Q3 2022 Macerich Co Earnings Call

Ladies and gentlemen, please standby good.

Good day and welcome to the meet the Rich company third quarter 2022 earnings call. Today's call is being recorded and now at this time I'll turn the conference over to Samantha Greening. Please go ahead.

Thank you for joining us on our third quarter 2022 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.

The 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 on the U S regional and global.

And our financial condition and results of operations of the company and its Kevin.

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 dotcom.

Joining us today are Scott King's more senior executive Vice President and Chief Financial Officer, and Doug Healey Senior Executive Vice President leasing with that I turn the call over to Scott.

Thank you Samantha good morning, and good afternoon. Unfortunately, Tom is missing this call as yesterday, you had a death in his immediate family at this time, we send Tom and his family our love support thoughts and prayers.

We are pleased to report another strong quarter with the majority of our operating metrics trending very positively.

After a very strong first half of 'twenty 'twenty. Two we also had a solid third quarter, we saw robust retailer demand tenant sales were flat in the third quarter. However, our portfolio average sales for tenants under 10000 feet were $877 per foot our highest level ever.

We continue to see traffic at about 95% of pre COVID-19 traffic, but comparable tenant sales are exceeding pre pandemic levels with year to date comparable sales up nearly 5% versus the same period in 2021.

Over a 13% compared to the same period a period pre COVID-19 in 2019.

The quarter continued to reflect retailer demand that is that a level, we have not seen since 2015.

Some of the other third quarter highlights include occupancy at quarter end was 92, 1% that was 180 basis point improvement from the third quarter over 2020 one.

The 30 basis point sequential quarterly improvement over the second quarter of 2022.

We continue to see strong leasing volumes, which for the year are in excess of 2021 levels for the quarter. We executed 219 leases for one 1 million square feet.

We saw same center NOI growth of two 1% in the third quarter compared to compared to the third quarter of 2021, which was a very strong quarter.

<unk> came in at 46 cents per share.

On Thursday last week October 27th we declared a <unk> 17 cents per share quarterly dividend, which represents a 13, 3% increase over the prior dividend.

We continue to focus on redevelopment and repositioning of our top quality regional town centers. We are underway returning the approximate 150000 square foot three level east and Santa Monica place, formerly occupied by Bloomingdales, and Arclight theater with an entertainment destination use.

And fitness club and co working space estimated project cost range between $35 million to $40 million at.

At an estimated yield of 22% to 24% we expect this redevelopment to be completed in 2024.

We intend to renovate and re tenant the Nordstrom wing of Scottsdale fashion square with luxury focused retail and high end restaurant uses.

Estimated project costs range between $40 million to $45 million at the Companys share at an estimated yield of 13% to 15%.

So expect this redevelopment to be completed in 2024.

We continue to secure entitlements indoor plan transformative projects to redevelop.

At Tysons corner, the former Lord <unk> Taylor parcel with mixed uses and possibly flagship retail uses.

At Flatiron crossing in Broomfield, Colorado, but the multi phased mixed use densification expansion for which we secured entitlements late last year.

And Carolyn Commons in Phoenix, Arizona for an expansion to add multifamily and office buildings to this amenity rich property in the northeast Phoenix market.

As well we are excited to announce the addition of 130000 square foot target to Danbury Fair mall, the signing of target completes the repurposing of yet another series box.

Mark has already opened and the upper level.

Target will open at a lower level in 2023, as we all know target picks and chooses its real estate extremely carefully so their decision to locate a Danbury fair isn't enormous testament to the real estate and other centers the centers performance and reputation.

As Doug will elaborate on shortly we continue to be very pleased with the strength of the leasing environment as expected given the depth and the breadth of leasing demand. We've had a very robust leasing results so far in 2020 two.

Are you seeing interest continues to come from a very wide variety of categories and sources, including health and fitness, such as lifetime fitness and others.

Food beverage and entertainment such as Penn stripes round, one and many others sports grocery medical co working hotels and multifamily continue at levels that frankly, we've never seen before.

Bankruptcies continue to be at a record low.

We continue to expect to see occupancy gains and NOI growth through the remainder of this year and into next year.

Now onto the highlights of the quarterly financial results.

This morning, we posted solid operating results for the third quarter again same center NOI increased two 1% versus the third quarter of last year, excluding lease termination income year to date for the first nine months of this year same center NOI has increased 10%, both including and excluding lease termination income.

<unk> per share for the quarter was 46 cents.

This was one cent better than the third quarter of 2021 at 45 per share.

Primary factors contributing to this <unk> per share increase are as follows.

Firstly, a $10 million increase in gains from land sales, which obviously can be lumpy in any given quarter.

Secondly, a 5 million dollar increase in straight line rental income.

This was driven by write offs during the third quarter of 2021 of straight line rent receivables as we continue to work through our remaining pandemic related tenant receivables assessments in 2021 last year.

And third a $3 million improvement in bad debt expense. This was driven by $2 million of bad debt reserves in the third quarter of 'twenty. One as we can also continue to work through our pandemic related tenant receivables subsequent to the last year and then we had a $1 million benefit third quarter of this year and bad debts from collections of.

Previously reserved tenant a R.

Offsetting these positive factors were the following.

