The Macerich Company (MAC) Q1 2021 Earnings Call Transcript

The Macerich Company (MAC -3.10%)
Q1 2021 Earnings Call
May 12, 2021, 1:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to The Macerich Company first-quarter 2021 earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Jean Wood, vice president of investor relations.

Please go ahead.

Jean Wood -- Vice President of Investor Relations

Thank you for joining us on our first-quarter 2021 earnings call. During the course of this call, we will 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 economy and the financial condition and results of 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 in 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 would like to turn the call over to Tom.

Tom O'Hern -- Chief Executive Officer

Thank you, Jean, and thank all of you for joining us today. As we are finally finding ourselves on the backside of the pandemic, we see our business starting to return to normal. The COVID daily infection rates are down and dropping sharply through most of our markets. We now have three vaccines in distribution and currently 46% of the U.S.

population has had at least one dose. We've seen dramatic improvement in the past 90 days in terms of the country reopening and consumers getting back to normal. We find a lot of reasons to be optimistic. We continue to do our part as we have nine vaccination clinics at our properties, and we're administering a total of approximately 10,000 vaccinations per day.

In terms of our core business, we're at an inflection point. As we indicated last quarter, we expected occupancy to hit its lowest level in the first quarter and, in fact, it did at 88%, which is slightly lower than the low point coming out of the financial crisis in 2009. Post GFC, by mid 2011, we were back to 92% occupancy. The absorption space happened fairly quickly.

We expect to see a similar recovery post COVID, perhaps better, as today, we have a much higher-quality portfolio than we did 10 years ago. Although some of our first-quarter operating metrics reflected the ill effects of final retroactive COVID-related rent abatements. The prospects going forward are extremely positive, and we expect to see a very strong recovery over the balance of the year and going into 2022. The leasing environment has significantly improved.

Leasing volumes were very good in the first quarter, on par with the first quarter of 2020 when leasing was largely unimpacted by COVID. The demand we are seeing is not only from traditional retailers, but also nontraditional uses such as fitness, health and wellness, co-working, medical, hotel, big box, food, beverage and entertainment. To give you just some examples of how strong the leasing environment is today, yesterday, we announced two new Primark deals for our portfolio, one in Tysons Corner and one in Green Acres. We are now one of the largest U.S.

landlords for Primark. In the next few weeks, we will be announcing a new department store commitment for Kings Plaza. In addition, we will soon be announcing an exciting new use for a former department store channel. The deal flow is back to pre-COVID levels.

Every two weeks, we have an executive leasing meeting, where we review and approve pending lease deals. Last week, we had 95 deals to approve. That's just in a two-week period. That's 256,000 square feet.

If we annualize that pace, we would be doing deals for this year for roughly one-third of our non-anchor space. Now I'm not predicting we're going to see that volume every two weeks, but it is an indication of the strength of the leasing environment. And Doug will get into that in more detail in a few moments. Sales are also picking up significantly.

I'm comparing now the first quarter of '21 here to 2019, not 2020. Portfoliowide, during the first quarter of 2021, sales were 2% higher than the first quarter of 2019, excluding the still restricted food and beverage category. We look at our Arizona assets as a precursor for the rest of the portfolio as Arizona has had fewer COVID-related restrictions. During the first quarter of '21, excluding food and beverage, sales in Arizona were 11.5% higher than the first quarter of 2019.

Looking at the month of March, just the month of March 2021, sales in Arizona were 18% higher than March of 2019. To say there is pent-up consumer demand is an understatement. We've also been very active on the balance sheet so far this year. We raised $732 million of equity via common stock sales.

We sold a noncore asset for $100 million, Paradise Valley. And we used the proceeds of both plus cash on hand to pay down $1 billion of debt. We've reduced our leverage significantly this year. We put in place a new line of credit and a credit facility, and we also extended terms on several near-term loan maturities.

Scott will be elaborating on those transactions shortly. We have $450 million of liquidity in the form of cash on our balance sheet and line of credit capacity. And this year, we expect to generate significant cash from operations after the dividend of about $200 million. We are very optimistic about our business as we look forward toward the balance of the year and into 2022.

For the most part, in the U.S., the pandemic is behind us. The leasing environment is strong and getting better by the month, and we expect significant gains in occupancy and net operating income as we move through '21 and into 2022. And now, I'll turn it over to Scott to discuss the operating results for the quarter and financing updates.

