The Macerich Company (MAC) Earnings Call Transcript & Summary

[Audio Gap] Macerich's roundtable presentation. And I'm Lizzy Doykan. I work with Jeff Spector covering the retail REITs at BofA. With us today, we have Scott Kingsmore, CFO; and Doug Healey, Senior Executive Vice President and Head of Leasing. So we'll turn it over to Scott and Doug first to kick it off with some opening remarks, and then we can open it up to Q&A. And we like to make this interactive, so please feel free to jump in at any time with questions.

Great. Well, good afternoon. I'm Scott.

He's Doug.

Macerich has been a public company since 1994. We own a portfolio consisting of 44 primarily A-quality regional town centers. Our portfolio is about 47 million square feet situated within highly desirable bicoastal markets and in Phoenix. A very positive demographic support our portfolio. Our assets average over $850 a foot with about 92% of our NOI coming from assets generating over $500 a foot, which is generally the line of demarcation for A quality and better. Our business has shown incredible resilience since reopening following the pandemic a few years ago. We've recovered over 4% of our lost 5% of occupancy in just over 2 years. This has been driven by really an incredibly strong leasing demand, first, in 2021 following the pandemic, then in 2022 and now so far year-to-date in '23. In fact, 2022 was our strongest leasing year dating back 15 years since before the Great Financial Crisis. And through the first half of this year, we've already leased 1/3 more space than we did in the first half of 2022. So we're off to an excellent start, in our view, as leasing demand has not abated, has not checked whatsoever. As we continue to reiterate, what's really exciting, not just the demand, it's the breadth and the array of new and diverse uses that we are doing business with, which is really clearly unrivaled in our company's history. Given this demand, we continue to see a tremendous opportunity to add value to our portfolio through diversifying our tenant mix as well as to fortifying our existing assets by densifying them with mixed uses. We see a tremendous opportunity to consolidate market share. We're seeing that certainly over the last couple of years, especially within our top 20 assets. For those who may not have seen, earlier today, we were pleased to announce the culmination of a $650 million new credit facility, which closed yesterday. That facility is nearly 25% larger than the prior facility. It provides us an important $125 million liquidity boost over the existing $525 million facility, and it matures in 4.5 years through early February of '28. We are very grateful for the continued strong support of our closest lending relationships to accomplish that closing. So in today's banking market, suffice to say, we're extremely pleased. Today, we're trading at less than $12 a share. We remain extremely undervalued with an implied cap rate of 8.5% and a trading multiple of about 6.5x. Over the last 22 years, as a frame of reference, our average trading multiple has been double that at 13x. This despite the fact that our business is on an extremely firm footing. For every dollar invested today into our company, the free cash flow return on that equity is about 11% with roughly half of that being paid in a dividend that's just over 5.5% dividend yield. So there remains a very, very strong value proposition from investing in MAC today and investing in best-in-class A-quality retail. With that, we turn it over to you, Lizzy.

Great. Well, thanks. Thank you very much for the opening comments. And again, if anyone has any questions, feel free to raise your hand. Okay. So let's start with leasing and demand year-to-date. You commented kind of through the first half of '23. Just to confirm, at least through September, has that demand continued through the summer? Are you seeing any pockets of weakness or slowing in demand?

Thanks, Jeff. I'll take that one. No. The short answer is we're not seeing any decrease in demand. In fact, we're actually seeing the opposite. As I like to say, we talk about all the leases that we've signed and the leasing volumes that we've been reporting, and they're unprecedented. And last year was a record year. This year, we're ahead of last year. But that's kind of looking in the rearview mirror. What's really telling about the future is what we see in our leasing committees every 2 weeks, the deals that we approve that will go to lease, that will get signed, will open and start paying rent. That's really the future. That really represents the demand. And quite frankly, we're probably 20% ahead of where we were last year, and we don't see it letting up anytime soon.

