Good day, everyone. Welcome to the Macerich Company Second Quarter 2021 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jean Wood, Vice President of Investor Relations. Please go ahead.
Thank you for joining us on our Q2 2021 earnings call. During the course of this call, we will be making certain statements that may be deemed forward looking within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995, including statements regarding projections, plans or future expectations. Actual results may differ materially due to a variety of risks and CertainT's set forth in today's press release and our SEC filings, including the adverse impact of the novel coronavirus COVID-nineteen 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 ks with the SEC, which are posted in the Investor section of the company's website at macerich.com. Joining us today are Tom O'Hearn, Chief Executive Officer Scott Kingsmore, Senior Executive Vice President and Chief Financial Officer and Doug Healy, Senior Executive Vice President of Leasing. With that, I will turn the call over to Tom.
Thank you, Gene, and thanks to all of you for joining us today. As you read in our 8 ks this morning, we had a very good quarter. As we pass the midpoint of the year, we find ourselves at an inflection point. As we said in our last call, we expected occupancy to hit a low point at March 31, 2021 and that appears to be the case. As we look today, almost all of our operating metrics have started to trend positive, including occupancy.
And many of these metrics are even trending positive compared to the pre pandemic Q2 of 2019. Improving operating results, including leasing volumes, occupancy gains, and most importantly, tenant sales, which have trended very positively. In fact, to give you some month by month numbers, March tenant sales were up 8.6%, April sales were up 9.9%. May June were both up a strong 15%. Those increases are versus the same periods in 2019.
We're not comparing sales to 2020, those are compared to 2019. Traffic is still lagging a bit at around 90% of pre COVID levels on average. So what we're seeing is an improved capture rate for the retailers compared Pre COVID. We do expect traffic to continue to increase in the second half of the year. I would say brick and mortar mall based retail is back with a vengeance, Albeit helped to some degree by stimulus checks and revenge buying.
Because of the robust leasing environment, It feels much better to us than when we emerged from the great financial crisis in 2,009 and 2010. Some of the 2nd quarter highlights include on a sequential basis occupancy gains of 90 basis points. Leasing volumes for the quarter year to date were in excess of 2019 levels. We saw same center NOI growth of 11.5%. We expect the second half of twenty twenty one to be even better.
We raised the bottom end of our FFO guidance range and move the midpoint up even factoring in the impact of issuing equity during the Q2. In terms of balance sheet activity, we used the ATM to a small degree in June. Since our last earnings call, we issued 6,400,000 shares at an average price of $18.20 We raised $114,000,000 of capital and that was used to reduce debt. Trading was good for us in the quarter and in June and we ended the 2nd quarter as the 2nd best performing REIT, up 58%. In other balance sheet activity, in addition to our sale of Paradise Valley Mall in March, We're still expecting to close on the sale of another non core asset or 2 in the second half of twenty twenty one, and that's in our guidance.
Net proceeds expected to be in the $100,000,000 range. The balance sheet moves we made in the first half have significantly improved are leverage metrics. Year to date, we paid down over $1,300,000,000 of debt. Focusing for a moment now on leasing, we're seeing incredible demand for space, including big box space and perimeter locations. That includes multifamily, healthcare fitness, wellness uses, food and beverage and other traditional non traditional retail uses.
A great example of the latter is that during this past quarter, we announced a 222,000 square foot Scheels Sporting Goods Lease in the former Nordstrom's box at Chandler Fashion Center. This store will be their first in Arizona. It will feature a 16,000 gallon saltwater aquarium, a wildlife mountain, a restaurant and more. Non traditional mall retail demand in smaller format also continues to accelerate with the digitally native brands getting active again on brick and mortar locations after a hiatus during COVID. Other interesting additions include a host of new electric car companies Taking space in many of our malls, including Polestar and Lucid, who've done multiple deals with us this year.
Many of our traditional retailers are back with even greater demand for space than pre pandemic, and Doug will elaborate on that in a few moments. We are very optimistic about our business as we move forward to the balance of the year and into 2022. For the most part in the U. S. With 58% of the population vaccinated, the worst of the pandemic is behind us.
The leasing environment is strong and getting better by the month and we expect significant gains in occupancy, net income and FFO growth as we move through the year and into next year. And now I'll turn it over to Scott to discuss in more detail the financial results for the quarter.
