with another 9% are the balance in the letter of intent stage.

As for our 2022 lease explorations, we have commitments on 36% of the expiring square footage and 55% in the letter of intent stage.

Tenant openings in the third quarter, we opened 280000 square feet of new stores. Resulting in total annual rent of $10.5 million.

<unk> and total annual rent of $10 $5 million.

Year to date, we've opened 630000 square feet of new stores, which is about 13% more square footage than we opened during the same period in 2019.

Most notably in July, we opened a spectacular 5000 square foot, two-level flagship store in the luxury wing at Scottsdale fashion square.

Not only that you are first to the Phoenix market, but it's also first to the state of Arizona in fact, the closest stores 250 miles away in Las Vegas.

The addition of Dior further solidifies the fact that Scottsdale is and will continue to be the premier luxury destination and all of the Phoenix or in Arizona for that matter.

In September Primark had its grand opening at fashion District, Philadelphia. Shoppers arrived early and they stayed late.

<unk> arrived early and they stayed late.

Lines outside the store continued for days and high traffic volumes remained ever since. This two-level of 46000 square foot store located at the corner of market and 10th Street is a true anchor in every sense of the word.

This two level of 46000 square foot store located at the corner of market and 10th Street is a true anchor in every sense of the work.

Primark is destination-oriented and is expected to increase FTP's already strong trade area and elongate shopper dwell time. Fashion District, Philadelphia marks our fourth store opening with Primark following Danbury Fair, Freehold Raceway Mall and Kings Plaza.

Fashion District, Philadelphia marks our fourth store opening with primer following Danbury Fair Freehold Raceway Mall and Kings Plaza.

In addition to these four open stores. We also have signed leases with Primark at Green acres, and Tysons corner that will open in 2022 and 2023, respectively.

As such we remain Primark's largest US landlord and continue with ongoing discussions regarding several other key markets and opportunities.

Staying in the large format category, we opened a 70000 square foot shoppers world at Green acres mall in the former century 21 location. And this is in addition to the shoppers' world that opened last quarter at fashion District, Philadelphia also in the form of century 21 locations.

And this is in addition to the shoppers world that opened last quarter at fashion District, Philadelphia also in the form of century 21 locations.

So now we have both of our bankrupt century 21 locations open and occupied. We also opened a 25000 square foot Kids Empire in San Tan village, and the 20000 square foot Ross dress for less and Pacific view.

We also opened a 25000 square foot Kids Empire, San Tan village, and the 20000 square foot Ross dress for less and Pacific view.

Other notable openings in the third quarter include stay on the wrong at fashion outlets of Chicago, Athleta at Danbury Fair, Robin gone at Broadway Plaza and free people movement at Carillon comments.

Yes.

Lastly, in the digitally native and emerging brand category was active. In the third quarter, we opened Buck Mason and lucid motors at Scottsdale fashion Square, Marine layer at Broadway Plaza, and two Fabletics stores at Los Cerritos, and Washington Square.

Now, let's look at the leases we signed in the third quarter. In the third quarter, we signed 219 leases for one 1.1 million square feet, resulting in $47 million in total annual rent.

In the third quarter, we signed 219 leases for one 1 million square feet, resulting in $47 million in total annual rent.

In the first three quarters of 2021, we signed 707 leases for 3 million square feet, resulting in a $136 million in total annual rent. This represents 10% more leases, 25% more square footage and 14% more rent than during the same pre-COVID-19 period in 2019.

This represents 10% more leases.

25% more square footage and 14% more rent than during the same pre COVID-19 period in 2019.

Yeah.

Notable leases signed in the third quarter include Auryxia in a new and expanded Blue Nile store Tysons corner, Brunello Gianelli at fashion outlets of Chicago. Dolce & Cabana and Marc Jacobs. Scottsdale fashion square. Guests originals, and Los Cerritos, and a 9000 square foot flagship Lululemon at Broadway Plaza.

And Cabana and Marc Jacobs.

Scottsdale fashion square.

Guests originals, and Los Cerritos, and a 9000 square foot flagship Lululemon at Broadway Plaza.

We also signed a five-store package with Windsor fashion totalling 22000 square feet. In the large format category, we executed a lease with Target for a three-level 90000 square foot store at Kings Plaza in the former JCPenney location.

And the large format category, we executed a lease with.

Target for a three level 90000 square foot store at Kings Plaza in the former Jcpenney location.

Along with the lease we signed with Primark for the JCPenney location at Green acres. We have now replaced the only two stores we lost from Penney during their vacancy during their bankruptcy and did so with compelling relevant and productive uses.

We finalized our deal for 220000 square foot Shields all sports Chandler fashion. We also signed a 37000 square foot lifetime fitness at Scottsdale fashion at the entrance of our new luxury wing.

We also signed a 37000 square foot lifetime fitness at Scottsdale fashion at the entrance of our new luxury wing.

And this marks our third deal with Lifetime. In addition to Biltmore fashion Park and Broadway Plaza. We also signed our first deal with Pinstripes at Broadway Plaza.

We also signed our first deal with Pinstripes at Broadway Plaza.

For those of you who aren't familiar with Pinstripes, it's a very cool 27000 square foot indoor-outdoor entertainment concept, featuring bowling, Bocce live music, a hip bar and great food. It will be the first in the Bay area and will bring vibrancy and excitement to Broadway.

Lastly, in the digitally native and emerging brands category, we signed leases with Fabletics at the village of Corte Madera. Leap at North Bridge, Pollstar at Scottsdale fashion square and Tonal at Santa Monica place.

At North Bridge, Pollstar at Scottsdale fashion square and <unk> at Santa Monica place.

Now turning to our leasing pipeline at the end of the third quarter, we had signed leases for 330000 square feet of new stores still to open in 2021.

And looking into 2022 and 2023. We've signed leases for another $1.7 million square feet of new stores still to open.

We've signed leases for another $1 7 million square feet of new stores still to open.

And in addition to these signed leases, we're currently negotiating leases for new stores totalling 620000 square feet. The majority of which will open in 2021 or early to mid-2022.

The majority of which will open in 2021 or early to mid 2022.

So in total that's over 260 signed an in-process leases totalling $2.7 million square feet for new store openings throughout the remainder of this year and into 2022 and 2023.

So to conclude, sales are trending significantly better than they were pre-COVID-19. Occupancy is up nearly 200 basis points over the past two quarters and is expected to continue to increase throughout the remainder of this year and into 2022.

<unk> is up nearly 200 basis points over the past two quarters and is expected to continue to increase throughout the remainder of this year and into 2022.

Bankruptcies are at their lowest level since 2015, and that's consistent with our significantly reduced tenant watch list. And leasing velocity is at its highest level since 2015.

Leasing velocity is at its highest level since 2015.

This is evidenced by the multitude of leases, which we signed this year, resulting in a very strong vibrant and exciting pipeline of tenant slated to open.

Yet this year and into 2022 and 2023. And now I'll turn it over to the operator to open up the call for Q&A.

And now I'll turn it over to the operator to open up the call for Q&A.

Thank you, if you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone. Please make sure that your mute function is turned off to let your signal to reach our equipment.

I ask that you do please limit yourself to one question and one follow up prior to reentering the queue. Once again that's star one if you'd like to ask a question. We'll take our first question from Jim Sullivan with BTIG. Please go ahead.

Once again Thats star one if you'd like to ask a question.

We'll take our first question from Jim Sullivan with <unk>. Please go ahead.

Thank you. The first question I have. When you look at the occupancy rate gain that you have achieved through the end of the third quarter and. The leasing progress you've made for deals to come.

They.

First question I have.

When you look at the occupancy rate gain that you have achieved through the end of the third quarter and.

The leasing progress you've made.

For deals to come.

And we think back to the analogy with the prior recovery after the great financial crisis. At that time it took about six to seven years to regain the roughly 500 basis points of occupancy loss in the GSC. Here the vacancy loss was greater at the pace of recovery seems to be greater as well. I'm not asking you to make a forecast here, but when you think about getting back to say the 94-95% occupancy range.

Christ.

At that time it took about.

Six to seven years.

Again, the roughly 500 basis points of occupancy loss.

And the GSC here of the vacancy.

Our loss was greater at the pace of recovery seems to be greater as well.

I don't know I'm, not asking you to make a forecast here, but when you think about getting back to say the 90, 495% occupancy range.

Can you give us some timeframe? But I know you've said you expect it to be quicker, but obviously, it's a key driver of our portfolio the strength of the portfolio the EBITDA and I just wonder if you can help us, Tom and Doug, to indicate how long that's going to take to get back to that number at this time.

Help us Tom it Doug.

Indicate how long thats going to take to get back to that number at this time.

Yes sure, Jim. But I think after the great financial crisis, we recovered four years, four and a half years something like that. And we look at the pace today, you're correct it is more rapid than what we saw in 2010 and 11.

But do I think after the great financial crisis, we recovered four years, four and a half years something like that.

Look at the pace today, you're correct. It is it is more rapid than what we saw in 2010 and 11.

And if we stay on pace with what we've seen the last two quarters, I think by the end of 2023 will be back in the occupancy levels that we were at pre-Covid. Again, it depends on the pace, but everything we see ahead of us is a tremendous demand. Some pretty big volume and we think we can keep up that pace.