That's -- just to confirm, you're talking about your -- this is -- in the leasing committee, you're saying that the deal pipeline or the total square footage or the deal pipeline, the number of deals is 20% higher?

It's about 20% more square footage that we have approved so far this year relative to the same time last year. So it kind of tracks the leasing volumes in terms of executed deals. Both our executed business as well as the business that we're sending to lease is significantly up versus last year.

And that demand, is it across all 44 properties? Or again, as you talked about, kind of the A versus B and...

Well, fortunately, most of it is A. Again, 92% of our assets are over $500 a foot. So I would say there's certainly a significant concentration of demand within our top 20 -- top 25 assets, but we do see it fairly across the board within the portfolio. And again, the demand is from such a different echelon, a different mix of uses relative to what we have experienced in the past. Really, I think kind of the view is we're creating a much more durable property given the diversified type of uses. We're talking about everyday uses ranging from grocery to fitness to co-working to medical. These are all different reasons for somebody to show up at our doorstep relative to where they were, say, 10 years ago when it was a discretionary dollar that was coming in the door to spend on apparel. Today, it is lifestyle uses. It is everyday uses. It is social uses. And so, again, it's a much more durable and resilient type of tenant base, which is, I think, very -- it's [ eminently ] different. It's very exciting.

I think that's a great point because -- and I think it's one of the things that is really fueling the continued demand is we've never seen the depth and breadth of uses that we have out there today. If you think about emerging brands, digital brands, grocery, as Scott mentioned, fitness, entertainment, medical, they all want to be on our campuses. And I think that has a lot to do with what we've seen in the past, but more importantly, the continued demand that we see.

And to confirm, on the grocery side, are they looking to open at the mall? Or are we strictly talking about more of the, let's say, open air centers that you have?

It's on the mall. It's open air. It's freestanding. It's attached to the property. We are repurposing, in certain instances, department store boxes that will contain an entire level of grocery. And then on the other level, it may contain an entirely different diverse use. So it really kind of runs the gamut. And when you think about where our space is headed, and I talked a little bit about densification earlier where we may add residential to our campuses, let's say, you can imagine, grocery is an extremely complementary use as is high-end fitness to residential. It is an amenity that renters will pay a premium for. And so I would only see the intensity of our grocery use is only getting stronger. We looked at this across the portfolio. We got, again, 44 assets. 16 of our assets, which represents about 1/3 of portfolio NOI, have grocery on the campus, either as a primary use or as a secondary use, say, a Target or a Costco. Certainly, there's an intense grocery element there. It may not be the primary use. But 16 of our 44 assets, roughly 1/3 of our portfolio NOI, does have grocery on its campus. And people that want to say, "Okay, well, a mall is this and a power center is this," that's fundamentally patently kind of false in that we all kind of play in the same space. And if it's high-quality retail, if it's high-quality real estate, uses are going to land there regardless of what tradition may say.

I assume it's frustrating that the open air center landlords keep talking about...

They're stealing our tenants, I know.

I mean that's just simply not true, and I'll give you a perfect real-life example at Danbury Fair that we own in Connecticut -- Danbury, Connecticut. We just announced a Target. Now where does Target normally go? You would think, conventional wisdom would say, to outside power center. They're coming to our mall, taking over half a Sears. We have Barnes & Noble and Five Below that are currently across the street in a power center moving over to our enclosed shopping center. So to me, these retailers -- and they'll tell you this. They're going to go to the best real estate. And if you have the best real estate in the market, you're going to attract them. And if you don't, yes, they may go to a power center or a strip center. But you're going to find that more in tertiary markets, not the markets you find us in.

Can you talk about your store opening plans more so in the near term, especially with all the recent retailer earnings reports and maybe the softer discretionary spend that we've seen?

