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

Good morning. Thank you for joining us on our first 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 Leasing. With that, I would like to turn the call over to Tom.

Thank you, Jean, and thank all of you for joining us today. I really hope you and your families are safe and staying healthy. As you read in our earnings release, the first quarter was a good quarter that exceeded expectations with generally good operating metrics. But today, as we battle this terrific COVID-19 pandemic, the first quarter results frankly seem not that relevant. It is a crisis that’s impacting our way of life and touching almost every facet of the global economy. We’ve been fortifying our company and reshaping our strategic plans to withstand this unprecedented event. We are closely monitoring the situation, establishing our reopening strategies and protocols, and working with local and national authorities to ensure our number one priority is the health and safety of our employees, tenants, service providers, and shoppers. Our employees have done a tremendous job of managing through this crisis with a situation that is changing not only day-by-day but even hour-by-hour. Going back to mid-March, we instituted some liquidity measures, which Scott will elaborate on later, and that allowed us to accumulate $735 million of cash on our balance sheet at quarter end. Some of the operational things we have done or are doing include hosting a webinar with PwC and U.S. Bank for our retailers to explain the stimulus package and help them access some of those funds. We’ve donated food and supplies to support first responders. We’ve donated our real estate for essential functions including blood drives, drive-through testing facilities, first-responder parking, and drive-through farmers’ markets. We made available our billboards and other media for campaigns about staying home, healthy hygiene protocols, and blood drives. We’ve designed and implemented a website to provide retailers with a library of information on the stimulus package. State and local governments closed a total of 43 of our 47 centers except for essential businesses. We started reopening centers last week with more in process this week and throughout May. Our reopening plans include finalizing guidelines and criteria for reopening our centers in alignment with government requirements. We will implement modified hours, new operational rules, and communication protocols. There will be increased and highly visible cleaning and sanitizing protocols. CDC guidelines will be followed closely. We are addressing the path of travel, vertical transportation, and delivery issues. We will accommodate curbside pickup for our retailers. We are assessing PPE equipment requirements, queuing solutions, restroom configuration, common area and food court seating solutions, and the restart of tenant construction. There will be touchless hand sanitizing stations at entrances and exits and throughout the centers. Meanwhile, our retailers are making changes to allow for the safe reopening of their stores including removing or resetting store fixtures, installing hand sanitizers, placing social distancing markers for fitting rooms, installing plexiglass shields at checkout counters, and reducing occupancy generally to 50% of the maximum allowable. We currently have 13 centers reopened in Arizona, Texas, Colorado, Missouri, and Indiana. Most counties have their own approach to how and what will open initially. We expect this to evolve daily and be a phased approach. California has very gradually started its Phase 3 opening of the state late last week, including non-essential retail, including apparel and sporting goods for curbside pickup only. We expect almost all of our centers and most of our tenants to be open by the middle of June. One of our liquidity measures was to defer most of our redevelopment where possible. We’ll finish up Fashion District of Philadelphia and Scottsdale Fashion Square as the luxury wing, but most other redevelopments have been deferred beyond 2020. We anticipate spending about $60 million in the last three quarters of this year, which represents a $90 million reduction from our previous redevelopment pipeline. This reduction excludes the joint venture with HPP, which owns the project One Westside, Google’s new Class A creative office campus. Work continues on that project during the pandemic, which is fully funded by a nonrecourse construction loan. This crisis has shown the importance of brick-and-mortar locations as key channels of distribution. Although it has accelerated sales of many digitally native brands, the increased sales cannot make up for the lost profits from physical stores. E-commerce is an expensive business model due to high delivery costs and customer acquisition costs. Omni-channel business models have become critical to almost all retailers including most of the digital brands. Even with growing and accelerating e-commerce sales, it cannot make up for lost sales and profits from physical store closures. This crisis has emphasized the importance of brick-and-mortar locations as key sales and profit drivers for most retailers. During the closure, many of our retailers have been fulfilling orders out of their mall-based stores. Upon reopening, we expect Buy Online, Pickup in Store to be even stronger than it was pre-COVID. Some examples that are currently underway are; At Tysons Corner, 24 tenants are fulfilling orders averaging over 8,000 packages per day. At Fashion Outlets of Chicago, Coach is the number one curbside delivery store in their entire fleet. At Scottsdale Fashion Square, one of the department stores continues to be one of the top locations for online fulfillment within their chain. And one of the newly opened restaurants at Scottsdale Fashion Square was the number two location for curbside dinner pickup in the nation. At Washington Square, retailers are fulfilling an estimated 28,000 online orders per day out of their stores. Good retail is not going away, especially in A quality centers. In China, as a post-COVID-19 example, by March 22nd, nine weeks after the country’s shutdown, 90% of the malls had reopened and traffic has since recovered to an average of 85% of the prior year’s traffic. Many of their retailers are also big in the U.S., including H&M, Apple, Lululemon, Adidas, UNIQLO among others, and they have experienced reopening after COVID-related closures. Our town centers are a vital part of their communities. Our portfolio generates $1.1 billion in sales tax revenues benefiting local and state governments and their communities. Our centers employ approximately 110,000 workers, many of whom were furloughed or laid off. In the United States pre-COVID, one out of every five workers had a retail job. We need to get those people back on the job. The states and communities where we operate benefit from $225 million in property taxes we pay every year. Our retailers are eager and ready to get open for business and to bring their employees back in a safe and well-thought-out manner. That is what will be happening throughout our portfolio over the course of the next four or five weeks. And now, I’d like to turn it over to Scott.