Thank you, Tom. Before I report on the financial highlights of the quarter, I would like to make an announcement. At the end of this year, Jean Wood will be hanging up her Investor Relations cleats and stepping gracefully into retirement. Jean has been an incredible asset to Macerich the past 27 plus years. Her dedication to the company started within just a few months after Macerich's IPO in 1994 and we sincerely appreciate her contributions, her partnership and her friendship over these many, many years.
Over the coming months, Jean will be transitioning her role to Samantha Greenie, our new Director of Investor Relations. Samantha has been with Macerich for over 9 years in various capacities. We are very pleased to welcome Samantha into this new role. And during the balance of the year, Please join us by welcoming Samantha and by wishing Jean all the best as she approaches the new chapter in her life. Now on to the highlights of the financial results for the quarter.
Same center NOI rebounded very well in the quarter increasing 11.5% relative to the quarter of 2020, including lease termination income. Given the prevalence of retroactive rent relief adjustments within our 2021 results, We believe it is appropriate to measure our 2021 same 2021 same center operating performance by including rather than excluding Lease termination income. If we were to exclude lease termination income, same center NOI growth still increased 10.4%. Funds from operations for the Q2 of 2021 was $0.59 per share, up 0 point From the Q2 of 2020 at $0.39 per share. EBITDA margin has increased over 6% to 63.9% relative to 57.7% at the end of the Q2 in 2020 and is approaching pre COVID EBITDA margin of 65.3% at the end of the Q2 in 2019.
As Doug will soon explain, our portfolio occupancy rate increased in the quarter and our leasing spreads showed sequential improvement relative to the end of the Q1 of 2021. Suffice to say, this was a relatively noisy earnings quarter with many moving pieces supporting our positive earnings news that we've released today. To expand on those, the primary factors contributing to these NOI and FFO gains are as follows. On the NOI front, 1, the quarter increased or the quarter increases include a resulting from the dramatic increase in sales that we reported earlier today. 2, common area income has contributed another $0.04 of NOI and FFO including from for urban parking garages.
Our common area business has proven to be quite elastic and resilient and is recovering very well. In fact, our common area revenue performance has exceeded our expectations from when we entered into 2021. And 3, Bad debt expense represents a comparative $50,000,000 or $0.23 improvement quarter over quarter, including a $40,000,000 bad debt expense incurred during the Q2 of 2020 at the onset of COVID and a net $10,000,000 bad debt reversal within this last quarter, Q2 of 2021. Offsetting these NOI factors were, 1, $46,000,000 or $0.21 in reduced minimum rent and recovery income from reduced occupancy as well as Approximately $15,000,000 of retroactive rent abatements and rent relief for primarily 2020 rents. To pause on this point, the previously mentioned $10,000,000 bad debt reversal in the quarter should be viewed in tandem with a negative $15,000,000 impact rent abatements from the Q2.
In other words, the net impact of COVID workout deals on same center NOI in the 2nd quarter was a negative $5,000,000 when considering both line items. So if you want to normalize same center NOI for what is Essentially, the majority of the remaining COVID workout deals then add back $5,000,000 or 3% roughly to same center NOI. Also, as I mentioned last quarter, we expected a reduced amount of retroactive rent abatements in the second quarter and that was in fact the case. And I also expect that we are and I also said that we expect a very negligible impact in the second half of the year from such retroactive abatement concessions and we still expect that to be the case. Secondly, shopping center expenses increased by approximately $0.06 was driven by the widespread closures of our center in the Q2 of last year relative to the full operational status of our portfolio throughout the Q2 of 2021.
And lastly, a few other factors included: One, the 2nd quarter included an increase of positive $0.09 in valuation adjustments, debt of provision for income taxes from our indirect investments in various retailers that Macerich has previously invested in through a venture capital firm. This positive impact shows up in other income from unconsolidated joint ventures and it is worth noting that this was in our thinking when we last updated guidance at This morning, we updated the previously issued 2021 guidance for funds from operations. 2021 FFO is now in the range of $1.82 to $1.97 per share, which represents a $0.03 increase at the midpoint. While certain guidance assumptions are provided within our supplemental filing, here are some further anecdotes. This guidance range No further government mandated shutdowns of our retail properties.
