Please stand by. Good day, ladies and gentlemen, welcome to The Macerich Company third quarter 2019 earnings conference call. Today's call is being recorded. At this time, I would like to turn the conference over to Ms. Jean Wood, Vice President of Investor Relations. Please go ahead, ma'am.
Good morning. Thank you for joining us on our third 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, posted in the investor section of the company's website at macerich.com. Joining us today are Thomas O'Hern, Chief Executive Officer, Scott Kingsmore, Executive VP and Chief Financial Officer, and Doug Healey, Executive Vice President, Leasing.
With that, I would like to turn the call over to Tom.
Thank you, Jean. Thank all of you for joining us today. It was a solid quarter with generally good operating results. Sales per foot were up 13.2% to $800 per square foot. That's our 12th consecutive quarter of sales growth. Occupancy was 93.8%, down from 95.1% a year ago, mostly due to first half 2019 bankruptcies. Average rents were up 3.5%. We continue to experience very good leasing volumes, with year-to-date leasing activity up 29% compared to last year. The leasing environment continues to improve, with strong activity across multiple categories. We are nearing completion of our extensive 2019 financing plan, which in total will generate nearly $600 million of liquidity. As we continue to explore non-core dispositions, we have an agreement to sell our 50% interest in Tysons Vita , the residential tower at Tysons Corner, for $82.5 million. That transaction is anticipated to close near year-end.
FFO per share was $0.88, exceeding first call and Bloomberg consensus estimates. As you are all very well aware, Forever 21 has filed for bankruptcy. We have 28 locations with them. We've been in weekly conversations and negotiations with them. Four of the stores will close later this year or early next year, and one of those stores is not owned by us, Vintage Faire. There will be rent concessions on many of the other stores. We expect the total impact on an annual basis of the closures and concessions to be approximately $0.08 per share on an annual basis. We felt the effect by about $0.01 a share in the third quarter, and we'll feel the effect by about another $0.01 a share in the fourth quarter. The two large format stores they plan to close are already re-leased.
On the redevelopment front, our pipeline continues to progress well. On September 19th, Macerich and PREIT opened Fashion District Philadelphia. The property features unique and exciting mix of full price, flagship, outlet retail, restaurants, entertainment, and co-working uses. Tenants such as Century 21, Burlington, Nike, H&M, City Winery, Ulta, Hollister, and American Eagle have all reported extremely strong traffic and sales volumes that exceed their expectations. Another 150,000 square feet is expected to open by holiday 2019, including an entertainment cluster featuring an AMC Theater, which is downtown Philadelphia's first theater in 35 years, Round One and Wonderspaces. Within the past quarter, we have executed leases with several very noteworthy tenants, including Primark, which will open a two-level flagship, Industrious, Sephora, Kate Spade, A|X Armani and DSW Shoes. We are very pleased by the opening and the leasing momentum from this unique downtown destination.
We have leases executed for 80% of the center, with another 14% of the space committed and in active negotiation. We continue to make excellent progress on the repositioning of recaptured Sears locations. Construction is underway at four of these locations, at which new tenants will open in 2020. The entitlement process continues at the two larger mixed-use projects, Los Cerritos Center and Washington Square. Both of those assets are in our top 10. Our thinking on these two densification projects continues to evolve, including likely delivering mixed use elements through long-term ground leases for the non-retail components, including hotel and multi-family residential. We now estimate the aggregate redevelopment investment at these locations of $130 million-$160 million over the next several years. Pre-leasing of these redevelopments continues to progress well, including a recent signing of a new entertainment concept from Harkins Theatres at Chandler Fashion Center.
The diversity and uniqueness of the tenancies for these former Sears locations is broad and compelling, including sporting goods, entertainment, fitness, food and beverage, medical, hotel, multi-family residential, and potentially co-working. This array of uses will provide a diverse cash flow stream and will greatly elevate the productivity and customer traffic compared to the former department store use. For more details, please see our 8-K filing this morning. At Scottsdale Fashion Square, we're nearing completion of the multifaceted redevelopment. Industrious is now 100% occupied within the former Barneys support store location. As we continue to expand our partnership with Industrious at Broadway Plaza, Fashion District Philadelphia, and Country Club Plaza, we are very encouraged by the synergies we've observed in Scottsdale from co-working in a retail environment.
