Good day everyone. Welcome to The Macerich Company Second Quarter 2021 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jean Wood, Vice President of Investor Relations. Please go ahead.

Thank you for joining us on our second quarter 2021 earnings call. During the course of this call, we will be making certain statements that may be deemed forward-looking within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995, including statements regarding projections, plans, or future expectations. Actual results may differ materially due to a variety of risks and uncertainties set forth in today's press release and our SEC filings including the adverse impact of the novel coronavirus COVID-19 on the US regional and global economies and the financial condition and results of operations of the company and its tenants. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the earnings release and supplemental filed on Form 8-K with the SEC which are posted 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. With that I will turn the call over to Tom.

Thank you, Jean and thanks to all of you for joining us today. As you read in our 8-K this morning, we had a very good quarter. As we pass the midpoint of the year, we find ourselves at an inflection point. As we said on our last call, we expected occupancy to hit a low point at March 31st of 2021 and that appears to be the case. As we look today, almost all of our operating metrics have started to trend positive including occupancy and many of these metrics are even trending positive compared to the pre-pandemic second quarter of 2019. Improving operating results including leasing volumes, occupancy gains, and most importantly, tenant sales, which have trended very positively. In fact, to give you some month-by-month numbers, March tenant sales were up 8.6%, April sales were up 9.9%, May and June were both up a strong 15%. Those increases are versus the same periods in 2019. We're not comparing sales to 2020, those are compared to 2019. Traffic is still lagging a bit at around 90% of pre-COVID levels on average. So, what we're seeing is an improved capture rate for the retailers compared to pre-COVID. We do expect traffic to continue to increase in the second half of the year. I would say brick-and-mortar mall-based retail is back with a vengeance, albeit helped to some degree by stimulus checks and revenge buying. Because of the robust leasing environment, it feels much better to us than when we emerged from the great financial crisis in 2009 and 2010. Some of the second quarter highlights include on a sequential basis occupancy gains of 90 basis points. Leasing volumes for the quarter and year-to-date were in excess of 2019 levels. We saw same-center NOI growth of 11.5%. We expect the…

Thank you, Tom. Before I report on the financial highlights of the quarter, I would like to make an announcement. At the end of this year, Jean Wood will be hanging up her Investor Relations cleats and stepping gracefully into retirement. Jean has been an incredible asset to Macerich for the past 27-plus years. Her dedication to the company started within just a few months after Macerich's IPO in 1994 and we sincerely appreciate her contributions, her partnership and our friendship over these many, many years. Over the coming months Jean will be transitioning her role to Samantha Greening, our new Director of Investor Relations. Samantha has been with Macerich for over nine years in various capacities. We are very pleased to welcome Samantha into this new role. And during the balance of the year, please join us by welcoming Samantha and by wishing Jean all the best as she approaches the new chapter in her life. Now on to the highlights of the financial results for the quarter. Same-center NOI rebounded very well in the quarter, increasing 11.5% relative to the second quarter of 2020, including lease termination income. Given the prevalence of retroactive rent relief adjustments within our 2021 results, we believe it is appropriate to measure our 2021 same-center operating performance by including rather than excluding lease termination income. If we were to exclude lease termination income, same-center NOI growth still increased 10.4%. Funds from operations for the second quarter of 2021 was $0.59 per share, up $0.20 or 51% from the second quarter of 2020 at $0.39 per share. EBITDA margin has increased over 6% to 63.9% relative to 57.7% at the end of the second quarter in 2020 and is approaching pre-COVID EBITDA margin of 65.3% at the end of the second quarter in 2019.…

