MAC - NYSE

Ladies and gentlemen, thank you for standing by. Welcome to the First Quarter 2024 Macerich Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to your speaker today, Samantha Greening, Director of Investor Relations. Please go ahead.

Thank you for joining us on our first quarter 2024 earnings call. During the course of this call, we will 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 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 8-K with the SEC, which are posted on the Investors section of the company's website at macerich.com. Joining us today are Jack Hsieh, President and Chief Executive Officer; Scott Kingsmore, Senior Executive Vice President and Chief Financial Officer; and Doug Healey, Senior Executive Vice President of Leasing. And with that, I turn the call over to Jack.

Thank you, Samantha. Good morning, and thank you all for joining my first quarterly earnings call for the Macerich Company. I am grateful for the Board of Macerich for selecting me at this time to chart a new direction and lead the company especially in light of our recent 30-year listing celebration on the New York Stock Exchange. I am very optimistic and confident about our company's future. Since March 1, I've had the privilege of meeting over 80% of our company's associates in each of our 6 office locations and in my property tours of 22 of our largest assets. I can tell you that there is tremendous passion and desire for change and new leadership from our associates. Our well-tenured team members across many business lines are excellent. Many of our assets are fortress-like in terms of their market position, annual customer visits, tenancy and overall sales production. And while we have proven operational processes, there is even more room for improvement. I also met with several tenants and joint venture partners of Macerich who are excited about moving forward with us. In our most recently quarterly Board of Directors meeting last week, I outlined my strategic plan for the company, our path forward, which focuses on the following key objectives that we expect to take 3 to 4 years to complete. Number one, simplifying the business. We expect to sell assets and consolidate certain JV interest over time. Asset sales will be focused on whether a center is core to our strategy, including sales per square foot and other factors such as debt in place, trade area positioning, anchor positioning, city dynamics, et cetera. With regards to JVs, we will be very selective on deploying capital to consolidate JVs. Number two, improve operational performance. By increasing NOI through backfilling certain vacant anchor locations, NOI improvement in our large eastern seaboard assets, NOI from our current executed lease pipeline that will produce $70 million in incremental rental revenues from new deals in 2024, '25 and '26, and improving permanent occupancy throughout the portfolio. We will be very selective with regard to new development and redevelopment spend. Near-term projects include the expansion at Green Acres and FlatIron Crossing. And number three, reduce leverage to the low to mid-6x is a major priority for Macerich. In addition to focusing on our core business, which generates annual free cash flow after dividends of $150 million and executing on our asset sale plans, we also plan to return 4 to 6 properties back to lenders at loan maturity. This will take time, but we have a path to achieving this objective. One of the key intentions of our plan is to increase the competitiveness of our cost of capital. And if the market responds the way we expect, we may opportunistically issue equity over time to accelerate the deleveraging strategy. Based on our plan, $500 million of new equity reduces leverage by 2/3 of a turn. By executing on this plan, we will concentrate our portfolio in our best properties, which are thriving retail centers and will have a substantially stronger balance sheet. This will position Macerich to be offensive on acquisitions, reinvestment and select development. In the last 60 days since I've joined the team, we have already started executing this plan. For example, we are underway on several asset transactions, which include property sales, consolidation of JV interests on certain assets and potentially giving back properties to lenders. The timing of these transactions will impact our reported financial results and include noncash items that are difficult to forecast. So for the time being, we will be withdrawing our 2024 forecasted FFO per share guidance. We plan on reissuing guidance at the right time as we have more clarity on the timing and certainty of these transactions and initiatives that we are implementing as part of our strategic plan. Three weeks ago, I hosted a company-wide town hall