The new Apple flagship at Scottsdale continues to be a magnet of customer energy and for additional leasing activity within the east wing of the property. Follow-on leasing of digitally native brands, luxury brands, and other retail has exceeded our expectation. By spring of 2020, the full collection of high-end and lifestyle restaurants will be fully open, and we anticipate that both Equinox and Caesars Republic Hotel will open during 2021. With sales now exceeding $1,500 per sq ft and total property sales in 2020 up 38% and growing, Scottsdale Fashion Square is clearly firing on all cylinders. In Carson, California, the Carson Reclamation Authority continues its horizontal site work to support Los Angeles Premium Outlets. Our 50-50 JV with Simon Property Group expects to commence vertical construction of phase 1 in 2020. Pre-leasing interest for the project, including flagship and anchor retail, is very strong.
As we've mentioned, and Doug will provide more details on this in a few minutes, the leasing environment has never offered a greater diversity and breadth of uses. Uses include coworking, fitness, beauty and health, digitally native and emerging brands, entertainment, food and beverage, hotel, and multi-family. These are clearly the future for the best situated retail real estate like ours. I have firm conviction that despite the current disruption in the retail environment, this is ultimately creating a healthier and more diverse portfolio. Now I'd like to turn it over to Scott.
Thank you, Tom. The third quarter reflected good financial results exceeding street expectations. Here are some highlights for the quarter. FFO was $0.88 per share, which was $0.01 ahead of Bloomberg and first call consensus of $0.87 per share. This represents an $0.11 decline from FFO in the third quarter of 2018 of $0.99 per share, given primarily the following factors. First, higher interest expense of $2.7 million. Secondly, higher leasing expenses of $5.6 million driven by the new lease accounting standard. Third, lower lease termination income of $3.3 million. Fourth, reduced land sale gains of $4.2 million driven by two land sales that occurred in the third quarter of last year. Lost anchor rents from Sears, which was approximately $2 million. These factors were offset by savings in corporate overhead of $2.5 million.
Same-center growth and net operating income was up 0.9% for the year and 0.2% for the quarter. The year-to-date growth is on the high end of our 0.5%-1% same-center NOI guidance for 2019. The deceleration in third-quarter growth is consistent with our expectation as we previously communicated, given the full quarter impact of bankruptcies in the third quarter and also given strong comp center growth that we're bumping up against in the third quarter of 2018. Margins continue to show improvement. The EBITDA margin for the quarter improved by 40 basis points from the third quarter of 2018 up to 63.8%. EBITDA margin year-to-date was up approximately 1%. On a trailing 12-month basis, EBITDA margin stands at 64.4%.
This is a mall sector-leading margin improvement of over 5% since 2014, which is very noteworthy considering the top-line pressures in our business over the last few years. With respect to 2019 earnings guidance at this time, we are reaffirming our guidance for both FFO per share diluted and for same-center net operating income, and we direct you to our 8-K supplemental filing from this morning. Regarding our financing activity, the following summarizes the current status of our 2019 plan. Leaning into the quarter, we had closed four deals totaling over $850 million. In July, our Fashion District Philadelphia joint venture closed an accordion amendment to its existing unsecured term loan facility, which resulted in $51 million of additional funding at LIBOR plus 2%. In September, we closed on a $190 million CMBS loan on the previously unencumbered Tysons Tower.
This 10-year loan bears fixed interest at 3.33% and is full term interest only. Our joint venture in One Westside anticipates closing a syndicated non-recourse bank construction loan in the fourth quarter, which is expected to have very attractive terms. When closed, this loan will finance the partnership's remaining incremental cost to deliver the redevelopment of this creative office campus to Google. Lastly, we have agreed to terms on a $555 million CMBS financing on the recently redeveloped Kings Plaza in Brooklyn. This will generate over $125 million of excess loan proceeds versus the existing debt. This 10-year loan will bear a fixed interest rate at 3.67%, is full term interest only, and is expected to close within the fourth quarter. This financing is anticipated to provide $10 million of ongoing annual cash flow savings relative to the existing mortgage that will be prepaid.
Collectively, these financings represent an ambitious 8-loan financing plan for 2019, which is nearly complete and that is expected to exceed $2 billion in total volume and to generate approximately $576 million of incremental liquidity to the company. Looking forward over the next several years, we do anticipate annual incremental cash flow from financings of $250 million-$400 million per year. Today, we have over $700 million capacity on our $1.5 billion revolving line of credit. That's a summary of our 2019 financing plan, and now I'll turn it over to Doug to discuss the leasing and operating environment.
Thanks, Scott. In the third quarter, sales and occupancy remained strong, the leasing momentum continued. Portfolio sales ended the third quarter at $800 per square foot. That represented a 13.2% increase from $707 per square foot on a year-over-year basis. Economic sales per square foot, which are weighted based on NOI, were $922 per square foot. That's up 12.6% from $819 per square foot a year ago. Quarter end occupancy was 93.8%, down 1.3% from the end of the third quarter 2018, down 0.3% from the end of the second quarter 2019. Trailing 12 month leasing spreads were 8.3%, compared to 9.4% at the end of the second quarter 2019. Average rent for the portfolio was $61.16. That's up 3.5% from $59.09 one year ago. Consistent with the second quarter, leasing volumes remained extremely strong in the third quarter.
