Q4 2019 Earnings Call
And ladies and gentlemen, please standby.
Good day and welcome to the Matrix Company fourth quarter 2019 earnings Conference call.
<unk>, usually recorded and now with it.
<unk> Wood, Vice President of Investor Relations. Please go ahead.
Good morning, and think it for joining us on our fourth quarter.
2019 earnings call. During the course of just call, we would be making certain statements that may be deemed forward looking within the meaning of the safe Harbor of the private Securities Litigation Reform Act up 1995.
Actual results may differ materially due to a variety of risks uncertainties and other factors.
We refer you to change press release and are Sq feet filings for a detailed discussion of forward looking statement.
The conciliation such non-GAAP financial measures to the most directly comparable GAAP measures are included in the earnings release and supplemental filed on form 8-K, with 60, which are posted in the Investor section.
The company's website at <unk> Dot com.
Joining us today [noise].
First Chief Executive Officer.
Got Kings Murray Executive Vice President and Chief Financial Officer, and Judge Healy Executive Vice President. Please proceed with that I would like to turn the call over to talk [laughter]. Thank you Jane.
Like all of you for joining us today.
A solid core what's good operating metrics.
Sales per foot were up 10%.
Hundred $1 per foot.
That's your 12 consecutive quarter of sales growth.
Occupancy was 94%.
20 basis points from September Thirtyth.
The down from 95.4% theater 20 team.
This was primarily due to the 2019 bankruptcies.
Average rents were up 3.3%.
We continue to experience strong leasing volumes across a wide variety of categories with 29 to leasing.
Activity up nearly 20% compared to the prior year.
[noise] leasing and 29 team included a significant amount of leasing to mixed use non traditional retail uses.
Our we'll be.
Great and heightened consumer traffic to our high quality travel centers.
This includes four hotels.
Sales, including seizures are public at Scottsdale fashion square.
Five co working deals most of them with industrious.
We agreed to three lifetime fitness deals plus one equinox.
Five years ago. These uses did not exist in loans.
We expect this trend to accelerate as we move into 2020 or 2021.
[noise], we completed an extensive 29 cheap financing plan, which are generated over 550 million of excess loan proceeds and liquidity for the company.
We continue to pursue noncore asset dispositions were under contract to sell a 50% share the residential tower at Tysons corner.
In addition, we're under contract under another disposition of non core mall or they are in negotiations on another.
For the year, we expect proceeds from noncore asset sales of approximately 300 million.
And that has been factored into our 2020 guidance.
Conversely, we have discontinued our efforts to joint.
Sure if any of our top tier assets.
[noise] AFFO per share was 98 cents matching consensus and same center NOI growth for the year was 65 basis points, which was within our initial guidance range.
This was accomplished in the face of significant retailer headwinds that occurred and 29.
18, the affects of which we see continuing into 2020.
We expect to see same center NOI by growth this year about half a percent to 1%.
With that accelerating and 2021.
Well, the redevelopment front or pipeline continues to progress well.
In September based rich and P. read open.
In district Philadelphia.
The property features a unique mix of full price in flagship retail outlet retail restaurants entertainment been co working uses.
Tenants such as century, 21, Burlington Nike AMC theaters around one city wide already are now open an operator.
Performance has been strong.
It's it's mid September opening the property has had over 3 million visitors.
Future tenants were signed leases include among others industrious, so for Kate Spade, Japan or Dean.
In spring of 2021 or two level flagship Primark, we'll open up market Street.
We are pleased by the opening in the first holiday season, and we look forward to continue tenant openings that this unique downtown destination.
Financial contributions from the asset are expected to continue to escalate in 2021 and beyond.
We have executed leases in our space is open for 84% of the space with another 10%.
Committed.
Significant progress continues on the repurchasing of our recaptured Sears locations.
Instruction is underway at for these properties.
New tenants will open starting in the third quarter of 2020.
Entitlement efforts continue on the two larger mixed use projects, Los Cerritos Center in Washington.
And square two of our top 10 assets.
Both projects will include significant non retail and mixed use components.
We expect any partnering with mixed use experts on these two projects and other densification redevelopment.
We anticipate groundbreaking in Washington square in mid 2020.
In preparation for late 2021 Grand openings.
Uses at Washington Square expected to include entertainment food and beverage Creative Office Hotel.
All surrounding applies that that will be the gathering focal point, leading into the new low entry.
We're pleased to the tenant demand and pre leasing and we will announce tend to name.
As we execute deals over the coming quarters.
As mentioned our intent is to bring mixed use components such as multifamily in hotel to both Washington Square and Los Cerritos.
With some combination of ground leases and partnerships with multifamily hotel developers with a minimal capital outlay on our part.
Our redevelopment.
In estimates for the Sears.
Projects for 130 to 160 million over the next several years.
Expect attractive yields of 8% to 9% on the retail redevelopments and 9% to 10% for the mixtures.
The variety of uses that will be featured at all these former Sears locations is extremely compelling it will significantly boost.
Activity and consumer traffic.
At Scottsdale fashion square all components of this multifaceted redevelopment or firing on all cylinders.
Once was low traffic, winning leading up to a low performing performing Barneys Department store is now anchored by a flagship Apple.
Fully occupied.
Industrious.
Cope.
Includes a new roster of exciting brands made possible by the addition of Apple in industries.
