Q1 2024 The Macerich Co Earnings Call
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Operator: Ladies and gentlemen, thank you for standing by. Welcome to the first quarter 2024 Macerich earnings conference call. At this time, all participants are in a listen-only mode.
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Speaker Change: Ladies and gentlemen, thank you for standing by welcome to the first quarter 'twenty 'twenty four matrix earnings conference call. At this time, all participants are in a listen only mode.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised.
Speaker Change: After the speaker's presentation, there will be a question and answer session to ask a question. During this session you would need to press star one one when your telephone.
Speaker Change: Didn't hear an automated message advising your hand, just raise to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would like now to turn the conference over to your speaker today, Samantha Greening director of Investor Relations. Please go ahead.
Operator: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to your speaker today, Samantha Greening, Director of Investor Relations. Please go ahead.
Samantha Greening: Thank you for joining us on our first quarter 2024 earnings call. During the course of this call, we'll be making certain statements that may be deemed forward-looking within the meaning of the safe harbor of the Private Security Validation Reform Act of 1995, including statements regarding projections, plans, or future expectations. However, actual results may differ materially due to a variety of risks and uncertainties set forth in today's press release and our SEC filings.
Samantha Greening: Thank you for joining us on our first quarter 2024 earnings call. During the course of this call we'll be making certain statements that may be deemed forward looking within the meaning of the safe Harbor of the private Securities Litigation Reform Act of 1995, including statements regarding projections plans or future expectations.
Samantha Greening: Results may differ materially due to a variety of risks and uncertainties set forth in today's press release, and our SEC filings.
Samantha Greening: Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the earnings release and supplemental Form 8K filed with the SEC, which are posted on the investor section of the company's website at macerich.com. Joining us today are Jack Shea, President and Chief Executive Officer; Scott Kingsmore, Senior Executive Vice President and Chief Financial Officer; and Doug Healey, Senior Executive Vice President of Leasing. And with that, I turn the call over to Jack. Thank you, Samantha.
Samantha Greening: Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the earnings release and supplemental filed on form 8-K, with the SEC, which are posted on the investors section of the company's website at Macerich Dot com.
Samantha Greening: Joining us today are Jeff Shane President and Chief Executive Officer, Scott King's Moore, Senior Executive Vice President and Chief Financial Officer, and Doug Healey Senior Executive Vice President of leasing and with that I turn the call over to Jack Thank you Samantha.
Jackson Hsieh: Good morning, and thank you all for joining my first quarterly earnings call for the Macerich Company. I am grateful for the Board of Macerich selecting me at this time to chart a new direction and lead the company, especially in light of our recent 30th anniversary listing celebration on the New York Stock Exchange. I am very optimistic and confident about our company's future. Since March 1st, I've had the privilege of meeting over 80% of our company's associates in each of our six office locations and on my property tours of 22 of our largest assets. I can tell you that there is tremendous passion and desire for change and new leadership from our associates. Our well-tenured team members across many business lines are excellent.
Jeff Shane: Good morning, and thank you all for joining my first quarterly earnings call for the Mace, which company.
Jeff Shane: I am grateful for the board of May stretch selecting me at this time to chart a new direction.
Jeff Shane: Lead the company.
Jeff Shane: Specially in light of our recent 30 year listing celebration.
Jeff Shane: The New York Stock exchange.
Jeff Shane: I am very optimistic and confident about our company's future.
Jeff Shane: Since March one.
Jeff Shane: I had the privilege of meeting over 80% of our company's associates in each of our six office locations.
Jeff Shane: And then my property tours of 22 of our largest assets.
Jeff Shane: I can tell you that there is tremendous passion and desire for change.
Jeff Shane: Our new leadership from our associates.
Jeff Shane: Our well tenured team members across many business lines are excellent.
Jackson Hsieh: Many of our assets are fortress-like in terms of their market position, annual customer visits, Tenancy, and Overall Sales Produ, And while we have proven operational processes, there is even more room for improvement.
Jeff Shane: Many of our assets our fortress like in terms of their market position.
Jeff Shane: Annual customer visits.
Jeff Shane: Tenancy and overall sales production.
Jeff Shane: And while we have proven operational processes.
Speaker Change: There's even more room for improvement.
Jackson Hsieh: I also met with several tenants and joint venture partners of Macerich who are excited about moving forward with us. In our most recent quarterly board of directors meeting last week, I outlined my strategic plan for the company, our path forward, which focuses on the following key objectives that we expect to take three to four years to complete. Number one, simplifying the business.
Speaker Change: I also met with several tenants and joint venture partners of matrix, who are excited about moving forward with us.
Speaker Change: Yeah.
Speaker Change: In our most recently quarterly.
Speaker Change: Board of directors meeting last week.
Speaker Change: I outlined my strategic plan for the company.
Speaker Change: Our path forward.
Speaker Change: Which focuses on the following key objectives that we expect to take three to four years to complete.
Speaker Change: Number one simplifying the business.
Jackson Hsieh: We expect to sell assets and consolidate certain JV interests over time. In asset sales, we've focused on whether a center is core to our strategy, including cells per square foot and other factors, such as dead in place. Trade Area Positioning, Anchor Positioning, City Dynamics, etc.
Speaker Change: We expect to sell assets.
Speaker Change: And consolidate certain JV interests over time.
Speaker Change: Asset sales were focused on whether a center is core to our strategy.
Speaker Change: Including sales per square foot and other factors.
Speaker Change: Such as debt in place.
Speaker Change: Trade area positioning anchor positioning.
Speaker Change: City dynamics et cetera.
Jackson Hsieh: With regard to JVs, we will be very selective in deploying capital to consolidate JVs. Number two, improve operational performance by increasing NOI through backfilling certain vacant anchor locations. NOI improvement in our large eastern seaboard assets and a wife from our current executed lease pipeline that will produce $70 million in incremental rental revenues from New Deal in 2024, 25 and 26, and improve permanent occupancy throughout the portfolio. We will be very selective with regard to new development and redevelopment spend.
Speaker Change: With regards to JV, we will be very selective in deploying capital to consolidate <unk>.
Speaker Change: Number two.
Speaker Change: Improved operational performance.
Speaker Change: By increasing NOI through back selling certain vacant anchor locations.
Speaker Change: NOI improvement at our large eastern seaboard assets.
Speaker Change: NOI.
Speaker Change: From our current executed lease pipeline.
Speaker Change: That will produce 70 million in incremental rental revenues from new deals in 2024, 25 and 26.
Speaker Change: And improving permanent occupancy throughout the portfolio.
Speaker Change: We'll be very selective with regard to new development and redevelopment spend.
Jackson Hsieh: Near-term projects include the expansion at Greenacres and Flatiron Cross, and number three, reducing leverage to the low to mid six times is a major priority for Macerich. In addition to focusing on our core business, which generates annual free cash flow after dividends of $150 million, and executing on our asset sale plans. We also plan to return four to six properties to lenders at loan maturity. This will take time, but we have a path to achieving this objective.
Speaker Change: Near term near term projects include the expansion at Green acres.
Speaker Change: In Flatiron crossing.
Speaker Change: And number three reduce leverage to the low to mid six times.
Speaker Change: Is a major priority for mace rich.
Speaker Change: Yeah.
Speaker Change: In addition to focusing on our core business, which.
Speaker Change: Which generates annual free cash flow after dividends of $150 million.
Speaker Change: Executing on our asset sale plans.
Speaker Change: We also plan to return four to six properties back to lenders.
Speaker Change: Loan maturity.
Speaker Change: This will take time, but we have a path to achieving this objective.
Jackson Hsieh: One of the key intentions of our plan is to increase the competitiveness of our cost of capital. And if the market responds the way we expect, we may opportunistically issue equity over time to accelerate the deleveraging strategy. Based on our plan, 500 million of new equity reduces leverage by two-thirds of a turn. By executing on this plan, we will concentrate our portfolio on our best properties, which are thriving retail centers, and we'll have a substantially stronger balance sheet. This will position Macerich to be aggressive on acquisitions, reinvestment, and select development.
Speaker Change: Yeah.
Speaker Change: What are the key intentions of our plan is to increase the competitiveness of our cost of capital.
Speaker Change: And if the market responds the way we expect.
Speaker Change: We may opportunistically issue equity overtime to accelerate the deleveraging strategy.
Speaker Change: Based on our plan.
Speaker Change: 500 million of new equity.
Speaker Change: <unk> leverage by two thirds of a turn.
Speaker Change: Yeah.
Speaker Change: By executing on this plan, we will concentrate our portfolio in our best properties.
Speaker Change: Our thriving retail centers.
Speaker Change: And we'll have a substantially stronger balance sheet.
Speaker Change: This will position matrix to be offensive on acquisitions reinvestment in select development.
Jackson Hsieh: In the last 60 days since I joined the team, we have already started executing this plan. For example, we are underway on several asset transactions, which include property sales, consolidation of JV interests on certain assets, and potentially giving back properties to lenders. The timing of these transactions will impact our reported financial results and include non-cash items that are difficult to forecast.
Speaker Change: Yeah.
Speaker Change: In the last 60 days since I've joined the team we have already started executing this plan.
Speaker Change: For example, we are underway on several asset transactions.
Speaker Change: Which include property sales.
Speaker Change: Consolidation of JV interests on certain assets.
Speaker Change: And potentially giving back properties to lenders.
Speaker Change: The timing of these transactions will impact our reported financial results.
Speaker Change: And include noncash items that are difficult to forecast.
Jackson Hsieh: So, for the time being, we will be withdrawing our 2024 forecasted FFO per share guidance. We plan on reissuing guidance at the right time as we have more clarity on the timing and certainty of these transactions and initiatives that we are implementing as part of our strategic plan. Three weeks ago, I hosted a company-wide town hall zoom meeting, whereby I presented our company's new mission statement, corporate values, and property regrouping.
Speaker Change: So for the time being we will be withdrawing our 2024 forecasted <unk> per share guidance.
Speaker Change: We plan on reissuing guidance at the right time as we have more clarity on the timing uncertainty of these transactions and initiatives that we are implementing as part of our strategic plan.
Speaker Change: Yeah.
Speaker Change: Three weeks ago, I hosted a company wide town halls zoom meeting.
Speaker Change: Whereby I presented our company's new mission statement corporate values and property regrouping.
Jackson Hsieh: Our mission at Macerich is to own and operate thriving retail centers that bring our communities together and create long-term value for our shareholders, customers, and partners. Our six corporate values are excellence, integrity, good relationships, Empowerment, Optimism, and Fun. I, along with our senior leadership team, are constantly reinforcing all of us to challenge the status quo across the organization. Do what you say.
Speaker Change: Our mission at Mace Rich Mister.
Speaker Change: Owned and operated thriving retail centers that bring our communities together.
Speaker Change: Create long term value for our shareholders.
Speaker Change: Customers and partners.
Speaker Change: Our six corporate values are excellent.
Speaker Change: Tegra <unk> goodwill.
Speaker Change: Good relationships empowerment optimism and fun.
Speaker Change: I along with our senior leadership team are constantly reinforcing all of us to challenge the status quo across the organization.
Scott W. Kingsmore: Do your absolute best. Be transparent, work together seamlessly, take ownership, be confident, and celebrate our success and progress as we strive to complete our strategic plan and mission statement. Again, I am very excited and confident about what our company will look like in the coming years. With that, I'll turn the call over to Scott to go through our first quarter results and financing activity.
Speaker Change: Do what you say.
Speaker Change: Do your absolute best B.
Speaker Change: Be transparent worked together seamlessly take ownership be confident and celebrate our success and progress as we strive to complete our strategic plan and mission statement.