During the third quarter, 239 leases were signed for just over a million square feet, bringing the year to date total to about 2.6 million square feet. This represents 29% more leases and 25% more square feet than at this point last year. This excludes Fashion District Philadelphia, which we'll discuss in a moment. Leases of note include Tiffany at Village of Corte Madera, Rodan + Fields at Broadway Plaza, Five Below at Freehold, Jo Malone at Scottsdale Fashion Square, and Carter's at Arrowhead, FlatIron, and Freehold. The large format and food and beverage spaces remain active. As Tom mentioned, we signed a 65,000 square foot entertainment concept by Harkins Theatres for the 2 level of Sears at Chandler. We also signed a lease with Saratoga Hospital to replace 57,000 square feet of the former Sears at Wilton Mall.
In the food and beverage category, we signed leases with Bourbon & Bones at SanTan, Urban Plates and Yardbird at Northbridge, and Cooper's Hawk Winery and Restaurant at Chandler. We signed multiple leases with digitally native and emerging brands, including Casper, Tommy John, and Stance at Scottsdale Fashion Square, Roman and Gilly Hicks at Tysons Corner, Alton Lane at Northbridge, and Amazon 4-star at the Village of Corte Madera. Further to Tom's comments on Fashion District Philadelphia regarding its grand opening, it was another stellar quarter for FDP in terms of leasing. In the third quarter, we signed 16 leases for 83,000 square feet, including a lease with Industrious for 47,000 square feet. The momentum continues.
In the last three weeks alone, we've signed leases with industry leading retailers, including Primark in 47,000 sq ft, Sephora in 7,500 sq ft, Kate Spade in 3,500 sq ft, and DSW in 15,000 sq ft. Also in the third quarter, we opened 65 tenants totaling 206,000 sq ft. Retailers of note include H&M at Danbury Fair, SunLife Organics at Scottsdale Fashion, Five Below at Fresno, abercrombie kids at Arrowhead and Stonewood, Vans at Fashion Outlets of Niagara Falls, J. McLaughlin at Biltmore, and Altar'd State at Washington Square. In the emerging brands category, we opened Casper at Tysons Corner Center and Warby Parker at Village of Corte Madera. Also in the third quarter, we opened seven locations totaling 46,000 sq ft with YM, a fashion retail chain out of Toronto, Canada.
As most will recall, earlier this year, Charlotte Russe filed Chapter 11 and ultimately liquidated in March, leaving us with 26 locations totaling 160,000 square feet. YM bought the rights to the Charlotte Russe name and ultimately signed leases with us at 18 of our 26 vacant Charlotte Russe locations. As I mentioned, seven of those locations opened in the third quarter. The remaining 11 will open between fourth quarter 2019 and first quarter 2020. Of the eight Charlotte Russe locations that YM didn't take, five have already been leased to other retailers. At the end of the day, we've leased 23 of the 26 Charlotte Russe locations, leaving only three of the 26 locations, or only 18,000 square feet of the 160,000 square feet unaccounted for. This all happened within six months of Charlotte Russe liquidating.
The point of this really is to highlight yet another example of our ability to react quickly and efficiently to some of the headwinds our industry is currently facing, and in most cases, improving the quality of our real estate along the way. In conclusion, the leasing environment remains strong and our metrics are solid. We continue to demonstrate our ability to take advantage of the current disruption in the retail environment by uncovering and securing new, exciting, and cutting-edge uses across multifaceted categories. In doing so, we continue to create properties that are the most desirable in our industry and will be for a long time to come. With that, I'll turn it over to the operator to open up the call for Q&A.
Thank you, sir. Ladies and gentlemen, if you have a question, please press star one on your telephone keypad. We do ask that you limit yourself to one question and one follow-up. Once again, everyone, please press star one if you have a question. We'll take the first question today from James Sullivan, BTIG.
Thank you. A couple of questions, Tom, on the trend of the metrics here. Sales productivity growth has been very impressive for a while. When we look at leasing spreads, they're a little bit weaker here than what we have seen. The occupancy cost as a percentage of sales has been easing slightly, and this has been going on for several quarters. I wonder if you can kind of help us understand as the tenant mix is changing and, we oftentimes mention Tesla, we mention Apple. The productivity or the occupancy cost has tended to slide somewhat. As you look forward, given the changing tenant mix, is there an occupancy cost number that we should be thinking about or that you think about as kind of the level where this is going to settle?
