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Macerich Co (NYSE:MAC)
Q2 2019 Earnings Call
Aug 1, 2019, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Macerich Company Second Quarter 2019 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jean Wood, Vice President of Investor Relations. Please go ahead.

Jean Wood -- Investor Relations

Thank you, Amy. Welcome everyone to the second quarter 2019 earnings call. During the course of this call, we will be making certain statements that may be deemed forward-looking within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to a variety of risks, uncertainties and other factors. We refer you to today's press release and our SEC filings for a detailed discussion of forward-looking statements.

Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the earnings release and supplemental filed on Form 8-K with the SEC, which are posted in the Investor section of the company's website at macerich.com. Joining us today are Tom O'Hern, Chief Executive Officer; Scott Kingsmore, Executive Vice President and Chief Financial Officer; and Doug Healey, Executive Vice President, Leasing.

With that, I would like to turn the call over to Tom.

Thomas E. O'Hern -- Chief Executive Officer and Director

Thank you, Jean, and thank all of you for joining us today. It was a good quarter with solid operating metrics. Sales per foot were up 12% to $776 per square foot. That's our 13th consecutive quarter of sales growth. On an NOI weighted basis, sales were up 11% to almost $900 per foot. Occupancy was strong at 94%. Average rents were up 4%. We had a very good leasing volume quarter. Looking at the year-to-date numbers, we're up almost 30% compared to last year. It is a good and improving leasing environment, far better than the headlines would lead you to believe. FFO per share was $0.88, exceeding consensus and our guidance. Last week, we declared a dividend of $0.75 per share to shareholders of record on August 19 and payable September 6.

We've had a few questions about our plan for the dividend given the current high dividend yield. I would like to make it very clear we have no intention of cutting our dividend. Today, we're fortunate to have an unprecedented number of new retailers and nontraditional uses for space in our town centers. That includes coworking where we have recent or in-process deals with Industrious, WeWork and Spaces. There's significant demand from these names and others for locations in A-quality town centers. Industrious, who recently opened at Scottsdale Fashion Square, enjoy their best opening occupancy level in their history, proof that coworking can thrive in a mall setting. We have growing demand from fitness and health uses, particularly the high-end operators such as Equinox and Lifetime, both of which we've done recent deals with.

Digitally native brands continue to be active. The brands, as they refer to themselves as, continue to migrate to A-quality mall space. The generation of Peloton, UNTUCKit, Bonobos and Warby Parker have greater demand today than ever for brick-and-mortar. The new generation of digital brands such as Morphe, Casper and Indochino continue to increase their mall presence and have significant open-to-buys for brick-and-mortar. Entertainment uses continue to expand. Demand for quality space comes from tenants like Round One, Pinstripes, THE VOID, Rec Room as well as increasing demand for presence in our centers by theater operators, including Harkins, AMC and Alamo Drafthouse. Hotels continue to seek space on the our centers.

That's evidenced by the recent signing of a deal with Caesars Republic at Scottsdale Fashion Square. And in fact last week, we approved 3 hotel ground lease deals at Marriott, a Hotel and Hyatt. Our redevelopment pipeline is progressing very well, including our prospects for the replacement of the Sears stores that we have been able to recapture. We now have control of 10 Sears locations, 7 of which are in our 50-50 joint venture with Seritage, and that includes Los Cerritos, Washington Square, Vintage Faire, Chandler, Arrowhead, Deptford and South Plains mall. Plus we have 2 locations that are wholly owned. Details of our Sears redevelopment plans are more fully described on page 32 of our supplement. We've characterized these Sears developments into 2 major categories. The first category is retail redevelopment and that represents the adaptive reuse of the existing Sears boxes with primarily retail uses.

We estimate redevelopment costs of approximately $80 million to $95 million for these projects, with yields ranging from 8% to 9%. The second category is mixed-use densification, which will result in the demolition of the Sears box and redistribution of that GLA with new construction across the Sears parcel with a variety of different nontraditional mall uses. We estimate the cost for those projects to be between $100 million and $120 million, with yields ranging between 8.5% and 10%. This grouping includes Washington Square and Los Cerritos, both projects that are currently going through the entitlement process. Those are both great assets and rank in our top 10. Washington Square will feature a streetscape entertainment district with a theater, large-format entertainment, dining, select retail, a hotel and potentially coworking. Los Cerritos will feature multi-family, a ground-leased hotel, dining and retail elements, all interconnected by a town square.

The preleasing for the Sears pipeline of projects is very strong. We will continue to announce anchors and significant tenants for these projects over the coming quarters. The array of uses will provide a very diverse cash flow and will significantly exceed the productivity and traffic generation from the former Sears boxes. Looking at the balance of our redevelopment pipeline. At Scottsdale Fashion Square, Apple and Industrious are thriving in the former Barney's box. That's generated a tremendous amount of retail interest and customer energy. The newly renovated and retenanted luxury wing continues to add exciting new brands as the year progresses. By the end of the first quarter 2020, our diverse roster of high-end restaurants will be fully opened, and we anticipate Equinox and Caesars Republic to open in the first half of 2021. As a result of Scottsdale's multifaceted redevelopment, we continue to see extremely strong sales growth and customer traffic. Comp sales were up 21% and foot traffic is up 7%, all year-to-date. Leasing demand continues to surpass our initial expectations. The redevelopment has thus far resulted in signed deals for 36 new or renovated stores that includes 21 new tenants and 15 remodeled or relocated stores.

