The Macerich Company
Q4 2019 Earnings Call Transcript

Published: 7 Feb 2020

[Operator:]

Good day and welcome to The Macerich Company Fourth Quarter 2019 Earnings Conference Call. This conference is being recorded.And now at this time, I would like to turn the conference over to Jean Wood, Vice President of Investor Relations. Please go ahead.

[Jean Wood:]

Good morning and thank you for joining us on our fourth quarter 2019 earnings call. During the course of this call, we will be making certain statements that may be deemed forward-looking within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to a variety of risks uncertainties and other factors.We refer you to today's press release and our SEC filings for a detailed discussion of forward-looking statements. Reconciliations of 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 the SEC which we posted in the Investors section of the Company's website at macerich.com.Joining us today are Tom O’Hern, Chief Executive Officer; Scott Kingsmore, Executive Vice President and Chief Financial Officer; and Doug Healey, Executive Vice President, Leasing.With that, I would like to turn the call over to Tom.

[Tom O’Hern:]

Thank you, Jean, and thank all of you for joining us today. It was a solid quarter with good operating results. Sales per foot were up 10% to $801 per square foot. That's our 12th consecutive quarter of sales growth. Occupancy was 94 %, up 20 basis points from September 30th but down from 95.4% in the end of 2018, which 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 2019 leasing activity up nearly 20% compared to the prior year. Leasing in 2019 included a significant amount of leasing to mixed use in non-traditional retail users and that are and will be bringing heightens consumer traffic to our high quality tensors.This includes 4 hotel deals including Caesars Republic at Scottsdale Fashion Square, five co-working deals, most of them with industrious. We agree to three life-time fitness deals first one Equinox. Five years ago, these issues did not exist in malls. We expect this trend to accelerate as we move into 2020 and 2021. We completed an extensive 2019 financing plans which generated over 550 million of excess loan proceeds and liquidity for the Company.We continue to pursue non-core assets dispositions. We're under contract to sell a 50% share of the residential tower at Tysons Corner. In addition, we're under contract on another disposition of the non-core mall or in negotiations on another. For the year, we expect proceeds from non-core asset sales of approximately 300 million, and that has been factored into our 2020 guidance. Conversely, we have discontinued our efforts to joint venture any of our top tier assets.FFO per share was $0.98 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 in 2019 and the effects of which we see continuing into 2020. We expect to see same store NOI growth this year, of a 0.5% to 1% without accelerating in 2021. On the redevelopment front, our pipeline continues to progress well.In September Macerich and PREIT open fashion district Philadelphia. The property features a unique mix of full price and flagship retail, outlet retail, restaurants, entertainment and co-working leases. Tenants such as Century 21, Burlington, Nike AMC Theaters, Round One and City Winery are now open and operating. Performance has been strong and since mid-September opening, the property has had over 3 million visitors.Future tenants are signed leases include among others, Industrias, Sephora, Kate Spade and Ardene. In spring of 2021, a two level flagship Primark market open on Market Street. We are pleased by the opening in the first holiday season and we look forward to continued tenants openings at this unique downtown destination. Financial contributions from the asset are expected to continue to escalate in 2021 and beyond.We have executed leases downward spaces is open for 84% of the space with another 10% committed. Significant progress continues on the repurposing of our recaptured series locations. Construction is underway 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 and Washington Square, two of our top 10 assets. Those projects will include significant non-retail and mixed use components. We expect to be partnering with mixed used experts on these two projects, and other densification redevelopments.We anticipate groundbreaking on Washington Square in mid 2020 in preparation for late a 2021 Grand Opening. The uses at Washington Square expected to include entertainment, food and beverage, creative office hotels, also having a plaza that will be the gathering focal point leading into the new mall entry. Replacing the tenant demand and preleasing and we will announce tenant names as we execute deals over the coming quarters.As mentioned, our intent is to bring mixed use components such as multifamily and hotel in both Washington Square and Los Rios with some combination of grand leases and partnerships with multifamily and hotel developers with a minimal capital outlay on our part. Our redevelopment estimates for the series projects are $130 million to $160 million over the next several years. We expect attractive yields of 8% to 9% of the retail redevelopments and 9% to 10% for the next year.The variety of users that will be featured at all these former Sears locations is extremely compelling and will significantly boost productivity and consumer traffic. At Scottsdale Fashion Square, all components of this multifaceted redevelopment are firing on all cylinders. Once it was low traffic leading up to a low performing Barney's department store is now anchored by a flagship apple, a fully occupied industrious and includes a new roster of exciting brands, made possible by the addition of Apple an industrious.Several hundred yards down the property the luxury winning is rich with luxury brands including Breitling, Burberry, Cartier, Gucci, Jimmy Choo, LOUIS VUITTON, Prada, Saint Laurent, Ferragamo and Tiffany. Most recently, Nobu, Scottsdale and Toca Madera are latest additions to the restaurant expansion.With pending additions of Equinox and Caesars Republic in 2021 was latest wave of investment will be -- in the next this asset will be complete. Sales are nearing $1,500 per square foot with the continued opening of the high traffic and high sales uses an expansion of leasing demand at Scottsdale Fashion Square made extremely strong.Our portfolio features a tremendous collection of assets situated in the markets with outstanding demographics. The leasing environment is good and improving with a broad and diverse set of new users. The strategic vision for our town centers is abundantly clear.They will anchor our communities and will be a focal point where consumers repeatedly visit to shop, to dine, to be entertained, in a growing number of businesses to working with. In some cases, investments may be minor and others maybe more significant.As Doug will mention shortly, we're very enthused by the long list of significant projects that will start generating significant NOI for us in 2021.And now, I'll turn it over to Scott to discuss the results for the quarter for summarize our very significant 2019 financing activity.