To put that into context, we've seen the occupancy cost come down from about 13% to a little below 12% of total sales.
Well, you had a lot of different metrics in there, Jim. In terms of spreads, as spreads have been compressing a little bit, whenever you have a lot of space that comes back, it's kind of a balancing act between occupancy and rate. In this year, for example, we've had about 600,000 sq ft of non-anchor space that has been rejected through bankruptcy. I suspect that rate has suffered a little bit as a result of pushing for occupancy and filling that space. In terms of the occupancy cost as a percentage of sales, I think a normalized level is between 12% and 13%.
I'd like to see, frankly, see us push a little bit higher than that as we sign new leases. The reality is, sales have been outpacing rent bumps for a while now. That's tended to keep the occupancy costs a bit on the low side.
A second question from me, and thank you for the information on Forever 21 impact going forward. Is the $0.08 per share number that you provided as the full year impact in 2020, is that net of the re-leasing of the two boxes that you mentioned?
No. That's the full impact, Jim, of the concessions and the closures without any mitigation from new leases being signed.
Okay.
It could be less than that.
Of the $0.08, and don't know if you have this, but the three stores that are on the closing list, and then there are the concessions that you mentioned. I wonder if you can kind of advise us what percentage of the $0.08 is attributable to the closings as opposed to the concessions.
Yeah, Jim, good morning. It's roughly 25% of that number.
25% is attributable?
Yeah.
I'm sorry.
Let me expand a couple thoughts. It's $0.08. It's roughly $0.02 in terms of closures and the estimated balance of that is potential concessions. Again, this is an evolving situation. This is as we see it today. Just to frame the outcome, it's $0.08 on an annualized basis, and we expect roughly a $0.02 impact in 2019.
Finally on that, one of your peers detailed when talking about the concessions they provided to Forever 21 that, under the concession agreement, they have the right, i.e. the other landlord has the right to recover the space from Forever 21 after one year of the concession period. Is that something that is a feature in your concessions or not?
It's a case-by-case basis, location by location, Jim. We have some of those, but it's not in every single location.
Okay, perfect. Thanks, guys.
We do have a right to recapture some of those stores.
Okay. Thanks, Tom.
Thank you.
Up next, we'll hear from Steve Sakwa, Evercore ISI.
Thanks. I guess just to be real clear, the $0.01 hit, I guess happened in Q4 or Q3, that same amount carries, and then kind of the incremental $0.06 I guess will carry over into next year. Meaning you've already got $1.5 million of kind of rent reductions already running through the third quarter numbers, just to be clear. Is that correct?
That's right, Steve.
Okay, thanks. Then I guess, Tom, just bigger picture on kind of the dividend and capital needs as you kind of look forward over the next couple of years. I realize you've been very successful in refinancing mortgages and pulling capital out to fund your needs. What do the capital needs look like over the next maybe two to four years, and what is the board's thought on the current dividend policy?
Steve, the capital requirements are going to range $150 million-$200 million per year over the next three years or so. There's a deck that we provided, an investor deck that shows sources of liquidity to cover that. As you are probably aware, as I mentioned earlier, we just declared a dividend of $0.75 a share a quarter. Our board is very comfortable with that dividend level. As I said on last call, I'll mention here, we have no intention of cutting the dividend.
Okay, thanks.
Next up is Craig Schmidt, Bank of America.
Thank you. I was wondering if you could walk me through the difference between second quarter and third quarter Sears development pipeline, particularly focusing on the total cost pro rata.
Yeah, Craig, the biggest difference there, you do note cost reduction is as we look at densification, historically when we've done hotel deals, they've been on a ground lease. We're expanding that approach in the two cases where we expect to do some multi-family residential development, rather than to participate with the multi-family developer, we are instead going to ground lease the land to the developer, let them develop, and we will receive annual ground rent payments, including rent escalations. That's the biggest change. Prior to this quarter, we had been considering participating in the development of the multi-family.
Okay. The future phases, I guess the footnote says that it looks like there could be something happening in addition to what you're working on at Los Cerritos and Washington Square?
Yeah, Craig. At our centers, there are some additional land opportunities that we could develop, most likely with mixed use. Now, we're getting the projects entitled for this initial phase, anything else we do is going to be much further down the road. At this point, we think it's prudent to pull it off the pipeline. There is some additional opportunity down the road.
Okay. Well, thank you. Appreciate it.
Thanks, Craig.
Thanks.
Our next question comes from Christy McElroy, Citi.
