Q4 2024 The Macerich Co Earnings Call
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Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to the fourth quarter 2024 Mace Rich Earnings Conference Call.
Speaker Change: And Doug Healey senior executive Vice President of leasing and with and with US in the room, we have Brad Miller SVP of portfolio management with that I turn the call over to Jack.
Speaker Change: Thank you Samantha and good afternoon.
Jack: Over the last year since joining base rich I have become increasingly confident in our mission to operate and own thriving retail centers that bring our communities together and create long term value for our shareholders.
Speaker Change: And customers.
Speaker Change: Okay.
Speaker Change: We launched nice Rich's path forward early in my tenure and I'm pleased with our steady progress there.
Speaker Change: It's clear executable plan is designed to accomplish three key objectives over its five year horizon.
Speaker Change: Wanted to simplify the business to improve operational performance and three reduce leverage.
Speaker Change: During 'twenty 'twenty four we were successful and simplifying our business through selective when you're consolidating joint venture interests at Arrowhead Towne Center.
Speaker Change: South Plains, Los Cerritos, and Washington Square in Lakewood.
Speaker Change: Our equity offering in late 2024.
Speaker Change: Derisked that portion of our plan and the refinancing of Queens Center is well below our target refinancing rates.
Speaker Change: We're well underway on loans get backs and mall sales and are now focused on our parcel land and select open air retail sale opportunities around our shopping centers.
Speaker Change: A big focus of mine has been to improve internal processes.
Speaker Change: Restructure many aspects of our approach to asset management leasing proper.
Speaker Change: Property management portfolio management and development.
Speaker Change: Which will best position the company to drive improved operational performance.
Speaker Change: Did deliver long term value creation.
Speaker Change: I'm pleased with the progress on several key initiatives to date.
Speaker Change: Our process improvement committee has been successful in implementing our new leasing dashboard tool.
Thereby leasing.
Speaker Change: Asset management legal.
Speaker Change: Terry coordination construction and see her leadership all collaborate seamlessly together.
Speaker Change: Which is vastly improved our visibility and efficiency around leasing and tenant coordination.
Speaker Change: Our asset management and portfolio management teams are now a standalone group.
Speaker Change: Whose mission is to be the asset owner it may switch.
Speaker Change: Responsible for driving cash flow and long term value through operations.
Speaker Change: Utilizing our leasing development and property operations teams.
Speaker Change: Our asset and portfolio management teams led the effort to create five year Rguest business plans for each asset.
Speaker Change: Which is now at bedrock tool that we use to evaluate leasing and capital decisions.
Speaker Change: The permanent specialty and department store leasing teams.
Speaker Change: Are all now under one leadership and reporting structure.
Speaker Change: Property operations marketing and development are also under a new leadership structure.
Speaker Change: Working collectively with our asset management portfolio management and leasing teams. We have ranked all parents spaces throughout our portfolio with an eight through upgrade.
Speaker Change: And determined market rents for each particular space.
Speaker Change: An important aspect of our path forward plan is to take advantage of driving more incremental revenue out of our portfolio through leasing vacant.
Speaker Change: Temporary leased and under market, a and B and C rated spaces within our portfolio.
Speaker Change: Yeah.
Speaker Change: Each of these organizational process analytical and technological enhancements provide.
Speaker Change: Provide our team with the strategic roadmap and tools to drive leasing and NOI over a multiyear horizon.
Speaker Change: [laughter].
Speaker Change: With respect to the NOI component.
Speaker Change: Our leasing team is hyper focused on what needs to get done in the next two years.
Speaker Change: To help frame the leasing initiatives.
Speaker Change: In 2023, and 'twenty 'twenty four we averaged approximately $3 7 million $3 75 million square feet of annual lease volume.
Speaker Change: We are targeting an average of 4 million square feet of leasing in 2025 and 2026.
Speaker Change: And focusing on creating a higher percentage.
Speaker Change: Of new lease deals versus renewals and our annual mix of business.
Speaker Change: New deals contribute vastly to our re leasing spreads and incremental rental revenue.
Speaker Change: The effect of this shift in mix as new deals typically involve more rental revenue downtime in the range of 12 to 18 months.
In 2024, we achieved eight 8% base rent re leasing spreads for permanent tenants under 10000 square feet.
Speaker Change: New leases signed during this period were 17, 6%.
Speaker Change: Higher base rent versus the prior period permanent rent.
Speaker Change: Including vegan and temporary lease space to the aforementioned group of spaces.
Speaker Change: The re leasing base rent percentage increase was over 50%.
Speaker Change: Our current physical permanent occupancy for our go forward portfolio is 84%.
Speaker Change: We are targeting an 89% physic.
Speaker Change: Physical permanent occupancy rate by 2028.
Speaker Change: Sure.
Speaker Change: Approximately 50% of this increase is already accounted for by our current snow pipeline of $66 million.
Speaker Change: Having the ability to forecast the longer term impact of this change in leasing mix coupled with continued strong leasing demand is an excellent set up for us to achieve our incremental NOI goals.
Speaker Change: For 2028.
Speaker Change: We're being very intentional in our decisions to optimizing lease outcomes.
Speaker Change: And rental revenue uplift within our portfolio that aligns with our strategic financial objectives for 2028 under the path forward plan.
Speaker Change: This is a massive change in mindset.
Speaker Change: And operations.
Speaker Change: For the company, which has historically been more focused on managing the business to annual near term <unk> targets.
Speaker Change: There is a compelling opportunity to get after under market.
Speaker Change: And vegan a b and C rated spaces.
Speaker Change: Our centers.
Speaker Change: Maximizing each space and their total revenue potential over the long term.
Speaker Change: Will result in a higher volume of tenant re merchandising.
Speaker Change: Space movements, and temporary downtime and rental revenue.
Speaker Change: To recap I feel very good about how things are progressing on our path forward plan.
Speaker Change: We've made substantial progress to date.
Speaker Change: We have a clear roadmap with tools and new processes for leasing over the next 18 to 24 months and beyond.
Speaker Change: Which will drive incremental rental revenue.