[Scott Kingsmore:]

Thank you, Tom. The fourth quarter reflected good financial results, matching both company and discrete expectations. Here some highlights for the quarter and for the year. FFO for the fourth quarter was $0.98 per share, and 2019 FFO was $3.54 per share both matching consensus prefers call. The $0.98 in the fourth quarter represented at an $0.11 decline from FFO of $1.09 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 accounting standard; two, lower late termination income of $2.6 million; three, higher interest expense of $2.1 million; four, a favorable tax appeal during the fourth quarter of 2018, totaling roughly $3.5 million at one of our New York assets. This ultimately created an unfavorable comp in the fourth quarter of 2019. And then lastly, last increments from Sears called the bankruptcy for $1.5 million in the fourth quarter.Same-center net operating income was flat during the quarter and finished up 0.65% for 2019, which fell within our 0.5 to 1.0 same-center NOI guidance for 2019. As we have mentioned on prior calls, the anticipated growth from the second half of 2019 to be lower than the first half of 2019 as a result of the bankruptcy's including forever '21 and that was in fact the case.During 2019, the impact of both 2018 and 2019 non-anchor bankruptcies having 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% in 2018 to 63.6% in 2019. This morning onto guidance, we did provide a detailed 2020 earnings guidance and we direct you to the Company's 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 $3.50 per share and same-center in a wide 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 FFO of $3.54 per share to the midpoint of our FFO guidance for 2020, which is $3.45 per share.One, we anticipate approximately 6 times of decline in 2020 versus 2019 from the combination of reduced straight line rent and SFAS 141 income. These non-cash 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 in 2019.Two, we have included within our guidance $0.03 of expected dilution from disposition activity, including from Tysons Vita and other non-core dispositions that we are currently focused on.Three, as a reminder, there is continued rent loss from Sears that rolls into the first half of 2020 contributing to approximately $0.03 of dilution we call this does not impact same-center results.Four, at Fashion District Philadelphia, we anticipate 2020 year and occupancy of roughly 80% and year end 2019 occupancy was approximately 65%. Given this occupancy ramp and the fact that capitalized interest on the projects is substantially lower in 2020 and now that the project is open, this property is only modestly FFO accretive to Macerich in 2020, but will significantly contribute to the Company's FFO in 2021 and beyond.Lastly, a few other notes regarding guidance, we have embedded at approximately $0.06, or a 100 basis points of general reserves for rent loss into 2020 same-centered and wide guidance. We will monitor and adjust this figure as the year progresses. In terms of FFO by quarter, we estimate 23% in Q1, 25% in Q2, 24% in Q3 and the balance of 28% in 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 redevelopment investments in '21 and beyond. Again, please refer to our 8-K that was filed this morning for further information.On to financing activity for the year. To recap, the 2019 activity, we were extremely active last year in the debt capital markets. In total, we closed nine deals, totaling over $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.These nine financed assets included Fashion Chicago, shops it Atlas Park, SanTan Village, Chandler Fashion Center, Fashion District of Philadelphia, Tysons Tower, West Acres Mall, Kings Plaza, and lastly One Westside.During the fourth quarter, we closed two major deals on December 3rd we closed a $540 million refinance of King Plaza. This 10 year CMBS loans bears interest at all-in fixed rate at 3.62%. The proceeds were used to refinance an existing $227 million loan to repay a portion of the Company's line of credit. Given an existing debt was amortizing and the new loan is interest only to be a mortgage will provide over $10 million of annual cash flow savings.On December 18th our joint venture in One Westside closed a $415 million non-recourse construction financing, I assume to be new Google Creative office campus in West LA. Loan carries a rate of LIBOR plus 1.7%, which reduces to LIBOR plus 1.5% once Google open. The facility will cover JDs remaining share of development costs.Looking into 2020, we do anticipate financing Danbury Mall -- Danbury Fair Mall, Green Acres Mall, and another unencumbered a mall asset and we believe those assets will be very well received within the financing market and should generate in excess of $400 million.Now I will turn it over to Doug to discuss the leasing and operating environment.

