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Text: 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.
As we pass the midpoint of the year, we find ourselves at an inflection point.
As we said on our last call, we also expected that occupancy hit a low point at March 31, 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 pre-pandemic second-quarter 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.
And 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 for 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, and it feels much better to us than when we emerged from the great financial crisis in 2009 and 2010.
So some of these 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 in 11.5%.
We expect the second half of 2021 to be even better.
We raised the bottom end of FFO guidance range and moved the midpoint up, even factoring in the impact of issuing equity during the second quarter.
In terms of balance sheet activity, we also used the ATM to a small degree in June.
Since our last earnings call, we issued 6.4 million shares at an average price of $18.20.
We raised $114 million of capital, and that was used to reduce debt.
Trading was good for us in the quarter and in June, and ended the second quarter as the second best performing REIT, up 58%.
In other balance sheet activity, in addition to our sale of Paradise Valley Mall in March, we're still expecting to close on the sale of another noncore asset or two in the second half of 2021, and that's in our guidance.
Net proceeds expected to be in the $100 million range.
The balance sheet moves we made in the first half to significantly improved our leverage metrics.
Year-to-date, we've paid down over $1.3 billion of debt.
Focusing for a moment now on leasing.
We are seeing incredible demand for space, including big box space and perimeter locations.
And that includes multifamily, healthcare fitness, wellness uses, food and beverage and other traditional -- of nontraditional retail uses.
A great example of the latter is that during this past quarter, we announced a 222,000 square foot SCHEELS sporting goods lease in the former Nordstrom's box at Chandler Fashion Center.
This store will be their first in the Arizona and will feature 16,000 gallons of saltwater aquarium, a wildlife mountain, a restaurant and more.
Nontraditional mall retail demand in smaller format also continues to accelerate with the digitally native brands getting active again on our brick-and-mortar locations after a hiatus during COVID.
Other interesting additions include a host of new electric car companies taking space in many of our malls, including Polestar and Lucid.
They've done multiple deals with us this year.
So many of our traditional retailers are back with even greater demand for space than pre-pandemic, and Doug will elaborate on that in a few moments.
We are very optimistic about our business as we move forward to the balance of the year and into year 2022.
For the most part, in the U.S., with 58% of the population vaccinated, the worst of the pandemic is now behind us.
The leasing environment is strong and getting better by the month, and we expect significant gains in occupancy, net income and FFO growth as we then move on through the year and into next year.
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 her 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.
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 our lease termination income.
Given the prevalence of retroactive rent relief adjustments within our 2021 results, we believe it is now an appropriate measure of 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 second-quarter 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.
As Doug will soon explain, portfolio occupancy rate has increased in the quarter, and our leasing spreads showed sequential improvement relative to the end of the first quarter of 2021.
Suffice to say, this was a relatively noisy earnings quarter with many moving pieces supporting our positive earnings news that we've also released today.
To expand on those, the primary factors contributing to these NOI and FFO gains are as follows: On the NOI front, one, the quarter increased in the -- the quarter increases include a $0.06 increase in percentage rents resulting from the dramatic increase in sales that we reported earlier today.
And two, common area income has contributed another $0.04 of NOI and FFO, including from our urban parking garages.
Our common area business has also proven that -- to be quite elastic and resilient and is recovering very well.
In fact, our common area revenue performance has exceeded our expectations from when we entered into 2021.
And three, our bad debt expense represents a comparative $50 million or $0.23 improvement quarter-over-quarter, including a $40 million bad debt expense incurred during the second quarter of 2020 at the onset of COVID and a net $10 million bad debt reversal within last quarter, the second quarter of 2021.
Offsetting these NOI factors were: one, $46 million or $0.21 in reduced minimum rent and recovery income from reduced occupancy as well as approximately $15 million retroactive rent abatements and rent relief of primarily 2020 rents.
To pause on this point, the previously mentioned $10 million bad debt reversal in the quarter should be viewed in tandem with a negative $15 million impact of rent abatements from our second quarter.
In other words, the net impact of COVID workout deals on same-center NOI in the second quarter was a negative $5 million when considering both line items.
And so if you want to normalize same-center NOI for what is essentially the majority of the remaining COVID workout deals, then add back $5 million or 3% roughly to same-center NOI.
Note also that as I mentioned last quarter, we expected a reduced amount of retroactive rent abatements in the second quarter, and that was, in fact, the case.
