Q2 2024 The Macerich Co Earnings Call
Yeah.
Speaker Change: Ladies and gentlemen, thank you for standing by walking through the second quarter 'twenty 'twenty four may stretch earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during this session.
It would need to press star one on your telephone.
Didn't hear an automated message of biting your hands is right 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 Samantha Greening director of Investor Relations. Please go ahead.
Samantha Greening: Thank you for joining us on our second quarter 2024 earnings call. During the course of this call we will be making certain statements that may be deemed forward looking within the meaning of the safe Harbor of the private Securities Litigation Reform Act of 1995, including statements regarding projections plans or future expectations.
Actual results may differ materially due to a variety of risks and uncertainties set forth in today's press release, and our SEC filings reconciliations.
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 Nathan Dotcom.
Speaker Change: Joining us today are Jack <unk>, President and Chief Executive Officer, Scott <unk>, Senior Executive Vice President and Chief Financial Officer, and Doug Healey Senior Executive Vice President.
With that I'd like to turn the call over to Jeff.
Jeff: Thank you Samantha.
Jack: Since our last earnings call on April 30th I'm pleased to announce that we are making solid progress on our path forward.
Speaker Change: Of one simplifying the business.
Jack: <unk> operational performance improvement.
Three reducing leverage.
Jack: Our property ranking criteria is finalized and we are applying operational and capital allocation focused on our properties within the fortress steady Eddie and Eddie's categories.
Jack: On asset sales in the second quarter, we sold an out parcel deal for $7 1 million.
Jack: And today, we closed on the sale of our 50% interest and built more fashion park to our Parker Red development.
Jack: We'll reduce $110 million in debt it may stretch.
We are also marketing and closed centers and.
Jack: In preparing for a robust sale process of our single asset out parcels across our portfolio.
Our loan get backs, we completed the short sale process on country Club Plaza.
Jack: And our lender discussions at Santa Monica place.
Our path forward goal is to reduce 2 billion in debt.
Jack: Country Club Plaza, Santa Monica place.
More fashion park, and the L parcel will reduce debt by approximately $564 million.
Yeah.
By year end 'twenty 'twenty four we expect to have line of sight.
On one to $1 4 billion of total debt reduction.
Over 50% of our overall 2 billion objectives.
Operational requirements that May switch continues to rapidly improve.
There was an acute focus from our east coast leasing.
Management and property management teams.
On the six large eastern seaboard assets.
Jack: Which are an important NOI contributor.
Our leverage ratio reduction plan.
We are also in negotiations on eight an eight acre locations in centers within our fortress and steady Eddy portfolios.
Jack: Which will enhance the overall center performance track.
Jack: Traffic and leasing momentum in those centers.
Jack: Adding Dick's new houses sport concept.
Jack: Our portfolio continues to be an important initiative.
Our companywide leasing momentum an executed lease deals deals in pipeline and releasing spreads are all positive.
And will result in more overall NOI.
Jack: In 2020 five 'twenty 'twenty six 'twenty 'twenty seven.
Jack: The overall occupancy sales per square foot re leasing spreads and same store NOI for our portfolio, excluding Eddie's properties are noteworthy.
Jack: Namely 94, 9%.
Jack: Nine, 7% and two 3% respectively.
Speaker Change: During the last five months, we've made significant progress in identifying meaningful ways to enhance our leasing process across the company, which will improve productivity through significant efficiency visibility.
Speaker Change: Through the elimination of spreadsheets, and we've done an internal meetings and calls.
And we will roll this out to the entire company on a company wide town Hall meeting later today.
Speaker Change: Our redevelopment efforts.
Speaker Change: Scottsdale fashion square flatly.
Flat Lake Flatiron crossing and Green acres mall.
Speaker Change: In total these.
Speaker Change: These projects will cost approximately 300 million each year.
Speaker Change: Of which $44 million in cost has been cured.
Speaker Change: And N O Y today's rich.
Okay.
Speaker Change: I am pleased to congratulate Coyote Ola and Alec Kelso.
Former co heads of spirits asset management team, who joined May switches.
Speaker Change: That management team.
Speaker Change: Diana Laing has rejoined our board of directors.
Speaker Change: I will now turn the call over to Doug for a leasing update.
Thanks, Jack we had another solid quarter, both in terms of leasing volumes and metrics sales per square foot at the end of the second quarter were $835. This is flat compared to 2023.
Sales per square foot, excluding our 80 properties were $911.
Speaker Change: Comp sales in the second quarter as well as sales year to date were also flat inter.
Speaker Change: Interest rates and inflation are definitely still playing a part in this.