Hey, good morning to you guys. Just following up on the agreement to sell Tysons Vida. I believe you were also in the process to sell JV interest in a high-quality mall. Is that still something that you're pursuing? Just kind of going back to Steve's question on the dividend, I think one of the reasons for keeping the dividend at an elevated level, you mentioned last quarter, was not to have to do a special resulting from taxable gains on asset sales. Is that still the case? Thank you.
Yeah. As we look at it today, Christy, we are currently, in addition to our agreement to sell the residential tower, we're also in discussions on other possible JV transactions. Could potentially be a mall, could be some of our other non-core assets. Those negotiations are pending, so I'm not going to get specific as to which assets they are or any of the other details. But we would expect some of those other transactions to be closing most likely in the first quarter, and in all likelihood, that'll generate some significant tax gains. Yes, we've got to be mindful of that going forward as well, because our preference would be to retain as much capital resulting from those transactions rather than pay out a special dividend.
Would these be non-retail.
It is a balancing act.
Would these be non-retail assets? Are you still looking to sell a mall, interest in a mall?
It could be both. Could be a mall, and it could be non-core, non-retail.
Okay. Then just maybe you could provide an update on your short-term leasing. I think you had expected that activity to pick up to address sort of near-term space backfill. Does that impact of that short-term leasing flow through your re-leasing spreads?
Hi, Christy. No, the short-term leasing, the temporary leasing does not flow through the leasing spreads. By definition, those spreads are for deals that are greater than 12 months. That activity obviously continues. If you look at our occupancy, it's still at a heightened level relative to temporary occupancy in the fullness of time. I think it's 6.4% at the end of the quarter. We'll continue to see that, I would think, tick down as we convert some of those uses to more full rent-paying permanent uses.
Okay. Thank you.
Thank you.
Our next question today comes from Alexander Goldfarb, Sandler O'Neill.
Oh, thank you, and good morning out there. Two questions. First, on the mortgage activity, maybe because you guys have obviously been active with Kings Plaza and some other stuff, we all saw the SoNo Mall underwriting. Maybe you can just give us an update on the mortgage market today, how it may have changed in underwriting. I'm sure it's probably by asset quality. Maybe you can just give us an update there. Scott, on that point on Kings Plaza, I think you said there was $10 million of savings. If I look in the supplemental, the existing loan looks to be the same rate as the new loan. Maybe I misheard the $10 million in savings, or maybe you can just clarify that.
Yeah, sure. I'll touch on the latter point. Good morning, Alexander. The Kings Plaza deal, yeah, it's a very similar coupon rate, but it is full-term interest only, whereas the existing debt is 30-year amortizing. Incrementally, that will generate $10 million of annual cash flow savings. We deliberately took an interest-only deal here. We obviously could have realized a tighter coupon if we'd done amortizing. I guess, to your first point, the markets were very receptive to this particular financing. It's a very sizable financing being executed in the CMBS market on a single asset basis. The bidding was very deep and very thorough. We did get some balance sheet interest too, but given the size of the financing at $555 million, obviously it's difficult and challenging to pull together a club of that size.
We do see strong demand for A quality mall debt financing, both in the balance sheet arena as well as CMBS. That level of interest hasn't changed or abated at all this year.
Okay. As you look at some of your lower tier malls, do you think you'll get the same interest, or you'll probably have to resize those as those mature?
Well, generally, we don't have a lot of those, but there are some that are coming up. I think in those instances, we'll end up getting a little bit more creative. I do think we'll have credit sources for those to take those out. I do think they will end up with perhaps a little more structure and some more conservative underwriting. Fortunately for us, though, those are more exceptions rather than the norm.
Okay.
Yeah, I do think there'll be credit sources to take those out.
Okay. The second question is on Sears. Obviously, they remain in the headlines on the viability of the RemainCo. You guys still have some Sears that are open. Can you just update us how many of those are yours versus Seritage or JV with Seritage versus Sears owned outright?
Yeah, sure. We've got two that are within the Seritage JV, which are Freehold and Danbury. We have three that are wholly owned, and that's Green Acres Mall, Stonewood, and Victor Valley here in Southern California. Additionally, there are two non-owned Sears, which happen to be wholly owned by Seritage, that are in our portfolio. Obviously, we don't have control of those boxes. Seven in total continue to operate.
Okay. Thank you.
Jeremy Metz from BMO Capital Markets has the next question.
Hey, guys. Hey, Tom, just following up on Christy's question. You mentioned, again, some transactions in the works here beyond Tysons deal that you announced today. I guess, one, any sort of rough guidelines you can give in terms of potential gross proceeds you could be looking at? Are we talking about a similar level to what you targeted earlier this year? I guess the follow-up here would be, you seem to have pretty similar confidence throughout the year on a joint venture of the top 20 assets. That hasn't quite happened yet. You did, obviously, Tysons Residential, and it seems like there's more type of that activity being considered. I guess what sort of confidence should we take in these latest considerations actually happening, or should we just take more of a wait-and-see approach from here?
