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Washington Prime Group Inc (WPG)
Q1 2019 Earnings Call
April 25, 2019, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, ladies and gentlemen and welcome to the Q1 2019 Washington Prime Group Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions)
And as a reminder, today's conference call is being recorded. I'd now like to turn the conference over to Lisa Indest, Executive Vice President and Chief Accounting Officer. Please go ahead.
Lisa Indest -- Executive Vice President, Finance and Chief Accounting Officer
Good morning, everyone and welcome to WPG's first quarter 2019 earnings call. During today's call, we will make certain forward-looking statements as defined by the federal security laws. These statements relate to expectations, beliefs, projections, plans and other matters that are not historical and are subject to the risks and uncertainties that might affect future events or results. For a detailed description of these risks, please refer to our earnings release and various SEC filings. Management may also discuss certain non-GAAP financial measures. Reconciliations of each non-cash financial measure to the comparable GAAP measure are included in our press release, supplemental information packet and SEC filings, which are available on the Investor Relations section of our website.
Members of management with us today are Lou Conforti, CEO; Mark Yale, CFO; Josh Lindimore, Head of Leasing and Dan Scott, Senior Vice President of Development.
Now, I'll turn the call over to Lou.
Louis Conforti -- Director and Chief Executive Officer
Thanks, Lisa and good afternoon to everybody joining us today. Let me take a couple of seconds to summarize the last quartervia few bullet points. We leased 1.4 million square feet of space, a 20% year-over-year increase in leasing volume and a 10% increase in number of transactions.
Lifestyle tenancy attributed for 52% in new leasing volume. Tier One and Open Air occupancy combined was 93.3%. Combined occupancy cost of11.7%. sales per square foot was $399. Actually as Lisa pointed out, it was $399.23 versus last quarter of $399.55. So, it was actually $0.32 difference, but we tend to round conservatively. Tier One and Open Air leasing spreads combined for new deals or average for new deals, 13.2% during the quarter. And importantly, we addressed 50% of our department store vacancy and we're working our behinds off to get these tenants up and running.
Take a look at our press release and supplemental for the detail, and thank Dan Scott and his team next time you see him. Tier One and Open Air comp NOI growth was down 4%. However, when excluding the $4.7 million negative impact of cotenancy, comp NOI for Tier One and Open Air was essentially flat. And I wouldn't have mentioned this or pointed this out if we hadn't made solid progress addressing cotenancy, which takes effect over the next year or two. We refinanced Waterford Lakes for $180 million. We maintained our FFO guidance and 2020 comp NOI forecast between 2% -- 3%. And we left our 2019 dividend policy unchanged. By the way, we held 674 events, activities and installations and I have it broken down in detail, if anyone would like to see. All of which serve to strengthen our dominant town center status.
The above evidence is just how busy we've been during the quarter. And I should probably end my commentary at this point, but I can't. My colleagues have worked too darn hard and I'd be doing them a disservice, if I didn't rally in defense of their endeavors as well as a few of my industry peers, who have embraced the change necessary to compete in today's evolving landscape. So to quote a quartetof Liverpudlians I read the news today, oh boy. Yellow journalism is best defined as reporting which emphasizes hyperbole over factual data. During the previous couple of weeks, a research report and newspaper article illustrated just how prone our sector is to this sensationalism.
Little background, Washington Prime Group has a financial and demographics analytical team headed up by Charlie Adams. Let me tell you, Charlie doesn't suffer fools and he's as smart as a whip. He became, shall we say, skeptical of the conclusions and incomplete nature of the aforementioned, sohe assembled his team with their green eyeshades and went into sequestration and went about fact checking these canards.
The research firm, in question, focused upon visitation growth which is a more of us at best even for a landlord. They utilized proprietary data, which in the assets of being able to analyze underlying factors, we just had to take at face value. The conclusion was traffic peaks during fourth quarter of last year, implying the free fall had begun. Wait a minute, upon closer examination, two data points were conveniently omitted, while they stated loud and clear,year-over-year visitation growth exhibited a marginal decrease, theyforgot to mention, it still exhibited positive year-over-year growth.
The second even more glaring omission is the fact that visitation growth immediately rebounded during the first quarter of this year. When reviewing their very own Bloomberg graph, we saw there was indeed volatility, which could be caused by observational bias or maybe visitation growth did moderately decreased during that specific timeframe.
Regardless, over a one year and three year timeframe, the trend is unmistakably positive. Take a look for yourselves on the Bloomberg terminal. The bottom line is, visitation growth has been trending upwards and I think it's because most of our sector has learned a valuable lesson of diversifying away from apparel, admittedly both by choice and attrition. And we're increasingly offering guests, differentiated goods and services. Some of my peers are just doing it faster than others.
The next question of reportage was a newspaper article entitled, what's retail recovery, I'm going to kind of drop in active malls under pressure as stores close. Let's deconstruct this article as well, as there are several headline grabbing statistics, which warrant further examination.
For instance, the article quoted a study by a sell-side analyst which stated another 75,000 stores around a tenth of existing stock as of the third quarter will have to close by 2026, if online retail penetration continues to rise from the current 16% to 25%. Holy cow. This equates to over 10,000 closures each and every year over the next seven years. Here's the problem with this doom and gloom prophecy. Listen up. It assumes all e-commerce growth is direct to consumer and conveniently ignores the fact, Buy online, Pickup In Store and Click and Collect are the two fastest growing online segments, increasing five times faster than e-commerce as a whole. By the way, it also doesn't take into account, new store openings. And it's a risk of being anecdotal. We signed 1.4 million square feet of new leases -- new tenants last year and 462,000 square feet this quarter. Let me repeat that 1.4 million square feet last year, 462,000 square feet this quarter.
