Conference. I'm Craig Mailman, Citi Research, and we're pleased to have with us Macerich and CEO Jack Hsieh. This session is for Citi clients only, and disclosures have been made available at the Corporate Access Desk. To ask a question, you can raise your hand or go to liveqa.com and enter code GPC25 to submit questions. Jack, I'm going to turn it over to you to introduce your company and team, provide any opening remarks, tell the audience the top reasons investors should buy your stock today, and then we'll get into Q&A.
Sounds great. Thank you. First, let me introduce my team. Dan Swanstrom to my left is the CFO of our company. To my right is Brad Miller, who's an SVP that runs our portfolio management effort. And to the far left is Samantha Greening, who is involved in our IR effort. Thank you for the opportunity to talk with you all. If you don't know me by background, I became the President and CEO. I was hired last March by the board, and I started on the 1st of 2024. I spent 30 years on Wall Street focused on real estate investment banking, a good portion of my career completing over $300 billion of M&A and equity-raising transactions across a multitude of property sectors, including regional malls.
I became CEO of Spirit Realty on May 10, 2017, where we restructured, grew, and sold the company to Realty Income at the beginning of 2024, which generated a 61% total shareholder return for our Spirit shareholders, outpacing our peer companies by three to four times during that same period. So now let's talk about Macerich. Macerich celebrated its 30th anniversary on the NYSE back in March 2024. Macerich owns and operates preeminent enclosed super-regional malls and open-air lifestyle centers in California, Oregon, Arizona, Illinois, New Jersey, New York, Colorado, and Virginia. Many of our properties are recognized as some of the top properties in America, including Tysons Corner, Scottsdale Fashion Square, and Kierland Commons. Today, we own over 43 million sq ft of real estate consisting of 40 regional retail centers. Our sales per sq ft at the end of Q4 2024 was $837.
Our leased occupancy rate is 94.1%, and customer traffic at our centers is back to pre-COVID levels. So what did I do in my first 90 days at Macerich? When I first joined, I toured most of our key properties, the majority of them, and visited our regional offices, spent time with the teams, particularly leasing, development, asset management, property management, and operations. I asked a ton of questions. I was trying to assess our strengths, weaknesses, threats, and opportunities. During that period, we discussed and developed a property ranking system. We came up with a mission statement and new corporate values. Our Macerich mission statement is to own and operate thriving retail centers that serve our communities and generate shareholder returns, customer traffic, and work with our customers. Our corporate values are excellence, empowerment, optimism, relationships, and fun.
Early in that time, in that first 90 days, I formed a process improvement committee to focus on improving our communication within our leasing teams and the rest of the organization. This was to provide customer data on leased conversations so that asset management, development, tenant coordination, and legal could all spend time and understand information off this platform. This platform is in place, and it's going to save 15,000 person-hours at Macerich annually. At the time, I learned that in that first 90 days, Macerich only focused on annual budgeting as a way to run the business, and there were three major forecasting events that happened within the year. We really needed a multi-year ability to analyze our business, so we quickly created a top-down five-year corporate model that helped enable us to design our deleveraging plan.
We refined and launched our initial path forward plan in July of 2024, where our leverage was around nine times debt to EBITDA. Today, we're slightly under eight times debt to EBITDA, and we're moving towards the low to mid six times range at $1.80 an FFO per share by 2028. And I'll remind everyone our range is $1.65-$1.95 per share. After one year on the job, we're operationally firing. Our leasing dashboard tools are fully integrated, and our five-year Argus models are complete for each asset, all rolling up into our five-year corporate model. I have confidence and belief in the ability for us to achieve our 2028 leverage and earnings targets that we laid out. Macerich has great people and excellent competency in our leasing, development, asset management, property management, and operations teams.
I recently restructured and realigned these business units into four key groups, resulting in four direct reports to me. All permanent specialty and anchor leasing teams have been merged under one leader. Our asset management team went from a 145-person team to 30 people. We removed property operations and corporate marketing out of that group into another area line of business. The asset management team of 30 are the keepers and architects of our five-year Argus models and our tasks to drive value through leasing goals, asset sales, development, and capital allocation decisions at our properties. Re-aligning these units, shifting resources, coupled with our tech tools and systems, are driving new leasing momentum and results. If you're new to the Macerich story, please review the July 2024 Path Forward deck. We plan to provide another update between our first quarter 2025 earnings call and the annual Nareit convention in June.