And the occupancy levels that we were at pre Covid.

Again, it depends on the pace, but everything we see ahead of us as a tremendous demand.

Some pretty big volume and we think we can keep up that pace.

Yes.

Okay. Then the second question for me. You mentioned Primark is a notable and important, big bucks going into several centers successfully with more to come. And I wonder if you can just help us compare this with your legacy department store transactions that were in the portfolio before those department stores started closing in Idaho, the prime market than necessarily taking a bigger bucks, but help us understand kind of what kind of the per foot revenues you can get from Primark versus those legacy deals. Obviously without disclosing the specific numbers that you may not be comfortable doing.

The big Bucks going into several centers successfully with more to come but I wonder if you can just help us.

Compare this with your legacy Department store transactions.

That we are in the portfolio before those department stores started closing in Idaho, the prime market than necessarily taking a bigger bucks, but.

Help us understand kind of what kind of the per foot revenues, you can get from prime box versus those legacy deals.

Obviously without disclosing the specific numbers that you may not be comfortable doing.

Yes, I mean Primark is new, there is a bigger version of what we've seen come over from Europe in the past. Don't take the same size as a traditional department store, they do pay more rent.

New there.

<unk> version of what we've seen come over from Europe in the past.

Don't take the same size as a traditional department store, they do pay more rent.

The traditional department stores were notorious for not paying much rent frankly, they are a traffic driver.

And so the economics are better. And we think they're going to continue to gain momentum and continue to expand so they're exciting I guess, our latest anecdotal evidence on that is when we opened fashion district of Philadelphia, a few weeks ago.

And we think theyre going to continue to gain momentum and continue to expand so they're exciting I guess, our latest anecdotal evidence on that is when we opened fashion district of Philadelphia, a few weeks ago.

And even though the city of Philadelphia is not fully bounced back yet there are people lined up to get in that store and a lot of traffic. So.

Doug, you can add further elaborate but that's my view, it's a much different type of department store than those we've been replacing. The only thing I would add is that while maybe not as big as the traditional anchor stores. They do act like a traditional acre store, in the way of anchor stores are supposed to be and as I mentioned in my remarks Primark does draw outside of our traditional trade areas. And it does elongate the shopping trips. So it really is doing what all of the traditional anchor stores used to do when were intended to do and we're thrilled to bring them over here and look forward to doing many more deals with them.

outside of our traditional trade areas. And it does elongate the shopping trips. So it really is doing what all of the traditional anchor stores used to do when were intended to do and we're thrilled to bring them over here and look forward to doing many more deals with them.

Okay, great. Thanks, guys.

Thanks, Jeff.

Thank you we'll take our next question from Derek Johnston with Deutsche Bank.

Yeah.

Hi, everyone. Thank you. Kind of expanding on the last question. So the near term openings you've discussed or are close to announcing both Primark and others clearly backfill in various anchor closures, which are likely out of the same store pool due to the length of the vacancy. So can you give us an idea of the economic benefit or perhaps the mark to market you're seeing with the new leases?

Benefit or perhaps the mark to market Youre seeing with the new leases.

And what annual escalators you may be getting? And then lastly, how do you see traffic trending once they're open versus say at spheres, where a JCPenney or a century 21 for example.

Okay.

Yeah. Hey, Derek, this is Scott good morning. I would say that it really depends as to whether or not they're in the same center pool. It really depends on what's happening to the extent, we're simply replacing uses within the box as opposed to tearing down the box and doing something broader from a mixed-use perspective. Those things are in the same center pool. So for instance, a Priamrk substituting in for JCPenney, we would consider that to be the same center.

I would say that.

It really depends as to whether or not they're in the same center pool. It really depends on what's happening to the extent, we're simply replacing uses within the box as opposed to tearing down the box and doing something broader from a mixed use perspective those things are in the same center pool. So for instance, a prime mark substituting in for Jcpenney, we would consider that to be the same center.

We'd pay them a tenant allowance on occasion and have a little bit of retrofit work before we deliver space. That wouldn't be considered a major development and would be included within the same center to the extent, we're tearing down a box say lesser Readouts for Washington Square, whereas you know, we're going through entitlements right now to add a mixed-use appendix to the campus. In those instances, where there is a more heavy development spend we're probably going to be adding GLA that would be non-same center.

That wouldn't be considered a major development and would be included within would be included within the same center to the extent, we're tearing down a box say lesser Readouts for Washington Square, whereas you know, we're going through entitlements right now to add a mixed use.

<unk> to the campus and those instances, where there is a more heavy development spend we're probably going to be adding GLA that would be non same center.

In terms of. Maybe you can repeat the second part of your question just sort of touch on that as well. Yeah, just the economic benefit or perhaps the mark to market are you seeing with the new leases any escalators and how you view traffic clearly improving one side they are open versus the legacy boxes.

Maybe you can repeat the second part of your question just sort of touch on that as well yeah, just just the economic benefit or perhaps the mark to market are you seeing with the new leases any escalators and how you view traffic.

Nearly improving one side they are open versus the legacy boxes.

Yeah, I think I'd just on the rent side and the mark to market just to expand on Tom's comments without getting specific in terms of rent levels.

The anchors typically we're paying no to very minimal rent. Low to mid single-digit type of rent on average so we're getting more for big-box rents associated with these deals.

Low to mid single digit type of rent on average so we're getting more for big box rents associated with these deals and.

Obviously capital is precious and we wouldn't be making these moves unless they made economic sense for us. So there is a very positive mark to market in a nice yield on our cost.

And then in terms of traffic I mean clearly replacing JCPenney and Sears with the likes of Primark, Target, Shields, we're going to have significantly more traffic and significantly more sales. So.

Replacing jcpenney and Sears with the likes of Prime Mark target Shields, we're going to have significantly more traffic and significantly more sales. So.

The commerce that is generated from those boxes is going to be far greater with those new tenants compared to the ones that have vacated, including Penney and Sears. So we expect a many times multiple of sales and traffic from Primark, Target and Shields.

Yes.

Have have vacated.

<unk> Penney and Sears So we expect.

Many times multiple of sales and traffic from primary target and shields and.

An important point to note when you think of a shields you think of all the space in two levels it's leading up to it. It's not only the mark to market on the anchor box that we may be talking about on any given deal. It's really all of the re-letting over the next three years as we sell into Shields coming to the center or Primark coming to the center or Target. It makes the space around at the end of line shop space eminently more valuable and we're able to mark that space up.

Primark coming to the center or Target. It makes the space around at the end of line shop space eminently more valuable and we're able to mark that space up.

Yes, no. Thank you, that makes sense and my second question. The Flatiron in Colorado. Can you discuss what was entitled recently and how you're thinking about the mixed-use transformation be it experiential residential, office and co-working whatever is being considered? And then how do you plan to approach it? And really other repositioning projects as well.

The Flatiron in Colorado can you discuss what was entitled recently and how you're thinking about the mixed use transformation be it experiential residential office and co working whatever is being considered and then how do you plan to approach it and really other repositioning projects as well.

Are you looking to do this so low or maybe with partners and perhaps a JV component where the structure may be a little less capital intensive, but also meaningfully accretive. anything you could share there would be would be helpful. Thank you.

The structure may be a little less capital intensive, but also meaningfully accretive anything you could share there would be would be helpful. Thank you.

Derek. Discuss it kind of from a global approach and Scott can get into some of the details on Flatiron. Our goal is to densify and diversify our portfolio wherever we have the opportunity.

Discuss it kind of from a global approach and Scott can get into some of the details and flooding.

Our goal is to densify and diversify our portfolio wherever we have the opportunity a couple.

A couple of good examples are at low Cerritos in Washington Square, where we are replacing Cerritos boxes with mixed-use and we're going through the entitlement process now. And as we go through that we have a variety of ways to do that. We can do the capital-light version, which is effectively ground lease the land to a developer. Residential developer or mixed-use developer. We could also contribute the land and take a partnership position based on the value of the land or we could do a straight-up 50-50 deal. So there's a lot of different ways to approach. It's going to depend on the individual project and the type of return on cost that we can achieve.

Placing.

<unk> boxes with mixed use and we're going through the entitlement process now and as we go through that we have a variety of ways to do that we can do the capital light version, which is effectively ground lease the land to a.

A developer.

Residential developer or mixed use developer we could also contribute the land and take a partnership position based on the value of the land or we could do a straight up 50 50 deal. So theres a lot of different ways to approach. It it's going to depend on the individual project and the type of return on cost.

That we can achieve.

And Derek, on Flatiron, specifically, we received entitlements to add both multifamily as well as office.

We do have a dark Nordstrom box. They closed during COVID-19 and we do anticipate more than likely converting that box to creative office. The nearby Boulder market has an insatiable demand for tech use. And we think we're very well positioned about 15 miles down the road to take advantage of that demand.

<unk>.

Demand for Tech use and we think we're very well positioned about 15 miles down the road to take advantage of that of that demand.

And on the multifamily side, we would envision much the same as Tom mentioned contributed in our land into a JV.

And then assessing what our further economic contributions would be from there by adding multifamily building, as well as some restaurants and a sense of place picture and entertainment environment, where you could hold marketing events and alike.

Multifamily building as well as some restaurants and a sense of place picture and entertainment environment, where you could hold marketing events and alike.

