The Macerich Company (MAC) Q2 2021 Earnings Call Transcript

The Macerich Company (MAC -1.30%)
Q2 2021 Earnings Call
Aug 04, 2021, 1:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

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.

Jean Wood -- Vice President, Investor Relations

Thank you for joining us on our second-quarter 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 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 of leasing. With that, I will turn the call over to Tom.

Tom OHern -- Chief Executive Officer

Thank you, Jean. And thanks to all of you for joining us today. As you read in our 8-K 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 on our last call, we also expected that occupancy hit a low point at March 31, 2021, and that appears to be the case. As we look today, almost all of our operating metrics have started to trend positive, including occupancy. And many of these metrics are even trending positive compared to pre-pandemic second-quarter 2019. Improving operating results, including leasing volumes, occupancy gains and most importantly, tenant sales, which have trended very positively.

In fact, to give you some month-by-month numbers, March tenant sales were up 8.6%, April sales were up 9.9%, May and June were both up a strong 15%. Those increases are versus the same periods in 2019. And we're not comparing sales to 2020. Those are compared to 2019.

Traffic is still lagging a bit at around 90% of pre-COVID levels on average. So what we're seeing is an improved capture rate for the retailers compared to pre-COVID. We do expect for traffic to continue to increase in the second half of the year. I would say brick-and-mortar mall-based retail is back with a vengeance, albeit helped to some degree by stimulus checks and revenge buying.

Because of the robust leasing environment, and it feels much better to us than when we emerged from the great financial crisis in 2009 and 2010. So some of these second-quarter highlights include, on a sequential basis, occupancy gains of 90 basis points. Leasing volumes for the quarter and year-to-date were in excess of 2019 levels. We saw same-center NOI growth in 11.5%.

We expect the second half of 2021 to be even better. We raised the bottom end of FFO guidance range and moved the midpoint up, even factoring in the impact of issuing equity during the second quarter. In terms of balance sheet activity, we also used the ATM to a small degree in June. Since our last earnings call, we issued 6.4 million shares at an average price of $18.20.

We raised $114 million of capital, and that was used to reduce debt. Trading was good for us in the quarter and in June, and ended the second quarter as the second best performing REIT, up 58%. In other balance sheet activity, in addition to our sale of Paradise Valley Mall in March, we're still expecting to close on the sale of another noncore asset or two in the second half of 2021, and that's in our guidance. Net proceeds expected to be in the $100 million range.

The balance sheet moves we made in the first half to significantly improved our leverage metrics. Year-to-date, we've paid down over $1.3 billion of debt. Focusing for a moment now on leasing. We are seeing incredible demand for space, including big box space and perimeter locations.

And that includes multifamily, healthcare fitness, wellness uses, food and beverage and other traditional -- of nontraditional retail uses. A great example of the latter is that during this past quarter, we announced a 222,000 square foot SCHEELS sporting goods lease in the former Nordstrom's box at Chandler Fashion Center. This store will be their first in the Arizona and will feature 16,000 gallons of saltwater aquarium, a wildlife mountain, a restaurant and more. Nontraditional mall retail demand in smaller format also continues to accelerate with the digitally native brands getting active again on our brick-and-mortar locations after a hiatus during COVID.

Other interesting additions include a host of new electric car companies taking space in many of our malls, including Polestar and Lucid. They've done multiple deals with us this year. So many of our traditional retailers are back with even greater demand for space than pre-pandemic, and Doug will elaborate on that in a few moments. We are very optimistic about our business as we move forward to the balance of the year and into year 2022.

For the most part, in the U.S., with 58% of the population vaccinated, the worst of the pandemic is now behind us. The leasing environment is strong and getting better by the month, and we expect significant gains in occupancy, net income and FFO growth as we then move on through the year and into next year. And now I'll turn it over to Scott to discuss in more detail the financial results for the quarter.

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

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 for the past 27-plus years.