New tenants to the property of digitally native brands such as our UNTUCKit, Peloton, Indochino, Casper, Tommy John, Ring and Morphe and an array of luxury retailers such as Cartier, Gucci, St. John, Jimmy Choo, IWC and Saint Laurent. We also have a flagship lululemon and Wonderspaces. At the Fashion District of Philadelphia, tenant construction is progressing within the 4-level retail and entertainment hubs standing over 800,000 square feet in the heart of Philadelphia. The project will provide the city with its most concentrated critical mass of retail, taking advantage of mass transit that feeds directly into the concourse level and the -- of the project and the billions in commercial investment that has already occurred and is planned for future development in the city center. We have signed commitments with tenant for 90% of the leasable space, including Century 21, Burlington, H&M, Nike, Forever 21, AMC, Round One, City Winery and Wonderspaces. The project will open in phases with the holiday occupancy expected to be approximately 70% and stabilized occupancy anticipated in 2020 -- late 2020.

At the Los Angeles Premium Outlets site, the Carson Reclamation Authority continues its horizontal site work to support the project. Our 50-50 joint venture with Simon Property Group expects to commence vertical construction of Phase I in early 2020 with the planned opening in 2021. As I have mentioned before, we remain firm in our belief that in the long run, our high-quality assets, primarily situated in dense urban markets, will thrive as the retail landscape continues to evolve. This belief is supported by recently completed or in-process projects like Kings Plaza and Scottsdale Fashion Square. At these properties, we continue to benefit from the retailer demand across the entire property as a result of our redevelopment investments. We will undoubtedly realize similar benefits that many of our Sears projects, and this is especially pronounced at those projects where we're adding densification and a sense of place to the Sears parcel. We view these as great opportunities, and we will continue to deploy capital in a prudent manner to capitalize on these opportunities.

And with that, I'll turn it over to Scott to discuss the results for the quarter.

Scott Kingsmore -- Executive Vice President, Chief Financial Officer and Treasur

Thank you, Tom. The second quarter reflected good financial results exceeding expectations. Here are some highlights for the quarter. FFO was $0.88 per share, which was $0.02 ahead of our both our guidance and consensus estimates of $0.86 per share. This compares favorably to FFO for the second quarter of 2018, which was $0.83 per share. The primary elements of the $0.05 improvement during the second quarter were the onetime activism costs incurred in the second quarter of 2018 totaling $0.13, offset by $0.04 of dilution from greater leasing expenses recognized in the second quarter of 2019 due to the new lease accounting standard as well as $0.03 of dilution from increased interest expense, given higher interest rate environment in the second quarter of '19 relative to the second quarter of '18. Year-to-date, FFO exceeds consensus by $0.03 per share. Same-center net operating income growth was up 0.9% for the quarter and is up 1.3% to date, which does exceed our 0.5% to 1% same-center NOI guidance for 2019. Margins continue to show significant improvement. The EBIT margin for the quarter improved by 118 basis points to 65.25%.

Year-to-date, EBITDA margins were up nearly 130 basis points through June 30 versus the first 6 months of 2018. This is a function of the entire team's relentless focus to produce efficiencies, both from an operating perspective and at a corporate level. 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 the company's Form 8-K supplemental financial information for more details of the company's guidance assumptions. Regarding our financing activity, the following summarizes the current status of our 2019 plans. In June, we closed a $220 million, 10-year fixed-rate financing on SanTan Village in Gilbert, Arizona, at a fixed rate of 4.3%. The transaction produced $85 million of incremental proceeds at Macerich's share. Also in June, we closed $256 million, 5-year fixed-rate financing on Chandler Fashion Center in Chandler, Arizona, at a fixed rate of 4.1%, yielding $28 million of incremental proceeds at Macerich's share.

Our joint venture in One Westside is negotiating terms on a bank construction loan, which is expected to have a very attractive economics and terms and is expected to finance the partnership's remaining incremental cost to deliver the redevelopment of this creative office campus to Google. Our joint ventures in both the residential tower at Tysons Corner, known Tysons Vita and the new office tower, known as Tysons Tower, are negotiating terms for 10-year fixed-rate loans on both of these assets, both of which are currently unencumbered. Fixed interest rates on these 2 separate deals are expected at very attractive levels in the mid-3% range, and combined incremental proceeds at the company's share should exceed $140 million, and both loans are expected to close near the end of the third quarter.

We are currently in market to source financing opportunities on the recently developed Kings Plaza in Brooklyn. With consumer traffic trending up and sales up 7% year-to-date to 737 per square foot, Kings Plaza is reaping the benefits of our recent redevelopment investments, and we do anticipate a very positive market reception for financing this property. We expect the deal to close within the fourth quarter. Collectively, these financings represent a 9-asset financing plan for 2019, which is progressing quite well and that, when complete, we expect to exceed $2 billion in volume and to generate over $600 million of liquidity to the company. Looking forward, over the next several years, we do anticipate incremental financing proceeds of $250 million to $400 million per year. Today, we have over $700 million of capacity on our revolving line of credit, which is $1.5 billion in total and expandable up to $2 billion. This is more than enough liquidity to fund our ongoing development and redevelopment pipeline.

Now I will turn it over to Doug to discuss the leasing and operating environment.

Doug Healey -- Executive Vice President

Thanks, Scott. In the second quarter, sales and occupancy remained strong and the leasing momentum continued. Portfolio sales ended the second quarter at $776 per square foot, which represented a 12.1% increase from $692 per square foot on a year-over-year basis. Economic sales per square foot, which are weighted based on NOI, were $896 per square foot, and that's up 11.3% from $805 per square foot a year ago. Quarter end occupancy was 94.1%. That's down 0.2% from the end of the second quarter 2018 and down 0.6% from the end of the first quarter 2019. Trailing 12-month leasing spreads were 9.4% compared to 11.1% at December 31, 2018. Average rent for the portfolio was $61.17, and that's up 4% from $58.84 one year ago.