The analysts, this report further assume 75% of total retail growth will be driven by e-commerce, notwithstanding recent data from the third quarter of last year, which illustrates just 26% of total retail growth is online, while 74% is physical.
In other words, their forecast assumes the exact opposite of what the actual data is exhibiting. It's a pretty striking incongruity and in order to make the math work, they got to assume physical retail shutter stores at a breakneck pace. It's kind of a sell for. The online growth side within this report is pretty lofty as well, 100% for auto parts, 200% home improvement, 400% for grocery. The latter implying 13 billion skyrockets to 80 billion. I'll take the under,as once again, they forgot to tick and tie their e-commerce projections with a plain and simple fact, the vast majority of current online sales growth is consummated via consumers picking up merchandise at a physical location.
Let's turn to 2019 store closures. No argument with the 5,994 tally this year, stinks. However, a little bit of data parsing provides color as to the nature of these closings. Six retail chains accounted for 73% of this year's closures compared to 21 and 16in 2017 and 2018 respectively. So, more concepts aren't going under, just the shitty ones. Then, there was a blunt mention of landlord loan defaults. What drives me crazy is when an idiosyncratic event is used to extrapolate a general and more often than not obtuse assumption. For instance, one overleveraged asset was highlighted in the article. It exhibited fair to middling occupancy of 86% prior to an 850,000 square foot expansion for a grand total of 2.4 million square feet. Further exacerbating the situation, the asset was located within the catchment unable to absorb existing, let alone incremental, space. Oh, I almost forgot, the cap rate used for valuation purposes was sub 5%.
So, actually, CMBS and as pursuant are provided by Trepp, it's performing pretty well from historical standpoint. Overall delinquency as of March 2019 was 2.88% compared to -- I am sorry, that was March 2019 and March 2018, delinquencies were 4.55%. So, pretty market decrease. And regarding my beloved sector, delinquencies have actually decreased by 100 basis points to 4.9%, which included all those questionable CMBS series 1.0 loans with their frothy asset valuations. Simply put, the marketplace is dealing with irresponsible CMBS loans originated from the previous cycle. And remember, a bad loan doesn't always necessarily mean a bad asset.
Clarification is also necessary regarding overall retail vacancy of 10%. It includes both malls and shopping centers. Per REIS, a major reason mall vacancy increased 30 bps was due to Sears. They also go on to mention rent was flat during the same period, despite the occupancy pickup. This somehow didn't make it into the article. We'll maybe check the footnotes.
Washington Prime Group continues to make prudent decisions as it relates to tenancy and if it means forgoing an over-levered junior fashion retail with not so good merchandising for a tenant, which diversifies product mix even at a lower rental rate, then we're going to do it. We have been able to achieve this delicate balance of what I described as minimal variance, minimal variance of cash flows, operating metrics, so on and so forth over the previous three years. And we'll continue to do it because it makes our assets more dynamic. It just makes them better.
In closing, my passion is shared with every single one of our colleagues. And listen that, we are not delusional. Our sector needed this cleanup. We think our positioning as the dominant town centers and kudos to Mark for getting rid of the 14 or 15 assets -- to the whole team. That -- heavens forbid if we still own them. We've done everything that we've supposed to do and I believe, we'd manage expectations.
Never bet against us because Charlie, Morgan, I'm going to read about 1,600 names now. So, here it goes now. Charlie, Morgan, Tasha, Steve, Greg, Brandon B, Kristie, Tembra, Jimmy, Carmen, Rocky, Hilary, Hannah, so on and so forth. We're all going to prove you wrong by growing in and out. I'm going to turn it over to Mark.
Mark, you're up.
Mark Yale -- Executive Vice President and Chief Financial Officer
Thanks, Lou. Good morning to everyone. We finished the quarter with approximately $350 million of available liquidity, when considering cash on-hand and capacity on our credit facility. We're also still expecting another $25 million of proceeds from the remaining Four Corners outparcel transactions with the majority closing by the middle of the year putting us in a solid overall liquidity position.
As we continue to improve the quality of our portfolio, we expect transitions back to the servicer of our Town West Square Mall and West Ridge Mall and Plaza Properties, together with $95 million of related mortgage debt by early in the fourth quarter of this year. Each of these encumbered assets has a single-digit debt yield, thereby providing us with a very efficient way for us to delever. In terms of other upcoming debt maturities, our focus remains on the April 2020 maturity of our $250 million inaugural bond issuance. In that regard, last week, we closed on a 10-year $180million CMBS financing on our Waterford Lakes property at a fixed interest rate of 4.86%, proving that there is still solid access to the debt markets for good retail assets. It's also important to point out that even when considering this financing, we still have a robust unencumbered pool of assets representing approximately 57% of our total NOI.
In addition, we're now in the market to refinance this year four cross-collateralised Open Air properties that secure loan with an outstanding balance of approximately $48 million. The refinancing of this low-leveraged loan should allow us to generate approximately $70 million of excess mortgage proceeds.
