Q3 2019 Earnings Call
Good day and welcome to the CBL properties third quarter earnings Conference call.
All participants will be any listen only mode. So do you need assistance. Please take note conference specialist bypassing the Starkey followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question.
He May press Star then one on your Touchtone phone to withdraw your question. Please press Star then too. Please note. This event is being recorded.
I'd now like to turn the conference over to Keeney Rhinesmith CIO. Please go ahead.
Thank you and good morning, joining me today or even like that's CEO in.
Vertical wheel executive Vice President and CFO .
This call contain forward looking statements within the meaning of the federal Securities laws, such statements are inherently subject to risks and uncertainties future events and actual results financial and otherwise may.
Differ materially we directly to the company's Grace filings with the assay fee for a detailed discussion of these risks.
A reconciliation of supplemental non-GAAP financial measures to the comparable GAAP financial measure was included in yesterday's earnings release, and supplemental that will be furnished on form 8-K and is available and the about section of the web site at CBL properties Dotcom.
It's causing limited to one hour in order to provide time for everyone to ask questions. We ask that each speaker limit there.
Such Institute and then return returned to the Q task. Additional question. If you have questions that were not answered during this call. Please reach out to me following the conclusion of the call I will now turn it over to Steven.
Thank you Katy and good morning, everyone.
This quarter featured several notable accomplishments for CBL.
I've said previously our primary strategic goals are transforming our properties for long term success and strengthening our balance sheet.
We're now seeing tangible results from our redevelopment program as we're celebrating the openings are the first wave or the anchor replacement projects. We are proud that we have successfully source required.
Brent for 27 anchor spaces, which are either open under construction or committed not only do these projects add new and diverse uses to our centers. They also stabilized and grow revenues.
It was a highlight for me to celebrate two weeks ago, the Grand opening of the new movie Tavern by markets Theater.
At Brookfield square in Milwaukee, and two experienced a brand new Worley ball entertainment and dining complex Brookfield squares, a prime example of how we're transforming unproductive anchors across our portfolio in this case Sears redevelop into a bustling entertainment driven mixed use project.
We are bringing together successful retail what fitness entertainment restaurants, and other mix uses we're creating value from underutilized parking lots with new restaurants medical office and the city owned Hotel Convention Center, which will drive additional traffic based on the initial results. The project has been well we see.
In the market and will be a great success.
Another highlight for me is watching the day to day progress on the redevelopment of the Sears or Hamilton place here in Chattanooga, Dave and Busters, and Dick's Sporting goods are well under construction and on track to open next spring the locked hotel in self storage project.
Both of what's your joint ventures recently started construction as well and we have plans for additional restaurants in office space is part of the project.
Another Great example of our vision for the future of our assets.
We added several new commitments to the less that I agree placements this quarter, including von Maur, taking the far Boston store at.
Just had a Madison, Wisconsin, which will be a key addition to that center. We're also using joint venture in third party partnerships to further our redevelopment program.
Three of our Sears locations or under contract to be acquired by third party developer with plans to complete future redevelopment.
Yes.
Great outcome from our point of view delivering transformational projects, while at the same time, allowing us to retain capital to allocate to other projects are self storage at hotel joint ventures, or another example of how we are successfully realizing value from our assets and maximizing our return on capital.
We're diversifying the uses that are centers, which will provide a more stable base of revenues overall, 74% of new mall leasing and 60% of totem all leasing including renewals. This year has been non apparel.
Adding non retail in mix uses is another focus we're currently working.
Construction have agreements executed or aren't active negotiation on two multifamily projects 15 entertainment operations, including two casinos nine hotels 31 restaurant eight fitness centers eight medical uses to self storage facilities and several other non retail.
Uses.
The market dominant locations of our properties are driving the strong interest. These uses complement our existing tenant base drive new traffic to our properties and strengthen the overall project.
As outlined in our earnings release, adjusted FFO per share for the quarter was 34 cents.
With portfolio same center, NOI down, 5.9% for the quarter and 5.5% for the year.
We're not satisfied with the decrease in at that though and in Hawaii, but we are pleased to be on track to hit the mid to high end of our firm guidance range. Despite the challenges we face.
Retailer bankruptcies store closings and restructurings.