Thank you, Jack. This quarter, we were pleased by the continued strength of our operating fundamentals namely by continued robust leasing volumes, year-over-year occupancy growth and strong base rent leasing spreads, each of which Doug will speak to following my commentary. However, quarterly FFO did not meet our expectations. FFO per share for the first quarter was $0.33. This quarterly FFO result was $0.05 less than our expectations and guidance and $0.10 less than the first quarter of 2023 at $0.43 per share. The primary major factors contributing to the quarterly FFO per share change versus our expectations are as follows: $0.025 or roughly half the miss versus our guidance was due to the impact from Express and resulted from reserves taken against past due rent and from write-offs of straight-line rent and other noncash receivables. I will provide more color on the potential impacts from this retailer in a few moments. The balance of the decline in FFO relative to our expectations came primarily from onetime nonrecurring costs associated with our recent leadership transition mainly from legal, search and consulting costs; two, reductions in lease termination income; three, declines in straight-line rents and lastly, declines in the quarter from our on-premise advertising business. In addition to these factors that I just mentioned, which were not part of our prior guidance, the following other primary factors contributed to the remainder of the $0.10 difference in FFO relative to the first quarter of last year, each of which are consistent with our guidance and expectations. One, the $5 million increase in interest expense; two, a $3 million decline in land sale gains and lastly, three, from various nonrecurring other income that was recognized during the first quarter of 2023 and did not repeat in 2024. During the quarter, same center NOI, excluding lease termination revenue, decreased 1.9%. Our expectations from our original guidance were for only a nominal increase in same-center NOI during the first quarter, with the continued pickup thereafter throughout 2024 due to tenant openings from our strong lease pipeline. The quarterly underperformance versus expectations in same-center NOI was primarily due to, again, Express and to a lesser extent, from lower advertising income in the quarter. As Jack noted, at this time, we have withdrawn our prior guidance for 2024 funds from operations, given that our earnings will be impacted by transactions contemplated within our strategic plan, including asset sales, consolidation of selected joint venture assets and potential givebacks to our lenders, the timing of which is uncertain and cannot be estimated at this time. In addition to earnings impacts from our first quarter results, here are a few other items to highlight that may impact our earnings results for this year in 2024. One, we did not anticipate the bankruptcy filing of Express with our earnings guidance. To frame Express, we have 23 stores with them, and approximately $15 million of total rent at our share. Based on my prior commentary, this event has already had a negative impact on the first quarter and will continue to have a negative impact for the balance of this year and into next year when all store closures and any rent modifications that are negotiated anniversary. With the filing having only just occurred, it is very early days in this process. Our current preliminary expectations are that this could have a range of $0.05 to $0.06 negative impact on 2024 FFO, including the impact that we just recognized in the first quarter, and that could have roughly $0.06 to $0.08 negative impact on FFO on an annualized basis. At this time, it seems that at least 15 Macerich portfolio Express stores will close likely within the second quarter. These 15 closures alone will have an approximately 50 basis point negative impact on our small shop occupancy. These are generally good locations and we should be able to release them well over time. As well, we do not have visibility at this time into a significant amount of lease termination income. So our initial estimates for $10 million of such revenue in 2024 may be cut in half. As Jack noted, it is possible we may acquire our partner's interest in certain assets. These purchases would be FFO accretive except for the fact that we would have to mark-to-market the below-market secured debt that we would assume with those acquisitions. Such noncash charges would make those transactions FFO dilutive by roughly $0.02. Now onto balance sheet matters. We continue to make good progress addressing our debt maturities. On January 10 of '24 our joint venture closed a $24 million refinance of the existing $23 million loan on Boulevard Shops in Chandler, Arizona. The new loan bears variable interest at SOFR plus 2.5%. It is interest only during the entire loan term and matures on December 5, 2028. On January 25, 2024, we closed $155 million refinance of the existing $117 million loan on Danbury Fair. This new 10-year loan bears interest at a fixed rate of 6.39% and is interest only during the majority of the loan term. On March 19, '24, we closed a 3-year extension of the $85 million loan on Fashion Outlets of Niagara. This extended loan will bear the same fixed interest rate of 5.9% and will mature in October of '26. We recently repaid in full the $8 million remainder of the loan on Fashion District at Philadelphia, which is now fully unencumbered. We are in the process of closing a 2-year extension of the $151 million loan on the Oaks, which matures on January 5, 2024. The new interest rate during the first year of the extended term will be 7.5%, which then increases to 8.5% during the second year of the extended loan term. We are in the process of closing a refinance of the $256 million loan on Chandler Fashion Center. The loan matures on July 5, 2024. The new 5-year loan, which is expected to be $275 million, will bear a fixed interest rate that is yet to be locked. Despite the recent rise in treasury yields, the financing market for Class A retail real estate remains strong, but with an increase in rate expectations relative to prevailing rate curves from earlier this year, and also relative to our expectations at the beginning of the year. We currently have approximately $640 million of available liquidity, including $465 million of capacity -- available capacity, unborrowed capacity on our revolving line of credit. With that, I will turn it over to Doug to discuss the leasing and operating environment.

