Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Macerich First Quarter 2023 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. Please note that today’s conference may be recorded. I will now hand the conference over to your speaker host, Samantha Greening, Director of Investor Relations. Please go ahead.

Thank you for joining us on our first quarter 2023 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, including the adverse impact of the novel coronavirus on the US, regional and global economies and the financial condition and results of operations of the Company and its tenants. 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 Tom O'Hern, 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 Tom.

Thank you, Samantha. We are pleased to report another strong quarter with our operating results continuing to trend very positively. We again saw robust leasing demand with our first quarter volumes leased being better than the first quarter of last year. And just to remind you, leasing in 2022 was as good as it has been in a decade. Our portfolio average sales per foot for tenants under 10,000 square feet was $866 per foot, a 3% increase over a year ago. These strong results were achieved even in the very challenging macroeconomic climate we are facing today, including rising interest rates, the threat of a recession and the volatile banking and political environments. Some of the other first quarter results included occupancy at 92.2%, that's a 90 basis point improvement from March of '22, and although a 40 basis points sequential quarter decline over year end, that is very normal. Over the past 15 years with only one or two exceptions occupancy has ticked down slightly from year end to the following March 31st. The range of decline is typically 40 to 100 basis points. We continue to see strong leasing volumes, which are in excess of last year's levels. For the quarter, we executed 256 leases for nearly a million square feet. Doug will provide more details in a few moments. Leasing spreads for the trailing 12 months ended March 31st were up 6.6%. Average rent per square foot at quarter end was nearly $64 and $63.98, that's a 2.1% increase over March of '22. We saw a very solid same center NOI growth of 4.8% in the first quarter and that compared to the first quarter of '22, which was a very strong quarter. Consistent with our strategy to redeploy capital into our top assets and to thin out our noncore assets, yesterday, we sold The Marketplace at Flagstaff for $23.5 million. This is a power center in a noncore market for us. Since year end, we've had a significant amount of financing activity, which Scott will comment on shortly. The debt market is still challenging but our finance team is doing a great job and we're getting our deals done. Progress continues at our mixed-use diversification and densification projects. Some examples include Kierland Commons in the Phoenix market, we're moving forward with a 110 unit luxury apartment project. At FlatIron Crossing in Broomfield, Colorado, we're planning a 330 unit luxury multifamily project centered around 2.5 acres of public amenity space with 50,000 square feet of adjoining food, beverage and entertainment. At Biltmore Fashion in Phoenix, we’re advancing plans for a 250 unit luxury apartment complex, which will be fully integrated into the heart of this open-air center. At our flagship town center, Tysons Corner Center, we anticipate receiving approval of our zoning amendment later this year, which will pave the way for a future additional mixed-use development on the site of the former Lord and Taylor. There are also some recent announcements of great new additions to Santa Monica Place, including the Arte Museum, an immersive digital art destination, which will occupy 48,000 square feet on the third level that had formerly been a theater box. We also signed a 10,000 square foot lease with Din Tai Fung restaurant to take over the majority of that area that had been the food court, which is also on the third level of that center. As Doug will elaborate on shortly, we continue to be very pleased with the strength of the leasing environment. On the heels of a very strong leasing result in 2022, the first quarter of '23 was even better than a year ago. The leasing interest continues to come from a wide range of categories, including health and fitness, food and beverage, entertainment, sports, co-working, hotels and multifamily projects at Kierland, FlatIron, Tysons and Biltmore. Interest continues at levels we've never seen before. Bankruptcies continue to be at a record low. We continue to expect gains in occupancy throughout the year and net operating income as we progress through 2023. And now I'll turn it over to Scott to discuss in more detail the financial results for the quarter and significant financing activity.

