Good day, and welcome to the Macerich Company Third Quarter 2021 Earnings Conference Call. Today's call is being recorded. And now at this time, I'd like to turn the conference over to Samantha Greening, Director of Investor Relations. Please go ahead, ma'am.

Thank you for joining us on our third quarter 2021 earnings call. During the course of the call, we'll 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 directions, 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 on 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'd like to turn the call over to Tom.

Thank you, Samantha, and thanks to all of you for joining us today. After navigating almost 2 full years battling the impact of COVID, we're very pleased to report an outstanding quarter with almost no COVID related restrictions in place. As you read in our 8-K this morning, we had a very strong operating quarter, and we're pleased to report excellent results. We are seeing huge retailer demand. Our shoppers have come roaring back as U.S. consumers are continuing to shop with a purpose, and we see a higher capture rate than pre-COVID. Sales are exceeding pre-COVID levels with double-digit gains in the past 2 quarters compared to 2019, and that momentum is carrying into the fourth quarter. Retailer demand is at a level we have not seen since 2015. We expect traffic to continue to increase. The current level is over 95% of the 2019 traffic levels. Some of the second quarter highlights include: on a sequential quarter basis, we had occupancy gains of 90 basis points, and that's on top of the 90 basis point gain we had in the second quarter. At quarter end, our occupancy was 90.3%. We have a ways to go there, but we're making great progress. We saw robust leasing volumes for the quarter and year-to-date, both were in excess of 2019 levels. Year-to-date, we've executed leases for over 3 million square feet of space, and that compares very favorably to the full year 2019 level of 3.3 million square feet, and the full year 2015 level of 3.4 million square feet. Once we include the fourth quarter, our full year 2021 leasing volumes will exceed not only 2019 but the prior high of 2015. We saw same-center NOI growth of 21% in the quarter and expect the fourth quarter to continue with the double-digit growth we've seen in the past 2 quarters. We're obviously optimistic about the fourth quarter as we raised the FFO guided midpoint range to $1.96, a 3% increase on top of the increase in guidance last quarter. The depth and breadth of the leasing demand has us very optimistic about the future. Some of the larger deals recently signed include Target, which is at Kings Plaza replacing JCPenney, Scheels All Sports mega store replacing Nordstrom and Chandler, Primark at Fashion District to Philadelphia, Primark at Green Acres, Pinstripes at Broadway Plaza, and Lifetime Fitness at Broadway Plaza and Scottsdale Fashion Square. And that's just to name a few of the bigger deals. Doug will comment in detail shortly on more of the third quarter leasing activity. In addition to the big box deals, nontraditional mall retail demand in smaller format continues to accelerate with the digitally native brands getting active again on brick-and-mortar locations after stepping back during COVID. Other interesting additions include a host of new electric car companies taking space in many of our malls, including Polestar and Lucid. Many of our traditional retailers are back with even greater demand for space than pre-pandemic. With retailer bankruptcies down to a record low level and demand for space very strong, this is an excellent leasing environment which we expect to carry into 2022. Although leasing spreads were down slightly, we expect that trend to reverse itself in the upcoming quarters. During the quarter, we also continued our strategy of selling noncore assets. During the quarter, we sold La Encantada, a lifestyle center in Tucson, Arizona. We generated net cash of $100 million. The open air 246,000 square foot center sold for $165 million gross. That transaction builds on the March 2021 sale of Paradise Valley Mall, another noncore asset in Phoenix, which yielded net proceeds to Macerich of $95 million. The cash proceeds from both the sales were used to reduce debt. The balance sheet moves we've made in 2021 have significantly improved our leverage metrics. Year-to-date, we've paid down debt of over $1.5 billion and reduced net debt to EBITDA by over two full turns, and dropped debt to market capitalization to 61%. We're very optimistic about our business as we move through the balance of the year and into 2022. Not only is the leasing environment strong and getting better by the month, but we expect significant gains in occupancy, net operating income and cash flow. And now I'll turn it over to Scott to discuss in more detail the financial results for the quarter.