Thank you, Tom. The first quarter showed positive financial results. Under normal circumstances, we would view this as a strong start to a new fiscal year, looking forward to seizing various opportunities for the remainder of the year. However, the current situation is far from typical. I will begin by sharing a few highlights from the quarter, then discuss the challenges we are facing and how we have strengthened our liquidity to handle these pressures. Funds from operations for the first quarter was $0.81 per share, matching the first quarter of 2019 and exceeding corporate consensus of $0.75 per share by $0.06. Same-center net operating income increased by 1%, the highest in the sector, and on the upper end of our previously issued and later withdrawn guidance for 2020 which was 0.5% to 1%. EBITDA margin rose by 44 basis points to 62.6%, and overall first quarter revenues were largely unaffected by COVID-19 due to when property closures occurred in mid to late March. In late March, due to the uncertainties surrounding COVID-19, we officially retracted our 2020 earnings guidance. We will update guidance as we gain clarity about the year. For April, we collected 26% of our billed rents, including both permanent and temporary revenues. By May 8th, we had collected 18% of our billed May rents and expect May collections to improve slightly compared to April. As our centers begin reopening, we foresee better collections in June and beyond. Despite many retailers having to close, most of our leases require tenants to fulfill their rent obligations. We recognize the numerous challenges our tenants face due to COVID-19 and are committed to working with them to collect overdue rent. We've taken significant steps to preserve liquidity, such as utilizing most of our $1.5 billion revolving credit line. We have also reduced our dividend from $3 to $2 per share, conserving about $150 million in cash annually. For the upcoming dividend, 80% will be paid in stock, further preserving cash. This strategy saves $100 million or more in cash each quarter. As Tom stated, we significantly cut our development pipeline for the year, planning to spend $60 million on redevelopment over the last three quarters. This represents a 60% or $90 million reduction from our previous estimates. Including the independently funded One Westside and first-quarter redevelopment costs of $45 million, we expect total development expenditures to reach around $150 million for 2020. We have also reduced variable, controllable shopping center operating costs by nearly 50% while our assets were largely closed except for essential services. As of March 31, 2020, we had $735 million in cash on our balance sheet, including our joint venture’s share. Recently, we extended the maturity of our revolving credit line to July 6, 2021. Now I will turn it over to Doug to discuss the leasing and operating environment.