Thank you, Tom. Onto the highlights of the quarterly financial results. This morning, we posted strong core operating results for the first quarter. Same center NOI, as Tom just mentioned, increased 4.8% relative to the first quarter of 2022, excluding lease termination income. It's worth noting that this follows strong NOI growth averaging 7.4% for the two-year period '21 through 2022. FFO per share for the first quarter was $0.40, which was generally in line with our expectations. The quarterly result was $0.10 less than FFO during the first quarter of 2022, which is $0.50 per share. Primary factors contributing to this quarterly FFO change are as follows: One, a $12 million increase in interest expense due to rising interest rates. This was consistent with our guidance and our expectations. Two, an $11 million decline in lease termination income due to a few larger lease termination agreements executed during the first quarter of last year in 2022. This was also expected. Three, a $7 million decline in land sale gains given a few larger land sale transactions in the Arizona region of our portfolio during the first quarter of 2022. Again, this was also expected. And then lastly, a $7 million relative decline in valuation adjustments pertaining to our retailer investments net of taxes. This negative impact from a noncore passive investment was a surprise within the quarter and it was attributable to a downward valuation adjustment relating to a single retail company. Offsetting these factors were the following: an $8 million improvement in tenant recovery income due to leases converting from variable to fixed rent structures, with full fixed CAM and tax recovery charges; and secondly, from favorable changes in estimates due to 2022 year-end recovery income accruals; and then lastly, roughly $4 million improvement in certain miscellaneous income, including increases in interest income, parking income and various other sundry items and events. We are very pleased with the start of 2023 as reflected by the strong core operating results. At this time, as we disclosed this morning, we are maintaining our guidance for 2023 funds from operations, which is estimated in the range of $1.75 to $1.85 per share. Our 2023 outlook is anchored by strong operating cash flow generation, which is currently estimated at $305 million before payment of dividends. More details of the guidance assumptions are found on Page 15 of the company's Form 8-K supplement, which was filed earlier this morning. Now on to the balance sheet. We continue to make excellent progress on our financing pipeline, as Tom just indicated. On January 3rd, we closed a $370 million refinance of the previous $363 million of combined loans that formerly encumbered our campus at Green Acres. This five-year fixed-rate CMBS loan bears interest of 5.9% fixed and is full term interest only. On March 3rd, we closed the $700 million refinance of Scottsdale Fashion Square. This five-year fixed-rate CMBS loan bears interest at 6.21% and is full term interest only. This refinance transaction yielded nearly $150 million of liquidity to Macerich in March. Last week, on April 25th, we closed a three-year extension of the existing $160 million loan on Deptford Mall. With this extension, we maintain the existing below-market 3.7% interest rate and the joint venture repaid $10 million of the loan, which was roughly half of that at our share of $5 million. Collectively, including these three transactions I just mentioned as well as two loan extensions on Washington Square and Santa Monica Place during the fourth quarter of last year, we've completed five major loan transactions totaling over $2 billion or $1.4 billion at our company's share. At year end, we had a healthy $645 million of available liquidity, including available capacity on our credit facility for which only $50 million is outstanding today. Debt service coverage is a healthy 2.6 times. Now I'll turn it over to Doug to discuss the leasing and operating environment.

