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Washington Prime Group Inc (NYSE:WPG)
Q3 2019 Earnings Call
Oct 24, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2019 Washington Prime Group Earnings Conference Call. [Operator Instructions] After the speakers presentation, there will be a question-and-answer session. [Operator Instructions]

And now I'd like to introduce your host for today's program, Lisa Indest, Executive Vice President and Chief Accounting Officer. Please go ahead.

Lisa A. Indest -- Executive Vice President and Chief Accounting Officer

Good morning, and welcome to WPG's Third 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-GAAP 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, SVP of Development.

Now I'll turn the call over to Lou.

Louis Conforti -- Chief Executive Officer

Thanks, Lisa and hey everybody, good afternoon. A couple of bullet points and then I'll hop right in. We are reaffirming both 2019 FFO as adjusted and divi guidance of $1.20 and $1.00 per diluted share respectively. We maintain our 2020 comp NOI growth forecast of at least 2% for combined Tier One and Open Air. And kudos to Josh and Dan and everybody else, we leased 3.2 million square feet year to date. All right.

The Merriam Webster Dictionary defines alternative music as produced by performers who are outside the musical mainstream, typically regarded as more eclectic or original than popular music. There exists a distinct analogy between this musical genre and us. In fact, we strived to transform our assets from their previous 1979 aesthetic via creativity and originality. Instead of walking around Numb akin to a Zombie, my colleagues have laced up their Pumped Up Kicks, decided to Tighten Up and deal with the challenges facing our sector. It hasn't been easy and we have the Scar Tissue to prove it. All right now everybody phone-in immediately with the names of the artists.

Starting with a department store update. We have now resolved 17 of the 23 which equates to a 74% of the vacancies within the Company's portfolio. Let me repeat that 17 divided by 23 is 74%, and we expect to announce several others within short order. While pundits were expecting a more Bitter than Sweet Symphony, we were able to provide solutions ahead of schedule and attract a wide array of tenants which markedly diversify current rosters.

I'll let you decide what's better for our assets. FieldhouseUSA, HomeGoods, PetSmart, Round1, ALDI, The RoomPlace, T.J. Maxx, just to name a few or a lackluster Sears or Bon-Ton. Unless you're the Mayor of Simpletown, its a pretty easy decision. Combine those names with some local and regional flavor, some common area activations and you got a party.

Let's now turn to leasing, which As You Oughta Know is our most important and Epic task. Our leasing professionals continue to perform with the fortitude of a Seven Nation Army. And as a result exhibited a robust 13% year-over-year increase totaling 3.2 million square feet and the number of lease transactions for the same period increased 9%. Of the aforementioned 3.2 million, 56% of new leasing volume is attributable to lifestyle tenancy, food, beverage, entertainment, home furnishings, fitness and professional services. I can't resist. Our guests have plenty of reasons to come out and play as well as eat, drink and buy a loveseat or two.

In addition, the Company continues to incent its leasing -- our leasing and property management professionals, which I just believe is very important because it focuses will provide specific focus upon whether it'd be an asset or a product type category that we want and we've done a 143 leases that qualify under various incentive programs during the first nine months of 2019.

Listen, we'll always love our tenants with stores that Smell like Teen Spirit and we certainly don't want to start a Teenage Riot, but isn't it about time we catered to a more diverse demographic constituency. Mark and I like to rock the latest crop top as much as anybody's teenage Daughter. However, when we're meeting with an institutional investor, and exposed midriff is just plain disrespectful. All of this talk about baring one's midsection makes me think about Forever 21. Currently have six locations within our portfolio. And as of now, it looks like we're going to lose two, maybe three, of which one was slated to be relocated anyway, as a result of a major mixed use redevelopment.

And turning to Motherhood Maternity, I just thought I'd mention that they only account for 20 basis points -- again 20 basis points of annualized rent. And Josh was quick to inform me that 50% of this exposure is situated within Polaris, Town Center and Scottsdale Quarter.

It's continue with a few other operating metrics. Tier One sales per square foot increased 4.6% to $413 during the trailing 12 months, occupancy cost which you guys know is the litmus test of tenant profitability, and which we rank among the best within our sector. Decreased 90 basis points, so a 11.2%. Leasing spreads for new Tier One and Open Air transactions increased 160 basis points during the same trailing 12 months. And while combined Tier One and Open Air occupancy decreased 110 basis points to 92.9%, every single square foot of it was attributable to the bankruptcies of Charlotte Russe, Gymboree, and Payless.

I'd be uncomfortable as a Blister in the Sun, save for the fact we're filling the space with, plain and simple, better tenants with more interesting goods and services. In fact, we estimate Tier One occupancy will improve sequentially by 150 to 200 basis points by year end.

Let's discuss comp NOI. Tier One decreased 8.8% and Open Air increased 2.6%, which resulted in a combined decrease of 550 basis points equating to $6.4 million. Before you reach for your lithium, it's important to deconstruct this data point in order to better understand its various components. Take it from The Strokes, one of my all-time favorite bands, it's not Hard to Explain. The entire decrease can best be described as follows. $4.3 million negative impact as a result of cotenancy and -- rental income loss from 2018 anchor bankruptcies. Bon-Ton , Sears and Toys. And with the remaining $2.1 million attributable to 2019, again Charlotte Russe, Gymboree and Payless.