Several hundred yards down the property the luxury Wayne as rich with luxury brands, including brightly.
Burberry Cardia Gucci Jimmy Choo.
We have a ton product save a little ferragamo and Tiffany.
Most recently Nobu, Scottsdale and took a modera or the latest additions to the restaurant expansion.
With the pending additions of equinox and Caesars Republican 2021, this latest wave of investment will be.
This asset will be complete.
Sales are nearing $1500 per square foot.
The continued opening of the high traffic and high sales uses in the expansion the leasing demand at Scottsdale fashion square remains extremely strong.
Our portfolio features a tremendous collection of assets situated in markets with outstanding demographics.
The leasing environment.
Good and improving with a broad and diverse set of new users.
The strategic this vision for our town centers because abundantly clear.
The only anchor our communities there will be a focal point, where consumers repeatedly visit to shop to guide to be entertained and in a growing number of instances to work in live.
In some cases, the investments maybe minor and others that maybe more significant.
As Doug will mention shortly we're very enthused by the long list of significant projects that will start generating significant in a way for us in 2021.
And now I'll turn it over to Scott to discuss the results for the quarter can summarize our very significant 20.
19 financing activity. Thank you Tom.
The fourth quarter reflected good financial results matching both company and street expectations here are some highlights for the quarter and for the year AFFO for the fourth quarter was 98 cents per share in 2019, SSL was $3.54 per share.
Both matching consensus per first call. The 98 cents in the fourth quarter represented an 11% decline from FFO of $1.90 cents per share in the fourth quarter of 2018, given primarily the following factors one higher leasing expenses of approximately $5 million driven by the new leasing.
Standard to lower lease termination income of 2.6 million Threex higher interest expense of 2.1 billion.
For a favorable tax appeal during the fourth quarter of 2018 totaling roughly three and a half million dollars at one of our New York assets. This ultimately created an unfavorable.
In the fourth quarter of 2019.
And then lastly lost anchor rents from Sears call the bankruptcy.
$1.5 million in the fourth quarter.
Same center net operating income was flat during the quarter and finished up <unk>, 0.65% for 2019, which fell within our 0.5 to 1.0 same center NOI.
Why guidance for 2019.
As we've mentioned on prior calls we anticipated growth in the second half a 29 team to be lower than the first half at 29 team as a result of bankruptcies, including Forever 21, and that was in fact the case.
During 2019, the impact of both 2018 and 2019.
Non anchor bankruptcies had an approximately 2% dilutive impact on 2019 same center NOI growth.
EBITDA margin showed significant improvement in 2019, the EBITDA margin increased by 90 basis points from 62.7% and 2018 to 63.
0.6% in 2019.
This morning onto guidance, we did provide detailed 2020 earnings guidance and we direct you to the companies.
Form 8-K supplemental financial information for more details of that those guidance assumptions.
2020.
Funds from operations is estimated in the range of $3.40 to $3. A 50 cents per share and same center NOI growth is estimated to be in the range of 0.5% to 1%.
While many guidance assumptions are provided within our supplemental filing I would like to provide some further details.
Similar to.
Last year at this time, we thought it would be useful to highlight a few major components to help reconcile from actual 2019 SFL $3.54 per share two hour the midpoint of our FFO guidance for 2020, which is $3.45 per share.
One we.
Anticipate approximately six cents a decline in 2020 versus 29 team from the combination of reduced straight line rent and as Fas 141 income.
These noncash line items can be choppy, especially when we are required to write off tenant balances as a result of early pre lease expiration.
Store closures as was the case and 29 team.
We have included within our guidance three cents of expected dilution from disposition activity, including from Tyson speed and other non core dispositions that we're currently focused on.
Three as a reminder, there is continued net loss from tiers.
That rolls into the first half of 2020 contributing to approximately three cents of dilution recall. This does not impact same center results.
For at Fashion District, Philadelphia, We anticipate 2020 year end occupancy of roughly 80% and year end 2019 occupancy was approximately.
Only 65%.
Given this occupancy ramp and the fact that capitalized interest on the project is substantially lower in 2020 now that the project is open. This property is only modestly FFO accretive to may stretch in 2020, but will significantly contribute to the company's effort, though in 2021 and beyond.
Yes.
Lastly, a few other notes regarding guidance.
We havent bed at approximately six cents or 100 basis points of general reserves for rent loss into 2020 same center NOI guidance, we will monitor and adjust this figure as the year progresses.
In terms of SFL by quarter we.
From a 23% and Q1, 25% in Q2, 24% in Q3 and the balance of 28% from the final quarter.
While we are certainly not giving forward looking guidance into 21 and future years, we remain very optimistic about the financial tailwinds from numerous small and larger scale.
Element investments in 21 and beyond.
Again, please refer to our 8-K that was filed this morning for further information.
Onto financing activity for the year.
To recap the 2019 activity, we were extremely active last year on the debt capital markets in total we closed nine deals totaling over two.
$2 billion or 1.4 billion at the company's ownership share.
This yielded over $560 million of liquidity and available capital to the company.
The average interest rate across these loans was 4.0% and the average term was 9.3 years.
Nine financed assets.
Good fashion outlets Chicago shops at Atlas Park, San Tan village Channel Fashion Center Fashion District, Philadelphia, Tysons Tower West acres Mall Kings Plaza, and lastly, one west side.
