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

Thank you for joining us on our fourth 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 COVID-19 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 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 of Leasing. And with that, I would like to turn the call over to Tom.

Thank you, Jean. And thank all of you for joining us today as we continue to navigate through these challenging times. 2020 was an extraordinarily tough year in so many ways for all of us. Once COVID stormed the U.S. in mid-March, all of our centers closed and our tenants quit payment. We quickly adopted significant measures to conserve liquidity, much as we had done during the great financial crisis. We persevered through those dark days in the second quarter. We got most of our centers opened by mid-summer and all of our centers opened by early October with no further closures. It was a herculean effort by the Macerich team, and I'm very proud of their efforts. There were not a lot of good days, but we battled through it. Rent collections, for example, during April and May were 35%, that grew to 80% in the third quarter. And as of today, the fourth quarter rent collections were at 92% and rising by the week. 2020 was a year of crisis, but we made it through the year, and things are improving by the week. The COVID daily infection cases are down significantly throughout our markets. The positivity rate is dropping, and hospitalizations are down significantly compared to a month ago. We now have two vaccines in distribution with third on the way. Currently 10% of the U.S. population has had at least one dose of the vaccine, and distribution is accelerating. Not that the Covid battle is over, but it is much, much better than it was even three months ago, some level of normalcies returning, including restaurant dining and going to the mall. Our shoppers have returned. In fact, December sales were approaching 85% of pre-COVID levels even in the midst of a surge in COVID cases.…

Thank you, Tom. Highlights of the financial results for the quarter are as follows: funds from operations for the fourth quarter was $0.45, and it's down from the fourth quarter of 2019 at $0.98 per share. Same-center net operating income for the quarter was down 33% and year-to-date is down 22%. As you will see, these results are unchanged relative to what was filed last week on February 1. Changes between the fourth quarter of 2020 versus the fourth quarter of 2019 were driven primarily by the continuing impact of COVID-19 and are as follows: and the figures I'm citing are at the Company's pro rata share. One, $38 million decline from COVID-related rent abatements across permanent and temporary leasing revenue line items. Fourth quarter abatements were elevated relative to the third quarter abatements of $28 million and this was largely due to the protracted summer closures of several large properties in New York and in California. This resulted in delayed negotiations with tenants at those properties. Cumulatively for the year, in 2020, we granted $56 million of abatements. Number two, $19 million of COVID-related decline in common area and ancillary revenues including specialty leasing and temporary tenant revenue, percentage rent revenue, business development revenue and parking revenue. These declines were generally a continuation of what we experienced in the second and third quarters what were exacerbated in the fourth quarter given the seasonal nature of these types of income. However, looking forward into '21, we do anticipate growth in each of these more transient income line items, assuming conditions at our properties improve as we do expect. In total, for all of 2020, these line items were down $43 million. Number three, general top line revenue decrease is totaling approximately $12 million, driven primarily by COVID-related occupancy decreases. Number…

Thanks, Scott. In the fourth quarter, much of our focus, again, was working with retailers to secure rental payments and improve our collection rates. Looking at our top 200 rent paying national retailers, we now have commitments with 176, which is up considerably from last quarter. But more importantly, we now have received payments or we've worked out deals, totaling 93% of the total rent, these top 200 pay. And as a result, our collections continue to improve. As of today, collection rates increased to 89% in the third quarter and 92% in the fourth quarter of 2020. Occupancy at the end of the third quarter was 89.7%, that's down 110 basis points from last quarter and down 4.3% from a year ago. This is primarily due to store closures from the unprecedented amount of bankruptcies and early abandonments that occurred throughout 2020. Temporary occupancy was 5.9%, and that's down 50 basis points from this time last year. Trailing 12-month leasing spreads were a negative 3.6%, and that's down from 4.9% last quarter and down from 4.7% in 2019. Average rent for the portfolio was $61.87 as of December 31, 2020, and this represents a 1.3% increase compared to $61.06 as of December 31, 2019, and a 0.7% decrease compared to $62.29 at September 30, 2020. 2021 lease expirations continue to be an important focal point. And to date, we have commitments on 60% of our expiring square footage, with another 40% or the balance in the letter of intent stage, disregarding tenants who have closed or have indicated they intend to close. In the fourth quarter, we signed 217 leases for 900,000 square feet. This represents 80% more leases and 1.5x a square footage when compared to the third quarter of 2020. This also represents 90% of the square…

Thank you. [Operator Instructions] We will now take the first question from Samir Khanal from Evercore. Please go ahead.

