I would now like to turn the conference over to Miss Alexandra Johnstone, Vice President of Finance and Investor Relations. Please go ahead, ma'am.
Thank you for joining us on our first quarter 2026 earnings call. During this call, we will make 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 earnings results and supplemental and our SEC filings. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the supplemental filed on Form 8-K with the SEC, which is posted in the Investors section of the company's website at macerich.com. Joining us today are Jackson Hsieh, President and Chief Executive Officer; Dan Swanstrom, Senior Executive Vice President and Chief Financial Officer; and Doug Healey, Senior Executive Vice President of Leasing.
With us in the room is Brad Miller, Senior Vice President of Portfolio Management. With that, I would like to turn the call over to Jack.
Thanks, Alexandra. Good afternoon, everyone. I'll give some brief comments on the quarter, followed by an update on our leasing progress against our Path Forward Plan, some context on what we're seeing in Class A regional malls, and discuss our recent acquisition of Annapolis Mall. Our first quarter results reflect the continued progress we're making on our Path Forward Plan. Our FFO, as adjusted per diluted share, was $0.34. For our go-forward portfolio, sales per square foot increased to $941. Total comparable inline sales increased 3.9% from Q1 2026 versus 2025, and foot traffic was slightly up. Go-forward portfolio centers NOI growth was 1.2%.
One of our primary goals with the path forward plan is to elevate and transform the merchandising plan and mix of our centers through the leasing of 1,000 new units, which will create thriving retail centers with increased customer traffic, dwell time, and result in improved productivity for our tenants. This leasing strategy enables us to mark-to-market the rents in our retail portfolio, enabling us to create $140 million of cumulative SNO, the signed, not open tenant pipeline that will drive our property NOI through 2028. Coupled with our $2 billion disposition plan, we believe will result in higher FFO per share and lower corporate leverage. Our cumulative SNO pipeline at the end of Q1 was $116 million against our $140 million target. That is contracted revenue with approximately 80% flow-through to NOI.
That is multiyear growth engine that will provide the NOI ramp through 2028. Leasing our temporary vacant and below-market inline and vacant anchor spaces remains one of the critical elements of our path forward plan, as the new 1,000 leases represents almost 25% of the entire space units within our go-forward portfolio. Our leasing speedometer, which tracks revenue completion, was at 81% at the end of Q1 and currently stands at 83%. We only have 250 remaining leases to complete the plan, of which 125 leases are currently in the LOI phase and 125 units are in the prospecting phase. These remaining space units are primarily situated within our fortress potential assets in A, B, and C-rated spaces. Our EOC approval quarterly run rate has averaged 100 deals per quarter.
In Q1, we approved 103 new lease transactions. Based upon our new lease approval run rate and the remaining 250 deals that need to execute, I'm confident we will substantially complete our leasing target by year-end. As I now have passed my two-year tenure here at Macerich, I've gained more confidence and belief in the resurgence of Class A regional malls and their ability to consolidate trade areas and to become even more relevant to customers and tenants. The mall industry has had to battle decades of overbuilding, the Amazon effect, anchor store closures, and major inline tenant consolidation and bankruptcies, the global financial crisis, and COVID. It's wreaked havoc on the U.S. mall industry, where only 895 enclosed malls currently remain. The silver lining today is that tenants have seen a demonstrated improvement in their omni-channel strategy with good physical stores.
There has been a lack of new store expansion until most recently. Retailers' preference has been a growth strategy of quality versus quantity, large flagship and high-quality built-out physical stores versus historical market saturation strategies in the past. With the 236 Class A regional malls today, we have multiple strategies and targets for anchor tenants. Numerous inline, international, domestic, and experiential tenants that can drive customer traffic to our centers. We have a high-quality, irreplaceable portfolio with 90% of our NOI from Class A malls. Gen Z shoppers today are another long-term tailwind for us, as that cohort over-indexes in visiting physical stores, spending money on items, food, and experiences. By 2040, Gen Z will be the largest spending demographic, surpassing millennials and Gen X. I recently created a Gen Z committee within our company.
Their focus is on helping us gain insight on how to transform and elevate our centers through winning loyalty of the Gen Z customer without losing the current dominant millennial and Gen Xers that visit our centers. Executing our path forward leasing strategy will result in physical permanent occupancy increasing from 84% to 88%-89%, which will enable us to have more pricing power and ability to further elevate and transform our centers. To give you a specific example of this later stage transformation, at Scottsdale Fashion Square, we've replaced a 35,000 sq ft home furnishing tenant with luxury and dining options, including Hermès, Élephante, and Loro Piana. Cost of occupancy on the new spaces increased more than 10 times. Sales are also projected to increase more than 10 times to over $100 million.
