Macerich Co Q3 FY2023 Earnings Call

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 speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Samantha Greening, Director of Investor Relations. Please go ahead.

Thank you for joining us on our third quarter 2023 earnings call. During the course of this call, we'll 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. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the earnings release and supplemental filed on Form 8-K with the SEC, which are posted in the Investors section of the company's website at macerich.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.

Thank you, Samantha. It was another strong quarter for us. Leasing volumes continued at a record level. We had a 130 basis point gain in occupancy compared to a year ago and an 80 basis points gain over the 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 '22, the '23 leasing environment has been robust. Store openings are accelerating. During the third quarter of '23, we opened nearly 500,000 square feet more than during the third quarter of '22. That included 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 '22 and '23, we have a very large and healthy leasing pipeline. We have over 2 million square feet in that pipeline of leases that are signed but not yet open. Once those tenants open, it will fuel our '24 and '25 same center NOI growth. Most of our key operating metrics continue to trend very positively. Our average base rent was $65.40, up 2.8% compared to a year ago. Our portfolio average sales per foot for tenants under 10,000 square feet came in at $849 a foot, a very strong level albeit slightly lower than a year ago, and that was mainly due to slower EV sales compared to 2022. We had double-digit positive re-leasing spreads for the quarter, up 10.6% on a trailing 12-month basis and up 11% in the second quarter of '23. So that was two consecutive quarters of 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 three small bankruptcies during the third quarter. We are very optimistic about our business for '24 and beyond. As we open more of our diversified uses as evidenced by recent openings at SCHEELS Sports at Chandler, Life Time Fitness 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. And now I'm going to turn it over to Scott to discuss in more detail the financial results for the quarter and recent financing activity.

Thank you, Tom. This morning, we again reported very strong core operating results for the third quarter. Same-center NOI increased 4.8% versus the third quarter of 2022 excluding lease termination income, and year-to-date same-center NOI growth, excluding lease termination income, is positive 5%. 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 a 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 to $1.83 per share. We are also reaffirming the range of our estimated same-center NOI growth, which is 3.75% to 4.5%. Our 2023 outlook continues to be anchored by strong operating cash flow generation, which we estimate will be over $300 million before payment of dividends. 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, which was up from a prior capacity of $525 million under the former facility. We secured refreshed terms for roughly 4.5 years through February 1, 2028, and facility 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 2 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. 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 nonrecourse 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 nonrecourse loans, as well as on Towne Mall, which is currently in receivership. We do not expect to pay any accrued default interest on any of these three nonrecourse mortgage loans, which is expected to be reversed once the loans are either restructured or once the 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 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.