Thanks, Scott. As discussed on our last call, 2022 was a record leasing year dating back to before the global financial crisis when viewed on a same center basis. And in fact, the first quarter of 2023 continued in the same fashion with extremely strong leasing volumes that actually surpassed 2022. First quarter sales were basically flat when compared to the first quarter of 2022 and this doesn't come as a surprise given the massive gains we saw in 2021 and 2022, resulting in comps that are very difficult to sustain. This was especially evident in the luxury, home furnishings, and jewelry categories. Sales per square foot as of March 31, 2023, were $866, that's up $23 when compared to the first quarter of 2022. Trailing 12-month leasing spreads remained positive at 6.6% as of March 31, 2023, that's an increase of 260 basis points from the last quarter and an increase of 530 basis points when compared to March 31, 2022. In the first quarter, we opened 194,000 square feet of new stores. Notable openings in the first quarter include three stores with BoxLunch at Stonewood, Superstition Springs in Victor Valley, GARAGE at Fresno Fashion Fair, Johnny Was and Nike Live at Country Club Plaza, Old Navy at Tysons Corner Center, Cotton on Kids at Scottsdale Fashion Square, and Lovesac at Los Cerritos. On March 3rd, we opened Life Time Fitness at Scottsdale Fashion Square. This is our second opening with Life Time Fitness, the first being at Biltmore Fashion Park in 2020. At Scottsdale, Life Time is 37,000 square feet, spanning four levels topped by a rooftop beach club, bistro, and lounge all with spectacular mountain views. The club has already sold out its membership and will average almost a thousand guests a day. Life Time is just another example of our ever-expanding health and wellness category and will be an outstanding amenity to Scottsdale Fashion Square. And we look forward to our next opening with Life Time Fitness at Broadway Plaza later this year. In the digitally native and emerging brands category, we opened Intimissimi at Broadway Plaza, Lucid Motors at the Village of Corte Madera, Madison Reed at Kierland Commons, and Rowan at Country Club Plaza. In the medical category, we opened Northwell health physicians and Tribeca Pediatrics, both at Atlas Park. And lastly, in the experiential category and as recently noted within a Macerich press release, we opened Dr. Seuss and Candytopia at Tysons Corner Center, World of Barbie at Santa Monica Place and The FRIENDS Experience at Lakewood. Now let's take a look at the new and renewal leases we signed in the first quarter. In the first quarter, we signed 256 leases for just about 950,000 square feet. This is 20% more leases and 59% more square footage than we signed in the first quarter of 2022. And keep in mind, 2022 is a record year for us in terms of leasing volumes. Notable new leases signed in the first quarter include Lululemon at Arrowhead Towne Center in Los Cerritos, BOSS at Scottsdale Fashion Square, Doc Martens at Tysons Corner Center, Levi's and Swarovski at Los Cerritos, and H&M at Queens Center. We also signed seven leases with Cotton On at Chandler Fashion Center, Deptford Mall, Freehold Raceway Mall, The Oaks, Tysons Corner Center, and Vintage Fair, all totaling about 21,000 square feet. Tom mentioned this, but I think it's worth reiterating. In the food and beverage category, we signed two very prestigious restaurants, Din Tai Fung at Santa Monica Place and Elephante at Scottsdale Fashion Square. Founded in 1958 in Taiwan, Din Tai Fung operates 170 restaurants in 13 countries. Known worldwide for its steamed pork dumplings, Din Tai Fung will join the recently announced Arte Museum on the third level of Santa Monica Place and we expect the combination of these two to add a great deal of traffic, energy, and excitement to that third level. This is our second deal with Din Tai Fung, the first being at Washington Square, which opened to huge fanfare and is incredibly successful. Elephante is a very hip restaurant bar that features Southern Italian cuisine with a relaxed Mediterranean vibe. With units already opened in New York City, Las Vegas, and Santa Monica, Elephante will open at Scottsdale Fashion Square and will flank one side of what will be a newly created porte-cochère in the Nordstrom wing. This new entrance with elite valet service and other amenities will provide direct access to more luxury, including the recently announced Hermès store. And stay tuned for another soon-to-be-announced high-end nationally known restaurant to complement Elephante on the other side of the porte-cochère. In the digitally native and emerging brands category, we signed leases with Charlie and Mango at Los Cerritos, Evereve at Broadway Plaza and Village at Corte Madera, Rihanna at Biltmore Fashion Park, Intimissimi at Santa Monica Place, and Maje and Sandro at Fashion Outlets of Chicago. We continue our effort in addressing the 2023 lease expirations as early into the year as possible. In doing so, in the first quarter, we signed over 175 renewal leases with almost 110 different brands, totaling approximately 680,000 square feet. So with that, we now have commitments on 67% of our '23 expiring square footage of space that is expected to renew and not close with another 20% in the Letter of Intent Stage. By comparison, at this time last year, we had 56% of our 2022 expiring square footage committed. In addition, we believe our renewal retention rate for 2023 lease expirations is tracking in the high 80% range. All of these are very strong metrics. And as I've stated before, given the noise and uncertainty that exists in the macroeconomic environment, I remain pleased with these metrics as we are basically taking a great deal of risk off of the table in 2023. Turning to our leasing pipeline. At the end of the first quarter, we had 158 signed leases for 2.3 million square feet of new stores, which we expect to open in 2023, 2024, and early 2025. In addition to these signed leases, we're currently negotiating leases for new stores totaling nearly 390,000 square feet, which will also open in 2023, 2024, and early 2025. So in total, that's nearly 2.7 million square feet of store openings throughout the remainder of this year and beyond. And again, I want to emphasize these are new leases with retailers not yet open and not yet paying rent, and these numbers do not include renewals. And let me take just a moment to add some color to this pipeline by naming a few of the retailers and concepts coming soon to our centers later this year and into 2024 and early 2025. SCHEELS All Sports at Chandler Fashion Center, Target at Kings Plaza and Danbury Fair, Arte Museum and Din Tai Fung at Santa Monica Place, Caesars Republic Hotel, Hermès and Elephante at Scottsdale Fashion Square, Life Time Fitness, Pinstripes and Original Joe's at Broadway Plaza, Dillard's Flagship at South Plains Mall, Round1 at Arrowhead Towne Center and Danbury Fair, Primark at Green Acres Tysons Corner and Queens Center, Zara and H&M at Queens Center, Lidl at Freehold Raceway Mall, Industrious at Kierland Commons, Kilns at SanTan Village, Bonesaw Brewery at Freehold Raceway Mall and Deptford Mall, Ashley Furniture at Kings Plaza, and a new and expanded flagship Apple Store at Tysons Corner Center, which will open later this month on the 22nd anniversary of their first-ever bricks-and-mortar store, which was also at Tysons Corner Center, and this list just goes on and on and on. So the leasing pipeline of new store openings now accounts for almost $64 million of incremental rent in aggregate, which will be realized in 2023, 2024, and 2025, and this incremental rent will continue to grow as we continue to approve new deals and sign new leases. So to conclude, our leasing and operating metrics were very solid in the first quarter. Leasing volumes were extremely strong outpacing the first quarter of 2022 in terms of the number of leases signed, square footage, and total annual rent, thus, maintaining a very strong pipeline of stores that will open this year, next year, and beyond. As expected, occupancy decreased a bit in the first quarter but is up 90 basis points from a year ago. We've seen spreads came in at 6.6% and should continue to increase as we increase occupancy. Sales remained on par with the first quarter of 2022 with the first quarter of 2022 showing very strong comps to the first quarter of 2021. Bankruptcies overall remained at their lowest levels since 2015, which is consistent with our significantly reduced tenant watchlist. Therefore, we remain optimistic as we look at the remainder of this year, next year, and beyond. And now I'll turn it over to the operator to open up the call for Q&A.