We're seeing important improvements in certain operating metrics sales for the third quarter built on the previous positive trend with a 3.2 increased to $383 per square foot.
Folio occupancy increased 30.
Basis points sequentially. However, the impact of bankruptcy related store closings caused the 150 basis point year over year declined to 94.5%.
We are adding innovative in local users through our specialty leasing and pop up shop programs, where our leasing team works to bring on longer term users.
New leasing spreads were strong increasing 18% as we make progress on these replacements.
We're also focused on various strategies to bolster our balance sheet, we're utilizing free cash flow, which is estimated at $200 million. This year to find the redevelopment projects and supplementing that with joint venture.
What are you in construction long sounds like projects.
Another source of liquidity for both redevelopment the debt reduction, it's disposition proceeds which has totaled $161 million here today.
Before I hand, it over to Katie I wanted to touch on two additional items. This morning, we announced an agreement with Exeter.
Oh led by Michael Ash, Mnner highly respected veteran and the real estate industry.
As part of the agreement Michael as well as Carolyn Tiffany are joining our board of directors as we stated many times over the years, we are and always have been open and engage with our shareholders and our announcement. This morning is the latest example.
Yes, Michael hasn't nearly 6% ownership interest in the company, which next to management represent one of Cbls largest common shareholders with this strong alignment of interest we're all focused on unlocking the value we see in CBL.
We've had the opportunity to spend a significant amount.
Out of time with Michael as well its Caroline and believed that there is substantial experience with public companies and financial background will bring a fresh perspective and add value to our board discussions Carolyn will join our audit and compensation committees are more than 25 years of experience a commercial real estate investment.
Patients and management will be an asset to these committees.
We're also establishing a new capital allocation committee that Michael well chair.
Richard Labor and I are off well also be members of the committee. Many of you may already be familiar with Richard given has more than 30 year career.
We are in real estate investment banking and finance. This committee will serve as an advisory committee to the board reviewing our financial plans strategies and capital commitments I have no doubt that Michaels perspective, it ideas will help further our plastic three strengthen CBL and maximize value we're pleased to welcome.
Both Michael and Carol and I look forward to their contributions.
Finally as stated in the earnings release, we will be reviewing our taxable income projections prior to year had to determine and announce our dividend policy for 2020.
As we stated our priority is preserving cash flow for use in.
During our broader corporate strategy, what you're ultimately allow us to create more value for shareholders for shareholders.
With this in mind, we expect to pay the minimum required common dividend if any to distribute taxable income at this time, we are still reviewing projections and we'll provide more information.
I'm sorry analysis is complete.
Now I'll turn the call over to Kt to discuss our operating results and investment activity.
Steven.
As a result indicate we had a productive quarter in many respects our leasing team completed 713000 square feet of total leasing activity, including 240000 square feet of new.
Thing and 473000 square feet of renewal on a comparable same space basis for the third quarter, we signed approximately 400000 square feet of new and renewal leases at an average base rent decline of 5.5% spreads on new leases for stabilized mall increased 18% and renewal leases were signed an average of 11% lower than the expiring.
Yeah.
Same center mall occupancy continues to be impacted by bankruptcy related store closures declining 200 basis points to 88.7 per cent compared with 90.7 in the prior year period.
Portfolio occupancy declined to 150 basis points to 90.5% bankruptcy related store closures reduced third quarter.
<unk> occupancy by approximately 400 basis points or 720000 square feet, including closures from pay less gymboree charming, Charlie I'm Charlotte risk.
It's been widely publicized forever 21 filed for bankruptcy in October we have 19 stores, representing approximately nine and a half nine and growth annual rent and we anticipate.
But most if not all stores will remain open we've incorporated the impact of any rent reductions in our guidance for this year.
Destination maternity also filed chapter 11 in October we have 27 stores, representing approximately 2 million in growth annual rent currently we anticipate to store closures, but the bankruptcy plan is still pending.
We are encouraged that same center sales for the quarter increased 3.2%, bringing the trailing 12 months sales to 383 per square foot compared with 378 for the prior year.
Across the portfolio, we had strong traffic for back to school in tax free weekend categories that performed well include fast casual dining electronics children's and family shoes and sporting.