Speaker Change: Again, I am very excited and confident about what our company will look like in the coming years.
Speaker Change: With that I'll turn the call over to Scott to go through our first quarter results and financing activities.
Scott W. Kingsmore: Thank you, Jack. This quarter, we were pleased by the continued strength of our operating fundamentals, namely continued robust leasing volumes, year-over-year occupancy growth, and strong base rent leasing spreads, each of which Doug will speak to following my commentary. However, quarterly FFO did not meet our expectations. FFO per share for the first quarter was 33 cents.
Scott: Thank you Jack this quarter, we were pleased by the continued strength of our operating fundamentals, namely by continued robust leasing volumes year over year occupancy growth and strong base rent leasing spreads each of which Doug will speak to following my commentary.
Douglas J. Healey: However, quarterly <unk> did not meet our expectations <unk> per share for the first quarter was 33.
Scott W. Kingsmore: This quarterly FFO result was five cents less than our expectations and guidance and 10 cents less than the first quarter of 2023 at 43 cents per share. The primary major factors contributing to the quarterly FFO per share change versus our expectations are as follows. 2.5 cents, or roughly half the miss versus our guidance, was due to the impact from Express and resulted from reserves taken against past due rent and from write-offs of straight-line rent and other non-cash receivables.
Douglas J. Healey: This quarterly <unk> result was <unk> <unk> less than our expectations and guidance and 10 cents less than the first quarter of 2023 at <unk> 43 per share.
Speaker Change: The primary major factors contributing to the quarterly <unk> per share change versus our expectations are as follows.
Speaker Change: Two five cents or roughly half the miss versus our guidance was due to the impact from express and resulted from reserves taken against past due rent.
Speaker Change: And from write offs of straight line rent and other noncash receivables.
Scott W. Kingsmore: I will provide more color on the potential impacts from this retailer in a few moments. The balance of the decline in FFO relative to our expectations came primarily from one-time, non-recurring costs associated with our recent leadership transition, mainly legal, search, and consulting costs. 2, Reductions in Lease Termination Income.
Speaker Change: I will provide more color on the potential impacts from this retailer in a few moments.
Speaker Change: The balance of the decline in <unk> relative to our expectations came primarily from onetime nonrecurring costs associated with our recent leadership transition mainly from legal search and consulting costs.
Speaker Change: Two.
Speaker Change: Reductions in lease termination income.
Scott W. Kingsmore: 3 declines in straight line rents and lastly, declines in the quarter from our on-premise advertising business. In addition to these factors that I just mentioned, which were not part of our prior guidance, the following other primary factors contributed to the remainder of the 10 cent difference in FFO relative to the first quarter of last year, each of which is consistent with our guidance and expectations. 1, the $5 million increase in interest expense, 2, a $3 million decline in land sale gains, and lastly, 3, from various non-recurring other income that was recognized during the first quarter of 2023 but did During the quarter, Samson's NOI, or NOI, excluding lease termination revenue, decreased 1.9%.
Speaker Change: Three declines in straight line rents.
Speaker Change: And lastly declines in the quarter from our on premise advertising business.
Speaker Change: In addition to these factors that I, just mentioned, which were not part of our prior guidance. The following other primary factors contributed to the remainder of the 10 cent difference in <unk> relative to the first quarter of last year, each of which are consistent with our guidance and expectations.
Speaker Change: $1 million to $5 million increase in interest expense to a $3 million decline in land sale gains and lastly, three from various nonrecurring other income that was recognized during the first quarter of 2023 that did not repeat in 2024.
Speaker Change: During the quarter same center NOI, excluding lease termination revenue decreased one 9%.
Scott W. Kingsmore: Our expectations from our original guidance were for only a nominal increase in same center NOI during the first quarter, with the continued pickup thereafter throughout 2024 due to tenant openings from our strong lease pipeline. The quarterly underperformance versus expectations in same-center NOI was primarily due to, again, express, and to a lesser extent, lower advertising income in the quarter. As Jack noted, at this time, we have withdrawn our prior guidance for 2024 funds from operations, given that our earnings will be impacted by transactions contemplated within our strategic plan, including asset sales, consolidation of selected joint venture assets, and potential givebacks to our lenders, the timing of which is uncertain and cannot be estimated at this time.
Speaker Change: Our expectations from our original guidance, where for only a nominal increase in same center NOI during the first quarter with a continued pick up thereafter throughout 2024 due to tenant openings from our strong lease pipeline.
Speaker Change: Quarterly underperformance versus expectations in same center NOI was primarily due to again express and to a lesser extent from lower advertising income in the quarter.
Speaker Change: As Jack noted at this time, we have withdrawn our prior guidance for 2024 funds from operations given that our earnings will be impacted by transactions contemplated within our strategic plan.
Speaker Change: Including asset sales consolidation of selected joint venture assets and potential give backs to our lenders the timing of which is uncertain and cannot be estimated at this time.
Scott W. Kingsmore: In addition to earnings impacts from our first quarter results, here are a few other items to highlight that may impact our earnings results for this year in 2024. One, we did not anticipate the bankruptcy filing of Express with our earnings guidance.
Speaker Change: In addition to earnings impacts from our first quarter results.
Speaker Change: Here are a few other items to highlight that may impact our earnings results for this year in 2024.
Speaker Change: One we did not anticipate the bankruptcy filing of express with our earnings guidance to.
Scott W. Kingsmore: To frame Express, we have 23 stores with them and approximately $15 million of total rent in our share. Based on my prior commentary, this event has already had a negative impact on the first quarter and will continue to have a negative impact for the balance of this year and into next year when all store closures and any rent modifications that are negotiated expire. With the filing having only just occurred, it is very early days in this process.
Speaker Change: To frame express, we have 23 stores with them.
Speaker Change: And approximately $15 million of total rent at our share base.
Speaker Change: Based on my prior commentary. This event has already had a negative impact on the first quarter and will continue to have a negative impact for the balance of this year and into next year, when all store closures and any rent modifications that are negotiated anniversary.
Speaker Change: With the filing having only just occurred it is very early days in this process.
Scott W. Kingsmore: Our current preliminary expectations are that this could have a range of five to six cents negative impact on 2024 FFO, including the impact that we just recognized in the first quarter, and that it could have roughly $0.06 to $0.08 negative impact on FFO on an annualized basis. At this time, it seems that at least 15 Macerich Portfolio Express stores will close, likely within the second quarter. These 15 closures alone will have an approximately 50 basis point negative impact on our small shop occupancy. These are generally good locations, and we should be able to release them well over time, as well. We do not have visibility at this time into a significant amount of lease termination income.
Speaker Change: Our current preliminary expectations are that.
Speaker Change: This could have a range of 5% excuse me five to six cent negative impact on 2024, <unk>, including the impact that we're right. We just recognized in the first quarter.
Speaker Change: That could have a roughly six to eight cents of negative impact on <unk> on an annualized basis. At this time it seems that at least 15 mace rich portfolio Express stores will close likely within the second quarter. These.
Speaker Change: These 15 closures alone will have an approximately 50 basis point negative impact on our small shop occupancy.
Speaker Change: These are generally good locations and should be able we should be able to release them well overtime.
Speaker Change: As well, we do not have visibility at this time into a significant amount of lease termination income.
Scott W. Kingsmore: So our initial estimates for $10 million of such revenue in 2024 may be cut in half. As Jack noted, it is possible we may acquire our partner's interest in certain assets. These purchases would be FFO accretive, except for the fact that we would have to mark to market the below-market secure debt that we would assume with those acquisitions. Such non-cash charges would make those transactions FFO diluted by roughly two cents.
Speaker Change: So our initial estimates for $10 million of such revenue in 2024, maybe cut in half.
Speaker Change: As Jack noted it is possible we may acquire our partner's interest in certain assets.
Speaker Change: These purchases would be <unk> accretive except for the fact that we would have to mark to market below market secured debt that we would assume with those acquisitions such noncash charges would make those transactions <unk> dilutive by roughly two cents.
Scott W. Kingsmore: Now on to balance sheet matters. We continue to make good progress addressing our debt maturities. On January 10th, our joint venture closed a $24 million refinance of the existing $23 million loan on Boulevard Shops in Chandler, Arizona. The new loan bears variable interest at SOFR plus 2.5%. It is interest only during the entire loan term and matures on December 5th, 2028.
Speaker Change: Now onto the balance sheet matters.
Speaker Change: We continue to make good progress addressing our debt maturities.
Speaker Change: January 10th of 24.
Speaker Change: Our joint venture closed a $24 million refinance of the existing $23 million loan on Blvd shops in Chandler, Arizona.
Speaker Change: The new loan bears variable interest at Sofa, plus two 5%. It is interest only during the entire long term and matures on December five 2028.
Scott W. Kingsmore: On January 25, 2024, we closed a $155 million refinance of the existing $117 million loan on Danbury Fair. This new 10-year loan bears interest at a fixed rate of 6.39% and is interest-only during the majority of the loan term. We closed a three-year extension of the $85 million loan on fashion outlets in Niagara. The extended loan will bear the same fixed interest rate of 5.9% and will mature in October 26.
Speaker Change: On January 25, 2024, we closed a $155 million refinance of the existing $117 million loan on Danbury fair.
Speaker Change: This new 10 year loan bears interest at a fixed rate of 639% and is interest only during the majority of the long term.
Speaker Change: On March 19th 24.
Speaker Change: We closed a three year extension of the $85 million loan on fashion outlets of Niagara. It's extended loan will bear the same fixed interest rate of five 9% and will mature in October of 26.
Scott W. Kingsmore: We recently repaid in full the $8 million remainder of the loan on Fashion District of Philadelphia, which is now fully unencumbered. We are in the process of closing a two-year extension of the $151 million loan on the Oaks, which matures on January 5th, 2024. The new interest rate during the first year of the extended term will be 7.5%, which then increases to 8.5% during the second year of the extended loan term.
Speaker Change: We recently repaid in full.
Speaker Change: $8 million remainder of the loan on fashion district in Philadelphia.
Speaker Change: Which is now fully unencumbered.
Speaker Change: We are in the process of closing a two year extension of the $151 million loan on the Oaks, which matures on January 5th of 2020 for.
Speaker Change: The new interest rate during the first year the extended term will be seven 5%, which then increases to eight 5% during the second year of the extended loan term.
Scott W. Kingsmore: We are in the process of closing a refinance of the $256 million loan on Chandler Fashion Center. The loan matures on July 5th, 2024. The new five-year loan, which is expected to be $275 million, will bear a fixed interest rate that is yet to be locked.
Speaker Change: We are in the process of closing a refinance of the $256 million loan on Chandler fashion Center.
Speaker Change: Loan matures on July <unk> of 2020 for the.
Speaker Change: The new five year loan, which is expected to be $275 million will bear a fixed interest rate that is yet to be light.
Douglas J. Healey: Despite the recent rise in treasury yields, the financing market for Class A retail real estate remains strong, but with an increase in rate expectations relative to prevailing rate curves from earlier this year and also relative to our expectations at the beginning. We currently have approximately $640 million of available liquidity, including $465 million of capacity, available capacity, and unborrowed capacity on our revolving line of credit. With that, I will turn it over to Doug to discuss the leasing and operating environment. Thanks, Scott. We had another strong quarter in terms of leasing volumes and metrics. Occupancy at the end of the first quarter was 93.4 percent.
Speaker Change: Despite the recent rise in treasury yields the financing market for class a retail real estate remains strong.
Speaker Change: But with an increase in rate expectations relative to prevailing rate curves from early earlier this year and also relative to our expectations at the beginning of the year.
Speaker Change: We currently have approximately $640 million of available liquidity.
