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spk30: Today, ladies and gentlemen, thank you for standing by. Welcome to the Mesa Ridge First Quarter 2023 Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automatic message advising your hand is raised. Please note that today's conference may be recorded. I will now hand the conference over to your speaker host, Samantha Greening, Director of Investor Relations. Please go ahead.
spk26: Thank you for joining us on our first quarter 2023 earnings call. During the course of this call, we'll be making certain statements that may be deemed forward-looking within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995, including statements regarding projections, plans, or future expectations. Actual results may differ materially due to the variety of risks and uncertainties set forth in today's press release and our SEC filings, including the adverse impact of the novel coronavirus in the U.S. regional and global economies, and the financial condition and results of operations of the company and its tenants. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the earnings release and supplemental filed on Form 8K with the SEC, which are posted on the investor section of the company's website at macerich.com. Joining us today are Tom O'Hearn, Chief Executive Officer, Scott Kingsmore, Senior Executive Vice President and Chief Financial Officer, and Doug Healy, Senior Executive Vice President of Leasing. And with that, I turn the call over to Tom.
spk05: Thank you, Samantha. We're pleased to report another strong quarter with our operating results continuing to trend very positively. We again saw robust leasing demand with our first quarter volumes leased being better than the first quarter of last year. And just to remind you, leasing in 2022 was as good as it has been in a decade. Our portfolio average sales per foot for tenants under 10,000 square feet was $866 per foot, a 3% increase over a year ago. These strong results were achieved even in the very challenging macroeconomic climate we are facing today, including rising interest rates, the threat of a recession, and the volatile banking and political environments. Some of the other first quarter results included occupancy at 92.2%. That's a 90 basis point improvement from March of 22. And although a 40 basis point sequential quarter decline over year end, that is very normal. Over the past 15 years, with only one or two exceptions, occupancy has ticked down slightly from year end to the following March 31st. The range of decline is typically 40 to 100 basis points. We continue to see strong leasing volumes, which are in excess of last year's levels. For the quarter, we executed 256 leases for nearly a million square feet. Doug will provide more details in a few moments. Leasing spreads for the trailing 12 months ended March 31st were up 6.6%. Average rent per square foot at quarter end was nearly $64 at $63.98. That's a 2.1% increase over March of 22. We saw a very solid same-center NOI growth of 4.8% in the first quarter, and that compared to the first quarter of 22, which was a very strong quarter. Consistent with our strategy to redeploy capital into our top assets and to thin out our non-core assets, yesterday we sold the marketplace at Flagstaff for $23.5 million. This is a power center in a non-core market for us. Since year end, we've had a significant amount of financing activity, which Scott will comment on shortly. The debt market is still challenging, but our finance team is doing a great job, and we're getting our deals done. Progress continues at our mixed-use diversification and densification projects. Some examples include at Kierland Commons in the Phoenix market, we're moving forward with a 110-unit luxury apartment project. At Flatiron Crossing in Broomfield, Colorado, we're planning a 330-unit luxury multifamily project centered around 2.5 acres of public amenity space with 50,000 square feet of adjoining food, beverage, and entertainment. At Biltmore Fashion in Phoenix, we're advancing plans for a 250-unit luxury apartment complex which will be fully integrated into the heart of this open-air center. At our flagship town center, Tyson's Corner Center, we anticipate receiving approval of our zoning amendment later this year, which will pave the way for a future additional mixed-use development on the site of the former Lord & Taylor. There are also some recent announcements of great new additions to Santa Monica Place, including the Arte Museum, an immersive digital art destination which will occupy 48,000 square feet on the third level that had formerly been a theater box. We also signed a 10,000 square foot lease with Din Tai Fung Restaurant to take over the majority of that area that had been the food court, which is also on the third level of that center. As Doug will elaborate on shortly, we continue to be very pleased with the strength of the leasing environment. On the heels of a very strong leasing result in 2022, the first quarter of 23 was even better than a year ago. The leasing interest continues to come from a wide range of categories, including health and fitness, food and beverage, entertainment, sports, co-working, hotels, and multifamily projects at Kierlin, Flatiron, Tysons, and Billmore. Interest continues at levels we've never seen before. Bankruptcies continue to be at a record low. We continue to expect gains in occupancy throughout the year and net operating income as we progress through 2023. And now I'll turn it over to Scott to discuss in more detail the financial results for the quarter and significant financing activity. Thank you, Tom.
spk15: On to the highlights of the quarterly financial results. This morning, we posted strong core operating results for the first quarter. Same center NOI, as Tom just mentioned, increased 4.8% relative to the first quarter of 2022, excluding lease termination income. It's worth noting that this follows strong NOI growth, averaging 7.4% for the two-year period, 21 through 2022. FFO per share for the first quarter was 40 cents, which was generally in line with our expectations. The quarterly result was 10 cents less than FFO during the first quarter of 2022, which was 50 cents per share. Primary factors contributing to this quarterly FFO change are as follows. One, a $12 million increase in interest expense due to rising interest rates. This was consistent with our guidance and our expectations. Two, an $11 million decline in lease termination income due to a few larger lease termination agreements executed during the first quarter of last year in 2022. This was also expected. Three, a $7 million decline in land sale gains given a few larger land sale transactions in the Arizona region of our portfolio during the first quarter of 2022. Again, also expected. And then lastly, a $7 million relative decline in valuation adjustments pertaining to our retailer investments net of taxes. This negative impact from a non-core passive investment was a surprise within the quarter, and it was attributable to a downward valuation adjustment relating to a single retail company. Offsetting these factors were the following, an $8 million improvement in tenant recovery income due to leases converting from variable to fixed rent structures with full fixed CAM and tax recovery charges, And secondly, from favorable changes in estimates due to our – from 22 year-end recovery income accruals. And then lastly, roughly $4 million improvement in certain miscellaneous income, including increases in interest expense – excuse me, interest income, parking income, and various other sundry items and events. We are very pleased with the start of 2023 as reflected by these strong core operating results. At this time, as we disclosed this morning, we are maintaining our guidance for 2023 funds from operations, which is estimated in the range of $1.75 to $1.85 per share. Our 2023 outlook is anchored by strong operating cash flow generation, which is currently estimated at $305 million before payment of dividends. More details of the guidance assumptions are found on page 15 of the company's Form 8 supplement, which was filed earlier this morning. Now onto the balance sheet. We continue to make excellent progress on our financing pipeline, as Tom just indicated. On January 3rd, we closed a $370 million refinance to the previous $363 million of combined loans that formerly encumbered our campus at Green Acres. This five-year fixed-rate CMBS loan bears interest at 5.9% fixed and is full-term interest only. On March 3rd, We closed a $700 million refinance of Scottsdale Fashion Square. This five-year fixed rate CMBS loan bears interest at 6.21% and is full-term interest only. This refinance transaction yielded nearly $150 million of liquidity to Mace Rich in March. Last week, on April 25th, we closed a three-year extension of the existing $160 million loan on Deptford Mall. With this extension, we maintained the existing below-market 3.7% interest rate, and the joint venture repaid $10 million of the loan, which was roughly half of that at our share of $5 million. Collectively, including these three transactions I just mentioned, as well as two loan extensions on Washington Square and Santa Monica Place during the fourth quarter of last year, we've completed five major loan transactions totaling over $2 billion, or $1.4 billion at our company's share. At year end, we had a healthy $645 million of available liquidity, including available capacity on our credit facility, for which only $50 million is outstanding today. Debt service coverage is a healthy 2.6 times. Now I'll turn it over to Doug to discuss the leasing and operating environment. Thanks, Scott.
spk32: As discussed in our last call, 2022 was a record leasing year dating back to before the global financial crisis when viewed on the same center basis. And in fact, the first quarter of 2023 continued in the same fashion with extremely strong leasing volumes that actually surpassed 2022. First quarter sales were basically flat when compared to the first quarter of 2022. And this doesn't come as a big surprise given the massive gains we saw in 2021 and 2022 resulting in comps that are very difficult to sustain. This was especially evident in the luxury, home furnishings, and jewelry categories. Sales per square foot as of March 31st, 2023 were $866. That's up $23 when compared to the first quarter of 2022. Trailing 12-month leasing spreads remain positive at 6.6% as of March 31st, 2023. That's an increase of 260 basis points from the last quarter, and an increase of 530 basis points when compared to March 31st, 2022. In the first quarter, we opened 194,000 square feet of new stores. Notable openings in the first quarter include three stores with box lunch at Stonewood, Superstition Springs, and Victor Valley, Garage at Fresno Fashion Fair, Johnny Wads and Nike Live at Country Club Plaza, Old Navy at Tyson's Corner Center, Cotton On Kids at Scottsdale Fashion Square, and Love Sack at Los Cerritos. On March 3rd, we opened Lifetime Fitness at Scottsdale Fashion Square. This is our second opening with Lifetime Fitness, the first being at Biltmore Fashion Park in 2020. At Scottsdale, Lifetime is 37,000 square feet, spanning four levels topped by a rooftop beach club, bistro, and lounge, all with spectacular mountain views. The club has already sold out its membership and will average almost 1,000 guests a day. Lifetime is just another example of our ever-expanding health and wellness category and will be an outstanding amenity to Scottsdale Fashion Square. And we look forward to our next opening with Lifetime Fitness at Broadway Plaza later this year. In the digitally native and emerging brands category, we opened Intimissimi at Broadway Plaza, Lucid Motors, at the Village of Corte Madera, Madison Reed at Kierland Commons, and Rowan at Country Club Plaza. In the medical category, we open Northwell Health Physicians and Tribeca Pediatrics, both at Atlas Park. And lastly, in the experiential category, and as recently noted within a Mace Ridge press release, we open Dr. Seuss and Candidatopia at Dyson's Corner Center, World of Barbie at Santa Monica Place, and the Friends Experience at Lakewood. Now let's take a look at the new and renewal leases we signed in the first quarter. In the first quarter, we signed 256 leases for just about 950,000 square feet. This is 20% more leases and 59% more square footage than we signed in the first quarter of 2022. And keep in mind, 2022 is a record year for us in terms of leasing volumes. Notable new leases signed in the first quarter include Lululemon at Arrowhead Town Center in Los Cerritos. Boss at Scottsdale Fashion Square, Doc Martens at Tyson's Corner Center, Levi's and Swarovski at Los Cerritos, and H&M at Queens Center. We also signed seven leases with Cotton On, at Chandler Fashion Center, Deptford Mall, Freehold Raceway Mall, The Oaks, Tyson's Corner Center, and Vintage Fair, in all totaling about 21,000 square feet. Tom mentioned this, but I think it's worth reiterating. In the food and beverage category, we signed two very prestigious restaurants, Din Tai Fung at Santa Monica Place and El Fonte at Scottsdale Fashion Square. Founded in 1958 in Taiwan, Din Tai Fung operates 170 restaurants in 13 countries. Known worldwide for its steamed pork dumplings, Din Tai Fung will join the recently announced