Q3 2023 The Macerich Co Earnings Call
Yeah.
Okay.
Good day, ladies and gentlemen, thank you for standing by welcome.
The third quarter 2023 May switch earnings conference call at this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During this session you would need to press star one one when you're kind of locked down.
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Your question. Please press Star one one again please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Samantha Greening director of Investor Relations. Please go ahead.
Thank you for joining us on our third quarter 2023 earnings call. During the course of this call we will be making certain statements that may be deemed forward looking within the meaning of the safe Harbor of the private Securities Litigation Reform Act of 1995, including statements regarding projections plans or future expectations actual results may differ materially.
Due to a variety of risks and uncertainties set forth in today's press release, and our SEC filings.
Reconciliation 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 F. D C, which are posted on the investors section of the company's website at <unk> Dot com.
Joining us today are Tom O'hern, Chief Executive Officer, Scott Kingsley Executive Vice President and Chief Financial Officer, and Doug Healey Senior Executive Vice President of leasing with that I turn the call over to Tom.
Thank you Samantha it was another strong quarter for us.
Leasing volumes continue at a record level.
We had a 130 basis point gain in occupancy compared to a year ago, and an 80 basis point gain over the last quarter.
That brings our occupancy at quarter end to 93, 4%.
We are getting very close to our pre pandemic pre pandemic level of 94%.
We continue to see real strength in the leasing environment.
On the heels of a very strong leasing results in 'twenty two 'twenty three leasing environment has been robust.
Sure openings are accelerating.
During the third quarter of 'twenty, three we opened nearly 500000 square feet more.
During the third quarter of 'twenty two.
That included she'll sporting goods at Chandler Fashion Center lifetime at Broadway Plaza targeted Kings Plaza.
And pray market Green acres mall.
Across many categories leasing demand is at levels, we've never seen before.
So the densification and diversification of our high quality portfolio of town centers continues.
As a result of the very strong leasing activity in 'twenty, two and 'twenty three we have a very large and healthy leasing pipeline.
We have over 2 million square feet in that pipeline of leases that are signed but not yet opened.
Once those tenants open it will fuel our 'twenty four and 'twenty five same center NOI growth.
Most of our key operating metrics continue to trend very positively our average base rent was $65 40 up two 8% compared to a year ago.
Portfolio average sales per foot for tenants under 10000 square feet came in at $849 a foot a very strong level, albeit slightly lower than a year ago and that was mainly due to slower <unk> sales compared to 2022.
We had double digit positive re leasing spreads.
For the quarter up 10, 6% on a trailing 12 month basis.
Yeah up 11% in the second quarter of 'twenty three so that was two consecutive quarters very strong spreads we.
We had a four 8% growth in same center NOI.
It's 5% year to date.
And bankruptcies continued at a record low with only three small bankruptcies during the third quarter.
We are very optimistic about our business for 24 and beyond.
As we open more of our diversified users as evidenced by recent openings that she'll sports at Chandler lifetime fitness at Broadway Plaza.
And further fueled by the 2020 for opening of Art Museum at Santa Monica place, we expect consumer traffic and total center sales to grow meaningfully.
And now I'm going to turn it over to Scott to discuss in more detail the financial results for the quarter and recent financing activity.
Thank you Todd. This morning, we again reported very strong core operating results for the third quarter same center NOI increased four 8% for the third quarter versus the third quarter of 2022, excluding lease termination income and year to date same center NOI growth excluding lease termination income is.
Positive 5%.
<unk> per share for the quarter was <unk> 44 cents, which was two cents less than <unk>. During the third quarter of 2022 at 46 cents per share and a 44 cents was in line with consensus for the third quarter.
The primary major factors contributing to this quarterly <unk> per share change are as follows.
One a $12 million <unk> increase in interest expense due to rising interest rates.
Two or $3 million or roughly one cent decrease in land sale gains relative to the third quarter of 2022.
And then offsetting these factors were a positive $9 million change or four cents.
Gain in rental revenues, which includes a.
$7 million increase in topline minimum rent of $4 million increase in recovery revenue and an offsetting $10 million decline in percentage rent.
Once again these changes are driven by improved occupancy growth.
Growth in rental rates and also by our continued conversion from variable to fixed rent structures with Cam and tax tenant recovery charges. So we are very pleased with our core NOI growth during 2023, thus far.
As we disclosed this morning, we are maintaining the midpoint of our guidance for 2023 funds from operations, which is estimated in the range of $1 77 to $1 83 per share.
We are also reaffirming the range of our estimated same center NOI growth, which is $3 75 to four 5%.
How our 2023 outlook continues to be anchored by strong operating cash flow generation, which we estimate will be over $300 million before payment of dividends.
More details can be found on page 15 of our form 8-K supplemental financial which was filed earlier this morning.
During the third quarter, we successfully renewed our corporate credit facility, we increased liquidity and capacity on the new facility by 125 million to $650 million and that was up from our prior capacity of $525 million under the former facility, we secured refresh term for roughly four and a half.
Here's to February one 2028.
Facility pricing pricing remains unchanged at sofa plus to three 5%.
We are extremely pleased with this execution, especially in light of an extremely challenging bank credit market.
We are currently in the process of refinancing two maturing joint venture asset loans at Tysons corner in Northern Virginia and at the Boulevard shops at Chandler Fashion Center in the Phoenix marketplace Tysons corner is expected to be approximately $710 million in total proceeds.
Which is that our share and boulevard shops is expected to be $24 million loan also half of which is that our shares.
We recently defaulted on the early October nonrecourse loan maturity other passion outs of Niagara.
Due to pending loan defaults for both the joint venture owned.
Country Club Plaza as well as fashion outlets of Niagara GAAP requires a reevaluation of each asset due to the probability of a shortened holding period.
As a result, we recognized substantial impairments on both assets within the third quarter totaling just over $250 million.
These impairments impact net loss.
Do not impact funds from operations.
GAAP also requires that we accrue default interest on these nonrecourse loans as well as on Towne Mall, which is currently in receivership, we do not expect to pay any accrued default interest on any of these three nonrecourse mortgage loans.
Which is expected to be reversed once the loans are either restructure once title to the underlying mortgaged asset was transferred.
Therefore made an adjustment within our S. F O tables to show about the impact with and without this accrued default interest expense to be clear. We do continue to recognize a deduct from <unk>. The interest expense at alone regular interest rate only the incremental default interest expenses added back within our F O tables.
Please note that given the confidentiality of ongoing negotiations and discussions we are not in a position to address.
The status of either one of these loans at this time.
We currently have approximately $665 million of liquidity available today, including $515 million of capacity on our new revolving line of credit facility now.
Now I will turn it over to Doug to discuss the leasing and operating environment.
Thanks Scott.
Tom mentioned leasing was very strong in the third quarter, both in terms of volume and reporting metrics.
Sales were down one 8% on a rolling 12 month basis, and as discussed last quarter not a real surprise given the gains we saw in 2021 and 2022.
Trailing 12 month leasing spreads remained positive at 10, 6% as of September 32023.
It's an increase of 400 basis points when compared to September 32022, when compared when coupled with the second quarter trailing 12 month leasing spreads have actually averaged 11% for the past six months.
In the third quarter, we opened 740000 square feet of new stores, which is three times the square footage reopened in the third quarter of 2022.
This brings our year to date total store openings to just over one 2 million square feet, which is about 80% more square footage than we opened during the same period in 2022.
In addition to the openings of shield all sport at Chandler lifetime fitness at Broadway and targeted Kings Plaza that Tom mentioned earlier, there were several other notable openings, including Chanel beauty at Broadway Plaza Doc Martens at most a read us in Tysons corner Center, Johnny was at 29th Street Levi's at Arrowhead.
Pandora Yolks Tilly's It rallied valley River and for municipal scores at Arrowhead, Chandler Vioxx and vintage faire.
