The Macerich Company (MAC) Earnings Call Transcript & Summary

Welcome. This is the Maswitch round table. Very happy to have Jack Shay with us this afternoon. as the CEO of the company. Jack, why don't you introduce your team, -- and then I'll turn it over to you for some opening remarks.

Great. All right. Good afternoon, everyone. Thanks, Sameer, for hosting this conference. I just want to introduce my team, Dan Slots. He's our CFO. Doug Healy is our EVP, Head of Leasing. Brad Miller is our Senior Vice President, Head of Portfolio Management. -- and Alexandra Johnstone is our Vice President of Investor Relations and financial strategy with Dan. So I apologize, I'm going to read some prepared remarks. I don't forget, and you all can ask a lot of questions, I'm sure, afterwards. So I'll start with -- 2 years ago at this conference, we were basically launching the Path Forward plan, 1.0. And it was really just a plan at that point. I'm happy to say today, after 3.0, we've largely derisked the Path Forward plan -- and I'm extremely excited about the opportunity that not only have we seen within the portfolio, but the organic growth within the portfolio as well as some of the external growth opportunities that we're seeing today in the market. So just as a reminder, the path forward plan rests on 3 critical pillars. The first is simplifying the business. The second is improving operating metrics and the third is reducing leverage. In June NAREIT, as you all know, we produced the Path Forward 3.0 version. And we are meaningfully ahead of all 3 of the path forward presentations that we put out at this point. We've completed approximately $1.3 billion of the $2 billion positions that were part of our plan. We still have -- our expectation there's another $300 million to $400 million of dispositions or loan givebacks by year-end, which will bring our total up to $1.6 billion to $1.7 billion out of the 2 as part of the plan. From a leverage perspective, our current net debt-to-EBITDA is 7.3x, which is about 1.5 turns below where we were at the outset of Papwor1.0 about 2 years ago. And most importantly, with the capital that we raised recently as well as the snow pipeline coming in, we expect to be plus or minus just around 6x net debt to EBITDA by 2028. So operational performance begins and ends with leasing. I'm sure we'll talk a lot about leasing. We've gotten a lot of questions on leasing in our one-on-ones. But momentum from our record leasing in 2025 has carried through into 2026. I'm sure most of you have heard about our leasing pedometer, but that pedometer currently sits at 89%. -- which I think is an awesome accomplishment by the team. If you think about tariffs, wars, all kinds of stuff happening. In spite of that, we've been able to do a tremendous amount of new leasing as part of this plan. Of the roughly 1,000 new leases that were part of the base plan of the path forward, we have 950 committed at this point, either committed or under LOI. So that really leaves 50 left. Doug, I'm sure we'll talk a little bit later, but we really don't have much new leasing inventory left as part of the plan. Our 26 renewals are done. We're well into '27 in -- and so our leasing teams now are really focused on '29, '30 and evaluating a lot of the new acquisition opportunities that we're looking at. With this leasing component of our plan largely behind us, our attention for the team has flipped to conversion. So that means basically getting tenants open and paying rent on time. That's what we talk about our RCD, which you'll see our rent commencement schedule slide pedometer. So this is basically an algorithm that we focus on to make sure that we deliver income snow on time as scheduled that we talked about. Our rent commencement schedule stands at about 59% right now. So out of the 1,000 spaces that we've talked about 85, we're open and paying rent. 5 are under construction. There's a big group that are in the basically lease permitting stage -- we've got 120 or so leases out that we're negotiating, trying to bring to fruition, and we have 100 LOIs that we're moving towards getting to the point where we can go through and approve these leases. And then as I said, there's about 55 prospecting that are spread across the go-forward portfolio. One of the things about this operational metric is, is intended to bring more transparency in our progress as we move tenants from LOI to store opening. As you all know, our signed but not open pipeline has reached $128 million out of the $140 million total opportunity that we talked about back in -- 2 years ago in Path Forward 1.0. Just as a reminder, this is committed organic growth that flows through NOI in 2028. In order to improve center vibrancy and increased foot traffic and sales, addressing vacant anchor stores was a critical component of our plan. And I've reiterated this, all 30 of the targeted vacant anchors are now committed which is comprising 2.9 million square feet, and we expect to generate something in the order of $750 million in sales. But more importantly, it's going to drive traffic and leasing into those former vacant links, which were very difficult to handle. As I noted on our Q2 earnings call, we expect go-forward NOI to grow at least 3% this year, back-end weighted which implies at least 3.5% NOI growth expected in the second half of 2026 and then to accelerate meaningfully in '27 and '28. And as the snow pipeline tenants continue to open and begin paying rent. Some of our best centers today, such as Karen Commons, Broadway Plaza, Scottsdale Fashion Square at Tysons Corner, are the ones that are furthest along in this elevate and transform strategy. And they are meaningfully posting our strongest traffic, sales and NOI growth as compared to the go-forward portfolio average. It's an exciting template that we're experiencing and seeing and so we're confident that the mid-stage development mid-stage transformation and early-stage transformation assets that are following are going to experience a similar growth profile. So finally, that brings me to the concept of acquisitions, which is our external growth engine. Let me be clear on how we're approaching growth. We're extremely disciplined, extremely careful on the things that we buy, the things that we believe we can add value to through leasing, development or intensive asset management. We want assets that are accretive to our plan. We want assets that are accretive to 2028. And we are focused on strong trade areas and particularly where there might be a catalyst in the center to improve the direction of the property. And most importantly, we want to make sure that they can be financed within the leverage targets that we've outlined. I think what's different today as it relates to this opportunity set is our pipeline is basically the most robust it's been in the last 2 years. it's a combination of off-market and marketing transactions. On the marketing transaction side, if you were to compare malls that we have interest in today that are being marketed -- they are meaningfully higher in number and volume as compared to a year ago or a year before that when we were looking at grade. So we're very confident in our ability to be very selective and very successful as it relates to external growth. With our recent equity offerings, we have the capacity to act on this pipeline in this current environment. No 1 is building new Class A regional malls. -- or full selective and the best retailers are concentrating in the best centers. Macerich has a unique advantage that differ for many other buyers. We have a fully integrated operating and leasing platform, deep national retailer relationships, attractive cost of capital and liquidity and the speed and certainty to close. And that's why sellers and retailers have been engaging with us most recently at this moment, just like in grade and in the ATLAS case study. So to summarize, we're out of schedule. -- on the Path Forward plan. We believe the plan is significantly derisked and we've got structural tailwinds behind us in the business that will only get stronger, particularly with Gen Z and how they're showing up in the malls and with brick-and-mortar retailers. Our plan has us on track to achieve higher permanent physical occupancy. Increased foot traffic which will drive NOI, lease demand and rental rates within our portfolio, embedded rent growth, stronger balance sheet and a portfolio of truly irreplaceable assets in the country's most desirable markets. Our disciplined execution on the acquisition strategy and concrete steps we've taken to improve the balance sheet at the same time, position us as an attractive earnings growth story for several years to come. So thank you all for your interest and Samir. We'll open it up for questions or what we can talk about.