Thanks, Scott. Leasing momentum began in the first quarter where it left off in 2019. It was strong, and velocity was on the rise. However, economic conditions caused by COVID-19 and the government-mandated shutdown of our shopping centers put downward pressure on leasing activity as the quarter came to a close. That said, there were several bright spots, including rising sales, strategic lease signings, and many exciting and much-anticipated store openings. Portfolio sales as of February 29, 2020, were $801 per square foot and that represented a 7.4% increase from $746 per square foot at the end of Q1 2019. It’s noteworthy that we experienced these sales increases from top to bottom, meaning these increases weren’t just concentrated in our better centers and driven by one or two tenants. Economic sales as of February 29 were $939 per square foot and that’s a 7.1% increase over $869 per square foot at the end of Q1 2019. Occupancy at the end of the first quarter was 93.1%. That’s down 90 basis points from last quarter and down 1.6% from a year ago. This is primarily due to almost 900,000 square feet or 4% of our GLA that was rejected and closed through bankruptcies in 2019 and then into the first quarter of 2020. Temporary occupancy was 6.2% and that’s down 20 basis points from this time last year. Trailing 12-month leasing spreads were 6.5%, up from 4.7% last quarter, but down from 11% in Q1 2019. In addition to affecting occupancy, the 900,000 square feet of our GLA that was rejected and closed through bankruptcy also put downward pressure on leasing spreads on a year-over-year basis. Average rent for the portfolio was $62.44 and that’s up 2.8% from $60.74 one year ago. As I mentioned earlier, our leasing momentum carried over from 2019 into the first quarter. Velocity continued and leasing volumes were strong. During the quarter, 194 leases were signed for 740,000 square feet totaling $38 million in total revenue. Deals of note include Free People at La Encantada, Rolex at Scottsdale Fashion Square, Kate Spade at Fashion Outlets of Chicago, and Lush at San Tan Village and Los Cerritos. We also signed four more deals with Lovisa at Chandler, Deptford, FlatIron, and Freehold, bringing our total number of recent deals with this retailer to 13. In the large-format category, we signed a new 75,000 square foot lease with Dick’s Sporting Goods at Danbury Fair Mall. This is an expansion of its existing store that will take over a portion of the space recently vacated by Forever 21. At Eastland Mall, we signed a new lease with Shoe Department Encore that will open later this fall. In the food and beverage category, we signed a deal with Jollibee at Green Acres. In the international category, we signed Typo at The Oaks and four more deals with Cotton On at Deptford, Freehold, Vintage Faire, and Tysons Corner. We remain active with the digitally native and emerging brands signing new deals with Faherty at Village of Corte Madera and Golden Goose at Scottsdale Fashion Square. Last quarter, we discussed the importance of getting out in front of our 2020 expiring square footage. To that end, I’m pleased to report, especially in the current environment that we have fully executed leases on almost 60% of our expiring square footage in 2020, up from 38% in Q4 2019, and another 25% of our 2020 expirations are already in lease documentation. At the end of the quarter, our leasing pipeline, which we define by fully executed leases scheduled to open in 2020 and 2021, was approximately 125 retailers comprised of 860,000 square feet. After speaking to each retailer, at this point in time only four have indicated they no longer plan to open. This equates to only 8,000 square feet of the 860,000 square foot pipeline. In the first quarter, we opened 49 new tenants totaling 311,000 square feet for a total cost of occupancy of $12.8 million. This compares to 37 new openings totaling 130,000 square feet for a total cost of occupancy of $9.2 million during the same period last year. Momentum continued at Fashion District Philadelphia with the highly anticipated openings of Sephora and Kate Spade. Other notable openings include Aldi at Green Acres, Lifetime Fitness at Biltmore Fashion Park, and Round One at Vintage Faire, all in the large-format category. In the food and beverage category, we opened Nobu at Scottsdale Fashion Square, the first and only in the State of Arizona. Perfectly situated at the front door of Fashion Square’s new luxury wing, Nobu opened at the end of January and was immediately booked well into March. Also opening in the F&B category were Breakfast Club at Biltmore, Pedals & Pints at The Oaks, and Shake Shack at SanTan Village. The digital and emerging brands continued to expand their omni-channel presence — portfolio and the first quarter was no exception. We opened Casper and Fabletics at Scottsdale Fashion Square, Morphe at Arrowhead, and Travis Mathew at Broadway Plaza. Turning from metrics and statistics for a moment. Over the last 30 to 45 days, I’ve spoken to many, many retailers. There are several consistent themes out there. It’s all about liquidity and cash is king. Retailers have never operated with all stores closed. Typically, there are just three days during the year when stores are closed: Christmas, Easter, and Thanksgiving. Retailers want to open as soon as it’s safe to do so. Inventory levels are high and reopenings will be very promotional in order to move this inventory. Obviously, there will be some great incentives for shoppers to return to our malls. Stores will look and feel different as retailers begin to open. Common themes are reduced hours, limited occupancy, strategic placement of inventory on the floor to create space, fitting rooms being cleaned after each use, and contactless payment to eliminate physical touch. Curbside pickup, especially in the beginning, will be a seamless option. It will be phone to trunk. Buy Online Pickup in the Store will become even more popular. Bottom line is, retailers want to get their store opened. The big lesson learned and all the retailers are saying it, is that online business will never replace the importance of the physical store. So as I reflect on the current retail and leasing environment, I can’t help but think how critically important our strategy of pruning our portfolio over the last several years really was. Having a best-in-class pure-play A portfolio has proven over time to be extremely beneficial as retailers continue to reduce their fleets and focus on quality real estate. And so as we look ahead, the power of our portfolio becomes even more important. Will there be short-term disruption? Of course, there will be. Has leasing velocity slowed post-COVID? Yes, it has. But in the long run, I’m confident that the town centers we have worked so hard to develop will continue to be extremely well-positioned. Brick-and-mortar stores aren’t going away and that’s just a fact. If nothing else, the pandemic has confirmed this. Yes, physical retail will continue to shrink and will do so in an accelerated manner given the current prices. But as you know, we generally own must-have real estate and we have an extremely talented set of professionals that will continue to differentiate our company and our centers even during these incredibly uncertain times. And now I’ll turn it over to the operator to open up the call for Q&A.