Speaker Change: Any more improved and resilient permanently occupied portfolio.
Speaker Change: We are currently 39% complete and our leasing goals towards our plan.
Speaker Change: Our asset give backs to lenders will play out over the next two years as loan maturity dates trigger an eddy properties.
Speaker Change: We haven't identified a group of our parcel land in malls that the team are executing sale transactions.
Speaker Change: Which will continue over the next three years.
Speaker Change: And we are currently funding our development pipeline, which will contribute NOI and 26 2026.
Speaker Change: Through 2028.
Doug Healey: With that I'll turn the call over to Doug.
Speaker Change: Thanks, Jack we had another solid quarter and year for that matter, both in terms of leasing volumes and metrics sale.
Speaker Change: Sales per square foot at the end of the fourth quarter were $837 and this is up $3 compared to last quarter.
Speaker Change: Sales per square foot, excluding our Eddy properties were $915.
Speaker Change: Comparative sales for the fourth quarter and for the year were basically flat when compared to the same period in 2023.
Speaker Change: As I've stated in the past, we have yet to see a correlation between sales and retailer demand as evidenced by our deal flow. Both in terms of number of deals and square footage when compared to the same period last year and I'll get into this more in a moment.
Speaker Change: Traffic for the year was up almost 2% when compared to 2023. Most importantly, the portfolio traffic is back to our pre COVID-19 levels.
Speaker Change: Occupancy in the fourth quarter was 94, 1%.
Speaker Change: This is up 40 basis points from the third quarter and up 60 basis points from a year ago.
Speaker Change: Portfolio occupancy, excluding our Eddy properties was 95, 8%.
Speaker Change: In the fourth quarter, we opened 530000 square feet of new stores. This brings our total for 2024 to one 5 million square feet of new store openings, which is just about on par with where we ended up in 2023.
Speaker Change: Now, let's take a look at the new and renewal leases that we signed in the fourth quarter and the fourth quarter, We signed 223 leases for one 1 million square feet.
Speaker Change: For the full year 2024, we signed leases for $3 7 million square feet.
Speaker Change: Which is just about where we ended up in 2023 and let's keep in mind 2023 was a record leasing year for US dating back 30 years, where may stretch first became a public company.
Speaker Change: 2024 was also another new year, another year of newness for us.
Speaker Change: Once again, bringing new unique and emerging brands was a major initiative for our leasing team and a way for us to really re imagine and differentiate our shopping centers from our competition.
Speaker Change: To that end in 2024, we ended up with commitments of nearly 430000 square feet of new to me switch brands. Examples include how we Hansen Princess Polly, Missouri, Carhartt seafood city, Akira, revealing Buck Mason Celine.
Speaker Change: Mark and Mendocino farms just to name a few.
So once again very solid volume of leases signed in 2024.
Speaker Change: However, that's what we've done in the past I like to focus on the future and our current leasing velocity.
Speaker Change: And as I said before it may stretch, we review deals every two weeks.
Speaker Change: And year to date in 2025.
Speaker Change: We've reviewed 55% more deals than we did during the same period last year.
Speaker Change: But most importantly, we reviewed three times, the new deals and over five times, the new deal square footage than we did during the same period last year and once these deals are reviewed and approved they go to lease gets signed and eventually become part of our signed not open pipeline.
Speaker Change: I realize it's early in the year, but the statistics are very encouraging and indicative of the healthy retailer environment that exists today.
Speaker Change: So far neither sales nor the macroeconomic environment seemed to have had any effect on retailer demand. I. Also believe this is a testament to make switches must have portfolio.
Speaker Change: Turning to our lease explorations to date, we have commitments and 63% of our 2025 expiring square footage that is expected to renew and not close with another 21% and the letter of intent stage so between commitments and Loi's, we're just about 84% done.
Speaker Change: With our 2025 lease explorations.
Speaker Change: In the fourth quarter, we had only four tenants in our portfolio file bankruptcy and all of 'twenty 'twenty. Four we are just 13 tenants in our portfolio file bankruptcy totaling only 54 stores.
Speaker Change: 26 of which were the express bankruptcy.
Speaker Change: And of the 26 express stores that we had in our portfolio.
Speaker Change: On the nine close and of that nine we have commitments are negotiating LOI and 75% of that closed square footage.
Speaker Change: Turning to our signed not open pipeline at the end of the fourth quarter. We had 104 leases signed for one 2 million square feet of new stores, which we expect to open between now and into early 2028.
Speaker Change: In addition to these signed leases.
Speaker Change: We're currently negotiating leases for stores totaling just under 875000 square feet, which will also open during the remainder of 2025 and enter 2026 2027 and early 2028.
Speaker Change: So in total that's over 2 million square feet of new store openings throughout the remainder of this year and beyond.
Speaker Change: This pipeline of new store openings now accounts for $66 million of incremental rent of which $27 million will be realized in 2025 with the remainder being realized between 2026 and into early 2028.
Speaker Change: And with that I'll turn the call over to Dan to go through our fourth quarter and year end financial results.
Dan: Thanks, Doug and good afternoon.
Speaker Change: Pleased to be participating in my first earnings call with the matrix team.
Speaker Change: I'll start with a review of fourth quarter financial results.
Speaker Change: <unk>, excluding financing expense in connection with Chandler freehold.
Speaker Change: Gain on extinguishment of debt accrued default interest expense and loss on non real estate investments was approximately 117 million or <unk> 47 per share during the fourth quarter of 2004 as compared to approximately 128 million or <unk> 57 per share for the fourth quarter of 2023.
Speaker Change: The primary drivers of the $11 million decrease in <unk> include higher interest expense and then the severance expense incurred in the fourth quarter of 2024 seven.
Speaker Change: $7 million of the increase in interest expense relates to the amortization of debt mark to market, resulting from our various JV interest acquisitions.
Speaker Change: This noncash expense is included in interest expense on our P&L.
Speaker Change: Severance expense for the quarter was approximately $5 million and is included in management companies operating expenses on our P&L.
Speaker Change: I would note that as it relates to the amortization of the debt mark to market, resulting from the JV buyouts.
