管理層發言
Ladies and gentlemen, thank you for standing by. Welcome to the Second Quarter 2025 Macerich Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Samantha Greening, Assistant Vice President, Director of Investor Relations. Please go ahead.
Thank you for joining us on our second quarter 2025 earnings call. During this call, we'll 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 and future expectations. Actual results may differ materially due to a variety of risks and uncertainties set forth in today's earnings results, supplemental and our SEC filings. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the supplemental filed on Form 8-K with the SEC, which is posted in the Investors section on the company's website at macerich.com. Joining us today are Jack Hsieh, President and Chief Executive Officer; Dan Swanstrom, Senior Executive Vice President and Chief Financial Officer; and Doug Healey, Senior Executive Vice President of Leasing. And with us in the room is Brad Miller, Senior Vice President of Portfolio Management. And with that, I'd like to turn the call over to Jack.
Thank you, Samantha, and good afternoon. I want to begin with where everything starts for us at Macerich, our people and their commitment to our mission and values. We are collectively a better informed, aligned and operationally focused company. Our second quarter results, the progress on our Path Forward plan and the acquisition of Crabtree Mall demonstrate how well we have put this mission and values to work together. Thank you all for your contributions that have brought us to this point. Now let's turn to our recent Path Forward plan. I want to let that update guide our discussion this afternoon. Recall that our Path Forward strategy is built on simplifying the business, operational performance improvement and leverage reduction. We are solving for strengthening the balance sheet, fortifying our core portfolio, driving operational excellence and positioning us for growth. We provided an update to our Path Forward plan in May, which included a comprehensive NOI bridge from year-end 2024 to 2028 for pro forma go-forward portfolio NOI.
It also provided a road map for 2028 target FFO ranges and a path to our 2028 target leverage ranges. We also provided an update on the composition of our go-forward portfolio and identify which properties have been ranked as Fortress, Fortress Potential, Steady Eddies and Eddies. As Dan will discuss later, you will now see some of our supplemental KPIs broken down under the go-forward portfolio. A significant component of the plan is driving operational performance improvement. This all begins and ends with leasing. Leasing is the piece of the plan that best tracks the progress on hitting our 2028 targets. Recall that we are targeting an average of 4 million square feet of leasing in 2025 and 2026. Year-to-date, we've already signed 4.3 million square feet. I'm pleased to say that we are ahead of schedule on leasing volume and on target for our market rent assumptions used in our 5-year plan.
I want to focus on our leasing speedometer and SNO pipeline. These metrics best track our progress on driving a higher percentage of new lease deals versus renewals, which in turn drive higher spreads and incremental revenue to achieve our NOI targets. We provided a helpful visual for you in the planned update for the leasing dashboard that we refer to internally as the Macerich leasing speedometer, which tracks revenue completion percentage for all new leasing activity in the 5-year plan. This tool and other technology enhancements we've implemented drive every leasing and capital allocation decision at our properties. Our initial goal on new deals was 50% progress by mid-2025 and 70% by year-end 2025. Hitting the 70% goal by year-end would put us on track for the 85% completion target by mid-2026. Reaching that goal also puts us on track for our ultimate opportunity to achieve the $130 million in cumulative SNO potential.
Reaching that mid-2026 leasing goal would effectively complete the new leasing goal outlined in our plan. We remain ahead of this plan on both the new deal completion and the SNO pipeline. For new deal completion, we were at 54% at the end of last quarter and 60% in May. Today, we're at 65% and have a large pipeline of LOIs, which puts us on pace to exceed our 70% year-end target. The SNO pipeline has grown from $75 million on a cumulative basis at the end of last quarter and $80 million in May to $87 million as of today. That also puts us on track to exceed our SNO pipeline target of $100 million by year-end. None of these figures include the addition of Crabtree. I noted on our last call that we were confident we derisked the key elements of the Path Forward plan with our leasing, disposition, capital markets and leverage reduction progress. That progress on the plan positioned us to opportunistically pursue external growth via an attractive transaction.