Thanks, Scott. The leasing environment continues to improve with leasing productivity outpacing COVID 2019 levels. And 2019 was our highest leasing volume year since 2015. Sales were strong in June, and this is on top of a very productive April and May. June small shop sales were up 15% when compared to June 2019. Most importantly, all categories, including food and beverage showed positive comps for the first time since the beginning of the pandemic. Looking at the quarter, the second quarter small shop sales were up 13% over second quarter 2019. And year-to-date through June, small shop sales were up 5% when compared to the same period in 2019. Occupancy at the end of the second quarter was 89.4% that's up 90 basis points from 88.5% in the first quarter. On our last call, we stated that, we thought the first quarter would be our trough, and we still believe that to be the case. And given the healthy retailer environment that exists today, coupled with our strong leasing pipeline, we anticipate occupancy to continue to increase throughout the remainder of this year, and into 2022 and beyond. Bankruptcies. Pace of bankruptcies continues to decrease. In fact, year-to-date bankruptcies within our portfolio are the lowest we've seen since 2015. In the second quarter, only two tenants filed for bankruptcy. One of the two tenants was a theater chain and had just two locations with us. Both locations were rejected and one of those locations has already been released. The other was a small tenant that had eight locations with us totaling just 9,000 square feet. Trailing 12-month leasing spreads were negative 0.2%, and that's an improvement from negative 2.1% last quarter. Average rent for the portfolio was $62.47, as of June 30, 2021, and that's flat on a year-over-year…

[Operator Instructions] We'll start with our first question from Derek Johnston with Deutsche Bank.

Hi, everybody. Thank you. We get a lot of questions from investors regarding the balance sheet which we view as materially derisked with a $1.3 billion year-to-date debt repayment and really bank's overall willingness to extend maturities and work with you guys. So the question is what's in store for the second half of the year? And has the 10.4 time consolidated net debt-to-EBITDA year end 2021 target changed at all? And thank you for the $183 million Danbury Fair maturity call out, but maybe if you can touch on the $670 million for 2022? And really just any further color on second half balance sheet options would be welcome.

I'll let Scott to get into some of the specifics on the maturities. We continue to focus on selling non-core assets. We think we'll have another transaction or two by year end. So that's another $100 million of liquidity that in all likelihood would be used to deleverage. And as Scott mentioned, we expect cash flow from operations after the dividend and recurring CapEx to be in the neighborhood of $200 million. So that's additional deleveraging to get to towards our goals. Scott do you want to comment on some of the specific maturities that are coming up?

Yes, sure. Good morning, Derek. I do expect actually leverage to be in the probably the 9 to 9.5 band by the time we get to the end of the year subject to some of these transactions closing. But Derek I think we'll improve on the number that you mentioned earlier. As far as transactions through the balance of the year, I did mention Danbury which we expect to extend into 2022. Some great things happening in that project. And I do think we'll be able to achieve a very successful refinance into next year. One thing to note as I look at the loan levels on all of our secured debt Derek I think they're very well-positioned in terms of loan to value in terms of debt yield and all the traditional metrics that secured financing lender would look at. So I do expect those financings that occur next year roughly $600 million to $700 million to transact quite well. We have seen continued improvement, continued increase in the number of deals that have gotten done. A lot of those are within the CMBS community. We've seen deals ranging from $600 a foot north. So in terms of the quality spectrum, we've seen the quality spectrum shift down a little bit so that the $650 a foot projects are getting financed. And I do think we'll be successful. As you have mentioned earlier we are getting a lot of cooperation from our secured lenders at securing extensions which I think is appropriate for us to do at this time. And I do think we'll be successful at getting our maturities executed next year. I'm not concerned about that. And to punctuate you guys know our history in terms of financing secured assets we've got great access to capital.

And we'll take our next question from Craig Schmidt from Bank of America.

I just wanted to say, it's a very impressive list of tenants that you're redeveloping starting with SCHEELS, the Primark and the Lifetime Athletic. I'm just wondering, I noticed you still think you're going to be able to do all these redevelopments with less than $100 million for each of 2021 and 2022?

Yes. We do Craig. Not every redevelopment requires an inordinate amount of capital. So we do feel confident that we'll be under $100 million for the next couple of years. We're certainly game planning for the future as well. We're getting other projects entitled including some more major expansions at Los Cerritos in Southern California; Washington Square in Portland; FlatIron Crossing in Broomfield Colorado; and as well as Tysons Corner with the Lord & Taylor box that we have control of. So we're securing entitlements for the future which will start to ramp up our development pipeline into 2023 and 2024 and beyond. But we do feel confident in terms of the development spend that we've disclosed to you already for 2021 and 2022, Craig.