And the emerging brands category, we opened our <unk> at Tysons corner Center avocado at 29th Street brilliant Earth and Reformation of Broadway Plaza <unk> at Biltmore mango, it looks to re dose and three new stores, but interestingly at Chandler, Queens and Santa Monica place.
As you can see by the names just mentioned in those mentioned on several earlier calls the emerging brand category remains a very important category to us finding new brands and new uses is a major initiative of the matrix leasing team. The result of which will attract many different demographics or droppers and will help to differentiate our centers from those.
Some of our competitors.
Now, let's look at the new and renewal leases, we signed in the third quarter in the third quarter, we signed 206 leases for 766000 square feet.
Year to date, we have signed leases for $3 1 million square feet, which is about 300000 or 10% more square footage than we signed during the same period in 2022.
And as we stated several times 2022 was a record year for us in terms of leasing volumes. So it would be ahead of 2022. This far into the year is it telling indicator of how strong this year is trending.
Notable new leases signed in the second quarter include two foot locker superstores wanted Tysons corner Center and one at Deptford Mall, we signed garage at Washington Square meters in the main it Caroline three new Pandora stores at fashion outlets of Niagara Falls, Starwood and Valley River.
Flatiron crossing we signed DSW and five below for a total of 25000 square feet. These.
These two stores will backfill the former ultimate electronics space, joining forever 21, and the container store and once again, our former 120000 square foot vacant anchor box is now 100% leased.
And the digitally native and emerging brands category, we signed leases with forward a worthy Parker at Chandler Fashion Center Yeti at Washington Square and integration company at Danbury Fair Deptford Freehold Raceway.
And lastly, we're very excited to announce the signing of lifetime fitness at 29th Street in Boulder, Colorado. This will be our fifth deal with its premier fitness and wellness brand and we look forward to the traffic and energy we know they will bring to 29th Street when they open in early 2024.
Looking at our 2023 lease explorations, we now have commitments and 84% of our 2023 expiring square footage that is expected to renew and not close with another 13% and the letter of intent stage for comparative purposes, the 84% committed it's 800 basis points better than where we were.
<unk> last quarter.
In terms of 2020 for expiring square footage grew almost 30% committed with another 40% in the letter of intent stage.
Again, I'm very pleased to be where we are with our 2023 and 2020 for expiring square footage given.
Given the uncertainty that still looms in the macroeconomic environment. It's good to take this renewal risk off the table sooner rather than later.
Turning to our leasing pipeline at the end of the third quarter. We had 151 leases signed for approximately 2 million square feet of new stores, we expect to open during the remainder of 2023, and then into 2024 and early 2025.
In addition to these signed leases were currently negotiating leases for new stores totaling just over 700000 square feet, which will also open during the remainder of 2023, and then into 2024 and 2025. So in total that's $2 7 million square feet of new store openings throughout the remainder of this year and beyond.
And as always it's important to emphasize these are new leases with retailers not yet open and not yet paying rent and these numbers do not include renewals.
So to conclude our leasing of our operating metrics were solid in the third quarter.
Leasing volumes were strong square footage lease continues to outpace 2022, when measured on a year to date basis leasing spreads remained positive at 10, 6%. So given this and everything Tom and Scott talked about we remain optimistic as we look at the remainder of this year next year and beyond.
Now I will turn.
The call over to the operator to open up Q&A.
And as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
Your question. Please press star one again.
Please limit to one question and one follow up please standby, while we compile the Q&A roster.
Yeah.
The first question comes from Greg Mcginniss with Scotiabank. Your line is open.
The first question comes from Greg Mcginniss with Scotiabank. Your line is open.
Apologies I was on mute.
Good morning.
I just wanted to dig into maintain the guidance and the implied.
Q4, <unk> per share spread which is fairly wide.
10% spread with only two months left in the year.
Also implies sequential a foot per share growth of 20% to 35%.
Well above kind of a 10% to 15% average we've seen in past fourth quarters.
So if you could any explanation there in terms of what's expected.
And what's causing that spread and then if you could also touch on same store NOI growth slowdown that's implied for Q4 that'd be appreciated. Thanks.
Sure Greg This is Scott good afternoon.
The reasons for the wide range.
Percentage rents are really the biggest variable for the balance of the year.
We've generally kept our sales flat for the balance of the year in terms of projections.
So that given the fact the percentage rents are so heavily weighted towards the fourth quarter, that's always a big variable in terms of.
I will end up if you look at where we were at.
In the fourth quarter of last year, we had strong luxury sales for instance, which field percentage rents pretty heavily in the fourth quarter 'twenty two.
That also combined with the conversion of variable to fixed rent deals.
Management is certainly going to be a declining elements. So that's going to be a cause for some of the slowdown of same center growth in the fourth quarter.
Other factors that are influencing our thinking in the wider range for the for the rest of the year. We do have some pending tax appeals that are coming down to the wire in terms of whether or not we'll be able to recognize those benefits. This year or next year, and then lastly, <unk> seen some pretty volatile changes in our.
Indirect investments in retailers through valuation changes and so that fundamentally just remains a reason to keep a somewhat wider range than we typically work. So those are the reasons for the wider range. Those are the reasons for the trends in our same center NOI in the fourth quarter and then you asked about the trends overall in SFO.
Yes.
<unk>.
A lot of factors that go in there obviously, we've seen strong same center growth, we do expect that to decline a bit in the fourth quarter, but there is a variety of factors that go in there.
We don't have each been earmarked for you, but hopefully.
What I just gave you in terms of same center NOI trends in SSO ranges are helpful. Yeah. Scott that was helpful. Thank you.
And as a follow up you know I recognize you can't comment on the ongoing mortgage negotiations, but could you may be instead disclose.
Percentage of NOI or <unk> contribution from those assets and then.
Maybe your feeling on expectation in terms of whether you.
We'll reach an agreement.
Yes.
Sure sure sure Greg I. Appreciate the question those are subject to ongoing negotiations. So I am just not at Liberty.
To comment on those at this time as I mentioned in my prepared remarks.
And just pivoting back to your first question you did see from US some relatively strong termination income.
Guidance change in the fourth quarter, and Thats really driven by a large termination settlement. So thats certainly that will have a positive factor on the balance of the year.
Sorry, but in terms of the contribution from those assets to NOI and <unk>.
Yes, not in a position.
<unk> to comment on that right now.
Nothing to do with the negotiations that's just so we understand what may or may not be coming out of.
Yes.
We'll provide more clarity as the conversations go on we continue to recognize the results of operations on those assets for some time after.
The loan is in default.
So we're just not in a position to comment on the on the NOI or the SSL from each of those assets. Okay, alright, well. Thank you very much I appreciate it.
Got it.
Please standby for the next question.
The next question comes from Jeffrey Spector with Bank of America Securities. Your line is open.
Great. Thank you.
My first question is on the 2 million.
The 2 million square feet signed not open but Tom discussed.
Can you put that $2 million into context, let's say versus last quarter or the previous quarters like how does that two 2 million stack up.
Well, we had a.
Quite a few openings in the third quarter.
And that had to do with some of the big boxes, we had prime Mark we had targeted at Kings Plaza, We had shields, which is over 200000 square feet.
We had lifetime so that was an unusually large quarter I would say, Jeff in terms of that pipeline opening.
I would think that of the 2 million square feet, we've got.
Probably 75% of that will open in 'twenty four.
With maybe 10% in the fourth quarter here and another 15% carrying over into 2025.
Okay. Thanks, that's helpful. Tom can you discuss the leasing spreads on that $2 million like how does that compare to what you reported for the quarter.
Well.
And that was heavily weighted towards those big boxes.
And wouldn't be in the leasing spread numbers and some of those cases.
This space is brand new space like a lifetime fitness that was built from the ground up so there really wasn't a spread equivalent.
But we're getting good strong rins, particularly.
On some of these new users that are coming in.
Our team Museum for example, which is taking the space that had been the former theater at Santa Monica place. They are paying a very significant rent significantly more than the theater.