So, backing out the aforementioned cotenancy and rental income impact would have resulted in flat comp NOI. Think about it. If we didn't have visibility as it relates to resolving cotenancy and rental income, we sure as heck wouldn't be forecasting positive 2020 comp NOI growth of at least 20 -- of atleast 2%. And to that point, as well as an increase in occupancy by year-end. The bottom line is we're working our assess off to lease both inline and department store space, and have satisfied the vast majority of this detrimental impact. I can repeat this for a couple of the pundits out there, but read the transcript.

In other words, our leasing volume proves Michael Stipes is sadly mistaken if he believes It's the End of the World. Just remember, You Get What You Give and my colleagues and there is my shot at you guys. You guys have given if your all.

I'm going to end my commentary with an interesting scenario analysis, which provides yet another illustration of the silliness of our current share price. Remember last quarter when we provided a financial analysis which in effect solved for the applicable cap rate of Tier One assets by setting all other factors constant, given this current share price. There was -- the result was that the then current price, Tier 1 assets traded at 29% cap rate.

All right, this time, we're going to take a look at retail and mixed use redevelopment potential and its incremental impact upon NAV. Mark will provide more detail, but I'm going to provide a framework or a summary, as illustrated below. Actually, I was told by legal, I couldn't illustrate it below, so, I just got to talk about it. Three representative assets, sorry Rob Demchak -- three representative assets were selected, WestShore, Westminster and Clay Terrace, all of which are scheduled to undergo redevelopment in short order.

Drawing from the financial analysis of the previous quarter, current valuation was ascribed to each asset by applying actual NOI and an implied cap rate of 25% that was roughly $4.5 whatever current share price is, but 25% cap rate actual NOI.

Note these redevelopment projects include retail, office, residential and lodging. And in every instance, the obligation is to deliver fully entitled land parcels to developers of the products other than retail with the responsibility of us. Capital spend for the delivery of this fully entitled land parcels was included as a deduct; and a fair market valuation what are these things worth afterwards was calculated just via third party research. And we tend to be very erode and methodical in our quantitative analytics. And so nothing cute. All right. These three assets super duper conservative assumption set, resulted in $2 or more of value creation per share just these three assets.

Now extrapolate with varying degrees and apply this methodology to Pearlridge, Southern Park, Grand Central, Polaris, Southgate, Johnson City and the list goes on and on and on. And we see we're ongoing. I'd love for any of the analytical community out there to really think about this. And one other thing, and I'm probably going off script, which I'm -- I get down. I tend to do anyway. How many acres do we have guys at Westminster for instance that we own?

Mark E. Yale -- Executive Vice President and Chief Financial Officer

Just under 50 acres.

Louis Conforti -- Chief Executive Officer

Under 50 acres. Okay. Orange County, literally it can waive to the traffic on the 405, probably one of the great development site in America. What do you think unentitled or even entitled land is?

Mark E. Yale -- Executive Vice President and Chief Financial Officer

$3 million, $3.5 million.

Louis Conforti -- Chief Executive Officer

Okay. So $3 million, $3.5 million per acre, due to math, OK. In closing, I'd like to thank all of my colleagues, again, you guys just blown me away, and I love all you guys and just you're working your behinds off. And you've all become my heroes. Your collective efforts make me feel like I'm Mr. Bright side.

I'll now turn it over to Mark, who will discuss financial results and activities for the quarter. Thanks all.

Mark E. Yale -- Executive Vice President and Chief Financial Officer

Thanks, Lou, and good morning to everyone. With the September closing of the $117 million of refinancing of our four Open Air properties generating net proceeds of nearly $70 million. We finished the quarter with enhanced available liquidity of approximately $490 million, when including cash on hand and capacity on our credit facility.

When considering the $42 million of net proceeds received earlier this month from the previously discussed ground lease transaction along with $50 million of expected proceeds from the remaining Four Corners outparcel sales. We continue to feel comfortable with our current available liquidity. Accordingly, we have now addressed the upcoming April 2020 maturity of our $250 million bonds, which by the way is our only unsecured debt maturity through the end of 2022 when our credit facility and related term loans mature. And secondly remain in a strong position to continue to fully commit to our redevelopment pipeline. In terms of upcoming secured debt maturities we did transition back to the servicer on July 1. Our Towne West Square Mall, along with the $45 million of related mortgage debt.

We also expect by the end of the year to transition back our West Ridge Mall and Plaza properties together with $50 million of secured mortgage debt there. Each of these encumbered non-core assets have or do have single-digit debt yields, thereby providing us with a very efficient way to delever. Beyond these mortgages we only have a $105 million of secured debt maturities through the end of 2020, comprising of loan secured by three of our Tier 1 properties. We're currently expecting to recombination of traditional refinancing and loan extensions. To be able to address these maturities with minimal required pay downs. We would expect to have further details on all of this by year-end.

Finally, in terms of our proactive liability management, we were able to retire during the third quarter approximately $30 million of our 2024 Notes, at roughly 6% discount to par. As we continue to raise important capital today, while reducing future maturity risk and extending out the debt maturity profile of the company. Further, these efforts demonstrate that we are continuously exploring opportunities to enhance our balance sheet and liquidity position.

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, six are currently occupied by open and operating Sears stores, when excluding announced fourth-quarter closings. So when considering the 17 locations address, be a signed leases or negotiated LOIs, this represents nearly 75% of these vacant boxes. Once again, this demonstrates the strong demand for space within our portfolio, while allowing us to continue to diversify the experience for our guests.