At the end of June, Macerich acquired Crabtree Mall, a market-dominant Class A retail center totaling approximately 1.3 million square feet in the Raleigh-Durham, North Carolina MSA for approximately $290 million. The strategic rationale for this transaction is compelling. It's accretive to the Path Forward plan 2028 target FFO range, a powerful entry point to one of the top southeastern U.S. markets. It holds a market-dominant position in a high-growth market with top retailers in the country identifying it as the #1 or #2 must-have location in the region. We have a perfect opportunity to deploy our operating, leasing and marketing platform to reinvigorate leasing momentum and drive permanent occupancy from 74% as of June 30 to closer to 90% by 2028 and capture the embedded NOI growth upside potential. It is expected to keep us within our stated deleveraging targets under the Path Forward plan.
We're excited to close this acquisition as Crabtree enhances our go-forward portfolio and creates a compelling opportunity to drive shareholder value. Doug will comment on the strong leasing momentum we've already seen at Crabtree and the tremendous response and feedback we have received from many retailers who are elated that we now own and manage Crabtree. In closing, I feel very good about where we are on the Path Forward plan and with the addition of Crabtree to our go-forward portfolio. As I noted earlier, we're ahead of plan on leasing. We're also ahead of plan on asset sales and dispositions. We have a clear road map for hitting our deleveraging targets. Our team is working well together, executing nicely on the key components of the Path Forward plan and properly incentivized and aligned on shareholder value creation. With that, I will turn the call over to Doug.
Thanks, Jack. In my remarks this afternoon, I'll refer to total portfolio statistics and, where applicable, I'll provide the go-forward portfolio statistics as well. Portfolio sales at the end of the second quarter were $849 per square foot, which is up $12 when compared to the first quarter of 2025. However, when you look at our go-forward portfolio, sales were actually $906 per square foot. Traffic through the second quarter for the portfolio was up 1.6% when compared to the same period in 2024. For the go-forward portfolio alone, traffic was up 2.1%. Occupancy at the end of the second quarter was 92%, down 60 basis points from the last quarter. As we signaled on our last call, this decline is primarily due to the liquidation and closing of our Forever 21 stores, all of which occurred in the second quarter. As I mentioned last quarter, Forever 21 had a lot of square footage, but did not pay a lot of rent.
Recapturing these stores now allows us the opportunity to re-merchandise the space with higher and better uses that will pay significantly more rent. To date, we have commitments on just over 50% of the closed square footage with another 30% in the letter of intent stage. We still expect to more than double the rent Forever 21 was paying us once we complete backfilling all of the space. The go-forward portfolio occupancy at the end of the second quarter was 92.8%. Trailing 12-month leasing spreads as of June 30, 2025, remained positive at 10.5%, which is relatively consistent with last quarter. This now represents 15 consecutive quarters of positive leasing spreads. In the second quarter, we opened 332,000 square feet of new stores for a total of 509,000 square feet year-to-date through June 30. Also in the second quarter, we signed 331 new and renewal leases for 1.7 million square feet.
Year-to-date through the second quarter, we signed 650 new and renewal leases for 4.3 million square feet. In terms of lease signings, this represents 40% more leases and 75% more square footage than we signed during the same period in 2024. And just looking at new deals, it's double the number of leases and triple the amount of square footage that we signed during the same period last year, all of which are in line with the rental assumptions we used in our 5-year plan. We're very excited to announce the signing of a 142,000 square foot DICK'S House of Sport at Washington Square in what was a vacant Sears box. For those not familiar, DICK'S House of Sport is an experiential retail concept that is built on the foundation of a traditional DICK'S Sporting Goods store by adding interactive elements such as climbing walls, batting cages and golf simulators. DICK'S House of Sport is the epitome of destination-oriented and will create a more engaging and immersive experience for customers.
We expect this will totally transform the Sears wing, both in terms of better merchandising and increased traffic. DICK'S House of Sport is expected to open in the fall of 2027, and we look forward to doing much more business with this concept, including a Freehold Raceway Mall, which is under construction and opening later this year and the Crabtree Mall, which is signed and will open in the spring of 2027. So stay tuned for more news on DICK'S House of Sport throughout our portfolio. Other notable leases signed in the second quarter included three stores with Urban Planet totaling 60,000 square feet to replace Forever 21 at Freehold Raceway Mall, Kings Plaza and South Plains. We also signed Sephora at Fashion Outlets of Chicago and Green Acres Mall, Cheesecake Factory also at Green Acres Mall, Kids Empire at Freehold Raceway Mall and Tysons Corner and Round One at Victor Valley, just to name a few.