Thanks, Scott. We had another strong quarter in terms of leasing volumes and metrics. Occupancy at the end of the first quarter was 93.4%. That's down slightly from Q4 2023 but an improvement of 120 basis points year-over-year. We obviously expect this metric to decrease slightly given the recent news on Express bankruptcy and future potential store closings. Nonetheless, our team is working diligently to backfill these spaces as soon as possible. First quarter sales were basically flat when compared to first quarter 2022. Sales per square foot as of March 31, 2024, were $837. That's up $1 when compared to the first quarter of 2023. Trailing 12-month base rent leasing spreads remained positive at 14.7% as of March 31, 2024. That's down slightly from the last quarter, but an increase of 810 basis points when compared to March 31, 2023. In the first quarter, we opened 540,000 square feet of new stores. That's almost 300% more square footage than we opened during the same period last year. The most notable opening of the quarter was the highly anticipated Caesars Republic Hotel, which opened on March 6 at Scottsdale Fashion Square. This modern 11-story 265-room hotel is situated on the north side of the property and will be a great amenity for our tourism customers. In addition to its luxurious rooms and suites, the hotel also features the fabulous restaurant Luna by world-renowned chef, Giada De Laurentiis. Other notable openings in the quarter include a flagship Foot Locker at Tysons Corner Center; Rothy's and Coty also at Tysons, J. Crew at The Village at Corte Madera and Danbury Fair; Starbucks at Deptford Mall, Pandora at Valley River, Maje and Sandro at Scottsdale Fashion Square, Round 1 at Danbury Fair and Kiln at SanTan Village. Now let's look at the new and renewal leases we signed in the first quarter. In the first quarter, we signed 222 leases totaling just over 1 million square feet. This represents a 14% increase in lease square footage relative to the first quarter 2023. And let's keep in mind, 2023 was a record leasing year for us, dating back 30 years to when we first became public. As is the norm in the first quarter, 2024 lease expirations were a top priority. To that end, we signed a 21 deal renewal package with Abercrombie & Fitch, an 18 deal renewal package with Luxottica, a 10 deal renewal package with GNC, 7 renewals with Verizon, 5 renewals with T-Mobile, and 4 renewals with

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

My first question, I guess, let's focus on Jackson, your comments around the objectives and the time frame. I think you said 3 to 4 years. And completely understand there's a lot to do in the 3 to 4 years. I guess, can you be more specific on some key objectives for the next year when you present it to the Board, did you lay out, let's say, some key objectives for, let's say, the next 12 months?

Yes, we actually did that. We did a year-by-year analysis that we presented last week. I guess I'll give you the fundamental building blocks that we look at as it relates to getting leverage to dial down into that low 6x debt-to-EBITDA range. You could consider that the assets that we plan to dispose or give back, I referred to, would result in a 100 basis point decline in our leverage statistic, the NOI increase over this period of time, which includes accounts for about 60 basis points of reduction in our debt-to-EBITDA ratio. Of that 100 basis points, approximately 60% of that is related to that $70 million of incremental rental revenue that Doug and I talked about. And the final 65 basis points of leverage reduction is accounted for in that $500 million of common stock issuance as a placeholder. So those 3 fundamental building blocks are what gets us down to that target level. I can tell you that the sales and giveback analysis, it's about 10 properties, plus or minus. We can't do that all at once. There's a very specific sequencing that we're going through, that will take about 3 to 4 years to accomplish. The NOI that we talked about, that's also a 3-year buildup, although every year, you'll see pieces of that come in. And the common stock piece is kind of at our discretion. We don't do it right away. We're going to delever just through this process. So we're very opportunistic about that. But I think what you'll see us do, Jeff, is, as we get more clarity around FFO guidance, we'll probably start to talk about specific sale transactions and JVs and lender givebacks that are actually executed or under contract, so to speak. We're in process right now, so we can't comment on it. But in the coming months, we'll be able to give real clarity around specific names of assets.

