Q3 2019 Earnings Call
Please standby.
Good day, ladies and gentlemen, and welcome.
Each company third quarter two.
Earnings Conference call today's call is being recorded.
This time I would like to turn the conference everything is Jean <unk>, Vice President of Investor Relations. Please go ahead.
Good morning, Thank you for joining us on our third quarter 2019 earnings call. During the course of this call. We we will be making certain statements that may be deemed forward looking within the meaning of the safe Harbor, the private Securities Litigation Reform Act 1995.
Actual results may differ materially juge with variety.
Searches teeth and other factor.
We refer you to todays press release and are FCC filings for a detailed discussion of forward looking.
Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the earnings release, some supplemental filed on form 8-K with ASCII <unk>.
Understood in the Investor section of the company's website at me French Dot com.
Joining us today, our Tom Ohern, Chief Executive Officer got killed more executive VP and Chief Financial Officer.
Jack Healy executive Vice President.
With that I would like to turn the call over to Tom.
Thank you gene and thank all of you for joining us today.
It was a solid quarter with generally good operating results sales per foot were up 13.2% $800 per square foot, that's EUR 12 consecutive quarter of sales growth.
Occupancy was 93.8% down from 95.1, a year ago, mostly due to first half 2019 bankruptcies.
Average rents were up 3.5%.
We continued to experience very good leasing volumes with year to date leasing activity up 29% compared to last year.
The leasing environment continues to improve with strong activity across multiple categories.
We're nearing completion of our extensive 2019 financing plan, which in total will generate nearly 600 million of liquidity.
As we continue to explore noncore dispositions, we have an agreement to sell 50% interest in Tysons speed up the residential tower at Tysons corner for 82.5 million that transaction is anticipated to close near year end.
[noise] FFO per share was 88 cents.
Exceeding first call can Bloomberg consensus estimates.
[noise] as you were all very well aware forever 21 is filed for bankruptcy.
We have 28 locations with a we've been a weekly conversations in negotiations with them.
For the stores will close later this year early next year and one of those stores is not owned by us that it sure.
There will be rent concessions on many of the other stores.
Expected total and passed on an annual basis of the closures and concessions to be approximately eight cents for sure.
The annual basis.
We're in it we felt the effect by about a penny a share in the third quarter <unk> feel exactly about another penny a share in the fourth quarter.
The two large format stores they plan to close are already released.
[noise] on the redevelopment front, our pipeline continues to progress well [noise].
On September 19 May stretch and P. read open fashion District Philadelphia.
The property features unique and exciting mix, so full price flagship outlet retail restaurants entertainment and co working uses.
Tenants, such as century, 21, Burlington, Nike, HM citywide <unk>, Alta Hollister and American Eagle.
All reported extremely strong traffic and sales volumes that exceed their expectations.
Another 150000 square feet is expected to open by holiday 2019, including an entertainment cluster featuring an AMC theater, which is downtown Philadelphia is first theater and 35 years around one and wonder spaces.
Within the past quarter, we've executed leases with several very noteworthy tenants, including trademark which will open a two level flagship industrious support Kate spade extra money DSW shoes.
We're very pleased by the opening of the leasing momentum from this unique downtown destination.
We have leases executed for 80% of the center with another 14% of the space committed active negotiation.
We continue to make excellent progress on the repositioning of recaptured Sears locations.
Construction is underway at for these locations, which new tenants will open in 2020.
Entitlement process continues into two larger mixed use projects low stereo center at Washington Square.
Both of those assets are in our top 10.
Our thinking on these two densification projects continues to evolve including.
Like lead delivering mixed use elements through long term route leases for the non retail components, including hotels in multifamily residential.
We now estimate the aggregate redevelopment investment these locations sub 130 to 160 million.
The next several years.
Pre leasing of these redevelopments continues to progress well, including a recent signing of a new entertainment concept from hearkens theaters that Chandler fashion Center.
The diversity and uniqueness of the tendencies for these four were Sears locations has brought in compelling, including sporting goods entertainment fitness food and beverage medical.
Tell multifamily residential and potentially coating.
[noise]. This array of uses will provide a diverse cash flow stream. It will greatly elevate the productivity and customer traffic compared to the former department store use.
For more details please see our 8-K filing of this morning.
At Scottsdale fashion square, we're nearing completion of a multifaceted redevelopment.
[noise] industrious is now 100% occupied within the former Bharti support Mr. locations.
As we continue to expand our partnership with Industries Broadway Plaza Fashion District, Philadelphia and country Club Plaza, we're very encouraged by the synergies we've observed in Scottsdale from co working in a retail environment.
The new Apple flagship in Scottsdale continues to be a magnet a customer energy in four additional leasing activity within the east wing of the property.