We also remain confident in our originally projected estimate of around $350 million of additional capital spend over the next three to five years, necessary to transition all 29 locations. Remember the full pipeline excludes the 13 boxes owned by non-retailers including Seritage.

Now let me turn to our quarterly financial results. When adjusting for the gain on extinguishment of debt, FFO for the third quarter was $0.28 per diluted share, landing at the upper end of our guidance range going into the period, primarily driven by larger than expected outparcel gains and lower corporate overhead expense.

In terms of comp NOI, it was generally in line with forecast and expectedly challenged primarily by last year's anchor bankruptcies and this year's in line tenant liquidations. In fact, when neutralizing for the impact from Sears, Bon-Ton and Toys R Us, and the first quarter in line bankruptcies, we would have seen essentially flat comp NOI performance for the quarter from our Tier One and Open Air portfolio versus the negative 5.5% that we reported. We did experience improvement in comp NOI performance from the second quarter which we knew would be the low point for the year.

Now, I'm looking at the fourth quarter, we're expecting to see even further improvement with performance forecasted to be essentially flat to modestly positive. Remember, the fourth quarter of last year was already burdened by a full period of lost anchor rents and over $1 million of cotenancy reserves. In terms of our outlook we did reaffirm our 2019 adjusted FFO guidance within the range of $1.16 to $1.24 per diluted share. Additionally, as Lou mentioned, we did reaffirm our dividend guidance through remainder of this year. While operating results have been pressured over the last several years, we do continue to see a tangible roadmap for meaningful growth next year, especially when factoring in the state of progress being made on the department store repositioning front.

As we look to 2020 and beyond, we remain confident in our ability to not only replace the lost rent and address related cotenancy from these closings, but actually make our properties better by bringing to the table the uses that our guests are looking for. While we are in the process of pulling together our detailed 2020 property budgets, we're still tracking to the over $10 million of estimated additional NOI next year from our redevelopment of vacant department store space along with other major leasing activity, that we discussed during the second quarter earnings call.

Accordingly, and when also assuming some stabilization in tenant bankruptcies and minimal further department store disruption, we continue to anticipate generating meaningful comp NOI growth in 2020 of at least 2% from our combined Tier One and Open Air portfolios.

So with that I will now open the call for any questions. Thank you.

Questions and Answers:

Operator

[Operator Instruction] Our first question comes from the line of Ki Bin Kim from SunTrust. Your question please.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Thanks. So if I look at your implied guidance for the fourth quarter, it seems like you're basically estimating flat same-store NOI growth at the low end of guidance. In the 3Q, same-store NOI was down 5.5% about $6.4 million. So I was wondering if you can provide a bridge to get us in the minus $6.4 million to something closer to flat by 4Q?

Mark E. Yale -- Executive Vice President and Chief Financial Officer

Well, Ki Bin, it's Mark. Good question. Try to touch upon that in the prepared remarks. It's really a combination of the fact that we did start recognizing co-tenancy in the fourth quarter of last year, so we won't necessarily see that same type of negative headwinds that we saw in the first three quarters. And probably the bigger piece is just the fact that we had anchor rents that finally burned-off in the fourth quarter of last year. So all the Toys R Us, all the Bon-Ton's most of the Sears were closed. So just in that self really allows us to bridge a significant portion of that gap. Then you layer in the fact that we do have some of these redevelopments coming online, Lincolnwood, for example, we have some activity at Dayton, Fairfield Commons. So we should start seeing a lift from the redevelopment and the repositioning of the department stores.

Louis Conforti -- Chief Executive Officer

Then increased stock as well as increased in-line occupancy which obviously means -- their additional. So, in summary, I'm going to do this for everybody. And in summary guys -- it's the combination of redevelopment coming online. Let's just call it diminishing co-tenancy impact and increase in-line occupancy.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Okay. And to get to the 2% things on NOI growth rates in 2020, I know comps getting easier, but any way you can kind of break it down in little more detail to give them more support to investors on the different levers, that it takes you -- for you guys to get to 2% growth. And I think also I think you mentioned in opening remarks that you're assuming a stable bankruptcy environment or minimal bankruptcies and I'm just wondering if that's a realistic assumption at this point?

Louis Conforti -- Chief Executive Officer

Well, I mean, stable, I don't know -- if we've said the word stable, I would say from a historical precedent standpoint we're not overly optimistic nor are we overly draconian in what we say, and what we are anticipating. And lease market all -- could speak to our credit, our tenant watchlist which is we've mentioned -- as we've mentioned in the last couple of quarters continues to improve or less demand. We're not delusional in anyway shape or form. And we've delivered what we said -- we have delivered. And there is no -- I think yet issues the terms, there is no forecast to assumptions and what we're doing. We picked up 150 to 200 basis points of occupancy by year-end, they manifest sales into the -- incremental rental income, burn off of co-tenancy, is just being incrementalist in our approach.

Mark E. Yale -- Executive Vice President and Chief Financial Officer

Yeah. And just to put a little bit more behind that, I mean we've talked about the $10 million of incremental NOI from developments coming online, major leasing activity that obviously gives us a very good starting point. When you look at that comparative -- our base. And then what you really need to see is stability around outside of that, and we have our Open Air portfolio which is trending positive, we think we'll see growth from that part of the portfolio. We understand the challenges in the Tier 1, but we certainly think we're going to see better performance. And I just want to put in perspective, when we talk about the bankruptcies and when we experienced well over a $6 million negative impact in 2019 from the in-line bankruptcies, the Charlotte Russe, the Payless, the Gymboree, the things we remember. We just don't have those types of exposures within our tenant watchlist today. So I think that's where Lou is referring to. We still are assuming that we will be back...