During the fourth quarter, we closed two major deals on December Threerd, we.
Closed a 540 million dollar refinancings Plaza.
His tenure CMBS loan bears interest at an all in fixed rate of 3.62%.
The proceeds were used to refinance and existing $427 million lawn and to repay a portion of the company's line of credit.
Given the existing debt was amortizing and.
The new loan as interest only the new mortgage will provide over $10 million annual cash flow savings.
On December 18th our joint venture in one west side closed a 415 million dollar non recourse construction financing on that seemed to be new Google Creative office campus in west delay.
Loan carries.
Rate of LIBOR, plus 1.7%, which reduces to LIBOR plus 1.5% once Google opens.
Facility will cover the Jvs remaining share of development costs.
Looking into 2020, we do anticipate financing Denbury fall Denbury Fair Mall Green acres mall and another.
I am all asset and we believe those assets will be very well received within the financing market and should generate in excess of $400 million.
Now ill turn it over to Doug to discuss the leasing and operating environment.
Thanks, Scott in the fourth quarter sales remained strong and leasing momentum continued.
Portfolio sale.
We ended the fourth quarter at $801 per square foot, which represented 10.3% increased from 27, another $26 per square foot at the end of 2018 I.
Economic sales per square foot, which are way to based and a why were $916 per square foot and that's up 7.9.
Percent from $849 per square foot a year ago.
2019, yearend occupancy is 94% and that's up 20 basis points from last quarter and down 1.4% from year end 2018.
This is primarily due to 450000 square feet or 2% of.
Our Geo a being rejected in closed two bankruptcies in 2019.
Heavier temporary occupancy was 6.3% and that's unchanged from December 31st 2018.
Trailing 12 month leasing spreads were 4.7% and thats down from 11.1% from year end 2000.
An 18.
In addition to affecting occupancy the 450000 square feet or 2% of our Geo area that was rejected in close through bankruptcy also put downward pressure on 2019 leasing spreads.
So at this point in the business cycle and it's Tom stated, we believe the opportunities to drive occupancy.
An increase cash flow more prevalent through leasing velocity and bank vacancy backfill.
Average rent for the portfolio was $61 success.
Thats up 3.3% from $59.09 one year ago.
Hi, good volumes remained extremely strong throughout 2019.
During the fourth quarter 233 leases were signed for nearly 1 million square feet.
Bringing the 2019 totals to 938 leases signed for just over 3.5 million square feet.
This represents 18% more leases and 19% more Scully square feet.
Then what was accomplished in 2018.
Exclude fashion district, Philadelphia, which will discuss in a moment.
We continue to leverage the strength of our powerful portfolio by executing on several key packages of deals.
Thank you for deals with Amazon for both the books and Forestar concepts.
The flat iron So we dose Scottsdale, and 29th Street and that type of 18000 square feet.
Additionally, we make deals with our Dan.
Canadian fast fashion retailers freehold Deptford in fashion District, Philadelphia totaling 28000 square feet, you made three deals with box launch.
The South Plains belly, Weber and vintage faire, and the nine deals with Lisa fast fashion jewelry or out of New Zealand and this brings our total business with visa to 11 stores. You include the stores already open, but less so we dose and fashion outlets of Chicago.
The large format space continues to be there.
Active.
We signed leases with Dick's sporting goods at vintage Faire for 45000 square feet, and French fitness that Deptford to 28000 square feet.
Both of those and vacant Sears boxes.
We also signed leases for Ross dress for less the Pacific view for 21000 square feet and Adidas fashion.
So Niagara falls, the 10000 square feet.
Okay.
It's obvious that the large format category is becoming more important and more influential than ever and we believe is currently one of the most efficient ways to drive occupancy and increased cash flow.
By way of example, if you take the large format.
It uses that are signed or at least.
In the Sears boxes, Deptford vintage in Chandler as well as the seem to be Beacon forever 21 boxes that denbury and arrowhead.
And then you layer and lifetime fitness at Broadway Plaza, and folks and Equinox, and Caesars hotel at Scottsdale fashion square.
By the end of 2020 and into 2021, we're looking at bringing online an additional $10 million at share of incremental annual revenue.
And we're still in the very early days within this large format sector.
In the food and beverage category, we signed leases with bamboo sushi built.
More fashion Park, Bubbas 33 at South Plains, and Shake Shack at Denbury Fair. This brings our total number of deals deals with shake shack to 11, making based which want to shake shacks largest landlords.
We signed multiple leases with digitally native in emerging brands in Q4, including more fee at or ahead.
Terrific Kierland Commons purple at Santa Monica place Warby Parker at 29th Street.
And gloriana at the village according to Dara and Broadway Plaza.
We further Toms comments.
Our son District, Philadelphia regarding its Grand opening it was another very strong quarter FTP in terms of leasing.
You signed eight leases for almost 90000 square feet, including key deals with probably Mark and 47000 square feet support and 7500 square feet, Kate Spade and 3500 square feet.
DSW and 15000 square feet, and our Dan and 12000 square feet.
And while we're happy with what we transacted on in 2018, we know what's important especially in this volatile retail environment to get out in front of our business by addressing their 2020 lease expirations now.
To that end I'm pleased to report.
The between site leases and leases out for signature in terms of square footage was 63.
The percent completed with our 2020 business.
When you include active dollar wise, we're almost 90% completed with our 2020 business.