Yes, I'll start, and I want to keep this interactive. So if you have any questions, please dive in, but you talked about that $128 million of that SNO pipeline. I talk to us kind of how that -- what's the biggest risk right now of converting that pipeline into NOI on the time line you expect?

There's virtually very little risk. I mean these leases are basically at this point, secured with national retailers. We have a process in place to go through delivery of premises, work through the existing tenant that might be in place -- so it's really just more blocking and tackling mall 101, which this company knows how to do. To me, I think if you were asking me like what's the risk, it's not in the plan anymore. We don't -- we only have 50 spaces they are unaccounted for right now. And of those 50 spaces, several are in Tysons Corner. There's a couple in Scottsdale Fashion Square. They're generally really good space. We're just trying to get the right tenant at the right rate into those units. So virtually a little risk on that. The new properties that we're evaluating, I take a lot of care and comfort can we release these properties. then they have the right dynamics in the marketplace, the right competitive position. We're going to, at some point, and it might be later this year, talk to you about change in Crabtree since we've acquired the leasing momentum. We've talked broadly speaking about what's happened there. The pro forma is better. The lease rates are better. We just secured a very, very important tenant that's a very -- that's going to elevate that entire next step of tenants coming into that mall. And I think when people see that they're going to get comfort in our ability to execute. So when I think about acquisitions going forward, I do need leasing environments to continue to stay the way they are because these are generally assets that may have some snow, but also have a value-add component to it, which we're very comfortable with. Yes. So...