Well, again, back to my prior comment about discretionary versus nondiscretionary, I would argue that especially in better heeled demographics, such as our markets, that fitness is not discretionary. That's part of somebody's lifestyle, and they're going to maintain that fitness membership on balance even when times are difficult. They're going to maintain that experience of going out and dining and just enjoying the social aspect of being out. They may spend a little bit less in terms of traditional mall product. But there are many different things, including grocery, including medical, that are now served on our campus that will keep bringing them back. So I would say it's much less about discretionary versus just the variety of uses that are present on the campuses. The exciting thing is we don't see store openings abating. In fact, the neat thing is all these deals that we've done in '21 and 2022 to repurpose obsolete department store space are now opening. We see, for instance, in the next 3 weeks, we'll have an opening of SCHEELS All Sports at Chandler Fashion Center. And I can't quote the volumes that they expect, but let's just say that they are significant, and they will draw from the entire city of Phoenix. I'm not talking about a region. I'm not talking about a little -- a 5-mile ring. I'm talking about the entire city of Phoenix will shop at this store, which brings a lot of footfall to our doorstep. So huge regional draw there, absolute depiction of a game-changing type of use. We just opened up Target at Kings Plaza here in Brooklyn, very successful opening. We're excited that Target is coming to Danbury Fair in Connecticut next spring. In about 2 weeks, we'll open up a -- our third Life Time fitness club at Broadway Plaza in Walnut Creek, and that follows a successful opening at Scottsdale Fashion Square earlier this year. So all this work to bring these uses, not only we're excited about the cash flow -- I'm a CFO. I love the cash flow -- but we're really excited about the sales and the traffic that these uses will bring in. And there's just countless examples, and we're starting to see those uses start to open now, which is great.

Can we turn to luxury and maybe tie in Scottsdale Fashion and the latest update there. But we -- just given, I think, you and Simon both reported lower sales [ per square foot, citing ] tough luxury comps, there's been some concern on luxury demand to open stores, their concepts opening stores, any change from luxury tenants?

You can jump in, Scott, but yes, there were very, very tough comps to comp against 2021, 2022. But it doesn't seem to affect the demand. Now granted we don't play in that space very much, we have Scottsdale Fashion Square for the most part, but if demand is any indication, you know what we did with the Neiman's wings, was about 150,000 square feet which we transformed into luxury and global luxury, but the demand continued. And so now we're doing the exact same thing in the first level of the Nordstrom wing. And we'll add about another 80-ish thousand square feet, 50,000 square feet of which is already committed. And that all started with Hermès, which is a leader in the global luxury category. We announced them, and then it's continued. So in our little world of Scottsdale, we haven't seen the demand let up at all, notwithstanding the sales.

I think you guys came out with a recent update on, say, men's luxury [ expand ]? Are there any other noteworthy retailer trends like this? Or how much of that do you see as a tailwind to luxury?

That's an interesting comment. I think I talked about that in a recent release, and we've seen it with Louis Vuitton, Louis Vuitton Men. We've seen it with Dior. We've seen it with Saint Laurent. But I don't think it's just -- it's not just luxury. We're starting to see it in all different categories, and I think it all starts with men's fashion has changed dramatically. It's gone from really traditional tailored suits. I think COVID had a lot to do with that, work from home. But you look at the millennials and you look at the Gen Zs, and they dress totally different. They're much more about fashion. And I think we're starting to see that in some traditional retailers that were really women only have gone into the men's category. And just a couple of them, like lululemon, for example. Walk into a lululemon store. Half of it now is men's. Madewell, which was traditionally all women's, 1/3 of it now is men's. And that list continues. But I think it all stems from the way that men are dressing these days, and it's probably more so than the change in women.

Let's maybe focus then on some of the metrics: occupancy, leasing spreads. Can you talk about progress made year-to-date and what guidance implies? And you've had healthy, strong leasing spreads, I think nearly doubled in 2Q to over 11%.