This guidance factors in the issuance of common equity to date, which I will further describe in a few moments Tom also mentioned previously. As I mentioned during the prior two quarterly calls, we anticipate strong double digit growth in the second half of twenty twenty one and we still anticipate that to be the case. And just to punctuate what our updated FFO guidance means, Subsequent to our Q1 earnings release, we have issued an additional 6,400,000 shares of stock at $18.30 per share And we are not reducing our FFO guidance for this additional share issuance. In fact, we have increased the midpoint by $0.03 per share, which is also 0 point assumptions are included in the company's Form 8 ks supplemental information, which was filed earlier this morning. As for the balance sheet, Within our Q1 filings, again, we disclosed that we had sold $732,000,000 of common equity through our ATM programs Again, last quarter, since then we sold an additional $116,000,000 at an average price of $18.20 As part of our continuing commitment to deleveraging our balance sheet, since the end of the Q1 and through today, we have repaid approximately $1,300,000,000 of debt.
Sources to accomplish this include common stock sold through our ATM programs and dispositions of various assets, including Paradise Valley at the end of March and numerous sales of undeveloped land parcels in the Phoenix marketplace. As EBITDA continues to improve And as our deleveraging efforts continued in the Q2, the company's debt service coverage ratio improved to 2.5 times at the end of the Q2 of 'twenty one. And as previously stated on many occasions, we still do expect to harvest positive operating cash flow after recurring CapEx and dividends of well over $200,000,000 per year from 2021 through 2023, which supports a path to continued leverage in the range of 8 times by the end of 2023. This relative to leverage in the mid-11s at the end of 2020 on the heels of COVID, including undrawn capacity on our revolving line of credit of which $200,000,000 of the $525,000,000 aggregate capacity is currently outstanding, We have approximately $500,000,000 of liquidity today. From a secured financing standpoint, We are working on an extension of the loan on Danbury Fair through the middle of 2022 and we are currently marketing the shops at Atlas Park for a refinance loan.
Those are the company's final two remaining loan maturities within 2021. And as the year has progressed and as reported to you last quarter, We do continue to see green shoots in the debt capital markets with the execution of a growing number of retail deals on sequentially improving terms. Now I will turn it over to Doug to discuss the leasing and operating environment.
Thanks, Scott. The leasing environment continues to improve with leasing productivity outpacing COVID 2019 levels. And 2019 was our highest leasing volume year since 2015. Sales were strong in June And this is on top of a very productive April May. June small shop sales were up 15% when compared to June 2019.
Most importantly, all categories including food and beverage showed positive comps for the first time since the beginning of the pandemic. Looking at the quarter, the 2nd quarter small shop sales were up 13% over Q2 2019. And year to date through June, small shop sales were up 5% when compared to the same period in 2019. Occupancy at the end of the 2nd quarter was 89.4%. That's up 90 basis points from 88.5% in the 1st quarter.
On our last call, we stated that we thought the Q1 would be our trough and we still believe that to be the case. And given the healthy retailer environment that exists today, coupled with our strong leasing pipeline, we anticipate occupancy to continue to increase throughout the remainder of this year and into 2022 and beyond. Bankruptcies. Pace of bankruptcies continues to decrease. In fact, year to date bankruptcies within our portfolio are the lowest we've seen since 2015.
In the Q2, only 2 tenants filed for bankruptcy. 1 of the 2 tenants was a theater chain and had just 2 locations with us. Both locations were rejected and one of those locations has already been released. The other was a small tenant that had 8 locations with us totaling just 9,000 square feet. Trailing 12 month leasing spreads were negative 0.2% And that's an improvement from negative 2.1 percent last quarter.
Average rent for the portfolio was $62.47 as of June 30, 2021 and that's flat on a year over year basis. 2021 lease expirations remain an important focal point and we continue to make progress. To date, We have commitments on 81% of our 2021 expiring square footage with another 19% or the balance in the letter of intent stage. And we're well on our way into 2022 business with 27% of the expiring square footage committed and 64% at the letter of intent stage. In the 2nd quarter, we opened 251,000 square feet of new stores, resulting in total annual rent of $6,500,000 Notable openings in the 2nd quarter include Lululemon at Fashion Outlets of Chicago, American Eagle's new concept offline by Aerie at Freehold Raceway Mall, Indochino at Washington Square, Starbucks at Fashion District Philadelphia Blue Nile and Psycho Bunny at Scottsdale Fashion Square Farrity and Up West at Village of Corte Madera and Vuori at 29th Street.
We also opened 7 locations with Charming Charlie and 4 locations with FYE. We opened a 24,000 square foot office for the County of San and Dino at Inland Center. And lastly, we opened a 95,000 Square Foot Shoppers World at Fashion District Philadelphia in the former Century 21 space, which we lost last year due to a bankruptcy liquidation. Now let's look at leases that we signed in the Q2. And this is where it gets really exciting because unlike store openings which represent past leasing, Recent signed leases represent what we're doing in real time.