Her dedication to the company started within just a few months after Macerich's IPO in 1994, and we sincerely appreciate her contributions, her partnership, and her friendship over these many, many years. Over the coming months, Jean will be transitioning her role to Samantha Greening, our new director of investor relations. Samantha has been with Macerich for over nine years in various capacities. 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 second quarter of 2020, including our lease termination income. Given the prevalence of retroactive rent relief adjustments within our 2021 results, we believe it is now an appropriate measure of our 2021 same-center operating performance by including rather than excluding lease termination income.

If we were to exclude lease termination income, same-center NOI growth still increased 10.4%. Funds from operations for the second quarter of 2021 was $0.59 per share, up $0.20 or 51% from second-quarter 2020 at $0.39 per share. EBITDA margin has increased over 6% to 63.9% relative to 57.7% at the end of the second quarter in 2020 and is approaching pre-COVID EBITDA margin of 65.3% at the end of the second quarter in 2019. As Doug will soon explain, portfolio occupancy rate has increased in the quarter, and our leasing spreads showed sequential improvement relative to the end of the first quarter of 2021.

Suffice to say, this was a relatively noisy earnings quarter with many moving pieces supporting our positive earnings news that we've also released today. To expand on those, the primary factors contributing to these NOI and FFO gains are as follows: On the NOI front, one, the quarter increased in the -- the quarter increases include a $0.06 increase in percentage rents resulting from the dramatic increase in sales that we reported earlier today. And two, common area income has contributed another $0.04 of NOI and FFO, including from our urban parking garages. Our common area business has also proven that -- to be quite elastic and resilient and is recovering very well.

In fact, our common area revenue performance has exceeded our expectations from when we entered into 2021. And three, our bad debt expense represents a comparative $50 million or $0.23 improvement quarter-over-quarter, including a $40 million bad debt expense incurred during the second quarter of 2020 at the onset of COVID and a net $10 million bad debt reversal within last quarter, the second quarter of 2021. Offsetting these NOI factors were: one, $46 million or $0.21 in reduced minimum rent and recovery income from reduced occupancy as well as approximately $15 million retroactive rent abatements and rent relief of primarily 2020 rents. To pause on this point, the previously mentioned $10 million bad debt reversal in the quarter should be viewed in tandem with a negative $15 million impact of rent abatements from our second quarter.

In other words, the net impact of COVID workout deals on same-center NOI in the second quarter was a negative $5 million when considering both line items. And so if you want to normalize same-center NOI for what is essentially the majority of the remaining COVID workout deals, then add back $5 million or 3% roughly to same-center NOI. Note also that as I mentioned last quarter, we expected a reduced amount of retroactive rent abatements in the second quarter, and that was, in fact, the case. I also expect that we are in -- and I also said that we expect a very negligible impact in the second half of the year from such retroactive abatement concessions, and we still expect that to be the case.

Secondly, the shopping center expenses increased by approximately $0.06. This is driven by the widespread closures of our center in the second quarter of last year relative to the full operational status of our portfolio throughout the second quarter of 2021. And lastly, a few other factors included: one, second quarter included increases of positive $0.09 in valuation adjustments, net of provision for income taxes from our indirect investments in various retailers that we at Macerich have previously invested in through a venture capital firm. This positive impact shows up in other income from unconsolidated joint ventures, and it is worth noting that this was into thinking when we last updated our guidance at the end of the first quarter.

And two, the second quarter also included an increase in land sale income totaling approximately $0.05, which was factored into our original guidance and planning as we entered into 2021. This morning, we updated the previously issued 2021 guidance for funds from operations. 2021 FFO is now estimated in the range of $1.82 to $1.97 per share, which represents a $0.03 increase at the midpoint. While certain guidance assumptions are provided within our supplemental filing, here are some further anecdotes.

This guidance range assumes no further government-mandated shutdowns of the retail properties. This guidance factors in the issuance of common equity to date, which I will further describe in a few moments, and Tom also mentioned previously. So as I mentioned during the prior two quarterly calls, we anticipate strong double-digit growth in the second half of 2021, and we still anticipate that to be the case. And just to punctuate what our updated FFO guidance means, subsequent to our first quarter earnings release, we have issued an additional 6.4 million shares of stock at $18.30 per share, and we are not reducing our FFO guidance for this additional share issuance.

