Q2 2022 Macerich Co Earnings Call
We're about to begin.
Good day and welcome to the May switch company second quarter 'twenty to 'twenty two earnings call. Today's conference is being recorded at this time I would like to turn the conference over to MS. Samantha Greening director of Investor Relations. Please go ahead.
Thank you for joining us on our second quarter 2022 earnings call. During the course of this call we'll 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.
Putting the adverse impact of the novel Coronavirus on the U S 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 placed posted on the investors section of the company's website at <unk> Dot com joining.
Joining us today are Tom O'hern, Chief Executive Officer, Scott <unk>, Senior Executive Vice President and Chief Financial Officer, and Doug Healey Senior Executive Vice President leasing with that I'll turn the call over to Tom. Thanks.
Thank you Samantha and thanks to all of you for joining us today.
We're very pleased to report another strong quarter with the majority of our operating metrics are trending very positively.
After a strong first quarter.
We also had a very strong second quarter.
We saw a high level of retailer demand.
The resiliency of the American consumer was again on display and that is reflected in the two 2% tenant sales increased in the second quarter compared to a very tough tough comp quarter of the second quarter of 'twenty one.
Our portfolio average annual sales per foot for tenants under 10000 square feet with 860 <unk>.
It's our highest level ever.
We continue to see traffic at about 95%.
Pre COVID-19 traffic.
Tenant sales are exceeding 2021 levels and also pre pandemic levels.
With the first half of 'twenty, two sales were up seven 6% versus the first half of 'twenty one.
Sales per foot were up 11% compared to the pre COVID-19 quarter ended the second quarter of 2019.
The quarter's leasing activity continued to reflect retailer demand is that a level that we have not seen since 2015.
Yeah.
Some of the other second quarter highlights include an occupancy level of 91, 8%.
Which was a 240 basis point improvement from the second quarter of 'twenty one.
50 basis point improvement from <unk>.
On a sequential basis compared to the first quarter of 'twenty two.
We saw strong leasing volumes for the quarter significantly in excess of pre COVID-19 levels.
For the quarter, we executed 274 leases.
A 27% increase over the second quarter of last year.
You had a 42% increase over the pre COVID-19 quarter of <unk>.
We saw same store NOI growth of five 4% in the second quarter compared to the second quarter of 'twenty one.
Which was yet another strong quarterly gains.
<unk> per share came in at 46 cents, we'd beat the midpoint of our guidance and we narrowed and bumped our guidance range.
We continue to ramp up our development efforts as we move past COVID-19.
We have numerous near term openings with many exciting large format retailers, including shields all sports at Chandler.
Caesars Republic hotel at Scottsdale fashion square.
At Kings Plaza.
Lifetime fitness at Broadway Plaza, and Scottsdale fashion square.
Pinstripes at Broadway Plaza, and Prime market, both green acres in Tysons corner.
These projects will be funded with excess cash flow from operations.
And all of these deals have been signed and they're under construction, but rent will not commence until 'twenty three 'twenty, four which speaks very well for a continued NOI growth going forward.
Yeah.
In addition, we're pretty excited to announce the addition of 130000 square foot target to Danbury Fair Mall.
The signing of target completes the repurposing of yet another former Sears box.
<unk> already in the upper level and target will occupy the remainder of the building.
Target chooses its real estate very carefully so the decision to locate in Danbury and Kings Plaza is an enormous testament to the quality of the real estate.
Focus down on the leasing environment briefly and Doug will elaborate in a moment.
As expected given the depth and breadth of the leasing demand we had a very strong quarter leasing continues to come from up.
Good variety of categories, including health and fitness food and beverage Entertainment sports co working hotels and multifamily.
In addition, the digitally native brands continue to increase their move into brick and mortar locations, including Allo yoga all birds Laurie.
As well as the electric vehicle companies, such as lucid didn't fast impulse sharp.
Bankruptcies continue to be at a record low.
As we move through the balance of the year clearly there are economic uncertainties due to inflation rising interest rates and the war in Ukraine.
However, we continue to expect gains at occupancy net operating income and cash flow from operations through the remainder of this year and into next year.
Okay.
In additional recent news last week, the Philadelphia, 70, Sixers announced that they're planning to build a new arena on a portion of the current fashion District Philadelphia.
We will continue to work collaboratively.
