Q1 2022 Macerich Co Earnings Call
Please standby were about to begin.
Good day and welcome to the Mace Rich company first quarter 2022 earnings call. Today's conference is being recorded at this time I'd like to turn the conference over to MS. Samantha Greening director of Investor Relations. Please go ahead.
Thank you for joining us on our first quarter 2022 earnings call. During the course of 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 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 COVID-19 on the U S regional and global economies and our financial condition and results of the 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 Satcom.
Joining us today are Tom O'hern, Chief Executive Officer, Scott King floor, Senior Executive Vice President and Chief Financial Officer, and Doug Healey Senior Executive Vice President of leasing with that I turn the call over to Tom.
Thank you Samantha and thanks to all of you for joining us today.
We are pleased to report another outstanding quarter with virtually all of our operating metrics trending very positively.
After a strong second half of 2021, the first quarter of 'twenty, two which even better.
Which is a tribute to our team and the quality of our portfolio.
We continue to see robust and accelerating retailer demand.
The resiliency of the American consumer is once again on display.
<unk> come Roaring back to our centers to shop with a purpose.
We continue to see a high conversion rate higher than pre COVID-19 as traffic is about 95%.
<unk> thousand 19 traffic levels, but tenant sales are exceeding pre pandemic levels with the first quarter of 'twenty two sales up 11, 5% over the first quarter of 2019.
And exceeding the first quarter of 'twenty, one sales by 14, 5%.
That is the fourth quarter, a row with double digit tenant sales gains versus the pre pandemic quarters in 2019.
Recent retailer demand is that it.
Is that a level, we have not seen since 2015.
All sales categories, but one.
Which was flat we're up in the first quarter.
Tenant sales per square foot for the trailing 12 months ended March 31, 22 came in at an all time high of $843 per square foot.
Some of the quarterly highlights included occupancy at quarter end of 91, 3%.
That's a 280 basis point improvement from a year ago.
Although there was a modest 20 basis point decline from year end that is very normal due to seasonality.
Actually over the course of the past 20 years that decline in the first quarter versus the prior fourth quarter occupancy has been in the range of 30 to 100 basis points.
So we were on the better end of that historic range.
We continue to see robust leasing volumes for the quarter.
As in the first quarter of 'twenty.
22, we executed 220 leases, a 21% increase over last year.
We saw same center NOI growth of 25% in the first quarter compared to the first quarter of 'twenty. One that is the fourth double digit quarterly gain in a row.
Okay.
<unk> per share came in at 50.
A 13% increase over the first quarter of 'twenty one.
We beat the midpoint of our guidance would be consensus.
We narrowed our range and we increased the midpoint of our guidance range.
We continue to ramp up the redevelopment efforts in the first quarter.
During the fourth quarter, we announced our one Westside Los Angeles delivered a 584000 square foot three level creative office space to Google.
We expect Google to open this summer.
That project remains ahead of schedule and on budget.
The project is being funded by a construction loan.
In addition, we have numerous near term openings with many exciting and prominent large format users, including shields, all sports Chandler targeted Kings Plaza.
The lifetime fitness at both Broadway Plaza, and Scottsdale fashion square.
Pinstripes at Broadway Plaza.
Market, both green acres in Tysons.
These projects are expected to be funded with excess cash flow from operations.
Keep in mind that all these deals have been signed and are under construction.
<unk> will not commence until this year or into 'twenty, two and some quick excuse me into 'twenty three and in some cases 24.
It speaks well for our continued same center NOI growth going forward.
Also within the past few weeks Caesars Republic at Scottsdale fashion square commenced construction of a ground lease to develop a 254000 square foot 265 key four star Hotel.
The hotel is well positioned.
Adjacent to a recently developed restaurant collection.
And next to our Grand entry way to our newly developed luxury wing.
The opening of Caesars is anticipated in mid 'twenty four.
Focusing now on the leasing environment, which Doug will elaborate on in a moment, but as expected given the depth and breadth of the leasing demand we had a very strong start this year.
Leasing interest we are seeing comes through a wide range of categories, including health and fitness such as lifetime.
Food beverage and entertainment and sports, including Pinstripes around one.
Co working hotels and multifamily.
All of which are demand levels, we have never seen before.
In addition, the digitally native brands continue to increase their push into brick and mortar locations, including tenants like L. O yoga, all birds lucid and Pollstar just to name a few.
Many retailers have strengthened their balance sheets and are financially in a much better position to expand their store openings than they were pre COVID-19.
Bankruptcies are at a record low.
The combination of all these positive factors have us very optimistic about 'twenty, two and 'twenty three.
We continue to expect significant gains in occupancy net operating income.
Cash flow through the remainder of this year and into next year.
And now I'll turn it over to Scott to discuss in more detail the financial results as well as some significant balance sheet activity.
Thank you Tom I wanted to highlight to the quarterly financial results. This morning, we posted extremely strong operating results for the first quarter same center NOI increased 25% versus the first quarter of 2021, excluding lease termination income and increased 30%, including lease termination income.