Follow leasing of digitally native brands luxury brands and other retail has exceeded our expectation.
By spring of 2020, the full collection of high end and lifestyle restaurants, what we fully open.
And we anticipate that both equinox and Caesars Republic Hotel will open during 2021.
With sales now exceeding $1500 per square foot.
Total property sales of 2020 up 38% growing Scottsdale fashion square is clearly firing on all cylinders.
In Carson, California, The Carson Reclamation authority continues its horizontal site work to support Los Angeles premium outlets.
Our 50 50, JV with Simon property group expects to commence vertical construction of phase one in 2020.
Pre leasing interest for the project, including flagship in acre retail is very strong.
As we've mentioned that Doug will provide more details on this in a few minutes. The leasing environment has never offered a greater diversity and breadth of usage.
Uses include co working fitness.
Beauty and health digitally native in emerging brands entertainment food and beverage hotels and multifamily.
These are clearly the future for the best situated retail real estate like ours.
I have from conviction that despite the current disruption in the retail environment. This is ultimately, creating a healthier and more diverse portfolio.
And now I'd like to turn it over to Scott.
Thank you Tom the third quarter reflected good financial results exceeding street expectations.
Here are some highlights for the quarter.
FFO was 88 cents per share, which was one cents ahead of Bloomberg and first call consensus of 87 cents per share.
This represents an 11 cents decline from fell in the third quarter 2018 of 99 cents per share given primarily the following factors.
First a higher interest expense of $2.7 million secondly, higher leasing expenses of $5.6 billion driven by the new lease accounting standard.
Third.
Lower lease termination income of three point Threemillion fourth reduced land sale gains of $4.2 million driven by two land sales that occurred in the third quarter of last year.
And last anchor rents from Sears, which was approximately $2 million.
These factors for that offset by savings in corporate overhead of $2.5 million.
Same center growth and that operating income was up <unk>, 0.9% for the year end, 0.2% for the quarter. The year to date growth is on the high end of our 0.5% to 1% same center NOI guidance for 2019.
A deceleration in third quarter growth is consistent with our expectation as we previously communicated given the full quarter impact of bankruptcies in the third quarter and also given strong comp center growth that we're bumping up against in the third quarter of 18.
Margins continued to show improvement EBITDA margin for the quarter improved by 40 basis points from the third quarter of 2018 up to 63.8%.
EBITDA margin year to date was up approximately 1% and on a trailing 12 month basis EBITDA margin stands at 64.4%.
This is a mall sector, leading margin improvement of over 5% since 2014, which is very noteworthy considering the top line pressures in our business over the last few years.
With respect to 2019 earnings guidance at this time, we are reaffirming our guide reaffirming our guidance for both FFO per share diluted and for same center net operating income and we direct you to our 8-K supplemental filing from this morning.
Regarding our financing activity. The following summarizes the current status for 19 planned leaning into the quarter. We had closed four deals totaling over $850 million in July our fashion District, Philadelphia joint venture closed an accordion amendment to its existing unsecured term loan facility, which resulted in.
$51 million of additional funding at LIBOR plus 2%.
In September we closed on a $190 million CMBS loan on the previously unencumbered Tysons tower.
This 10 year loan bears fixed interest at 3.33% and this full term interest only.
Our joint venture and one of the West side anticipates closing a syndicated non recourse bank construction loan in the fourth quarter, which is expected to have very attractive terms.
When closed this financing will our this loan will finance partnerships remaining incremental cost to deliver the redevelopment of this creative office campus to Google.
And then lastly, we have agreed to terms on a $555 million CMBS financing on the recently redevelop Kings Plaza in Brooklyn.
It will generate over $125 million specs this loan proceeds versus the existing debt. This 10 year, along with our fair fixed interest rate at 3.67% is full term entrust outlay and is expected to close within the fourth quarter. This financing is anticipated to provide $10 million of ongoing annual cash flows.
Savings relative to the existing mortgage debt will be prepaid.
Collectively these financings represent an ambitious eight loan financing plan for 2019.
Which is nearly complete and that is expected to exceed $2 billion in total volume and to generate approximately $576 million of incremental liquidity to the company.
Looking forward over the next several years, we do anticipate annual incremental cash flow from financings.
$250 million to $400 million per year.
Today, we have over $700 million capacity on our $1.5 billion revolving line of credit.
That's a summary of our 2019 financing plan and now I'll turn it over to adapt to discuss the leasing and operating environment.
Thanks, Scott in the third quarter sales and occupancy remains strong and the leasing momentum continued portfolio sales ended the third quarter at $800 per square foot that represented a 13.2% increased from $707 per square foot on a year over year basis economic sales per square foot, which are way to based on an ally.