So Scott, thank you for the color on when occupancy will trough. I think you mentioned 88%. But I guess, how should we think about the pickup or the ramp-up in occupancy maybe into '22 from a modeling perspective with all the leasing you're doing?

Samir, well, again, we're not giving guidance into 2022. But just I think Doug provided a pretty good sense for the return of leasing demand. We have almost 500,000 square feet that is already executed due to open in '21. We have well over 400,000 square feet that, I'll say, is in our shadow pipeline, deals in documentation, deals in negotiation. That's going to spill into '21 as well as '22. And I think we've been pretty clear on this in the past, we've got some pretty high-quality space that has not been on the market for quite some time given the decline in occupancy. And I think these brands that are both legacy as well as new and emerging are very interested in taking high quality space and high quality markets. So I think we'll see some decent pickup.

Samir, to give you a frame of reference, the last time we had an occupancy level this low was the end of 2009 going into 2010 after the Great Financial Crisis. And it was about two years before we bounce back to the 94%, 95% occupancy level. And Samir, it seems very similar and that it will take a couple of years to get fully recovered and have that space absorbed. We've got good demand. There's a lot of new retail categories, less apparel, more experiential, but it's going to take a few quarters for sure.

Got it. And I guess as a follow-up. And Scott, when I look at your receivables, it's about $240 million on the balance sheet. And look, I understand there's -- that's been built up over the last few quarters. And there's always sort of a normal strength of receivables you carry on the balance sheet even before COVID. But that bad debt expense you're guiding, there was only about $10 million. So I'm just wondering, what are you seeing in terms of health of the retail to give you confidence that, that number is the appropriate amount for the year? Just trying to make sure I'm not missing anything here?

Sure. Well, we do have a view into the economies recovering and our centers are opening. If anything, over the last two months, we have not seen any further restrictions. In fact, we've seen a loosening of the mandated closures and mandated occupancy restrictions, including by use, like with restaurants. So, we do see a healthier environment, which is going to certainly pick up traffic and ultimately pick up sales. So within our guidance, not only is our bad debt, but we're also carrying a fair amount of reserves for uncertainty. And I'll just -- I'm not going to specify the number, but I'll certainly say that we're carrying more than what we typically would carry. For instance, what we carried into 2020 without a view in the COVID. So, we're carrying some provisions in addition to bad debt expense as we should be given the environment today.

[Operator Instructions] We'll now take the next question from Floris Van Dijkum at Compass Point. Please go ahead.

Great. Thank you for taking my question. I saw and I might -- I know that Samir was a little bit more explicit in terms of talking about its NOI in '21 growing. Is there any color you can give us, Scott or Tom, in terms of what your expectations are for NOI? How much of a bounce back should people expect in '21, given some of the headwinds you're talking about?

Floris, yes, it's really going to be two halves of the year that look fairly significantly different. First quarter of '21, we're still having the impact of some COVID concessions and abatements, et cetera, and that compares with a pretty healthy first quarter of 2020. So, we expect the first half of the year to be down in terms of same center. But as Scott said, the second half of the year, we think will be very strong, and we'll probably be putting up close to double-digit same-center growth.

In terms of rather than looking at it on the same-center, I guess everything is the same-center in some ways. But -- so are we talking about 3% to 4% overall NOI growth for the year? Or what sort of range are you looking at?

Yes, Floris, we're not getting specificity for the entire year. I certainly hope to be in a position to do that as the year progresses, but we don't think at this point in time that we -- it's the right thing to do. As Tom mentioned, the first quarter is going to have a fair amount of volatility in it. As we lap COVID over the coming weeks, the first quarter is going to be a difficult comp to the first quarter of '19. I think once we get clear of that, we should hopefully be in a position to provide more concrete same-center guidance or NOI guidance for the balance of the year.

Great. And then maybe if you could also walk us through -- you mentioned your discussions on the refinancing of the line. Obviously, we talked a little bit about that offline as well. But if you can maybe talk about what people should expect you -- how that's going to look? And whether that's going to require you pledging some additional unencumbered assets or how much flexibility do you have in those discussions? And how much of a cost impact potentially could that have? And presumably, that's already in your guidance as well. In fact, you might be paying a higher interest cost for the second half on that amount?

Floris, we're in deep negotiations with our lending group. These are lenders that we've done business with for the last 25 years. So, we're in negotiations with them, and it's at cross purposes to share with you the specifics of those and a premature to do that. But we're making great progress with them. I think you saw from the 8-K filing we put out 1.5 weeks ago that we may end up securing a line previously or currently, it's unsecured, but we do have quite a few unencumbered assets. So that's a possibility going forward. But other than that, we're not going to give any more color than that because we're in the midst of negotiations. I'm sure you can understand that.

