The Macerich Company - Q3 2023
October 31, 2023
Transcript
Operator (participant)
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 one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw 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.
Samantha Greening (Director of Investor Relations)
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 SEC, which are posted on the investors section of the company's website at macerich.com. Joining us today are Tom O'Hern, Chief Executive Officer, Scott Kingsmore, Senior Executive Vice President and Chief Financial Officer, and Doug Healey, Senior Executive Vice President of Leasing.
With that, I turn the call over to Tom.
Tom O'Hern (CEO)
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 last quarter. That brings our occupancy at quarter end to 93.4%, and we are getting very close to our pre-pandemic level of 94%. We continue to see real strength in the leasing environment. On the heels of a very strong leasing result in 2022, the 2023 leasing environment has been robust. Store openings are accelerating. During the third quarter of 2023, we opened nearly 500,000 sq ft more than during the third quarter of 2022. That included Scheels Sporting Goods at Chandler Fashion Center, Life Time at Broadway Plaza, Target at Kings Plaza, and Primark at Green Acres Mall.
Across many categories, leasing demand is at 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 2022 and 2023, we have a very large and healthy leasing pipeline. We have over 2 million sq ft in that pipeline of leases that are signed but not yet open. Once those tenants open, it will fuel our 2024 and 2025 same center NOI growth. 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 sq ft for tenants under 10,000 sq ft came in at $849/sq ft, 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 re-leasing spreads for the quarter, up 10.6% on a trailing twelve-month basis and up 11% in the second quarter of 2023. So those two consecutive quarters, very strong spreads. We had a 4.8% growth in same-center NOI. That's 5% year to date, and bankruptcies continued at a record low, with only 3 small bankruptcies during the third quarter. We are very optimistic about our business for 2024 and beyond.
As we open more of our diversified uses, as evidenced by recent openings at Scheels Sports at Chandler and Life Time at Broadway Plaza, and further fueled by the 2024 opening of Arte Museum at Santa Monica Place, we expect consumer traffic and total center sales to grow meaningfully. 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.
Scott Kingsmore (Senior EVP and CFO)
Thank you, Tom. This morning, we again reported very strong core operating results for the third quarter. Same Center NOI increased 4.8% for the third quarter versus the third quarter of 2022, excluding lease termination income. Year to date, same Center NOI growth, excluding lease termination income, is +5%. FFO per share for the quarter was $0.44, which was $0.02 less than FFO during the third quarter of 2022, at $0.46 per share, and the $0.44 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, $0.05 increase in interest expense due to rising interest rates.
Two, a $3 million or roughly $0.01 decrease in land sale gains relative to the third quarter of 2022. And then offsetting these factors were a positive $9 million change or $0.04 gain in rental revenues, which includes a $7 million increase in top-line minimum rent, a $4 million increase in recovery revenue, and an offsetting $2 million decline in percentage rent. Once again, these changes are driven by improved occupancy growth in rental rates, and also by a continued conversion from variable rent to fixed rent structures with CAM and tax tenant recovery charges. So we're 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-$1.83 per share. We are also reaffirming the range of our estimated same center NOI growth, which is 3.75%-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. 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 a prior capacity of $525 million under the former facility. We secured refreshed term for roughly 4.5 years to February 1st, 2028, and facility pricing, pricing remains unchanged at SOFR + 2.35%. 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, half of which is at our share, and Boulevard Shops is expected to be a $24 million loan, also half of which is at our share. We recently defaulted on the early October non-recourse loan maturity of the Fashion Outlets 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 revaluation 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, but do not impact funds from operations.
GAAP also requires that we accrue default interest on these non-recourse 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 non-recourse mortgage loans, which is expected to be reversed once the loans are either restructured or once title to the underlying mortgaged 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. 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, 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, I'll turn it over to Doug to discuss the leasing and operating environment.
Doug Healey (Senior EVP of Leasing)
Thanks, Scott. As Tom mentioned, leasing was very strong in the third quarter, both in terms of volume and reporting metrics. Sales were down 1.8% on a rolling twelve-month basis, and as discussed last quarter, not a real surprise given the gains we saw in 2021 and 2022. Trailing twelve-month leasing spreads remained positive at 10.6% as of September 30, 2023, and that's an increase of 400 basis points when compared to September 30, 2022. When coupled with the second quarter, trailing twelve-month leasing spreads have actually averaged 11% for the past six months. In the third quarter, we opened 740,000 sq ft of new stores, which is 3x the square footage we opened in the third quarter of 2022.