Now let's look at our Executive Leasing Committee, which reviews and approves deals on a biweekly basis. As I've mentioned before, this is a much more forward-looking and better representation of the current environment and retailer sentiment. Through the second quarter, we've reviewed over 70% more new and renewal deals and 140% more square footage than we did during the same period last year. And if you look at new deals only, we reviewed double the number of new deals and quadrupled the amount of square footage than we did during the same period last year. Turning to our lease expirations. As of June 30, we have commitments on just about 90% of our expiring 2025 square footage that is expected to renew and not close, with another 9% in the letter of intent stage. In terms of 2026 expiring square footage, we have commitments on almost 30% of our expiring square footage with another 45% in the letter of intent stage.
So as you can see, we're basically done with 2025 and in very good shape with our 2026 business. For both 2025 and 2026 lease expirations, we're ahead of pace when compared to this time last year when looking at our 2024 and 2025 expirations. The retail environment remains very strong even with the noise of uncertainty in the macroeconomic environment and the pending tariffs. As I mentioned last quarter and still stands, the best brands remain very active and continue to take advantage of great space and great centers. To that end, in May, we attended the annual ICSC convention in Las Vegas. It was very well attended by both landlords and retailers. The mood was positive with many national retailers having significant open-to-buys and/or talking about new brand extensions. It was also good to see many new and emerging brands such as Alo Yoga, Pop Mart, Rowan, gorjana, and Fabletics continue to expand their footprints in shopping centers.
We look forward to the next ICSC convention in December in New York City. Turning our attention to the signed not open or SNO pipeline for our go-forward portfolio. At the end of the second quarter, we had 179 leases for 1.5 million square feet of new stores, which we expect to open between now and early 2028. In addition to these signed leases, we currently have leases out with new stores totaling 1.6 million square feet. And these two will open between now and into early 2028. So in total, that's over 3 million square feet of new store openings throughout the remainder of this year and beyond. This leasing activity has increased our SNO pipeline from $75 million as of last quarter to almost $87 million today, with our goal to exceed $100 million by the end of this year. Lastly, as Jack mentioned, we're thrilled to now own Crabtree Valley Mall in Raleigh, North Carolina. Already a great mall and a great market, there is still a ton of potential to garner from this asset.
We are reimagining this mall through a more dynamic tenant mix, enhanced customer experiences and refreshed, modern and inviting environments. In just a short 45 days since we've owned Crabtree, the interest from and conversations with existing retailers and those that want to be in Crabtree has been extraordinary. We look forward to many major leasing updates in the very near future. And with that, I'll turn the call over to Dan to go through our second quarter financial results.
Thanks, Doug, and good afternoon. I'll start with a review of our second quarter financial results. 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 during the second quarter of 2025. I would like to highlight the following items included in our FFO adjusted for the quarter. Number one, $9 million of interest expense relates to the amortization of debt mark-to-market resulting from our various JV interest acquisitions, which compares to $3 million in the second quarter of 2024. As a reminder, this noncash expense is included in interest expense. Number two, $2 million of total combined expenses relating to legal claims expense at one of our properties and severance and staff transition expenses. Following the release of our Path Forward plan version 2.0, which included an update on the composition of our go-forward portfolio, we have now begun to include certain supplemental financial and operating information on the go-forward portfolio in our supplement.
We will continue to evaluate additional enhancements or disclosures to our supplement in the coming quarters. Go-Forward Portfolio Centers NOI, excluding lease termination income increased 2.4% in the second quarter of 2025 compared to the second quarter of 2024. Year-to-date, the Go-Forward Portfolio Centers NOI has increased 2% compared to the same period in 2024. Turning to the balance sheet. We recently closed on a previously disclosed approximately $160 million 2-year term loan with 2 one-year extension options on Crabtree Mall at an interest rate of SOFR plus 250 bps. We used a portion of the net proceeds to fully repay borrowings on the revolving line of credit associated with the purchase of Crabtree. The term loan also allows for future additional borrowings up to approximately $50 million to fund capital investments and leasing costs at Crabtree Mall. We continue to make strong progress on the balance sheet initiatives contained in our Path Forward plan.