Surrounded by restaurants, and patio shall be very attractive new entry that complements the existing property.

New entry that complements the existing property.

Thank you.

Okay.

Thank you we'll take our next question from Craig Schmidt with Bank of America.

Okay.

Thank you. Given the trend of sales per square foot metric. It seemed like your absolute sales per square foot number must be returning back to pre-COVID-19 level. I was wondering when you might start reporting that sales per square foot number as opposed to just trend and does may switching tend to return to showing the sales per square foot by property ranking table that you published pre-COVID-19.

Given the trend of sales per square foot metric.

It seemed like your absolute sales per square foot number must be returning back to pre COVID-19 level. I was wondering when you might start reporting that sales per square foot number.

As opposed to just trend and does may switching tend to return to showing the sales per square foot by property ranking table that you published pre COVID-19.

Hi, Craig how are you. That is a good question. There is still to be determined frankly. We were the only ones in this sector that did that so it was a little bit of a proprietary disadvantage as it related to the leasing transactions in environment, but.

That is a good question.

There is still to be determined frankly.

We were the only ones in this sector that did that so it was a little bit of a proprietary disadvantage as it related to.

The leasing transactions in environment, but.

It's something we'll consider as we get on the other side of Covid here.

Okay. Great and then. We're already into the holiday season from November, December standpoint. It seems like the supply chain disruption narrative is starting to dissipate.

We're already into the holiday season from Nov.

Remember December standpoint.

It seems like the supply chain disruption narrative is starting to dissipate.

What are you hearing from the retailers in terms of more concerns about having enough stock in their stores for holiday '21?

Terms of more concerns about having enough stock in their stores.

Alright for holiday <unk> 'twenty one.

Yes, I mean, we are obviously being southern California, based and seeing the freighters stacked up in the ocean and tried to get into the Los Angeles.

Being southern California, based and seeing the freighters stacked up in the Ocean and tried to get into the Los Angeles.

It's a topic that comes up frequently. Our retailers seem to have been hit harder earlier by the supply chain issues. They seem to have worked their way through most of that and to tell you the truth, Craig we don't hear a lot of complaints from the retailers about their supply chain, since a bigger issue is getting an adequate labor force and getting people rehired that seems to be the biggest challenge for them. These days as they approach the holiday season.

Our retailers seem to have been hit harder earlier by the supply chain issues. They seem to have worked their way through most of that and to.

To tell you the truth, Craig we don't hear a lot of.

Complaints from the retailers about their supply chain seems a bigger issue is getting an adequate labor force and getting people rehired that seems to be the biggest challenge for them. These days as they approach the holiday season.

Thank you.

Thank you, we'll take our next question from Samir Khanal with Evercore ISI.

Hey, good morning, Scott or Tom. Can you help us understand how to think about growth for next year from an FFO perspective? I mean this year you had the valuation gain plus you also had a very high term fee number.

Can you help us understand how to think about growth for <unk>.

Next year from an <unk> perspective, I mean this year you had the valuation gain plus you also had a very high term fee number.

Which likely won't repeat so maybe off of a cleanup of phone number, how should we think about sort of the building blocks?

For growth I mean, there is clearly the occupancy portion of it to pick up for next year, but is there anything else that we need to think about in terms of growth?

Good morning, Samir. You touched on a few of the points, obviously, we'd have a carryover of the share count that would anniversary through the first half of the year.

You touched on a few of the points, obviously, we'd have a carryover of the share count that would anniversary through the first half of the year.

We would also expect that straight line of rent. Which was elevated this year because of abatements and concessions that we gave to tenants in the first half of 2021, we would expect that to be substantially lower obviously that's noncash.

Which was elevated this year because of abatements and concessions that we gave to tenants in the first half of 2021, we would expect that to be substantially lower obviously that's noncash.

But on the positive side, we certainly would expect an increase in operating cash flow without giving any guidance, we do expect strong NOI growth. Into next year. I don't think it's going to be 20% that we reported in the third quarter, but we do expect it to be strong and we do expect cash flow growth.

NOI growth.

Into next year I don't think it's going to be 20% that we reported in the third quarter, but we do expect it to be strong and we do expect cash flow growth.

And I guess on the occupancy portion is there a number that you guys are sort of targeting or you can throw out in terms of where you think occupancy could kind of year-end. Sort of year-end for this year and maybe how you're thinking about next year.

Sort of year end for this year and maybe how youre thinking about next year.

Well again as I said earlier. It depends on the pace of the last two quarters. Both quarters have been up 90 basis points.

It depends on the pace of the last two quarters.

Both quarters have been up 90 basis points.

So if you assume we achieve that in the fourth quarter alone. Fourth quarter leasing tends to slow a little bit because the retailers are trying to get open for the holidays. And they're moving into the last fiscal quarter of their year.

And they're moving into the last fiscal quarter of their year.

But it wouldn't be out of the question to get too close to 91% by year end. We're at 93 now so that could EBIT, we can taper off a little bit from last two quarters patients still get there.

And then. Next year, we think the leasing pace is going to continue so I think you can see is seeing some good pick up next year as well and getting into the 92% to 93% range by the end of 2022.

Next year, we think the leasing pace is going to continue so.

I think.

You can see is seeing some good pick up next year as well and getting into the 90.

92% to 93% range by the end of 2022.

Great Thanks for that Tom.

Thank you we'll take our next question from Floris Van <unk> with Compass point.

Hey, Thanks for taking my question guys. I had a question on the leasing of <unk> clearly you guys are big beneficiaries, your percentage overage rent was very high.

I had a question on.

The leasing of <unk> clearly you guys are big beneficiaries. Your term sorry, your percentage overage rent was very <unk>.

Very high.

As you mentioned $15 million. As we think about next year as well what percentage of your current portfolios temp tenants?

$15 million.

What as we.

We think about next year as well what percentage of your current portfolios temp tenants and.

And how do you think about your speciality leasing? Particularly going into the holiday season, and then going into next year. When presumably last year your risk there is very little of that in your numbers.

Particularly going into the holiday season, and then going into next year.

When presumably last year your risk there is very little of that in your in your numbers.

Yes, especially leasing and that's a pretty broad category. It would include advertising, it would include anything that's not long term traditional leasing and it makes up at any point in time, 10% to 15% of our NOI.

Anything that's not long term traditional leasing and it makes up at any point in time, 10% to 15% of our NOI.

Yes.

Related to NOI, rather than topline revenue because most of that drops right to the bottom line.

We did a pretty good job of getting vacant space filled very quickly when we got the bankruptcies in 2020. And so as we continue to do more permanent leasing.

When we got the bankruptcies in 2020.

And so as we continue to do more permanent leasing.

And the overall occupancy level goes up the permanent percentage lease goes up there's going to be less inventory for the specialty leasing folks.

I would expect that to actually taper off a little bit. It will be strong in the fourth quarter. We've done a good job re leasing that space.

But I think a lot of that space will move from being temporary space to permanent space in 2022, and so I would expect that the pace of growth with business development or speciality leasing to taper off.

Pace of growth with business development or specialty leasing to taper off.

And sort of where where are you in.

Occupancy today versus where you are normally how much how much more upside is there.

Converting that into Perm.

Tendencies.

Yes, Floris good morning, Scott we're in the mid 6% range on occupancy right now on 10 basis.

As Tom mentioned, I would think that that will tick up closer to <unk>.

Seven by the end of the year.

But given the demand we're seeing I do expect that that will start to subside as we move forward into 2022, we will start to convert some of that.

Temp occupancy to Perm occupancy, that's an important driver for us of course.

The temp rents are typically $35, 40% of what a full time permanent tenant would pay.

Fractionally say doug's job in Doug's team's job is to put the specialty leasing group out of business I'm, not saying, we're going to eliminate specialty leasing, but we affectionately you say our ultimate goal is to have more permanent leasing, but given the volume that we're seeing.

I think we're headed in that direction as we move into 'twenty, two and 'twenty three.

Great and if I may have.

One follow up question as well I noticed your lease spreads.

Theres a difference between your JV asset in your consolidated assets and I'm curious obviously the.

The overall spread was marginally negative for.

For the fourth quarter.

But what was driving that is there.

There any are there any anomalies behind that and is that partly has to do with you taking more percentage rent in some instances or maybe if you can give us some more color on that that'd be that'd be helpful.

I mean that can fluctuate quarter to quarter, depending on what leases are.

Our expiring and what new deals get done so.

It can vary quite a bit historically, we've always had.

Bigger re leasing spreads.

The JV assets and that's because a lot of our bigger assets tend to be JV.

You think Tysons for example, Scottsdale fashion square some of those type assets that have very high sales per foot are JV.

And historically that's been the case.

And I think we'll continue to probably see that the case.

Thanks, guys.

Thank you we'll hear next from Rich Hill with Morgan Stanley.

Hey, guys. Good morning, I was hoping you could help us maybe bridge the two 5% negative two 5% leasing spreads disclosed in the prepared remarks to the average base rent per square foot in the supplemental I'm just looking at the delta on executed versus expired leases. It looks like it's more negative than the negative two 5%. So maybe just a bridge to help us understand.

Those two numbers.

Yeah sure Rich average base rent includes the entire population all leases.