Arte Museum on the third level of Santa Monica Place, and we expect a combination of these two to add a great deal of traffic, energy, and excitement to that third level. This is our second deal with Din Tai Fung, the first being at Washington Square, which opened a huge fanfare and is incredibly successful. Elefante is a very hip restaurant bar that features southern Italian cuisine with a relaxed Mediterranean vibe. With units already open in New York City, Las Vegas, and Santa Monica, Elefante will open at Scottsdale Fashion Square, and will flank one side of what will be a newly created portico share in the Nordstrom Wing. This new entrance with elite value service and other amenities will provide direct access to more luxury, including the recently announced Hermes store. And stay tuned for another soon to be announced high end nationally known restaurant to compliment Elefante on the other side of the portico share. In the digitally native and emerging brands category, We signed leases with Charlie and Mango at Los Cerritos, Ever Eve at Broadway Plaza and the Village of Corte Madera, Goyana at Biltmore Fashion Park, Intimissimi at Santa Monica Place, and Maj and Sandro at Fashion Outlets of Chicago. We continue our effort in addressing the 2023 lease expirations as early in the year as possible. In doing so, in the first quarter, we signed over 175 renewal leases with almost 110 different brands, totaling approximately 680,000 square feet. So with that, we now have commitments on 67% of our 23 expiring square footage of space that is expected to renew and not close, with another 20% in the letter of intent stage. By comparison, at this time last year, we have 56% of our 2022 expiring square footage committed. In addition, we believe our renewal retention rate for 2023 lease expirations is tracking in the high 80% range. All of these are very strong metrics. And as I've stated before, given the noise and uncertainty that exists in the macroeconomic environment, I remain pleased with these metrics as we are basically taking a great deal of risk off of the table in 2023. Turning to our leasing pipeline. At the end of the first quarter, we had 158 signed leases for 2.3 million square feet of new stores which we expect to open in 2023, 2024, and early 2025. In addition to these signed leases, we're currently negotiating leases for new stores totaling nearly 390,000 square feet, which will also open in 2023, 2024, and early 2025. So in total, that's nearly 2.7 million square feet of store openings throughout the remainder of this year and beyond. And again, I want to emphasize these are new leases with retailers not yet open and not yet paying rent. And these numbers do not include renewals. And let me take just a moment to add some color to this pipeline by naming a few of the retailers and concepts coming soon to our centers later this year into 2024 and early 2025. Shields All Sports at Chandler Fashion Center, Target at Kings Plaza and Danbury Fair, Arte Museum and Din Tai Fung at Santa Monica Place, Caesars Republic Hotel, Hermes and Elefante at Scottsdale Fashion Square, Lifetime Fitness, Pinstripes and Original Joes at Broadway Plaza, Dillard's Flagship at South Plains Mall, Round One at Arrowhead Town Center and Danbury Fair, Primark at Green Acres, Tyson's Corner, and Queen Center. Zara and H&M at Queen Center. Lidl at Freehold Raceway Mall. Industrious at Kierland Commons. Kiln at Santan Village. Bonesaw Brewery at Freehold Raceway Mall and Deptford Mall. Ashley Furniture at King's Plaza. And a new and expanded flagship, Apple Store, at Tyson's Corner Center. which will open later this month on the 22nd anniversary of their first ever bricks and mortar store, which was also at Tyson's Corner Center. And this list just goes on and on and on. So the leasing pipeline of new store openings now accounts for almost $64 million of incremental rent in aggregate, which will be realized in 2023, 2024, and 2025. And this incremental rent will continue to grow as we continue to approve new deals and sign new leases. So to conclude, our leasing and operating metrics were very solid in the first quarter. Leasing volumes were extremely strong, outpacing the first quarter of 2022 in terms of number of leases signed, square footage, and total annual rent, thus maintaining a very strong pipeline of stores that will open this year, next year, and beyond. As expected, occupancy decreased a bit in the first quarter, but is up 90 basis points from a year ago. Leasing spreads came in at 6.6% and should continue to increase as we increase occupancy. Sales remained on par with the first quarter of 2022, with the first quarter of 2022 showing very strong comps to first quarter of 2021. Bankruptcies overall remain at their lowest levels since 2015, which is consistent with our significantly reduced tenant watch list. Therefore, we remain optimistic as we look at the remainder of this year, next year, and beyond. And now I'll turn it over to the operator to open up the call for Q&A.
spk30: Thank you, gentlemen. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, press star 1-1 again. In the consideration of time, we ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. And our first question, coming from the lineup, Derek Johnston with Deutsche Bank. Your line is open.
spk18: Hi, everybody. Thank you. You know, I never do this, but I have to actually say something because I've never really seen this meaningful of a dislocation between sound fundamentals and depressed valuations. So, You know, it's making sure we're not missing anything. You know, when you talk about leasing and very strong leasing in first quarter, you know, firstly, I was wondering if, and I'm sorry if I missed this, you know, what percentage of the leasing, you know, came from new tenants? And then the second part of this question is, are you seeing, you know, any slowdown whatsoever given the macro environment?
spk32: I can take the first one. It's Doug. We signed 256 leases in the first quarter. About 31% of those were new leases with new retailers, and about 69% were renewal leases. Then to your question about do we see any slowdown, I think the quick answer is no, we're not. I know it's counterintuitive given everything that's going on in the environment out there, We're not seeing it. Leases we have signed, the tenants are still opening stores. The leases we have negotiated or are negotiating, tenants are pulling back. And I think we have a really healthy retailer environment out there. If you think about pre-pandemic, there were a lot of retailers that were struggling, many failed, most failed during the pandemic. and those that came out of the pandemic came out very, very healthy. So I think it's a testament to the retailer environment, but I also think it's a testament to our portfolio of shopping centers. We do have must-have shopping centers that these tenants want to be in.
spk05: Eric, I'm a little bit more cautionary as it relates. It's a great environment. I'm incredibly glad that we've got a very strong pipeline because those are contractual deals that'll start to pay rent in 23, 24, and beyond, as Doug mentioned. Look, every time the Fed has behaved the way they're behaving now, bumping rates, if you go back to 1955, a recession has followed. And I have no reason to believe this is going to be an exception. We saw their action again yesterday. And so there is pressure. I do think we're probably likely headed for a recession, but we're in a very, very good position to weather that. And a lot of the bad things that typically happen in a recession, like retail failures, as Doug mentioned, that happened during COVID. So we've never really, frankly, had a recession that's followed a pandemic. And this one could be a little unique, and I think we're very, very well positioned for that. That being said, we open every leasing call we have. Every two weeks, we meet with the entire leasing team. It's the executive team, the leasing team, and we always challenge them. What weaknesses are you seeing? Are your retailers backing off on their open to buys? And in their view, there's no slowdown. There's no back off. And the deals just continue to flow in at a very strong pace.
spk18: Thanks, Tom. And that makes perfect sense. You know, all that said, I was encouraged to see, you know, Flagstaff disposed. Are you seeing any tightening in the private markets and, you know, potentially other interest in some of your non-core assets, you know, given the Fed's pause? Do you think volumes may be poised to pick up in the second half and thus an opportunity?
spk05: Well, Derek, as you know, we're an opportunistic seller. We sold 25 lower quality malls coming out of the financial crisis. Typically, that market gets better when there's more debt available. And obviously, as we heard from Scott and others, the capital market's tough right now. The debt markets are tough. And most of those buyers tend to come in and be leveraged buyers. So I think we'll get a deal done here and there in this environment, but when capital markets get back to a normal type range in capacity, I think we're going to see more transactions. But I don't really foresee that for 2023. Great.
spk18: And just one real quick last one for me, and I know I can look it up, but You know, when does Shields come online and Caesars Hotel? I think they're probably in the beginning of 24, if I'm mistaken, but, you know, any update would be helpful.
spk15: Afternoon, Derek Scott here. September 30, 2023 for Shields, so right around the corner. We're excited about that one, certainly. So Caesars Republic, we expect during the first quarter of 24.
spk18: Okay, guys, thanks. I'll... pass the mic, and that's it for me.
spk29: Thank you, Derek.
spk30: Thank you. And our next question, coming from the lineup, Greg McInnis from Scotiabank.
spk06: Hello. Thanks for taking the question. Hope you're all doing well. Given the strength of the asset, I guess we were a little surprised by the 6-2 rate on the Scottsdale loan, though, to be fair, we don't really have many other Class A-plus secured debt comps. So any color on that process and maybe the LTV would be appreciated. And can you also share some early thoughts on the Tyson's debt maturing in January and expectations on what you hope to achieve there?
spk15: Sure, Greg. Scott here. So, you know, Scottsdale, we got done at the beginning of March. And if you were tracking what was going on in the market, it was an extremely volatile time. We actually hit a a pretty fortunate window, given the fact that about two or three weeks later, the regional banking failure started to occur. So I have every reason to believe that if we hadn't hit that window, we probably would not have been able to close that deal. You know, so during, you know, relative to what we were talking about at Investor Day, We said our expected interest rate would be in the mid to high fives. Over the course of the next few months, credit conditions just became much more volatile. The Fed continued to pump rates, which caused credit market spreads to gap out. So that's really what contributed to the 6.2% interest rate. But I'll say that we hit a window. We certainly hit a window there. So I feel good about that. Tyson's Corner is very well positioned. There's a lot of great things going on. fantastic leasing activity. If I looked at the existing debt today, it has a very healthy debt yield, roughly about 13% plus. So I think there's an opportunity there to potentially even upsize it. It really depends on what the credit conditions are going to be like at that point in time. We will not be going to market on that until midsummer, though, so it's a little too early to speak to it.
spk06: Okay, I guess the follow-up here, so there's clearly a healthy level of leasing demand and growing occupancy. Are you getting any interest from institutional investors or developers where you might be able to partner or sell some larger parcels to get more aggressive on leverage management? I mean, is there a desire to go on the offensive there, or do you feel the best path forward is just growing EBITDA?
spk05: Well, on that, Greg, whenever we do a multifamily densification, for example, we always consider bringing in a partner, a multifamily developer partner, in which case we could do it a variety of ways, but one way would be to contribute our land to the venture. So it's not necessarily taking cash and paying down debt, but it will drive up EBITDA, which gets you to the same place. So those things we're considering. I think Scott's mentioned previously we've been fairly active in selling available land that we have in our portfolio, and we've even got some of that reflected in our guidance this year. So I think you'll see us do more of that rather than coming in and trying to sell off big blocks and parcels to others.
spk06: Okay, thanks. And just a final one for me. So we read a headline that Deptford was actually sent to special servicing, and given that you ultimately secured an extension there, could you just talk a little bit about that process and maybe your willingness to walk away from the asset level of demand that you're seeing for mall debt of that quality level? And then what you see is kind of your negotiating leverage, given what appears to be, I assume to be, sorry, limited demand by lenders to actually take over any malls.