For the balance of 2025, we have only one remaining maturing loan in November for approximately $200 million. And we're continuing to proactively address our remaining 2026 debt maturities through a combination of potential asset sales, refinancings, loan modifications or property givebacks. We currently have approximately $915 million of liquidity, including $650 million of capacity on our revolving line of credit. From a leverage perspective, net debt to EBITDA at the end of the second quarter was 7.9x, which is almost a full turn lower than at the outset of the Path Forward plan. Importantly, we've outlined our strategy to further reduce leverage to the low to mid-6x range over the next couple of years. We are also making substantial progress in executing on planned dispositions as part of the Path Forward plan. In April, we closed on the sale of SouthPark for $11 million. This asset was unencumbered.
In July, we closed on the sale of Atlas Park for $72 million. We used our 50% portion of the net proceeds from this sale to repay our 50% portion of the $65 million loan on the property that has an effective interest rate of over 9% and a 2026 maturity date. As previously disclosed, we are currently under contract to sell Lakewood, which is expected to close in the second half of 2025, subject to customary closing conditions. We expect net proceeds to Macerich of approximately $5 million above the debt balance outstanding. We are also now under contract to sell Valley Mall for $22 million, which is expected to close in the second half of 2025, also subject to customary closing conditions. This asset is unencumbered. These sales transactions are consistent with our stated disposition plan to improve the balance sheet and refine our portfolio. We have made substantial progress on the sales and giveback component of the plan and have identified a clear path to achieving our $2 billion disposition target.
To date, we have completed over $800 million in mall sales. As you will see in the disclosure we provided in our supplement, this includes Country Club Plaza, Biltmore, Southridge, The Oaks, Wilton Mall, SouthPark and Atlas Park, which are closed. This total also includes Santa Monica Place in which the loan encumbering this property is in default. The sale of Lakewood and Valley Mall, which again are both now under contract, would increase our sales completed total to approximately $1.2 billion. We have identified internally several additional Eddie assets for sale or giveback over the next 1 to 2 years, which would increase total dispositions to the $1.4 billion to $1.5 billion range. The remaining dispositions in our plan represent the sale of outparcels, freestanding retail, non-enclosed mall assets and land. As you will recall, our 2025 goal for this bucket of dispositions is $100 million to $150 million in total sales for the year.
I'm pleased to report that we currently have approximately $100 million sold or under contract against this target. Year-to-date, we have now closed on land sales for $55 million at our share and various outparcel assets for $9 million at our share. We currently have approximately $14 million of additional land sales and approximately $22 million of additional outparcel sales under contract for sale. We continue to expect to be substantially complete on this last bucket of the disposition program by the end of 2026. We'll provide further updates on these sales as we progress through the year. In conclusion, we are making great progress on our Path Forward plan objectives to reduce leverage, refine the portfolio and strengthen the balance sheet. With that, we'll turn the call back over to the operator.
分析師問答
And our first question will come from Ki Bin Kim with Truist.
Jack, can we first talk about Crabtree? It almost sounds too good to be true, all generating sales of $950 a square foot, trading at 11 cap. So maybe you could just give a little more background into it, how well marketed it was and how you thought about some of the risks with Belk, Macy's there as tenants?
Yes, thanks, Ki Bin. It's great to hear from you. First, regarding the trade area, specifically the Raleigh-Durham MSA, we found there are about 10 centers totaling approximately 6.8 million square feet of gross leasable area, resulting in around 3.1 square feet per person. One of these malls, Triangle, is about 1.3 million square feet, and we believe it is on the path to being repurposed. Overall, we expect the gross leasable area per capita in the Raleigh-Durham area to be around 2.4 square feet, which we consider a favorable ratio. As for Crabtree, we view it as a unique situation for us. It has a value-add component, with the net operating income increasing from $32 million to $36 million pro forma, potentially exceeding $40 million. This transition required significant leasing efforts and capital to rethink some of the merchandising mix to attract more visitors. Crabtree's size also played a role; given the ramping net operating income, securing a permanent, heavily leveraged loan on that asset would likely be challenging.