Were $922 per square foot, that's up 12.6% from $819 per square foot a year ago.
Quarter, and occupancy was 93.8% down 1.3% from the ended the third quarter 2018 in down <unk>, 0.3% and the ended the second quarter 2019.
Trailing 12 month leasing spreads were 8.3% compared to 9.4% at the ended the second quarter 2019.
Average rent to the portfolio was 60 $1.16 cents, that's up 3.5% from $59.09 one year ago.
Consistent with the second quarter leasing volumes remained extremely strong in the third quarter.
During the third quarter 239 leases were signed for just over 1 million square feet.
Bringing the year to date total to how about 2.6 million square feet. This represents 29% more leases in 25% more square feet. Then at this point last year.
And this excludes fashion district, Philadelphia, which will discuss in a moment.
Leases of note include Tiffany village quarter Madera.
I haven't gone at Broadway Plaza five below it freehold.
Jo Malone at Scottsdale fashion square, and Carter's at Arrowhead flat iron and freehold.
The large format and food and beverage spaces remain active.
As Tom mentioned, we signed a 65000 square foot entertainment concept by Hearkens theater for the second level exceed or is that Chandler.
We also signed a lease with Saratoga hospital to replace 57000 square feet of the former series that will mark.
In the food beverage category, we signed leases with Bourbon and bones at Santana urban plates and yard bird at North Bridge and Cooper talk winery in restaurant at Chandler.
We signed multiple leases with digitally native in emerging brands, including Casper, Tommy John and stance at Scottsdale fashion square.
How many gilly Hicks at Tysons corner.
Alton Lane at North Bridge, and Amazon Forestar at the village according to Dara.
And further further to Tom's comments on Philadelphia Fashion District, Philadelphia regarding its grand opening it was another stellar quarter for FTP in terms of leasing in the third quarter. We signed 16 leases for 80 say 83000 square feet, including a lease with industry as for 47000 square feet.
And the momentum continues in the last three weeks alone.
And leases with industry, leading retailers, including Prime arc, and 47000 square feet support and 7500 square feet, Kate Spade, and 3500 square feet and DSW and 15000 square feet.
Also in the third quarter, we opened 65 tenants totaling 206000 square feet.
[noise] retailers have no include each of them at Denbury fair suddenly for organic at Scottsdale fashion five below it Fresno.
Abercrombie Kids Abercrombie kids at Arrowhead and stone, what vans at fashion outlets of Niagara Falls, Jay Mclaughlin built more and altered state at Washington Square.
In the emergency brand and the emerging brands category, We opened Kasper Tysons corner Center and Warby Parker village According to Dara.
Also in the third quarter, we opened seven locations totaling 46000 square feet with why fashion retail chain I'd have a trial Canada.
As most as most will recall earlier this year Charlotte Roost filed chapter 11, and ultimately liquidated in March, leaving us with 26 locations totaling 160000 square feet.
Why and bought the rights to the Charlotte Russe name and ultimately signed leases with us at 18 of our 26 vacant Charlotte Reuss locations.
As I mentioned seven of those locations opened in the third quarter. The remaining 11 will open between fourth quarter 2019, and first quarter 2020.
Of the eight Charlotte Ruth's locations that why Im Didnt take five have already been leased other retailers.
So if the other day, we've leased 23 of the 26, Charlotte roost locations, leaving only three of the 26 locations or on the 18000 square feet of 160000 square feet on accounted for.
And this all happened within six months Charlotte roost liquidating.
The point of this really is to highlight yet. Another example of our ability to react quickly and efficiently to some of the headwinds our industry is currently facing and in most cases, improving the quality of our real estate along the way.
So in conclusion, the leasing environment remains strong and our metrics are solid we continue to demonstrate our ability to take advantage of occurred and disruption in the retail environment by uncovering and securing new exciting and cutting edge usage across multifaceted categories.
In doing so we continue to create properties that are among the most desirable in our industry and will be for a long time to come.
And with that I'll turn it over to the operator to open up the call for Q and <unk>.
Thank you, Sir ladies and gentlemen, if you'd have a question. Please press star one on your telephone keypad.
Got you limit yourself to one question and one follow up once again, everyone. Please press star one if you have a question.
First question today from Jim Sullivan.
Okay.
Thank you.
A couple of questions Tom on the on the the trend of the metrics here sales productivity growth has been very impressive.
For awhile.
On the other hand, when we look at leasing spreads there a little bit a weaker here than what we have seen.
And as a result, the the occupancy cost as a percentage of sales has been easing slightly and this has been going on for several quarters. So I wonder if you can kind of help us understand as the as the tenant mix is changing and you know, we oftentimes mentioned Tesla we mentioned Apple.