And our first question coming from the line of Derek Johnston with Deutsche Bank.

I seldom do this, but I feel the need to address something because I've never witnessed such a significant gap between solid fundamentals and low valuation. I want to ensure we're not overlooking anything. Regarding leasing, we saw very strong leasing in the first quarter. First, I was curious if you could share what percentage of the leasing came from new tenants. Secondly, are you experiencing any slowdown at all considering the current macro environment?

I can take the first one, it’s Doug. So we signed 256 leases in the first quarter, about 31% of those were new leases with new retailers and about 69% were renewal leases. And then to your question about, do we see any slowdown? I think the quick answer is, no. We are not. And I know it’s kind of counterintuitive given everything that's going on in the environment out there, but we are not seeing it. Leases we have signed, the tenants are still opening stores, deletions we have negotiated or are negotiating, tenants are pulling back. And I think we have a really healthy retailer environment out there. If you think about pre-pandemic, there are a lot of retailers that were struggling, many failed, most failed during the pandemic and those that came out of the pandemic came out very, very healthy. So I think it's a testament to the retailer environment but I also think it's a testament to our portfolio of shopping centers. We do have must-have shopping centers that these tenants want to be in.

I'm a bit more cautious about the current environment. I'm very pleased that we have a strong pipeline because these deals will start generating revenue in 2023, 2024, and later, as Doug mentioned. Historically, every time the Fed has acted in this way by increasing rates since 1955, a recession has followed. I have no reason to think this time will be different, especially after their recent actions. Therefore, I believe we are likely heading toward a recession, but we are well-positioned to handle it. Many typical negative outcomes of a recession, like retail failures—which we saw during COVID—may not apply here. We've never experienced a recession following a pandemic, and this situation could be somewhat unique, putting us in a strong position. That said, we conduct leasing calls every two weeks with the entire leasing team where we assess any weaknesses and whether retailers are reducing their purchasing commitments. Their feedback indicates there is no slowdown, and deals continue to come in robustly.

All that said, I was encouraged to see Flagstaff disposed. Are you seeing any tightening in the private markets and potentially other interest in some of your non-core assets, given the Fed's pause, do you think volumes may be poised to pick up in the second half and thus an opportunity?

Well, Derek, as you know, we are an opportunistic seller. We sold 25 lower quality malls coming out of the financial crisis. Typically, that market gets better when there is more debt available. And obviously as we heard from Scott and others, the capital market is tough right now, the debt markets are tough, and most of those buyers tend to come in and be leveraged buyers. So I think we will get a deal done here and there in this environment. But when capital markets get back to a normal type range in capacity, I think we are going to see more transactions. But I don't really foresee that for 2023.

And just one real quick last one for me, and I know I can look it up. But when the SCHEELS come online and Caesars Hotel, I think they are probably in the beginning of '24, if I'm mistaken, but any update would be helpful.

September 30, 2023 for SCHEELS, so right around the corner. We are excited about that one certainly. So Caesars Republic, we expect during the first quarter of '24.

And our next question coming from the line of Greg McGinniss from Scotiabank.

So given the strength of the asset, I guess we were a little surprised by the 6.2% rate on the Scottsdale loan. Though to be fair, we don't really have many other Class A plus secured debt comp. So any color on that process and maybe the LTV would be appreciated. And can you also share some early thoughts on Tysons debt maturing in January and expectations on what you hope to achieve there?

We completed the Scottsdale deal at the beginning of March, during a very volatile time in the market. We were fortunate to close it before regional banking failures began a few weeks later. If we hadn't acted then, it's unlikely we would have finalized the deal. Regarding our earlier guidance on interest rates, we had anticipated rates in the mid to high 5% range over the next few months, but credit conditions became much more unstable, and the Federal Reserve raised rates, widening credit market spreads, which led to the 6.2% interest rate we experienced. However, we were fortunate to have that window to close. Tysons Corner is performing very well with great leasing activity. Currently, the existing debt has a healthy yield of around 13%, suggesting there may be an opportunity to increase it, depending on future credit conditions. We won't be marketing that until mid-summer, so it's too early to provide more details.

I guess, the follow-up here. So there's clearly a healthy level of leasing demand and growing occupancy. Are you getting any interest from institutional investors or developers where you might be able to partner, sell some larger parcels to get more aggressive on leverage management? I mean is there a desire to go on the offensive there and you feel the best path forward is just growing EBITDA?

Well on that Greg, whenever we do a multifamily densification, for example, we always consider bringing in a partner, a multifamily developer partner, in which case, we can do it a variety of ways, but one way would be to contribute our land to the venture. So it's not necessarily taking cash and paying down debt, but it will drive up EBITDA, which gets you to the same place. So those things we're considering. I think Scott's mentioned previously, we've been fairly active in selling available land that we have in our portfolio and we've even got some of that reflected in our guidance this year. So I think you'll see us do more of that rather than coming in and trying to sell off big blocks and parcels to others.