It would probably necessitate competitors to invest a substantial equity amount exceeding $100 million. We think many competitors were likely targeting opportunistic internal rates of return. This makes Crabtree a distinctive asset. While we may not be able to achieve a similar cap rate in the future, we are excited about this asset. As Doug mentioned, the interest in leasing and the momentum we have, along with the potential to adjust some of the merchandising in the center, should significantly enhance traffic, especially considering that some major malls in the area may be repurposed.
Okay. I believe that mall has the only Apple Store in Raleigh. Does the presence of such a highly productive retailer significantly impact the sales per square foot? I'm just curious about this unique situation.
Yes. When we look at sales, we consider them with and without Apple, as Apple is very productive in terms of sales per square foot. Even excluding the Apple Store, our sales per square foot remains quite strong. The permanent occupancy in that center really excites us, as it allows us to increase market rent and occupancy rates. We've already conducted a merchandising mix analysis and identified several brands that are not currently represented but need to be. Those brands are aware of our long-term commitment to this area, which boosts their confidence in performing well there. If you visit, you'll see we're repainting the center's interior, and we have plans for enhancing the parking lot railings later this year.
And the next question will come from Linda Tsai with Jefferies.
The overall pace of your leasing is quite impressive with over $3 million opening between now and next year and over $100 million by year-end, you're hitting your goals and then some. What other benchmarks do you need to hit before you reinstate guidance?
I think the asset sales are an important component because they can significantly impact earnings, particularly regarding their timing. Unfortunately, we have to manage both asset sales and leasing simultaneously, and both are progressing well. However, it can be challenging to predict the timing of asset sales, as some may be delayed or occur sooner than expected. We prefer not to constrain ourselves with specific guidance numbers and instead focus on continuing to push forward with asset sales and leasing.
Second question is it looks like your bad debt was down year-over-year. How is the watch list trending? We saw that Claire's has filed.
Yes, Linda, this is Dan. That's right. Bad debt through the first half of the year is about $2.8 million relative to about $5.6 million for 2024. So our watch list does continue to be at an all-time low. With respect to Claire's, we have about 33 locations in our go-forward portfolio, which represent about 50 basis points of rents. These spaces are roughly 1,300, 1,400 square feet, but are in good locations. We're confident we can re-lease those probably at least at the existing rents, but with healthier tenants that will improve the merchandising at our centers. And in fact, as part of the go-forward plan, we had already anticipated getting a number of those spaces back in our plan. So given the size and location of the spaces and the relatively small total rent they were paying, we don't see any impact to the 5-year plan. And as Doug alluded to in his remarks, I think importantly, and to your point about the bad debt being lower than last year, we don't think Claire's is indicative of the strong retailer environment that we're seeing today.
Has your bad debt guidance changed?
No.
And the next question will come from Michael Griffin with Evercore.
Curious if you could give some color on the TIs in the quarter. I noticed it jumped pretty notably compared to last quarter. It seems like you did more new leasing. So that probably drove a portion of it. But just give us a sense of maybe what the concessionary environment looks like currently?
Maybe I'll start by mentioning that we currently have a significant number of anchor stores being addressed. The way we handle these anchor stores varies; whether we choose to set up a DICK'S House of Sport, subdivide the space, or repurpose it will entail different levels of capital expenditure or tenant allowances. There are also landlord responsibilities involved when reconfiguring an existing department store. When discussing our new leasing, I would say that much of the momentum aligns well. Overall, our tenant allowance expense has remained fairly stable year-to-date, still within the range of 1 to 1.5 times the annual rent. Each anchor store situation is unique, and deals can differ greatly, such as between Tysons and Washington Square or a Steady Eddie asset. I anticipate an increase in tenant allowances and landlord work as we continue to address many of these vacant and underperforming anchor stores.