[Doug Healey:]

Thanks, Scott. In the fourth quarter, sales remained strong, elution momentum continued. Portfolio sales ended the fourth quarter at $801 per square foot, which representative 10.3% increase from $2,726 per square foot at the end of 2018. Economic sales per square foot, which are weighted based on NOI were $916 per square foot, and that's up 7.9% from $849 per square foot a year ago.2019 year and occupancy was 94% and that's up 20 basis points from last quarter and down 1.4% from year-end 2018. This is primarily due to 450,000 square feet or 2% of GLA being rejected and closed to bankruptcies in 2019. Temporary occupancy was 6.3% and that's unchanged from December 31, 2018. Trailing 12 month lease spreads were 4.7% and that's down from 11.1% from year end 2018.In addition to affecting occupancy, the 450,000 square feet or 2% of our GLA, that was rejected and closed through bankruptcies, also for downward pressure on 2019 leasing spreads. So at this point in the business cycle, and as time stated, we believe the opportunities to drive occupancy and increased cash flow are more prevalent through leasing velocity and vacancy backbone. Average rent for the portfolio was $61.6 and that's up 3.3% but $59.9 one year ago. Leasing volume remained extremely strong throughout 2019.During the fourth quarter, 233 leases were signed for nearly 1 million square feet, but in 2019 totals to 938 leases signed for just over 3.5 million square feet. Macerich represent 18% more leases and 19% more squeezed square feet than what was accomplished in 2018. And this exclude fashion district Philadelphia, which we'll discuss in a moment. We continue to leverage the strength of our powerful portfolio by executing on several key packages and deals. Thinking 4 deals with Amazon for both their books and first their concepts at flat iron saludos, Scottsdale and 29th Street and that's how the 18,000 square feet.Additionally we make deals with our van, the Canadian fast fashion retailer Freehold, Duford and Fashion District Philadelphia, totaling 20,000 square feet. We make videos with BoxLunch South Plains Valley river and Vintage Faire and then nine years of the visa fast fashion jewelry out of New Zealand and this brings our total business with a visa to 11 stores, including stores already opened, and lots of redoes and fresh analysis Chicago.The large pharma space continues to be very active. We signed leases with DICK's sporting goods and Vintage Faire for 45,000 square feet and crunch fitness to 28,000 square feet. Both of those and vacant Sears boxes, we also signed leases for last festival is a Pacific view for 21,000 square feet and Adidas fashion outlets in Niagara Falls for 10,000 square feet. It's obvious that the large pharma category is becoming more important and more influential than ever, and we believe it is currently one of the most efficient ways to drive occupancy and increase cash flow.A great example, if you take the large format uses that are signed, or at least in the Sears boxes it Deptford, Vintage and Chandler as well as the Susan bacon forever 21 boxes at Danbury Fair an arrowhead and then you rare in lifetime fitness, probably 1000 oaks and Equinox and Caesars hotel Scottsdale fashion square by the end of 2020 into 2021. We're looking at bringing online an additional $10 million and share of incremental annual revenue. And we're still in the very early days within this large format sector.The food and beverage category we signed leases the Bamboo Sushi at Biltmore Fashion Park, Bubba's 33 at South Plains and Shake Shack at Danbury Fair. This brings our total number of deals with a Shake Shack to 11, making Macerich one of Shake Shack largest landlord. We signed multiple leases with digitally native and emerging brands in Q4, including Murphy at Arrowhead, Chico's at Kierland Commons, Purple at Santa Monica Place, Warby Parker at 29th street and Gloriana at the Village of Corte Madera.Further up Tom's comments on Fashion District Philadelphia regarding this grand opening, it was another very strong quarter for STP in terms of leasing. We signed 8 leases to almost 90,000 square feet, including two deals with prime mark and 47,000 square feet so far and 7,500 square feet, K state and 3,500 square feet, PSW in 15,000 square feet and our Dan and 12,000 square feet. And while we're happy with what we transacted on in 2019 it's important, especially in this auto retail environment, to get out in front of our business by addressing our 2020 lease expirations.To that end, I am pleased to report that between site leases and leases out for signature in terms of square footage with 63% completed with our 2020 business. And we include active allies with almost 90% complete with a 2020 business. In the fourth quarter we open 105 new tenants totaling 339 square feet. And this is an addition to the 65 new tenants totaling 205,000 square feet that we opened in the prior quarter.Retailers have now included a 23,000 square foot H&M and a 10,000 square foot Salon Republic at The Oaks; Toca Madera and Zinque, two 4-star Arizona restaurants at Scottsdale Fashion Square, Roots and THE VOID at Tysons Corner Center; Five Below in 10,000 square feet of Freehold Raceway Mall. We opened five Abercrombie Kids stores totaling 15,000 square feet. And lastly, we opened ULTA and Ross Dress for Less in about 35,000 square feet of Superstition Spring,s which finalized the backfill the vacant 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 4-Star at Village of Corte Madera, UNTUCKit at freehold Raceway, Purple at Santa Monica Place, and Havaianas, Stance and Tommy John at Scottsdale Fashion Square.Also in the fourth quarter, we opened another eight locations with YM, the Canadian fast fashion retailer out of Canada who brought the life to Charlette Rus. These eight locations totaled 50,000 square feet. The final two deals in the YM package will open Q1, 2020 bringing the total to 17.So after the liquidate of Charlotte Russ which occurred in Q2, 2019 leading us with 25 vacant locations totaling 160,000 square feet, between YM and a couple of other retailers 21 of the 25 locations the Charlotte Russ vacated have already been backfilled.So in conclusion, leasing environment remains strong. As I've been saying, for the last several quarters, we believe the time is right to take advantage of the current disruption in the retail environment by uncovering and securing new, exciting and cutting edge leases across the multi-faceted categories within our properties.Yes, we'll continue to rely on our legacy retail partners, especially those who have used the last seven years to reinvent themselves. But it does not and cannot stop there. As we know time to change, our shoppers change and shopping patterns have changed. In 2019 we made it our mission to uncover the latest and greatest brands and users to help adapt to the changes. And our communities pleased with our progress. In 2019 we signed 94 years totaling 150,000 square feet of all new to Macerich tenants, tenants that we've never done business with in the past.So let me add, 2019 was both a challenging year and rewarding year. So most of all, I believe it was a year in which we changed our thinking, and set the groundwork for whatever the future may bring. For 2020, our goal is simple. We continue to morph our properties in the best in town -- best in class town centers, and transformational and creative leasing.Town centers that would be something for everybody and places where folks will want to gather and can impact actually work shopping play; and as we do just that, I believe Macerich will continue to have them the strongest and most sought after portfolios in our industry.And now we'll turn it over to the operator to open up the call for Q&A.