Backfilling our 30 vacant anchors is also critical to our elevate and transform strategy. We have all 30 of these locations committed, over 2.9 million sq ft that is expected to generate over $750 million in sales. More importantly, these are catalysts to unlock productivity in entire mall wings and drive inline leasing. The Scheels sporting goods store at Chandler is a perfect example of the success of this strategy. Since Scheels opening in late 2023, the Chandler Mall trade area has increased over 40% and overall traffic at the center is over 20%. Prior to Scheels opening in a vacant Nordstrom store, that mall wing had inline vacancy and less relevant tenancy. Today, not only has the Scheels wing dramatically elevated, the entire center is experiencing elevated tenancy and transformation. Lululemon expanded and relocated their store.
Other new store openings include Warby Parker, TravisMathew, JD Sports, Fiori, James Avery, Gorjana, Swarovski, Levi's, Garage, Din Tai Fung, and many other exciting brands to be announced soon. Green Street upgraded our Chandler asset from A-minus to A. Their cap rate valuation compressed 100 basis points. That's the playbook that we're executing across 30 similar projects. DICK'S House of Sport recently opened at Freehold Raceway Mall. That center has experienced increased traffic and vibrancy in the former vacant Lord & Taylor wing and is enabling us to leverage more leasing throughout the center. Most recently, we executed a deal with Von Maur to locate in the former Nordstrom building. We currently have 10 committed DICK'S House of Sport stores in our anchor store inventory. Before I comment on our recent Annapolis Mall acquisition, I want to share a quick update on Crabtree Mall.
We have already made improvements in the common area and are currently addressing our pre-planned CapEx. We have completed 36 new and relocation lease deals and 27 renewals. The Raleigh-Durham MSA is on many tenants' target lists, given the growth and health of the trade area. Crabtree is continuing to gain market share as we have implemented the elevate and transform strategy. Annapolis Mall has similar positive green shoots like Crabtree Mall. The difference is that the prior owners successfully started the elevate and transform process 2 years ago. Last week, we closed on the mall acquisition for $260 million, plus $12 million for the 13.1 acre vacant Sears parcel. This is a class A regional mall with 1.5 million total sq ft in one of the most affluent markets on the East Coast.
Average household income over $161,000 in the primary trade area and a total trade area population of over 1 million. Over the past 2 years, the prior owners were able to secure a DICK'S House of Sport that is opening later in August and signed 18 new tenant deals totaling 353,000 sq ft opening in 2026 and 2027, including Dave & Buster's, Tesla, Uniqlo, Aéropostale, Abercrombie, Jack & Jones, Pop Mart, a Lululemon relocation expansion, plus recent long-term renewals with Apple, Zara, and AMC. Annapolis Mall's proximity to the dominant Tysons Corner Mall extends our platform, creating a more influential portfolio that will benefit from our ability to lease up the remaining 107,000 sq ft of near-term available space, including 52,000 sq ft of prime inline space in the new DICK'S House of Sport wing.
We are currently exploring backfill opportunities for the vacant Sears parcel. It sits on the most heavily trafficked corner of the property and provides optionality for future retail, mixed use, or alternative development. The acquisition is accretive to our 2028 target FFO range under our Path Forward plan by approximately $0.04 per share on a leverage-neutral basis. We expect year one NOI, including SNO, of approximately $29 million, projected to stabilize in the $33 million area. That's an initial yield of 10.5%, increasing to 11% plus at stabilization. The asset is in good physical condition and does not require significant capital to address deferred maintenance. We funded the acquisition with cash on hand, which includes $85 million of ATM equity at an average price above $19 and $150 million of borrowings on our line of credit.
As I look forward, we are well on the way to completing our Path Forward plan. The finish line is in plain sight. I have a high degree of confidence in achieving our 2028 operational and financial targets. No one is building new class A regional malls, and the leasing demand is evident. We operate in affluent supply-constrained markets, and approximately 90% of our go-forward NOI comes from class A properties. We believe the structural tailwind of expanding retailers coupled with the burgeoning Gen Z demographic will be a continued positive factor for our business over the next decade.