The fourth quarter, we opened 105, new tenants totaling 339 square feet and this is an addition to the 65 new tenants totaling 205000 square.
The.
We opened in the prior quarter.
Retailers of note included 23000 square foot Hmm, and a 10000 square foot form Republic at the folks.
Token the Dara zinc.
Two first Arizona restaurants at Scottsdale fashion square roots and avoid at Tysons corner Center five below.
All in 1000 square feet, if we hold Raceway model, we opened five Abercrombie kids stores totaling 15000 square feet.
And lastly, we opened Ulta and Ross dress for less in about 35000 square feet superstition spring, which finalize the backfill the Bacon Sports authority box.
Digital and emerging brands continue to migrate towards bricks and mortar on the fourth quarter, we opened six more locations, including Amazon Forestar at village. According to Dara on Tuckett Freehold Raceway.
Purple, Santa Monica place and how the honest stance and Tommy John but Scottsdale fashion square.
Also in the fourth quarter, we opened another eight locations worldwide.
The Canadian fast fashion retailer of Canada, who bought the rights to Charlotte routes.
These eight locations totaled 50000 square feet. The final two deals in Hawaii impacted will open Q1 2020, bringing the total to 17.
So after the liquidation of Charlotte release with procure occurred in Q2, 2019, leaving us with 25 Bacon locations totaling 160000 square feet between white and a couple of other retailers 21 at the 25 locations that charlatans vacated have already been backfill.
So in conclusion leasing environment remains strong.
As I've been saying for the last several quarters, we believe the times right to take advantage of the current disruption in the retail environment by uncovering and securing new exciting and cutting out juices across the multifaceted categories within our properties.
Yes, we'll continue to.
Our legacy retail partners, especially those that we've used the last several years to reinvent themselves.
Does not in a cannot stop there.
As we know times have changed our shoppers changed and shopping patterns have changed.
2019, we made at our mission to uncover the latest and greatest brands and uses to.
Hope adapt to these changes.
And I'm extremely pleased with our progress in 2019, we signed 94 deals totaling 150000 square feet of all new the may switch tenants clinics that weve never done business within the past.
So let me on 2019 was built a challenging year.
And a rewarding year.
Most of all I believe it was a year, which we changed our thinking incentive set the groundwork for whatever the future may bring.
The 2020, our goal is simple we continue to more of our properties in the best in pound best in class town centers.
Transformational and creative leasing.
Tom centers that would be something for everybody in places, where folks will want to gather and tenant backed actually workshop in play.
And as we do just that I believe news, which will continue to have one of the strongest most sought after portfolios in our industry.
Now I'll turn it over to the operated to open up the call for Tonight.
And ladies and gentlemen, if you wish to ask a question you can press star one on your telephone keypad, if you're using a speaker phone. Please UN mute your phone to a lot the signal to reach our equipment.
Got you limit yourself to one question and one follow up question.
Youre welcome to press Star one again to ask any further questions well pause for a moment to allow.
Everyone an opportunity to signal.
And we'll hear first from Craig Schmidt with Bank of America.
Thank you.
I Wonder if you give us.
Expected incremental NOI increase coming from Scottsdale fashion square and fashion district level it.
Yes for 2020.
Yes sure Craig Good morning. This is Scott start with SPP.
Incremental and ROI, if I were to look at our.
Pro forma you could probably triangulate too.
Foreign have 5% or so.
But again bear in mind that capitalized interest offsets right. So as I mentioned in my opening remarks, it's only modestly accretive in 2020, while we anticipate significant accretion and 20 122 and beyond.
Scottsdale fashion for the most part is sitting in our same center.
The.
Spansion space that includes restaurants and fitness is not in our same center.
So that is accretive I currently don't have a number it's certainly above our portfolio average given all the leasing activity.
I don't have the figure for you off hand, though Craig.
Okay. Thank you that's helpful.
Then I guess.
I just wondered.
What.
Pension impact Procter team would pass for me search.
[noise] Craig.
Prop 13 has been challenged many times in California, or less 30 years or so.
Apparently there's gotta love signatures, it's going to be on the value.
But we know it's not pulling well so for variety of reasons, we think its.
The long shot that that initiative to.
Turnover prop 13 or converted to to split tax rules.
Probably will not be successful with our case, we restructured our leases almost.
All of them as fixed Cam, but we have continued to build property taxes.
On a triple net basis. So we don't think it's going to have much impact.
We realized that thats going to.
With some incremental middle pressure on loan.
Occupancy cost as a percentage of sales but.
We don't think if it were to pass, which again will take us a long shot.
Thank you would have any immediate impact on.
FFO for same center in oil.
Okay. Thank you.
And now we'll take a question from Alexander Goldfarb with Sandler.
Hi, good morning morning out there.
First question is just.
Scott It just going over the same store pool.
I didn't hear you guys talk about forever 21, so one just confirming that it's still your prior guidance of eight cents impact, but too when you guys go through your.
Same store guidance this year to zero <unk> 0.5 to one how much is already you know reflected not in that number but you are how much of the portfolio is already having drag from closings last year, meaning are you starting the year off with like 50 basis points of 2019 closings and then does the.
50 basis point, I, sorry, just 100 basis points of bad debt, sorry, that's what I might just 100 basis points of bad debt does that already include what you know has closed to date, meaning like forever 21, and therefore, there is 100 extra or is the hundred already include stuff. That's already closed this year.
