Good day. And welcome to the Macerich Company Third Quarter 2020 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Jean Wood, Vice President of Investor Relations. Please go ahead.

Thank you and good morning. Thank you all for joining us on our third quarter 2020 earnings call. During the course of this call, we will be making certain statements that may be deemed forward-looking within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995, including statements regarding projections, plans or future expectations. Actual results may differ materially due to a variety of risks and uncertainties set forth in today’s press release and our SEC filings, including the adverse impact of the novel coronavirus suddenly seen on the U.S. regional and global economy, 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 in 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 would like to turn the call over to Tom. Tom O’Hern: Thank you, Jean. And thank all of you for joining us today as we continue to navigate through these unprecedented times. As you read in our earnings release, the third quarter was a challenging quarter, albeit better than the second quarter in most respects. We had re-leasing spreads of 5% and occupancy at nearly 91%. At the end of the third quarter, most of our town centers were open with only our 3 closed centers in Los Angeles remaining closed by government mandate. Those centers reopened in early October. So as of today, all of our centers are open and our tenants are eagerly planning for…

Thank you, Tom. Disruption from COVID-19 continued to severely impact 2020 results in the third quarter. Funds from operations for the third quarter, was $0.52 per share, down from the third quarter of 2019 at $0.88 per share. Same-center net operating income for the quarter was down 29%, and year-to-date, it was down 17%. Changes between the third quarter of 2020 versus the third quarter of 2019 were driven primarily by the following factors and the numbers I’m going to cover [indiscernible] for the company: one, $20 million – $21 million in bad debt allowance in the form of the $14 million of increased net debt expense versus the third quarter of 2019, coupled with $7 million of lease revenue reverse for tenants, that are accounted for on a cash basis per GAAP within the third quarter; two, over $20 million of short-term nonrecurring rental assistance; three, a $9 million decline in common area and ancillary revenue as well as percentage rents; four, a $4 million decline in parking income driven by protracted property closures and reduced parking utilization at our urban centers in New York City and Chicago primarily; five, interest expense increased $4 million due to a decline in capitalized interest; six, net operating income declined from the Hyatt Regency Hotel [indiscernible], it was about a $2 million decline; seven, a negative $0.03 per share dilutive impact from shares issued in the second quarter relating to our stock dividend issued in the second quarter. These factors were all offset by increased lease termination income of $7 million and land sale gains totaling $11 million net impact. Revenue declines from occupancy loss also contributed to declines in both net operating income and FFO for the third quarter. As Tom mentioned, we are not providing updated 2020 earnings guidance given…

Thanks, Scott. Like the second quarter, the majority of our efforts in the third quarter involved getting our retail partners open as quickly and as safely as possible once our centers were allowed to reopen. To date, all of our properties are open and I am happy to report that 93% of the square footage that was opened pre-COVID is now open today. As I discussed on our last call, it has been the case in the third quarter, much of our time and energy was spent working with those retailers that did not have the ability to pay rent while closed. And we’ve made great progress. In fact, as we look at our top 200 rent paying retailers, we’ve either received full rent payment or secured executed documents with 147 and are in LOI with another 23, all of which totals approximately 93% of the total rent these top 200 pay. Consequently, collections continue to improve. Third quarter saw an average collection rate of 80%, that’s compared to 61% in the second quarter. And as of today, as Tom mentioned, our collection rate for October stands at about 81%. But the third quarter wasn’t all about collection. As our centers continue to open and as our retailers opened and were able to trade with some consistency, the leasing climate began to improve. Retailers began executing leases that have been out since before COVID. But most importantly, the retailers began committing to new deals again, a true sign that for the first time in months, we’re now looking forward rather than solely focusing on the past. I’ll expand on this in a moment, but first, let’s take a look at some of the third quarter metrics. Portfolio-related sales for the third quarter were $718 per square foot, and that’s computed…

Thank you. [Operator Instructions] And we will go to the first question from Craig Schmidt of Bank of America.