And the consumer remains somewhat cautious, especially at the moderate and lower income levels, where there's been a noticeable shift from discretionary.
Speaker Change: Non discretionary spending thankfully.
Through the second quarter traffic across our portfolio was up 5% relative to the first half of 2023.
Only six of our centers are showing declining trends the balance is positive.
Speaker Change: Most noteworthy is Chandler fashion center, where traffic is up 20%. This year as a result of the fall 2023 opening of Shields, all sports, which by the way is on track to be one of the top stores in their fleet.
Occupancy occupancy in the second quarter was 93, 3%.
Speaker Change: Portfolio occupancy, excluding our Eddy properties was 94, 9%.
Speaker Change: Trailing 12 month base rent leasing spreads remained positive at 10, 1% as of June 32023.
Speaker Change: In the second quarter, we opened 276000 square feet of new stores.
Speaker Change: This brings our year to date total to almost 820000 square feet, which is 80% more square footage than we opened during the same period in 2023.
Speaker Change: At Danbury Fair Mall, we opened the highly anticipated 126000 square foot target.
Speaker Change: Target on level, one joins primark on level two and this completes the remix of the former Sears box.
Speaker Change: Collectively.
Speaker Change: Targeted prime Mark will produce significantly more traffic and consumer interest.
Speaker Change: Other notable openings in the second quarter includes seven for all mankind and ultra beauty at fashion outlets of Chicago, Johnny was in Serowski at Scottsdale Fashion Square gap of Queen Center and rally House at Deptford Mall.
In the emerging brands category, we opened Rowan and shade store at Santana village and vre at fashion outlets of Chicago, and Scottsdale fashion square.
Speaker Change: Finally in the international category, we opened garage at Arrowhead Towne Center.
And Washington Square, Mango at Tysons corner, and Sandro at fashion outlets of Chicago.
Speaker Change: Now, let's look at the new and renewal leases, we signed in the second quarter and the.
Second quarter, we signed 233 leases for 750000 square feet.
Year to date, we have signed leases for one 8 million square feet.
Notable new leases signed in the second quarter include altered state and Barnes <unk> noble at Tysons corner Bill.
Speaker Change: Build a bear at Arrowhead Towne Center Carhartt, the 29th Street, and how long they have been at fashion outlets of Chicago.
Speaker Change: At Scottsdale fashion square, we're very excited to announce the signing of the world renowned Chinese restaurant Din Tai Fung.
<unk> will open in early 2025, and will join catching <unk> pay and the newly created portico share and.
And as we discussed on our last call. The portico share will provide direct access to more luxury and the Nordstrom wing, which includes the recently announced air Medstar.
Speaker Change: The emerging brands category. It was very active in the second quarter, where signings of al Yoga, According Madera and Washington Square.
Speaker Change: <unk> at Tysons corner Center, Princess Polly at Scottsdale fashion square.
Psycho Bunny of fashion outlets of Chicago, and Queen Center Roth easier Broadway Plaza, and Travis Matthew at Chandler, and Washington Square.
Speaker Change: Yeah.
Speaker Change: Lastly, we signed several leases with international brands, including Adidas, our Terex at fashion outlets of Chicago, JD Sports at Inland Center, and Kiko Mulatto at Queens Center.
And at Chandler Fashion Center, we signed a lease with seafood City Ah 66000 square foot grocery retailer that caters mainly to the Filipino and Asian market.
Cheaper city will join round one to complete the re merchandising of the former Sears building.
And just like target and prime market Danbury.
Once again speaks to the diversity of large format users eager to occupy space in our high quality class a shopping centers.
Looking at our 2024 lease explorations, we now have commitments on 70, 676% of our 2023 expiring square footage of space that is expected to renew and not close.
Speaker Change: With another 18% in the letter of intent stage.
So between commitments and LOI is we're either Don or trading paper on 94% of our 2020 for expiring square footage.
Speaker Change: Almost exactly where we were at this time last year.
Speaker Change: Further we currently anticipate a renewal retention rate in 2024 to be very healthy and in the low 90% range.
Speaker Change: In the second quarter seven tenants in our portfolio filed bankruptcy.
The largest was express who had 26 locations with us totaling 206000 square feet.
Of the 26 locations 10 will close in the third quarter for a total of 85000 square feet, resulting in a 40 basis point decrease in our portfolio occupancy.
To date, we are negotiating leases or letters of intent and replacement tenants in 50000 square feet of those closures.
Speaker Change: And it's worth noting that excluding express there's only been 100000 square feet of space subject to bankruptcy filing this year.
