MACERICH CO Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Execution of Path Forward Plan: Macerich is a better informed, aligned, and operationally focused company. It is ahead of schedule on leasing progress, with a leasing speedometer at 60% for new deal completion and a growing SNO pipeline. The company has simplified the business by consolidating joint ventures, executed refinancings, completed an equity raise, and made progress on dispositions.
• Organizational Structure: Streamlined leasing teams under one leadership, made asset management a stand-alone group, and placed property operations, marketing, and development under a new leadership structure. Implemented a leasing dashboard (leasing speedometer) and technology enhancements to drive leasing and capital allocation decisions.
• Leasing Progress: Ahead of schedule on leasing efforts, with 2.6 million square feet signed in Q1, more than double the year-ago amount. Tracked renewals and new deals, with a new deal completion percentage at 60% and a SNO pipeline at $80 million.

Segment Performance

• Leasing: In the first quarter, Macerich signed 2.6 million square feet of leases, including 2.3 million square feet of renewals. Trailing 12-month leasing spreads as of March 31, 2025, were 10.9% versus 8.8% last quarter. The new deal completion percentage is currently at 60%, and the SNO pipeline has grown to $80 million cumulatively, with $25 million expected to be realized in 2025 and $6 million realized in Q1.
• FFO: FFO excluding financing expense in connection with Chandler Freehold accrued default interest expense and loss on non-real estate investments was approximately $87 million or $0.33 per share in the first quarter of 2025, compared to approximately $75 million or $0.33 per share in the first quarter of 2024. The primary driver of the increase in nominal FFO is higher leasing revenues.
• Asset Sales: Portfolio sales at the end of the first quarter were $837 per square foot, flat compared to the fourth quarter of 2024. Excluding Eddy properties, sales were $928 per square foot, up $13 from the last quarter. Occupancy in the first quarter was 92.6%, down from 94.1% in the fourth quarter of 2024.

Guidance

• Leasing is ahead of plan, with the SNO pipeline expected to reach $100 million by year end, including $25 million in 2025. Asset sales are on track, with $77 million sold or under contract against a target of $100 million to $150 million for 2025. Anticipate the mid-2026 inflection point when the plan will be substantially complete.

Risks

• Uncertainty from trade tariffs on leasing activity. Potential risks related to the progress of asset sales and refinancing.

Question and Answer

Q: With the news from this weekend, do you think there's any potential upside on leasing going forward?

A: We did not see a lot of pullback from retailers during the tariff. Retailer sentiment is strong, as seen in leasing metrics like what we signed, approved in ELC, and in the pipeline.

Q: Can you provide what is net incremental that we can expect when we model the $80 million SNO pipeline?

A: The $80 million is incremental over the revenue being generated in the spaces from 2024. $25 million of that will be realized in 2025 and $6 million of it was realized in Q1.

Q: Is the spending on leases to get them up and running on the CapEx side trending ahead?

A: The plan is probably slightly more capital than initially envisioned, with dollars being spent faster in the model, and major uplift in FFO and EBITDA expected in 2027 and 2028.

Q: The success of new deals in the quarter, up 70% from a year ago. Any more color on the success of the pace in new leasing?

A: The pace works due to the laid-out plan and organizational structure. Leasing is consolidated into one team with direct communication between asset management and leasing. The leasing speedometer is at 60%, and there's a lot of great space to lease in top centers.

Q: Are you considering a wider cohort of tenants that you would lease to?

A: Usage has expanded tremendously coming out of COVID, including digitally native, emerging, international brands, food and beverage, etc., in addition to legacy retailers.

Q: Can you provide an update on same store NOI growth and physical permanent occupancy targets?

A: Expect same store NOI in the go-forward portfolio in 2026 to be in the 3% to 4% range, and physical permanent occupancy to get close to the 89% area with 26 anchor locations fulfilled generating over $600 million in sales.

Q: Thoughts on sales when rents are pushed but sales don't grow?

A: Trust the process of executing on the plan. Centers like Scottsdale's Fashion Square and Tysons are doing over $1 billion in sales, and best-in-class brands drive traffic, rent, and sales, giving confidence in driving sales productivity.

Q: Quantify the percentage of new deals in leasing and the nature of deals reviewed in the Executive Leasing Committee?

A: In 2023, 1.4 million square feet of new leases out of 4.2 million total leasing. The Executive Leasing Committee reviews a combination of renewal and new deals, more indicative of present and future activity than signed leases.

Q: Clarify differences in renewal leasing spread statistics?

A: The 7% spread includes various factors, while the 1% same space basis spread is more appropriate for renewals, including temp spaces and prior tenants.

Q: Expectations for lease terms and land sales in FFO for the balance of the year?

A: Expect a couple more million dollars of lease termination income in the balance of the year. Land sales in the first quarter totaled $7 million, with $25 million more closed in April, and $77 million sold or under contract against a $100 million to $150 million target.

Q: Impact of tariffs on asset sales and pricing of Lakewood?

A: Uncertainty on debt financings, but outparcel cap rates are in the mid-5% range, and feel good about execution on outparcels. Debt yield provides a good approximation for Lakewood's value.

Q: Mid-2026 inflection point and cash flow/earnings troughing?

A: A fair characterization, with development NOI ramping second half of 2026 into 2027 and 2028, and working through outparcel sales and givebacks potentially affecting cash flow in the near term.

Q: Factor of tenant fallout and non-renewals into occupancy targets?

A: All such factors are taken into consideration in the 500 basis points increase in physical permanent occupancy.

Q: Portion of Forever 21 releasing activity going to single users vs smaller tenants?

A: It's a mixed bag, with most space being leased as is and some larger anchor spaces potentially broken up, with plans to double the rent Forever 21 was paying.