Very helpful. And my follow-up question, then thinking about these key objectives and then the ultimate goal, right, you talked about going on then having the cost of capital to go on offense. I guess, is that in a couple of years? Or do you feel like if you're able to chip away and start achieving some of these objectives over the next year, you'll be able to do it. I mean -- and positive just to say, obviously, on the leasing side, you guys continue to do extremely well, which is, of course, critical.

Yes. Look, when I joined this company, I didn't just come here to delever the company and try to sell the company, can that just be retired. I saw a great organization that can do whole lot more of this platform, and when I looked at the plan to delever, to be honest with you, it's a pretty simple plan. It's 10 assets. It's NOI that is coming, and the common stock thing is a lot lower than probably I initially expected from the outside looking in. If we wanted to go quicker and not sell any properties that's issuing $2 billion of common stock to get us down into the low 6x area, which we would never do, make no sense from -- just from a dilution standpoint. So I feel like this plan gives us the best opportunity to take advantage of, I think, are going to be really interesting opportunities. In my former job, there were 20 public listed net lease companies, 20. In our space, there's basically 2 companies public that focus on enclosed shopping centers and lifestyle centers. We're one of them. And I think there's honestly going to be some opportunity in the future to look at really interesting centers in time. So my objective is to get our organization ready for that pivot when it comes, and that's what we're going to do.

Next question comes from Greg McGinniss with Scotiabank.

Jackson, you really seem to have hit the ground running here. How much of the current strategic plan was in place when you joined versus your view on what needed to be done here? And what's been your internal messaging to the company regarding your vision for the future of Macerich?

So this started day 1, when I joined. First day I started, I went to look at 3 of our shopping centers, 2 of them in Southern California. And then the following week, came into the Santa Monica office. I had an opportunity to work with the leadership team early on to really understand kind of what -- how we did business, and I saw a great opportunity to challenge the organization to focus on a mission statement, corporate values that are not just words that we will live but I also saw an opportunity, which to me was interesting is to focus on the fact that we're really in the hospitality business, if you think about it. I know we talked about shopping malls, but look, our customers are our tenants and the people that come in at these properties. And those people have a choice to go and do a lot of different things, shop online, go somewhere else. So we have got to make our environment have the best merchandise mix, which includes concepts like Dick's House of Sport, Lifetime Fitness, there's great entertainment venues that we can bring in, food venues. At the end of the day, it's really more visits, longer dwell time in our centers. And I've had the opportunity to describe that vision of we are in the hospitality vision -- business to everyone on this company via town hall and we did it again at our recent property management conference that we held in Scottsdale a couple of weeks -- 3 weeks ago, where we had 200 people for the property level at that center -- at that venue. So we want to approach this business in a different way. It's not just providing anchors and shops, but it's really trying to make a difference on what our customers need and want. Other things that I sort of initiated coming in, not just the mission statement and the strategy. We came up with a property ranking system that's not going to be new to you. We've got the fortress assets, the Steady-Eddie and the Eddie's 3 classifications. We're launching a formalized capital allocation process. I'm looking at a process review of our lease process. How do we start rent commencement saves faster. We're evaluating a CRM but then our leasing team. I'm looking at offshoring concepts and AI initiatives, all in the realm of trying to make ourselves better, more efficient, so we can be better attuned to what our customers need and drive more traffic in these centers. So I'm only halfway through our visits, but I can tell you that I have a very clear vision of what we need to do. and I think it's really achievable.

And I guess in thinking about the assets that you're looking to sell and not give back, are those generally in that, I guess, as you phrased it that the Eddie category? Or are there some stronger assets in there that you're looking to offload to maybe control dilution a little bit?

I'd say it's a mix. Without getting specific names, there are assets in our middle grouping that are good, but not necessarily strategic for what it means for us, maybe not as much upside. And so we can redeploy capital that way, it will be better for all. And of course, there are a number in that third category, which some of them have debt on them and things like that, where we'll be very methodical about trying to move through those assets over time.

And then just one final question on the asset -- asset specific questions on Santa Monica Place, which I recognize you're in negotiations with the lender right now -- under some assumption that you plan on trying to hold on to that if you can come to a good resolution there, but did notice that it was pulled from the development pipeline. Is that -- did something happen on the development side? Or is that simply because of its current status?