Signed leases define leasing velocity and are the leading indicator of the leasing environment that exists today. That said, we see the leasing environment as robust and dynamic. This is confirmed by our leasing activity, which is stronger than it's been in recent history. And let me be clear, when I say recent history, I'm not talking about the 16 months we've been dealing with COVID. I'm comparing back to 2019, which again was our highest leasing volume year since 2015.
So said another way, we're currently on pace for our highest volume leasing year since 2015. In the Q2, we signed 223 leases for 692,000 square feet, resulting in $37,000,000 in total annual rent. In the first half of this year, we signed 488 leases for 1,900,000 Square Feet, resulting in $88,700,000 in total annual rent. Now this represents 18% more leases, 34% more square footage and 11% more rent during the same period from 2019. Noteworthy leases signed in the Q2 includes several new to Macerich retailers, including Versace at Fashion Outlets of Chicago, Christian Louboutin, Aloyoga and Forward at Scottsdale Fashion Square and Avocado at Village Quarter Madera.
These and others bring the total square footage of new to Macerich deals either signed or in lease in the last 12 months to just over 530,000 square feet. In addition to Shoppers World opening at Fashion District Philadelphia, which I mentioned earlier, we signed a second lease with them to take over The 72,000 square foot location at Green Acres Mall that Century 21 also rejected a bankruptcy. So by the end of this year, we will have filled the 2 Century 21 boxes we lost in bankruptcy. And this totals approximately 170,000 square feet, An impressive feat considering Century 21's liquidation occurred just 10 months ago. Other notable leases signed in the 2nd quarter include Free People Movement at Kierland Commons, Warby Parker at Washington Square and La Quintata, Williams Sonoma and Lucid Motors at Village of Corte Madera, Zwilling Henckels at Tysons Corner and Peloton at Washington Square.
Turning to our leasing pipeline. At the end of the second quarter, we had signed leases for just over 500,000 square feet of new stores still to open in 2021. And looking into 20222023, we have signed leases for another 935,000 square feet of new stores to open. In addition to these signed leases, We're currently negotiating leases for new stores totaling 1,100,000 square feet. The majority of which will open in 2021 or in early 2022.
So in total, that's over 2,500,000 square feet of signed and in process leases for new store openings throughout the remainder of this year and into 20222023. As stated on our last call, this is the trajectory we expected and it's only going to improve as we are constantly reviewing and approving new deals on a regular basis. So in conclusion, sales are higher than they were pre COVID. Occupancy is up from last quarter and is expected to continue to increase. Bankruptcies are at their lowest level since 2015.
Leasing velocity is as strong as it's been in recent history. So if I sound overly optimistic, it's because I am. Maybe it's the stats and the metrics we talked about. They don't lie. Maybe it's the mood out in the field.
It feels really good. Maybe it's the many different uses we now have to choose from to fill our space. Maybe it's the best in class portfolio of shopping centers we have. Maybe it's all of the above, I don't know. But what I do know is we find ourselves in a very good place and extremely well positioned to take advantage of the strong leasing environment that exists out there today.
Now I'll turn it over to the operator to open up the call for Q and A.
Thank you. We do ask that you limit yourself to 1 question and one follow-up question in order to give everyone a chance to ask a question today. We'll start with our first question from Derek Johnston with Deutsche Bank.
Hi, everybody. Thank you.
We get a lot of
questions from investors regarding the balance sheet, which we view as materially derisked with the $1,300,000,000 year to date debt repayments and really banks overall willingness to And maturities and work with you guys. So the question is what's in store for the second half of the year and has the 10.4 times Consolidated net debt to EBITDA year end 2021 target changed at all? And thank you for the $183,000,000 Danbury Fair maturity call out, but maybe if you can touch on the $670,000,000 for 2022 and really just any further Color on second half balance sheet options would be welcome.
Over to Scott to get into some of the specifics on the different the maturities. We continue to focus on selling non core assets. We think we'll have another transaction or 2 by year end. So that's another $100,000,000 of liquidity that All likelihood would be used to deleverage. And as Scott mentioned, we expect cash flow from operations after the dividend and Recurring CapEx to be in the neighborhood of $200,000,000 So that's additional deleveraging to get to towards our goals.
Scott, do you want to comment on some of the specific maturities that are coming up?
