The Macerich Company (NYSE:MAC) Q3 2022 Earnings Conference Call November 3, 2022 1:00 PM ET
Company Participants
Samantha Greening – Director of IR
Scott Kingsmore – SEVP and CFO
Doug Healey – SEVP of Leasing
Conference Call Participants
Greg McGinniss – Scotiabank
Derek Johnston – Deutsche Bank
Craig Schmidt – Bank of America Merrill Lynch
Samir Khanal – Evercore
Floris Van Dijkum – Compass Point
Linda Tsai – Jefferies
Connor Mitchell – Piper Sandler
Michael Mueller – JPMorgan
Craig Mailman – Citi
Ronald Kamden – Morgan Stanley
Operator
Good day and welcome to the The Macerich Company Third Quarter 2022 Earnings Call. This call is being recorded.
And now at this time I’ll turn the conference over to Samantha Greening. Please go ahead.
Samantha Greening
Thank you for joining us on our third quarter 2022 earnings call. During the course of this call, we will be making certain statements they 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 are 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 economies and the financial condition and results of operations of the company and its tenants.
Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the earnings release and supplemental filed on Form 8-K with SEC, which are posted in the investor section of company’s website at macerich.com.
Joining us today are Scott Kingsmore, Senior Executive Vice President and Chief Financial Officer and Doug Healy, Senior Executive Vice President of leasing.
With that I’ll turn the call over to Scott.
Scott Kingsmore
Thank you, Samantha. Good morning and good afternoon. Unfortunately, Tom was missing this call, as yesterday you had a death in his immediate family. At this time, we send Tom and his family our loved 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 2022, 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 10,000 feet were $877 per foot, our highest level ever. We continue to see traffic at about 95% of pre-COVID traffic, but comparable tenant sales or exceeding pre pandemic levels with year-to-date comparable sales up nearly 5% versus the same period in 2021 and up over 13% compared to the same period pre-COVID in 2019.
The quarter continue to reflect retailer demand that is at 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 of 2021, and a 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 1.1 million square feet. We saw same center NOI growth of 2.1% in the third quarter of compared to the third quarter of 2021, which was a very strong quarter.
FFO came in at $0.46 per share. And on Thursday, last week, October 27, we declared a $0.17 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 150,000 square foot three level east end of Santa Monica place formerly occupied by Bloomingdale’s in Arclight theater with an entertainment destination use high end fitness club and co-working space. Estimated project costs range between $35 million to 40 million 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 company share at an estimated yield of 13% to 15%. We also expect this redevelopment to be completed in 2024. We continue to secure entitlements and or plan transformative projects to redevelop at Tysons Corner, the former Lord and 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 I Kierland 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 130,000 square foot target to Danbury Fair Mall, the signing of target completes the repurposing of yet another Sears box. Primark has already opened in the upper level and Target will open in the lower level in 2023. As we all know, Target picks and chooses its real estate extremely carefully, so the decision to locate a Danbury Fair is an enormous testament to the real estate and to the center’s 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 2022. Leasing interest continued 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 [indiscernible] 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 2.1% 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 is increased 10% both including and excluding lease termination income. FFO per share for the quarter was $0.46. This was one cent better than the third quarter of 2021 at $0.45 per share. Primary factors contributing to this FFL 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 increase in straight line of rental income. This are 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 and bad debt expense.
This was driven by $2 million of bad debt reserves in the third quarter of ’21 as we also continue to work through our pandemic related tenant receivable assessments last year, and then we had a $1 million benefit third quarter this year in bad debts from collections of previously reserved tenant AR. Offsetting these positive factors for the following. Firstly an $11 million decline in lease termination income, 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. And lastly, an unexpected $4 million relative quarter-over-quarter decrease in valuation adjustments pertaining to our investments in retail funds.
This morning, we updated our 2022 guidance for FFO. We narrowed the range and decreased the midpoint of FFO estimates. ’22 FFO is now estimated in the range of $1.93 to $1.99 per share. This represents a $0.02 per share decline in our FFO guidance at the midpoint. Most notably, this FFO range now includes an increased expectation for same center NOI growth in the range of 7% to 7.5%.