Thank you. We will take our first question from Samir Khanal of Evercore. Please go ahead. Your line is now open.

Hi, there everybody. So, I guess, Doug you’ve talked about the 60% of expiration that you addressed. You’re currently, sort of, in lease documentation for the other, sort of, 25% here. Can you give us an idea of, sort of, the tenant negotiations you’re having? What are tenants asking for today that they weren’t asking for maybe six months ago? Are they leaning towards more percentage of rents? Are there more short-term deals? Just any color would be helpful.

Well Samir, first of all the 60% of our committed square footage, those are fully executed leases and, short of bankruptcy or otherwise, we don’t expect to renegotiate those at all. The leases that are out could be and future dealings are being negotiated. I think, what I would say is the retailers are much more cautious. They’re much more conservative. That’s being reflected in some of the clauses they’re putting in. And to your point especially with expirations, we are looking at shorter-term deals than we have in the past.

Okay. Thanks for that. And I guess my second question as a follow-up is, maybe for Scott here. Can you provide any color around conversations with sort of mortgage lenders at this point, given those sort of lower rent collection levels that we’ve seen. I guess what’s your ability to defer interest payments at this time if needed?

Yes, good morning Samir. Hope you’re well. We continue to have conversations with lenders. Really the effort there is to defer the payments, so that the outflows match the inflows, which are going to be stronger later in the year. So, those conversations continue today.

Okay. Thank you.

We will take our next question which comes from Craig Schmidt of Bank of America. Please go ahead.

Thank you. Of the 74% of rents not collected in April, how many of those tenants are currently negotiating with you about deferrals?

We are having numerous discussions with our retailers, and many of them are requesting rent deferrals. Each discussion is individual, so we won’t share specific details about each tenant. It's a lengthy process, and there's still a lot of uncertainty as many tenants are unsure about when they can reopen. We’ve collected about 26% or 27% of the April rent, and May is looking a bit better. Currently, we have 13 centers open, which has alleviated some uncertainties for certain tenants. I anticipate that these conversations will continue into June.

Great. And then, how many of your malls have a significant curbside service available now as they would open?

A lot of the ones that are open can only open with curbside. And actually this is a trend that started even before COVID. Really, what started out as an amenity has become a must-have. So, while still in its early stages, I think there’s a future there. And I think, it’s really important because really if you think about it, it gives our platform just another mode of distribution for these retailers and that can only increase the value of our real estate. So again, it’s early times.

We will take our next question which comes from Jim Sullivan of BTIG. Please go ahead. Your line is now open.

Thank you. The first question I had is the apartment tower at Tysons was under contract at year-end in the 10-Q for the first quarter. It doesn’t appear to be, and it doesn’t appear to be sold. Can you just give us an update on what the story is there?

Jim, we’ve been in discussions with our partner to sell to them and that was pre-COVID. Once the entire market got volatile, say mid-March, they decided to hold off. Additionally, we like the asset. We like the diversity of the net operating income. So we’re just fine hanging onto that 50% interest in the tower.

It’s very possible that we’ll refinance that asset within the next few months.

Okay. And I wonder if you can give us an update Tom on Nordstrom’s decisions. I think three of your assets are on the list. Nordstrom deals were famously known to be expensive to make for a mall owner. Are they going to be expensive to break for Nordstrom?

Jim, you’re right. It’s really impacted most of the A quality operators in the sector. In our case of the 16, they announced three were with us, FlatIron, Chandler, and Freehold. And those are all stores that are owned by Nordstrom. They’re good centers. I would say there’s probably pretty good demand for the space, but it remains to be seen what’s going to happen with those boxes. They no longer had an operating covenant, Jim, and that’s why they chose some of those centers on that list. So they can fill the space. I’m sorry, go ahead Jim.