When we come out on the other side of this plan, we believe you're going to be looking at a company with 88%-89% physical permanent occupancy, embedded annual rent escalators across our portfolio, a balance sheet with lower leverage, strong free cash flow generation, and a portfolio of irreplaceable assets in affluent markets with the most relevant retailers in place. We look forward to providing an update on Path Forward 3.0 at NAREIT in June. With that, I'll turn it over to Doug.
Thanks, Jack. First quarter reflects continued leasing momentum across our portfolio. Portfolio sales at the end of the first quarter were $899 per square foot, up $18 when compared to the last quarter, representing a new high water mark for the company. When you look at our go-forward portfolio, sales were $941 per square foot, underscoring the strength of our elevation strategy and long-term rent growth opportunity. Occupancy at the end of the first quarter was 93.4%, down 60 basis points sequentially. This seasonal decline is consistent with prior years as temporary tenants typically vacate during the first quarter. The go-forward portfolio occupancy at the end of the first quarter was 94.5%, reflecting strong underlying demand for space in our best centers.
In the first quarter, we opened 225,000 sq ft of new stores. Most notably, we opened two new restaurants in the Nordstrom luxury wing at Scottsdale Fashion Square, Din Tai Fung and Telefèric Barcelona. This is our second store with Din Tai Fung and first with Telefèric Barcelona. Telefèric Barcelona is the first Arizona family-owned contemporary tapas restaurant, actually originating in Barcelona. Din Tai Fung and Telefèric Barcelona join well-established concepts such as Élephante, Catch, Society Swan. Our restaurant leasing in this wing is now complete. These restaurants have opened to tremendous fanfare. All are exceeding our goals and expectations, reinforcing the role of high-quality food and beverage as a key traffic driver in luxury assets. We also opened a 10,000 sq ft Aritzia store in Los Cerritos.
Aritzia is one of most sought-after retailers in North America and a great catalyst as we elevate the merchandising mix in the center. This is our eighth store with Aritzia, and we expect to grow this relationship as the brand expands its store fleet and increases its open-to-buy. Leasing activity remains strong throughout the first quarter. In total, we signed 1.6 million sq ft of new and renewal leases, of which 700,000 sq ft were new deals, more than double the amount of new leasing we completed in the first quarter of 2025. As Jack highlighted, backfilling vacant anchor space is critical to our transformation strategy. During the quarter, we signed three more anchor tenants, DICK'S House of Sport at Los Cerritos, Round1 at Washington Square, and Von Maur at Freehold Raceway Mall.
For those less familiar with Von Maur, it is a family-owned upscale department store founded in the late 1800s in Davenport, Iowa. It is still headquartered there and run by the Von Maur family. Von Maur is known for its exceptional service, premium brands, and high-quality build-outs. Von Maur's 145,000 sq ft store is currently under construction and will open in the third quarter of 2027. Von Maur, along with the recently opened DICK'S House of Sport, will play a key role in transforming and elevating the merchandise mix at Freehold. We are also excited to announce our first deal with Fogo de Chão, which will open in the redevelopment area of Green Acres Mall. This 7,500 sq ft Brazilian steakhouse is a globally recognized brand with more than 70 locations nationwide.
Fogo de Chão has successfully evolved into a first-class contemporary dining concept that will strongly resonate with our young customers. Fogo de Chão is scheduled to open in 2027. We look forward to announcing additional locations with this brand across our portfolio in the very near future. Turning to our lease expirations, we have commitments on approximately 90% of 2026 expiring square footage that is expected to renew and remain open with another 10% in the letter of intent stage. As a result, we're effectively done with 2026 and now actively focused on 2027 and 2028. In fact, as we look specifically at our 2027 expirations, we're 30% committed with another 55% in the letter of intent stage. These are critical milestones that significantly de-risk the renewal component of our five-year plan.
Retail environment is healthy and tenant demand continues to be strong. In the first quarter of 2026, we reviewed and approved roughly the same number of new deals as we did in first quarter of 2025. Keep in mind, 2025 was a record leasing year for us. Supported by our enhanced internal leasing processes, we now have clear insight into what's next across our portfolio. Letters of intent remain a key leading indicator of future leasing activity and based on both volume and velocity, we expect this strong momentum to continue throughout the remainder of the year. We're looking forward to the Las Vegas ICSC convention in mid-May, where we expect strong retailer attendance and a highly productive environment.