If this NIO growth is attainment ’22, given the 7.3% growth from last year and 2021, this would represent the second consecutive quarter of greater than 7% same center NOI wide growth, as our core operating business has rebounded extremely well following the pandemic. This guidance improvement is due to better than expected top-line revenue, including percentage rents, stronger common area revenue, and better than expected bad debt expenses.
We also increased our guidance for straight line of rental income, as well as interest expense by equal and offsetting amounts of $2 million. Looking at the reasons behind our revised FFO guidance, which at the $1.96 per share midpoint is a penny ahead of street consensus per Bloomberg of 195 a share. Increased following factors contributed to that guidance change. Increased same center NOI, this is roughly $0.035 per share of FFO improvements. This is expected to be offset by two factors one, the previously mentioned decline in retail and valuation adjustments represented about a $0.025 per share FFO decline.
And then secondly, the timing of a very large land sale that was expected to close in late ’22, which is now expected to close in ’23. This delayed land sale at Chanlder in 2023 represents a decline of FFO in ’22, of roughly $0.03 per share.
To emphasize our ’22 outlook for the core operating business continues to be very strong, strong noi growth 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 2022 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 to multi year extensions of our loans on Washington Square in Santa Monica place during this month. The $500 million Washington Square loan is expected to extend for four years until late 2026, and the $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 SOFR plus 2.8%. Both loans will have interest rate caps in place, so they 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 $1.4 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 2.7 times net debt to forward EBITDA excluding leasing costs at the end of the year was approximately 9 times — I’m sorry, at the end of the quarter. We continue to maintain well positioned — 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’ll turn it over to you to discuss the leasing and operating environment.
Doug Healey
Thanks Scott. Leasing momentum continued in the third quarter as evidenced by strong metrics and 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 30, 2022, were $877. And once again, this represents an all time high for the company. Trailing 12-month leasing spreads were 6.6% as of September 2022, compared 2.6% last quarter and negative 2.5% a year ago. And this is the strongest spread result we’ve had since the third quarter of 2019 pre-pandemic.
We just about to finished with our 2022 lease expirations with nearly 90% of our expiring square footage committed and the remainder in the Letter of Intent stage. And while addressing our 2022 expirations, we’ve concurrently been working on 2023. Today, we have almost 25% of our 2023 expiring square footage committed with another 50% in the Letter of Intent stage.
In the third quarter we open almost 250,000 square feet of new stores. This brings our year-to-date store openings to just over 650,000 square feet, which exceeds where we were at this time last year. Notable openings in the third quarter include Sephora, Kings Plaza, SanTan Village, Doc Martens or Broadway Plaza, Garage at Scottsdale Fashion Square, North base at Washington Square, JD Sports at Fresno Fashion and Vintage Fair and two more stores with cottoned on that Kings Plaza and Queen Center.
In the luxury category we opened Louie Vuitton men and [Indiscernible] and Scottsdale Fashion Square. We opened 15 new stores totaling almost 40,000 square feet of digitally native and emerging brands in the third quarter. Kierland Commons in North Scottsdale remains a hotbed for this category is Allbirds, Avocado, Bad Birdie, Public rec, and Travis Matthew all open there in the third quarter.
Other notable openings in the space include Madison Reed at Biltmore Fashion Park, Parachute Home at 29th Street, Purple at SanTan Village and Vinfast The village of Corte Madera, and Santa Monica place. As we continue to transform our properties into true town centers, we’re committed to bringing non traditional uses to our campuses. And the third quarter was no exception. We opened Department of Motor Vehicles at Valley River, Kid City at Green Acres Chainstore Country Club Plaza, and a veterinary hospital 29th Street.