Collaboratively with the 70 sixers to be in a position to close on our transaction with them sometime in 2023.
Obviously, we believe the impact on the center city, Philadelphia and the local communities as.
As well as on the fashion District, Philadelphia will be very positive.
More details will follow as we get closer to closing in 2023.
And now I'll turn it over to Scott to discuss in more detail the financial results for the quarter.
Thank you Tom.
The highlights for the for the quarter. This morning, we posted strong operating results.
Same center NOI NOI increased five 4% versus the second quarter 2021, excluding lease termination income and increased seven 8% when including lease termination income year to date through the first six months of the year same center NOI has now increased 14% excluding lease.
Asian income and 18%, including lease termination income.
<unk> per share for the quarter was 46 cents.
This was an expected 13 cents lower than the second quarter of 2021, which was 59 cents per share and it represents a one cent per share increase over S. S. How consensus estimates, which were 45 per share for the second quarter.
Primary factors contributing to our quarterly results for F. S. How are as follows one.
$21 million net of tax relative quarter over quarter decrease in valuation adjustments pertaining to our investments and retailers, which were unusually high in the second quarter of 2021.
Secondly, a $13 million decrease in gains from land sales.
Bear in mind that these transactions can obviously be lumpy by nature quarter over quarter and again. These were unusually large in the second quarter of 2021, creating a difficult comp.
Third.
And $8 million decrease in noncash straight line of rent income, resulting from the high level of pandemic driven rental assistance that we granted to our tenants last year and the second quarter of 2021.
Offsetting these negative factors were the following one.
John .
$8 million reduction in interest expense, which resulted primarily from the company's dramatic one 7 billion or 20% debt reduction during last year.
Two a 5 million dollar a $5 million of net benefit resulting from a $14 million quarterly reduction in rent abatements, which was offset by a $9 million relative negative change in bad debt expense between the second quarter of last year in the second quarter of this year.
During the second quarter of 'twenty, one, we recognized roughly $10 million and reversals of prior bad debt reserves. As we then finalized numerous pandemic driven to work out agreements with our tenants.
And then finally got.
<unk> got about a 5 million dollar improvement in lease termination income. This was driven by a large settlement with a single tenant during the second quarter of this year.
This morning, we updated our 2022 guidance for funds from operations, we narrowed the range and increased the midpoint for our S. F. O estimates 2022 S. S. I always now estimated in the range of 192 to 2.04 per share, which represents a one cent per share S. F O guidance any.
Kris at the midpoint.
This F F. O range now includes an increased expectation for same center NOI growth in the range of five 5% to 6.75%.
Lastly, a 60 basis point increase over our prior NOI guidance.
Our estimates of 22 same center NOI growth have continued to improve as the year has progressed, we're pleased to report that.
They've increased from 475 at the midpoint of our initial guidance to over 6% based on our current guidance from this morning.
We also increased our guidance for both lease termination income as well as interest expense.
At the guidance midpoint, we anticipate a 21 million dollar 5% improvement in S. S. L. In 2022 versus 2021 as a reminder, our S. F. O guidance also includes an estimated $10 million decline of noncash straight line of rent between last year and this year.
That noncash straight line of rent impact SSO is estimated to increase by a little over $30 million. This year, roughly 7% growth, which represents an increase of 14 cents per share.
2022 outlook continues to reflect a healthy increase in operating cash flow.
Look for more details on our guidance assumptions on page 16 of the company's form 8-K supplemental financial information, which we filed this morning.
As for the balance sheet.
Thus far during 2022 we've been very active in the capital markets.
On February two we closed a $175 million refinance loan on Flatiron crossing.
Floating rate loan at Sofa, plus three 7%.
On April 29, we closed a $72 million 10 year refinance on Pacific view in Ventura, California at a fixed rate of 5.29%.
On may 6th we closed a two year extension of the $168 million loan on the Oaks at a fixed rate of five in a quarter.
And earlier this month, we secured a one year extension of our existing $164 million loan on Danbury fair that was at a fixed rate of five 5%, which was unchanged versus the prior rate.
Since we reported to you.
During our first quarter earnings call. The fed's actions to temporary inflation are significantly impairing debt financing activity within all commercial real estate sectors.
Mortgage financings have slowed during the past several weeks as a result, we will continue continue to utilize loan extensions as an important tool within our capital plan.