Over the course of 3 days, we have more than 300 scheduled meetings with 250 different retailers, spanning legacy retailers, international retailers, entertainment and experiential concepts, food and beverage, health and wellness, and emerging brands. We are confident that the activity coming out of this convention will translate into incremental leasing growth, which will continue to strengthen our already robust leasing pipeline. With that, I'll turn the call over to Dan to go through our first quarter financial results.
Thanks, Doug. Good afternoon. I'll start with a review of first quarter financial results. FFO, as adjusted, was approximately $92 million or $0.34 per share during the first quarter of 2026. I would like to highlight the following item included in our FFO as adjusted for the quarter. Total gain on undepreciated asset sales of approximately $10 million, resulting primarily from the sale of a land parcel at Washington Square. Go forward portfolio centers NOI, excluding lease termination income, increased 1.2% in the first quarter of 2026 compared to the first quarter of 2025. Winter weather, which resulted in higher snow removal and related expenses at our East Coast properties, negatively impacted our NOI growth by about 50 basis points.
As a reminder, we expect go-forward portfolio centers NOI growth for the full year of 2026 to be up at least 3% over 2025 and back-end weighted in terms of NOI growth contribution for the year. We continue to expect go forward NOI growth to accelerate meaningfully from there in 2027 and 2028 as the SNO pipeline tenants open and begin paying rent. As Jack mentioned, we have a high level of confidence in achieving the total SNO opportunity of approximately $140 million. The estimated annual contribution is $30 million in 2026, back-end weighted, $40 million-$45 million in 2027, and $45 million-$50 million 2028. This represents a clear visible path to drive incremental growth. Turning to the balance sheet, we continue to make strong progress on the balance sheet initiatives contained in our path forward plan.
2026 has already been an incredibly productive year by the team in relation to our various financing activities. In February, we closed on a 4-year loan extension through November 2029 on our South Plains property. This $200 million loan extension was completed at the existing interest rate of approximately 4.2%. With respect to our Twenty-ninth Street property, this $76 million loan at the company's pro rata share remains in default after its February maturity date. As we are currently in discussions with the lender on the terms of this loan, we do not have any additional commentary at this time. Also in February, we closed an amended and restated $900 million revolving credit facility.
We increased the size of the facility from $650 million to $900 million, extended the maturity date from January 2027 to March 2030, and lowered the current pricing grid from a spread range of 200-250 basis points over SOFR to 180-220 basis points over SOFR. The current spread is 190 basis points over SOFR. Upon achievement of certain performance thresholds, those spreads will be further reduced to a range of 135-165 basis points over SOFR. We are very pleased with the execution on this new facility, and we appreciate our bank group's support of Macerich and its path forward plan.
In March, we repaid the outstanding balance of approximately $212 million on Vintage Faire Mall with cash on hand and $100 million of borrowings on the line of credit. At Deptford Mall, subsequent to quarter end, our joint venture closed on a new $115 million 5-year mortgage loan. This new loan bears interest at a fixed rate of 6.95% and is interest only during the entire loan term. This execution and interest rate are consistent with what we had assumed for Deptford in our path forward plan refinancing assumptions. We're continuing to proactively address our remaining 2026 debt maturities through a combination of potential asset sales, refinancings, loan modifications, or if necessary, property give backs.
We currently have approximately $780 million in liquidity, including $650 million of capacity on our revolving line of credit. From a leverage perspective, net debt to adjusted EBITDA at the end of the first quarter was 7.76 times, which is a full turn lower than at the outset of the path forward plan. Importantly, we've outlined our strategy to further reduce leverage to the low to mid 6 times range over the next couple of years. We are making substantial progress in executing on dispositions as part of our path forward plan. During the first quarter, we closed on the sale of various outparcels and land for approximately $15 million, which included the land parcel at Washington Square.
To date, we have completed approximately $1.3 billion in total dispositions, representing about two-thirds of our initial disposition target, and the disclosure we've provided in our supplement includes a summary of these asset dispositions. These sales transactions are consistent with our stated disposition plan to improve the balance sheet and refine our portfolio. Based on our current level of discussions, marketing activities, and contract negotiations, we currently expect to sell or give back $300 million-$400 million of additional non-core assets, outparcels, and land by the end of this year. This would increase total dispositions up to approximately $1.7 billion. The ongoing and remaining sales, primarily related to certain outparcels and land, are likely to carry over into 2027 as we continue to work through various entitlements, reparcelizations, and lender-related activities.