Firstly, an $11 million decline in lease termination that come this was driven by a large lease termination settlement in the third quarter of 2021 which was from a national retailer that closed all of their stores within the United States last year.

Lastly, an unexpected 4 million dollar relative quarter over quarter decrease in valuation adjustments pertaining to our investments in retail funds.

This morning, we updated our 2022 guidance for F. S. O. We narrowed the range and decreased the midpoint of our S. S. L. Estimates twenty-two SSO is now estimated in the range of $1 93 to $1 99 per share. This represents a two cent per share a decline in our F. L guidance at the <unk>.

Point.

Most notably it is half of our range now includes an increased expectation for same center NOI growth in the range of seven to seven 5%.

This NOI growth has attained in 'twenty two.

Given the seven 3% growth from last year in 2020. One this would represent the second consecutive quarter of greater than 7% same center NOI growth is our core operating business has rebounded extremely well following the pandemic.

This guidance improvement is due to better than expected topline revenue, including percentage rents stronger common area revenue and better than expected bad debt expenses.

We also increased our guidance for straight line, our rental income as well as interest expense by equal and offsetting amounts of $2 million.

Looking at the reasons behind our revised <unk> guidance, which at the $1 96 per share midpoint is a penny ahead of street consensus Bloomberg at 195 a share.

Increased are the following factors.

Tribute to that guidance change increased same center NOI. This is roughly three and a half cents per share that's S. L improvements.

This is expected to be offset by two factors one the previously mentioned decline in retail or valuation adjustments represented about a two and a half cent per share F. O decline and then secondly, the timing of a very large land sale that was expected to close in late 'twenty, two which is now expected to close in twenty-three this delayed land sale.

That should now land in 2020 three represents a decline of versatile in 'twenty two.

Roughly <unk> <unk> per share.

To emphasize our 'twenty two outlook for the core operating business.

Continues to be very strong strong NOI growth at very healthy operating cash flow of approximately $370 million before payment of dividends.

More details of the guidance assumptions are included within our form 8-K supplemental financial information specifically page 16 that was filed earlier this morning.

Onto the balance sheet.

We continue to focus on our remaining in 2020 two maturities year to date, we have refinanced or extended $580 million of debt at a weighted average closing rate of just over 5%.

We expect to close on two multi year extensions of our loans on Washington Square in Santa Monica place during this month.

The 500 million dollar Washington Square alone is expected to extend for four years until late 2026.

$300 million, Santa Monica place loan is expected to extend for three years until late 2025.

We expect the weighted average floating rate on these two extensions to be approximately sofa plus 2.8%.

Both loans will have interest rate caps in place so that will effectively be hedged as fixed rate loans.

Given these transactions are still pending we are not at liberty to disclose further details of these transactions at this time.

But those two deals collectively we will have refinanced or extended nearly one $4 billion of debt this year.

Including Undrawn capacity on our line of credit, which we have about $424 million available we have over $615 million of liquidity today.

Debt service coverage is at a healthy two seven times net debt to forward EBITDA, excluding leasing costs at the end of the year was approximately nine point out times.

I'm sorry at the end of the quarter.

We continue to maintain a well position we continue to be well positioned in today's environment for both the standpoints of available liquidity as well as generating operating cash flow.

With that Doug I will turn it over to you to discuss the leasing and operating environment. Thanks, Scott our leasing momentum continued in the third quarter as evidenced by strong metrics in very high volumes.

Third quarter sales were flat when compared to third quarter of 2021, and this was expected given the very strong sales in the third and fourth quarters of 2021.

However year to date sales are up almost 5% when compared to the same period last year.

Sales per square foot as of September 32022 were $877 and once again. This represents an all time high for the company.

Trailing 12 month leasing spreads were six 6% as of September 2022, compared to <unk>, 6% last quarter and negative two 5% a year ago.

This is the strongest spread result, we've had since the third quarter of 2019 pre pandemic.

We're just about finished with our 2022 lease expirations with nearly 90% of our expiring square footage committed and the remainder in the letter of intent stage.

While addressing our 2022 explorations, we have concurrently been working on 2023.

To date, we have almost 25% of our 'twenty 'twenty three expiring square footage committed with another 50% and the letter of intent stage.

In the third quarter, we opened almost 250000 square feet of new stores. This brings our year to date store openings to just over 650000 square feet, which exceeds where we were at this time last year.

Notable openings in the third quarter include Sephora at Kings Plaza, Athleta Sandtown village Doc Martens at Broadway Plaza garage at Scottsdale fashion Square North face at Washington Square JD Sports, a Fresno fashion at vintage Faire, and two more stores with cotton on Kings Plaza and Green Center.

In the luxury category, we opened Louis Vuitton men and Balenciaga at Scottsdale fashion square.

We opened 15, new stores totaling almost 40000 square feet of digitally native and emerging brands in the third quarter.

Carolyn comments northern in North Scottsdale remains a hotbed for this category is all birds avocado bad birdie public rack and Travis Matthew I'll open there in the third quarter.

Other notable openings in this space include Madison Reed at Biltmore Fashion Park Parachute home at 29th Street.

Purple at Santana village.

<unk> village of Corte Madera.

Santa Monica place.

And as we continue to transform our properties into true town centers, we're committed to bringing non traditional uses to our campuses.