While we expected a strong first quarter given the pandemic affected first quarter results of last year in 2021.
Hawaii growth surpassed our expectations funds.
Funds from operations for the first quarter of 2022 were $37 million or 49% higher than the first quarter of 2021.
<unk> per share for the quarter was 50.
This was five cents or nearly 13% higher than the first quarter of 2021 at 45 per share.
And represents a four cent increase over consensus estimates of <unk> 46 per.
<unk> per share for the quarter.
This is obviously a very strong earnings quarter primary factors contributing to these quarterly NOI and <unk> gains are as follows.
One.
The quarter included a $15 million increase in minimum rents, resulting largely from the elimination of Pandora pandemic, driven abated rents, which were heavy during the first quarter of 2021.
This was offset by reduced minimum rents from our 2021 asset dispositions.
$211 million increase in commentary outcome.
As traffic has returned to pre COVID-19 levels demand for our various commentary business lines has followed this.
This revenue source continues to be extremely resilient and exceeds our expectations.
Anticipate that our 2022 commentary income results will surpass pre DAC pre pandemic levels as we've previously reported to you.
$311 million.
Savings in interest, resulting primarily from the dramatic debt reduction in 2021 during which we reduced our debt by $1 7 billion or 20%.
For a.
A $9 million increase in lease termination income driven by a few large termination settlements within the quarter. It is worth noting that the timing of this termination income was consistent with our guidance expectations for the first quarter.
And lastly, five increased land sale gains of $8 million, the timing of which was also consistent with our guidance expectations for the first quarter.
Setting. These factors were the following one a $10 million decrease in noncash straight line rent income, resulting from the high level of Pandora pandemic, driven rental assistance granted to our tenants last year and the first quarter of 2021.
Secondly, a $9 million quarter over quarter relative decrease in valuation adjustments pertaining to our retailer investments.
Were a positive five cents in the first quarter of last year in 2021, and a more moderated positive <unk> <unk> benefit in the first quarter of this year in 'twenty, two and lastly, three the first quarter included a 16 cent.
<unk> 16 negative impact in F F O per share, resulting from the increased share count due to common stock sold by the company in 'twenty, one through our ATM programs.
This morning, we updated our 2022 guidance for F S. Though.
We narrowed the range and increased the midpoint for our <unk> estimates 2022, SSO is now estimated in the range of $1 90 to $2 <unk> per share, which is a two cent increase at the midpoint.
This range now includes an increased expectation for same center NOI growth in the range of $4 75 to $6 two 5%.
Increased.
NOI expectations will be partially offset by the impact of increasing interest rates.
At the guidance midpoint, we anticipate an $18 million increase in SSO in 'twenty two versus 2021 as.
As a reminder, the guidance also includes an estimated $10 million decline of noncash straight line of rent in 'twenty two versus 21, excluding the impact of that noncash straight line rent SSO as estimated increased by $28 million or 7% an increase of 13 cents.
R 22 outlook reflects a healthy increase in operating cash flow, which we expect to continue to be the case given occupancy growth and continued strong leasing demand more details of our guidance assumptions are included on page 16 of the company's form 8-K supplemental financial which was filed early this morning.
Now as for the balance sheet, thus far during the year, we've been very active in the debt capital markets on February 2nd we closed $175 million refinance on Flatiron crossing at Sofa, plus three 7% on April 29th we closed a $72 million 10 year refinance on Pacific view at a fixed rate of five.
Two 9%.
Last Friday on May 6th we closed a two year extension of the Oaks mall.
At a fixed rate of five 5% and we are currently transacting in refinancing Danbury Fair mall with an expected $185 million five year loan that we anticipate closing later this quarter.
We continue to believe our financing pipeline is very manageable.
Certain assets may require some loan reduction such as Pacific view and certain assets May result in excess proceeds which is our expectation for the pending refinance at Danbury Fair Mall as a reminder, through 2023, our assets with the maturing debt includes some very high performing and under leveraged assets and those include assets like Scott.
<unk> fashion square Green acres Mall Green acres Commons and Tysons corner. In fact, we believe those assets alone could produce between $350 million to $400 million of excess liquidity in proceeds over and above the maturing allowance. We look forward to reporting our continued progress on further re.
Financing and extension activity as the year progresses.
Including Undrawn capacity of $424 million on our revolving line of credit we have approximately $628 million of liquidity today.
Debt service coverage, which for some reason does not get nearly the amount of focus that it should stands at a healthy two seven times net debt to 40 EBITA, excluding leasing costs at the end of the quarter was $8 seven times and let's bear in mind the substantial progress that we've made in just five quarters alone as this metric has been reduced by almost threefold.
Turns from the mid elevens at the end of 2020 down to where we stand today.
With an expected roughly $235 million of free cash flow after dividend and recurring capex in 2022, and given our expectation of operating cash flow and NOI growth. We continue to make great progress toward our longer range goal of seven to seven five net debt to forward EBITDA.
Now I'll turn it over to Doug to discuss the leasing and operating environment.
Thanks Scott.