These items simply just take some additional time to complete, and we will remain disciplined in our execution to maximize sales proceeds and shareholder value. We'll provide further updates on our disposition activities as we progress through the year. Overall, we are making great progress on our path forward plan objectives to reduce leverage, refine the portfolio, and strengthen the balance sheet. With that, we'll turn the call over to the operator.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. We ask that you please limit yourself to 1 question, and if you have further questions, you may reenter the question queue. Our first question for today will come from Haendel St. Juste with Green Street. Please go ahead.
Great. Thank you. Hi, this is Nyshal on for Vince. Thanks for taking my question. Maybe just a couple on Annapolis. Could you confirm that there is no mortgage assumed for the mall? And how do you plan to capitalize this asset long term?
Dan, this is Jackson. There's no mortgage on it. We took, we financed it on our line of credit. I'll hand it over to Dan. He can talk about sort of the long-term financing plans there.
Thanks, Jack. For everyone's benefit, we also posted a presentation as it relates to the Annapolis acquisition on our website. The initial funding was funded with cash on hand. As part of that, there was $85 million of proceeds that we used on the ATM. Additionally, we put $150 million of borrowings on our revolving line of credit. That's the initial financing for the asset. As we thought about it, you know, this resulted in a leverage neutral outcome in relation to our 2028 debt-to-EBITDA targets. Obviously, as Jack mentioned, it's $0.04 accretive to 2028 FFO targets. As we think about permanent funding for this asset, I think we'll evaluate that over time.
Right now we just increased the size of our line of credit, so we have additional capacity and plenty capacity on there as it relates to the $150 million. You know, for Crabtree, we put in place a term loan and used some ATM. I think as we move forward here, we'll evaluate our options and in the context of those 2028 targets decide on a permanent funding. We have time and capacity on our line of credit to kind of figure that out.
The next question will come from Andrew Reale with Bank of America. Please go ahead.
Hi, good afternoon. Thanks for taking my question. Maybe just another on Annapolis. You know, it's a nice yield year 1, over 9%, which is before the SNO. Maybe if you could just help us think through in some more detail how we get to that 11% plus, longer term target you've laid out. Maybe if you could just discuss sort of what the leasing opportunity, leasing timeline there looks like, and then just any other value add opportunities that would help drive the yield towards that 11% figure. Thanks.
Sure. Thanks. One of the things that was really attractive about this opportunity, you know, the former owners, Kildare Partners, Atlas Hill, which is Sandeep and Centennial, you know, have been working on this project for two years, and they've generated tremendous leasing momentum and merchandising. A lot of the, you know, those 18 leases that we talked about are effectively rolling in this year and next year, you know, as part of that SNO component. What's really exciting for our team is that 52,000 square feet of prime space that if you look on that leasing map diagram in our deck, that's center court, that's opposite Uniqlo, which is soon to open and where Dick's is opening in August.
We think that that's gonna give us a lot of opportunity to get some really good merch retailers, you know, in that corridor. There's also really great opportunity, as you can see, in that darker blue section on that diagram, where we believe there's an opportunity to increase rent and permanent tenancy from flipping some underperforming tenants into other opportunities as that center starts to stabilize. Finally, you know, that Sears parcel, we believe is very valuable. There's already a number of anchor discussions that are been taking place, and there's definitely residential options as well. We're gonna evaluate that pretty carefully as to the best course of action. You know, ultimately, we wanna have a great thriving shopping center. We'll decide very, very quickly what the best course of action is.
The next question will come from Greg McGinnis with Scotiabank. Please go ahead.
This is Greg McGinnis with Scotiabank. Just a question on your same store NOI for go forward portfolio for this year. Last quarter, you mentioned at least 3% to be achieved. Based on leasing activity year to date and your focus on rent commencement dates and the progress on that, is it still that kind of base case to be at least 3%, or are you kind of trending better than that?
Dan, why don't you take that one?
Yeah. Hey, good afternoon. As I mentioned in the prepared remarks, we continue to expect that go forward NOI for 2026 will be at least 3%. As we've mentioned before, and I'll reiterate, it's kind of back-end weighted towards the end of 2026. We're still on track, you know, with that for 2026. As we've talked about a lot, obviously, given the overall plan and, you know, the ramp in SNO that we outlined at the back half of 2026 into 2027 and 2028, obviously that NOI growth ramps very materially into 2027 and 2028.
The next question will come from Floris van Dijkum with Ladenburg Thalmann. Please go ahead.