And are you expecting an 8% to 9% yield on this? Or may some of them be higher because they're single box?

Craig, it varies, but I'd say on balance it's going to be a high single-digit type return but it certainly varies. And some actually do require no capital. So it runs the gamut.

And we'll take our next question from Floris van Dijkum from Compass Point.

Good morning or afternoon, I guess, depending which time zone you're in. Thanks guys for taking my question. I just wanted to just go through the leasing pipeline in a little bit more detail, not necessarily the names et cetera, but you talk about a 2.2 million square foot pipeline of deals under negotiation. What NOI impact would that be, and what percentage of NOI? I mean, if you were to put an average rent on there of $55, which is your ABR, obviously, it's significantly higher. But presumably these include a number of anchors, which are lower. But just if you can quantify that lease pipeline in terms of the NOI impact that will be appreciated.

Floris, good morning. We don't have that figure readily available for you. As you mentioned it does include a variety of both small shop as well as larger format leases, including some deals that are sitting in our redevelopment pipeline. Bear in mind, for instance, we have a single tenant credit for Google and One Westside campus, which is a component of that number as well. So we do have some redevelopment leasing -- pre-leasing that's already in that number. But we don't have a rental impact number to disclose to you at this time.

We'll take our next -- oh, please go ahead.

Yeah, sorry. If I can ask a little bit more on the outlook. As you guys look at recovering 2019 level of occupancy, obviously, we're sort of at the trough right now. Can you give any more color on when you think it will be end of 2022 or something in that neighborhood when we can expect to get back to pre-COVID level occupancies? Tom O’Hern: Floris, if you look back on our progression post great financial crisis that was about three years from when we started at 89% coming out of the GFC to when we got the occupancy of about 94%. And based on the leasing environment today, I think we're probably going to do better than that. So I would expect by the third quarter of 2023 we'll probably be back to the 93% 94% level.

And we'll take our next question from Katy McConnell from Citi.

Hey, thank you. I was wondering if you could walk us through your expectations for land sale income and the retailer investment gains that we potentially see in the back half of the year just given how impactful they were to date. And are there any other offsetting items to guidance that you can highlight that could be headwinds in the second half of the year?

Hey Katy, this is Scott, good morning. We do have some additional transactions for the balance of the year that are in our thinking. These are deals that are under contract. I expect them to be less impactful than the year-to-date impact, but we probably have if I had to circle a number maybe $0.03 or so of impact for the balance of the year, $0.03, $0.04 something like that. We've -- I went into great detail to talk about the quarter because admittedly there were a lot of moving pieces. We do expect again just to emphasize what I underscored again 10 minutes ago and what I mentioned in the last couple of quarters, we do expect strong double-digit growth in the second half of the year. I mentioned that in February. I mentioned it again in May and here we are in August, I'm mentioning it again. So I think that speaks to our conviction about the operating environment. We saw what frankly was a stronger recovery in the second quarter to line items like percentage rents, driven by the robust sales growth we've seen in the second quarter into our common area. And I think that's going to help us to feel really, really strong growth in the second half of the year. I did call out some of the line items that could be nonrecurring. I mentioned the investment earnings that we have in our unconsolidated line item. We are not carrying any of those further into the second half of the year. But look it's very possible that we could continue to see some earnings accretion from those investments. It's just not captured in our guidance at this point. So, I really think it's really -- it's about operating performance in the second half of the year and we feel very good and very strong and very bullish about that.

And our next question comes from Linda Tsai from Jefferies.

Hi. What's the average lease term for the portfolio versus a year ago?

Yes. Linda, I don't have the figures quite in front of me. I'd say it could have ticked down nominally. But generally, we're talking about six to 6.5 years. When I say tick down nominally, maybe it went from high-6s to low-6s. And that's a function of, as we mentioned in the past, as we're transacting with tenants, if we didn't feel we were accomplishing what we thought was a representative of full market and we may have gone shorter in duration, but that's not necessarily the rule. I'd characterize that more as the exception. Doug?