The leasing spread is a metric that compares.

For leases that are over 12 months.

It compares the the new rent new base rent relative to expiring rent over the last 12 months and so it's not a same center metric.

So I don't think you can you can necessarily drive a re.

Clean comparison between average base rent again, which is over the entire population.

<unk>.

Of course that entire population would have just grown relative to.

Last year based on fixed increases I don't think you can compare that to just a 12 month sample again that 12 months out excluding renewals that were less than 12 months.

Okay. That's helpful comparison.

No. That's helpful and the reason I was asking is that one of your peers noted that they're leasing spreads.

Same store so I just wanted to make sure I understood that.

The second question I had was about overage rents.

Super.

Sure. How these how these are structured so I was hoping you give us give us some more insights and specifically, let's say sales stay at these robust levels, but don't accelerate does your percentage rent stay the same next year or does the threshold step up and maybe maybe lead to lower percentage rents I'm just not sure how the structured so I'd love some insight.

On that sure.

Sure assuming constant sales you know going forward, you'll naturally see a tick down a percentage rent as we convert that into fixed rent as leases roll again, we can only access.

Certain portion of leases in any given year, but assuming constant sales you would see that tick down.

In terms of what's driving it just look the elevated sales are causing just a.

A larger swath of tenants to ultimately break yes, there is a little bit of this associated with some of the COVID-19 modifications that we did but really as we look at it it's really just theres a lot more tenants breaking I mean, you have some tenants that are really really outperforming at a level that we wouldn't have anticipated and are are now paying percentage rent.

That being said there is a very small percentage of our overall tenant base that pays percentage rent rich I think its less than 10% of our tenants.

Percentage rents so.

It's a relatively small base, but when you are up.

As much as we've been up the last couple of quarters.

Push a fair number of tenants and the percentage rent that weren't there in 2019 and certainly out there in 2020.

Yes, that's helpful guys.

You just you just nailed the heart of my question.

Because the percentage rents are up a lot versus 2019, so that additional disclosure is helpful. Thanks guys.

Thanks Rich.

Thank you, we'll hear next from Linda Tsai with Jefferies.

Hi, Hugh.

Just earlier that electric car companies like Pollstar Pollstar are opening at your properties.

Have the potential to significantly increase the sales productivity of your malls like Tesla did and then how many electric car company leases you have across your portfolio currently.

So.

That's a really good question, Linda we don't know yet.

Sure they know yet either in terms of the sales.

They are pretty exciting there and interesting product, we probably have five different brands that we've done deals with I think we've got about 20 leases.

In place.

It includes a handful of teslas.

But there's quite a bit of demand in.

We've seen them come in for example at Corte Madera, We had a pulse Charlotte came in on a temporary basis.

And they had such a good.

The response from the consumer that they went fairly quickly into a permanent space.

And I think we're going to see more and more examples of that.

And it's great. It brings it brings traffic it brings interest brings diversity to the tenant mix.

Kind of excited about it frankly in terms of what kind of sales they do remains to be seen but.

It's a direction.

All countries going frankly is to more electric vehicles and some of these are fairly well sponsored in one case Volvo is part of it or one of the companies.

They've got a fair amount of capital behind them at this point.

Can you remind us how many EV charging stations you have across your portfolio.

We have charging stations now at a vast majority of I'll say, 95% of our parking fields at our properties are do have charging stations.

Got it and then regarding the 20 store package that impacted re leasing spreads it sounds like it's a pretty significant deal is there any are there any more details you could provide like is this a new type of retailer or is it a legacy.

Or any details on where they might be opening.

It's an existing retailer that we've had for probably the better part of 10 to 15 years and they're using this as an opportunity to expand their fleet recognizing that there is a lot of high quality space out there.

We were able to accomplish a deal that.

<unk> added 40, 50 basis points of occupancy, but beyond that we really can't obviously can't get into names in specifics.

Thanks, and then last quarter, you highlighted rent abatement.

Were there any rent abatements this quarter.

Very negligible Linda.

Pleased to say that the.

Covid negotiations are behind us.

Very positive things. So they were they were very small.

Thank you.

Sure.

Thank you we'll take the next question from Mike Mueller with Jpmorgan.

Yes, hi for the 180 basis points occupancy increase you've seen how theory was that across geography and asset productivity.

It was on.

<unk> it.

Was across the board I mean, when you are talking about let's say, we have 45 assets if you're talking about the bottom 15, obviously, there was less new deal activity there than there was in the top 30, but relative to our better assets. It was really across the board in terms of geography and productivity.

And not only across the board spending across the board in terms of size in terms of diversity of category. Doug do you want to expand now Scott I think you are right on and Thats really why this business is so exciting right now and I think it's one of the reasons.

<unk> point earlier, while we May drive occupancy quicker than we did in coming out of the great financial crisis because of the breadth of uses that we have I mean, we're not talking about traditional retail anymore. Although we are still leasing that traditional retail, but when you start layering in entertainment and home furnishings and food and beverage.

And grocery for that matter.

Youre going to see occupancy rebound a lot quicker, but probably as importantly, youre going to see our shopping centers transition from traditional malls into town centers and Thats really our goal to be everything for everybody.

Got it okay that was it thank you.

Thanks, Mike Thanks, Mike.

Thank you, we'll hear next from Greg Mcginniss with Scotiabank.

Hey, everyone.

Thanks for taking my questions.

Just a couple quick ones from me first how does average ABR signed or the portfolio average base rent account for 8% rent leases.

Okay.

It does not.

Average base rent just factors, an average base rent doesn't factor and percentage rent so.

If we were to for instance include percentage rent, obviously, it would be up relative to this time last year, just because of the increases we've reported on and similarly, the the leasing spreads would likely show a little bit of improvement is while we haven't quantified that but.

It does not include any percentage rent.

Okay, but it is including the base rent portion of those lease signings.

Correct.

Okay Alright. Thank you that's helpful.

And then.

Doug I appreciate the color on the <unk>.

Exploration just curious what the retention rate has been on expiring leases now that compares to historical averages and then for the $2 7 million square foot lease pipeline that you guys have how much of that GLA that is currently occupied versus vacant.

So I think Greg your question was what percentage of that.

Deals that were quoting are renewals versus new deals.

Well, it's more just understanding the expirations that you did have.

Sorry for the timeframe on exploration.

Much of that was.

He stayed on right or left the portfolio and then for the lease pipeline how much of that is going into currently occupied space.

Hey, it's Doug I don't think we have the exact breakdown, but it is definitely a combination of.

Renewing expiring leases and then back filling expiring leases with new leases, it's historically been about 65% renewals, 35% new might be a little bit higher coming out of Covid as a result of the rash of bankruptcies, but typically that's what it's been roughly <unk>.

Third two thirds and I would say that number is probably a little bit higher when you look at the pipeline just because if you think about the pipeline we're talking about leases that are opening in.

The end of 'twenty, one or the beginning or mid 2022 and in order to do that you need to have vacant spaces. So I would say that skews higher towards vacancies than it does expiring leases and to the second part of your question. Greg You asked about I think it was leased versus physical we're about 2% to 3%.

Of the <unk>.

<unk> or economic occupancy is not yet in place and so there is always.

Trailing impact of about nine months six to nine months to build out space for our typical in line space and so some of that occupancy will not start to pay rent and will not start to see the cash flow benefit until next year. So there is always that lagging effect, it's about 2% to 3% though.

Okay, great. Thank you so much.

Sure. Thanks.

Yes.

Thank you, we'll hear next from kidney Mcdonough Mcconnell with Citi.

Great. Thank you Keith that's understand the bridge from <unk> at the <unk> level.

<unk> picked up from the holidays. So are there any other factors.

Lab within <unk> that may not be bakery.

Yes, sure good morning Katy.

Yeah at the midpoint of our guidance, we'd be slightly ahead in the fourth quarter relative to the third quarter. As you can see we've provided a pretty broad range and the broadness of that range really relates directly to what could happen in the fourth quarter relative to sales.

Sales continue at the current trends.

We could end up higher than the midpoint towards the upper end of our range. We think we've made some realistic sales estimates that are embedded within the midpoint, but look it's very possible, we could end up higher than our mid point if sales continue at the current pace.

Keep in mind that in the third quarter.

Lease termination income was elevated relative to where we think it is going to end up in the fourth quarter. So that's another factor and then the seasonal nature of our business the third quarter.

It's not like the fourth quarter, which is more expensive to operate our shopping centers. We've got expanded holiday hours expanded staffing so that means more housekeeping and maintenance staff security staff, some cases utilities and things like snow removal. It just becomes more expensive business to run in the fourth quarter given the seasonal.

<unk> of it so those are some of the other factors that you should keep in mind.

And to the point on expenses can you talk later outlook for reimbursement.

Henry rates still trending below average.

The opex improvements are increasing.

That a function of how leases are being captured today or would you expect to see more of an improvement next year.

Yes, part of that Kt is just going to trend with the occupancy level.

Switch to fixed Cam a number of years ago.

And so.

When occupancy drops reimbursements are going to drop almost pro rata.

And we expect that to come back as we.

Fill up more space and get closer to our.

A more normal level of $93, 94% occupancy.

Okay, great. Thanks.

Thank you.