We're also going to provide more detail and metrics around our go-forward portfolio, along with more detailed leasing disclosure in our Q1 2025 supplemental, outlining the mix of new, renewal, rent, term, and TA cost. In terms of the plan we laid out, it involves $2 billion of asset sales and loan give-backs, raising $500 million of common equity, and incremental leasing, which will result in our 2028 leverage and earnings targets. We're well ahead of pace on the $2 billion asset sales. We completed the $500 million equity raise and were 40% complete on our new tenant leasing goals. Our primary remaining tasks are, one, to complete the $500 million of outparcel property sales, of which $100 million-$150 million will be complete by this year, and the majority of the remainder in 2026.
And two, the leasing objectives I laid out on our call in 2025 and 2026 of approximately $4 million per sqr ft annually. The majority of the space are renewals, and we're 85% complete for 2025, and we're now focused on 2026. There is a very important group of new tenant spaces we need to lease. We're currently 40% complete for that group and expect to be 50% complete by mid-year and 65%-70% by year-end. The balance will be completed in 2026. We expect to see our go-forward portfolio generate same-store NOI in the second half of 2026 as new tenant spaces are cleared, demised, rebuilt, and rent commencement days initiated. Our current Signed Not Open lease portfolio pipeline of $66 million will grow to $130 million based upon our leasing completion rate. Our current occupancy is 94.1% system-wide. In our non-Eddie portfolio, our inline permanent occupancy rate is 84%.
We expect to increase this to 89% by 2028. Total occupancy will be in the mid-90% range. Increasing inline permanent occupancy not only generates substantial incremental rental revenue, but our new tenants will pay fixed CAM and taxes, helping us reduce current operating expense leakage from having too much temporary tenants in our portfolio. Another exciting opportunity for us as part of our plan will be to deliver tenants into 20 current vacant anchor stores within our go-forward portfolio, which will increase foot traffic and overall productivity in our centers. As a point of reference, in the last four years, we only backfilled 12 vacant anchor stores. So we're moving very quickly towards contractually putting the building blocks together to deliver what we said we would do for 2028. It's a very exciting time for all of us.
Craig, you asked me at the beginning, "Why buy Macerich stock?" And I'm glad you asked that question. This morning, I bought 56,000 shares. I believe in the story. Obviously, I've been buying shares since I started the company. But more importantly, I think we've laid out a great plan last July that will address our leverage and portfolio composition. We're well ahead of schedule on the reduction of debt on our balance sheet through the $2 billion asset sale debt give-back plan, and on the crucial strategy of leasing or moving our permanent inline physical occupancy from 84%-89%. Our momentum and run rate will get us to 65%-70% by year-end, driving our SNO pipeline to over $100 million. We're going to end up here with a thriving retail portfolio with solid tenancy that will drive traffic, sales, rental revenue, and earnings growth. With that, I'll pause for questions.
That was a great overview. Does anyone in the room have any follow-ups to that to start off with? All right. Well, I'll jump right in. I guess it was amazing to me to hear the lack of asset management discipline that was at the company before you showed up in a one-year rolling capital plan. As you guys have rolled this out, really started to kind of model and go through, I know that you had bucketed the portfolio into your three classifications. As you've gotten deeper into this and gotten more modeling done, has there been any changes in how you guys are looking at specific assets in the portfolio in any of those buckets about how much capital you may need to spend? I know you're going to give an update on the Path Forward plan. Any preview of that, feel free to do it now.
But I just want to, I'm just kind of curious as to what has come out of this process already that maybe you weren't expecting?
I would say generally the ability to have our five-year fully vetted Argus models, which we actually initiated in the summer of last year. It took literally six months to complete in terms of getting full buy-in from asset management, leasing, ranking each space, market rent, and then having that drive through Argus and rolling up into our corporate model. I think the best thing I can say is we have a really minute-to-minute clarity on capital allocation relative to strategy and tenancy and how it affects our balance sheet and earnings on a go-forward basis. I really can't comment on why things were done in the past the way they were done, but all I can do is say, based on the way things were done, showed up with 94% system-wide occupancy, decent same-store sales, actually.
If you look at same-store NOI over the last couple of years, it's been around 2% generally, but there's a big opportunity to kind of close the gap on the inline, and that takes filling anchors, leasing up inline space, closing down some of the expense leakage that's occurring within our portfolio. To answer your question on the rankings, our rankings continue to evolve, and I think where it's been interesting is maybe properties that, not a lot of them, but we're looking at properties differently as it relates to, are we getting the right return for our capital going forward for what this property needs? Are there better uses for our capital, and having an ability to analyze with inline tenant spaces rolling over a five-year basis, we may have some tweaks on the bottom steady Eddie portion of our portfolio, but I'd say generally the portfolio is intact.