Turning to the new and renewal leases that we signed in the third quarter. We signed 290 leases for 1.1 million square feet. Year-to-date, we’ve signed over 700 leases for 2.9 million square feet. And this is right about where we were at this time in 2021. And it’s worth repeating 2021 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 meds at Scottsdale Fashion Square as an iconic brand that is arguably the most sought after luxury retailer in our industry will open an 11,000 square foot store joining the likes of Louis Vuitton, Dior, [indiscernible] Saint Laurent, Versace Prada and Brunello Cucinelli [ph], just to name a few. This will be our men’s first store in Arizona, with its closest being in Las Vegas.
In the addition of our Mads will unquestionably make 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 dresses in the United States.
Other notable leases signed in the third quarter include Louis Vuitton, a Broadway Plaza, Gucci Men and Scottsdale Fashion Square are Terex and Kendra Scott and Tyson’s Corner, [Indiscernible] Village Corte Madera, Doc Martens and Los Cerritos Three People Movement at Kierland Commons, JD Sports a Country Club Plaza, Lululemon and Lovesac at SanTan village, and Levi’s at Washington Square.
In the Danbury Fair Mall located in Danbury, Connecticut, the third quarter we signed a two level 20,000 square foot deal with Barnes and Noble, where they’ll relocate 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 best real estate. And with the recent additions of Target Round 1 and other prominent brands and experiences, it’s clear that Danbury Fair fits on the best real estate in the market and retailers are proving that with their choices.
At Queen Center we signed leases with two very prominent and noteworthy international apparel brands totaling almost 100,000 square feet. And we 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 $1,700 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 20,000 square feet of digitally native and emerging brands across the portfolio, including Allbirds and Brilliant Earth at Broadway Plaza, Avocado at 29th Street and Washington Square, Madison Reed and Outdoor Voices at Kierland Commons, Third love at Tysons Corner and Toward Curve at 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 moved to documentation and are added to our already very strong leasing pipeline. This strong 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. 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 pullback from the retailer’s, which I think is a result of the healthy retailer environment that exists 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.
Question-and-Answer Session
Operator
[Operator Instructions] We will begin with Greg McGinniss with Scotiabank.
.
Greg McGinniss
Hey, good morning out there. Looking at the development pipeline hoping you could discuss the changes in the disclosure but the removal of some of the potential serious redevelopment and then your thoughts on mixed use redevelopment as we stare at higher borrowing costs, higher construction costs and looming economic risks.
Scott Kingsmore
Yeah, good afternoon, Greg. Changes to the development pipeline in terms of Sears you know 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 returning of the boxes at Vintage Fair at Deptford Mall, we just mentioned the returning of Danbury with target to accompany Primark, smaller scale we retested the Sears Box at a property in upstate New York mall with what the hospital use.
So we’ve really addressed most of those, we’re still an entitlement and or preleasing for Washington Square in Los Cerritos. And once we have projects to report, we’ll certainly report those likely they will land in our development pipeline. So at this point, it was appropriate to remove those.
We have supplemented that now with two very exciting projects. One is effectively, again, a 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 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 with at least right now in lease documentation, with most of them very attractive returns as well.
In Scottsdale, you know, it’s really just an evolution of the luxury expansion that we did and we completed it two to three years ago. Recall we intensified our luxury and concentrate our luxury in the run to [Indiscernible], if you’ve seen it. The names are global, the names are domestic, the names are thick and broad.
And as a result of the instrument, really it’s been an incredible amount of demand as a result of that continued demand, we’re going to continue that luxury leasing effort to 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. Preleasing is progressing at a very good level and very attractive returns.
Lastly, you mentioned mixed use. I would say, –yeah, I would say that, generally the unlevered yields and multifamily 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 6% or so range unlevered yields. And that really wasn’t even attractive 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 many 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 residential uses and from office uses that way. So we’re — 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.
Greg McGinniss
Thanks, thank you. I appreciate all the color there. Just sticking with development pipeline, are there any updates, you can provide us whether on some of the fixers stadium, any numbers around that yet or working with the city on entitlements or ability to do what you guys want to do there. And then also on the parcel outlets?