I agree with you Scott on that. Yes.

Thank you. And then, realizing you're still in a recovery period, what percentage of leasing is temporary versus a year ago and then maybe versus the March quarter?

Yes. Temporary occupancy ticked up, I think 20 30 basis points. Linda, I think that will continue to tick up as the year progresses. We may get into the high-6s or 7% range in terms of temporary occupancy, which again, we've seen the volumes coming from our local merchants really bounced back quite well much better than we thought it was going to be in December of last year, January of this year. So, I think we'll see that tick up. And then, we've got maximum flexibility to relocate those tenants and put in permanent tenants. And given the volumes we're seeing on the permanent pipeline, I feel very good about our opportunity to replace that temporary occupancy with permanent very soon.

Our next question comes from Greg McGinniss from Scotiabank.

Hey. Thanks for taking the question. And just thinking about the full year guidance, which seems to imply Q3 and Q4 FFO per share of $0.43, which is down from $0.59 this quarter. So, I assume the valuation adjustments for retail investments is nonrecurring, and then there's that additional 3% of dilution from the ATM issuances. But what are the other items, we should consider going into the back half of the year?

Yes. Greg, I think you touched on a few of them right there. Obviously, the equity we've issued to date is going to dilute our share count for the balance of the year. So you're going to have that impact for the second half. The investment income that we've recognized, I just mentioned to Katy that we are not building any of that into our thinking as we go forward. It's very possible. Given the IPO activity, where some of those retailers and the investment from special-purpose acquisition companies that we've seen, coming through venture capital invested firms that we could see some growth there, but it's not in our thinking. So, the first half has been weighted for things like that investment income. And as I mentioned, land sales were a little bit heavier in the first half than they'll likely be in the second half. So, those are all the factors I think we've already touched on.

Okay. Thanks. And then Doug, I'd like to touch on leasing as well, and trying to dig into that leading indicator on Q2 leasing. Just curious what spreads leases are being signed at most recently? And if there's been any change in the types of leases tenants are signing as it appears that peers are starting to rely on percent rent leases more and more?

So, I'll touch on the latter. Scott, I'll let you take the spread portion of it. But -- what I would say is the leases that we're doing right now are a combination of short-term leases and long-term leases, like we've talked about in the past and sort of taking a chapter out of what we did coming out of the great financial crisis. If our goal is to maintain occupancy and we believe we're leasing a space at what we believe is below market, we're doing it on a short-term basis, and we'll come back in 18 months or two years and do it again when the climate is better and people have a better outlook on where we're going. The second part of the question was percentage rent, variable rent. Like short-term deals, if one of our goals is to preserve occupancy and we are forced to take less rent, we will decrease the breakpoint and increase our percentage of pay, so that what we don't capture from a fixed standpoint, we are going to capture from a variable standpoint. But I would say that is the exception not the rule. Although, all of our leases or the vast majority of our leases do have percentage rent but they're based on a traditional market-based fixed rent. Scott, do you want to take a crack at the spreads?

Yes, I'm not quite sure I caught the spread question. Perhaps you can repeat that Greg.

Yes, just I'm trying to understand, we get the kind of trailing look but just hoping to get more of a leading indicator look and trying to understand kind of what the most current leases are being signed at? Whether or not retailers are kind of feeling stronger feeling better about signing leases today and if spreads are reflecting that?

Yes. I think probably the thing to point to again is the volumes. We've spoken to the amount of signed deals as well as the deals that are being negotiated that are in the pipeline would speak really to the willingness of the retailers to step up, not only step up in terms of renewing, but also step up in terms of opening up new stores, spending capital, which is a great refresh of all of our storefronts at our properties. So they're very willing. From a spread standpoint, our spreads include the impact of those deals. What our spreads don't include is the impact of some of these short-term rental reductions to the extent during COVID or within the last three to six months, we've been granting some short-term relief for a few months or a couple of quarters. That's not reflected in our spreads. Our spreads are intended to show our long-term leasing business both from renewal and new stores. But the impact...

