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Ladies and gentlemen, thank you for standing by. Welcome to Q4 2023 Macerich Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Samantha Greening, Director of Investor Relations. Please go ahead.

Thank you, Tom. This morning, we’re extremely pleased to report a strong finish to the year. As Tom noted, same-center NOI increased 3% during the fourth quarter of 2023 relative to the fourth quarter of ‘22. When excluding lease termination income for the year 2024 same-center NOI growth, excluding lease termination income was a positive 4.5%. FFO per share for the fourth quarter was $0.56 and was $1.80 per share for 2023 for the year. The quarterly result was $0.03 or 5.7% more than FFO during the fourth quarter of 2022 at $0.53 a share and was in line with consensus estimates for the quarter. FFO for the year was in line with our most recently issued guidance, which was a midpoint of $1.80 per share. Primary major factors contributing to the quarterly FFO per share increase are as follows. One, an $11 million increase in rental renews, which included a $13 million increase in top line minimum rent, $2 million increase in recovery revenue, which were offset by a $4 million decline in percentage rent. These trends are consistent with what’s been reported over prior quarters, they’re driven by improved occupancy growth and rental rate as well as a continued conversion from variable to fixed rent structures with CAM and tax recovery charges. Secondly, we had a $9 million increase in termination income. This was primarily driven by a single lease termination deal, which was a very strategic transaction that we expect will facilitate a major future redevelopment opportunity. These positive factors were offset by the following: one, an $11 million unfavorable increase in interest expense due to rising rates. This figure excludes accrued default interest, which is consistent with our reporting over the prior quarter. And then secondly, a $4 million decline in noncash straight-line rental revenue, primarily from the conversion of GAAP to cash rents for the lease with Google at One Westside, which Tom mentioned we’ve disposed of as of year-end. To recap, as we have emerged from the 2020 pandemic same-center NOI growth, generated by our high-quality Class A portfolio has been tremendous, with NOI growth averaging 7.4% in both ‘21 and ‘22, followed by 4.5% same-center NOI growth in 2023. We are extremely pleased with our resilient core NOI growth during the past three years. This morning, we issued our initial guidance for 2024 funds from operations. 2024 FFO is estimated in the range of $1.76 to $1.86 per share or $1.81 per share at the midpoint. Here are several details underlying this earnings fguidance. The FFO range includes an estimated same-center NOI growth in the range of 2.25% to 3.25%. In terms of quarterly cadence for our 2024 estimated FFO guidance, we expect approximately 21% in the first quarter, approximately 24% in both the second and third quarters and the remaining approximately 31% within the fourth quarter of 2024. Primary major factors that result in a reconciliation between 2023 actual funds from operations and 2024 estimated FFO are as follows: Same-center NOI is estimated to contribute roughly $0.10 of FFO this year. We had roughly $0.03 of FFO estimated from a relative improvement in valuation adjustments pertaining to our investment in direct investment in retailers. And we had roughly a $0.015 year-over-year increase from the acquisition of our partner’s interest in Freehold Raceway Mall transaction, which closed in the latter part of 2023. These positive factors will be substantively offset by the following: one, a $0.07 increase in interest expense when viewed on a same-center basis, two, an anticipated $0.04 decline in land sale gains. We’ve spoken about this in the past. This decline is due to the robust disposition activity from our land sale program that we’ve undertaken since 2021 which is significantly depleted our undeveloped land inventory that remains. And then lastly, about a $0.015 per share dilutive impact from increased share count which is primarily driven from the Company’s various share-based compensation plans. To emphasize, consistent with 2023, our 2024 outlook continues to reflect healthy operating cash flow generation of approximately $300 million after recurring capital expenditures and leasing costs, but before payment of dividends. More details regarding our guidance assumptions can be found on Page 15 of the Company’s Form 8-K supplemental that was filed early this morning. On to the balance sheet. Over the past few months, we have made considerable progress addressing our debt maturities. In December, we closed a $710 million five-year CMBS refinance of the $666 million loan on Tysons Corner Center. The new loan bears interest at a fixed rate of 6.6% and is interest only for the entire loan term. Also in December, our joint venture sold One Westside, as Tom alluded to, to UCLA for $700 million. The existing $325 million loan on the property was repaid and approximately $78 million of net proceeds were generated at our 25% ownership share. In January, we closed a $24 million five-year bank loan refinance of the existing $23 million loan on Chandler Boulevard Shops. The new loan bears variable interest at SOFR plus 2.5%. And is interest only for the entire duration of the long term. In January also, we repaid the majority of the loan on Fashion District in Philadelphia, roughly $8 million remains, and that matures in April and is anticipated to be repaid at that time. In January, we closed $155 million 10-year CMBS refinance of the existing $117 million loan on Danbury Fair. The new loan bears interest at a fixed rate of 6.39% and is interest only during the of the 10-year loan term. We are currently working with the loan servicer on a multiyear extension of the $86 million loan on Fashion Outlets of Niagara and we do expect this transaction to close later this month. Once closed on that Niagara extension, we will have a very manageable $400 million of maturities remaining in 2024 and across three separate loans. To recap the year, we’ve been extremely active in the debt capital markets during 2023 and year-to-date so far in 2024 across eight transactions, including Niagara, we will have refinanced or extended eight loans totaling $2.9 billion or $2.1 billion at our ownership share. This activity included a 4.5-year renewal and upsizing of our $650 million revolving corporate credit facility during the third quarter of last year and let’s remind ourselves that closing was amidst the regional banking crisis within the United States. So we’re very pleased with our activity throughout last year and to start this year. A year ago, we anticipated improvement in the debt capital markets during the latter portion of 2023 given that the Federal Reserve was expected to be then near the end of its historic rate hiking cycle. And in fact, that expectation has proven true. We’re now finding significant opportunities to finance our assets within the sustained strong performance of our Class A retail. We also believe that we are benefiting from a rotation of financing capital away from the office sector and into the Class A retail real estate sector. Our recent transactional activity supports that thesis. In mid-November, we acquired our partner’s half share in Freehold Raceway Mall for $5.6 million and the assumption of our partner share of debt. We now own 100% of Freehold Raceway Mall. We currently have approximately $657 million of available liquidity, which includes $490 million of capacity on our corporate credit facility. And with that, I’ll turn it over to Doug to discuss the leasing and operating environment.

