Land Sales and Diversification: Macerich Company's Positive Outlook
2023-07-30
Macerich Company held a call meeting to discuss their financial performance and future plans, providing updates on occupancy rates, rental revenues, and redevelopment projects. The meeting ended on a positive note, with an optimistic outlook for the company's performance in the coming year.
One of the key topics discussed was the extension of a CMBS loan for Deptford Mall. This loan extension was a significant focus during the meeting.
Land sales were another important point of discussion, as they have had a significant impact on the company's Funds From Operations (FFO) in 2022. These sales provided approximately $0.09 of FFO benefit net of tax, highlighting their importance to the company's financial performance.
Looking ahead, it was mentioned that around 40% to 50% of the land sales activity is expected to impact FFO in 2023. This indicates that land sales will continue to play a significant role in the company's financials in the coming year. However, the CFO noted that the impact of these sales on FFO will be lumpy throughout the year, suggesting that the timing and magnitude of the sales can vary and potentially affect the company's financial projections.
Understanding the company's strategy behind these land sales would provide valuable insights into their overall financial strategy. The reasons behind these sales, such as portfolio optimization or generating cash flow, were not explicitly mentioned in the provided information.
The company's market outlook appears positive, with strategic initiatives focused on redeploying capital into top assets and divesting noncore assets. They have successfully sold a noncore property and have been actively involved in financing activities. The company is also progressing with mixed-use diversification and densification projects, including luxury apartment projects in multiple locations. They are anticipating zoning approval for future mixed-use development. The company has made significant leasing progress, with interest from various industries, indicating a strong overall performance.
In terms of product and service plans, the company has signed leases for 2.3 million square feet of new stores, expected to open in 2023, 2024, and early 2025. They are also negotiating leases for additional stores totaling nearly 390,000 square feet. The company mentioned several retailers and concepts that will be coming soon to their centers, contributing to their growth and expansion.
The competitive landscape in the retail industry was described as evolving positively, with a significant number of leases signed, including both renewals and new leases with new retailers. The fact that tenants are still opening stores indicates a healthy retailer environment. However, caution was expressed regarding the macro environment, with potential rate increases suggesting a possible upcoming recession. Despite this, the company feels well-positioned to weather any downturn and has not reported any slowdown or back off in deals.
During the meeting, the CFO discussed several key performance indicators (KPIs). Retailer sales growth and its impact on percentage rents were mentioned, with the assumption of flat growth due to uncertainty in the retail sector. Luxury tenants were highlighted as playing a significant role in driving percentage rents. The CFO also mentioned an expected decline in percentage rents, attributed to the conversion of leases from variable rent structures to longer-term fixed-rate deals. The decline was estimated to be in the mid-teens relative to 2022. Further details on the loss on joint venture income were not provided.
The company's outlook for the quarter and year is positive, with maintained guidance for 2023 funds from operations and expectations of strong operating cash flow generation. They have made progress on their financing pipeline and have a healthy amount of available liquidity. The leasing and operating environment has shown strong performance, with record leasing volumes and positive leasing spreads. Overall, the company's outlook appears to be optimistic.
Regarding strategic initiatives, the company discussed progress on a joint venture project, leasing up the property and expecting improvement over time despite slow recovery in urban areas due to COVID-19. They also mentioned a potential collaboration with HBSE for an arena site, which is still in process. The company expressed confidence in recovering their loan and equity investment in the joint venture project, with ongoing loan balance paydowns. Additionally, the company made a tech investment through a venture capital firm called Fifth Wall.
The participants of the call included Tom O'Hern (CEO), Scott Kingsmore (CFO), Doug Healey (Senior EVP of Leasing), and Samantha Greening (Director of Investor Relations and host). Tom O'Hern highlighted the company's strong operating results, including robust leasing demand and positive volumes, despite challenges posed by the macroeconomic climate.
The company has recently opened a Life Time Fitness club at Scottsdale Fashion Square, which has already sold out its membership and is expected to attract a high number of daily guests. They also have plans to open another Life Time Fitness at Broadway Plaza later in the year. Additionally, the company has opened stores in the digitally native and emerging brands category, as well as medical facilities and various experiential offerings.
In conclusion, Macerich Company's earnings call meeting provided insights into their financial performance, future plans, and strategic initiatives. The company's focus on land sales, leasing progress, and diversification projects indicates a positive market outlook. Despite challenges in the retail sector, the company remains resilient and optimistic about their performance in the coming year.