Scott, I'll jump in on this one at this point. But the spreads are improving. We're showing basically breakeven spreads for the trailing 12, but included in that is for the second quarter we had positive re-leasing spreads at double-digit percentage increases. So it went from a pretty tough situation in the third and fourth quarter of last year, very positive now that we're in the first and second quarter. So there's much more of a balance between rate and occupancy than there was at the end of 2020. So it's hard to predict going forward, but certainly, what we've seen in the first and second quarter is far better than what we saw in the second half of 2020. And I think if you take Doug's words to heart, you'll extrapolate that to be very positive for the second half of this year.

And we'll take a question from Rich Hill with Morgan Stanley.

Hey, good morning, guys. I'm sure I've missed it in the past, but I was hoping to maybe hear a little bit more about this retailer investment, where you had the valuation gain. What is that? And how should we think about that going forward?

Rich, it's an investment that we made starting about five years ago through a venture capital firm. And it really was an investment we did to help us gain access to the digitally native brands as they emerge. I mean there are hundreds and hundreds of them. And the VC firm does a pretty good job of evaluating their prospects to not only grow and be of increased value but also what might work well in our portfolio. So it gave us good access to a lot of the digitally native brands early on and continues to and a lot of those emerging companies today are finding good access to capital. They're growing. They're merging into specs. They're doing IPOs, and that's what's causing some of the mark-to-market – positive mark-to-market there but it's an investment we've had for the last five years through a venture capital firm.

Got it. That's helpful, Tom. And I guess that tees me up for my next question. Obviously, the retailers have done really well recently. There's an S-1 out there for at least one company, that's acquired some retailers recently at a big valuation range. Do you think there's more valuation gains to come on that? I know you can't predict the future but is that $0.09 all of it? Or should we expect some more going forward?

It's really hard to predict that Rich. I think the good leasing environment is going to benefit a lot of these companies but I wouldn't want to factor any more gains into our guidance for the year. When they happen it's great and we take advantage of it, but it's pretty hard to predict.

Got it. And just one more quick question, if I may. I noticed the lease termination income went up in your guide. How should we think about that relative to the occupancy? I know you noted that it's increasing and you expect it to continue to increase. I think you put a 3Q 2023 number out there. But how should we think about that relative to the increase in lease termination income?

Yes. Sure, Rich. As you can imagine, losing 4% plus of our occupancy, we had certain tenants that do have credit and we're going to negotiate termination settlements. So anytime you see an occupancy volatile environment, you see a pickup in the termination income. Those are very tightly correlated. So I don't think this is any different than what we've seen in the past. Certainly, coming out of the global financial crisis, we experienced some elevated termination income. So that's really what we see. For the most part, it's embedded within our occupancy numbers today, but we're still continuing to negotiate those settlement outcomes. And we can't book it, can't recognize revenue until we actually sign the agreement. So the revenue will follow later.

And we'll move on to a question from Alexander Goldfarb with Piper Sandler.

Hey. Good morning. Two questions. So, just two questions. First question is on the rent spread, what would be all-in trailing 12 be if you include all the COVID impact? And then also as part of that, is your rent spread just on a 12-month look back or is it vacant space as long as it's been vacant?

Yes, Alex, I hope you're driving safely. But, yes, to answer your questions, the spreads don't include the COVID workout adjustments. We don't calculate it that way. We frankly never included rental reductions. So I don't have that measurement for you. Our spreads are really focused on more go-forward business in terms of renewals and new deals, not the short-term negotiations we've been doing. But I'll direct you to our average base rent in terms of the impact of that. And the second part of your question, I'm sorry, maybe you can repeat that, provided you're driving safely.

I always drive safely. Is your rent spread metric just based on a 12-month look back meaning space that was vacant 12 months ago, or its space as long as it's been vacant?

It's a 12-month look back.

Okay. And then, the second question is, on the refinancing, do you anticipate that next year they will be full long-term refinancings? Or do you think that next year will be continuation of short-term extensions on the loans?