And just a final one for me. So we read headline that Deptford was actually sent to special servicing. And given that you ultimately secured an extension there, could you just talk a little bit about that process and maybe your willingness to walk away from the asset, level of demand that you're seeing for mall debt of that quality level? And then what you see as kind of your negotiating leverage given what appears to be, I assume to be limited demand by lenders to actually take over any malls?

So Deptford Mall happened to be a CMBS loan. As a matter of protocol, special servicers are the only ones that have the ability to approve an extension. So the mere transfer of loan to special servicing is really just a function of process and that's all. So it was a very amicable process by which we secured that extension, again, three years, at a very favorable 3.7% interest rate. In the process securing the extension was really a function of what the credit markets were like at that point in time. Given not necessarily conditions in just the mall space but just broader conditions within commercial real estate. And a lot of the friction that's resulted from the regional banking failures, it just was not an opportune time to take that asset to market. That said, it's extremely well positioned, very healthy debt yields. And in a normal credit environment, for instance, the first half of 2022, we would have been able to finance that asset with ease. So again, that was just a function of seized-up credit market, it was a very well positioned asset and a very amicable process.

And our next question coming from the line of Lisa Duncan with Bank of America.

The same store NOI growth accelerated in the quarter and operations look pretty good. I'm just curious to hear where you see the most variability still that's causing you to maintain full-year guidance, or is it simply a function of it being still early in the year? Just wondering what the reserves are around specific items for the remainder of the year?

We're very pleased with the way same center NOI started the year, nearly 5% growth. It is very early in the year, I highlighted a couple of things, not only the strong core growth, but also the offsetting decline in one of our retailer investments. And so, we've got nine months ahead of us, we'll continue to assess guidance, it's very possible that our core growth will continue and we'll be bumping that. We're just going to wait to see as the next few months unfold and come back to you, this time at the end of the second quarter. And in terms of reserves, just given the relatively healthy environment that we're seeing, we feel like we're very adequately reserved. As I look at the bankruptcy environment, we still expect extremely low levels relative to history, certainly, relative to 2020 during COVID. I went back and quantified the bankruptcies that are really getting a lot of press right now, those being Bed, Bath, and Beyond, Tuesday Morning, David's Bridal, Party City. I think there are over 1,800 stores that are primarily affecting open-air power centers and community centers. We have only two leases within those 1,800 that are subject to bankruptcy. So again, a very healthy environment, not to say that there won't be any further bankruptcies or fallout, but I think we're very well are reserved on that front.

And this is just a little bit smaller to make note of. But just noticed, management operating expenses seem to tick a bit higher this quarter. Just wondering if there's anything worth noting around that or just you could provide more color?

Yes, I don't think there's anything unusual, it was in line with our expectation. It is a new year. So with any organization you have got promotions and compensation adjustments, and so that's really what's in there. I don't think there is anything unusual in that number, but it was in line with our expectation.

Thank you. And our next question coming from the line of Samir Khanal with Evercore ISI.

I guess a question on retailer sales growth this year. I mean, what are you guys budgeting for this year as we think about percentage rents?

For percentage rents, we are assuming flat. It's hard to say what the balance of the year will bring, and we felt a good conservative assumption was to assume flat. Of course, it's hard to predict what any given retailer will do. Oftentimes, percentage rents are going to be driven by a couple of major factors. One, luxury tenants are certainly going to drive a good portion of those percentage rents. So we will see what the balance of the year unfolds there. There is a little bit of comparable pressure on the luxury sector that Doug outlined in his opening remarks. So that's not to say that they are not performing extremely well, but I think that they are up against a difficult comp in the first half of the year. But we do expect generally percentage rents to continue to decline. In my opening remarks, I mentioned, we are seeing a pickup in our tenant recoveries as our leases convert from more variable rent structures, driven by pandemic era negotiations to longer-term fixed-rate deals with fixed CAM and tax recoveries. So we will see percentage rent, variable rent continue to decline primarily due to that.

Are you able to sort of quantify that or maybe ballpark in terms of how much of a decline in terms of percentage?

I'd say ballpark mid-teens relative to 2022 would be our current expectation.

And then my next question is, I guess more of a modeling question. But there was a loss on the JV income side. Was that primarily due to that valuation adjustment? I just want to make sure that we don't carry anything forward in the model here.

Yes, two primary things. One was that valuation adjustment that I mentioned. Secondly, we also may be acquiring our partner share of certain assets within an existing joint venture. As a result, that triggered a shortened holding period and an impairment event. And then we recognized a $50 million impairment charge that is an unconsolidated JV. So that's showing up there as well. We can't speak to the specifics of that transaction or the partnership, but that was also a factor that you are seeing in the numbers.