Thanks, Scott. We closed out 2023 with very strong leasing metrics and leasing volumes. In fact, 2023 was a historic and record leasing year for Macerich, dating back 30 years as a public company. Year-end 2023 sales were down 1.8% from year-end 2022 and after a post-pandemic spike in spending across all retail categories, 2023 was clouded with increasing interest rates, inflation and the constant threat of a recession. In addition, we’ve definitely seen a change in spending habits with consumers now focusing on travel, dining out, entertainment and other various services. This doesn’t come as a surprise, and we expect 2024 to once again normalize and ultimately reflect more traditional consumer spending habits. Sales per square foot as of December 31, 2023 were $836. That’s down slightly from $847 at the end of the third quarter, and that’s primarily due to a decline in the sales of electric vehicles. Trailing fall leasing spreads were a very healthy 17%. As of December 31, 2023, that’s up 660 basis points from the third quarter and up over 13% when compared to December 31, 2022. In the fourth quarter, we opened 391,000 square feet of new stores. For the full year 2023, we opened almost 1.6 million square feet of new stores, which is 80% more square footage than we opened during the same period in 2022. Notable openings in the fourth quarter include an expanded and newly reimagined American Eagle flagship at Tysons Corner Center; Five Below at Valley Mall, Levi’s at Los Cerritos, Pandora at Stonewood and North Face at Broadway Plaza and FlatIron Crossing. In the digitally native and emerging brands category, we opened Beyond Yoga at Broadway Plaza, Purple at Los Cerritos, Warby Parker at Chandler and YETI at Washington Square. In the international category, we opened Aritzia and Intimissimi, Corte Madera, Lululemon at Freehold Raceway Mall; UNIQLO at Green Acres,

[Operator Instructions] The first question comes from Jeffrey Spector with Bank of America Securities.