And in fact, we have increased the midpoint by $0.03 per share, which is also $0.04 or 2% greater than consensus estimates. This is now due to -- primarily to a much stronger operating environment as reflected within the second-quarter results. More details of the guidance assumptions are included in the company's Form 8-K supplemental information, which was filed earlier this morning. And then as for our balance sheet, within the first-quarter filings, again, we disclosed that we had sold $732 million of common equity through our ATM programs again last quarter.

Since then, we sold an additional $116 million at an average price of $18.20. As part of our continuing commitment to deleveraging our balance sheet, since the end of our first quarter and through today, we have repaid approximately $1.3 billion debt. Sources to accomplish this include common stock sold through our ATM programs and dispositions of various assets, including Paradise Valley at the end of March and some numerous sales of undeveloped land parcels in the Phoenix marketplace. Our EBITDA continues to improve.

And as our deleveraging efforts continued in the second quarter, the company's debt service coverage ratio improved to two and a half times at the end of the second quarter of '21. And as previously stated on many occasions, we still do expect to harvest positive operating cash flow after recurring capex and dividends of well over $200 million per year from 2021 through 2023, which supports a path to continued leverage reduction in the range of 8x by the end of 2023. This is relative to our leverage in the quarter of mid-11s at the end of 2020 on the heels of COVID. Including undrawn capacity on our revolving line of our credit, of which $200 million of the $525 million aggregate capacity is currently outstanding, we have approximately $500 million of liquidity today.

So from a secured financing standpoint, we are working on an extension of the loan on Danbury Fair through the middle of 2022, and we are currently marketing the shops at Atlas Park for a refinance loan. Those are the company's final two remaining loan leases -- maturities that are within 2021. As the year has progressed and as reported to you last quarter, we continue to see green shoots in the debt capital markets with the execution of a growing number of retail deals on sequentially improving terms. And now I will turn it over to Doug to discuss the leasing and operating environment.

Doug Healey -- Senior Executive Vice President of Leasing

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 on top of a very productive April and May.

June small shop sales were up 15% when compared to June 2019. Most importantly, all categories, including our food and beverage, showed positive comps for the first time since the beginning of the pandemic. Looking at the quarter, the second-quarter small shop sales were up 13% over the second quarter of 2019. And year-to-date through June, small shop sales were up 5% when compared to the same period in 2019.

Occupancy at the end of the second quarter was 89.4%. This is up 90 basis points from 88.5% in the first quarter. On our last call, we stated that we thought the first quarter would be our trough and we still believe that to be the case, given the healthy retailer environment that exists today, coupled with our strong leasing pipeline, we also anticipate that occupancy to continue to increase throughout the remainder of this year and into 2022 and beyond. Bankruptcies.

Pace of bankruptcies continues to decrease. In fact, year-to-date, bankruptcies within our portfolio are the lowest we've seen since 2015. And in the second quarter, only two tenants filed for bankruptcy. One of the two tenants was a theater chain and had just two locations with us.

Both locations were rejected and one of those locations has already been released. The other was a small tenant that had eight locations with us to a total of just 9,000 square feet. Our trailing 12-month leasing spreads were negative 0.2%, and that's an improvement from negative 2.1% last quarter. Average rent for the portfolio was $62.47 as of June 30, 2021, and that's flat for a year-over-year basis.

2021 lease expirations remain an important focal point, and we continue to make progress. To date, we have commitments on 81% of our 2021 expiring square footage with another 19% or the balance in the letter of intent stage. And with -- well on our way into 2022 business with 27% of the expiring square footage committed and 64% at the letter of intent stage. In the second quarter, we opened 251,000 square feet of new stores, resulting in this total annual rent rate of $6.5 million.