As we discussed on our last call 2021 was an outstanding year in terms of leasing.
Actually 2021 was our most productive year since 2015 with leasing volumes nearly reaching an all time historic high for the company.
And in fact, the first quarter of 2022 continued in the same fashion.
I'm going to run through some various metrics and statistics, some of which Tom and Scott May have already mentioned in their remarks.
But in doing so I'll try to provide a bit more detail and color.
First quarter sales were up 14, 5% over first quarter 2021, and up 11, 5% when compared to first quarter 2019.
All categories in the first quarter, except for shoes, which was flat show double digit increases compared with first quarter of 2021.
Sales per square foot as of March 31, 2022 were $843 and this represents an all time high for the company.
It's interesting to note that a national level.
March was the first month since the pandemic hit that online sales declined from the same period, a year ago, while in store sales actually rose.
Occupancy at the end of the first quarter was 91, 3%.
That's an increase of 280 basis points relative to the 88, 5% at the end of the first quarter of 2021.
And we remain confident given the healthier retail environment that exists today, coupled with our strong leasing pipeline that occupancy will continue to increase throughout 2022 and 2023.
There was only one bankruptcy in our portfolio in the first quarter and it consisted of 103000 square foot tenant at Scottsdale fashion square.
This was the only lease that was subject to a bankruptcy filing in the past two quarters.
Given there were no filings in the fourth quarter of 2021.
Juxtapose this with 2020 during the heart of the pandemic with over 320 leases and nearly 6 million square feet in our portfolio were subject to bankruptcy filings.
Trailing 12 month leasing spreads were a positive one 3% as of March 31 2022.
Compared to a negative two 1%.
As of March 31, 2021.
We continue to feel good about the progress, we're making on our 2022 lease expirations.
To date, we have commitments at 56% of our 2022 expiring square footage with another 35% and the letter of intent stage.
Yeah.
In the first quarter, we opened 188000 square feet of new stores.
Notable openings in the first quarter include Christian <unk> at Scottsdale fashion Square PAPAYA at fashion District, Philadelphia Urban Outfitters at Danbury Fair.
Windsor fashion at fashion outlets of Niagara and.
Six stores with cotton on totaling almost 40000 square feet.
And the food and beverage category, we opened longhorn steakhouse at Danbury Fair and Obama Sushi at Biltmore Fashion Park.
And the digitally native and emerging brands category, we opened pollstar royalties and Scotch <unk> soda at Scottsdale fashion square.
Kadow at village of Corte Madera.
Johnny <unk> Commons Nike.
Nike live at 29th Street.
Sarah body at Santa Monica place.
Lastly, experiential tenants opening in the first quarter include X lanes Express note fashion Fair Candy land Kids Cafe at Starwood.
Gulf Lounge 18 at Danbury Fair.
And Mayweather boxing and fitness at La <unk>.
Now, let's take a look at some of the new and renewal leases that we signed in the first quarter and the first quarter, we signed 220 leases for over 600000 square feet.
Notable leases signed in the first quarter include Auryxia at fashion outlets of Chicago. So.
<unk> at Kings Plaza <unk> at Biltmore.
<unk> and Oliver Smith at Scottsdale fashion square.
For leases with JD sports at Fresno fashion Fair, Scottsdale fashion Square, Victor Valley and vintage Faire.
And three leases with Windsor fashion at Green acres Kings Plaza in North Park.
Scottsdale fashion square continues to attract some of the finest luxury retailers in the world and in the first quarter, we signed two more balenciaga and Brunello could giannelli.
Both of whom will join the likes of pure Louis Vuitton Cartier St Law.
Gucci just to name a few.
The digitally native and emerging brands category was extremely active in the first quarter.
Re signings include all birds at village of Corte, Madera, Avocado Fury and leap Carolyn comments <unk>.
<unk> at Chandler Fashion Center.
Interior define at Tysons corner.
At Broadway Plaza in Fresno fashion.
Work in parachute home at 29th Street.
Intense shop.
Oh, sorry dose.
Lastly, as we continue to add ancillary service uses to traditional retail in order to transform our properties into true town centers. We're pleased to announce the signing of Americas tire at Lakewood shapes to our country Club Plaza.
In North well health at Atlas Park.
As is the norm I provide many stats figures of metrics all of which are public and very visible.
But if you think about it most of our most of my remarks reference what's occurred in the past.
I want to talk for a minute about something thats not so public not so visible.
And that's our deal flow.
At <unk>, we have an executive leasing committee that meets every two weeks to approve new and renewal deals in order to generate new leases.
And to date, we've already approved 52% more deals representing 10% more square footage than we did in the same timeframe in 2021 and keep in mind 2021 was a stellar year.
To me this.
This is a leading indicator of what's to come.
Speaks to a forward looking view of leasing velocity.
And given the mood and health of the retailers.
<unk> and importance of bricks and mortar stores, the depth and breadth of users that we have to choose from.
I have no reason to believe this is going to end anytime soon.
It's an extremely exciting time in our sector and we are based rich look forward to a very productive 2022 and the years beyond.