Thank you, Tom. Now let's go over the highlights of our financial results for the quarter. We achieved very strong operating results in the third quarter, with same-center NOI rising 21.4% compared to the third quarter of 2020, including lease termination income. Excluding lease termination income, same-center NOI still saw a 20.6% increase. Funds from operations for the third quarter of 2021 were $18 million, representing a 22% rise from the same period last year. FFO per share for the quarter was $0.45, which is $0.02 or 5% above consensus estimates of $0.43 per share, and is a $0.07 reduction from the third quarter of 2020 when it was $0.52 per share. The EBITDA margin improved by 1.2%, moving from 57.5% in the third quarter of 2020 to 58.7% by the end of the third quarter of 2021. Our portfolio occupancy continued to rise this quarter, showing an increase of nearly 2% over the last two quarters, supported by strong leasing volumes from our high-quality leasing team and real estate portfolio. This was indeed a very robust earnings quarter. Key contributors to our NOI and FFO growth include: first, an increase of $15 million or $0.07 in percentage rents due to the significant rise in sales we discussed earlier and that Doug will elaborate on; second, bad debt expenses improved by a comparative $15 million or $0.07 quarter-over-quarter; and third, common area income added another $0.04 to NOI and FFO from our urban parking garages. As we noted last quarter, our common area business has demonstrated strong resilience, exceeding our early 2021 expectations. However, these NOI gains were partially offset by an increase in shopping center expenses of $8 million or $0.04, primarily due to the closure or partial closure of many of our town centers during the third quarter of last year compared to full operational status in the third quarter of 2021. Additionally, we faced several other factors: first, a decrease in straight-line rental income of $10 million or $0.04 due to significantly reduced abated rent in the third quarter of 2021 compared to the same period the previous year; second, lower landfill gains resulting in a decrease of $12 million or $0.05 due to land sale transactional timing; and third, a drop of approximately $0.12 in FFO per share caused by an increased share count from common stock sold earlier this year through our ATM programs, although this was offset by decreased quarterly interest expense owing to significant debt paydowns in 2021. This morning, we have updated our previously issued guidance for FFO, which is now estimated to be in the range of $1.92 to $2 per share, representing a $0.06 or 3% increase over the midpoint of our prior guidance range. While specific guidance assumptions are detailed in our supplemental filing from earlier today, I’d like to share a few additional insights. This updated guidance reflects an improving operating environment that is advancing quicker and better than we initially expected, driven by increases in same-center NOI. The guidance range assumes no further mandated shutdowns of our retail properties and only the previously reported issuance of $848 million in common stock without any further equity issuance for the remainder of the year. As I mentioned in the past two quarterly calls, we anticipated solid double-digit NOI growth in the latter half of 2021. That projection is unfolding as expected, and we are looking forward to strong same-center growth in the fourth quarter, likely exceeding the levels recorded in the third quarter of 2021. More details regarding the guidance assumptions are included in the company's Form 8-K supplemental financial information. Now, regarding our balance sheet, we continue to focus on reducing our debt. In 2021, we have repaid about $1.5 billion in debt. Our efforts in the third quarter were bolstered by the sale of La Encantada in Tucson, Arizona, which allowed for approximately $165 million of debt repayment. We expect to generate more than $200 million in free cash flow annually after covering dividends and recurring capital expenditures over the next few years, which, along with a rapidly improving operating environment, will facilitate a continued reduction in leverage to around 8 times by the end of 2023. This compares to leverage in the mid-11s at the close of 2020 due to the impact of COVID. Including our undrawn capacity on our revolving credit line, where only $100 million of the $525 million total capacity is presently outstanding, we currently have about $610 million in liquidity. From a secured financing perspective, last week we finalized a 5-year $65 million refinance of the shops at Atlas Park, a lifestyle center near Queens, New York, and we are in discussions for a 5-year $200 million refinance of FlatIron Crossing, an enclosed regional Town Center in Broomfield, Colorado. Together, these loans will refinance the existing loans without additional capital outlay. The debt capital markets are steadily improving, and we are pleased with the advancements made in addressing upcoming maturities. As previously mentioned, we continue to observe positive trends within the debt capital markets, illustrated by an increasing number of retail transactions on favorable terms. I will now hand it over to Doug to discuss the leasing and operating environment.