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

Thank you, Tom. Highlights of the financial results for the quarter are as follows. Funds from operations for the first quarter of 2021 was $0.45 per share and is down from the first quarter of 2020 at $0.81 per share. This is in line with our expectations since this is the lab quarter -- the final lab quarter -- the final quarter of COVID-19 on a trailing 12-month basis given the portfolio closing in March of 2020 at the onset of COVID.

As we had previously communicated, retroactive rental abatements relating to 2020 rental income were expected to weigh down our first-half '21 earnings and, in particular, our first-quarter results. In the first-quarter '21, we incurred $29 million of COVID-related rent abatements. As a reminder, we are not able to record these rent abatements until the related lease amendments are signed. While we do expect some further retroactive rent abatements relating to 2020 to fall within the second quarter, we do expect those to be significantly less than the $29 million we recognized in the first quarter of '21.

Same-center net operating income for the quarter was down 29%. Retroactive rent abatements relating to 2020 rental income accounted for roughly half of this decline. In absent those abatements, same-center NOI would have declined by 15%. This morning, we affirmed the previously issued 2021 guidance for funds from operations and we direct you to the company's Form 8-K supplemental financial information for more details of the company's guidance assumptions.

2021 funds from operations is estimated in the range of $1.77 to $1.97 per share. While certain guidance assumptions are provided within our supplemental filing, here are some further anecdotes. This guidance range assumes no further government-mandated shutdowns of our retail properties. Guidance factors in the issuance of common equity to date, which I will elaborate on in a few moments.

We are still not providing same-center NOI guidance. We do expect to provide more color and details on guidance as the year progresses. That said, consistent with our expectation from last quarter, and as I previously communicated, we do still anticipate strong double-digit growth in the second half of 2021. We continue to view '21 as a transitional year as we pivot away from the disruption caused by COVID during 2020.

As Tom and Doug has or will elaborate upon, sales are rebounding very nicely and generally in line with pre-COVID levels in 2019. But the most salient fact is that the leasing environment during the past two quarters has proven to be very elastic and broad-based and has rebounded to pre-COVID levels. Based on what we are seeing, we believe this leasing demand should enable us, over the coming years, to grow occupancy to normalized levels, to fuel strong operating growth and to continue to diversify our town centers with more relevant uses and experiences. We are also seeing our transient revenues return in a very positive fashion.

Temporary tenant leasing demand is strong, and we expect growth in temporary tenant occupancy as we continue to source permanent replacements. Advertising revenues have been resilient. The sales recovery should translate to stronger percentage rents. And as our markets continue to relax restrictions, parking revenues are growing quite nicely month over month.

Recall that a significant drag on our NOI from 2020 was attributable to these transient income items. And in fact, we experienced a $43 million collective decline between these commonary and ancillary revenues, percentage rent and parking revenues in 2020, all of which are rebounding quite well as 2021 continues to unfold. And lastly, bad debt expense, which was $52 million in 2020, was flat quarter over quarter in the first quarter of 2021 at less than $3 million of the company's share. Again, more details of guidance assumptions are contained within the company's Form 8-K supplemental financial information, and we do anticipate expanding on those assumptions as the year progresses.

Now on to the balance sheet. In April, as expected, we closed on the $700 million credit facility with a three-year term, including options. The facility has a $525 million revolving component and a $175 million term component. The revolving component may be expanded up to $800 million based on certain conditions.

The facility's interest rate at closing is 275 basis points over LIBOR, which is dictated based on the company's debt yield. We do expect to likely reduce that spread to 225 over LIBOR later this year given progress we have made reducing leverage. During 2021, we have sold $732 million of common equity through our ATM programs. In addition, at the end of the quarter, we raised $95 million from the sale of Paradise Valley to a newly formed JV, in which Macerich retained a 5% minority interest.

Collectively, along with cash on hand, the proceeds from these transactions were used to repay $1.04 billion of corporate debt year to date. Over the past few quarters, we have successfully extended six secured mortgage loans totaling roughly $950 million for extension terms ranging up to three years. Those loans included mortgages on Danbury Fair, the shops at Atlas Park, Fashion Outlets of Niagara, FlatIron Crossing, Green Acres Mall and its adjacent power center, Green Acres Commons. And most recently, we secured two-year extensions on both loans on the Green Acres campus.