And now I will turn it over to the operator to open up the call for Q&A.
Thank you Chelsey.
Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to life with military Jarquin that we ask that you limit your questions to one question and one follow up question.
We'll pause for just a moment.
Okay.
We will go first to Derek Johnston with Deutsche Bank.
Hi, everybody. Thank you I guess sticking with leasing yeah definitely a strong 2021, continuing this quarter.
Positive comments about pipeline.
Certainly well heard what I guess, what's the difference.
With leasing demand here in 2022.
Versus a strong last year and then just the second part of that question would be what kind of rent opportunity are you seeing in your signed not occupied pipeline.
Yeah, Hey, Derik, it's Doug I think the answer to your first question really is.
I think 2022 is really a carryover from 2021 and that's what really started to see the strong.
Strong leasing and really I attribute it and I think I've talked about this before but I attribute it to all the new uses that are out there I mean.
Legacy retailers are out there and there is still very very important to our portfolio, but you start layering in the digitally native brands the F&B.
Bitterness grocery home furnishings home furnishings, the electric vehicles.
Just so much out there to choose from and I think thats the biggest difference.
Between 'twenty, one 'twenty, two and years in the past, especially pre pandemic.
Derek would you repeat the second part of your question. Yes, I was just wondering you know the rent opportunity that youre seeing in the signed not occupied.
Pipeline.
And what that could look like and translate into our stores open.
Yeah.
Derek.
I think what we're seeing right now is we've got our occupancy to sort of an inflection point, where we've taken enough supply off the table that we started this really in the fourth quarter of last year that we can really focus on driving driving rate and for the first time in quite some time, especially in our top tier centers, we're starting to see competition.
For space, which we haven't seen since pre pandemic and I think that alone is going to help to drive rental rates in the future 'twenty two and 'twenty three.
Okay, Great and then last question.
Now it looks like the total cost of occupancy as a couple percentage points lower around 11 to 11, 5% versus pre pandemic levels of 13 and 14. So I was just wondering and thank you for for re sharing this metric how should we read into this.
Should we expect this to return to the historical levels.
Or perhaps is this the new standard.
And does that lower number perhaps imply there is a little more room to push rents. Thank you.
Yeah, Hey, Derek this is Scott good morning.
Yes. This is the first quarter that we've reported it now we've got a trailing 12 month sales figure that we can actually rely on post pandemic.
It's really a function of just the accelerated sales that we saw in 'twenty, one and so far in 'twenty, two that's driving that metric lower.
Which then leads you to believe that yes, I do think there is an opportunity to to push rents I'm not going to suggest we're going to get back to a 13% occupancy cost anytime soon but given the elevated levels of sales that the tenants continue to achieve I do think theres, an opportunity to push rent kind of further supporting with Doug.
Mentioned.
We will go next to Craig Smith with Bank of America.
Great. Thank you.
Doug listening to some of your comments I'm just wondering is there any evidence.
At the retailers and they're above average leasing activity could be impacted by inflation or the thought about a possible recession in 2023.
Hey, Greg.
We're not seeing that at all.
Look at these retailers are pretty sophisticated many of the bid through cycles like this.
And they know this too will end, but they are long term in nature, I mean, youre talking about leases five 710 year leases, so they're taking a much longer view of it rather than just looking at what's going on today. So no we're not seeing at all in our deal flow.
Great and then just.
Do you have any idea, who you might be putting in Nordstrom slate at country Club Plaza.
We're still evaluating that Craig there's a number of pretty good opportunities for us, but it's too early to disclose what those are.
Okay. Thank you.
We'll go next to Samir Khanal with Evercore.
Yes, hi, good morning, everybody.
Hey, Tom can you remind us what you're assuming for sales growth in your guidance at this point I mean, I'm just trying to get an idea.
Percentage rents I know, it's a little bit above what we are forecasting in the quarter, but just trying to get your view for the year.
Yes Sameer.
So we did take a look at certain tenants that had to extraordinarily high sales volumes in 2021, and we've adjusted that was kind of on an individual basis for the balance of the tenancy we've assumed relatively flat sales.
So that means 21 versus where were.
Anticipating 22 to end up in terms of percentage rents that we still are forecasting a decline combination of tenants converting to from variable rent to fixed rent its a combination of <unk>.
Certain high flying tenants in 21.
Producing more moderated sales levels in 2020, two but we still are forecasting a decline, though in 'twenty two and that's that's one reason that our NOI range is still relatively wide.
Got nine more months of sales experience to to figure out.
Got it thank you for that and I guess my second question is around occupancy when I look at your <unk>.
Your JV properties I mean, they were actually up sequentially right, which is great to see you on some of the best assets.
In that bucket of probably a thousand a foot just curious when you look at that bucket a thousand a foot malls and then the kind.
The consolidated side, which is which is around 700 are you seeing any differences in sort of discussions at this point.
Whether its deal flow kind of discussions with tenant anything different in terms of pricing power.
Well I mean, the tenants at the top doing 1000 Bucks a foot or always going to be in demand excuse me. The centers doing 1000 Bucks, but are always going to have significant tenant demand.