Notable openings in the second quarter include lululemon at Fashion Outlets of Chicago; American Eagle's new concept OFFLINE by Aerie at Freehold Raceway Mall; Indochino at Washington Square; Starbucks at Fashion District, Philadelphia; Blue Nile and Psycho Bunny, Scottsdale Fashion Square; Faherty and the UpWest at Village at Corte Madera; and Vuori at Twenty Ninth Street. We also opened 7 locations with Charming Charlie and 4 locations with FYE. We opened a 24,000 square foot office for the county of San Bernardino at Inland Center. So lastly, we opened the 95,000 square foot Shoppers World at Fashion District Philadelphia in the former Century 21 space, which we lost last year due to a bankruptcy liquidation.

Now let's look at leases that we signed in the second quarter, and this is where it gets really exciting because unlike our store openings, which represent past leasing, recent signed leases represent what we're doing really well in real time. Signed leases define leasing velocity and are the leading indicator of the leasing environment that exists today. And with that said, we see that the leasing environment as robust and dynamic. This is confirmed by our leasing activity, which is stronger than it's been in recent history.

And let me be clear, and when I say that in recent history, I'm not talking about the 16 months we've been dealing with COVID. I'm comparing back to 2019, which, again, was our highest leasing volume year since 2015. So said another way, we're currently on pace for our highest volume leasing year since 2015. In the second quarter, we signed 223 leases for 692,000 square feet, resulting in $37 million in total annual rent.

In the first half of this year, we signed 488 leases for some 1.9 million square feet, resulting in $88.7 million in total annual rent. Now this represents 18% more leases, 34% more square footage and 11% more rent during the same period from 2019. Noteworthy leases signed in the second quarter that includes several new to Macerich retailers, including Versace at Fashion Outlets of Chicago; Christian Louboutin, Alo Yoga and FORWARD at Scottsdale Fashion Square; and Avacado at Village at Corte Madera. These and others bring the total square footage of new to Macerich deals either signed or in lease in the last 12 months to just over 530,000 square feet.

In addition to Shoppers World opening at Fashion District Philadelphia, which I mentioned earlier, we signed a second lease with the -- to take over the 72,000 square foot location at Green Acres Mall that Century 21 also rejected to bankruptcy. So by the end of this year, we will have filled the two Century 21 boxes that we lost in the bankruptcy, and this totals approximately 170,000 square feet, an impressive feat considering Century 21's liquidation occurred just 10 months ago. Other notable leases signed in the second quarter include Free People Movement at Kierland Commons; Warby Parker at Washington Square; La Encantada and Williams-Sonoma and Lucid Motors at The Village at Corte Madera; Zwilling [Inaudible] at the Tysons Corner Center; and Peloton at Washington Square. Turning to our leasing pipeline.

At the end of the second quarter, we had signed leases for just over 500,000 square feet of new stores still to open in 2021. And looking into 2022 and 2023, we have signed these leases for another 935,000 square feet of new stores to open. In addition to these signed leases, we're currently negotiating leases for new stores totaling 1.1 million square feet. The majority of which will open in 2021 or in early 2022.

In total, that's over the 2.5 million square feet of signed and in-process leases for new store openings throughout the remainder of this year and into 2022 and 2023. As stated on our last call, and this is our -- the trajectory that we expected and it's only going to improve as we are constantly reviewing and improving new deals on a regular basis. So in conclusion, sales are higher than they were pre-COVID. Occupancy is up from last quarter and is expected to continue to increase.

Bankruptcies are at their lowest levels since 2015. Leasing velocity is as strong as it's been in recent history. So if I sound overly optimistic, it's because I am. Maybe it's the stats and the metrics we talked about.

They don't lie, and maybe it's the mood out there in the field. It feels really good. Maybe it's the many different uses we now have to choose for them to fill our space. Maybe it's just the best-in-class portfolio of shopping centers that we have.

Maybe it's all of the above, I don't know but what I do know is we find ourselves in a very good place and extremely well positioned to take advantage of the really strong leasing environment that we -- that exists out here today. Now I'll turn it over to the operator to open up the call for Q&A.

Questions & Answers:

Operator

[Operator instructions] We'll start with our first question from Derek Johnston with Deutsche Bank.