During the past few months, we are seeing green shoots in the debt capital markets with the execution of several retail deals on sequentially improving terms. This is the same thawing behavior and pattern exhibited by the debt markets following the global financial crisis. Now I'll turn it over to Doug to discuss the leasing and operating environment.

Doug Healey -- Senior Executive Vice president, Leasing

Thanks, Scott. In the first quarter, we continued working with our retailers to secure rental payments and improve our collection rates. Looking at our top 200 rent-paying national retailers, we now have commitments with 190. That's up from 176 last quarter.

But more importantly, excluding those tenants that have filed for bankruptcy and vacated our properties, we have yet to reach resolution with only 1% of our top 200, and that's measured based on total rent that these top 200 pay. As a result, our collections continue to improve. As of today, collection rates increased to 97% in the fourth quarter of 2020 and 95% in the first quarter of 2021. The tremendous progress we've made here paves the way for us to soon bring this workout initiative to an end.

The short list of retailers who still refuse to pay and those with whom we've not made deals will be dealt with as they would have been pre COVID, which is through the normal collection process, as well as with legal action. I'm very appreciative to all those within the Macerich organization who have been involved with this initiative. It was an enormous effort that involved virtually every department within our company. But now it's time to get back to business and focus solely on what we do best.

And that's managing and leasing our great centers. March was a very strong month in terms of sales with all categories, except for food and beverage, showing positive comps. March sales were up 137% over March 2020 and up 9.2% over March 2019. Looking at the quarter, first-quarter 2021 sales were up 21% over first-quarter 2020, and only down 2% when compared to the first-quarter 2019.

However, if you take out food and beverage out of the equation, given the government mandates this category faced, first-quarter 2021 sales were up nearly 2% compared to first-quarter 2019. As Tom alluded to, and it's worth reiterating, I think the real indicator lies in Arizona, where all facets of business have been wide open for quite some time. March sales in our Arizona properties were up 18.2% over March 2019 with the first quarter of 2021 up 7.2% over first-quarter 2019. So whether it's stimulus checks, relaxed government mandates, vaccines, the need for socialization or all of the above, there is clearly pent-up demand and shoppers are definitely shopping with a purpose.

Occupancy at the end of the first quarter was 88.5% and you'll recall from our prior earnings call that this is where we telegraphed to be at the end of the first quarter, and we believe it to be our trough. As previously reported, 2020 bankruptcies were a record high for the company. During 2021, the pace of filings within our portfolio has decreased substantially with only six bankruptcies totaling 207,000 square feet and $7 million in total rent. And this included two leases totaling 139,000 square feet with a single department store that quickly emerged and assumed both of its leases.

Excluding this department store, bankruptcies during 2021 have accounted for only 68,000 square feet. So as we previously conveyed to you, 2020 resulted in a huge acceleration of our now substantially reduced tenant watch list. And the pace of filings has dramatically improved thus far in 2021. Trailing 12-month leasing spreads were negative 2.1%, and that's an improvement from negative 3.6% last quarter.

Average rent for the portfolio was $63.47 as of March 31, 2021. This represents a 1.6% increase, compared to $62.44 at March 2020 and a 2.6% increase, compared to $61.87 at December 31, 2020. 2021 lease expirations continue to be an important focal point. To date, we have commitments on 70% of our 2021 expiring square footage with another 30% or the balance in the letter of intent stage, disregarding tenants that have closed or indicated they intend to close.

And this is up from 60% and 40%, respectively, in Q4 2020. In the first quarter, we opened 102,000 square feet of new stores, resulting in total annual revenue of $7.6 million. Notable openings in the first quarter include Gucci at Fashion outlets of Chicago; Ardene at Kings Plaza; two Swarovski stores at La Encantada and Los Cerritos; and Zwilling J. A.

Henckels at Santa Monica Place. The food and beverage category and, in particular, restaurants was active. We opened Bourbon & Bones and State 48 Brewery at SanTan Village; Bubba's 33 and Uncle Julio's at South Plains; and Shake Shack at Twenty Ninth Street. In the digitally native and emerging brand category, we opened Madison Reed at SanTan Village; and 3DEN, Psycho Bunny and Therabody at Tysons Corner Center.