spk15: Yeah, so the Deptford Mall happened to be a CMBS loan. As a matter of protocol, special servicers are the only ones that have the ability to approve an extension. So the mere transfer of a loan to special servicing is really just a function of process, and that's all. So it was a very amicable process by which we secured that extension, again, three years at a very favorable 3.7% interest rate. You know, and the process of securing an extension was really a function of what the credit markets were like at that point in time. You know, given not necessarily conditions in just the mall space, but just broader conditions within commercial real estate and a lot of the friction that's resulted from the regional banking failures, it just was not an opportune time to take that asset to market. That said, it's extremely well positioned, very healthy debt yields. And in any normal credit environment, you know, for instance, the first half of 2022, we would have been able to finance that asset with ease. So, you know, again, that was just a function of, you know, a seized up credit market. It was a very well-positioned asset and a very amicable process.
spk27: All right. Thanks, Scott.
spk15: Yep.
spk30: Thank you. And our next question coming from the lineup. Lizzie Deichen with Bank of America. You want to jump in?
spk25: Hi. Good afternoon. So, things for NOI growth accelerated in the quarter and operations looked pretty good. I'm just curious to hear where you see the most variability still that's causing you to maintain all your guidance or, you know, simply a function of it being still early in the year. Just wondering what the reserves are around specific items for the remainder of the year, I think.
spk15: Yes, sure. Yeah, we're very pleased with the way SAME Center NOI started the year, nearly 5% growth. It is very early in the year. I highlighted a couple things, not only the strong core growth, but also the offsetting decline in one of our retailer investments. And so we've got nine months ahead of us. We'll continue to assess guidance. It's very possible that our core growth will continue, and we'll be bumping that. We're just going to wait to see as the next few months unfold and come back to you, this time at the end of the second quarter. And in terms of reserves, just given the relatively healthy environment that we're seeing, We feel like we're very adequately reserved. Excuse me. As I look at, you know, the bankruptcy environment, we still expect extremely low levels relative to history, certainly relative to 2020 during COVID. You know, I went back and quantified the bankruptcies that are really getting a lot of press right now, those being Bed Bath & Beyond, Tuesday Morning, David's Bridal. Party City, I think there's over 1,800 stores that are primarily affecting open-air power centers and community centers. We have only two leases within those 1,800 that are subject to bankruptcy. So, again, a very healthy environment, not to say that there won't be any further bankruptcies or fallout, but I think we're very well reserved on that front.
spk25: That's helpful. Thanks. And this is just a little bit smaller to make note of, but just noticed management operating expenses seem to tick a bit higher this quarter. I'm just wondering if there's anything worth noting around that or just to provide more color.
spk15: Yeah, I don't think there's anything unusual. It was in line with our expectation. You know, it is a new year. So with any organization, you've got promotions and compensation adjustments. And so that's really what's in there. I don't think there's anything unusual in that number. But it was in line with our expectation.
spk24: Got it. Thank you. Thank you.
spk30: And our next question, coming from the line of Samara Connell with EverQuest Island is open.
spk20: Hey, Scott. Good morning. I guess a question on retailer sales growth this year. I mean, what are you guys budgeting for this year as we think about percentage rents?
spk15: Yeah, for percentage rents, we're assuming flat. You know, it's hard to say what the balance of the year will bring. And we felt a good conservative assumption was to assume flat. Of course, it's hard to predict what any given retailer will do. Oftentimes, percentage rents are going to be driven by a couple major factors. One, you know, luxury tenants are certainly going to drive a good portion of those percentage rents, so we'll see what the balance of the year unfolds there. There's a little bit of comparable pressure on the luxury sector that Doug outlined in his opening remarks, so that's not to say that they're not performing extremely well, but I think they're up against a difficult comp in the first half of the year. But we do expect, generally, percentage rents to continue to decline. In my opening remarks, I mentioned we're seeing a pickup in our tenant recoveries as our leases convert from more variable rent structures driven by pandemic-era negotiations to longer-term fixed-rate deals with fixed-cam and tax recoveries. So we will see percentage rent, variable rent, continue to decline primarily due to that.
spk20: Are you able to sort of quantify that and maybe ballpark in terms of how much of a decline in terms of percentage?
spk15: I'd say ballpark mid-teens relative to 2022 would be our current expectation.
spk20: Okay, got it. And then my next question is I guess more of a modeling question, but, you know, there was a loss on the JV income side. Was that primarily due to that valuation adjustment? I just want to make sure that we don't carry anything forward in the model here.
spk15: Yeah, two primary things. One was that valuation adjustment that I mentioned. Secondly, we also may be acquiring our partner share of certain assets within an existing joint venture. As a result, that triggered a shortened holding period and an impairment event. And we recognized a $50 million impairment charge. That is an unconsolidated JV, so that's showing up there as well. We can't speak to the specifics of that transaction or the partnership, but that was also a factor that you're seeing in the numbers.
spk20: Got it. And the last one for me on this, the power center that you sold, what was the cap rate on that? I'm sorry if I missed that.
spk05: Samir, we're subject to a confidentiality agreement, so we're not going to get into the cap rate discussion, but Scott mentioned in his guidance comments that he's going to keep guidance the same, so that transaction is effectively neutral. So if you consider what our use of proceeds would be on something like that, you can kind of get in the ballpark of what a cap rate might be.
spk19: Okay, got it. Thanks, everyone.
spk05: Thank you.
spk30: Thank you. And our next question coming from the line up, The floor is Ben Chitkum from Compass Point. The line is open.
spk08: Hey, guys. Thanks for taking my question. Obviously, encouraging leasing progress in terms of your leased occupancy increasing by 80 basis points. Doug, you talked a little bit about your S&O pipeline in terms of square footage and in terms of dollar amounts, but in terms of percentage Yeah, obviously that square footage is, you know, much bigger than the difference between the physical occupancy and the leased occupancy. If you could just, you know, you had previously mentioned about 200 basis points gap between physical and leased occupancy. Is that still about the same?
spk15: Hey, Flores. Scott here. It's actually a little bit higher. It's in the mid threes right now. And that's really a function of just a very robust pipeline. And openings typically don't occur until the latter half of the year. Actually, there's two kind of waves in our business. One is opening for summer. So we'll see probably a greater amount of openings in 2Q than we did in 1Q. And then we'll see a bunch obviously open up in preparation for holiday 2023. So we've seen the difference between physical and lease grow to roughly about 3.5% right now.
spk08: Thanks, Scott. That's certainly encouraging, and particularly that should make you feel good about growth later on this year. Maybe if you could also touch upon luxury as a percentage of your AMALs today and where you could see that growing. Obviously, when you had your investor day, we looked at Fashion Square. and saw that luxury there is gonna be over a quarter probably of the total GLA. Maybe if you can talk a little bit about the trends that you're seeing across the portfolio and how long that will take to play out as some of these luxury leases presumably take a longer time before they actually take occupancy.
spk05: Thanks Floris. Scottsdale Fashion Square is a very unique asset You know, it's very few places in the country, very few centers in the country are you going to be able to populate a center with that much luxury. So, you know, overall in our portfolio, it's, you know, probably along the lines of, you know, 5% depending on how you define the luxury category. And not every center is really going to have that. I mean, we have some great centers in our top 10 where you're not going to have any luxury. It's still going to be an incredibly successful center doing over, a thousand bucks a foot and all you have to do is go back to a few prior supplementals when we ranked all of our assets based on sales per foot and you'll see what I mean. So it was a strong category that came raging back after COVID. We saw some great results, particularly at Scottsdale Fashion Square, but that can't necessarily be extrapolated to every center because luxury is kind of very selective and it's not going to be in every property.
spk08: Fair enough, but would it be fair to assume that that percentage could potentially almost double over the next couple of years in your centers? It's still a relatively small amount, presumably, and maybe Queens doesn't have that, but some of your other malls like, obviously, Fashion Square and Washington Square presumably could.
spk05: Well, there are some others that are candidates that we're considering, but that's going to move pretty slowly. If we're at 5% today, I wouldn't expect to double it in the next five years. It's going to be a slower process than that. But they have a pretty big impact on a center, and they affect a lot of the tenants around them, so there's a lot of collateral benefits when you bring in even just a handful of luxury names.
spk08: Maybe last, billboards. I know that you had the massive billboard at Scottsdale up and running during the Super Bowl. How much more expansion could you see in that kind of income going forward?
spk05: That's a great question, Floris, because the demand for that type of billboard Space keeps growing and growing and growing, and we see it everywhere. I mean, we see it at Fashion District of Philadelphia. We see it at Santa Monica Place. Obviously, you saw it at Scottsdale. And it's going to continue to grow and I think be a strong incremental revenue for us. You know, there's a nominal amount of capital required to make that happen, but there's a fair amount of demand and it keeps growing. So I think that's going to continue to be a growing and more impactful part of our revenue stream as we go forward. go forward very near future.
spk12: Thanks, guys.
spk05: Thank you.
spk30: Thank you. And our next question coming from the line of Linda with Jeffrey. See if the line is open.
spk07: Yes, hi. Besides the timing of Scottsdale Fashion Square refinancing being fortuitous, any other additional color on how the regional banking issues might be impacting your refinancing plans for this year?
spk15: Yeah, Linda, there, you know, it's difficult to predict where they're going to be in six months from now. I mean, I look back to, you know, the pandemic and in the summer of 2021, there were no transactions getting done. By the time you got to the fall, you know, mall transactions were getting done. And over the course of the next 18 months leading through spring of 2022, I think there were about $8 to $9 billion of regional mall transactions. And so over a very short period of time, the market changed rapidly. And again, the pandemic was the source of the turmoil then. So it's really going to be driven by what continues to happen in the space. Obviously, there was a major regional banking failure just last weekend, and there's some other names that are in the news I'm not going to get into. But The longer that continues, the more skittishness there's going to be in primarily the CNBS markets. But, you know, frankly, it would have been in the balance sheet markets, too, as balance sheet lenders look at their own exposures. So it's hard to predict. But what we've seen is the markets are very elastic. And once conditions start to settle, there is a fair amount of liquidity. Once you start to get comfortable at what the right entry point is, you know, for a lender, for a creditor, I think we'll start to see the markets rebound. Certainly, we are coming, hopefully, knock on wood, towards the end of the Fed rate hiking cycle, and that will certainly function as a catalyst. It's just a matter of whether or not there's any other macroeconomic or macropolitical events that are going on at that point in time. Hard to predict.
spk07: Thanks for that context. And then, does your year-end leverage target remain 8.4 times, and would you expect to issue equity to get there?
spk15: Yeah, I think that's a good target, mid-8s, and I would say we could get to mid-8s with just organic EBITDA growth. We could improve upon that if we were to issue equity, but I don't think there's any appetite given that we're sitting on $650 million of liquidity and a significant amount of operating cash flow, really no need to raise equity at extremely discounted valuations. So, I think we can get to the mid-8s. just organically with the NOI growth and seeing our same center, excuse me, our sign but not open pipeline start to open.