So they can fill the space. They don’t have to offer it to you first?

No, although that’s typically what happens, as you know.

Okay. Very good. Thank you.

We will now take our next question which comes from Christy McElroy of Citi. Please go ahead. Your line is now open.

Hi. Thank you. Just a follow-up on Samir’s question on the debt payment deferrals. Are these just deferrals? Or are you working on any full loan modifications as well? And have you also had discussions with your lenders to change your line of credit covenant calculations or thresholds in this environment?

Hey, Christy. Good morning. Those are just discussions about deferrals. There’s no modification, other than just a deferral to later in the year. As it relates to the line of credit, we have a lot of headroom within our existing covenants, and we are not focused on modifying our covenants whatsoever.

It’s Michael Bilerman. Good morning and thank you. Just as a follow-up, I was wondering, Tom, if you could sort of elaborate a little bit on sort of the dividend strategy on a go-forward basis? I think, if you look across the REIT sector right now, the predominance of the companies in the more affected sectors, like in retail, lodging, and healthcare, I think outside of yourself and one other, has just basically suspended or reduced their cash dividend rather than paying it in stock. I wanted to know how you think about progression from here in terms of, one, the split between stock and cash, the level, now that the IRS allows you to go to 90%, and then whether you’ve already satisfied at this point your full commitment and therefore not pay the remaining dividend for the rest of the year, given just the taxable income needs?

Hi, Michael. How are you? That's a good question and somewhat complicated. I'll break it down. To clarify, we evaluate the size of the dividend. The last time we declared a dividend, we reduced it from $3 a share to $2. Since we were just starting to experience the pandemic, we chose to preserve liquidity by using 80% of the dividend to be paid in stock, as permitted at that time. Moving forward, the Board will make that decision on a quarterly basis. It’s still uncertain whether we will suspend or cut the dividend further, as we need to see the impact of the closures on our taxable income. Currently, under most of the leases, even with the malls closed, the tenants are still obligated to pay rent. Our taxable income is determined based on accrual accounting rather than cash accounting, so it's too early to assess the negative effects of COVID-19 on our taxable income. However, we will evaluate that later in the year. When we originally cut the dividend, we anticipated having around $2 a share in taxable income, potentially a bit less, but we don’t expect it to drop to zero. Therefore, I believe we will continue to pay a dividend for the rest of the year, with its size and structure to be determined as we gather more information.

We will now take our next question from Mike Mueller of JPMorgan. Please go ahead.

Yes. Hi. Can you give a little more color on reopenings so far? Maybe talk about the percentage of stores that have been opened? And how traffic and sales have been building?

Yes. Hey. It progresses day by day, Mike. In the case of our mall in Texas, South Plains, it opened and about 25% of the tenants were open and it’s kind of evolved closer to 50%, and traffic picks up by day. But it’s really going to be center by center, region by region, how that happens. I mean, in California, there was a very gradual start to reopening that happened last Friday and that’s just curbside pickup. Other locations like in Texas almost everything was able to open. And, obviously, there are some limitations. I think in many cases, they’re limited to allow for social distancing. They are limiting the number of people in a given store to 50% of the maximum capacity. There are also protocols in place and procedures to make sure there’s not a lot of people aggregating in common areas. A lot of the food court seating has been removed in many of the centers. So there’s a number of changes, but each county is different, and each county has different rules and regulations. So it’s a bit haphazard. But so far, the general feeling is that there’s been pent-up demand and the retailers are eager to get open. The only restraint on them is really when they feel they can do it safely and they’ve got all the precautions and protocols in place to do it safely.

And what have you heard about sales traction?

Very gradual, starting with relatively light traffic and picking up every day. So, we’re only a couple of weeks into it. So it’s still pretty early to draw any conclusions.

We will now move on to our next question from Alexander Goldfarb of Piper Sandler. Please go ahead.

Okay. Good morning, out there. Just two questions. First, just going back to Christy’s question on the debt refinancing, so I think last time you also spoke about putting, I think maybe with Stonewood or one of your center tops centers as unencumbered to encumber that and then use those proceeds to pay out Niagara. You also have Danbury maturing this year as well. So can you just update us? You mentioned the Tysons apartment tower that you plan to put some debt there, but can you just outline your other thoughts for Danbury and Niagara? And if you’re considering putting a mortgage on Stonewood?