Thank you. I was just wondering, given the late openings of some of the enclosed malls, are they able to get fully stocked in inventory for holiday ‘20? Or has this limited their ability to [indiscernible]. Tom O’Hern: Hi, Craig, how are you? Actually, as a result of having closed doors and reopened, most of the retailers had a little bit of experience in managing their inventory, being ready to go. So in California, even though we didn’t know exactly when the enclosed malls were going to open, the retailers had a decent expectation, had their inventory lined up and were in pretty good position, both in terms of inventory and employees, because most of the employees have been furloughed. And given the generous unemployment benefits, a lot of them found difficulty in getting their employees back. But they did, and most of them are poised and ready for the holiday season.

Great. And then a follow-up, is Macerich fully liable for rise of debt and guarantees of Fashion District Philadelphia? Tom O’Hern: No, Craig, that’s a – that’s a loan that is a several loan, so half the obligation is Penn REIT, half the obligation is Macerich.

Okay. Thank you.

And we’ll move to our next question from Mike Mueller of JPMorgan.

Hi. So the 91% of 2021 leasing activity that was referenced, can you talk a little bit about how the spreads are on that full bases compared to what you’ve just reported for this quarter? Tom O’Hern: Yes, Doug should take that one.

I’m sorry, could you repeat the question, please?

Yes. For the leasing activity for 2021 that you walked through, what are the rent spreads on that?

Scott, feel free to jump in, [indiscernible]

Yes, so Mike, good morning. The hazard of a call when we’re all separated [indiscernible]. We haven’t computed the spreads, I would say this, though. We’re using this as an opportunity to get in front of our ‘21 [indiscernible]. Our largest focus right now is occupancy. Occupancy is critical, certainly more critical than the final dollar of the REIT. As a result of some of the declines in occupancy, I would expect perhaps spreads to paper a bit, but we don’t have that metric computed at this point. Bear in mind that the strategy we’re taking right now, focusing on occupancy rather than [indiscernible] very similar to what we did about 10 years ago, coming out of the recession, feedback show to be a very good strategy. And so these renewals, I would say, are going to err on the side of being shorter rather than longer to give us [indiscernible] price when the environment is better a couple of years from now.

Got it. Tom O’Hern: The actual – the spreads that we reported, though, to the extent a lease has been signed, even if it’s a 2021 start, it’s included in the leasing spread. So I think last quarter, we were 7%. Third quarter, we’re 5%. So to the extent any of those leases, Doug referenced, the 2021 openings are actually signed deals rather than letter of intent. There will be on the spreads that we reported in the second and third quarter.

Got it. And then a follow-up, can you talk about how strong the tenant interest is and the activity levels when you look at your top quartile portfolio compared to the bottom three quarters of it? Tom O’Hern: Yes. I can take that, Mike. When the pandemic shutdown, the malls, our business really came to a screeching halt. I mean nobody was really focused on real estate or leasing. The retailers were focused on their corporate offices, their employees, and getting their stores back open. But since the retailers have opened, and as I’ve mentioned, been trading for 60, 90 days and understanding that they can get back to 90% of where they were last year, the interest has really started to peak. It’s interesting. Our top – I think you mentioned our top quartile our top 20 properties have normally been in ‘16 or ‘17, 95%, 96% leased. And now we see them 93% – 92%, 93% leased. So – with that said, really, it’s the first time in years we have some real good space opening up in some of our top-tier centers. And that hasn’t happened in a while, and that’s really peaked the interest of some of these retailers that are going to be – want to be opportunistic. Those that went into the pandemic with strong balance sheet, great products and come out on the other side in good shape are going to take advantage of that.

Got it. Okay, thank you.

And we’ll go to our next question with Floris Van Dijkum of Compass Point.

Hi, guys. Thanks for taking my question. I wanted to get a sense of how your third quarter billable rents compared to your first quarter billable rents? So I could – so your market should get a sense of what it the sort of the run rate in NOI and how much has it declined? And presumably, with the leasing activity that you guys are talking about, you’re setting yourself up for some increase off that base. But if you can give some more color on that, that would be great?