Accordingly, we are confident in our plans to address next year's bond maturities. Excluding this bond maturity, our remaining debt maturities through the end of 2022 include manageable secured mortgage debt and our credit facility and term loan that don't mature until the end of that period. Accordingly, when considering our available liquidity at manageable debt maturity profile over the next four years, we remain comfortable committing to our current redevelopment pipeline. That being said, we'll continue to explore opportunities to enhance our overall liquidity position. This could include evaluating the secured or unsecured debt markets, as well as further non-core asset or outparcel sales.
As Lou mentioned, we're making solid progress with respect to addressing the 29 department store boxes in our Tier One and Open Air portfolios, which we believe will need to be repositioned over time. Of those 29 boxes, seven are go-forward Sears locations. So, when considering the 11 boxes addressed via signed leases or negotiated LOIs, this represents 50% of the currently vacant department store space within the portfolio.
This is great progress and we truly appreciate the team approach, led by our development and construction groups to make this happen. We also remain confident in our originally projected estimate of around $350 million of additional capital spend necessary to transition all 29 locations over the next three years to five years. If you just focus on the 22 boxes currently vacant, the projected spend drops to around $250 million. Remember, the full pipeline, excludes the13 boxes owned by non-retailers including Seritage.
Now let me turn to our quarterly financial results. Our FFO for the first quarter was $0.31 per diluted share, landing above the upper-end of the guidance range going into the period, primarily driven by larger-than-expected outparcel gains and below market lease amortization. In terms of comp NOI, it was generally in line with forecasts and expectedly challenged primarily by last year's anchor bankruptcies. In fact, when neutralizing for the impact from Sears, Bon-Ton and Toys"R"Us, we would have seen flat NOI performance for the quarter from our core portfolio versus the negative 4% that we reported.
In terms of our outlook, we did reaffirm our 2019 FFO guidance within the range of $1.16 to $1.24 per diluted share. This is supported by no major changes to the significant assumptions driving our original guides. We should note that when considering the $6 million negative impact in 2019 from the full liquidations of Payless, Charlotte Russe and Gymboree, we're now projected to be at the lower-end of our comp NOI range, but down 1% to 3% for the core portfolio.
Specifically in terms of cotenancy guides, there were no substantial changes to our estimates other than the positive impact of the go-forward Sears staying open throughout 2019. This was offset by unbudgeted cotenancy relating to the earlier-than-anticipated Sam's Club closure at Seattle. However, the good news is that this impact should be substantially addressed in early 2020 by the significant upgrade of opening FieldhouseUSA at the property. While operating results have been pressured over the last several years, we do continue to see a tangible road map for meaningful growth next year, especially in factoring and the state of progress being made on the department store repositioning front.
As we look to 2020 and 2021, we remain confident in our ability to not only replace the lost rents and address related-cotenancy from this closing, but to make our properties better. Assuming tenant bankruptcies stabilize and borrowing any extraordinary circumstances, we would anticipate generating meaningful comp NOI growth in the next several years of at least 2% annually from our combined Tier One and Open Air portfolios.
With that, we'll now open the call for any questions. Thank you.
Questions and Answers:
Operator
(Operator Instructions) And our first question comes from Ki Bin Kim, SunTrust. Your line is now open.
Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst
Thanks. Good morning out there. Can we go back to your cotenancy comments. You had a negative $4.7 million hit this quarter. I'm just trying to get a sense of how much of that loss is temporary versus maybe longer term? And how that $4.7 million is cured by the 11 out of the 22 boxes that you've addressed?
Mark Yale -- Executive Vice President and Chief Financial Officer
I just want to say, just to clarify that, $4.7 million is cotenancy but probably a bigger piece of it is actually just the lost rents the anchor...
Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst
Correct.
Mark Yale -- Executive Vice President and Chief Financial Officer
So, obviously as we get that released, we will be able to address the rent and we're chipping away at the cotenancy. And I think, our whole point of isolating that amount is we clearly believe it's temporary. We're going to replace it, not only replace it but we have a great opportunity to make our assets better.
Louis Conforti -- Director and Chief Executive Officer
Well I actually and I'll even -- we're tending to provide as -- direct -- a roadmap. And without going into excruciating detail, if you think about satisfying 50%, you're going to have to make some assumptions of our department store vacancy and coming in at roughly 2% same store NOI or comp NOI growth next year. And I think, I mentioned -- I think, it is pretty much verbatim, so you know what, I'm sure as heck wouldn't have mentioned this if we didn't have -- per Dan and his team's sovereign efforts, if we hadn't substantially or made real good progress on 50% of those boxes. And I hope, we've provided better visibility on each and every one of those boxes, via our supplemental and leases efforts. So there's probably as much information you're going to get, but it's a -- heck of a lot more than anyone else is going to give you. But again, I respectfully understand your question, but think about us addressing half of that, and then us with an expectation management mindset then talking about a two-plus percent same store comp NOI growth.
Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst
Right. But in the short term, does that $4.7 million get a little bit worse before it gets better?
Mark Yale -- Executive Vice President and Chief Financial Officer
Well, we talked about in our original guidance that for the full year looking at the cotenancy and the lost rents, it's about $16 million is what the impact is $15 million to $16 million for the full year. So that's already in our guidance included. And then I think Lou's point is we will start seeing a dramatic improvement in the out years as we replace the rents, address the cotenancy. That will take time, but that will allow -- we'll see the positives and the tailwinds from that in 2020 and 2021.
Louis Conforti -- Director and Chief Executive Officer
Yes. And then let me again emphatically stress, it is and was in our guidance.
Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst
Right.
Louis Conforti -- Director and Chief Executive Officer
$16 million -- repeat after me, it was -- because I think a lot of people in fairness are missing that. It was and is in our guidance.
Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst
Right. And in terms of your CapEx usage, I was actually surprised that the CapEx usage for renewal leases was about $15 a square foot. I'm sure there's probably a story behind that.
Louis Conforti -- Director and Chief Executive Officer
Yes and we have our Head of Leasing to -- we discuss this and Head of Leasing, Josh Lindimore will tell you the story.
Joshua Lindimore -- Senior Vice President, Head of Leasing
Hey Ki Bin. Yes, it's predominantly driven by a feeder concept that we gave money to for renewal to lock them in long term along with three Alt-A deals that we locked in for 10 years. So that's really what's driving the significant piece of that number.
Louis Conforti -- Director and Chief Executive Officer
Each and every one of them making those respective assets better.
Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst
Okay. Thank you.
Mark Yale -- Executive Vice President and Chief Financial Officer
Thank you.
Operator
Thank you. And our next question comes from Caitlin Burrows of Goldman Sachs. Your line is now open.
Caitlin Burrows -- Goldman Sachs -- Analyst
Hi, good morning, guys. Maybe just on the same-store outlook. So I think the original guidance target of down 1% to down 3% for the Tier One and Open Air properties included the possibility of a liquidation of each of Charlotte Russe, Things Remembered and Payless, but now, we're expecting the lower-end. So I guess, I was just wondering what updated pieces contributed to the revision?
Mark Yale -- Executive Vice President and Chief Financial Officer
Well, it's full liquidation, Caitlin. I mean, at the time we've provided that 1% to 3%, range, we said we could accommodate all outcomes. I think at that time, Charlotte Russe was going to reorganize, but unfortunately all three went full liquidation. But the point is we're still at the -- within the guidance range even with that $6 million impact.
Louis Conforti -- Director and Chief Executive Officer
Again, kudos to Mark, Lisa capturing it in guidance and you take a continuum of zero to 100%. They took 100% as the most conservative, I guess, viewpoint. And there's always some upside in something else and our conservatism I hope evidences itself because full liquidation was not the probabilistic assumption that us and the rest of the Street took. Albeit, it was in our guidance.
Caitlin Burrows -- Goldman Sachs -- Analyst
Got it. And then, in terms of that $6 million headwind, could you just tell us how much of that was realized in the first quarter versus what could still be coming?
Louis Conforti -- Director and Chief Executive Officer
I don't know if I have the specific breakout, but certainly the bulk of it is going to be in the second and third quarters. We did lose some stores in the first, so probably a piece of it but then I think Josh, you have a good update as we're starting to address the releasing of that space as well.
Joshua Lindimore -- Senior Vice President, Head of Leasing
Yes, I mean, hey Caitlin, it's Josh. So we lost roughly 460,000 square feet in the bankruptcies. We've addressed and what I mean by that is either had backfilled or in process of about 65% of that space as we sit here today.
Louis Conforti -- Director and Chief Executive Officer
As evidenced by the total 1.4 million square feet, of which 462,000 was for new leases.
Joshua Lindimore -- Senior Vice President, Head of Leasing
And then, that's not baked in that number, that's just new leases.
Louis Conforti -- Director and Chief Executive Officer
1.4 million square feet in total.
Joshua Lindimore -- Senior Vice President, Head of Leasing
Correct.
Caitlin Burrows -- Goldman Sachs -- Analyst
And then, I guess, when you guys talk about that progress that you've made in terms of backfilling, I guess if you're doing that work today, how quickly would you expect whether it's for those spaces or even the anchor spaces that are referenced in the earnings release in terms of letter of intents out and working through those. How quickly could that NOI start being recognized?
Mark Yale -- Executive Vice President and Chief Financial Officer
Well I think it'll be back loaded. Certainly, we will get a portion of that open in 2019. I think in the release, we laid out in terms of the redevelopment, those that are expecting to come online in 2019. I think as it relates to the bankruptcy space, we'll start seeing some benefit from that as we get in the fourth quarter.
Louis Conforti -- Director and Chief Executive Officer
Yes it's a function of, again, you just turn in-line space over from a work letter, a tenant permit standpoint, just a heck of a lot quicker and again, I think, I said it's coming. Let's talk about it with respect to the department stores, the anchors over the net 2020 -- 2021, I mean, it just takes a little bit longer. There's zoning and zoning ordinances and just little bit more planning. But again, 50% of our department store boxes have been addressed, which it beat our schedule.
Caitlin Burrows -- Goldman Sachs -- Analyst
Got it.
Louis Conforti -- Director and Chief Executive Officer
Dan, what are you doing sitting here, Dan? Please.
Dan Scott -- Senior Vice President of Development
Yes, it's time for me to get some work, I guess.
Louis Conforti -- Director and Chief Executive Officer
Get out of here.
Caitlin Burrows -- Goldman Sachs -- Analyst
And then, maybe just if we think about same store and then how that impacts FFO. You guys kept your FFO target unchanged for the year. Is one of the things I guess driving that slightly later than expected dispositions on the Four Corners side. Anything else helping to keep that up as same-store NOI does come in at the lower-end of the original target.