Derek Johnston -- Deutsche Bank -- Analyst

Hi, everybody. Thank you. We get a lot of questions from investors regarding the balance sheet, which we view as materially derisked with a $1.3 billion year-to-date debt repayment and really bank's overall willingness to extend 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 '21 target changed at all? And thank you for the $183 million Danbury Fair maturity callout, but maybe if you can touch on the $670 million for 2022? And really just any further color on second half balance sheet options would be welcome.

Tom OHern -- Chief Executive Officer

Scott, get into some of the specifics on the maturities. We continue to focus on selling noncore assets. We think that we'll have another transaction or two by year-end. So that's another $100 million of liquidity that in all likelihood would be used to deleverage.

And as Scott mentioned, we expect cash flow from operations after the dividend and recurring capex that's -- to be in the neighborhood of $200 million. So that's additional deleveraging to get to toward our goals. Scott, do you want to comment on some of the specific maturities that are coming up?

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

Yes, sure. Good morning, Derek. I do expect actually leverage to be in the -- probably the nine to nine and a half band by the time we get to the end of the year, subject still to some of these transactions that are closing. But, Derek, I think, we'll improve on the number that you mentioned earlier.

As far as transactions through the balance of the year, I did mention Danbury, which we also 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. And so one thing to note, as I look at the loan levels on all of our secured debt, Derek, I think they're very well positioned that in terms of loan to value, in terms of debt yield and all the traditional metrics that secured financing lender would look at.

And I do expect that those financings will occur next year, roughly $600 million to $700 million 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 really within the CMBS community. And we've seen deals that are ranging from $600 a foot to 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 have also mentioned here earlier, we are getting this -- and 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 just getting the 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.

Operator

And we'll take our next question from Craig Schmidt from Bank of America.

Craig Schmidt -- Bank of America Merrill Lynch -- Analyst

I just wanted to say it's a very impressive list of tenants that you're redeveloping, starting with SCHEELS, the Primark, and the 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 million for each of 2021 and '22?

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

Yes, we do, Craig. Not every redevelopment requires an inordinate amount of capital. So we do feel confident that we'll be under $100 million for the next couple of years. We're certainly game planning for the future as well.

We're getting other projects entitled, including some of more major expansions at Los Cerritos in Southern California; at Washington Square in Portland; at FlatIron Crossing in Broomfield, Colorado; and as well as Tysons Corner with Lord & Taylor box that we have control of. So we're securing entitlements for the future, which will start to ramp up our development pipeline into '23 and '24 and beyond, but I -- we do feel confident in terms of the development spend that we've disclosed to you already for '21 and 2022, Craig.

Craig Schmidt -- Bank of America Merrill Lynch -- Analyst

And are you expecting an 8% to 9% yield on this or may some of them be higher because they're single bought?

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

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's -- it runs the gamut.

Operator

And we'll take our next question from Floris Dijkum from Compass Point.

Floris Dijkum -- Compass Point -- Analyst

Good morning or afternoon, I guess, depending on which timezone you're in. Thanks, guys, for taking my question. I just wanted to just go through the leasing pipeline in a little bit detail. So not necessarily the names, et cetera, but you talk about a 2.2 million 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 this average rent on there of $55, which is your ABR, obviously, it's significantly higher. But presumably, these include a number of some anchors, which are now lower, but just if you can quantify that lease pipeline in terms of the NOI impact, that will be appreciated.

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

Floris, good morning. We don't have that figure readily available for you. As you mentioned, it does include a variety of the 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 a single-tenant credit for Google and One 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.

Floris Dijkum -- Compass Point -- Analyst

Yes, sorry. If I can ask a little bit more on the outlook. As you guys look at recovering '19 level of occupancy, obviously, we've seen -- we're sort of at the trough right now. So can you give any more color on really when you think it will be end of '22 or something in that neighborhood of when we can expect to get back to pre-COVID level occupancy?

Tom OHern -- Chief Executive Officer

Floris, if we look back on our progression of post-great financial crisis, that was about three years from when we started at 89% coming out of the GFC to when we got full occupancy of about 94%. And so based on the leasing environment today, I think we're probably going to be better than that. So I would expect by the third quarter of 2023, we'll probably be back to the 93%, 94% level.