Yes, Floris. Hi, good morning. I don’t have that figure handy. We can perhaps follow-up off-line, but I will say that the third quarter is certainly – the billing rate in the third quarter is down a bit relative to the first quarter, as one can imagine. You’ve got some short-term rental concessions that have factored into the third quarter, primarily with locals going through challenged categories. And then we’ve had some closures as a result of the bankruptcy. So certainly, that has reduced the billable rate in the third quarter relative to the first quarter pre-pandemic, but I do not have that in front of me.

Okay. Maybe we can follow-up offline. My follow-up question maybe and – has your pitch to tenants changed as a result of the pandemic in terms of getting them signing up to your assets? Or how have you changed your – the positioning of your assets as a result of this?

Hey, Floris, it’s Doug. I don’t think our position has changed really at all. Our focus is – has been and continues to be morphing our malls into what we call town centers where there’s something for everybody. And that hasn’t changed. I think it slowed down the process in some of the categories, where we look to bring entertainment, theaters, experiential concepts to the properties. That slowed a little bit, but it’s not going away. It’s going to come back and it’s going to come back in a different form, and that category does still remain active. But our philosophy of town centers and creating such hasn’t changed a bit.

And so we’ll move to our next question, which comes from Michael Bilerman of Citi.

Hey, it’s Michael Bilerman here with Citi. Tom, I was wondering if you can spend some time talking about sort of leverage levels. And I understand from a liquidity standpoint, the company has a fair amount of liquidity and certainly shored that up by having the extensions on Danbury and Fashion Outlets and getting a new loan on Tysons on the resi complex. It sounds like you’re doing the same for FlatIron and Green Acres. But the overall leverage level of the company still remains quite high. And so how are you thinking about addressing that element in terms of raising some additional equity capital either through sales, maybe it’s handing back keys of assets that may be overleveraged? Or are you planning on just waiting it out? Tom O’Hern: Well, Michael, much as we saw with the great financial crisis, capital markets have basically shut down. So now isn’t a particularly good time to be raising capital to delever. That will change. We saw a change in 2009 and 2010, and that will happen again. And the same will happen with appetite for assets. As you recall, we sold 25 malls coming out of the financial crisis starting in 2011, generated about $1.5 billion of liquidity. So we expect post-pandemic, post-vaccine, things will return to a more normal level, and we’ll have the opportunity to dispose of non-core assets and use that capital for reducing leverage levels. One thing I would point out is, given the current cash flow, even though it’s less than had been forecasted at the beginning of the year, it’s significantly in excess of the current dividend level and that ought to allow us a fair amount of cash flow from operations to use in the near-term for de-levering, and that would be the play.

And if you could give an update on the line of credit which you extended this past July, you used your 1 year extension to push it out to next July, obviously, predominantly all drawn. Can you help us sort of understand whether you’ll be able to get the full $1.5 billion of proceeds as you look to refinance that? And if there’s any sort of capital commitments now that your joint venture partners, because you have a lot of joint venture assets, are not willing to fund in any way?

I’ll take the first part of that and the last part of that, and then you can elaborate, Scott. As you indicate, Michael, we’ve extended our line of credit, and we’re currently in conversations with our line lenders to do a new line of credit. We’ve got some time and we’ve also got a 22-year relationship with that bank group. So this will be the seventh time we’ve recast that line of credit. So those discussions are really on. It’s too early to tell you what the terms would look like in the overall amounts. But obviously, we have a fair amount of cash on the balance sheet as well. And at some point, that will be used to reduce the credit balance. But that’s really in the discussions. And so far, I think, all of our joint venture partners have been similar to us in terms of being cautious about capital spending during the pandemic. Very similar to what we saw in the financial crisis, and then as things started to improve, capital spending increases, and I would expect to see that post-COVID as well.

And so we will move on to our next question from Caitlin Burrows of Goldman Sachs.

Hi, good morning. I was wondering if you could talk about your current watch list with occupancy down 300 basis points as of 3Q, but then you talked about leasing progress. Combined with the watch list, what does that mean for your future occupancy expectations? Tom O’Hern: Hi, Caitlin, well, as Scott mentioned, I think in his remarks, we had an acceleration of our watch list into bankruptcy as a result of COVID. So bankruptcies, tenants failures [indiscernible] that would have happened over the course of the next 2 or 3 years, happened in the course of the last 8 months. And – so frankly, our watch list is pretty short. Obviously, the tenants that are in reorg right now, we keep an eye on them. Most of them, as Scott indicated, were not liquidations, but reorgs. And in our case, we typically keep roughly 65% of the stores open post bankruptcy about third are rejected and that’s similar to what we’re seeing here. So the watch list is actually fairly short today as a result of COVID. Doug, you want to elaborate further on that?

