Macerich Company (The)

Ladies and gentlemen, thank you for standing by. Welcome to the fourth quarter 2024 Mace Rich Earnings Conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Samantha Greening, Director of Investor Relations. Please go ahead.

Thank you for joining us on our fourth quarter 2024 earnings call. During 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, and future expectations. Actual results may differ materially due to a variety of risks and uncertainties set forth in today's press release and our SEC filings. Reconciliations 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 SEC, which is posted on the investor section of the company's website at macerich.com. Joining us today are Jack Shea, President and Chief Executive Officer, Dan Swanstrom, Senior Executive Vice President and Chief Financial Officer, and Doug Healy, Senior Executive Vice President of Leasing. And with us in the room, we have Brad Miller, SVP of Portfolio Management. And with that, I turn the call over to Jack.

Thank you, Samantha, and good afternoon. Over the last year since joining Mace Rich, I have become increasingly confident in our mission to operate and own thriving retail centers that bring our communities together and create long-term value for our shareholders, partners, and customers. We launched Mace Rich's path forward early in my tenure, and I'm pleased with our steady progress. This clear, executable plan is designed to accomplish three key objectives over its five-year horizon. One, simplify the business. Two, improve operational performance. And three, reduce leverage. During 2024, we were successful in simplifying our business through selectively consolidating joint venture interests at Arrowhead Town Center, South Plains, Los Cerritos, Washington Square, and Lakewood. Our equity offering in late 2024 de-risked that portion of our plan, and the refinancing of Queens Center is well below our target refinancing rate. We're well underway on loan givebacks and mall sales and are now focused on out parcel, land, and select open-air retail sale opportunities around our shopping centers. A big focus of mine has been to improve internal processes and restructure many aspects of our approach to asset management, leasing, property management, portfolio management, and development, which will best position the company to drive improved operational performance and to deliver long-term value creation. I'm pleased with the progress on several key initiatives to date Our Process Improvement Committee has been successful in implementing a new leasing dashboard tool whereby leasing, asset management, legal, tenant coordination, construction, and senior leadership all collaborate seamlessly together, which has vastly improved our visibility and efficiency around leasing and tenant coordination. Our asset management and portfolio management teams are now a standalone group whose mission is to be the asset owner at Mace Rich, responsible for driving cash flow and long-term value through operations, utilizing our leasing, development, and property operations teams. Our asset and portfolio management teams led the effort to create five-year Argus business plans for each asset, which is now a bedrock tool that we use to evaluate leasing and capital decisions. The permanent specialty and department store leasing teams are all now under one leadership and reporting structure. Property operations, marketing, and development are also under a new leadership structure. Working collectively with our asset management, portfolio management, and leasing teams, we have ranked all tenant spaces throughout our portfolio with an A through F grade and determine market rents for each particular space. An important aspect of our path forward plan is to take advantage of driving more incremental revenue out of our portfolio through leasing vacant, temporary leased, and under market A and B and C rated spaces within our portfolio. Each of these organizational process, analytical, and technological enhancements provide our team with the strategic roadmap and tools to drive leasing and NOI over a multi-year horizon. With respect to the NOI component, our leasing team is hyper-focused on what needs to get done in the next two years. To help frame the leasing initiative, in 2023 and 2024, we averaged approximately 3.75 million square feet of annual lease volume. We are targeting an average of 4 million square feet of leasing in 2025 and 2026, and focusing on creating a higher percentage of new lease deals versus renewals in our annual mix of business. New deals contribute vastly to our releasing spreads and incremental rental revenue. The effect of this shift and mix is new deals typically involve more rental revenue downtime in the range of 12 to 18 months. In 2024, we achieved 8.8% base rent releasing spreads for permanent tenants under 10,000 square feet. New leases signed during this period were 17.6% higher base rent versus the prior period permanent rent. Including vacant and temporary lease space to the aforementioned group of spaces, the releasing base rent percentage increase was over 50%. Our current physical permanent occupancy for our Go Forward portfolio is 84%. We are targeting an 89% physical permanent occupancy rate by 2028. Approximately 50% of this increase is already accounted for by our current snow pipeline of $66 million. Having the ability to forecast the longer-term impact of this change in leasing mix coupled with continued strong leasing demand is an excellent setup for us to achieve our incremental NOI goals for 2028. We are being very intentional in our decisions to optimizing lease outcomes and rental revenue uplift within our portfolio that aligns with our strategic financial objectives for 2028 under the path forward plan. This is a massive change in mindset and operations for the company, which has historically been more focused on managing the business to annual near-term FFO targets. There is a compelling opportunity to get after under market and vacant A, B, and C rated spaces in our centers. Maximizing each space and their total revenue potential over the long term will result in a higher volume of tenant re-merchandising, space movements, and temporary downtime in rental revenue. To recap, I feel very good about how things are progressing on our path forward plan. We've made substantial progress to date. We have a clear roadmap with tools and new processes for leasing over the next 18 to 24 months and beyond, which will drive incremental rental revenue and a more improved and resilient permanently occupied portfolio. We are currently 39 percent complete in our leasing goals towards our plan. Our asset givebacks to lenders will play out over the next two years as loan maturity dates trigger on any properties. We have an identified group of out parcel land and malls that the team are executing sale transactions. which will continue over the next three years. And we are currently funding our development pipeline, which will contribute NOI in 2026 through 2028. With that, I'll turn the call over to Doug.