We've been extremely successful securing extensions dating back to summer of 2020, albeit for different reasons during the pandemic and in fact, we secured nine such extensions for over $1 $6 billion dating back to September of 'twenty 'twenty.
In the meantime.
While we secure those extensions, we will prepare to execute on longer term refinancing transactions once the markets reopen and become more liquid.
Including Undrawn capacity of $459 million on our line of credit we have over $630 million of liquidity today.
Debt service coverage was a healthy two seven times.
Net debt for at EBITA, excluding leasing costs at the end of the quarter was nine point O times.
We run we expect roughly $235 million of free cash flow after dividends and recurring capital expenditures. This year. So we're well positioned in today's environment from both standpoints of liquidity.
Well as cash flow generation.
Now I'll turn it over to Doug to discuss the leasing environment. Thanks.
Thanks, Scott leasing momentum continued in the second quarter fueled by a very healthy retailer environment sustained sales growth and increased occupancy.
Second quarter sales were up two 2% over second quarter 2021 year.
Year to date sales were up seven 6% when compared to the same period last year.
So sales per square foot as of June 32022, or $860 and this represents an all time high for our company.
Occupancy at the end of the second quarter was 91, 8%.
That's an increase of 240 basis points relative to 89, 4%.
At the end of the second quarter 2021.
And we remain confident given the healthy retailer environment that exist today, coupled with our strong leasing pipeline that occupancy will continue to increase throughout 2022 and into 2023.
Trailing 12 month leasing spreads remained positive at <unk>, 6% as of June 32022, and that's compared to a negative 2% as of June 32021.
I'm happy with the progress, we're making on our 2022 lease explorations to.
To date, we have commitments of 71% of our 2022 expiring square footage with another 22% in the letter of intent stage.
And while we put the finishing touches on 2022.
We're well on our way with addressing our 2023 lease explorations.
In the second quarter, we opened 221000 square feet of new stores.
This brings our year to date store openings to over 400000 square feet, which is about 20% more square footage that we opened during the same period last year.
Notable openings in the second quarter include free people in Williams Sonoma at the village of Corte Madera Love sack of Freehold Raceway Mall in country Club Plaza, three Windsor fashion stores at Green acres Kings in North Park.
And nine stores with cotton on totaling almost 45000 square feet.
Yeah.
And the digitally native and emerging brands category, we opened fab latics at village of Corte Madera stance at Arrowhead Towne Center interior define at Tysons corner, three leap stores at Scottsdale fashion Square at Broadway Plaza, and Carolyn comments, and three Quay stores at Arrowhead Broadway and fresh.
<unk> fashion fair.
In the entertainment category at vintage Faire, we opened a 35000 square foot, Dave and Busters and the second level of the former Sears building.
In conjunction with Dick's Sporting goods, which previously opened in the first level of Sears, we've now substantially find it finalize the remix of this building and have done so with two best in class tenants.
It's interesting because I think back about all the fear and uncertainty that the media portrayed around Sears bankruptcy and subsequent store closures.
Can't help but think about the opportunity of these closings gave us.
They gave us the opportunity to accommodate great game changing tenants not only Dick's sporting goods and Dave and Busters as I just mentioned, but also the likes of prime arc target.
Burlington Zara whole foods and round one just to name a few.
It's the perfect example of replacing a not relevant retailer with higher and better uses it's the very thing that will allow us to continue to transform our real estate.
Turning to the new and renewal leases that we signed in the second quarter, We signed 274 leases for one 2 million square feet.
Year to date, we've signed 494 leases for $1 8 million square feet and this is right on par with where we were at this time in 2021.
And keep in mind <unk> 2021 was our best leasing year in terms of volume and square footage since 2015.
In terms of leasing activity for new stores only during the first half of 2022, we signed 45 more leases for over 20% more square footage than we did in the first half of 2021.
Continuing with our initiative to bring the very best Entertainment concepts to our properties. We signed two round one deals in the second quarter, one at Danbury Fair and one at Arrowhead Towne Center.
For those not familiar round, one is a multi entertainment and activity complex out of Japan, offering bowling arcade games billiards Darts, Ping pong, karaoke and food and drinks.
Round, one at Danbury will be 60000 square feet and located in the front of the center under the recently expanded and renovated Dick's sporting goods.
At Arrowhead round, one we'll introduce its 80000 square foot spoke your concept.