We will now take the next question from Mike Mueller from JP Morgan. Please go ahead.

Two quick ones here. First, can you give us a sense of what the rent spreads are on your '21 leasing activity and how they compare to last year's down 4%? And second question is on straight-line rental income. What's some more normalized go-forward run rate?

Doug, do you want to take the first part of that?

Yes, sure. Sure, Tom. With regard to the lease executions, I talked about in my prepared remarks. I don't believe that the spreads have been commuted. I would suggest that in the short term, there's going to continue to be pressure on spreads as we focus on occupancy, we've talked about that. Last quarter and this quarter, occupancy is paramount. And once we take the supply off the table and demand comes back, I think we'll start to see the spreads increase. But for the short term, there will be some compression.

And Mike, on a straight-line of rent question, it's going to be elevated in the first part of the year, consistent with the rental concession agreements that we continue to execute with our tenants. We cannot recognize those rental concessions until we actually book the arrangement -- or excuse me, until we actually signed the deal. When we signed that deal, then that has an inverse impact on straight-line of rent. So we're going to see straight-line rent continue to be elevated for the first part of the year. We're, again, similar to what not providing same-center guidance. We're not providing straight-line guidance just given the uncertainties about the flow of those deals. But we'll see it elevated in the first part of the year, and then we'll see a return to normal. So I would say in '22, we'll be in the $10 million to $15 million range, which would be a relatively normal run rate for us, but it will be elevated in '21.

We'll now take the next question from Todd Thomas at KeyBanc Capital Markets. Please go ahead.

This is Ravi Vaidya on the line for Todd Thomas. The stock has been a bit volatile over the last couple of weeks. With regards to the ATM program being recently filed, how should we think about your desire to issue equity at current stock levels?

Well, yes, we did file for an ATM. And if we use the ATM, we'll report on that quarterly in our 10-Qs, and that's just a periodic decision that the Company and the Board will make. It's just a tool to have available. Should we be in position to see a stock price that we like, we would consider it. But again, it's just a shelf because we're putting it out there doesn't necessarily mean they're going to use it, and we'll report quarterly if we use it and how much.

Okay. And just one more here. How do you think about dispositions as a source of capital? Is there interest in selling one of your larger assets to raise capital to delever? And what's the market for that, like I say, we haven't seen a lot of trades for individual assets yet?

You're right. There haven't been a lot of trades. That being said, there's always -- there's a fair amount of capital out there, and there's a fair amount of interest. So I wouldn't be surprised to see us transact a little bit this year. We don't have any of that in our guidance, and we can't count on it too checks in the bank, but it's certainly a possibility this year.

We'll now take the next question from Caitlin Burrows from Goldman Sachs. Please go ahead.

Just following up on some of the previous questions. So like you mentioned, you disclosed earlier in the month that negotiations are ongoing for recasting the credit facility. And it could include a lower lending commitment and required securities. So I guess to the extent that you need to reduce your borrowings to recast it, how do you plan to fund that pay down given where the line of credit is today?

Well, Caitlin, we've got about $550 million of cash on the balance sheet. So I don't think reducing that line a bit is going to be an issue at all. We've got plenty of liquidity for that.

Okay. And then just thinking about -- I think maybe you just touched on this in the previous question, but thinking about where leverage is today and where the EBITDA growth outlook is for 2021. I guess, what is your kind of interest in urgency and reducing leverage in 2021? And how would you go back doing that?

Well, I don't think you can really look at debt-to-EBITDA today, given what's happened with EBITDA. I think you've got to look forward a little bit to say, where do you think that's going to go? And what's it going to grow to? And we're going to generate a significant amount of cash after debt service and the dividend. And my expectation is we'd probably use most of that excess cash to reduce our leverage.

We'll now take the next question from Alexander Goldfarb at Piper Sandler. Please go ahead.

So just bringing around some Caitlin's questions. So two things for me. First off, on the mortgages that you guys are extending and renegotiating. Are there any cash restrictions, whereby the lenders, the owners of those mortgages are saying that any excess cash above the CapEx you need to go to debt pay down before it can do anything else? So are there any cash flow restrictions by maybe those mortgage extensions or refinancings?

It would be pretty atypical for us. In some cases, there are very minor restrictions, but we've generally been able to execute these extensions, Alex, from one to three years with no change to rates and with very little to no remargin at closing, it'd be pretty atypical to have those situations.