spk30: Thank you. Thank you. And our next question coming from the line up, Alex Gopar from Piper Sandler. Your line is open.
spk10: Hey, good morning. Good morning out there. So two questions. I'm not sure if the $50 million impairment that you spoke about is the Philly Fashion District, but just a question on that project. The partnership loan that you guys have been funding to pay down the first mortgage, and I guess the term loan expires January 24th. Can you just go over the sort of capital structure on here? Because that partner loan accrues at 15%, which needs to be paid before you guys get your equity, but you're funding the partner loan. So it's sort of the same, you know, it's one pocket or the other, but just sort of curious how this project you're penciling it now versus when you originally underwrote it and, you know, where it stands given, uh, you know, that you've been having to pay down the first mortgage with your own capital.
spk05: Yeah. So effectively all the economics of that joint venture go to us, Alex, as a result of that. Um, and yeah, Look, when we underwrote that asset, it was in 2017, 2018. It was before COVID. And, you know, obviously a lot of urban areas, including Philadelphia, have been slow to recover in terms of the office population. And FDP has been no exception. So as we look at that, it's a project that we think is going to improve over time as we continue the lease up. As you know, we've announced that we're working with HBSC on a potential arena site in a third of that location, which is very promising and would help the entire community there, not just the retail but the entire area. And that's still something that's in process, and we're very optimistic. But obviously the returns today are not what we expected when we bought that asset in 2016, 2017.
spk10: but you feel comfortable that the loan and your equity investment that you've put in, that you'll recover.
spk05: Yes. And there's not a lot of, well, I'll turn it over to Scott in a second. There's not a big loan balance on there as we've paid that down. That just means there's more cashflow available to us after debt service. And we'd have every expectation to continue servicing that debt and funding the, the pay downs.
spk15: Yeah, no, that's, that's it, Tom. I mean, I think that the most recent pay down you saw, which was 25 to 26 million, that was simply an embedded, um, an extension, right. That was tied to some economic hurdles. So, you know, it's just an overall process of de-levering that asset and reducing our own leverage. Um, but, uh, that's, that's what you're seeing there.
spk10: Okay. And then the next question is you mentioned a tech investment that took a bad hit in your portfolio. Can you just give some color on what the total. you know, Mace Rich investment is in the tech venture and, you know, what the ultimate, you know, do you expect to ultimately harvest these or are these being done, you know, sort of operationally concurrent with the portfolio? Basically, are these investments to try and enhance property operations and they're sort of things that you're keeping or are you expecting at some point these are independent concepts that ultimately will be sold or acquired or what have you?
spk05: Alex, that investment is through a venture capital firm, Fifth Wall. And that was an investment we made about six or seven years ago. It funded periodically, but that's when the commitment was made. And it was primarily investments in digitally native brands. And it was really a strategic partnership between ourselves and Fifth Wall to give us access to a lot of the emerging and digitally native brands They did the underwriting, and it helped us really focus on the ones that they and we thought would be the most successful and would benefit Mace Ridge. So that's the origin of that investment. It's not really ongoing investments. It's something we committed to seven years ago. And we've had some winners that have gone public via SPAC where we've reduced our investment, and we've had others that haven't done as well, which is what you would expect from a venture capital investment. some winners and some that don't make it. And that's where I think the original investment was about $75 million, and we're probably – our investment on the books is probably down closer to $50 million today based on either write-downs we've taken or, on the other hand, buyouts we've gotten by virtue of some of these retailers going public.
spk10: So you don't have sort of a return, like an ROI or IRR or something that you can talk about, do you?
spk05: Nothing that we've disclosed publicly, Alex, but we're very happy with the investment. It's been great strategically and the return has been good as well.
spk09: Okay. Thank you very much, Tom. Thank you.
spk30: Thank you. And our next question coming from the line of Kevin Kim with Truist. Your line is open.
spk17: Thanks. I just wanted to turn to your guidance for a second. Can you update us on how much land sales are embedded in your 23 guidance? and also interest expense?
spk15: Sure. I think I answered that question in the fourth quarter call, and I think that the answer is pretty much the same right now. We had about $0.09 of FFO benefit from land sales, debt of tax, the tax provision, and that was in 2022. I think a few months ago I expected about 40 to 50 percent of that activity hitting FFO in 2023, and I think that's probably still in line, 40 to 50 percent of what we experienced in 2022. So that should help you out there. We recognized about a penny of benefit in the first quarter, so it was kind of level relative to the guidance I just gave you, and those are going to be lumpy as the year progresses. Interest, we have provided guidance. No reason to modify the guidance at this point. I think our interest guidance is sufficient. We'll continue to address that, as well as all the other line item guidance as we move forward.
spk17: Can you remind us what that interest expense guidance is?
spk15: It's on page 15, and I want to say it was roughly $322 million, but it's page 15. Okay. $320 million.
spk17: Okay. And just a second question, going back to your debt refinancings, Danbury Mall, Niagara, a couple near-term debt maturities, any kind of sense of what kind of proceeds or interest rates we should expect?
spk15: Yeah, I really don't want to speak in detail about any given transaction because we're actually having active conversations with lenders, so it's probably not appropriate. But, you know, I would say market rates today are or in the 6% realm, you know, and you can see what we did in Greenacres and Scottsdale. That'll give you an indication. So that's kind of what the market going rate is. You know, that's probably all I'm at liberty to talk about right now, just given those are active deals.
spk16: Okay. Thank you.
spk15: Sure.
spk30: Thank you. And our next question coming from the line of Michael Muller with JP Morgan. Your line is open.
spk13: Yeah, hi. Scott, I was wondering, can you give us some color on how you think recovery should be trending now that occupancies are higher? I think pre-COVID, it looks like they were in the low 90s. I think last year it was about 75%, and so far this year it's a little higher than that, maybe low 80s. But just any color there would be helpful.
spk15: Yeah, I think we're making pretty good progress, and, you know, some of that I've highlighted already in some of my commentary. You know, we saw it tick down during COVID because we were doing – In many cases, some of those renewals were locked in at rates that we frankly didn't want to lock in long term, nor did our tenants, given the uncertain environment. Some of those, not all of them, but some of them were variable rent structures with very little to no CAM, and oftentimes we were recovering our taxes. Fast forward to today, we're getting full triple net deals done. with fixed CAM with annual escalators and full tax pass-through. So our expectation is we're gonna start trending back to that low 90% recovery rate that you were just commenting on pre-COVID.
spk13: And is that something you could trend to in a few years, do you think?
spk15: No, I think that's something that we'll get to probably within the next year to 18 months or so.
spk13: Okay, okay. That's helpful. Thank you.
spk29: Sure.
spk30: Thank you. And our next question coming from the line of Ravi Bhatia with Missoula. Your line is open.
spk21: Hi there. Hope you guys are doing well. Just had one question here. We saw some data from PLACER that said that foot traffic at enclosed malls and regional malls goes down about 7-8% year-over-year in March. I was wondering If you guys have any stats on how foot traffic in your portfolio has trended in March and April.
spk05: So we look at it more on a quarterly basis or trailing 12 months and traffic has been fairly consistently at about 95% of pre COVID levels. So sales have recovered. Sales are well in excess of pre COVID levels. Traffic is a little bit lower, but The consumers coming and shopping with a purpose, probably having done some research online before they get to the town center. So sales is really the important trend. Traffic is less accurate, I would say. But at 95%, we're still pretty pleased and comfortable with that. We think as a result of some of these new non-traditional retail uses that Doug mentioned, like Shields Sporting Goods, for example, Arte Museum, Once some of those deals that are signed and in the pipeline but are not open yet, once they open, we think that they're going to be big traffic generators and that our numbers will easily surpass what we were seeing pre-COVID.
spk22: Got it. Got it. No, that makes sense. That's all for me. Thank you.
spk30: Thank you. And our next question coming from the lineup, Caitlin Burrows with Goldman Sachs. Your line is open.
spk28: Hi. Good morning, everybody. I was just wondering if we look at minimum rents, it seems like with occupancy up and rent per square foot is up, I know leasing spreads have all been positive, but so I'm surprised that minimum rents were down. So I was wondering if you could go through kind of what else we should be considering and what's driving that.
spk15: Well, I think if you look at minimum rent across both consolidated and unconsolidated assets, you'd see that they're actually up, Caitlin. Maybe look at some of the disclosures that are in the 8 supplemental, which kind of break down leasing revenue between its various components. You know, there's a lot of revenue line items that are sitting there in the leasing revenue. So, for instance, termination income is down significantly. You know, that's going to cause a decline, so I'm not sure if that's getting captured, you know, if your eyeball is kind of capturing that. But, in fact, minimum rent is actually up a few million dollars quarter over quarter. You know, I think when I was giving initial guidance about three months ago, I said, you You know, one of the factors is, you know, we are taking some pretty high rent space offline, primarily in some of our New York assets. And, you know, a lot of those benefits are sitting in our signed but not open pipeline in terms of the deals that will replace some of the spaces coming offline. So, you know, as you're taking high rent space off, you're going to see some friction there. But it is really just that. It's transitional vacancy and and we'll see the pickups later on as those spaces come online. So those are a few comments, but I can tell you that, you know, if you look at all of our assets at our share, minimum rent is actually increasing quarter over quarter.
spk28: Okay. Yeah. I mean, I was just thinking, because when we, occupancy, I mean, correct me where I might be not understanding it, but occupancy, I think, is up year over year and rents are up year over year. So if I look at It's page 14 in the supplement. It breaks out total leasing revenue between minimum rents, and it goes through consolidated and unconsolidated, and the company's total share, and now it's $188 million, and last year it was $194. So those are the numbers that I was looking at, but maybe it just sounds like it's timing.
spk15: Why don't we take it offline because maybe we can kind of compare notes and help you out with your answer there.
spk28: Okay, and then maybe just secondly, thinking of redevelopment projects, I know you guys have Santa Monica Place and the Scottsdale redevelopments. Do you guys have other small redevelopment projects going on now for anchor boxes or otherwise?
spk15: Yeah, we certainly do. I mean, they're not extremely material, so they don't end up in our pipeline, but we've got quite a few exciting openings coming. You know, for instance, Shields All Sports doesn't show up in our development pipeline. Some of the Round 1 deals, Lifetime Fitness deals don't show up in our pipeline, but those are effectively, you know, anchor positions for us. They just don't rise to the order of magnitude of the development costs being material enough to land on the pipeline. So all that is embedded in the $64 million that Doug spoke of earlier that will be coming online this year and into next year.
spk30: Okay, thanks.
spk15: Sure.
spk30: Thank you. And I will now turn the call back over to Mr. Tom O'Hearn for any closing remarks.
spk05: Thank you. Well, thank you for your time today, everyone. I appreciate it. We're pleased to report a strong start to the year. And we look forward to seeing many of you at NARIT next month. Again, thank you for joining us today.