This to have an incremental <unk> <unk> per share reduction into 2025, <unk> adjusted as compared to 2024 all else equal.
Speaker Change: This reflects a full year impact in 2025 versus the partial year impact in 2024, when we acquired these JV interests. As a reminder, these are noncash interest expense items and they roll off the P&L by 2027 at the various loans mature.
Speaker Change: Same center NOI, excluding lease termination income decreased 4% in the fourth quarter of 2024 compared to the fourth quarter of 2023.
Speaker Change: And for the full year ended 2020 for same center NOI, excluding lease terminations increased 2% compared to 2023.
Speaker Change: Adjusting for the negative impact of the express bankruptcy same center NOI growth would be about 1% year over year excluding.
Speaker Change: Excluding any assets this adjusted 1% growth would increase to two 1% for the year.
Speaker Change: Turning to the balance sheet, we made considerable progress in 2020 for managing our debt maturities.
Speaker Change: Closed on seven transactions for over $1 3 billion of loans or $1 $1 billion at our share.
Speaker Change: During the fourth quarter, we closed on a five year refinance a Queen center at an attractive fixed interest rate of five 4%.
Speaker Change: We just recently paid down to approximately $15 million mezz loans or about $75 million at our share on flatiron crossing that carried a high interest rate a sofa plus 12, 5%.
Speaker Change: The balance of 2025, we have less than $300 million share of maturing loans.
Speaker Change: We've already started to address our 'twenty fixed debt maturities with the repayment of two loans, Washington Square Mdx.
Speaker Change: I'd further updates on our debt maturities as we move through 2025.
Speaker Change: We currently have approximately $683 million of liquidity, including $540 million of capacity on our line of credit.
Speaker Change: From a leverage perspective, I'm pleased to report that debt to EBITDA at year end 2024 was slightly below eight times.
Speaker Change: Which is almost a full turn lower than one year ago.
Speaker Change: And we've outlined our strategy to further reduce leverage to the low to mid six times range over the next several years.
Speaker Change: We continue to make significant progress in executing the path forward plan.
Speaker Change: In October as previously announced we closed on the acquisition of our partners', 40% interest in the <unk> portfolio.
Speaker Change: Acquisition price was $122 million and we assumed our partner share of debt outstanding.
Speaker Change: 100% of Wall Street, Washington Square and Lake with.
Speaker Change: This transaction is consistent with our stated objective.
Speaker Change: Do proactively consolidate select joint ventures and to simplify the business.
Speaker Change: In November the company priced an underwritten public offering of 23 million shares of common stock at a price to the public of $19 75 per share.
Speaker Change: For gross proceeds of approximately 454.
Speaker Change: Okay.
Speaker Change: We used the net proceeds from the Upsized offering together with cash on hand to repay the 478 million Washington Square mortgage loan.
Speaker Change: Interest rate, a sofa, plus 400 bps and that had a 2026 maturity.
Speaker Change: This transaction is consistent with our stated multi pronged strategy to reduce leverage and improve the balance sheet.
Speaker Change: In December we closed on the sale of the Oates for $157 million. We used the net proceeds from this sale to repay the $148 million loan. This property that had an effective interest rate of approximately 775%.
Speaker Change: And that had a 2026 maturity.
Speaker Change: We also closed on the sale of South range for net proceeds of $4 million.
Speaker Change: And we are currently under contract to sell will be all for 25 years.
Speaker Change: Which is expected to close in the first half of 2025 subject to customary closing conditions. This asset is unencumbered.
Speaker Change: These sales transactions are consistent with our stated disposition plan to improve the balance sheet and refine our portfolio.
Speaker Change: To recap on the path forward planned significant progress to date on <unk> on our three key pillars to reduce leverage.
Speaker Change: One Jack provided commentary on the NOI growth component and the roadmap for the team over the next two years to execute on this problem of the leverage reduction plan.
Speaker Change: Two we have achieved the equity issuance component of the plan.
Speaker Change: And three we have made substantial progress on the sales and get back to a component of the plan and have identified a clear path to achieving our $2 billion disposition target.
Speaker Change: To date, we have completed almost $800 million.
Speaker Change: This includes country club Plaza built more the Oaks and south rates, which are closed.
Speaker Change: In a marketplace in which the loan Encumbering. This property is in default.
Speaker Change: Hilton, which is under contract and the Atlas Park, which is currently being marketed for sale.
Speaker Change: And then we have identified internally for assets totaling about $350 or 400 million for sale or get back over the next one to two years.
Speaker Change: That brings us to almost 60% of our $2 billion target.
Speaker Change: The remaining 40% of the plan includes the planned sale of one enclosed mall over the next year.
Speaker Change: And the sale of $500 million.
Speaker Change: Our parcels freestanding retail non enclosed mall assets and land.
Speaker Change: On the $500 million.
Speaker Change: We expect to close $100 million to $150 million of sales in 2025.
Speaker Change: Which we anticipate will be more weighted towards the second half of the year.
Speaker Change: And then we expect the balance of the $500 million in sales to close in 2026 into the first half of 2027.
Speaker Change: We will provide further updates on these sales as we progress through the year.
Speaker Change: With that I will turn the call back over to the operator.
Speaker Change: Thank you.
Speaker Change: Minder 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 and please limit to one question and one follow up.
Speaker Change: One moment for our first question.
Speaker Change: And the first question.
Speaker Change: Well welcome.
Speaker Change: It will come from Floris van <unk> with Compass point your line is open.
Speaker Change: Hey, Thanks, guys.
Speaker Change: So a couple of questions. So let me let me start with.
Speaker Change: Same store NOI.
Speaker Change: I know you haven't given any guidance, but if I look at the.
Speaker Change: The.
Speaker Change: Nope, that's going to hit in 'twenty five Dan Thanks, Ron $27 million of the 66 existing pipeline that you've.
Speaker Change: Outlines.
Speaker Change: That would appear to be 3%.
Speaker Change: Growth.
Speaker Change: I guess it depends a little bit on the timing of that but again with the fixed rent bumps et cetera.