Operator

And we'll take our next question from Katy McConnell from Citi.

Katy McConnell -- Citi -- Analyst

Great. Thank you. I was wondering if you could walk us through your expectations for land sale income and the retailer investment gains that we can potentially see in the back half of the year, just given how impactful they were to date? And are there any other offsetting items to guidance that you can highlight that could be the headwinds in the second half of this year?

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

Hey, Katy. 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 our contract. I expect them to be less impactful than 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 this year, the $0.03, $0.04, of something like that. We've -- I went into great detail to talk about the quarter because admittedly, there were a lot of moving pieces. We do expect, again, and just to emphasize what I underscored again 10 minutes ago and what I mentioned in the last couple of quarters, we do expect strong double-digit growth in the second half of the year.

I have also mentioned that in February. I mentioned it again in May and here we are in August, I'm mentioning it again. So I think that speaks to our conviction about the operating environment. We saw what, frankly, was a stronger recovery of -- in the second quarter to line items like percentage rents driven by the robust sales growth we've seen in the second quarter into our common area.

I think that it's going to really help us feel really, really strong growth in the second half of the year. I did call out some of the line items that could be nonrecurring. 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, and it's really possible for -- that we continue to see some earnings accretion from those investments. It's just not captured in our guidance at this point. So I really think that it's really -- it's about the operating performance in the second half of the year, and we feel very good and very strong and very bullish about that.

Operator

And our next question comes from Linda Tsai from Jefferies.

Linda Tsai -- Jefferies -- Analyst

Hi. What's the average lease term for the portfolio versus a year ago?

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

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 six to six and a half years. When I say tick down nominally, maybe it went from high sixes to low sixes.

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 a 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?

Doug Healey -- Senior Executive Vice President of Leasing

I agree with you, Scott, on that. Yes.

Linda Tsai -- Jefferies -- Analyst

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?

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

Yes. Temporary occupancy ticked up by, 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 6% or 7% range in terms of temporary occupancy, which, again, we've seen the volumes coming from our local merchants really bounced back quite well, much better than what we thought it was going to be in the December of last year -- January of this year.

And so I think we'll see that tick up. And then we've got maximum flexibility to relocate those tenants and put in permanent tenants. Just given the volumes we're seeing on the permanent pipeline, I feel very good about our opportunity to replace that temporary occupancy with permanent very soon.

Operator

Our next question comes from Greg McGinniss from Scotiabank.

Greg McGinniss -- Scotiabank -- Analyst

Hi. 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, which is down from $0.59 this quarter. So I assume the valuation adjustments for retail investments is nonrecurring, and then there's that additional 3% of dilution from the ATM issuances, but what are the other items we should consider going into the back half of the year?

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

Yes, Greg, I think you touched on a few of them right there. Obviously, the equity we've issued to date is going to dilute our share count for the balance of this year. And so you're going to have that impact for the second half. The investment income that we've recognized now, and I just mentioned to Katy that we are not building any of that into our thinking as we go forward.

It's very possible. Given the IPO activity, where some of those retailers and our investment from the 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 the first half has been really weighted to -- for things like this 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, and so those are all the factors I think we've already touched on.

Greg McGinniss -- Scotiabank -- Analyst

OK. Thanks. And then, Doug, I'd like to touch on leasing as well. And 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 that are signing as it appears that peers are starting to rely on percent rent leases more and more?

Doug Healey -- Senior Executive Vice President of Leasing

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 just short of taking a chapter out of what we did coming out of the great financial crisis. If our goal is to maintain occupancy and we believe we're leasing a space at what we also believe in as below market, we're doing it on a short-term basis, and we'll come back in 18 months or two years and then 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 then take the -- take less rent that we will decrease the breakpoint and increase our percentage of pay so that what we don't capture from a fixed standpoint, we are going to capture from a variable standpoint. But I would also say that as an exception, not the rule although all of our leases or the vast majority of our leases have percentage rent, but they're based on a traditional market-based fixed rent. So, Scott, do you want to take a crack at the spreads?

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

Yes, I'm not quite sure I caught the spread question. Perhaps you can repeat that, Greg.