Well, obviously we're in negotiation on multiple assets here. It wouldn't behoove us to get into a lot of detail. It would be adverse to our negotiating position on those. We're looking at multiple assets, including a top 20 mall and some other non-core assets. We delivered on Vida here. We'll give you more details as we can on the others. In terms of confidence level here, it's a negotiation, it's kind of hard to predict. It is something we've done many times in our history. Don't be surprised if you see it happening either in the fourth quarter or the first quarter.
Would it be wrong to think even to kind of put a rough parameter that the same amount of gross proceeds that were out there earlier this year could be achieved? Or should we be thinking a lot less than that? Anything rough?
Well, I'd say the range is on the low side, $100 to the high side of $400.
Got it. Appreciate that. It's helpful. In your opening, you talked about the improving environment here. You talked about some of the good leasing volumes and the tenant sales strength you've seen. As we think about some of this translating into same-center NOI from here, you had the muted level of growth in 2019. You have some of the headwinds that we talked about already on Forever 21 and some others. Will those outweigh some of the positive leasing activity and keep growth more or less muted, or how should we think about that? Thanks.
Well, we're not quite ready to give guidance yet. You did point out there's some headwinds. I think the impact of Forever 21, for example, will be adverse to same-center by about 130 basis points. The leasing environment has gotten better. We'll give guidance in January. We're not ready to do that right now, though.
Thanks, Tom.
Next up is Linda Tsai, Jefferies.
Yes. Hi. In terms of your comment about moving quickly to re-lease vacant spaces, you talked about how only three spaces remain for Charlotte Russe. Can you discuss what you're doing on the leasing side and maybe what you've changed in terms of processes to react quicker? How are you thinking about those three remaining spaces? Are those in kind of less desirable centers?
Hey, Linda, it's Doug. With regard to Charlotte Russe specifically, I did mention it was a big package with YM out of Canada, and then the other five were with other various retailers, such as Five Below and a couple of other ones. With regard to the three that remain unleased, we're still sourcing demand. I think the point of those comments really were to show the ability to react quickly, albeit not covering all the rent. These deals are short-term in nature. We have right to the space. I think the positives were very little to no capital invested and very little downtime.
Thanks for that. In terms of the $250 million-$400 million in debt financing proceeds you're expecting annually, does that assume steady state leverage? If so, what's driving the gross asset value up?
As far as steady state leverage, I'll just refer back to Tom's comments in terms of what our pipeline looks like and opportunities look like for dispositions of retail or non-retail assets. In terms of being able to refinance and extract incremental value out of properties with rolling debt, really that's a debt for debt transaction, Linda. Any excess proceeds we take out are merely going to repay our line of credit. Really it boils down to our ability to raise some equity through a disposition program.
The other side of that, Scott, as well is, we do expect growing EBITDA as a result of bringing online some of our major redevelopment projects like Fashion District Philadelphia, as well as Scottsdale Fashion Square. That's going to make a difference if the leverage metric you're looking at happens to be debt to EBITDA.
Thanks.
Our next question comes from Vince Tibone, Green Street Advisors.
Hi, good morning. I just have one more quick one on Forever 21. You mentioned the $0.08 annualized impact on FFO from them, what would be the annualized impact on same store? I'm just trying to get a sense of any of that lost income will be treated as anchor rent and then not hit the same store metric.
Yeah, Vince, I would expect the majority of that will hit same-center.
Can you just provide, what does $0.08 translate to on a basis point impact to NOI? Are you able to just kind of provide that color?
Yeah. I just mentioned that a moment ago. It's about 130 basis points of impact to same-center.
Perfect.
Negative impact.
Yeah. Sorry about that then. Thank you. Appreciate it.
That's okay, Vince. Thanks.
Derek Johnston from Deutsche Bank is up next.
Hi, everyone. How you doing? Gosh, a lot's been covered. Maybe a watch list update, given the fallout that we've had in the past few years and even this year. Is there anything on there that's got you worried? Does Francesca's ever come up? How does the watch list compare to what you're expecting for 2020?
We don't get into the specific names that are on that watch list. In terms of the length of the watch list, it's much shorter than it has been. We've gone through a pretty significant period here starting in 2016, where a lot of names that were on that watch list in the beginning of 2016 have gone into bankruptcy, in 2016, 2017, 2018, and the beginning of this year. It's a much shorter list. There's always going to be names on there, it's much more manageable than it was even a year ago.