Turning to our leasing pipeline at the end of the second quarter. We had 115 leases for one 7 million square feet of new stores, which we expect to open during the remainder of 2024 into 2025 in early 2026.
In addition to these signed leases were currently negotiating leases for new stores totaling just over a half a million square feet, which will open during the remainder of 2024.
Speaker Change: And into 2025 in early 2026.
So in total that's 22 million square feet of new store openings through the remainder of this year and beyond.
And this leasing pipeline of new store openings now accounts for 71 $4 million of incremental rent in aggregate, which will be realized in 2020 for 2025 and 2026.
And with that I'll turn the call over to Scott to go through our second quarter results and recent transactional activity.
Thank you Doug <unk> per share for the second quarter was $88 million or <unk> 39 per share, which was consistent with our expectations. This was $1 million or less than 1% per share lower <unk> than during the second quarter of 2023, which was $89 million or <unk> 40.
Speaker Change: <unk> per share same center NOI increased one 3% during the quarter excluding lease termination income.
While these results were fairly consistent relative to last year. The primary driving factors contributing to the quarterly SSO trends are as follows.
John.
A $4 million increase in interest expense, it's worth noting that half of that increase in interest was from noncash amortization of the mark to market discount on the debt assumed from the acquisitions of Arrowhead South Plains mall.
Two.
A $2 million increase in bad debt expense, primarily driven by a bad debt accrual for a large national tenants. While we continue to work through negotiations with this particular tenant considering the circumstances GAAP dictates that we must accrue reserve against their outstanding receivables, it's worth noting that this reserves added approximately.
80 basis point dilutive impact on same center NOI growth during the second quarter, which would've been approximately two 2% absent this adjustment.
Offsetting these negative factors were the following.
Speaker Change: One.
Approximately $3 million increase in rental revenue share.
And we do.
Speaker Change: $3 million in SSL from land sale gains and also from increases in GAAP income from noncash amortization of acquired above and below market leases.
Speaker Change: Onto our balance sheet matters, we continue to make solid progress addressing our debt maturities as well as transactions in connection with execution of the path forward plan.
On May 14th we closed on the acquisition of our partner's, 40% share of Arrowhead, and South Plains, which we've previously disclosed.
Both assets are now 100% owned by May switch, we pay approximately $37 million for the acquisition of both assets. The cap rate for Arrowhead was seven 2% and we acquired south plans for the existing debt with no incremental consideration.
As to Arrowhead, where sales approaching $200 per foot and $500 million.
Annually and whats track traffic of nearly 9 million visitors per year, and with a masseuse micro chip manufacturing infrastructure investment totaling over $65 billion scheduled over the next few years, we're extremely enthused to consolidate ownership of the market dominant Arrowhead Towne Center.
Speaker Change: On may 24th we closed a two year extension of the $159 alone on the Oaks, which now matures in June of 2026 and.
On June 27.
Our joint venture closed a $275 million refinance of the existing $256 million loan on Chandler fashion Center with a major life insurance company lender.
New five year loan bears interest at seven point over 6% as interest only during the entire lawn chairman the loan matures in July of 2029.
The company realized nearly $18 million of liquidity from the transaction.
It still is especially noteworthy since it was our first major retail financing in five years with a life co lender. We're very pleased to see this important source of capital return to our sector, albeit selectively at this time.
On June 28, our joint venture closed on the short sale of country Club Plaza in Kansas City concurrent with the transaction the remaining amount owned by joint venture under the $296 million loan was forgiven by the lender.
The sale for approximately $176 million was effectively completed at a low single digit debt yield based on current NOI on the outstanding debt balance at closing.
This transaction improved our overall leverage by roughly 12 basis points.
Which happened to offset the increase in leverage that resulted from the acquisition of our JV partner's interest in both Arrowhead in South Plains Mall.
Speaker Change: We are in the process of closing a refinance of the $115 million loan on the mall at Victor Valley the loan matures in September.
The new 10 year loan is expected to be $85 million fixed interest rate is yet to be locked in determined but we expect it to be in the mid 6% range and this is the last remaining maturity this year and 2024.
We are in the in the market today sourcing financing proposals for the very productive Queen Center. We believe this will be this transaction will be very well received by the financing marketplace.
Following that transaction, we will have less than $300 million of debt at our companys share. It matures for the balance of 2025 and that is across two loans.
The financing market for class a retail real estate remains wide open and is very very strong year.
Year to date in 2024, we have closed five transactions totaling nearly $700 million or $539 million at our share. This.
This follows a very robust 2023 during which our financing activity totaled $2 6 billion or $1 1 billion or $1 $8 billion at our share.