Thanks, Scott. Tom and Scott did a great job of highlighting some of the leasing activity metrics at a high level. And as Tom mentioned, I'll dive in a little bit deeper. So the leasing environment continues to improve, and the leasing productivity continues to outpace pre-COVID 2019 levels. In fact, we're on track for our strongest leasing year since 2015. Sales were strong in September, and this is on top of a very productive July and August. September sales were up 17% when compared to September 2019. And once again, all categories, including food and beverage, comped positively. Looking at the quarter, third quarter sales were up 14% over third quarter 2019, and this is on top of the second quarter being up 14% versus second quarter 2019. Occupancy at the end of the third quarter was 90.3%. That's up 90 basis points from 89.4% at the end of the second quarter. As Scott mentioned, over the past 6 months, portfolio occupancy has increased 180 basis points relative to the 88.5% occupancy rate on March 31, 2021. And given the healthy retail environment that exists today, coupled with our strong leasing pipeline, which we'll touch on in a moment, we anticipate that occupancy will continue to increase throughout the remainder of this year and into 2022 and beyond. The pace of bankruptcies continues to decrease. And year-to-date, bankruptcies within our portfolio remained at the lowest levels we've seen since 2015. In the third quarter, only 2 tenants filed for bankruptcy. Within our portfolio, these 2 tenants accounted for just 5 stores and only 13,000 square feet. Trailing 12-month leasing spreads were minus 2.5%, that's down from minus 0.2% last quarter. And this is primarily a result of signing a 20-store package with one retailer, totaling just over 100,000 square feet. Average rent for the portfolio was $62.58 as of September 30, 2021. And this is an increase when compared to $62.47 as of June 30, 2021, and $62.29 as of September 30, 2020. We continue to make great progress on our 2021 lease expirations. To date, we have commitments on 91% of our 2021 expiring square footage with another 9% or the balance in the letter of intent stage. As for our 2022 lease expirations, we have commitments on 36% of the expiring square footage and 55% in the letter of intent stage. Tenant openings. In the third quarter, we opened 280,000 square feet of new stores resulting in total annual rent of $10.5 million. Year-to-date, we've opened 630,000 square feet of new stores, which is about 15% more square footage than we opened during the same period in 2019. Most notably, in July, we opened a spectacular 5,000 square foot 2-level flagship Dior store in the luxury wing at Scottsdale Fashion Square. Not only is Dior first to the Phoenix market but it's also first to the state of Arizona. In fact, the closest store is 250 miles away in Las Vegas. The addition of Dior further solidifies the fact that Scottsdale is and will continue to be the premier luxury destination in all of Phoenix, or in Arizona for that matter. In September, Primark had its grand opening at Fashion District Philadelphia. Shoppers arrived early and they stayed late. Lines outside the store continued for days and high traffic volumes remained ever since. This 2-level 46,000 square foot store located at the corner of Market and 10th Street is a true anchor in every sense of the word. Primark is destination oriented and is expected to increase FDP's already strong trade area and elongate shopper dwell time. Fashion District Philadelphia marks our fourth store opening with Primark following Danbury Fair, Freehold Raceway Mall and Kings Plaza. In addition to these 4 open stores, we also have signed leases with Primark at Green Acres and Tysons Corner that will open in 2022 and 2023, respectively. As such, we remain Primark's largest U.S. landlord and continue with ongoing discussions regarding several other key markets and opportunities. Staying in the large-format category, we opened a 70,000 square foot Shoppers World at Green Acres Mall in the former Century 21 location. And this is in addition to the Shoppers World that opened last quarter at Fashion District Philadelphia also in the former Century 21 location. So now we have both of our bankrupt Century 21 locations open and occupied. We also opened a 25,000 square foot Kids Empire at SanTan Village and a 20,000 square foot Ross Dress for Less at Pacific View. Other notable openings in the third quarter include Saint Laurent at fashion outlets of Chicago, Fabletics at Danbury Fair, Roden Ganat, Broadway Plaza, and Free People Movement at various locations. Lastly, in the digitally native and emerging brand category was active. In the third quarter, we opened Buck Mason and Lucid Motors at Scottsdale Fashion Square, Marine Layer at Broadway Plaza, and 2 Fabletics stores at Los Cerritos and Washington Square. Now let's look at the leases we signed in the third quarter. In the third quarter, we signed 219 leases for 1.1 million square feet, resulting in $47 million in total annual rent. In the first 3 quarters of 2021, we signed 707 leases for 3 million square feet, resulting in $136 million in total annual rent. This represents 10% more leases, 25% more square footage and 14% more rent than during the same pre-COVID period in 2019. Notable leases signed in the third quarter include Aritzia and a new and expanded Blue Nile store at Tysons Corner, Brunelli at Fashion Outlets of Chicago, Dolce & Gabana and Marc Jacobs at Scottsdale Fashion Square, GUESS Originals at Los Cerritos, and a 9,000-square-foot flagship Lululemon at Broadway Plaza. We also signed a 5-store package with Windsor Fashions totaling 22,000 square feet. In the large-format category, we executed a lease with Target for a 3-level 90,000 square foot store at Kings Plaza in the former JCPenney location. Along with the lease we signed with Primark for the JCPenney location at Green Acres, we've now replaced the only 2 stores we lost from Penny during their bankruptcy, and did so with compelling, relevant and productive uses. We finalized our deal for a 220,000 square foot Shields All Sports at Chandler Fashion. We also signed a 37,000 square foot Lifetime Fitness at Scottsdale Fashion at the entrance of our new luxury wing. And this marks our third deal with Lifetime in addition to Biltmore Fashion Park and Broadway Plaza. We also signed our first deal with Pinstripes at Broadway Plaza. For those of you who aren't familiar with Pinstripes, it's a very cool 27,000 square foot indoor, outdoor entertainment concept featuring bowling, various games, live music, a hip bar and great food. It will be the first in the Bay Area and will bring vibrancy and excitement to Broadway. Lastly, in the digitally native and emerging brands category, we signed leases with Fabletics at the Village of Corte Madera, LEAP in Northbridge, Polestar at Scottsdale Fashion Square and Towne at Santa Monica Place. Now turning to our leasing pipeline at the end of the third quarter. We had signed leases for 330,000 square feet of new stores still to open in 2021. And looking into 2022 and 2023, we've signed leases for another 1.7 million square feet of new stores still to open. And in addition to these signed leases, we're currently negotiating leases for new stores totaling 620,000 square feet, the majority of which will open in 2021 and or early to mid-2022. So in total, that's over 260 signed and in-process leases, totaling 2.7 million square feet of new store openings throughout the remainder of this year and into 2022 and 2023. So to conclude, sales are trending significantly better than they were pre-COVID. Occupancy is up nearly 200 basis points over the past 2 quarters, and is expected to continue to increase throughout the remainder of this year and into 2022. Bankruptcies are at their lowest level since 2015, and that's consistent with our significantly reduced tenant watch list. And leasing velocity is at its highest level since 2015. This is evidenced by the multitude of leases, which we signed this year, resulting in a very strong, vibrant and exciting pipeline of tenants slated to open yet this year and into 2022 and 2023. And now I'll turn it over to the operator to open up the call for Q&A.