Okay, great. I guess just a bigger picture one, right? Everyone talks about retail disruption, including you guys today in the opening remarks. How do you view the current state of retail today, and how are the malls going to fit into it? When we look at valuations and investor sentiment, where are the pundits getting it wrong right now? Really, how are you guys really planning to take advantage of this evolving landscape and drive shareholder value?
It's Doug. Contrary to what you might read or hear in the media, there is significant demand for our shopping centers. If you could point to my opening remarks, the tenant executions and the store openings are just a small subset of what actually is going on out there. I think, as our town centers really evolve, it becomes less about traditional apparel and shoes and jewelry, and more about everything to everybody. As the town centers expand, so do the uses and categories that we're able to choose from. If you look at some of the categories that are very active and that we're dealing with right now, you're looking at large format and restaurants and fitness and theater, entertainment, experiential, DNVBs, the international retailers, and then as Tom mentioned, co-working.
As our centers expand, so do the categories, and the depth of activity in those categories is extremely significant.
Just to supplement that, Doug, if you look at some live examples, take Industrious for example. We've added them to Scottsdale Fashion Square. We've got a few other deals with them. They bring roughly 400 consumers, the right demographic to our malls every day to shop, to dine. It adds energy, it adds traffic. Another tenant that we're doing multiple deals with is Life Time, high-end fitness. They have on average 5,000 members, many trips a week, and that's going to add additional traffic and volume to our centers. We're really evolving more towards town centers away from just being malls and lots of different uses, less apparel, more entertainment, more food and beverage. It's going to continue to evolve in a very positive way.
Thanks, everyone.
Our next question is from Haendel St. Juste, Mizuho.
Hey there. Barneys is closing all of the stores, I think, except for one in Boston. I'm curious what your plan is for your Barneys box in Santa Monica Place, and maybe what potential impact that might have on next year's FFO or same store NOI.
Yeah, Haendel. I'll turn over the leasing backfill to Doug, but we had two boxes. We had one in Chicago at Fashion Outlets and one in Santa Monica. These were small format stores. They were not anchor boxes, so they're very inconsequential, not even really worth getting into. Very, very immaterial in terms of financial impact. Doug, I'll let you comment on what some of the backfill plans are.
Yeah. At Santa Monica Place, nothing is finalized yet, so I can't really speak specifically to the tenant backfill, but I can tell you there is significant interest in both the space in its entirety or, in a couple of instances, cutting it up into two or three separate spaces.
Okay, fair enough. Tom, maybe one for you. You mentioned Industrious quite a few times on this call. I guess I'm curious, how comfortable are you, or maybe what level of exposure are you comfortable with co-working as a concept, in light of WeWork's troubles, let's call them here. Sounds like it's something you're contemplating across a number of malls, maybe is that something you're contemplating as well for some of your former Sears boxes? If so, can you share a bit more?
Yeah. Well, we've done a few deals with Industrious. They're a great operator. They have a different business model than WeWork in terms of how they run their business. We like what they've done in terms of the synergies and the benefits at Scottsdale Fashion Square, and we think that use is going to be around for quite some time. You look at the locations they pick, and they're great locations. We've got another one that's in the works at Broadway Plaza, that's about four blocks from a BART station there, and huge demand. We think in the right locations, it makes sense, and it's very synergistic with other mall uses.
The Sears boxes, is there a plan to backfill or something that you're not comfortable discussing yet?
I'm sorry, I didn't follow that question, Haendel.
Curious about if that's part of the plan for some of your former Sears boxes. Just curious on the redevelopment plans for the former Sears boxes.
There's some potential, Haendel, at one of them. It's possible at one of the Sears boxes, but I don't think that's going to be a predominant share. It's just going to be an opportunity we have for a portion of the site.
There's been pretty good demand for that space. I'm not sure we've got any availability for them, frankly.
Mm-hmm. All right. Thank you.
Next up, we'll hear from Caitlin Burrows, Goldman Sachs.
Hi there. I guess I was just wondering, on Fashion District now being open, I think the contribution to 2019 is relatively small. Considering your spend and the expected return, I think the expected quarterly NOI contribution is about $3.7 million. Just wondering if you could go through when you expect to reach that level of NOI contribution, how long that buildup could take.
Yeah, Caitlin, I think by the time we get to 2021, that's our first stabilized year. We'll provide you some more definitive guidance next quarter when we give you our 2020 guidance in terms of not only the NOI contribution, but also the FFO contribution. Bear in mind, we'll be taking the cost and putting them into service too, so we'll no longer be capitalizing interest on those. We'll give you a good idea of what the contribution is. I do think it's going to be a significant contribution to the bottom line, though. 2021 is our first stabilized year.