Speaker Change: Including $465 million of capacity available capacity on borrowed capacity on our revolving line of credit.
Speaker Change: With that I will turn it over to Doug to discuss the leasing and operating environment.
Douglas J. Healey: Thanks, Scott we had another strong quarter in terms of leasing volumes and metrics occupancy at the end of the first quarter was 93, 4% that's down slightly from Q4, 2023, but an improvement of 120 basis points year over year.
Douglas J. Healey: That's down slightly from Q4 2023, but an improvement of 120 basis points year over year. We obviously expect this metric to decrease slightly given the recent news on express bankruptcy and future potential store closings. Nonetheless, our team is working diligently to backfill these spaces as soon as possible. First quarter sales were basically flat when compared to first quarter 2022.
Douglas J. Healey: We obviously, we expect this metric to decrease slightly given the recent news on express bankruptcy and future potential store closings. Nonetheless, our team is working diligently to backfill these spaces as soon as possible.
Speaker Change: First quarter sales were basically flat when compared to first quarter 2022.
Douglas J. Healey: Sales per square foot as of March 31st, 2024 were $837. That's up a dollar when compared to the first quarter of 2023. Trailing 12-month base rent leasing spreads remain positive at 14.7% as of March 31, 2024. That's down slightly from the last quarter but an increase of 810 basis points when compared to March 31, 2023. In the first quarter, we opened 540,000 square feet of new stores. That's almost 300% more square footage than we opened during the same period last year.
Speaker Change: Sales per square foot as of March 31, 2024 were $837 and that's up a dollar when compared to the first quarter of 2023.
Speaker Change: Trailing 12 month base rent leasing spreads remained positive at 14, 7% as of March 31, 2024, that's down slightly from the last quarter, but an increase of 810 basis points when compared to March 31 2023.
Speaker Change: In the first quarter, we opened 540000 square feet of new stores.
Speaker Change: That's almost 300% more square footage than we opened during the same period last year.
Douglas J. Healey: The most notable opening of the quarter was the highly anticipated Caesars Republic Hotel, which opened March 6th at Scottsdale Fashion Square. This modern 11-story, 265-room hotel is situated on the north side of the property and will be a great amenity for our tourism customers. In addition to its luxurious rooms and suites, the hotel also features the fabulous restaurant Luna by world-renowned chef Giada De Laurentiis.
Speaker Change: The most notable opening of the quarter with the highly anticipated Caesars Republic Hotel, which opened March six at Scottsdale fashion square.
Speaker Change: This modern 11 story 265 room hotel is situated on the north side of the property and will be a great amenity for our tourism customers in.
Speaker Change: In addition to its luxurious rooms and suites.
Speaker Change: The hotel also features the Fabulous restaurant Luna by World renowned chef giardia dealer rent us.
Douglas J. Healey: Other notable openings in the quarter include a flagship footlocker at Tyson's Corner Center, Rothy's and Cotty also at Tyson's, J.Crew at the Village of Corte Madera and Danbury Fair, Starbucks at Deptford Mall, Pandora at Valley River, Maj and Sandro at Scottsdale Fashion Square, Round One at Danbury Fair, and Kelm at Santan Village. Now let's look at the new and renewal leases we signed in the first quarter. In the first quarter, we signed 222 leases totaling just over a million square feet.
Speaker Change: Other notable openings in the quarter include a flagship foot locker at Tysons corner Center.
Speaker Change: Rafi and Cottie also at Tysons J crew at the village at Corte Madera.
Speaker Change: And Danbury Fair Starbucks at Deptford Mall, Pandora Pandora at Valley River.
Speaker Change: Margin Sandro at Scottsdale fashion square round, one at Danbury fair and kill them at Santana village.
Speaker Change: Now, let's look at the new and renewal leases, we signed in the first quarter in the first quarter, we signed 222 leases totaling just over a million square feet.
Douglas J. Healey: This represents a 14% increase in leased square footage relative to the first quarter of 2023. And let's keep in mind 2023 was a record leasing year for us, dating back 30 years to when we first became public. As is the norm in the first quarter, 2024 lease expirations were a top priority. To that end, we signed a 21-deal renewal package with Abercrombie & Fitch, an 18-deal renewal package with Luxottica, a 10-deal renewal package with GNC, seven renewals with Verizon, five renewals with T-Mobile, and four renewals with Zoomi.
Speaker Change: This represents a 14% increase in leased square footage relative to the first quarter 2023.
Speaker Change: And lets keep in mind 2023 was a record leasing year for us dating back 30 years to when we first became public.
Speaker Change: As is the norm in the first quarter 2024 lease expirations, we are a top priority.
Speaker Change: To that end, we signed a 21 deal renewal package with Abercrombie and Fitch and 18 deal renewal package with luxottica.
Speaker Change: A 10 year renewal package with GNC seven renewals with Verizon five renewals with T mobile and for renewals with Zumiez.
Douglas J. Healey: So with those and others, we now have commitments at 65% of our 2024 expiring square footage that is expected to renew and not close, with another 24% in the letter of intent stage. Other notable new leases signed in the first quarter included Gap at Queen Center, Burberry, Mark Jacobs, Rudzak, and Hollister at Fashion Outlets of Chicago, Tillys at Scottsdale Fashion Square, and Miniso at Eastland.
Speaker Change: So with those and others, we now have commitments at 65% of our 2020 for expiring square footage that is expected to renew and not close.
Speaker Change: With another 24% in the letter of intent stage.
Speaker Change: Other notable new leases signed in the first quarter featured gap at Queen Center.
Speaker Change: Barberry, Marc Jacobs rucksack in Hollister at fashion outlets of Chicago.
Speaker Change: At Scottsdale fashion square and Muni so at Eastland.
Douglas J. Healey: In the Emerging Brands category, we signed new leases with Faraday and Guayana at 29th Street, Guayana, Viore, and Yeti at Tyson's Corner, Warby Parker at Danbury Fair and Queen's Center, and lastly, we signed a new lease with Cheesecake Factory at Tyson's Corner Center. Cheesecake will join the recently signed Magianos and Level 99 and will round out our food and entertainment initiative in Tyson's East Wing.
Speaker Change: In the emerging brands category, we signed new leases with Verity in Guyana, the 29th Street.
Speaker Change: Going out of Europe, and Yeti at Tysons corner.
Speaker Change: <unk> Parker at Danbury Fair and Queen Center.
Speaker Change: Lastly, we signed a new lease with Cheesecake factory at Tysons corner Center.
Speaker Change: Cheesecake will join the recently signed Marciano and level 99, I will round out our food and entertainment initiative in Tysons East wing.
Douglas J. Healey: Turning to our leasing pipeline, at the end of the first quarter, we had 130 leases for 1.8 million square feet of new stores, which we expect to open in 2024, 2025, and early 2026. In addition to these signed leases, we're currently negotiating leases for new stores totaling 500,000 square feet, which will open in 2024, 2025, and early 2026. So in total, that's nearly 2.3 million square feet of new store openings throughout the remainder of this year and beyond.
Speaker Change: Turning to our leasing pipeline at the end of the first quarter. We had 130 leases for one 8 million square feet of new stores, which we expect to open in 2020 for 2025 and early 2026.
Speaker Change: In addition to these signed leases were currently negotiating leases for new stores totaling 500, 500000 square feet, which will open in 'twenty four 'twenty five in early 2026.
Speaker Change: So in total that's nearly $2 3 million square feet of new store openings throughout the remainder of this year and beyond.
Douglas J. Healey: And again, I want to emphasize, these are new leases with retailers not yet open and not yet paying rent, and these numbers do not include renewals. This leasing pipeline of new store openings now accounts for almost $70 million of incremental rent in aggregate, which will be realized in 2024, 2025, and 2026, and this incremental rent will continue to grow as we continue to approve new deals and sign new leases. So to conclude... Our leasing and operating metrics were very solid in the first quarter.
Speaker Change: And again I want to emphasize these are new leases with retailers not yet open and not yet paying rent and these numbers do not include renewals.
Speaker Change: This leasing pipeline of new store openings now accounts for almost $70 million of incremental rent in aggregate, which will be realized in 2020 for 2025 and 2026 and this incremental rent will continue to grow as we continue to approve new deals and signed new leases.
Speaker Change: So to conclude.
Speaker Change: Our leasing and operating metrics were very solid in the first quarter.
Douglas J. Healey: Leasing volumes were extremely strong, in excess of square footage leased during the first quarter of 2023, thus maintaining a very strong pipeline of stores that will open this year, next year, and into 2026. We opened over 500,000 square feet of new stores, that's 300% more square footage than we opened during the same period last year. Occupancy was 93.4%, up 120 basis points year over year.
Speaker Change: Leasing volumes were extremely strong in excess of square footage leased during the first quarter 2023, thus maintaining a very strong pipeline of stores that will open. This year next year and into 2026, we opened over 500000 square feet of new stores at 300% more square footage than we opened during <unk>.
Speaker Change: The same period last year.
Speaker Change: Occupancy was 93, 4% up 120 basis points year over year. However, we do expect this metric to decline slightly as a result of the express bankruptcy.
Operator: However, we do expect this metric to decline slightly as a result of the express bank. That's an increase of over 800 basis points from the first quarter of last year. And with that, I'll turn it over to the operator to open the call to Q&A. Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Speaker Change: Lastly base rent leasing spreads were 14, 7%, that's an increase of over 800 basis points from the first quarter last year.
Speaker Change: And with that I'll turn it over to the operator to open the call up for Q&A.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Operator: Please limit your questions to one and one follow-up. Please stand by for the first question. And the first question comes from Jeffrey Spector with Bank of America Securities. Your line is open.
Speaker Change: Please limit to one question.
Operator: Follow up please standby for the first question.
Operator: Okay.
Operator: And our first question comes from Jeffrey Spector with Bank of America Securities. Your line is open.
Jeffrey Alan Spector: Great, thank you. My first question, I guess, let's focus on your comments around the, you know, objectives and the timeframe. I think you said, you know, three to four years. And I completely understand there's a lot to do in the three to four years. But, can you be more specific on some key objectives for the next year when you're presented to the board? You know, did you lay out, let's say, some key objectives for, let's say, the next 12 months? Hi Jeff. Good morning.
Jeffrey Alan Spector: Great. Thank you My first question I guess, let's focus on Jackson your comments around the objectives and the timeframe I think you said three to four years.
Jeffrey Alan Spector: And completely understand there's a lot to do in the three to four years I guess can.
Jeffrey Alan Spector: Can you be more specific on some key objectives for the next year when you presented to the board.
Jeffrey Alan Spector: Did you lay out let's say some key objectives. So lets say the next 12 months.
Speaker Change: Uh huh.
Jackson Hsieh: Yeah, we actually did that. We did a year by year analysis that we presented last week. I guess I'll give you the fundamental building blocks that we look at as it relates to getting leverage to dial down into that low six times debt to EBITDA range. You could consider that the assets that we plan to dispose of or give back refer to would result in a 100 basis point decline in our leverage statistic, the NOI increase over this period of time, which accounts for about 60 basis points of reduction in our debt to EBITDA ratio of that 100 basis points.
Jeffrey Alan Spector: Hey, Jeff Good morning, Yes, we actually did that we did a year by year analysis.
Jeff Shane: That we presented last week.
Jeff Shane: I guess I'll give you the fundamental building blocks that we look at as it relates to getting leverage to dial down into those into that low six times debt to EBITDA range.
Jeff Shane: You can consider that the assets that we plan to dispose or give back referred to.
Jeff Shane: Would result in a 100 basis point decline.
Jeff Shane: And our leverage statistic.
Jeff Shane: The NOI increase over this period of time.