Okay. Sorry about that, if I miss that. If I could then ask Doug, and congratulations, Doug, on a great ‘23 in terms of leasing. I appreciate all the stats you provided, including where you stand today on ‘24. I think you said 80% commitments, square footage, 44% in LOI stage, I guess would you be able to compare that to where you stood a year ago as you entered ‘23, which turned out to be a record year? Like how do you feel today versus one: year ago?

Well, there’s two parts to that question, Jeff. I think the first part, you were referring to our lease expirations. We’re basically done with all of our expiring square footage in 2023, and we have commitments on 44% of our 2024 expiring square footage and another 34% in the letter of intent stage. So we’re about 77% there with 2024 expiring square footage. I think the other part of the question really referenced more of our leasing pipeline in which we said we had 126 leases signed for 2.2 million square feet. That’s just about, Jeff, where we were at this time last year, give or take, just a little bit.

And then if I can then ask a second question. What are you assuming in terms of bad debt lease termination income in ‘24? And how does that compare, let’s say, to ‘23 or maybe versus historical?

Jeff, I’ll take that. This is Scott. Bad debts, we’re assuming those to start to normalize a little bit more relative to 2023. I would say that’s about a $0.02 headwind in 2024 against our same center. I don’t expect those to be significant in the fullness of time, but I do expect them to be a little bit larger than they were in ‘23, which frankly was a net reversal, and that was just a continuation of recovering some of those latent fully reserved receivables in ‘23. I expect most of that to be out of the pipeline now, and it will be trending a little bit more normal. Lastly, termination income, we did provide line item guidance for that, which is $10 million, and that was down about $3 million or so, give or take, versus where we finished in 2023.

The next question comes from Greg McGinniss with Scotiabank.

This is Viktor Fediv here on with Greg McGinniss. I wanted to follow up on this lease termination income in Q4. I know probably that you cannot provide some specific details. But overall, what type of tenant was that? And you mentioned that it opened some strategic opportunity for you to redevelop that center. So when you kind of provide some more details on that?

Yes. The -- yes, you’re right, I can’t speak to the specific tenant or the asset, frankly, other than to say, like I mentioned at the onset, that the lion’s share of that termination fee, pretty much all but roughly $1 million, $1.5 million of that was from that single transaction. That transaction was an anchor location in terms of the type of space, but we do expect that to open up a really significant redevelopment opportunity. We are working on predevelopment and preplanning of that right now as well as entitlement. Once we narrow down the scope and the exact cost and returns, which we expect to be, the returns to be in the low double-digit realm, we will disclose that in our pipeline. But it is a good opportunity. We’re very glad to get that transaction completed.

And then the second question, probably on leasing demand part. So given that department stores sales were weaker versus broad retail sales in 2023, do you expect more optimization to occur within that space? And have you had any conversations with your tenants about that already?

Our next question comes from Samir Khanal with Evercore.

Tom, congratulations on your retirement. We will miss you. So Scott, just on same-store NOI guidance here. Certainly, leasing is very strong. The pipeline looks great in the ‘24. But I just want to kind of dive into the same-store NOI growth that is moderating in ‘24. Maybe help us think through the drivers of that lower growth in ‘24 at this time.

Sure, Samir. I’ll walk through it. Obviously, great growth over the last three years, as I highlighted in my opening remarks. So for starters, we are dealing with some more challenging comps. In addition, I would say operating expenses do remain relatively elevated when you think of things like insurance costs, security labor, I mentioned bad debts, those are all contributing to some headwind in same center that I would quantify it roughly 150 basis points or so, headwind in same center. We are -- given the robust leasing environment and remerchandising our space, we are taking space offline, so there is an element of downtime within that same center guidance. And I would estimate that kind of bracket a roughly 1% headwind in the same center. That’s all positive, though, because we’re taking underperforming merchants offline. We’re putting in much more attractive merchants, much more diversified uses that will draw traffic and better sales volumes at better rent levels. So that is what you typically see in a robust leasing environment. So those are really some of the major moving pieces. And then, of course, as we do with each and every year, we do embed some reserves for the unanticipated in our guide.