I also expect that we are in -- and I also said that we expect a very negligible impact in the second half of the year from such retroactive abatement concessions, and we still expect that to be the case.
Secondly, the shopping center expenses increased by approximately $0.06.
This is driven by the widespread closures of our center in the second quarter of last year relative to the full operational status of our portfolio throughout the second quarter of 2021.
And lastly, a few other factors included: one, second quarter included increases of positive $0.09 in valuation adjustments, net of provision for income taxes from our indirect investments in various retailers that we at Macerich have previously invested in through a venture capital firm.
This positive impact shows up in other income from unconsolidated joint ventures, and it is worth noting that this was into thinking when we last updated our guidance at the end of the first quarter.
And two, the second quarter also included an increase in land sale income totaling approximately $0.05, which was factored into our original guidance and planning as we entered into 2021.
2021 FFO is now estimated in the range of $1.82 to $1.97 per share, which represents a $0.03 increase at the midpoint.
While certain guidance assumptions are provided within our supplemental filing, here are some further anecdotes.
This guidance range assumes no further government-mandated shutdowns of the retail properties.
This guidance factors in the issuance of common equity to date, which I will further describe in a few moments, and Tom also mentioned previously.
So as I mentioned during the prior two quarterly calls, we anticipate strong double-digit growth in the second half of 2021, and we still anticipate that to be the case.
And in fact, we have increased the midpoint by $0.03 per share, which is also $0.04 or 2% greater than consensus estimates.
This is now due to -- primarily to a much stronger operating environment as reflected within the second-quarter results.
And then as for our balance sheet, within the first-quarter filings, again, we disclosed that we had sold $732 million of common equity through our ATM programs again last quarter.
Since then, we sold an additional $116 million at an average price of $18.20.
As part of our continuing commitment to deleveraging our balance sheet, since the end of our first quarter and through today, we have repaid approximately $1.3 billion debt.
Sources to accomplish this include common stock sold through our ATM programs and dispositions of various assets, including Paradise Valley at the end of March and some numerous sales of undeveloped land parcels in the Phoenix marketplace.
Our EBITDA continues to improve.
And as our deleveraging efforts continued in the second quarter, the company's debt service coverage ratio improved to two and a half times at the end of the second quarter of '21.
And as previously stated on many occasions, we still do expect to harvest positive operating cash flow after recurring capex and dividends of well over $200 million per year from 2021 through 2023, which supports a path to continued leverage reduction in the range of 8x by the end of 2023.
This is relative to our leverage in the quarter of mid-11s at the end of 2020 on the heels of COVID.
Including undrawn capacity on our revolving line of our credit, of which $200 million of the $525 million aggregate capacity is currently outstanding, we have approximately $500 million of liquidity today.
So from a secured financing standpoint, we are working on an extension of the loan on Danbury Fair through the middle of 2022, and we are currently marketing the shops at Atlas Park for a refinance loan.
Those are the company's final two remaining loan leases -- maturities that are within 2021.
As the year has progressed and as reported to you last quarter, we continue to see green shoots in the debt capital markets with the execution of a growing number of retail deals on sequentially improving terms.
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 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 our 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 the second quarter of 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%.
This is 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, given the healthy retailer environment that exists today, coupled with our strong leasing pipeline, we also anticipate that occupancy to continue to increase throughout the remainder of this year and into 2022 and beyond.
Pace of bankruptcies continues to decrease.
In fact, year-to-date, bankruptcies within our portfolio are the lowest we've seen since 2015.
And 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 to a total of just 9,000 square feet.
Our 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 for a year-over-year basis.
2021 lease expirations remain an important focal point, and we continue to make progress.
To date, we have commitments on 81% of our 2021 expiring square footage with another 19% or the balance in the letter of intent stage.
And with -- well on our way into 2022 business with 27% of the expiring square footage committed and 64% at the letter of intent stage.
In the second quarter, we opened 251,000 square feet of new stores, resulting in this total annual rent rate of $6.5 million.
Notable openings in the second quarter include lululemon at Fashion Outlets of Chicago; American Eagle's new concept OFFLINE by Aerie at Freehold Raceway Mall; Indochino at Washington Square; Starbucks at Fashion District, Philadelphia; Blue Nile and Psycho Bunny, Scottsdale Fashion Square; Faherty and the UpWest at Village at Corte Madera; and Vuori at Twenty Ninth Street.