Yes, Greg, I'll take it, Scott here. We continue to face challenges in the broader marketplace here in Santa Monica. It impacts our progress. It impacts tenancy. We've got a challenging underlying capital structure and that all led us to making the decision to default on the loan in early April. If you look at the asset, just to frame the financial impacts of it, the asset is about $0.01 FFO dilutive increases our leverage by about 20 basis points. Beyond that, we're not in a position to provide any more information though. It's -- as you mentioned, subject to ongoing discussions with our lender.

So is it not worth the investment anymore at this planned development side? Or did those pause?

Yes. Again, challenges in the marketplace -- challenging underlying capital structure led us to the conclusion. I got to leave it at that, though, Greg.

Next question comes from Samir Khanal with Evercore.

Jackson, I guess, just curious given where rates are today, right? I mean, how realistic is that goal on dispositions today? I mean I know you talked about 10 assets, but is that more -- I mean it's not really the next 12 months, but you're talking sort of long term? Just trying to figure out the time frame on asset sales.

Yes. I mean we assume sort of in our plan, a base rate assumption of 6.5% over the next 3 years. So I'm sure that it could be higher, it could be lower. And the assets that we're considering, we think, I would describe some as having very attractive below-market financing that assumable. So that would be maybe one category. There would be another category that might be unencumbered properties that obviously would have impact to current financing rates. And then I would describe another category as I haven't talked about too much is we have a handful of freestanding, very monetizable outparcels that we could sell that include tenants like Costco, Home Depot, BJs, Lowe's, Walmart, which would probably not be something we do in the short term, but perhaps possibly later in the kind of timing cycle as we move forward. So it's not just centers. There are a lot of different asset opportunities that we have, and we're very cognizant of rates, but just so you know how we built our assumptions, we sort of use a 6.5% base rate on any refies.

Okay. Got it. And then just maybe looping in Doug here. I know you guys talked about Express and with all the store closings. I guess, Doug, give us an idea of how you think about the backfilling of these boxes or these shop space? And what's been sort of the interest level as we think about -- yes, the rents are going to come offline. At what point do we start to backfill with newer tenants?

Yes, as you know, we and our peers went through this in a big way coming out of COVID when store closures and bankruptcies were expedited by the pandemic. If you think about Express, think about back in the early days, they were the darling of the industry. So because of that, they got some of our best malls and in those best malls, they got some of the best space. So I guess if there is a silver lining and nobody likes closures, nobody likes bankruptcies, but the space we're going to get back is in some of our best properties. And -- 40- 50-yard line locations. I think about getting space back at Kings Plaza or Danbury or FlatIron, Freehold, Green Acres. Those are very, very well leased properties. Space is hard to come by. So we view it potentially as a silver lining, but it's going to be a process. It's going to take time just like it did coming out of COVID, but our team is working very, very diligently to backfill.

Samir, I'll just add in. This is Jackson, I'm just backfilling anchors. One of the reasons why we've -- if you think about our mission statement, is we want to direct our proceeds that are available for redevelopment or capital into our existing centers that we think can drive NOI, right? So think about 2 different concepts out there. One is Dick's House of Sport. I've toured with that stack his new store that's opened at Ross Park Mall in Pittsburgh, unbelievable, right? I also visited their store up in Rochester at Eastview Mall. We have a number of properties under discussion with them in our existing portfolio, but candidly love to do 8 to 10, if not more. These things aren't cheap, they cost money, but they do, in my opinion, bring additional regular traffic for what they try to do. I think it's one of the best concepts I've seen. Lifetime Fitness is in 3 of our centers. They were my #1 tenant at my former company, know the company well, know what they do. We'd like to have more in our centers. Once again, all of these take capital. But as you think about what we're saying, we're going to drive to create a really, really strong retail portfolio through reinvestment into the centers. So hope that helps.

Congratulations on the new role, by the way.

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

Jackson, welcome on board. Question -- and maybe this is more tilted towards Doug, a sort of follow-up on the Express. Obviously, you're losing 15 stores. What was Express paying? What is the mark-to-market opportunity in your view? You talked about the fact that they're in good locations. What potential upside potentially could we expect once those spaces get released?

