Jackson Hsieh, the newly minted CEO of Macerich (NYSE: <a href="https://seekingalpha.com/symbol/MAC" title="The Macerich Company" alt="Macerich Stock">MAC</a>), has wasted no time in shaking things up. In his inaugural earnings call <a href="#Q12024" alt="Q1 2024 Earnings Call"> (Q1 2024)</a>, he unveiled a strategic plan that has sent ripples through the REIT world. While analysts are busy dissecting his pronouncements on deleveraging and portfolio optimization, a subtle detail hidden in the transcript points towards a bolder, perhaps even counterintuitive strategy: Hsieh might be quietly preparing for a retail shakeout, positioning Macerich to emerge as the dominant player in a redefined landscape.

The clue? Hsieh's repeated emphasis on backfilling vacant anchor locations with experiential tenants like Dick's Sporting Goods and Lifetime Fitness. This isn't just about plugging holes in a leaky ship. It's about fundamentally transforming the role of the shopping mall. Hsieh sees a future where traditional retail continues to contract, leaving behind prime real estate ripe for a new breed of tenant.

While Doug Healey, Macerich's leasing guru, paints a rosy picture of a "very healthy retailer environment," Hsieh's focus on experiential tenants betrays a different understanding. He's not betting on a retail resurgence. He's betting on its evolution, on the emergence of a mall that's less about shopping and more about community, entertainment, and, yes, even fitness.

His strategy echoes the rise of the "town center" concept, where the mall becomes a central hub for a variety of activities, from dining and entertainment to healthcare and co-working. Think of it as a microcosm of the city itself, a vibrant, mixed-use space that caters to the evolving needs of a post-pandemic world.

The Numbers Behind the Vision

Hsieh's vision is audacious, but it's grounded in hard numbers. Macerich has 18 vacant anchor locations, representing a significant opportunity for transformation. Backfilling just half of these locations with experiential tenants could generate millions in additional revenue, driving NOI growth and accelerating the company's deleveraging efforts.

"Consider this: a typical Dick's Sporting Goods store averages around 45,000 square feet and generates over $10 million in annual sales. Lifetime Fitness locations, even larger, can draw thousands of members, creating a consistent flow of foot traffic that benefits the entire mall ecosystem."

But Hsieh's strategy goes beyond simple backfilling. He's aiming to create a synergistic network of "thriving retail centers" that reinforce each other. By clustering experiential tenants in its strongest properties, Macerich can build a reputation as the go-to destination for entertainment and community engagement, further differentiating itself from the competition.

Potential Financial Impact

The potential impact on Macerich's financials is compelling. If Hsieh can execute on his vision, the company could see a significant boost in NOI, driving FFO per share to $1.80 or higher within three to four years, all while achieving a healthier leverage profile.

Risks and Challenges

This strategy, however, is not without risks. The success hinges on the continued demand for experiential retail, a trend that's still relatively nascent. If consumer preferences shift, or if competition from online and other channels intensifies, Hsieh's bet could backfire.

Moreover, the plan requires significant capital investment, something that Macerich, with its current leverage constraints, may struggle to secure. Hsieh's plan to sell off non-core assets and potentially issue equity could help, but it also introduces dilution and potential execution risk.

A Calculated Gamble

Ultimately, Hsieh's vision for Macerich is a gamble, albeit a calculated one. He's betting on the demise of the traditional mall, not as a sign of retail's collapse, but as a catalyst for its transformation. If he's right, Macerich could emerge as the king of the new retail landscape, a retail landscape defined not by transactions, but by experiences.

Data from the Q1 2024 Earnings Call

Key Objectives of Hsieh's Strategic Plan (3-4 Year Timeline)

Simplifying the Business: Selling assets and consolidating certain JV interests over time.

Improving Operational Performance: Increasing NOI through backfilling vacant anchor locations, improving NOI in eastern seaboard assets, capitalizing on the existing lease pipeline, and improving permanent occupancy.

Reducing Leverage: Targeting a low to mid-6x debt-to-EBITDA ratio through asset sales, returning properties to lenders, and potential equity issuance.

FFO Impacting Factors

Express Bankruptcy: Reserves taken against past due rent, write-offs of straight-line rent, and potential store closures.

Lease Termination Income: Potential reduction due to fewer lease terminations.

JV Interest Acquisitions: Mark-to-market adjustments on assumed below-market secured debt.

Leasing Performance (Q1 2024)

Occupancy: 93.4% (down slightly from Q4 2023 but up 120 basis points year-over-year)

Sales per Square Foot: $837 (up $1 compared to Q1 2023)

Trailing 12-Month Base Rent Leasing Spreads: 14.7% (down slightly from last quarter but an increase of 810 basis points year-over-year)

New Store Openings: 540,000 square feet (almost 300% more than Q1 2023)

New Leases Signed: 222 leases totaling over 1 million square feet (14% increase in square footage compared to Q1 2023)

Leasing Pipeline: 130 leases for 1.8 million square feet, with another 500,000 square feet under negotiation. These are expected to generate $70 million in incremental rent.

Chart: Projected FFO Growth (Hypothetical)

Highlights and Fun Facts

"Key Takeaway: Hsieh's strategic direction signifies a shift away from traditional retail towards a more experience-oriented mall environment. This approach aims to increase foot traffic, drive sales, and ultimately enhance shareholder value."

"Fun Fact: The concept of the modern shopping mall originated in the United States after World War II. The first enclosed shopping mall, Southdale Center, opened in Edina, Minnesota, in 1956."