We currently have approximately $612 million of available liquidity.
This has now actually been enhanced by roughly $110 million as a result of the closing of the sale of Biltmore, which occurred in the last hour or so.
So we have roughly $722 million of available liquidity today, including that transaction.
We have made good progress, reducing our leverage thus far in 2024 as reflected on the newly added leverage schedule, which is found on page 28 of our 8-K supplement we have reduced our leverage to $8 four eight times as compared to $8 76 at year end 2023 <expletive>.
Pending on our transaction success for the balance of the year.
We believe we may be able to reduce leverage to the low eight times range by the end of 2024.
With that I will now turn it over to the operator to open up the call for Q&A.
Speaker Change: Thank you.
Reminder, to ask a question. Please press star one on your telephone and wait for your name to be announced.
Your question. Please press star one again.
Please limit to one question and one follow up.
Our first question comes from Jeffrey Spector with Bank of America Securities. Your line is open.
Great. Good afternoon. My first question, maybe a follow up to where Scott ended I was going to ask about the long term goals of teams.
Jack as you said in your opening remarks, you've really started to chip away.
I guess has the timeline changed at all on when you think you'll be able to achieve the goals you had laid out previously has that timeline shortened at all.
But I think Jeff I think we're on track I mean.
Yes.
The reduction of debt is happening probably faster than the plan I would say the.
The leasing and the NOI piece.
That's on track I wouldn't say that slowly them faster.
Asset sales are going along as planned so.
Speaker Change: Yeah like I said, we will be able to describe.
A range of $1 billion to $1 billion $1 4 billion in debt reduction by year end. So.
Speaker Change: We're making we're ahead of schedule on that on that front.
Great. Thank you and then my follow up is on Biltmore Fashion Park, I guess can you talk a little bit more about the Russia rationalization to sell that joined your joint venture interest interest in that asset.
Again, I believe I believe that is considered a top asset. Thank you.
It's a very good asset.
Our steady Eddie category.
Yes that project Cod.
Entitlements to increase office density on the project as you know we added a new lifetime fitness into that location.
So over time that was going to have a more balanced retail mixed use.
Speaker Change: So that overall project.
In our judgment, we felt like that was.
Good way raise liquidity was good for our partner they are extremely happy about it.
And still maintain our leasing position.
In the marketplace within the greater Phoenix market.
Speaker Change: Especially when you consider we were able to gain.
Complete control over Arrowhead, so sort of part and parcel with just moving.
Ownership across properties.
Thank you.
And our next question comes from Craig Mailman with Citi. Your line is open.
Hi.
Peggy on for Craig.
Speaker Change: I guess, how many other like with.
Six 5% cap rate.
On the pending asset sale do you guys have other assets.
All you have that you think could turn back around that.
Speaker Change: Great.
Look I'd, rather not get into cap rate assumptions, we gave kind of a wide range. This year.
Speaker Change: We.
Speaker Change: We will continue to give you updates as we complete.
These sale.
These sales.
And I'll just leave it at that.
Speaker Change: Yes.
Speaker Change: Okay, Great and then for the follow up.
Is there any color you can give us.
Ron: Ron our negotiations with <unk>.
Lenders on Santa Monica.
Ron: Any timing updates you can get there or just any other potential gift box in the works.
Yes.
I'll comment on that.
We do plan to be involved in that asset at least from a management standpoint through probably the better part of the second half of next year into 2025.
We have users that we continue to.
Perform work on to bring those tenants.
Tenants to the campus uses like Arete Museum Den Tai Fung.
Clubs studio, which is high end fitness.
It's certainly undetermined as to win.
The timeframe would be that we'd be off title that we'll certainly take some time, but that's probably all I'm at liberty to comment on but we do expect to continue to be involved for at least another 12 months in terms of managing the asset.
Great. Thanks.
Sure.
And our next question comes from Samir Khanal with Edr. Your line is now open.
Thank you Hey, Jackson, I guess, maybe take a step back and maybe you can comment on the transaction market today, I guess I'm trying to figure out how deep is that buyer pool.
The assets that you have in the market and whether it's in closed malls and open air centers.
Ron: Yes.
Speaker Change: Uh huh.
I don't have to tell you the market is not that easy to be selling.
Any kind of being commercial properties. These days, whether it's malls or office buildings.
There is more challenged.
I would say that we have a.
A particular strategy in mind as it relates to try to monetize.
The different assets that we have in our schedule.
I think if you were just to as a professional.
That works at the sale of reasonable Oh, it's not that easy to do right now but.
I would tell you that I believe that we'll be able to execute.