Yes, sure. Good morning, Derek. I do expect actually leverage to be in the probably the 9 to 9.5 band by the time you get to the end of the year, Subject to some of these transactions closing, but, Derek, I think we'll improve on the number that you mentioned earlier. As far as transactions through the balance I did mention Danbury, which we expect to extend into 2022. Some great things happening in that project, and I do think we'll be Able to achieve a very successful refinance into next year.
One thing to note is, I look at the loan levels on all of our I think they're very well positioned in terms of loan to value, in terms of debt yield and all the traditional metrics that a Secured financing lender would look at. So I do expect those financings that occur next year roughly $600,000,000 to $700,000,000 To transact quite well. We have seen continued improvement, continued increase in the number of deals that have gotten done. A lot of those are within the CMBS community. We've seen deals ranging from $600 a foot north.
So in terms of the quality spectrum, We've seen the quality spectrum shift down a little bit so that the $650 a foot projects are getting financed. And I do think we'll be successful. As you've mentioned earlier, we are getting A lot of cooperation from our secured lenders at securing extensions, which I think is appropriate for us to do at this time. And I do think we'll be Successful at getting our maturities executed next year. I'm not concerned about that and to punctuate, you guys know our history in terms of Financing secured assets, we've got great access to capital.
And we'll take our next question from Craig Schmidt from Bank of America.
I just wanted to say, it's a very impressive list of tenants that you're redeveloping, starting with Shields, the 3 Primark and the 3 Lifetime Athletic. I'm just wondering, I noticed you still think you're going to be able to do all these redevelopments with less than $100,000,000 for each of 2021 2022?
Yes, we do, Craig. Not every redevelopment requires an inordinate amount of capital. So we do feel confident that, we'll be under $100,000,000 for the next couple of years. We're certainly game planning for the future as well. We're getting other Projects entitled including some more major expansions at Los Cerritos in Southern California, at Washington Square in Portland, Flatiron Crossing in Broomfield, Colorado and as well as Tysons Corner with the Lord and Taylor box So we have control of.
So we're securing entitlements for the future, which will start to ramp up our development pipeline into 'twenty three and 'twenty four and beyond. But we do feel confident in terms of the development spend that we've disclosed to you already for 2021 2022, Craig.
And are you expecting an 8% to 9% yield on this or may some of them be higher because they're single box?
Craig, it varies, but I'd say on balance, it's going to be a high single digit type return, but it certainly varies. And some actually do require no capital. So it runs the gamut.
We'll take our next question from Florus Van Dykem from Compass Point.
Good
morning or afternoon, I guess, depending which time zone you're in. Thanks guys for taking my question. I just wanted to just go through The leasing pipeline and a little bit more detail, not necessarily the names, etcetera, but You talk about a 2,200,000 square foot pipeline of deals under negotiation. What NOI impact would that be? And what percentage of NOI?
I mean, if you were to put an average Rent on there of $55 which is your ABR, obviously, it's significantly higher, but presumably these include a number of anchors which are lower. But just if you can Quantify that lease pipeline in terms of the NOI impact, that will be appreciated.
Flores, good morning. We don't have that figure readily available for you. As you mentioned, it does include a variety of both small shop as well as larger format leases, including some deals that are sitting in our redevelopment pipeline. Bear in mind, for instance, we have Single tenant credit for Google and 1 Westside campus, which is a component of that number as well. So we do have some redevelopment leasing, Pre leasing that's already in that number, but we don't have a rental impact number to disclose to you at this time.
We'll take our next
please go ahead. Yes,
sorry. If I can ask a little bit more on The outlook as you guys look at recovering the 2019 level occupancy, Obviously, we've seen a we're sort of at the trough right now. Can you give any more color on when you think it will it be Yes, end of 2022 or something in that neighborhood when we can expect to get back to pre COVID level occupancy?
Well, Floris, if we look back on our progression post great financial crisis, that was about 3 years from When we started at 89% coming out of the GFC to when we got full occupancy of about 94%. And based on the leasing environment today, I think we're probably going to do better than that. So I would expect by Q3 of 2023, we'll probably be back to The 93%, 94% level.
And we'll take our next question from Katy McConnell from Citi.
Great. Thank you. I was wondering if you could walk us through your expectations for land sale income and the retailer investment
Hey, Katie, this is Scott. Good morning. We do have some additional transactions For the balance of the year that are in our thinking, these are deals that are under contract. I expect them to be less impactful Then the year to date impact, but we probably have, if I had to circle a number, maybe $0.03 or so of impact for the balance of the year, $0.03 or $0.04 something like that. We've I went in great detail to talk about the quarter because admittedly there were a lot of moving pieces.