The productivity or the occupancy cost has tended to slide somewhat so as you as you look forward given the changing tenant mix as they're up occupancy cost number that we should be thinking about or that you think about is kind of the level, where this is going to settle it and the put out of the context.
Within the occupancy cost come down from about 13% to a little below 12%.
Total sales.
Well you you had a lot of different metrics in there Jim.
Terms of spreads just spreads have been compressing a little bit whenever you have a lot of space that comes back it's kind of a balancing act between occupancy and rate and this year. For example, we've had about 600000 square feet of non anchor space that has been.
Rejected through bankruptcy so.
I suspect that rate of suffered a little bit as result of pushing for occupancy in filling that space in terms of the occupancy cost as a percentage of sales I think a normalized level as you know between 12 and 13%.
I'd like to see frankly.
She has pushed a little bit higher than that as we signed new leases, but the reality is.
Sales have been outpacing rent bumps for a while now and so thats tended to keep the occupancy costs.
A bit on the low side.
Second question for me and that the the thank you for the information Forever 21 impact going forward.
Is the eight cents per share number that you provided has the impact.
The full year impact in 2020 is that net of the releasing of the two boxes that you mentioned.
No.
No. That's that's that's the the full impact Jim of the concessions in the closures.
That any mitigation from new leases they said so it could okay less than that.
And of the eight cents and don't know if you have this but.
He is is there the threeq stores that are on the call as a list and then there are other concessions Ted you mentioned and I Wonder if you can.
Kind of.
Advise us what percentage of the eight cents is attributable to the closings as oppose to the concessions.
Yeah, Jim Good morning, it's it's roughly 25% of that number.
25% as attributable.
Yes, let me let me say.
Let me expand a couple of thoughts so it's eight cents.
It's roughly two cents in terms of closures and the estimated.
Balance of that is potential concessions again. This is an evolving situation. This is as we see it today.
But just to frame the outcome, it's eight cents on an annualized basis, and we expect roughly a two cents impact and the and 2019.
And then finally on that one of your peers details when talking about the concessions they provided to forever 21.
That.
The concession agreement they have the right I.E. the other land lot as the right to recover the space from Forever 21.
After one year of the concession period is that something that that is a feature in new York concessions or not.
It's a case by case basis location by location, Jim So we have some of those but.
It's not in every single location.
Okay. Perfect. Thanks, guys, we do have a REIT to recapture we do have a REIT to recapture some of those stores.
Okay. Thanks, Tom.
Thank you.
Next we'll hear from Steve Sakwa Evercore ISI.
Thanks, I guess just to be real clear so the one cent hit I guess happened in Q4.
Q3 that same amount carries and then kind of the incremental six cents I.
I guess will carry over into next year, meaning you've already got a million and a half of kind of rent reductions already running through the third quarter numbers just to be clear is that correct.
That's right Steve.
Okay. Thanks, and then I guess, Tom just you know bigger picture on kind of the dividend in capital.
In capital needs as you kind of look forward over the next couple of years I realize you've been very successful and [noise].
Refinancing mortgages and pulling capital out the fund your needs.
What are the capital needs look like over the next maybe two to four years and and you know what is the board's thought on the current dividend policy.
[noise] CB capital requirements.
We're going to range 150 to 200 million per year over the next three years or so.
And there is there's a deck that we provided in investor deck that shows sources of liquidity to cover that.
As you are probably whereas I mentioned earlier, we just declared a dividend of 75 cents a share a quarter.
And our board has very comfortable with that dividend level. So as I said of last call I'll mention here, we have no intention of cutting the dividend.
Okay. Thanks.
The next step is Craig Schmidt Bank of America.
Thank you I was wondering if you could walk me through the difference between second quarter in third quarter, Sears development pipeline, particularly focusing on the total costs pro rata.
Yes, Craig the biggest difference there you do note that cost reduction is as we look at Densification historically, what we've done hotel deals they've been on a ground lease.
But we're extending that approach in into two cases, where we expect to do some multifamily residential development.
Rather than to participate with the multifamily developer we are instead going to ground lease the land to the.
To the developer let them develop and.
We will receive.
Annual round red payments, including rent Escalations. So that's that's the biggest change.
Prior to this quarter, we had been considering participating in the development of the multifamily.
Okay.
And then the future phases I guess the footnote.
It looks like there could be something happening in addition to what you're working on Atlas readers and Washington Square.
Yeah, Craig and blood centers, there is some additional land opportunities that we could develop most likely with mixed use.
Right now we're getting the projects entitled for this initial phase and.