Turning to leases signed in the first quarter. We signed 181 leases for 700,000 square feet. And this is virtually the same number of leases and same amount of square footage that we leased in the first quarter of 2020, which, for all intent and purposes, was the last measurable quarter before the effects of COVID sat in. And this is consistent with what we reported to you in the fourth-quarter 2020.

What's probably most noteworthy about our leasing activity is the amount of new and renewal leases signed through mid-April 2021 is actually outpacing the number of leases signed during the same pre-COVID period in 2019, and 2019 was an extremely high-volume year for Macerich from a leasing standpoint. The pace of our lease signings during the past two quarters clearly underscores the fact that our leasing business is back on par with historical pre-COVID levels and that retailers recognize the need to maintain existing space and secure new quality town centers. As the pool of traditional retailers continues to decrease, our initiative of bringing new concepts and different uses to our centers remains a top priority. Noteworthy leases signed in the first quarter do include several new-to-Macerich retailers, such as Buck Mason at Scottsdale Fashion Square; Chanelle Face and Beauty at Kierland Commons; OFFLINE by Aerie at Freehold Raceway Mall; and Psycho Bunny at Scottsdale Fashion Square and Tysons Corner Center.

These and others bring the total number of new-to-Macerich deals signed or in lease in the last 12 months to 63, which totals 400,000 square feet. As Tom mentioned, we're extremely excited to announce two new Primark deals, both of which are approximately 50,000 square feet. One at Green Acres, which will replace JCPenney; and the other at Tysons Corner Center, which will be part of a remix of a junior anchor store. These two deals, along with Kings Plaza, Fashion District Philadelphia, Danbury Fair Mall and Freehold Raceway Mall make us Primark's largest landlord in the United States.

Other notable leases signed in the first quarter include Fabletics at Los Cerritos, Tysons Corner and Washington Square; a lululemon expansion at Village at Corte Madera; Saint Laurent at Fashion Outlets of Chicago; Saratoga Hospital expansion at Wilton Mall; Shoppers World at Fashion District of Philadelphia; Blue Nile at Scottsdale Fashion Square; Vuori at Twenty Ninth Street; and two more electric vehicle deals with VinFast, one at Village at Corte Madera and the other at Santa Monica Place. All these recent lease executions continue to strengthen our already strong and vibrant leasing pipeline, which we define as fully executed leases for new stores that have not yet opened. And at the end of the first quarter, we had 102 signed leases for new stores still to open in 2021. These leases represent 617,000 square feet.

And looking into 2022, we already have signed leases for an additional 250,000 square feet of new stores. And in addition to these signed leases, we're currently negotiating another 100 leases for new stores totaling just under 800,000 square feet, the majority of which will open in 2021 or in early 2022. So in total, that's over 1.6 million square feet of signed and in-process leases for new store openings in 2021 and 2022. And these numbers continue to grow by the week.

We're not nearly done with 2021 and just beginning with 2022. And this is the exact trajectory we expected given the resiliency of our portfolio and the rebound we've seen in sales throughout our centers to levels as good or better than they were pre COVID. And now I'll turn it over to the operator for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] We'll go first to Craig Schmidt with Bank of America.

Craig Schmidt -- Bank of America Merrill Lynch -- Analyst

Thank you. Question. I understand June 15 Governor Newsom is looking to fully open the economy. Is that a further pickup you're going to see in sales? Are you already seeing the activity in your California that you don't think that event would have much impact on your malls?

Tom O'Hern -- Chief Executive Officer

Craig, we think it's going to have a significant impact. We're still restricted in California as it relates to restaurant capacity and also food courts. So a lot of the furniture has been removed out of the food courts. Restaurants are still operating at, depending on the county, 50% to 75% capacity.

And we think it's going to have a big impact. It's going to have a big impact on traffic as well. Traffic is lagging sales a little bit. I'd say traffic is back to roughly 80% of pre-COVID where sales are approaching 100%, which means a couple of things, a higher capture rate.

Those consumers are coming in focused in buying, but also it's a function of us not having the food courts fully open and the restaurants fully open. That's where you tend to get a lot of traffic and a lot of dwell time. So we think it is going to be very much a positive event when the governor reduces the restrictions even further come mid-June.

Craig Schmidt -- Bank of America Merrill Lynch -- Analyst

Great. Thanks. And then, a follow-up, just thinking about the new Primark, I'm wondering if the portfolio is going to shift to more value retailers once you start to fill up some of the vacancy that was brought on by COVID.