Thank you and that does conclude today's question and answer session I would like to turn the conference back over to Tom for any additional or closing remarks.

Thank you Cody.

Well. Thank all of you for joining US today, we look forward to reporting the balance of the year and seeing many of you at NAREIT next week.

Thank you and that does conclude today's conference. We do thank you all for your participation and you may now disconnect.

Yes.

[music].

Okay.

[music].

Good day and welcome to the <unk> Company third quarter 2021 earnings conference call today's call is being recorded.

And now at this time I'd like to turn the conference over to Samantha Greening Director of Investor Relations. Please go ahead ma'am.

Thank you for joining us on our third quarter 2021 earnings call. During the course of the call. We really will be making certain statements that may be deemed forward looking within the meaning of the safe Harbor of the private Securities Litigation Reform Act of 1995, including statements regarding projections plans or future expectations.

Actual results may differ materially due to a variety of risks and uncertainties set forth in today's press release, and our SEC filings, including the adverse impact of the Nobel Coronavirus COVID-19 on the U S regional and global economies and the financial condition results of operations of the company and its tenants.

Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the earnings release and supplemental filed on form 8-K, with the SEC, which are posted on the investors section of the company's website at May search dot com joining.

Joining us today are Tom O'hern, Chief Executive Officer, Scott King's Moore, Senior Executive Vice President and Chief Financial Officer, and Doug Healey Senior Executive Vice President of leasing with that I'd like to turn the call over to Tom. Thank you Samantha.

So all of you for joining us today.

After navigating almost two full years battling the impact of Covid.

We're pleased to report an outstanding quarter with almost no COVID-19 related restrictions in place.

As you read in our 8-K. This morning, we had a very strong operating quarter and we're pleased to report excellent results.

We're seeing huge retailer demand are.

Shoppers have come Roaring back in the U S consumers are continuing to shop with a purpose and we'd see a higher capture rate than pre COVID-19.

Sales are exceeding pre COVID-19 levels with double digit gains in the past two quarters compared to 2019.

And that momentum is carrying into the fourth quarter.

Retailer demand is at a level, we have not seen since 2015.

We expect traffic to continue to increase the current level is over 95% of the 2019 traffic levels.

Some of the second quarter highlights include on a sequential quarter basis, we had occupancy gains of 90 basis points.

And Thats on top of the 90 basis point gain we had in the second quarter.

At quarter end, our occupancy was 93%.

We have a ways to go there, but we're making great progress.

We saw robust leasing volumes for the quarter and year to date.

Both were in excess of 2019 levels.

Year to date, we've executed leases for over 3 million square feet of space.

And that compares very favorable to full year 2019 level of $3 3 million square feet and a.

Full year 2015 level of $3 4 million square feet.

Once we include the fourth quarter, our full year 2021 leasing volumes will.

We will exceed not only 2019, but the prior high of 2015.

We saw same center NOI growth of 21% in the quarter.

And expect the fourth quarter to continue with the double digit growth we've seen in the past two quarters.

We're obviously optimistic about the fourth quarter as we raised the <unk> guidance mid point range to $1 96, a 3% increase on top of the increase in guidance last quarter.

The depth and breadth of the leasing demand has us very optimistic about the future.

Some of the larger deals recently signed include target.

Kings Plaza, replacing Jcpenney Shields, all sports megastore, replacing Nordstrom in Chandler.

Prime market fashion district of Philadelphia.

Prime market Green acres.

Pinstripes at Broadway Plaza.

And lifetime fitness at Broadway Plaza, and Scottsdale fashion square.

And that's just to name a few of the bigger deals.

Doug will comment in detail shortly on more of the third quarter leasing activity.

In addition to the big box deals non traditional mall retail demand in smaller format continues to accelerate with the digitally native brands getting active again on brick and mortar locations.

After stepping back during COVID-19.

Other interesting additions include a host of new electric car companies taken space in many of our malls, including Pollstar and lucid.

Many of our traditional retailers are back with even greater demand for space than pre pandemic.

With retailer bankruptcies down to a record low level and demand for space very strong. This is an excellent leasing environment, which we expect to carry into 2022.

Although leasing spreads were down slightly we expect that trend to reverse itself in the upcoming quarters.

During the quarter. We also continued our strategy of selling non core assets.

During the quarter, we sold logged cantata a lifestyle center in Tucson, Arizona we.

We generated net cash of $100 million the open Eric 246000 Square foot Center sold for 165 million gross.

That transaction builds on the March 22021 sale of Paradise Valley Mall, another non core asset in Phoenix, which yielded net proceeds to matrix of $95 million.

Okay.

The cash proceeds from both of those sales were used to reduce debt.

The balance sheet moves we've made in 2021 have significantly improved our leverage metrics.

Year to date, we've paid down debt of over $1 5 billion and reduced net debt to EBITDA by over two full turns.

And drop debt to market capitalization to 61%.

We're very optimistic about our business as we move through the balance of the year and into 2022.

Not only is the leasing environment is strong and getting better by the month, but we expect significant gains in occupancy net operating income and cash flow.

Now I'll turn it over to Scott to discuss in more detail the financial results for the quarter.

Thank you Tom now onto the highlights of the financial results for the quarter.

<unk> from operations for the third quarter of 2021 was $18 million or 22% higher than the third quarter of 2020.

<unk> per share for the quarter was <unk> 45.

This was <unk> <unk> or 5% higher than consensus estimates of <unk> 43 per share and represents a 7% decline from the third quarter of 2020 at 52 per share.

EBITA margin has increased one 2% from 57, 5% at the third quarter of 2020 to 58, 7% at the end of the third quarter of 2021.

This was a very strong earnings quarter primary factors contributing to these NOI NFL games are as follows.

On the NOI front.

The quarter included a $15 million or 7% increase in percentage rents, resulting from the dramatic increase in sales that we reported earlier today and that Doug will soon expand upon.

<unk>.

Bad debt expense represents a compared with $15 million or <unk> improvement quarter over quarter.

And three commentary income has contributed another four cents of NOI and <unk>, including from our urban parking garages consistent with what we reported last quarter. Our commentary business has proven to be quite elastic and resilient and is exceeding our early 2021 expectations.

Offsetting these NOI factors, where shopping center expenses increased by $8 million or <unk>.

And lastly, a few other factors included.

One decrease in straight line rental income of $10 million or <unk>.

<unk> as a result of significantly reduced abated rent in the third quarter of 2021 relative to the third quarter of 2020.

To the third quarter was lower due to land sale transactional timing included a decrease in landfill gains totaling $12 million or <unk> and then three the.

Third quarter included a decrease of approximately <unk> <unk> per share.

<unk> from increased share count due to common stock sold earlier this year through our ATM programs offset by decreased quarterly interest expense from significant debt Paydowns in 2021 as a result.

This morning, we updated our previously issued 2021 guidance for <unk> of 2021 SSO is now estimated in the range of $1 92 to $2 per share.

Which represents a six <unk> or 3% increase versus the midpoint of our previously issued <unk> guidance range.

While certain guidance assumptions are provided within our supplemental filing from earlier this morning.

Here are some further anecdotes.

This increased guidance is reflective of an operating environment that is improving better and faster than our prior expectations and is due to increases in same center NOI.

As I mentioned during the previous two quarterly calls we anticipated strong double digit NOI growth in the second half of 2021.

And in fact that is now playing out and we expect strong same center growth in the fourth quarter likely surpassing the levels. We just reported on for the third quarter of 2021.

More details of the guidance assumptions are included in on page 18 of the company's form 8-K supplemental financial information.

And onto the balance sheet.

As part of our continuing commitment to deleveraging our balance sheet and 2021.

We have repaid approximately $1 $5 billion of debt in the third quarter. Those efforts were buoyed by the sale of long cantata in Tucson, Arizona.

Which resulted in a repayment of approximately $165 million of debt.

As previously stated.

We expect to generate free cash flow after payment of dividends and recurring capital expenditures exceeding $200 million per year over the next few years.

Which with a quickly improving operating environment supports a path to continued leverage reduction to approximately eight times by the end of 2023.

This relative to leverage in the mid elevens at the end of 2020 on the heels of Covid.

From a secured financing standpoint last week, we closed on a five year $65 million refinance of the shops at Atlas Park, a lifestyle Center near Queens, New York and we are currently negotiating a commitment for a five year $200 million refinancing of Flatiron crossing an enclosed regional town.

<unk> centre in Broomfield, Colorado.

In aggregate, both loans will take out the existing loans with no incremental capital outlay.

The debt capital markets continue to improve with each passing quarter and we are very pleased with the progress addressing these near term maturities.

As we have mentioned, we continue to see positive progress within the debt capital markets with the execution of a growing number of retail deals on sequentially favorable terms.

And now I will turn it over to Doug to discuss the leasing and operating environment.

Thanks Scott.

Tom and Scott did a great job of highlighting some of the leasing activity metrics at a high level and as Tom mentioned I'll dive in a little bit deeper.

So the leasing environment continues to improve and the leasing productivity continues to outpace pre COVID-19 2019 levels. In fact, we are on track for our strongest leasing year since 2015.

Sales were strong in September and this is on top of a very productive July and August.

September sales were up 17% when compared to September 2019, and once again, all categories, including food and beverage comp positively.