Greg McGinniss -- Scotiabank -- Analyst

Yes, just I'm trying to understand, we get the kind of trailing look, but just hoping to get more of a leading -- that indicator look and trying to understand kind of what the most current leases are being signed at? Whether or not retailers are kind of feeling stronger, feeling better about signing leases today and if spreads are reflecting that?

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

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 would speak really to the willingness of the retailers to step up, not only step up in terms of renewing, but also we step up in terms of opening up these 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 new deals. What our spreads don't include is the impact of some of these short-term rental reductions to the extent that we -- during COVID or just within the last three to six months that 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 really intended to show long-term leasing business, both from renewal and new stores but the impact to those [Inaudible]

Tom OHern -- Chief Executive Officer

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 second quarter, we had positive releasing spreads at double-digit percentage increases. So it went from a pretty tough situation here in the third and the fourth quarter of last year, very positive now that we're in the first 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 really hard to kind of 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 2020 and I think that if you take what -- Doug's words to heart, you'll extrapolate that to be very positive for the second half of this year.

Operator

We'll take a question from Rich Hill with Morgan Stanley.

Rich Hill -- Morgan Stanley -- Analyst

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 this retailer investment, where you had the valuation gain. What is that? And how should we think about that going forward?

Tom OHern -- Chief Executive Officer

Rich, it's an investment that we made starting about five years ago through a venture capital firm. It really was an investment we did to help us gain access to the digitally native brands as they emerge. I mean, there are hundreds and then hundreds of them. And the VC firm does a pretty good job of evaluating their prospects to not only grow and be of increased value, but also what might work well in our portfolio.

So it gave us what -- the access to a lot of the digitally native brands early on and continues to, and a lot of those merging companies today that are are finding these good access to capital. They're growing. They're merging into specs. They're doing IPOs and that's really what's causing now some of the mark-to-market -- positive mark-to-market there, but it's a good investment we've had for the last five years through a venture capital firm.

Rich Hill -- Morgan Stanley -- Analyst

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 S-1 out there for at least one company that's acquired some retailers recently at a big valuation range.

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?

Tom OHern -- Chief Executive Officer

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 it -- any more gains into our guidance for the year. When they happen, it's great and we take advantage of it, but it's pretty hard to predict.

Rich Hill -- Morgan Stanley -- Analyst

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 expect it to continue to increase.

I think you put a 3Q '23 number out there but how should we think about that relative to the increase in release termination income?

Tom O'Hern -- Chief Executive Officer

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 see an occupancy volatile environment, and you see us a pick up 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 our global financial crisis that we experienced some elevated termination income. So that's really what we see.

So 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 really recognize the revenue until we actually sign the agreement. So the revenue will follow later.

Operator

And we'll move on to a question from Alexander Goldfarb with Piper Sandler.

Alexander Goldfarb -- Piper Sandler -- Analyst

Hey, good morning. Two questions. So just two questions. First question is on the rent spread, what would be all-in trailing 12 be if you include all the COVID impact? And then also as part of that, is your rent spread just on 12 months lookback or is it vacant space as long as it's been vacant?

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

Yes, Alex, I hope you're driving safely. But yes, to answer your questions, the spreads, they 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.

Alexander Goldfarb -- Piper Sandler -- Analyst

I always drive safely. Is your rent spread metric just based on a 12-month lookback, meaning space that was vacant 12 months ago or space as long as it's been vacant?

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

It's a 12-month look back.

Alexander Goldfarb -- Piper Sandler -- Analyst

OK. And then the second question is on the refinancings, do you anticipate that next year, they will be full long-term refinancings or do you think that next year we'll see continuation of short-term extensions on the loans?

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

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 five to 10 years. Just depending upon the credit markets at that time, we may do an extension or two, but I think for the most part, there'll be refinancings, Alex.

Operator

And our next question comes from Mike Mueller with JPMorgan.

Mike Mueller -- JPMorgan Chase & Co. -- Analyst

Yeah, just a quick one here. I was wondering how close is your parking and business development income relative to pre-COVID levels?

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

Yes. Well, 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.