I'll just leave it at that we will continue to have reports on assets as we close them and obviously now we're in the market.
Otherwise right now.
And Samir just one thing to add and we've spoken to this in the past too. We do anticipate focusing also on out parcels, which we think do have a different type of marketplace. These are freestanding buildings with high credit tenants and we think there is a wider buyer pool and.
And we think those could execute fairly well. So that's an aspect of our plan like Jack said, we'll continue to report progress on it but that's another aspect of our plan that we've spoken to you guys about in the past and I think thats.
Broader market.
What Jack was just referring to.
Okay got it and I guess, Doug just shifting over to you you spoke about I think you said it sort of 500000, you said kind of half a million dollars of.
Space that Youre negotiating I think for 25, and 26, maybe provide a bit more color on.
And how those conversations are going with tenants like what's been the pushback if any.
As they're approaching sort of this potential.
Slowdown maybe in the economic side, maybe next year. Thanks.
Yeah, Hey, Samir I'll comment on the second part of the question first.
No.
Regardless of sales and we talked about our sales being flat the retailer environment is still very very robust I mean, we're very close to where we were in terms of signing leases.
Year to date this year versus year to date last year.
And I think more important that's sort of like looking in the rearview mirror if you will.
What I like to refer to in this sort of funnels into the pipeline is and I think we've talked about this before but every two weeks we have an executive leasing committee, where we review deals that will go to lease that will get signed that will go into our pipeline.
And to me, that's really an indication of where we are today, where the market is today and where the market is on a go forward basis and I can tell you that.
Year to date and up our end of second quarter were 30% ahead of where we were in terms of reviewing deals in this committee and keep in mind last year was a record leasing year. So we're very pleased with with where we are.
With regard to the pipeline you refer to the half a million.
Speaker Change: Square feet that we're negotiating and.
I believe what we said is.
We have 115 signed leases for one 7 million square feet. Those are signed they are in the bank. In addition, we are negotiating leases with over half a million square feet.
Speaker Change: So that's over $2 2 million square feet of new store openings through this year and the next two years.
Okay. Thank you.
And the next question comes from Floris Van <unk> with Compass point Your line is open.
Hey, guys.
Speaker Change: A question I know youre, not giving guidance, but.
Scott I think you mentioned same.
Same store NOI, obviously it came in at one four it would've been $2 two except for the.
The reserve for.
Speaker Change: For bad debts.
Speaker Change: But you've got a big pipeline that's opening in the second half of this year.
The right way to think about the underlying NOI growth, it's going to accelerate.
In the second half of this year and into 'twenty four.
Speaker Change: Yes, I think Thats I think thats accurate Flores.
The pipeline is very significant we will have a lot of openings.
Is that signed but not opened pipeline I think over the course of the next several quarters, we'll probably start to tick down just as a function of the openings, including some of the larger format space, but I think your I think your commentary about.
The pace of NOI growth as is accurate.
And then maybe the other question I have here is.
I'm curious as to.
Uh huh.
Speaker Change: It's a little early days, but the $600 million of Queen Center that I mean, obviously I think that was around three 5% if I recall.
Potentially.
Speaker Change: What are you hearing or what do you expect in terms of what.
What's the competition like for from lenders too.
And is that going to be a.
CBS transaction is that going to be a life co and how tight do you think spreads could get.
A lot of lot of sub questions, there I'll try and hit them all.
I do believe that will be a CBS execution, it's going to be a significant financing.
I think we will reduce the leverage there.
It could reduce it somewhere in the 505 and a quarter range I think thats, probably a more appropriate leverage profile for claims it will be a very hotly contested asset it would be very well received by the market.
On our major relationship lenders in fact have been looking forward to getting the opportunity to to review that asset and bid on it and they're actively doing it today. So it's too early to comment on spreads.
Obviously, we're moving into a better rate environment here in the second half and in fact, we'll probably know a little bit more I guess, maybe in the next hour after.
Chairman Powell speaks but.
We'll probably hit the.
The break market at a much better time than if we had executed earlier this year that's for sure but.
But I think the Queens would be a great transaction I'm looking for it.
Speaker Change: Thanks, guys.
Yes.
And the next question comes from Vince <unk> with Green Street. Your line is open.
Hi, Good morning could you discuss your thought process of seeking refinancing on Victor valley versus handing that one back to the lenders just curious how you thought about the $30 million of his additional equity there versus the <unk>.
Deleveraging goals and striking the right balance there.
Yes, Victor Valley has a solid asset in fact, I believe virtually every space Theres occupied is about 99% occupied today has a lot of momentum going for it.