Thanks, Scott. As Tom mentioned, leasing was robust in the third quarter in terms of both volume and reporting metrics. Sales were down by 1.8% on a rolling 12-month basis, which was expected due to the strong performance in 2021 and 2022. Trailing 12-month leasing spreads remained positive at 10.6% as of September 30, 2023, reflecting an increase of 400 basis points from September 30, 2022. When considered alongside the second quarter, trailing 12-month leasing spreads averaged 11% over the past six months. In the third quarter, we launched 740,000 square feet of new stores, three times the square footage from the same period last year. This brings our total for the year to over 1.2 million square feet, about 80% more than the previous year. Along with SCHEELS All Sports at Chandler, Life Time Fitness at Broadway, and Target at Kings Plaza that Tom mentioned, we also opened several other notable stores including Chanel Beauty at Broadway Plaza, Dr. Martens at Los Cerritos and Tysons Corner Center, Johnny Was at 29th Street, Levi's at Arrowhead, Pandora at The Oaks, Tillys at Valley River, and four MINISO locations at Arrowhead, Chandler, The Oaks, and Vintage Faire. In the emerging brands segment, we opened Arc'teryx at Tysons Corner Center, Avocado at 29th Street, Brilliant Earth and Reformation at Broadway Plaza, Gorjana at Biltmore, Mango at Los Cerritos, and three new Intimissimi stores at Chandler, Queens, and Santa Monica Place. The names mentioned illustrate that the emerging brands category is crucial for us. Our leasing team is focused on discovering new brands and uses to attract diverse shoppers and set our centers apart from competitors. Moving on to new and renewal leases we signed in the third quarter, we completed 206 leases totaling 766,000 square feet, which gives us a year-to-date total of 3.1 million square feet—about 300,000 or 10% more than the same period in 2022, which was a record year for us. This early advantage over 2022 is a strong indicator of our current year's strength. Noteworthy new leases from the second quarter include two Foot Locker superstores at Tysons Corner Center and Deptford Mall, 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 combined total of 25,000 square feet. These stores will occupy the former Ultimate Electronics space, joining Forever 21 and The Container Store, and transforming a previously vacant 120,000 square-foot anchor box into a fully leased area. In the digitally native and emerging brands sector, we signed leases with FWRD and Warby Parker at Chandler Fashion Center, YETI at Washington Square, an inspiration company at Danbury Fair, Deptford, and Freehold Raceway. Lastly, we're excited to announce the signing of Life Time Fitness at 29th Street in Boulder, Colorado, marking our fifth deal with this leading fitness and wellness brand, and we anticipate the traffic and energy they will add when they open in early 2024. Regarding our 2023 lease expirations, we now have commitments on 84% of our expiring square footage, which is expected to renew, with another 13% currently in the letter of intent stage. This 84% commitment represents an improvement of 800 basis points compared to last quarter. For 2024, we are nearly 30% committed for expiring square footage, with another 40% in the letter of intent stage. I'm very pleased with our position concerning 2023 and 2024 expiring square footage. Given the current economic uncertainty, it's beneficial to reduce renewal risks promptly. As for our leasing pipeline, at the end of the third quarter, we had 151 signed leases for around 2 million square feet of new stores expected to open through the end of 2023 and into 2024 and early 2025. Additionally, we are negotiating leases for new stores totaling just over 700,000 square feet, also scheduled to open in the same timeframe. In total, that means about 2.7 million square feet of new stores are planned for this year and beyond. It's important to note that these figures include new leases with retailers not yet operational and do not account for renewals. In conclusion, our leasing and operational metrics were strong in the third quarter. Leasing volumes were solid, and the square footage leased has exceeded 2022 levels when compared year-to-date. Leasing spreads remain positive at 10.6%. Therefore, considering all these factors, we remain optimistic about the rest of this year and the future. I will now turn the call over to the operator to begin the Q&A session.

The first question comes from Greg McGinnis with Scotiabank.

I would like to discuss the guidance and the implied range for Q4 FFO per share, which shows a considerable 10% spread with just two months remaining in the year. This also suggests a sequential FFO per share growth of 20% to 35%, which is significantly higher than the 10% to 15% average we have observed over the last four quarters. Could you provide any explanation regarding the expectations and the causes for this spread? Additionally, could you address the slowdown in same-store NOI growth that appears to be indicated for Q4?

This is Scott. Yes, reasons for the wide range, percentage rents are really the biggest variable for the balance of the year. We've generally kept our sales flat for the balance of the year in terms of projections. So that given the fact the percentage rents are so heavily weighted towards the fourth quarter, that's always a big variable in terms of 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 '22. That also combined with the conversion of variable to fixed rent deals, percentage rent is 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. 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 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'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. Those are the reasons for the trends in same center NOI in the fourth quarter. And then you asked about the trends overall in FFO. It's a lot of factors that go in there. Obviously, we've seen strong same center growth. We do expect that to decline a bit in the fourth quarter, but there's a variety of factors that go in there. We don't have each one earmarked for you, but hopefully, what I just gave you in terms of same center NOI trends and FFO ranges are helpful.

And then as a follow-up. 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 maybe your feeling on expectation in terms of whether you will reach an agreement or how far apart you are?

Sure, Greg, I appreciate the question. 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 certainly, that will have a positive factor on the balance of the year.

Sorry. But in terms of the contribution from those assets to NOI to FFO?

Yes, I'm not in a position to comment on that right now.

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?

Yes. We'll provide more clarity as the conversations go on. We continue to recognize the results of operations on those assets for some time after the loan is in default. So we're just not in a position to comment on the NOI or the FFO from each of those assets.

The next question comes from Jeffrey Spector with Bank of America Securities.

My first question is on the 2 million square feet 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 million stack up?

Well, we had 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 square feet, 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 square feet we've got, probably 75% of that will open in '24, with maybe 10% in the fourth quarter here and another 15% carrying over into 2025.

Tom, can you discuss the leasing spreads on that 2 million, like how does that compare to what you reported for the quarter?