Thing else, we do is going to be much further down the road show up at this point, we take us Britain to pull it off the pipeline, but there is some additional opportunity down the road.
Well. Thank you appreciate.
Thanks, Greg Thanks.
Our next question.
Christy Mcelroy.
Hey, good morning to you guys just.
Just following up on the agreement to tell the fell at Tysons see that I believe you're also in the process to sell a JV interest in high quality mall is that still something that you're pursuing and then just kind of going back to steves question on the dividend I think one of the reason for keeping the dividend at an elevated level. You mentioned last quarter was not to have to do a spot.
Actual resulting from taxable gains on asset so is that still the case.
Yeah.
Yes as we.
As we look at it today Christy we are currently.
In addition to our agreement to sell the residential tower. We're also in discussions on other possible JV transactions could potentially be a mall could be some of our other noncore assets and those negotiations are pending so I'm not going to get specific as to which assets they are or any of the other details.
Correct some of those other transactions to be closing most likely in the first quarter and in all likelihood that will generate some significant tax gains.
So yes, we've got to be mindful of that.
Going forward as well because our preference would be to retain as much.
Capital, resulting from those transactions rather than pay out a special dividend.
And would be so it is.
What do you think nonres that they still looking to sell more interesting than like Pitney Bowes. The 50, both could be a mall and it could be non core retail.
Okay.
Then just maybe.
As an update on your short term leasing I think you had expected that type of activity to pick up.
Sure I started a near term space backfill and does that impact of that short term leasing flow through your releasing spreads.
Hi, Christie I know the short term leasing the temporary leasing does not flow through that leasing spreads by definition. Those spreads are for deals that are greater than 12 months.
But that activity. Obviously continues if you look at our occupancy is still at a heightened level relative to temporary occupancy in the fullness of time it like at 6.4% at the another quarter. So.
And we'll continue to see that I would think ticked down as we convert some of those uses to more full rent paying permanent uses.
Okay. Thank you.
Thank you.
Our next question today comes from Alexander Goldfarb Sandler Oneill.
Oh, Thank you and good morning out there.
Two questions first.
On the mortgage activity, maybe because you guys, obviously been active with got Kings Plaza and some other stuff. We all saw the this so no mall underwriting. So maybe you can just give us an update on the mortgage market today, how it may have changed in underwriting I'm sure, it's probably by asset quality, but maybe just give us an update there and then Scott on that.
Point on Kings Plaza I think you said there was 10 million of savings if I look in the supplemental the existing loan looks to be the same rate as the new loan.
Maybe you can just maybe I missed heard the 10 million and savings or maybe you can just clarify that.
Yes, sure I'll touch on the latter point good morning Alexander.
Kings Plaza deal Yeah, it's a very similar coupon rate, but it is full term interest only whereas the existing debt is 30, you're amortizing.
So incrementally that will generate $10 million of annual cash flow savings. We deliberately took an interest only deal here I mean, obviously it could have realized a tighter coupon for you that amortizing, but I guess.
To your first point on the markets were very receptive to this particular financing, it's a very sizable financing being executing the CMBS market on a single asset basis.
The bidding was very very deep and very thorough.
And we did get some balance sheet interest too, but given the size of the financing at $555 million.
Obviously, it's difficult and challenging to pull together at club of that size.
But we do see strong demand for high quality malls debt financings.
And the balance sheet arena as well as CMBS. So.
The that level of interest hasn't changed or abated at all this year.
Okay, but if you look at some your.
Yes, lower tier malls, you think you'll get the same interested those you'll probably have to rightsize those those mature.
Well generally we don't have a lot of those but there are some that are coming up on and I think in those instances will end up getting a little bit more creative I do think we'll have credit sources for those to take those out I do think they will end up with perhaps a little more structure and some more conservative underwriting Fortunately for us though.
Those are more exceptions, rather than the door, but yes, I do think they'll be credit sources to take those out.
Okay and then the second question is on C or is obviously the remained in the headlines.
The ability of the remained so you guys still have some zero open he just update us how many of those are yours versus heritage or JV with there are times versus Sears owned outright.
Yes sure. We've got we've got two that are within the Seritage, JV, which are freehold and denbury.
We have three that are wholly owned and Thats Green acres mall stellar would impact or valley here in southern California. Additionally, there are two non owned Sears, which happened to be Ellen wholly owned by Seritage that our portfolio, but obviously, we don't have control of those boxes. So seven in total continue to operate.
Okay. Thank you.
Jeremy Metz from BMO capital markets has the next question.
Hey, guys.
Hey, Tom just following up on Christys question, you mentioned again, some transactions into work here beyond Tyson deal that you announced today I guess, one any sort of rough guidelines you can give.