[Operator:]

[Operator Instructions] And we will hear first from Craig Schmidt with Bank of America.

[Craig Schmidt:]

Thank you. I am wonder, if you can give us an expected incremental NOI increase coming from Scottsdale Fashion Square and Fashion District Philadelphia for 2020?

[Scott Kingsmore:]

Yes, sure, Craig. Good morning. This is Scott. Start with FDP, incremental NOI. If I were to look at our pro-forma, you can probably triangulate to a 4.5%, 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 in '21, '22 and beyond.A Scottsdale Fashion for the most part is sitting in our same-center, the expansion space that includes restaurants and fitness is not in our same-center. So that is a creative, I currently don't have a number of certainly above our portfolio average given all the leasing activity. I don't have the figure for you off hand Craig.

[Craig Schmidt:]

Okay, thank you. And then, I guess, I just wondered, what is the potential impact if Prop 13 would pass for Macerich?

[Scott Kingsmore:]

Craig, Prop 13 has been challenged many times in California over the last 30 years or so. Apparently, they've got enough signatures, it's going to be on the ballot, but we know it's not pulling well. So for a variety of reasons, we think it's a long shot that initiative to turn over Prop 13 are converted to two split tax rules probably will not successful.But in 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 realize that's going to put some incremental pressure on them occupancy costs as a percentage of sales, but we don't think if it were to task, which again will take us a long shot. We don't think it would have any immediate impact on the FFO or same-center NOI.

[Operator:]

And now we'll take a question from Alexander Goldfarb with Piper Sandler.

[Alexander Goldfarb:]

First question is. Scott, it just goes 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 $0.08 impact, but to when you guys go through your same-store guidance this year, 0.5 to 1, how much is already reflected not in that number, but how much of the portfolio is already having dragged from closing last year? Meaning are you starting the year off with like 50 basis points of 2019 closings and then does the 50 basis point -- sorry, there's a 100 basis points of bad debt -- sorry, that's what I meant. There's a 100 basis points of bad debt. Did that already include what you know has close to date meaning like Forever 21 and therefore there's a hundred extra or is the a hundred already includes stuff that's already closed this year?

[Scott Kingsmore:]

Good morning, Alex. I'll take all those. I'm not sure I can remember all five, but I'll -- I'll try and do my best here. 2020 same-center guidance embeds within it, as a result of the 2019 bankruptcies approximately 200 to 225 basis points production of 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 impacts there.As we said, roughly $0.08 was the impact on an annualized basis and at roughly $0.02 of that would be felt in 2019 and the balance in 2020, all of that will hit same-center, in terms of what is and is not in our same-center pool, fashion district of Philadelphia hits our same-center pool in the final quarter of the year Q4, our Sears boxes are not an our same-center pool and again, that does have some bearing on the first half because we did receive some rents in the first half of 2018 that we certainly are -- first half of 2019 that we're certainly not receiving this year. The expansion area for Scottsdale is not in our same-center pool.And then lastly One Westside is pretty inconsequential given the fact that was closed pretty much most of 2019 but that is also at of our same-center pool. So hopefully that answers all your questions.