Scott Kingsmore
Yeah. On 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 2031 timeframe, 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 expand on that right now. Greg, thank you.
Greg McGinniss
All right. Thank you.
Operator
We’ll now hear from Derek Johnston with Deutsche Bank.
Derek Johnston
Good morning. Thank you. Can we hear your thoughts on the push and pull between increasing the dividend especially with the stock where it’s trading now, versus potential other uses, like ramping redevelopment or even deleveraging?
Scott Kingsmore
Yeah, sure. Just as a reminder, we used the opportunity during COVID to reset our dividend along with the very robust recovering 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, is approximately $370 million. So fast forward two and a half years later, after we made those dividend decisions. The business is on firm footing, we’re very confident about the outlook of the business. We still remain committed Derek to maintaining healthy payout ratios. We still remain committed to retaining cash flow to reinvest back in the portfolio and to reduce our debt.
At the end of the day, the dividend change that we made was approximately $18 million. So, we do think it’s important to get back into a cadence of 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 down the line as well. So, really it’s a firm vote, in terms of our confidence for the business and the outlook for the business right now.
We will still remain committed to reducing our leverage into reinvesting back in the portfolio through developments in Scottsdale and in Santa Monica are great examples of that. Post-dividend change, our payout ratios are still very acceptable very low. Leading into that our payout ratios by the way, were one of the lowest and right 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.
Derek Johnston
Okay, great. Make sense? Secondly, you’ve had a pretty strong lease volumes here for a while at this point. Just hoping you can speak to the potential rent coming online over the next year and cadence of openings especially after opening 250,000 square foot in 3Q. I was wondering what you’re anticipating for the 4Q and 2023. Thank you.
Scott Kingsmore
Yeah, sure, Derrick. So falling short of providing you guidance for 2023. I’ll say that, you know, the leasing pipeline continues to be really 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 are reviewed twice monthly, continue to be it’s a very strong, very high volume agenda. So, in 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’ll keep that updated. The view is and Doug unless you tell me how that will happen. I don’t think that’s the case. Our pipelines strong and it doesn’t show any signs right now abating.
Doug Healey
No. Sure, it does. 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 is the retailer’s pulling back? And the short answer is, they’re just not. We have a very, very healthy retailer environment right now. Those that were going to fail, pre-COVID ended up failing during COVID. So we’re left with a watch list that is as low as it’s ever been. And a lot of retailers out there with very healthy balance sheets. So we don’t see this ending anytime soon.
Derek Johnston
Sounds good. Thanks everyone. That’s it for me. .
Operator
Well, now move to Craig Schmidt with Bank of America.
Craig Schmidt
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 three years. Are you getting more pricing power or was fortunate quarter that just played out well. Are you looking for more explanation on the 6.6 or leasing spread?
Scott Kingsmore
Yeah, good question, Craig. We’ve been talking about it for a few quarters now that with the pickup and occupancy, we’d start things to think we could start to push on rate. And that seems to be the case. 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. In a 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 call or two ago. And we’re pleased to be sitting here now. And as we look forward, based on all the deals are reviewing, I think that’s a level we can continue to sustain. Doug, any commentary on that?
Doug Healey
No, I think you’re spot on, Scott. We talked about our main goal coming out of the pandemic was all about occupancy, occupancy, occupancy. And you know, we’ve gotten to ourselves position now, at a 92% occupancy level to refocusing on rate, which is exactly what we’re doing.
Craig Schmidt
And I guess just it sounds like, obviously, you have a lot of confidence, that continuation and leasing spread. Are your expectations for a holiday ’22 to be reasonably positive?
Scott Kingsmore
Yeah, 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 won’t see the 15% or so growth, mid-teens growth that we did in the fourth quarter last year. But, 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.