I think, the majority of them will probably be long-term financings. So we'll pick and choose the term, but I think they'll range between five to 10 years, just depending upon the credit markets at that time. We may do an extension or two, but I think for the most part there'll be refinancings, Alex.

And our next question comes from Mike Mueller with JPMorgan.

Yes. Just a quick one here. I was wondering how close is your parking and business development income relative to pre-COVID levels.

Yes. Well, I expect we'll get back to pre-COVID levels by next year. We're not quite there, but it's bounced back quite well. But 2022, we'll probably get back to par pre-COVID on both those line items.

Got it. So if we're looking at this $30 million for this quarter, would you say that's 75% of the way there, half, just rough magnitude?

Better than half. There's a little bit more to do on a run rate basis. But again, I do think by the time we get to the first half of next year, we'll probably, on a run rate basis, be within spitting distance of where we were at pre-COVID, Mike.

Got it. Okay. Thank you.

Our next question comes from Ki Bin Kim from Truist.

Thanks. A couple of quick ones here. What is the renewal rate for your portfolio today? And how has that trended?

Ki Bin, I'm sorry, could you repeat that? You said what is the leasing rate today?

Renewal rate. The lease renewal rate.

The percentage of tenants that are renewing?

Yes.

It's Doug. Yes, I said in my remarks that in 2021, we have commitments, meaning signed leases or leases that we're negotiating on 81% of the expiring square footage and the remaining 19% is in the letter of intent stage.

Okay. And any sense -- can you provide some color on, what your economic occupancy is today versus a signed occupancy? Just trying to grasp, what the embedded upside is in your portfolio.

Yes. Our leased occupancy always exceeds physical by roughly 2% to 3%. I don't think that's too dissimilar. It was probably less in the middle of COVID last year, because the deal flows slowed down, but I'd say we're probably in that 3% range right now.

And we'll take a question from Caitlin Burrows from Goldman Sachs.

Hi there. Just as a follow-up on one of the balance sheet questions. You guys had a March presentation that referenced an assumption of $700 million of equity in 2021 and then $300 million in '22. You surpassed the 2021 amount already. So, just wondering, if you can give some detail on, what's driving your decision of how much equity to issue and when maybe the metrics that you're looking at and whether that 2022 issuance referenced in the March presentation is still relevant?

Caitlin, that was a generic placeholder in a three-year forecast that Scott was using to illustrate deleveraging. So that was not a hardwired assumption. We've been fairly active on the ATM. It's going to be dependent upon the share price, whether we use it again this year or not. And it remains to be seen, whether we'll do equity again in 2022. So, those are just some generic assumptions that he'd put into a slide to illustrate deleveraging.

Okay. Got it. And then, maybe just another one on leasing spreads, but hopefully asked differently enough that it might still be interesting. But -- so the reported trailing 12-month number was about flat. You mentioned earlier that, in the most recent quarter, they were actually up double digits. But I would assume, correct me, if I'm wrong that more leasing is getting done at some of the better properties. So just wondering, if you could quantify, what in-place rents are for the properties that you might have historically classified as Group 1 and Group 2 versus the in-place towards market for the kind of Group 3 to Group 5 properties.

Well, I think we've seen good leasing demand across the board, across the whole portfolio. So, we don't really take a look at spreads based on, whether they rank in the top 10 or the bottom 10. We've seen pretty good activity across the board. I think the big illustration is just the difference between what it looked like in the second half of 2020, what it's looked like in the first half of 2021, typically [Indiscernible] you're going to get some pricing power. And I would not say that, we had it at all in 2020 quite the contrary. But it does appear, as if we're picking up some pricing power in 2021, now based on demand and the leasing activity we've seen to date.

And that does conclude the Q&A session for today. I would like to turn the conference back over to our speakers for any concluding remarks.

Great. Thank you. Well, thank all of you for joining us today, and we look forward to reporting good results for the balance of the year.

And once again, ladies and gentlemen, that does conclude today's conference. We appreciate your participation today.