[Alexander Goldfarb:]

Yes. And then Scott on the a 100 basis points of credit reserve for this year, is any of that already being used or is it call incremental meaning whatever you may have gotten notices for so far this year, is that in part of that 100 or that's incremental to the 100?

[Scott Kingsmore:]

It's incremental.

[Alexander Goldfarb:]

Okay. Then the second question is asset sales. Last time you talked about possible, I think about $80 million of a -- I think it was like the apartment sale in the fourth quarter and then maybe some additional sales aggregated about $280 million given here, anything like that, but certainly noticed in your dividend composition from last year, you guys earned 135, you had gains of 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 dividends? Or the assets sales no longer part of the calculus as you think about your 2020?

[Tom O’Hern:]

Well, Alex, we look at 2020 there, the focus has shifted to selling our core assets at and those we typically don't have the same elevated tax gain or capital gain as we would if we sold one of our top 10 assets or top 20 assets. So to some extent, there were tax considerations in 2019 that don't exist in 2020.

[Alexander Goldfarb:]

Okay, but you're still going to maintain the same dividend payment despite that it's a pretty good source of capital and the market sort of pricing because they're not pricing you on the current dividend. They're pricing on something less than that.

[Tom O’Hern:]

But if you're asking about the dividends, that's a board action, that's 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 dividends of $0.75 per share, which was consistent with prior. And that's a board decision, and the board addresses it quarterly before they declared the dividends that they're aware that there's room of about a dollar a share in terms of the non taxable part of the dividends that could be used if they deem it's so appropriate. But to date the Board has not been interested in making that change, but it's their decision.

[Operator:]

Well now here from Christy McElroy from Citi.

[Christy McElroy:]

So just to follow up on Alex's question on the assets sales, $300 million, that includes the $82 million for the 50% interest in Vita, which it hasn't closed yet. Just in regards to the other $200 plus million you mentioned there, non-core mall under contract and then another non-core asset in negotiation. So those three assets comprise the entire $300 million or is there an expectation for others? And is there a non-core asset under negotiation, a mall or a non-retail asset? Just maybe some color on that. Thanks.

[Scott Kingsmore:]

So, those three will get fairly close to 300 and there may be one or two other small assets that are non-core for us that may be dispositions this year. And other than the apartment tower at Tyson score, the other assets are non-core moles.

[Christy McElroy:]

And can you give a sense for Catherine on those non-core malls?

[Scott Kingsmore:]

No, if I could, I don't think that's for sure that they would be very relevant cause a lot of those assets don't have a lot of EBITDA but they do in shock tab some pretty good real estate value and the potential to do other things like multifamily.

[Christy McElroy:]

And then just in regard to your capitalized interest guidance of $25 million in 2020, I would have thought more of that would have started to be expensed as you delivered Scottsdale and you continue to stabilize Fashion District. How should we be thinking about the moving parts of that number as more of the interest related to do those two projects or expense? But is there anything else that's sort of being added to CIP or added to the pipeline beyond what you've listed in the development schedule that would impact that number?

[Scott Kingsmore:]

Yes, certainly bear in mind that in our projects all of our shares boxes are going to be factored in there. We've got a couple of large format users that we feel very good about the opportunities on a couple for 21 boxes and those are the, in the numbers one website is obviously going to we're throwing hammers and that's going to be factored in there bear in mind, you know, Scottsdale was a multi-phase project and so a lot of that was already placed in the service throughout 2019.Certainly, the wing that now features Apple and Industrious was fully in place for all 2019. So you don't have much of a decline there year-over-year. Fashion District frankly is the biggest year-over-year decline, but again, there's continued reinvestment back into the portfolio and our high qualities shares boxers, One Westside, like I said, a couple of the larger format forever 21 stores that we are at least on right now and we feel very good about.

[Christy McElroy:]

So, those Forever 21 boxes will go into CIP, but they remain in the same-store pool?

[Doug Healey:]

Yes two different concept, we typically carve-out the same-center or major redevelopments, but when it comes to the purposing boxes and spending development capital to the tune of that order of magnitude, GAAP allows that to be considered construction or process or allows you to recognize capitalized interest. And so, there were really two different concepts Christy.

[Operator:]

And Jim Sullivan with BTIG has the next question.

[Jim Sullivan:]

Yes, thank you, Scott, thanks for providing that reconciliation in terms of the items that gets you from the safe circle per share number midpoint of the per share guide is 345.I just want to clarify, because you listed the Sears Box as you said there was not included in the same center. And then you itemized I think the 1% success to share for kind of a loss reserve. So when you report the same store, however, you typically will reflect any credit loss on the same store. Is that right or no?

[Scott Kingsmore:]

Yes, that's correct. Really, the 1% Jim, it's just budged rents that we're carrying a reserve against for potential fallout. We will continue to assess that throughout the year. That's a bit different than the notion of bad debt where we're lighting off uncollectible receivables. Also inherent within our guidance is a bad debt expense estimate of $7 million. And we provided that on page 10 of our sub. So in addition to that $7 million of uncollectible build your rents, we have an additional 1% of general reserves against potential fallout that will monitor as we progress.

