Results of Operations
Many of the variations in the results of operations, discussed below, occurred because of the transactions affecting the Company's properties described in Management's Overview and Summary above, including the Redevelopment Properties, the JV Transition Center and the Disposition Properties (as defined below).
For purposes of the discussion below, the Company defines "Same Centers" as those Centers that are substantially complete and in operation for the entirety of both periods of the comparison. Non-Same Centers for comparison purposes include those Centers or properties that are going through a substantial redevelopment often resulting in the closing of a portion of the Center (“Redevelopment Properties”), those properties that have recently transitioned to or from equity method joint ventures to or from consolidated assets ("JV Transition Centers") and properties that have been disposed of ("Disposition Properties"). The Company moves a Center in and out of Same Centers based on whether the Center is substantially complete and in operation for the entirety of both periods of the comparison. Accordingly, the Same Centers consist of all consolidated Centers, excluding the Redevelopment Properties, JV Transition Centers and the Disposition Properties, for the periods of comparison.
For the comparison of the three and nine months ended September 30, 2018 to the three and nine months ended September 30, 2017, the Redevelopment Properties are Paradise Valley Mall and certain ground up developments. For the comparison of the three and nine months ended September 30, 2018 to the three and nine months ended September 30, 2017, the JV Transition Center is Westside Pavilion. For the comparison of the three and nine months ended September 30, 2018 to the three and nine months ended September 30, 2017, the Disposition Properties are Promenade at Casa Grande, 500 North Michigan Avenue, Cascade Mall and Northgate Mall.
Unconsolidated joint ventures are reflected using the equity method of accounting. The Company's pro rata share of the results from these Centers is reflected in the Consolidated Statements of Operations as equity in income of unconsolidated joint ventures.
The Company considers tenant annual sales per square foot (for tenants in place for a minimum of twelve months or longer and 10,000 square feet and under), occupancy rates (excluding large retail stores or "Anchors") and releasing spreads (i.e. a comparison of initial average base rent per square foot on leases executed during the trailing twelve months to average base rent per square foot at expiration for the leases expiring during the trailing twelve months based on the spaces 10,000 square feet and under) to be key performance indicators of the Company's internal growth.
Tenant sales per square foot increased from $659 for the twelve months ended September 30, 2017 to $707 for the twelve months ended September 30, 2018. Occupancy rate increased from 94.3% at September 30, 2017 to 95.1% at September 30, 2018. Releasing spreads remained positive as the Company was able to lease available space at higher average rents than the expiring rental rates, resulting in a releasing spread of $5.61 per square foot ($57.32 on new and renewal leases executed compared to $51.71 on leases expiring), representing a 10.8% increase for the trailing twelve months ended September 30, 2018. The Company expects that releasing spreads will continue to be positive for the remainder of 2018 as it renews or relets leases that are scheduled to expire. These leases that are scheduled to expire in the next twelve months represent 1.0 million square feet of the Centers, accounting for 13.3% of the gross leasable area ("GLA") of mall stores and freestanding stores, for spaces 10,000 square feet and under, as of September 30, 2018. These calculations exclude Centers under development or redevelopment and property dispositions (See "Acquisitions and Dispositions" and "Redevelopment and Development Activities" in Management's Overview and Summary).
During the trailing twelve months ended September 30, 2018, the Company signed 225 new leases and 323 renewal leases comprising approximately 0.9 million square feet of GLA, of which 0.6 million square feet related to the consolidated Centers. The annual initial average base rent for new and renewal leases was $57.32 per square foot for the trailing twelve months ended September 30, 2018 with an average tenant allowance of $29.73 per square foot.
In recent years a number of companies in the retail industry, including some of the Company’s tenants, have declared bankruptcy, gone out of business or significantly reduced the number of their retail stores. These events have not had a material impact on the Company’s results of operations to date and, as noted above, the Company’s key performance indicators all were trending in a positive direction for the quarter ended September 30, 2018.
On October 15, 2018, Sears Holdings Corporation (“Sears”) filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code and announced additional store closings. As of September 30, 2018, the Company had 21 Sears stores totaling approximately 3.1 million square feet of gross leasable area within the Company’s portfolio, which were responsible for approximately 1% of the Company’s total annualized base minimum rents. The Company owns seven of the stores, Sears owns one of the stores, Seritage Growth Properties ("Seritage") owns four stores and the Company indirectly owns an interest in the remaining nine stores through MS Portfolio LLC, the Company’s joint venture with Seritage.