Samir Khanal: No. With international tourism coming back, I mean, from China or other areas, is there a potential upside to that number, you think? I mean how — are you baking in any sort of upside to percentage rents coming from international tourism coming back here potentially?
Scott Kingsmore: No, we’re not getting that specific. But if you think about it, you think about the revenge spending that occurred domestically here in 2021 as the Asian consumer gets back out into the world, we’ll certainly see some benefit, obviously, some benefit in markets like Santa Monica, in Chicago and Tysons Corner. So we’re not building that into the guidance, but there’s certainly room to think that as those consumers start to venture into the United States that we’ll see some of that international tourism that’s been missing for the last few years start to return.
Samir Khanal: And any color you can provide on sort of what your assumptions are for occupancy for ’23? How much of an occupancy pick up will we see, you think?
Tom O’Hern: We’re going to continue to push that. Obviously, the higher the occupancy gets, the tougher it is to get there. But we were about 94% pre-COVID, dropped as low as 88%. And we’ve leased our way back to 92.6%. And we’ll be — our expectation is to be somewhere between 93.5% and 94% by the end of next year.
Operator: Our next question comes from the line of Floris Van Dijkum with Compass Point.
Floris Van Dijkum: I had a question. Where you think — at what point do you expect you’re going to recover ’19 levels of NOI in your portfolio? And obviously, your portfolio has changed a little bit over the last couple of years. You made a couple more asset sales, et cetera. But it would be good for — maybe for the market to get a sense of what the reference point is and how quickly you can get there? And obviously, clearly, your guidance assumes a slowdown in your NOI growth from the 7% plus levels that you’ve achieved over the last 2 years. So maybe you can give some comments on that as well, when you get a chance.
Tom O’Hern: Yes. Well, the same center growth, I mean that’s coming against some very tough comps. 7% growth for 2 years in a row, that’s extraordinary. So that’s a little bit out of the norm, and this year, we’re getting back to a more normal level. But in terms of when we get back to pre-COVID NOI levels, we’ve said for some time, we believe it’s going to be around the fourth quarter of ’23 and going forward from there. And it will track, to some extent, with the occupancy level as we get closer to that 94%, which we’re pushing for this year. So we think we’ll be there in the fourth quarter, and that’s not inconsistent with what we’ve said in the past few quarters. Things are moving along nicely. And if Doug keeps doing a great job with his team on the leasing front, we’ll get there later this year.
Floris Van Dijkum: And maybe if you can — 1 comment and maybe on — or if I can get your comments on your recovery ratios. One of the things that, obviously, you’re part of what’s going to be a drag on your earnings a little bit and your NOI growth this year is the fact that expenses are going up perhaps in excess of your fixed CAM bumps which will — which could drag your NOI growth, which benefits from your 3% bumps in your occupancy gains and hopefully some positive lease spreads as well. But if maybe you can give a little bit more comments on what’s happening in new leases. Are you asking and receiving higher fixed CAM? What other initiatives do you have underway that improve your recovery ratios and presumably moving from turnover-based rents and tenancies to permanent tenancies should hopefully improve your recovery ratios and your margins as well going forward.
Scott Kingsmore: Yes, Floris. We — as you know, we’ve been a fixed CAM shop for many years. In fact, most of our leases are on a fixed CAM basis with annual escalators that are in ranging between 4% to 5%. So if I were to say, ’22 and ’23 inflation has resulted in an abnormal increase in our shopping center expenses, perhaps that slightly outpaced the annual bumps that we’re getting in fixed CAM. But bear in mind, year after year, leading up to this hyperinflationary environment that we’re currently experiencing, we’ve been clipping along with annual increases that well surpassed inflation. So I think we’ve had plenty of, call it, “bank” to absorb the increases that we’re dealing with right now in operating expenses for things like labor and real estate taxes and insurance.
We’re certainly going to see — we are getting those fixed bumps in our deals with very rare exception. And we’re certainly going to see our recovery rates continue to improve as we convert temporary space, which today is about 7.5% of our occupancy over to permanent. We’ll certainly see a continued growth in our recovery rates from that.
Operator: Our next question comes from the line of Alexander Goldfarb with Piper Sandler.
Alexander Goldfarb: So 2 questions. First up, Tom, on the sales, obviously, we know stuff can be — you always get a mix in sales. But curious, in the fourth quarter, sales were down relative to third quarter. Is this mix? Is it inflation like our — I understand, obviously, tenants are strong, they’re leasing. We firmly understand that. But at the sales level, are customers pulling back? Or was it a mix of what merchandise they were buying? Just — I would have thought in the fourth quarter, people splurge and go out with a bang for the holidays and then maybe pull back once they get the credit card in the first quarter.
Tom O’Hern: Yes, Alex, the comparison was versus the fourth quarter of ’21. And sales in the fourth quarter of ’22 were flat with the first quarter of ’21. But ’21 was a very strong quarter, fourth quarter of ’21. And so that’s not necessarily bad news or an indication that consumers pulling back. I think it’s just we were going against a tough comp. A lot of the retailers blame weather issues. I’m not going to go there. But we weren’t uncomfortable with that result. We were up 3% for the year. And in terms of traffic and activity, the consumer is still there and proving to be very resilient. So we weren’t necessarily concerned about what happened with sales and traffic in the fourth quarter. It was just going against a very tough fourth quarter of ’21.
Alexander Goldfarb: Yes. I was comparing it to third quarter trailing 12 to third quarter versus trailing 12 to fourth quarter, but I’m guessing your response would be the same. Second question is on the — going back to the occupancy build, you guys clearly got a lot of lease term in ’21 and ’22, recaptured a lot of space. Your overall occupancy is still a few points behind your public peer, although they have a different portfolio composition with outlets and malls versus you guys. But it would seem like you guys would still have a lot of bumps in the tank, if you will, on occupancy rebuild that would get maybe better NOI growth. So are there other things there? Is that maybe it’s just the length of time it takes to physically open the space, get the tenant in that’s really the hindrance, so the occupancy build will come in time, but maybe it’s just physically getting it there? I’m just sort of curious because it seems like you guys would.