Looking at the quarter third quarter sales were up 14% over third quarter 2019, and this is on top of the second quarter being up 14% versus second quarter 2019.

Occupancy at the end of the third quarter was 93% that's up 90 basis points from 89, 4% at the end of the second quarter.

As Scott mentioned over the past six months portfolio occupancy has increased 180 basis points relative to the 88, 5% occupancy rate on March 31 2021.

The pace of bankruptcies continues to decrease and year to date bankruptcies within our portfolio remained at the lowest levels we've seen since 2015.

In the third quarter only two tenants filed for bankruptcy within our portfolio of these two tenants accounted for just five stores and only 13000 square feet.

Okay.

Trailing 12 trailing 12 month leasing spreads were minus two 5% that's down from minus 2% last quarter.

And this is primarily a result of signing a 20 store package with one retailer totaling just over 100000 square feet.

Average rent for the portfolio was $62 58.

As of September 32021.

And this is an increase when compared to $62 47.

As of June 32000, 2021.

And $62 29 as of September 32020.

We continue to make great progress on our 2021 lease expirations.

To date, we have commitments on 91% of our 2021 expiring square footage with another 9% are the balance in the letter of intent stage.

As for our 2022 lease explorations, we have commitments on 36% of the expiring square footage and 55% in the letter of intent stage.

Tenant openings in the third quarter, we opened 280000 square feet of new stores.

<unk> and total annual rent of $10 5 million.

Year to date, we've opened 630000 square feet of new stores, which is about 13% more square footage than we opened during the same period in 2019.

Most notably in July we opened a spectacular 5000 square foot two level flagship store in the luxury wing at Scottsdale fashion square.

Not only are Dr. <unk> to the Phoenix market Phoenix market, but its also first to the state of Arizona in fact, the closest stores 250 miles away in Las Vegas.

The addition of Dr. Further solidifies the fact that Scottsdale is and will continue to be the premier luxury destination.

L a phoenix or in Arizona for that manner.

In September Prime Mark had its grand opening at fashion District, Philadelphia, Philadelphia Chop.

<unk> arrived early and they stayed late.

Lines outside the store continued for days in high traffic volumes remained ever since.

This two level of 46000 square foot store located at the corner of market and 10th Street is a true anchor in every sense of the word.

Mark as destination oriented and is expected to increase ftp's already strong trade area and elongate shopper dwell time.

Fashion District, Philadelphia marks our fourth store opening with Prime Mark following Danbury Fair Freehold Raceway Mall and Kings Plaza.

In addition to these four open stores. We also have signed leases with prime Mark at Green acres, and Tysons corner that will open in 2022 and 2023, respectively.

As such we remain primark largest U S landlord and continue with ongoing discussions regarding several other key markets and opportunities.

Staying in the large format category, we opened a 70000 square foot shoppers world at Green acres mall in the former century 21 location.

And this is in addition to the shoppers world that opened last quarter at fashion District, Philadelphia also in the former century 21 locations.

So now we have both of our bankrupt century 21 locations open and occupied.

We also opened a 25000 square foot Kids Empire, San Tan village, and the 20000 square foot Ross dress for less and Pacific view.

Other notable openings in the third quarter includes stay in the wrong.

Outlets of Chicago, Athleta at Danbury Fair Robin gone at Broadway Plaza, and free people movement at Carillon comments.

Lastly, in the digitally native and emerging brands category was active in the third quarter, we opened Buck Mason and lucid motors at Scottsdale fashion square.

Green layer at Broadway Plaza, and two <unk> storage at Los Cerritos, and Washington Square.

Now, let's look at the leases, we signed in the third quarter.

In the third quarter, we signed 219 leases for one 1 million square feet, resulting in $47 million in total annual rent.

And the first three quarters of 2021, we signed 707 leases for 3 million square feet, resulting in a $136 million in total annual rent.

This represents 10% more leases.

25% more square footage and 14% more rent than during the same pre COVID-19 period in 2019.

Yeah.

Notable leases signed in the third quarter include Auryxia, and our new and expanded Blue Nile store Tysons corner Brunello gianelli at fashion outlets of Chicago.

Akshay and Cabana and Marc Jacobs.

Scottsdale fashion square.

<unk> originals, and Los Cerritos, and a 9000 square foot flagship Lulu Lemon at Broadway Plaza.

We also signed a five store package with Windsor fashion totaling 22000 square feet.

And the large format category, we executed a lease.

With target for a three level 90000 square foot store at Kings Plaza in the former Jcpenney location.

Along with the lease we signed with Prime Mark for the Jcpenney location at Green acres. We have now replaced the only two stores we lost from Penney during their vacancy during their bankruptcy and did so with compelling relevant and productive uses.

We finalized our deal for 220000 square foot Shields, all sports Chandler fashion.

We also signed a 37000 square foot lifetime fitness at Scottsdale fashion at the entrance of our new luxury wing and this marks our third third deal with lifetime. In addition to Biltmore fashion Park and Broadway Plaza.

We also signed our first deal with Pinstripes at Broadway Plaza.

For those of you who aren't familiar with pinstripes, it's a very cool 27000 square foot indoor outdoor entertainment concept, featuring bowling Bocce live music, a hip bar and great food. It will be the first in the Bay area and will bring vibrancy and excitement to Broadway.

Lastly, in the digitally native and emerging brands category, we signed leases with <unk> at the village at Corte Madera.

At North Bridge, Pollstar at Scottsdale fashion square and tonal at Santa Monica place.

Now turning to our leasing pipeline at the end of the third quarter, we had signed leases for 330000 square feet of new stores still to open in 2021.

And looking into 2022 and 2023.

We have signed leases for another one 7 million square feet of new stores still to open.

And in addition to these signed leases were currently negotiating leases for new stores totaling 620000 square feet. The majority of which will open in 2021 or early to mid 2022.

So in total that's over 260 signed an in process leases totaling $2 7 million square feet for new store openings throughout the remainder of this year and into 2022 and 2023.

So to conclude sales are trending significantly better than they were pre COVID-19.

Occupancy is up nearly 200 basis points over the past two quarters and is expected to continue to increase throughout the remainder of this year and into 2022.

Bankruptcies are at their lowest level since 2015, and thats consistent with our significantly reduced tenant watch list.

And leasing velocity is at its highest level since 2015.

This is evidenced by the multitude of leases, which we signed this year, resulting in a very strong vibrant and exciting pipeline of tenant slated to open.

Yet this year and into 2022 and 2023.

And now I will turn it over to the operator to open up the call for Q&A.

Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad.

If you are using a speaker phone. Please make sure that your mute function is turned off delight your signal to reach our equipment.

I ask that you do please limit yourself to one question and one follow up prior to reentering the queue.

Again, Thats star one if you'd like to ask a question.

We will take our first question from Jim Sullivan with <unk>. Please go ahead.

Alright, thank you.

First question I have.

When you look at the occupancy rate gain that you have achieved through the end of the third quarter and the leasing progress you've made.

For deals to come and we think back to the analogy with the prior recovery after the great financial.

Crisis at that time, it took about six.

Six to seven years.

To regain the roughly 500 basis points of occupancy loss.

And the GSA.

Here are the vacancy.

Loss was greater at the pace of recovery seems to be greater as well and.

I don't know I'm, not asking you to make a forecast here, but when you think about getting back to say the 90, 495% occupancy range.

Can you give us some timeframe.

No you've said you expect it to be quicker, but obviously, it's a key driver of our portfolio the strength of the portfolio the EBITDA and I just wonder if you can.

Help us Tom Doug.

Indicating how long, it's going to take to get back to that number at this time.

Yes sure Jim.

But I think after the great financial crisis, we recovered four years, four and a half years something like that.

We look at the pace today you are correct. It is it is more rapid than what we saw in 2010 and 11.

And if we stay on pace with what we've seen the last two quarters I think by the end of 2023 will be back in.

And the occupancy levels that we were at pre Covid.

Again, it depends on the pace, but everything we see ahead of us as a tremendous demand.

Some pretty big volume and we think we can keep up that pace.

Okay and then the second question for me you mentioned Prime Mark is a notable and important.

The big Bucks going into several centers successfully and with more to come and I Wonder if you can just help us.

Compare this with your legacy Department store transactions.

That where in the portfolio before those department stores started closing and I know the prime market isn't necessarily taking this bigger books, but.

Help us understand kind of what kind of per foot revenues, you can get from prime versus those legacy deals.

Obviously without disclosing the specific numbers that you may not be comfortable doing.

Yes, I mean prime Mark is.

New they're a bigger version of what we've seen come over from Europe in the past.

Don't take the same size as a traditional department store, they do pay more rent.

The traditional department stores were notorious for not paying much rent frankly, they are a traffic driver.

And so the economics are better.

And even though the city of Philadelphia is not fully bounced back yet there are people lined up to get in that store and a lot of traffic. So.

Doug you can add further elaborate but that's my view, it's a much different type of department store than those we've been replacing the only thing I would add is that while maybe not as big as the traditional anchor stores. They do act like a traditional anchor store in the way of anchor stores are supposed to be and as I mentioned in my remarks Prime arc does.

Draw outside of our traditional trade areas and it does elongate the shopping trips. So it really is doing what all of the traditional anchor stores used to do when we're intending to do and we're thrilled to bring them over here and look forward to doing many more deals with them.