With sales year to date up almost 2%, we're well positioned for healthy holiday sales season, we have a lot of exciting events planned across our portfolio as well as a number of new anchor in store openings that will drive additional traffic.
Our ankle replacement program has made great progress with the 27 locations committed including a dozen already opened and another four set to open.
And within the next few months.
We're making progress on the remaining spaces with active negotiations are alive for several others you can find a complete schedule of our projects underway in the supplemental but I'll touch on a few recent updates as Steven mentioned, we just celebrated the grand opening of the redevelop series at Brookfield Square in Milwaukee, Wisconsin and project includes the new movie.
Sovereign by markets theaters really ball Entertainment Center, Outback Steakhouse, and uncle, who is construction is progressing on the new city onto talent Convention Center, which will open next year.
We have opened and Orangetheory fitness studio and we'll be adding medical office is part of the redevelopment.
And although nortel in Laredo, Texas, we downsized starboard Tony one in her opening.
Entertain either main event in early 2020.
Construction is progressing on the Sears redevelopment at Hamilton place here in Federica the price. It concludes the Dave and Busters Aloft Hotel Dick's Sporting goods additional restaurants in office space, All joining Cheesecake factory, which opened last December the hotels being developed in a 50 50 joint venture with a well regarded local.
We continue the brand as our portion of the equity, which allows us to realize value from our assets and the Sharon feature outside.
We also recently started construction on a joint venture self storage facility on a personal outside the ring read at Hamilton place.
This project is a similar structure to our previous storage projects and that we contributed the land as our equity that was.
As expected in early 2020.
We have two casinos that will replace they can anchor locations at malls in Pennsylvania at Westmoreland Mount stay in life Casino, we'll be taking downtime location construction. Its commenced its an opening expected in 2028 York Galleria In York, Pennsylvania, Penn National Gaming well, it's been a Hollywood casino in the former.
Sears location regulatory approvals are underway construction has commenced with an opening anticipated a 2020.
After 50, 50 joint venture property, Kentucky Oaks, or predict Kentucky, Burlington, arriving in the third touch formed our third ties owned fears.
It's also opened in mid October to replace a portion of the out elder Beerman store.
Additional value retailers are under negotiation entertainment operator tilt is under construction in the Sears location at Cherry them, all and Rockford, Illinois, We lost they find time series at this property the boundaries replaced with choice home Center, which I've been in late 2018 until it is expected to open in early 2020.
Great great sensor quite minimal investment.
At World Park place and Millennium, Michigan that imports is under construction in the Carson's box there. The opening is expected later this month.
We announced the fashion Department store Bond Maher will open in Boston store location at what time on Madison, Wisconsin. The Boston store will be raised later this year to make way for the construction of the new store.
One of the nights.
Good names by Westtown customers. This will be a terrific addition to the property.
I've Frontier mine site in Miami, the Sears location will be replaced by Jack that their gear, which is expected to open by year end. This location at the end by third party. In addition to the ankle replacements and we are in Redevelopments I've just walk through we have a lot of activity and ROI in negotiation status.
And we'll make announcements as deals program I will now turn the call over the first I wanted to discuss our financial results.
Thank you Katie.
We are executing on our key financial goal of maximizing free cash flow supplementing our liquidity with other sources, such as disposition extending our maturity schedule.
Reducing leverage.
We're pleased that we have addressed our major loan maturities for 2019.
We have a four and a half million dollar loan secured by the second phase of Atlanta outlet Center that we anticipate refinancing extending a retiring prior to year end.
We also have to.
Secured loans that matures in December Green Briar mall, and Hickory point. These loans, what previously be structured and we are in discussions with the lenders to determine next steps.
Our primary focus is on secure nonrecourse loans that mature in 2020 and beyond.
Generally these properties.
Hi debt yield and strong locations in the markets. While the secured financing market is selective we have several available avenues that we are continuing to explore to address these maturities.
Our total pro rata share debt at the end of September 2019 was 4.3 billion we haven't.
Used our debt levels by 125 million sequentially and nearly 400 million from September 2018.
At the end of the third quarter, we had 380 million available to draw lines of credit.
Third quarter adjusted FFO per share was 34 cents representing.
Decline of six cents per share compared with 40 cents per share for the third quarter 2018.