Consistent with the first quarter, leasing volumes remained extremely strong in the second quarter. During the second quarter, 208 leases were signed for a total of 729,000 square feet, bringing the year-to-date total to 1.6 million square feet. This represents 42% more leases and 29% more square feet than at this point last year. The large-format space remains active. We signed 85,000 square foot lease with Life Time Fitness at The Oaks. We signed ALDI in 22,000 square feet at Green Acres Commons, Round1 Bowling in 66,000 square feet at Freehold Raceway Mall and Industrious in 31,000 square feet at Country Club Plaza. And so this is our third deal with Industrious.

They currently opened at Scottsdale Fashion Square and are under construction at Broadway Plaza. We remain bullish on coworking concept and believe the number and the demographic of their member base is extremely complementary and accretive to our town centers. We also signed multiple deals with digital emerging brands, including Warby Parker at Corte Madera, J. McLaughlin at Biltmore and Indochino at Broadway Plaza and Scottsdale Fashion Square. In the food and beverage category, we signed leases with Shake Shack at SanTan and Green Acres, Hook & Reel at Green Acres and Goddess and the Baker at North Bridge. We also signed a nice 6-store package with A&F's emerging brand, abercrombie kids, where we captured 6 of their 15 2019 open-to-buys. Lastly, in terms of executing leases, it was another great quarter for the Fashion District of Philadelphia. We signed 14 leases totaling 63,000 square feet, including Aeropostale, American Eagle, Eddie Bauer, Express, GameStop, Pandora and Wonderspaces. We opened 64 new tenants in the second quarter, totaling 154,000 square feet. In the experiential category, in addition to Crayola at Chandler and Wonderspaces at Scottsdale, both of whom opened in the second quarter, we are very pleased to welcome the Cayton Children's Museum to Santa Monica Place. It opened in 20,000 square feet on June 30 to enormous fanfare, as it's the only one of its kind in all of Los Angeles. The Cayton Children's Museum is a state-of-the-art museum that has several interactive exhibits, which are continuously refreshed and changed out.

It also has party facilities, child care, camps and many other amenities that will make it an integral part of our community. We love the customer bring it to Santa Monica Place and have already seen the positive impact it's had on traffic and food sales. The museum anticipates in excess of 300,000 visitors a year. Turning to the leasing environment, despite what the media might report, the leasing environment remains dynamic. A great indication of this is that year-to-date our bankruptcy closings have totaled 2% of our total occupancy. However, as I've already stated, our total occupancy is only down 0.2% from Q2 2018. Now with other strong leasing environment, there is no doubt we would have seen greater occupancy loss as a result of these bankruptcy closings. And never has the breadth of uses in categories been so great.

As our malls and shopping centers continue to morph into town centers, they're becoming everything for everybody, and this is because our shopper is changing. The next generation wants it all, and they want it all in one place. Therefore, we no longer focus only on traditional retailers. Now it's all about uses and categories. It's about large-format uses like Dick's Sporting Goods and T.J. Maxx and Target. It's about restaurants like Cheesecake Factory, Shake Shack and True Food Kitchen. It's about fitness like Lifetime, Equinox and 24 Hour. It's about theaters and entertainment like Harkins, Cinemark, Dave & Buster's, Round One and Rec Room. It's about experiential like Candytopia, Crayola and Wonderspaces. And it's about digital like Casper, Morphe and Madison Reed. And it's about coworking, like Industrious, WeWork and Spaces. But this is by way of example only. This list goes on. But these are all categories and uses that are active, and we're working with each and every one of them.

My point is, as we continue to weed out the underperforming and irrelevant retailers, we no longer have to rely on backfilling with traditional retail only. The market won't tolerate it, and candidly, our shopper wants more. Our ability to recapture space, especially in our best-in-class centers, is going to be critical as we look to accommodate all of these uses in all of these categories. So whomever is looking at our industry should be looking at it through this lens. This is an exciting transformation that will result in world-class town centers that will soon be catering to everybody. So in conclusion, our leasing metrics, including sales, occupancy and spreads, remain solid. Leasing volumes are strong. We continue to lease space to new, exciting and cutting-edge retailers. Categories and uses continue to expand. And we continue to merchandise our properties with offerings that are among the best in the industry.

And with that, we'll turn it over to the operator to open up the call for Q&A.

Questions and Answers:

Operator

[Operator Instructions] And we will take our first question from Jim Sullivan with BTIG.

Jim Sullivan -- BTIG. -- Analyst

Thank you Tom and Doug , I guess, for this first question. The temporary tenancy number rose back in the first quarter. You detailed that in the call. And I wondered if you could just update us on what percentage of the occupancy is temporary as of the end of the second quarter and how you expect that number to change in the coming quarters.

Scott Kingsmore -- Executive Vice President, Chief Financial Officer and Treasur

Hey Jim this is Scott. Good morning. The current temp occupancy remains elevated relative to historical expectations. We're at 6.5% temp occupied today. I would expect that perhaps to tick up another 10, 20 basis points or so until the end of the year as we continue to backfill the bankruptcy closures that we saw from the first half of the year. But just to point out, and I think I've emphasized this in multiple meetings, we do view that as a great opportunity going forward to convert short-term uses into longer-term higher rent paying tenants at full market rent. We should see significantly elevated rents. And I think that will be an important and critical operating cash flow tailwind for us over the next couple of years. But in summation, I do expect it to tick up just a bit more for the balance of the year, Jim.

Jim Sullivan -- BTIG. -- Analyst

I just have one follow-up and your last comment kind of provides a good segue for that. Again, in the last quarter, it was indicated that same-property NOI growth for 2020, no firm numbers were provided. However, I think the comment was that the expectation at the end of the first quarter in this respect is that same-property NOI growth should return to more historic levels, which had been 3%-plus in 2020. And 90 days on here, I'm just curious if management is still confident of that assessment?