spk30: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect. you Thank you. Thank you.
spk23: Thank you.
spk30: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Mesa Ridge First Quarter 2023 Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automatic message advising your hand is raised. Please note that today's conference may be recorded. I will now hand the conference over to your speaker host, Samantha Greening, Director of Investor Relations. Please go ahead.
spk26: Thank you for joining us on our first quarter 2023 earnings call. During the course of this call, we'll be making certain statements that may be deemed forward-looking within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995, including statements regarding projections, plans, or future expectations. Actual results may differ materially due to the variety of risks and uncertainties set forth in today's press release and our SEC filings, including the adverse impact of the novel coronavirus in the U.S., regional and global economies, and the financial condition and results of operations of the company and its tenants. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the earnings release and supplemental filed on Form 8K with the SEC, which are posted on the investor section of the company's website at macerich.com. Joining us today are Tom O'Hearn, Chief Executive Officer, Scott Kingsmore, Senior Executive Vice President and Chief Financial Officer, and Doug Healy, Senior Executive Vice President of Leasing. With that, I turn the call over to Tom.
spk05: Thank you, Samantha. We're pleased to report another strong quarter with our operating results continuing to trend very positively. We again saw robust leasing demand with our first quarter volumes leased being better than the first quarter of last year. And just to remind you, leasing in 2022 was as good as it has been in a decade. Our portfolio average sales per foot for tenants under 10,000 square feet was $866 per foot, a 3% increase over a year ago. These strong results were achieved even in the very challenging macroeconomic climate we are facing today, including rising interest rates, the threat of a recession, and the volatile banking and political environments. Some of the other first quarter results included occupancy at 92.2%. That's a 90 basis point improvement from March of 22. And although a 40 basis point sequential quarter decline over year end, that is very normal. Over the past 15 years, with only one or two exceptions, occupancy has ticked down slightly from year end to the following March 31st. The range of decline is typically 40 to 100 basis points. We continue to see strong leasing volumes, which are in excess of last year's levels. For the quarter, we executed 256 leases for nearly a million square feet. Doug will provide more details in a few moments. Leasing spreads for the trailing 12 months ended March 31st were up 6.6%. Average rent per square foot at quarter end was nearly $64 at $63.98. That's a 2.1% increase over March of 22. We saw very solid same-center NOI growth of 4.8% in the first quarter, and that compared to the first quarter of 22, which was a very strong quarter. Consistent with our strategy to redeploy capital into our top assets and to thin out our non-core assets, yesterday we sold the marketplace at Flagstaff for $23.5 million. This is a power center in a non-core market for us. Since year end, we've had a significant amount of financing activity, which Scott will comment on shortly. The debt market is still challenging, but our finance team is doing a great job, and we're getting our deals done. Progress continues at our mixed-use diversification and densification projects. Some examples include at Kierland Commons in the Phoenix market, we're moving forward with a 110-unit luxury apartment project. At Flatiron Crossing in Broomfield, Colorado, we're planning a 330-unit luxury multifamily project centered around 2.5 acres of public amenity space with 50,000 square feet of adjoining food, beverage, and entertainment. At Biltmore Fashion in Phoenix, we're advancing plans for a 250-unit luxury apartment complex which will be fully integrated into the heart of this open-air center. At our flagship town center, Tyson's Corner Center, we anticipate receiving approval of our zoning amendment later this year, which will pave the way for a future additional mixed-use development on the site of the former Lord & Taylor. There are also some recent announcements of great new additions to Santa Monica Place, including the Arte Museum, an immersive digital art destination which will occupy 48,000 square feet on the third level that had formerly been a theater box. We also signed a 10,000 square foot lease with Din Tai Fung Restaurant to take over the majority of that area that had been the food court, which is also on the third level of that center. As Doug will elaborate on shortly, we continue to be very pleased with the strength of the leasing environment. On the heels of a very strong leasing result in 2022, the first quarter of 23 was even better than a year ago. The leasing interest continues to come from a wide range of categories, including health and fitness, food and beverage, entertainment, sports, co-working, hotels, and multifamily projects at Kierlin, Flatiron, Tysons, and Billmore. Interest continues at levels we've never seen before. Bankruptcies continue to be at a record low. We continue to expect gains in occupancy throughout the year and net operating income as we progress through 2023. And now I'll turn it over to Scott to discuss in more detail the financial results for the quarter and significant financing activity. Thank you, Tom.
spk15: On to the highlights of the quarterly financial results. This morning, we posted strong core operating results for the first quarter. Same center NOI, as Tom just mentioned, increased 4.8% relative to the first quarter of 2022, excluding lease termination income. It's worth noting that this follows strong NOI growth, averaging 7.4% for the two-year period, 21 through 2022. FFO per share for the first quarter was 40 cents, which was generally in line with our expectations. The quarterly result was 10 cents less than FFO during the first quarter of 2022, which was 50 cents per share. Primary factors contributing to this quarterly FFO change are as follows. One, a $12 million increase in interest expense due to rising interest rates. This was consistent with our guidance and our expectations. Two, an $11 million decline in lease termination income due to a few larger lease termination agreements executed during the first quarter of last year in 2022. This was also expected. Three, a $7 million decline in land sale gains given a few larger land sale transactions in the Arizona region of our portfolio during the first quarter of 2022. Again, also expected. And then lastly, a $7 million relative decline in valuation adjustments pertaining to our retailer investments net of taxes. This negative impact from a non-core passive investment was a surprise within the quarter, and it was attributable to a downward valuation adjustment relating to a single retail company. Offsetting these factors were the following, an $8 million improvement in tenant recovery income due to leases converting from variable to fixed rent structures with full fixed CAM and tax recovery charges, And secondly, from favorable changes in estimates due to our – from 22 year-end recovery income accruals. And then lastly, roughly $4 million improvement in certain miscellaneous income, including increases in interest expense – excuse me, interest income, parking income, and various other sundry items and events. We are very pleased with the start of 2023 as reflected by these strong core operating results. At this time, as we disclosed this morning, we are maintaining our guidance for 2023 funds from operations, which is estimated in the range of $1.75 to $1.85 per share. Our 2023 outlook is anchored by strong operating cash flow generation, which is currently estimated at $305 million before payment of dividends. More details of the guidance assumptions are found on page 15 of the company's Form 8 supplement, which was filed earlier this morning. Now onto the balance sheet. We continue to make excellent progress on our financing pipeline, as Tom just indicated. On January 3rd, we closed a $370 million refinance to the previous $363 million of combined loans that formerly encumbered our campus at Green Acres. This five-year fixed-rate CMBS loan bears interest at 5.9% fixed and is full-term interest only. On March 3rd, We closed a $700 million refinance of Scottsdale Fashion Square. This five-year fixed-rate CMBS loan bears interest at 6.21% and is full-term interest only. This refinance transaction yielded nearly $150 million of liquidity to Mace Rich in March. Last week, on April 25th, we closed a three-year extension of the existing $160 million loan on Deptford Mall. With this extension, we maintained the existing below-market 3.7% interest rate, and the joint venture repaid $10 million of the loan, which was roughly half of that at our share of $5 million. Collectively, including these three transactions I just mentioned, as well as two loan extensions on Washington Square and Santa Monica Place during the fourth quarter of last year, we've completed five major loan transactions totaling over $2 billion, or $1.4 billion at our company's share. At year end, we had a healthy $645 million of available liquidity, including available capacity on our credit facility, for which only $50 million is outstanding today. Debt service coverage is a healthy 2.6 times. Now I'll turn it over to Doug to discuss the leasing and operating environment. Thanks, Scott.
spk32: As discussed in our last call, 2022 was a record leasing year dating back to before the global financial crisis when viewed on the same center basis. And in fact, the first quarter of 2023 continued in the same fashion with extremely strong leasing volumes that actually surpassed 2022. First quarter sales were basically flat when compared to the first quarter of 2022. And this doesn't come as a big surprise given the massive gains we saw in 2021 and 2022 resulting in comps that are very difficult to sustain. This was especially evident in the luxury, home furnishings, and jewelry categories. Sales per square foot as of March 31st, 2023 were $866. That's up $23 when compared to the first quarter of 2022. Trailing 12-month leasing spreads remained positive at 6.6% as of March 31st, 2023. That's an increase of 260 basis points from the last quarter, and an increase of 530 basis points when compared to March 31st, 2022. In the first quarter, we opened 194,000 square feet of new stores. Notable openings in the first quarter include three stores with box lunch at Stonewood, Superstition Springs, and Victor Valley, Garage at Fresno Fashion Fair, Johnny Was and Nike Live at Country Club Plaza, Old Navy at Tyson's Corner Center, Cotton On Kids at Scottsdale Fashion Square, and Love Sack at Los Cerritos. On March 3rd, we opened Lifetime Fitness at Scottsdale Fashion Square. This is our second opening with Lifetime Fitness, the first being at Biltmore Fashion Park in 2020. At Scottsdale, Lifetime is 37,000 square feet, spanning four levels topped by a rooftop beach club, bistro, and lounge, all with spectacular mountain views. The club has already sold out its membership and will average almost 1,000 guests a day. Lifetime is just another example of our ever-expanding health and wellness category and will be an outstanding amenity to Scottsdale Fashion Square. And we look forward to our next opening with Lifetime Fitness at Broadway Plaza later this year. In the digitally native and emerging brands category, we opened Intimissimi at Broadway Plaza, Lucid Motors, at the Village of Corte Madera, Madison Reed at Kierland Commons, and Rowan at Country Club Plaza. In the medical category, we open Northwell Health Physicians and Tribeca Pediatrics, both at Atlas Park. And lastly, in the experiential category, and as recently noted within a Mace Ridge press release, we open Dr. Seuss and Candidatopia at Tyson's Corner Center, World of Barbie at Santa Monica Place, and the Friends Experience at Lakewood. Now let's take a look at the new and renewal leases we signed in the first quarter. In the first quarter, we signed 256 leases for just about 950,000 square feet. This is 20% more leases and 59% more square footage than we signed in the first quarter of 2022. And keep in mind, 2022 is a record year for us in terms of leasing volumes. Notable new leases signed in the first quarter include Lululemon at Arrowhead Town Center in Los Cerritos. Boss at Scottsdale Fashion Square, Doc Martens at Tyson's Corner Center, Levi's and Swarovski at Los Cerritos, and H&M at Queens Center. We also signed seven leases with Cotton On, at Chandler Fashion Center, Deptford Mall, Freehold Raceway Mall, The Oaks, Tyson's Corner Center, and Vintage Fair, in all totaling about 21,000 square feet. Tom mentioned this, but I think it's worth reiterating, In the food and beverage category, we signed two very prestigious restaurants, Din Tai Fung at Santa Monica Place and El Fonte at Scottsdale Fashion Square. Founded in 1958 in Taiwan, Din Tai Fung operates 170 restaurants in 13 countries. Known worldwide for its steamed pork dumplings, Din Tai Fung will join the recently announced