Operator: The next question comes from Ki Bin Kim with Truist.
Ki Bin Kim: Congrats, Tom. And going back to some of the debt execution that you’ve done in 2023 and what you have in 2024. Are there some trade-offs that don’t show up in the interest rates to solve things like CapEx reserve requirements or other clauses that might be a little bit more restrictive?
Scott Kingsmore: Yes. I’d say we’re always leaning into our underwriting to make sure that we’re getting full credit for the pipeline. And given the depth of the pipeline, any one of these deals we’re approaching, whether it’s Tysons or Danbury. To the extent we have a tenant that’s not yet come online, we do have to set aside that capital. It’s effectively — I guess, when you think about it, it’s prefunding that capital and then we drop back down over the next 6 to 12 months. And so for instance, for Tysons, I think there was an incremental $40 million, give or take, of liquidity. But a lot of that liquidity was soaked up in CapEx reserves for a lot of restaurant uses. We’ve recently discussed Level 99, which is a new entertainment use on the east side of the center.
So we did have to set aside the anticipated leasing capital to bring that use to opening and paying rent. But other than that, no, I’d say that the environment is pretty normalized. And we’re getting deals done again, liquidity is back open. I’m happy to say that we probably accounted for roughly 25% of the volume that occurred in CMBS, which was about a little over $7 billion of transactions in 2023. So, the markets are open and functional and as you can see from the rates somewhere in the mid-6s is where we’ve been transacting.
Ki Bin Kim: And what is like a broad refinance rate that we should assume for 2024 refinancing?
Scott Kingsmore: I’d say we’ve been transacting in the mid-6s, and that’s probably representative of where we’ll be this year. We’ll have to see what the Fed has in store for us for the next 12 months. But based on where we see the forward curve, that’s probably a reasonable expectation.
Operator: The next question comes from Haendel St. Juste with Mizuho.
Ravi Vaidya: This is Ravi Vaidya on the line for Haendel. I hope you guys are doing well. Just had one or two questions here. Regarding leverage, can you please provide a full year — end of year ‘24 target? And would you consider issuing equity at current prices? I believe at the Investor Day, you referenced that you were in — you weren’t looking to issue equity until the previous target, which is around $18 a share, and we’re getting close to that at this point. So I just wanted to follow up on that.
Tom O’Hern: Ravi, I’ll take the second half of that question. We always reserve the right to issue equity. So I’m not going to give you a hard and fast rule in terms of a dollar amount. You’ve seen us in the past, judiciously use our ATM, and we have an ATM in place today, and that’s another tool in the capital toolkit that we would keep available to us. So it’s certainly possible. And look, we’re very focused on delevering over time. That can happen in a few ways, one of which is to drive same-center NOI up, which we fully plan to do. And the other way to effectively reduce debt-to-EBITDA is via equity leases. So we wouldn’t preclude ourselves from doing that. We do not have any of that in the guidance, but that’s consistent with past practice as well. Scott, do you want to comment on leverage?
Scott Kingsmore: Yes. Sure, Ravi. To your first part of your question, I think we could see 40 to 50 basis points of improvement in leverage by the time we get to the end of the year. Roughly 8.2x is kind of where we’re triangulating based on the business plan today.
Operator: The next question comes from Caitlin Burrows with Goldman Sachs.
Caitlin Burrows: Congrats, Tom, on your retirement. Maybe starting with Santa Monica Place in Scottsdale Fashion Square, I feel like the expected openings are getting closer on those. And I think combined, they’re supposed to have an incremental NOI of around $50 million at your share. So I’m just wondering if you can give some further detail on the timing of recognizing that NOI? Like could it start in the first half of this year? Or any other details you can give?
Scott Kingsmore:
–: Santa Monica, we’ve got some exciting uses coming first level, Club Studio, which is high end fitness, third level, Arte, both of those are going to be done in the first half of 2025. So, you’ll see some bleed into 2026 there. Din Tai Fung will also be a use that we hope to get online either at the end of this year, beginning of next year. So, all those are very accretive leases that we expect to be on board, certainly by second quarter of 2025.
Caitlin Burrows: Got it. And maybe you guys talked earlier in the call about how percent rents were down in ‘23 because more was being shifted to base rents, which makes sense. I was wondering if you could go through any details on how much that kind of phenomenon impacted leasing spreads like that the expiring ABR might have been lower and related kind of the level of leasing spreads that you reported in 4Q of almost 20%. Do you think that’s sustainable?