Hey, guys. Yeah, obviously the financing of this mall, I'm a little surprised it doesn't entail a little bit more equity because obviously equity is a lot cheaper than the yields that you're getting here. Maybe talk a little bit about because I don't think this is the only mall that's currently being shopped, the only sort of, you know, A-minus mall that could be attractive. Maybe, Jackson Hsieh, could you give a little bit more of an update on what you're seeing in the market in terms of transactions and how much of it appeals to you and where you think you can actually add value to acquisitions or assets?
Thanks, thanks, Floris van Dijkum. Just to remind everybody again, you know, acquisition criteria, you know, really is critical for us. First and foremost, you know, the acquisition has to be accretive to our 2028 FFO per share as part of our plan. Obviously, strong trade area, competitive position, and have to enhance our go-forward portfolio. That being said, and also the ability to elevate and transform, you know, the property. So I would say, like we have a nice pipeline of things that we've been evaluating. This opportunity was obviously off market. You know, if you saw our press release, which was a real win-win for the seller and for us as the buyer. There's still a lot more to do with the asset.
You know, I think, you know, you're balancing basically going in yields versus what I call stabilized yields. If I were to contrast, you know, Annapolis to Crabtree, you know, when we acquired Crabtree, the prior owner had secured that DICK'S House of Sport, but they didn't really have as much progress on the inline leasing in terms of elevating and transforming. So Annapolis was two years forward in more progress. As we're looking at these different opportunities right now, we're really trying to evaluate, you know, timing, you know, the ability to execute. Look, at the end of the day, we think an asset like Annapolis is gonna continue to consolidate the trade area and really begin to draw a lot wider than what it currently does. We love assets like that.
You know, things that can be turned around, because the trade area competition works, you know, in the real estate's favor. I would say, you know, they got a senior guy focusing on acquisitions. David, we've talked about him before, and he's got a nice pipeline of things that we're looking at. If we're successful, obviously we'll be prudent on how we think about financing it.
The next question will come from Michael Griffin with Evercore ISI. Please go ahead.
Great, thanks. Maybe a question on leasing, just on the 1.6 million square feet in the quarter. Can you give us the breakdown of mix of new versus renewal leasing and any commentary you can have on re-leasing spreads, not only on the quarter, but maybe for expectations of deals that you've got, you know, in the pipeline that are gonna be executed later this year?
Yeah, I'll turn that over to Doug.
Yeah. The 1.6 million square feet, we leased 700,000 square feet of it, was to new retailers, some of which were anchor stores, some of which were in line. I think I mentioned in my prepared remarks, we did a Von Maur deal at Freehold. We did a Round1 deal at Washington Square and Zara at Los Cerritos. Those are the new deals. The remainder were the mall shop stores. It really speaks to, you know, the retailer demand that's out there, that 700,000 square feet of new deals. I mean, the retail environment is extremely healthy. The retailers are continuing to reinvent themselves. Our watch list is at an all-time low.
It's interesting, you know, the legacy retailers are coming out with all these brand extensions. For example, A&F has Hollister, abercrombie kids. American Eagle has Aerie OFFLINE. Gap has Old Navy. We're hearing that Old Navy might come out with an athleisure concept. The emerging brands are strong. You think about Alo, Beyond Yoga, Vuori. A lot of the retailers are all over this Gen Z consumer. You think about Cider, Edikted, Princess Polly, Brandy Melville, and the list goes on. This is the tip of the iceberg, but suffice it to say, given everything that's going on in the macroeconomic environment, what's going on in Iran, we are not seeing any letup at all in retailer demand.
On the re-leasing spreads, I think I talked on the last call, and we certainly communicated at Citi, you know, we're not gonna use that metric at this point. You know, when we get through our path forward plan, which is we're almost done at this point, we'll try to come up with a more thoughtful metric because that was one that candidly we inherited here. There'll be more to talk about on that in the future.
The next question will come from Haendel St. Juste with Mizuho. Please go ahead.
Hi there. This is Ravi Vaidya on the line for Hindle. Hope you guys are doing well. I wanted to ask a bit about the K-shaped economy and how are you seeing
Sales trend for some of your luxury tenants, for maybe some of your non-luxury, maybe aimed for more of a lower income, and how are you seeing that across your portfolio? Thank you.