Okay. And then the second question is, it sounds from your comments on the ATM, but you haven't used it, and you're -- it sounds like you're pretty guarded on issuing equity. So if that's the case, and if we use last year's -- the last two quarters of the dividend taxable requirements, it seems like the dividend, again, is a big source of cash flow for you guys, assuming that, that the same third and fourth quarter holds true. So wouldn't paring the dividend to the bare minimum and it would save maybe $90 million, $80 million, whatever the math is, would that also be an additional source to help you guys right size? And again, if you're not sort of planning equity in the near term, then it would seem like that's a good source of capital to help the Company as you guys refinance the maturities?

Yes, Alex, I'm not sure you got a clear view on the tax side. It's a good point, and we cut to basically the tax requirement this year. And our expectation it would be similar. It's a Board decision. So we're not giving guidance on the dividend here per se. But from a tax standpoint, we don't expect a big change. And we cut this year to the minimum in the second half of the year. And that's probably something we'll consider in 2021 as well.

I mean, Tom, I was just going off of the tax declaration that you guys had were $0.01 was taxable and the other $0.14 was not? That’s what I was basing it on.

Yes, but you've got to look at the full year you can just look at one quarter.

Right, I was looking at the full year, and I was looking at each of those columns. Okay, cool. Listen, thank you.

So, we'll have a tax session offline. How about that?

We'll now take the next question from Michael Bilerman at Citi. Please go ahead.

Tom or Scott, what is the current unencumbered asset pool, either by underappreciated book value or maybe just an annualized NOI? Just for us to get a sense of what that borrowing -- unencumbered borrowing base could be?

I think we've got about 25 assets, various sizes, Michael, that are unencumbered. I don't have the NOI on that specifically, and we probably wouldn't disclose it anyway, but there's a significant number of unencumbered assets. And you can look down our debt schedule and match that up against the property schedule. And at least as it relates to the malls, there are some other assets that are single assets and one-off buildings here and there that may not show up on the property list, but there's about 25 assets or so in total. It's a fairly big number.

Yes, I'm just trying to get a sense of. I mean, assets for all size and type and quality, I'm just trying to get a rough goalpost, just to try to better understand a borrowing basis, whether it's $1 billion, $2 billion, $1.5 billion under, just some way of guiding us in terms of some mortgage value for those assets?

Well, it's hard to say mortgage value. I'll tell you that, that unencumbered pool is significant enough to support our existing line of credit at $1.5 billion.

Okay. And then just relate to the ATM. Just walk through a little bit. It's not a tool that you had put in place previously. I guess, what had held you back before from having an ATM in your toolkit? Because I would assume that Wednesday, when your stock had doubled, probably would have been something that if you had in your toolkit at that point may have been a decision you may have pulled out, I'm not sure. But can you just talk about the decision of that having it before and now putting it in place?

Well, we've had it before, Michael. For the last time when the ATM expired, we didn't like where our share price was. And as a result, didn't renew it at that point in time. It's a fairly quick process. You can get one put in place within four or five days. Certainly, I don't think we anticipated the spike related to GameStop, maybe perhaps you did, but we did not, and if it wasn't...

I did not participate in that, unfortunately.

Okay. And keep in mind, in any given day, you can only do about 10% of the volume on your ATM. So it was about a two-day spike there, and it got us thinking about it and said, hey, it's a good tool. We might as well have it back on the shelf. And so that's why we renewed it.

We'll now take the next question from Greg McGinniss from Scotiabank. Please go ahead.

Well, Scott, I appreciate clarity on the Q4 rent abatements and why they were higher than Q3. But I was just hoping -- could you tell us how much actually applied to Q4 as we try to create like a go-forward billable run rate to model off?

I would say probably less than 3% to 5%. This really relates to retroactive periods, primarily the second quarter. In some cases, again, for those California, New York properties, the abatement extended for a longer period because in, our retailers weren't able to trade for six months, but very, very little of that pertains to the fourth quarter.

Okay, and then for the second question. On the leasing volumes, I appreciate the potential for the 800,000 square feet plus of -- here at this point. Just hoping you get a little more context to help us understand the financial benefit from those leases. So could you potentially provide kind of the total Macerich-owned GLA? And then how much of that demand has been reconsolidated versus unconsolidated centers?

We don't have a breakdown of that between consolidated and unconsolidated. I think you know what our GLA is. It's roughly -- on a small shop basis, it's about 21 million, 22 million or so. So that 800,000, if all of it were to come to fruition, it's 350 to 400 basis points of occupancy. Doug quoted a couple of numbers. He quoted just under 500,000 square feet that we expect to come online at its new deals coming online in '21. And then the rest of it, a little over 400,000 square feet was, we'll call it, shadow, would be things that pop online later this year and into 2022.