Doug Healey
And Greg, it’s Doug. I’ve read a couple of surveys and really feels and exciting excites me, it really feels like the vast majority of shoppers this holiday, are going to be shopping bricks and mortar. And in addition to online, but bricks and mortars and favor, it’s the delays in shipping, which were abundant last year, I think frustrated a lot of people. The shipping costs are getting expensive. So I think bricks and mortar is going to be very, very favorable this holiday.
Craig Schmidt
Thanks for the color.
Scott Kingsmore
Thanks, Craig.
Operator
Our next question will come from Samir Khanal with Evercore.
Samir Khanal
Hey, Scott, good morning. I know you guys are not providing guidance for next year, but just generally, how are you thinking about potential tenant fallout, sort of the post-holidays, normally when we see them right and coming off a year where it’s basically been in 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.
Scott Kingsmore
Yeah. It’s hard to say that we’re going to have the same type of nil year in 2023, that we’ve experienced in 2022. But ordinarily right now, we’d start to hear from retailers that were setting themselves up for a major renegotiation, a major restructure. We’d start to hear from them, we’d start to hear from their consultants. And that’s really just not the case.
So I think it will be 2023 will likely be an unusually low year. I don’t think it’s going to be a nil year, but I do think it’s going to 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’ve right sized their fleets in the United States. And they’re in expansion mode, for the most part. But we don’t see them shutting stores, especially in our high quality Town Center. So I think the backdrop is set for continued occupancy growth, there may be one or two here or there that that that file, but nothing that’s on our radar screen at this point in time Samir.
Samir Khanal
And I guess, Doug, just shifting over to you in terms of the negotiation that you’ve talked about, retailers not pulling back, they’re still continuing to open up stores. But if you kind of take a step back, what are they pushing back on here? Is it primarily sort of higher TIs or CapEx? I mean, what’s sort of the pushback you’re getting, as you kind of talked about that sort of 25% of the leases that are committed and then that sort of balance you’re negotiating?
Doug Healey
Hey, Samir. The pushback 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 haven’t changed very much 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.
Samir Khanal
Okay, got it. And then one more Scott, if I can on the guidance range, I know you’ve talked about landfill gains maybe coming in, I think, later this year, but shifting over ’23. In terms of modeling, is this sort of a recurring kind of an item we got to start putting into our models now? And if so, what sort of the magnitude we got to think about sort of annually going forward?
Scott Kingsmore
Yeah, Samir 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 with further regional town centers, that’s no longer the case. So we’ve continued to sell through that inventory, we will continue to sell that inventory into next year. We’ll provide you a little more clarity on the 2023 inaugural ’23 call when we give guidance. But I think those will start to really subside in 2014 and going forward. There always be a little element of that with past 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.
Samir Khanal
Got it. Thank you.
Operator
We’ll now move to Floris Van Dijkum with Compass Point?
Floris Van Dijkum
Thanks, guys for taking my question. It sounds like the underlying business seems to be doing pretty well. You’ve got 9% same store NOI growth year-to-date, record tenant sales, positive leasing spreads, your S&L pipeline it’s fairly robust, it was $33 million expected of incremental or revenue for next year approximately? When do you guys think that you can get back to ’19 levels of NOI. You obviously not providing guidance for next year, but just how comfortable are you that you’re going to get there? And see if you can get some color on that. That’d be great.
Scott Kingsmore
Yeah, share Floris. I mean, we’re very comfortable, we’re going to get there. The question is when. Again, the pipeline is very strong. We do think that by the time we get to the end of next year, we’ll be there on a least occupancy basis. Obviously, there’s some delay in start times for those new stores. And so yeah, without giving you guidance in terms of ’23, I think on a run rate basis, we’ll be there in terms of occupancy by the end of next year.
Floris Van Dijkum
And then the other thing, the other question I had for you is in terms of your OCR, which is relatively low it at 10.8% I believe. You’re we’re starting to see your ability to push a rate through. Can you maybe talk us through some of 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?
Scott Kingsmore
Yeah, you’re no, you’re spot on. I mean, our ability to push rate as indicated by spreads is 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 probably if I went back in time, four or five year low for us. So 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?