Thomas E. O'Hern -- Chief Executive Officer and Director

I'd say, that's true, Jim. As we go through the balance of this year, we have some tough comps on a same center basis in the third and fourth quarter. But as we -- and moving through the backfilling the bankruptcies, we're most of the way through there. We think we're going to pick up some momentum as we finish up the year.

Jim Sullivan -- BTIG. -- Analyst

Thank you.

Operator

With Evercore ISI, we'll hear from Samir Khanal.

Samir Khanal -- Evercore ISI -- Analyst

Good morning. As we think about the leasing environment -- and you guys have had a very good job from the volume standpoint. As we think about your watch list and sort of your tenant restructurings going on, I mean, I guess, how much more is left there that we would say would be sort of bad news or concern here? Everybody talks about 100 basis points of credit loss reserve that's been used. I mean as you kind of think through the next 2 to 3 years, is that kind of a new normal? Or does that come down, you think?

Scott Kingsmore -- Executive Vice President, Chief Financial Officer and Treasur

This is Scott. Good morning. We -- if I look at our opening commentary when we issued guidance, we did have roughly 100 basis points of cushion in our numbers. As I look forward for the balance of the year, we do feel like we've got adequate reserves embedded within our guidance for the balance of the year, just to point that out. And that's for every tenant that's in front of us, large and small and otherwise. We do see our watch list at a much significantly reduced level from where we were a few years ago. So it's hard to say, but as we stand here today, given the perspective we have, it does seem like it's going to be a lessening environment which -- versus what it's been historically.

Again, none of these bankruptcies are a surprise to us, the brands that have failed or brands that had too much debt on their balance sheet or were long underperformers within our portfolio. So none of this has been a surprise, but we do see the list shrinking. But I think the fundamental point is, we do see 2019 not being negatively impacted from what we see today relative to our guidance.

Samir Khanal -- Evercore ISI -- Analyst

Okay. And I guess, just as a follow-up, can you walk us -- I guess, Scott, can you walk us through your NOI guidance? I mean you're tracking ahead of schedule. You've kept the guidance the same. It implies a deceleration in the second half. You've talked about a strong leasing environment. And I'm just trying to see how much of it is you just being conservative versus sort of real concerns kind of from a tenant fallout perspective in the second half?

Scott Kingsmore -- Executive Vice President, Chief Financial Officer and Treasur

Sure, Samir. Naturally, with the heavy volume of bankruptcies, we've seen over 400,000 square feet closed within the first half of the year. And so those closures are naturally going to have a drag on the second half. And so we do have that embedded within our thinking. Let me frame the impact of the bankruptcies just to kind of put this in perspective. Year-to-date, we've seen elevated bad debts. You guys recognize that we did increase our bad debt assumption within our guidance. We've seen elevated bad debts of roughly of $1 million per quarter as a result of late onset prepetition rents from rejected leases and bankrupt tenants.

In addition, we've seen a loss of rental income from those bankrupt tenants, and we expect that to continue during the second half of the year. If I were to look at the impact of bankruptcy as a whole on 2019, both between bad debts as well as reduced rental income, I'd frame the impact of roughly 175 to 200 basis points of impact on same-center NOI for 2019. So that's really what our perspective. Bankruptcies have had a heavy impact. That would give you an idea of what the sense of the impact is in terms of order of magnitude, and we do expect that will have an impact on the second half.

Samir Khanal -- Evercore ISI -- Analyst

OK thanks very much.

Operator

[Operator Instructions] And our next question comes from Todd Thomas with KeyBanc Capital Markets.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Hi. Thanks. Good morning. Just following up on Samir's question. How much Sears rent did you collect in the quarter that needs to come out of the 3Q run rate? And were there other tenants that moved out that you collected rent from in the second quarter that would have an impact going forward?

Scott Kingsmore -- Executive Vice President, Chief Financial Officer and Treasur

Yes. Sure. I don't have that number quantified. Sears, we did collect roughly 1.5 months of rent that will be going away. It does not impact same center. Recall that we were clear that we did pull the Sears impact out of same center just as we will pull the redevelopment returns once we do restore the income that will be pulled out of same center. For the most part, most of the bankruptcy closures were done by the end of the first quarter. There were some that spilled into April. But I think for the most part, we've seen the impact as of the end of the first quarter.

There is a little bit trickling in. I don't see a huge impact though from either one of those. And also, bear in mind, from Sears, you've got the offsetting impact of placing the development -- or the costs into the development, which you've got the noncash benefit of the capitalized interest. Put all that into the mix, I don't think it's a material impact.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. Right. And then Scott and maybe Tom, you can chime in here as well, but you outlined the refinancing plans in detail, which was helpful, but can you comment on the potential to raise capital at some point, maybe later this year from the sale of one or more assets, either outright or in a joint venture format? Just any current thoughts on that process which you sort of talked about previously?

Thomas E. O'Hern -- Chief Executive Officer and Director

Yes, Todd. We are currently active in discussions regarding several joint venture transactions that would generate a significant amount of capital. And we continue to negotiate those. And at this point, nothing more specific to report, but we will keep you posted as we move forward with those.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. In terms of timing, is there something that might take place in 2019? Or do you think that this ends up being a 2020 transaction?

Thomas E. O'Hern -- Chief Executive Officer and Director

Well, ideally, these are multiple negotiations on multiple properties. And given that this would probably generate a significant amount of capital gain, ideally, we'd like to close part of these transactions in late 2019 and the balance carrying over to the beginning of 2020.

Operator

Thank you, From Barclays, we'll hear from Linda Tsai.

Linda Tsai -- Barclays -- Analyst

Thanks.In terms of the impact of closures on same-store for '19, you said it was 175 to 200 bps. For context, could you remind us what the impact was in 2018 and also '17, which was a bigger year in terms of closures?