Jeff Shane: Which includes accounts.
Jeff Shane: Accounts for about 60 basis points, a reduction in our debt to EBITDA ratio.
Jackson Hsieh: Approximately 60% of that is related to that $70 million of incremental rental revenue that Doug and I talked about. And the final 65 basis points of leverage reduction are accounted for in that $500 million of common stock issuance as a placeholder.
Jeff Shane: Of that 100 basis points.
Jeff Shane: Approximately 60% of that is related to that $70 million of incremental rental revenue that Doug and I talked about.
Jeff Shane: And the final 65 basis points.
Jeff Shane: Of leverage reduction is accounted for in that $500 million.
Speaker Change: Of common stock issuance as a placeholder so those three fundamental building blocks of what gets us.
Jackson Hsieh: So those three fundamental building blocks are what get us down to that target level. I can tell you that the sales and giveback analysis is about 10 properties, plus or minus. You know, we can't do that all at once.
Speaker Change: Down to that target level.
Speaker Change: I can tell you that the sales in <unk>.
Speaker Change: Give back analysis, its about 10 properties plus or minus we can't do that all at once there is a very there's a very specific sequencing that we're going through that that will take.
Jackson Hsieh: There's a very specific sequence that we're going through. That will take, you know, about three to four years to accomplish. The NOI that we talked about, that's also a three-year buildup, although every year you'll see pieces of it come in.
Speaker Change: About three years to four years to accomplish.
Speaker Change: The NOI that we talked about that's also a three year buildup, although every year youll see pieces of it come in.
Jackson Hsieh: And, you know, the common stock piece is kind of at our discretion. We don't have to do it right away. We're going to deliver just through this process. So we're very opportunistic about that. But I think what you'll see us do, Jeff, is as we get more clarity around FFO guidance, we'll probably start to talk about specific sale transactions and JVs and lender givebacks that are actually executed or under contract, so to speak. We're in the process right now, so we can't comment on that. But in the coming months, we'll be able to give real clarity around the specific names of assets. Thank you, very helpful.
Speaker Change: The common stock pieces kind of at our discretion or we don't have to do it right away, we're going to Delever just do this process. So we're very opportunistic about that.
Speaker Change: And I think what Youll see us do Jeff is.
Speaker Change: As we get more clarity around <unk> guidance, we'll probably start to talk about specific sale.
Speaker Change: Sale transactions in Jv's lender.
Speaker Change: Lender give backs that are actually executed or under contract. So to speak we are in process right. Now so we can't comment on it but in the coming months, we'll be able to give real clarity around specific names of assets.
Speaker Change: Thank you very helpful and my follow up question, then thinking about.
Jeffrey Alan Spector: And my follow-up question, then, you know, these key objectives, and then the ultimate goal, right, you talked about going on. Then, you know, having the cost of capital to go on off the end. Is that in a couple years, or do you feel like, you know, if you're able to chip away and start achieving some of these objectives over the next year, you'll be able to do it? I mean, and positive, just to say it, obviously, on the leasing side, you guys, you continue to do extremely well, which is, of course, critical.
Speaker Change: These key objectives and then the ultimate goal right you talked about going on than you know, having the cost of capital to go on offense I guess.
Speaker Change: Is it is that.
Speaker Change: In a couple of years or do you feel like.
Speaker Change: If youre able to chip away and start achieving some of these objectives over the next year, you'll be able to do it I mean in positive just to say it obviously on the leasing side.
Speaker Change: Guys continue to do extremely well, which is of course critical.
Jeffrey Alan Spector: Yeah, look, when I when I joined this company, I didn't just come here to deliver the company or try to sell the company, you know, candidly, I'd just be retired. I saw a great organization that could do a whole lot more off this platform. And when I looked at the plan to delever, to be honest with you, it's a pretty simple plan. You know, it's 10 assets. You know, it's NOI that is coming.
Speaker Change: Yes.
Speaker Change: When I joined this company I didn't just come here to de lever the company have tried to sell the company.
Speaker Change: Or will that just be retired.
Speaker Change: I saw a great organization that can do a whole lot more off this platform.
Speaker Change: And when I looked at the plan to de lever.
Speaker Change: To be honest with you, it's a pretty simple plan.
Speaker Change: 10 assets.
Jackson Hsieh: And, you know, the common stock thing is a lot lower than I initially expected from the outside looking in, um, if we wanted to go quicker and not sell any properties. You know, that's issuing $2 billion of common stock to get us down into the low six times area, which would never make any sense, you know, from a just a dilution standpoint. So, I feel like this plan gives us the best opportunity to take advantage of what I think are going to be really interesting opportunities.
Speaker Change: Its NOI that is coming.
Speaker Change: The common stock thing is a lot lower than.
Speaker Change: Probably I initially expected from the outside looking in.
Speaker Change: We wanted to go quicker and not sell any properties.
Speaker Change: That's issuing $2 billion of common stock to get us down into the low six times area, which we would never do make no sense for them just from a dilution standpoint so.
Speaker Change: So I feel like this plan.
Speaker Change: It gives us the best opportunity to take advantage of what I think are going to be really interesting opportunities.
Jackson Hsieh: In my former job, there were 20 publicly listed net lease companies, 20 um, in our space, there are basically two companies, public, that focus on enclosed shopping centers and lifestyle centers. We're one of them, and I think there's really going to be some opportunity in the future to look at really interesting centers, you know, in time. So my objective is to get our organization ready for that pivot when it comes, and that's what we're going to do. Great, thank you.
Speaker Change: In my former job there were 20 public listed net lease companies 20.
Speaker Change:
Speaker Change: In our space, there's there's basically two companies public that focus on and closed shopping centers lifestyle centers.
Speaker Change: We're one of them and I think there is honestly going to be some opportunity in the future to look at really interesting centers.
Speaker Change: In time so.
Speaker Change: The objective is to get our organization ready for that pivot when it comes in.
Speaker Change: And so we're going to do.
Speaker Change: Great. Thank you.
Greg Michael McGinniss: One moment for the next question. The next question comes from Greg McGinniss with Scotiabank. Your line is open. Hey, good morning.
Speaker Change: One moment for the next question.
Speaker Change: Next question comes from Greg Mcginniss with Scotiabank. Your line is open.
Jackson Hsieh: Jackson, you really seem to have hit the ground running here. How much of the current strategic plan was in place when you joined versus your view on what needed to be done here and what's been your internal messaging to the company regarding your vision for the future of Mace? Thanks, Greg, for that question. This started on day one when I joined.
Greg Michael McGinniss: Hey, good morning out there.
Greg Michael McGinniss: Jackson, you really seem to hit the ground running here.
Greg Michael McGinniss: How much of the current strategic plan was in place when you joined versus your view on what needed to be done here and what's been your internal messaging to the company.
Speaker Change: Regarding your vision for the future of matrix.
Jackson Hsieh: On the first day I started, I went to look at three of our shopping centers, two of them, in Southern California. And then the following week, I came into the Santa Monica office. I had an opportunity to work with the leadership team early on to really understand kind of what was going on, how we did business, and I saw a great opportunity to. I challenged the organization to focus on a mission statement, you know, corporate values that are not just words that we will live by.
Jackson: Thanks, Greg for that question so.
Jackson: This just started day, one and so on.
Speaker Change: First day I started.
Speaker Change: Went to look at three of our shopping centers two of them.
Speaker Change: In Southern California, and then the following week.
Speaker Change: Came into the Santa Monica office.
Speaker Change: I had an opportunity to work with the leadership team early on to really understand kind of what.
Speaker Change: How we did business.
Speaker Change: And I saw a great opportunity to.
Speaker Change: Challenge the organization to focus on our mission statement.
Greg Michael McGinniss: Corporate values that are not just words that would be that we will lift.
Jackson Hsieh: But I also saw an opportunity, which was interesting, to focus on the fact that we're really in the hospitality business, if you think about it. I know we talk about shopping malls, but look, our customers are our tenants and the people that come into these properties, and those people have a choice to go and do a lot of different things, shop online, or go somewhere else.
Greg Michael McGinniss: But I also saw an opportunity.
Greg Michael McGinniss: Which to me was interesting is is to focus on the fact that we're really really in the hospitality business. If you think about it.
Greg Michael McGinniss: I know, we talked about shopping malls, but.
Greg Michael McGinniss: Look our customers or our tenants and the people that come in at these properties.
Greg Michael McGinniss: And those people have a choice to go and do a lot of different things shop online or somewhere else. So we have got to make our environment have the best merchandise mix, which includes.
Jackson Hsieh: So we have got to make our environment have the best merchandisers, you know, which includes, you know, concepts like Dick's House of Sport, Lifetime Fitness, there are great entertainment venues that we can bring in, food venues. At the end of the day, it's really more visits, and longer dwell time in our centers. And I've had the opportunity to describe that vision of we are in the hospitality business to everyone in this company via town hall.
Greg Michael McGinniss: Concepts like fix houses sport lifetime fitness, there's great entertainment venue.
Greg Michael McGinniss: Venues that we can bring in food venues.
Greg Michael McGinniss: At the end of the day, it's really more visits longer dwell time at our centers.
Greg Michael McGinniss: And I've had the opportunity to describe that vision of where in the hospitality vision business to everyone. In this company town Hall, and we did it again at our recent property management conference that we held in Scottsdale, a couple of weeks three weeks ago, where we had 200 people for.
Jackson Hsieh: And we did it again at our recent property management conference that we held in Scottsdale a couple weeks, three weeks ago, where we had 200 people, you know, for the property level, you know, at that center, you know, at that venue.
Greg Michael McGinniss: For the property level at that center.
Jackson Hsieh: So we want to make You know, we want to approach this business in a different way. It's not just providing anchors and shops, but it's really trying to try to make a difference to what our customers need and want. Um, other things that I sort of initiated coming in, not just the mission statement and the strategy, we came up with a property ranking system. That's not going to be new to you.
Greg Michael McGinniss: At that venue, so we want to make.
Greg Michael McGinniss: We wanted a grade one approaches business in a different way it's not just.
Greg Michael McGinniss: Providing.
Greg Michael McGinniss: Anchors and shops, but it's really trying to trying to make a difference on what our customers need and want.
Greg Michael McGinniss: Other things that I sort of initiated its coming in not just the mission statement of strategy.
Greg Michael McGinniss: We came up with a property ranking system, that's not going to be new deal.
Jackson Hsieh: You know, we've got the fortress assets, the steady eddy, and the eddies, three classifications. We're launching a formalized capital allocation process. I'm looking at a process review of our lease process. How do we start rent commencement dates faster?
Greg Michael McGinniss: We've got the fortress assets, the steady Eddy and Lea These three classifications.
Greg Michael McGinniss: We're launching a formalized capital allocation process.
Greg Michael McGinniss: Looking at our process review of our lease process, how do we start rent commencement saves faster we're evaluating.
Jackson Hsieh: We're evaluating a CRM within our leasing team. I'm looking at offshoring concepts and AI initiatives, all in the realm of trying to make ourselves better, more efficient, so we can be better attuned to what our customers need and drive more traffic into these centers. Um, I'm only halfway through our visits, but I can tell you that I have a very clear vision of what we need to do, and I think it's really achievable. Thank you for that, Jackson. Um, I guess in thinking about the assets, I'd say it's a mix.
Greg Michael McGinniss: Crem within our leasing team.
Greg Michael McGinniss: Looking at offshoring concepts and AI initiatives.
Greg Michael McGinniss: All in the realm of trying to make ourselves better more efficient. So we can be better attuned to what our customers need and drive more traffic in these centers.
Greg Michael McGinniss: So.
Greg Michael McGinniss: I'm only halfway through our visits but I.