Mark Yale -- Executive Vice President and Chief Financial Officer
Yes, I mean, I think. Caitlin, it's ins and outs. So, $0.01 or $0.02 of comp NOI has a pretty significant impact in terms of the percentage, but when you get down to it in terms of FFO, I think, it's just -- some ins and outs. And we were able to certainly hold our guidance and feel very comfortable with our FFO guidance at this point.
Caitlin Burrows -- Goldman Sachs -- Analyst
Got it. Okay. Thanks.
Louis Conforti -- Director and Chief Executive Officer
Thank you.
Operator
Thank you. And our next question comes from James Sullivan of BTIG. Your line is now open.
James Sullivan -- BTIG -- Analyst
Thank you. Yes. Good morning. I'd like to start with a couple of questions about cap rates. You did refinance one asset in the quarter and I wonder, if you can help us understand how lenders are thinking about the cap rates that they're using for LTV purposes? And on that particular asset, Waterford Lakes, I think it was Tier One asset as you indicate, but I wonder if you could help us understand whether it's a -- from performance attribute standpoint, is it a typical Tier One, is it above average, in terms of productivity, below average?
Louis Conforti -- Director and Chief Executive Officer
Just kind of a derivative, what's your NAV question, I kind of dig and I -- I would love to disclose. Could we mention what the LTV is?
Mark Yale -- Executive Vice President and Chief Financial Officer
I mean, it was in the high-60s and I'll just say the cap rate was in the low sixes. I will leave it at that.
Louis Conforti -- Director and Chief Executive Officer
Yes. Nice try though.
James Sullivan -- BTIG -- Analyst
Can you comment about Waterford Lakes in terms of how it ranks within Tier One?
Louis Conforti -- Director and Chief Executive Officer
It's a good Open Air asset in the good market.
James Sullivan -- BTIG -- Analyst
Okay. Secondly, regarding the sales of the outparcel tranches to Four Corners completed, some more coming in 2019. And I wonder, if you could help us understand how these buyers that the Four Corners of the world evaluating the outparcels, again in terms of cap rates? And to what extent, if any, -- as they do their due diligence that the sales productivity of the related center impacts the cap rate?
Louis Conforti -- Director and Chief Executive Officer
That's a great question. I mean and we're not going to answer it directly, but the head of Four Corners is one of the most savvy real estate executives that I know. And if you think about their business, their business is in effect kind of are being at the risk -- it's an interesting arbitrage business. And they're not going to buy, we have not disclosed cap rates and we won't. But they're not going to buy in unproductive locations. And boy, oh boy, they bought a lot of our stuff. So, I guess by the transitive theory, we have productive locations.
James Sullivan -- BTIG -- Analyst
Well, I guess a related question. Let me try this is. To what extent if any, Lou, given the ability to monetize those leases, those parcels. To what extent,does Washington Prime have the ability to create more salable outparcels?
Louis Conforti -- Director and Chief Executive Officer
Mark?
Mark Yale -- Executive Vice President and Chief Financial Officer
Yes, so I mean, we have another $25 million of proceeds, Jim that we're expecting in 2019. And we are in the process of probably identifying another $40 million, $50 million of opportunity and we think that's a great use of capital obviously. I think, you've already figured out when you look at the arbitrage in terms of how we're trading the cap rate, the implied value on the individual assets versus the implied cap rate on them all just based upon our share price.
Louis Conforti -- Director and Chief Executive Officer
And there's fair and equitable reciprocal lease in that agreement. So, it's just -- we're not in no way shape or form detrimentally impacting our assets. We're just -- I don't know if you take advantage, that's not the right term given our crummy cost of equity capital, but we're just taking an arbitrage, making an arbitrage opportunity with somebody in the sub sector in the redone space that has a better cost of capital. And they have a different -- their asset liability matters. And we're creating dynamic assets.
James Sullivan -- BTIG -- Analyst
Okay. Then switching over to your prepared comments where you talked about e-commerce, you make the point about Click and Collect and other e-commerce sales types that are really dependent on brick-and-mortar locational convenience for completion. And I guess, I have two questions. Do your reported tenant sales include those sales? And number two, is it clear to you and how the Census Bureau was allocating such sales between the kind of non-store sale category and the other brick-and-mortar merchant categories that they provide?
Louis Conforti -- Director and Chief Executive Officer
Hi Jim, Charlie Adams, who's sitting next to me, we both vigorously shook our head, no. As it relates to the quality of that data and from a tenant reporting standpoint, we don't, I mean, some do, some don't. Our big brother in this space has been a lot more vociferous with respect to what should be done. Listen, we believe there's a symbiotic relationship, we're taking advantage of it. But we -- it's a very prescient point from yours. You make a prescient point.
We don't get great data, but we do know is that in our catchments, given our dominant town center status, and this is where we think where the edge is. No, we know where the edge is. There is a fundamental desire. I don't know, if it's kind of Maslovian or whatever, whereby people want to go to a physical location and they want to touch things. We have a sociologist that we work with. He's at Columbia University and he does work and he is doing work for one of the largest social media companies in the world. And what is marvelously defined as Middle America, we touch things -- that doesn't sounds like -- 2.5 times more than not Middle America. And I guess, that's the reason why Missouri is known as the Show Me State. People want to touch and feel.
Joshua Lindimore -- Senior Vice President, Head of Leasing
Hey Jim, it's Josh. Just anecdotally, what I can tell you is -- he is having conversations with retailers, there -- not everybody, but a big chunk of the preference is Click and Collect because anecdotally, what you'll find is you'll find an incremental pickup from a sales standpoint, where the customer comes in, picks up their merchandise and then goes and -- whether it's 10%, 15%, 20%, that's our understanding what we're hearing from the retailers.