Thomas E. O'Hern -- Chief Executive Officer and Director

Yes, Linda. 2017, we had total square footage of 970,000 square feet, so almost twice of what it was today. And then it abated a little bit in 2018 for the year. Excluding the department stores, it was 565,000. And that compares to where we are today at 512,000 square feet. And about 80% of those leases were rejected. So it has tapered off compared to 2017.

Linda Tsai -- Barclays -- Analyst

But in terms of like a basis point impact on same store?

Scott Kingsmore -- Executive Vice President, Chief Financial Officer and Treasur

If I were to look at 2018, generally, a lot of that square footage, as Tom just rattled off, was anchor. So it was Sears, it was Bon-Ton. There was less in the small shop area. So it's probably less of a same-center impact in 2018 than it was in 2019, which was predominantly small shop square footage. So same center was heavily impacted. I don't have a figure for you off hand, Linda. We could take that off-line if you like. But I don't have a figure. But again, in terms of order magnitude, I think '17 was much more heavily impacted in terms of same-center NOI than 2018.

Linda Tsai -- Barclays -- Analyst

And then in terms of the increase in bad debt from $0.03 to $0.05, does this include Forever 21 and Barney's?

Scott Kingsmore -- Executive Vice President, Chief Financial Officer and Treasur

No. This really is a function of writing our prepetition rents for the brands that have closed already. So it's the Things Remembered and Payless and Charlotte Russe and all the Gymboree brands as well as a random scattering of others. No, it's nothing to do with the other retailers that you mentioned.

Linda Tsai -- Barclays -- Analyst

And just one last one. In terms of temporary occupancy, you said it's at 6.5%. What do you think it will be at year-end? And at what point would you expect it to come down?

Scott Kingsmore -- Executive Vice President, Chief Financial Officer and Treasur

Yes. Again, I think it will tick up a bit toward the end of the year, as I mentioned to Mr. Sullivan. I would expect that, however, to really start coming down over the next couple of years. It's natural to assume that as we get 400,000 square feet back that we're going to have a combination of permanent replacements as well as opportunistic temporary replacements for that space. And so I do think we'll see a significant conversion to longer-term higher rent paying uses in '20 and in '21, and we'll the operating impact -- positive operating impact of that activity. So again, a tick-up toward the end of the year and then I would certainly see that dropping as we move forward.

Operator

Thank you .From Bank of America, we'll hear from Craig Schmidt.

Craig Schmidt -- Bank of America -- Analyst

I was looking in the sales per square foot chart and at listed sims and redevelopment of Paradise Valley. What is the redevelopment that you're doing at Paradise Valley?

Thomas E. O'Hern -- Chief Executive Officer and Director

Well, Paradise Valley, we've got the potential to do mixed use, entertainment. The department stores are fairly productive there, but there is a -- it's very well located, and there's a significant amount of demand for other uses. So that would probably be a combination of things. It won't be more retail. It'd be less retail, more mixed use.

Craig Schmidt -- Bank of America -- Analyst

Okay. Great. I guess, in a similar vein, the Sears that you recaptured at Towne Mall, with the lowest sales per square foot productivity, would you expect that repurpose to be nonretail?

Thomas E. O'Hern -- Chief Executive Officer and Director

It could be. We're still working on that one, Craig. For example, at Wilton, which kind of falls in the same category, we've got a hospital that's going to take that space and put in a medical office and a clinic. And I would expect something similar to be the ultimate outcome at Towne.

Craig Schmidt -- Bank of America -- Analyst

Great. Thank you.

Thomas E. O'Hern -- Chief Executive Officer and Director

Thanks Craig.

Operator

Next, we'll hear from Alexander Goldfarb with Sandler O'Neill.

Alexander Goldfarb -- Sandler O'Neill -- Analyst

Hey good morning out there. Just 2 questions. First, Tom, on the JV front to the earlier question, you said that it would generate large capital gains. So just trying to think -- I know you reaffirmed the commitment to the dividend, which we appreciate, but if you sell joint venture stakes, presumably earnings come down, which I would think would affect the dividend, but if selling stakes in a mall is going to result in capital gains that may have to be distributed, why do that if you have the $250 million to $400 million a year incremental refinancings that -- from -- as you refinance your malls? Why won't that be preferable to selling stakes in malls that could pressure the dividend, but you may have to special dividend out?

Thomas E. O'Hern -- Chief Executive Officer and Director

Well, if the goal is to generate liquidity, we wouldn't get in a situation where we sold something that would trigger a special dividend. So that's one reason you straddle the year-end with a transaction. So part of that will fall into the 2020 dividend and part of that would fall into 2019. So from our standpoint, we've got plenty of liquidity, but if we can achieve some favorable pricing on some of these transactions we're in discussions on, then it's a good way to generate some additional equity. So that's what we're pursuing. But I did not think -- no matter what we would do, it wouldn't result in a special dividend. It just might mean that the entirety of our current dividend is taxable.

Alexander Goldfarb -- Sandler O'Neill -- Analyst

Okay. But I guess, also, what you're saying is that any JV would not impact the current dividend payout.

Thomas E. O'Hern -- Chief Executive Officer and Director

Well, if it's a $3 dividend today, and under normal circumstances, about 60% to 65% of that's ordinary income, and that would mean that the other 35% or 40% is either going to be 2 things: it's going to be return of capital or it's going to be capital gain. So if execute on these JVs that other 40% of the current dividend would be capital gain, not return of capital.

Alexander Goldfarb -- Sandler O'Neill -- Analyst

Right. But I guess what I'm saying is if you JV something, you don't have the earnings from those assets, so asset sale would go down. Wouldn't that necessitate resizing of the common dividend or not necessarily?