Louis Conforti -- Chief Executive Officer

Of course, we have the contingencies. So we've taken the contingencies. I thought your opening salvo would be congratulations, Dan Scott and Josh Lindimore for leasing 3.2 million square feet and fulfilling 17 or resolving 17 out of the 23 department store vacancies, maybe there was -- maybe that was my dilution of alternative universe, I was in, just now, I'm sorry. I love you Ki Bin...

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

I'll put in the note though.

Louis Conforti -- Chief Executive Officer

Okay.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Okay. And from the bad debt perspective, what's your kind of current thinking as it look into next year? And if you can remind us, like what was the general reserve that you started off with beginning this year?

Mark E. Yale -- Executive Vice President and Chief Financial Officer

Yeah, I mean we are assuming probably in the neighborhood of that 1% of our total rental income, so trending back more to historical, more probably put a little bit of a cushion on top of that, based upon what we're looking at as we go into 2020.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Okay, thanks guys.

Louis Conforti -- Chief Executive Officer

Thanks, buddy.

Operator

Thank you. Our next question comes from the line of Caitlin Burrows from Goldman Sachs. Your question please.

Caitlin Burrows -- Goldman Sachs -- Analyst

Hi, good morning guys. Maybe just continuing with the 2019 guidance, I guess just thinking about the fact that it was revised lower this quarter from last quarter, just wondering like what's different about your view now on the second half of '19 versus before? I know you mentioned the Sears, Toys and Bon-Ton impacts, but it doesn't seem like any of that's new. And then just kind of how does an unchanged view on 2020 growth granted off a lower base kind of match up with a lower second half '19?

Louis Conforti -- Chief Executive Officer

Sure. Mark is champing at the better, I just going to say so. Caitlin, it was -- at the margin, I think 25 to 50 basis point delta. But no, you're right, since we trade with the acuity of -- I don't know what are we trading at a 17, 18 multiple -- oh, no, I'm sorry we don't. So as we transform in industry, but, no, that's a good question, Mark, go on.

Mark E. Yale -- Executive Vice President and Chief Financial Officer

Yeah, I mean just put in perspective, we're talking about not even a $2 million change in terms of our views. And specifically what changed full liquidation of Charming Charlie is I think at the point that we provided guidance we thought they would emerge. I think we also got hit and even though we don't believe it's going to carry over and be a significant issue. We lost a month's worth of rents for Forever 21, we reserve against that. So that was a burden and we -- had a couple of our redevelopments delayed, they're going to happen. And actually, that helps as it relates to growth in 2020. So that's where we're, -- try to be as transparent as possible, we always will be. We updated our view based upon those [Technical Issue].

Caitlin Burrows -- Goldman Sachs -- Analyst

Okay. And then I think you mentioned in the prepared remarks, expecting something like flat same-store growth in 4Q. It seems like that would get you closer to the low end of the '19 guidance. So, I guess I'm just wondering, is the midpoint or high-end is down three possible...

Louis Conforti -- Chief Executive Officer

It's the same question, Caitlin, that the same question. You're right. We shouldn't be as blunt hedged in our approach. Next what's and...

Caitlin Burrows -- Goldman Sachs -- Analyst

Okay. Moving on...

Louis Conforti -- Chief Executive Officer

Thank you.

Caitlin Burrows -- Goldman Sachs -- Analyst

Okay. So I guess in terms of the 2019 dividend, I think you've made it clear for a little while now that wasn't going to be changed, especially due to the lender transitions. So as we think about 2020, can you give us some of your latest thoughts on what the 2020 dividend policy will be based on and when those decisions will be made?

Louis Conforti -- Chief Executive Officer

We as -- most other companies don't speak to dividend policy. Our 2019 dividend policy remains in effect and subject to the Board and management. Speaking our dividend policy remains unchanged.

Caitlin Burrows -- Goldman Sachs -- Analyst

Okay. I guess, anything else you can say in terms of whether it's based on my cash flow expectations or generating liquidity taxable income expectations...

Louis Conforti -- Chief Executive Officer

No -- it's combinatorial. There is -- we think about it is, what's the obvious return on versus return of. Obviously cash flow is the primary when you coefficient weight -- surplus -- cash flow, it's a combination of lots of different things. I mean over the last two years, people spoke to us -- suspend their cutting a dividend and our dividend policy remains unchanged. Thanks.

Caitlin Burrows -- Goldman Sachs -- Analyst

Okay. And I guess going forward, if it were to remain unchanged or we'll see what happens. But I guess, does that mean that leverage kind of has to go up and if so, what is that...?

Louis Conforti -- Chief Executive Officer

Now they means that, you know, it's again it's a combination -- it's combination [Indecipherable] or haven't forbid, rental or FFO goes up. There is two sides to this. I've been of the opinion and I service, I'm of the opinion if there was a moderate cut our share price goes up, that's not how we operate. We work in conjunction with our Board and we -- I guess to your point, it's a combination of lots of different factors. What we could and what we should and everything in between. So we've acted and with the best fiduciary thus far, and you can -- we will continue to do as such.

Caitlin Burrows -- Goldman Sachs -- Analyst

Okay. And then when we think about the covenant, that's the total indebtedness to total assets, it's come up over the past year and we're getting closer just I guess algebraically to the limit. So I guess what gives you guys confidence that going forward? You'll not violate that covenant requirement?