In terms of potential gross proceeds you can be looking at are we talking about a similar level to what your targeted earlier. This year and then I guess the follow up here would be.
You seemed pretty similar comminutes throughout the year on a joint venture of the top 20 assets.
Haggen quite happened yet on your daughter to Tysons residential it seems like there's more type of that activity being considered so I guess, what sort of confidence you retake R&D later considerations actually happened how should we just take more of a wait and see approach from here.
Well.
Obviously, we're in negotiations on multiple assets here in the Wouldnt behoove us to get into a lot of detail you would be adverse torrent negotiating position on those but we're looking at multiple assets, including a top 20 mall and some other noncore assets. So.
We delivered on Vito.
Here and we'll give you more details as we cannot be others in terms of.
Confidence level here.
It's a negotiation so it's kind of hard to predict but it is something we've done many times in our history.
And.
Don't be surprised you can see it happening in during the fourth quarter the first quarter.
And can so would it be wrong to think even to kind of part and rough parameter that the same amount of gross proceeds that were out there early this year can be achieved there should we thinking a lot less or not anything rough.
Well I'd say the ranges on the low side 100.
To the high side of 400.
Got it appreciate that some fall and then.
In your opening your talks about the improving environment here you talked about some of the good leasing volumes in the tenant sales strength, you've seen as we think about some of this translating into same store in a wide from here you had to muted level growth 2019, you have some of the headwinds that we talked about already on forever 21, and some others. So those outweigh some of the Pos.
Additive leak leasing activity and keep growth more or less muted or or how should we think about that.
Okay.
Well, we're not quite ready to give guidance yet you did point out there is some headwinds I think.
The impact of Forever 21 for example.
To be adverse to same center by about 130 basis points.
The leasing environment has gotten better we'll give guidance in January we're not we're not ready to do that right now though.
Thanks.
Next step is Linda Tsai Jefferies.
Yes, hi in terms of your comment about moving quickly to release vacant spaces, you talked about how only three spaces remain for Charlotte Russe can you discuss what you're doing on leasing side and maybe what your change in terms of processes to react quicker and then how are you thinking about this.
Three remaining spaces are those and.
Kind of like less desirable centers.
Oh, Hey, Linda it's it's Doug with regard to start you specifically I did mention it was a big package with why I'm out of Canada and then the other five were with other various retailers such as five below and a couple of other ones with regard to.
The three that remain on lease we're still sourcing demand I think the point of those comments really were to show the ability to react quickly, albeit not covering all the rent. These deals are short term in nature, we have right to the space I think the ERP.
Positives were.
Okay, very little to no capital invested.
And I'm very very little downtime.
Thanks for that and then in terms of the 250 to 400 million in debt financing proceeds you're expecting annually.
Does that assume steady state leverage.
And then if so what's driving the gross asset value up.
As far as and steady state leverage just refer back to Tom's comments in terms of.
What are our pipeline looks like and opportunities look like for.
Hi, dispositions of retail or non retail assets in terms of being able to refinance and extract incremental value out of.
Properties with rolling that really that's a debt for debt transaction. Linda you know any excess proceeds we take out are primarily going to repair Atlanta credit so really it boils down to our ability to raise some equity through a disposition program will be up the other side of that Scott as well as.
We do expect growing EBITDA as a result of bringing online some of our major redevelopment projects like fashion District, Philadelphia as well as Scottsdale fashion square, so thats going to make a difference if the leverage metric you're looking at happens to be debt to EBITDA.
Thanks.
Our next question comes from.
Green Street advisors.
Hi, good morning.
One more quick one on Forever 21, you mentioned that eats annualized impact on ever felt from them, but what would be the annualized impact on same store Im just trying to get a sense of any of that lost income will be treated anchor rent and then not you know hit the same store metric.
Yeah, Vince I would expect the majority of that will ahead.
Same center.
Thank you did provide like what did they tend to translate to on a basis point impact it Dan Hawaii able to this kind of ride that that color.
Yeah, I, just mentioned that a moment ago, it's about 130 basis points of impact to same center.
Perfect.
Thank you appreciate it that's OK that's thanks.
Yes, Johnston from Deutsche Bank.
Hi, everyone, how you doing Oh gosh, a lot's been covered.
Maybe a watch list update.
Even the fallout that we've had in the past few years uneven. This year is there any anything on there that Scott you worried as Francesca is ever come up and how does the watch list compare to what you're expecting for 2020.
Well, we don't get into the specific names that are on that watch list.
But in terms of the length of the watch list. It's much shorter than it has been I mean, we've gone through a pretty significant a period here starting in 2016, where a lot of names that were on that watch list in the beginning in 2016 have gone into bankruptcy in 16 17 18 in the beginning of this year. So.