Unknown Executive: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the third quarter, 2023, Macerich Earnings Conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you would need to press Star 1-1, when you're telephone, you would then hear an automated message advising your hand to raise. To withdraw your question, please press Star 1-1 again. Please be advised that today's conference is being recorded.
And they expect to bring in over 1 million visitors a year.
And Thats a gated attraction I think they are annual I mean, they're there.
Our average entry fee is something like 40 Bucks, So thats big volume and certainly.
It's going to generate a lot more traffic a lot more rent.
And a lot more energy and activity than we saw from the theater and Thats pretty typical of some of these big uses Geoff I was at the shield store a couple of weeks ago.
Samantha Greening: I would now like to hand the conference over to your speaker today, Samantha Greening, Director of Investor Relations. Please go ahead. Thank you for joining us on our third quarter, 2023 Earnings Call. During the courses of this call, we will be making certain statements that may be deemed forward-looking within the meeting of the safe harbor of the Private Security's 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 filing.
In the middle of the day on a Wednesday and it was chuck-full, there's a 45 minute line for the Ferris wheel.
I mean, it's unbelievable, it's a sporting goods extravaganza and Theyre seeing traffic numbers that I think are even surprising them.
Great addition to the center and we're going to see more and more of that kind of activity. So it's more than just the economics. We are getting good rent on these new deals in the pipeline but.
A lot of these uses are bringing a lot more traffic a lot more energy a lot more activity and it's allowing us to diversify our portfolio, which is exactly our strategy.
Samantha Greening: Reconciliation of non-gap financial measures to the most directly comparable gap measures are included in the earnings release and supplemental filed on Form 8K with the SEC, which are posted on the Investor's section of the company's website at macritch.com.
Okay.
Great. Thank you.
Please standby for the next question.
Okay.
Our next question comes from Samir Khanal with Evercore. Your line is open.
Tom O'hern: Joining us today are Tom O'Hern, Chief Executive Officer, Scott King's Moore, Executive Vice President, and Chief Financial Officer, and Doug Healy, Senior Executive Vice President of Leasing. If that, I turn the call over to Tom. Thank you, Samantha. It was another strong quarter for us. Leasing volumes continue at a record level. We had a 130 basis point gain in occupancy compared to a year ago in an 80 basis point gain over last quarter.
Okay.
Hi, Good afternoon, Doug you talked about the I believe it was 700000 square feet of ongoing negotiations maybe.
Maybe talk about how those conversations are going given the macro picture right. The consumer has been hit.
With higher inflation higher rates. So can you maybe talk sort of big picture.
How have those conversations are going.
Yeah, Hey, Sameer.
Good question and I get asked that all the time it is sort of counterintuitive that given what's going on in the macro economic environment and the slowdown in sales that we're still seeing the demand that we're seeing.
Tom O'hern: That brings our occupancy at quarter end to 93.4% and we are getting real strength in the leasing environment. On the heels of a very strong leasing result in 22, the 23 leasing environment has been robust. Store openings are accelerating. During the third quarter of 23, we opened nearly 500,000 square feet more than during the third quarter of 22. That included shield sporting goods at Chandler Fashion Center. Lifetime at Broadway Plaza, Target at King's Plaza, and Primark at Green Acres Mall.
I think number one it's a testament to our portfolio and number two I think.
The retailers are.
Long term in nature, we have a very healthy retailer environment out there and they are really taken advantage of some opportunities to take to take down some real good space and some real good properties and I mean, the result is in the numbers were 10%.
<unk> greater than where we were at this time last year and last year was a record setting leasing year in terms of volume. So we expect to break that record again, yet this year.
Tom O'hern: Across many categories, Leasing demand is that levels we have never seen before. So the densification and diversification of our high quality portfolio of town centers continues. As a result of the very strong leasing activity in 22 and 23, we have a very large and healthy leasing pipeline. We have over 2 million square feet in that pipeline of leases that are signed but not yet open. Once those tenants open, it will fuel our 24 and 25 same center NOI growth.
Okay got it and I guess, Scott maybe to a previous question on percentage rents I know you talked about the fourth quarter.
But as we look into next year I know there was a conversion.
Variable to fixed I mean should we expect.
More of that to happen in 2004 at this point.
Youll see some of its samir, but not to the extent that you have in 2023, I think youll see declining trends of percentage rent in 'twenty four for that very reason, but were down year to date, just over 20% in percentage rent the lion's share of that being.
Tom O'hern: Most of our key operating metrics continue to trend very positively. Our average base rent was 65, 40, up 2.8% compared to a year ago. Our portfolio average sales per foot for tenants under 10,000 square feet came in at $849 a foot, a very strong level, albeit slightly lower than a year ago, and that was mainly due to slower EV sales compared to 2022. We had double digit positive releasing spreads, for the quarter up 10.6% on a trailing 12 month basis, and up 11% in the second quarter of 23%.
Converting variable to fixed and I think we've worked through most of those renewal discussions where we're converting to fixed I don't expect that kind of order of magnitude next year, but we will see some continued decline.
Got it and then just one last one if I may your lease term income what was up.
Sequentially I think that's part of guidance I guess, what was driving that.
And then and then maybe maybe talk around sort of how the watch list looks like in the next year for us.
Tom O'hern: So those two consecutive quarters, very strong spreads. We had a 4.8% growth in same center and a Y. That's 5% year to date. In bankruptcy is continued at a record low with only three small bankruptcies during the third quarter. We are very optimistic about our business for 24 and beyond. As we open more of our diversified uses, as evidenced by recent openings at Shields Sports at Chandler, Lifetime Fitness at Broadway Plaza, and further fueled by the 2024 opening of RTA Museum at Santa Monica Place, we expect consumer traffic and total center sales to grow meaningfully.
Sure Yes.
The lease termination guidance really is being driven by a single transaction that Kent mentioned of course as you can imagine but.
That's a transaction we expect to have finalized this quarter. So that was a change of thinking relative to three months ago. It was a transaction that was not on the table. So.
In terms of the watch list still remains very healthy very low certainly very very low relative to where we were heading into the pandemic period.
About 85% to 90% less leases in square footage on our watch list today and we still of course do have a watch list. We've got 5000 leases in our portfolio. This year I was going to have tenants that you are paying attention to but I don't think we've got anybody in particular, Doug maybe you can expand on it where were concerned about anything eminent.
Scott Kingsmore: And now I'm going to turn it over to Scott to discuss in more detail the financial results for the quarter and recent financing activity. Thank you, Tom. This morning we again reported very strong core operating results for the third quarter. Same center and a Y increased 4.8% for the third quarter versus the third quarter of 2022, excluding lease termination income. And your date same center and a Y growth, excluding lease termination income is positive 5%.
No I think Scott you're spot on and as I alluded to earlier, there's a really healthy retailer environment out there ad.
Recall pre pandemic there were a lot of struggling retailers in the pandemic flushed those retailers out I mean, if they if they weren't going to survive.
For two.
234 years, they didn't survive the pandemic. So we came out of the pandemic with a very healthy retailer environment and that exists today.
Scott Kingsmore: FFO per share for the quarter was 44 cents, which was 2 cents less than FFO during the third quarter of 2022 at 46 cents share. And the 44 cents was in line with consensus for the third quarter. The primary major factors contributing to this quarterly FFO per share change are as follows. One, a $12 million five cent increase in interest expense due to rising interest rates to $3 million or roughly one cent decrease in land sale gains relative to the third quarter of 2022.
Thank you.
Please standby for the next question.
The next question comes from Floris Van <unk> with Compass point Your line is open.
Good afternoon guys.
Thanks for taking my question, so going back to the <unk> pipeline.
Scott Kingsmore: And then offsetting these factors were a positive $9 million change or four cents gain and rental revenues, which includes $7 million increase in top line minimum rent, a $4 million increase in recovery revenue, and an offsetting $2 million to client and percentage rent. And once again, these changes are driven by improved occupancy, growth and rental rates, and also by a continued conversion from variable rent to fixed rent structures with can, in tax, tenant recovery charges.