Yeah. It's a good question. I mean, I'm sure you've seen this, you know, the National Retail Federation is projecting, you know, a 4.4% annual sales increase over 2025. That's primarily related to their projections on income growth, household balance sheets, you know, labor market stability. You know, getting down, you know, the tax refunds have certainly helped. I mean, I think the average tax refund this year is up about 11% versus last year. Clearly the middle upper income groups are spending still. If you look at our sales in the first quarter, you know, it was 3.8% comp sales. That's not really telling the full story.
You know, we only had 1 category group out of 7, which is the shoes, that were negative. You know, all of the other categories, fast food, general home furnishings, jewelry, they all were trending positive to kind of make that composite. You know, the consumer is definitely coming to the mall and spending in the mall. One of the other things that's, I think, sort of an interesting stat for us as we look at, and probably more particular to our portfolio as it relates to this K-shaped economy and what we're doing. You know, we talked about 1,000 new leases or tenants being secured in our portfolio, which is about 25% of the entire portfolio that's available to lease.
That's a lot of space, obviously, and a lot of units, and that doesn't include remodels and refreshes by tenants where we extend them in place. What the point I'm trying to make is, you know, a good example of like what I call later stage assets that we have that are more mature in their elevation and transformation process would be an asset like Broadway Plaza or Kierland Commons or Scottsdale Fashion Square. You know, the traffic in the first quarter from those three properties, which I would consider more mature, were all in the double digit plus traffic, you know, first quarter 2026 versus 2025.
What we're seeing is as we continue to complete this plan, get these stores built out, get these environments and anchor stores secured, you know, we believe that we're going to experience what we're experiencing, you know, in those centers like those 3 I just mentioned. You know, like I said, overall sales trend is pretty much unchanged from what we saw last year, going into last year. Middle high income is continuing to do what they do, and retailers are super focused on, you know, having value, relevance, newness, innovation in product and marketing. You know, they're kind of taking on AI like with a ferocity right now. That's what you're seeing in terms of their level of commitment to expand, improve their physical stores.
I mean, they're seeing it in their top line and bottom line.
The next question will come from Ronald Kamdem with Morgan Stanley. Please go ahead.
This message has been transcribed.
Mr. Kamdem, your line is open.
Great. Thanks so much for having me on. Just a quick one on just the physical occupancy. I think the last presentation talked about bottoming at sort of 89% this year and then start to ramp really forward. Just would love an update on just how you guys are thinking about just those commencement schedules, if you're feeling sort of better or worse, how that's sort of shaping out.
Thanks, Ronald, for asking that. You know, this, you know, Path Forward 3.0, you know, it's not gonna be a big reveal. The one thing we are gonna add, which I think will help, is, we're gonna put We have a speedometer that looks at rent commencement schedules. You know, there's like 10 criteria or gates that tenants have to move through a process for us, we're right on track right now with that cost of occupancy completion rate. Something we're really focused on now as we're transitioning with the completion of the leasing effort as we move forward to kind of getting all these stores open. I'd say we're right on track.
It's a high level of focus right now with our real estate services team, asset management teams, leasing, on-site mall operation managers, mall managers. You know, it's a really collective effort on trying to bring what is really an unprecedented amount of new stores into our portfolio.
The next question will come from.
Yeah.
Oh, go ahead.
Obviously, that's gonna impact, you know, the physical permanent occupancy, increasing it to that 88%-89% level.
The next question will come from Alexander Goldfarb with Piper Sandler. Please go ahead.
Hey. Good afternoon out there. The Annapolis Mall, you know, congrats on the deal. I have to ask, you know, you keep talking about the 2028, so it seems pretty clear there are a lot of moving pieces, you know, this year into next as we get towards 2028. Where do we stand as far as the target FFO? I think, you know, Crabtree elevated it, this elevates it, but I'm not sure if you're planning any more dispositions as you think about debt pay downs
Obviously, the yield curve has changed versus when you initially laid out as far as where rates may be. I think we were sort of at that $1.80 or $1.85, but can you just refresh us, like, where you guys see 2028 FFO now, sort of as the midpoint, if you will, what we should be thinking about?
You're stealing Dan's thunder for our 3.0, but I'll let him take that question.
Good afternoon, Alexander. I mean, we put out version 2.0, I guess, last summer. As you know, the midpoint was $1.81. Since then, we've done the Crabtree deal, as you said, and we've provided those economics. Now we've done the Annapolis deal, which we said is $0.04 accretive to that. We plan to sort of tighten and narrow the ranges in part of version 3.0. You know, overall, you know, as we've said, we're on track to, as Jack said in his comments, we're on track to achieve the targets that we put out there for, you know, financial and operation metrics.
