Earnings Call Transcript - MAC Q1 2022

Operator, Operator

Good day, and welcome to The Macerich 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.

Samantha Greening, Director of Investor Relations

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 the 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.com. Joining us today are Tom O'Hern, Chief Executive Officer; Scott Kingsmore, 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.

Thomas O'Hern, CEO

Thank you, Samantha, and thanks to all of you for joining us today. We are pleased to report another outstanding quarter, with virtually all our operating metrics trending very positively. After a strong second half of 2021, the first quarter of '22 was 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. Shoppers have come roaring back to our centers to shop with a purpose. We continue to see a high conversion rate, higher than pre-COVID as traffic is about 95% of 2019 traffic levels, but tenant sales are exceeding pre-pandemic levels, with the first quarter of '22 sales up 11.5% over the first quarter of 2019 and exceeding the first quarter of '21 sales by 14.5%. That is the fourth quarter in a row with double-digit tenant sales gains versus the pre-pandemic quarters in 2019. Retailer demand is at a level we have not seen since 2015. All sales categories, except for one, which was flat, were up in the first quarter. Tenant sales per square foot for the trailing 12 months ended March 31 of '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. 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 basis points 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, with 220 leases executed, a 21% increase over last year. We saw same center NOI growth of 25% in the first quarter compared to the first quarter of '21. That is the fourth double-digit quarterly gain in a row. FFO per share came in at $0.50, a 13% increase over the first quarter of '21. We beat the midpoint of our guidance and beat consensus. We narrowed our range and 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 1 West Side in Los Angeles, delivering a 584,000 square foot, 3-level creative office space to Google. We expect Google to open this summer. That project remains ahead of schedule and on budget, funded by a construction loan. In addition, we have numerous near-term openings with many exciting and prominent large format users, including Scheels All Sports at Chandler, Target at Kings Plaza, Life Time Fitness at both Broadway Plaza and Scottsdale Fashion Square, Pinstripes at Broadway Plaza, Primark at both Green Acres and 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, but rents will not commence until this year or into '22 and, in some cases, '24, which speaks well for our continued same-center NOI growth going forward. Recently, Caesars Republic at Scottsdale Fashion Square commenced construction of a ground lease to develop a 254,000 square foot, 265-key, 4-star hotel. The hotel is well positioned adjacent to our recently developed restaurant collection and next to our brand entry way to our newly developed luxury wing. The opening of Caesars is anticipated in mid-'24. Focusing now on the leasing environment, which Doug will elaborate on in a moment, as expected, given the depth and breadth of the leasing demand, we had a very strong start this year. Leasing interest is coming from a wide range of categories, including health and fitness, such as Lifetime; food, beverage, entertainment and sports, including Pinstripes and Round One; co-working, hotels, and multifamily — all of which are demand levels we have never seen before. In addition, digitally native brands continue to increase their push into brick-and-mortar locations, including tenants like Alo Yoga, Allbirds, Lucid and Polestar, 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. Bankruptcies are at a record low. The combination of all these positive factors has us very optimistic about '22 and '23. We continue to expect significant gains in occupancy, net operating income and 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.