Louis Conforti -- Director and Chief Executive Officer
So when every time that happens, we can extend duration stay time. And we made reference of the 674 events and activities. This is the town center for our demographic -- these are the town centers for our demographic constituencies. So that's why we were at the first. Well let me, mention one more thing, we were at the forefront of Amazon Lockers, when some people said, why are you doing this faustian deal. They are a proven shopper, and that proven shopper, we get them in our asset. They're going to hang out if we have cool stuff and differentiated product mix for them to check out.
James Sullivan -- BTIG -- Analyst
There is also another point too, I think in your prepared comments, you identify those two kind of segments of e-commerce as accounting for a significant portion of the growth in e-commerce. And there's no doubt that retailers who say, hey we grew our e-commerce division sales by such and such a number, typically receive applause from the Street for doing that. So, they have a vested interest in,if you will, using their brick-and-mortar locations to promote or boost the e-commerce division sales numbers. But that couldn't be completed as designed in terms of customer convenience without having brick-and-mortar be the location. So, it's clearly a false dichotomy, of course, as we've talked about for a while between e-commerce and brick-and-mortar. So, it would be -- it would be great to have better defined e-commerce versus brick-and-mortar, so that we can understand when the two are not dichotomy, but really work together.
Louis Conforti -- Director and Chief Executive Officer
You've hit the nail on the head and it's exacerbated again. I mean, you're spot on and it's exacerbated in our catchments, where we are the dominant towns, we are the town center and we are the -- more often not a focal point. But between your US and god here, , we'd love -- it -- as again our big brother has said, it's on the, kind of the onus of burden is resting upon the back of physical. You're spot on.
James Sullivan -- BTIG -- Analyst
Okay. Let me just raise a final question. You have now done over the last couple of years several box replacements bringing in, let's call it non-traditional mall tenants and replace the departing department stores. And I wonder, if you can provide a scorecard as such as to how those non-traditional tenants are doing in terms of sales. Are they happy tenants? And number two, whether their appetite therefore for more such deals is growing, declining and how that might be impacted in the terms you're negotiating with box replacements today versus say two years ago.
Louis Conforti -- Director and Chief Executive Officer
Well, the best litmus test is, and it's been 52%. And I think it's been 50%, 55%, 48 point whatever is over the last couple of years since we made this an absolute focus. We've been -- 50% has been lifestyle, food, beverage, entertainment, home furnishing. So, yes. Josh, anything further to add?
Joshua Lindimore -- Senior Vice President, Head of Leasing
Yes, I mean, I think what you can look at is as an example of we do use it quite a bit as you look at Mall at Fairfield Commons where we tore down a box, we added BJs, Juvies, Breo,restaurant, you had -- call it $6 million coming out of the box, now you have over $25 million, $30 million that is being driven from that box. And if you look at Dan and his team and the work that they've done, Grand Central is a great example of what we're adding. Dan, I want you to speak to?
Dan Scott -- Senior Vice President of Development
Yes, I think if you look at it, I think it's proven to be successful by the fact that we're doing repeat deals when you look at who we're doing deals with. We're doing multiple deals with Ross, we're doing deals with Home Goods, T.J. Maxx, Marshalls and it's repeat deals. Some of those tenants will be doing three or four deals with over the next year or 18 months. We've done repeat deals with Round One, repeat deals with Room Place, so that the retailers are looking at it as it's been successful, going to a retail area that has already been solidified. We have the mall, we have people coming to the property, it's good real estate. It all gets to real estate and we have good real estate.
Louis Conforti -- Director and Chief Executive Officer
And again, and I'm surprised Dan, you mentioned names. You didn't let me mention names, but he's spot on and again. I love it. I'm going to remember that next quarter. And again, Lisa anyone? What percentage of our traditional malls, you guys have pretty much submitted to having to say that word every once in a while. What percentage have a viable mandible shift but a viable lifestyle Open Air component outward facing, we're one elevation or two elevation...
Lisa Indest -- Executive Vice President, Finance and Chief Accounting Officer
More than 60% are hybrids.
Louis Conforti -- Director and Chief Executive Officer
So I think, it's about two thirds of our assets.
Lisa Indest -- Executive Vice President, Finance and Chief Accounting Officer
It's closer to 70%, you're right.
Louis Conforti -- Director and Chief Executive Officer
Are hybrid, which is what our catchment/demographic constituencies/guests/tenants/sponsors, what they all want. And this is where we are misunderstood. And I get so excited every quarter, we get a little closer to proving everybody, or proving the pundits wrong. How's that. Thanks.
James Sullivan -- BTIG -- Analyst
Okay, final question for me, Lou, if you could take one is, just going back to that outparcel issue for a moment. In your mortgage debt, is there typically a carve out for the separate out lots or not? In other words, to what extent are they securing the mortgage on the related center?
Mark Yale -- Executive Vice President and Chief Financial Officer
I mean that's one consideration. There are ways to work around it. In some cases, those outparcel -- even part of the collateral even though we could have debt on the property and a lot of times there's substitute provisions we can work around and we can get a release. But that is one of the factors, certainly if you have an unencumbered property, the parcels are little bit more straightforward. But just because you have debt in place doesn't mean you can't work through, it just takes time.