And I think Doug would admit it's a little bit easier at least in those locations than in the locations that are doing 7% or eight 800, although the demand has been good across the board in every single category. So.
You see the ones at the top do do a bit better.
But I think throughout our portfolio, we're seeing pretty significant demand in many cases better than we've ever seen.
That does give us pricing power as Doug said, we hit a friction point.
Last year, where all of a sudden we were back at 91 plus percent occupied and there was less space available.
And we became more sensitive to rate.
And I think we're going to see that as we continue through the year with good pricing power shifting.
Back in our direction a bit.
And Samir it's worth also just highlighting the quality that is not only at the top of the portfolio, but throughout the portfolio. If you look at our top 20 assets those generate about 70% of our NOI and the average sales performance is over $100 a foot at the end of the quarter and if you look at our top 30.
That's about 86% of our NOI with an average sales performance of about $960 a foot so the quality really does.
Spread throughout the portfolio, so really aren't talking about the top five top 10 minutes.
A very high quality portfolio, all the way down through 30 and that represents the lion's share of our NOI and we are seeing great demand all the way through that top 30.
Thanks, and then just last one if I may.
I mean, certainly all positive sort of comments here on the leasing side on occupancy. So I was just kind of.
Curious was there something holding you back.
What kind of held you back from that raising sort of the high end of guidance here.
Okay.
Well I mean, we still have a relatively uncertain interest rate environment, Samir, which is a big question Mark as we move through the year. So.
So we will address it quarter by quarter, we obviously the operating metrics have been great.
And to some extent something we control interest rates are a different matter and we felt it prudent to narrow the range as much as we did as Scott said, we still have some variability as it relates to percentage rent and we believe I believe we were relatively conservative.
Our guidance as it related to that compared to last year, where we had record setting percentage rent.
A lot of that driven by the luxury tenants.
Okay.
We will go next to Floris van <unk> with Compass point.
Hey, guys. Thanks, Thanks for taking my question.
Just you know obviously.
Okay.
Solid solid reports.
It appears that.
You're starting to push rents, which is an encouraging thing.
Maybe just following up the design not open pipeline or your basically your spread between leased and occupied can you give that in terms of either percentage of space or in terms of a dollar number.
Good morning, Floris afternoon, I guess in your case, the difference between physical and economic or.
Leased occupancy is roughly about 2%, but bear in mind, a big portion of our pipeline is big box and anchor oriented space, which takes a long time to get permitted to get developed and ultimately to start paying rent.
On average a 12 to 18 month period between lease signing and getting those spaces open so.
We speak about occupancy thats really the smaller shops, but.
But we do have some very large rent paying tenants should start to generate significant cash flow in 'twenty, three and into 'twenty four from those big anchor spots.
Okay.
Thanks, Scott and maybe the other question I have is.
Again.
The investment community has been very high.
Get a short or careful on your ability to refinance your loans at your malls and obviously you've.
Managed to.
Extents.
Or get new loans on the number of malls and you have a couple more in the pipeline as you as you suggest maybe you can talk a little bit about the environment. How the discussions are going is there greater demand on the on the lending side for your types of assets and.
And how do you see that evolving even though rates clearly are trending higher.
Yes, so yes, we've made great progress just alone year to date, we've either closed on or transacting on about $600 million worth of financing business.
That ranges from a quality of our center in Ventura, which is roughly $500 per square foot Ventura, California to the.
The Oaks mall, which is doing between 750 to $800 a foot so.
We're transacting in a pretty wide quality spectrum, and we're still seeing an opportunity to refinance <unk> extend assets.
When we when we think about whether to refinance or extend its really a matter of where the business plan is add on a given asset. We obviously came through a pandemic and in some cases certain assets. It makes more sense to extend rather than do a five or 10 year refinance because we need to the business plan to further mature so you'll continue.
To see as to kind of taken individually approach between doing longer term financings and extending for a two to three year period.
Just to kind of recap, where we're at right now in the cycle.
Fall of 'twenty about $8 billion 8 billion and <unk> business has been done on in the mall space.
Most recently a transaction on Ala Moana transaction.
On a property.
By Todman and Florida.
Were accomplished and.
Sequentially, if we look at where things were in the fall of 'twenty to where they are now we have seen reduced debt yields we've seen more of an inclination from the lending community to loan more than the outstanding balance it alone so theres excess over our borrowers.
All that said today, it's a pretty tumultuous environment, given the fed's actions to tamper inflation. So yes rates are gapping out, but we're still seeing an opportunity to get things done.
I would say that generally the market is pretty choppy today, and it's frankly not just for retail.
It's across the board, but we still have a view that we'll be successful at getting our refinancings accomplished and you can see what we've done just in about four months alone.
Thanks, Scott and then maybe maybe just once like follow up your in terms of the $350 million to $400 million of excess proceeds that you might be able to pull out of some of your flagship assets. What would you do with that would you use those proceeds to be used for redevelopment or are they going to be used to.
Retire debt on single assets too.
Create more flexibility.