This brings our year-to-date total store openings to just over 1.2 million sq ft, which is about 80% more square footage than we opened during the same period in 2022. In addition to the openings of Scheels All Sports at Chandler, Life Time at Broadway, and Target at Kings Plaza, that Tom mentioned earlier, there were several other notable openings, including Chanel Beauty at Broadway Plaza, Doc Martens at Los Cerritos and Tysons Corner Center, Johnny Was at Twenty Ninth Street, Levi's at Arrowhead, Pandora at The Oaks, Tilly's at Valley River, and 4 Miniso stores at Arrowhead, Chandler, The Oaks, and Vintage Faire. In the emerging brands category, we opened Arc'teryx at Tysons Corner Center, Avocado at Twenty Ninth Street, Brilliant Earth and Reformation at Broadway Plaza, Gorjana at Biltmore, Mango at Los Cerritos, and three new stores with Intimissimi at Chandler, Queens, and Santa Monica Place.
As you can see by the names 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 a major initiative of the Macerich leasing team. The results of which will attract many different demographics of shoppers and will help to differentiate our centers from those 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 766,000 sq ft. Year-to-date, we've signed leases for 3.1 million sq ft, 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 is trending. Notable new leases signed in the second quarter include two Foot Locker superstores, one at Tysons Corner Center and one at Deptford Mall. We signed Garage at Washington Square, Mizzen+Main at Kierland, three new Pandora stores at Fashion Outlets of Niagara Falls, Stonewood, and Valley River. At Flatiron Crossing, we signed DSW and Five Below for a total of 25,000 sq ft. These two stores will backfill the former Ultimate Electronics space, joining Forever 21 and The Container Store, and once again, a former 120,000 sq ft vacant anchor box is now 100% leased.
In the digitally native and emerging brands category, we signed leases with Forward and Warby Parker at Chandler Fashion Center, Yeti at Washington Square, and Inspiration Company at Danbury Fair, Deptford, and Freehold Raceway. Lastly, we're very excited to announce the signing of Life Time at Twenty Ninth Street in Boulder, Colorado. This will be our fifth deal with this premier fitness and wellness brand, and we look forward to the traffic and energy we know they will bring to Twenty Ninth Street when they open in early 2024. Looking at our 2023 lease expirations, 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 intent 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, we're 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 2024 expiring square footage. 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 two million sq ft 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 totaling just over 700,000 sq ft, which will also open during the remainder of 2023 and into 2024 and 2025. So in total, that's 2.7 million sq ft 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 and 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 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. And now I'll turn the call over to the operator to open up Q&A.
Operator (participant)
As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please limit to one question and one follow-up. Please stand by while we compile the Q&A roster. 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.
Greg McGinniss (VP and Equity Research Analyst)
My apologies. I was on mute. Good morning.
Doug Healey (Senior EVP of Leasing)
Hi, Greg.
Greg McGinniss (VP and Equity Research Analyst)
I just want to dig into maintain 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 it also implies sequential FFO per share growth of 20%-35%, well above kind of the 10%-15% average we've seen in past fourth 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. Thanks.
Scott Kingsmore (Senior EVP and CFO)
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, that, you know, given the fact that percentage rents are so heavily weighted towards the fourth quarter, that's always a big variable in terms of how we'll 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 fueled percentage rents pretty heavily in the fourth quarter of 2022. You know, that also combined with the conversion of variable to fixed rent deals, percentage rent's 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. You know, other factors that are influencing our thinking in the wider range 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, you know, you've 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 would. So those are the reasons for the wider range, and those are the reasons for the trends in same-center NOI 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 earmarked for you, but hopefully what I just gave you in terms of same-center NOI trends and FFO ranges are helpful.
Greg McGinniss (VP and Equity Research Analyst)
Yes, Scott, that was helpful. Thank you. Then as a follow-up, you know, I recognize you can't comment on the ongoing mortgage negotiations, but could you maybe instead disclose the percentage of NOI or FFO contribution from those assets? And then, you know, maybe your feeling on expectation in terms of, you know, whether you will reach an agreement or-
Scott Kingsmore (Senior EVP and CFO)
Yeah, those are subject to-
Greg McGinniss (VP and Equity Research Analyst)
How far apart you are.
Scott Kingsmore (Senior EVP and CFO)
Sure. Sure, Greg, I appreciate the question. You know, those are subject to ongoing negotiations, so I'm 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 that's really driven by a large termination settlement. So but certainly, that will have a positive factor on the balance of the year.