Louis Conforti -- Director and Chief Executive Officer
And Mark, a related topic which we always like to mention, what percentage of our assets are unencumbered?
Mark Yale -- Executive Vice President and Chief Financial Officer
57% of our NOIs driven from properties unencumbered.
Louis Conforti -- Director and Chief Executive Officer
Which, I think that's the second or third best in our sector. Now I know, it's the second or third best in our sector.
James Sullivan -- BTIG -- Analyst
Okay very good. Thanks, guys.
Louis Conforti -- Director and Chief Executive Officer
Jim, you can ask us many questions as you are now. Thank you so much. Next?
Operator
Thank you and our next question comes from Ki Bin Kim of SunTrust. Your line is now open.
Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst
Thanks. So you guys categorize a few more assets into the non-core bucket, those three assets have mortgage debt on it. Can you talk a little bit more about the thinking behind it and maybe give some color around the debt yields for the assets that are in the non-core bucket versus Tier Two?
Mark Yale -- Executive Vice President and Chief Financial Officer
Yes, Ki Bin, we classify those as non-core at year-end. And I think, we talked about the fact that once we identify them specifically as non-core, we made a decision most likely to move on from the assets. So I think, two of them were having active discussions on and the others, we would most likely see a path towards a exit and we're talking about single-digit debt yields on those properties. So, it ends up being a very efficient way for us to delever it.
Louis Conforti -- Director and Chief Executive Officer
And for us doing anything other than this strategic approach, we'd be silly and so it accounts for 7.25%.
Lisa Indest -- Executive Vice President, Finance and Chief Accounting Officer
Tier Two and non-core.
Louis Conforti -- Director and Chief Executive Officer
Yes, combined, it's 7%. And it's, just well certainly to you all at the crummy multiple upon which we trade is a free option.
Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst
Right and can you remind me about the IRS rules on dividends. Are you allowed to still provide dividends in the form of stock?
Mark Yale -- Executive Vice President and Chief Financial Officer
Yes. I mean I think you can. So we're not focused on that at this point. And we've talked about with where we think our taxable income is going to be. We're going to certainly look to a good chunk of our dollar per share dividend to cover our taxable income. And as Lou mentioned, we reaffirmed our guidance for our dividend in 2019.
Louis Conforti -- Director and Chief Executive Officer
Yes. And without talking about NAV, you can might kind of make the kind of the iterative conclusion that we believe we traded a substantial NAV discount, that's all I can say.
James Sullivan -- BTIG -- Analyst
Okay. And just last question on Muncie Mall. When I looked at this mall several years ago,It kind of stood out as the kind of only mall in town, the town center type of asset that you guys talk about for many of your assets. On the surface, they had pretty decent Google reviews on it. So, just curious like just over time, what happened to that asset and why it didn't end up working out?
Louis Conforti -- Director and Chief Executive Officer
So Muncie Mall, non-core, yes?
Lisa Indest -- Executive Vice President, Finance and Chief Accounting Officer
Yes.
Louis Conforti -- Director and Chief Executive Officer
And I actually obviously know that. I was just going to say. We, as you want us every marginal unit of capital that we spend is subject to not only a direct return on invested capital, but does it make an asset better. And in some instances combined with the existing leverage we make, which we believe to be the prudent decision that it doesn't make sense for us to -- I don't want to say, waste time but I do want to say, we can divert our attention. I think about this as capacity utilization. We are working 24/7, doing what's right and look, and again, 1.4 million square feet, 11 out of the 22 boxes we control, so on and so forth. Muncie didn't make the grade. Next?
Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst
All right, fair enough, thank you.
Louis Conforti -- Director and Chief Executive Officer
You can ask another question, no more Muncie.
Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst
Yes. All right. Thank you.
Louis Conforti -- Director and Chief Executive Officer
Your boss, (inaudible)?
Operator
Thank you. (Operator Instructions) And our next question comes from Caitlin Burrows of Goldman Sachs. Your line is now open.
Caitlin Burrows -- Goldman Sachs -- Analyst
Hi again, guys. Maybe just on the dividend, we just talked about that you left it unchanged and I know part of this is that the lender transitions create a taxable event. So I was just wondering, how are you balancing the decision to return these properties to the lenders given the tax event and then the required cash payment that they cause?
Louis Conforti -- Director and Chief Executive Officer
The -- and I'll let Mark expand, but first and foremost, this is an economic decision predicated upon the viability of the individual asset that there's no gamesmanship with respect to kind of hold periods. These assets don't make sense. Or I don't want that -- I'm being too mean to those assets --. Again for the reasons that we discussed with Ki Bin, they're going to go back to the lenders.
Mark Yale -- Executive Vice President and Chief Financial Officer
I think simply put, the only other option would be to repay that debt. That's money that's going back to the holders of the securities. The dividend, it goes back to our shareholders, it's a much better answer for our shareholders.
Louis Conforti -- Director and Chief Executive Officer
Absolutely.
Caitlin Burrows -- Goldman Sachs -- Analyst
Okay and then, also in terms of given the kind of CapEx and redevelopment needs going forward, I know, Mark in the beginning, you mentioned that future asset sales could be an option for future liquidity. Would you consider selling any of the Open Air properties?
Mark Yale -- Executive Vice President and Chief Financial Officer
Of course.
Caitlin Burrows -- Goldman Sachs -- Analyst
I guess, we haven't seen any of that recently. So what would make that become a kind of route that you guys choose to take?