Factors that contributed to the variance included lower property level NOI, a four cents per share and two cents per share of dilution from asset sales.
Third quarter same center NOI decreased five.
When nine cents, 5.9% and same seven centre NOI for the nine months declined 5.5%.
During the quarter, we recognized an 82.6 million dollar impairment unmet drivers small insane Charles Missouri.
The mall has been impacted by number.
Factors, including several tenant bankruptcies, Osiris closure and significant rendered direction on lease maturity for certain major tenants, who also saw several income producing parcel around the property over the years generating significant proceeds, but reducing and a lot.
You will note. We also recorded at 22.7 million dollar reduction to the litigation settlement expense accrued during the first quarter. The reduction is largely related to pass tenants that did not submit claims pursuant to the terms of the settlement agreement.
[noise] future reduction of this expense will be about.
He did as we have as we are relieved the liability as provided in the agreement.
Based on results to date and our expectations for the rest of the year. We are reaffirming AFFO guidance for full year 2019 in the range all dollar 30 to $1.35 per share which.
He needs to assume a same center NOI decline in the range of 6.25% negative to 7.75% negative.
At this time and assuming no additional major bankruptcy activity, we anticipate leach replay, reaching the mid to high end of the guidance range.
We currently expect to utilize approximately eight to 10 million of the $5 million to $15 million <unk> million dollar reserve.
I'll now turn the call over to Stephen a concluding remarks.
Thank you Farzana as I mentioned earlier, we are excited by the progress and impact of our anchor redevelopment.
Program, we're making improvements to our properties, which is critical to stabilizing income and creating long term value. We're focused on ending 2019 on strong note and executing on our key strategies as we approach 2020, we have a great team of experienced professionals both here in China.
Okay and at our properties and I appreciate all their hard work and dedication to CBL success. Thank you for your time today, we will now open the call to questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if you are using a.
Your phone please pick up your handset before pressing the keys to withdraw your question. Please press Star then to you so.
So first question today comes from Christy Mcelroy of Citi. Please go ahead.
Hi, Thank you guys and good morning, just on the exit our announcement.
Three partner here what.
Relevance of forming a capital allocation committee separate from the Executive Committee, how much control will that committee has the capital allocation Committee overhead started a day to day.
Longer term decision, making at the company and with fashion or going on the Executive Committee will someone come off or will there be for members.
Hi, Christy good morning, So first of all I want to reiterate what I've said in my comments that were really pleased with the way with the outcome that weve reached with with my Gosh, Mnner and also having Caroline Tiffany joined the board.
The capital allocation Committee.
Isn't advisory Committee and.
It really is a great mechanism for us to tap into.
The experience at Michaels had with other companies his ideas for what we should consider can consider it CBL and and also.
Oh, we have Richard leave as part of the committee and Richard has a wealth of experience and we've been able to benefit from Richard on the board, but you know this committee just will.
Bring some additional focus and so we view it a positive.
It is advisory so it's not it sounds like an.
Committee or compensation Committee are standing Board Committee and.
I'll just be a new means for us to focus on financial strategies, and and other financial priorities, which.
We've been doing but we can.
We see more.
So executive Committee, we're just adding Michael to at and its.
So it'll be.
Myself.
My Dad, Kathleen Nelson and my call and the Executive Committee.
Plays an important role I'm really and recommending project for full board approval for the most part so it just gives a chance to that some of the projects and some of the.
Different transactions.
In a in a smaller and smaller group Saturn.
Thanks for your questions right.
Yeah. There was thank thank you for that and then just on the dividend I know you expect to clarify later this year, but your comments and they're really suggests that there may not be a dividend at all when determining taxable income for the year. I think you said if any is your plans to move to an annual dividend assess closer to year end rather than.
Quarterly and with the impairments that you've been taking where do you stand in terms of and allows that could be applied to reduce taxable income.
That's like five questions in one I'm sorry, yes.
Okay. So [laughter], but you don't you don't fall our [laughter] side.
ER anyway so.
We're where there's a lot of moving parts in the taxable income projection and so weird we're still.
Obviously for 29 team, we haven't really good sense of where that's going to end up so most of our transactions have been completed but as we look to 2020, we're still.
Finalizing our projections for our our property level budgets.
We are making assumptions as far as transactions.