Scott Kingsmore, CFO

Thank you, Tom. Now on to the highlights of 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, NOI growth surpassed our expectations. Funds from operations for the first quarter of 2022 were $37 million or 49% higher than the first quarter of 2021. FFO per share for the quarter was $0.50, which was $0.05 or nearly 13% higher than the first quarter of 2021 at $0.45 per share and represents a $0.04 increase over consensus FFO estimates of $0.46 per share for the quarter. This was obviously a very strong earnings quarter. Primary factors contributing to these quarterly NOI and FFO gains are as follows: One, the quarter included a $15 million increase in minimum rents, resulting largely from the elimination of 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; Two, an $11 million increase in common area income, as traffic has returned to pre-COVID levels. Demand for our various common area business lines has followed, which continues to be extremely resilient and exceeds our expectations. We anticipate that our 2022 common area income results will surpass pre-pandemic levels; Three, an $11 million of savings in interest resulting primarily from the dramatic debt reduction in 2021, during which we reduced our debt by $1.7 billion or 20%; Four, 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. Offsetting these factors were the following: One, a $10 million decrease in noncash straight-line rent income resulting from the high level of pandemic-driven rental assistance granted to our tenants last year in the first quarter of 2021; Secondly, a $9 million quarter-over-quarter relative decrease in valuation adjustments pertaining to our retailer investments. Those were a positive $0.05 in the first quarter of last year in 2021 and a more moderated positive $0.01 FFO benefit in the first quarter of this year in '22; And lastly, three, the first quarter included a $0.16 negative impact in FFO per share, resulting from the increased share count due to common stock sold by the company in '21 through our ATM programs. This morning, we updated our 2022 guidance for FFO. We narrowed the range and increased the midpoint for our FFO estimates. 2022 FFO is now estimated in the range of $1.90 to $2.04 per share, which is a $0.02 increase at the midpoint. This FFO range now includes an increased expectation for same-center NOI growth in the range of 4.75% to 6.25%. 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 FFO in '22 versus 2021. As a reminder, the guidance also includes an estimated $10 million decline in noncash straight-line rent in '22 versus '21. Excluding the impact of that noncash straight-line rent, FFO is estimated to increase by $28 million or 7%, an increase of $0.13. Our '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 2, we closed a $175 million refinance on Flatiron Crossing at SOFR plus 3.7%. On April 29, we closed a $72 million 10-year refinance on Pacific View at a fixed rate of 5.29%. Last Friday, on May 6, we closed a 2-year extension of The Oaks Mall at a fixed rate of 5.25%, and we are currently transacting and refinancing Danbury Fair Mall with an expected $185 million 5-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 of Danbury Fair Mall. As a reminder, through 2023, our assets with maturing debt include some very high-performing and under-leveraged assets, including Scottsdale Fashion Square, Green Acres Mall, Green Acres Commons, and Tysons Corner. Those assets alone could produce between $350 million to $400 million of excess liquidity and proceeds above and beyond the maturing loans. We look forward to reporting our continued progress on further refinancing 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 does not get nearly the amount of focus that it should, stands at a healthy 2.7x. Net debt to forward EBITDA, excluding leasing costs at the end of the quarter, was 8.7x. We've made substantial progress in just 5 quarters alone; this metric has been reduced by almost 3 full turns from the mid-11s 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 7 to 7.5 net debt to forward EBITDA. Now I will turn it over to Doug to discuss the leasing and operating environment.