Can you quantify the impact on NOI.
The 2 million square feet.
<unk> represents.
Yes, Floris our pipeline is now north of $75 million and that is incremental rent.
Versus the uses that are in place today, so that's that.
That we'll see a little bit of that in 2023, and then the balance of it into 24 and 2025 that comes from not only the 2 million square feet that are signed but also the $700 million.
Excuse me 700000 square feet of space. That's in documentation right now at least documentation so north of $75 million of the Companys share over the next several quarters.
Scott Kingsmore: So we're very pleased with our core NOI growth during 2023 this far. As we disclose this morning, we are maintaining the midpoint of our guidance for 2023 funds from operations, which is estimated in the range of the $1.77 to $1.83 per share. We are also reaffirming the range of our estimated same center in a wide growth, which is 375 to 4.5%. Our 2023 outlook continues to be anchored by strong operating cash flow generation, which we estimate will be over $300 million before payment of dividends.
Great. Thanks, Scott and maybe maybe if you guys could touch on you.
Your.
Youre Redevelopments as well I noticed that you got some permissions in Danbury to add departments or at least the first phase of permissions and how are you coming along.
The redevelopment of Los Cerritos, the Sears box, there and any more color you can add in terms of some of your larger scale redevelopment projects.
Scott Kingsmore: Evans. More details can be found on page 15 of our four May case supplemental financial, which was filed earlier this morning. During the third quarter, we successfully renewed our corporate credit facility. We increased liquidity and capacity on the new facility by 125 million to 650 million, and that was up from a prior capacity of 525 million under the former facility. We secured refresh term for roughly 4.5 years to February 1, 2028, and facility pricing remains unchanged at so for plus 2.35%.
Hi, Floris.
The bigger ones like Los Cerritos, and Washington Square, we're going through the entitlement process.
Those both.
A change of use in the case of low cerritos likely we've knocked down the.
The Sears box and build multifamily.
So we're into the city for entitlements and we've got a combination of things going on at Washington Square. So those are.
Bigger longer term projects that take some time to get the entitlement process on those.
Denver, we did get approval to convert one of the boxes to multifamily.
Scott Kingsmore: We are extremely pleased with this execution, especially in light of an extremely challenging bank credit market. We are currently in the process of refinancing two maturing joint venture asset loans at Tyson's Corner in Northern Virginia, and at the Boulevard Chops at Chandler Fashion Center in the Phoenix Marketplace. Tyson's corner is expected to be approximately $710 million in total proceeds, and half of which is at our share, and Boulevard Chops is expected to be $24 million loan, also half of which is at our share.
And that will be underway and is being added to the to the pipeline others.
The completion of shields.
The opening of a couple of Big Department store boxes at both Green.
Green acres and Kings Plaza.
And we're underway with a lot of the others, including Santa Monica place, which is that's going to be a multi tenant.
Re demise of the Bloomingdale's box as well as the theatre building top level as our team Museum, which we've spoken about bottom level is studio one which is a high end.
Scott Kingsmore: We recently defaulted on the early October non-recourse loan maturity of the passion outs of Niagara. Due to pending loan defaults for both the joint venture loan country club plaza, as well as fashion outlets in Niagara, Gap requires a re-evaluation of each asset due to the probability of a short and holding period. As a result, we recognize substantial impairments on both assets within the third quarter, totaling just over $250 million. These impairments impact net loss, but do not impact funds from operations.
Fitness center similar to lifetime.
We're still under negotiation on the on the middle floor.
Not at the point, where we can disclose the tenant there but.
And those are going to stretch out openings into next year as well as.
The second level might end up dragging into 'twenty five.
Thanks, Tom.
Please standby for the next question.
The next question comes from Alexander Goldfarb with Piper Sandler Your line is open.
Scott Kingsmore: Gap also requires that we accrue default interest on these non-recourse loans, as well as on town mall, which is currently in receivership. We do not expect to pay any accrued default interest on any of these three non-recourse mortgage loans, which is expected to be reversed once the loans are either restructured or once titled to the underlying mortgage asset is transferred. We have therefore made an adjustment within our FFO tables to show both the impact with and without this accrued default interest expense.
Okay.
Hey, good morning, good morning out there.
Hey, Tom.
Glad to hear that you didnt jump that 45 minutes.
Ferris wheel lineup at the fields opening so.
Yes pretty impressive.
Two questions here.
The first question is you guys for non retail redevelopment at the malls you guys have been bringing in partners for that just curious given the changes in the construction lending market are you still finding ample opportunity of developers who want to come in and partner on non retail uses.
Scott Kingsmore: To be clear, we do continue to recognize and deduct from FFO the interest expense at the loan regular interest rate, only the incremental default interest expense is added back within our FFO tables. Please note that given the confidentiality of ongoing negotiations and discussions, we are not in a position to address the status of either one of these loans at this time. We currently have approximately $665 million of liquidity available today, including $515 million of capacity on our new revolving line of credit facility.
Is it the malls or has that dried up.
There is still pretty significant demand Alex munis are great locations. They have already got the amenities that a lot of the multifamily developers really seek and a great location. So there's been no shift shortage. In fact, it's just the opposite we've got to figure out who the right partner is.
So there's still plenty of demand there and we haven't seen that.
Abate, given even what's going on in the debt markets today, Okay. And then the second question is just on the debt markets. Overall, obviously, you guys have coming up tightened and the Philly.
Doug Healy: Now we'll turn it over to Doug to discuss a leasing and operating environment. Thanks Scott. As Tom mentioned, leasing was very strong in the third quarter, both in terms of volume and reporting metrics.
Mortgages, both of those coming up early in 2000 and for Scott.
Doug Healy: Sales were down 1.8% on a rolling 12-month basis. And as discussed last quarter, not a real surprise given the gains we saw in 2021 and 2022. Trailing 12-month leasing spreads remained positive at 10.6%, as of September 30th, 2023. And that's an increase of 400 basis points when compared to September 30th, 2022. When coupled with the second quarter, trailing 12-month leasing spreads have actually averaged 11% for the past six months.
Recent commentary by sort of everyone. This quarter almost suggests like the debt markets are tougher than they were just a few months ago I don't know if that if thats, a correct interpretation or not so in your view how does the debt markets compare now versus the summer versus earlier in the year or are they getting better have they stalled.
Have they gone backwards, just sort of trying to get an understanding of how the progress and the healing in the debt market is going.
Doug Healy: Lewis. In the third quarter we opened 740,000 square feet of new stores, which is three times the square footage we opened in the third quarter of 2022. This brings our year-to-day, total store openings to just over 1.2 million square feet, which is about 80% more square footage than we opened during the same period in 2022. In addition to the openings of Shield All Sport at Chandler, Lifetime Fitness at Broadway and Target at King's Plaza that Tom mentioned earlier.
Sure Good question, Alex very germane.
Just to level set there has been over $5 billion of.
Mall financings just didn't see MBS space alone.
We've accounted for just over 20% of that.
There is a liquidity today, obviously liquidity comes at a price with the horizon.
Treasury benchmarks and swaps swap rates the cost of capital has gone up but there is liquidity in the market.
And theres been a significant amount of large and moderate modest sized deals that have been getting done over the last several weeks Tysons corner, we do anticipate.
Doug Healy: There were several other notable openings including Chanel Beauty at Broadway Plaza, Doc Martin at Los Doritos in Tyson's Corner Center, Johnny was at 29th Street, Levi's at Arrowhead, Pandora at the Oaks, Tillies at Valley River, and four municipal stores at Arrowhead, Chandler, the Oaks, and vintage fare. In the emerging brands category we opened our Terriks at Tyson's Corner Center, Avocado at 29th Street, Brilliant Earth and Reformation of Broadway Plaza, Goyana at Built More, Mango at Los Doritos, and three new stores with intimacy at Chandler, Queens, and Santa Monica Place.