We'll take our first question from Jim Sullivan with BTIG.

My first question is about the occupancy rate gain you've achieved by the end of the third quarter and the progress you've made with leasing upcoming deals. Reflecting on the previous recovery after the financial crisis, it took approximately 6 to 7 years to recover around 500 basis points of occupancy loss. In this case, the vacancy loss has been more significant, yet the recovery pace appears to be faster. I'm not asking you to make a forecast, but when considering a return to a 94% or 95% occupancy range, can you provide us with a timeframe? I understand you've mentioned expecting it to be quicker, but this is crucial for the strength of the portfolio and EBITDA. Can you help clarify how long it might take to reach that occupancy level?

Yes. Sure, Jim. By the way, I think after the great financial crisis, we recovered in 4 years, 4.5 years, something like that. And we look at the pace today, you're correct, it is more rapid than what we saw in 2010 and '11. And if we stay on pace with what we've seen in the last 2 quarters, I think by the end of 2023, we'll be back in the occupancy levels that we were at pre-COVID. Again, it depends on the pace, but everything we see ahead of us is a tremendous demand and some pretty big volume, and we think we can keep up that pace.

Okay. For my second question, you mentioned Primark as a significant big box retailer successfully expanding into several centers, with more to come. Can you help us compare this to the legacy department store transactions that were part of the portfolio before those stores began closing? I understand that Primark may not occupy as large a space, but can you provide insight into the per foot revenues generated by Primark in comparison to those legacy deals, without sharing specific numbers you may prefer to keep private?

Yes. I mean Primark is new. They're a bigger version of what we've seen come over from Europe in the past. Don't take the same size as a traditional department store. They do pay more rent. The traditional department stores were notorious for not paying much rent, frankly. They were a traffic driver. And so the economics are better, and we think they're going to continue to gain momentum and continue to expand. So exciting. I guess our latest anecdotal evidence on that is when we opened Fashion District to Philadelphia a few weeks ago, and even though the city of Philadelphia has not fully bounced back yet, there are people lined up to get in that store and a lot of traffic. So Doug, you can add further and elaborate, but that's my view. It's a much different type of department store than those we've been replacing.

The only thing I would add, Tom, is that while maybe not as big as the traditional anchor stores, they do act like a traditional anchor store in the way anchor stores are supposed to be. And as I mentioned in my remarks, Primark does draw outside of our traditional trade areas, and it does elongate the shopping trip. So it really is doing what all the traditional anchor stores used to do and were intended to do, and we're thrilled to bring them over here and look forward to doing many more deals with it.

We'll take our next question from Derek Johnston with Deutsche Bank.