Thomas E. O'Hern -- Chief Executive Officer and Director

No, it would have no effect on the dividend. And it depends on the asset, although cap rate asset isn't going to be dilutive to FFO.

Alexander Goldfarb -- Sandler O'Neill -- Analyst

Okay. And then just second is for Scott. And maybe I'm mixing up my term, so I apologize. You budget every year 100 basis point for bad debt, but you said you're running 175 to 200 basis points. Am I mixing different parts of it? Or is it just that you're running ahead, but because of all the leasing, you're still within the overall 100?

Scott Kingsmore -- Executive Vice President, Chief Financial Officer and Treasur

Yes. So just to clarify, coming into the year, we had a basket of reserves to account for all the bankruptcies that were in front of us. As the year's progressed, our bad debts have been elevated by about 50 basis points versus what we anticipated. And frankly, the bankruptcies were heavier than we anticipated, too, Alexander. And that's really driven by the pace of closures. Roughly 80% of the over 500,000 square feet that did file, ultimately, closed. So that was significantly in excess of what we thought. So I guess cutting through it, the impact was greater than what we anticipated. Yet, we're still affirming guidance.

Alexander Goldfarb -- Sandler O'Neill -- Analyst

Okay that's helpful. Thank you Scott.

Operator

From Citi, we'll hear from Christine McElroy.

Christine McElroy. -- Citi -- Analyst

Thanks. Good morning. Just following up on the Sears boxes, previously, you had talked about 4 of the wholly owned that had closed that you thought you'd get back, but I think you only got 3. What happened to that other one that closed? And realizing that you pulled the boxes out of the same-store pool, but can you quantify the sort of residual -- any residual co-tenancy impact from these closures that could hit in Q3?

Thomas E. O'Hern -- Chief Executive Officer and Director

Yes. I'll take the first part of that. There's 1 Sears that closed, Christy, that the lease has not been rejected yet. So we don't control that one yet. So that was the difference. And then on co-tenancy, it's very immaterial.

Doug Healey -- Executive Vice President

Yes. Correct. I don't expect any co-tenancy impact from the closure of those boxes.

Christine McElroy. -- Citi -- Analyst

Okay. And then with regard to the new disclosure on the Sears boxes and the redevelopment, thank you for that, are the projected yield based on the incremental spend from here? Or is it incorporating also as a full cost of the $150 million when you entered the Seritage JV. And I'm just sort of trying to do the math. If you start capitalizing the interest on that $150 million now, when the project starts to come online, you'll have the -- you'll get the benefit of the NOI, but it will also be partially offset by sort of the full impact of the expensing of the interest previously capitalized, both on the original cost and the incremental spend.

Scott Kingsmore -- Executive Vice President, Chief Financial Officer and Treasur

Christy, it's Scott. The yields are based on incremental costs from here on out. They do not include the basis. And just bear in mind that the basis for those 9 Seritage boxes includes all 9 centers. There were 7 centers that we have under redevelopment, 2 that are going forward stores for Sears, in which we've already repurposed half of the box. And so you can really kind of a apportion out the $115 million of total basis on a pro-rata basis, 7 over 9 to figure out what's going to be capitalized and what's not.

Christine McElroy. -- Citi -- Analyst

Okay. So how much of the $150 million is it sort of just doing the math of 7 out of the 9?

Scott Kingsmore -- Executive Vice President, Chief Financial Officer and Treasur

It's about $115 million, $120 million off hand.

Christine McElroy. -- Citi -- Analyst

Okay thank you.

Operator

And we'll hear from Shivani Sood with Deutsche Bank.

Shivani Sood -- Deutsche Bank -- Analyst

Hi good afternoon. Just following up earlier -- on the earlier question on Forever 21 and Barney's, and apologies if I missed this earlier. But is there any update you can share there from a store closure perspective or initial expectations in regards to Forever 21, specifically?

Thomas E. O'Hern -- Chief Executive Officer and Director

Yes. We've had multiple discussions with Forever 21 and their advisors. And at this point, we don't believe that any concessions that we're going to be making will be material. And we've got 30 stores for them, and it's possible that a few might close, but it won't be significant to our overall rent and our guidance for 2019. Those discussions are under way. It's a little early to conclude anything yet. But based on what we've heard from them, we don't think it's going to be material.

Scott Kingsmore -- Executive Vice President, Chief Financial Officer and Treasur

And as to Barney's, we have only 2 locations in the portfolio, so it's also not material.

Shivani Sood -- Deutsche Bank -- Analyst

Excellent. And then Doug, you had mentioned on the strong leasing demand and velocity in the quarter. Can you give us an idea of how much of the 2019 expirations have been addressed? And as you're looking to 2020 or 2021, has anything changed with how the Macerich team is looking to defensibly get ahead of potential watch list and hence on the renewal list?

Doug Healey -- Executive Vice President

Yes. I would say in terms of 2019, virtually, all of the lease expirations have been addressed in one form or another. We're either -- we either have signed leases or we're at lease. In terms of 2020, we're probably between 40% and 50% committed at this point. So we are pretty far out ahead of 2020.

Shivani Sood -- Deutsche Bank -- Analyst

Thanks so much.

Operator

And we'll next hear from Nick Yulico with Deutsche Bank.

Nick Yulico -- Deutsche Bank -- Analyst

Tom, I appreciate all the commentary about the dividend and how the company has no intention to cut the dividend. But if you look at your dividend yield today, it's high, and investors seem to be pricing your stock as if there's some risk of a dividend cut. So what do you think the market is missing about your ability over the next year or 2 to create better cushion on the current dividend?