Good morning, Alex ill take all those im not sure I can remember all offline, but I'll try and do my best here.
2020 same center guidance Embeds within it as a result, the 2019 bankruptcies.
Approximately 200 to 225 basis points production same center NOI.
That includes the general 1% budgeting reserve that I mentioned in my opening remarks.
Same center also includes the impact of Forever 21.
I'll just refer back to the comments that we made in the third quarter call as to what the impact there as we said roughly eight cents was.
The impact on annualized basis, and that roughly two cents of that will be felt in 2019 in the balance in 2020 all of that will hit same center.
In terms of what is in there is not in our same center pool.
Fashion District to Philadelphia hits, our same center pool, and the final quarter of the year Q.
Q4.
Yes, our Sears boxes are not an hour same center pool.
And again that does have some bearing on the first half because we did receive some rent in the first half a 2018 that and we certainly are excuse me first half of 2019 that we're certainly not receiving this year.
The expansionary for Scottsdale.
Well, it's not in our same center pool.
And then lastly, one west side is pretty on inconsequential, given the fact that was close to pretty much most of 2019, but that is also out of our same center pool.
So hopefully that answers all your questions Yeah, and then Scott on the on the 100 basis points Oh credit.
Our for this year is any of that already being used or is this all incremental meaning what ever you may have gotten notices for so far this year is that in part of that hundred or that's incremental to the hundred.
It's incremental Alex.
Okay. Then the second question is asset sales last time you.
Talked about possible I think about 80 million of a if it was like apartment sale in the fourth quarter than maybe some additional sales aggregating about 280 million given here or anything like that but certainly noticed in your dividend composition from last year. You guys earned 135, you had gains.
65, but you still maintain the full $3 dividend. So as we think about everything for this year are we still thinking about asset sales and for that you're still planning on keeping the dividend or are the asset sales no longer part of the calculus as you think about your 2020.
Hi, Alex as we look at 2020, the focus has shifted.
Just to selling noncore assets and those we typically don't have the same.
Related.
Tax gain or capital gain as we would if we sold one of our top 10 assets are top 20 assets. So.
To some extent there.
Tax.
Considerations in 2019 that don't exist in 2020.
Okay, but you're still going to me the David.
But you're still going to maintain the same dividend payment despite that it's a pretty good source of capital.
Yep.
The market sort of pricing, they're not pricing you on the current dividend that pricing on something less than.
Than that.
Okay, obviously, if I've got this right but.
If you're asking about the dividend that's a board action.
It's up not my decision so I can't speak for the board here, but I will tell you that last week. The board did approve and we declared dividend of 75 cents per share.
Which was consistent with prior.
Okay and that's that's a that's it that's a board decision and.
The board addresses it quarterly before the declared the dividend.
They are aware that there is room of about $1 share.
In terms of.
The.
Non taxable part of the dividend that could be.
Views that this deem it so appropriate but.
To date the board has not been interested we've been in making that change, but Dennis their decision.
Okay. Thank you comp.
Well.
I'll hear from Christy Mcelroy with Citi.
Thanks, just to follow up on Alex's question on the asset sales.
Hundred million.
It includes the 82 million for the 50% interesting beat which it hasn't closed yet.
The other 200 million you mentioned that non core mall on your.
Contract and then another noncore asset in negotiation did those three assets comprised the entire 300 million or is there an expectation for others.
I mean, it's been noncore asset under negotiation I'm all are non retail.
Maybe some color on that thanks.
So.
Those three will get fairly close to.
300.
Maybe one or two other small assets that are noncore for us that may be.
Dispositions this year.
In other than the apartment tower at Tysons quarter, the other assets or noncore malls.
And can you give a sense for.
On those non core mall.
No and if I could I know, let's make sure that they would be very relevant because a lot of those assets still have a lot of.
EBITDA, but they do in fact have some pretty good real estate value and the potential to do other things like multifamily.
And then just in regard to your capitalized interest guidance for 25 million in 2020, I would've thought more of that would have started to be expensed.
Scottsdale, and you continue to stabilize fashion district.
How should we be thinking about the moving parts of that number.
You know.
Interest related to just those two projects or expense that is there anything else that sort of being added to see IP or.
Fine beyond what you've listed in the development schedule that would impact that number.
Yes, good morning Christie.
Yes, certainly bear in mind that in our projects.
All of our Sears boxes are going to be factored in there. We've got a couple large format uses that we feel very good about the opportunities on a couple of for forever 21 boxes and those will be on the numbers.
One west side is obviously going over throw in hammers, and that's going to be factored in there.
In mind.
Scottsdale was a multi phased project and so a lot of that was already placed into service throughout 2019, certainly the the wing that now features Apple on industry US was fully in place for all our 2019. So you don't have much of a decline there year over year fashion District, frankly is the biggest year.
We are declining but again.
There's continued reinvestment back into the portfolio in our high quality Sears boxes, one west side like I said, a couple that larger format forever 21 stores that we are at least on right now and we feel very good about.
So there was forever 21 boxes will go into C.I.T., but they run the.
In the same store pool.
Yes, two different concepts.
We typically.
Carve out of same center, our major redevelopment, but when it comes to re purposing boxes, and spending development capital to the tune of skin, though that order.