Suppose show, which stands for sports challenge will be all things round, one with the addition of sporting opportunities such as basketball batting cages soccer Dodge ball and roller skating.
Other important signings in the second quarter, including Anthropologie at Biltmore Fashion Park Athleta at San Tan village Chanel Beauty at Broadway Plaza garage at Fresno, and Scottsdale, Lulu Lemon and north face at Washington Square and Timberland at fashion outlets of Chicago.
And the food and beverage category, we signed raising Cain chicken at Washington Square Shake Shack at Kings Plaza and Wood ranch at the Oaks just to name a few.
Lastly, as we shift to emerging brands in the second quarter, we signed leases with al Yoga at Broadway Plaza, and Carolyn comments ever Lane, Toenail and purple at Tysons corner.
Blue Nile Broadway Plaza.
All birds and interior define that Carolyn Commons and quite Australia at Arrowhead and vre at the village at Corte Madera.
So in conclusion.
Our leasing metrics are very strong the best they've been since 2015 sales remain ahead of pre pandemic levels.
Occupancy continues to increase we have a very healthy retailer environment and bankruptcies are at an all time low.
And we continue to outpace 2021, and our biweekly deal review.
At this point by almost 40%.
And while the future remains unknown to date, we have seen very little pull back from the retailers.
But most importantly, given our best in class AA plus portfolio very strong leasing pipeline of signed new leases still to open. This year next year and even into 2024 together with the depth and breadth of users. They still want to be part of our town centers. I believe we are extremely well positioned to further re imagine and.
Reposition our centers in a way that will continue to attract shoppers regardless of what lies ahead.
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 telephone keypad.
We are using a speaker phone. Please make sure. Your mute function is turned off till last signal to reach our equipment. We ask that you limit your questions to one question and one follow up question. Once again press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
And we'll go first to Greg Mcginniss with Scotiabank.
Hey, good morning out there I just wanted to ask on the guidance range.
Kind of fairly wide at this point in years. So I'm, just curious kind of what what brings them to the top end or the bottom end of that guidance range.
Good morning, Greg Scott here, Yeah, I'd say, a couple of large variables that contribute to what would I would consider to be a relatively wide range versus where we typically be guiding middle of the way through the year. You know the first is just the impact of tenant sales on variable rents.
Not a normal year as we continue to normalize following the pandemic and dealing with the you know what's going on today in the macroeconomic environment. So that's one variable that contributes both to the wider range on NOI as well as our peso and then we do have a relatively large pipeline of land sales. We spoken about previously you know those can.
Close in one quarter versus the other so there's some variability there those are really the two biggest drivers Greg.
Okay, and so I guess, how what kind of whats included then from the land sales side or what's the expectation.
And then on the tenant sales have you had much success in terms of converting those those leases back to mostly base rent.
Yeah sure on the land sales side, you know what I'll, just say that we're we're probably are going to finish the year two or three cents ahead of where we were last year to give you a sense for that they havent provided specific guidance, but it is a pretty large contributor to F. L. X. So I think it's important to highlight that and then you know as <unk>.
Our is converting a variable to fixed right, yeah, where we're finding a great deal of success as we renew you know 10 12 15 stores at a time.
Primary focus is to lock that in on a fixed rent basis.
Obviously to get a growth in our aggregate rents, but also lock in a fixed rent basis with annual bumps. So we're finding great success in doing so Doug anything to elaborate on that.
You know this guy right.
Okay, and sorry, just just to clarify so what's the expectation then in terms of.
Tenant sales contribution or overage rent and we think year over year.
Yeah, we're we're not giving specific guidance on percentage rent line item by line item I'll say that our perspective this.
This year is a little bit better than it was six months ago. When we were first speaking about guidance.
Tenant sales started off relatively strong almost 8% for the first half of the year. So as a result, our percentage rents are a little bit better which has contributed somewhat to the increase in our NOI range over the last couple of quarters.
Okay. Thank you so much I appreciate it.
You bet.
We'll go next to Derek Johnston with Deutsche Bank.
Okay.
Hi, we went back to you.
So your team has successfully secured debt extensions for the year now I I believe only two but relatively larger refinancings are left in.
Santa Monica, and Washington Square, and and not till late this year and both our high quality centers. So you know do you have any early indication on it right where banks willingness to.
At work with you on these loans I mean anything you can provide here I think would be helpful.