And just from a modeling perspective, help us think through G&A for the year and also percentage rents?

And then, Samir, you also asked about percentage rents. If my memory is right, about 12 months ago, I said we do expect roughly a 15% to 20% decline in percentage rents into 2023 from 2022. And in fact, that played out. If you look at our percentage rents on a pro rata basis, they were down about 16% in ‘23 versus ‘22. And again, largely, that was a function of conversion of variable rent to fixed rent type structures. I think we worked through the vast majority of those at this point, Doug. I don’t expect a lot more of that. As we look into 2024, and we’re looking at percentage rent trends versus ‘23, I expect those to continue to tick down, but not nearly as significantly as they did in 2023. We’re estimating roughly about a mid-single-digit decline in percentage rents and some of that is just as you get escalations and base rents, you get an increase in breakpoint. So there’s a natural transition of variable rent to fixed rent on that basis. But I don’t expect the type of leasing activity converting variable to fixed rent that we had in 2023 at all.

The next question comes from Floris Van Dijkum with Compass Point.

Floris, it’s Doug. With regard to your specific questions about luxury, as you know, a few years back, we finished the luxury wing at Scottsdale Fashion Square and the Neiman Marcus wing. And late last year, early this year, we’re now focusing on bringing luxury -- global luxury to the Nordstrom Wing. I think a few calls ago, we announced Hermes, which is the bellwether tenant for that property, and we’ll be announcing more over the next several months. But to Tom’s point, I talked about the leasing pipeline all the time. And it’s 2.2 million square feet. It’s going to open over the next 2.5 years. Those are phenomenal numbers. But the thing that really excites me is the uses we’re going to be bringing. So that just all new uses, new exciting uses, you think about Din Tai Fung and you think about Elephante, True Food Kitchen, Vuori, H&M, Primark, Dave and Buster’s, Kiln, Lifetime Fitness, Tom mentioned Pinstripes, Target, Level 99. I mean, that’s really the beauty of this pipeline, not just the metrics, but the depth and breadth of uses that we’re bringing to our town centers over the next 2, 2.5 years.

Great. Maybe a follow-up with Scott. I know you mentioned that Niagara is going to get refinanced, and that might surprise some people myself included, who thought that might transition back. I know you probably can’t say a whole lot, but does this mean that you will be investing leasing capital in this asset on a going forward basis? And what do you think that can do to the operations for this property going forward as well?

Sure. Floris, you’re right. I can’t speak in too much detail because the transaction is still in process. We do expect to secure a multiyear extension of that. The asset still does generate some FFO. It certainly has its challenges given its market positioning with north of the border in Canada and the local market. There still is some opportunities for that asset, and we’ll continue to -- continue to capitalize on those opportunities. But the bottom line is it’s a negotiation that’s still in process. It’s earnings accretive to retain that asset, and we’ll report back once we close.

The next question comes from Todd Thomas with KeyBanc Capital Markets.

Okay. That’s helpful. And if I could just get one in for Doug. I appreciate the detail around the S&O pipeline and the lease signings and LOIs that you’ve executed around the ‘24 expirations. Can you talk about your expectation for tenant retention during the year and maybe discuss any known move-outs or post-holiday season -- seasonality that you’re expecting this year relative to the last few years where there’s been a lot less seasonality than traditionally is?

Todd, it’s Doug. Thank you. I think -- and Scott jump in here. But I think in 2024, our expectation is between 90% and 95% tenant retention. Meaning our expirations -- our 2024 expirations between 90% and 95%, we believe, will retain.

I think the second part of your question was regarding any unanticipated or just fall out following the holiday. And I won’t say there -- I don’t think there’s anything out of the ordinary. If we looked at, say, the 2016 through 2019 period, we had some precursor certainly in the fall of tenants that were likely to close, and they were closing in fairly significant routes. We have not had that for the last few years at all. And I can’t think of any retailer that said, look, we’re going to shut down five or six stores following the holiday season. Doug?