And are looking at all the other factors that go into taxable income so.
Like I said, we're going to definitely.
The next 30 60 days.
Before we announce anything for 2020 I'm doing it on annual basis is certainly a consideration, but we haven't.
Maybe decision on that but that is something that that is a possibility and the if any was intentional that wasnt something that we just tried to slip in there because like we said.
Our primary goal is to preserve cash flow to invest and the properties in the business we're seeing.
Good returns from that investment, but financial and also in terms of the impact on the properties and stabilizing income and and also we wanted.
Reduce debt and we want to strengthen our balance sheet. So to the extent that we can preserve cash flow, which is our cheapest source of capital to accomplish go those gold stocks, that's what we plan to do.
Okay. Thanks, sorry for the multi Carter thanks for the telco I didn't I don't the anywhere else by the way you know that something.
We will look out, but I don't think we have.
Significant ano wells from the impairments.
Really I'm kind of two different factors that go into the analysis there.
Okay. Thank you.
The next question comes from Todd Thomas of Keybanc capital markets.
Hi, Thanks, good morning.
First question Farzana looking ahead to 2020, you commented that you're focused on secured nonrecourse mortgages can you can you just elaborate on that a little bit maybe comment on the maturities at Burnsville Parkway and Valley view.
On what the plans and expectations.
Since our for those specifically.
Oh sure Todd, Yes, you're right, we have been 12 Parkway place Bally view.
And couple of the smaller ones, that's coming up we are in discussions.
With several lenders we in the market well ahead of the maturity.
We also in discussions with the current lenders. So you know to make them aware of our progress and so we'll continue arafat efforts in working with the current lenders as well ads exploring other opportunities to get you financing done. So we're not there yet, but we will of course.
Keep you posted as we make progress.
Okay.
And then.
In terms of.
The outlook and for leasing and the leasing environment in general as we as we think about 2020 and Im just curious if you can discuss.
Yes.
Sort of what your early thoughts might be.
You know I guess around how you're thinking about the reserve next year, how you're thinking about that just maybe in light of your current tenant watch list, how that might be trending and sort of your conversations with tenants can you can you provide any thoughts on that.
Yeah, Hey, Todd So I mean, it's still early like I've said, we are finalizing budgets.
For 2020, and I'm trying to get a better handle on exactly what it's going to look like.
But we do have the the bankruptcies from this.
Here I will have the full year impact from that and also the restructurings so that as a whole to dig out of the out forever 21, it looks like they're going to be able to keep most stores open but there are rent reductions involved as as other companies is said and has been publicized.
And.
The others that we've had this year like Kt talked about a.
700000 square feet, and a 400 basis points in occupancy.
That takes time to call back so we have that whole to dig out of our new leasing spreads are good but to the volume of.
That is yeah, we solve a ways to go and we've been filling the gap with specialty leasing and pop ups and all other sources like that.
But its yeah, we it's still going to be I'd say, a tough year and we've got a we got a lot of work today.
Okay, a lot but.
A lot of this year's activity that wouldn't be factored into next year sort of.
Budgeted reserve right so.
Im just curious based on the current environment and sort of how you're monitoring your your tenancy. If you can you know how are you thinking about.
That on budgeted reserve, just given where it shaking.
This year.
As you look ahead.
Do you think you know that might look next year.
Yeah, I mean, it's too early I can't tell you I mean, if we would have.
Tried to do a reserve number a month ago, we went to handle forever 21, and and destination maternity different but now they filed and we have a lot.
Got better clarity, so as we get close to year end well or even.
In February when we announce it well, we'll do our best job at that point of estimating the reserve I mean, we we have our watch list that we monitor closely.
We look closely at all the.
You know the different sources out there on on retailers to try to get a sense for what their plans are but on the other hand theres a lot of things that we don't control and we don't know so the the more cars current information we can use by just waiting I think we'll be.
Better for everyone in the market and yeah, we did that this year and Ah, Yes, we have even though we've had a lot of bankruptcies and a lot activity. Our our team did a great job internally of setting a range for an ROI that we've been able to halt and it looks like we're going to be.
In the mid to high into that range. Despite all the factors so.
Yeah, we spend a lot of time on we've honed that process and in this year I think it served us well.
Alright, great. Thank you.