Greg McGinniss (VP and Equity Research Analyst)
Mm-hmm. Sorry, but in terms of the contribution from those assets to NOI to FFO,
Scott Kingsmore (Senior EVP and CFO)
We can't.
Greg McGinniss (VP and Equity Research Analyst)
Yeah.
Scott Kingsmore (Senior EVP and CFO)
Yeah, not in a position to comment on that right now.
Greg McGinniss (VP and Equity Research Analyst)
I mean, those have kind of nothing to do with the negotiations. It's just so we understand what may or may not be coming out of.
Scott Kingsmore (Senior EVP and CFO)
Yeah, we'll—you know, 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 NOI or the FFO from each of those assets.
Greg McGinniss (VP and Equity Research Analyst)
Okay. All right. Well, thank you very much. I appreciate it.
Scott Kingsmore (Senior EVP and CFO)
You bet.
Operator (participant)
Please stand by for the next question. The next question comes from Jeffrey Spector with Bank of America Securities. Your line is open.
Jeffrey Spector (Managing Director and Head of U.S. REITs)
Great. Thank you. My first question is on the 2 million, the 2 million sq ft signed, 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, 2 million stack up?
Tom O'Hern (CEO)
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 Primark, we had Target at Kings Plaza. We had Scheels, which is over 200,000 sq ft, and we had Life Time. 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 sq ft we've got, probably 75% of that will open in 2024, with maybe 10% in the fourth quarter here and another 15% carrying over into 2025.
Jeffrey Spector (Managing Director and Head of U.S. REITs)
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?
Tom O'Hern (CEO)
Well, you know, that was heavily weighted towards those big boxes and wouldn't be in the leasing spread numbers. In some of those cases, the space is brand new space, like a Life Time 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. 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 1 million visitors a year. And that's a gated attraction. I think their annual -- I mean, their average entry fee is something like $40.
So that's big volume and certainly is gonna generate a lot more traffic, a lot more rent, and a lot more energy and activity than we saw from the theater. And that's pretty typical of some of these big uses, Jeff. I was at the Scheels store a couple weeks ago in the middle of the day on a Wednesday, and it was chock full. There was a 45-minute line for the Ferris wheel. I mean, it's unbelievable. It's a sporting goods extravaganza, and they're seeing traffic numbers that I think are even surprising them. Great addition to the center, and we're gonna 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.
Jeffrey Spector (Managing Director and Head of U.S. REITs)
Great. Thank you.
Tom O'Hern (CEO)
Thanks.
Operator (participant)
Please stand by for the next question. Our next question comes from Samir Khanal with Evercore. Your line is open.
Samir Khanal (Equity Research Analyst)
Hi, good afternoon. Doug, you talked about the, I believe it was 700,000 sq ft 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 maybe talk sort of big picture.
... you know, how those conversations are going?
Doug Healey (Senior EVP of Leasing)
Yeah. Hey, Samir, it's a good question, and I get asked it all the time. It is sort of counterintuitive that given what's going on in the macroeconomic 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 taking advantage of some opportunities to take down some real good space and some real good properties. 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.
We expect to break that record again, yet this year.
Samir Khanal (Equity Research Analyst)
Okay, got it. 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, you know, there was that conversion of variable to fixed. I mean, should we expect more of that to happen in 2024 at this point?
Scott Kingsmore (Senior EVP and CFO)
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 2024 for that very reason. But, you know, we're down year to date just over 20% in percentage rent, the lion's share of 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.
Samir Khanal (Equity Research Analyst)
Got it. And just one last one, if I may. Your lease term income—what was up sequentially, I think, as part of guidance. I guess, what was driving that? And then maybe talk around sort of how the watchlist looks like in the next year for us. Thanks.
Scott Kingsmore (Senior EVP and CFO)
Sure. Yeah, the lease 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. So, you know, in terms of the watchlist, still remains very healthy, very low, certainly very, very low relative to where we were heading into the pandemic period. About 85%-90% less leases and square footage on our watchlist today. And we still, of course, do have a watchlist. We've got 5,000 leases in our portfolios. You're always going to have tenants that you're paying attention to, but I don't think we've got anybody in particular.
Doug, maybe you can expand on it, where we're concerned about anything imminent.
Doug Healey (Senior EVP of Leasing)
No, I think, Scott, you're, you're 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, and 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 (Senior EVP and CFO)
Thank you.