In the third quarter was no exception, we opened department of Motor vehicles at Valley River Kid City of Green acres change to our country Club Plaza and the veterinary hospital at 29th Street.

Turning to the new and renewal leases that we signed in the third quarter.

219 leases for one 1 million square feet.

Year to date, we've signed over 700 leases for two 9 million square feet and this is right about where we were at this time in 2021, and it's worth repeating 'twenty 'twenty. One was our best leasing year in terms of volume and square footage since 2015.

And after years in the making we're extremely pleased to announce the signing of our Mezz at Scottsdale fashion square.

As an iconic brand that is arguably the most sought after luxury retailer in our industry will open an 11000 square foot store joining the likes of Louis Baton Your car T. A St. Louis Vuitton, Versace Prada Brunello Cuccinelli just to name a few this will be our <unk>.

His first store in Arizona with its closest being in Las Vegas.

The addition of our marriage will unquestionably makes Scottsdale fashion square the primary luxury destination not only in the Scottsdale market, but in the entire state of Arizona.

And at the same time, making Scottsdale, one of the most important luxury addresses in the United States.

Other notable leases signed in the third quarter include Louis Vuitton at Broadway Plaza, Gucci Man at Scottsdale fashion Square.

Our terex and Kendra, Scott at Tysons corner.

Richie at village of Corte Madera, Doc Martens at Lowe's to re dose free people movement of Carolyn comment JD sports at country Club Plaza, Lulu Lemon and love sack at Santana village and Levi's at Washington Square.

And the Danbury Fair mall located in Danbury, Connecticut in the third quarter, we signed a two level 20000 square foot deal with Barnes <unk> noble.

The relocated from an open air lifestyle Center, just down the road from our property.

And I bring this up because all the chatter out there around retailers, preferring open air lifestyle centers to enclosed shopping centers.

This further proves my thesis that it's not about the venue, but rather it's about the rest of the best real estate.

And with the recent addition to target round, one and other prominent brands and experiences it's clear the Danbury fair sits on the best real estate in the market and retailers are proving that with their choices.

The Queen Center, we signed leases with two very prominent noteworthy international apparel grants totaling almost 100000 square feet.

Look forward to announcing these brands in the very near future.

While it's hard to find game changing tenants for Queen Center that already does over 17 $1700 per square foot in sales. We believe this duo to be just that.

Both in terms of sales and traffic generation.

In the third quarter, we signed leases with over 20000 square feet of digitally native and emerging brands across the portfolio, including all birds and brilliant Earth at Broadway Plaza Avocado at 29th Street in Washington Square, Madison, Reed and outdoor voices Securely Commons third love at Tysons corner and towards <unk>.

Curve in Fresno fashion, and that's just to name a few.

And to reiterate the continued strength of our deal flow year to date, we reviewed and approved 45% more deals for 35% more square footage than we did during the same period in 2021.

Once approved these deals move to documentation and are added to our already very strong leasing pipeline.

Drawing shadow volume bodes extremely well for continued occupancy and revenue growth for the remainder of this year next year and even into 2024.

So in conclusion.

Our leasing and operating metrics are solid.

Sales are outpacing last year.

Occupancy continues to increase leasing spreads are now positive in the mid single digits the strongest they've been in three years.

Leasing volumes are on pace for a second consecutive record setting year.

And as I mentioned last quarter, although the future remains unknown and despite the macroeconomic backdrop and the looming potential of a recession to date, we have seen very little pull back from the retailers, which I think is a result of the healthy retailer environment that exist today as well as a testament to our best in class portfolio of shopping centers.

And now I'll turn it over to the operator to open up the call for Q&A.

Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad keep in mind, if you're using a speakerphone me sure that meet functions, where they used to to allow that signal to reach our equipment.

Limit yourself to one question and one follow up question to allow everyone an opportunity to participate.

Once again star one for questions, we'll pause for just a moment.

We will begin with Greg Mcginniss with Scotiabank.

Hey, good morning out there Oh, Greg just looking at the development pipeline, hoping you could discuss the changes in the disclosure with the removal of some of the potential Sears Redevelopments and then your thoughts on a mixed use redevelopment as we stare at higher borrowing costs.

Construction costs and looming economic risks.

Yes, good afternoon, Greg.

Changes to the development pipeline I mean in terms of Sears you know, we've we've really addressed the lion's share of the boxes with the exception of those that we intend to scrape and add mixed use and more densification.

So for example, we've completed the re tenant ing of the boxes at vintage Faire at Deptford Mall, we just mentioned the re tenant a danbury what target to accompany primark.

Smaller scale, we re tenanted.

Shears box at a property in upstate New York Wilton Mall with what the hospital use so we've really addressed most of those were still in the entitlement and or pre leasing our four Washington square in the Los Cerritos and once we have projects to report we will certainly report those likely they will land in our development pipeline. So at this point it was appropriate.

To remove that was we have supplemented that now with two very exciting projects.

One is effectively again of returning of three levels at Santa Monica place, it's great real estate right across from the light rail station and we intend to provide aid a variety of different and diverse uses to attract.

Incremental traffic to that property, we're very excited about those uses and we're at least at least right now in lease documentation with most of them very attractive returns as well.

At Scottsdale, you know, it's really just an evolution of the luxury.

Expansion that we did and we completed two to three years ago.