Douglas Healey, Senior Executive Vice President of Leasing

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. 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 I will 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, showed double-digit increases compared with first-quarter 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 on 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. We remain confident, given the healthier retail environment that exists today and our strong leasing pipeline, that occupancy will continue to increase throughout 2022 and 2023. There was only 1 bankruptcy in our portfolio in the first quarter, and it consisted of one 3,000 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 that there were no filings in the fourth quarter of 2021. Trailing 12-month leasing spreads were a positive 1.3% as of March 31, 2022, compared to a negative 2.1% 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 on 56% of our 2022 expiring square footage, with another 35% in the Letter of Intent stage. In the first quarter, we opened 188,000 square feet of new stores. Notable openings in the first quarter include Christian Louboutin 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 40,000 square feet. In the food and beverage category, we opened LongHorn Steakhouse at Danbury Fair, and Obon Sushi at Biltmore Fashion Park. In the digitally native and emerging brands category, we opened Polestar, Rothy's, and Scotch & Soda at Scottsdale Fashion Square; Avocado at Village at Corte Madera; johnnie-O at Kierland Commons, Nike Live at Twenty Ninth Street, and Therabody at Santa Monica Place. Finally, experiential tenants opening in the first quarter include XLanes at Fresno Fashion Fair, Candeeland Kids Cafe at Stonewood, Golf Lounge 18 at Danbury Fair, and Mayweather Boxing and Fitness at La Cumbre. Now let's take a look at some of the new and renewal leases that we signed in the first quarter. In the first quarter, we signed 220 leases for over 600,000 square feet. Notable leases signed in the first quarter include Aritzia at Fashion Outlets of Chicago, Sephora at Kings Plaza, Lovesac at Biltmore, Panerai and Oliver Smith at Scottsdale Fashion Square, four leases with JD Sports at Fresno Fashion Fair, Scottsdale Fashion Square, Victor Valley, and Vintage Faire, and three leases with Windsor Fashions at Green Acres, Kings Plaza, and North Park. Scottsdale Fashion Square continues to attract some of the finest luxury retailers in the world. In the first quarter, we signed 2 more, Balenciaga and Brunello Cucinelli, both of whom will join the likes of Dior, Louis Vuitton, Cartier, Saint Laurent, and Gucci, just to name a few. The digitally native and emerging brands category was extremely active in the first quarter. Lease signings include Allbirds at Village at Corte Madera, Avocado, Vuori, and LEAP at Kierland Commons, Fabletics at Chandler Fashion Center, Interior Defined at Tysons Corner, Quay at Broadway Plaza and Fresno Fashion; Roark and Parachute Home at Twenty Ninth Street and Tenshoppe at Los Cerritos. As we continue to add ancillary service uses to traditional retail to transform our properties into true town centers, we're pleased to announce the signing of America’s Tire at Lakewood, Shade Store at Country Club Plaza, and Northwell Health at Atlas Park. As is the norm, I provided many stats, figures, and metrics, all of which are public and very visible. However, most of my remarks referenced what's occurred in the past, so I want to talk for a minute about something that's not so public, not so visible, and that's our deal flow. At Macerich, we have an executive leasing committee that meets every two weeks to approve new and renewal deals in order to generate new leases. To date, we've already approved 52% more deals, representing 10% more square footage than we did in the same timeframe in 2021. Keep in mind, 2021 was a stellar year. To me, this is a leading indicator of what's to come. It speaks to a forward-looking view of leasing velocity, and given the mood and health of the retailers, the resurgence of bricks-and-mortar stores, and the depth and breadth of uses available, I have no reason to believe this will end anytime soon. It's an extremely exciting time in our sector, and we at Macerich look forward to a very productive 2022 and the years beyond. And now I'll turn it over to the operator to open up the call for Q&A.

Operator, Operator

We'll go first to Derek Johnston with Deutsche Bank.

Derek Johnston, Analyst

I guess sticking with leasing, yes, definitely a strong 2021 continuing this quarter. Positive comments on the pipeline certainly well heard. But 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 the signed, not occupied pipeline?

Douglas Healey, Senior Executive Vice President of Leasing

Yes. Derek, it's Doug. I think the answer to your first question really is that 2022 is a carryover from 2021. That's when we really started to see the strong leasing. I attribute it, as I've talked about before, to all the new uses that are out there. Yes, there are legacy retailers that are still very important to our portfolio. However, when you layer in the digitally native brands, the food and beverage sectors, fitness, grocery, home furnishings, and electric vehicles, there's just so much out there to choose from. That's the biggest difference compared to prior years, especially pre-pandemic.

Thomas O'Hern, CEO

Derek, would you repeat the second part of your question?

Derek Johnston, Analyst

Yes. I was just wondering the rent opportunity that you're seeing in the signed not occupied pipeline, what that could look like and how it might translate into stores opening?

Douglas Healey, Senior Executive Vice President of Leasing

Derek, I think what we're seeing right now is we've got our occupancy at an inflection point where we've taken enough supply off the table. We can really focus on driving rent and driving rates. 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 will help drive rental rates in the future, '22 and '23.

Derek Johnston, Analyst

Okay. Great. And then last question. It looks like the total cost of occupancy is a couple of percentage points lower, around 11% to 11.5% versus pre-pandemic levels of 13%, 14%. So I was just wondering and thank you for sharing this metric. How should we read into this? Should we expect this to return to historical levels? Or is this the new standard? And does that lower number imply there is more room to push rents?