The one piece that I didn't do a very good job on our earnings call of following through, I made a comment about our Same-Store NOI, and the comment was related to it's going to be kind of flat, slightly up, down, sideways for the next couple of years. I was making reference to the entire portfolio and one thing that I need to make very clear is our Eddie portfolio, especially the ones that are on the give-back program, are not having any direct capital contribution from Macerich. Actually, the leasing of those properties is going to be outsourced to a third party later this year. We're directing all our energy towards the new leasing initiatives on the go-forward portfolio. The Same-Store NOI for some of those assets in the Eddie portfolio will see year-over-year high single-digit declines.
Now, we know these are leaving, but when I made the reference, what I didn't follow through was the core portfolio going forward will obviously start to see comp same-store NOI growth in the second half of 2026 as we move through Express and all that capital is lapping through into the go-forward portfolio. So, apologize for not making that clarification.
If you think about it, right, the Fortress and the steady Eddies, if you pull out the negative on the Eddie, kind of where do those two buckets kind of trend? As you look out, what could the power of the portfolio produce from a same-store basis longer term as you guys fix the leakage that you may have, improve NPVs on leasing, right, all the initiatives that you're going through?
I mean, I'd love to use as an example Kierland Commons. If any of you have visited Kierland Commons, we virtually have no space available in that center. There's excess demand, and our ability to actually drive rate there if we want to make space available is quite compelling, so obviously, getting your inline fully occupied with quality permanent tenancy is critical. I believe that once we're able to accomplish what we're talking about here, we will, in three years, have all of these tenants in place on the inline. The majority of our anchor locations will be leased. We're selling them to tenants. In some cases, we're probably providing TA, but they'll be retail users in those locations, and at that point, I think that our current pre-COVID traffic levels will increase.
If we're increasing productivity, we're driving more sales for our tenants. Their occupancy costs enable them to obviously pay more for us. And then we're also closing down some of the operating expense leakage, so same-store sales, I think, will look very, very, you'll start to see the growth in 2026, the second half. You'll see very significant growth in 2027 and 2028, obviously, as we lap into the final aspects of our plan.
You guys have about $66 million of SNO today. You said that's going to go north of $100 million.
By year-end, yeah.
By year-end. And I would assume a portion of that $60 million may predate your arrival, possibly. And so I'm just kind of curious if you guys have gone back and looked at the NPVs of the lease deals that were done and may hit versus kind of what you're able to do now with a better five-year plan and Argus runs and probably more appropriate capital for each asset, kind of how that NPV has trended on the new lease deals.
I mean, I would say first, as a general matter, for tenants under 10,000 sq ft, for some of the better quality tenants, the amount of TA that we're providing on a new 10-year deal is about one year's rent, just as a rule of thumb. So if you think about the net effective rent, it's 90% of the starting rent. But then also remember, we're picking up CAM and tax, which we're not able to collect on our temporary tenants. So I think that's a pretty, it's similar to Tanger's experience, and I'm sure others that compete in our business. Really, the kind of complexity is around the anchors, right? So we own a number of Seritage Sears locations. We know a number of Nordstrom locations, Lord & Taylor locations. And the calculus that we go into is, should we sell the box to the retailer?
Should we give the box to the retailer, depending on the center and what they're doing to the property? Should we build a store and generate anywhere from an 8%-12% return yield on cost or rent on cost? So the calculus is based on where the center is, our capital availability. And so I think what I did when I started last year, I saw a lot of vacant anchors that were sort of being held for densification or redevelopment over a five-year period. And if you listen to our mission statement, that's not what we do right now. That's not really what our focus is.
So it was pretty much get those anchors functional to the best of our ability, Dick's House of Sport and users like that, or multiple retail users in one box, because that's enabling us to kind of lease out those wings concurrently. And so a lot of energy was put into driving that effort beginning when I got to the company. And by the way, merging department store leasing into permanent leasing was one of the ways to create that what I call stalemate that was occurring probably prior to when I got here.
We got some questions coming in. This is more of an update on the strategic path forward. How many properties do you expect to hand back the keys to over the next few years? And is there a way to complete these sooner than presently expected?