Okay, is there I mean, it sounds like you should be closer to $190, right?
Yeah, we'll be addressing that, you know. I mean, we'll be addressing that when we put out that 3.0 deck in 3 weeks.
Your next question will come from Michael Mueller with JP Morgan. Please go ahead.
Yeah, hi. going back to the 88%-89% permanent occupancy that you had talked about being at on the other side. I guess looking at the temp tenants on top of those, can you talk about what those tenants generally are or expected to be? For example, you know, what portion are tenants that are typically there testing out space and really thinking about permanent occupancy versus what, I guess, people usually think of when they think of temp tenants.
Well, I think temp tenants, well, you know, like in my comments, you know, if you have, if you have vacant anchors, I can guarantee you have a lot of temp tenants in those wings. It's anybody and everybody who can go in there and add value. You know, generally a temp tenant is someone that, in our experience, that pays gross, pays gross rent, that doesn't necessarily pay CAM and tax. You know, it's just a gross rent number. More than likely, as a landlord, you're gonna be underperforming from a rent capability standpoint. You know, we'll always have some degree of temporary tenants.
It's a good thing to have in a center like this because, you know, at any given time, a new opportunity for a new tenant will emerge, and you wanna create that opportunity because you believe or we believe it'll drive traffic and overall sales volume in the space. I mean, a good example would be like Primark. Primark is now being spun off from Associated British Foods, you know, next year. You know, they've got growth, you know, we've got 7 of them already in our portfolio. There's 38 in the U.S. Those are great stores. People really love shopping in them. They take up a lot of space, but they've candidly not been expanding rapidly as they've kind of gone through strategic alternatives.
You know, when they're spun off, my guess is they'll be starting to roll out that concept from the East Coast to the West. Like, you want to be able to have those type of opportunities to bring them into your center. As a result of doing that, typically, you're displacing tenants. Having that buffer, which is typically 7% to 8% on a temp basis when you've got full anchor deployment, is really a good thing for us to manage price tension and the right merchandising mix. It's a problem when you have, like, 30 vacant anchors and you got a lot of temp tenants. You really have no pricing power as it relates to the things that we wanna do or ability to kind of drive merchandising.
We're just gonna be in a whole lot better place when we get done with this. Like I said, we only have 250 left to complete out of our 1,000, you know, we're gonna, you know, be able to be doing some pretty exciting things because there are other tenants. You know, Zara is, you know, rolling out its Bershka concept, we just approved a lease in one of our Southern California properties. You know, there's some really nice opportunities that are kind of coming up from just domestic brands, international brands, experiential brands. Having that temp space and fully occupied anchors is really a good thing for a landlord in our business.
The next question will come from Caitlin Burrows with Goldman Sachs. Please go ahead.
Hi, everyone. Another question quickly and then another one. Could you let us know the current physical permanent occupancy rate versus that target of 88%-89%? I was wondering on the pricing side, if you could comment on the occupancy cost. It's at 11.7%. It doesn't seem to move much year to year, but wondering how in-place occupancy cost compares to where you're signing leases and how it could move over the next, like 1-3 years.
Yeah. I mean, I think our physical permanent sits at around 84% now. When all these stores open, you know, it's projected to get in that range that we talked about, 88%-89%. You know, we're actually signing leases. You can see, you know, just when we have our disclosure, you can see the lease rates are going up. You know, as we're converting more tenants, you know, from gross leases, which has been the case in many cases, to fixed rent plus fixed CAM and fixed real estate taxes, that's gonna drive more occupancy cost and will have, obviously, an impact on cost of occupancy.
I think that you'll start to see that increase, hopefully, you know, sales will increase as well because more traffic, more productivity, and that sort of sets up the virtuous cycle for us to continue to drive rent and have productivity in these centers. I mean, maybe the best way to describe it, you know, just stepping back, 25% new tenants. That 25% that's being replaced, you know, a lot of that's temp tenants that we've kicked the can on, tenants with older stores, tenants that are not marked to market, tenants that are on gross leases versus, you know, fixed rent with fixed CAM and fixed taxes. Overall, it's gonna create a better ecosystem from merchandising standpoint as well as a more productive financial result for us as landlord.
This concludes our question and answer session. I would like to turn the conference back over to Mr. Hsieh for any closing remarks. Please go ahead.
Great. I wanna thank everyone for joining us this afternoon and thank the number of different colleagues across our platform that are really driving to the finish line our path forward plan. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.