Doug Healey
Yeah, I would say, less cost of occupancy is becoming less and less relevant. These stores in our in our town centers are more than just for the retailer more than just selling merchandize. They buy online, pick up in store, they 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 and our properties and that’s how we price our real estate, not necessarily strictly off the cost of occupancy.
Scott Kingsmore
Bear in mind, Floris 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 leave space.
Floris Van Dijkum
Thanks. So maybe last question for me, in terms of specialty leasing, it’s really hard for investors to figure out, it doesn’t show up in leasing spreads, it doesn’t typically show up and other things, and how is that progressing? What are you seeing for key off and billboards and, and parking and other ancillary revenue? And as the economy gets better, how much more ability do you have to increase that amount?
Scott Kingsmore
Great question for us. I think we’ve spoken to this before. And I’ll just confirm that, that’s one segment of our business that will, in fact, the back to pre-COVID levels this year, the local merchants, the advertising contracts, that all that ancillary revenue, parking, revenues, et cetera, have bounced back extremely well. If you look at our occupancy, we’re still north of 7% in terms of our temporary tenancies.
And so there’s always a push and pull between Doug and his counterpart that’s in that temporary tenant kind of specialty leasing world. And anytime we’re able to convert those deals to permanent uses, you’re talking about a pickup in rent, that’s probably 2 to 2.5 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 extensively throughout the pandemic. I 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 permanent though.
Floris Van Dijkum
Thanks. That’s it for me.
Operator
Our next question comes from Linda Tsai with Jefferies.
Linda Tsai
Hi, recovery of bad debt has been a tailwind in ’22. And netting that with a view that tenant fallout is likely low in ’23. Is the bad debt line item, a headwind or still a potential tailwind to earnings in ’23.
Scott Kingsmore
Hey, Linda, I would say it’s probably relatively neutral. We — gapper 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 get 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.
Linda Tsai
Got it. And then on Irma’s opening in Scottsdale, how are luxury retailers thinking about their U.S. store growth plans over the next two to three years?
Doug Healey
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., they’re looking hard at Scottsdale. And as Scott mentioned earlier, you know, we finished our remix of the Neiman Marcus Wing, and we’re 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 or luxury really is focused around Scottsdale Fashion Square, Fashion Outlets of Chicago and to a lesser extent, Santa Monica place.
Linda Tsai
Thank you.
Operator
We’ll now move to Connor Mitchell with Piper Sandler.
Connor Mitchell
Hi, thanks for taking my question. I just have a couple. So first, in Alexander’s earnings release, they reported that IKEA that was recently opened and Rego Park is now leaving. Do you guys see any tenants potentially closing up early at urban locations? And do you think this might be a one off or if similar situation could be possible elsewhere?
Scott Kingsmore
No, I don’t think so. I mean, there’s always going to be situations where a store underperforms and they’re going to leave. I don’t think that’s an indictment necessarily on large format urban locations though, Doug.
Doug Healey
No, I mean, I would consider Kings Plaza Brooklyn and urban location I would consider Queens Plaza in Queens in 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.
Scott Kingsmore
The good news is, in some of those locations, the opportunity to backfill is pretty significant. Doug, you alluded to Queen center, that’s roughly 100,000 square feet with two very prominent apparel retailers that we’re not at liberty to disclose right now. So that base does come up at the opportunity to backfill and with, frankly, incrementally, a creative resources from the sales and traffic generation is pretty high.
Connor Mitchell
Okay, appreciate that. And then regarding one website, now that it’s open, and Google’s moved in. Do you see yourself in harvesting these type of assets, the non-core assets and selling your position? Or how do you view the market, through your stake in the ability to transact to these type of assets?
Scott Kingsmore
Well, one Westside certainly unique. It’s a single tenant, Google credit. So 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. 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 that is no longer a retail project. It’s now Google Campus, some 600,000 square feet. It’s very noteworthy. So we’ll hold on to that NOI, and at the appropriate time, we’ll go ahead and consider something.