Scott Kingsmore: Sure. Great question. Yes. Certainly, if you look at our expiring rents in 2023, they were a lot lower than what we expected in 2024. And that was really driven again by all those shorter-term deals that we did during COVID, which had more variable rent and we’re accessing those throughout 2023 and renewing those on a longer term more typical fixed rent structure. So as we reported trailing 12%, 17% spreads at the end of the year, and I would expect those base rent spreads to be roughly 50% of that level in 2024. Really, again, just a function of a relatively artificially low base rent expiring in ‘23 and a more normalized level of base rent expiring in 2024.
Operator: The next question comes from Nick Joseph with Citi.
Nick Joseph: Just hoping you could walk through the capital needs and the funding plan for leasing-related CapEx and any incremental redevelopment in 2024.
Scott Kingsmore: Sure. I did mentioned in my opening remarks, Nick, good afternoon — that we do expect after recurring CapEx and leasing costs to still have generated roughly $300 million of operating cash flow before payment of dividend. As I look at ‘24, ‘25, ‘26 development pipeline, I think, will range between $150 million to $200 million over those three years, and we’re probably somewhere around that midpoint of that for 2024. We are — we’ve got probably 8 to 9 — 10 anchor boxes that we continue to work on that will largely be re-tenanted and completed by the end of the year but will also be set in the table for some larger-scale redevelopments, potentially Green Acres, potentially FlatIron for 2025 and 2026. So that will give you an idea of some of the character of what we’re spending on.
Operator: The next question comes from Alexander Goldfarb with Piper Sandler.
Alexander Goldfarb: Tom and Eddie certainly for two decades of working with you guys in REIT land. It’s been awesome and we’ll miss our NAREIT interaction. So I wish you guys the best in your next endeavor. So I have two questions. The first question is, Scott, on the Danbury mall loan, you know how much I like that mall. Can you just help us walk through and interpret the $155 million new loan relative to the value of that mall? Just given the sales that it does and the dominance in that northern region would think that the loan is under-levered relative to the value of the asset. Obviously, the market today is a tough market to do debt. So maybe just some perspective around how we should interpret the loan balance relative to where the market value of that asset would be sort of in normal times, obviously, not right now when people are skittish.
Scott Kingsmore: Sure. Yes, it’s a great asset. It’s virtually 100% occupied. I think there’s one or two available storefronts. So very happy to get a 10-year deal on it, stagger out that maturity, et cetera, et cetera, especially at a very attractive rate. The the loan to value, if I recall correctly, was in the low 40s based on appraisal. We typically, as you know, from following us many years, we typically finance in the 55% realm. So yes, there’s a little bit of liquidity on the table, but it’s the state of the market today. And I think it was a great execution hitting a window. And recall, we’ve been trying to finance that thing through a difficult capital market environment for almost two years. So it was really nice to be able to window and execute well at a good rate.
Alexander Goldfarb: Okay. And then the second question is on the JV, the Freehold and Chandler JV, you bought out Freehold, but Chandler still seems to be a JV. So maybe you could just talk a little bit about what drove the JV to sort of cleave off the asset? I think you guys said $5.6 million that you used to acquire that. What was unique about that at it versus Chandler that still is in JV? Or should we expect something to happen in the near future on Chandler as well?
Tom O’Hern: Alex, really, we can’t comment on what motivated or didn’t motivate our partner in that case. It was really their decision. But when given the opportunity, we like the economics, we like the asset. We had a chance to do that on Chandler, but that was really driven by them and their preference.
Operator: The next question comes from Ronald Kamdem with Morgan Stanley.
Ronald Kamdem: Congrats Tom and Ed. Just two quick ones for me. Just on — going back to the management addition, obviously, can’t comment for Jackson. But just about the process. The question really is, is there any sort of specific skill set or experience that you guys are looking for? And can you just comment on why we’re sort of now the right time for this transition? Just trying to get a little bit more color around sort of the process that you guys are looking for?
Tom O’Hern: Yes, Ron, I’ll refer you to the press release and the 8-K. We did an exhaustive search. We used Ferguson Partners, very well-known firm that specializes in executive recruitment and we considered a lot of candidates. Those of you that know Jackson know he’s very qualified and very capable, and I think we’ve got an outstanding replacement. In terms of the timing, every CEO should really go out when their company is in a good spot and when they have their health. So that’s why it’s good timing. Macerich is in great shape and I’ve got my health. So this is the perfect time for me to move on to all those things that I put on the back burner for the last 30 years.