Recall, we intensified our luxury and concentrator of luxury in the run to Dillard's and Neiman Marcus if you've seen it. The names are global the names are domestic the names or if that can broad and as a result.

Really it's been a incredible amount of demand as a result of that continued demand. We've we're going to continue that luxury leasing effort through the Nordstrom wing, Doug just mentioned in particular, amaze, which we had announced a couple of months ago. So again, a very exciting project.

Pre leasing is progressing at a very good level and very attractive returns.

Lastly, you mentioned mixed use I would say you know yet.

I would say that you know generally the unlevered yields in multifamily you know even at the beginning of the year independent of the increased borrowing costs, which are certainly a factor, but at the beginning of the year those yields were in the <unk>.

6% or so range unlevered yields and that really wasn't even attracted to US back then as we've mentioned, though Greg.

Our land positions are highly coveted within our communities. They garner a very significant value from any of our development partners and so we would continue to envision deals in which we would either contribute the land by ground lease or contribute the land into a joint venture and participate in the NOI stream from resin.

<unk> uses and from office uses that way, so where you know that game plan really hasn't changed I would say, it's only been reaffirmed as a result of the increased borrowing costs in today's environment.

Thank you I appreciate all the color there just sticking with our development pipeline are there any updates.

That you can provide us whether on 70 Sixers stadium.

Any numbers around that yet or you know working with <unk>.

D on entitlements or ability to date.

Do what you guys want to do there and then also on the Carson outlets.

Yeah, and fashion District, I can't report much more at this point our development partner continues to work with the city on entitlements, we continue to secure control of any space that's necessary to accommodate the development of the arena, which again would be several years down the line in the 'twenty three.

31 time frame.

But which is when that would open.

So nothing more to report certainly in terms of economics, there I would anticipate we may be in a position to give you more over the next few quarters.

As far as Carson that remains an ongoing legal matter and I'm just not at liberty to to expand on that right now Greg. Thank you though.

Alright, thank you.

Yeah.

Well now hear from Derek Johnston with Deutsche Bank.

One thank you.

Can we hear your thoughts on the.

The push and pull between increasing the dividend, especially with the stock where it's trading now.

There's potential other uses like ramping redevelopment or even deleveraging.

Yes sure.

Just as a reminder, you know we used the opportunity during COVID-19 to reset our our dividend.

Along with a.

Very robust recovery in the business, that's given us an opportunity to harvest a good amount of free cash flow I mentioned that cash flow on an annual basis after payment of recurring capex, but before dividend payments.

<unk> 370 million so.

Fast forward, two and a half years later after we made those dividend decisions now the business is on firm footing, we're very confident about the outlook of the business, we still remain committed derrick to maintaining a healthy.

Healthy payout ratios, we still remain committed to retaining cash flow to reinvest back in the portfolio and to reduce our debt. The end of the day the dividend change that we made was approximately $18 million. So you know we do think it's important to get back and do a cadence of.

You know increasing our dividend given the outlook for the business no guarantees for future increases, but we would certainly hope to be in a position to revisit that you know down the line as well so really it's a it's a you know firmed vote in terms of our confidence for the business and the outlook for the business right now, but we still remain committed.

To reducing our leverage and to reinvesting back in the portfolio through developments.

Scottsdale and in Santa Monica are great. Examples of that you know post the post dividend change our payout ratios are still.

Very acceptable very low leading into that our payout ratio is by the way. We're one of the lowest churn rate world. So I think there's a good balance between all three things and we're going to we're going to be mindful of the balance between our balance sheet reinvestment back in and also returning some capital to our shareholders.

Okay, Great makes sense.

Secondly, you know you've had a pretty strong lease volumes here for a while at this point just hoping you could speak to the potential rent coming online over the next year.

And the cadence of openings, especially after opening 250000 square foot in three key what I was wondering what you're anticipating for the fourth quarter and in 2023. Thank you.

Yeah, sure Derik Soc falling short of providing you guidance for 2023.

You know I will say that you know the leasing pipeline continues to be real strong for last few quarters now it's exceeded 3 million square feet. Both between signed deals and deals that are in process and the deals will be reviewed twice monthly continue to be its a very strong very high volume agenda. So you know our view is we'll continue to see strong NOI.

Growth revenue growth coming from that.

We do have a new disclosure in our investor deck, we'll continue to keep that updated as we move forward, which does provide the incremental rent impact that we would expect from any new stores that are coming online. So you can refer back to that like I said, we will keep that updated.

The view is Doug unless you tell me otherwise I don't think that's the case, our pipelines are strong and it doesn't show any signs right now are abating no. It sure. It sure doesn't Scott and the question I get asked all the time, given what's going on in the macroeconomic environment out there and the looming recession as you know are the retailers pulling back.

<unk> and the short answer is they're just not we have a very very healthy retailer environment right now.

Those that we're gonna fail pre COVID-19 ended up failing during COVID-19. So we're left with a watch list that as low as it's ever been and a lot of retailers out there with very healthy balance sheet. So you know.

We don't see this ending anytime soon yep yep.

Sounds good thanks, everyone. That's it for me.

Well now move to Craig Schmidt with Bank of America.

Thank you I just wanted to maybe.

Dig into what really drove the higher leasing spread as you pointed out it's the strongest it's been in three years.

You know.

Are you getting more pricing power or no.