[Jim Sullivan:]

Of that $7 million number you gave. That was indicated on the guidance page. But I guess it's, I guess the issue is 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 have thought the reserve would have been the strain that would already be 0.5% to 1%. In other words would be the same as, maybe we start the year within each case, no, i.e. $0.06 would be incremental?

[Scott Kingsmore:]

Well, in the $0.06 is it so maybe we're not speaking the same language here. The $0.06 embedded within our thinking for the 0.5% to 1%, say same center NOI audience. But I think Alex's question was -- is any of the forever 21, for instance or other known bankruptcies inherent within that $0.06 or 100 basis points of journal reserves? And the answer is narrow. It's all incremental, on top of what we know today.

[Jim Sullivan:]

Yes, Okay. I understand that. Okay. Maybe we can follow up on this offline. And we're just trying to -- I'm just try to connect the dots for obviously the '19 result adding some 3-6 months of profit and contribution in the same store guide and then making the adjustments that then take the number back down to 345. So we can follow up online on that or offline on that.I also want to talk about the refi proceeds. I know in between the consolidated assets between 4Q maturities and 1Q maturity you got almost $600 million of the maturities. And you had talked, I think in your prepared comments about financing on Danbury and Green Acres and another mall and I think he mentioned something like $400 million in proceeds. So I guess the question is Fashion, Allison Niagara what are you anticipating there at this point to the extent you're comfortable talking about it?And number two on Danbury Fair and Green Acres why are you anticipating excess proceeds for the maturity or no?

[Scott Kingsmore:]

Yes, we are. Danbury Fair as a 10 year, maturity. And given continued investment in progress and value creation of that asset over of course of a 10 year period, there's 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. Recall we did build a very substantial a power center adjacent to the project. And frankly the performance of Green Acres small as well beyond our expectations and I do think there's the opportunity to extract excess proceeds.The third app that I mentioned not by name, but I did describe it as unencumbered, and so I did feel very good at that asset, which performs extremely well will result in some excess proceeds, I think the last question you asked was Fashion Outlets and Niagara, we're still evaluating that one. It's very possible at this time we may unencumbered that one, but we'll be reporting back on that one over the course of the year.

[Operator:]

Now, we'll take a question from Todd Thomas with KeyBanc Capital Markets.

[Todd Thomas:]

Hi, thanks. Just first a follow-up on the same-store forecast. Scott, I think you meant -- you commented that Fashion Outlets of Philadelphia comes into the pool and the fourth quarter seems like that could have an impact on the full year forecast and just given the ramp you're expecting those strengths and occupancy, and I presume rental income what's the impact that Philly has on the full year same-store growth forecast.

[Scott Kingsmore:]

Sure, Todd, good morning. Well given the fact that it's only one quarter, it's not going to be a massive impact. What I can say though is that we look into 2021 Philadelphia would certainly be a major contributor as well. A lot of these larger boxes that are going to be coming online, 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 it just takes about 18 to 24 months for that income to come to fruition and actually to get those tenants open and operating.We are 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 in '21. Circle back specifically to your question though, the '20 contribution from Philadelphia in the fourth quarter, so certainly is one, but it's not very significant in light of single last for one quarter.

[Todd Thomas:]

Okay, got it. And then, Doug, I apologize if I missed this, but I think temp and 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 transfer out the edge?

[Doug Healey:]

Yes, Todd. I think the number at year end was 6.3%, so pretty consistent with the third quarter, 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 rent between temp tenants from tenants. So that's going to be a big push this year.

[Todd Thomas:]

Okay. Can you, quantify that a little bit? Do you have a sense for where rents are for that pocket? How much of a lift do you see on average when converting short term leases to permanent?

[Doug Healey:]

It's usually a 50% pick up the rent when you convert. And the goal of this year to knock down by 75 basis points or a 100 basis points to take it closer to 5% from the 6.3% it's out today. And we've got a team of people that specifically focuses on converting temps to perm.

[Todd Thomas:]

Okay. And just one last question, also on leasing, you discuss some of the leasing activity in 19, the progress that you've made on the 2020 expirations. Can you just comment specifically on the leasing spreads in the quarter in the consolidated portfolio? They sort of they came in sharp leave this quarter. I was just curious if you can discuss what that's attributable to?

[Doug Healey:]

So it all really depends on the property and the market. And our top-tier centers as we look to execute on the 2020 business. We're executing at positive decent spreads. However, on some of our lower-tier centers, it may be more of an occupancy play. Obviously, when you're working to drive occupancy, it does comment at the expensive rate, which affects spread, but I wouldn't say that the case in the majority of our properties.

[Operator:]

Now, we will move to a question from Steve Sakwa with Evercore ISI.