Yes, Floris, I'll take it and then Doug will correct me where I'm wrong. Those 15 stores or whatever the number ends up being, it's high-quality real estate. I don't want to get into specifics about what they were paying. I kind of gave you the aggregate exposure for the company so to give you some kind of sense and they roughly averaged 8,000 to 10,000 square feet. We're taking the space back. I think fundamentally in the backdrop of a very, very strong leasing environment. So it's not like we're in the heart pf COVID when we're facing a spate of continued bankruptcies and retailer failures. So we hold out some optimism we'll be able to backfill and replace that rent in relatively short order. But we have a task ahead of us. As I mentioned, it's 50 basis points of lost occupancy, and you can do the math on that. So we definitely have some work ahead of us, but the leasing environment is strong. Doug, anything?

Yes. And I think the real story here, Floris, is, yes, it's about the economics for sure. But it's replacing underperforming sort of obsolete tenants with new depth and breadth. And that's what we do. And I think Jack made some really good points when he talked about Dick's House of Sport, Lifetime Fitness. I mean you think about who they're replacing. They may be replacing a JCPenney or a Sears and we're getting newness, we're getting excitement. We're getting innovation. And I put Express right in that category. It may not be an anchor, but it's going to give us the ability to refresh our centers and diversify our centers. And that really is our goal.

And maybe my follow-up question, maybe this is more of a strategic question for Jackson or for Scott. One of the things that I found interesting is potentially buying out your partners out of JVs. Obviously, that would require capital. would you also consider buying out some of your partners in some of your -- because some of your best assets are actually held in JVs. Would you consider using equity or swapping equity for the remaining stake in those -- some of those assets?

I'll take that now. That's not contemplated in the plan. I would say if the opportunity arose in the future, where the asset was marked at the right cap rate, and we've got a competitive cost of capital. Of course, we would look at that. I go back to -- I'd like to try to simplify the business clearly consolidating JVs on our best properties is simplify the business, but it's got to make economic sense. And I don't think we're there yet in terms of where the market is today for transparency around where cap rates trade for 8-plus, plus centers. And I think our cost of capital is not at its best position right now. So we're evaluating that, obviously.

The next question comes from Vince Tibone with Green Street.

Can you discuss your bigger picture or strategic views on the vacant anchor boxes in your portfolio? Like just how do you plan to unlock the highest and best use of the land at each parcel also working towards your deleveraging goals? Because I know there's a lot of entitlements in place already. So are you guys going to pursue any mixed-use opportunities? Could that be a source of funds? Selling those to third-party developers. Just curious how you're thinking about that dynamic.

Vince, this is Jackson. Your report was kind of really funny when it came out last week and correct except the nature of the assets are not correct, but the concept was spot on. So thanks for putting that out there. Look, we have 18 vacant anchor locations within the portfolio. Obviously, like in centers that are in our third bucket, if we've got vacant anchors down there, we're not probably going to exert on them. I can tell you that we just purchased or agreed to purchase a vacant anchor location for one of our assets in our middle bucket. And I think what we're looking at is at the end of the day, what is best for the center. And I can give you a good example of one property without naming names, where we spent quite a bit of time looking at a densification on the end cap of that property. And at the end of the day, we chose to change directions and put a Dick's House of Sport in that implication. Candidly, I think it's better for the center. I think it's better for what we're trying to do right now. There still be -- maybe densification opportunities on another quadrant within that property. But right now, our balance sheet is not where I want it to be. And so we're going to use the capital we have to make the best decisions on making our fortress and Steady-Eddie properties as strong as they can in terms of thriving. And if there's opportunities to monetize pieces of our development, for sure, we'll do that. But that being said, at FlatIron that's a much more complex opportunity, which got great entitlements from the town and we will pursue a more vertical build on that location because it dictates it.

And then just another one on the balance sheet for me. I mean, do you plan to unencumber any assets in the near term just to improve the unencumbered pool and potentially allow for more unsecured borrowing options down the road?