We do expect, again, just to emphasize what I underscored again 10 minutes ago and what I mentioned last couple of quarters, we do expect strong double digit growth in the second half of the year. I mentioned that In February, I mentioned it again in May and here we are in August, I mentioned it again. So I think that speaks to our conviction about the operating environment. We saw what frankly was a stronger recovery in the second quarter To line items like percentage rent driven by the robust sales growth we've seen in the Q2 and to our commentary. And I think that's going to help us to feel really, really strong growth in the second half of the year.
I did call out some of the line items that could be non recurring. I mentioned the investment earnings that we have in our unconsolidated line item. We are not carrying any of those further into the second half of the year. But look, it's very possible that we could continue to see some earnings accretion from those investments. It's just not captured in our guidance at this point.
So I really think it's really it's about operating performance in the second half of the year and we feel very good and very strong and very bullish about that.
And our next question comes from Lindy Cai from Jefferies.
Hi. What's the average lease term for the portfolio versus a year ago?
Yes, Linda, I don't have the figures quite in front of me. I'd say it could have ticked down nominally, but generally we're talking about 6 to 6.5 years. When I say tick down nominally, maybe it went from high 6s to low 6s. And that's a function of, As we mentioned in the past, as we're transacting with tenants, if we didn't feel we were accomplishing what we thought was representative of full market, We may have gone shorter in duration, but that's not necessarily the rule. I'd characterize that more as the exception, Doug.
I agree with you, Scott, on that. Yes.
Thank you. And then realizing you're still in a recovery period, What percentage of leasing is temporary versus a year ago and then maybe versus the March quarter?
Yes. Temporary occupancy ticked up, I think, 20, 30 basis points. Linda, I think that will continue to tick up as the year progresses. We may get into the high 6s or 7% range in terms of temporary occupancy, which Again, we've seen the volumes coming from our local merchants really bounce back quite well, Much better than what we thought it was going to be in December of last year, January of this year. So I think we'll see that tick up.
And We've got maximum flexibility to relocate those tenants and put in permanent tenants. And given the volumes we're seeing on the permanent pipeline, Feel very good about our opportunity to replace that temporary occupancy with permanent, very soon.
Our next question comes from Greg McGinnis from Scotiabank.
Hey, thanks for taking the question. And just thinking about the full year guidance, which seems to imply Q3 and Q4 FFO per share of $0.43 down from $0.59 this quarter. So I assume the valuation adjustments for retail investments is non recurring and then there's That additional 3% dilution from the ATM issuances, but what are the other items we should consider going into the back half of the year?
Yes, Greg, I think you touched on a few of them right there. Obviously, the equity we've issued to date It's going to excuse me, diluted our share count for the balance of the year. So you're going to have that impact for the second half. The investment income that we've recognized, I just mentioned to Katie that we are not building any of that into our thinking as we go forward. It's very possible given the IPO activity with some of those retailers and the Investment from special purpose acquisition companies that we've seen coming through venture capital invested firms That we could see some growth there, but it's not in our thinking.
So, like it's the first half has been weighted for Things like that investment income and as I mentioned land sales were a little bit heavier in the first half than they'll likely be in the second half. So Those are all the factors I think we've already touched on.
Okay. Thanks. And then, Doug, I'd like to touch on leasing as well. I'm trying to dig into that leading indicator on Q2 leasing. Just curious what spreads Leases are being signed at most recently.
And if there's been any change in the types of leases tenants are signing, as it appears peers as it appears that peers are starting to rely on percent rent leases more and more?
So I'll touch on the latter, Scott. I'll let you take the spread portion of it. But what I would say is The leases that we're doing right now are a combination of short term leases and long term leases. Like we've talked about in the past and sort of taking a chapter out of what we did coming out of the great financial crisis, if our goal is to maintain And we believe we're leasing a space at what we believe is below market. We're doing it on a short term basis and we'll come back in 18 months or 2 years and do it again when the climate is better and People have a better outlook on where we're going.
The second part of the question was Percentage rent, variable rent. Like short term deals, if one of our goals is to preserve occupancy And we are forced to take less rent. We will decrease the breakpoint and increase our percentage of pay, so that Well, we don't capture from a fixed standpoint. We are going to capture from a variable standpoint. But I would say That is the exception, not the rule, although all of our leases or the vast majority of our leases do have percentage rent, But they're based on a traditional market based fixed rent.
Scott, do you want to take a crack at the spreads? Yes.