And then last one for me on this power center that you sold, what was the cap rate on that? I'm sorry if I missed that.

Samir, we are subject to a confidentiality agreement. So we are not going to get into the cap rate discussion. But Scott mentioned in his guidance comments that he's going to keep guidance the same, so that transaction is effectively neutral. So if you consider what our use of proceeds would be on something like that, you can kind of get in the ballpark of what a cap rate might be.

Thank you. And our next question coming from the line of Floris Van Dijkum from Compass Point.

It's great to see the leasing progress with your leased occupancy up by 80 basis points. Doug, you've provided some insights about your SNL pipeline in terms of square footage and dollar amounts. However, in terms of percentage, the square footage is significantly larger than the difference between physical occupancy and leased occupancy. Could you confirm if the previously mentioned 200 basis points gap between physical and leased occupancy still stands?

It's actually a little bit higher, it's in the mid 3s right now and that's really a function of just a very robust pipeline. Openings typically don't occur until the latter half of the year. There are actually two kinds of waves in our business: one is opening for summer. So we'll see probably a greater amount of openings in the second quarter than we did in the first quarter. And then we'll see a bunch obviously open up in preparation for holiday 2023. We've seen the difference between physical and lease grow to roughly about 3.5% right now.

That's certainly encouraging and particularly that should make you feel good about growth later on this year. Maybe if you could also touch upon luxury as a percentage of your A malls today and where you could see that growing. Obviously, when you had your investor day, we looked at Fashion Square and saw that luxury there is going to be over a quarter probably of the total GLA. Maybe if you can talk a little bit about the trends that you're seeing across the portfolio, and how long that will take to play out as some of these luxury leases presumably take a longer time before they actually take occupancy?

Scottsdale Fashion Square is a very unique asset. It's very few places in the country, very few centers in the country, are you going to be able to populate a center with that much luxury. So overall in our portfolio, it's probably along the lines of 5%, depending on how you define the luxury category. And not every center is really going to have that. I mean, we have some great centers in our top 10 where you're not going to have any luxury. It's still going to be an incredibly successful center doing over a thousand bucks a foot. You have to do is go back to a few prior supplementals when we rank all of our assets based on sales per foot and you'll see what I mean. So it was a strong category, it came raging back after COVID, we saw some great results, particularly at Scottsdale Fashion Square, but that can't necessarily be extrapolated to every center because luxury is kind of very selective and it's not going to be in every property.

But would it be fair to assume that that percentage could potentially almost double over the next couple of years in your centers? It's still a relatively small amount presumably, and maybe Queens doesn't have that, but some of your other malls like, obviously, Fashion Square and Washington Square presumably could.

Well, there are some others that are candidates that we're considering, but that's going to move pretty slowly. If we're at 5% today, I wouldn't expect to double it in the next five years. It's going to be a slower process than that. But they have a pretty big impact on a center and they affect a lot of the tenants around them. So there's a lot of collateral benefits when you bring in even just a handful of luxury names.

Maybe last, billboards. I know that you had the massive billboard at Scottsdale, up and running during the Superbowl. How much more expansion could you see in that kind of income going forward?

That's a great question, Floris, because the demand for that type of space keeps growing and growing and growing, and we see it everywhere. I mean, we see it in Fashion District at Philadelphia, we see it at Santa Monica Place. Obviously, you saw at Scottsdale. And it's going to continue to grow. And I think the strong incremental revenue for us is there's a nominal amount of capital required to make that happen, but there's a fair amount of demand, and it keeps growing. So I think that's going to continue to be a growing and more impactful part of our revenue stream as we go forward, very near future.

And our next question coming from the line of Linda Tsai with Jefferies.

Besides the timing of Scottsdale Fashion Square refinancing being fortuitous, any other additional color and how the regional banking issues might be impacting your refinancing plans for this year?

Linda, it's difficult to predict where they're going to be in six months from now. I mean, I look back to the pandemic and in summer of 2021, there were no transactions getting done. By the time you got to the fall mall transactions were getting done, and over the course of the next 18 months leading through spring of 2022, I think there were about $8 billion to $9 billion of regional mall transactions. And so over a very short period of time, the market changed rapidly. And again, the pandemic was the source of the turmoil then. So it's really going to be driven by what continues to happen in the space. Obviously, there was a major regional banking failure just last weekend and there's some other names that are in the news I'm not going to get into, but the longer that continues, the more skittishness there's going to be in primarily the CMBS markets. But frankly, a little bit on the balance sheet markets too as balance sheet lenders look at their own exposures. So it's hard to predict. But what we've seen is the markets are very elastic. And once conditions start to settle, there's a fair amount of liquidity. Once you start to get comfortable at what the right entry point is for a lender for a creditor, I think, we'll start to see the markets rebound. Certainly, we are coming, hopefully knock on wood, towards the end of the fed rate hiking cycle and that will function as a catalyst. It's just a matter of whether or not there are any other macroeconomic or macro-political events that are going on at that point in time. Hard to predict.