Kind of expanding on the last question. So the near-term openings you've discussed or are close to announcing, both Primark and others, clearly, backfilling various anchor closures which are likely out of the same-store pool due to length of vacancy. So can you give us an idea of the economic benefit or perhaps the mark-to-market you're seeing with the new leases? And what annual escalators you may be getting? And then lastly, how do you see traffic trending once they're open versus, say, a Sears or a JCPenney or a Century 21, for example?

Derek, this is Scott. The situation really varies based on whether the stores are in the same center pool. It depends on whether we are just replacing tenants within the same space, or if we are actually tearing down the structure to create a broader mixed-use development. For example, if a Primark is taking the place of a JCPenney, we view that as part of the same center. We sometimes provide a tenant allowance and do some retrofit work before we hand over the space, which wouldn’t classify as a major development. However, if we are demolishing a location, like in Los Cerritos or Watchman Square, where we are currently seeking approvals for a mixed-use addition, that involves significant development costs and would be considered non-same-center. Could you please repeat the second part of your question so I can address that as well?

Yes. Just the economic benefit or perhaps the mark-to-market you're seeing with the new leases, any escalators and how you view traffic clearly improving once they're open versus the legacy boxes.

Yes. I think just on the rent side and the mark-to-market, just to expand on Tom's comments without getting specific in terms of rent levels. The anchors, typically we're paying no to very minimal rent, low to mid-single-digit type of rent on average. So we're getting more full big box rents associated with these deals. And obviously, capital is precious, and we wouldn't be making these moves unless they made economic sense for us. So there is a very positive mark-to-market and a nice yield on our cost.

And then in terms of traffic, I mean, clearly, replacing JCPenney and Sears with the likes of Primark, Target and Shields, we're going to have significantly more traffic and significantly more sales. So the commerce that's generated from those boxes is going to be far greater with those new tenants compared to the ones that have vacated, including Penny and Sears. So we expect a many times multiple of sales and traffic from Primark, Target and Shields.

And that's an important point to note. And when you think of a Shields you think of all the space in two levels, it's leading up to it. It's not only the mark-to-market on the anchor box that we may be talking about on any given deal. It's really all of the reletting over the next 3 years as we sell into Shields coming to the center or excuse me, or Primark coming to the center or target. It makes the space around at the online shop space imminently more valuable, and we're able to mark that space up.

Yes. That makes sense. And my second question, the FlatIron in Colorado, can you discuss what was entitled recently and how you're thinking about the mixed-use transformation, be it experiential, residential office co-working, whatever is being considered? And then how do you plan to approach it? And really other repositioning projects as well. Are you looking to do this solo or maybe with partners and perhaps a JV component where the structure may be a little less capital intensive but also meaningfully accretive? Anything you'd share there would be helpful.

Yes. Derek, I'll discuss it kind of from a global approach and Scott can get into some of the details on FlatIron. But our goal is to densify and diversify our portfolio wherever we have the opportunity. A couple of good examples are at Los Cerritos in Washington Square, where we're replacing Sears boxes with mixed use, and going through the entitlement process now. And as we go through that, we have a variety of ways to do that. We can do the capital light version, which is effectively ground lease the land to a developer, residential developer or mixed-use developer. We could also contribute the land and take a partnership position based on the value of the land, or we could do a straight up 50-50 deal. So there's a lot of different ways to approach it. It's going to depend on the individual project and the type of return on cost that we can achieve.

And Derek, on FlatIron specifically, we received entitlements to add both multifamily as well as office. We do have a dark Nordstrom box. They closed during COVID and we do anticipate more than likely converting that box to creative office. The nearby Boulder market has an insatiable demand for tech use. And we think we're very well positioned about 15 miles down the road to take advantage of that demand. And on the multifamily side, we would envision much the same, as Tom mentioned, contributing our land into a JV and then assessing what our further economic contributions will be from there by adding multifamily buildings as well as some restaurants and a sense of place picture and an entertainment environment where you could hold marketing events and the like with surrounded by restaurants and patios. So the very attractive new entry that complements the existing property.

We'll take our next question from Craig Schmidt with Bank of America.

Given the trend of sales per square foot metric, it would seem like your absolute sales per square foot number must be returning back to pre-COVID level. I was wondering when you might start reporting the sales per square foot number as opposed to just trend? And does Macerich intend to return to showing the sales per square foot by property ranking table that you published pre-COVID?

Craig, that is a good question. Answer is still to be determined, frankly. We were the only ones in the sector that did that. So it was a little bit of a proprietary disadvantage as it related to the leasing transactions and environment. But it's something we'll consider as we get on the other side of COVID here.