Sure, Alex. The credit markets are currently somewhat restricted, and our centers are either closed or just beginning to emerge from this situation. Before this period, we had initiated the refinance process and were making progress, with some potentially favorable deals. I believe that when the credit markets improve, we will be able to finance those assets. However, in the meantime, we will be extending the maturities that are due in 2020 and early 2021. That summarizes our current position. Additionally, as I mentioned, the apartment tower is a slightly different situation. I anticipate that in the coming months, we will be able to secure financing for that project.

Okay. And then on the Nordstrom closing or any of the other department stores that you had closed, do any of those trigger any cotenancy with any of the in-line shops, just curious?

Very immaterial impact, Alex, very immaterial.

We will take our next question, which comes from Shivani Sood of Deutsche Bank. Please go ahead. Your line is...

Hey. Thanks for taking the question. So in the 10-Q there is a note that Macerich reduced shopping center expenses by 45%, all the properties are closed. I’m just curious of that other 55%, how much is contractually reimbursable by the tenants versus payable by your team?

Yeah. Most of our leases are fixed CAM in nature. So every dollar falls to the bottom line, generally speaking, probably 85% to 90% of that falls to the bottom line. So for the months of April and May while our centers were substantially closed, we’ve made considerable progress in terms of reducing our operating expenses, basically the variable expenses. As our centers ramp up, we’ll still see some savings until we get to a more fulsome occupancy level and larger consumer traffic. So we’ll still see some savings beyond the closure periods.

Thanks for that color. And then in terms of the shadow pipeline, I appreciate, it’s very early but you guys have always shared great transparency there in terms of how you’re envisioning the centers? I’m just curious what element of flexibility you have to reallocate GLA away from some of those more experiential concepts as the project progresses in two to three years, for example, if there isn’t demand for Dave & Buster’s or what have you on the other side of this pandemic?

Yeah. Most of the redoing of the Sears boxes, particularly the more complicated ones, such as Washington Square and Los Cerritos, are fairly early. Those are two projects where we’ve got to go through the entitlement process. So we still have a fair bit of flexibility to repurpose the square footage. In fact, that’s generally the plan at both of those centers where a significant amount of the retail will be something else. There is a lot of flexibility, and we do have the ability to pivot away from experiential and something else if that’s what’s warranted and that’s where the demand is.

Thank you, Tom.

We will move on to our next question from Todd Thomas of KeyBanc Capital Markets. Please go ahead. Your line is now open.

Hi, thanks. Good morning out there. First question as your centers reopen, can you talk about the ability of your tenants to pay rent as they reopen their stores and how those discussions have been I guess primarily for maybe restaurants and theaters and maybe some of the fitness users, if they’re operating at reduced levels going forward? How are you approaching those discussions?

Yeah. As I mentioned, Todd in my earlier remarks, we’re having literally hundreds of discussions with our retailers and they’re all somewhat unique based on the location of the center and the type of the use. Obviously, there are a couple of categories that you hit on that are going to be pretty challenged. Restaurants being one, where they’re not going to be able to have as many tables, as they’ve got to accommodate social distancing, that’s going to put margin pressure on there. So we’re working through each and every deal with our restaurant tenants as well as our theater operators are going to face the challenge with social distancing as well, and that certainly was the case in China when they tried to reopen. We fully expect to have conversations with those two users, and those will be unique to the operation and the location. In terms of the gyms, most of the fitness operators that we’ve talked to have a pretty good plan for social distancing, and they’re eager to get opened. Their members are also very eager to get back into the gym and start working out. So, I’d say there’s a significant amount of pent-up demand. I wouldn’t expect any changes there, and they seem well on their way to having procedures and protocols in place whether they’d be removing a certain amount of the equipment or limiting the number of people that can come in at any given time with a heightened level of cleaning and sanitizing. I’d say that probably the two toughest categories are going to be the theaters and the restaurants.

Okay. And then just a follow-up on Alex’ question regarding cotenancy. Was that response was that specific to the Nordstrom closures that you mentioned? Or was that a broader comment about cotenancy exposure across the entire portfolio in terms of how many leases have cotenancy clauses today? How much economic exposure there might be just across the portfolios more generally?

Yeah, Todd that’s a broader comment about the cotenancy exposure received as a whole across the portfolio not just Nordstrom specifically.

We will now take our next question from Rich Hill of Morgan Stanley. Please go ahead. Your line is now open.