In your balance sheet going forward.
Yeah, our focus is going to continue to be reducing debt. So I would see us using the lion's share of those proceeds to pay down debt.
Thanks.
Okay.
We will go next to Conor Mitchell with Piper Sandler.
Hi, Thanks for taking my question.
Just sticking with the interest rate environment.
And with rates already been expectations for further rate hikes could.
Could you provide a little bit more color.
Thought process on the guidance provided.
And the updated guidance this quarter compared to the end of prior year.
Sure no happy to comment on that only.
Only about 11% of our debt is floating we've got a very small percentage of our debt thats floating at about $682 million.
We also have a nicely layered maturity schedule.
That stretches out over the next nine years, roughly 10% to 15% of the debt per year matures.
And certainly we've got some uncertainty as to what the fed will do and how that will affect the 10 year really it's the first time since 2018 that we've seen that the 10 year get above 3%.
That being said the near term to offset some of those interest expense increases we've got a significant same center NOI growth expectation as we get back to our pre COVID-19 occupancy levels.
Picking up 150 to 200 basis points of occupancy this year than in the same next year and.
Also as Doug mentioned and Scott, we've got a very robust leasing pipeline.
We've already signed and executed the leases the Buildout is underway, but we don't have the benefit of rent commencing yet.
So we're able to manage it and it really didn't have too much of a bearing.
On our.
Guidance adjustments it did have a bearing on keeping the range.
15th or so.
Because of those uncertainties as it relates to rate.
Okay.
Okay. That's helpful. Thank you and then just one more question regarding the flat iron refinancing is there an expectation that it might be sold soon or just a tip, which refinanced for three years and move to floating rate from previously fixed.
Yes, right now it's sitting on a bank balance sheet, that's the near term expectation.
Okay. That's all for me thank you.
Sure Conor thank you.
We will go next to Linda Tsai with Jefferies.
Hi.
Once completed would you ever look to monetize your 25% ownership of one Westside.
Help further reduce leverage.
Hi, Linda.
Yes. Good question in that kind of would be a natural outcome.
<unk>.
For that it's a good asset with great tenants.
But that's certainly a possibility.
Time in the not so distant future I would I would think.
No immediate plans for that but it's certainly a possibility.
Got it.
And then just one follow up you know the open air shopping centers have discussed hybrid work, resulting in lower dwell time, but more cuts.
Shopping center has hybrid work changed patterns at your centers and does it vary at all according to quality.
No I don't I don't think we've really seen it very much.
According to quality I mean, an argument could be made that some of the business is shifting.
Away from urban centers to suburban.
And we have a fair amount of both.
But thats, probably the biggest impact we've seen as a result of.
Hybrid working working from home less commuting.
Things of that nature.
Yes.
As I look back pre pandemic and we look at our traffic.
Not only is traffic just about back to pre pandemic levels, but we're seeing it across our portfolio and across our properties.
The same as it was pre pandemic. So I don't think is real argument that it's changed dramatically if at all.
Thank you.
Okay.
We'll go next to Mike Mueller with Jpmorgan.
Yes, Hi, just two quick ones.
First was there anything in particular that drove the trailing 12 month rent spread to contract a little from 5% last quarter to 1% this quarter and also the prior expectation of about $20 million of land sale gains in 2022 does that still hold.
So Mike as it relates to rent spreads I mean that can vary quarter to quarter, depending on where our lease explorations are.
It's kind of a blended number so it didn't haven't moved from 4% as it was in the fourth quarter to 1% I don't think is indicative of much and I don't think it's a predictor of what we'll see the balance of the year I think in general we have a lot more pricing power than we did two or three quarters ago or even even in the fourth quarter frankly.
First quarter tends to be a little bit slow thats when most retailers have their natural.
Fiscal year end, and we typically see more deal activity in the second and third quarter. So I think the.
So I would say that I wouldn't draw too many conclusions from that 1% I think will do better over the course of the year Scott you want to comment on land sales, yes sure.
So on the last call I mentioned that we expected land sale gains to continue to remain elevated in 2022 and that was I said they'd be consistent with what they were in 'twenty. One recall in 'twenty. One we had about I think $20 million of SSO.
From land sale transactions.
I still think that number holds today, we did anticipate a relatively high volume of closings in the first quarter, which is what we saw.
The number was consistent with our guidance in terms of the cadence and we saw $11 million of benefit.
In the first quarter. So I think I think that same guidance holds today.
Great. Thank you.
Sure.
We'll go next to Todd then Kim with Truest.
Thank you good afternoon, everyone.
Just wanted to go back to a couple of prior questions on the occupancy cost. It was good to see that tick down to 11, 3%, but I'm curious given the labor situation. What is the total all in occupancy cost to a retailer, including wages and Im curious if thats actually ticked up versus just the real estate options.
Costs ticked down.
It's.
It's going to vary depending on the retailer and what we have heard from a number of retailers is that ended up with.
Slightly less staffing.
And then they were pre COVID-19 and even though the hourly rate maybe up the overall.