Yes. Todd, we’ve talked about this a lot. I mean many of the retailers that were suffering pre-pandemic just didn’t make it through pandemic. And those that came through, came through in a very healthy way. And as I mentioned in my prepared remarks, there’s a very, very healthy retailer environment out there with very strong balance sheets. I think the retailers -- I know the retailers in 2023 and into 2024 already speaking about managing the inventory levels, which is hugely important for the profitability and for the margins which actually makes them stronger. So we’re not seeing really any pullback and our watch list is as low as it’s ever been in 20 years. So I don’t anticipate anything, anything unusual in 2024, if you will.

The next question comes from Michael Mueller with JPMorgan.

And I just have one quick one for Scott. Just curious, what’s embedded in the 2024 guidance for NOI margin improvement relative to what you had in 2023?

Yes, Mike, I think we’ll see continued margin improvement. We’ve got improvement in rental rate. We’ve got growth in occupancy. Obviously, the pipeline will start to add more and more as we get towards the latter half of the year. It’s still a pretty thick pipeline. In fact, I think the pipeline yields roughly $64 million, $65 million of incremental rent over existing uses. So that will be heavy in the second half. Conversely, like I said, we’ve got operating expenses continue to be somewhat of a drag, not a huge drag, but somewhat of a drag. So -- but I do think by the time we get to the end of the year, you’ll see continued margin improvement year-over-year.

The next question comes from Ki Bin Kim with Truist.

Congrats, Tom. And going back to some of the debt execution that you’ve done in 2023 and what you have in 2024. Are there some trade-offs that don’t show up in the interest rates to solve things like CapEx reserve requirements or other clauses that might be a little bit more restrictive?

Yes. I’d say we’re always leaning into our underwriting to make sure that we’re getting full credit for the pipeline. And given the depth of the pipeline, any one of these deals we’re approaching, whether it’s Tysons or Danbury. To the extent we have a tenant that’s not yet come online, we do have to set aside that capital. It’s effectively -- I guess, when you think about it, it’s prefunding that capital and then we drop back down over the next 6 to 12 months. And so for instance, for Tysons, I think there was an incremental $40 million, give or take, of liquidity. But a lot of that liquidity was soaked up in CapEx reserves for a lot of restaurant uses. We’ve recently discussed Level 99, which is a new entertainment use on the east side of the center. So we did have to set aside the anticipated leasing capital to bring that use to opening and paying rent. But other than that, no, I’d say that the environment is pretty normalized. And we’re getting deals done again, liquidity is back open. I’m happy to say that we probably accounted for roughly 25% of the volume that occurred in CMBS, which was about a little over $7 billion of transactions in 2023. So, the markets are open and functional and as you can see from the rates somewhere in the mid-6s is where we’ve been transacting.

And what is like a broad refinance rate that we should assume for 2024 refinancing?

I’d say we’ve been transacting in the mid-6s, and that’s probably representative of where we’ll be this year. We’ll have to see what the Fed has in store for us for the next 12 months. But based on where we see the forward curve, that’s probably a reasonable expectation.

The next question comes from Haendel St. Juste with Mizuho.

Yes. Sure, Ravi. To your first part of your question, I think we could see 40 to 50 basis points of improvement in leverage by the time we get to the end of the year. Roughly 8.2x is kind of where we’re triangulating based on the business plan today.

The next question comes from Caitlin Burrows with Goldman Sachs.

Congrats, Tom, on your retirement. Maybe starting with Santa Monica Place in Scottsdale Fashion Square, I feel like the expected openings are getting closer on those. And I think combined, they’re supposed to have an incremental NOI of around $50 million at your share. So I’m just wondering if you can give some further detail on the timing of recognizing that NOI? Like could it start in the first half of this year? Or any other details you can give?

Santa Monica, we’ve got some exciting uses coming first level, Club Studio, which is high end fitness, third level, Arte, both of those are going to be done in the first half of 2025. So, you’ll see some bleed into 2026 there. Din Tai Fung will also be a use that we hope to get online either at the end of this year, beginning of next year. So, all those are very accretive leases that we expect to be on board, certainly by second quarter of 2025.