Doug Healey -- Senior Executive Vice president, Leasing

Hey, hey, Craig, it's Doug. No, I don't think so. I think Primark may be value oriented, but Primark is an extremely big draw, and their popularity just continues to increase in the United States. I think we'll put value-oriented retail where we believe it needs to be within our markets and with our portfolio, but I don't think there's any one indicator out there that leads anyone to believe that will become more value oriented.

Craig Schmidt -- Bank of America Merrill Lynch -- Analyst

OK, thank you.

Operator

Thank you. We'll go next to Samir Khanal with Evercore ISI.

Samir Khanal -- Evercore ISI -- Analyst

Hi there. Good afternoon, everyone. Hey, Tom, you certainly sound bullish on the leasing front. Just maybe you can expand a little bit on leasing spreads from a modeling perspective over the next sort of 12 to 18 months? How to think about that? I mean, you were down a little bit.

Just trying to get a little bit more color on that.

Tom O'Hern -- Chief Executive Officer

Yes, Samir, it's always a balancing act between filling space, as well as pushing for rate. And I think we are going to see similar to what we saw coming out of the great financial crisis. There's going to be a little pressure on rate in order for us to fill some of these extra curricular vacancy that we have as a result of COVID. So I think we're going to continue to see flat spreads probably for the next year and a half or two as we see the space being absorbed and get back to a more normal level of 91%, 92% occupancy.

Samir Khanal -- Evercore ISI -- Analyst

Got it. And then, just shifting over to Scott, maybe you can remind us kind of where you stand from a leverage standpoint today, maybe debt-to-EBITDA, and how you think about that ratio over the next sort of, let's say, 24 to 36 months as we kind of think about the recovery and the strong leasing activity you're having?

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

Yeah, sure, Samir. I'd say we're in the high 10s right now on a forward-looking basis. Again, net debt-to-EBITDA, so netting out our cash on balance sheet as we look forward, and we did put out an investor deck that gave a three-year perspective, which what I believe were pretty conservative EBITDA growth assumptions. Coming out of the global financial crisis, we saw outsized earnings growth from occupancy absorption and just improvement in the overall economic environment.

And I think we see a similar pattern developing here. In fact, maybe even at a greater trajectory and a greater pace of recovery than we did coming out of the global financial crisis. Remains to be seen, but I do think that we'll continue to see debt-to-EBITDA improve organically through operating growth. And obviously, we made some progress year to date, paying down over $1 billion worth of debt.

Tom O'Hern -- Chief Executive Officer

Yeah, additionally, and it's not factored into our guidance, but our goal is to continue to sell noncore assets. You saw that we sold Paradise Valley. That was an unleveraged asset and the proceeds were used to delever. And it's hard to predict the exact timing, but there's a number of other assets, many of which are unencumbered, that we would be interested in selling if the right opportunity were available, in which case, in all likelihood, those proceeds would be used to delever as well and accelerate that reduction of debt-to-EBITDA.

Samir Khanal -- Evercore ISI -- Analyst

Got it. Thanks.

Operator

We'll go next to Mike Mueller with J.P. Morgan.

Mike Mueller -- J.P. Morgan -- Analyst

Hi. In terms of the abatements we booked, can you talk a little bit about how much of them were tied to, say, the Arizona portfolio that was largely opened versus California that was more restricted? And were there significant geographical differences there?

Doug Healey -- Senior Executive Vice president, Leasing

Yeah, good morning, Mike. I don't have the exact breakdown, but I can tell you that given the fact -- and we've spoken to this before, given the fact that our California and New York properties were down probably on average five months during 2020 and really weren't open until the beginning of the fourth quarter, the negotiations with those retailers were necessarily delayed. So we didn't really start working out with those tenants until the fourth quarter and some of that spilled into the first quarter. So I don't have the specific geographic differences, but I can tell you after approving these deals ad nauseam, there was more in California and New York than the balance of the portfolio.

Tom O'Hern -- Chief Executive Officer

It's, obviously, tougher to get a retailer to come to terms on an agreement when their stores are closed. So yes, California and New York were definitely tougher sections of the country for us to get our deals done.

Mike Mueller -- J.P. Morgan -- Analyst

Got it. And then, just one other question, sticking with the abatements. That $29 million in the quarter, I think you said it was mostly tied to transactions in 2020. Was there any significant 1Q component in there?

