Operator: Our next question comes from Samir Khanal with Evercore.
Samir Khanal: Doug, you talked about the — I believe it was 700,000 square feet of ongoing negotiations. Maybe talk about how those conversations are going given the macro picture, right? The consumer has been hit with higher inflation, higher rates. So maybe talk sort of big picture, how those conversations are going?
Doug Healey: 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 I mean 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.
Samir Khanal: 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, I mean should we expect more of that to happen in ’24 at this point?
Scott Kingsmore: 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.
Samir Khanal: 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?
Scott Kingsmore: 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 this is 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.
Doug Healey : 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.
Operator: The next question comes from Floris van Dijkum from Compass Point.
Floris van Dijkum: So going back to the SNO pipeline, can you quantify the impact on NOI, the 2 million square feet of SNO represents?
Scott Kingsmore: Yes, Floris, our pipeline is now north of $75 million and that is incremental rent versus the uses that are in place today. So that 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 2 million square feet that are signed, but also the 700 million — or excuse me, 700,000 square feet of space that’s in documentation right now, lease documentation. So, north of 75 million of the company’s share over the next several quarters.
Floris van Dijkum: 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: 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’ve knocked 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 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. And those are going to stretch out openings into next year as well as the second level might end up dragging into ’25.
Operator: The next question comes from Alexander Goldfarb with Piper Sandler.
Alexander Goldfarb : Tom, glad to hear that you didn’t jump that 45-minute Ferris wheel line at the SCHEELS opening. So, pretty impressive. Two questions here. The first question is, you guys — for non-retail redevelopment at the malls, you guys have been bringing in partners for that. Just curious, given the changes in the construction lending market, are you still finding ample opportunity of developers who want to come in and partner on non-retail uses at the malls or has that dried up?