It's it's a much shorter list theres always going to be names on there, but it's much more manageable than it was even a year ago.
Okay, Great and I guess, just a bigger picture one right. So everyone talks about retail disruption and including you guys today in the opening remarks.
I mean, how do you view the current state of retail today.
How are the malls going to fit into it and when we look at valuations and investor sentiment, where the pundits getting it wrong right now and really how are you guys really planning to take advantage of this evolving landscape and drive shareholder value.
It's it's Doug.
Contrary to what the what you might read or here in the media there is significant demand.
For our shopping centers.
It's a good point to my opening remarks, the tenant executions and the store openings are just a small subset of what actually is going on out there and I think you know as our town centers really evolved.
It becomes less about you know traditional apparel and shoes in jewelry and more about everything to everybody. So as the town center is expand.
So do the uses and categories that were able to choose from and if you look at some of the categories that are very active and that we're dealing with right now you're looking at large format and restaurants and fitness and theater Entertainment experience show DMV bees, the international retailers medicine.
I mentioned co working.
So as our centers expand so do the categories and the depth of activity in those categories is extremely significant and justice supplement that Doug. If you look at some live examples take industry is for example.
I've added then to Scottsdale fashion square.
We've got a few other deals with them they bring roughly 400 consumers right demographic to our malls everyday to shop.
To dine.
It adds energy it adds traffic another tenant that we're doing multiple deals with his lifetime.
Hi, and fitness they have on average 5000 members. Many many trips a week and that is going to add additional traffic and volume to our centers. So we're really evolving work towards town centers away from just being malls and lots of different uses.
Less apparel more entertainment more food and beverage.
And it's going to continue to evolve in a very positive way.
Thanks, everyone.
Our next question is from Haendel <unk> Juste Mizuho.
Hey, there.
So.
Barneys is closing all the stores I think a separate one Boston's I'm curious what your plan is to your Barneys bought the Santa Monica place and maybe what potential impact that might have on next year's Epo or same store NOI.
Yeah, now I'll turn it over the leasing backfill too I, Doug, but you know these are we at two boxes, we had one in Chicago fashion outlets and one in Santa Monica. These for small format stores that were not anchor boxes. So they're very inconsequential, not even really worth you know getting into a very very immaterial in terms of financial.
Correct.
But down to let you comment on what some of the backfill Plaza at Santa Monica place you know nothing is finalized yet so I can't really speak specifically to.
The kind of backfill, but I can tell you there is significant interest in both the space in its entirety or in a couple of instances cutting it up into two or three separate spaces.
Okay fair enough.
And then Tom maybe one for you mentioned industry is quite a few times on this call I guess I'm curious.
How comfortable are you or maybe what level of expose you comfortable with co working as a concept in light of we works.
Troubled with called them here.
Sounds like it's something you're contemplating in across a number of malls and then maybe is that something you're contemplating as well person you former Sears boxes, and if so can you share bit more.
Yeah, well we've.
Done a few deals with industry, if they're a great operator, they have different business model than we work in terms of.
They run their business.
We like what they've done in terms of the synergies in the benefits and Scottsdale fashion square and we think that use.
It's going to be around for quite some time.
Locations they pick in their great locations. We've got another one that's in the works at Broadway Plaza, that's about four blocks from a Bart station, there and a huge demand so.
We think of the right locations. It makes sense in that it's a it's very synergistic with some other mall uses.
And the Sears boxes, and their plan to backfill or something that.
Got it.
I'm, sorry didn't fall that question Endo.
Curious about.
If that's part of the plan for some of your former Sears boxes, just curious the on the redevelopment plan to Wonder if you will Sears boxes.
There is some potential handle it at one of them you know it's possible at a one of the Sears boxes that I don't think thats going to be.
Predominate share. It's just can be an opportunity we have for a portion of the site.
There's been pretty good demand for that stays I'm not sure we've got to availability for and frankly.
Alright, thank you.
And next step, we'll hear from Caitlin Burrows Goldman Sachs.
Hey.
Hi, there I guess I was just wondering on fashion district now being open I think the contribution to 2019.
Typically small, but considering your spend any expected return I think the expected quarterly NOI contribution is that 2.7 million. So just wondering if you could go through when you expect to reach that level of I know I contribution how long that build that can take.
Yeah, Caitlin I think by the time, we get to I 2021, that's our first stabilized here, we'll provide you some more definitive guidance next quarter when we get into our 2020 guidance in terms of not only to analyze contribution but also the FFO contribution bear in mind will be taking the that cost and putting them into service twos will no longer be.
Capitalizing interest on those so well give you a good idea of what the contribution as I do think it's going to be at a significant contribution to the bottom line, though the 21 is our a 21 is our first stabilized here.