Sorry? Tom O’Hern: Doug, you care to elaborate further on the watch list?

No. I think, Tom, you were spot on. The only thing I would say of all of the bankruptcies that we saw this year, I think, there were probably 38 or 39, I think only 6 or 7 weren’t on our locked watch list, which means two things. We keep a pretty good watch list. And the fact that so many of them weren’t on it means our watch list has decreased significantly similar to a concert.

Thank you. We’ll move then to our next question from Alexander Goldfarb of Piper Sandler.

Hey, good morning, out there. Two questions. First, just following up on the balance sheet, you guys have extended a few of the maturities right now. I don’t know if that covers the full $800 million that we talked about on the last quarter. But then there’s also another 19 malls that were discussed last quarter that were in forbearance. So can you just give us an update on the forbearance process and if it’s still 19 malls? Has that shrunk? Has that increased?

Yes, sure, Alex. It’s Scott here. We – as I mentioned in my opening remarks, we have either closed or secured terms on two of our five near-term secured maturities. Still working on FlatIron, Green Acres Mall, Green Acres Commons. So that’s what comprises the $800 million. Again, so far, pretty successful effort, terms ranging from short-term extensions to longer-term extensions thus far, no change in principal or interest rate. And the remaining assets, those were FlatIron and Green Acres Commons are high quality [indiscernible] assets. So I think we will be successful on those as well. The 19 assets that you mentioned, we agreed on simply [indiscernible]. It was a very amicable process with the loan servicers or with the balance sheet lenders to agree to defer debt service payments. We do have extensive disclosures in the queue, which cover how long those lasted and what the repayment periods are. Now that we are in November, I believe they have about two or three months with the remaining, I will call it, catch-up debt service to [indiscernible] payments from it through the first quarter of 2021, so very amicable...

Alright Scott, just so I make sure I understand you. So those 19 assets that were in forbearance, basically, you got – and we will see when the queue comes out. You guys got deferred debt service through the end of first quarter 2021. Is that correct?

We got deferred debt service, which is now being repaid. So, all of those deferrals were during the summer months. And we are now repaying that debt service. And those repayments, Alex, will extend into the first quarter of 2021. Tom O’Hern: It’s generally a 2-month agreement that we were able to defer debt service payments for two months when generally they will repay it even later in the fourth quarter or in the first quarter of 2021.

Okay. And then just, Tom, going back to the dividend, the amount that you are paying right now, is that taxable income driven or right now, you don’t need to pay a dividend for tax purposes? Tom O’Hern: We obviously pay dividend for tax purposes, if you have any taxable income. And we cut last quarter and we maintained the same dividend. The limits coming up here based on estimation of taxable income for the balance of the year.

So – okay, but that’s based on – so the $0.15 is where your taxable income is currently? Tom O’Hern: No, it’s an annual number, Alex. And you recall, we had higher dividends in the first half of the year. So it’s not quite that simple. We consider taxable income when we make our dividend payout.

Got it. So next year, it would likely then go up just to get it back to what your taxable income would be. Is that how I should interpret that? Tom O’Hern: Sure. It depends on what taxable income is. Yes, you got to payout 90% of your taxable income. So that’s – that’s a fundamental premise that all REITs have to follow.

Okay. Thank you, Tom.

And we will go to our next question from Todd Thomas of KeyBanc Capital Markets.