The next question.
In comes from Craig Smith of Bank of America.
Well. Thank you good morning.
Looking at the negative 11% renewal spread and Im just wondering.
Oh I'm, assuming the lease modification restructuring is a big part of that drag when you think about the.
Since our we've seen the restructuring slow or.
Staying a stronger actually increasing.
Yeah, So I mean, we.
We are definitely disappointed to be as negative on the renewals, but our goal is to retain and.
Income and preserve occupancy so that does involve being flexible in the restructurings and that is are the biggest contributor, especially where retailers are on the brink and we're trying to help them.
Without having to go into a chapter 11 or any type of.
During where the consequences can be a lot worse. So that's the biggest contributor as far as the cadence slowing down.
The the improve sales definitely helps and theres a number of retailers who.
Weren't doing as well.
In the year that that are now seeing better results.
And so that's encouraging in or Hmm is up big across our portfolio this year and so.
That's really good to see and then you know you just look at yes. Some of the other retailers that are doing well.
Yeah Route 20 ones. Another company that has had really strong sales growth this year and.
In the past it has had you know Dave Dave had their issues. So yeah, we're seeing some progress there, but then on the other hand, there's companies out there that are our are still having challenges.
I think sales so it's it's still like I said earlier, it's a tough environment out there.
Okay, and then just in the restructuring process are you able to get greater control over the leases.
Okay.
Yes, I know I hear you Kevin take and.
I'd say for the most part to the lease terms, our shorten so that does give us an opportunity to bring in someone else at or better rack and we have the option as part of a restructuring to arm.
Got cherry pick but to take certain locations out if we feel like there is a better opportunity.
And our and we've definitely done that as part of these.
Okay, great. Thank you.
Thanks, Thanks, Craig.
The next question comes from Rich Hill of Morgan Stanley . Please go ahead.
Hey, good morning, guys want to come back to.
The capital allocation Committee, and maybe follow up and some of the questions Christy asked.
Michael obviously has a reputation a really strong reputation that the debt markets. So I'm curious does that mean, you might be willing to be a little bit more aggressive and re negotiating debt.
No farzana in the past when when we chatted about this year.
It's a little bit more challenging, but I'm wondering is Michael being involved in a more significant way changes your approach to.
Right so the balance sheet.
So I mean.
Like I said I mean, Michael will definitely be more involved on the board and Ah Yes, we.
His input and its dogs.
But you know we.
I have been dealing with the maturities are I think in a really smart way into in the best we can and all the various scenarios and data will have the benefit of his experience and his knowledge and and that'll help us.
But I don't see any any significant change in our strategy as we approach does.
And you know we've we've been aggressive but you know we also feel like there's a there's a lot opportunities in properties going forward that we want to make sure. We can we can take advantage of so I've got it yeah.
Okay.
And so so maybe just to drill down on that specific way that your bonds I think our.
Trading at a yield maybe a little bit higher than were developed yields are I mean, how do you. How do you think about that capital allocation decision.
Yes, I know, we've said that yeah.
Our focus is.
Investing in our properties in the redevelopment and yes. There is the the math and we certainly run the math on everything.
But there's a lot of intangibles when you look at investing in the properties.
And a lot of ancillary financial returns that aren't.
Third in the pure returns that we publish in our supplemental so we take it all into account I mean, one of the things that we've talked about it we didn't talk about as much in our script is the way we've been able to accomplish a doesn't have the redevelopment with less than $5 million of investment the joint ventures that we've done on the hotels and self storage ground.
Leasing of Outparcels. So there's lots of different strategies that weve come up with to manage our capital to preserve our capital and maximize the returns.
Buying back bonds is not something that we've talked about what I'm, sorry, we talked about but it's not something that we've indicated that were doing at this time.
Okay great.
Hi, guys I really appreciate that color.
Okay. Thank you rich.
Your next question comes from Caitlin Burrows of Goldman Sachs.
Hi, good morning.
You mentioned the two maturities that are coming up in December which is just a few weeks away now in that you're in discussions with the.
To determine next steps I guess im just wondering any sort of comments you can give in terms of could this potentially mean refinance extend or some other options. You did mentioned that the line of credit capacity that you guys have just trying to figure out what could be happening in the next month or so there.