Our objective is to boost foot traffic in those areas; for example, the Sears wing at Washington Square has faced challenges for a long time. It will be very exciting when DICK'S finally opens there, allowing us to effectively remerchandise that wing. We aim to replicate that model across approximately 30 locations in our portfolio, with around 28 opportunities currently available. A similar impact can be expected with SCHEELS, where a strong traffic driver at the end of that wing can significantly enhance the spaces leading up to it. Thus, our strategic shift that began a year and a half ago has focused on revitalizing these vacant anchor stores, moving away from some previous densification opportunities in favor of initiatives that drive traffic, which in turn boosts sales. Increased sales enhance our capacity to raise rents and ensure tenants can manage their occupancy costs.
I appreciate the context there. And then maybe just switching over to sort of external growth activities. You clearly demonstrated finding attractive deals with the Crabtree acquisition. As you kind of play out that proof of concept on the go-forward path, whether it's being ahead of your leasing expectations, that SNO pipeline, what have you, does that give you maybe more confidence to turn that acquisition engine on? Are these deals more opportunistic? Just trying to wrap my head around how you're thinking about external growth activities in the context of the go-forward plan.
I would say that acquiring Crabtree was a sensible decision for Macerich in terms of portfolio contribution. We were considering other centers as well, but not all centers are alike, and the cap rates differ too. We focus on the relationship between market rents, the potential to boost leasing activity, and the competitive dynamics of the trade area. Crabtree is ideally positioned for this. There are other prospects out there that are interesting, but whether we proceed depends on whether they meet our low to mid-teen IRR thresholds and add value to our portfolio. Only time will tell. However, one factor that has instilled confidence in our Board regarding our leadership team is the considerable momentum we're witnessing in our business from leasing and asset disposal perspectives. Doug provided insights about our leasing activities and comparisons to last year. In our projected portfolio, we currently have 3 million square feet of signed leases, 2 million square feet of leases in process with a high historical completion rate, and 2.3 million square feet of LOIs that are in negotiation.
Historically, we see a completion rate of about 50-60% for LOIs. This indicates that we have 8 million square feet of potential opportunities that are either signed, in process, or under negotiation. Additionally, it's important to note that we're only 70% through the year, and there's more than a year left to achieve our goals. I believe we are ahead of our plan and will continue to push forward. We are also securing market rents, consistent with our tenant allowance assumptions outlined in our five-year plan.
And the next question comes from Jeff Spector with Bank of America.
Just coming back to Crabtree. Again, I understand the strategy. Thanks for laying all that out, the market positioning, leasing opportunity. I guess can you just weigh the decision, again, buying Crabtree, the CapEx required versus, let's say, using that cash on hand to just pay down debt? And obviously, with Crabtree, your leasing team now focusing on a new market, I guess can you just talk through that decision?
We had a significant amount of cash available, which was very favorable for us. When considering whether to pay down debt or pursue an acquisition like Crabtree, we realized that the projected growth rate of Crabtree's net operating income is actually higher than our core growth rate. This implies that acquiring Crabtree would enhance our growth compared to our existing portfolio. Additionally, we have strong confidence in our ability to fully lease the spaces we've identified ahead of schedule and at market rates within the ranges we've specified. Notably, 90% of the remaining spaces we're focusing on consist of A, B, and C graded properties in our portfolio. Furthermore, 66% of the incremental rent we are targeting comes from our top-tier Fortress and Fortress Potential assets. With this advantageous situation, we believe we are in a much stronger position than we were at the start of the year, making the Crabtree acquisition more appealing than simply paying down debt.
The only thing I would add to Jack's comments is that we are still expected to keep the company within our previously stated deleveraging targets under the Path Forward plan. So even with this acquisition, we remain in our target leverage range as part of the plan.
And maybe, Jack, this ties to your initial comments about the team becoming better aligned. I know we've discussed your leasing systems in the past. How has everything come together? Also, could you connect this to your earlier remark about possibly considering other acquisitions?