Magnitude.
GAAP allows that to be considered construction and process allows you to recognize capitalized interest. So there's really two different concepts Christie.
Thanks.
You bet.
And Jim Sullivan with P.T.I. GE has the next question.
Yeah. Thank you.
As Scott Thanks for providing that reconciliation.
In terms of the items that gets you from the the same circa two per share number.
The midpoint of the Pershare Gotta 345, I just want to clarify.
[music].
Because you listed the sick.
The Sears boxes, you said that was not occurred in same center.
And then you write a modest.
The 1% six cents a share for kind of a a loss reserve so.
When you report at the same store. However, the you typically will.
Will reflect any any credit loss in the same stores that right or no.
Yes, Thats correct really the 1% Jim is just budgeted rents that.
We're carrying a reserve against for potential fallout, we'll continue to assess that throughout the year that's a bit.
During the notion of bad debt, where we're writing off uncollectible receivables.
Also inherent within our guidance is a bad debt expense.
Estimate of $7 million when we provided that on page 10 of our sub.
So in addition to that $7 million of uncollectible.
Built the rents we have an additional 1%.
And our reserves against potential fallout that will monitor.
Progress.
And that 7 million dollar number you gave you that was indicated I know in the on the guidance page.
But I guess that's.
I guess the issue.
It will be between the same store number and those items I know lease term is excluded.
And one or two of those other items, but I would've thought that the the reserve would have been the same but would already be the 0.5% to 1% in other words would be the saying those.
Maybe what you start the year with in each case, though.
Hi, Thanks, I'm not sure how many incremental.
Well.
You know the six senses is so maybe maybe where we're not speaking the same language here to six cents is embedded within our thinking for the point how are the 0.5% to 1%.
Same center NOI guidance, but the I think Alex's question was.
As any of that forever 21 for instance, or other known bankruptcies inherent within that six cents or 100 basis points of general reserves and the answer is no. It's all incremental on top of what we know today.
Okay, no I understand that.
Okay.
Yeah, maybe we can follow up on this offline, but we're just trying to I'm just trying to connect the dots from.
Obviously, the 19 result, adding some three to six cents of positive contribution over the same store guide and then.
Making the adjustments that then.
Take the number back down to 345, so we can follow up on line on that or offline on that I also wanted to talk about since the start talking about the rate Threefive proceeds I know and between the consolidated assets between Fourq, you maturities and one few maturity of debt.
About almost $600 million.
Maturities.
And you had talked I think in your prepared comments.
Financing on Danbury Green acres, and another mall and I think you mentioned something like $400 million and proceeds so I guess.
Question is fashion outlets of Niagara.
What are you anticipating there at this point.
To make said you're comfortable talking about it and number two on Denbury fair in Green acres are you anticipating excess proceeds to maturity murdo.
Yes, we are Denbury fares say tenure.
Maturity and.
You know given continued.
Investment and progress and value creation of that asset over a course of a 10 year period. There is certainly the opportunity to extract extra value out of that one and we do anticipate excess proceeds green acres is very much the same way, even though we've only owned the asset for about seven years I recall, we did build a very substantial power center.
Adjacent to the project and frankly, the performance of Green acres mall as well beyond our expectations and I do think there's the opportunity to extract excess proceeds the third asset I mentioned not by name, but I did described that is unencumbered and so I do.
Very good at that asset, which performs extremely well will result.
And some excess proceeds.
I think the last question you asked was fashion out some Niagara we're still evaluating that one it's very possible at this time, we may unencumber that one, but we'll be reporting back on that one over the course of the year.
Okay very good thank you.
Now we'll.
Good question from Todd Thomas with Keybanc capital markets.
Hi, Thanks, just first a follow up on the same store forecast Scott I think you met you commented that I'm not fashion outlets to Philadelphia comes into the pool in the fourth quarter.
Things like that could have an impact on the full year forecast and just given the ramp you're expecting to experience.
In occupancy and I presume rental income, what's the impact that fairly has on.
Full year same store growth forecast.
Sure Tom Good morning.
Well given the fact, it's only one quarter, it's not going to be a massive impact what I can say, though is if we look into 2020.
In.
Philadelphia will certainly be a major contributor as well a lot of is larger boxes that are going to be coming on line one of the.
Consequences of getting this real estate back leasing it up prepping the space for tenant delivery and ultimately building out the store is it takes about 18%.
24 months for that income to come to fruition and actually to get those tenants open and operating.
We.
We're looking at towards the end of this year and the beginning of 21, having a significant inventory of that space coming online, which is the figure that Doug mentioned earlier. So we do feel good about the contributions into.
21 circle back specifically your question, though the 20 contribution from Philadelphia in the fourth quarter, there's certainly as one but it's not very significant in light of.
That's a single asset for one quarter.
Okay got it and then.
Doug I apologies, if I Miss this but I think and been.
In short term leasing contributed about 640 basis points of occupancy last quarter can you share where that was at year end and can you comment on how you expect that to trend throughout the year.
Yes, Todd.
I think the number at year end was 6.3% so pretty consistent third.
And I think that was flat with last year, but.
There's a pretty strong initiative here.
To convert temporary space to permanent space, because there's a significant pickup in read between the temp tenant in the Perm tenants. So that's going to dig push.
This year.
Okay can you can you quantify that a little bit you have a sense for.