It's an asset that we still believe is as relevant as kind of the only game in town in the high Desert community at Victor Valley.
It's certainly not.
One of our.
Top 10 assets, but it's a great asset.
We are firmly convicted with it.
Speaker Change: Reducing leverage here and there is.
We're all part of our goal.
So I don't think that one was a difficult decision for us to make.
No. That's helpful and is there any kind of redevelopment potential there you are near or intermediate term or that pretty.
Cable asset in its current form.
I would say the one opportunity. We have is we do have a dark Sears location on the back side of the center near sourcing concepts right now so that's probably the biggest opportunity.
To reposition it.
Got it but it sounds like that would probably be more retail than any kind of larger.
Densification is that fair.
Speaker Change: Correct, it will be it'll be retail or retail like years could be entertainment oriented.
Speaker Change: Correct.
No that's really helpful. If I could squeeze in one more.
Speaker Change: Should we think about the commencement timing of the 71 million of new leases that are signed but not yet opened.
Can you share any numbers or guideposts to help us think about how much you know make be commencing the rest of this year versus 25 versus after that that'd be really helpful for thinking about near term growth.
We've got.
In 2024, roughly 2000 $8 million to $20 million $28 million to $29 million of revenue coming online from the pipeline 2025, which is frankly is still building as we continue to finalize leases and put them into that 25 bucket. It's tracking at about $35 million and then 26 is the balance.
One thing Thats worth noting.
Pipeline stands at 71 today with them.
Think vince measuring that for about eight quarters or so now and every time, we do the pipeline continues to grow so that really is does speak to the strong demand environment, we're dealing with.
Great. Thank you.
Speaker Change: Sure.
And the next question comes from Linda Tsai with Jefferies. Your line is open.
Hi, Thank you.
How do you think about where occupancy falls out year end and then maybe towards the end of next year.
Linda I'll go ahead and take that.
I think we've got as Doug mentioned express.
All of their stores were opened at the end of the second quarter, we will see about a 40 basis point occupancy hit in the third quarter as the 10 stores, where the leases were rejected ultimately close in fact, most of those I think are closed right now.
But I do think we'll see continued growth to offset that my expectation is we will land somewhere between 93, 5% to 94 by the time you get to the end of next year.
As I look forward into 2025 again thats been expressed the side that's been a pretty good.
Here in terms of closures, we've got strong renewal retention.
There is one major retailer that were.
Working with right now I don't think were going to take an excessive amount of space back from them, but thats, probably the only potential negative that I see in the <unk>.
Immediate future that could impact us in 2025, but I think on balance we should continue to see occupancy grow.
It's also noteworthy and as Jack highlighted this in I think maybe Doug did too that once you.
Start parsing through our portfolio based on our new groupings and rankings when you exclude our assets, we're really dealing with full occupancy and that almost 95%.
Jack: And so really the focus there will be improving the quality of occupancy and moving temporary to permanent.
Within that group, excluding the audience, we've got less than 7% of our space temporarily occupied so a big portion of our focus will be trying to push that down.
Into the.
Hi, five or so.
Thanks, and then I think you said you only had 100000 square feet of bankruptcies. This year can you remind us what the numbers looked like annually since coming out of the pandemic.
Yes sure.
Jack: <unk> got the stats right there.
100000 square feet, excluding express if I looked at the last couple of years 2023, and 2022, just over 100000 feet. In fact, it was about 111000 feet each of those years 'twenty three and 'twenty two.
About 370000 feet in 'twenty, one and of course 2020 was a watershed year in which we had 6 million square feet file, including about two thirds of that where jcpenney.
Thank you.
Sure.
And the next question comes from Alexander Goldfarb with Piper Sandler Your line is open.
Hey, good morning out there two questions first just going to the credit quality, obviously really good to hear that there's so few bankruptcies.
But just the comments initially about some changes in discretionary versus non discretionary obviously.
Seeing some headlines from stores and maybe it's more on the <unk> front, but.
How do we interpret some of these headlines of consumers pulling back with the fact that when you look at the results.
Really strong like you guys said, just one tenant youre in negotiations with so how do we explain the disconnect between some of these headlines we see about retailers expressing some issues with consumers versus the reality of what's actually happening at the store level.
Hey, Alex this is Doug I'll take that one yes, no doubt we are seeing we all see that.
And I think I said in my opening remarks in our portfolio basically were flat. However, what we're hearing in the industry and with some of these industry experts reporting is anywhere from three to maybe 4% down. So you could argue that for the time being flat is the new up.
But and as I said earlier.