Got it. Okay, that's all. Thanks.
We'll now go to Tammy Fiu, Wells Fargo Securities. Tammy, your line is open. Please check your mute function.
Sorry about that. Just wondering, are you still expecting a 175 to 200 basis points drag this year from bankruptcies on 2019 same-store growth? I guess as you think about next year, would you think that would be directionally higher or lower?
Yeah, sure, Tammy. This is Scott. Good morning. Look forward to meeting you at some point. Yeah, I would say it's about 200 basis points, and we gave a range of 175 to 200 last quarter. I'd say it's elevated a bit because of what we've discussed about the one retailer. I'm going to stop mentioning the name. As far as the impact on 2020, again, we'll provide you some more definitive guidance in the next quarter. Directionally, I think it would be less, though.
Okay, great. Thank you. Just curious, the Charlotte Russe spaces, the rents that YM is paying, are those higher or lower relative to what Charlotte Russe is paying? Could you just give us some parameters around that? Thank you.
It's Doug. With YM, we'll be capturing just over half of what Charlotte Russe was paying us.
The notion there is no downtime. We got recapture rights, so it's a short-term opportunity, and within the next 2-3 years, we'll have the opportunity to relet that space, if not sooner.
Great. Thank you.
Up next is Ki Bin Kim, SunTrust.
Thanks. Can we just go back to the sources and uses topic, as obviously, I think a very important one for your stock and your company. Can you just recap for me what % of your assets are still unencumbered? You mentioned that you were looking at selling or selling a stake in some non-malls. How many of those are actually left? I'm just trying to get just a big picture sense of the different levers you can pull.
Well, I'll let Scott comment on the malls that are unencumbered. We've got five or six non-retail assets in the portfolio that could, at any point in time, be candidates for sale. Obviously, we just mentioned one of them, Vida, the apartment tower at Tysons. There's also an office tower there. There's an office tower at Scottsdale. At some point, it'll make sense for us to potentially create a liquidity event on the One Westside project, where we own 25% of what will be the Google headquarters, but that's probably down the road, not near-term. Once they open, that's certainly a candidate for disposition as well.
Ki Bin, in terms of unencumbered assets, those include retail as well as non-retail. Bear in mind that we did close on a financing of the Tysons tower this last quarter. That's an example of non-retail. I'd say in total, we probably have roughly 15-plus assets or so that are unencumbered. Generally, those are in the lower quartile of our portfolio. It's a pretty easy match if you look at our supplement.
Historically, a good source of liquidity has been refinancing of our top 20 assets, where typically by the time we're at the end of a 10-year loan term, loan-to-value is probably in the high 30s, low 40% range, and we typically finance at 55%-60%. It's very normal for us to have excess loan proceeds as we do our refinancings every year.
Kings Plaza is a great example of that, Ki Bin. Obviously, we bought the asset from Vornado seven years ago, had an interim financing in place. Just after that period of time, including our redevelopment of the Sears box, we're pulling out incremental proceeds of $125. That's just one example of the ability to extract additional liquidity out of some of these very high-quality assets.
You think you have that level of liquidity from these assets from, I guess, other near-term maturities? If I look at your 2020 secured debt maturities, you have Danbury Plaza, Fashion Outlets of Niagara. I think that's about it. You think you're able to extract incremental financing from those as well?
I think we're going to be able to extract incremental liquidity out of our assets in the range that I provided earlier. That's going to come from existing debt rollover. It's going to come from other sources too, including construction financings. I just mentioned our Westside loan that we anticipate to close in the fourth quarter, which will fully cover any remaining costs to be incurred for developing that Google campus. All of that goes into the mix. Yeah, I do think we'll be able to hit those targets that I mentioned in my opening remarks.
All right. Thank you.
You bet.
We'll go to Michael Mueller, JPMorgan.
Yeah. Hi. I was wondering, can you walk through how we should think about the co-working transactions in terms of lease structures and economics?
I'm not really going to get into economics of individual deals, Mike, but I will tell you the way we've structured the co-working deals, they're percentage rent deals.
Okay. What about duration in terms of lease term?
Duration are, I think, generally 15 years.
Okay. That's helpful. Thank you.
Thanks.
Everyone, that does conclude our question and answer session. I'll hand back to the speakers for any closing remarks.
Thank you, Lisa. Well, thank you for joining us today, and we look forward to seeing many of you in a couple of weeks out here in Los Angeles for Nareit.
Ladies and gentlemen, that concludes today's conference. Thank you all for your participation today. You may now disconnect.