Sure. Good morning, Derek you know to respect the process that we have going on with those lenders.
Not going to be too specific but.
You know I would expect that we'll be successful.
Recasting those loans they could be short term in nature, just given what's going on.
In terms of you know the financing markets. Obviously, you mentioned, what you know what's happening in my opening remarks. So it could be that those are short term in nature and then we get another bite at the Apple a couple years down the road.
You know the the rates on those are relatively low as you see and I would expect some tick up in rates, but again to respect the process that's going on right now I won't be able to provide any further specifics.
No I understood and then just leasing.
The <unk> print showed you know really on debatable solid leasing volumes and paired with positive total base rent growth.
So you know what type of demand are you seeing for the second half of the year.
As tenant demand changing in any way shape or form.
Any pushback on rate given economic slowdown or any leasing notables positive or negative you could share always helpful. Thank you.
Yeah Derek.
It's hard to predict what the second half of the year will be like we've certainly seen a very strong first half.
From all different types of uses.
And as we've raised occupancy 240 basis points over last year, that's given us more ability to push rate.
And initially coming out of Covid, we're chasing occupancy a little bit occupancy had gotten down to 88%, which was our all time low but now were now that we're getting close to where we were pre COVID-19, which is 94%.
It gives us a lot more ability to push rate.
And in terms of you know tenants pulling back I'm going to turn it over to Doug because we have surveyed almost all of our major retailers to get their opinion on what theyre going to do with open to buys.
Yeah. Thanks, Tom, It's Doug Hey, Derek and to Toms point, you know with all the noise going on in the economy and the somewhat uncertainty we thought it prudent to actually proactively reach out to the to the retailers to national retailers and we did that we probably surveyed between 25 and 30 top national retailers.
To take your temperature on their open to buys and I would say the vast majority of them probably 90% have not changed their open to buys and are going to continue on with what they promised in 2022 and 2023 and that's as of today.
So the demand is still there.
Yeah.
We'll go next to Craig Smith with Bank of America.
Oh good good afternoon good morning.
Well what is tempering leasing spreads I mean, the <unk> six I mean your sales are growing strong.
Your cost of occupancy seems pretty attractive, but you know what.
What do you think of <unk>.
Keeping the your leasing spreads from growing mid single digits, even double digit.
So that's a good question, Craig and frankly, a question I put forward to our leasing team ended up.
Every couple of weeks, we're kind of at that friction point now where there's not that much space left and we can start pushing rate. So I would expect that to change it can fluctuate quite a bit quarter to quarter, but as you point out our occupancy costs now at 11, 7%.
Is significantly lower as a result of increasing sales than it was pre epic which was about 13% so as.
As we go forward I would expect that we should be able to get some more traction as it relates to re leasing spreads yeah, Hey, Craig It's Doug as we've talked about on previous calls you know when we hit our trough in occupancy during the pandemic. We were all about driving occupancy and we did that so as Tom mentioned, where it's at.
Sort of inflection point right now, where we've taken enough supply off the table to be able to focus more and more in rates. So I think youre going to see those spreads increase in the next few quarters.
Great. Thank you and then and then just.
You've opened a couple of new entertainments and as round, one Dave and Busters and I know you still have plans to introduce entertainment I think to Santa Monica place and some other of your centers what are you seeing.
From them in terms of traffic generation to your properties, where you've introduced these entertainment concepts.
Yeah, Craig it's a great question that use that category is extremely extremely strong right now and there was a lot of uncertainty coming out of the pandemic. If this category was going to perform the way it did pre pandemic and we've seen nothing but great results from any of the entertainment uses that we that we've put in and clearly you know.
Their success is our success because they do drive a ton of football car centers, they're very destination oriented.
Thank you.
Okay.
We will go next to Floris van <unk> with Compass point.
Okay.
Hey, guys. Thanks for taking my question. So I guess to start off with can you quantify what your signed not opened pipeline is in terms of a percent or basis points.
Floris Hey, Scott here, it's about 2% are within our leased occupancy is signed but not yet opened and that again is small shop space and in some cases, you've got anchor locations, which are not reflected in that number Tom mentioned that in his prepared remarks that those those are units, which are large cash.
Contributors will not come online until 'twenty three 'twenty four so those will be important drivers of cash flow and you know bear in mind of course, as we recaptured anchor space that was paying very little to no rent from the former department stores.