Speaker Change: It seems like your same store NOI growth in 2000.
Speaker Change: And 25% is going to be significantly improved over over 24 is that am I am I missing something.
Speaker Change: Hey, Floris as Jackson I'll take those first so I can.
Speaker Change: <unk> tried to give reference surround the totality of new leasing that's happening and then frictional downtime.
Speaker Change: When we either take out a temporary tent or at least permanent.
Speaker Change: Revised upwards for a better tenant pay more rent.
Speaker Change: That's basically a loss of rental revenue now that's offset by renewals and the timing of the slow pipeline coming through.
Speaker Change: The way we've modeled this it's going to be candidly more flat for the next couple of years, and then stair step up and 27% 28, given the profile of how this is all going to model out.
Speaker Change: So when I look at same store NOI and candidly <unk> over the next couple of years.
Speaker Change: That's not going to give you the real answer on our progress and what really will start to show progresses.
Speaker Change: I mentioned, 39% of our.
Speaker Change: Of our leasing goals that relates to cost of occupancy or rent are achieved and so.
We will give updates as we move along but as that percentage goes up.
Speaker Change: You should have confidence that all of that rent will start to come online as it as it charged through the bank.
Speaker Change: Bacon tap.
Speaker Change: Temporary leased and what I call low performing permanent tenants that we have targeted to take out of the portfolio.
Speaker Change: So Jack just.
Clarify.
Speaker Change: I think you've indicated that you've got about 17 or 18%.
Speaker Change: Spreads on your new leases.
And your.
Speaker Change: Presumably does that also mean that if you're signing those new leases that similar occupancy cost ratios as your existing rents net sales on those new leases are going to be call. It 18% to 20% higher than your existing portfolio should we start to see some of that filter through in York Youll start in Brookfield.
Speaker Change: Sales numbers in the portfolio.
Speaker Change: I think it will see it well first of all to I referenced that 50% number. So that includes tenants under 10000 square feet, where there's obviously a big opportunity for leasing.
Speaker Change: If you include vegan.
Speaker Change: Temp tenants and Perm.
Speaker Change: 2024 that re leasing spread was over 50%.
Speaker Change: We have a meaningful amount of.
Speaker Change: Vacant and temp.
Speaker Change: A b and C class rated space in our portfolio.
Speaker Change: You're probably asking like how do we get that well.
Speaker Change: If you're running a company based on annual budgeting targets and not looking out on how leasing impacts.
Speaker Change: Forward future performance, that's how you get there you'll get your bump along at 3% to 4% Youre going to keep.
Speaker Change: Youre temporary tenant percentage will not go down because you want to keep that rent in place.
Speaker Change: Youll, probably keep tenants that are less desirable permanent tenants in place.
Speaker Change: And we've got opportunity in our better centers, just to kind of redo that and that's where.
Speaker Change: I talk about this higher percentage of mix.
Speaker Change: The net result of that you may see some quarters, where it goes up.
Speaker Change: So may go down.
Speaker Change: But this portion of the plan.
It's.
Speaker Change: It's almost like we're treating it like where private company because there is a big opportunity to capture a meaningful spread of rental revenue.
Speaker Change: If we do this.
Speaker Change: We haven't provided the details of which we plan to lay out later this year in the NOI bridge, but it's a pretty compelling opportunity and that's the result of that is going to be.
Speaker Change: More noisy same store NOI probably.
Speaker Change: But period to period.
Speaker Change: Let me let me ask my my My second question, if you don't mind.
Speaker Change: I'm looking at obviously you still have some some expensive debt in particular, south plains at almost 8% I don't know, whether you're going to keep that one or not but.
Speaker Change: <unk> got a.
Speaker Change: Really attractive development pipeline Green acres with I think 13% returns at the 130 million Bucks, if I'm not mistaken and then Scottsdale seven.
Speaker Change: 17% returns on that.
Speaker Change: Wouldn't it make sense to fund all of that with equity.
Speaker Change: Including the debt pay down simply because it's accretive relative to the seven 1% implied cap rate you are trading at or how do you think about that or are there other opportunities that you see where that might make sense.
Speaker Change: I mean, you could choose to do that and it's obviously mathematically accretive to issue equity to fund that but at this point.
Speaker Change: Our concept on issuing equity is if the opportunity arises where we can consolidate a JV.
Speaker Change: Or there is some other occur.
Speaker Change: Accretive use that could be.
Speaker Change: Paying down development pipeline with equity.
Speaker Change: A property something like that so.
Speaker Change: But outside of something like that we feel like we've got the equity needs in place, we've got enough free cash flow to execute the plan.
Speaker Change: After dividends and interest.
Speaker Change: No.
Speaker Change: Yes, Youre right.
Speaker Change: It would be mathematically accretive.
Speaker Change: To use equity to finance development pipeline.
John: Thanks, John long term accretive.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: And the next question will come from Craig Mailman with Citi. Your line is open.
Craig Mailman: Hey, good afternoon.
Speaker Change: Jack you just touched on the new dashboard and having five year August runs now.
Craig Mailman: <unk>.
Speaker Change: Better process put in place is there any early kind of quantification of how that's helping you.
Craig Mailman: The more efficient process turning into.
Craig Mailman: Less costs on on legal or quicker gestation periods kind of anything around that that would be helpful to give some some tangible.
Craig Mailman: Yes.
Craig Mailman: Okay, Hey, thanks, Craig well some of the.
Craig Mailman: The comments that Doug talked about what we've seen year to date I think that's partially the environment, thus, partially us having the tools to John what space to go after and how to do it.
Craig Mailman: When I first got here a.
Craig Mailman: A year ago.
Craig Mailman: What I want to review a lot of properties did onsite visits what are the consistent themes that I had heard for our leasing team every time I went through on your property that with the leasing team asset management development onsite manager kept hearing it time and time again.
Craig Mailman: The leasing team spent so much time.
Craig Mailman: <unk>.
Craig Mailman: In the re budgeting process at this company did which was typically three times a year. There were three re budgeting forecast throughout the year and the amount of time that it took for them to stop what they were doing we forecast their pipeline.