Scott Kingsmore, CFO

Derek, this is Scott. 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. I think it's a function of the accelerated sales we saw in '21 and so far in '22 that is driving that metric lower, which leads you to believe that there is an opportunity 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 there's an opportunity to push rents, further supporting what Doug just mentioned.

Operator, Operator

We'll go next to Craig Schmidt with Bank of America.

Craig Schmidt, Analyst

Doug, listening to some of your comments, I'm just wondering if there is any evidence that the retailers and their above-average leasing activity could be impacted by inflation or the thought about a possible recession in 2023?

Douglas Healey, Senior Executive Vice President of Leasing

Craig, we're not seeing that at all. Look, these retailers are sophisticated. Many of them have been through cycles like this, and they know this too shall end, but they're long-term in nature. You're talking about leases of 5-, 7-, 10-year durations. So they're taking a much longer view of it rather than just looking at what's going on today. We're not seeing any impact in our deal flow.

Craig Schmidt, Analyst

Great. And do you have any idea who you might be putting into Nordstrom's place at Country Club Plaza?

Thomas O'Hern, CEO

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.

Operator, Operator

We'll go next to Samir Khanal with Evercore.

Samir Khanal, Analyst

I guess, Tom, can you remind us what you're assuming for sales growth in your guidance at this point? I’m trying to get an idea of percentage rents.

Scott Kingsmore, CFO

Yes, Samir. So we reviewed tenants that had extraordinarily high sales volumes in 2021, and adjusted those on an individual basis. For the balance of the tenancy, we have assumed relatively flat sales, meaning that '21 versus where we're anticipating '22. In terms of percentage rents, we are forecasting a decline, in part because of tenants being converted to fixed rents. It’s also a combination of high-flying tenants producing more moderated sales levels in '22, but we’re not forecasting a decline overall in '22. That's one reason our NOI range is still relatively wide. We've got 9 more months of sales experience to figure out.

Samir Khanal, Analyst

Got it. And my second question is around occupancy. When I look at your JV properties, they were actually up sequentially, which is great to see. You own some of the best assets in that bucket of probably $1,000 a foot. I'm curious, when you look at that bucket, $1,000 a foot mall and then the consolidated side, which is around $700, are you seeing any differences in discussions, deal flow, and tenant interactions? Is there any difference in terms of pricing power?

Thomas O'Hern, CEO

The tenants at the locations doing $1,000 per foot always have significant demand. I think Doug would agree it's a little easier at those locations than at those doing $700 or $800, although demand has been good across the board in every category. The ones at the top tend to do a bit better, but we’re seeing pretty significant demand throughout our portfolio, in many cases better than we've ever seen. I think that gives us pricing power. As Doug stated, we reached an inflection point late last year where suddenly we were back at 91-plus percent occupancy, and less space was available, making us more sensitive to rate.

Scott Kingsmore, CFO

It's also worth highlighting the quality not only at the top of the portfolio but throughout the portfolio. If you look at our top 20 assets, they generate about 70% of our NOI, with the average sales performance being over $1,100 a foot. If you look at our top 30, they represent about 86% of our NOI, with an average sales performance of about $960 a foot. The quality indeed spreads throughout the portfolio, so it’s not just the top 5 or top 10; it's a very high-quality portfolio even down through the 30, and that represents the lion's share of our NOI, and we are seeing great demand throughout that top 30.

Samir Khanal, Analyst

Last question, I’m curious if there was something holding you back from raising the high end of guidance here?

Thomas O'Hern, CEO

We still have a relatively uncertain interest rate environment, which is a big question mark as we move through the year. We'll address it quarter-by-quarter. The operating metrics have been great. However, interest rates are outside of our control. We felt it prudent to narrow the range as much as we did. As Scott mentioned, there still remains some variability relating to percentage rent, and I believe we were relatively conservative in our guidance compared to last year, where we had record-setting percentage rent, driven largely by luxury tenants.

Operator, Operator

We will go next to Floris Van Dijkum Compass Point.