Faye closing in the fourth quarter.
Very solid asset very well positioned and we are very optimistic about the <unk>.
Prospects for closing that deal. So liquidity is there I guess I would say insulation, it's just there at a relatively higher price.
Okay. Thanks, Scott.
Uh huh.
Please standby for the next question.
The next question comes from Michael Mueller with Jpmorgan. Your line is open.
Doug Healy: As you can see by the name just mentioned and those mentioned on several earlier calls, the emerging brand category remains a very important category to us. Finding new brands and new uses is the major initiative of the Macebridge leasing team, the result of which will attract many different demographics of trappers and will help to differentiate our centers from those of our competitors.
Yeah, Hey, guys. This is hong on for Mike.
But first question would be would you be able to quantify your exposure to express.
Yes, they are not in our top 10, we're not at Liberty to provide specifics I will say that we have numerous stores throughout the.
Doug Healy: Now let's look at the new and renewal leases we signed in the third quarter. In the third quarter we signed 206 leases for 766,000 square feet. Year-to-date we've signed leases for 3.1 million square feet, which is about 300,000 or 10% more square footage than we signed during the same period in 2022. And as we've stated several times, 2022 was a record year for us in terms of leasing volumes. So to be ahead of 2022 this far into the year is a telling indicator of how strong this year's trending.
Throughout the portfolio, but as far as specific exposures are not at liberty to provide that right now.
Got it and if I understand your guidance correctly.
Lease termination guidance implies a pretty significant step up in the fourth quarter is that tied to any tenant in particular.
Yes, I think that question was raised perhaps you missed it there was a single transaction that was not contemplated.
Two months ago, when we update our guidance that we do expect to close in the fourth quarter.
Doug Healy: Notable mood we've signed in the second quarter include two footlocker superstores, one at Tyson's Corner Center and one at Deppford Mall. We signed garage at Washington Square, means in a main at Cureland, three new Pandora stores, a fashion outlets of Niagara Falls, Stonewood and Valley River. At Flatiron Crossing we signed DSW and 5 below for a total of 25,000 square feet. These two stores will backfill the former ultimate electronic space joining Forever 21 and the container store.
And Thats whats driving the change got it.
Thank you.
Sure. Please.
Please standby for the next question.
Okay.
The next question comes from Caitlin Burrows with Goldman Sachs. Your line is open.
Hi, everyone. Good morning there.
I think this is actually similar to a question I asked in the past, but still wondering so if I look at the minimum rents and <unk> and strip out the termination income in the straight line rents it looks like it went down sequentially and if it wasn't then we can follow up on that but in any case with the strong leasing spreads and higher occupancy I would've expected minimum rents to increase more so I was just wondering.
Doug Healy: And once again a former 120,000 square foot vacant anchor box is now 100% leased. In the digitally made of an emerging brand category we signed leases with Forward to Warly Parker, a chamber fashion center, Yeti at Washington Square, an inspiration company at Dambury Fair, Deppford and Freehold Raceway. And lastly we're very excited to announce the signing of Lifetime Fitness at 29th Street in Boulder, Colorado. This will be our fifth deal with this premiere fitness and wellness brand and we look forward to the traffic and energy we know they will bring to 29th Street when they open in early 2024.
If theres any additional color you can give on why that minimum rent increase wasn't more in the third quarter. Maybe it was just mix of anchor space or timing of openings are taking space offline.
Yes, that's a good question.
Yes Caitlin.
Minimum rents as I think I mentioned in my opening remarks minimum rents were up $7 million.
When taken both for wholly owned assets as well as joint ventures debentures at share.
Doug Healy: Looking at our 2023 lease explorations we now have commitments on 84% of our 2023 expiring square footage that is expected to renew and not close with another 13% in the letter of intense stage. For comparative purposes the 84% committed is 800 basis points better than where we were last quarter, in terms of 2024, expiring square footage for almost 30% committed with another 40% in the letter of intense stage. Again, I'm very pleased to be where we are with our 2023 and 2024 expiring square footage. Given the uncertainty that still looms in the macro economic environment, it's good to take this renewal risk off the table sooner rather than later.
So.
We did see an increase in our third quarter. It was consistent with what we saw in the second quarter driven by a variety of factors, obviously space coming online is starting to pay rent.
A bit from leasing spreads and certainly from the conversion of variable rent.
Topline revenue.
Okay.
I'll follow up first more on that and then maybe you could just talk about you talked a little bit about the.
The depth of manned and the strength you saw in 'twenty two being even stronger this year. So wondering if you could just talk about the different types of categories and how deep that is and how long it could continue for.
Hey, Caitlin, it's Doug, Yes, we're seeing we're seeing unprecedented demand and again I get asked the question all the time, how long is it going to continue and quite frankly, we're not seeing any kind of slowdown at all I mean, our signed leases are really indicative of what we've done in the past with that kind of looking for.
Doug Healy: Turning to our leasing pipeline, at the end of the third quarter, we had 151 leases signed for approximately two million square feet of new stores we expect to open during the remainder of 2023 and into 2024 and early 2025. In addition to these signed leases, we're currently negotiating leases for new stores totalling just over 700,000 square feet, which will also open during the remainder of 2023 and into 2024 and 2025. So in total, that's 2.7 million square feet of new store openings throughout the remainder of this year and beyond. And as always, it's important to emphasize these are new leases with retailers not yet open and not yet paying rent. And these numbers do not include renewals.
A word you look at.
The deals that we approve we have leasing committee every two weeks and.
Which is much more forward looking that are signed leases and I think year to date. We are just about where we were maybe a little bit ahead of where we were last year at this time in approving new deal. So thats kind of a go forward.
Lift, but I do think a lot of this demand come from as I said before it's a testament to our portfolio.
Doug Healy: So to conclude, our leasing and operating metrics for sale in the third quarter, leasing volumes for strong square footage lease continues to outpace 2022 when measured on a year to date basis, leasing spreads remain positive at 10.6%. So given this and everything Tom and Scott have talked about, we remain optimistic as we look at the remainder of this year, next year and beyond.
But we just have.
Numerous depth and breadth of uses that we didn't have before I mean, do you think about digitally native and emerging brands F&B restaurants.
Tom alluded to some of the large format to fitness.
Grocers home furnishings Entertainment health wellness beauty.
It goes on and on so we've got uses that we've never had in the past and I think that coupled with our portfolio is really driving the demand.
Unknown Executive: And now I'll turn the call over to the operator to open up Q&A. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please limit to one question and one follow up. Please stand by while we compile the Q&A roster.
Okay. Thanks.
Please standby for the next question.
The next question comes from Craig Mailman with Citi. Your line is open.
Hi, guys. This is south Berg on for Craig.
Greg Mcginniss: The first question comes from Greg McGinnis with Scotia Bank. Your line is open. The first question comes from Greg McGinnis with Scotia Bank. Your line is open.
Going back to some of your negotiations in the past you've kind of talked about uses for your space in terms of medical coworker colored co working grocery and lifestyle I guess, how much of your.
Your negotiations are like whats the mix between kind of those new uses for your space versus traditional.
Scott Kingsmore: My apologies. I was on mute. Good morning. I just want to dig into maintaining the guidance and the implied kind of Q4 FFO per share spread, which is fairly wide. 10% spread with only two months left in the year, but also implies sequential FFO per share growth of 20 to 35%. Well, above kind of a 10 to 15% average, we've seen in best worth quarters. So if you could, you know, any explanation there in terms of what's expected and what's causing that spread. And then if you could also touch on same store NOI growth slowdown, that's kind of implied for Q4, that'd be appreciated.
Yes, it depends on the property and whether we've got box.
Box availability for example.
But I'd say on average we're probably.
40% on.
On the new uses 60% traditional and when I say new users.
Include things like.