Oh, yeah in terms of.
Green Briar and Hickory point those are the two maturities that you are previously restructured so.
Generally speaking we are still in discussion and discussions with the lenders as to.
Restructure potential new restructure, but that's less likely so.
Next year, we're not intending to pay these last two loans off from a lines of credit.
So we'll continue to work with the lender not only part of next year and either have a now the restructure that make sense to us and them or we will probably that turned the properties back to the lender.
Two options.
Got it Okay and then also just for 2019 on the same store NOI guidance.
I agree you guys had good job of forecasting that this year on last year. So that is notice it does though a imply a deceleration into fourq you.
But you did mentioned.
The high to mid point I could be attainable. So I guess just thinking about that deceleration do you think it's due to conservatism or are there specific headwinds that we should keep in mind is it just.
Kind of rents that youve put in place leading up to this point.
No, it's just the bankruptcies and the.
The fact that.
Getting in fourth quarter really all the bankruptcy so far for the year.
And with the backfill rents that were getting for specialty income are temporary income helps but it does that offset the losses that we've had so it definitely.
Implies a deceleration in the fourth quarter to to get to that range.
Okay got it thanks.
Thank you.
The next question comes from Haendel St. Juste Mizuho. Please go ahead.
Hey, good morning.
I wanted to go back to your.
Comment on reducing the litigation reserve and understands a sensitive topic, that's why it makes I'm thinking about it correctly.
You had established a $90 million fund I think one third was for attorney fees 60 million for I guess tenant credit. So when you mentioned, the 28 million reductions that simply reducing the tenant piece. The 60 million. That's about 32 million and then I'm curious if there's any.
On the income statement. Thanks.
Yes. So we took down 22.7 million. This quarter. This is this was primarily for the past tenants that did not filed claims a in a timely manner. So that amount is no longer a we're not.
Hi, Bill for that amount. So we have been relieved of that liability. So he reduced our past tenant bucket by about 22.7 million. So there's approximately another 10 million also remaining that as time progresses and as we are relieved of the liability or we have to make a payment due to make that adjustment.
To the expense as to the balance it it is in the future. So we have to wait until.
We know exactly how the rent credits will work and how the claims would work in terms of what is owed and what they owe us and based on that again, it's you know year by year.
Or that we will be taking that reserve down to the extent we are believed that the liability.
Okay. Thank you for that it's the $60 million to get three days turned out for that sort of Hudson Yep. Okay. Thank you appreciate that and then maybe little bit more on forever 21 can you maybe talk about the range productions for the rent there and impact to 2020.
The same store thanks.
Yeah, I mean, we like we said, we started with with EUR nine and a half million.
19 stores.
I'm not I don't think we can give a specific amount as far as the reduction it does vary.
Great.
And in different cases, depending on the productivity and depending on the center and depending on the size of the store. We are we actually had one forever 21 that we downsized and just opened them all down or today in Laredo.
And that had been a former mervyns, where they occupied about 75000 square feet. Now there are new stores around 20000 square feet and that opened in August we had to others.
That were Rightsizing that opened in August .
And our underperforming while so.
Yes.
We feel good at Delhi emerge from this and.
We'll be able to give a better indication of where we end up financially once the all the other restructurings are finalized.
Okay Fair enough. Thank you Steve.
Thanks.
Your next question comes from Michael.
Mueller of JP Morgan.
Yes, hi.
I appreciate you probably aren't going to be able to give an exact number for this but.
The bankrupt the on identify bankruptcy reserve this year eight to 10 million. When you think about everything you have going on heading into 2020, and you know forever 20 ones.
Kind of unknown at this point.
It does your does your gut tell you that the reserve heading into next year is going to be similar to this year do you think it would be better do you think it'd be worse I mean, just how are you thinking about that and the landscape for closures next year.
Thank you answered your question [laughter] no I mean, it so when we do.
To the reserve, they're some of the income that's project that we take into the budgets, where especially where we know that we're going to have a.
Lease expiring or we have in some cases renewals that are.
Negotiated in place, but the lease had been signed so we try to take as much into the budget as possible and.
That's why our reserve for this year was lower than it was the previous year was that we were able to.
Incorporate more into the budget so yeah I can't tell you.
You know.