Floris Van Dijkum, Analyst

It appears that you're starting to push rents, which is encouraging. Following up on the signed, not open pipeline, can you provide that in terms of either percentage of space or in terms of a dollar number?

Scott Kingsmore, CFO

The difference between physical occupancy and economic or leased occupancy is roughly about 2%. Keep in mind that a large portion of our pipeline consists of big box and anchor-oriented space, which requires time to get permitted, developed, and ultimately start paying rent. On average, this is about a 12 to 18-month period between lease signing and getting those spaces open, so when we talk about occupancy, we're primarily referring to smaller shops. However, we do have large rent-paying tenants that should start to generate significant cash flow in '23 and '24 from the big anchor spots.

Floris Van Dijkum, Analyst

Thanks, Scott. The investment community has been cautious regarding your ability to refinance your loans at your malls. You've managed to extend or obtain new loans on several malls. Can you discuss the environment, how discussions are going, and whether there is greater demand for your types of assets, even though rates are trending higher?

Scott Kingsmore, CFO

Yes, we've made great progress. Year-to-date, we've either closed or are transacting on about $600 million worth of financing business, which ranges from a center in Ventura, doing about $500 per square foot, to Oaks Mall, which is doing between $750 to $800 per foot. We're transacting across a broad range of quality and are still seeing opportunities to refinance and/or extend assets. When we assess whether to refinance or extend, it varies based on the business plan for a given asset. Due to the pandemic, some assets may be better suited for extension rather than a 5- or 10-year refinance because we need the business plan to mature further. We've seen a choppy market since the Fed's actions to dampen inflation; while rates are increasing, we still feel confident in our refinancing success.

Floris Van Dijkum, Analyst

Regarding the excess proceeds from your flagship assets, what would you do with that? Would it be used for redevelopment, or to retire debt on single assets to create more flexibility in your balance sheet?

Scott Kingsmore, CFO

Our focus is going to continue to be reducing debt. Therefore, I see the majority of those proceeds going toward paying down debt.

Operator, Operator

We'll go next to Connor Mitchell with Piper Sandler.

Unidentified Analyst, Analyst

Sticking with the interest rate environment, with rates already up and expectations for further hikes, could you offer more insight on your guidance provided and any updates this quarter compared to the end of the prior year?

Thomas O'Hern, CEO

Only about 11% of our debt is floating. We've got about $682 million of our debt that's floating. Additionally, we have a nicely layered maturity schedule stretching over the next 9 years, with roughly 10% to 15% of the debt maturing every year. We've got some uncertainty regarding Fed actions and their effects on the 10-year yield. In the near term, to offset increased interest expenses, we've got significant same-center NOI growth expectations as we return to pre-COVID occupancy levels. We anticipate picking up 150 basis points to 200 basis points of occupancy this year and again next year. Furthermore, as Doug and Scott mentioned, we have a robust leasing pipeline where we've already signed and executed leases, and buildouts are underway, although we won't benefit from rent commencement yet. Thus, we are managing our guidance adjustments and keeping the range tight due to related uncertainties.

Floris Van Dijkum, Analyst

That's helpful. Regarding the FlatIron refinancing, is there an expectation that it might be sold soon, or is it refinanced for three years and move to floating rate from previously fixed?

Scott Kingsmore, CFO

Yes, right now, it's sitting on a bank balance sheet. That's the near-term expectation.

Operator, Operator

We'll go next to Linda Tsai with Jefferies.

Linda Tsai, Analyst

Once it's completed, would you consider monetizing your 25% ownership of One Westside to help further reduce leverage?

Thomas O'Hern, CEO

Yes, that's a good question. It would be a natural outcome for that. It's a good asset with a great tenant, but that's certainly a possibility sometime in the not-so-distant future. No immediate plans for that, but it's certainly an option.

Linda Tsai, Analyst

Got it. And one follow-up. The open-air shopping centers have discussed hybrid work resulting in lower dwell time, but more trips to the shopping center. Has hybrid work changed patterns at your centers? And does it vary at all based on quality?