Operator (participant)
Please stand by for the next question. The next question comes from Floris Van Dijkum with Compass Point. Your line is open.
Floris Van Dijkum (Managing Director and Senior REIT Analyst)
Good afternoon, guys. Thanks for taking my question. So going back to the SNO pipeline, can you quantify the impact on NOI, you know, the two million sq ft of SNO represents?
Scott Kingsmore (Senior EVP and CFO)
Yeah, Floris, our pipeline is now north of $75 million, and that is incremental rent versus the uses that are in place today. So, you know, that's, that we'll see a little bit of that in 2023, and then the balance of it into 2024 and 2025. That comes from not only the two million sq ft that are signed, but also the seven hundred million, excuse me, 700,000 sq ft of space that's in documentation right now, at lease documentation. So north of $75 million of the company's share over the next several quarters.
Floris Van Dijkum (Managing Director and Senior REIT Analyst)
Great. Thanks, Scott. And maybe if you guys could touch on your redevelopments as well. I noticed that you got some permissions in Danbury to add apartments, or at least the first phase of permissions. And how are you coming along on 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?
Tom O'Hern (CEO)
Hi, Floris. On some of the bigger ones, like Los Cerritos and Washington Square, we're going through the entitlement process. Those both include a change of use. In the case of Los Cerritos, likely we'd knock down the Sears box and build multifamily. 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. Danbury, we did get approval to convert one of the boxes to multifamily, and that will be underway and is being added to the pipeline.
Others, you saw the completion of Scheels, the opening of a couple of big department store boxes at both 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 redemise of the Bloomingdale's box, as well as the theater building. Top level-
... is Arte Museum, which we've spoken about. Bottom level is Studio One, which is a high-end, fitness center, similar to Life Time. And, we're still under negotiation on the middle floor, not at the point where we can disclose the tenant there, but, and those are gonna stretch out openings into next year, as well as, the second level might end up dragging into 2025.
Samantha Greening (Director of Investor Relations)
Thanks, Tom.
Operator (participant)
Please stand by for the next question. The next question comes from Alexander Goldfarb with Piper Sandler. Your line is open.
Alexander Goldfarb (Managing Director and Senior Research Analyst)
Hey, good morning. Morning out there.
Tom O'Hern (CEO)
Hello.
Alexander Goldfarb (Managing Director and Senior Research Analyst)
Hey, Tom, and, glad to hear that you didn't jump that 45-minute Ferris wheel line at the Scheels opening. So, yeah, 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 wanna come in and partner on non-retail uses at the malls, or has that dried up?
Tom O'Hern (CEO)
There's 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. 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 abate, given even what's going on in the debt markets today.
Alexander Goldfarb (Managing Director and Senior Research Analyst)
Okay. Then the second question is just on the debt markets overall, obviously, you guys have coming up, you know, Tysons and the Philly mortgages, both of those coming up early in 2024. Scott, the 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'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? 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 markets is going.
Scott Kingsmore (Senior EVP and CFO)
Sure. Good question, Alex. Very germane. You know, just to level set, there's been over $5 billion of mall financing just in CMBS space alone. We've accounted for just over 20% of that. There is liquidity today. Obviously, liquidity comes at a price with the rise in the treasury benchmarks and swaps, swap rates, the cost of capital has gone up. But there is liquidity in the market, and there's 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 closing in the fourth 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 in summation.
It's just there at a relatively higher price.
Alexander Goldfarb (Managing Director and Senior Research Analyst)
Okay. Thanks, Scott.
Scott Kingsmore (Senior EVP and CFO)
Mm-hmm.
Operator (participant)
Please stand by for the next question. The next question comes from Michael Mueller with JP Morgan. Your line is open.
Hongliang Zhang (VP)
Yeah. Hey, guys, this is Hong on for Mike. I guess my first question would be, would you be able to quantify your exposure to Express?
Scott Kingsmore (Senior EVP and CFO)
Yeah, they're not in our top ten. We're not at liberty to provide, you know, specifics. I will say that we have numerous stores throughout the portfolio, but as far as specific exposures, we're not at liberty to provide that right now.
Hongliang Zhang (VP)
Got it. And if I understand your guidance correctly, your lease termination guidance implies a pretty significant step up in the fourth quarter. Is that tied to any tenant in particular?
Scott Kingsmore (Senior EVP and CFO)
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 updated guidance, that we do expect to close in the fourth quarter, and that's what's-
Hongliang Zhang (VP)
Got it.
Scott Kingsmore (Senior EVP and CFO)
-driving the change.