And then does your year-end leverage target remain 8.4 times and would you expect to issue equity to get there?

Yes, I believe a target in the mid-8s is reasonable. We could achieve mid-8s in organic EBITDA growth, and if we decided to issue equity, we might improve on that. However, with $650 million in liquidity and significant operating cash flow, I don't see a need to raise equity at such low valuations. Therefore, I think reaching the mid-8s organically is feasible through NOI growth and the opening of our pipeline for properties that are signed but not yet operational.

And our next question coming from the line of Alex Goldfarb from Piper Sandler.

So I have two questions. First, I'm wondering if the $15 million impairment you mentioned relates to the Philly Fashion District. Regarding that project, could you provide details about the partnership loan you're funding to pay down the first mortgage? I believe the term loan is set to expire in January 2024. Could you clarify the capital structure involved here? The partner loan accrues 15% and must be paid before you receive your equity, but since you're funding the partner loans, it feels like it's all interconnected. I'm curious about how this project looks now compared to your initial underwriting and its current status, especially considering you're using your own capital to pay down the first mortgage.

So effectively all the economics of that joint venture go to us, Alex, as a result of that. And look, when we underwrote that asset, it was in 2017, 2018, it was before COVID. And obviously, a lot of urban areas including Philadelphia have been slow to recover in terms of the office population, and FDP has been no exception. So as we look at that, it's a project that we think is going to improve over time as we continue the lease-up. As you know, we have announced that we are working with HBSE and a potential arena site and a third of that location, which is very promising and would help the entire community there, not just the retail but the entire area. And that's still something that's in process and we are very optimistic. But obviously, the returns today are not what we expected when we bought that asset in 2016, 2017.

But you feel comfortable that the loan and your equity investment that you put in that you will recover?

Yes, I will turn it over to Scott in a moment. There isn’t a significant loan balance remaining. As we reduce that, it increases our available cash flow after servicing the debt, and we fully expect to continue managing that debt while paying it down.

No, that’s it Tom. I mean, the most recent pay down you saw, which was $25 million to $26 million, was simply an embedded extension that was tied to some economic hurdles. So it's just an overall process of delevering that asset and reducing our own leverage, and that's what you are seeing there.

You mentioned that the tech investment in your portfolio took a hit. Can you provide details on the total Macerich investment in the tech venture and whether you expect to eventually realize a return on these investments, or are they being managed alongside the portfolio? Are these investments aimed at enhancing property operations, or do you anticipate that they will eventually become independent concepts that might be sold or acquired?

Alex, that investment is through a venture capital firm, Fifth Wall, which we committed to about six or seven years ago. It receives periodic funding, but the main commitment was made back then. The focus was primarily on investments in digitally native brands, creating a strategic partnership between us and Fifth Wall to access many emerging and digitally native brands. They handled the underwriting, allowing us to concentrate on the brands we believed would be the most successful and beneficial to Macerich. So, that's the foundation of that investment; it’s not ongoing, as we committed to it seven years ago. We have seen some successes that have gone public via SPAC, which led us to reduce our investment in those cases. However, we also encountered others that didn't perform as well, which is typical in venture capital where there are both successes and failures. Initially, our investment was around $75 million, and currently, its value on the books probably sits closer to $50 million due to write-downs we've taken or gains from some of these retailers going public.

So you don't have sort of a return, like an ROI or IRR or something that you can talk about, do you?

No, nothing that we've disclosed publicly, Alex. But we're very happy with the investment, it's been great strategically and the return has been good as well.

And our next question coming from the line of Ki Bin Kim with Truist.

I just wanted to turn to your guidance for a second. Can you update us on how much land sales are embedded in your '23 guidance and also interest expense?

Sure. I believe I addressed that question during the fourth quarter call, and my answer remains largely the same now. We realized about $0.09 of FFO benefit from land sales after tax in 2022. A few months back, I indicated that I expected around 40% to 50% of that activity to impact FFO in 2023, which still seems accurate. This should provide some clarity. We saw about a penny of benefit in the first quarter, aligning with the guidance I provided. The benefits will vary throughout the year. We have offered guidance regarding interest and have no reason to change it at this time. I believe our interest guidance is adequate, and we will continue to review it along with other line item guidance as we progress.

Can you remind us what that interest expense guidance is?

It's on Page 15 and I want to say it was roughly $322 million, but it's Page 15, $320 million.

And just second question, going back to your debt refinancings, Danbury Mall, Niagara, a couple near-term debt maturities. Any kind of sense of what kind of proceeds or interface we should expect?