Greg Michael McGinniss: I can tell you that I have very clear vision of what we need to do.
Greg Michael McGinniss: I think it's really achievable.
Speaker Change: Thank you for that Jackson.
Speaker Change: And I guess in thinking about the assets that you're looking to sell and not give back are those generally in that.
Speaker Change: I guess as you phrased it the Eddie category or are there some stronger assets in there that you're looking to offload to maybe control dilution a little bit.
Jackson Hsieh: You know, without getting specific names, there are assets in our middle grouping that are good, but not necessarily strategic for what it means for us, maybe not as much upside. And so if we can redeploy capital that way, it'll be better for all. And of course, there are a number in that third category, some of them with debt on them and things like that, where we'll be very methodical about trying to move through those assets over time.
Speaker Change: I'd say, it's a mix.
Greg Michael McGinniss: Without getting specific names there are there are assets in our.
Greg Michael McGinniss: Our middle.
Greg Michael McGinniss: Grouping.
Greg Michael McGinniss: Good, but not necessarily strategic for what.
Greg Michael McGinniss: What it means for us maybe not as much upside and so we can redeploy capital that way.
Greg Michael McGinniss: It will be better for all and of course, there are a number in that third category.
Greg Michael McGinniss: Which some of them have debt on them and things like that where it will be very.
Greg Michael McGinniss: Methodical about trying to.
Greg Michael McGinniss: Uh huh.
Greg Michael McGinniss: Move through those assets over time.
Jackson Hsieh: Okay, and then just one final question on the asset. Asset-specific questions on Santa Monica Place, recognize that you're in negotiations with the lender right now under some, you know, assumption that you plan on trying to hold on to that if you can come to a good resolution there, but did notice that it was pulled from the development pipeline. Is that because something happened on the development side? Or is that simply because of its current status? Yeah, Greg, I'll take it. Scott here. Good afternoon,
Greg Michael McGinniss: Mhm.
Speaker Change: Okay and then just one final question on on the asset.
Greg Michael McGinniss: Specific questions on Santa Monica place, which I recognize youre in negotiations with the lender right now some under some.
Greg Michael McGinniss: Assumption that you plan on trying to hold on to that if you can come to a good resolution there.
Greg Michael McGinniss: But did notice that it was pulled from the development pipeline is there did something happen on the development side or is that simply because of its current status.
Greg Michael McGinniss: Yes, Greg ill take as Scott here and good afternoon.
Scott W. Kingsmore: You know, we continue to face challenges in the broader marketplace here in Santa Monica. It impacts our progress and impacts tenancy. We've got a challenging underlying capital structure. And that all led us to making the decision to default on the loan in early April.
Greg Michael McGinniss: We continue to face challenges in the broader marketplace here in Santa Monica.
Scott: It impacts our progress and impacts tenancy.
Scott: We've got a challenging underlying capital structure and that all led us to making the decision to default on a loan in early April.
Scott W. Kingsmore: To look at the asset just to frame the financial impacts of it, the asset is about a penny FFO dilutive, increasing our leverage by about 20 basis points. Beyond that, we're not in a position to provide any more information, though it's, as you mentioned, subject to ongoing discussions with our lender. So is it just, is it not worth the investment anymore at this point on the development side, or did that pause? Yeah, again, challenges in the marketplace and challenging underlying capital structure led us to the conclusion that we had to leave it at that though, Greg. Alright, thanks Scott, I appreciate it.
Speaker Change: If you look at the asset just to frame the financial impacts of it.
Speaker Change: Assets about a penny <unk> <unk> dilutive.
Speaker Change: Increases our leverage by about 20 basis points.
Speaker Change: Beyond that we're not in a position to provide any more information, though it's as you mentioned subject to ongoing discussions with our lender.
Speaker Change: So is it just is it not worth the investment any more at this point in development side or did those pause.
Speaker Change: Yes, again challenges in the marketplace challenging underlying capital structure have led us to the conclusion kind of leave it at that.
Speaker Change: Alright, Thanks, Scott I appreciate it.
Greg Michael McGinniss: One moment for the next question. The next question comes from Samir Khanal with Evercore. Your line is open. Hi, everybody.
Speaker Change: One moment for the next question.
Speaker Change: The next question comes from Samir Khanal with Evercore. Your line is open.
Speaker Change: Yes.
Samir Upadhyay Khanal: Jackson, I guess just curious, given where rates are today, right? I mean, how realistic is that goal on dispositions today? I mean, I know you talked about 10 assets, but is that more of sort of a, I mean, it's not really the next 12 months, but you're talking sort of long term, just trying to figure out the timeframe for these asset sales. Yeah, I mean, in our plan, we assumed a base rate assumption of six and a half percent, you know, over the next three years.
Samir Upadhyay Khanal: Hi, Hi, everybody Jackson, I guess, just curious given where rates are today right I mean, how realistic is that goal on dispositions today.
Samir Upadhyay Khanal: I know you talked about 10 assets, but is that more sort of that.
Samir Upadhyay Khanal: I mean, it's not really the next 12 months, but you're talking sort of long term just trying to figure out the timeframe on these asset sales.
Samir Upadhyay Khanal: Yes.
Samir Upadhyay Khanal: We assume sort of a.
Samir Upadhyay Khanal: In our plan a base rate assumption of six 5% over the next three years, so I'm sure that could be higher it could be lower.
Samir Upadhyay Khanal: So I'm sure that you know, it could be higher, it could be lower. And you know, for the assets that we're considering, we think, you know, I would describe some as having very attractive, below-market financing that is ZUMO. So that would be, maybe, one category.
Samir Upadhyay Khanal: And.
Samir Upadhyay Khanal: For.
Samir Upadhyay Khanal: The assets that we're considering we think.
Samir Upadhyay Khanal: I would describe some as having very attractive below market financing that is similar so that would be maybe one category.
Jackson Hsieh: There would be another category that might be unencumbered properties that, you know, obviously would have an impact on current financing rates. And then I would describe another category, which I haven't talked about too much, which is, you know, we have a handful of freestanding, very monetizable out parcels that we could sell that include tenants like Costco, Home Depot, BJ's, Lowe's, Walmart. , which would probably not be something we do in the short term but, perhaps, possibly later in some kind of timing cycle as we move forward.
Samir Upadhyay Khanal: There would be another category that might be unencumbered properties that.
Samir Upadhyay Khanal: Obviously, it would have impact to current financing rates.
Samir Upadhyay Khanal: And then I would describe another.
Samir Upadhyay Khanal: Category is.
Samir Upadhyay Khanal: I haven't talked about too much.
Samir Upadhyay Khanal: We have a handful of.
Samir Upadhyay Khanal: Freestanding very monetize a bowl.
Samir Upadhyay Khanal: Parcels that we could sell that include tenants like Costco home depot Bj's Lowes Walmart.
Samir Upadhyay Khanal: Which would probably not be something we do in the short term but.
Samir Upadhyay Khanal: Perhaps possibly later.
Samir Upadhyay Khanal: And the kind of timing cycle as we move forward. So it's not just centers. There are very there are a.
Jackson Hsieh: So it's not just centers, it's there are very, there are a lot of different rates. We're very cognizant of rates, but just so you know how we've built our assumptions, we've sort of used a 6.5% base rate on any refis. Okay. Got it. And then maybe looping in Doug here.
Samir Upadhyay Khanal: A lot of different.
Samir Upadhyay Khanal: Asset opportunities that we have and we're very cognizant of rates, but just so you know how we built our assumptions, we sort of use a <unk>.
Samir Upadhyay Khanal: 5% base rate on any refis.
Samir Upadhyay Khanal: <unk>.
Samir Upadhyay Khanal: So.
Speaker Change: Okay got it and then just maybe loop looping and Doug here.
Samir Upadhyay Khanal: I know, you guys talked about Express and with all the store closings, I guess, Doug, give us an idea of how you think about the backfilling of these boxes or these shop spaces and what's been sort of the interest level as we think about, yes, the rents are going to come offline, but you know, at what point do we start to backfill with newer tenants? Thanks. Thanks, Samir.
Speaker Change: I know you guys talked about express and.
Speaker Change: With all the store closings I guess, Doug give us an idea of how you think about the back filling of these boxes or these shop space and what's been sort of the interest level as we think about yes. The rents are going to come off line.
Speaker Change: What point do we start to backfill with.
Douglas J. Healey: Yeah, as you know, we and our peers went through this in a big way coming out of COVID when store closures and bankruptcies were expedited by the pandemic. If you think about Express, you know, think about back in the early days; they were the darling of the industry. So because of that, they got some of our best malls, and in those best malls, they got some of the best space.
Samir Upadhyay Khanal: With newer tenants.
Douglas J. Healey: Hey, Samir.
Samir Upadhyay Khanal: Yes, as you know we weren't we and our peers went through this in a big way coming out of Covid when store closures and bankruptcies were exited.
Douglas J. Healey: Expedited by the by the pandemic.
Samir Upadhyay Khanal: If you think about express.
Samir Upadhyay Khanal: Think about back in the early days there was a darling of the industry.
Samir Upadhyay Khanal: So because of that they got some of our best malls and in those best malls. They got some of the best space. So I guess, if there is a silver lining and nobody likes closures nobody likes bankruptcies, but the space, we're going to get back is in is in some of our best properties.
Douglas J. Healey: So I guess if there is a silver lining, and nobody likes closures, nobody likes bankruptcies, but the space we're gonna get back is in some of our best properties and 40, 50 yard line locations. I think about getting space back at King's Plaza, or Danbury, or Flatiron, Freehold, Green Acres. Those are very, very well-leased properties. Space is hard to come by.
Samir Upadhyay Khanal: 40.
Samir Upadhyay Khanal: <unk> 40, 50 yard line locations I think about.
Samir Upadhyay Khanal: Getting space back at Kings Plaza, our Danbury of Flatiron Freehold Green acres.
Samir Upadhyay Khanal: Those are very very well leased property space is hard to come by so we view it potentially is a silver lining, but it's going to be a process. It's going to take it's going to take time, just like it did coming out of Covid, but our team is working very very diligently to.
Douglas J. Healey: So we view it potentially as a silver lining, but it's gonna be a process. It's gonna take time, just like it did coming out of COVID, but our team is working very, very diligently to backfill. Okay, thank you, Samir.
Samir Upadhyay Khanal: To backfill.
Jackson Hsieh: I'll just add, Mr. Jackson, on just backfilling anchors. One of the reasons why we've, if you think about our mission statement, we want to direct, you know, our proceeds that are available for redevelopment or capital, you know, into our existing centers that we think can drive and align, right? So think about two different concepts out there. One, you know, is Dick's House of Sport. I've toured, you know, with that stack, his new store that opened at Ross Park Mall in Pittsburgh. Unbelievable, right?
Samir Upadhyay Khanal: Okay. Thank you so I would just add and it's Jackson just backfill acres.
Samir Upadhyay Khanal: What are the reasons why we've if you think about our mission statement.
Jackson: What are correct.
Jackson: Proceeds that are available for redevelopment of our capital.
Jackson: Into our existing centers that we think can drive NOI right. So think about two different concepts out there one.
Jackson: As Dick's how sport.
Jackson: I've toured.
Jackson: With that stack his new store, that's opened at Ross Park Mall in Pittsburgh Unbelievable right also visited their store up in Rochester at East few more.
Jackson Hsieh: I also visited their store up in Rochester at Eastview Mall. You know we have a number of properties under discussion with them in our existing portfolio but would candidly love to do 8 to 10, if not more. These things aren't cheap. They cost money, but they do, in my opinion, bring additional regular traffic for what they try to do.
Jackson: We have.