Yes. So we -- again, part of that is you've got to rebuild the occupancy following the economy shock, which we've successfully done. We lost roughly 5% of our occupancy during the pandemic, and we've restored over 80% of that in about 9 quarters. So great progress on that front. When we got to that -- today, we're hovering around 93% occupancy in our portfolio. When we got to that kind of 92 band, we really kind of put the charge with the team to start pushing on rate. And, say, over the last 5 to 6 quarters, we've seen a decent spread growth ranging in the mid- to high single digits. And fortunately, in the last quarterly release, over the last 12 months, we reached 11% rental spread. So as I look forward, I think decent rent spreads in the high single digits to low double digits are reasonable expectation for us. I do see that given the continued demand, I think we'll get to 94% or so occupancy by the time we get to the end of next year. That's not guidance. That's just reading the tea leaves based on what we see today. And again, as occupancy improves, you can really push on rate because you do have competition for space, and that really is fundamentally the thing that's going to help you push on rate. So I feel very good about where the metrics are at today.

What about the quality of the leases? We get that question a lot. How would you compare the quality of the lease today versus pre-pandemic?

Much better. And again, a lot of that's driven by the healthier retail environment. Our watch list today is significantly less than what it was heading into the pandemic. And let's face it, there was a lot of failure that occurred during the pandemic, whether it was failed brands and/or failed balance sheets. We took our lumps. And today, we do have a watch list, we always will, but it's significantly less. And so given that positive backdrop, given the relatively low incidence of bankruptcies over the last 2.5 years, I feel very good about where we stand right now and our ability to just continue to drive rate and to drive occupancy. And part of this, too, is going to be improving the quality of occupancy. As we get that total up towards the mid-90s, we also have an elevated level of temporary occupancy with local merchants, and they are an important, important merchant to us. But today, that's about 8.5% of our occupancy total. And ideally, that would be somewhere around 4% or 5%. So what that means is part of the challenge ahead and part of the internal growth drivers for our NOI stream on is to convert that temporary tenancy to permanent. That will result in a doubling of rent, if not more. So it's not just getting occupancy up. It's also driving rate from temporary uses to better heeled, better credit, national [ names ].

And what was the peak on [ temporary ]?

Peak on -- well, we're sitting about 8.5% today. And I would say in the fullness of time, probably a good number is 4 to 5. So we have a good 300 to 400 basis points of occupancy quality improvement.

So the 8.5% is the high [ inning ]. I don't know if it was higher during the pandemic at one point or no?

No. No. I mean, pandemic, I think everybody was struggling, especially the locals. Yes, so this is a high-water mark for us, and we've got some room to improve there, which will be a nice driver.

And again, just to confirm on the pieces -- the quality of the leases, just to confirm, the terms today, are we back to normal terms?

Very much. Very much back to normal. Sorry for missing that part of the question. Very much back to normal, a fixed lease structure with annual bumps on base rent, annual bumps on our fixed CAM. Our fixed CAM bumps by 4% to 5% a year. Our average -- or excuse me, our base rent bumps by 2% to 3% a year, so very much normal leases. TI packages are not dissimilar to what they've been historically. We are traditionally pretty stingy about TIs. But if it's a difference-making tenant, we'll certainly pay the capital.

And in terms of the lease negotiation, are you -- is the negotiation still surrounded on the sales per square foot, the sales generated within the 4 walls? Is there -- has it moved past that at this point?

Great question. More and more so, it has moved past that. I mean, look, the retailers are always going to be concerned -- or we're going to be concerned about what they're selling out of their 4 walls. But it doesn't really dictate the rent that they can pay because if you think about buy online, ship from store; buy online, pick up from store; buy online, return to store, we're not capturing that in the sales volumes. So less and less it's becoming about what a tenant can "afford" in terms of cost of occupancy, but more about what market rent looks like and how important that real estate or that address is to that retailer in the marketplace. And we all know that these -- now they're multichannel. Their bricks-and-mortar and their online platforms complement each other. So they need to keep these stores in certain markets to maintain their online business. You just can't capture that in cost of occupancy anymore. So of course, we look at it, but we don't live and die by it.