Well, 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 Life Time Fitness that was built from the ground up. So there really wasn't a spread equivalent, but we're getting good strong rents particularly on some of these new uses that are coming in, like 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 average entry fee is something like 40 bucks. So that's big volume and certainly is going to generate a lot more traffic, a lot more rent, and a lot more energy and activity than we saw from the theater. And that's pretty typical of some of these big uses, Jeff. I was at the SCHEELS store a couple of weeks ago, in the middle of the day on a Wednesday, and it was packed. 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 going to see more and more of that kind of activity. So it's more than just economics. We are getting good rent on these new deals in the pipeline, but a lot of these uses are bringing a lot more traffic, a lot more energy, and a lot more activity and it's allowing us to diversify our portfolio which is exactly our strategy.

Our next question comes from Samir Khanal with Evercore.

Doug, you mentioned the 700,000 square feet of ongoing negotiations. Can you share how those discussions are progressing in light of the current economic environment? Consumers are facing higher inflation and interest rates, so how are those conversations unfolding on a broader scale?

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. I think, number one, it's a testament to our portfolio; and number two, I think the retailers are long-term in nature. We have a very healthy retailer environment out there, and they're really taking advantage of some opportunities to take down some real good space and some real good properties. And the result is in the numbers. We're 10% greater than what we were at this time last year, and last year was a record-setting leasing year in terms of volume. So we expect to break that record again yet this year.

And I guess, Scott, maybe to a previous question on percentage rents. I know you talked about the fourth quarter. But as we look into next year, I know there was a conversion of variable to fixed. Should we expect more of that to happen in 2024 at this point?

You'll see some of it, Samir, but not to the extent that you have in 2023. I think you'll see declining trends of percentage rent in '24 for that very reason. But we're down year-to-date, just over 20% in percentage rent, the lion's share of that being converting variable to fixed. And I think we've worked through most of those renewal discussions where we're converting to fixed. I don't expect that kind of order of magnitude next year, but we will see some continued decline.

And just one last one if I may. Your lease term income was up sequentially, I think that's part of guidance. I guess what was driving that? And then maybe talk around sort of how the watch-list looks like in the next year for us?

Yes, 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 3 months ago. It was a transaction that was not on the table. So in terms of the watch-list, still remains very healthy, very low, certainly very low relative to where we were heading into the pandemic period, about 85% to 90% less leases and square footage on our watch-list today. And we still, of course, do have a watch-list. We've got 5,000 leases in our portfolio. So you're always going to have 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.

No, I think Scott, you're spot on. And as I alluded to earlier, there's a really healthy retailer environment out there. And recall, pre-pandemic, there were a lot of struggling retailers, and the pandemic flushed those retailers out. I mean, if they weren't going to survive for 2, 3, 4 years, they didn't survive the pandemic. So, we came out of the pandemic with a very healthy retailer environment, and that exists today.

The next question comes from Floris van Dijkum from Compass Point.

So going back to the SNO pipeline, can you quantify the impact on NOI, the 2 million square feet of SNO represents?

Our pipeline has exceeded $75 million, which represents incremental rent in addition to current uses. We expect to see some of this in 2023, with more to come in 2024 and 2025. This includes not only the 2 million square feet that are already signed but also 700,000 square feet of space currently in lease documentation. Thus, we anticipate receiving over $75 million of the company's share over the next several quarters.

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?

Hi, Floris. For larger projects such as Los Cerritos and Washington Square, we are currently navigating the entitlement process. In Los Cerritos, we are likely to demolish the Sears building to construct multifamily housing, and we are working with the city on the necessary entitlements. Washington Square has several activities in progress as well. These are substantial, long-term projects that take time to receive entitlements, and we are actively pursuing that. In Danbury, we received approval to convert one of the retail spaces into multifamily housing, which is now moving forward and will be incorporated into our pipeline. Additionally, we recently completed the SCHEELS project and opened a few large department store spaces at Green Acres and Kings Plaza. We're also making progress on other projects, including Santa Monica Place, where we are reconfiguring the Bloomingdale's space into multiple tenants. The upper level will feature the Arte Museum, which we've mentioned before, and the lower level will house Studio One, a high-end fitness center similar to Life Time. We are still negotiating for the middle floor and are not ready to disclose the tenant there. These projects will likely extend their openings into next year, with some parts possibly pushing into 2025.

The next question comes from Alexander Goldfarb with Piper Sandler.