Jackson: A number of properties under discussion with them in our existing portfolio, but candidly luxury eight to 10, if not more of these things are cheap that cost money, but they do in my opinion bring additional regular traffic.
Jackson Hsieh: I think that's one of the best concepts I've seen. Lifetime Fitness is in three of our centers. They were my number one tenant at my former company.
Jackson: For what they tried to do I think that's one of the best concept platform.
Jackson: Lifetime fitness is in three of our centers.
Jackson: Our mind number one tenant that my former company know the company well no what they deal we'd like to have more in our centers. Once again all of these take capital.
Jackson Hsieh: Know the company well, know what they do. We'd like to have more in our centers. Once again, all of these take capital. But as you think about what we're saying, we're gonna drive to create a really, really strong retail portfolio through reinvestment into the centers. Hope that helps. Thank you.
Jackson: As you think about what we're saying we're going to drive to create a really really strong retail portfolio through reinvestment.
Jackson: Into the centers.
Jackson: So.
Speaker Change: Hope that helps.
Samir Upadhyay Khanal: Thank you. Congratulations on the new role, by the way. Thank you. One moment for the next question. The next question comes from Floris Van Dijkum with Compass Point.
Speaker Change: Yes, no that helps thank you congratulations on the new role by the way. Thanks.
Speaker Change: One moment for the next question.
Speaker Change: The next question comes from Floris Van <unk> come with Compass point Your line is open.
Floris Gerbrand Hendrik Van Dijkum: Your line is open. Hey, thanks, Jackson. Welcome aboard. A question, and maybe this is more tilted towards Doug, a sort of follow-up on the Express. Obviously, you're losing 15 stores. What was it paying?
Floris Gerbrand Hendrik Van Dijkum: Hey, Thanks, Jackson will come on board.
Floris Gerbrand Hendrik Van Dijkum: A question and maybe this is more tilted towards Doug sort of follow up on the express.
Floris Gerbrand Hendrik Van Dijkum: Youre, losing 15 stores, what was express paying and what is the mark to market opportunity in your view you talked about the fact that they are in good locations, where you know what potential upside potentially could we expect once those spaces get released.
Jackson Hsieh: What is the mark-to-market opportunity, in your view? You talked about the fact that they're in good locations. What potential upside, potentially, could we expect once those spaces get released? Yeah, Floris, I'll take it.
Floris Gerbrand Hendrik Van Dijkum: Yes, Floris I'll take it and then Doug will correct me, where I'm wrong.
Jackson Hsieh: And then Doug will correct me where I'm wrong. You know, those 15 stores or whatever the number ends up being, it's high-quality real estate. I don't want to get into specifics about what they were paying, you know, I kind of gave you the aggregate exposure for the company to give you some kind of sense. And they roughly averaged eight to 10,000 square feet.
Speaker Change: Those 15 stores or whatever the number ends up being it's high quality real estate.
Speaker Change: Don't want to get into specifics about what they were paying I kind of gave you the aggregate exposure for the company.
Douglas J. Healey: So give you some kind of sense.
Jackson Hsieh: You know, we're doing, we're taking the space back, fundamentally, in the backdrop of a very, very strong leasing environment. You know, so it's, it's, it's not like we're, you know, in the heart of COVID when we're facing a spate of continued bankruptcies and retailer failure. So, you know, we hold out some optimism that we'll be able to backfill and replace that rent in relatively short order. But you know, we have a task ahead of us, as I mentioned, it's 50 basis points of lost occupancy. And you can; you can do the math on that.
Speaker Change: <unk> averaged eight to 10000 square feet.
Speaker Change: We're taking the space back I think fundamentally in the backdrop of a very very strong leasing environment.
Speaker Change: So it's it's.
Speaker Change: It's not like we're in the heart of Covid when were.
Speaker Change: Facing a spate of continued bankruptcies in retail or failures. So.
Speaker Change: We hold out some optimism will be able to backfill and replace that rent.
Speaker Change: In relatively short order, but we have a task ahead of us as I mentioned, it's 50 basis points of lost occupancy and you can you can do the math on that so we definitely have some work ahead of us, but the leasing environment is strong.
Jackson Hsieh: So, you know, we definitely have some work ahead of us. But the leasing environment is strong, Doug, I think. Yeah, and I think the real story here, Flores, is, yeah, it's about the economics, for sure, but it's replacing underperforming sort of obsolete tenants with new depth and breadth. And that's what we do. And I think Jack made some really good points when he talked about Dick's House of Sport and Lifetime Fitness.
Speaker Change: Yes, and I think the real story here Floris is.
Floris: Yeah, it's about the economics for sure, but it's replacing underperforming sort of obsolete tenants with new depth and breath and that's what we do and I think Jack made some really good points when he talked about <unk> houses sport lifetime fitness I mean, you think about who they're replacing they may be replacing a jcpenney or.
Douglas J. Healey: I mean, you think about who they're replacing; they may be replacing a JCPenney or a Sears. And we're getting newness, we're getting excitement, we're getting innovation. And I put Express right in that category.
Floris: Sears and we're getting newness were getting excitement, we're getting innovation and I put express right in that category. It may not be an anchor, but it's going to give us the ability to refresh our centers and diversify our centers and that really is our goal.
Douglas J. Healey: It may not be an anchor, but it's going to give us the ability to refresh our centers and diversify our centers. And that really is our goal. Thanks.
Floris Gerbrand Hendrik Van Dijkum: And maybe my follow-up question, maybe this is more of a strategic question for Jackson or for Scott. One of the things that I found interesting is potentially buying out your partners in JVs. Obviously, that would require capital. Would you also consider buying out some of your partners in some of your JVs because some of your best assets are actually held in JVs? Would you consider using equity or swapping equity for the remaining stake in some of those assets? I'll take that.
Speaker Change: Thanks, So maybe my my follow up question and maybe this is more of a strategic question.
Speaker Change: For for Jackson or four for Scott.
Speaker Change: One of the things that I found interesting is.
Speaker Change: Potentially buy out your partners out of.
Speaker Change: Jv's, obviously that would require capital.
Speaker Change: Would you also consider buying out some of your partners in some of your some of your best assets are actually held in Jv's would you consider using equity or swapping equity for for the remaining stake in those some of those assets.
Jackson Hsieh: Now, that's not contemplated in the plan. I would say if the opportunity arose in the future, where the asset was marked at the right cap rate, and, you know, we've got a competitive cost of capital, of course, we would look at that. You know, I go back to, I'd like to try to simplify the business. Clearly, consolidating JVs on our best properties is a way to simplify the business, but it's got to make economic sense. And I don't think we're there yet in terms of where the market is today for transparency around where cap rates trade for A++ centers.
Speaker Change: I'll take that now it's not contemplated in the plan I would say is if the opportunity arose in the future.
Speaker Change: The asset was marked at the right cap rate.
Speaker Change: We've got a competitive cost of capital of course, we will look at that I'd go back to I'd like to try to simplify the business clearly consolidated jv's on our best properties is simplify the business, but it's got to make economic sense.
Speaker Change: And I don't think we're there yet in terms of where the market is.
Speaker Change: Today for transparency around where cap rates trade for a plus plus centers and and I think our cost of capital is not at its best position right now.
Floris Gerbrand Hendrik Van Dijkum: And, and I think our cost capital is not at its best position right now. So, but we're evaluating that office. Got it. Okay. Thanks.
Speaker Change: So we're evaluating that obviously.
Speaker Change: Got it okay. Thanks.
Vince Tyvone: One moment for the next question. The next question comes from Vince Tyvone on Green Street. Your line is open.
Speaker Change: One moment for the next question.
Speaker Change: The next question comes from Vince <unk> with Green Street. Your line is open.
Jackson Hsieh: Hi, thanks for taking my question. Can you discuss your bigger picture strategic views on the vacant anchor boxes in your portfolio? Like, just how do you plan to unlock the highest and best use of the land at each parcel, also working towards your deleveraging goals?
Vince: Hi, Thanks for taking my question can.
Vince: Can you discuss your bigger picture strategic views on the vacant vacant anchor boxes in your portfolio like just how do you plan to unlock the highest and best use of the land.
Vince: Parcel also working towards your Delevering deleveraging goals, because I know, there's a lot of entitlements in place already. So are you guys going to pursue on a mixed use opportunities could that be a source of funds.
Vince Tyvone: Because I know, you know, there's a lot of entitlements in place already. So, are you guys going to pursue any mixed-use opportunities? Could that be a source of funds, selling those to, you know, third-party developers? Just curious how you're thinking about that. Dynamic.
Vince: No third party developers just curious how youre thinking about that dynamic.
Jackson Hsieh: Uh, yeah, hey Vince, good morning, it's Jackson, and you know, your report was kind of... eerily funny when it came out last week and correct, except that the nature of the assets is not correct, but the concept was spot on. So thanks for putting that out there. Look, we have 18 vacant anchor locations within the portfolio. Obviously, like in centers that are in our third bucket, if we've got vacant anchors down there, we're not probably going to execute on them.
Vince: Yeah, Hey, Vince this morning, it's Jackson.
Jackson: Feedback you report was kind of.
Jackson: It really funny when it came out last week and correct, except the nature of the assets are not correct, but the concept was spot on so thanks for putting that out there.
Speaker Change: So look we have 18 vacant anchor locations within the portfolio.
Speaker Change: Obviously like in centers that are in our third bucket. If we've got vacant acres down there, we're not probably going to execute on them.
Jackson Hsieh: I can tell you that we just purchased or agreed to purchase a vacant anchor location for one of our assets in our middle bucket. And I think what we're looking at is, you know, at the end of the day, what is best for the center. And I can give you a good example of one property, without naming names, where we spent quite a bit of time looking at densification on the end cap of that property.
Speaker Change: I can tell you that we just purchased are agreed to purchase.
Speaker Change: They can anchor location for one of our assets and our middle bucket.
Speaker Change: And I think what we're looking at as well.
Speaker Change: At the end of the day, what is best for the seller and I can give you a good example of one property without naming names, where we spent quite a bit of time looking at a densification on the end cap of that property.
Jackson Hsieh: And at the end of the day, we chose to change directions and put a Dick's House of Sport in that final location. Candidly, I think it's better for the center. I think it's better for what we're trying to do right now, but there may still be densification opportunities on another quadrant within that property. But right now, our balance sheet is not where I want it to be, and so we're going to use the capital we have to make the best decisions on making our fortress and steady eddy properties as strong as they can be in terms of thriving.
Speaker Change: And at the end of the day.
Speaker Change: We chose to change directions, and put a <unk> sport and that and locations.
Speaker Change: Candidly I think it's better for the center.
Speaker Change: It's better for what we're trying to do right now.
Speaker Change: They'll be maybe densification opportunities on another quadric within that property, but right now we our balance sheet is not where I wanted to be and so we're going to use the capital we have to make the best decisions on making our fortress and steady Eddy properties.
Jackson Hsieh: And if there's opportunities to monetize pieces of our development, for sure, we'll do that. But that being said, at Flatiron, that's a much more complex opportunity, which got great entitlements from the town. And we will pursue a more vertical build on that location because it dictates it. No, thanks for that color.
Speaker Change: As strong as they can be in terms of thriving.
Speaker Change: And.
Speaker Change: If there's opportunities to monetize pieces of our development for sure we will do that but.
Speaker Change: Now that being said at flatter that's a much more complex opportunity, which got great entitlements from a town and we were.
Speaker Change: Pursue a more and more vertical.
Speaker Change: I'll build on that location because its dictates it.