Sales really arent affecting the retailer demand and I think there's a couple of reasons for it number one I believe it's a testament to our portfolio our portfolio. If you think about the markets that we're in whether it's L. A R.
We're in or Walnut Creek, our Scottsdale, or New York City of Washington D C.
Must have properties and yes, I mean, there is some noise out there right now in terms of sales and in terms of macroeconomic.
Environment, but retailers are much longer looking in nature, and we're signing leases for seven to 10 years. So they.
Jack: They are just seizing the opportunities that are out there and I think it's I think it's a real testament to our portfolio.
Okay and second question is Jack you've now been at the helm for four or five months now.
You've had a good chance to see the portfolio talk to the people go through the processes are there any areas in particular that you view or sort of.
Jack: Trouble areas or areas, where.
<unk> needs to be more work done to execute your plan or at this point you feel like the next three to four years to execute the plan.
Everything is there it's just a matter of time to execute I'm just trying to understand what elements are time based versus what really requires you to get sort of under under the hood and really do some heavy.
Jack: Quite equipped mechanicals.
<unk> if you will.
We don't have any big mechanical changes or some of that.
We were just realigning.
Jack: Our efforts around this strategy, we have a real clear prioritization of assets and things that we're focused on.
It's really more of a realignment of our resources.
That's what's going to happen over the next two to three years and we're already seeing the results of that already.
<unk>.
Okay, Yeah, no I mean, you've had achieved a number especially as.
As Scott mentioned with the financing transactions.
And the change in that marketplace versus what it was coming out of Covid.
Okay. Thank you.
Yes. Thank you.
The next question comes from Michael Mueller with Jpmorgan. Your line is open.
Yes, Hi, this may just be a quick one I'm looking at the press release wording and it says that you're in negotiations with the lender about the terms of Santa Monica place about about that loan is there a chance that you could keep it or am I just reading into the wording.
Yes, I think.
I think I, probably said all we can say at this point Mike.
The asset has its challenges and the capital structure is upside down.
Jack: So.
Yeah, I think and I've, probably said as much as I can say at this point.
Got it okay.
That was it I appreciate it thank you.
Sure.
The next question comes from Robbie <unk> with Mizuho. Your line is open.
Hey, guys.
You guys are doing well can you offer more color what happened with Chandler freehold and the fair value adjustment that allowed you to record $16 million credit to your interest expense and will this new arrangement allow any further adjustments to interest expense beyond the quarter.
Well the good news for everybody who tracks our P&L is that adjustment will no longer be relevant going forward. So that's really nice.
We did have a restructuring of our joint venture with our partner, which resulted in a change of accounting.
Short effectively dating back to 2009, when we did our initial JV with that partner, we had to defer our gain recognition from that transaction as a result of the restructuring we were able to accelerate that gain this year and finally recognize it which was the large P&L item exceeding.
Jack: $300 million in it.
Speaker Change: Are we seeing that in our Etfs disclosures.
This is the last quarter in which we had to mark the asset and the debt to market and as.
As you know that flows through interest expense, it's something that we do add back whether positive or negative for <unk> purposes, but like I said Ravi. The the good news is you can kind of test regard that going forward. It's a it's a bit of noise that.
Speaker Change: We will gladly see in the rearview mirror.
Got it helpful. Just one more here for some more color on country Club Plaza, specifically with regards to the loan forgiveness that occurred there and what are the negotiations like and is that something that could occur with other assets within the portfolio that will help you.
Reduced debt.
Yes, I am somewhat limited just by confidentiality in terms of what we can say there.
Each one of these things is I guess I'll say relatively be spoke in terms of how it ultimately settles.
This was a.
Affectively, a three party transaction, which a third party buyer in the lender and our joint venture collectively arrived at a resolution.
Was nonrecourse debt. So at the end of the day to the extent that that was not recovered by the sales price it was forgiven.
Like I said these are all unique transactions and the I'll slip in different directions. That's that's about all I can say, though on this one.
Well thanks, guys.
Sure.
Our next question comes from Greg Mcginniss with Scotiabank. Your line is open.
Greg Michael McGinniss: Hey, good afternoon.
Click on Santa Monica are you still spending on the redevelopment to bring in some of those new tenants.
Greg can you repeat that one more time for <unk>.
Santa Monica It came out of the redevelopment pipeline, but it sounds like youre still bringing in new tenants. There. So are you still spending that capital to bring them in.
Yes, there are reserves that are set aside to manage that sort of effectively.
Basically just funding all the construction work to bring those tenants to the campus out of those reserves.
We continue to asset or asset manage property manage the property there so to the extent there's opportunities we will advance those with the lender.