Thomas O'Hern, CEO

I don't think we've seen it vary much according to quality. One argument could be made that some business is shifting away from urban centers to suburban areas. We have a balance of both, but that's probably the biggest impact from hybrid work, working from home, and reduced commuting.

Douglas Healey, Senior Executive Vice President of Leasing

Yes. Looking back pre-pandemic, our traffic levels are near pre-pandemic levels across our portfolio. So I don't think the argument of significant changes holds true.

Operator, Operator

We'll go next to Mike Mueller with JPMorgan.

Mike Mueller, Analyst

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? Also, does the prior expectation of about $20 million of land sale gains in 2022 still hold?

Thomas O'Hern, CEO

As it relates to rent spreads, that can vary quarter to quarter, depending on where our lease expirations are. It’s kind of a blended number. For it to have moved from 4% in the fourth quarter to 1%, I don't think it's indicative of much. I also don’t see it as a predictor for the remainder of the year. I think we have significantly more pricing power than two or three quarters back. The first quarter tends to be a bit slower as that's when most retailers have their natural fiscal year-end, so we often see more deal activity in the second and third quarters. As for land sales, on the last call, I mentioned a relative high volume of closings in the first quarter, which we saw. The number was consistent with our guidance in terms of cadence, and we garnered an $11 million benefit in the first quarter. I believe that the guidance still holds today.

Operator, Operator

We will go next to Ki Bin Kam with Truist.

Ki Bin Kim, Analyst

I want to circle back to earlier questions regarding the occupancy cost. It was good to see that drop to 11.3%. However, I’m curious, given the labor situation, what are the total all-in costs for retailers, including wages? Has that ticked up versus just the real estate occupancy costs which are going down?

Thomas O'Hern, CEO

It varies depending on the retailer. We've heard from a number of retailers that they ended up with slightly less staffing than pre-COVID. While the hourly rate may be up, overall labor costs have remained flat to down. We’re hearing more about improving margins across retailers, so how that factors into their occupancy cost is uncertain, but it's something we've heard frequently.

Ki Bin Kim, Analyst

Despite the positive comments on leasing strength, I’m curious why the stock is trading at close to an 8% implied cap rate. Is that spurring more discussions with the Board regarding potential actions to close that gap?

Thomas O'Hern, CEO

As you can imagine, Ki Bin, we don’t comment on discussions in the boardroom. I can't elaborate on that, except to say that at our current trading price of a multiple of less than 7x FFO, it seems illogical. From our comments here, you can tell that we feel very positive about the business. It represents a tremendous buying opportunity today.

Ki Bin Kim, Analyst

Are there plans for any asset sales, perhaps to your JV partner?

Thomas O'Hern, CEO

We are always open to disposing of non-core assets. The majority of our NOI comes from our top 20. We value our top 30 assets. Anything beyond that, we would be opportunistically open to selling, but it depends on market dynamics. We’ve sold a couple of assets last year as one-off deals. The market for assets in the $500 per foot range isn't necessarily back yet. However, once we reach a stronger debt market, it will certainly be a possibility and something we’ve done in the past.

Operator, Operator

We will go next to Richard Hill with Morgan Stanley.

Richard Hill, Analyst

I wanted to revisit some of Floris' inquiries regarding proceeds possibly being pulled out from higher-quality malls. It seems surprising given that Green Acres Mall was financed about 10 years ago. Can you walk us through the dynamics of extracting greater proceeds from a mall like that?

Scott Kingsmore, CFO

Keep in mind that in the timeframe between acquisition and today, we added a brand-new power center. The Green Acres campus generates about $1 billion; it's an essential retail hub in Long Island. For our 2023 pipeline, $350 million to $400 million estimates were based on conservative debt yields for premium assets. We have witnessed debt yields for the best assets shift into the high single-digit range. Scottsdale Fashion Square is among the best in the U.S., showing confidence in our ability to generate liquidity.

Richard Hill, Analyst

Your comments on debt yields are well taken. Can you discuss your ability to counter inflationary pressures on expenses relative to NOI? Are you positioned such that NOI, along with occupancy gains and rental increases, could potentially counter inflation?