Thomas E. O'Hern -- Chief Executive Officer and Director

Well, Nick, as I said, our AFFO covers the dividend. We are expecting accelerating same-center NOI growth going forward. And I also mentioned that given the JV transactions we're considering, we probably will be generating some additional taxable income. So we have no intention to cut the dividend. And frankly, if we do those JVs, there's no room to cut. So we're comfortable with where the dividend is today.

Nick Yulico -- Deutsche Bank -- Analyst

And could you just remind us where you're at in terms of your taxable income versus your dividend?

Thomas E. O'Hern -- Chief Executive Officer and Director

Yes. I mentioned that to Alex a minute ago. In a typical year, 60%-or-so of the dividend is ordinary income and then the balance is either going to be return of capital or it's going to be capital gain. And in this particular year, given the transactions we're considering, it's most likely going to be capital gain, not return of capital, which means the entire $3 dividend today would be taxable.

Nick Yulico -- Deutsche Bank -- Analyst

All right. That's helpful. And just to be clear, I mean, when you're talking about the additional financings that you could do to raise funds over the next couple of years, does the JV sale, if that happens, does that allow you to not have to lever up so much?

Thomas E. O'Hern -- Chief Executive Officer and Director

Well, it depends on how you use those proceeds. Those proceeds could be used to delever. And typically, when we finance an asset, we finance it to a 55% to 60% loan-to-value. And we've always done that in the past 25 years as a public company. And that's the way we would continue to finance our properties. These are mostly deals that are done with life companies. And so it's institutional underwriting. And I don't think it would change our approach to financing, whether we do the JVs are not.

Nick Yulico -- Deutsche Bank -- Analyst

Because I'm just wondering how it's going to work from a debt-to-EBITDA standpoint if presumably a lot of this funding is going toward redevelopment of Sears or other situations where you're not getting the EBITDA benefit right away. I mean, it seems like your debt-to-EBITDA -- there's some risk that your debt-to-EBITDA goes up over the next year.

Thomas E. O'Hern -- Chief Executive Officer and Director

Well, if we do the JVs, Nick, we paid out debt, debt-to-EBITDA is going to go down.

Nick Yulico -- Deutsche Bank -- Analyst

But if you don't do them -- if you don't pursue the JVs, should we assume that you're willing to take your debt-to-EBITDA up as a company?

Thomas E. O'Hern -- Chief Executive Officer and Director

Well, we look at a lot of things when it relates to the balance sheet, it's not just one metric. For example, if you look at the interest coverage ratio, it's a very healthy 3.3x. If you look at the maturity schedule, it's layered out very nicely at 5.2. If you were to use a more traditional leverage metric like loan-to-value, even using the consensus estimate for NAV, that would put loan-to-value at about 45%. And that's not a level we're uncomfortable with.

Nick Yulico -- Deutsche Bank -- Analyst

Thanks Tom appreciate.

Operator

Next up is Caitlin Burrows with Goldman Sachs.

Caitlin Burrows -- Goldman Sachs -- Analyst

Hi there. I guess I was just wondering on the redevelopment cost for the 10 Sears boxes that you recaptured in the quarter, $250 million to $300 million, which I think was the cost anticipated as of last quarter for Sears redevelopment, but that was for a larger set of stores. So if that is the case, I was wondering what changed about the redevelopment plans to bring the costs up and what's the status of the remaining 6 stores that were previously listed as in the shadow redevelopment pipeline.

Scott Kingsmore -- Executive Vice President, Chief Financial Officer and Treasur

Caitlin, Scott here. We have place -- we do have a placeholder earmarked for future phases. And I think our initial commentary starting last fall was $250 million to $300 million over several years. I don't think that thinking has necessarily changed. In terms of the projects that are in front of us between the 2 categories, both adaptive reuse as well as mixed-use densification, that totals roughly, what do we have, $180 million to $205 million, and the balance really is future phases, which are probably going to be centered on some of the mixed-use projects like Los Cerritos and Washington Square. So again, market-driven. We would anticipate that potentially we'll be spending some more money to densify those assets. Bear in mind also that we may be considering joint ventures with mixed-use experts. So it's really hard to pinpoint with clarity exactly how that's going to unfold. But $250 million to $300 million still seems right over several years in the context of what I just mentioned.

Caitlin Burrows -- Goldman Sachs -- Analyst

Got it.

Operator

With Green Street Advisors, we'll hear from Vince Tibone.

Vince Tibone -- Green Street Advisors -- Analyst

Hey good morning. Could you guys help me understand the components of same-property NOI growth in the second quarter? I mean occupancy was down only modestly, base rent was up about 4%, spreads were good. Just trying to get a sense of why same property was only up 90 bps. Can you help me bridge the gap there?

Scott Kingsmore -- Executive Vice President, Chief Financial Officer and Treasur

Yes. I think the biggest impact is the closures, Vince. We've heavy impact on the closures from bankruptcies, again, 400,000 square feet, the lion's share of which was already closed by the end of the first quarter is really what's weighting us down from the same center standpoint. Just pointing back to the comments I made previously, bad debts are elevated. They were elevated by $1 million a quarter. That's a 50 basis point impact on each quarter. So that's part of it. And then you've got the lost rental income associated with those as well, which is dragging us down. So in aggregate, I mentioned it's a bracketed 175 to 200 basis point weight on the year. And I think that's what we saw in the second quarter as well.

Vince Tibone -- Green Street Advisors -- Analyst

But shouldn't that flow through to occupancy? Or is it kind of -- is it the temp tenancy that's up or maybe rent relief packages weighing down or you're just still having trouble understanding? Because everything should flow through occupancy eventually, correct? And that was only on 20 basis points?

Thomas E. O'Hern -- Chief Executive Officer and Director

Yes. But, Vince, you're correct, temporary occupancy is part of it. Temporary occupancy is up almost 0.5% over a year ago. And typically, on a temporary lease, we're going to get -- if we're fortunate, half the rent you would get on permanent lease. So that's why the big push to convert temporary to permanent. But that had a bearing on the quarter as well.