Pinstripes, which is a combination of entertainment as well as food and beverage. Some may think of that as traditional but we think of that as really kind of a new the new direction of things.
Certainly.
The likes of lifetime fitness, we consider to be a.
Nonconventional retail use and thats part of that 40% as well so a lot of those uses as well as the medical uses that you referenced fall in the category.
Scott Kingsmore: Thanks. Sure. Greg, this is Scott. Good afternoon. Yeah, reasons for the wide range. You know, percentage rents are really the biggest variable for the balance of the year. We've generally kept our sales flat for the balance of the year in terms of projections, you know. So that, you know, given the fact that percentage rents are so heavily weighted towards a fourth quarter, that's always a big variable in terms of how we'll end up.
Non traditional retail.
Great and then just as a follow up.
At a recent conference you kind of mentioned getting to 94% occupancy by the end of next year.
We're already at 93, 4%. So how should we think about kind of the pace of occupancy going forward and.
Scott Kingsmore: If you look at where we were at in the fourth quarter of last year, we had strong luxury sales, for instance, which fueled percentage rents pretty heavily in the fourth quarter of 22. You know, that also combined with the conversion of variable to fixed rent deals percentage rents certainly going to be a declining element. So that's going to be a cause for some of the slowdown of same center growth in the fourth quarter.
As your occupancy improves how you think about.
Rents on the remaining space.
So we're cautiously optimistic.
Obviously, the macroeconomic climate is tough right now.
The fed continues to speculation that may bump again.
This week.
Rates are high.
A lot of global uncertainty, there's a lot of political uncertainty.
Scott Kingsmore: You know, other factors that are influenced and are thinking in the wider range for the rest of the year. We do have some pending tax appeals that are coming down the wire in terms of whether or not we'll be able to recognize those benefits this year or next year. And then lastly, you know, you've seen some pretty volatile changes in our indirect investments and retailers through valuation changes. And so that fundamentally just remains a reason to keep a somewhat wider range than we typically would.
But based on the leasing environment, we see today I do think we will get above 94%.
The first half of next year.
And from there, obviously that helps with the less capacity the less availability.
The more capacity, we have more availability, we have it makes it tougher on leasing spreads so as that diminishes when we get back to pre.
Pandemic levels as we're approaching right now it really gives us more leverage on <unk>.
Scott Kingsmore: So those are the reasons for the wider range. Those are the reasons for the trends in same center and why in the fourth quarter. And then you asked about, you know, the trends overall in FFO. You know, it's a lot of factors that go in there. Obviously, we've seen, you know, strong same center growth. We do expect that to decline a bit in the fourth quarter. But there's a variety of factors that go in there. You know, we don't have, you know, each one of you are marked for you. But hopefully what I just gave you in terms of same sentiment and why trends and FFO ranges are helpful.
Go shooting the rents for that remaining space. So we were double digit growth in the second quarter, we were double digit re leasing spreads in the third quarter and.
And we're cautiously optimistic that's going to continue.
Great. Thanks.
Okay.
Please standby for the next question.
The next question comes from Ronald Camden with Morgan Stanley Your line has been.
Scott Kingsmore: Yeah, got that was helpful. Thank you. Then as a follow up, you know, I recognize you can't comment on the ongoing more negotiations. But could you maybe instead disclose the percentage of NLI or FFO contribution from those assets? And then... William, maybe you're feeling an expectation in terms of whether you will reach an agreement. Yeah, those are a separate part. Sure, Greg, I appreciate the question. Those are subject on going negotiations, so I'm just not at liberty to comment on those at this time as I mentioned in my prepared remarks.
Hey, just two quick ones. So one on the sort of the leverage target that you had sort of put out during the investor day.
Obviously fast forward today rates are much higher.
The stock hasn't really moved to allow for equity issuances and it's hard to sow. How are you guys thinking about sort of those leverage levels.
Is it fair to say that those those may be able to sort of push back or delay given sort of the macro or.
Is there a more common.
Yes, Ron Hi, good afternoon, it's Scott here.
When we talked at Investor Day in November.
Scott Kingsmore: And just pivoting back to your first question, you did see from us some relatively strong termination income guidance change in the fourth quarter, and that's really driven by a large termination settlement, so certainly that will have a positive factor on the balance of the year. Sorry, but in terms of the contribution from those assets to NOI, FFO. Yeah, yeah, not in a position to comment on that right now. And there's kind of nothing to do with the negotiations.
I think one of the things we had in there was a placeholder for equity issuance. As you noted we don't have any intention of issuing equity here. So take that out of the equation and obviously that influences the leverage targets, but.
As we look at NOI growth, we think we will continue making progress into next year and get in the realm of the low <unk> by the time, we get to the end of next year. That's that's net debt to forward EBIT task. So that does take into account.
Scott Kingsmore: It's just so we understand what may or may not be coming out of. Yeah, we'll provide more clarity as the conversations go on. You know, we continue to recognize the results of operations on those assets for some time after the loan is in default. So, you know, we're just not in a position to comment on the on the NOI or the FFO from each of those assets.
Some forward NOI element to our redevelopment pipeline.
Which kind of makes sense given the fact, we're incurring a lot of cost upfront without the benefit of the NOI. So that's that's our perspective low low rates by the end of next year.
Got it and then just on the same store you would obviously you reiterated the guidance as we're sort of flipping the calendar just trying to understand what the puts and takes are.
Greg Mcginniss: Okay, all right. Well, thank you very much. I appreciate it.
Azure Azure comping into 'twenty four.
Unknown Executive: Please stand by for the next question.
Any sense of how much sort of a signed lease not commence is contributing next year in terms of basis points any comments on bad debt. Just what are the puts and takes for that organic growth is really as we're flipping the calendar.
Jeffrey Spector: The next question comes from Jeffrey Specter with Bank of America Securities. Your line is open. Great. Thank you. My first question is on the 2 million square feet sign not open that Tom discussed. Can you put that 2 million into context? Let's say versus last quarter or the previous quarters. Like, how does that 2 million stack up? Well, we had a quite a few openings in the third quarter. And that had to do with some of the big boxes.
Yes.
Jeffrey Spector: We had Primark. We had Target at King's Plaza. We had shields, which is over 200,000 square feet. And we had lifetime. So, that was an unusually large quarter. I would say Jeff in terms of that pipeline opening. I would think that of the 2 million square feet we've got probably 75% of that will open in 24. Maybe 10% in the fourth quarter here and another 15% carrying over in the 2025. Okay.
You kind of give you the Pat line that we're not providing guidance, but I will in terms of the pipeline run direct you back to our investor deck from last quarter. There is a disclosure in there about the cadence of our assigned but not opened pipeline as that comes online, but the impact is on 'twenty three 'twenty four.
2025, so that should help you out.
At least to get started but we will certainly provide you more details at our next call with the typical timing of our guidance issuance and the.
In the January February timeframe.
Great. Thanks, so much that's it for me.
Okay.
No further questions at this time I would now like to turn the call back to Tom for closing remarks.
Well, thank you very much for joining us today.
Pleased to report continued strengthen our operating fundamentals and the leasing demand and.
And we look forward to seeing many of you in the next couple of weeks at the NAREIT Conference here in Los Angeles.
Jeffrey Spector: Thanks. That's helpful. Tom, can you discuss the leasing spreads on that 2 million? Like, how does that compare to what you reported for the quarter? Well, you know, that was heavily weighted towards those big boxes. And wouldn't be in the leasing spread numbers. And some of those cases, the spaces brand new space like a lifetime fitness that was built from the ground up. So, there really wasn't a spread equivalent. But we're getting good strong rents, particularly on some of these new uses that are coming in.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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Okay.
Okay.
Jeffrey Spector: Arte Museum, for example, which is taking the space that had been the former theater at Santa Monica Place. They're paying a very significant rent significantly more than the theater. And they expect to bring in over a million visitors a year, and that's a gated attraction. I think they're annual. I mean, they're average entry fee is something like 40 bucks. So that's big volume, certainly. It's going to generate a lot more traffic, a lot more rent, and a lot more energy and activity than we saw from the theater.