At a fortunate quarter that.

He has played out well.

Looking for more exploration on the fixed wing.

Leasing spread.

Yeah. Good question, Craig you know, we've been talking about it for a few quarters now that with a pickup in occupancy.

You know we were starting to think we could start to push on rate and that seems to be the case.

You know, we got to 92% occupancy, which creates that tension between supply and demand and as we review deals again every other week it seems like we're getting.

More and more pricing power you know in any given quarter, it's kind of hard to tell.

I think as we started the year, we were hoping that we'd get to kind of a healthy mid single digit leasing spread in fact, I think maybe we even spoke spoken to that in a call or two ago and we're pleased to be sitting here now and as we look forward you know based on all the deals are reviewing I think thats a level we can.

Turning to sustain Doug.

Doug any commentary on that no I think you're spot on Scott we talked about you know our main goal coming out of a pandemic was all about occupancy occupancy occupancy and we've gotten to ourselves position now.

92% occupancy level to be focusing on rate, which is exactly what we're doing.

Okay.

And then I guess just.

It sounds like.

Obviously, you have a lot of confidence in the continuation of the leasing spread.

Are your expectations for a holiday 'twenty due.

To be a reasonably positive.

Yes, I think so Craig if you look at the national forecasts that are out there they call for mid single digit type of holiday growth, we certainly wont see the 15% or so growth mid teens growth that we did in the fourth quarter of last year.

But you know I think it's reasonable to assume based on our conversations with the retailers they feel optimistic about some growth this year.

Just not as robust as last year.

And Craig its Doug I've got a couple of surveys and.

It really feels and exciting it excites me it really feels like the vast majority of shoppers. This holiday are going to be shopping bricks and mortar.

In addition to online, but bricks and mortars in favor.

It's the delays in shipping which were abundant last year I think frustrated a lot of people. The shipping costs are getting expenses. So I think bricks and mortar is going to be very very favorable this holiday.

Thanks for the color.

Thanks, Craig our next.

Question will come from Samir Khanal with Evercore.

Hey, Scott good morning.

No you guys are not providing guidance for next year, but.

Just generally how are you thinking about being a potential tenant fallout.

Sort of the post holidays normally when we see them right and coming off a year, where it's basically been been nil or basically zero.

So clearly positive momentum on the leasing side, but just trying to figure out if there's any sort of headwinds we sort of need to think about.

Into next year.

Yeah, it's hard to say that we're going to have the same type of nil year in 'twenty two 'twenty three that we've experienced in 2022.

But you know ordinarily right now we'd start to hear from retailers that were setting themselves up for a major renegotiation of major restructure and we'd start to hear from them.

Starting to hear from their consultants and that's really just not the case.

So I think it will be a 'twenty 'twenty three will likely be an unusually low year I don't think it's going to be a nail year, but I do think it's gonna be a low year in terms of tenant fallout.

As well I would say our renewal conversations with our retailers are still very strong.

They are coming in requesting to shed stores I think generally they rightsize their fleets in the United States and they are in expansion mode.

For the most part.

But we don't see them shedding stores, especially in our high quality town centers. So.

Think I think the backdrop is set for continued occupancy growth or maybe.

One or two here or there that that file but no nothing that's on our radar screen at this point in time Sameer.

And I guess, Doug just shifting over to you in terms of you know.

The negotiation that you talked about retailers not pulling back they're still continuing to open up stores, but if you kind of take a step back.

But what are they pushing back on here is it primarily sort of higher T. I's are capex I mean.

But what what sort of pushback, you're getting as you kind of talked about that sort of 25% of the leases there mid it and then so the balance you're negotiating.

Hey, Smur you know.

It pushed back like always whether it's now or whether it's pre pandemic. It's always a function of rate and rate is in negotiation I would say that tenant allowances are consistent they havent changed very much.

Over the over the last several years, so I would say the battle is always round rate thankfully given the quality of our portfolio, we're able to get what we need to get.

Okay got it and then one more Scott if I can on the guidance range.

Range I know you talked about landfill gains maybe coming in I think later this year been mix shifting over 23.

In terms of modeling is this sort of a recurring kind of an item we got our start putting into our models now.

So what sort of magnitude, we got to think about sort of.

Annually going forward.

Yes, Sameer, we've most of the land sales are concentrated in our Arizona portfolio. These were land.

Holdings that we've had on the balance sheet for 15 to 20 years as we at one point in time envisioned expanding that market, which further regional town centers, that's no longer the case. So we've continued.

Continue to sell through that inventory, we will continue to sell that inventory into next year.

We will provide you a little more clarity on the 20th twenty-three inaugural twenty-three call when we give guidance but.

But I think those will start to really subside in 'twenty, four and going forward there always be a little element of that with pad sales here and there, but I think by the time, we get to the end of next year. A good majority of that will be exhausted. So we'll give you a little more clarity in three months.

Got it thank you.

Well now move to Florida, when did you come with Compass point.

Thanks, guys for taking my question.

It sounds like the underlying business seems to be doing pretty well you got 9% same.

Same store NOI growth year to date, a record tenant sales.

Positive leasing spreads.

Your ethanol pipeline is fairly robust.

It was 33 billion in expected incremental or or our revenue for next year of approximately.