[Steve Sakwa:]

I guess first there was an article yesterday about Intelsat filing for bankruptcies and I know that's a large office tenant you've got in Tysons, any just sort of commentary you can provide around that tenant and space needs and how you think that might play out?

[Tom O’Hern:]

Well, there were one of our original tenants, Steve, and around the time they went public or about the time we opened Tysons Tower five or six years ago. And they'd been an anchor tenant. 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 if it came to that, we don't believe it will, but if it did come to the situation where they did file and, we had to make some decisions there's a much stronger office market today than there was when we originally did that deal. And we in all likelihood to get a rent pickup as a result of taking that rent to market if it comes our way.

[Steve Sakwa:]

But there's nothing baked into the 0.5% to 1% for any kind of dislocation or disruption from that. Is that correct?

[Tom O’Hern:]

That's correct.

[Steve Sakwa:]

Okay. Secondly, can you just broad picture, give us maybe I missed it, kind of the funding needs that you have for developments redevelopment in 2021 and 2022?

[Doug Healey:]

Yes, an average Steve, we're going to be at $250 million to $300 million and that's about what we were this year and it's shot with three the refinancing liquidity that were generated and that was roughly $550 million. So there liquidity well in excess of our capital needs generated this year on top of what may come out of the financing pipeline we were also deepen either contract or negotiations to sell some non-core assets, which will generate some additional liquidity and we very well could continue that game plan as you move forward into 2021 and beyond so long been a goal of ours to sell are non-core assets if we can do it cost effectively without a big earnings impact. So that's an avenue we're going to continue to pursue in terms of generating liquidity to cover very creative redevelopments.

[Steve Sakwa:]

Okay. And then just maybe one for Scott, just in terms of how you think about assets going in, going out of the same-store pool, I guess Fashion District of Philadelphia is obviously still ramping and really doesn't even stabilize. So it sounds like in that 80% range and gets into the 90s even a year from now. But it sounds like that's going into the pool in the fourth quarter of '20, although it's not really stabilized yet. Is it just a strict definition of 13 months in the asset goes in or is there something that little bit more specific as to how you think about that or the new wing in Scottsdale when that gets added?

[Scott Kingsmore:]

Yes, you're -- you're pretty much spot on get far for quarters, and then when it gets into the same-center pool, the fourth quarter of this year happens to be the anniversary for Fashion District. And let me just expand a little bit on the occupancy cause the stabs can be a bit deceiving. We do anticipate occupancy as I mentioned, roughly 80% by year end in 2020s. But bear in mind that there are three major spaces at that property that happened to be unique, that are carrying into '21 Primark, we expect to be a spring 21 delivery. It's roughly 50,000 square feet, two levels our market's going to be a great flagship anchor for us.In addition, there's two destination spaces on the each side of the project and collectively with Primark, that's nearing 15% of the space. So it's a bit deceiving when I say 80% at the core of the mall, it's certainly getting to be more occupied than that, but there just happened to be three distinct spaces that are going to triple into '21 that are going to drive some significant financial results in '21 and beyond.

[Operator:]

Now, we'll hear from Linda Tsai with Jefferies.

[Linda Tsai:]

Yes. Hi. Could you tell us how much Intelsat was paying in terms of rent since that is included in your credit loss, if I heard that correctly.

[Tom O’Hern:]

Linda, we don't provide specifics on how much Intelsat, it would be very detrimental to the leasing negotiations in a lot of cases. We don't provide those specifics.

[Linda Tsai:]

Okay. And then since you sold the multifamily Tysons, would you consider selling the office at some point?

[Tom O’Hern:]

Certainly, I mean when we built those was -- it was our stated intention that we didn't necessarily plan to build them and hold them forever, but that as long as we own them and could control the development and how they were oriented towards the 2 million square foot powerhouse mall, we were going to do that and that's been done. The transit station has been built there in both assets you're, doing quite well. And that has actually turned that location that entrance to the mall and number one 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 dispositions.

[Linda Tsai:]

And then can you discuss what drove your decision not to JV one or two of your top 20 assets and what it would take for you to revisit that concept?

[Tom O’Hern:]

Well, I'm sure this is no surprise to you, but today, retail real estate that particularly mall real estate is out of favor with institutional investors. Even the very high quality assets, including the two or three that we expose to the market, there's just not strong demand right now. We liked those assets, we're glad to hang on to 100% of them. They are core assets for us and we'll generate liquidity through selling non-core assets as I mentioned.

[Linda Tsai:]

Thanks and just one last one. What's driving to lower occupancy costs ratio your -- on consolidated centers it looks like you ended the year at 10.8% and then last year was 11.5% and in 2017 it's 12.7% because they're kind of a target ratio you'd like to achieve. And what's driving that?

[Tom O’Hern:]

Well, I need to get a lot of factors sales have been up, some cases you've got some bankrupt tenants that had a high occupancy cost as a percentage of sales that are coming out of the equation. So that's putting that number down. I suspect that's the biggest reason for the drop versus the prior year.