Hey, good morning, guys. I want to maybe go back to some of the questions that were asked about the mortgage debt. I guess, I’m a little bit surprised that you haven’t had discussions with maybe some of the CMBS lenders. I think about Green Acres Mall, pretty high-quality mall. I think it matures in February of 2021. So I’m curious, is it because you haven’t reached out to the CMBS lenders yet or are they preoccupied? It’s all reasonable if it’s preoccupied because you guys are focused on your business and CMBS lenders are dealing with their own issues right now. But I would think that something like Green Acres Mall would be a likely modification candidate. So, maybe if you can just help us walk through that a little bit more, that would be helpful.

Sure, Rich. I don’t want to get into too many specifics. We are in active discussions with the lenders regarding the extensions. But I would agree with your assessment that leading into this period, there was very adequate debt service coverage on all these loans. In fact, on balance, I would consider that group of loans to be very underleveraged that group of assets. I think we’ll be successful in achieving extensions to gain some additional term to give us flexibility to get to a better credit climate. This is a playbook that we used 10 years ago coming out of the GFC. We extended loans, got to a better horizon. In some cases, we sold assets. In some cases, we refinanced assets and repaid loans. It’s a playbook we’re familiar with.

Understood. And then going back to the comment about the covenants on the line of credit, I recognize that you said you are not focused on them – and I’m sorry, if I’m putting words in your mouth. But I think it’s because they have a fair amount of cushion. Is that cushion primarily because of accrual accounting versus cash accounting? Or could you maybe just walk us through why you feel so comfortable with the covenants at this point?

Yeah, the covenants are accrual-based accounting correct. So I feel like there’s plenty of room. There are going to be, on a case-by-case basis, concessions that we have to make, but I do believe those will be isolated, and there is plenty of room to absorb any of that impact.

We will take our next question from Greg McGinniss of Scotiabank. Please go ahead.

Yeah. I – just trying to kind of think about the accounting treatment of leases given the jump of the amortization of both above and below market leases. So curious, what drove that increase? And then how should we be thinking about the impact that COVID-19-related disruption may have on straight-line rent and amortization of market leases?

Yeah, sure, Greg. This is Scott. Good morning. There were a couple of leases in particular that impacted the above and below market revenue. Those were lease modifications during the first quarter that resulted in a write-off of those non-cash revenues which is the spike that you’re seeing in our supplemental disclosures. So that’s the first point. The second point regarding straight-line and the impact. So of course, we’ll be assessing in much greater detail the level of collectability for all of our retailers. To the extent, there is a collectability issue, I think everybody now is probably more educated on lease accounting than they ever were. There’s a potential for some impact to straight-line receivables as well as to the timing of rent recognition if we end up reserving some of those. So we will deal with some of that. We certainly aren’t providing guidance at this point though. But that will impact every real estate company.

Okay. And just to clarify there are some of lease modifications that do have anything COVID-19 related or separate?

No, they were not. They were not.

Okay. And then following up on Shivani’s question, what does the variable operating expense savings actually work out to on a dollar basis? Or maybe said differently: what percent of operating expenses are considered fixed versus variable?

It’s about $8 million a month. So it’s not inconsequential by any means. Most of our expenses frankly are fixed in nature when you consider you’ve got debt service first and foremost, but you’ve got property taxes in the mix you’ve got insurance, which is certainly not a cheap line item, so a very significant portion are fixed and non-adjustable.

We will take our next question from Brian Hawthorne of RBC Capital Markets. Please go ahead. Your line is open.

Hi, good morning guys. In the 10-Q, you mentioned that you do not expect the pandemic to trigger co-tenancy. Are the majority of the tenants on the same page with you as long as the closures are temporary? And then, is there a point where the co-tenancy could be triggered? I know you mentioned permanent closures could do it. But is there some earlier point before that they could do it as well?

I believe what you're referring to in the 10-Q is a risk factor. These are usually written by attorneys, who tend to include everything imaginable. In our situation, we will have some co-tenancy issues, but they are minor in relation to the Nordstrom closures. For the temporary closures, we generally do not anticipate a significant level of co-tenancy concern. We are unsure how long these closures will last, but we expect to have everything operational again by mid-June. We will have more information in 30 days, and we gain insights day by day. As of now, we do not expect it to be a material issue.

I guess it’s on the outlook. So I guess my question is really trying to get more of a sense of what are the tenants’ expectations? Is it just we’ll wait 30 days and then we’ll talk about it again? Or we can kind of rediscuss it?