Okay, great. We have already entered the holiday season in November and December. It seems that the supply chain disruption narrative is starting to fade. What feedback are you receiving from retailers regarding their concerns about having adequate stock in their stores for the holiday season in 2021?

Yes, we are based in Southern California and have noticed the freighters waiting offshore to enter the port of Los Angeles. This is a recurring topic. Our retailers have been more affected by supply chain issues in the past but appear to have resolved most of those problems. Honestly, we don't receive many complaints from retailers regarding their supply chains; their primary concern now seems to be finding enough labor and rehiring staff. This is their biggest challenge as they prepare for the holiday season.

We'll take our next question from Samir Khanal with Evercore ISI.

Scott or Tom, can you help us understand how to think about growth for next year from an FFO perspective? I mean, this year, you had the valuation gain plus you also had a very high term fee number, which likely won't repeat. So maybe off of a clean FFO number, how should we think about sort of the building blocks for growth? I mean there's clearly the occupancy portion of it to pick up for next year. But is there anything else that we need to think about in terms of growth?

Samir. You touched on a few of the points. Obviously, we have a carryover of the share count that would anniversary through the first half of the year. We would also expect a straight-line rent, which was elevated this year because of abatements and concessions that we gave to tenants in the first half of 2021. We'd expect that to be substantially lower. Obviously, that's noncash. But on the positive side, we certainly would expect an increase in operating cash flow without giving any guidance. We do expect strong growth into next year. I don't think it's going to be 20% that we reported in the third quarter, but we do expect it to be strong, and we do expect cash flow growth.

And I guess on the occupancy portion, is there a number that you guys are sort of targeting or you can sort of throw out in terms of where you think occupancy could kind of year-end for this year and maybe how you're thinking about next year?

Well, as I mentioned earlier, it depends on the performance over the last two quarters, both of which saw an increase of 90 basis points. If we assume a similar achievement in the fourth quarter, we typically see a slight slowdown in leasing as retailers prepare for the holidays and approach the end of their fiscal year. However, reaching close to 91% occupancy by year-end is within reach as we currently stand at 90.3%. Even if we see a slight decline from the pace of the last two quarters, we can still achieve that. Looking ahead to next year, we anticipate the leasing pace to continue, with a strong possibility of reaching the 92% to 93% range by the end of 2022.

We'll take our next question from Floris Van Dijkum with Compass Point.

I have a question about the leasing market. It's clear that your company is benefiting significantly, as indicated by your high percentage overage rent of $15 million. As we look ahead to next year, could you share what percentage of your current portfolio consists of temporary tenants? Additionally, how do you approach your specialty leasing, especially with the holiday season approaching and considering that last year it had minimal impact on your numbers?

Yes, especially leasing, and that's a pretty broad category. It would include advertising. It would include anything that's not long-term traditional leasing, and it makes up, at any point in time, 10% to 15% of our NOI. And I related to NOI rather than top line revenue because most of that drops right to the bottom line. And we did a pretty good job of getting vacant space filled very quickly when we got the bankruptcies in 2020. And so as we continue to do more permanent leasing, the overall occupancy level goes up, the permanent percentage lease goes up, there's going to be less inventory for the specialty leasing folks. So I would expect that to actually taper off a little bit. It will be strong in the fourth quarter. We've done a good job releasing that space, but I think a lot of that space will move from big temporary space to permanent space in 2022. And so I would expect that the pace of growth with business development or specialty leasing to taper off.

Yes, Floris. Scott. We're in the mid-6% range on occupancy right now on a temp basis. As Tom mentioned, I would think that, that will tick up closer to 7% by the end of the year. But given the demand we're seeing, I do expect that, that will start to subside as we move forward into 2022, we'll start to convert some of that temp occupancy to perm occupancy. It's an important driver for us, of course. The temp rents are typically 35%, 40% of what a full-time permanent tenant would be. As we fractionally say Doug's job and Doug's team's job is specialty leasing group out of business. I'm not saying we're going to eliminate specific leasing, but affectionately say, our ultimate goal is to have more permanent leasing. And look, given the volume that we're seeing, I think we're headed in that direction as we move into '22 and '23.

Great. I have a follow-up question. I noticed the difference in lease spreads between your joint venture assets and your consolidated assets. The overall spread was slightly negative for the quarter, and I’m curious about what influenced that. Are there any anomalies that contributed to this? Does it relate to you taking a higher percentage of rent in some cases? Any additional insights you can provide would be appreciated.