Yes, it's interesting. We conducted an internal case study to learn from the Crabtree process, and it has been remarkably effective given our current business practices, technology, systems, and processes. It's hard to express just how well the company is functioning at this moment. We didn’t simply lease all the space on a whim; we had a structured plan based on a five-year timeline. This involved significant realignment with our operating teams and was guided by specific criteria regarding market rents and assumptions that inform our five-year model. As a result, we can make rapid decisions, which empowers our team to progress successfully. We've alleviated various burdens on our sales and leasing teams, allowing them to perform more efficiently. Overall, this has enabled us to meet our leasing targets. When we assess Crabtree and integrate it into our operations, I can’t make a direct comparison since I wasn’t here previously, but feedback from long-term employees indicates that the process has been quite seamless thus far. We look forward to possibly exploring one or two more opportunities to enhance our business.
The next question comes from Floris Van Dijkum with Ladenburg.
I'm interested in discussing the SNO pipeline, which is substantial at $85 million. You had some leases start during the quarter, and I'm curious about the specifics of what began during this time and how much was added. Additionally, what percentage does this represent of your future NOI? You mentioned that it's roughly 10% of your current EBITDA, but it will likely be a larger percentage going forward. Could you provide more details on this? Also, I'd like to understand the composition of the SNO pipeline. Considering your average ABR is $73 per square foot in your future portfolio, can you break down how much of the SNO pipeline falls into the A, B, and C categories, and what the rent differences are among them?
Floris, I'll start and then Brad and Jack can chime in. If you think about your first point on the SNO as a percentage of NOI, in the Path Forward presentation that we put out, we gave the go-forward pro forma portfolio NOI was about $720 million. So if you kind of look at the $87 million as SNO, as a percentage of that, it's 12%. Obviously, the ultimate opportunity of $130 million of SNO is significantly higher over that $720 million. In terms of SNO, I think the second part of your question was SNO contribution to date. Again, in the Path Forward plan, we had outlined, and this is on the $80 million as of May, that we expected about $25 million contribution in 2025. So about $10 million of that has been realized to date. In terms of the last piece, the composition?
Yes, it's Brad. We are currently at $87 million for SNO, with a target of reaching $130 million. Out of the additional $43 million, we expect 90% to come from our A, B, and C rated spaces. We are optimistic about that.
And as you think about those A-rated spaces or B-rated spaces, what kind of premium rents do you get relative to the rest of the portfolio?
Yes, we do receive higher rent on our A and B spaces. A key aspect is that in our 5-year plan, we have established specific market rents for each space, so regardless if it's A, B, or C, we are aware of the target rent we aim to achieve for each area.
Could you discuss the temp tenancy opportunity? You mentioned that at Crabtree Valley, 74% is permanently leased, indicating a significant temp opportunity there. Is this also an additional SNO potential in the portfolio? What is the current temp tenancy percentage in your core portfolio, and what do you expect it to be by the end of 2026?
Floris, we kind of gave wide end ranges for 2028. I don't want to try to give incremental because if I give you a number, you'll probably try to do it. And so I think what I would tell you is that our goal is to really drive unproductive or temp tenants out of the center because there's demand for really high-quality tenants at this point, and we're showing that through our leasing momentum. And I would rather not constrain ourselves to give you a target for '26. We might exceed it. We might not exceed it. I don't want to be constrained that way. So you can rest assured we're growing as quickly as we possibly can to make the right decision to put the right tenant where we think it's going to, a, drive the most rent; but b, actually drive the most traffic as part of the merchandising plan in each of these centers. At Crabtree, we think there's an amazing opportunity to really tighten up permanent occupancy in that center.
I would say that the prior owner did not probably commit the kind of capital that was necessary over the last few years coming out of COVID. There is clearly demand. We're seeing it, and we're going to get after it. It does cost money, and it does take time. A lot of those same tenants really want to see capital going into the center, which we've committed to do. They've seen it. They know what we're doing. We'll provide updates from us maybe at the end of the year where we show progress before and after, and it will be quite significant.
Jack, the only thing I would add to that, and you've done a great job sort of explaining Crabtree and everything that we're doing. But from a retailer standpoint, we're talking to them all the time. They are elated that Macerich bought this property. They know exactly what a Macerich property looks like, feels like and how it's leased. So already, and I think I said this in my opening remarks, in the short time that we've had this, I can't tell you how many retailers proactively reached out to us and said, 'Hey, we want to expand our store. We want to right size our store. We want to invest capital. We haven't because we didn't know who was going to own this thing.' So those are the ones that are currently in the mall. Then the ones that aren't in the mall that want to be in the mall have been nothing short of extraordinary. So I think, as I said, we're going to have a lot of real quick meaningful updates in the very near future.