Thomas O'Hern, CEO

Historically, the quality mall sector has performed well during inflationary periods. We have typically maintained pace with inflation as most companies have shifted to a fixed CAM component, which escalates aggressively during lease terms. Our typical fixed CAM increase is around 5% a year. Even if inflation exceeds that in specific years, we believe we're well-positioned to absorb inflation’s impact pertaining to expense recoveries.

Operator, Operator

We will go next to Michael Bilerman with Citi.

Michael Bilerman, Analyst

I’m curious about sources and uses since you’ve pulled a lot of positive drivers regarding free cash flow and refinancing. You mentioned assets requiring attention. How do you bridge the various uses of capital going forward?

Thomas O'Hern, CEO

We have various ways to structure our deals. As noted, we have significant cash flow after dividends, likely more than we've seen in the past. We anticipate positive refi excess proceeds next year. We also have flexibility in deal structuring. For example, the Caesars Republic Hotel deal is a ground lease requiring little capital from us. For the Sears box redevelopments at Los Cerritos and Washington Square, we can collaborate on multifamily development and partner in ownership or choose to source capital to increase our stake. We’ll assess all potential structures while being mindful of our cost of capital, given our stock's valuation today. We will prioritize capital decisions wisely.

Michael Bilerman, Analyst

What are you planning for Santa Monica and Washington Square regarding loans coming due this year? Are they likely to get short-term extensions until business plans mature?

Scott Kingsmore, CFO

That’s a reasonable assumption. Both have strong merits, and both have business plans that were affected by COVID. As I mentioned earlier, you'll see us extend in various situations, and I would expect that for both properties.

Michael Bilerman, Analyst

Is there a plan to provide more detailed sources and uses spreadsheet for clarity as there are multiple information pieces that don’t represent the whole organization?

Thomas O'Hern, CEO

It's possible. We typically provide a lot of information. However, we did put redevelopment on hold during COVID. As we restart that pipeline, we haven't concluded how we're structuring larger projects. Once that is determined, we may share a more detailed redevelopment pipeline along with various elements.

Operator, Operator

We'll go next to Caitlin Burrows with Goldman Sachs.

Caitlin Burrows, Analyst

On common area income, you mentioned expectations exceeding pre-pandemic levels. Can you quantify potential on this line item along with timing from here?

Scott Kingsmore, CFO

I expect we’ll surpass pre-COVID levels by 2% to 5%. However, a lot of this is sensitive to short-term contracts, advertising, and similar deals, making it hard to predict precisely where the year will end up. There’s still uncertainty with some high-dollar contracts, but I believe we're set to do better than expectations. During COVID, revenue sources like advertising dramatically dropped as local merchants were not opening new stores. I think we are on track to exceed our expectations every quarter, and it's part of why we maintain a wide range regarding same-center NOI since we still have ongoing work to accomplish.

Caitlin Burrows, Analyst

Got it. On financing, given the recent trends, how have your plans evolved over the past few months? Specifically, how do the terms compare to your earlier expectations?

Scott Kingsmore, CFO

We’ve definitely observed increased rates. Benchmark rates such as 10-year and 5-year have risen, along with SOFR and LIBOR. Spreads have also expanded, affecting the overall real estate market. However, in terms of loan terms, we've maintained consistency. Notably, we accomplished the first 10-year mall deal post-COVID as of late April. Thus, apart from the rise in rates, there have not been significant changes.

Operator, Operator

At this time, there are no further questions. I'll turn the call back to Tom O'Hern for additional or closing remarks.

Thomas O'Hern, CEO

Great. Thank you, operator. Thanks for joining us today. I know it's been a long earnings season for all of you, so you're probably a bit tired. Glad you joined us. We enjoyed a very solid start to this year. We're excited about the balance of the year, and we hope to see many of you at ICSC and NAREIT in the upcoming weeks. Thanks.

Operator, Operator

This does conclude today's conference. We thank you for your participation.