Arte Museum on the third level of Santa Monica Place, and we expect a combination of these two to add a great deal of traffic, energy, and excitement to that third level. This is our second deal with Din Tai Fung, the first being at Washington Square, which opened to huge fanfare and is incredibly successful. Elefante is a very hip restaurant bar that features southern Italian cuisine with a relaxed Mediterranean vibe. With units already open in New York City, Las Vegas, and Santa Monica Elefante will open at Scottsdale Fashion Square and will flank one side of what will be a newly created portico share in the Nordstrom wing. This new entrance with elite value service and other amenities will provide direct access to more luxury, including the recently announced Hermes store. And stay tuned for another soon to be announced high end nationally known restaurant to compliment Elefante on the other side of the portico share. In the digitally native and emerging brands category, we signed leases with Charlie and Mango at Los Cerritos, Ever Eve at Broadway Plaza and the Village of Corte Madera, Goryana at Biltmore Fashion Park, Intimissimi at Santa Monica Place, and Maj and Sandro at Fashion Outlets of Chicago. We continue our effort in addressing the 2023 lease expirations as early in the year as possible. In doing so, in the first quarter, we signed over 175 renewal leases with almost 110 different brands totaling approximately 680,000 square feet. So with that, we now have commitments on 67% of our 23 expiring square footage of space that is expected to renew and not close, with another 20% in the letter of intent stage. By comparison, at this time last year, we have 56% of our 2022 expiring square footage committed. In addition, we believe our renewal retention rate for 2023 lease expirations is tracking in the high 80% range. All of these are very strong metrics, and as I've stated before, given the noise and uncertainty that exists in the macroeconomic environment, I remain pleased with these metrics, as we are basically taking a great deal of risk off of the table in 2023. Turning to our leasing pipeline, At the end of the first quarter, we had 158 signed leases for 2.3 million square feet of new stores which we expect to open in 2023, 2024, and early 2025. In addition to these signed leases, we're currently negotiating leases for new stores totaling nearly 390,000 square feet, which will also open in 2023, 2024, and early 2025. So in total, that's nearly 2.7 million square feet of store openings throughout the remainder of this year and beyond. And again, I want to emphasize these are new leases with retailers not yet open and not yet paying rent. And these numbers do not include renewals. And let me take just a moment to add some color to this pipeline by naming a few of the retailers and concepts coming soon to our centers later this year into 2024 and early 2025. Shields All Sports at Chandler Fashion Center, Target at Kings Plaza and Danbury Fair, Arte Museum and Din Tai Fung at Santa Monica Place, Caesars Republic Hotel, Hermes and Elefante at Scottsdale Fashion Square, Lifetime Fitness, Pinstripes and Original Joes at Broadway Plaza, Dillard's Flagship at South Plains Mall, Round One at Arrowhead Town Center and Danbury Fair, Primark at Green Acres, Tyson's Corner, and Queens Center. Zara and H&M at Queens Center. Lidl at Freehold Raceway Mall. Industrious at Kierland Commons. Kiln at Santan Village. Bonesaw Brewery at Freehold Raceway Mall and Deptford Mall. Ashley Furniture at Kings Plaza. And a new and expanded flagship, Apple Store, at Tyson's Corner Center. which will open later this month on the 22nd anniversary of their first ever bricks and mortar store, which was also at Tyson's Corner Center. And this list just goes on and on and on. So the leasing pipeline of new store openings now accounts for almost $64 million of incremental rent in aggregate, which will be realized in 2023, 2024, and 2025. And this incremental rent will continue to grow as we continue to approve new deals and sign new leases. So to conclude, our leasing and operating metrics were very solid in the first quarter. Leasing volumes were extremely strong, outpacing the first quarter of 2022 in terms of number of leases signed, square footage, and total annual rent, thus maintaining a very strong pipeline of stories that will open this year, next year, and beyond. As expected, occupancy decreased a bit in the first quarter, but is up 90 basis points from a year ago. Leasing spreads came in at 6.6% and should continue to increase as we increase occupancy. Sales remained on par with the first quarter of 2022, with the first quarter of 2022 showing very strong comps to first quarter of 2021. Bankruptcies overall remain at their lowest levels since 2015, which is consistent with our significantly reduced tenant watch list. Therefore, we remain optimistic as we look at the remainder of this year, next year, and beyond. And now I'll turn it over to the operator to open up the call for Q&A.
spk30: Thank you, gentlemen. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, press star 1-1 again. In the consideration of time, we ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. And our first question, coming from the lineup, Derek Johnson with Deutsche Bank. Your line is open.
spk18: Hi, everybody. Thank you. You know, I never do this, but I have to actually say something because I've never really seen this meaningful of a dislocation between sound fundamentals and depressed valuations. So, You know, it's making sure we're not missing anything. You know, when you talk about leasing, very strong leasing in first quarter, you know, firstly, I was wondering if, and I'm sorry if I missed this, you know, what percentage of the leasing, you know, came from new tenants? And then the second part of this question is, are you seeing, you know, any slowdown whatsoever given the macro environment?
spk32: I can take the first one, it's Doug. We signed 256 leases in the first quarter. About 31% of those were new leases with new retailers and about 69% were renewal leases. Then to your question about do we see any slowdown, I think the quick answer is no, we're not. I know it's counterintuitive given everything that's going on in the environment out there, We're not seeing it. Leases we have signed, the tenants are still opening stores. The leases we have negotiated or are negotiating, tenants are pulling back. And I think we have a really healthy retailer environment out there. If you think about pre-pandemic, there were a lot of retailers that were struggling, many failed, most failed during the pandemic. And those that came out of the pandemic came out very, very healthy. So I think it's a testament to the retailer environment, but I also think it's a testament to our portfolio of shopping centers. We do have must-have shopping centers that these tenants want to be in.
spk05: Eric, I'm a little bit more cautionary, you know, as it relates. It's a great environment. I'm incredibly glad that we've got a very strong pipeline because those are contractual deals that'll start to pay rent in 23, 24, and beyond, as Doug mentioned. Look, every time the Fed has behaved the way they're behaving now, bumping rates, if you go back to 1955, a recession has followed. And I have no reason to believe this is going to be an exception. We saw their action again yesterday. And so there is pressure. I do think we're probably likely headed for a recession, but we're in a very, very good position to weather that. And a lot of the things that typically, bad things that typically happen in a recession like retail failures, as Doug mentioned, that happened during COVID. So we've never really, frankly, had a recession that's followed a pandemic. And this one could be a little unique. And I think we're very, very well positioned for that. That being said, we open every leasing call we have. Every two weeks, we meet with the entire leasing team. It's the executive team, the leasing team. And we always challenge them. What weaknesses are you seeing? Are your retailers backing off on their open to buys? And in their view, there's no slowdown. There's no back off. And the deals just continue to flow in at a very strong pace.
spk18: Thanks, Tom. And that makes perfect sense. You know, all that said, I was encouraged to see, you know, Flagstaff disposed. Are you seeing any tightening in the private markets and, you know, potentially other interest in some of your non-core assets, you know, given the Fed's pause? Do you think volumes may be poised to pick up in the second half and thus an opportunity?
spk05: Well, Derek, as you know, we're an opportunistic seller. We sold 25 lower quality malls coming out of the financial crisis. Typically, that market gets better when there's more debt available. And obviously, as we heard from Scott and others, the capital market's tough right now. The debt markets are tough. And most of those buyers tend to come in and be leveraged buyers. So I think we'll get a deal done here and there in this environment, but when capital markets get back to a normal type range in capacity, I think we're going to see more transactions. But I don't really foresee that for 2023. Great.
spk18: And just one real quick last one for me, and I know I can look it up, but You know, when does Shields come online and Caesars Hotel? I think they're probably in the beginning of 24, if I'm mistaken. But, you know, any update would be helpful.
spk15: Afternoon. Derek Scott here. September 30, 2023 for Shields. So right around the corner. We're excited about that one, certainly. So Caesars Republic, we expect during the first quarter of 24.
spk18: Okay, guys. Thanks. I'll... pass the mic, and that's it for me.
spk29: Thank you, Derek.
spk30: Thank you. And our next question, coming from the lineup, Greg McInnis from Scotiabank.
spk06: Hello. Thanks for taking the question. Hope you're all doing well. Given the strength of the asset, I guess we were a little surprised by the 6-2 rate on the Scottsdale loan, though, to be fair, we don't really have many other Class A-plus secured debt comps. So any color on that process and maybe the LTV would be appreciated. And can you also share some early thoughts on the Tyson's debt maturing in January and expectations on what you hope to achieve there?
spk15: Sure, Greg. Scott here. So, you know, Scottsdale, we got done at the beginning of March. And if you were tracking what was going on in the market, it was an extremely volatile time. We actually hit a a pretty fortunate window, given the fact that about two or three weeks later, the regional banking failure started to occur. So I have every reason to believe that if we hadn't hit that window, we probably would not have been able to close that deal. You know, so during, you know, relative to what we were talking about at Investor Day, We said our expected interest rate would be in the mid to high fives over the course of the next few months. Credit conditions just became much more volatile. The Fed continued to pump rates, which caused credit market spreads to gap out. So that's really what contributed to the 6.2% interest rate. But I'll say that we hit a window. We certainly hit a window there. So I feel good about that. Tyson's Corner is very well positioned. There's a lot of great things going on. fantastic leasing activity. If I looked at the existing debt today, it has a very healthy debt yield, roughly about 13% plus. So I think there's an opportunity there to potentially even upsize it. It really depends on what the credit conditions are going to be like at that point in time. We will not be going to market on that until midsummer, though, so it's a little too early to speak to it.
spk06: Okay. I guess the follow-up here. So there's clearly a healthy level of leasing demand and growing occupancy. Are you getting any interest from institutional investors or developers where you might be able to partner or sell some larger parcels to get more aggressive on leverage management? I mean, is there a desire to go on the offensive there, or do you feel the best path forward is just growing EBITDA?
spk05: Well, on that, Greg, whenever we do a multifamily densification, for example, we always consider bringing in a partner, a multifamily developer partner, in which case we could do it a variety of ways, but one way would be to contribute our land to the venture. So it's not necessarily taking cash and paying down debt, but it will drive up EBITDA, which gets you to the same place. So those things we're considering. I think Scott's mentioned previously we've been fairly active in selling available land that we have in our portfolio, and we've even got some of that reflected in our guidance this year. So I think you'll see us do more of that rather than coming in and trying to sell off big blocks and parcels to other.
spk06: Okay, thanks. And just a final one for me. So we read a headline that Deptford was actually sent to special servicing, and given that you ultimately secured an extension there, could you just talk a little bit about that process and maybe your willingness to walk away from the asset level of demand that you're seeing for mall debt of that quality level? And then what you see is kind of your negotiating leverage, given what appears to be – I assume to be, sorry, limited demand by lenders to actually take over any malls.