Craig Mailman: Applied new market rents.
Craig Mailman: <unk> space that they were focused on.
Craig Mailman: Took up a lot of time, the second thing that took up a lot of time was.
Speaker Change: No there was no system at the company to communicate the current status of.
Speaker Change: Discussions with tenants, which kind of shocked me so everyone had their own spreadsheet their own list.
Speaker Change: There were hours and hours spent by people on conference calls trying to update.
Speaker Change: National tenants across our regions, where people are located in terms of leasing team.
Speaker Change: And so when you couple like the re forecasting coupled with a lack of visibility.
Speaker Change: Thousands.
Speaker Change: Of man hours that matrix were spent on things that were not driving future revenue opportunity.
Speaker Change: Fast forward today. This leasing dashboard is effectively a CRM for us.
Speaker Change: And so at any given time, Doug myself, Brad can pull up or an asset manager can find out.
Speaker Change: A space that's designated to our leasing rep.
Speaker Change: That last conversation was what the target rent was.
Speaker Change: And that tenant can.
Speaker Change: Can be seen by everyone in that conversation everyone in the company, whether its tenant coordination asset management legal.
Speaker Change: We've got a quarterly review process now, where that's really driven by asset management.
Speaker Change: Where they can basically go through a leasing plan.
Speaker Change: And says look at space see Ted.
Speaker Change: Last comment on that was like three months ago, but that's really not going to be very effective if we're targeting <unk> tend to be leased.
Speaker Change: On time over the next two years.
Speaker Change: So the.
Speaker Change: The result of all this is I think there is tremendous efficiency, it's creating more opportunity for boots on the ground to achieve.
Speaker Change: These targets that we're looking for.
Speaker Change: And.
Brad Miller: Brad you've been here for a long time, but Houston portfolio.
Speaker Change: The architect of a lot of the old process can you tell me what you think.
Yeah. Good question Julien.
Speaker Change: So right going from an annual budget process of having annual lease goals and revisiting those annual go three times a year to now having a five year plan when we get visibility into the leasing progress really on a daily basis.
Speaker Change: The shifting of resources.
Speaker Change: It is producing results.
Speaker Change: As Doug mentioned, it's early innings in this year, but we're seeing good progress and we know exactly where we need to be in the 39% complete is to us on track to hit our goals.
Speaker Change: That's helpful and then maybe the follow up.
You guys are effectively raising your annual leasing goal by about 250000 square feet, how much of that is.
Speaker Change: Your capacity kind of improvement now that some of these processes in place versus just yet.
Speaker Change: The amount of demand that youre seeing in the ability to get some of that through the door.
Doug Healey: Hey, Greg and Doug I'll take that one.
Speaker Change: Yes.
Speaker Change: We're obviously benefiting from a healthy retail retailer environment that has persisted really over the last couple of years and we don't see any change to that in the near future. So that's a huge tailwind for us but in terms of the processes that Jakob Brad We're just talking about.
Speaker Change: We have a very clear path to where we need to be at the end of 2028 and in my world, we need to be where we need to be by the end of probably <unk>.
Speaker Change: <unk> 27 to get that are trying to 46 excuse me to get all of that revenue online by 2028. So we've done a few things internally and I won't get into the Nitty gritty, but Jack did allude to it.
We brought all anchor store leasing and all specialty leasing under one roof. So, whereas before there were sort of silo setup now all revenue is coming under me add by permanent leasing people are working with our specialty leasing people are working.
Speaker Change: With our department store people to make sure we get to that in the end goal in 2028, and I think one of the most important things we do.
Speaker Change: Jack talked a little bit about this.
Speaker Change: We're laser focused on permanent leases not to say, we're not focused on specialty leasing we can't let that go but we've got.
Speaker Change: Bunch of specialty leasing people on site that do nothing but fill space temporarily so the fact that they're now in our world, they're acting more like permanently people. So while their focus is still on specialty.
Speaker Change: And they are buying they are aligned with permanent leasing goals, which means where we need to be by 2028. So it's those little things that we've done internally.
Speaker Change: I think account for this velocity that I alluded to earlier in my opening remarks.
Speaker Change: Great. Thank you.
Speaker Change: Thanks, Greg.
Speaker Change: And the next question comes from Linda Tsai with Jefferies. Your line is open.
Linda Tsai: Hi, Thanks for taking my question.
Speaker Change: Jack I appreciate the systematic rigor you're currently rating at <unk> I know you introduced the same types of processes that spirit to.
Speaker Change: My question is <unk> as a percentage of NOI, how should we think about the growth rate in 25 versus <unk> 24, and 26 versus 25.
Speaker Change: Kevin This is Dan we had outlined in terms of.
Speaker Change: The total <unk> for 2025 is again, taking a step back of the $66 million.
Speaker Change: No.
Speaker Change: 25 would be $27 million of that $26 million or sorry, the $66 million.
Speaker Change: And what was the second part of your question in comparison to one.
Oh I was just trying to think about it like that.
Speaker Change: <unk> as a percentage of NOI and what those growth rates look like.
Speaker Change: How much that grew in 'twenty.
Speaker Change: <unk> 24 versus 23 25 versus <unk> 24, 26 versus 25.
Speaker Change: I would say Linda here.
Speaker Change: So I think about it rather than giving you a percentage.
Speaker Change: An important part.
Speaker Change: Mentioned to you like this mix of.
Speaker Change: More new versus renewal.
Speaker Change: If you looked at our historical five year average us tenants under 10000 square feet.
Speaker Change: Our <unk> are typically that ratio was about 34% new.
Speaker Change: New leases versus renewals.
Over that five year period.
Speaker Change: In 25% and 26, we are targeting 45% new tenants in our in our game plan.
Speaker Change: So that's going to automatically obviously increase the snow pipeline substantially if we're able to accomplish this which we believe we are.
Speaker Change: So I don't think its going up.
Speaker Change: It's going to be quite different than historical because it's very intentional about attacking vacant.
Speaker Change: I'll call. It nonproductive eight tenants that can be upgraded some under market.