But I guess going back to the $128 million of NOI, how does that flow? Is that majority in '28 that's going to...

Spread between 27% and 28%.

Yes. Just to drill down on that a little bit more. Jack talked about the $128 million now being in place or committed which gives us clear visibility into the total opportunity set of 140 that we outlined at the beginning of the plan. Samir, to your point, in our updated presentation that we put out yesterday, you can kind of see the estimated annual contribution by year, and this is on a gross revenue basis of $40 million -- sorry, $30 million in $40 million to $45 million in 2027 and then sort of ramping up to $45 million to $50 million in 2028. So that is what's underlying this really strong NOI growth that Jack talked about in his prepared remarks, really accelerating and ramping into 27 and 28 based on this now pipeline that we've -- we're almost done executing against.

And all the 30 anchors at this point have been committed, right? I think as well...

So we've got 30 anchors committed. And we're really excited about these. These are exciting experiential concepts like Des Busters, Level 99 that are really driving traffic to these centers. We estimate that they'll cumulatively contribute about $750 million of sales to these centers, which should drive in-line traffic -- and we provided an update in terms of the status of those. We now have 7 open. Earlier this summer, we opened a Dick's House Sport and Freehold, which was an exciting open and really increased traffic there. It's 1 of the highest performing Dick's openings, most recently at our Annapolis acquisition, we just opened Dichousesport there. So -- we got 7 open, 13 under construction, 5 executed and 5 leased out. So -- and at the bottom of the page, you can see kind of the cumulative openings by year. We've got 4 this year, 13 next year and 8 in 2028. So these will be really strong catalysts to the centers and really position the centers for strength to move forward.

Talk a little bit about the balance sheet that still will elevate into is down from where it was late -- what more do you think you could do what the time line is? .

Yes, sure. Happy to do that. So when Jack and I started, we were close to debt-to-EBITDA. We outlined in version 2.0, which was our June 2025 NAREIT, low to mid-6x debt to and the various pillars or tools that we were going to use to get there. We've executed nicely against those. And in our most recent NAREIT presentation from June of 2026, version 3.0 and -- we improved that target debt to EBITDA down to 6x, plus or minus. As Jack alluded to in his remarks, at the end of last quarter, we were at 7.3x. If you include the forward equity, we're a little below 7x. And so we have clear visibility with that snow pipeline that I just talked about. -- with the organic NOI growth from there and a little bit of proceeds from our out parcels to achieve that 6x, plus or minus debt-to-EBIT.

That included capital pipeline.

That's all reflected in there. .

And 6% is still a little elevated to some of your peers that do I think that will continue to...

Yes. I mean I think 1 of the unique opportunities that we have is we can buy assets, all equity and still be accretive financially and delever. So the $370 million forward that we issued if we buy an asset that's in a stabilized 9% to 11% range, all equity, it's about $0.02 to $0.04 accretive all equity and then reduced leverage by 25 basis points. We do that 3x, we're down in the if we decide to do it that way. I think that 1 of the considerations for us internally is the convert gave us the opportunity to potentially pursue an unsecured investment-grade rating if we so choose. If we were to do that, I'd like to be in the low 5s. If we decide to actually get on that kind of process. secure mortgages gave us the put rights to be able to accomplish the plan. We wouldn't be able to do it if we were an unsecured borrower. So I think we'll make that evaluation. But I think in the current environment, with the total addressable acquisition opportunity out there, there's a couple of different ways to delever the business that are earnings accretive, which I think are good.