Yeah. So in the plan, as outlined on our call, we have over the next two years, we've identified internally three to four assets that are likely give-back candidates, potentially a sale if they could clear above the debt. And the timeline on that, as we sit here today, is now through the end of 2026 as the maturity dates come upon us. These things do take time. We defaulted on Santa Monica Place last April, and we're still kind of working through that process to get off title. But that's the plan in terms of the three to four assets and $350 million-$400 million of totality in terms of the give-backs.
Can you just walk through the process for people on what has to happen before you can even hand back an asset and sort of the timeline of dealing with the lender and all of that?
I guess I could take that. Santa Monica Place was a little bit unique. That was kind of one of my first actions when I got to the company. Think about our property rankings. That's one of our highest per square foot, but there are a lot of other considerations as it relates to how we look at retail real estate going forward. And that ended up being an Eddie out of the gate. And that ended up, "Hey, we're defaulting on this loan," which obviously surprised a lot of people at the company and at the board, but it's the right thing to do. When we approached the lender, the lender basically said, "Hey, look, why don't you guys, we'll give you an extension. Kick the can. Why don't you do that?" Now, that's not really for us.
They said, "Well, would you like to buy the asset?" They said, "We're not even going to give you a price because we don't think it makes sense for you." So at this point, the servicer has been working through their process. We're still fulfilling a couple of requirements on build-out for. We delivered Din Tai Fung. We're building out Club Studio and Arte. And they're actually getting another party to actually manage the center, not us anymore. So it's just sort of time when we come off title, which I effectively will think later this year. But unfortunately, I think it's more endemic of sort of CMBS. Time is really, in my opinion, not that mall's friend right now, but you've got people that get fees and sort of want to take time and change maybe managers and do different things.
Honestly, like collateral value is going down. That's not for us. We've made that decision, and we're moving through. That's kind of the process on CMBS, at least, as it relates to what we've experienced.
Another question that came through. With the Westfield assets no longer on the market, how much more of a scarcity value does that add to Macerich's core portfolio?
Sorry, Craig. I didn't say that again.
With Westfield assets no longer on the market, how much more of a scarcity value does that add to Macerich's core portfolio?
Look, I think our portfolio is extremely valuable. There's Legacy West, which is a really interesting retail center in Plano, Texas, that is under contract that we think at a pretty aggressive cap rate and price. Scottsdale Quarter is an auction that's happening right across the street from Kierland Commons. It's got a lot more office space than we have at Kierland. We've got a lot better, in my opinion, retail. When that property clears and people see the price and cap rate, I think it will reflect really well on at least our open-air centers, which are Kierland, SanTan, Broadway Plaza, and The Village at Corte Madera. As it relates to A-class malls, we bought out our joint venture interest with GIC, obviously on Los Cerritos Center and Washington Square. I'm not sure you can really read too much into that cap rate.
That was buying out a minority partner, and it wasn't a fully auctioned process. I'm not sure there's really great clarity on what I call Fortress malls being sold today. What I can tell you is Steady Eddie pluses and our top Steady Eddies, the differential in cap rate, in my opinion today, is still really wide and hasn't closed yet. When we sold The Oaks, The Oaks was actually one of our top-tier properties ranked on the bottom. We ended up selling it. I didn't think that property was refinanceable in its current situation. The buyer was able to get new debt on the property. We were able to pay off Pru at par, which is great, a few dollars for us.
But more importantly, like an asset like that that has a real story, it's going to go backwards in NOI before it goes forward, needs a multi-density non-retail solution to kind of generate the IRR. It's really compelling that that got financing, and there are equity sources willing to put meaningful equity behind it. It'll be interesting to see that the benchmark cap rates for those kinds of properties, kind of what I call it, are probably 10%-12% going in right now. So I think as time moves on, less supply, that might inure and tighten, which would reflect well on our portfolio.
And then we have a clarification question coming in. Is the $100 million of SNO by year-end accounting for the portion of the $66 million that is expected to start in 2025? And just confirming, is that roughly 15% of core portfolio rents?
The $100 million is incremental to the, so $66 million is the SNO as of the beginning of the year. It would be $66 million+ to get to the $100 million+ in terms of how the leasing is going right now.
And that's by year-end, and the total is $130 million, the opportunity out there.
So you're essentially assuming 36 million commences in 2025?
Yeah.
Okay. Any questions from the audience?
Yeah. Maybe you can talk about just the sales that you plan to do, just kind of the progress and the interest.