And Floris, finally, you talked about this inflection point in mid-2026. That's when you're going to really start to see the impact of all this leasing that's really going to be coming through the P&L. You'll start to really see it.
And our next question will come from Vince Tibone with Green Street.
Could you discuss the rationale in keeping South Plains Mall as part of the go-forward portfolio? When you consolidated the center last year, I recall you saying there was really likely no equity remaining at that property after the $200 million mortgage. So curious kind of what changed, what made you presumably want to contribute more equity into that center to get it refinanced versus just handing the keys back.
What I would say is that this list of properties could still change a bit. This is the current list moving forward. Regarding South Plains, we are currently in discussions with the lender to seek an extension. We believe that with the demand in the area and the right terms for an extension, we can generate an increase in net operating income that will help balance the loan and net operating income at the end of three years. So, while it's on the list now, it may come off depending on our discussions with the lender. You've done the calculations, and the debt yields are in the high single digits. You're right that compared to investing equity elsewhere, like in a Crabtree, this is much more appealing. However, with the right loan structure, it could present an interesting opportunity.
No, that makes sense. I assume you're in discussions with the lender there. Can you provide any insight into the performance of the remaining non-go-forward assets in terms of how much NOI is growing or declining? I could estimate the first quarter results, but I'm unsure if there is any noise in the data. So I was hoping you could give an idea of how NOI has trended year-to-date for the current non-go-forward property same-store.
Yes, at a high level, we're not investing capital into those properties. The leasing activity there is being managed differently, and the asset management teams are treating these assets distinctively. Therefore, they are not growing at the same pace as our main portfolio, not even close. Our main priority is maintaining occupancy in those centers. As we review the portfolio, others may have different strategies. We're actively selling other properties where buyers have alternative perspectives that can enhance the value of those assets. For us, it's about prioritization since we have limited capital, resources, and leasing efforts. We are focusing our efforts on our main portfolio.
No, that makes sense. Is it fair to assume that any of those malls are effectively on the market given the release in May?
Yes, I think that's definitely the case. Those properties are generating cash flow, and in some instances, they are producing funds from operations, with some being unlevered. This adds value to our current strategy, as the capital available is beneficial for the company and can be reinvested. However, we are now managing, leasing, and operating those properties in a different way.
And the next question will come from Ronald Kamdem with Morgan Stanley.
Can you discuss the factors that are impacting NOI growth in the portfolio this year, such as the situation with Forever 21 or the transition from temporary to permanent leases? Additionally, once you reach the inflection point you mentioned for next year, what normalized growth rate should we anticipate for the future?
Dan here. You've highlighted some key points regarding Forever 21 this year, along with the leasing and repositioning efforts for 2025. If we take a step back and review our Path Forward presentation, we anticipate a midpoint compound annual growth rate for our portfolio over the next four years of 5.2%. We've made it clear that this growth is expected to accelerate, aligning with Jack's comments about a mid-2026 inflection point. For 2026 specifically, we foresee growth in the range of 3% to 4%, but it will increase significantly from there. Importantly, over the next four years, we expect an NOI growth rate exceeding 5% for the portfolio going forward.
I wanted to ask about the opportunity with Forever 21. You mentioned that a good number of the backfills have been signed and a bunch are under LOI as well. How many of these are straight up single backfills? And how many require a split of the box, which would require more CapEx?
I would say most of the Forever 21 spaces are straightforward backfills, with only a few that might need to be divided in one, two, or three ways. As I mentioned, we're about 50% committed and another 30% is in the letter of intent stage. This means not only will we effectively double the rent that Forever 21 was paying, but we will also bring in some uses that far exceed what Forever 21 was contributing to the shopping center. We're very excited to reclaim those spaces.
Well, I want to thank everyone here, especially all the colleagues that work here at Macerich. I mean they've been doing yeoman's work across the platform and couldn't do this without them. And we look forward to more updates and continued momentum on achieving our Path Forward plan. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.