Hi there. This is Ravi Vaidya on the line for Todd Thomas. Just looking forward here, given the stresses in large-format fitness and theaters, how is the company going to look to backfill department store boxes? What’s the appetite to use these spaces for non-retail purposes, perhaps distribution centers or otherwise? Tom O’Hern: Well, I think Doug commented on that to some extent in his comments. We have done a handful of deals just in the past quarter with Dick’s Sporting Goods. A lot of that was in the empty boxes; Sears boxes, Forever 21 boxes. We also did a deal with a hospital at – one of our Sears boxes, we replaced with a hospital and – at Wilton Mall in New York and there is a lot of uses. In some cases, we will be knocking down the empty department store and building multifamily. That’s going to be the case in Los Cerritos. The Washington Square will also knock down the Sears box and replace that with a hotel and the entertainment complex. So there’s a lot of demand in the big format, but it also will go non-retail. It will go nontraditional retail, multifamily, and we will do a lot of hotel deals and just repurposing the square footage and eliminating a certain nonretail.

Okay, thank you.

And we will move to our next question from Greg McGinniss of Scotiabank.

Good morning. We have minimum rent in the installed portfolio was down 9% from last quarter. Can you just help us understand the drivers of that change? And what the expectation might be on any additional jeopardy we anticipate heading into Q4?

Yes, sure. This is Scott. I covered some of that in my opening remarks. I certainly mentioned the bad debt allowance which included a component of leasing revenue that has been reversed for tenants on a cash basis for that as a component. We did grant some short-term nonrecurring rental assistance, primarily to locals and, I would say, challenged categories. That was a factor. And then, of course, we reported occupancy down roughly 3% from a year ago and certainly that was a factor quarter-over-quarter. So, all of that factors in. I do think that some of that will certainly carry forward. As these bankruptcies taper off, those tenants will start to now convert to accrual basis accounting, but we may have a little bit of that cash basis with revenue reversal noise in the fourth quarter. I certainly think we will deal with a little bit more of rental concessions, especially when you think of some of our properties in New York City and California that were opened – excuse me, closed either for a second time or closed for a very protracted period of time through the third quarter. So we may deal a little bit – with a little bit of that there. And certainly, the occupancy impacts that we are reporting on will carry into the fourth quarter. So like I said, I think the operating results in the fourth quarter will continue to feel the impacts of COVID.

Okay. And then just trying to think about the recurring revenues a bit more, just some clarity on two other items, first is on currencies, curious if that was associated with any large tenants in particular or just across the portfolio, and then kind of what you expect from that number heading into Q4? And then second, on the land sale was that flowing through the income statement or just on FFO? Tom O’Hern: Yes, sure. On the termination fees [Technical Difficulty] I don’t want to get specific with certain tenants. But I would expect in a tightened kind of volatility that the termination fees will continue to remain elevated. You think in prior moments in history where we have got heightened volatility, sometimes tenants want to buy out of their lease obligation, an opportunity effectively for us to secure a nice termination fee and we will be able to backfill and effectively profit of that backfill. But I’m certainly not going to get into specific names. I would expect the termination fee to continue to be elevated relative to last year. Land sales did flow through the P&L in terms of FFO. As I mentioned, it was roughly $11 million after accrual of the tax provision.

Okay. But it was not going through other income or gains on the income statement to net income? Tom O’Hern: That’s correct. Yes. It was below the line.

Alright. Thanks.

And we will move now to the next question from Rich Hill with Morgan Stanley.

Hey good morning guys. I wanted to come back to the early comments on the conversion rates, which I thought was pretty interesting. I recognize that, that is a really important driver of sales and why there are some retailers that are actually seeing really high conversion rates on the other side of COVID-19. But I am also wondering if you could speak to maybe conversion rate that the overall mall itself in terms of the in-line tenant and trends that you might be seeing there?

I can take that and Tom, feel free to jump in. I don’t think we have specific conversion rates for each mall. A lot of what we talk about is anecdotal. But what we are hearing across the board is that while traffic is down and we know that our sales are up, it does relate to the fact that our shoppers are converting more. They are not necessarily going to the mall as much, but when they are buying. And that’s what we are seeing, whether it’s in traditional retail, luxury or otherwise. We are seeing it across the board. I think a lot of their – a lot of their dwelling and a lot of their research is being done online so that when they get to the mall, they know what they are there for, and they buy it.