That's a pretty handsome spread on those that just sight unseen to you so about 2% and our small shop numbers.
Thanks, Scott and if you were to quantify that as that as a dollar amount. What can you do you have that number as well.
We don't have and that would include the <unk> that would include the anchor space, presumably that'd be interesting as well and then and then my I guess my my follow up question would.
Would be on the is there a big difference in terms of refinancing debt, whether you're obviously, presumably it would be easier. If you are having a discussion with the bank as opposed to a C. B S servicing could.
Could you remind us again in particular, Santa Monica I believe is C. N B S, Washington square, whether that seem be S or whether that's a that's a bank and then I guess the other big one is green acres early next year.
And maybe talk about the you know the the the difference in discussions that you're having.
Yeah, we've we've approached both balance sheet lenders as well as see MBS servicers over the last 18 months or so to secure those extensions actually 24 months almost so you know we're working with both sets of both groups and really it's a it's a pretty open dialogue, yeah, he talked about where the assets.
<unk> and and what's going on today that everybody recognizes that the market is pretty dysfunctional again just to emphasize not just for malls is across the board we've seen it impact the industrial sector of the multifamily sector. The lodging sector I think youre, probably familiar with you know whats happening so they're there.
They're they're aware and they're very willing to work with you I would say and I think I've mentioned this in the past you know where assets are very well positioned from a debt yield standpoint.
Certain of those assets I think will still generates a significant liquidity to us should we choose to take out that liquidity next year. So.
These are these are well positioned assets and as you mentioned high.
Polity, when you're thinking about Santa Monica place, Washington Square at Green acres, etc.
Thanks Scott.
It's always going to the the one the one thing is if you were to take out additional proceeds out of any any loan would that be used to to unencumber. Some assets is that is that how you're thinking about it.
Yeah generally used to pay down debt, we'll be strategic about what type of debt repaid, but yeah that will be the primary focus.
Perfect. Thanks, Scott.
Hmm.
We will go next to Alexander Goldfarb with Piper Sandler.
Oh, Hey, good morning, good morning out there. So two questions are first Scott on the guidance are you. Obviously, the fed has been pretty active on rates and it doesn't show any signs of slowing down, but if I look at your interest guidance for the year from last quarter, which was $2 65, and and now it's 272.
I would've thought it would've gone up more.
A number of the other REIT have definitely been revising up their interest expense expectations for this year and EBITDAX. So maybe just a little bit more color because it sounds like maybe this is playing into some of your land sales and what your debt pay down thoughts are but just wanted to better understand how you view in floating rate debt and interest expense. Given this is much smaller than it would have.
Expected.
Yeah sure Alex.
And I don't have the exact numbers in front of me, but we made a similar change.
Three months ago to our interest expense guidance. It was roughly two sensors show. So we had already reassessed.
Three months ago, and this is just an incremental change. So you know to two incremental changes and I think you'll find it's relatively comparable with to perhaps what you've seen with other coverages that you have Alex one thing to keep in mind is we have a very small amount of floating rate debt only 12% of our total debt is floating.
So as rates move you know it takes a while for us to be impacted.
Because you know we only in a given year or you know refinancing you know three or four.
Secured mortgages.
So there's not an immediate impact and certainly probably a lot of the other companies you report I'd, probably have a much higher percentage of floating rate debt.
So Tom what Youre, saying is even inclusive of these refinancings alright loan extensions, you're doing where the rates are going up. This guidance. Obviously includes that it sounds like what you're saying.
No that that's true and again keep in mind, it's only going to be a partial year by the time, we get these extensions and restructurings done youre really talking about a partial year.
And that's after tax cuts that's okay. Thank you second question is.
On the same store.
The back out for the non same store pool was pretty dramatic in the year ago period, and this year, it's pretty it's actually positive Scott, maybe just a little bit more color on what those adjustment factors are that 35 million that was backed out of.
The year ago period, and then the two O six that's added.
This year's period to get from total portfolio to adjust out the same store.
Sure specifically for the audience, referring to page eight of the supplemental.
The biggest changes at $35 million adjustment from last year to two factors in there. One is the retailer investment income that we mentioned in our prepared remarks that was the lion's share of it and then two we did dispose of a couple of assets last year long Qatada North bridge and those are non same center adjustments in that same center.
Reconciliation table on page eight so that's our that's what you see there.