From a leasing standpoint.
Okay. Thanks.
And on tenant sales I guess im percentage sales, we see tenant sales are only down 2% year over year, but percentage rents down for the consolidated portfolio about 45% year to date is that a function of converting some tenants to a higher base rent or what's driving that number and what's the expectation.
The rest of the year.
Yes, theres, a little bit of that a little bit of conversion, but most of that was in our rear view most of that we did in 2022 and namely in 2023.
Some of it is just over the course of time as the rent increases the breakpoint increases.
With sales plateauing.
Percentage rents are down that's the other primary factor will see percentage rents kind of settle in I think by the time, we get to the end of this year, we'll see percentage rents.
Probably no longer declining and those remain relatively stable bear in mind, we're coming off.
A period of time or percentage rents.
About 5% of our like 6% or so of our aggregate revenues in the fullness of time. They are typically about two to three.
Greg Michael McGinniss: <unk>.
Okay, and if I could just ask one clarification on.
The strategic plan, which called for the disposition or hand back of 12 assets does that does that mean full assets or do things like the department store.
Speaker Change: And out parcels factor into that number.
Speaker Change: Yes, those are really full assets when we referred to that grouping.
The out parcel sale that we did is one of what we think could be several.
I would say that's smaller in nature than some of the other opportunities, we're looking at which will be more significant.
But those would be in addition to the.
Full asset dispositions.
Okay. Thank you.
As a reminder to ask a question. Please press star one on your telephone.
Our next question comes from Ronald Camden with Morgan Stanley. Your line is now open Hey.
Just two quick ones, starting with the eastern fix which is sort of a key NOI driver.
I know you talked about sort of in place plans and so forth maybe can you discuss a little bit more what the strategy is going to be behind there or is there.
Speaker Change: Is there just a new team.
New sort of product mix just.
Speaker Change: Any sort of additional color.
Speaker Change: On that piece of it thanks.
Well, let's say team is the same.
Speaker Change: It's just more energy and effort focus.
Each of those six assets have.
A different path too.
Get to that NOI bridge.
We talked about green acres a lot.
Speaker Change: I think we've talked about Kings Plaza.
<unk> best buy they can best buy box.
Speaker Change: And it just continued improvement of claims and we're seeing a lot a lot of progress over at Danbury, and freehold has a number of anchor stores anchor locations under redevelopment right now with <unk> coming in one of them. So.
Great. Thanks, and then of course prices.
Yes makes sense. My second question was just on you know as Youre thinking about sort of the long term strategic plan, obviously, you've made a lot of progress in the first and the first year.
Number one do you know when when do you think you'd be in a position to sort of come back with guidance is it next year and then number two as you sort of give.
Speaker Change: Back at that said the number of assets shrinks.
What size do you think you'd become maybe less of a scale of relevant to a national and international retailer like is there a risk that you actually could become.
Speaker Change: Two small.
Speaker Change: Just just just the entire portfolio is that something you've thought about thanks.
So I'll start with that question first I don't think this plan will result in us being.
Non non relevant I think we have a lot of relevant assets and particularly like relative market position.
You look at just Phoenix for instance.
In other parts of the country.
But.
Speaker Change: So I'd say for us the.
Speaker Change: The plan is going well.
We have tremendous flexibility, it's always a tremendous flexibility on different routes for success right different assets different ways that we want to move forward.
Current ways of handling give backs.
Speaker Change: That's why I kind of said, we will have line of sight, we'll be able to describe it at year end.
One 1 billion to 1 billion for a debt reduction.
Speaker Change: I honestly don't want to put guidance out this year are probably not going to do it next year.
But out there where you are what you all want us to be doing is getting after that 2 billion of debt.
Speaker Change: Leasing like Crazy like these guys are doing.
And the properties.
Speak for themselves resolution on those acres that we talked about that.
That's not only filling empty locations, that's giving us the ability to really lease up those those wings. So those centers that that.
Really have been kind of fighting with one arm tied behind their back.
Yes.
What's really important giving you guidance next year up or down I don't think it will really help modestly in terms of achieving what we want to achieve which is.
Get to the low six times get to that $1 80 range and we'll get to it so that's it.
Speaker Change: Makes sense that's it for me thank you.
I show no further questions at this time I would now like to hand, the call back over to Jack for closing remarks.
Okay well. Thank you we appreciate the opportunity to meet with many of you over the last couple of months following disclosure of our path forward plan and we look forward to reporting our continued progress.
On executing this plan over the next coming quarters. Thank you again for your time today.
This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
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Okay.
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Sure.
Speaker Change: [music].