Tom, it's great to know you didn’t wait in line for the 45-minute Ferris wheel at the SCHEELS opening. I have two questions. First, regarding the non-retail redevelopment at the malls, you have been bringing in partners for that. Given the changes in the construction lending market, are you still finding plenty of opportunities for developers interested in partnering on non-retail uses at the malls, or has that opportunity diminished?

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.

And then the second question is just on the debt markets overall. Obviously, you guys have coming up Tysons and the Philly mortgages, both of those coming up early in '24. 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 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 in the healing in the debt markets is going.

Just to level set, there's been over $5 billion of mall financings 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 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 modest-sized deals that have been getting done over the last several weeks. Tysons Corner, we do anticipate closing in the fourth quarter, a 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.

The next question comes from Michael Mueller with JPMorgan.

This is Hong on for Mike. I guess, my first question would be, would you be able to quantify your exposure to Express?

They're not in our top 10. We're not at liberty to provide 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.

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?

Yes, 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 driving the change.

The next question comes from Caitlin Burrows with Goldman Sachs.

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 the mix of anchor space or timing of openings or taking space offline?

Yes, Caitlin. Minimum rents, as I think I mentioned in my opening remarks, minimum rents were up $7 million when taken both for wholly-owned assets as well as joint ventures at share. So we did see an increase in the third quarter. It was consistent with what we saw in the second quarter driven by a variety of factors, obviously space coming online and starting to pay rent, a bit from leasing spreads, and certainly from the conversion of variable rent to top line rent.

I would like to follow up on that. You mentioned that the demand you experienced last year was even stronger this year. Can you discuss the various categories of demand and how sustainable this strength might be?

Hey, Caitlin, it's Doug. We're experiencing unprecedented demand, and I often get asked how long it will last. Honestly, we aren't seeing any signs of a slowdown. Our signed leases reflect our past performance, but if we look ahead at the deals we approve, we have a leasing committee that meets every two weeks, which provides a more forward-looking perspective than our signed leases. So far this year, we are close to or slightly ahead of last year's approval rate for new deals, indicating a positive outlook. A lot of this demand is a testament to our portfolio, which offers a wide range of uses that we didn't have before. Consider the digitally native and emerging brands, food and beverage, restaurants, large format, fitness, grocers, home furnishings, entertainment, health, wellness, beauty, and many more. We have added uses that were previously unavailable, and I believe that, along with our portfolio, is driving this demand.

The next question comes from Craig Mailman with Citi.

This is Seth Bergey stepping in for Craig. Referring back to your negotiations, you've mentioned exploring new uses for your space, such as medical coworking, grocery, and lifestyle. Could you share the balance between these new uses compared to traditional ones?

Yes, 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, they 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 Life Time 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.

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 as your occupancy improves, how do you think about rents on the remaining space?

So, we're cautiously optimistic. Obviously, the macroeconomic climate is tough right now. The Fed continues to speculate 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 do think we'll get above 94% by the first half of next year, and from there, obviously, that helps with the less capacity, the less availability. And the more capacity we have, the more availability we have, it makes it tougher on leasing spreads. So, as that diminishes when we get back to pre-pandemic levels as we're approaching right now, it really gives us more leverage on 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.

The next question comes from Ronald Kamdem with Morgan Stanley.

Just two quick ones. So one on the sort of the leverage targets that you'd sort of put out during the Investor Day, obviously fast forward today rates are much higher, the stock hasn't really moved to allow for equity issuances and it's hard to sell. How are you guys thinking about sort of those leverage levels? And is it fair to say that those may be able to sort of push back or delay given sort of the macro? Or is there more common?

Scott here. When we talked at Investor Day in November, I think one of the things we had and there was a placeholder for equity issuance, as you noted, we don't have any intention of issuing equity here. So, take that out of the equation, obviously, that influences the leverage targets. But as we look at NOI growth, 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 upfront without the benefit of the NOI. So that's our perspective, low rates by the end of next year.

And then just on the same store, I mean 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 comping into '24, 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 flipping the calendar? Thanks.

Yes, we're, I'm going to 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 opened pipeline and as that comes online, what the impact is on '23, '24, and 2025. So that should help you out, at least to get started. But we'll certainly provide you more details at our next call with the typical timing of our guidance issuance in the January, February timeframe.

I show no further questions at this time. I would now like to turn the call back to Tom for closing remarks.

Well, thank you very much for joining us today. We're 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.

This concludes today's conference call. Thank you for participating. You may now disconnect.