Okay listen thank you very much thanks.
Thanks, Alex.
We will go next to Linda Tsai with Jefferies.
Hi.
The portfolio of sales growth are there certain pockets of retailers seeing strength versus others.
Hey, Linda it's Doug.
Year to date actually all categories have been positive.
With the exception of shoes, so we're seeing it across the board.
Got it and then I realize there's still a few years out but regarding the stadium. How do you view, how do you weigh the NOI that goes away with the portion of the fashion district that you're providing to the developers with the growth that results in the remainder of the center from the stadium being built.
Whether that's a good that's a good question you know as you said it's out there a few years, but.
Remember fashion District, Philadelphia was opened at square.
The opening in November of 2019.
So we were leasing.
<unk> ended the fourth quarter, and then Covid hit.
So the reality is today is we've got available space. It is envisioned that one third of the space we have would be.
End up being the arena and two thirds would remain retail.
So we've got the room to move most of those tenants from one section of the property to another.
And that's part of what's going on today as we speak so we've got the ability to do that really without losing any any NOI and obviously, we you know we expect that the.
The traffic the excitement the volume of people the commerce that an arena would bring would certainly be a very much a positive for leasing.
Even though it's a few years out we think we'll start seeing an impact in a fairly quickly and again. This deal is a deal it's not done so we can't get it we can't elaborate too much on it but we expect to close with the with H B S E sometime in 'twenty three.
Got it thank you thank.
Thank you.
We'll go next to Michael Mueller with Jpmorgan.
Yes, hi.
First given the inflation levels that we've seen or the new lease escalators that you're signing into leases today materially different than the escalators that you were baking into leases pre COVID-19.
No identical identical 2% to 3% on base rent, 4% to 5% on recoveries.
Taxes are a pass through so it's the same structure and you know obviously more healthy cash flow stream as we recast some of those short term variable deals from the Covid period.
Got it and then a second question what is the temporary leasing percentage today, and where do you think that could go to by the end of say 2023.
Yes, it's about a mid sevens are today and I think it's realistic to assume we could probably get 150 200 basis points of improvement over the next year and a half.
Great. Okay that was it thank you.
We will go next to Greg <unk> with Citi.
Thanks.
I guess my first question, maybe dovetails too.
Earlier question, but you guys have highlighted the.
Sales per square foot number are several times this call, but earlier question also reference.
The fact that the rent growth has been a little bit more modest and I'm just kind of curious if you were to inflation adjust.
Those sales per square foot number or maybe look at it on sort of an operating profit basis for your tenants means the cost of oxy actually as good as it looks in the supplemental when you're kind of factoring in the cost pressures with all your tenants are facing.
And maybe that's why you're not getting the rent growth.
Okay.
You know, it's it's it's hard to pinpoint a specific reason for that part of it is just the number of deals that come up in a given quarter inner negotiated.
Our tenants really have not complain much about inflation.
Inflation and the impact on what's going on with them obviously.
You know the wages or are under pressure supply chain issues largely have been resolved their biggest complaint really is the availability of labor.
And as a result of that many cases, they've got to pay more for that labor.
That's where we're getting the biggest the biggest complaints in terms of number of complaints.
And in terms of the occupancy cost as a percentage of sales no I think that's a you know a valid reflection on what's happened as a result of sales increases primarily.
Okay.
And then just second question I'm, just curious on one Westside with Hudson are they still the exclusivity period.
Biting at your interest in that property or you know where are you in that process of potentially selling that interested in using those proceeds to pay down debt.
So that's an asset that has been turned over to Google.
Google is doing their build out but I think the expectation is for them to occupy the space. Either later this year early next year for.
Our partner has a call on that asset we have a put on that asset.
But right now we we like the asset and we like the.
The NOI, that's going to be thrown off from that asset. So we're not really in a hurry to do anything there, but we both both have the right to do that.
If and when either one of us chooses to do that.
Great. Thank you.
Well go next to Todd Thomas with Keybanc capital markets.
Okay.
Hi, Thanks.
Good morning out there Tom first question, you mentioned that traffic remained steady at roughly 95% of pre COVID-19 levels. During the quarter you know a lot's happened in the last three or four months and you know it looks like the first quarter was stronger in the second quarter in terms of sales growth and our growth and I'm just curious.