I'm not quite sure I caught the spread question. Perhaps you can repeat that, Greg.
Yes. Just been trying to understand, we get the kind of trailing Look, but I'm just hoping to get more of a leading that leading indicator look and try and understand kind of what the most current leases are being signed out, whether or not retailers are kind of feeling stronger, feeling better about signing leases today and spreads are reflecting that?
Yes, I think probably the thing to point to again is the volumes. We've spoken to the amount of signed deals and as well as the deals that are being Negotiated that are in the pipeline, which speak really to the willingness of the retailers to step up, not only step up in terms of renewing, but also Step up in terms of opening up new stores, spending capital, which is a great refresh of all of our storefronts at our properties. So They're very willing. From a spread standpoint, our spreads include the impact of those deals. What our spreads don't include Is the impact of some of these short term rental reductions to the extent during COVID or within the last 3 to 6 months, we've been granting some Short term relief for a few months or a couple of quarters.
That's not reflected in our spreads. Our spreads are intended to show our long term leasing business both renewal and new stores, but the impact
of those Scott,
I'll jump in on this one at this point. But the spreads are improving. We're showing basically breakeven spreads for the trailing 12, but included in that is for the 2nd quarter, we had positive re leasing spreads at double digit percentage increases. So, it went from a pretty tough situation in the 3rd Q4 of last Sure. They're very positive now that we're in the 1st and second quarter.
So there's much more of a balance between rate and occupancy than there was at the end of 2020. So, it's hard to predict going forward, but certainly what we've seen in the first and second quarter is far better than what we saw In the second half of twenty twenty. And I think if you take Doug's words to heart, you'll extrapolate that to be very positive for the second half of this year.
And we'll take a question from Rich Hill with Morgan Stanley.
Hey, good morning guys. I'm sure I've missed it in the past, but I was hoping to maybe hear a little bit more about these this retailer investment where you had the valuation gain. What is that and how should we think about that going forward?
Rich, it's an investment that we made And it's starting about 5 years ago through a venture capital firm. And it really was an investment we did to Help us gain access to the digitally native brands as they emerged. I mean, there were 100 and 100 of them and The VC firm does a pretty good job of evaluating the prospects to not only grow and be of increased value, but also what might work well in our portfolio. So it gave us good access to a lot of the digitally native brands Early on and continues to and a lot of those emerging companies today finding good access to capital, they're growing, They're merging into specs, they're doing IPOs and that's what's causing some of the mark to mark positive mark to market there. But It's an investment we've had for the last 5 years through a venture capital firm.
Got
it. That's helpful, Tom. And I guess that tees me up for my next question.
Obviously, the retailers have done really well recently. There's an S1 out there for at least one company that's acquired some retailers recently, at a big valuation Do you think there's more valuation gains to come on that? I know you can't predict the future, but is that $0.09 All of it or should we expect some more going forward?
It's really hard to predict that, Rich. I think the good leasing environment is going to benefit a lot of these companies, but I wouldn't want to factor any more gains into our guidance for the year. Got it. When they happen, it's great and we take advantage of it, but it's pretty hard to predict.
Got it. And just one more quick question, if I may. I noticed the lease termination income went up in your guide. How should we think about that relative to the occupancy? I know you noted that it's increasing and you It's expected to continue to increase.
I think you put a 3Q 'twenty three number out there. But how should we think about that relative to the increase in the lease termination income?
Yes, sure, Rich. As you can imagine losing 4% plus of our occupancy, We had certain tenants that do have credit, and we're going to negotiate termination settlements. So anytime you're You see an occupancy volatile environment, you see a pickup in the termination income. Those are very tightly correlated. So I don't think this is any different than what we've seen in the past.
Certainly coming out of the global financial crisis, we experienced some elevated termination income. So that's really what we see for the most part. It's embedded within our Occupancy numbers today, but we're still continuing to negotiate those settlement outcomes. And we can't book it, Can't recognize revenue until we actually sign the agreement. So the revenue will follow later.
And we'll move on to a question from Alexander Goldfarb with Piper Sandler.
Hey, good morning. Two questions. So just two questions. First question is on the rent spreads, what would The all in trailing 12 days if you include all the COVID impact. And then also as part of that, Is your rent spread just on a 12 month look back or is it vacant space as long as it's been vacant?
Yes, Alex, I hope you're driving safely. But yes, to answer your questions, The spreads don't include the COVID workout adjustments. We don't calculate it that way. We frankly Never included rental reductions, so I don't have that measurement for you. Our spreads are really focused on more go forward business In terms of renewals and new deals, not the short term negotiations we've been doing.