Okay. Maybe just turning quickly to the expense side just because it's been an issue in some other real estate sectors. Anything on the expense side that we should be aware of as we've kind of progressed through '23 and we head into '24 that impacts your bottom line?

Well, again, we are a fixed CAM shop. And I would say, with the exception of perhaps 2021, '22 and this year, we were dealing with an extremely low inflationary environment, pretty easy to contain operating costs. We've -- so over the course of that period, we're booking fixed CAM increases of 4% to 5%. We probably had 1% to 2% expense growth. So it was an easy environment to actually create some cushion and some profit there. Operating expenses are certainly elevated to where they were, say, 5 years ago. And that's a function of wage pressure. It's a function of, in certain markets, not across the board but in certain markets, increased scope on security for all the issues that we're all aware of. It's a function of increased insurance costs. Insurance is an extremely hard market. And while that's not a big gross dollar portion of our expense profile, it is a very hard cost to contain in an environment where mother nature rears her ugly head every week, right? So on balance, we would expect expenses to probably tick up 3%, 3.5% next year. That may not sound like a lot, but it's elevated relative to where we've been in the past.

And just to confirm, on real estate taxes, that's outside of the CAM?

Correct. Yes. Generally, taxes are a direct pass-through. And at any point in time, we're appealing probably 2 dozen valuations across our portfolio. So I think on balance, we've done a really good job of managing our tax line item, which is our biggest property expense by far.

Can we turn to the balance sheet and maybe if you can discuss more about how you plan to address your upcoming maturities in 2024? We've seen some more CMBS mall lending activity, which is encouraging. So just if you could give the latest on that.

Sure. Sure. Well, again, we addressed a big 2024 maturity in our line of credit. That was due to renew in April, and I'm very glad to stay in front of that and get in front of it and accomplish what we did today. And by the way, that's our only recourse debt to the company. Everything else we have is secured nonrecourse debt. So a distinct structural advantage in that financing structure. I'm pleased to say that -- and I couldn't say this for about the last 5 quarters. I'm pleased to say that the financing markets are certainly getting more stable, and they're opening up. I couldn't say that even a quarter ago. In the spring of 2023, we're still dealing with some uncertainty as to where the Fed was headed and what the pace of increases or slow down or pause was going to be in and when. And then most importantly, we were on the heels of a regional banking crisis, which certainly caused the second quarter volumes within CMBS to be almost a historic low. So here we are in September, and over the last 3.5 months, we've had about $3 billion of mall transactions get executed. We are very active in the markets today, financing a couple of assets, without getting into details, subject to negotiation. I feel very good about where we stand. I think by the time we get to December 31, you'll be somewhat blown away about the amount of liquidity that is available for A-quality retail. There's an awful lot of transaction flow, and it's coming from us. It's coming from Simon and Brookfield and Westfield and really great assets that are being financed today. So the bond investors and CMBS are very willing to extend to the best quality retail. So 2024, I don't anticipate any issues. Again, we're transacting on 2 of those deals right now. We just addressed our line of credit maturity. As I look at our 2024 maturities, we've got some really high-quality assets that are maturing, ranging from $600 a foot to over $1,700 a foot in performance. They're very well situated from a leverage standpoint, strong debt yields. I think incrementally, we'll pull cash out of those financings. So I feel good about where we stand today. And again, I'm pleased to say, and maybe if there's wood up here, I would knock on it, but I'm pleased to say I can actually say the markets are back open and functional right now.

And what is target net leverage by the end of next year again? And how does this whole strategy fit into reducing leverage to that target?