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

No. No. This -- the 98% of it pertained to 2020.

Tom O'Hern -- Chief Executive Officer

Retroactive adjustments related to 2020 rents.

Mike Mueller -- J.P. Morgan -- Analyst

Got it. OK, that was it. Thank you.

Operator

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

Caitlin Burrows -- Goldman Sachs -- Analyst

Hi, good morning there. I was wondering, maybe first, on the percentage rents, it looks like they were up a lot in the first quarter, almost $7 million versus $2 million to $3 million in 1Q '20 and 1Q '19. So I was wondering, is this a result of more leases now being on a percentage-sales basis? And should we expect this to continue to be elevated going forward?

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

It's elevated partially because of that, Caitlin. We did have some, especially with some of the locals, some percentage deals that were very short term in nature. I don't think that elevated level is something that you can count on for the next few years. It's really just something that will kind of burn off as 2021 progresses.

Of course, the sales environment has continued to improve. So we've seen some pickup there. But I think the impacts that you're seeing there quarter over quarter are really just a short-term function -- short-term function of getting through some of those -- these negotiations.

Caitlin Burrows -- Goldman Sachs -- Analyst

OK. And then also, it looks like that Macerich's share of other income from unconsolidated JVs was $14 million in the first quarter versus like $2 million to $3 million in 1Q '20 and 4Q '20. So just wondering if there was something specific that drove that increase?

Tom O'Hern -- Chief Executive Officer

Yeah, sure. It -- you may recall that we do invest indirectly in retailers and certain real estate companies through a venture capital firm. It's something we've been doing for years. Those investments actually are accreting both realized and unrealized gains.

So that's the lion's share of what that is in the first quarter.

Caitlin Burrows -- Goldman Sachs -- Analyst

OK, thanks.

Operator

We'll go next to Katy McConnell with Citi.

Katy McConnell -- Citi -- Analyst

Great. Thank you. So now that you've addressed the majority of your 2021 obligations, can you talk about your next priorities for capital allocation? And what needs to happen first in order for you to put it back to more offensive investment spending, including ramping up leasing capex to adjust vacancy?

Tom O'Hern -- Chief Executive Officer

Yeah, hey, Katy, for our standpoint, we addressed the debt. We addressed the line of credit. We expect to throw off a significant amount of operating cash flow after the dividend, which we are certainly, for the right deals, very willing to use that as leasing capital. So as we mentioned in the beginning of the call, we've got about $450 million of liquidity today.

We expect that to increase. So I don't expect to be limited at all as it relates to our ability to spend capex for particularly lease-up of boxes and vacancies. Some of our other redevelopments that were put on hold during COVID, we'll start-up again, and we'll be going through the entitlement process on those, and that probably is more like 2022, '23 type capital activity. And again, as I mentioned, we will be selling noncore assets, which will be giving us additional liquidity to delever and/or reinvest in the development pipeline.

Katy McConnell -- Citi -- Analyst

OK, great. And then, maybe on that point, could you just provide some context around trends you're seeing in the transaction environment from all deals today as things start to stabilize? And do you have anything else on the market at this point?

Tom O'Hern -- Chief Executive Officer

Katy, yeah, a lot of the assets that we're selling are noncore, and they're not necessarily malls. We have not seen a lot of mall transactions take place. In the case of Paradise Valley, that was a mall that was going to be repositioned to a variety of mixed use, mostly residential. And then, we've got a couple of other assets that we're in discussions on, I wouldn't say in the market per se, but in discussions on that are not conventional malls.

And I think there's a more diverse appetite for those than for a typical traditional regional mall today.

Katy McConnell -- Citi -- Analyst

OK, thank you.

Operator

We'll go next to Floris Van Dijkum with Compass Point.

Floris Van Dijkum -- Compass Point -- Analyst

Hey, guys, thanks for taking my question. I know it's hard to -- in terms of -- I know you're not giving same-store guidance, for example. But maybe if you could, I mean, you've lost almost $150 million of NOI from '19 levels. Maybe if you can talk about the path and the timing of getting back to that kind of profitability and occupancy as well? Maybe, obviously, it's not going to happen this year.

You mentioned this is sort of a stabilizing year. Should we see a greater ramp in, in NOI growth next year and in '23? Or maybe talk a little bit more about the future for what you see for Macerich?