[Operator:]

Next question comes from Michael Mueller with JP Morgan.

[Michael Mueller:]

Hi. He talked about the deferred leasing goals. But where do you see the overall 94% occupancy level going back yearend '20.

[Doug Healey:]

It's Tom. I think between our attempt efforts and our focus in 2020leasing the vacant space and we've gotten back to us. I think you can see our occupancy increased by 100 basis points to 94% tp95%.

[Operator:]

Now, we'll take a question from Jeremy Metz with BMO Capital Markets.

[Jeremy Metz:]

Hey, guys. Sorry, if I missed this. But I just want to go back and asset sales, the $300 million. It was a net numbers I assume that does include some depth that's going to go way making the gross proceeds higher. So maybe you can just quantify the gross expectations there. And then just to be clear, it sounds like those will be outright sales as opposed to any sort of JV. Is that right?

[Tom O’Hern:]

In all likelihood, there will be out by sales. There's a couple possibilities where they stand for small JV interest. And all those assets that were considering this group of non-core dispositions are unencumbered.

[Jeremy Metz:]

All right, that's hopeful. I'm just in terms of the percentage where you have pretty good uplift in 2019. I guess there's two parts in that. First part of maybe as part of that what you saw just being driven by converting through tenants the percentage rents. And that's helping kind of push it higher. And then I guess second is how we should think about that here for 2020. I think there's a desire to convert that to base rent. And maybe that's on the markets and on the cards. Any color there. Thanks.

[Doug Healey:]

Yes, yes, sure, Jeremy, I don't think converting to percent of sales deals is what's driving that. It is a positive sales environment. Positive sale doesn't necessarily translate to each and every tenants, but we do have some tenants that have surpassed the breakpoint that I can't make some proper lease or tenant specifically. But that's what kind of drove the result in upon percentage of rent as a whole really is not that impactful to our entire rent structure.So I don't think that's going to be a significant driver. It's certainly nothing we point to say that's something we can do to drive in a 1% same center growth by any means. But it's not a combination it's not a function of converting growth skills.

[Operator:]

And now we'll take a question from Haendel St. Juste from Mizuho.

[Haendel St. Juste:]

Hey, good morning out there. So I guess thanks for the color on the planned refinancing activity for this year the $400 million incremental liquidity you outlined. But that is new debt after all. And your debt to EBITDA put you around nine x. I guess my question is, as you consider this 2020 outlook today, the development NOI coming online and the refinancing activity start this year. I guess I'm curious when you could start to see that debt to EBITDA figure improved. Where do you think they'll be by year-end and perhaps year-end 21?

[Scott Kingsmore:]

Yes, so there's obviously two sides of that equation. In the debt that's being incurred as a reifies and also the additional EBITDA that's coming online from that so it's like Fashion District, Philadelphia, Scottsdale Fashion Square as well as a Sears projects. And then I think we're all really going to see that start to decline as we accelerate same-center NOI going forward into 2020.We certainly expect that to be a stronger year for same-center growth and this year when we're still absorbing some of the bankers space. So we think that's going to come down gradually and naturally looked at is actually a charter industry 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.

[Haendel St. Juste:]

I do recall that chart, but if I recall correctly, I think that chart did not include a Forever 21 bankruptcy or some form of the challenges that they see now to get more updated perspective.But I do appreciate those thoughts and what are -- what is the unencumbered NOI today, or have a fourth quarter for the portfolio.

[Scott Kingsmore:]

Unencumbered NOI, I'd tag it roughly 15% to 20%.

[Haendel St. Juste:]

Okay. And then lastly Corte Madeira, I was looking at your top 20 malls, looked like sales per square foot or up across the board with the exception of Corte Madera, your number two malls. Sales per square foot there and look you down 10% year-over-year and 15% from last quarter. Do you assess what's going on there? What that's attributable to? Is that a temporary blip or just something more meaningful you should be aware of? Thanks.

[Scott Kingsmore:]

Yes, Corte Madera, we had a couple of tenants that are moving around as part of some redevelopment activity and I think that's really what's driving that. We had some high obtained tenants that are experiencing some temporary downtime as they relocate that happened to shift out of the sales pool and they'll be back in the sales force. So, I think that's temporary disruption in the figure.

[Haendel St. Juste:]

Okay. Is that something that you think is a 2021 of that box to get, see the sales migrate back to where they were or is it going to take a bit more time?

[Scott Kingsmore:]

Yes, I would think so. Yes.

[Operator:]

At that time, I would like to turn the call back to Tom for closing remarks.

[Tom O’Hern:]

Thank you, Jean. And thank you everyone for joining us today. We look forward to seeing you and speaking with many of you over the coming months.

[Operator:]

With that, ladies and gentlemen, this thus concludes your conference for today. We do thank you for your participation and you may now disconnect.