When do you guys think that you can get back in 19 levels of NOI, obviously, not providing guidance for next year, but just how comfortable are you that youre going to get there.

And you'll see if you can give some color on that that'd be great.

Yes, sure Floris I mean, we're very.

Very comfortable we're going to get there. The question is when are you know again the pipeline is very strong we do think that by the time, we get to the end of next year will be there on at least occupancy basis.

Obviously, there is some delay in start times for those new stores and so yeah without giving you guidance in terms of 'twenty three I think on a run rate basis will be there in terms of occupancy.

By the end of next year.

And then the other thing the other question I had for you is in terms of your OCR, which as you know relatively low at 10, 8% I believe.

We're starting to see your ability to push rate through how can you maybe talk us through some of the.

The dynamics of that and how tenants are looking at rents relative to and their occupancy costs and relative to their ability to pay more rent going forward.

Yeah, no you're spot on I mean, our ability to push rate as indicated by spreads as you know negatively correlated with cost of occupancy at 10, 8% less than 11%. That's about 100 basis points I think below where we were at the end of 2019 and as you know probably if I went back.

Back in time for a five year low for us so that's.

That's a kind of a leading indicator of our ability to likely push rents given the profitability of our portfolio.

Doug do you want to yeah.

Yeah, I would say less and less cost of occupancy is becoming.

Less and less relevant.

These these stores in our in our town centers are more than for the retailers are more than just selling merchandise you know they buy online pick up in store buy online ship from store. So while cost of occupancy is still important and something we look at we really look to the value of our real estate.

In our properties and that's how we price our real estate not necessarily strictly off of cost of occupancy.

Bear in mind, Florida competition, which there certainly is competition for our better real estate also allows you to push rate and so we're certainly seeing those situations, where there's a competitive situation as we lease space.

Okay. Thanks, and then maybe last question for me is in terms of specialty leasing it's really hard for investors.

It doesn't show up in leasing spreads it doesn't typically show up in other things and how.

How is that progressing are what.

What are you seeing a full four kiosks, and billboards and and and and and parking and and other ancillary revenue and as the economy gets better how much more ability do you have to increase that amount.

Great question Floris I think we've spoken to this before and I'll just confirm that you know that's one segment of our business that will.

<unk> be back to pre Covid levels this year.

The local merchants the advertising contracts that all of that ancillary revenue parking revenues et cetera, a bounce back to extremely well.

If you look at our occupancy we're still north of 7% in terms of our temporary tenancies and so you know, there's always a push and pull between Doug and his counterpart that send that temporary tenant kind of specialty leasing world.

And any time, we're able to convert those deals to permanent uses youre talking about a pickup in rent that's probably two to two and a half times what the temporary tenant was paying so that certainly should be a big component of our growth going forward is converting temporary occupancy to permanent occupancy. The good news is the local merchants with which we worked with extend.

<unk> threat throughout the pandemic have recovered quite well and we've shed some but certainly the demand has maintained very strong we're looking forward to converting that to a permanent though.

Thanks, that's it for me.

Our next question comes from Linda Tsai with Jefferies.

Hi.

Recovery of bad debt has been a tailwind in 'twenty, two and netting that the view that tenant fallout is likely low in 'twenty. Three is the bad debt line item, a headwind or still a potential tailwind to earnings in 'twenty three.

Hey, Linda I would say, it's probably relatively neutral.

You know we'd gap forces you once retailers file once retailers are showing significant signs of weakness and not being able to meet their contract rent for the remainder of the lease term.

GAAP compels you to reserve those receivables in their entirety, we've certainly getting received some benefits of collections of those this year, we'll see that to a lesser extent in 2023, I think it's going to be relatively neutral, it's not a big needle mover, but.

We don't see a huge bad debt line item at this point in time next year.

Got it and then on or Mezz opening in Scottsdale, how our luxury retailers thinking about their U S store growth plans over the next two to three years.

Hey, Linda it's Doug.

Luxury is a very very strong category right now in the United States and the luxury.

Tenants are very active there.

They're they're looking hard at Scottsdale, and as Scott mentioned earlier.

We finished our remix with the Neiman Marcus wing and I'm going to move now to the Nordstrom wing and we probably have more demand right now in the luxury sector than we have space. So we see it as very aggressive but keep in mind, we don't have a lot of luxury our luxury really is focused around.

Scottsdale fashion square.

Fashion outlets of Chicago and to a lesser extent Santa Monica place.

Thank you.

We'll now move to Conor Mitchell with Piper Sandler.

Hi, Thanks for taking my question I just had a couple so first.

Alexander's earnings release, they reported that Ikea.

That was recently opened a Regal park is now leaving.

See any tenants potentially closing up early at urban locations.

And do you think this might be a one off or if it's.

Similar situations could be possible elsewhere.

No I don't think so I mean, there's always going to be situations, where store underperforms and theyre going to leave I don't think that's an indictment necessarily on large format urban locations, though Doug no I mean I would.

I would consider at Kings Plaza in Brooklyn, and urban location I would consider Queens Plaza in Queens and urban location and we've seen little to no fallout in either one of those centers and I think that's sort of indicative of what's going on in the urban world within our portfolio.

Good news is in some of those locations the opportunity to backfill as pretty significant Doug you alluded to Queen Center, that's roughly 100000 square feet with two very prominent apparel retailers that were not at Liberty to disclose right now so as space does come up maybe the opportunity to backfill them with frankly incrementally.