[Operator Instructions] We'll now take the next question from Floris Van Dijkum, Compass Point. Please go ahead.

A follow-up question, but I think one of the fears, I guess, of some investors, I know that you have an ATM in place, is that you will be tapping the market at the current share price. And I believe -- I don't believe that's what you've done. Certainly, I know it doesn't appear like you've used it so far. And can you give maybe -- I was trying to get a sense of at what level will you think to use that ATM? And if it's not at the current share price, and where -- so in other words, where do you think your NAV is? Or what the range is? And how far off is consensus from that in your view? And maybe also talk about your, the discussion you had, if any, with Ontario teachers, when they stepped out at over $20 a share?

So Floris, look, we're not going to comment on the ATM activity, if any. If we use the ATM, we'll report on it at the end of the quarter, just like all the other companies that use their ATMs do, but it's not in our best interest to comment on it along the way. So we're not planning on doing that. And we do not publish an NAV. So that's not available either. So, it's just another deal in the toolkit, and we will periodically decide if and when to use it.

Right. But presumably, you must have an idea of -- because you presumably share that with your Board, what your NAV is or with the range of NAV is. Maybe if you can -- I think, I guess the thing what I'm trying to get is, is the current share price, something where you will consider doing that? Or the fear that investors have is that you capped at such low share prices that you dilute the value of the Company. You've proven in the past that you're willing to wait until the share price recovers to a more appropriate level. Obviously, we saw the squeeze that happens similar to what happened in GameStop. Unfortunately, you didn't have the ATM in place. But now that you do have that, presumably, you will be more reticent to use it at the current levels, but if it gets above a certain level, presumably, you will be much more willing to use that. Is there any sort of indications you can give to the market or at least to pacify investors that you're not going to issue it at $13 or $14, but you might consider doing it at $16 or $18?

No, Floris, as I said, we're not going to tip our hand as to if and when we're going to use it as to what price level. It depends on the facts and circumstances at the time, market conditions, liquidity, et cetera. Again, we have had an equity shelf available for years now, and it's there, and we use it when it's appropriate. We haven't used it for a while. We're just supplementing that with an ATM shelf as well, as simple as that.

And is there any light you can shed on any conversations you've had with Ontario Teachers prior to them stepping out?

Floris, our conversations with our shareholders are confidential, as I'm sure you can imagine.

We'll now take the next question from Michael Bilerman at Citi. Please go ahead.

Just a follow-up, as we think about the recovery of occupancy, and Doug, it was really helpful for you to go through all the categories of retailers that were expanding before COVID had hit. How should investors think about regaining in back towards that prior occupancy of 94% to 95% in terms of the total NOI, potential? How it will cost you in CapEx? And we're just really thinking, not as much on the cadence of it because it's going to take some time to build up, but really the return on that capital and how it compares to where it would have been, i.e., are we going to get to 80% of the NOI level as we've moved back to that 600 basis points, 600 to 700 basis points of occupancy in terms of what it was before. And how much money would you have to spend to reduce those tenants to come in? Just thinking about the return and that NOI stream over the next few years, given your expectations of going back to those peak occupancy levels?

Michael, I'll jump in and then Doug, you can give some color, Scott, as well. So we're talking about roughly 5% to pick up from where we are today. We dropped that 88% occupancy, as Scott said, to get back to full occupancy, you're talking about roughly 1.2 million square feet or so, and Doug kind of gave the cadence for this year. And in terms of CapEx, we can choose whether we want to pay a big tenant allowance or go for a deal. That's got a lower tenant allowance or no tenant allowance at all. I mean, we were fairly stingy with the tenant allowances coming out of the financial crisis. So we have been through this before. And I would imagine we will be very sensitive to the creditworthiness of the tenants that we do deals with and who we give tenant allowances to. So it's really hard to say at this point how much capital we'll be involved with that. Just to give an example, I mean we converted One Sears Box to a medical facility. I think we're getting roughly $1 million a year in rent. And I think that total landlord work was only $500,000. So there are deals like that to be done. Other deals are more expensive. It's just going to take some time to sort those deals out, but taking a very critical look at who we give tenant allowance dollars to these days.

That concludes today's questions-and-answer session. Mr. Tom O'Hern, I'd like to turn the conference back to you, sir.

Katherine, thank you. Thank you all for joining us today. Be well, stay positive, test negative. Hope to see you soon.

That concludes today's call. Thank you for your participation. You may now disconnect.