I would say like the easy button would be we've got some renewals on properties, some of our better properties that are candidly at much higher rates than make me happy. So that would be kind of a great source of repayment right out of the gate. As it relates to looking at longer term, what the liability structure looks like, I think we'll continue to evaluate it, if it makes sense. But until we get down into low 6x leverage levels, I think we're just going to stay the course right now.

The next question comes from Linda Tsai with Jefferies.

Jackson, congrats on the new role. While giving guidances on hold in addition to monitoring leverage, what other indicators would you point investors to assess the success of the earlier strategies you mentioned to rightsize the portfolio?

Success for us would look like $1.80 in that area per share of FFO 3 to 4 years from now with a leverage level in the low 6x. And obviously, we've made certain interest rate assumptions and there's a lot of different timing things that can happen. But to me, that success would look like that for us. One other aspect that I didn't mention in our prepared remarks, but we talked about that 100 basis points of NOI improvement that can help us on the leverage front also it helps us on the FFO front as well, right? But one piece that I've alerted -- really spent time with the team on is if you look within our portfolio, the large majority of our portfolio has recovered from an NOI standpoint to pre-2019 levels, i.e., pre-COVID levels. There are 6 properties on the Eastern Seaboard, which are behind. And they're behind to the tune of about $39 million in NOI, 6 properties. I've talked to the team about it, and I think there are opportunities to close the gap. But that will be an initiative that's very important for us as part of that NOI improvement to help us delever and drive our earnings. And I think there's plans in place for each of those 6 to get there to 2019 levels or better. within next 3 years.

To reach that $39 million do you have to invest a lot of CapEx?

I would say it's not a major CapEx. It's really repositioning of tenants. I just think in the East Coast, we had more severe impact with COVID and just those centers were already performing very well. So some of it is repositioning different merchandise mix and tenancy, some of it is, like, for instance, in freehold, Dick's House of Sport is going into the former Norton Taylor location. That wing has been hard to lease. So that's going to really activate that end of the quarter. So things like that, that we think will be able to help us get those 6 assets back where the rest of the portfolio is.

And then just one quick one for Doug. Besides Express, how would you characterize the tenant credit environment overall?

We'll look at the watch list and say it has substantively changed. As a frame of reference, I mean, Express has been on our list for quite some time. frankly dating to prior to the pandemic. They did not travel the same path as many retailers did during the pandemic and held out to this point. So as I think about our list expressed by far and away, was our most material watch list tenants. And I don't see any substantive changes based on our prior commentary about the watch list. Doug?

No, I agree. And we're ultra conservative when we look at our -- when we prepare our watch list, meaning we'd rather overwatch than under watch. And I would say to date -- Scott, correct me if I'm wrong. But to date, our watch list is probably 30% of what it was pre-COVID 2019, both in terms of square footage and number of tenants.

The next question comes from Alexander Goldfarb with Piper Sandler.

Jackson, welcome aboard, Macerich. So 2 questions for you. The first question is clearly, you've studied the past history of Mace, over time. I think you were involved in the GGP restructuring. This company has done 2 different recaps and sort of tried to execute what you've outlined twice before, but it hasn't worked. And I'm just wondering, the $2 billion of equity when we ran the numbers really wasn't that dilutive on an FFO, but would certainly put you guys in a really strong position, especially with the energy that you bring to the platform and some of your ideas. So help -- if you could just walk -- talk me through how, what you're outlining now, which sounds like a repeat of what the prior team tried twice before, why this will work this time versus just doing the $2 billion getting the balance sheet where you want it sort of today and being able to execute in what is arguably one of the best retail environments that we've ever experienced as evidenced by your strong leasing results in the first quarter?