Tom O'Hern -- Chief Executive Officer

Yeah, Floris, I mentioned it a little bit in the beginning as it related to how we recovered post GFC. And roughly the same occupancy level. Took roughly two years plus a little bit. And what we see here is, I think we've got a stronger leasing environment than we had then.

And we have far more categories that are interested in mall space than we had then. So I'll let Scott speak to the NOI. But in terms of getting the occupancy level up, I would say, we think it's going to happen pretty quickly. And I would say by the end of 2022, we should be getting very close to our prior occupancy levels.

That's going to be a little bit ahead of the NOI recovery, but I'll let Scott speak to that.

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

Morning, Floris. Beyond just occupancy recovery and vacancy absorption, recall that we did have some very significant shocks in 2022 to NOI. We had over $50 million of incremental bad debts, which I would consider to be nonrecurring in nature. We had $55 million, $56 million of abatements which we've seen some of that carry into the first quarter.

But again, I view that as a COVID workout situation and nonrecurring in nature. And then, as I've spoken to, on many occasions, are more transient revenues which were heavily impacted once the center is closed, are seeing a nice bounce back. And I think by the time we get to next year, we'll see some nice growth there. All of that put into the mix.

I think you'll see some -- we certainly see a return to more normalized levels of growth over the next couple of years, but I'm cautiously optimistic that with the leasing environment we see, that there'll be some better-than-average growth in '22 and '23, again, without giving any guidance. But those are some of the onetime factors and then some of the things that we are seeing in terms of leasing that could really boost growth and propel us.

Floris Van Dijkum -- Compass Point -- Analyst

Thanks, Scott. Maybe my follow-up is to -- in terms of the written-off rents, have you seen any recapture? Or are you having discussions? And is there any potential of clawing some of that back later on this year?

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

Yeah, Floris, I think our reserves are accurately stated. I don't see a huge perspective in terms of reserves bouncing back that would imply that we're overreserved. And I think we're adequately reserved. We've assessed these in a very detailed manner.

And I feel comfortable with where we're at in terms of what our assessments are of our remaining receivables.

Floris Van Dijkum -- Compass Point -- Analyst

Thanks, Scott.

Operator

We'll go next to Greg McGinniss with Scotiabank.

Greg McGinniss -- Scotiabank -- Analyst

Hey, I'm just thinking about the guidance. So you affirmed the range that was updated with the initial ATM issuance and now including another $240 million of equity. Were there some offsetting items that helped to maintain the range where it is? Or is that additional ATM issuance expected?

Tom O'Hern -- Chief Executive Officer

Greg, hey, good morning. As we've mentioned, the environment is continuing to improve in various areas, we've spoken to already, and so I think that factors in there in terms of some general offsetting of factors that should result in some NOI improvements versus what we had expected. I mentioned in response to Caitlin's question that some of our other income as a result of our indirect investments through venture capital firms has resulted in some increases to FFO. So those are two of the primary factors.

And in times of heavy volatility, you also see termination fees that are typically higher than what you would expect. So there may be a little bit of pickup there. You throw all that in the mix, and that's why we are comfortable affirming guidance again.

Greg McGinniss -- Scotiabank -- Analyst

Great. And just to clarify one point, on those venture capital returns, are those expected to be recurring? That just kind of a higher line item in general now?

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

We'd like to think they would be recurring, but I wouldn't factor that into our guidance or your numbers going forward.

Greg McGinniss -- Scotiabank -- Analyst

OK, thank you.

Operator

We'll go next to Rich Hill with Morgan Stanley.

Rich Hill -- Morgan Stanley -- Analyst

Hey, good morning, guys. You've done a really good job over the past couple of quarters using a variety of liquidity sources to fund yourself, tapping the equity market, renegotiating with your bank lenders. You're absolutely right, the CMBS market is there for the right properties with the right borrowers. So as you sort of think about all these levers that you can pull over the next months, quarters, years, how would you prioritize them? And I recognize that priorities change depending upon market conditions.

But if you can maybe just walk us through how you think about your sources of the capital right now, I think that would be helpful.

Tom O'Hern -- Chief Executive Officer

Yeah, Rich, so I probably mentioned it in a variety of different spots. But putting it together, we've raised enough equity to downsize our credit facility. It was $1.5 billion, but the reality is we never really used more than $1 billion. We artificially pulled cash off the balance sheet when COVID hit mid-March.