I really don't want to speak in detail about any given transaction, because we're actually having active conversations with lenders, so it's probably not appropriate. But I would say market rates today are in the 6% realm and you can see what we did in Green Acres and Scottsdale, that will give you an indication. So that's kind of what the market going rate is. That's probably all I'm at liberty to talk about right now, just given those are attractive deals.

And our next question coming from the line of Michael Mueller with JPMorgan.

Scott, I was wondering, can you give us some color on how you think recovery should be trending now that occupancies are higher? I think pre-COVID, it looks like they were in the low 90s. I think last year, it's about 75% and so far this year, it's a little higher than that maybe low-80s. But just any color there will be helpful.

Yes, I think we're making pretty good progress, and some of that I've highlighted already in some of my commentary. We saw it tick down during COVID because we were doing, in many cases, some of those renewals were locked in at rates that we frankly wouldn't want to lock in long term nor did our tenants given the uncertain environment. So some of those, not all of them, but some of them were variable rent structures with very little to no CAM and oftentimes we're recovering our taxes. Fast forward to today, we're getting full triple net deals done with fixed CAM with annual escalators and full tax pass through. So our expectation is we're going to start trending back to that low 90% recovery rate that you were just commenting on pre-COVID.

And is that something you could trend to in a few years do you think?

No, I think that's something that we'll get to probably within the next year to 18 months or so.

And our next question coming from the line of Ravi Vaidya with Mizuho.

Just had one question here. We saw some data from Placer that said that foot traffic in closed malls and regional malls was down about 7% to 8% year-over-year in March. I was wondering if you guys have any stats on how foot traffic in your portfolio has trended in March and April?

So we look at it more on a quarterly basis or trailing 12 months, and traffic has been fairly consistently at about 95% of pre-COVID levels. So sales have recovered, sales are well in excess of pre-COVID levels, traffic is a little bit lower. But the consumer is coming and shopping with a purpose probably having done some research online before they get to the town center. So sales is really the important trend. Traffic is less accurate, I would say. But at 95%, we're still pretty pleased and comfortable with that. We think as a result of some of these new nontraditional retail uses that Doug mentioned, like SCHEELS Sporting Goods, for example, Arte Museum, once some of those deals that are signed and in the pipeline but are not open yet, once they open, we think that they're going to be big traffic generators and that our numbers will easily surpass what we were seeing pre-COVID.

And our next question coming from the line of Caitlin Burrows with Goldman Sachs.

I was just wondering if we look at minimum rents, it seems like with occupancy up and rent per square foot up, I know leasing spreads have all been positive but some surprise at minimum rents were down. So it's wondering if you could go through kind of what else we should be considering and what's driving that?

Well, I think if you look at minimum rent across both consolidated and unconsolidated assets, you'd see that they're actually up, Caitlin, maybe look at some of the disclosures that are in the 8-K supplemental, which kind of break down leasing revenue between its various components. There's a lot of revenue line items that are sitting there in the leasing revenue. So for instance, termination income is down significantly, that's going to cause a decline, so I'm not sure if that's getting captured if your eyeballs kind of capturing that. But in fact, minimum rent is actually up a few million dollars quarter-over-quarter. I think when I was giving initial guidance about three months ago, I said one of the factors is we are taking some pretty high rent space offline, primarily in some of our New York assets. And a lot of those benefits are sitting in our signed but not open pipeline in terms of the deals that will replace some of the space that’s coming offline. So as you are taking high rent space off you are going to see some friction there. But it is really just that, it's transitional vacancy and we will see the pickups later on as those spaces come online. So those are a few comments. But I can tell you that if you look at all of our assets at our share, minimum rent is actually increasing quarter-over-quarter.

I was thinking that occupancy is up year-over-year, and rents are also up year-over-year. If I look at Page 14 in the supplement, it breaks out total leasing revenue between minimum rents and shows the company's total share, which is now $188 million compared to $194 million last year. Those are the numbers I'm looking at; maybe it's just a timing issue.

Why don't we take it offline, because maybe we can kind of compare notes and help you out with your answer there.

And then maybe just secondly, thinking of redevelopment projects. I know you guys have Santa Monica Place in the Scottsdale redevelopments. Do you guys have other small redevelopment projects going on now for anchor boxes or otherwise?

Yes, we certainly do. I mean, they are not extremely material so they don't end up in our pipeline but we have got quite a few exciting openings coming. For instance, the SCHEELS All Sports doesn't show up on our development pipeline, some of the Round1 deals, Life Time Fitness deals don't show up in our pipeline, but those are effectively anchor positions for us, they just don't rise to the order of magnitude of the development costs being material enough to land on the pipeline. So all that is embedded in the $64 million that Doug spoke of earlier that will be coming online this year and into next year.

Thank you. And I will now turn the call back over to Mr. Tom O'Hern for any closing remarks.

Thank you. Well, thank you for your time today, everyone. Appreciate it. We are pleased to report strong start to the year. And we look forward to seeing many of you at NAREIT next month. Again, thank you for joining us today.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.