Macerich Company (The)

Good day and welcome to the Nice Rich 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 MCC files. including the adverse impact of the novel coronavirus, COVID-19, 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 8K with the SEC. which are posted in the investor section of the company's website at makesrich.com. Joining us today are Tom O'Hearn, Chief Executive Officer, Scott Kingsmore, Senior Executive Vice President and Chief Financial Officer, and Dex Healey, Senior Executive Vice President Policy. 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 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 releasing 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 three enclosed 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 a busy holiday season. Most of the results were better than the second quarter, but we were obviously adversely impacted in the quarter due to COVID in general, and specifically due to the protracted California and New York City closures. The number one priority during the quarter was to safely reopen all of our centers, get our tenants open, and get the employees rehired and back to work and to welcome back our shoppers. I'm very appreciative of the entire Mace Ridge team that did a tremendous job of getting our centers reopened safely, in some cases for a second time. Some of the self-help and safety measures we took went way beyond CDC recommendations and included significantly upgrading our air filtration systems to include hospital-quality air filtration with more than 13 filters, who engaged the Clinical Head of Infectious Disease at UCLA Medical Center to review and advise us on our protocols and policies. We hired a nationally renowned engineering firm to advise us on advanced HVAC systems and protocols. We implemented modified hours. There are increased cleaning and sanitizing protocols, CDC guidelines, and approved products that are baseline for our services. In terms of rent collections, we were much better off in the third quarter compared to the second quarter. During the third quarter, our average rent collections were 80%. October was trending above 80%. For most of the tenants not paying rent during the closure period, we would generally come to terms with them. In general, we agreed to rent relief usually in the form of deferred rent for the closure months for prepayment in 2021. In many cases, in exchange for landlord favorable amendments to leases. There were some large reserves for uncollectible rents in the quarter, which Scott will comment on. Cash flow continues to improve by the month as we move into the fourth quarter, and I expect that to continue. As of today, we have significant liquidity and currently have approximately $675 million of cash on the balance sheet. The tenant reaction to reopening has been good. The tenants, almost without exception, were eager to get reopened. By October, after centers opened, at least eight-week sales were up to 90% at pre-COVID levels. The consumer is shopping with a purpose, and there has been kept-up demand. Our second quarter was more about getting centers open and getting our tenants open safely and less about leasing. The focus in the food court was collecting capacity rents and started to shift back to leasing. Looking at traffic in general, it's running about 80% compared to a year ago. Some of that has to do with capacity limits, particularly for restaurants, and also for having no seating in the food court. Sales, on the other hand, are running on average 90% of a year ago, which means there is a higher capture rate. This year will be a different holiday season. We believe it's going to start earlier. Operating hours will be shorter. There will be capacity limits, and most stores will be closed on Thanksgiving Day. With consumers not spending money on vacations and entertainment during COVID, most of our consumers in our markets have money to spend this holiday season. Top categories are expected to be fitness and wellness, home furnishings, electronics, and athletic leisure. There will be Santa Fiasca photos, but with lots of social distancing. We've had a number of questions about potential for property tax increases in California. Although small in the political scheme of things, there was a proposition in California that would have increased property taxes on commercial property. It's known as Proposition 15. That proposition would have removed the protection of Prop 13 from commercial properties in California. For us, generally, we structure our leases to pass through taxes to the tenant as a recoverable expense for the significant bottom line impact if the trial vote shows Prop 15 passing. As of today, it is trailing. The yes votes stand at 48.7 and the no are at 51.3%. So hopefully that means no increase for commercial taxes in California. Looking at the balance of 2020, the pandemic has shown that good retail is not going away, especially in inequality centers. These new native brands appreciate more than ever the profitability of their physical stores. Big film out retailers got active again in the third quarter, and you'll hear some of the specifics from that. Although we are still in the midst of COVID, our centers are operating at 90% capacity, sales levels of 90% pre-COVID, and even if you look at one of the more challenging categories, restaurants, in our portfolio, we have 247 restaurants, and 94% of those are open today. The second quarter was an extremely unique quarter, and some of the second quarter challenges carried into the third quarter and may even carry partially into the fourth quarter. But many metrics got better in the third quarter, specifically collections and the member of tenants open and the progress we're making on leasing activity. The impact on reserves for doctoral accounts was less than the second quarter of 2020, but still much higher than normal. We expect to gradually improve to a more normal level in the first quarter of 2021. Although there are still too many uncertainties to give guidance, we expect the fourth quarter of 2020 and the year 2021 to be much better than the second and third quarters of 2020. And now I'll turn it over to Scott.