I mean that can fluctuate quarter-to-quarter depending on what leases are expiring and what new deals get done. So it can vary quite a bit. Historically, we've always had bigger re-leasing spreads in the JV assets, and that's because a lot of our bigger assets tend to be JV. If you think Tysons, for example, Scottsdale Fashion Square, some of those type assets that have very high sales per foot are JVs. And historically, that's been the case. And I think we'll continue to probably see that the case.

We'll take next from Rich Hill with Morgan Stanley.

I was hoping you could help us understand the negative 2.5% leasing spreads mentioned in the prepared remarks in relation to the average base rent per square foot in the supplemental. When I compare the executed leases to the expired ones, it seems the situation is worse than the negative 2.5%. Could you provide some clarity on these two figures?

Yes, Rich. Average base rent accounts for the entire portfolio and includes all leases. The leasing spread is a measure that focuses on leases longer than 12 months, comparing new base rents to expiring rents from the past year. It's important to note that this isn’t a same-center metric; therefore, a straightforward comparison between average base rent—covering the entire portfolio—and other figures may not provide clarity, especially since the overall rent has likely increased compared to last year due to fixed escalations. A comparison can be made using just a sample from the past 12 months, excluding any renewals shorter than a year.

No, that's helpful. The reason I was asking is one of your peers noted that their leasing spreads were not same-store. So I just wanted to make sure I understood that. The second question I had was about overage rent. I'm not super sure how these are structured. So I was hoping you could give us some more insights. And specifically, let's say, sales stay at these robust levels, but don't accelerate, does your percentage rent stay the same next year? Or does the threshold step up and maybe lead to lower percentage rents? I'm just not sure how they're structured, so I'd love some insights on that.

Sure. If sales remain constant going forward, you would naturally see a decrease in percentage rent as we transition that into fixed rent as leases expire. We can access only a certain portion of leases each year, but under constant sales, you would observe that decrease. The driving factor behind this is that elevated sales are leading a greater number of tenants to ultimately break. There is some influence from the COVID-related modifications we made, but overall, there are many more tenants breaking now. Some tenants are performing exceptionally well at levels we didn't expect and are now paying percentage rent.

That being said, there's a very small percentage of our overall tenant base that pays percentage rent, Rich. I think it's less than 10% of our tenants paid percentage rent. So it's a relatively small base. But when you're up as much as we've been up the last couple of quarters, you push a fair number of tenants into percentage rent that weren't there in 2019 and certainly not there in 2020.

And your next from Linda Tsai with Jefferies.

You discussed earlier that electric car companies like Polestar are opening at your properties. Does this have the potential to significantly increase the sales productivity of your malls like Tesla did? And then how many electric car company leases do you have across your portfolio currently?

That's a great question, Linda, and we don't have the answers yet. I'm not sure they do either regarding the sales. The products are quite interesting, and we've partnered with five different brands. Currently, we have around 20 leases in place, which includes a few Teslas. There is substantial demand. For instance, at Corte Madera, a Polestar came in temporarily and received such a positive consumer response that they quickly transitioned into a permanent space. I believe we will see more instances like this. It's fantastic because it drives traffic, generates interest, and enhances the diversity of our tenant mix, and we are genuinely excited about it. As for the sales potential, that's still to be determined. However, I think the entire country is leaning towards more electric vehicles. Some of these brands have solid backing; for example, Volvo has a stake in one of them and is providing significant capital support.

Can you remind us how many EV charging stations you have across your portfolio?

We now have charging stations at about 95% of our parking fields at our properties.

Got it. Regarding the 20-store package that affected re-leasing spreads, it seems like it's a significant deal. Can you provide any more details, such as whether this is a new type of retailer or a legacy one? Additionally, any information on where they might be opening would be helpful.

It's an existing retailer that we've had for probably the better part of 10 to 15 years, and they're using this as an opportunity to expand their fleet, recognizing that there's a lot of high-quality space out there. We were able to accomplish a deal that probably added 40, 50 basis points of occupancy. But beyond that, we really obviously can't get into names and specifics.

And the last quarter, you highlighted rent abatement. Were there any rent abatements this quarter?

Very negligible, Linda. I'm pleased to say that the COVID negotiations are behind us. That's a very positive thing. So they were very, very small.

We'll take the next question from Mike Mueller, JPMorgan.

For the 180 basis points occupancy increase you've seen, how varied was that across geography and asset productivity?

It was consistent across the board. For instance, with our 45 assets, the bottom 15% experienced less new deal activity compared to the top 30%. However, when looking at our stronger assets, the performance was uniform in terms of geography and productivity. Additionally, this consistency was seen in terms of size and diversity of category as well. Doug, would you like to add more?