But I'll direct you to our average base rent in terms of the impact of that. And the second part of your question, I'm sorry, maybe you can repeat that provided you're driving safely.
I always drive safely. Is your rent to rent metric just based on a 12 month look back, meaning space that was vacant 12 months ago or space as long as it's been vacant?
It's a 12 month look back.
Okay. And then the second question is on the refinancings, Do you anticipate that next year there will be full long term refinancings? Or do you think that next year we'll see continuation Of short term extensions on the loans?
I think the majority of them will probably be long term financings. We'll pick and choose the term, but I think they'll range between 5 to 10 years, just dependent upon The credit markets at that time, we may do an extension or 2, but I think for the most part, there'll be refinancings, Alex.
And our next question comes from Mike Mueller with JPMorgan.
Yes. Just a quick one here. I was wondering how close is your parking and Business development income relative to pre COVID levels?
Yes. We'll I expect we'll get back To pre COVID levels by next year. We're not quite there, but it's bounced back quite well. But 2022, we'll probably get back to par pre COVID on both those line items.
Got it. So if we're looking at this $30,000,000 for this quarter, would you say that's 75% of the way there, half, which is rough magnitude?
Better than half, Better than half. There's a little bit more to do on a run rate basis. But again, I do think by the time we get to the first half of next year, we'll Probably on a run rate basis be within spitting distance of where we were pre COVID, Mike.
Got it. Okay. Thank you.
Your next question comes from Ki Bin Kim from Truist.
Thanks. A couple of quick ones here. What is the renewal rate for your portfolio today and how has that trended?
Stephen, I'm sorry, could you repeat that? You said what is the Leasing renewal.
The lease renewal.
The percentage of tenants that are renewing?
Yes.
It's Doug. Yes, I said in my remarks that in 2021, We have commitments, meaning signed leases or leases that we're negotiating on 81% of the expiring square footage And the remaining 19% is in the letter of intent stage.
Okay. And Any sense can
you provide some color on what your economic occupancy is today versus the find occupancy? Just trying to grasp what the embedded upside is in your portfolio? Yes. Our leased occupancy always exceeds physical by roughly 2% to 3%. I don't think that's It was probably less in the middle of COVID last year, because the deal flow slowed down, but I'd say we're probably in that 3% range right now.
And we'll take A question from Caitlin Burrows from Goldman Sachs.
Hi, there. Just as a follow-up on one of the balance sheet questions. You guys had a March presentation that referenced an assumption of $700,000,000 of equity in 2021 and then $300,000,000 in 2022. You surpassed the 'twenty one amount already. So just wondering if you can give some detail on what's driving your decision of how much Equity to issue and when maybe the metrics that you're looking at and whether that 2022 issuance referenced in the March presentation is still relevant?
Caitlin, that was a generic placeholder in the 3 year forecast that Scott was using to illustrate Deleveraging. So that was not a hardwired assumption. We've been fairly active on the ATM. It's going to be dependent upon the share price whether we use it again this year or not. And it remains to be seen whether we'll do equity again in 2022.
So those are just some generic assumptions that he put into a slide to illustrate deleveraging.
Okay, got it. And then maybe just another one on leasing spreads, but hopefully asked differently enough that it might still be interesting. But So the reported trailing 12 month number was about flat. You mentioned earlier that in the most recent quarter, they were actually up double digits. But I would assume, correct me if I'm wrong, that more leasing is getting done at some of the better properties.
So just wondering if you could quantify, what in place rents are for the properties that you might have historically classified as Group 1 and Group 2 versus the in place first market for the kind of Group 3 to Group 5 properties?
Well, I think we've seen good leasing demand across the board, across the whole portfolio. So We don't really take a look at spreads based on whether they rank in the top 10 or the bottom 10. We've seen pretty good activity across the board. I think that the big illustration is just the difference between what it looked like in the second half of 2020, what it's looked like in the first half of twenty twenty one. Typically, we're going to get some pricing power.
And I would not say that we had that at all in 2020, quite the contrary, but it does appear as if we're picking up some pricing power in 2021 now based on Demand and the leasing activity we've seen to date.
And That does conclude the Q and A session for today. I would like to turn the conference back over to our speakers for any concluding remarks.
Great. Thank you. We thank all of you for joining us today and we look forward to reporting good results in the balance of the year.
And once again, ladies and gentlemen, that does conclude today's conference. We appreciate your participation today.