For where rents are for that bucket, how much of a lift do you see on average.
In converting short term leases to the permanent.
It's usually a 50% pick up in rent when you convert.
And the goal with this year would be that knock that down by 75 or 100 basis points to take a closer to 5% from six point.
3% of its out today.
We've got a team of people that specifically focuses on converting temp to perm.
Okay got it just one last question also on leasing.
You know you discussed some of the leasing activity in 19.
And the progress you've made on the 2020 expirations can you just commented specifically on the leasing spreads in the quarter in the consolidated portfolio. They sort of you know they came in sharply this quarter I was just curious if you can discuss what that's attributable to.
Yeah, it's Doug so.
No.
It really depends on the property in the market and our top tier centers as we look to execute on the 2020 business.
We're executing at at.
Positive decent spreads however, and some of our lower tier centers. It may be more of an occupancy play obviously.
When we're working to drive occupancy, but it does come at the at the expensive rate, which affects spreads, but I wouldn't say that the case in the majority of our properties.
Okay. Thank you.
Now I'll move to a question.
From Steve Sakwa with Evercore ISI.
Thanks, I guess first there was an article yesterday about Intelsat.
You know filing for bankruptcy and I know Thats, a large office tenant you've got in Tysons any just sort of commentary you can provide around that tenant space.
Needs and how you think that might play out.
Well there were one of our original tenets, Steve and around the time they went public.
Right about the time, we opened Tysons tower, five or six years ago.
And.
Then.
An anchor.
There was I think three or four floors.
That being said that market is pretty strong today, we're actually considering doing more office there.
And.
We don't think it would be too difficult to that if it came to that we don't believe it will but if it if it did come to the situation where they did file and.
We had to make some decisions there is a much.
Our office market today than there was when we originally did that deal and we had in all likelihood or get a rent pick up as a result of taking that rental market to the comes our way.
But there's nothing baked into the 0.5% to 1% for any kind of dislocation or disruption from that is that correct.
That's correct.
Okay. Secondly, can you just broad picture give this maybe I missed its kind of the funding needs that you have for development redevelopment in 2021 and 22.
Yeah on average, Steve we're going to be 250 to 300 million.
That's.
It's about what we were this year.
And Scott went through the refinancing liquidity that we generated and that was roughly 550 million. So there was liquidity well in excess of our capital needs generated this year.
On top of what May come out of the financing pipeline. We are also deep in either.
Tractor negotiations to sell some non core assets, which will generate some additional liquidity and.
We very well could continue that.
Game plan as we move forward into 2021 and beyond.
So long been a goal of our seller noncore assets. If we can do it cost effectively without a big earnings impact so.
That's an avenue, we're going to cuts it continue to pursue in terms of generating liquidity to cover are very accretive redevelopment.
Okay, and then just maybe one for Scott just in terms of how you think about you know assets going in going out at the same store pool, I guess fashion district to Philadelphia is obviously.
We still ramping and really doesn't even stabilized still.
It sounds like you know, it's in that 80% range and gets into the 19th.
In the year from now, but you know it sounds like that's going into the pool in the fourth quarter of 20.
Although it's not really stabilized yet I'd just is it just district.
Finishing of 13 months in the asset goes in or is there.
Something a little bit more specific as to how you think about that or the new wing and Scottsdale when that gets added.
Yeah, you're you're pretty much spot on get far full quarters and that it gets into the same center pool the.
Fourth quarter this year.
As to be the anniversary for.
For fashion District, and let me just expand a little bit on the occupancy because the stats can be a bit deceiving, we do anticipate occupancy as I mentioned roughly 80% by year end 20.
2020.
Yeah, but bear in mind that there are three major spaces.
At that property that happened to be unique that are carrying into 21 prime Mark we expect to be a spring 21 delivery. It's.
Roughly 50000 square feet to levels on markets can be a great flagship banker for US and addition, theres two destination spaces on the side of the project and collectively with prime aren't.
Yes.
During 15% of the space so.
It's a bit deceiving when I say, 80% that the core of the mall, it's certainly going to anymore occupied than that.
But they're just happened to be three distinct spaces that are going to trickle into 21 that are going to drive some significant financial results and 21.
Oh.
Okay. Thank you.
Now, we'll hear from Linda Tsai with Jefferies.
Oh, I guess Hite, please tell us how much intelsat was paying in terms of rent.
That is good just in your credit loss, if I heard that correctly.
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[noise], Linda we don't provide specifics on how much each tenant phase it could be.
Very detrimental to the lease negotiations.
A lot of cases, we'll provide the specifics.
Okay, and then since you sold the multifamily hi, since when you consider selling the office at some point.
But certainly I mean, when we built those you know.
It was it was our stated intention that we didnt necessarily plan to build them and hold them forever, but that as long as we own them into control new development and how they were oriented towards the 2 million square foot powerhouse small we were going to do that.
And Thats been done the transit stations been built there.
In both assets are doing quite well and that is actually turned that location that interest of them all into the number or location. So but we do have an open mind going forward and that could possibly be a candidate.
To be sold along with our other non core.
Positions.
And then can you discuss what drove your decision not to JB, one or two of your top 20 assets and what it would take feeder visit that concept.
Well I'm sure there's no surprise to you, but today retail real estate, particularly mall real estate is out of favor with institutional investors.
Even given the very high quality assets, including.