No, Scott, I think you're right, and that's why this business is so exciting right now. It's one of the reasons why we may achieve quicker occupancy recovery than we did after the financial crisis. We're not just focused on traditional retail anymore, even though we still lease traditional retail. By incorporating entertainment, home furnishings, food, and grocery, we expect to see occupancy rebound much faster. Moreover, our shopping centers will transition from traditional malls to town centers, which is our goal: to be everything for everybody.

We'll hear next from Greg McGinniss with Scotiabank.

Just a couple of quick ones for me. First, how does average ABR signed or the portfolio average base rent account for the percent rent leases?

It does not factor in percentage rent when calculating average base rent. If we were to include percentage rent, it would clearly be higher compared to this time last year due to the increases we've reported. Additionally, the leasing spreads would likely show some improvement as well. We have not quantified that, but it does not include any percentage rent.

Okay. But it is including the base rent portion of those lease signs?

Correct.

Okay. All right. That's helpful. And then Doug, I appreciate the color on the 2021 lease expirations. Just curious to look what the retention rate has been on expiring leases, how that compares to historical averages? And then for the 2.7 million square foot lease pipeline that you guys have, how much of that GLA relates to space that is currently occupied versus vacant?

So I think, Greg, your question was what percentage of the deals that we're quoting are renewals versus new deals?

I’d like to understand the 2021 expirations better, specifically how much was retained in the portfolio and how much was left. Additionally, for the lease pipeline, I'm interested in knowing how much of that is going into spaces that are currently occupied.

It's Doug. I don't think we have the exact breakdown, but it is definitely a combination of renewing expiring leases and then backfilling expiring leases with new leases.

It's historically been about 65% renewals, 35% new. Might be a little bit higher coming out of COVID as a result of the rash of bankruptcies. But typically, that's what it's been roughly 1/3, 2/3.

I believe that number is likely a bit higher when considering the pipeline because it involves leases that are set to open at the end of 2021 or in early to mid-2022. To achieve this, there needs to be vacant spaces available. Thus, I would say that it leans more towards vacancies rather than expiring leases. As for your second question about leased versus physical occupancy, approximately 2% to 3% of our leased occupancy is still pending. There's typically a lag of about 6 to 9 months for the build-out of our usual inline space. Therefore, some of that occupancy won't start generating rental income or cash flow benefits until next year. This lagging effect is about 2% to 3%.

We'll hear next from Katy McConnell with Citi.

Can you help us understand the bridge from 3Q FFO to the implied 4Q level, which usually sees a larger pickup from the holidays? So are there any other factors to be aware of within 3Q that may not be reoccurring?

Yes, sure. Katie. Yes. At the midpoint of our guidance, we'd be slightly ahead in the fourth quarter relative to the third quarter. As you can see, we've provided a pretty broad range and the broadness of that range really relates directly to what could happen in the fourth quarter relative to sales, sales continue at the current trends, we could end up higher than the midpoint towards the upper end of our range. We think we've made some realistic sales estimates that are embedded within the midpoint. But look, it's very possible we could end up higher than our midpoint if sales continue at the current pace. Keep in mind that in the third quarter, lease termination income was elevated relative to where we think it's going to end up in the fourth quarter. So that's another factor. And then the seasonal nature of our business, the third quarter is not like the fourth quarter, which is more expensive to operate our shopping centers. We've got expanded holiday hours, expanded staffing. So that means more housekeeping and maintenance staff, security staff, in some cases, utilities and things like snow removal, just becomes a more expensive business to run in the fourth quarter given the seasonal nature of it. So those are some of the other factors that you should keep in mind.

And to the point on expenses, can you talk about your outlook for reimbursement since the recovery rate is still trending below average relative to the OpEx improvements to date or increases. Is that a function of how leases are being structured today? Or would you expect to see more of an improvement next year?

Yes. Part of that, Katy, is just going to trend with the occupancy level. We switched to fixed cam a number of years ago. And so when occupancy drops, reimbursements are going to drop almost pro rata. And we expect that to come back as we fill up more space and we get closer to our more normal level of 93%, 94% occupancy.

And that does conclude today's question-and-answer session. I'd like to turn the conference back over to Tom for any additional closing remarks.

Thank you, Cody. Well, thank all of you for joining us today. We look forward to reporting the balance of the year and seeing many of you at NAREIT next week.

Thank you. And that does conclude today's conference. We do thank you all for your participation, and you may now disconnect.