Got it. That’s helpful. Scott, one question for you, I think a lot of us would have bought a guide in the next quarter. But I am curious, what do you think is going to happen over the next several months that will give you the confidence that – to guide for the full year ‘21? But maybe be a little bit reluctant to guide for 4Q? Look, I’m not questioning why you are not guiding for 4Q and more questioning. I am more curious, like what is going to change over the next three months to give you a lot of confidence in ‘21?

Well, Rich, I would say, fundamentally, just the fact that our centers are open and trading gives you an underpinning of confidence. That combined with, as Doug mentioned, we have made tremendous progress with our national retailers, which number – just a touch over 200 in number. So we’re gaining visibility on that front. Collections continue to improve. I think all of those factors are what gives you some comfort that you could give guidance for the following year. That’s, again, fundamentally, the centers are open and the tenants are trading, it gives you a lot of confidence. Tom, I don’t know if you want to add anything to that? Tom O’Hern: Yes. Well, I think where we are at today we have come to terms of our top 200 retailers. We have come to terms with 90% plus of those. And so the balance of them, that’s going to happen in the fourth quarter, that’s creating some of the uncertainty in the fourth quarter that we don’t think is going to carry over to 2021. And with each passing month, I think the retailers get more comfortable as they move through COVID, looking forward to the post-COVID era. And I think we would be in a much better position 90 days from today to give guidance than we are today. I mean in the COVID world, 90 days is like an eternity and we learn more, and we know a lot more than we did, even we will get our last earnings call. So I think that’s going to put some position by January to be able to do it.

That’s really helpful, Tom. And I anchor your comments. Pretty much feels like an eternity. Sometimes a week feels like an eternity. So I think you’ve got the – the comments on the cadence was really helpful. Thank you.

And we’ll go to Linda Tsai of Jefferies.

[indiscernible] tenant categories are looking to expand?

Hey, Linda, it’s Doug. We are seeing it across the board. There is a lot going on in the traditional retailer environment. Just some examples, Aerie – I’m sorry, American Eagle has come out with a new concept called OFFLINE, which is a branch of their Aerie store, women’s at leisure, and they are doing in three test stores this year. We have one of them. And should everything work out, that’s going to be a real rollout vehicle for them. Aritzia out of Canada is expanding. Levi’s went public last year. They’re opening another 100 stores between this year and next year. Lululemon is always expanding, whether they’re expanding their fleet or they’re trying to expand their store size. J.Crew, Madewell also and that list goes on.

And then I was wondering if you share any of the same lenders with two of your lower quality counterparts who recently filed and if you had a sense of what ultimately drove the decision to default those companies? Tom O’Hern: I am sorry, Linda, could you repeat that? You broke up a little bit.

Sure. No, I was just asking if you possibly shared any of the same lenders with two of your lower quality counterparts who recently filed and if you maybe have a sense of what might have driven the decision to default those companies? Tom O’Hern: Is that shared lenders, is that your question?

Yes. Tom O’Hern: Yes, we do. It’s a relatively small group of REIT unsecured lenders. So I don’t really want to speak for either of them. Obviously, we are partner with PREIT, and they are very well informed as we went through the process. And I think if you read the public filings, they had support of 95% of their lender group. There was a 5% holdout, and under their document, that was relevant in – we think that is why they went that route. I think they have put out press releases themselves [indiscernible] they expect to be in and out of bankruptcy very, very quickly. So I will defer to them. But yes, we know a lot of that – the lenders they have, we know a lot of them, and I think they were the ones that were supportive of PREIT.

Thanks for that. And then just one follow-up, the denominator for collections in 2Q, 3Q in October, did that change at all? Tom O’Hern: The definition?

Yes. Tom O’Hern: Linda, we have treated the collections consistently as we moved forward. So the 2Q, the way we treated 2Q collections is no different today than it was 90 days ago.

Alright. Thanks.

And at this time, I would like to turn the call back over to Tom O’Hern for any additional or closing comments. Please go ahead, Mr. O’Hern. Tom O’Hern: I am sorry. Thanks, everyone, for joining us today. We hope to see many of you virtually at NAREIT in a few weeks. Until then, take care.

This does conclude today’s call. Thank you for your participation and you may now disconnect.