Got it. And maybe you guys talked earlier in the call about how percent rents were down in ‘23 because more was being shifted to base rents, which makes sense. I was wondering if you could go through any details on how much that kind of phenomenon impacted leasing spreads like that the expiring ABR might have been lower and related kind of the level of leasing spreads that you reported in 4Q of almost 20%. Do you think that’s sustainable?

Sure. Great question. Yes. Certainly, if you look at our expiring rents in 2023, they were a lot lower than what we expected in 2024. And that was really driven again by all those shorter-term deals that we did during COVID, which had more variable rent and we’re accessing those throughout 2023 and renewing those on a longer term more typical fixed rent structure. So as we reported trailing 12%, 17% spreads at the end of the year, and I would expect those base rent spreads to be roughly 50% of that level in 2024. Really, again, just a function of a relatively artificially low base rent expiring in ‘23 and a more normalized level of base rent expiring in 2024.

The next question comes from Nick Joseph with Citi.

Just hoping you could walk through the capital needs and the funding plan for leasing-related CapEx and any incremental redevelopment in 2024.

Sure. I did mentioned in my opening remarks, Nick, good afternoon -- that we do expect after recurring CapEx and leasing costs to still have generated roughly $300 million of operating cash flow before payment of dividend. As I look at ‘24, ‘25, ‘26 development pipeline, I think, will range between $150 million to $200 million over those three years, and we’re probably somewhere around that midpoint of that for 2024. We are -- we’ve got probably 8 to 9 -- 10 anchor boxes that we continue to work on that will largely be re-tenanted and completed by the end of the year but will also be set in the table for some larger-scale redevelopments, potentially Green Acres, potentially FlatIron for 2025 and 2026. So that will give you an idea of some of the character of what we’re spending on.

The next question comes from Alexander Goldfarb with Piper Sandler.

Tom and Eddie certainly for two decades of working with you guys in REIT land. It’s been awesome and we’ll miss our NAREIT interaction. So I wish you guys the best in your next endeavor. So I have two questions. The first question is, Scott, on the Danbury mall loan, you know how much I like that mall. Can you just help us walk through and interpret the $155 million new loan relative to the value of that mall? Just given the sales that it does and the dominance in that northern region would think that the loan is under-levered relative to the value of the asset. Obviously, the market today is a tough market to do debt. So maybe just some perspective around how we should interpret the loan balance relative to where the market value of that asset would be sort of in normal times, obviously, not right now when people are skittish.

Sure. Yes, it’s a great asset. It’s virtually 100% occupied. I think there’s one or two available storefronts. So very happy to get a 10-year deal on it, stagger out that maturity, et cetera, et cetera, especially at a very attractive rate. The the loan to value, if I recall correctly, was in the low 40s based on appraisal. We typically, as you know, from following us many years, we typically finance in the 55% realm. So yes, there’s a little bit of liquidity on the table, but it’s the state of the market today. And I think it was a great execution hitting a window. And recall, we’ve been trying to finance that thing through a difficult capital market environment for almost two years. So it was really nice to be able to window and execute well at a good rate.

The next question comes from Ronald Kamdem with Morgan Stanley.

Understood. And then one on -- so I saw the Green Acres Mall redevelopment announcement, I think, earlier this, I guess, last week or earlier this January, but I didn’t see it in the supplemental. Is there -- is that going to be a large project? Like how should we think about the economics and returns on that? Or should we just wait for that to be at it?

Yes, it’s a wait. I think you’ll see it hitting the pipeline. We are in predevelopment and entitlement mode right now. It’s going to be a very attractive project. Frankly, that’s a gem from the two assets that we acquired back in the 2012, 2013 time frame. Green Acres has performed extremely well. We added a power center. We’ve been able to re-tenant the mall. In total, the entire property, the entire campus generates over $1 billion of sales and we’re really, really excited to bring this next phase, but we’re studying it, and it will hit the pipeline over the next few quarters.