We also opened 7 locations with Charming Charlie and 4 locations with FYE.
We opened a 24,000 square foot office for the county of San Bernardino at Inland Center.
So lastly, we opened the 95,000 square foot Shoppers World at Fashion District Philadelphia in the former Century 21 space, which we lost last year due to a bankruptcy liquidation.
Now let's look at leases that we signed in the second quarter, and this is where it gets really exciting because unlike our store openings, which represent past leasing, recent signed leases represent what we're doing really well in real time.
Signed leases define leasing velocity and are the leading indicator of the leasing environment that exists today.
And with that said, we see that the leasing environment as robust and dynamic.
This is confirmed by our leasing activity, which is stronger than it's been in recent history.
And let me be clear, and when I say that in recent history, I'm not talking about the 16 months we've been dealing with COVID.
I'm comparing back to 2019, which, again, was our highest leasing volume year since 2015.
So said another way, we're currently on pace for our highest volume leasing year since 2015.
In the second quarter, we signed 223 leases for 692,000 square feet, resulting in $37 million in total annual rent.
In the first half of this year, we signed 488 leases for some 1.9 million square feet, resulting in $88.7 million in total annual rent.
Now this represents 18% more leases, 34% more square footage and 11% more rent during the same period from 2019.
Noteworthy leases signed in the second quarter that includes several new to Macerich retailers, including Versace at Fashion Outlets of Chicago; Christian Louboutin, Alo Yoga and FORWARD at Scottsdale Fashion Square; and Avacado at Village at Corte Madera.
These and others bring the total square footage of new to Macerich deals either signed or in lease in the last 12 months to just over 530,000 square feet.
In addition to Shoppers World opening at Fashion District Philadelphia, which I mentioned earlier, we signed a second lease with the -- to take over the 72,000 square foot location at Green Acres Mall that Century 21 also rejected to bankruptcy.
So by the end of this year, we will have filled the two Century 21 boxes that we lost in the bankruptcy, and this totals approximately 170,000 square feet, an impressive feat considering Century 21's liquidation occurred just 10 months ago.
Other notable leases signed in the second quarter include Free People Movement at Kierland Commons; Warby Parker at Washington Square; La Encantada and Williams-Sonoma and Lucid Motors at The Village at Corte Madera; Zwilling [Inaudible] at the Tysons Corner Center; and Peloton at Washington Square.
Turning to our leasing pipeline.
At the end of the second quarter, we had signed leases for just over 500,000 square feet of new stores still to open in 2021.
And looking into 2022 and 2023, we have signed these leases for another 935,000 square feet of new stores to open.
In addition to these signed leases, we're currently negotiating leases for new stores totaling 1.1 million square feet.
The majority of which will open in 2021 or in early 2022.
In total, that's over the 2.5 million square feet of signed and in-process leases for new store openings throughout the remainder of this year and into 2022 and 2023.
As stated on our last call, and this is our -- the trajectory that we expected and it's only going to improve as we are constantly reviewing and improving new deals on a regular basis.
So in conclusion, sales are higher than they were pre-COVID.
Occupancy is up from last quarter and is expected to continue to increase.
Bankruptcies are at their lowest levels since 2015.
Leasing velocity is as strong as it's been in recent history.
So if I sound overly optimistic, it's because I am.
Maybe it's the stats and the metrics we talked about.
They don't lie, and maybe it's the mood out there in the field.
It feels really good.
Maybe it's the many different uses we now have to choose for them to fill our space.
Maybe it's just the best-in-class portfolio of shopping centers that we have.
Maybe it's all of the above, I don't know but what I do know is we find ourselves in a very good place and extremely well positioned to take advantage of the really strong leasing environment that we -- that exists out here today.

user
compname posts quarterly loss per share $0.06.
quarterly loss per share $0.06.
same center net operating income, including lease termination income, increased 11.5% in q2 2021.
ffo, excluding financing expense in connection with chandler freehold, was $0.59 per share-diluted during q2 2021.
sees fiscal year 2021 eps-diluted from loss of $0.06 to earnings of $0.09.
sees fiscal year 2021 ffo per share – diluted, excluding financing expense in connection with chandler freehold $1.82 - $1.97.

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