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Okay.
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Jeffrey Spector: And that's pretty typical of some of these big uses, Jeff. I was at the shield store a couple weeks ago in the middle of the day on a Wednesday, and it was chuckful. There was a 45 minute line for the Ferris wheel. I mean, it's unbelievable. It's a sporting goods extravaganza, and they're saying traffic numbers that I think are even surprising them. Great addition to the center, and we're going to see more and more of that kind of activity.
Jeffrey Spector: So it's more than just economics. We are getting good rent on these new deals in the pipeline. But a lot of these uses are bringing a lot more traffic, a lot more energy, a lot more activity. And it's allowing us to diversify our portfolio, which is exactly our strategy. Great. Thank you. Thanks.
Tom O'hern: Please stand by for the next question.
Samira Kanal: Our next question comes from Samira Kanal with Evercore. Your line is open. Hi, good afternoon. Doug, you talked about the, I believe it was 700,000 square feet of ongoing negotiations. Maybe talk about, you know, how those conversations are going, you know, given the macro picture, right? The consumer has been hit with higher inflation, higher rates. So it can maybe talk sort of big picture. You know, how those conversations are going. Yeah, hey, Samira.
Samira Kanal: Good question. And I get asked it all the time. It is sort of countertuitive that given what's going on in the macro economic environment and the slowdown in sales that we're still seeing the demand that we're seeing. You know, I think number one, it's a testament to our portfolio. And number two, you know, I think the retailers are long term in nature. We have a very healthy retailer environment out there. And they're really taken advantage of some opportunities to take down some real good space and some real good properties.
Samira Kanal: And I mean, the result is in the numbers. We're 10%, you know, greater than what we were at this time last year. And last year was a record setting leasing year in terms of volume. So we expect to break that record again, yet this year.
Scott Kingsmore: Okay, got it. And I guess Scott, maybe to a previous question, percentage rent. I know you talked about the fourth quarter, but as we look into next year, I know, you know, there was that conversion of variable to fix. I mean, should we expect more of that to happen in 24 at this point? You'll see some of it, Samir, but not to the extent that you have in 2023. I think you'll see declining trends of percentage rent in 24 for that very reason.
Scott Kingsmore: But, you know, we're down year to date, just over 20% in percentage rent, the lion share that being, you know, converting variable to fixed. And I think we've worked through most of those renewal discussions where we're converting to fixed. I don't expect that kind of order of magnitude next year, but we will see some continued decline. And this one last one, if I may. Your least term income was up sequentially, I think it's part of guidance.
Scott Kingsmore: I guess we'll be striving that. And then maybe talk around how the watch looks like in the next year for us. Thanks. Sure. Yeah. At least termination guidance really is being driven by a single transaction. I can't mention, of course, as you can imagine, but that's a transaction we expect to have finalized. This quarter, so that was a change of thinking relative to three months ago. It was a transaction that was not on the table.
Scott Kingsmore: So, you know, in terms of the watch list still remains very healthy, very low. Certainly very, very low relative to where we were heading into the pandemic period, about 85 to 90% less leases and square footage on our watch list today. And we still, of course, do have a watch list. We've got 5,000 leases in our portfolio. So you're always going to have 10,000 minutes, but you're paying attention to. But I don't think we've got anybody in particular, Doug.
Scott Kingsmore: Maybe you can expand on it where we're concerned about anything eminent. No, I think it's got your spot on. And as I alluded to earlier, you know, there's a really healthy retailer environment out there. And, you know, we call pre pandemic, there were a lot of struggling retailers in the pandemic flushed those retailers out. I mean, if they if they weren't going to survive for two, three, four years, they didn't survive the pandemic. So we came out of the pandemic with a very healthy retailer environment. And that exists today.
Scott Kingsmore: Thank you. Please stand by for the next question.
Floris Dijkum: The next question comes from florist van ditch com with compass point. Your line is open. Thank you.
Floris Dijkum: Good afternoon, guys. Thanks for taking my question. So going back to the SNO pipeline. Can you quantify the impact on NOI your, you know, the two million square feet of of SNO represents. Yeah, florist, our pipeline is now north of 75 million dollars. And that is incremental rent versus the uses that are in place today. So, you know, that that's that we'll see a little bit of that in 2023. And then the balance of it into 24 and 2025 that comes from not only the two million square feet that are signed, but also the 700 million. It's going to make 700,000 square feet of space that's in documentation right now, at least documentation. So north of 75 million of the company share over the next several quarters. Great. Thanks, Scott.
Doug Healy: And maybe, maybe if you guys could touch on your your redevelopments as well. I noticed that you got some permissions in Danbury to add departments or at least the first phase of of permissions. And how are you coming along on the redevelopment of lots of readers, the Sears box there, and any any more color you can add in terms of some of your larger scale redevelopment projects. Hi, florists. On some of the bigger ones like low street as in Washington Square, we're going through the entitlement process.
Doug Healy: Those both included change of use in the case of Los Serritos, likely we'd knock down the Sears box and build multi-family and so we're into the city for entitlements and we've got a combination of things going on at Washington Square. So those are bigger longer term projects that take some time to get the entitlement and we're in process on those. Vander, we did get approval to convert one of the boxes to multi-family and that will be underway and is being added to the pipeline.
Doug Healy: Others, you saw the completion of shields, the opening of a couple big department store boxes at both Green Acres and King's Plaza and we're underway with a lot of the others including Santa Monica Place which is, that's going to be a multi-tenant retina. We're going to minimize the Bloomingdale's box as well as the theater building. Top level is our team museum which we've spoken about, bottom level is Studio One which is a high end fitness center, similar to lifetime and we're still under negotiation on the middle floor, not at the point where we can disclose the tenant there. And those are going to stretch out openings into next year as well as the second level might end up dragging into 25. Thanks.
Unknown Executive: Please stand by for the next question.
Alexander Goldfarb: The next question comes from Alexander Goldfarb with Piper Sandler. Your line is open. Hey, good morning, good morning out there and hey, Tom and glad to hear that you didn't jump that 35 minute Ferris wheel line at the shields opening so yeah, pretty impressive.
Tom O'hern: Two questions here. The first question is you guys for non retail redevelopment at the malls you guys have been bringing partners for that just curious given the changes in the construction lending market. Are you still finding ample opportunity of developers who want to come in and partner on non retail uses at the malls or has that dried up? They're still pretty significant demand, Alex. I mean, these are great locations. They have already got the amenities that a lot of the multifamily developers really seek and they're great locations.
Tom O'hern: So there's been no shortage. In fact, it's just the opposite. We've got to figure out who the right partner is. So there's still plenty of demand there and we haven't seen that a bait given even what's going on in the debt markets today.
Scott Kingsmore: Okay, and then the second question is just on the debt markets overall, obviously you guys have coming up, you know, Tyson's and the Philly mortgages, both of those coming up early in 24 Scott. The recent commentary by sort of everyone this quarter almost adjust like the debt markets are tougher than they were just a few months ago. I don't know if that's if that's a correct interpretation or not. So in your view, how do the debt markets compare now versus the summer versus earlier in the year?
Scott Kingsmore: Are they getting better? Have they stalled? Have they gone backwards? Just sort of trying to get an understanding of how the progress and the healing and the debt markets is going. Sure. Good question, Alex, very germane. You know, just to level set, there's been over $5 billion of mall financing. It's just in seeing the space alone. We've accounted for just over 20% of that. There is liquidity today. Obviously liquidity comes in a price with the rise in the treasury bench marks and swap rates.
Scott Kingsmore: The cost for capital has gone up, but there is liquidity in the market and there's been a significant amount of large and moderate modest side side deals that have been getting done over the last several weeks. Tyson's corner, we do anticipate closing the four quarter, very solid asset, very well positioned and we are very optimistic about the prospects for closing that deal. So liquidity is there, I guess I would say, information. It's just there at a relatively higher price.