Vince Tyvone: And then just another one on the balance sheet for me. I mean, do you plan to unencumber any assets in the near term just to, you know, improve the unencumbered pool and potentially allow for more unsecured borrowing options down the road? I would say the easy button would be we've got some renewals on properties, some of our better properties that are, candidly, at much higher rates than, you know, make me happy. So that would be kind of a great source of repayment right out of the gate.
Speaker Change: No. Thank you for that color.
Speaker Change: And then just another one on the balance sheet for me I mean, do you plan to unencumber any app that you were in the near term just to improve the unencumbered pool and potentially allow for more unsecured borrowing option down the road.
Speaker Change: I would say like the easy button would be we've got some renewals on property and some of our better properties that are candidly at much higher rates than we are.
Speaker Change: Thank me happy so that would be kind of a great source of repayment ran out of the gate.
Jackson Hsieh: Um, you know, as it relates to looking at the longer term, what the, you know, what the liability structure looks like, you know, I think we'll continue to evaluate it if it makes sense. But until we get down into the low six times leverage levels, I think we're just going to stay the course right now. Thank you.
Speaker Change: As it relates to looking at longer term, what the what the liability structure it looks like.
Speaker Change: I think we'll continue to evaluate it if it makes sense.
Speaker Change: But until we get down into the low six times leverage levels I think we're just going to stay the course right now.
Vince Tyvone: One moment for the next question. The next question comes from Linda Tsai with Jeffreys. Your line is open. Hi, thanks for taking my question. Jackson, congratulations on the new role.
Speaker Change: Makes sense. Thank you.
Speaker Change: Thank you.
Speaker Change: One moment for the next question.
Speaker Change: The next question comes from Linda Tsai with Jefferies. Your line is open.
Linda Tsai: Hi, Thanks for taking my question Jackson, Congrats on the new role.
Linda Tsai: While giving guidance on hold, in addition to monitoring leverage, what other indicators would you point investors to to assess the success of the earlier strategies you mentioned to right-size the portfolio? So, Linda, thanks for taking that question and asking that question. You know, success for us would look like $1.80. You know, in that area, per share of FFO, three to four years from now, with the leverage level at a low six times. Now, obviously, we've made certain interest rate assumptions, and there are a lot of different timing things that can happen. But to me, that success would look like this for us.
Linda Tsai: While giving guidance is on hold in addition to monitoring leverage what other indicators would you point investors to to assess this pass of the earlier strategies, you mentioned to right size the portfolio.
Jackson: So I mean, Linda Thanks for taking my question asking that question.
Jackson: Success for Us would look like.
Linda Tsai: $1 80.
Linda Tsai: In that area per share of <unk>.
Linda Tsai: Three to four years from now.
Linda Tsai: With our leverage level in the low six times and.
Linda Tsai: Obviously, we've made certain interest rate assumptions and there's a lot of different timing timing things that can happen, but to me that the success would look like that for us.
Jackson Hsieh: One other aspect that I didn't mention, you know, in our preparatory remarks, but, you know, we talked about that 100 basis points of NOI improvement that can help us on the leverage front. Also, it helps us on the FFO front as well, right? One piece that I've really spent time with the team on is, if you look within our portfolio, the large majority of our portfolio has recovered from an NOI standpoint to pre-2019 levels, i.e., pre-COVID levels.
Linda Tsai: One other aspect that I didn't mention.
Linda Tsai: In our prepared remarks, but we talked about that 100 basis points of NOI improvement that can help us on the leverage front.
Linda Tsai: Also it helps us on the <unk> as well right but.
Linda Tsai: One piece that I've alerted spots.
Linda Tsai: Spent time with the team on is if you look within our portfolio. The large majority of our portfolio has recovered from an NOI standpoint.
Linda Tsai: Pre 2019 levels pre COVID-19 levels there.
Jackson Hsieh: There are six properties on the Eastern Seaboard that are behind, and they're behind to the tune of about $39 million in NOI. You know, I've talked to the team about it, and I think there are opportunities to close the gap. But that will be an initiative that's very important for us, you know, as part of that NOI improvement to help us deliver and drive more earnings. And I think there are plans in place for each of those six to get there to 2019 levels or better, you know, within the next three years. To reach that $39 million, do you have to invest a lot of capital?
Jackson Hsieh: There are six properties on the eastern Seaboard, which are behind.
Linda Tsai: They are behind but to the tune of about $39 million and NOI six properties.
Jackson Hsieh: Talk to the team about it.
Linda Tsai: I think there are opportunities to close the gap, but that will be.
Linda Tsai: And initiative, that's very important for us as.
Linda Tsai: As part of that NOI.
Linda Tsai: Improvement to help us Delever and drive our earnings.
Linda Tsai: And I think there are plans in place for each of those <unk> to get there.
Linda Tsai: 2019 levels or better with the next three years.
Linda Tsai: To reach that $39 million do you have to invest a lot of capex.
Jackson Hsieh: Um, it's I would say it's not major CapEx. You know, it's really repositioning of tenants. You know, I just think on the East Coast, it was just a law, it had a more severe impact with COVID.
Speaker Change: I would say it's not.
Linda Tsai: Not major capex.
Speaker Change: Really repositioning of tenants.
Linda Tsai: Just think of it in the East coast. So we just had more severe impact with Covid and just those centers were already performing very well. So it's some of it is repositioning different merchandise mix and tenancy. Some of it is like for instance in freehold.
Jackson Hsieh: And just those centers were already performing very well, so it's, it's some of it is repositioning, different merchandise mix, and tenancy. Some of it is, Like, for instance, in Freehold, Tick's House of Sport is going into the former Lord and Taylor location. You know, that wing has been hard to lease. So that's going to really activate that end of the corridor. So things like that that we think will be able to help us, you know, get those six assets back where the rest of the portfolio is. Thanks for that color.
Linda Tsai: It takes out the sport is going into the four Lord <unk> Taylor location.
Samir Khanal: When it's been hard to lease so that.
Linda Tsai: It's going to really activate that ended the quarter. So things like that that we think will be able to help us get those six assets back where the rest of the portfolio is.
Linda Tsai: And then just one quick one for Doug. Besides Express, how would you characterize the tenant credit environment overall? I'm going to look at the watch list and say it has not substantively changed. As a frame of reference, I mean, Express has been on our list for quite some time, you know, frankly, dating to prior to the pandemic. They did not travel the same path as many retailers did during the pandemic and held out to this point.
Speaker Change: Thanks for that color and then just one quick one for Doug. Besides expressed how would you characterize the tenant credit environment overall.
Speaker Change: Look at the watch list and say it.
Vince Tyvone: Substantively changed.
Speaker Change: As a frame of reference I mean express has been on our list for quite some time frankly to adding to prior to the pandemic they did not.
Douglas J. Healey: It did not travel the same path as many retailers dead during the pandemic and held out to this point so.
Linda Tsai: So, as I think about our list, uh... will be expressed by far by far in a way that was our most material watchlist tenet, and uh... I don't uh... I don't see any substantive changes based on our prior commentary about the watchlist Doug. No, I agree. And, you know, we're ultra conservative when we look at our watch list, meaning we'd rather overwatch than underwatch.
Doug Healey: As I think about our list.
Linda Tsai: Express by far by far and away was our most material watch list tenants.
Linda Tsai: And I don't I haven't seen.
Linda Tsai: The substantive changes based on our prior commentary about about the watch list.
Speaker Change: No I I.
Linda Tsai: Agree.
Linda Tsai: Altra Conservative when we look at our when we prepare our watch list, meaning we'd rather Overwatch then under watch and I would say to date.
Douglas J. Healey: And I would say today, Scott, correct me if I'm wrong, but to date, our watch list is probably 30% of what it was pre-COVID-19, both in terms of square footage and number of tenants. Thanks. Thank you one moment for the next question. The next question comes from Alexander Goldfarb with Eiffel Sandler. Your line is open. Hey, good afternoon, or I guess it's still a good morning out there. And Jackson, welcome aboard Macerich.
Alexander David Goldfarb: Scott Correct me, if I'm wrong, but to date, our watch list is probably 30% of what it was pre Covid 2019, both in terms of square footage and number of tenants.
Douglas J. Healey: Yeah.
Douglas J. Healey: Thanks.
Alexander David Goldfarb: Thank you one moment for the next question.
Linda Tsai: The next question comes from Alexander Goldfarb with Piper Sandler Your line is open.
Linda Tsai: Hey.
Alexander David Goldfarb: Good afternoon, or I guess still good morning out there.
Alexander David Goldfarb: And Jackson welcome aboard Mace rich so two questions for you. The first question is.
Alexander David Goldfarb: So two questions for you. The first question is, you know, clearly you've studied the past history of MACE over time. I think you were involved in the GGP restructuring. You know, this company has done two different recaps and sort of tried to execute what you've outlined twice before. But, you know, it hasn't worked.
Alexander David Goldfarb: Clearly you've studied the past history of Mace overtime I think you were involved in the GGP.
Alexander David Goldfarb: Restructuring.
Alexander David Goldfarb: This company has done to different recaps and sort of tried to execute where you've outlined twice before.
Jackson Hsieh: And I'm just wondering, you know, the two billion of equity when we ran the numbers really wasn't that dilutive on an FFO, but we certainly put you guys in a really strong position, especially with the energy that you bring to the platform and some of your ideas. So, if you just walk me through how, you know, what you're outlining now, which sounds like a repeat of what the prior team tried twice before, why this will work this time versus just, you know, doing the two billion, getting the balance sheet where you want it, you know, sort of today and being able to execute in what is arguably one of the best retail environments that we've ever experienced, as evidenced by your strong Okay, hey Alex, thanks for the question.
Jackson: But it Hasnt worked and I'm just wondering.
Jackson Hsieh: 2 billion of equity when we ran the numbers really wasn't that dilutive on an asset so but would certainly put you guys on a really strong position, especially with the energy that you bring to the platform and some of your ideas.
Jackson Hsieh: No.
Jackson: If you could just walk US talk me through how you know.
Jackson: Youre outlining now which sounds like a repeat of what the prior team tried twice before.
Jackson: Why this will work this time versus just doing the $2 billion getting the balance sheet, where you want it sort of today and being able to execute in what is arguably.
Speaker Change: One of the best retail environments that we've ever experienced as evidenced by your strong leasing results in the first quarter.
Jackson: Okay.
Speaker Change: Okay. Thanks for that.
Jackson Hsieh: I guess the way I would describe it, I can't describe what happened here before; I can only tell you my cut where I see it today and have the confidence of executing in my prior opportune job, right? It really starts with our re-ranking of our properties, which we've done. And the way I would think about it is I have a third bucket of opportunities whereby if I raise equity in order to kind of right-size the balance sheet, I'm kind of hurting myself because those are not going to be assets.
Speaker Change: For the question.
I guess the way I would describe it only I can't describe what happened here before I can only tell you.
Jackson: Mike.
Jackson Hsieh: See it today.
Jackson Hsieh: And I have the confidence of executing and prior in my prior opportunity job right was that.
Jackson Hsieh: It really starts with our re ranking of our properties, which we've done.
Jackson Hsieh: And the way I would think about it is I have a third bucket of opportunities.
Jackson Hsieh: Whereby if I raise equity in order to kind of rightsize the balance sheet.
Jackson: I am kind of hurting myself, because those are not going to be assets in the long term.
Jackson Hsieh: In the long term, that's probably a part of the portfolio. They're absolutely vital right now, over the next three to four years, as the cash flow from those properties is supporting a lot of the other initiatives within the Fortress and Steady Eddy categories of assets. You know, to try to just bluntly issue equity, I feel like what you'd be doing is over-equitizing assets that... don't make sense for us strategically long term.