Sure. Yes, our target leverage -- our forecast for leverage is 8x by the end of 2024, and that's really going to be a function not of transactional activity. We're not going to issue equity at $12 a share. It's a function of NOI growth. It's the huge pipeline that we've got that will start to pay rent this year and into next year. It's all the leasing demand that we've been, fortunately, talking about here. It's occupancy growth. It's all of that. So it's really organically reducing leverage through EBITDA growth is what we see over the next 12 months. We will continue to, when opportunity presents itself, sell assets. We haven't done a lot of it lately. We sold a couple of power center assets in Phoenix, which really, I would say, are more of cleaning up the portfolio and simplifying our structure a bit. But at some point in time, the financing markets are going to get stable over a period of time, and I think there will be an opportunity to dispose of assets that we consider noncore. We're not going to put a portfolio out there, but we will transact opportunistically.

And I assume noncore are the ones below the $500...

I wouldn't even say that, Jeff. There are assets that you could say, well, why would you sell that? It's because it may not be a core market for us. It may be an asset that we don't think there's a lot of ability to redevelop and intensify and do some of the things we've been talking about here. We have better opportunities for our capital elsewhere and a better return horizon on certain assets. So you may see us sell some assets that you would say, "Well, geez, you've got such a great presence in that market. Why did you do it?" Well, it made sense. It made sense. And so we'll wait for the right time, though. It's just not the right financing climate for that today.

But deals are happening in the -- let's say, deals are happening. I think you said $3 billion. So you're saying that these sellers may be a little bit more stressed and so you're -- you don't need to sell? Is that...

Well, this is all recent activity over the course of the last 3 months. And I think you need to see a bit of a sustained environment where liquidity is there, and I think you probably need to see a little bit of rate cutting from the Fed in order to promote some of these transactions. So granted there's liquidity today, I think the financing market needs to improve a little bit for disposition activity to really open up.

On the refis, I guess, your comment that the market has opened up. I guess, when you think about -- and I know at the Investor Day, you laid out property -- I think it was property by property, real detailed schedule. I guess, how do -- now how do -- we're almost a year, I can't believe it, from that Investor Day. Obviously, things have opened up. But not going property by property, but in terms of expectations, are things clearly better than it was last November when you presented in terms of your thoughts like [ per asset ]? I remember at the time, there was still some concern about maybe what Macerich, if you would have to come up with some money or things like that to put back into the properties. What else has -- what other color could you share with us?

Sure. So we had an Investor Day in late November. And at that point in time, we were engaged in about $1 billion of financing transactions on Green Acres here in Long Island as well as Scottsdale Fashion Square. And those 2 assets were actually net accretive. We pulled cash out. And we financed those, on balance, at around 6%. And then in March, obviously, we had a regional banking crisis, and that really is what seized up the market. We certainly couldn't have predicted that. So the second quarter, there was really no ability to finance anything. So here we are now in the third quarter, the markets are back open and operating. My view in terms of that detail that we provided in Investor Day is very much on track. We're in the market on a couple of assets. And again, as I look at 2024, I have no concerns about financing the quality of assets that are there. I think on balance, we'll be pulling a little liquidity off the table, not putting money in. I think we'll overborrow a little bit. I expect that to be the case on Tysons Corner, for instance, where we will overborrow 10% to 15% over what's there today. And I would say, the underwritten rate is probably somewhere between 6% to 7%. It depends on the leverage. It depends on the quality. So hopefully, that gives you a good sense. But thank you for not pulling up that detailed scheduling and asking me.

It was good.

And can we turn to the transactions market? So we've seen a few more higher-quality mall trades year-to-date. And then you guys recently took back some boxes with -- from your JV partner, Seritage. So just want to check in with where you see the greatest opportunities are for external [ growth ].