Scott Kingsmore: Okay, thanks, Scott.
Unknown Executive: Please stand by for the next question.
Michael Mueller: The next question comes from Michael Mueller with JP Morgan, your line is open. Yeah, hey guys, this is Hong on some mic. I guess my first question would be, would you be able to quantify your exposure to express? Yeah, they're not in our top 10, we're not a liberty to provide specifics. I will say that we have numerous stores throughout the portfolio, but as far as specific exposures, we're not a liberty to provide that right now.
Michael Mueller: Got it. And if I understand your guidance correctly, your least termination guidance implies a pretty significant step up in the fourth quarter. Is that tied to any tenant in particular? Yeah, I think that question was raised perhaps you missed it. There is a single transaction that was not contemplated a few months ago when we update a guidance that we do expect to close in the fourth quarter. And that's what's driving the change.
Scott Kingsmore: Thank you.
Caitlin Burrows: Please stand by for the next question.
Caitlin Burrows: The next question comes from Caitlin Burrows with Goldman Sachs, your line is open.
Doug Healy: Hi, everyone. Morning there. I think this is actually similar to a question I asked in the past, but still wondering. So if I look at the minimum rents in 3Q and strip out the termination income and the straight line rents, it looks like it went down sequentially. And if it wasn't, then we can follow up on that. But in any case with the strong leasing spreads and hierarchy fancy, I would have expected minimum rents to have increased more.
Doug Healy: So it's just wondering if there's any additional color you can give on why that minimum rent increase wasn't more in the third quarter. Maybe it was just a mix of anchor space or timing of openings or taking space offline. Yeah, that's the question. Yeah, Caitlin, you know, minimum rents, I think I mentioned in my opening remarks. Minimum rents were up $7 million when taken both for wholly owned assets as well as joined pictures, ventures at share.
Doug Healy: So, you know, we did see an increase in the third quarter. It was consistent with what we saw in the second quarter. You know, driven by a variety of factors, obviously space coming online starting to pay rent a bit from leasing spreads and certainly from the conversion of variable rent to top line rent. Okay, I think I'll follow up first more on that. And then maybe you could just talk about, you talked a little bit about the depth of demand and the strength you saw in 22 being even stronger this year.
Doug Healy: So, wondering if you could just talk about the different types of categories and how kind of deep that is and how long it could continue for. Hey, Caitlin, it's Doug. Yeah, we're seeing, we're seeing unprecedented demand. And again, I get asked the question all the time. How long is it going to continue? And quite frankly, we're not seeing any kind of slowdown at all. I mean, our sign leases are really indicative of what we've done in the past.
Doug Healy: But then kind of looking forward, you look at, you know, the deals that we approve, we have leasing committee every two weeks and which is much more forward looking than our sign leases. And I think year to date, we are just about where we were maybe a little bit ahead of where we were last year at this time in approving new deals. So, that's kind of a go forward list. But I do think a lot of this demand comes from, as I said before, it's a testament to our portfolio.
Doug Healy: But we need to have.., and numerous depth and breadth of uses that we didn't have before. I mean, you think about digitally native and emerging brands, F&B, restaurants, Tom alluded to some of the large format, to fitness, the grocers, home furnishings, entertainment, health, wellness, beauty. The list goes on and on, so we've got uses that we've never had in the past, and I think that coupled with our portfolio is really driving the demand.
Doug Healy: Okay, thanks.
Unknown Executive: Please stand by for the next question.
Seth Bergey: The next question comes from Craig Mailman with city, your line is open.
Scott Kingsmore: Hi, guys, this is Seth Bergey on for Craig. Going back to some of your negotiations in the past you've kind of talked about new uses for your space in terms of medical, co-worker, co-working, grocery, and lifestyle. I guess how much of your negotiations are like what's the mix between kind of those new uses for your space versus traditional? Yeah, it depends on the property in whether we've got box availability, for example.
Scott Kingsmore: But I'd say on average, we're probably 40% on the new uses, 60% on traditional. When I say new uses, it can include things like pinstripes, which is a combination of entertainment as well as food and beverage. Some may think of that as traditional, but we think of that as really kind of the new direction of things. Certainly the likes of lifetime fitness, we consider to be a non-conventional retail use, and that's part of that 40% as well. So a lot of those uses as well as the medical uses that you reference fall in the category of non-traditional retail.
Doug Healy: Great, and then just as a follow up at a recent conference, you kind of mentioned getting to 94% occupancy by the end of next year in your area at 93.4%. So how should we think about kind of the pace of occupancy going forward, and as your occupancy improves, how do you think about rents on the remaining space? So we're cautiously optimistic. You know, obviously the macroeconomic climate is tough right now. The Fed continues to inspectulation.
Doug Healy: They may bump again this week, rates are high, there's a lot of global uncertainty, there's a lot of political uncertainty. But based on the leasing environment we see today, I think do think we'll get above 94% by the first half of next year. And from there, obviously that helps with the less capacity, the less availability, or the more capacity we have, the more availability we have, it makes it tougher on leasing spreads.
Doug Healy: So as that diminishes and we get back to pre-pandemic levels as we're approaching right now, it really gives us more leverage on negotiating the rents for that remaining space. So we were double digit growth in the second quarter, we were double digit releasing spreads in the third quarter, and we're cautiously optimistic that's going to continue.
Ronald Kamdem: Thanks. Please stand by for the next question.
Scott Kingsmore: The next question comes from Ronald Kamdem with Morgan Stanley. Your line is open. Hey, just two quick ones. So one on the sort of the leverage day, right to much higher, you know, the stock hasn't really moved to allow for equity issuances, and it's hard to sell. How are you guys thinking about sort of those leverage levels? And is it fair to say that those, you know, those may be able sort of pushback or delay given sort of the macro, or is there more common?
Scott Kingsmore: Yeah, Ron, hi, good afternoon, Scott here. When we talked to an investor day in November, I think one of the things we had on there was a placeholder for equity issuances, you noted, we don't have any attention to issuing equity here. So, you know, take that out of the equation. Obviously, that influences the leverage targets. But, you know, as we look at in a wide growth, you know, we think we'll continue making progress in the next year and get in the realm of the low eights by the time you get to the end of next year.
Scott Kingsmore: That's net debt to forward even to us so that does take into account some forward and a wide element to our redevelopment pipeline, which kind of makes sense given the fact we're incurring a lot of cost upfront without the benefit of the NOI. So, that's our perspective low, low eights by the end of next year. Got it.
Scott Kingsmore: And then just on the same store, you know, obviously you read or read the guidance, as we're sort of flipping the calendar to try to understand what the puts and takes are, as you're copying into 24, any sense of how much sort of the sign we've not commenced is contributing next year in terms of basis points, any comments on bad debt, just what are the puts and takes for that organic growth as we're flipping the calendar? Thanks.
Scott Kingsmore: Yeah, we're going to give you the Pat line that we're not providing guidance, but I will in terms of the pipeline run, direct you back to our investor deck from last quarter. There is a disclosure in there about the cadence of our sign but not open pipeline and as that comes online, what the impact is on 23, 24 and 2025, so that should help you out, at least to get started. But we'll certainly provide you more details at our next call with the typical timing of our guidance issuance in the January, February timeframe. Great. Thanks so much for this for me.
Unknown Executive: I show no further questions at this time.
Tom O'hern: I would now like to turn the call back to Tom for closing remarks. Well, thank you very much for joining us today. We refuse to report continued strength in our operating fundamentals and the leasing demand. And we look forward to seeing many of you in the next couple of weeks at the May read conference here in Los Angeles.
Unknown Executive: This concludes today's conference call. Thank you for participating. You may now disconnect. Alexander Goldfarb, Nicholas Schumann, Alexander Goldfarb, Nicholas Schumann, Alexander Goldfarb[inaudible]