Okay, great. Thanks, guys.

Thanks Chip.

Thank you we'll take our next question from Derek Johnston with Deutsche Bank.

Hi, everyone. Thank you kind of expanding on the last question. So the near term opening as you discussed or are close to announcing both cry Mark and others.

Clearly backfill in various anchor closures, which are likely out of the same store pool due to the length of vacancy. So can you give us an idea of the economic benefit or perhaps the mark to market Youre seeing with the new leases and what annual escalators you may be getting and then lastly, how do you see traffic trending once.

They're opening versus say at spheres, where a JC penney or a century 21 for example.

Yes.

Yeah, Hey, Derek this is Scott good morning.

I would say that.

We'd pay them a tenant allowance on occasion and have a little bit of retrofit work before we deliver space.

That wouldn't be considered a major development and would be included within.

<unk> be included within the same center to the extent, we're tearing down a box say lesser Readouts for Washington Square, whereas you know.

Going through entitlements right now to add a mixed use appendage to the campus and those instances where there is a more heavy development spend we're probably going to be adding GLA that would be non same center.

In terms of maybe you can repeat the second part of your question. Just so we can touch on that as well, yes, just the economic benefit or perhaps the mark to market, you're seeing with the new leases any escalators and how you view traffic.

Clearly improving once they're open versus the legacy boxes.

Yes, I think I would just on the on the rent side and the Mark to market just to expand on Tom's comments without getting specific in terms of rents rent levels.

The anchors typically we're paying no to very minimal rent.

Low to mid single digit type of rent on average so we're getting more full big box rents associated with these deals.

Obviously capital is precious and we wouldn't be making these moves unless they made economic sense for us. So there is a very positive mark to market a nice yield on our on our cost.

And then in terms of traffic I mean, clearly ripped.

Replacing jcpenney and Sears with the likes of Prime Marten target Shields, we're going to have significantly more traffic and significantly more sales. So.

The commerce that is generated from those boxes is going to be far greater with those new tenants compared to the ones that.

Have have vacated.

<unk> Penney and Sears So we expect.

Many times multiple of sales and traffic from framework target in <unk> and.

An important point to note when you think of it shields you think of all the space in two levels its leading up to it it's not only the mark to market on the on the anchor box that we may be talking about on any given deal. It's really all of the re letting over the next three years as we sell into shields coming to the center or Nordstrom or excuse.

Or on Primark coming to the center of our target. It makes the space around at the in line shop space eminently more valuable and we're able to mark that space up.

Yes, no. Thank you that makes sense and my second question.

Are you looking to do this so low or maybe with partners and perhaps a JV component.

The structure may be a little less capital intensive, but also meaningfully accretive anything you could share there would be would be helpful. Thank you.

Yes Derrick.

Discuss it kind of from a global approach and Scott can get into some of the details on flooding but.

Our goal is to densify and diversify our portfolio wherever we have the opportunity a couple of good examples are at low Cerritos, and Washington Square, where we're replacing.

Sears boxes with mixed use.

And going through the entitlement process now and as we go through that we have a variety of ways to do that we can do the capital light version, which is effectively ground lease the land to <unk>.

As a developer.

That we can achieve.

And Derek on flat arent, specifically, we received entitlements to add both multifamily as well as office.

We do have a dark Nordstrom box they closed during COVID-19 and we do anticipate more than likely converting that box to creative office the nearby Boulder market is.

Hasnt insatiable.

<unk> for Tech use and we think we're very well positioned about 15 miles down the road to take advantage of that of that demand.

And on the multifamily side, we would envision much the same as Tom mentioned.

Tribute on our land into a JV.

And then assessing what our further economic contributions would be from there by adding.

Multifamily building as well as some restaurants and a sense of place picture and entertainment environment, where you could hold marketing events and alike.

With surrounded by restaurants, and patio shall be very attractive new entry that complements the existing property.

Thank you.

Okay.

Thank you we'll take our next question from Craig Schmidt with Bank of America.

Thank you.

Given the trend of sales per square foot metric it would seem like your absolute sales per square foot number must be returning back to pre COVID-19 level. I was wondering when you might start reporting that sales per square foot number.

As opposed to just trend and dismay switching tend to return to showing the.

The sales per square foot by property ranking table that you published pre COVID-19.

Hi, Craig how are you that is a good question. The answer is still to be determined frankly.

We were the only ones in this sector that did that so it's a little bit of a proprietary disadvantage as it related to.

The leasing transactions in environment, but.

It's something we'll consider as we get on the other side of Covid here.

Okay, Great and then.

We have already entered the holiday season from Nov.

Remember December standpoint.

It seems like the supply chain disruption narrative is starting to dissipate.

What are you hearing from the retailers in terms of more concerns about having enough stock in their stores.

Alright for holiday 'twenty one.

Yes, I mean, we are obviously.

I mean, southern California, based and seeing the freighter stacked up in the ocean trying to get into the loss Angeles.

It's a topic that comes up frequently.

Our retailers seem to have been hit harder earlier by the supply chain issues. They seem to have worked their way through most of that and.

To tell you the truth, Craig we don't hear a lot of.

Complaints from the retailers about their supply chain seems a bigger issue is getting inadequate labor force and getting people rehired that seems to be the biggest challenge for them. These days as they approach the holiday season.

Thank you.

Thank you we'll take our next question from Samir Khanal with Evercore ISI.

Hey, good morning, Scott or Tom.

Can you help us understand how to think about growth for <unk>.

Next year from an <unk> perspective, I mean this year you had the valuation gain plus you also had a very high term fee number.

Which likely won't repeat so maybe off of a clean up of phone number how should we think about sort of the building blocks.

For growth I mean, there is clearly the occupancy portion of it to pick up for next year, but is there anything else that we need to think about in terms of growth.

Good morning Samir.

You touched on a few of the points. Obviously, we would have a carryover of the share count that would anniversary through the first half of the year.

We would also expect that straight line of rent.

Which was elevated this year because of abatements and concessions that we gave to tenants in the first half of 2021, we would expect that to be substantially lower obviously that's noncash.

On the on the positive side, we certainly we would expect an increase in operating cash flow without giving any guidance, we do expect strong.

NOI growth.

Into next year I don't think it's going to be 20% that we reported in the third quarter, but we do expect it to be strong and we do expect cash flow growth.

And I guess on the occupancy portion is there a number that you guys are sort of targeting or you can throw out in terms of where you think occupancy could kind of year end.

Sort of year end for this year and maybe how youre thinking about next year.

Well again as I said earlier.

It depends on the pace of the last two quarters.

Both quarters have been up 90 basis points.

So if you assume we achieve that in the fourth quarter, our fourth quarter leasing tends to slow a little bit because the retailers are trying to get open for the holidays.

And they are moving into the last fiscal quarter of their year.

But it wouldn't be out of the question to get too close to 91% by year end. We're at 93 now so that could even we could taper off a little bit from last two quarters patients still get there.

And then.

Next year, we think the leasing pace is going to continue so.

I think.

You could see us seeing some good pick up next year as well and getting into the 90.

92% to 93% range by the end of 2022.

Great Thanks for that Tom.

Thank you we'll take our next question from Floris Van <unk> with Compass point.

Hey, Thanks for taking my question guys.

I had a question on.

The leasing of them clearly you guys are big beneficiaries. Your term sorry, your percentage overage rent was very <unk>.

Very high.

As you mentioned.

$15 million.

What as.

We think about next year as well what percentage of your current portfolios as temp tenants and.

And how do you think about your.

Our specialty leasing.

Particularly going into the holiday season, and then going into next year.

When presumably last year universe, there is very little of that in your in your numbers.

Yes, especially leasing and that's a pretty broad category. It would include advertising it would include.

Anything thats not long term traditional leasing and it makes up at any point in time, 10% to 15% of our NOI.

Yes.

Related to NOI, rather than top line revenue because most of that drops right to the bottom line.

And we did a pretty good job of getting vacant space filled very quickly when.

When we got the bankruptcies in 2020.

And so as we continue to do more permanent leasing.

And the overall occupancy level goes up the permanent percentage lease goes up there's going to be less inventory for the specialty leasing folks so.

I would expect that to actually taper off a little bit it will be strong in the fourth quarter. We've done a good job re leasing that space, but.

I think a lot of that space will move from being temporary space to permanent space in 2022, and so I would expect that.

<unk> of growth with business development or specialty leasing to taper off.

Hi.

Sort of where where are you in.

Occupancy today versus where you are normally how much how much more upside is there.

Converting that into Permian.

Tendencies.

Yes, Floris good morning, Scott, we're in the mid 6% range on occupancy right now on temp basis.

Tom mentioned I would think that that will take up closer to seven.

Seven by the end of the year.

But given the demand we're seeing I do expect that that will start to subside as we move forward into 2022 will start to convert some of that.

Temp occupancy to Perm occupancy, it's an important driver for us of course.

The temp rents are typically $35, 40% of what a full time permanent tenant would pay.

We affectionately say doug's job in Doug's team's job is to put the specialty leasing group out of business I'm, not saying, we're going to eliminate specialty leasing, but factually say our ultimate goal is to have more permanently singing but given the volume that we're seeing.