Mark E. Yale -- Executive Vice President and Chief Financial Officer

Yeah, Caitlin we're projecting basically to see the leverage stay where you're seeing at the end of the third quarter. We're comfortable with the cushion that provides. And obviously, if we're talking about growth in 2020 you're going to see an improvement in the covenant. So it's been a tough couple of years we and -- but we truly believe that the trajectory of the cash flows are EBITDA and our leverage will start moving in the right direction.

Louis Conforti -- Chief Executive Officer

And during that last those tough years, we have materially improved our assets and we continue to do as such. We've improved the tenancy profile. We have exhibited minimal variance in the grand scheme with respect to operating and financial metrics. And we -- our focus upon being the dominant Town Center in our secondary or whatever -- our trade areas is becoming increasingly apparent, that we are the folks to do it. And by the way, I thought you said, I'm sorry, I thought you said that, congratulations on an incremental increases in sales per square foot and occupancy costs, which means that tenant can be profitable at 11.2%, I must have missed that. All right, another question?

Caitlin Burrows -- Goldman Sachs -- Analyst

Sure. We got more. I guess in terms of the taxable income topic on the West Ridge transition, I'm just wondering is there any likelihood the debt gets delayed to 2020? And if so, how would that impact 2020 taxable income?

Mark E. Yale -- Executive Vice President and Chief Financial Officer

Caitlin, our assumption right now based on what we know is it's going to be transition back here in the fourth quarter.

Caitlin Burrows -- Goldman Sachs -- Analyst

Okay. And then during the quarter, you guys had like $30 million impairment, was that related to lender transitions or something else?

Mark E. Yale -- Executive Vice President and Chief Financial Officer

No, it was not. It's just going through accounting on assets and looking at where the book value is non-cash charge. And you'll see that from time to time.

Louis Conforti -- Chief Executive Officer

Tier 2.

Mark E. Yale -- Executive Vice President and Chief Financial Officer

Tier 2 asset.

Louis Conforti -- Chief Executive Officer

Tier 2 we've been unencumbered, accretive of cash but we made it perfectly clear. And what we're doing with Tier 2 which was 28%, three years 27%, 28%, 29% three years ago, whether we are at 7%, 8% -- 7% now. So it doesn't mean that that's not, there is not a marginal return on those assets, but we'll, we don't puts around when there is -- we segregated those assets. We've reduced those assets that constitute Tier 2, and some are playing out according to schedule by as evidenced by an impairment. And quite frankly, some are going the opposite way, where all of a sudden, Josh and Dan and everyone else are leasing space in these. So there is always a reevaluate [Phonetic], if there is, this is a kinetic process. So impairment on a Tier 2 asset is non-cash.

Caitlin Burrows -- Goldman Sachs -- Analyst

Got it. And just in terms of recognizing that now, does that suggest that you're going through some process of potentially selling whatever property or properties that was or not necessarily?

Lisa A. Indest -- Executive Vice President and Chief Accounting Officer

No, not necessarily. There was no change in our decision on the asset, it was really just the technical accounting change and we go through that evaluation by asset every quarter, Caitlin.

Caitlin Burrows -- Goldman Sachs -- Analyst

Got it. Okay. I'll get back in the queue, in case somebody else wants to go.

Louis Conforti -- Chief Executive Officer

Sounds good.

Operator

[Operator Instructions] Our next question comes from the line of Vince Tibone from Green Street Advisors. Your question please.

Vince Tibone -- Green Street Advisors -- Analyst

Hey, good morning.

Louis Conforti -- Chief Executive Officer

Hey.

Vince Tibone -- Green Street Advisors -- Analyst

What was the rationale for the seller financing on the ground lease transaction? I'm curious if that was always part of the original plan or did the buyers financing potentially fall through since that deal was announced?

Louis Conforti -- Chief Executive Officer

That's very prescient. The buyer is a fund, and quite frankly, they didn't raise the entire amount of delve in time. And I should have better explained that there was going to be -- so the onus of burden rest up on my shoulders, there should have been a range. But as opposed to put in way going back and forth with respect to waiting to close, who're saying, take the money and run. We took the money and run. And quite frankly, and it's funny because -- and I think you get it, you get it. The lack of understanding of this relatively simple transaction befuddles me. And I think what -- I think you get it just by virtue of your question, plain and simple. We gave them the opportunity to come up with the other $45 million. And by the way, we make a few shekels along the way, the interest income of 4%. And as it relates to the instrument itself, the initial interest rate and how we get 7% plus 4%, to me locking in 30-year money, with, in effect, a call option, let me think about this way put -- a call, if they can't refinance is really, really smart. That's way too much hubris, so I'll only do one really, really smart.

Vince Tibone -- Green Street Advisors -- Analyst

But I'm just curious like doesn't the seller financing though make the effectively to your point, this 30-year bond at a while our 30-year commitment, more expensive?

Louis Conforti -- Chief Executive Officer

No. [Speech Overlap] So less and less do a draconian scenario, which will be the best scenario. They can't refinance. We get the property, the fees -- we get the land back and guess what, we get to keep the $45 million -- $45 million or $50 million?

Mark E. Yale -- Executive Vice President and Chief Financial Officer

$45 million.

Louis Conforti -- Chief Executive Officer

$45 million.

Vince Tibone -- Green Street Advisors -- Analyst

No, I'm just adjust the seller financing piece, where that basically makes the interest rate...