No just to punctuate we expect co-tenancy to have a very immaterial impact that’s what we see, that’s the Nordstrom stores. We already discussed and that’s any other large anchor stores that we believe are at risk right now. So we believe the impact is immaterial. In terms of the temporary impact from the closures of COVID, our view is there is none.

Hey, hi, all there. So just going back to the co-tenancy, I appreciate your comments regarding that it is immaterial or little impact. But I think what the market is trying to do or less they’re trying to understand is trying to bracket the downside. So instead of talking about the near-term exposure, can you talk about that in totality? So what percent of your tenants actually have the co-tenancy clause? Whether or not that might be triggered in the near-term?

The co-tenancy is given by exception. It’s not the rule. So in any given center you might have five to 10 tenants that have a co-tenancy provision. It’s usually a multitude of things. It’s not just one anchor that’s named. It’s typically tied to multiple anchors. So at this point, we don’t think it’s going to be material. Macy’s announced closures of 125 stores. We had one on that list that they were planning on converting to office space anyway. So at this point, other than the three Nordstroms we’re not aware of any. Even with that being said, co-tenancy provisions are very rare exceptions rather than the rule as it comes to our portfolio.

Okay. And just going back to the debt covenant topic, I appreciate that you have significant cushion as of now. But now it’s all kind of relies on a couple of things right? So I’m more particularly interested in the total liabilities versus GAV calculation or secured debt-to-GAV calculations. I believe those calculations are based on a 6% cap rate. I’m just curious about the risk there is from lenders to adjust those cap rates to reflect a different world. And practically speaking, if you do violate the covenants I realize under notes can be worked with all the borrowers at this point. But what is the consequence of violating this covenant from a practical standpoint?

Well, we’re nowhere near any of the covenants. The lenders can’t arbitrarily change that cap rate. It’s part of the loan agreement. It’s an arbitrary number and it’s part of the calculation. It’s not based on a market cap rate in any given month or quarter. So they can’t arbitrarily change that and we’ve got plenty of room on our own leverage covenant.

Hey, good morning all there.

Good morning.

So earlier in your commentary you mentioned, fortifying and reshaping your strategic plan to adjust for life post-COVID and so. I’m just wondering you appreciated the comments on the dividend earlier more of a quarter-by-quarter consideration, the sizable reduction in the development pipeline, and some of the tenant initiatives in that line. I’m curious what else is on the table? Some of your peers have taken some more painful steps of furloughing staff, cutting senior management as well as Board comp. So, I’m curious what else is on the table here from a capital preservation, and cost efficiency overhead cost savings perspective? Thanks.

So Haendel, we took a look at the bigger line items. Two largest line items for us, through the top three or four are interest expense as well as property taxes. And Scott mentioned we’re working with some of the mortgage payments. That’s a big number. We don’t have a lot of employees. We outsource the major headcount areas of security and maintenance, and house cleaning. A lot of those are variable costs that Scott mentioned, that we’re able to reduce. Some of the other mall owners do that in-house. That increases the headcount pretty significantly. We went after the big line items. In terms of laying people off, our hope going into this was that this would be a short-term closure. And we could get our centers up, open, and operating. That’s why we chose not to do that. It wouldn’t have been a significant amount of savings. So, we didn’t do that. We put in place a higher increase. And you may recall a couple of years ago, we did a very significant reduction in force, reducing our headcount by about 15%. So, that’s still relatively current. We didn’t see a lot of room there to do there.

Got it, got it. Thanks so much for that. And then maybe adding some color to the center of the conversations that you’re having with your tenants. You haven’t paid and maybe from broader timelines and expectations for resolutions here, when we should know more by that. Certainly, something that’s going to take? Is it a few months? Is it a few quarters? And then, maybe as part of that some commentary and how much exposure to percentage rent leases you’re comfortable with in a post-COVID world? And maybe what overall occupancies might settle out? Should we be expecting low-90s, maybe even high-80s occupancy in a post-COVID world as well? Thanks.

Yeah. As I mentioned, Todd in my earlier remarks, we’re having literally hundreds of discussions with our retailers and they’re all somewhat unique based on the location of the center and the type of the use. Obviously, there’s going to be some tenants that as a result of COVID end up going bankrupt. We haven’t seen a lot of that yet. We’ve seen a few obviously. That’s going to affect occupancies. So we’re not giving guidance at this point, because there’s just too many uncertainties and that would include the ultimate occupancy level as well. Well. Thank you everyone for joining us here today. We look forward to speaking with many of you virtually at the NAREIT, coming up next month. Stay well, everybody. Thank you.

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now.