If you could talk about how traffic and sales trended within the quarter you know sort of April through June maybe into July whether theres been any trends or changes.
Within the court.
Yeah, I think I think the big difference on sales first quarter of 'twenty, two was going against a very weak first quarter of 'twenty, one because thats right when the omicron hit.
And we had a big surge in Covid and people were back to wearing masks.
Things just slowed down compared to the second quarter of 'twenty, one which is our comp right now that we're talking about that was a very strong quarter, because things bounce back pretty quickly there. So.
I think that is a difference in the sales activity in terms of traffic.
It's holding steady at 95.
People are.
Are tending to come in and they you know they know what they're looking for the rent it out quicker.
And that has a bearing on the on the traffic numbers, but the reality is the capture rate continues to be higher than it was pre COVID-19 because sales were higher than they were pre COVID-19. So it's.
It's you know it's not a bad situation I think I think consumers are just more.
Educated when they come in.
Okay.
Just remind me what's the what's embedded in the guidance in terms of sales growth in.
In the back half of the year.
Yeah, we're we're not getting too detailed in terms of our sales estimates are Todd you know I would say again, that's you know I would say this that percentage rents are I'll look on percentage rents is better than it was six months ago, just given how we've started the year, but you know where we are.
Certainly not being overly aggressive in terms of our our tenant sales assumptions here. That's one of the reasons. We've got a range here. So we'll see how the balance of the year plays out because keep in mind a lot of the retailers sales are cyclical and they fall in the fourth quarter.
So you know it's hard to get a real accurate view on what percentage rent is going to be until you see their fourth quarter numbers and that's when they go over the breakpoint and under the accounting rules you can't recognize percentage rent ratably through the year you have to do it only once they've exceeded their annual breakpoint.
So that's why we've got the range in the last year was a record year and we did not forecast another record year on top of that.
It's somewhere in between where we were pre COVID-19 hit last year.
Okay, and then if I could just follow up on another question. I think previously you you you know you discussed a bunch of a large format retailer openings at and in a number of centers that are underway with rent commencing through 'twenty four I guess the next couple of years.
What's the expected spend through 'twenty four.
To generate the NOI associated with those redevelopments in and sort of what's the NOI yield on that spend I guess you know how how much NOI are you looking at commencing on an annualized basis from some of these larger format.
Anchor tenants because if we look on page 33 in the sump in the in the in the AR in the supplement you know it doesn't look like that's the totality of the projects that Youre discussing on I was just wondering if you could give us a little bit more detail on both the spend and the associated NOI.
Yeah, Todd on the on the spend it's roughly $100 million, it's going to be spent this year for the full year and about 150 next year.
And the vast majority of those as are the large large format deals that we're talking about.
And those deals have been signed not paying rent yet I think floris asked the same question regarding how much of that.
Quantify how much rent that is I think we don't have that number at our fingertips, but it's fairly significant and.
Return on cost on those projects is going to be around in the 10% to 15% range.
Average.
Okay and those old commence.
Over the next three through 24, you'll see those rents coming online.
I mean, some of the big ones are fairly elaborate build outs like you know she'll sporting goods for example, and in some of the other big uses.
So it's gonna be 'twenty, three and 'twenty four.
So that's gonna be a obviously an NOI lift that's not in the numbers today, it's in the occupancy, but it's not in the NOI.
Alright, great Alright, that's helpful. Thank you.
Thanks.
We'll go next to Handel St Juste with Mizuho.
Hi, This is Ravi the idea on the line for <unk>.
Have you seen any difference in sales productivity on a relative basis between sunbelt and coastal markets.
No. We are we really havent art sales have been pretty much consistent.
Both from a category standpoint, and from a geographical standpoint.
Alright, Thanks, just one more here.
No there havent been a lot of trades recently, but can you give us a read regarding word transaction cap rates for class a malls stand right now in this environment.
Well, you're right there have been no trade. So it's really hard to pinpoint where that is today.
There have been any trade ins for for a number of years. So we really don't have anything to point to there.
Yeah.
Okay. Thank you.
And once again to ask a question on today's call that is star one on your telephone keypad.
And at this time there are no further questions I'll turn the call back to Tom Ohern.
Thank you.
Well, we've enjoyed a solid start to 2022, and we look forward to reporting our results for the balance of the year.
Over the next several months thank you.
This does conclude today's conference we thank you for your participation.
Yeah.
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