Louis Conforti -- Chief Executive Officer

And we're getting paid -- we're getting paid during that interim, while they...

Vince Tibone -- Green Street Advisors -- Analyst

Probably net -- on a net basis, can you go from paying -- you went from paying exactly a 7.5% rate on $100 million to paying a 12% rate on $42 million, or sorry, on the net. Base, I mean the effective interest rate netting out what you're getting paid and what you're paying went up to 12% for the first five years. I mean, that's my only point, I was just curious how you thought about that?

Louis Conforti -- Chief Executive Officer

No, you are going in the wrong way, no I'm leaving. Good bye everyone. Mark, handle that.

Vince Tibone -- Green Street Advisors -- Analyst

I know you can take this offline.

Louis Conforti -- Chief Executive Officer

We love you. We should have done a better job explaining.

Mark E. Yale -- Executive Vice President and Chief Financial Officer

I mean bottom line is we're going to get 4% interest rate we were in use those proceeds to pay down our line -- our line is less than 4% at this point. So in the short term, we're actually a bit more accretive and we're going to get that loan paid off. I mean, and I think what people need to focus on these are smart investors who put $45 million on the table. They fully expect to take that bridge financing out.

Louis Conforti -- Chief Executive Officer

Yes, think of the risk, if they don't -- I mean, think of the risk, it's binary. Oops, they lose that $45 million.

Vince Tibone -- Green Street Advisors -- Analyst

Right. Now that makes sense.

Louis Conforti -- Chief Executive Officer

Thanks. No, I should have done a better job of explaining it, but they know. I think you got, it's -- can I say a two release? It's a really, really smart deal. Alright. What else we got?

Vince Tibone -- Green Street Advisors -- Analyst

No, I'm just curious, you think selling Tier One malls, could be a viable source of capital for either delevering or funding future redevelopment plan? I'd love to get your thoughts on the broader mall private market today, and where are you seeing malls being negotiated in the market. And how -- debt market or mortgage financing availability is today maybe versus six months ago?

Louis Conforti -- Chief Executive Officer

I'll start and whoever, unless and there is still very little evidencing of price discovery. But what is happening is -- of the three really is really, really, really smart institutional and private equity investors are beginning to call us, and saying, you guys have built a hell of an operating infrastructure.

Is there an aggregation thesis? And think we're hearing it. So I mean the reason I bring that up is because albeit, there is still very little price discovery. People are getting interest in what we're doing and our focus was to be the best in our business. And I mean, there is no hubris, we work our behinds off 24x7. But we've built an infrastructure that's quite frankly as formidable as more formidable than anybody in our -- I guess our sub-sector. So, really not a lot of sales data out there. But I don't want to disclose anymore, but there -- it's getting more interesting, which will have obviously a year to the benefit of our multiple -- because everybody, again it's binary. You're either e-commerce or physical retail, you're either primary versus secondary, you're either us versus somebody else. And there is just been no nuancing whatsoever. It's has been a blunt hedged instrument. Does that help?

Vince Tibone -- Green Street Advisors -- Analyst

No, let me just -- just to clarify, it doesn't sound like you're in the market now looking to sell any malls today. Is that a fair statement or you...

Louis Conforti -- Chief Executive Officer

The market is in all kinds and I made that -- probably fair whether it's corporate, whether it's asset specific. From a how many assets, was Mark smart enough to get rid of which were have proved out. Yeah. Thank goodness. And what -- now what we have is robust cum visit our assets people. So we got rid of '17, Mark? I don't know, 17. So we got rid of them, but those were drags. Now it's time and what we've done is evidenced by increasing sales per square foot. The activations that we're doing, the people are coming, people are coming via their leasing are fulfilling big boxes, that will and year to the benefit of us via multiple expansion, and that will -- as a result, we'll get -- if there is an asset sale out there. Trust me, some one offers a good price, will circle it.

Vince Tibone -- Green Street Advisors -- Analyst

Fair enough. One last one for me. I'm just wondering if you could quantify how much tenant sales growth was impacted by the fallout of underperforming tenants? Like, are you able to share tenant sales growth on a same tenant basis?

Louis Conforti -- Chief Executive Officer

Yeah, we don't have the exact number, but I would say that it's certainly as part of it. And maybe, certainly we had organic growth, we had comp growth.

Lisa A. Indest -- Executive Vice President and Chief Accounting Officer

Yeah, we did this [Indecipherable].

Louis Conforti -- Chief Executive Officer

So if you factor that in, maybe is 50-50 probably between just improving base, getting rid of the underperformers, but we absolutely had organic comp growth that drove that increase as well.

So, I'm actually, Vince, I'm actually asking the question along with you, so how much was organic?

Mark E. Yale -- Executive Vice President and Chief Financial Officer

Like-for-like.

Louis Conforti -- Chief Executive Officer

Like-for-like?

Mark E. Yale -- Executive Vice President and Chief Financial Officer

[Speech Overlap] versus addition by subtraction reducing the...

Louis Conforti -- Chief Executive Officer

So it was roughly 50-50?

Lisa A. Indest -- Executive Vice President and Chief Accounting Officer

Yeah.

Louis Conforti -- Chief Executive Officer

That's actually interesting. I didn't think about it like that. And that makes me feel even better. So if you think about it from a ratio standpoint 50% of our tenancy exhibited like-for-like. All right. Yeah, again which shows that, there has been a modulating or an adjusting prices going on and not everybody is going to heck in a hand-basket. And we've replaced those that have. I admittedly didn't think about it just kind of in aggregate like that. What else you got?