Creative resources from a sales and traffic generation is pretty high.

Okay.

Okay I appreciate that.

And then regarding one Westside now that it's open and Google's moved in do you see yourself and harvesting. These type of assets the non core assets and telling your position or how do you view the market a bigger stake and the ability to transact at these type of assets.

Well, one Westside certainly unique its a single tenant Google credit. So you know you can look and see what the cap rates are for that it's very attractive there's mechanisms in that joint venture agreement I can't get into that do allow for.

A transaction to occur you know in the meantime, we're going to enjoy the diversity of NOI from Google, which is obviously a fantastic credit.

And we're certainly celebrating the conversion of a regional mall project debt.

<unk> is no longer a retail project it's now.

Google campus of 600000 square feet. It's a it's very noteworthy so you know what.

We'll we'll hold onto that NOI and at the appropriate time, we'll go ahead and consider something.

Okay, and then if I could just one last quick one.

Regarding Washington Square at Santa Monica place are you guys expecting any.

Expensive or heavy principal pay downs, but the extension if you could speak on that.

Yeah, I can't get into the details those are transactions that are pending so it would be inappropriate for me to do so I'll just tell you that we've exercised.

<unk>.

Our ability to secure extensions and refinancings for the last couple of years with very little capital to pay down and I'm not sure that's going to be any dissimilar to what we're doing with Washington square in Santa Monica, but we can't get into specifics there we.

He will report once those transactions are closed which should be in the next few weeks.

Yeah understood. Okay. That's all for me. Thank you.

Thank you.

Well now hear from Mike Mueller with Jpmorgan.

Yeah, Hi, just a quick one here what are some of the dynamics driving the Santa Monica box redevelopment return to be call. It close to two times higher than the box redevelopment at Scottsdale fashion.

Well, an extremely attractive real estate for starters, it's positioned across from a light rail that prior to Covid delivered 7000 commuters per day to the doorstep doorstep of that three level configuration, So theres a great opportunity.

City to do something there Santa Monica is obviously a heavy tourist.

Community.

International Tourism has subsided during COVID-19, we see that starting to tick up but domestic tourism seems to have almost fully replace that and it does feel like my commute's a little bit longer now so I think the office population in the daytime population is improving here in Santa Monica incrementally on if you look at our project in Santa Monica.

<unk>.

Relative to the balance which is third street, just do north of it we're able to privately secure privately maintain.

Our project and a little bit of a different fashion than say third street promenade. So I think that is deemed to be a significant advantage as well we're pretty excited about the uses you know ranging from.

Kind of three to four times, a week uses with fitness to co working.

And those two by the way of course interplay with each other perfectly very synergistic and then lastly, we're very excited about the destination entertainment use and we will provide you more details on those as soon as we can once those leases are.

Fully negotiated but it's really highly coveted real estate is the fundamental underpinning there.

Well I think Scott you alluded to this earlier competition for space and this is a perfect example of where we had more interest than we had available space and while our goal was to come up with the perfect mix for the property.

Two to generate footsteps.

Santa Monica place, we have the luxury of more interest than we had space and that by definition would drive rate and I think thats why youre seeing some of the higher returns there yeah, great point, Doug I mean went through multiple iterations of laying that out with a variety of different uses so again competition.

Creates a rent.

Got it okay. Thank you.

Okay.

And we will now move to a question from key <unk> bin Kim with tourists.

Thank you good morning.

Alright, just a couple of quick questions on the balance sheet.

Just in your disclosure you talked about the Washington Square mall, and kind of Mark up being potentially refinance this month.

Looking at the sulfur and the spread you know, Washington Square mall, and up 4% spread Santa Monica to one and a half.

Just curious I know you don't want go into too much detail, but those are two high quality malls wider different spread.

And if I remember correctly at Washington Square was plus $1500 square foot mall.

I'm curious if that's somewhat indicative of what we can expect on a pricing perspective for some of your other future refinancings. Thank you.

Yeah. Good afternoon key Ben Yeah, I really can't comment much further at all on Washington Square in Santa Monica and the unique differences between H.

You know the debt markets.

The lennar to do view these transactions as effectively new money going out so they price a contemporary honestly with where they view things are at I, just can't get into the dynamics of each though on on balance, though we we do feel good about.

The execution, which as you know again to 80 over over sofa.

But you can't look at one deal in broadcast it over the entire population. What we're certainly aware of is every deal is unique and every deal is going to arrive.

Arrived at different terms.

Okay.

Just one question on the Santa Monica loan.

Is there.

Is that price at.

That all benefiting from like an option type of agreement that you had previously.

So the maturity on the Santa Monica alone is.

<unk> of 2022.

Okay and then just last question Scott was.

Is there any benefit from the conversion of cash base tenant for you to accrual.

This quarter.

Oh very little you you kind of see it a little bit in our and our bad debts, which were marginally positive less than a million bucks. So you'll see a little bit of it there, but it's not significant.

Okay. Thank you guys.

Thank you Kevin.

And we'll now hear from Craig Melman with Citi.

Hi, I'm, just kind of curious looking at the 2023 debt maturity schedule any update on where you are.

We make are in Scottsdale and.

And the process there.

Yeah, we are in the market.