Speaker Change: <unk>.
Speaker Change: There are so there was a surprising amount of.
Speaker Change: Opportunity within.
Speaker Change: Within our 20 yard lines.
Speaker Change: The main mall.
Speaker Change: Sure.
Speaker Change: Like why do we keep these tenants sure why are they here, while we're focused on annual <unk> targets and budgets re forecasting we can't kick them out so wrong thing to do for the center and we can get and make more money.
Speaker Change: So if you think about what we're trying to solve for in 2028, if we do what we say we're going to end up with a more.
Speaker Change: Much more resilient permanently occupied portfolio with strong vibrant tenants. That's the result of this.
Speaker Change: We can have better merchandising mix, which will drive traffic, we can get rid of some of the legacy tenants that are that are candidly not performing well or at risk.
Speaker Change: Is something that was harder to deal.
Speaker Change: Under the way, we used to do things, which were kind of within the annual period. So to answer your question that the snow is going to go up.
Speaker Change: As we kind of cranked through this.
Speaker Change: We can already see it.
Speaker Change: Maybe it's not at all actually.
Speaker Change: And especially with the 12 to 18 months downtime that will come in on time.
Speaker Change: For our purpose 2028.
Speaker Change: Thanks, and then what's the spread difference between the new <unk>.
Speaker Change: And the renewals.
Speaker Change: So for under.
Speaker Change: For under 10000 square foot.
Speaker Change: <unk>.
Speaker Change: That eight 8% versus 17, so yes.
Speaker Change: I think the what the what would be the renewals eight 8%.
Speaker Change: So by five 8% sorry.
Speaker Change: But once again once again mix has a huge.
Speaker Change: Various of these numbers the mix.
Speaker Change: And we will start to disclose going forward much more detail about Merck deal leasing mix because you obviously need it. So I'll just give you eight eight that doesn't really tell you too much. So we will start to give give you more details as we move forward.
Speaker Change: And in the first quarter on.
Speaker Change: On the mix that we're talking about I think it would be helpful for you.
Speaker Change: Thanks, just one last follow up related to that in leasing up the a b and C space that you Didnt focus on previously what's the weighting of those spaces like percentage of a versus B and C. And then are you able to turn <unk> into BS and <unk> spaces into ace.
Speaker Change: It's less about.
Brad Miller: Let's just go Brad.
Speaker Change: Sure I mean like.
Speaker Change: And our plan and our go forward plan, 90% of our leasing activity and not a D&C spaces. So we're still it's still strong spaces, where the tenant demand and lease up at our plants.
Speaker Change: Thanks.
Speaker Change: And the next question will come from Jeffrey Spector with Bank of America Securities. Your line is open.
Andrew Real: Hi, This is Andrew real on for Jeff Thanks for taking our questions.
Andrew Real: Just on the consumer last quarter, you pointed to this shift in discretionary spend away from goods and more into services. Just wondering if you've seen any capitulation back towards goods oriented spend and what are your overall thoughts are on the outlook for discretionary retail in 2025.
Doug Healey: Yeah, Hey, Andrew it's Doug it's a great question.
Doug Healey: And I did talk about that coming out of Covid.
Speaker Change: Everybody was.
Speaker Change: Hi, Thanks, I mean, there are remodeling their homes they were buying shoes, they were buying apparel all stuff that they couldnt do four eight.
Speaker Change: 18 months.
Speaker Change: And Thats why we saw huge comp sales across our portfolio over the last two and a half years.
Speaker Change: But youre right I did talk about the fact that consumer behavior is changing.
Speaker Change: It was <unk>.
Speaker Change: For the first time felt more comfortable to socialize. They felt more comfortable to go on vacation to go on cruises to go to go to concerts and we're still seeing that but now you think about it. This has probably been going on for the last 18 months 18 months say now it's time for replacement so I think.
Speaker Change: The key word on a go forward basis is replacement and replacing those products that were bought coming out of Covid and Thats. What we saw in the fourth quarter for sure in November December Thats, what we started comping up but I think that's sort of the buzzword around the industry right now is replacement.
Speaker Change: Alright. Thank you guys see that I'll cycle back to a little bit more of normality.
Speaker Change: Okay. Thanks, and then just a quick follow up of the 2025 expirations I think you said in your remarks, 84% of those spaces are now committed or under LOI.
Speaker Change: Curious how does that compare to this time last year.
Speaker Change: Just just a little bit a little bit ahead of where we were last year.
Speaker Change: Okay. Thank you.
Speaker Change: And the next question will come from Steve <unk> with Evercore. Your line is open.
Speaker Change: Thanks, Manav on for Steve.
Speaker Change: It looks like you're making some really good progress on all fronts for the path forward.
Speaker Change: Any areas Jack that you feel like are slower than what you would have expected now that we sit here.
Speaker Change: From the point of being in February 25.
Speaker Change: And maybe if you could touch on what you believe maybe is the biggest risk going into 'twenty five that could impact the execution of the path forward.
Speaker Change: The first question.
Speaker Change: Yes, I'd say, we're very comfortable with the range of debt to EBITDA and earnings ranges, we put out.
Speaker Change: Last year for the plan after going through the detailed business plans I think one of the things that came out of the Argus exercise was that the.
Speaker Change: Anticipated landlord work and Ta costs were higher given the percentage of new tenants.
Speaker Change: Focused on so that was one area that was probably more of a negative surprise for us.
Speaker Change: We've obviously had a lot of positive surprise as well the equity the debt refinancings and some of the sales.
Speaker Change: The other is.
Speaker Change: One one area that could.
Speaker Change: Be a negative for us or a headwind as if there is any delay in our development pipeline.
Speaker Change: Green acres, we are on track nor assurances on track there is some delay at flatiron. So we're trying to move continue to move forward on that project as quickly as we can but.
Speaker Change: Absent that.
Speaker Change: We have a <unk>.
Speaker Change: Very clear idea of what we need to accomplish and we.
Speaker Change: We feel like we've.
Speaker Change: Yes. This this management reorganization and people re orientation with the systems.
Speaker Change: It's quite stag.