Vince Tibone -- Green Street Advisors -- Analyst

No, that's all I have. It's really, helpful color. Thank you.

Louis Conforti -- Chief Executive Officer

You're not going to say, [Indecipherable] three assets, you think there is two bucks of an EBIT. Well you know, you guys are right down the street, wait a minute, so...

Vince Tibone -- Green Street Advisors -- Analyst

I know, -- got Westminster, I mean, so, yeah, what's the plan there. I mean, that's the one where...

Louis Conforti -- Chief Executive Officer

We own 50 acres and what we own 50 acres and there is a -- $3.5 million to $5 million?

Mark E. Yale -- Executive Vice President and Chief Financial Officer

Yeah. It's higher when you get the entitlement.

Louis Conforti -- Chief Executive Officer

When you get the entitlement, so let's do this 50 times five, so some real value. What about Pearlridge, what about...

Vince Tibone -- Green Street Advisors -- Analyst

Just on Westminster really quick. Do you -- what are you arguing in the entitlement process, because that's the challenge in California, right? There -- is expensive, but isn't a powerful get anything done.

Louis Conforti -- Chief Executive Officer

Yes, it is.

Vince Tibone -- Green Street Advisors -- Analyst

So are you, is this something that could be break broken ground in three years or this still a longer-term horizon?

Louis Conforti -- Chief Executive Officer

It will be broken ground before three years my brother.

Vince Tibone -- Green Street Advisors -- Analyst

Okay.

Louis Conforti -- Chief Executive Officer

Yeah. And again we're not going to -- we're not going to do -- we're not going to be office, hotel, multi-for-sale. We are going to be selling that. Yeah, I mean we are in the process. Trust me it's always difficult anywhere, albeit when you have a very cooperative city which would love the incremental tax revenue and the incremental derivative GDP impact of what's something like Westminster would do, is going to be good stuff. But you can do this with 70 of our assets. And again, I think I mentioned in varying degrees so $2 for those three. Okay. And we just had folks down the road, kind of, I saw you telephonically not in your head, yes. All right. Anything else?

Vince Tibone -- Green Street Advisors -- Analyst

No, that's all I got. I appreciate the time.

Louis Conforti -- Chief Executive Officer

Alright brother. Thank you.

Operator

Thank you. And our next question is a follow-up from the line of Ki Bin Kim from SunTrust. Your question please.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Thanks. So I will say congratulations on...

Louis Conforti -- Chief Executive Officer

Thank you. Oh my god, thank you. All right. Announcer, can you call the meeting to an end, we're done.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Congratulations on being able to...

Louis Conforti -- Chief Executive Officer

Don't really do it announcer.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

On your ability to find some interesting liquidity sources. So I think about of next year. I know you've pay address a lot of the debt maturities. But should we expect any other liquidity events from WPG, whether it would being selling more outparcel sales? In addition to what you have announced or some other kind of secured lending or borrowing -- secured borrowing?

Mark E. Yale -- Executive Vice President and Chief Financial Officer

I think we are always looking for sources of capital, ways to enhance liquidity. But I think what we would be focused on is deleveraging, not necessarily looking at that trend, debt transactions per se. But we're always looking for ways to bring strategic capital into the company. And I think Lou, as you mentioned there is folks coming to us who believe in this space and believe in this company.

Louis Conforti -- Chief Executive Officer

Well, and they believe in this and I sound like in the -- you guys know me, the name of -- the type of folks that have been reaching out, it's a pretty impressive list. And from a creative CapitalSource, I mean there is always a fallacy in deal, that we can do.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Okay. And I guess more, couple more follow-ups here. Scottsdale Quarter, I feel like I've been looking at that project in your supplemental -- so back in the Glimcher days, is going to be finished this year, you still have about $10 million. You have left $10 million plus capital that you have left to spend to finish it. Just curious with one quarter left, was the reasons why that hasn't been spent. And I know it's mixed use or is retail and office then maybe residential. Any sense of Leasing Progress and those different elements?

Mark E. Yale -- Executive Vice President and Chief Financial Officer

Yeah, I'll let Josh talk about specifically what's on the table, but most of that money is probably earmarked toward final construction, completion as well as tenant allowance, which typically is back-loaded. But we're -- ready to come online and we expect that project to come off the supplemental and maybe, Josh, you can talk about where we are with the final phase.

Joshua Lindimore -- Head of Leasing

Yeah, I mean with the final phase, Ki Bin, we've got, I think it's -- I'm going to use rough numbers, it's about 40,000 plus, 42,000 square feet. Don't hold me tied to this, but I want to say we literally have maybe 4,000 feet left, 4,500. And obviously there are some people that tenants are -- tenants are -- if you right, they don't like making announcements. But I think here in the next quarter, quarter-and-a-half you'll be pleasantly surprised with the mix that we've...

Louis Conforti -- Chief Executive Officer

Come on, given him a little preview. [Speech Overlap] Starts with...

Joshua Lindimore -- Head of Leasing

Ki Bin just go visit Scottsdale like February, right that's when everybody wants to go anyway.

Mark E. Yale -- Executive Vice President and Chief Financial Officer

And then just remind you Ki Bin, I mean what's happening is, it's 40,000 square feet of first level retail entertainment space, that we own. We've condo, but then somebody is going vertical and adding, I think 300...

Louis Conforti -- Chief Executive Officer

350 units.