I guess the way I would describe it -- look, I can't describe what happened here before. I can only tell you where I see it today and have the confidence of executing in my prior job where I was at. It really starts with our re-ranking of our properties, which we've done. And the way I would think about it is I have a third bucket of opportunities whereby if I raise equity in order to kind of rightsize the balance sheet, I'm kind of hurting myself because those are not going to be assets in the long term that probably a part of the portfolio. They're absolutely vital right now over the next 3 to 4 years as the cash flow from those properties are supporting a lot of the other initiatives within the fortress and Steady-Eddie category of assets. To try to just only issue equity, I feel like what you'd be doing is overequitizing assets that don't make sense for us strategically long term. They're not going to be thriving retail centers or they've -- and when we think about how we rank assets, here at the company, and this is obviously new. We obviously look at NOI and FFO per share, look at what drives traffic and sales, sales per square foot traffic, obviously, sales but market position is really critical. The competitors strength of a center, tenant demand of a center, anchor strength, the physical quality. What's happening in the trade area, what are the dynamic -- market dynamics within the city itself, shrink, crime, are we aligned with our JV partner. And then there's a lot of, what I call, unique factors in our ranking system that would rank a property down. Too much debt is on a ground lease, what could make it up, it go up is development potential. So what I would tell you in that long kind of answer, Alex, is, of the 44 properties, there is a subset where they just don't rank well for us. And so to raise equity to rightsize the corporate entity, we wouldn't be putting dollars there anyway. So I hope that kind of answers the question. And that's why I feel like the solution we have at hand is it's going to be less dilutive. We're going to get to the same place, and we're going to actually put the dollars where they're going to impact us and our shareholders the most.

Look, Jackson, I understand and you covered this company for over 20 years and if it's an emotional, like -- there are a lot of what you guys do, I love. And I think that you guys have been leaders in certain areas. Certainly in executing on Phoenix back with Westcore just the balance sheet just though is one of those issues where whatever, it's been tackled multiple ways, and that's why I keep focusing on the equity, and I'm glad your numbers sort of confirm our $2 billion. Separate question is, on the dividend. That's been a source where the company has overpaid in the past. Clearly, you're going to be selling stuff impairments that gives rise to tax, shields and other things that are going on. I would assume that the dividend is something that will be TBD over time? Or are you reaffirming that the dividend level as it stands now will not be changed?

I would basically -- I think the dividend level where we stand makes sense. I don't think we need to lower it. Obviously, not going to raise it aggressively while we're going through this initiative. But if I give you kind of the bracket, we're going to end at $1.80 plus FFO share, low leverage. You can kind of do the math. There's still good -- our payout ratio is reasonable relative to our current payout?

Right. But as far as cheapest form of capital, isn't free cash flow the best?

It definitely is. But for us, we don't -- we think that the plan we put in place in terms of sequencing is very methodical and we've got adequate cash flow from assets that we think will leave the company over the next 3 to 4 years to help support us.

Our next question comes from Michael Mueller with JPMorgan.

Yes, 2 quick ones I believe. First of all, did the 10 assets, I think you referenced 10 assets that could be sold. Did that include the 4 to 6 assets that you may be giving back? Or is it a pool of assets and then 4% to 6% on top of it?

Mike, it's Jackson. That includes the 4 to 6 givebacks. So it's roughly about 10.

Got it. Okay. And then I guess, at the end of the 3- to 4-year period, do you see the NOI mix being, I don't know, notably different than it is today, geographically?

I would say the largely pretty similar. I would say it's very similar. I mean I think the way we've analyzed it is like the go-forward portfolio will have much higher sales per square foot, much higher permanent occupancy than we had today. Better growth profile, yes. It's really kind of focusing on what I call super thriving centers. That's what we can end up with. I think we have time for 1 more question, operator.

The next question comes from Craig Mailman with Citi.

It's actually Nick Joseph here with Craig. Just one quick one on G&A as you execute on these initiatives. What does the current TAM look like in terms of the scalability and the current load versus any kind of efficiencies that you can see going forward?

Nick, it's Jackson. Yes, I think right now, our plan is -- as I said, we're really trying to position the company to be offensive, so we're going through all this. So we're not going to get there by shrinking G&A. So I think if we're going to kind of regrow the business. And so I think where the efficiencies are going to happen on these process improvements that we're looking at right now. I think there's a lot of ways to make certain work streams more efficient, which, in my opinion, helps people have more bandwidth to do things to improve the business overall versus get stuck with a lot of different processes that take a lot of time. So right now, that's really the focus. It's not a shrink to grow kind of idea. We're just trying to -- what we believe we're doing is going to give us a competitive cost of capital to do things with this platform.

At this time, I would now like to turn the call back over to Jack for closing remarks.

Thank you all for joining us on this call today, and we look forward to hosting my first set of in-person meetings with Macerich at NAREIT in early June along with Scott, Doug and Samantha. Thank you.