Really my my got one way or another Arkansas is that like I said earlier I think we've you know we're doing what we're doing a better and better job of forecasting it and tried to get a sense for this but theres still are things that we don't control. So as we get closer well out we'll we'll give our best estimate.
To the market for both our our same center performance and our reserve.
Got it okay that was it thank you.
Thanks, Mike.
Next question is a follow up from Christy Mcelroy I've city.
Hey, it's Michael Bilerman Christie.
Did you guys I don't think I heard it the cost that you have.
I guess with your advisors that will be extends from the fourth quarter for the agreement that you had with Michael.
Yes, no we didn't disclose that but I mean.
We had a.
Very collaborative.
The process with Michael over the past two months in terms of a working through our dream at and so.
So I mean of course, we have expenses, but we were able to keep those down to the point, where it's not significant.
I mean, we've had.
Just overall.
We've had some.
Additional legal and other costs for the year that as our better pushed our arm our gn a a higher.
And that was disappointing because we had done some salary reductions in other measures to try to reduce.
Hi.
But the exit or settlement really is a significant.
Amount and are we did take the legal into this quarter. So we what we don't anticipate anything as a the fourth quarter as we go into the fourth quarter.
Okay, Goldman's typically not a.
In expenses activism defense from and so we've seen other companies specifically in your sector have some pretty large activism defense success fees.
And so you're talking it's not like a 10 15 million dollar expense in the fourth quarter.
Fortunately not and our Goldman did a great job and ER, our whole team did a great job and the best thing about it is we sat on the really on an expeditious manner very friendly very collaborative and these things can go really bad.
And we're really happy with the way it worked out and we had a great team and ER learned a lot, but I'm now I think it's a win win for all of us and all of our shareholders.
Just thinking about Michael both the press release this morning says.
He's agreed to stand still and voting agreements through.
2020 annual meeting.
Or for as long as on the board so.
Is it the leader of E. If he is not unhappy up until the board meeting he can relinquishes seat and then.
Starting a campaign.
With a new slate or are you protected.
In doing that at the 2020 meeting.
Yeah, we're protect and I recognize and I recognize that you want them. He wants to be positive I just want to make sure I understand why not where we're protected for the 20 Tony meeting. So the earliest if he gets unhappy would be the 21 meeting.
And if it stays on the organic goes beyond.
Okay, and then in terms of well just going back to the Executive Committee the board's nine members.
This executive committee is not going to be a ticket. It's four right yourself your father.
Gasoline and Michael I mean is that efficient where you almost have half of the board on an executive Committee.
The.
Versus.
You know something locating some people off either either that yourself for your father, either Kathleen to.
Make it a little bit more manageable.
No.
Works, well I don't know.
It's not significant from a cost point of view and I think that.
Yes, the executive Committee really plays a role making recommendations to the board and approving projects that have a more limited scope. So I mean everything significant.
Really is aboard vote and alright, that's the way we've operated and Ah, Yes, where there's three or four on executive Committee I I think a still be a very streamlined format.
I'll just last one on sales growth.
Then operations you talked in your comments.
That.
Sales growth is making your leasing easier, but I was wondering how much of that is sort of survivorship bias right. So a lot of the weaker stores.
Finally bankruptcy or closing, having below average sales productivity or lower growth.
Versus increasing sales at the existing what I would call sort of.
Same store basis.
Yes, no thats a good point, it's both I mean, there's definitely some addition by subtraction with a weaker retailers, but we're also getting strong organic sales growth from a lot of our core retailers and and then you know where we're saying.
In some retailers that are still working through challenges.
So it's both.
But it's it's consistent also across the portfolio, it's not like we're saying one geography.
Our one type of center different than the others is pretty consistent and so that's why I was more.
And that has to come our comments earlier by the way you've totally blown away Christie's effort to stay within two questions. So I'd just like you know I thought that we were like you know you said an hour. So I forget if we were second off that there wasn't any more questions from the QM typically last anyways.
Thank you.
Thanks, Michael.
This concludes our question and answer session I would like to turn the conference back over to Stephen Lebovitz for any closing remarks.
Thank you again, everyone for your time this morning, we'll be it they read in a few weeks. So look forward to seeing everyone who's out there for that and in the meantime feel free to reach out with any any questions.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.