Speaker Change: Staggering how big of an impact this is having around telling you so versus the past so I'm.
Speaker Change: Confident in what we can do and we're just going to get it we're just getting after it.
That's perfect I appreciate that that's actually a property translating into my second question.
Speaker Change: <unk> was going to be on Capex, you just mentioned.
Speaker Change: Based Rod's Argus run exercises that looks like that is may be trending higher. So I. Just wanted to clarify is that maybe now essentially translating in capex for 'twenty five as a percentage of NOI or however, you want to base it off.
Speaker Change: Potentially trending higher than previously anticipated or higher compared to 24.
Speaker Change: Color there would be super helpful.
Speaker Change: I mean, hopefully we can beat those assumptions because theyre just assumptions right now, but if we're able to achieve the level of.
Speaker Change: Velocity that we talked about 4 million square feet, 45%, new under 10000 square foot tenants.
That's going to incur theoretically more capital costs, and 25 and 26 versus historical because we're running at a higher <unk>.
Speaker Change: Volumes and.
Speaker Change: New percentage of new tenants versus renewals, yes, I would just add relative to the initial plan to Jack's point, it's a little bit more near term, 25% to 26 spend but then it levels off in 'twenty seven and 'twenty eight.
Speaker Change: Versus more of a smooth spend over the four years.
Speaker Change: Okay.
Speaker Change: Perfect Thats for me thank you.
Speaker Change: The next question comes from Vince tie boom with Green Street. Your line is open.
Speaker Change: Hi, Thanks for taking my question.
Speaker Change: For the $400 million of plan lender malls as Dan mentioned earlier, what is the current weighted average debt yield on those assets is to help from an <unk> perspective, and then also on the $500 million of potential dispositions, how should we think about the quality and essentially cap rates on those even more selective dispositions is that fair.
Speaker Change: To assume it's going to be more any properties. In addition to some freestanding as you mentioned, but any color there to help.
Speaker Change: So our modeling would be helpful.
Vince: And Vince on the second part Youre, asking specifically about the $500 million Upsells.
Vince: Yes, that's what I was referencing yes, yes. So those are those are more.
Vince: Parcels freestanding retail land parcels and not enclosed malls. So as we looked at the plan at the beginning we had said we thought we could accomplish the dispositions about weighted average 8% cap rate. If you look at the profile of these types of assets.
Vince: Those are.
Vince: Sub.
Vince: <unk> percent cap rate transactions.
Vince: But again that piece of it as sort of Sunday, and then encounters off the rest of the sales to kind of get to a weighted average of around eight.
Vince: As it relates to kind of the overall.
Vince: Assumptions on the dispositions.
Vince: On the first part of your question.
Vince: <unk>.
Vince: On debt yields those are.
Vince: Typically what we're looking at.
Vince: Of like high single digit debt yields.
Vince: For the for the for the three or four assets that we've identified.
Speaker Change: No that's really helpful and I appreciate the clarification on the 500, when you said not in closed malls I thought open air centers potentially so I'm glad I.
Vince: Clarified that.
Vince: And then maybe just changing gears a little bit could you give an update on the potential densification at low <unk> now that it is wholly owned like is that something you could potentially break ground on and then next year or two and just curious how youre thinking about the structure of that project, whether you do it on balance sheet use of joint venture.
Speaker Change: Your partner just love to get your latest thoughts there.
Speaker Change: So Los Cerritos is now an amazing opportunity that we control it.
Speaker Change: You know that that center continues to perform extremely well.
Speaker Change: I mean, we have <unk>.
Speaker Change: Options from a very good anchor store.
Speaker Change: Tenant that wants to take the Sears location, which obviously would if we did that it would.
Speaker Change: Impede some of our ability to put residential out in that seres field.
Speaker Change: I think at this point, what we're trying to do is.
Speaker Change: Maximize the.
Speaker Change: The entitlement opportunity for that.
Speaker Change: For residential density.
Speaker Change: More than likely we're going to sell that land.
Speaker Change: Entitled Yeah, Obviously, we could sell today with partial entitlements, but we think theres a lot more value and getting the entitlements.
Speaker Change: And I would say that for us to pursue the development ourselves.
Speaker Change: Just be once again.
Speaker Change: Understanding the the returns relative to other capital allocation opportunities within our portfolio.
Speaker Change: It's a great site its a great center, it's only getting better.
Speaker Change: We believe theres a lot of demand for that for that parcel with the Sears parcel.
Speaker Change: And were just going for a maximum.
Speaker Change: Entitlement opportunity and then we'll decide what to do.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from Alexander Goldfarb with Piper Sandler Your line is open.
Speaker Change: Yes.
Speaker Change: Morning out there.
Speaker Change: Yes.
Speaker Change: You guys have certainly achieved a lot in a short period of time, so two questions here Jack.
Speaker Change: First is just looking at your cash balance I think it's about $135 million right now.
Speaker Change: Yes, there's certainly a lot that you're doing.
Speaker Change: Especially around Capex leasing so just wanted to understand is there a minimum cash level that you guys think about as you're executing your plan and then how do you balance.
Speaker Change: Having cash on the books versus debt Paydown.
Dan: Yes, Dan this is.
Dan: I'll take that.
Dan: We're at now from a cash balance is generally where we would be sort of comfortable operating within that range.
Dan: Thank you.
Dan: Basically as we look at our.
Dan: Sort of sources and uses.
Dan: We have a free cash flow from the business.
Dan: <unk> three.
Dan: 300 million after.
Dan: Funds available tradition, sorry funds available for distribution after our operating Capex and Tas is if you look at 2020 for most.
Dan: Most of that will obviously the run rate on the dividends and then what's left.
Dan: Funds the development.
Dan: And to the extent, our cash balances dipped down a little bit from a timing perspective.
Dan: We could use our line of credit to temporarily.
Dan: Fund some of that ore. We're also looking at a refinancing right now which would provide some excess proceeds in the near term and then as I mentioned earlier once we get through 25% and 26% in the free cash flow of the business starts to produce more and then we have more optionality at that point in time to pay down debt.