Mike Mueller -- JPMorgan Chase & Co. -- Analyst

Got it. So if we're looking at this $30 million for this quarter, would you say that's 75% of the way there, half? Just rough magnitude.

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

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 at pre-COVID, Mike.

Mike Mueller -- JPMorgan Chase & Co. -- Analyst

Got it. OK. Thank you.

Operator

Our next question comes from Ki Bin Kim from Truist.

Ki Bin Kim -- Truist Securities -- Analyst

Thanks. A couple of quick ones here. What is the renewal rate for your portfolio today? And how has that trended?

Tom OHern -- Chief Executive Officer

Ki Bin, I'm sorry. Could you repeat that? You said what is the leasing rate today?

Ki Bin Kim -- Truist Securities -- Analyst

Renewal rate, the lease renewal rate.

Tom OHern -- Chief Executive Officer

Or the percentage of tenants that are renewing?

Ki Bin Kim -- Truist Securities -- Analyst

Yeah. Go ahead.

Doug Healey -- Senior Executive Vice President of Leasing

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.

Ki Bin Kim -- Truist Securities -- Analyst

OK. And any sense -- can you provide some color on what your economic occupancy is today versus a signed occupancy? Just trying to grasp what the embedded upside is in your portfolio.

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

Yes. Our leased occupancy always exceeds physical by roughly 2% to 3%. I don't think that's too dissimilar. It was probably less in the middle of COVID last year because the deal flows slowed down, but I'd say we're probably in that 3% range right now.

Operator

And we'll take a question from Caitlin Burrows from Goldman Sachs.

Caitlin Burrows -- Goldman Sachs -- Analyst

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 million of equity in '21 and then $300 million in '22. You surpassed the '21 amount already.

So I'm 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?

Tom OHern -- Chief Executive Officer

Caitlin, that was a generic placeholder in a three-year forecast that Scott was using to illustrate deleveraging. So that was not a hardwired assumption. We've been really fairly active on the ATM, so it's going to be dependent upon the share price, whether we use it again this year or not. 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.

Caitlin Burrows -- Goldman Sachs -- Analyst

OK. Got it. And then maybe just another one on leasing spreads, but hopefully asked differently enough that it might still be interesting. But -- so that reported trailing 12-month number was about flat.

You mentioned earlier that in the most recent quarter, they were really up double digits but I would assume, and 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 your properties that you might not have historically classified as Group 1 and Group 2 versus the in-place toward market for the kind of Group 3 to Group 5 properties.

Tom OHern -- Chief Executive Officer

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 our bottom 10. And we've seen pretty good activity across the board. So 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 our '21, typically this is [Inaudible] that you're going to get some pricing power, and I would not say we had it at all in 2020, but quite the contrary. It does appear as if we're picking up some pricing power in 2021 now based on demand and our leasing activity that we've seen to date.

Operator

And that does conclude the Q&A session for today. I would like to turn the conference back over to our speakers for any concluding remarks.

Tom OHern -- Chief Executive Officer

Great. Thank you. Well, thank you to all of you for joining us today, and we look forward to reporting good results for the balance of the year.

Operator

[Operator signoff]

Duration: 58 minutes

Call participants:

Jean Wood -- Vice President, Investor Relations

Tom OHern -- Chief Executive Officer

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

Doug Healey -- Senior Executive Vice President of Leasing

Derek Johnston -- Deutsche Bank -- Analyst

Craig Schmidt -- Bank of America Merrill Lynch -- Analyst

Floris Dijkum -- Compass Point -- Analyst

Katy McConnell -- Citi -- Analyst

Linda Tsai -- Jefferies -- Analyst

Greg McGinniss -- Scotiabank -- Analyst

Rich Hill -- Morgan Stanley -- Analyst

Tom O'Hern -- Chief Executive Officer

Alexander Goldfarb -- Piper Sandler -- Analyst

Mike Mueller -- JPMorgan Chase & Co. -- Analyst

Ki Bin Kim -- Truist Securities -- Analyst

Caitlin Burrows -- Goldman Sachs -- Analyst

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