Hongliang Zhang (VP)
Got it. Thank you.
Scott Kingsmore (Senior EVP and CFO)
Sure.
Operator (participant)
Please stand by for the next question. The next question comes from Caitlin Burrows with Goldman Sachs. Your line is open.
Caitlin Burrows (VP and Equity Research Analyst)
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 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 higher occupancy, I would have expected minimum rents to have increased more. So I was 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.
Scott Kingsmore (Senior EVP and CFO)
Yeah, Caitlin. You know, 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 at share. So, you know, we, we did see an increase from 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, to top-line rent.
Caitlin Burrows (VP and Equity Research Analyst)
... 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 2022, being even stronger this year. 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.
Doug Healey (Senior EVP of Leasing)
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 signed leases are really indicative of what we've done in the past, 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 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 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, but we just have 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, the 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.
Caitlin Burrows (VP and Equity Research Analyst)
Okay, thanks.
Doug Healey (Senior EVP of Leasing)
Yep.
Operator (participant)
Please stand by for the next question. The next question comes from Craig Mailman with Citi. Your line is open.
Seth Bergey (Senior Research Associate and Equity Research Analyst)
Hi, guys. This is Seth Bergey 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, coworker, 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?
Doug Healey (Senior EVP of Leasing)
Yeah, it depends on the property and whether we've got box availability, for example. But I'd say on average, we're probably 40% on the new uses, 60% on traditional. When I say new uses, that 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 referenced, fall in the category of nontraditional retail.
Seth Bergey (Senior Research Associate and Equity Research Analyst)
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, and you're already at 93.4%. So how should we think about kind of the pace of occupancy going forward? And, you know, as your occupancy improves, how do you think about, you know, rents on the remaining space?
Doug Healey (Senior EVP of Leasing)
So we're cautiously optimistic. You know, obviously, the macroeconomic climate is tough right now. You know, the Fed continues to... In speculation, 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%, you know, by the first half of next year. And from there, you know, 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. 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 re-leasing spreads in the third quarter, and we're cautiously optimistic that's going to continue.
Seth Bergey (Senior Research Associate and Equity Research Analyst)
Great. Thanks.
Operator (participant)
Please stand by for the next question. The next question comes from Ronald Kamdem with Morgan Stanley. Your line is open.
Ronald Kamdem (Managing Director of US REITs & CRE Research)
Hey, just two quick ones. So one, on the sort of the leverage targets that you'd sort of put out during the Investor Day, you know, obviously, fast forward today, rates are much higher, you know, the stock, the stock hasn't really moved to allow for equity issuances, and it's, it's hard to sell. How, 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 to sort of push back or delay given sort of the macro, or, is there more coming?
Scott Kingsmore (Senior EVP and CFO)
Yeah, Ron, hi, good afternoon. Scott here. When we talked at Investor Day in November, I think one of the things we had on there was a placeholder for equity issuance. As you noted, we don't have any intention of 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 NOI growth,
... you know, we think we'll continue making progress in the next year and get in the realm of the low 8s by the time we get to the end of next year. That's net debt to forward EBITDA, so that does take into account some forward NOI element to our redevelopment pipeline, which kind of makes sense given the fact we're incurring a lot of cost up front without the benefit of the NOI. So that's our perspective, low 8s by the end of next year.
Ronald Kamdem (Managing Director of US REITs & CRE Research)
Got it. And then just on the same store, you know, obviously, you reiterated the guidance. As we're sort of flipping the calendar, just trying to understand what the puts and takes are, as you're, as you're comping into 2024, any sense of how much sort of the signed lease 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, as we're flipping the calendar? Thanks.
Scott Kingsmore (Senior EVP and CFO)
Yeah, we're gonna give you the pat line that we're not providing guidance, but I will, in terms of the pipeline, Ron, direct you back to our investor deck from last quarter. There is a disclosure in there about the cadence of our signed but not open pipeline, and as that comes online, what the impact is on 2023, 2024, 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.
Ronald Kamdem (Managing Director of US REITs & CRE Research)
Great. Thanks so much. That's it for me.
Scott Kingsmore (Senior EVP and CFO)
Okay.
Operator (participant)
I show no further questions at this time. I would now like to turn the call back to Tom for closing remarks.
Tom O'Hern (CEO)
Well, thank you very much for joining us today. We are pleased 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 NAREIT conference here in Los Angeles.
Operator (participant)
This concludes today's conference call. Thank you for participating. You may now disconnect.