Connor Mitchell
Okay, and then if I could just one last quick one. Regarding Washington Square in Santa Monica place. Are you expecting any expensive or heavy principal pay downs for the extension? If you could speak on that?
Scott Kingsmore
Yeah, I can’t get into the details. Those are transactions that are pending. So it’d be inappropriate for me to do. So I’ll just tell you that, we’ve exercised our ability to secure extensions and refinancings for the last couple 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 will report once those transactions are closed, which should be in the next few weeks.
Connor Mitchell
Yeah, understood. Okay. That’s all for me. Thank you.
Scott Kingsmore
Thank you.
Operator
We’ll now hear from Mike Mueller with JPMorgan.
Michael Mueller
Yeah. Hi, just a quick one here. What are some of the dynamics driving the Santa Monica box redevelopment returned to the call it close to two times higher than the box redeveloping at Scottsdale Fashion?
Scott Kingsmore
Well, extremely attractive real estate for starters. It’s positioned across from a light rail that you know prior to COVID delivered 7,000 commuters per day, to the doorstep of the doorstep of that three level configuration. So there’s a great opportunity to do something there. Santa Monica is obviously a heavy tourist community. International tourism has subsided during COVID, we see that starting to tick up a domestic tourism seems to have almost fully replaced that. And it does feel like my commutes a little bit longer now. So I think the office population, the daytime population is improving here in Santa Monica incrementally.
If you look at our project in Santa Monica, 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 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.
Doug Healey
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, to generate footsteps to Santa Monica place, we had the luxury of more interest than we had space. And that by definition would drive rate and I think that’s why you’re seeing some of the higher returns there.
Scott Kingsmore
Yeah, great point. I mean, went through multiple iterations. Asians have laying that out with a variety of different uses. So again, competition creates rent.
Michael Mueller
Got it? Okay. Thank you.
Operator
And we will now move to a question from [indiscernible] with Truist.
Unidentified Analyst
Thank you. Good morning. Just a couple quick questions on the balance sheet. I noticed in your debt disclosure, you talked about the Washington Square Mall and Santa Monica being potentially refinance this month. Looking at the SOFR and the spread, Washington Square Mall at a 4% of spread Santa Monica 1.5%. Just curious, I know you don’t want to go into too much detail. But just those are two high quality malls, like a different spread. And if I remember correctly, Washington Square was plus $1,500 square foot sales mall. Curious if that’s somewhat indicative of what we can expect on a pricing perspective for some of your other future refinancings. Thank you.
Scott Kingsmore
Yeah, good afternoon. Yeah, I really can’t comment much further at all on Washington Square and Santa Monica. And the unique differences between each. The debt markets some of the lenders do view these transactions as effectively new money going out. So they price it contemporaneously with where they view things are at. I just can’t get into the dynamics of each though.
On balance, so we do feel good about the execution, which is again, 280 over SOFR. But you can’t look at one deal and broadcast that over the entire population. What we’re certainly aware of is every deal is unique, and every deal is going to arrive at different terms.
Unidentified Analyst
Okay. Just one question on the Santa Monica loan, is that price at all benefiting from like an option type of agreement that you had previously?
Scott Kingsmore
So the maturity on the Santa Monica loan is December of 2022.
Unidentified Analyst
Okay, and just last question, Scott. Was there any benefit from the conversion of cash base tendency to grow this quarter?
Scott Kingsmore
Very little, you kind of see it a little bit in our in 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.
Unidentified Analyst
Okay, thank you, guys.
Scott Kingsmore
Thank you.
Operator
And we’ll now hear from Craig Mailman with Citi.
Craig Mailman
All right, I’m just kind of curious looking at the 2023 debt maturity schedule. Any update on where we are at Green Acre and Scottsdale? In the process there?
Scott Kingsmore
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 a $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. We have 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’ll continue to report over the next few months our progress on those two.
Craig Mailman
Do you think those will be extension similar to recent deals? Or would lenders be kind of open to refinance kind of rolled that?