spk15: Yeah, so the Deptford Mall happened to be a CMBS loan as a matter of protocol. Special servicers are the only ones that have the ability to approve an extension. So the mere transfer of a loan to special servicing is really just a function of process, and that's all. So it was a very amicable process by which we secured that extension, again, three years at a very favorable 3.7% interest rate. You know, and the process of securing an extension was really a function of what the credit markets were like at that point in time. You know, given not necessarily conditions in just the mall space, but just broader conditions within commercial real estate and a lot of the friction that's resulted from the regional banking failures, it just was not an opportune time to take that asset to market. That said, it's extremely well positioned, very healthy debt yields. And in any normal credit environment, you know, for instance, the first half of 2022, we would have been able to finance that asset with ease. So, you know, again, that was just a function of, you know, a seized up credit market. It was a very well-positioned asset and a very amicable process.
spk27: All right. Thanks, Scott. Yep.
spk30: Thank you. And our next question coming from the lineup. Liz Doiken with Bank of America. You want to jump in?
spk25: Hi. Good afternoon. The same-store NOI growth accelerated in the quarter and operations looked pretty good. I'm just curious to hear where you see the most variability still that's causing you to maintain full-year guidance or, you know, simply a function of it being still early in the year. Just wondering what the reserves are around specific items for the remainder of the year, I think.
spk15: Yes, sure. Yeah, we're very pleased with the way SAME Center NOI started the year, nearly 5% growth. It is very early in the year. I highlighted a couple things, not only the strong core growth, but also the offsetting decline in one of our retailer investments. And so we've got nine months ahead of us. We'll continue to assess guidance. It's very possible that our core growth will continue, and we'll be bumping that. We're just going to wait to see as the next few months unfold and come back to you, this time at the end of the second quarter. And in terms of reserves, just given the relatively healthy environment that we're seeing, We feel like we're very adequately reserved. Excuse me. As I look at, you know, the bankruptcy environment, we still expect extremely low levels relative to history, certainly relative to 2020 during COVID. You know, I went back and quantified the bankruptcies that are really getting a lot of press right now, those being Bed Bath & Beyond, Tuesday Morning, David's Bridal, Party City, I think there's over 1,800 stores that are primarily affecting open air power centers and community centers. We have only two leases within those 1,800 that are subject to bankruptcy. So, again, a very healthy environment. Not to say that there won't be any further bankruptcies or fallout, but I think we're very well reserved on that front.
spk25: That's helpful. Thanks. And this is just a little bit smaller to make note of, but just noticed management operating expenses seem to tick a bit higher this quarter. I'm just wondering if there's anything worth noting around that or just to provide more color.
spk15: Yeah, I don't think there's anything unusual. It was in line with our expectation. You know, it is a new year. So with any organization, you've got promotions and compensation adjustments. And so that's really what's in there. I don't think there's anything unusual in that number. But it was in line with our expectation.
spk24: Got it. Thank you.
spk30: Thank you. And our next question coming from the line of Samara Connell with EverQuest. The island is open.
spk20: Hey, Scott. Good morning. I guess a question on retailer sales growth this year. I mean, what are you guys budgeting for this year as we think about percentage rents?
spk15: Yeah, for percentage rents, we're assuming flat. You know, it's hard to say what the balance of the year will bring. And we felt a good conservative assumption was to assume flat. Of course, it's hard to predict what any given retailer will do. Oftentimes, percentage rents are going to be driven by a couple major factors. One, you know, luxury tenants are certainly going to drive a good portion of those percentage rents, so we'll see what the balance of the year unfolds there. There's a little bit of comparable pressure on the luxury sector that Doug outlined in his opening remarks, so that's not to say that they're not performing extremely well, but I think they're up against a difficult comp in the first half of the year. But we do expect, generally, percentage rents to continue to decline. In my opening remarks, I mentioned we're seeing a pickup in our tenant recoveries as our leases convert from more variable rent structures driven by pandemic-era negotiations to longer-term fixed-rate deals with fixed-cam and tax recoveries. So we will see percentage rent, variable rent, continue to decline primarily due to that.
spk20: Are you able to sort of quantify that and maybe ballpark in terms of how much of a decline in terms of percentage?
spk15: I'd say ballpark mid-teens relative to 2022 would be our current expectation.
spk20: Okay, got it. And then my next question is, I guess more of a modeling question, but there was a loss on the JV income side. Was that primarily due to that valuation adjustment? I just want to make sure that we don't carry anything forward in the model here.
spk15: Yeah, two primary things. One was that valuation adjustment that I mentioned. Secondly, we also may be acquiring our partner share of certain assets within an existing joint venture. As a result, that triggered a shortened holding period and an impairment event. And we recognized a $50 million impairment charge. That is an unconsolidated JV, so that's showing up there as well. We can't speak to the specifics of that transaction or the partnership, but that was also a factor that you're seeing in the numbers.
spk20: Got it. And the last one for me on this power center that you sold, what was the cap rate on that? I'm sorry if I missed that.
spk05: Yeah, Samir, we're subject to a confidentiality agreement, so we're not going to get into the cap rate discussion, but Scott mentioned in his guidance comments that he's going to keep guidance the same, so that transaction is effectively neutral. So if you consider what our use of proceeds would be on something like that, you can kind of get in the ballpark of what a cap rate might be.
spk19: Okay, got it. Thanks, everyone.
spk05: Thank you.
spk30: Thank you. And our next question coming from the lineup. The floor is Ben Chitkum from Compass Point. The line is open.
spk08: Hey, guys. Thanks for taking my question. You know, obviously encouraging leasing progress in terms of your leased occupancy increasing by 80 basis points. Doug, you talked a little bit about your S&O pipeline in terms of square footage and in terms of dollar amounts. But in terms of, you know, percentage, Yeah, obviously that square footage is, you know, much bigger than the difference between the physical occupancy and the leased occupancy. If you could just, you know, you had previously mentioned about 200 basis points gap between physical and leased occupancy. Is that still about the same?
spk15: Hey, Flores. Scott here. It's actually a little bit higher. It's in the mid threes right now. And that's really a function of just a very robust pipeline. And openings typically don't occur until the latter half of the year. Actually, there's two kind of waves in our business. One is opening for summer. So we'll see probably a greater amount of openings in 2Q than we did in 1Q. And then we'll see a bunch obviously open up in preparation for holiday 2023. So we've seen the difference between physical and lease grow to roughly about 3.5% right now.
spk08: Thanks, Scott. That's certainly encouraging, and particularly that should make you feel good about growth later on this year. Maybe if you could also touch upon luxury as a percentage of your AMALs today and where you could see that growing. Obviously, when you had your investor day, we looked at Fashion Square. and saw that luxury there is going to be over a quarter probably of the total GLA. Maybe if you can talk a little bit about the trends that you're seeing across the portfolio and how long that will take to play out as some of these luxury leases presumably take a longer time before they actually take occupancy.
spk05: Thanks, Floris. Scottsdale Fashion Square is a very unique asset. You know, it's very few places in the country, very few centers in the country are you going to be able to populate a center with that much luxury. So, you know, overall in our portfolio, it's, you know, probably along the lines of, you know, 5% depending on how you define the luxury category. And not every center is really going to have that. I mean, we have some great centers in our top 10 where you're not going to have any luxury. It's still going to be an incredibly successful center doing over, a thousand bucks a foot, and all you have to do is go back to a few prior supplementals when we ranked all of our assets based on sales per foot, and you'll see what I mean. So it was a strong category. It came raging back after COVID. We saw some great results, particularly at Scottsdale Fashion Square, but that can't necessarily be extrapolated to every center because luxury is kind of very selective, and it's not going to be in every property.
spk08: Fair enough, but would it be fair to assume that that percentage could potentially almost double over the next couple of years in your centers? It's still a relatively small amount, presumably, and maybe Queens doesn't have that, but some of your other malls like, obviously, Fashion Square and Washington Square presumably could.
spk05: Well, there are some others that are candidates that we're considering, but that's going to move pretty slowly. If we're at 5% today, I wouldn't expect to double it in the next five years. It's going to be a slower process than that. But they have a pretty big impact on a center, and they affect a lot of the tenants around them, so there's a lot of collateral benefits when you bring in even just a handful of luxury names.
spk08: Maybe last, billboards. I know that you had the massive billboard at Scottsdale up and running during the Super Bowl. How much more expansion could you see in that kind of income going forward?
spk05: That's a great question, Floris, because the demand for that type of billboard Space keeps growing and growing and growing, and we see it everywhere. I mean, we see it at Fashion District of Philadelphia. We see it at Santa Monica Place. Obviously, you saw it at Scottsdale. And it's going to continue to grow and I think be a strong incremental revenue for us. You know, there's a nominal amount of capital required to make that happen, but there's a fair amount of demand and it keeps growing. So I think that's going to continue to be a growing and more impactful part of our revenue stream as we go forward. go forward very near future.
spk12: Thanks, guys.
spk05: Thank you.
spk30: Thank you. And our next question coming from the line of Linda with Jeffrey. See if the line is open.
spk07: Yes, hi. Besides the timing of Scottsdale Fashion Square refinancing being fortuitous, any other additional color on how the regional banking issues might be impacting your refinancing plans for this year?
spk15: Yeah, Linda, there, you know, it's difficult to predict where they're going to be in six months from now. I mean, I look back to, you know, the pandemic and in the summer of 2021, there were no transactions getting done. By the time you got to the fall, you know, mall transactions were getting done. And over the course of the next 18 months leading through spring of 2022, I think there were about $8 to $9 billion of regional mall transactions. And so over a very short period of time, the market changed rapidly. And again, the pandemic was the source of the turmoil then. So it's really going to be driven by what continues to happen in the space. Obviously, there was a major regional banking failure just last weekend, and there's some other names that are in the news I'm not going to get into. But The longer that continues, the more skittishness there's going to be in primarily the CNBS markets. But, you know, frankly, it would have been in the balance sheet markets too as balance sheet lenders look at their own exposure. So it's hard to predict. But what we've seen is the markets are very elastic. And once conditions start to settle, there is a fair amount of liquidity. Once you start to get comfortable at what the right entry point is, you know, for a lender, for a creditor, I think we'll start to see the markets rebound. Certainly, we are coming, hopefully, knock on wood, towards the end of the Fed rate hiking cycle, and that will certainly function as a catalyst. It's just a matter of whether or not there's any other macroeconomic or macropolitical events that are going on at that point in time. Hard to predict.
spk07: Thanks for that context. And then, does your year-end leverage target remain 8.4 times, and would you expect to issue equity to get there?
spk15: Yeah, I think that's a good target, mid-8s. And I would say we could get to mid-8s with just organic EBITDA growth. We could improve upon that if we were to issue equity, but I don't think there's any appetite given that we're sitting on $650 million of liquidity and a significant amount of operating cash flow. Really no need to raise equity at extremely discounted valuations. So I think we can get to the mid-8s. just organically with the NOI growth and seeing our same center, excuse me, our sign but not open pipeline start to open.