Jackson Hsieh: Probably a part of the portfolio, they're absolutely vital right now over the next three years to four years as the cash flow from those properties are supporting a lot of the other initiatives within the fortress and steady Eddie.
Jackson: <unk>.
Jackson: Category of assets.
Jackson Hsieh: To try to just bluntly issue equity I feel like what you'd be doing is over <unk> assets that don't.
Jackson Hsieh: They're not going to be thriving retail centers, or or they are, and you know, when we think about how we rank assets here at the company, and this is obviously new, you know, we obviously look at NOI and FFO per share. You know, look at what drives traffic and sales, sales per square foot, traffic, obviously sales, but market position is really critical. You know, the competitive strength of a center, tenant demand for a center, anchor strength, you know, the physical quality, you know, what's happening in the trade area, you know, what are the dynamic market dynamics within the city itself, you know, shrinkage, crime, you know, are we aligned with our JV partner?
Jackson Hsieh: So it makes sense for us strategically long term.
Jackson Hsieh: They're not going to be thriving retail centers or are they if and when.
Jackson: When we think about how we rank assets.
Jackson: Here at the company and this is obviously, new we obviously look at NOI and <unk> per share.
Samir Upadhyay Khanal: Look at what drives traffic and sales sales per square foot traffic.
Jackson Hsieh: Sales, but market position is really critical.
Jackson Hsieh: The competitive strength of a center tenant demand et cetera acre strength, the physical quality whats happening in the trade area what are the dynamic market dynamics.
Floris van Dijkum: Within the city itself shrink crime.
Jackson Hsieh: And then there's a lot of, what I call unique factors in our ranking system that would rank a property down if it had too much debt, you know, is it on a ground lease? What could make it go up is development potential. So what I would tell you in that long kind of answer, Alex, is that of the 44 properties, there is a subset where they just don't rank well for us.
Jackson Hsieh: Are we aligned with our JV partner.
Jackson Hsieh: And then there is a lot of.
Jackson Hsieh: What I call it unique factors and our ranking system that would break up a property down too much debt is on a ground lease.
Jackson: What could make it up but go up as development potential.
Jackson: So what I would tell you that long kind of answer Alex is of the 44 properties.
Jackson Hsieh: There is a subset where they just don't rank well for us and sort of raise equity to right size. The corporate entity, we wouldn't be putting dollars there anyway. So I.
Alexander David Goldfarb: And so to raise equity to right-size the corporate entity, you know, we wouldn't be putting dollars there anyway. So I hope that kind of answers the question. And that's why I feel like the solution we have at hand is, it's going to be less dilutive, we're going to get to the same place, and we're going to actually put the dollars where they're going to impact us and our shareholders the most. Yeah, no, look, Jackson, totally understand and have covered this company for over 20 years.
Speaker Change: I hope that kind of answers the question.
Alexander David Goldfarb: And that's why I felt like the solution. We have at hand is it's going to be less dilutive, we're going to get to the same place and we're going to actually put the dollars, where they're going to impact us and our shareholders. The most.
Speaker Change: Yes, no look Jackson totally understanding you have covered this company for over 20 years.
Alexander David Goldfarb: And, you know, if it's an emotional thing, like, I, you know, there are a lot of things that you guys do that I love, you know, and I think that you guys have been leaders in certain areas, certainly in executing on Phoenix, you know, back with Westcore, just the balance sheet, Joe, just that was one of those issues where, you know, whatever, it's been tackled multiple ways, and that' The separate question is on the dividend. You know, that's been a source where the company has overpaid in the past.
Alexander David Goldfarb: It's an emotional.
Alexander David Goldfarb: Yes, there are a lot of what you guys do I love and I think that you guys have been leaders in certain areas certainly in executing on on Phoenix back with West Corp.
Jackson: The balance sheet, Joe just that was one of those issues were.
Alexander David Goldfarb: Whatever its been tackled multiple ways and that's why I keep.
Alexander David Goldfarb: Focusing on the equity and I'm glad your numbers sort of confirm our our 2 billion separate question is.
Jackson: On the dividend you know that's been a source where the company is overpaid in the past.
Jackson Hsieh: Clearly, you're gonna be, you know, selling stuff, impairments that give rise to tax shields, you know, and other things that are going on. I would assume that the dividend is something that will be TBD over time, or are you reaffirming that the dividend level as it stands now will not be changed? Yeah, I would basically say I feel like the dividend level where we stand makes sense. You know, I don't think we need to lower it, obviously, and we're not going to raise it aggressively while we're going through this initiative.
Jackson: Clearly youre going to be.
Jackson Hsieh: Selling stuff impairments that gives rise to tax shields.
Jackson Hsieh: And the other things that are going on I would assume that the dividend is something that will be.
Jackson: TBD over time or are you reaffirming that the dividend level as it stands now will not be changed.
Jackson: Basically I think the dividend level, where we stand it makes sense.
Jackson: I don't think we need to lower it obviously not going to raise it aggressively while we're going through this initiative, but.
Jackson Hsieh: But, you know, if I gave you kind of the bracket, you know, we're going to end it. Dollar 80 plus FFO per share, low leverage. You can kind of do the math. They're still good.
Jackson Hsieh: If I gave you a kind of a bracket. We're gonna ended dollars 80, plus <unk> <unk> per share low leverage.
Jackson Hsieh: You can kind of do the math there is still good.
Alexander David Goldfarb: You know, our payout ratio is reasonable relative to our current payout. But, as far as the cheapest form of capital, isn't free cash flow the best? It definitely is. But for us, we don't. We think that the plan we put in place in terms of sequencing is very methodical, and we've got adequate cash flow from assets that we think will lead the company over the next three to four years to help support us. Okay, thank you. Sure, thanks. One moment for the next question. Our next question comes from Michael Mueller with J.P. Morgan. Your line is open. Thank you. Yeah, two quick ones, I believe.
Jackson: Our payout ratio is reasonable relative to our current payout.
Michael William Mueller: Right, but as far as cheapest form of capital isn't free cash flow the best yes, definitely yes, but.
Jackson: For us we don't we.
Michael William Mueller: We think that the plan, we put in place in terms of sequencing.
Michael William Mueller: It's very methodical and we've got adequate cash flow from assets that we think will lead the company over the next three to four years to help support us.
Michael William Mueller: Okay. Thank you.
Speaker Change: Sure. Thanks.
Speaker Change: One moment for the next question.
Speaker Change: Our next question comes from Michael Mueller with Jpmorgan Your line's now open.
Michael William Mueller: Thank you.
Michael William Mueller: First of all, did the 10 assets, I think you referenced 10 assets that could be sold. Did that include the four to six assets that you may be giving back? Or is it a pool of assets and then then four to six on top of it? As I said, it includes the four to six givebacks.
Michael William Mueller: Yes, two quick ones I believe first of all did the 10 assets I think you referenced 10 assets that can be sold did that include the 46 assets that you may be giving back or is it a pool of assets and then 10 four to six on top of it.
Michael William Mueller: Like I <unk> sure if that includes the $4 six give backs so it's roughly about 10.
Jackson Hsieh: So it's roughly about 10. Got it. Okay. And then I guess at the end of the three to four year period, do you see the NOI mix being, I don't know, notably different than it is today? Geographically, I would say the NOI mix is largely pretty similar. I'd say it's very similar.
Speaker Change: Got it Okay, and then I guess at the end of the three to four year period do you see the NOI mix being I don't know, notably different than it is today.
Jackson Hsieh: Geographically.
Michael William Mueller: I would say the.
Michael William Mueller: Largely pretty similar let's say, it's very similar I mean, I think the way we analyze it is.
Michael William Mueller: I mean, I think the way we've analyzed it is, you know, like the go forward portfolio will have much higher sales per square foot, much higher permanent occupancy. It already has a better growth profile, a better growth profile. Yeah, just it's really, you know, it's really kind of focusing on what I call super thriving centers. That's what we're going to end up with. Got it. Okay. Thank you. I think we have time for one more question, Operator.
Michael William Mueller: The Gulfport forward portfolio.
Michael William Mueller: We will have much higher sales per square foot much higher permanent occupancy it already has today and better growth better growth profile, yes.
Michael William Mueller: It's really.
Michael William Mueller: It's really just focusing on what I call.
Michael William Mueller: Super thriving centers Thats, what were going to end up with.
Speaker Change: Got it okay. Thank you.
Jackson Hsieh: Yeah.
Speaker Change: Maybe a tougher one more question operator.
Michael William Mueller: Okay, one moment for the next question. The next question comes from Craig Mailman with Citi. Your line is open. Thanks, it's actually Nick Joseph here with Craig. Just one quick one on GNA as you execute on these initiatives, you know, what does the current plan look like in terms of the scalability of the current load versus any kind of efficiencies that you can see going forward? Greg Rickards, it's Josh.
Speaker Change: One moment for the next question.
Speaker Change: Okay.
Jackson Hsieh: Yeah.
Michael William Mueller: The next question comes from Craig Mailman with Citi. Your line is open.
Speaker Change: Thanks, It's actually Nick Joseph here with Craig just one quick one on G&A as you execute on these initiatives what does the current plan looked like in terms of the scalability of the current load.
Nicholas Gregory Joseph: Any kind of efficiencies that you could see going forward.
Craig Allen Mailman: Yeah, I think, you know, right now our plan is, as I said, we were really trying to position the company to be offensive, sort of going through all this. So we're not going to get there by shrinking GNA if we're going to kind of regrow the business. And so I think where the efficiency is going to happen, all these process improvements that we're looking at right now, I think there are a lot of ways to make certain work streams more efficient, which, in my opinion, helps people have more bandwidth to do things to improve the business overall, versus getting stuck with a lot of different processes that take a lot of time. So right now, that's really the focus. It's not a shrink to grow kind of idea.
Craig Allen Mailman: Okay distractions, yes, I think right now our plan is as I said, we're really trying to position the company to be offensive. So are going through all of this so we're not going to get thereby shrinking G&A slippage, if we're going to kind of re grow the business.
Jackson Hsieh: So.
Craig Allen Mailman: Where the efficiencies are going to happen.
Craig Allen Mailman: These process improvements that we're looking at right now I think there's there's a lot of ways to make certain work streams more efficient.
Vince Tyvone: In my opinion helps people have more bandwidth to do things to improve the business overall versus get stuck with a lot of different processes that take a lot of time.
Craig Allen Mailman: So right now that's really the focus.
Craig Allen Mailman: Not a shrink to grow kind of idea. We're just trying to what we believe we are doing is going to.
Jackson Hsieh: We're just trying to do what we believe is going to give us a competitive cost of capital to do things with this platform. Thank you very much. Thank you. At this time, I would now like to turn the call back over to Jack for his closing remarks. Thank you all for joining us on this call today, and we look forward to hosting my first set of in-person meetings with Macerich and Mayre in early June, along with Scott, Doug, and Samantha. This does conclude today's conference call. Thank you for your participation. You may now disconnect. Thanks for watching!
Jackson Hsieh: Put give us up.
Jackson Hsieh: A competitive cost of capital to do things.
Jack: With this platform.
Jack: Thank you very much.
Jack: Thank you.
Jackson Hsieh: At this time I would now like to turn the call back over to Jack for closing remarks.
Jack: Thank you all for.
Jack: Joining us on this call today.
Jack: We look forward to hosting my first set of in person meetings with matrix at NAREIT in early June.
Jack: Along with Scott Smith, Thank you.
Jackson Hsieh: This does concludes today's conference call. Thank you for your participation you may now disconnect.
Jackson Hsieh: Okay.
Nicholas Gregory Joseph: [music].
Jackson Hsieh: Okay.
Jackson Hsieh: Yes.
Jackson Hsieh: [music].