Correct me if I'm wrong. Your rates are weighted average by like 4.75%, 5% on your debt? .

In terms of existing debt?

Is that a...

I mean there's a range. But we've assumed in our path forward plan all basically maturities through the end of the 28 plan, we assume a 6% refinancing rate. So some are marked up, some are marked down. It varies.

Okay. Yes. Our access to debt, obviously, like if we're in the term loan market, we're probably on a 5-year swap inside of 6. If we're doing a CMBS or probably 6 or the convert, obviously is good for us because we're going to refinance 2 or 3 quarters with some of the secured debt that we have at North 6.

I seem to remember you don't have a lot of really low debt coming due in the next.

We've got a loan at Fresno.

In terms of the rate or -- like I said, there's a balance. There's a few that are coming due that are below that 6% assumption we use in the forward plan, but there are others that are north of that 6% so.

And you're buying at cap rates, which are quite high for this the way we were 10 years ago 5 years.

Yes.

What does that suggest for the value of the assets that you own?

It's interesting like Green Street, we bought 2 properties. So we bought Crabtree, they started revising cap rates down. I call ratio. I was like, that's 1 will. -- almost 1,000 malls. Are you really going to re-rate everything based on this 1 cap rate. So again, that's a market we used the most recent market data okay then about Anapolis in the tens. -- they started rating yes, all of a sudden cap rates in Green Street underwriter going back down again. And I said so like what's really going to change cap rates is debt yields, Right now, debt yields on Class A, class, whatever, you're not getting inside 10 debt yield on a loan. If you talk to any CMBS originator, they can't sell a mortgage on a regional mall under 10% debt yield. It's probably more like 11%. And if it's got hair on it, it's 12 to 13. Lifestyle Center show up with the same tenancy talking about 8.5% debt yield. So there is a mortgage inflection issue happening right now. I don't think it's going to be forever. And I do think that it doesn't really make sense, but I do also know that -- we've gone from 1,800 or so in closed regional malls 15 years ago to about $900. That's a massive destruction of value as we've gone through that unwind that 900 probably has to go to in the United States, in my opinion, you do get to 700 to maybe 600. There's still kind of deadman walking centers that will take a long time to go away, but they actually going to go away. The area that we're focused in is in the 300, which you're trying to A. And if you sort of add in some of the Buses and Bs, you get to 500, 600 in that kind of range. There's no reason why debt yields on A-plus asset should be like 10.5 makes no sense. So a lot of our maturities are coming up are like a get yields. But if I try to clear right now, they're going for 10. So lender, do you want to extend or you want to an out there? And so I think this log jam will start to unwind as we get through this kind of red line circle. Right now, a lot of lenders didn't want to finance malls. That was like a few years ago. Well, actually, now you can't finance them all, but it's going to be at 11 debt yield, maybe 12, that's really, really premium, maybe 10.5% equity. I bought a partner out, when I first got here. They told me this was the worst investment of all the United States investments. The biggest write-down. I said, sorry, but I didn't do it, and I'm going to take you out -- and we've since then been able to move those assets forward. So I think the pension funds that have invested in this will be very selective when they come in. So if you look at who we're competing against mostly private equity funds, that are using leverage and trying to figure out how to get high-teens levered returns in a business that takes a lot of money, takes a big equity check and always takes more time and more money. So like Annapolis is a perfect example like fund if Sandeep was sitting here I want to sell it. It's like, guys, you're selling too early. But the fund had made enough money and they looked at it and said, "If I don't refi this thing right now because the rate -- the acquisition was brutal. I've got to wait 3 years because I got to pay for these tenants, I got to reopen them and then I got to try to get out. Make sure we should get to pay me for that income in place, even though it's not here yet. And we have a capital structure that can not necessarily have to finance in place. I mean so I think that gives us a little bit of an advantage over other people that are constrained with financing assets that are with in-place trailing NOI at an 11% debt yield no snow credit, right? You don't get any credit for that. I think that gives us a little bit of advantage.