Labor cost is flat to down so we are actually hearing more about improving margins and shrinking margins. So.
Let them know how that factors into their occupancy cost, but that's certainly something we've heard fairly often from the retailers.
Okay.
It was good to see a lot of improvement in various metrics this quarter and you talked about the strength in leasing demand.
But when you take a look at your stock is trading at or close to the 8% implied cap rate I'm. Just curious if that has spurred additional conversations with the board on that.
And.
And what we could expect on what Youre thinking about going forward to possibly up close that gap.
Well as you can imagine keeping we don't comment on earnings calls about what the conversations are in the boardroom. So I can't really comment on that.
Other than to tell you that at todays current trading price of our multiple of less than seven times <unk>.
Its geological obviously, you can tell from the tone of our conversations and comments here that we feel very positive about the business. So I think that what that really represents a tremendous buying opportunity today.
Yeah.
Is it.
Our additional asset sales you'll have a couple of dozen that are now.
Is that the cars that all into possibly.
A portion of that to your JV partner.
Well, we're always open to disposing of noncore assets.
As Scott mentioned, the vast majority of our NOI comes from our top 20 wed like our top 30 assets anything beyond that Opportunistically, we would be potentially a seller, but we have to see.
See what the market dynamics are we've been we sold a couple of assets last year those are one off deals.
I don't think the debt market is necessarily back for assets in the $500 a foot range.
But once we get to a.
Stronger debt market is certainly a possibility and something you've seen us do in the past.
Between 2011, 2016, we sold 25 malls that averaged about $3 25, a foot in sales. So we believe in recycling our capital.
And you will see us do that it's just a question of when when it's a market willing.
Yes.
Yes.
We'll go next to Richard Hill with Morgan Stanley .
Hey, good morning, guys.
Wanted to come back to some of the some of the questioning that Florida was asking.
I was a little bit surprised by the amount of proceeds that maybe could be pulled out from some of your higher quality malls undeniably.
<unk> very high quality malls, but if I'm looking at something like Green acres Mall I guess.
The 2013 appraisal and the <unk> deal was really attractive.
Can you maybe walk us through the dynamics of being able to pull out more proceeds on a mall that was financed.
Call It 10 years ago or so.
Rich keep in mind that we did in between our acquisition and today, we did add a brand new power center. So.
That is a component of it you look at Green acres overall, and the exciting thing about that that campus as it generates an aggregate of $1 billion. It is an absolute retail hub within that area of long island. So when we looked at the 2023 pipeline and we provided.
Estimates with bracketed outcome of <unk> $350 million to $400 million those are based on relatively conservative debt yields to what we're seeing happen today.
Based on my my comments when I was talking about the broader debt markets, we've seen that yield shift into the high single digit range for that for the best assets in.
Of course, Scottsdale fashion square ranks among the best assets in the United States, and so I put some pretty conservative debt yields and I'm, not even saying I've driven them the highest high single digits to get to that outcome.
Scottsdale is an asset where we put in a lot of capital built a brand new luxury wing, which has been highly successful restaurants, we're adding caesars as Tom mentioned lifetime is coming soon brand new flagship Apple Theres, all kinds of great things going on so you know those three assets, including Tysons, we do feel like we will be able to generate.
Liquidity out of those three deals.
Got it your comments are well taken on the debt yield because I do recognize the debt yield on <unk>.
Green acres on just what's in place.
Solidly in the double digits, so point well taken.
Follow up question and this isn't a mace rates specific comment we're actually getting a fair amount of questions across retail real estate generally speaking, but obviously inflation is higher than it was a year ago can.
Can you maybe talk about your ability to offset inflationary pressures on expenses relative to NOI and <unk>.
Are you in a position where NOI is actually inflicting enough between occupancy gains and rental increases that inflationary pressures, while well always a concern.
Maybe not.
Potentially be mitigated by on the revenue side.
Yeah, rich good and timely question historically, the mall a quality mall sector has done.
Okay. During inflationary times, because we have been able to keep pace that granted most companies have moved to a fixed cam component, but that accelerates pretty aggressively over the terms of the lease our typical <unk>.
Fixed cam bump would be 5% a year.
So no longer triple net per se, but still a great escalator and in any given year, it's possible inflation could be higher than that over the course of the term of the lease say five or seven years. It seems like we're always going to be ahead with those 5% bumps. So we think we're pretty well positioned.
To absorb the impact of of inflation.
At least as it relates to expense recoveries.
Okay, Great guys. That's it for me, we can follow up offline with more questions.
It sounds good rich thank you.
We will go next to Michael Bilerman with Citi.
Good morning still up there.
Tom I was wondering maybe you can just step back on sources and uses because you've been able to pull out a lot of sort of positive drivers in terms of the free cash flow. The refinancing you talked about some of these assets are going to pull out money from.
But maybe you can just step back because I think theres a lot of uses of cash and you talked about some of these redevelopment and development opportunities, whether it's Santa Monica typhoons.