Those are two very unique assets Green acres is one of our very few billion dollar campuses, which generates $1 billion of annual sales revenue across the board. So it's everything from.

Major big box National retailers household names to grocery to traditional mall uses so it's a bit unique in terms of its makeup and its flavor and Scottsdale fashion square is a top 10 asset in the United States with a huge redevelopment under its belt luxury momentum and more to come so.

Those are two unique assets that we.

Are in the market on right now so we will continue to.

A report over the next few months our progress on those two.

Do you think there will be extension similar to recent deals or would.

One was the kind of open to.

Alright.

Kind of roll that debt.

So again, we're you know we're in the market right now, which means I think there'll be attractive refinancing candidates because of the unique nature of them.

And I think we will have other refinance candidates just says 2023 rolls on.

Okay, and then just one quick one on the land sale gain that got delayed is that under contract and just the timing got pushed out or is that sort of a perspective placeholder in 'twenty. Two guidance that you guys are now just pushing out given the transaction market.

It's a it's a specific deal its under contract.

Those deals sometimes take a little time to come to fruition, including getting entitlements in place to.

Provide the users that are the buyer.

Is is developing for us so it's just a matter of timing.

Okay, great. Thank you.

Sure.

Our next question comes from handheld seen juice with Mizuho.

Hi, This is Ravi bid in the lineup for Honeywell I Hope you guys are doing well.

I had a follow up on leasing spreads doesn't denominator include a large portion of Covid adjusted leases were lower base rents were exchanged for lower breakpoints on percentage rents and for your leases signed now and going forward. How do you guys have inverted back to a traditional lease structure.

Yeah.

The population is everything thats expired in the last 12 months.

That's the comparison point versus everything that we've signed in the last 12 months. So yes, it's very very.

<unk> that some of those pre COVID-19 deals are reflected in that number.

And that will continue to be the case, we've been saying for a bit of time that as we continue to convert those deals which way back when you had a lower fixed rent element and a heavier variable element as we convert those.

We'll get a.

Stronger rent structure with fixed rents and annual increases that will be the case, so there's a bit of that in the spreads you can't quantify that for you, but there's a bit of that we're very much leasing on a normal basis right now which is fixed minimum rent with annual increases fixed commentary maintenance with annual increases that are slightly.

Higher than the base rent and tax recoveries, so they're triple net deals.

Got it thanks for the color just one more here.

Strong sales in the quarter sales per foot.

How much of this would you attribute to higher foot traffic foot traffic trended year over year and would you say that its foot traffic that's driving the strong sales or is it inflation.

Yes.

[laughter] on foot traffic has been really consistent this year range bounded I'd say between 95 and 100%.

<unk> foot traffic has been very consistent relative to pre COVID-19 levels.

Do you have a combination of tenants that are performing very well luxury has certainly been a category that has performed well for us.

You've got just generally a better.

Our healthy sales environment as we look at all of our categories.

I'd say footwear is the only category, that's mildly negative and everything else is trending positive.

So it's really a kind of an across the board thing, but our traffic has held up well and there certainly is some impact of inflation in there as well.

Got it thanks for the color guys. Thank you Ravi.

Okay.

And we have a question from Ronald Camden with Morgan Stanley .

Hey, just a quick one I apologize if you addressed this already but maybe you commented on sort of the leasing activity coming in slightly ahead of sort of 2021 level and potentially getting back to pre COVID-19 occupancy by the end of 'twenty three.

Curious as you you know as you're sort of seeing the activity today is that does that still make sense and maybe is that better or worse than you expected at this point.

Yes, it still makes sense based on the deal flow that we're seeing today.

Doug did provide some commentary that we are not hearing from retailers that they intend to slow or stop their new store expansions.

You know and so we still think that the view is supportable that will get continue to gain occupancy and we will see continued NOI growth into next year and the year beyond so.

I think that holds Doug anything different no nothing to add to that Scott as I said before we have a very healthy retailer environment out there and I talk to the retailers all the time and.

We're not seeing the fallout that you might think given what's going on in the economy.

Yeah, just to underscore that I made bricks and mortars and are in a great spot.

That's the theme that you've heard from our sector over the last few days.

Great and then last one if I may just on the financing side.

You know I guess you guys are working through some it's a multiyear extension any any sort of idea where where rates are indicated where things are looking to shake out in terms of debt cost at this point.

On those deals.

Yeah, I would say Ron on balance you're talking about secured financings are going to be in the low to mid sixes youre going to have some that are better you're going to have some that are worse, it's hard to figure out where that stands on a weighted average basis.

Could be more towards the low end of the sixes, but that's that's probably a reasonable outcome on average.

Alright, thanks, so much.

Thank you.

And ladies and gentlemen, that's all the time, we have for questions today, I'll turn the call back over to Scott for closing remarks.

Well. Thank you everybody for joining us we continue to enjoy strong operating results during the year and strong demand from our tenant community. We look forward to seeing many of you in person or virtually during our upcoming Investor day, which is in Scottsdale.

On November 29 through November 30th Thank you for joining us today.

And with that ladies and gentlemen, this does conclude your conference for today. Thank you for your participation and you may now disconnect.

Yeah.

Yeah.

Yeah.

Okay.

Yeah.

Yeah.

Okay.

Yes.

[music].