Vince Tibone -- Green Street Advisors -- Analyst

And then are you able to quantify rent relief impact in the quarter?

Thomas E. O'Hern -- Chief Executive Officer and Director

I don't think there was a significant amount of rent relief in the quarter. I mean most of the bankruptcies filings were closures than were restructurings.

Operator

Thank you. Our next question is from Michael Mueller with JPMorgan.

Michael Mueller -- JPMorgan -- Analyst

Hi. Can you give us a sense as to how much lower debt-to-EBITDA could go because of the JV sales? Could we be looking into something, say, a point or more?

Thomas E. O'Hern -- Chief Executive Officer and Director

Mike, I think the range of equity we're talking about was in the range of $500 million to $600 million. And that would move it down probably 75 basis points to 100, depending on the amount of leverage on the individual asset as well as the amount of equity we generate.

Michael Mueller -- JPMorgan -- Analyst

Got it.

Operator

Thank you.From BMO Capital Markets, we'll hear from Jeremy Metz.

Jeremy Metz -- BMO Capital Markets -- Analyst

Hey John,Tom, as you kind of think about the capital needs here and leverage, obviously, you talked about the joint venture, but where does monetizing even more the potential mixed-use optionality that you have in the portfolio fall into that playbook? You obviously have some great unused dirt. You mentioned signing a couple of hotel deals. So is that a lever you're looking at and considering hitting even more?

Thomas E. O'Hern -- Chief Executive Officer and Director

We always consider it from our standpoint. On the hotel deals, it makes more sense for us to do ground lease deals. But we could also sell the land potentially. But those are all things we would consider, Jeremy.

Jeremy Metz -- BMO Capital Markets -- Analyst

All right. Doug, you mentioned a 2% bankruptcy impact and a minimal impact that, ultimately, had to occupancy. How much is actually getting that bankrupt space back in release versus other vacancy leasing up, for example, Queens going from 92% in the first quarter to 99%. That's just more leasing up space there versus replacing bankruptcies?

Doug Healey -- Executive Vice President

Yes. Just to put it in perspective, year-to-date, we've had 13 bankruptcies totaling about 512,000 square feet. 82% of that or about 415,000 square feet was rejected and closed. And as of today, we're about 54%, 55% committed in terms of leased.

Operator

And with Morgan Stanley, we'll hear from Richard Hill.

Richard Hill -- Morgan Stanley -- Analyst

Good afternoon guys. Want to just quickly talk about the management fees. It looks like you've done -- you continue to do a pretty good job of bringing those down. How do you think we should think about those going forward? Is this sort of the steady state? Or do you think there's more room to optimize that?

Thomas E. O'Hern -- Chief Executive Officer and Director

Rich, we've gone through some significant cuts, both in terms of G&A as well as management company expenses. I think second quarter is probably a pretty good run rate for the year. And that would be true not just management expenses, but also G&A. I think second quarter is a good run rate.

Richard Hill -- Morgan Stanley -- Analyst

Got it. And then if I'm looking at other rental income for both consolidated and JV assets, it looks like that was down. Is there anything specific that drove the other rental income down? I guess it's actually other rental income just for the consolidated assets. But is there anything that drove that? And is that sort of declines something we should think about? Or is it more one-off?

Doug Healey -- Executive Vice President

Are you referring to leasing revenue, Rich? Or are you referring to other income? I'm not clear...

Richard Hill -- Morgan Stanley -- Analyst

No, I'm referring to other rental income. I'm sorry, I misspoke when I was referring to JV and consolidated. So just focusing on other rental income in the consolidated properties.

Scott Kingsmore -- Executive Vice President, Chief Financial Officer and Treasur

Yes. I kind of look at it overall, and it's fairly consistent when you look at the whole portfolio at share. And in fact, I think if you look at the whole portfolio at share, it's probably taken up just a touch our business development. We do have a disclosure that shows business development income and that's up by about $1 million as a function of advertising and then being in parking revenue and a lot of sundry sources. So on an overall basis -- not just consolidated, but on an overall basis, we see that actually elevated slightly. So -- and I think that's just a function of our continued focus on driving ancillary revenue.

Richard Hill -- Morgan Stanley -- Analyst

Got it. Thank you. That would be true.

Operator

And this concludes today's question-and-answer session. Tom O'Hern, at this time, I'd like to turn the conference back to you for any additional or closing remarks.

Thomas E. O'Hern -- Chief Executive Officer and Director

Thank you, Amy. Thanks, everyone, for joining us today. We look forward to seeing and speaking with many of you over the coming months and hope everybody has a great summer. Thank you.

Operator

[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

Jean Wood -- Investor Relations

Thomas E. O'Hern -- Chief Executive Officer and Director

Scott Kingsmore -- Executive Vice President, Chief Financial Officer and Treasur

Doug Healey -- Executive Vice President

Jim Sullivan -- BTIG. -- Analyst

Samir Khanal -- Evercore ISI -- Analyst

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Linda Tsai -- Barclays -- Analyst

Craig Schmidt -- Bank of America -- Analyst

Alexander Goldfarb -- Sandler O'Neill -- Analyst

Christine McElroy. -- Citi -- Analyst

Shivani Sood -- Deutsche Bank -- Analyst

Nick Yulico -- Deutsche Bank -- Analyst

Caitlin Burrows -- Goldman Sachs -- Analyst

Vince Tibone -- Green Street Advisors -- Analyst

Michael Mueller -- JPMorgan -- Analyst

Jeremy Metz -- BMO Capital Markets -- Analyst

Richard Hill -- Morgan Stanley -- Analyst

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