Louis Conforti -- Director and Chief Executive Officer
No, I mean I think it's based -- I'll give you kind of a combination answer. Well, first and foremost, at the right price and I think I said this in my first earnings call, we are a seller of one asset or the entire company at the right price. And that's my fiduciary to shareholders. People know our number, we think that the assets that we have are important from a list of example with respect to our portfolio. But they're not crucial, no asset is. We are a dynamic operating company that has proven things that quite frankly no one else has in our space. And at the right time, we'll make the right strategic decision. Do you have a buyer?
Caitlin Burrows -- Goldman Sachs -- Analyst
I don't, but I was just interested in the answer to that part. So now, we know it. Thank you.
Louis Conforti -- Director and Chief Executive Officer
Absolutely. Absolutely.
Caitlin Burrows -- Goldman Sachs -- Analyst
That's all for me. Thanks.
Louis Conforti -- Director and Chief Executive Officer
Thanks, Caitlin.
Operator
Thank you. And our next question comes from DJ Busch of Green Street Advisors. Your line is now open.
DJ Busch -- Green Street Advisors -- Analyst
Hey Lou. Thank you. I had a quick follow up on the last couple of questions. You talked about Muncie and you talked about some of the other non-core, why they may not make sense for Washington Prime and they'll go back to the lender. But you also mentioned in your prepared remarks, there's some good assets with bad loans and I think back to Southern Hills, I think back to Mesa and you've taken advantage of some of those opportunities. And I just think from your view over the next couple of years, you don't have any immediate maturities but when you look out to 2021, 2022, there's a lot of CMBS coming due. You have some of them. How many of your assets you think when you look out or opportunities where they're still good assets with bad loans versus ones that may look more like Muncie where they'll go back to the lender.
Louis Conforti -- Director and Chief Executive Officer
Mark and I'll answer that in tandem and I can tell you just anecdotally, the two that you mentioned, we had a -- and I can't disclose because Dan gets to mention the tenants that he wants. Let's just say that most of those -- well actually -- and one with the tail in our release. Every single one of the assets right now is an extraordinary opportunity in my view. And by the way, for the fourth time maybe, we've addressed 50% of those department store boxes, one of which is Grand Junction, Mesa. Did we mention names of Mesa in the supplemental? Yes. And then, we have several others. And you mentioned Southern Park, I'm champing at the bit to -- and Lisa just gave me the -- she gave me the evil eye.
Lisa Indest -- Executive Vice President, Finance and Chief Accounting Officer
Next quarter or two.
Louis Conforti -- Director and Chief Executive Officer
She gave me -- a quarter or two. So, Mark?
Mark Yale -- Executive Vice President and Chief Financial Officer
Yes, it's an evolving process but if you think through our reclassification when we move forward with at the beginning of the year, we did identify additional non-core assets, so that probably tells you the path or focus on for those assets. But Lincolnwood was a Tier Two that has moved up to Tier One, we're investing dollars. I think the reality is when you start getting vacancy and you have these anchorage when you're talking about $5 million, $10 million of reinvestment, it really puts you on the clock in terms of figuring out if you want to allocate capital. And I think each year as we progress, I think, there's less real decisions there, less discretion as we move forward. And we really feel good about our Tier One portfolio as comprised today.
Louis Conforti -- Director and Chief Executive Officer
And one more point, if I may. And Mark, I don't know of a CFO and a partner that if we hadn't have got rid of -- we always fight about what's the number of assets, 14, 15 assets because we needed that little kind of addictive trickle of cash flow that would be a valid question for you to -- and that's certainly a valid question nonetheless. If something doesn't make sense, we have gotten rid of it. And we will continue to do so. And I know that you're going there. I just -- you can cite those that didn't.
DJ Busch -- Green Street Advisors -- Analyst
And I'm almost asking like on the flip side, I think like -- to the point that you made, there could be because the CMBS market has been shut down more or less for a lot of the regional mall space. As a sponsor when you look out to your maturity schedule, and it seems to me there could be more opportunities like Mesa or Southern Hills, where there could be a discounted payoff because the lenders don't want all these assets back at the same time. And it could make sense for you guys to stay into those assets from a -- because of where the debt could be written down to. I guess that's my point. Is there more of...
Louis Conforti -- Director and Chief Executive Officer
You're so spot on and Rob Demchak is licking his lips right now and we're champing at the bit and all that other because he's the -- I think the world's greatest structurer and that the DPL work that he's done, if it if we can take advantage of it again, let me tell you, he'll do it.
DJ Busch -- Green Street Advisors -- Analyst
Okay, great. Thank you, guys.
Louis Conforti -- Director and Chief Executive Officer
Great question.
Operator
Thank you. And that concludes our question-and-answer session for today. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.
Louis Conforti -- Director and Chief Executive Officer
Thanks all.
Duration: 57 minutes
Call participants:
Lisa Indest -- Executive Vice President, Finance and Chief Accounting Officer
Louis Conforti -- Director and Chief Executive Officer
Mark Yale -- Executive Vice President and Chief Financial Officer
Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst
Joshua Lindimore -- Senior Vice President, Head of Leasing
Caitlin Burrows -- Goldman Sachs -- Analyst
Dan Scott -- Senior Vice President of Development
James Sullivan -- BTIG -- Analyst
DJ Busch -- Green Street Advisors -- Analyst
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