Two or three that we exposed to the market, there's just not strong demand right now.
We'd like those assets, we're glad to hang onto a 100% of them.
They are core assets for us and we will generate liquidity through selling noncore assets as I mentioned.
Thanks, and then just one last one.
I'm, just trying to lower occupancy cost ratio when you're can unconsolidated centers. It looks like you've ended the year at 10.8% than than last year was 11.5% and then 2017 is 12.7% is there kind of a targeted ratio you'd like to achieve and you know what's driving that.
Well I mean, you've got a lot of factor.
Sales have been up.
Some cases, you've got some bankrupt tenants that had.
Hi, occupancy cost as a percentage of sales that are coming out of the equation. So thats for that number down I suspect that's the biggest reasons for the drop.
Since the prior year.
Thanks.
Next question comes from Michael Mueller with Jpmorgan.
Yes, hi.
Talked about the temp to perm leasing goals, but where do you see the overall from 94% occupancy level grew by 20.
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Hey, it's a it's Doug I think between our temp to Perm efforts and our focus in 2020.
Leasing vacant space that we've gotten back to us I think we could see our occupancy increased by 100 basis points from 9400, 95%.
Got it okay.
That was it thank you.
Now I'll take a question from Jeremy Metz with BMO capital markets.
Hey, guys I'm, sorry, if I missed I just want to go back to the asset account at 300 million.
Wondering number assuming that does include too.
That's gonna go away.
In the gross proceeds tires, maybe you can just quantify the gross expectations and interest to be clear it sounds like those will be Oh right now.
Any sort of JV.
In all likelihood they will be outright sales, there's couple of possibilities where may.
And for small.
JV interest in all those assets that were considering in this group of noncore dispositions are unencumbered.
All right Oh for and then just in terms of carbon percentage Ryan you had pretty good I'm watching 2019.
I guess, there's two parts are not first as part of that lift you saw just being driven by converting some tenants to percentage right and that help and you know kind of puts you at higher and I guess I can answer is how we should think about that here for 2020, obviously I think there. They are designed to keep our database right.
Maybe that's not on the cards.
Any color there thanks.
Yes, yes, sure Jeremy I don't think conversion to percentage of sales deals is what's driving that.
And as a positive sales environment, a positive sales doesn't necessarily translate to each and every tenant.
But.
We do have some tenants that have.
Surpassed I break point that I can't mention processing is a tenant specifically, but that's what kind of drove the result in a flavor.
Percentage rent as a whole really it's not that impactful to our entire rent structure. So I don't think thats.
Going to be a significant driver, it's certainly nothing we point to the say that's a.
Something we can do to drive 1% same center growth by any means but it's it's not accommodate or it's not a function of.
Converting to grow skills.
Yeah. Thanks.
And now we'll take a question from handle Gen CHS.
From Mizuho.
Hey, good morning out there.
So I guess, thanks to the color on the plan refinancing activity for this year, the 400 million of incremental liquidity outline but.
But that is new debt after all in your debt EBITDA 50 around nine X. I guess my question as you consider the.
Equally outlook today, the development NOI coming online and the refinancing activity play this year I guess I'm curious what do you could start to see that debt to EBITDA figure improved what do you think that will be by yearend and perhaps you run 21.
Yes, so there's obviously two sides of that equation.
The debt that's being incurred with the revised but also the additional EBITDA that's coming on line from assets like fashion District, Philadelphia, Scottsdale fashion square as well as a Sears projects and then I think we're up really going to see that.
Start to decline as we accelerate same center NOI going forward into 2020, we certainly.
I expect that to be stronger year for same center growth in this year when we're still.
Absorbing some of the banquet space.
So we think that's going to come down gradually naturally I think there's actually a chart or investor deck, which I don't have memorized, but if you take a look at that I think you'll see what our expectation is for debt to EBITDA going forward.
I do recall that truck, but if I recall correctly I think that chart did not include a forever 21.
Bankruptcy or some form of the challenges are facing now but to get health care. If there was an updated perspective.
But I do appreciate those stock and what are what does the unencumbered NOI today or has it.
Fourth quarter the portfolio.
Unencumbered NOI I'd packet roughly 15% to 20%.
Okay.
And then lastly quarter over there I was looking at your top 20 malls looked like sales per square foot or up across the board with exception of Corte Madera Your.
Number two malls.
Sales per square foot bear look to be down 10% year over year and 15% from last quarter, you discuss what's going on there what that attributable to you got a temporary blip or there's something more meaningful we should be aware. Thanks.
Yeah Pardon me there we had a couple I'm tenants that are moving around.
Just as part of ER.
Some redevelopment activity and I think thats really whats driving that we had some high octane tenants that are experiencing some temporary downtime as they relocate to half of that shift out of bed.
This sales pool and I'll be back into the sales force.
Okay.
Temporary disruption in the figure.
Okay. That's something that you think is the 2021 of that starts to get see the failed migrate back to where they were or is it doesn't take a bit more time.
Yeah, I would think so I would think signed up.
Okay. Thank you.
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And that's already we have you thought to turn the call back to Tom for closing remarks.
Thank you Jay.
Well. Thank you everyone for joining us today, we look forward to seeing you in speaking with many of you over the coming months.
With that ladies and gentlemen, this does conclude your conference for today, we do thank you for your participation and you may now disconnect.
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