spk30: Thank you. Thank you. And our next question coming from the line up, Alex Gopar from Piper Sandler. Your line is open.
spk10: Hey, good morning. Good morning out there. So two questions. I'm not sure if the $50 million impairment that you spoke about is the Philly Fashion District, but just a question on that project. The partnership loan that you guys have been funding to pay down the first mortgage, and I guess the term loan expires January 24th. Can you just go over the sort of capital structure on here? Because that partner loan accrues at 15%, which needs to be paid before you guys get your equity, but you're funding the partner loan. So it's sort of the same, you know, it's one pocket or the other, but just sort of curious how this project you're penciling it now versus when you originally underwrote it and, you know, where it stands given, uh, you know, that you've been having to pay down the first mortgage with your own capital.
spk05: Yeah. So effectively all the economics of that joint venture go to us, Alex, as a result of that. Um, and, Look, when we underwrote that asset, it was in 2017, 2018. It was before COVID. And, you know, obviously a lot of urban areas, including Philadelphia, have been slow to recover in terms of the office population. And FDP has been no exception. So as we look at that, it's a project that we think is going to improve over time as we continue the lease up. As you know, we've announced that we're working with HBSC on a potential arena site in a third of that location, which is very promising and would help the entire community there, not just the retail but the entire area. And that's still something that's in process, and we're very optimistic. But obviously the returns today are not what we expected when we bought that asset in 2016, 2017.
spk10: but you feel comfortable that the loan and your equity investment that you've put in, that you'll recover.
spk05: Yes. And there's not a lot of, well, I'll turn it over to Scott in a second. There's not a big loan balance on there as we've paid that down. That just means there's more cashflow available to us after debt service. And we'd have every expectation to continue servicing that debt and funding the pay downs.
spk15: Yeah, no, that's, that's it, Tom. I mean, I think that the most recent pay down you saw, which was $25 to $26 million, that was simply an embedded, an extension right that was tied to some economic hurdles. So, you know, it's just an overall process of delevering that asset and reducing our own leverage. But that's what you're seeing there.
spk10: Okay. And then the next question is, you mentioned a tech investment that took a bad hit in your portfolio. Can you just give some color on what the total is? you know, Mace Rich investment is in the tech venture and, you know, what the ultimate, you know, do you expect to ultimately harvest these or are these being done, you know, sort of operationally concurrent with the portfolio? Basically, are these investments to try and enhance property operations and they're sort of things that you're keeping or are you expecting at some point these are independent concepts that ultimately will be sold or acquired or what have you?
spk05: Alex, that investment is through a venture capital firm, Fifth Wall. And that was an investment we made about six or seven years ago. It funded periodically, but that's when the commitment was made. And it was primarily investments in digitally native brands. And it was really a strategic partnership between ourselves and Fifth Wall to give us access to a lot of the emerging and digitally native brands They did the underwriting, and it helped us really focus on the ones that they and we thought would be the most successful and would benefit Mace Ridge. So that's the origin of that investment. It's not really ongoing investments. It's something we committed to seven years ago. And we've had some winners that have gone public via SPAC where we've reduced our investment, and we've had others that haven't done as well, which is what you would expect from a venture capital investment. some winners and some that don't make it. And that's where I think the original investment was about $75 million, and we're probably – our investment on the books is probably down closer to $50 million today based on either write-downs we've taken or, on the other hand, buyouts we've gotten by virtue of some of these retailers going public.
spk10: So you don't have sort of a return, like an ROI or IRR or something that you can talk about, do you?
spk05: Nothing that we've disclosed publicly, Alex, but we're very happy with the investment. It's been great strategically and the return has been good as well.
spk09: Okay. Thank you very much, Tom. Thank you.
spk30: Thank you. And our next question coming from the line of Kevin Kim with Truist. Your line is open.
spk17: Thanks. I just wanted to turn to your guidance for a second. Can you update us on how much land sales are embedded in your 23 guidance and also interest expense?
spk15: Sure. I think I answered that question in the fourth quarter call, and I think that the answer is pretty much the same right now. We had about $0.09 of FFO benefit from land sales, net of tax, the tax provision, and that was in 2022. I think a few months ago I expected about 40 to 50 percent of that activity hitting FFO in 2023, and I think that's probably still in line, 40 to 50 percent of what we experienced in 2022. So that should help you out there. We recognized about a penny of benefit in the first quarter, so it was kind of level relative to the guidance I just gave you, and those are going to be lumpy as the year progresses. Interest, we have provided guidance. No reason to modify the guidance at this point. I think our interest guidance is sufficient. We'll continue to address that, as well as all the other line item guidance as we move forward.
spk17: Can you remind us what that interest expense guidance is?
spk15: It's on page 15, and I want to say it was roughly $322 million, but it's page 15. Okay. $320 million.
spk17: Okay, and just a second question, going back to your debt refinancing, Danbury Mall, Niagara, a couple near-term debt maturities, any kind of sense of what kind of proceeds or interest rates we should expect?
spk15: Yeah, I really don't want to speak in detail about any given transaction because we're actually having active conversations with lenders, so it's probably not appropriate. But I would say market rates today or in the 6% realm, you know, and you can see what we did in Greenacres and Scottsdale. That will give you an indication. So that's kind of what the market-going rate is. You know, that's probably all I'm at liberty to talk about right now, just given those are active deals.
spk16: Okay, thank you.
spk15: Sure.
spk30: Thank you. And our next question coming from the lineup, Michael Muller with J.P. Morgan. Your line is open.
spk13: Yeah, hi. Scott, I was wondering, can you give us some color on how you think recovery should be trending now that occupancies are higher? I think pre-COVID, it looks like they were in the low 90s. I think last year it was about 75%, and so far this year it's a little higher than that, maybe low 80s. But just any color there would be helpful.
spk15: Yeah, I think we're making pretty good progress, and, you know, some of that I've highlighted already in some of my commentary. You know, we saw it tick down during COVID because we were doing – In many cases, some of those renewals were locked in at rates that we frankly didn't want to lock in long term, nor did our tenants, given the uncertain environment. Some of those, not all of them, but some of them were variable rent structures with very little to no CAM, and oftentimes we were recovering our taxes. Fast forward to today, we're getting full triple net deals done. with fixed CAM with annual escalators and full tax pass-through. So our expectation is we're going to start trending back to that low 90% recovery rate that you were just commenting on pre-COVID.
spk13: And is that something you could trend to in a few years, do you think?
spk15: No, I think that's something that we'll get to, you know, probably, you know, within the next year to 18 months or so.
spk13: Okay. Okay. That's helpful. Thank you.
spk29: Sure.
spk30: Thank you. And our next question coming from the line of Robbie Padilla with Missoula. Your line is open.
spk21: Hi there. Hope you guys are doing well. Just had one question here. We saw some data from PLACER that said that foot traffic at enclosed malls and regional malls goes down about about 7-8% year over year in March. I was wondering If you guys have any stats on how the traffic in your portfolio has trended in March and April.
spk05: So we look at it more on a quarterly basis or trailing 12 months and traffic has been fairly consistently at about 95% of pre COVID levels. So sales have recovered. Sales are well in excess of pre COVID levels. Traffic is a little bit lower, but The consumers coming and shopping with a purpose, probably having done some research online before they get to the town center. So sales is really the important trend. Traffic is less accurate, I would say. But at 95%, we're still pretty pleased and comfortable with that. We think as a result of some of these new non-traditional retail uses that Doug mentioned, like Shields Sporting Goods, for example, Arte Museum, Once some of those deals that are signed and in the pipeline but are not open yet, once they open, we think that they're going to be big traffic generators and that our numbers will easily surpass what we were seeing pre-COVID.
spk22: Got it. Got it. No, that makes sense. That's all for me. Thank you.
spk30: Thank you. And our next question coming from the lineup, Caitlin Burrows with Goldman Sachs. Your line is open.
spk28: Hi. Good morning, everybody. I was just wondering, if we look at minimum rents, it seems like with occupancy up and rent per square foot is up, I know leasing spreads have all been positive, but I'm surprised that minimum rents were down. So I was wondering if you could go through kind of what else we should be considering and what's driving that.
spk15: Well, I think if you look at minimum rent across both consolidated and unconsolidated assets, you'd see that they're actually up, Caitlin. Maybe look at some of the disclosures that are in the 8 supplemental, which kind of break down leasing revenue between its various components. You know, there's a lot of revenue line items that are sitting there in the leasing revenue. So, for instance, termination income is down significantly. You know, that's going to cause a decline, so I'm not sure if that's getting captured, you know, if your eyeball is kind of capturing that. But, in fact, minimum rent is actually up a few million dollars quarter over quarter. You know, I think when I was giving initial guidance about three months ago, I said, You know, one of the factors is, you know, we are taking some pretty high rent space offline, primarily in some of our New York assets. And, you know, a lot of those benefits are sitting in our signed but not open pipeline in terms of the deals that will replace some of the spaces coming offline. So, you know, as you're taking high rent space off, you're going to see some friction there. But it is really just that. It's transitional vacancy and And we'll see the pickups later on as those spaces come online. So those are a few comments, but I can tell you that, you know, if you look at all of our assets at our share, minimum rent is actually increasing quarter over quarter.
spk28: Okay. Yeah. I mean, I was just thinking, because when we occupancy, I mean, correct me where I might be not understanding it, but occupancy, I think is up year over year and rents are up year over year. So if I look at It's page 14 in the supplement. It breaks out total leasing revenue between minimum rents, and it goes through consolidated and unconsolidated, and the company's total share, and now it's $188 million, and last year it was $194. So those are the numbers that I was looking at, but maybe it just sounds like it's timing.
spk15: Why don't we take it offline because maybe we can kind of compare notes and help you out with your answer there.
spk28: Okay, and then maybe just secondly, thinking of redevelopment projects, I know you guys have Santa Monica Place and the Scottsdale redevelopments. Do you guys have other small redevelopment projects going on now for anchor boxes or otherwise?
spk15: Yeah, we certainly do. I mean, they're not extremely material, so they don't end up in our pipeline, but we've got quite a few exciting openings coming. You know, for instance, Shields All Sports doesn't show up in our development pipeline. Some of the Round 1 deals, Lifetime Fitness deals don't show up in our pipeline, but those are effectively, you know, anchor positions for us. They just don't rise to the order of magnitude of the development costs being material enough to land on the pipeline. So all that is embedded in the $64 million that Doug spoke of earlier that will be coming online this year and into next year.
spk28: Okay, thanks.
spk15: Sure.
spk30: Thank you. And I will now turn the call back over to Mr. Tom O'Hearn for any closing remarks.
spk05: Thank you. Well, thank you for your time today, everyone. Appreciate it. We're pleased to report a strong start to the year. And we look forward to seeing many of you at NARIT next month. Again, thank you for joining us today.
spk30: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.
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