I think we're headed in that direction as we move into 'twenty, two and 'twenty three.

Great and if I may have.

One follow up question as well I noticed your lease spreads.

There is a difference between your JV assets in your consolidated assets and Im curious obviously the.

The overall spread was marginally negative for.

For the fourth quarter.

But what was driving that is there any are there any anomalies behind that and is that partly has to do with you taking more percentage rent in some instances or maybe if you can give us some more color on that that'll be that'll be helpful.

I mean that can fluctuate quarter to quarter, depending on what leases are.

Our expiring and what new deals get done so.

It can vary quite a bit historically, we've always had.

Bigger re leasing spreads.

And the JV assets and that's because a lot of our bigger assets tend to be JV.

If you think Tysons for example, Scottsdale fashion square some of those type assets that have very high sales per foot are JV.

And historically that's been the case.

And I think we'll continue to probably see that the case.

Thanks, guys.

Thank you we'll hear next from Rich Hill with Morgan Stanley.

Those two numbers.

Yes, sure Rich average base rent includes the entire population all leases.

The leasing spread is a.

A metric that compares.

For leases that are over 12 months.

It compares the the new rent new base rent relative to expiring rents over the last 12 months and so it's not a same center metric so.

So I don't think you can you can necessarily drive a real clean comparison between average base rent again, which is over the entire population.

Is.

Which of course that entire population would have just grown relative to.

Last year based on fixed increases I don't think you can compare that to just 12 months sample again at 12 months after excluding renewals that were less than 12 months.

Okay. That's helpful comparison.

No. That's helpful and the reason I was asking is that one of your peers noted that they're leasing spreads were not same store. So I just wanted to make sure I understood that the.

The second question I had was about overage rents.

I'm not super.

Sure. How these how these are structured so I was hoping you guys give us some more insights and specifically, let's say sales stay at these robust levels, but don't accelerate does your percentage rent stay the same next year or does the threshold step up and maybe maybe lead to lower percentage rents I'm just not sure how they're structured so I'd love some insights on that.

Sure assuming constant sales going forward, you'll naturally see a tick down a percentage rent as we convert that into fixed rents as leases roll again, we can only access.

A certain portion of leases in any given year, but assuming constant sales you would see that tick down.

In terms of what's driving it just look the elevated sales are causing just.

A larger swath of tenants to ultimately break yes, theres a little bit of this associated with some of the Covid modifications that we did but really as we look at it it's really just theres a lot more tenants breaking I mean, you'll have some tenants that are really really outperforming at a level that we wouldn't have anticipated and are are now paying percentage rent.

That being said there is a very small percentage of our overall tenant base that pays percentage rent rich I think its less than 10% of our tenants.

Percentage rents so.

It's a relatively small base, but when you are up.

As much as we've been up the last couple of quarters.

You push a fair number of tenants and the percentage rent that weren't there in 2019 and certainly not there in 2020.

Yes, that's helpful guys.

You just you just nailed the heart of my question because.

Because the percentage rents are up a lot versus 2019, so that additional disclosure is helpful. Thanks guys.

Thanks Rich.

Thank you, we'll hear next from Linda Tsai with Jefferies.

Hi, Hugh.

Just earlier that electric car companies like Pollstar Pollstar opening at your properties does this have the potential to significantly increase the sales productivity or malls like Tesla did and then how many electric car company leases you have across your portfolio currently.

So.

That's a really good question, Linda we don't know yet.

Sure they know yet either in terms of the sales.

Theyre pretty exciting there and interesting product, we probably have five different brands that we've done deals with I think we've got about 20 leases.

In place.

That includes a handful of teslas.

But there's quite a bit of demand in.

We've seen them come in for example at Corte Madera, We had a pulse Charlotte came in on a temporary basis.

And they had such a good.

The response from the consumer that they went fairly quickly into a permanent space.

And I think we're going to see more and more examples of that.

And it's great. It brings it brings traffic it brings interest brings diversity to the tenant mix.

Kind of excited about it frankly in terms of what kind of sales they do remains to be seen but.

It's a direction.

Countries going frankly is to more electric vehicles and some of these are fairly well sponsored in one case Volvo is part of it or one of the companies.

They've got a fair amount of capital behind them at this point.

Can you remind us how many EV charging stations you have across your portfolio.

We have charging stations now at a vast majority of I'll say, 95% of our parking fields at our properties are do have charging stations.

Or any details on where they might be opening.

It's an existing retailer that we've had for probably the better part of 10% to 15 years and they are using this as an opportunity to expand their fleet recognizing that theres a lot of high quality space out there.

We were able to accomplish a deal that probably.

Probably added 40 50 basis points of occupancy, but beyond that we really can't obviously can't get into names in specifics.

Thanks, and then last quarter, you highlighted rent abatement.

Are there any rent statements this quarter.

Very negligible Linda.

Pleased to say that the.

Covid negotiations are behind us.

Very positive things. So they were they were very small.

Thank you.

Sure.

Thank you we'll take our next question from Mike Mueller with Jpmorgan.

Yes, hi for the 180 basis points occupancy increase you've seen how theory was that across geography and asset productivity.

It was on it.

It was across the board I mean, when Youre talking about lets say, we have 45 assets if you're talking about the bottom 15, obviously, there was less new deal activity there than there was in the top 30, but relative to our better assets. It was really across the board in terms of geography and productivity.

Tom's point earlier, while we May drive occupancy quicker than we did in coming out of the great financial crisis because of the breadth of uses that we have I mean, we're not talking about traditional retail anymore. Although we are still leasing the traditional retail, but when you start layering in entertainment and home furnishings and food and beverage.

And grocery for that matter.

Got it okay that was it thank you.

Thanks, a lot thanks, Mike.

Thank you, we'll hear next from Greg Mcginniss with Scotiabank.

Hey, everyone.

Thanks for taking my questions.

Just a couple quick ones for me first how does average ABR signed or the portfolio average base rent account for 8% land leases.

It does not.

Average base rent just factors, an average base rent doesn't factor and percentage rent so.

It does not include any percentage rent.

Okay, but it is including the base rent portion of those lease signings.

Correct.

Okay Alright. Thank you that's helpful.

And then.

Doug I appreciate the color on the <unk> lease explorations just curious what the retention rate has been on expiring leases now that compares to historical averages and then for the $2 7 million square foot lease pipeline that you guys have how much of that GLA really space that is currently occupied versus vacant.

So I think Greg your question was what percentage of that.

Deals that were quoting are renewals versus new deals.

Well, it's more just understanding the expirations that you did have.

<unk>.

Alright, so that's why I'm, saying, one exploration I'm not sure.

So that was.

He stayed on right or left the portfolio and then for the lease pipeline how much of that is going into currently occupied space.

Hey, it's Doug I don't think we have the exact breakdown, but it is definitely a combination of.

Redoing expiring leases and then back filling expiring leases with new leases, it's historically been about 65% renewals, 35% new.

Be a little bit higher coming out of Covid as a result of the rash of bankruptcies, but typically that's what it's been roughly one third two thirds and I would say that number is probably a little bit higher when you look at the pipeline just because if you think about the pipeline we're talking about leases that are opening in.

At the end of 'twenty, one or at the beginning or mid 2022 and in order to do that you need to have vacant spaces. So I would say that skews higher towards vacancies than it does expiring leases.

The second part of your question, Greg You asked about I think it was leased versus physical.

2% to 3%.

The.

Leased or economic occupancy is not yet in place and so theres always.

Okay, great. Thank you so much.

Sure. Thanks.

Thank you, we'll hear next from Kenny Mcdowall Mcconnell with Citi.

Great. Thank you can you go from there.

And the bridge from <unk> to be applied 40 level, which you usually see the larger takeout from the holidays. So are there any other factors to be aware of within <unk> that may not be bakery.

Yes, sure good morning Katy.

Yeah at the midpoint of our guidance, we'd be slightly ahead in the fourth quarter relative to the third quarter. As you can see we've we provided a pretty broad range and the broadness of that range really relates directly to what could happen in the fourth quarter relative to sales our sales continue at the current trends.

Keep in mind that in the third quarter.

Lease termination income was elevated relative to where we think it's going to end up in the fourth quarter. So that's another factor and then the seasonal nature of our business the third quarter.

<unk> of it so those are some of the other factors that that you should keep in mind.

And to the point on expansions can you talk about your outlook for reimbursement since the recovery rates are trending below average.

Out of your Opex improvements are increasing.

Is that a function of how leases are being <unk> today or when do you expect to see more of an improvement next year.

Yes, part of that Kt is just going to trend with the occupancy level.

Switch to fixed Cam a number of years ago.

And so.

When occupancy drops reimbursements are going to drop almost pro rata.

And we expect that to come back as we.

Fill up more space and get closer to our more normal level of $93, 94% occupancy.

Okay, great. Thanks.

Thank you.

Thank you and that does conclude today's question and answer session I would like to turn the conference back over to Tom for any additional or closing remarks.

Thank you Cody.

Well. Thank all of you for joining US today, we look forward to reporting the balance of the year and seeing many of you at NAREIT next week.

Thank you and that does conclude today's conference. We do thank you all for your participation and you may now disconnect.

Q3 2021 Macerich Co Earnings Call

Request a DemoDemo

MAC

Macerich

Earnings