But we would normally operate between $700 million and $1 billion. So to downsize made sense, we raised a little bit of equity to do that. We used some cash. It was on our balance sheet.

And then, going forward, we expect, given the dividend level today, we've got about a 35% payout ratio, that we're going to generate a significant amount of cash from operations that can be used to delever. Something we've done for years, the dispose of noncore assets. In fact, coming out of the GFC, we made a decision to sell our lower-performing malls, and we sold 25 malls and generated $1 billion plus of capital that we used to delever. And today, we think there's the opportunity to sell some of our noncore stuff.

You saw that happen with Paradise Valley. There's a couple of other assets that are pretty good candidates that we're in talks on, although it's too early to tell or give any guidance on those. And I think you'd most likely see us use that capital to delever as well. So the plan is to continue deleveraging from a variety of different sources.

Rich Hill -- Morgan Stanley -- Analyst

That's helpful. Just one follow-up question. I actually think the market for selling malls has maybe been a little bit more vibrant. Vibrant is probably too strong of a word, but there's actually been a lot of transaction activities in 2020 and 2021.

By our account, maybe 21 malls in 2020 and last I checked, 11, 12, 13 so far in 2021. So I definitely think there's buyers out there. Can you just -- I know you don't want to give a guide and rightfully so on those transactions you might be in early negotiations with. But could you just maybe give us some insights into what you're seeing in the transaction market? Because you're one of the few people out there that is talking about selling properties.

Tom O'Hern -- Chief Executive Officer

Well, the two that we are having discussions on are non-mall assets. So it's not going to be quite in the same vein. And look, there's a lot of people out there chasing return today. And they see in retail the opportunity to get some pretty good returns.

And those are the type of buyers. They're not public companies we're talking to, high net worth individuals and others that have an interest in taking advantage of a bit of a dislocation in retail today. And that's most of what we're seeing, Rich. We haven't seen anybody actively pursuing our traditional mall assets.

Rich Hill -- Morgan Stanley -- Analyst

Thanks, guys.

Operator

We'll go next to Linda Tsai with Jefferies.

Linda Tsai -- Jefferies -- Analyst

Hi, thanks for taking my question. On the credit facility, where you're paying 2.75% over LIBOR, but you could get it to 2.25% over LIBOR if you reduce leverage. Any color on what level of leverage is required or any other terms to achieve the reduced spread?

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

Yeah, Linda, I don't want to get into all the details in terms of those thresholds, but we have made a fair amount of progress, concurrent with the closing, repaying $1 billion of debt. And so, as we look forward, we do think that we'll be at that threshold point, where we'll cut -- be able to reduce the spread by 50 basis points. So I think it's realistic to assume we could have that in place, perhaps by the fourth quarter.

Linda Tsai -- Jefferies -- Analyst

Thanks. And then, just one follow-up. How many assets remain unencumbered or don't have an equity pledge that can be sold?

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

So the new facility has elements of security, whether mortgages or pledges on equity on certain assets. We do have flexibility to refinance those assets, to sell those assets. Have a substantial amount of flexibility there. So I don't envision that new structure within our credit facility impeding our ability at all to continue on our program of disposing noncore assets or financing any assets that we think are worthwhile of financing.

Operator

And at this time, I will turn the call back to the speakers for any additional closing remarks.

Tom O'Hern -- Chief Executive Officer

Thank you. Thank you, operator. Thanks, everyone, for joining us today. We look forward to seeing many of you at NAREIT early next month.

Operator

[Operator signoff]

Duration: 48 minutes

Call participants:

Jean Wood -- Vice President of Investor Relations

Tom O'Hern -- Chief Executive Officer

Scott Kingsmore -- Senior Executive Vice President and Chief Financial Officer

Doug Healey -- Senior Executive Vice president, Leasing

Craig Schmidt -- Bank of America Merrill Lynch -- Analyst

Samir Khanal -- Evercore ISI -- Analyst

Mike Mueller -- J.P. Morgan -- Analyst

Caitlin Burrows -- Goldman Sachs -- Analyst

Katy McConnell -- Citi -- Analyst

Floris Van Dijkum -- Compass Point -- Analyst

Greg McGinniss -- Scotiabank -- Analyst

Rich Hill -- Morgan Stanley -- Analyst

Linda Tsai -- Jefferies -- Analyst

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