Yes. So for us, I think it's reinvestment back into our portfolio. We've got some great properties. We've got the ability to, again, just deliver something that is unique and different. We've been doing it over the last few years, but I think the opportunity over the next, say, 10 years to continue to focus on bringing mixed use is significant. In fact, I would see us over the course of the next decade adding several thousand apartment units, for instance, across our portfolio. So that's really the best use of our resources. And the purchase of those 5 former Sears locations was lockstep with that. We've got -- out of that set of 5, we've got 3 assets that are fully leased and either the uses are open or the uses are being developed or the uses are in final strokes of lease documentation. So that's Freehold Raceway, that's Chandler Fashion Center and that's Danbury Fair. Those assets -- or those boxes are 100% spoken for. The 2 remaining are Washington Square and Los Cerritos. And in both cases, we -- our redevelopment plan will be to repurpose that location and add mixed use. It will be to add residential, perhaps hotels. It will be to add food and beverage pavilions with just an exciting place-making experience, both at Cerritos and Washington Square. And these are assets that are in our top 10. So that purchase was very consistent with our redevelopment vision.

What would you guys say is the most underappreciated [indiscernible]?

Yes, I think -- that's a great question. And I think what people are under -- we're not the only ones that are talking about this, right? We're all talking about, especially the better quality real estate, the ability to diversify. I think what people don't appreciate is the durability that, that creates. I think what people don't appreciate is the value, and you mentioned this as well, the value of our land is extremely significant. So as you think about the opportunity to add residential, when we contribute land -- and by the way, those residential developments will be with subject matter expert that we align ourselves with in a JV. We'll put our land into the JV. And as a result, including leveraging the project with Fannie Mae or Freddie Mac financing, our incremental return on vertical equity, which is going to be a small amount of capital, is going to be significant. It could range from 15% to 20% because of the opportunity to finance those projects, but also because of the value of the land. So as we start to source those residential opportunities, we've got a really coveted set of experiences that are already there, that are already built in and that can garner premium rents. And so I think oftentimes what's underestimated is the ability to create something new and more powerful than just traditional mall uses. But I think people are starting to understand that that's -- that's here, that's now, that's really a reality.

When you say that [ any time, what started as ] kind of conservative is, first, what you could do if you want to [indiscernible] investors [indiscernible] especially in this environment [indiscernible]?

Well, I wouldn't say that's a target. That's a forecast. Our target is to get our leverage down to about 7 to 7.5x. That's in the fullness of time where we've operated. We're not going to get there next year, absent a major transaction, which I don't envision. That's not in our planning right now. But I do think that's achievable over the next 2 to 3 years by virtue of all the things we've been talking about, leasing demand, growth and occupancy, et cetera.

I know we're out of time, but you won't sell the land fully to get the cash for that land to strengthen the balance sheet.

No. No. I don't think that's -- first of all, you need to be in a position of controlling the real estate. And once you sell that real estate, you lose control, right? So ideally, you contribute that land into a JV where you do have a control over the product that's developed, but you also have a situation where that land and given the inherent value of that land, you really don't have lot of expenditure to bring that residential project to the campus. So that's really the most efficient vehicle. There may be some instances where we ground lease to certain uses, like hotel. But really, the value of our land and also the flexibility in terms of timing of what we bring to market and when we bring to market, this is land that we've owned forever, right? We don't really have a basis that is a significant carry to us. We can choose the timing of when we want to actually develop without having that carry cost burdening us and putting pressure on us. So it's really an ideal model, and we envision being able to replicate that across our portfolio.

Okay. I know we're out of time, but 3 quick rapid fire questions, rapid answers.

Yes. First question is on the Fed. Do you believe the Fed is done hiking, yes or no? And do you expect the Fed to cut rates in 2024, yes or no?

No, they're not done. And yes, I do expect them to cut.

Right. Second, do you believe real estate transactions will meaningfully pick up by the fourth quarter of 2023, the first half of 2024 or the second half of 2024?

Second half of 2024.

And last, are you using AI today to help you run your business, yes or no? And do you plan to ramp up spending on AI over the next year, yes or no?

No, we're not using AI meaningfully in any way, and we will pay attention to it.

Thanks. Great. Thank you. Thanks to the [ Macerich team ].

Thank you very much.