<unk> square, Los Cerritos flat iron Kurland, Theyre, all get any money and obviously youre going to spend money to generate a return you have $2 billion of your share of mortgages coming due the rest of this year 'twenty three 'twenty four you have the free cash flow over $200 million.
Just how do you bridge yourself between all of the sources of capital all of these uses of capital and where Youre going to source small from at the end of the day.
Michael we have a variety of ways, we can structure our deals as you mentioned we've got.
Significant amount of cash flow after dividends, probably more than we've ever had in our history.
Scott mentioned, we have a pretty good expectation next year of having.
Refi excess proceeds this year is about neutral next year.
It should be positive, but we also have latitude as to how we structure deals and a good example is something I mentioned earlier today and that was the Caesars Republic hotel and that deal is a ground lease so very little capital from our standpoint small amount of money to prepare the pad thats about it.
In the case of the redevelopment of the Sears boxes at low Cerritos, and Washington Square. Similarly, we can do multifamily and in multifamily we can just toss the land and the land value and stay in as a partner.
If we choose to source capital, we can do that and increase our ownership percentage, but youll see us evaluate all those potential structures, obviously, our cost of capital is pretty pretty high today.
Given we're trading at a seven multiple.
We'd have to be very careful with our capital decisions. So youll see us do some structuring to reduce the amount of capital that we need to use beyond above and beyond what we generate from free cash flow from operations.
And then remind me what you can do on Santa Monica and Washington Square in terms of those loans coming due this year or are those just going to be a short term extension until your business plans can be put in place is that the assumption there, but just at a higher rate sort of like what you've done on these other loans.
I'd say, that's a pretty good guesstimate both have.
Great merits, both have business plans that have been impacted by Covid.
So my.
Prior statements, where I said youll see us extend in some instances I would expect that to be the case probably for both of those.
Okay.
And then just finally I guess is there a plan at all.
With all these moving pieces and knowing that this is where the street is very focused on on maybe putting out a more in depth the sources and uses.
Sort of spreadsheet, where you can sort of detail out a lot of these elements to sort of ease the stream in their views.
Because I feel like Theres, a lot of these little pieces of information, but it doesn't take into totality of the organization and company. That's that's running.
Okay.
It's possible Michael I mean, I think we'd probably put out as much or more than most.
So to some extent dependent upon keep in mind during COVID-19, we shut off the redevelopment pipeline returning that spigot back on but we haven't necessarily on some of the bigger projects concluded how we're going to structure those things.
So that would be a critical part of the equation and once we have that will probably include a more robust redevelopment pipeline, which will include some of those pieces.
We'll go next to Caitlin Burrows with Goldman Sachs.
Hi, Good morning, maybe just on the commentary of the income you mentioned that you expect it could surpass pre pandemic levels, which makes sense, but wondering if you could quantify how much potential there is on this line item and maybe the timing or cadence from here.
Yes sure.
I expect that we will be able to surpass pre COVID-19 levels, you know order of magnitude call it 2% to 5%.
You know we've got a.
Lot of that stuff is very sensitive in terms of like short term contracts advertising things like that so.
It's hard to say exactly where the year's going to end up. So there is there is still some uncertainty with some of those shorter term high dollar contracts, but I think we're going to exceed it.
It definitely exceeds our expectations.
During COVID-19 things like advertising dollars things like contracts with local merchants that business completely dried up.
Local merchants that are well healed certainly werent in the business of opening up new stores.
And large advertising contracts were not.
Really relevant when traffic was so heavily impacted from the closures. So we're very excited to be able to say with surpassing our expectations and it seems to be the case, each and every quarter. So I think we're going to beat it and I think it's going to be a relatively healthy beat in.
That's part of it is why we still got a wide range in terms of our same center NOI, because we still have some some work to accomplish their kayla.
Got it Okay and then maybe just on the financing came again I know, it's brought up a number of times, but just given that rates are up a lot I was wondering if you could comment on how your outlook or your plans of just generally evolved over the last two or three months and for the deals that youre working through or have already gotten to have the terms like radar amount your line Sir.
<unk> tier expectations. It just it seems like Youre, saying no change, but then also seems surprising versus what we've read from some other Reits.
We've certainly seen an increase in rate given the environment benchmark rates 10 year five year have gone up.
So for and LIBOR has gone up and they will continue to go up with the fed's.
Continued actions to dampen inflation, and we've seen spreads gap out as well and that's frankly, not just a retail thing so but in terms of term I think it's pretty consistent.
Actually I believe.
Accomplish the first 10 year mall deal post Covid, which was done in late April so.
And I think theres been a huge change other than really rates have ticked up.
Got it thanks.
Okay.
Yeah.
At this time there are no further questions I'll turn the call back to Tom O'hern for additional or closing remarks.
Great. Thank you operator.
Thanks for joining us today I know, it's been a lot of business.
Long earnings season for all of you, so you're probably a little bit on the tire side ledger joined us.
We enjoyed a very solid start to this year. We're excited about the balance of the year and we hope we see many of you at ICSC or NAREIT in the upcoming weeks.
Thanks.
Okay.
This does concludes today's conference we thank you for your participation.
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