Scott Kingsmore
Yeah, again, we’re in the market right now, which means I think they’ll be attractive refinance candidates, because of the unique nature of them. And I think we’ll have other refinance candidates as 2023 rolls on.
Craig Mailman
Okay, and then just one quick one on the landfill gains that got delayed, is that under contract and just the timing got pushed out? Or is that sort of a prospective placeholder in ’22 guidance that you guys are now just pushing out in the transaction market?
Scott Kingsmore
It’s a specific deal center contract. Those deals sometimes take a little time to come to fruition, including getting entitlements in place to provide the uses that are the buyer is developing for. So it’s just a matter of timing.
Craig Mailman
Okay, great. Thank you. Sure.
Operator
Our next question comes from Haendel St. Just with Mizuho.
Unidentified Analyst
Hi, this is [indiscernible] and in line Haendel. Hope you guys are doing well. I had a follow up on leasing spreads. Does denominator include a large portion of COVID adjusted leases were lower base rents for exchange for lower break points for on percentage rents. And for your leases sign now, and going forward, have you guys reverted back to a traditional lease structure?
Scott Kingsmore
Yeah, the population is everything that’s expired in the last 12 months. That’s the comparison point, versus everything that we’ve signed in the last 12 months. So yeah, it’s very, very possible that some of those pre-COVID 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 we 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, in annual increases net will be the case.
So there’s a bit of that in the spreads. We 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 common area maintenance with annual increases that are slightly higher than the base rent, and tax recovery. So their triple net deals?
Unidentified Analyst
Got it. Thanks. Thanks for the caller. Just one more here. You had strong sales in the quarter sales per foot? How much of this would you attribute to higher foot traffic? How is the foot traffic trended year-over-year? And would you say that is foot traffic driving the strong sales or is it inflation?
Scott Kingsmore
Yes. foot traffic has been really consistent this year, range bound, and I’d say between 95% and 100%. Foot traffic has been very consistent relative to pre-COVID levels. We have a combination of tenants that are performing very well, luxury has certainly been a category that’s performed well, for us. You’ve got just generally a better 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 kind of an across the board thing, but our traffic is held up well, and, there certainly is some impact of inflation in there as well.
Unidentified Analyst
Got it. Thanks for the color, guys.
Scott Kingsmore
Thank you.
Operator
And we have a question from Ronald Kamden with Morgan Stanley.
Ronald Kamden
Hey, just a quick one and apologies if you addressed this already. But previously, you commented on sort of the leasing activity coming in slightly ahead of sort of 2021 levels and potentially getting back to pre-COVID occupancy by the end of ’23. Just sort of curious as you’re sort of seeing the activity today. Is that still make sense? And maybe it’s not better or worse than you expected at this point?
Scott Kingsmore
Yeah, 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. And so if we still think that the view is supportable, that will get continue to gain occupancy and, and we’ll see continued NOI growth into next year in the year beyond. So I think that holds does anything different?
Doug Healey
No, I have nothing to add to that. As I said before, we have a very healthy retailer environment out there. And I talked 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.
Scott Kingsmore
Yeah, just to underscore that, I mean, bricks and mortars are in a great spot. And I think that’s a theme that you’ve heard from our sector over the last few days.
Ronald Kamden
Great. And then the last one, if I may, just on the financing side. I guess you guys are working through some multi-year extension. Any sort of idea where rates are indicated, or things are looking to shake out in terms of debt cost at this point on those deals, Thanks.
Scott Kingsmore
Yeah, I would say Ron, on balance, you’re talking about secured financings, you’re going to be in the low to mid sixes, you’re 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.
Ronald Kamden
Great, thanks so much.
Scott Kingsmore
Thank you.
Operator
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.
Scott Kingsmore
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, That’s on November 29 through November 30. Thank you for joining us today.
Operator
And with that, ladies and gentlemen, this does conclude your conference for today. Thank you for your participation. And you may now disconnect.
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