Yeah, sure. So to Jack's opening point, we had identified $2 billion of total sales. To date, we've completed $800 million of those sales, and that includes the $300 million of debt on Santa Monica Place to be given back. To my earlier comment, there's now three to four give-backs or sales that we've identified, $350 million-$400 million, to get you close to $1.2 billion, which would be about 60% of that. The balance is one mall asset currently that has $325 million of debt on it. And then the rest is what the team's focused on really right now is the $500 million of outparcels, freestanding retail, and land. And we've identified $100 million-$150 million of the $500 million that we expect to complete in 2025, and the balance would be in 2026.
So that would bring the full $2 billion sort of done, complete, sold by the end of next year.
Given the give-backs, have you seen any impact on your cost of financing with lenders? And would you consider keeping CMBS in the mix of your financing sources, given your comments?
Yeah, we haven't seen any impact. In fact, in the fourth quarter, we closed on a $525 million new CMBS financing at Queens Center at a very attractive all-in rate of 5.37%. So we see those CMBS markets continuing to be open and constructive and strong. And so that's sort of the plan as we sit here today. As we achieve our objectives and goals with respect to the broader plan and we get down to closer to low to mid-six times debt to EBITDA, I think that gives us some optionality to look at more of a diversified suite of potential debt and financing options.
And then Jack, apologies. One more confirmation on the SNO pipeline. Someone wants to know, can you confirm that only the core portfolio and excludes any Eddie properties?
Correct.
Correct.
Okay. Jack, you had mentioned Legacy West is on the market, but under contract with someone else.
Scottsdale Quarter on the market.
Yeah, but you also Scottsdale Quarter, right, across the street from Kierland Commons. I think after Nareit, when we did the property tour with you guys, I had asked, is there any world where you could get involved with Scottsdale Quarter and maybe JV Kierland? I just want to circle back. Could that ever be in the cards if it's a partner that's willing to do it where you would be willing to kind of joint venture Kierland to get access and put those two properties together?
I would say theoretically and hypothetically, having one group manage those two properties is really powerful because that's a lot of critical retail in an area where a lot of retailers want to be. I would say that we're not in the process, but I've talked to our partner and we're like, "Hey, if the other partner would let us run it, we would contribute our equity. They would contribute their equity. And we'll see who ends up winning this thing, and maybe we'll have that conversation." At this point, we're not going to be able to be putting capital in at that kind of yield. That doesn't make sense. But we can use the embedded equity in Kierland to use that. And we believe that those two assets under one operating structure can drive a ton of incremental NOI for both properties, actually.
If the cost of equity were to go back above where you were issuing equity already, so call it north of $19-$20, do you get to a cost of equity or a blended cost of capital that makes sense to be acquisitive at some point once you funded your CapEx? What's the longer-term plan for the portfolio to grow? Do you have to go outside of traditional enclosed malls, go more lifestyle centers to complement some of the stuff that you guys have in, say, Phoenix or elsewhere?
I would say the blue sky opportunity for us is we're going to be, I've laid out kind of what my leasing goals are. By the end of this year, I'm going to look like we're largely complete, and basically, I will lay out contractual schedules that show you how this works. What we will be focused on is more opportunity to grow our portfolio potentially in Sunbelt regions. I think we have too much on the coast, so obviously, I've had a lot of experience in my prior company with assets in that region under the right circumstances and under the right cost of capital, so to me, that would be a really exciting opportunity for us and our shareholders if we have a built-in, fully occupied, in-line, fully majority occupied anchors, just great retail centers.
And then you can really drive some rate and then try to find opportunities where we can apply the same magic to some existing assets that are out there. There are assets that were managed out of COVID, not dissimilar to the way our company did. I'm not saying that the big companies did it this way, but if you were looking at valuations going down and you were looking as an institutional owner of an asset, putting more capital in, a lot of times those people didn't do that. And so our assessment is going to be, can we turn the property? Is it in the right trade area? Is the anchor solution manageable in time? Are we able to, if certain tenancy left, can we bring them back? I mean, we're going to know better than anyone, right? As well as anyone.
And if you look at who's buying centers today, it's not Simon, GGP, and Westfield or us. It's all private operators that are very good that are representing private institutional opportunistic capital right now. And that capital is actually growing pretty significantly. We're seeing it on our sales. So I think that would be a really exciting opportunity for us once we complete what's at hand right now.
And just our rapid-fire questions. What do you think same-store sales for the retail group overall could be in 2026?
I still think that the demand is there for our other peers that are more fully occupied. So I would assume that they're still going to generate healthy, comparable returns to where they are now.
And then more or less of the same amount of public retail companies in a year?
I still say about the same.
Great. Thank you so much.