Got it okay. That's all thanks.
[noise] and we'll now go to Tammy Fique Wells Fargo Securities.
[noise] Ma'am your line is helping please check your mute function.
[noise] part of it that I'm wondering are you still expecting a 175 to 20 basis points drag this year on bankruptcies I'm not talking on keeping store growth. Among I guess that you think about next year would you think that would be directionally higher or lower.
Yes, sure Tami and this is Scott I'm. Good morning look forward to meeting at some point, Yeah, I would say, it's about 200 basis points and and we get a gave a range of 175 to 200 last quarter, but I'd say, it's elevated a bit because of what we've discussed about.
The one retailer going to stop mentioning the name on as far as the impact on 20 again, we'll provide you some more definitive guidance in the next quarter Directionally I think it would be less though.
Great. Thank you.
Then just depending upon the Charlotte.
On the ramp like some of those you know higher or lower relative to what sort of.
Okay.
Okay.
Its Doug with why I'm will be capturing just over half of what Charlotte roost was paying us.
But again the notion there is no downtime.
We got recapture rights. So it's a short term opportunity and in within the next two to three years, we'll have the opportunity to realize that space if not sooner.
Great. Thank you.
[laughter].
Next is he then can Suntrust.
[noise] thinks we just go back to the sources and uses topic.
Obviously, I think very important one for your stock and your company.
Hi can you just recap for me what percent of your assets are still unencumbered.
And.
You mentioned that you were looking at selling or selling a stake in some non core and non recurring non mall.
How many of those are actually left.
I'm, just trying to get up and just a big picture sense of the different levers you can pull.
Well it Scott come comment on the malls that are unencumbered.
But we've got.
Five or six nonretail assets.
In the portfolio.
That could at any point in time be candidates for sale.
Obviously, we just mentioned one of them VW apartment.
Tower at Tysons, There's also an office tower there.
So office tower at Scottsdale [noise].
And.
At some point it'll make sense for us to potentially create a liquidity event on the west side, One project, where we own 25% of what will be the Google headquarters, but thats, probably down the road not not near term.
But once they opened them that's certainly a candidate for.
Disposition as well.
And keep in in terms of unencumbered assets. You know those are they include retail is non rate as well as non retail.
Bear in mind that we did close out.
Financing that Tysons tower. This last quarter. So that's an example of non retail I'd say in total we probably will probably have roughly 15 plus assets are so a better unencumbered generally those are in the lower.
Quartile of our portfolio, but it's a pretty easy match, if you look at our or supplement.
Historically, a good source of liquidity has been refinancing of our top 20 assets, where typically by the time.
We're at the end of a 10 year loan term loan to value is probably in the high Thirtys low 40% range and we typically finance at 55% to 60% so.
It's very normal for us to have excess loan proceeds as we do a refinancings every year and Kings Plaza is a great example, that Kevin obviously, we bought the asset from Vornado seven years ago.
Had an interim financing in place and just after that period of time, including our redevelopment Sears box, we're pulling out incremental proceeds of 125 so.
That's just one example of the ability to extract additional liquidity out of some of these so very very high quality assets.
And you think you have that I love of liquidity from these assets.
From I guess other near term maturity, if I look at 2020 maturities secured debt maturity. If you have denbury pop a fashion outlets of Niagara I think that's about it.
You think you're able to expect incremental financing from both as well.
I think we're going to be able to extract incremental.
Radiata.
As far assets in the range that I provided earlier thats going to come from.
Existing debt rollover, it's going to come from other sources, including construction financings I just mentioned.
Our west side.
Loan that we anticipate to close in the fourth quarter, which are fully cover any remaining cost to to be incurred for developing that go campus. So all of that goes into the next but yeah. I do think we'll be able to hit those targets that I mentioned that in my opening remarks.
Alright, thank you.
You bet.
[noise] and we'll go to Michael Mueller JP Morgan.
Yes, Hi, I.
So wondering can you walk through how we should think about the co working transactions in terms of lease structures and economics.
I'm, not really going to get into economics, it individual deals, Mike, but I will tell you the way we've structured.
The co working deals there percentage rent deals.
Okay, and what about duration.
Terms of.
Lease term.
Duration are I think generally 15 years.
Okay. Okay.
Okay. That's helpful. Thank you.
Thanks.
And everyone that does conclude our question and answer session I'll hand back to the speakers for any closing remark.
Thank you Lisa.
Well, thank you for joining us today, and we look forward to seeing many of you call. It a couple of weeks out here in Los Angeles for Navy.
Ladies and gentlemen that concludes today's conference. Thank you all for your participation today you may now disconnect.