Dan: So right now it's kind of funding.
Dan: The ph for the leasing and the development in the near term and then as we build cash balances out in the out years, we would have more optionality to pay down debt.
Speaker Change: Okay and then the second question is there's a lot that's going on as you improve the tenancy so Jacky mentioned.
Speaker Change: Occupancy probably going to come down as you pull out legacy tenants replace them with better performers at the same time. There are some dispositions plan is there some sort of framework that you can provide in terms of.
Speaker Change: The <unk> NOI hit that's going to occur this year next year before it obviously rebounds.
Speaker Change: I know youre, not giving guidance, but still it sounds like a lot of moving parts and just is there a sort of an aggregate number that we can think about impact this year and next that would help us think about this transition phase that you are going through.
Speaker Change: It's hard to give you a precise answer to that because if we dispose of an asset faster that makes that effect.
Speaker Change: Leasing.
Speaker Change: Our current leasing plan impacts us.
Speaker Change: I mean, the best way I can describe it is I think.
Speaker Change: Our same store NOI is going to be roughly flat or slightly up maybe slightly down but generally.
Speaker Change: This flat area for the next couple of years, and then it's going to start to dramatically start to increase.
Speaker Change: And as we're increasing will be shedding.
Speaker Change: The residual remaining Eddie assets that loan gift bags.
Speaker Change: We will be monetizing a lot of that $500 million out parcel of land that would be used to pay down debt and then you sort of square up on <unk>.
Speaker Change: Into that zone, we've talked about.
Speaker Change: The mid sixes low sixes.
Speaker Change: <unk> dollars 80, plus or minus.
Speaker Change: And then Jack is there like percent of same store NOI as we think about it what percent is that of the total NOI right now is that like 80% of total NOI like because obviously you got some assets that are going to be moving on.
Speaker Change: Oh.
Speaker Change: Sure.
Speaker Change: I'm not sure.
Speaker Change: I'm not sure as to where you want to look at us to be honest with you.
Speaker Change: There is kind of too many moving pieces going through July I will try to precisely model it and that's why I candidly.
Speaker Change: We're not really focused on it I can say I'm not focused on it same store NOI over the next 12 months to 24 months, because if we accomplish what we're going to accomplish the uplift is more significant and is something we will try to present when we put out these materials that we've talked about this bridge and I think that there'll be more helpful to see what.
We're shooting for.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Thanks.
Speaker Change: And the next question will come from Hendel, St Juste with Mizuho. Your line is now open.
Speaker Change: Okay.
Speaker Change: Hey, there.
Speaker Change: So I wanted to follow up on some earlier comments.
Speaker Change: You're talking a lot about the strong leasing demand.
Speaker Change: I guess I'm curious, how that's showing up in your leasing negotiations are you getting more term better bumps and I'm also curious what you might be hearing from your tenants in regards to the potential impact of tariffs as you're having these leasing conversations. Thanks.
Speaker Change: So I'll take the first question first.
Speaker Change: Leasing demand and I talked about this a little bit earlier I think we've got a great tailwind right now we've got a very healthy retailer environment.
Speaker Change: And we are a must have must have portfolio.
Speaker Change: Even with everything Thats going on in the World.
Speaker Change: If you think about it the majority of tenants that releasing two are very sophisticated national retailers that can see past six months or past 12 months theyre signing leases for seven to 10 years.
Speaker Change: I would say.
Speaker Change: As our occupancy continues to increase.
Speaker Change: That will naturally by definition.
Speaker Change: Our revenue structure.
Speaker Change: So I would say the lease terms are similar to where they've always been but I think.
Cost of occupancy cost of occupancy potential will certainly increase as occupancy increases.
Speaker Change: Yes, I was going to say one thing too is on renewals I think in the past renewals tend to be much shorter one to two year renewals because there wasn't a clear direction on what needed to happen in that mall, because they didn't want to suffer the downtime so sort of kick the can now on renewals were 10.
Speaker Change: Does that.
Speaker Change: We'll be one of the centers, we're going toward longer renewals, which is a different approach.
Speaker Change: I would also say like if you look at the some of the retailers that.
Speaker Change: Our announcing earnings and giving guidance for 'twenty five.
Speaker Change: I mean, it's not heroic guidance, but it's also also not tariff based.
Speaker Change: <unk> so.
Speaker Change: I'm sure people will think about and talk about it but it's not sort of what we've seen so far not embedded and retailers 2025.
Speaker Change: Earnings and guidance estimates.
Speaker Change: And so.
Speaker Change: A lot of our retailers have already come up with strategies to deal with China and some of the other affected areas.
Speaker Change: If you're dealing with lumber coming from Canada, or you're dealing with fruit coming from Mexico, obviously, those type of retailers that rely on that again much more sensitive to any kind of direct tariff impact.
Speaker Change: That's helpful. I appreciate that.
Speaker Change: And maybe some commentary some color some inside into the tenant watch list here.
Speaker Change: And maybe what level of bad debt reserves, you might be using in your in your budgeting.
Speaker Change: So.
Speaker Change: Our watch list right now and I'll, let Dan comment after I do but our watch list is significantly lower than it's ever been I mean, if you compare our watch list to 2019, we have about 60% fewer tenants on it and 45% less square footage, which makes a lot of sense one we.
Speaker Change: A very healthy retailer environment right now, but two we've talked a ton about this.
Speaker Change: All of the failing retailers they are struggling retailers pre COVID-19 data make it out of Covid, so that diminished our watch list exponentially.
Speaker Change: And did you want to take the financial.
Speaker Change: Yes, it's about.
75 to 100 bps.
Speaker Change: Got it got it thank you guys.
Speaker Change: Okay.
Speaker Change: That is all the time that we have for questions I would now like to turn the call back over to Jack <unk> for closing remarks.
Speaker Change: Thank you.
Speaker Change: We're pleased to report our progress on the many strategic initiatives within our path forward plan and we look forward to seeing many.
Speaker Change: Many of you at the upcoming Citi Conference in Florida. So thank you very much for your time this afternoon.
Speaker Change: This does conclude today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.