Mark E. Yale -- Executive Vice President and Chief Financial Officer

Yeah -- 350 your residential units to Scottsdale Quarter.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

And I know...

Joshua Lindimore -- Head of Leasing

We're not involved with that financially.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

And you still feel comfortable at the midpoint of the 7% to 8% yield?

Joshua Lindimore -- Head of Leasing

Yes.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Okay. And just last question, are you contemplating moving any assets unlike the Tier 1 bucket to Tier 2 or Tier 2 non-core next year?

Louis Conforti -- Chief Executive Officer

We have -- again, speaking I used the phrase road methodical, I'm not going to say we don't contemplate. But we have a quantitative process that's multivariate and it's really a good first check is a good question. That's a good question. And the question is, congrats or the comment was congrats on. We have a process at the end of the year which Lisa directs, and it's we have six variables and I wrote it way back when, and these guys, let's just say refined it and made it workable. But and then we talk about it and but it's primarily driven pursuant to the output of the model.

Lisa A. Indest -- Executive Vice President and Chief Accounting Officer

Correct. Yeah. And we will allow...

Louis Conforti -- Chief Executive Officer

And that's probably how you'd want us to be?

Lisa A. Indest -- Executive Vice President and Chief Accounting Officer

Do that in the fourth quarter, keep -- so we'll do that analysis and in conjunction with our year-end report, will tell you if we changed any classification.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Okay. And I ask that question is just to see if the same store NOI guidance could be impacted by those decisions?

Louis Conforti -- Chief Executive Officer

Yeah.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Okay. All right. That's it from me.

Louis Conforti -- Chief Executive Officer

Sorry. Yeah, no, I think Josh did a great job as it looks like we're only -- we're only in -- two or three for FY'20 [Phonetic]. Well, I'm sorry, you didn't ask that question, I apologize.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

All right. That's it for me.

Louis Conforti -- Chief Executive Officer

Okay. Thank you. Come on. Keep growing.

Operator

Thank you. Our next question is a follow-up from the line of Caitlin Burrows from Goldman Sachs. Your question please.

Caitlin Burrows -- Goldman Sachs -- Analyst

So maybe just one quick follow-up on the Scottsdale piece. So if we look at the expected spend of call it like roughly $65 million at the midpoint and say 7.5% yield. That would be like roughly $5 million of extra NOI. So I guess I'm just wondering of that roughly $5 million, are you recognizing most or none of it today, any details there?

Louis Conforti -- Chief Executive Officer

I think, big goose egg. Josh has given me the big goose egg, so nothing as of today, and I don't -- I'm not going to time whether it's $5 million. But you're right around there, and nothing has been recognized today.

Joshua Lindimore -- Head of Leasing

That's the full phase, it's not just the one block, I believe...

Lisa A. Indest -- Executive Vice President and Chief Accounting Officer

If it involved more blocks, the only one that's not online is the middle one.

Joshua Lindimore -- Head of Leasing

That said, the middle of block...

Louis Conforti -- Chief Executive Officer

So we, the 40 plus thousand square feet cam in, it's not online, it comes in, I think the first tenant. Again, don't hold me to it, but I think the first tenant comes online here in a month -- less than a month, November.

Caitlin Burrows -- Goldman Sachs -- Analyst

Right. So the, call it $60 million or so $65 million of spend, is that related to just that one block? Or is that for a larger piece and some of it actually is online?

Lisa A. Indest -- Executive Vice President and Chief Accounting Officer

I believe it relates to the entire, what we at one point called Phase 3. So there are three blocks. So it includes the residential mark we already have where we've conduit about 30,000 square feet of retail as well as Block M which had some office building and first level retail. So it incorporates all that, so when you factor that in, certainly a chunk of that is already online. So really what you're talking about is taking 40,000 square feet, and you can put a rent per square foot on, but there will be incremental income, but it's not to the tune of the $5 million that you talked about.

Louis Conforti -- Chief Executive Officer

Yeah. We can follow-up with you Caitlin, but it might be somewhere in the neighbourhood of half, that's not online at all yet. But I can look at the numbers and certainly get you that information.

Caitlin Burrows -- Goldman Sachs -- Analyst

Okay, got it. Then maybe when we think about the outparcel sales, that you guys are doing. Do those create a taxable income or not?

Louis Conforti -- Chief Executive Officer

They do. But you can relatively manage through that in terms of just kind of the bite size that's involved. But yes, I mean they do generate in most cases taxable income.

Caitlin Burrows -- Goldman Sachs -- Analyst

Okay and then just thinking about future liquidity sources as was touched on before. When you think about the amount of outparcel sales, do you guys have already announced how much deeper do you think your opportunity is there? And do you think that could continue beyond what we already know today.

Louis Conforti -- Chief Executive Officer

You're right, because we have those April 2020 bonds. Oh, I'm sorry, we've handled those already.

Caitlin Burrows -- Goldman Sachs -- Analyst

And my next question is on those.

Louis Conforti -- Chief Executive Officer

And then we have six, how much do we have in capacity right now on the lines?

Joshua Lindimore -- Head of Leasing

I mean we're looking at basically when you factor in, the ground lease proceed were in good shape and we will have roughly almost $550 million of liquidity at year end is what we're projecting.

Louis Conforti -- Chief Executive Officer

And so, I mean, is there more outparcel stuff? Maybe. Yeah, I guess, may or maybe, but it's just -- for us we regarded as an arbitrage. Your accelerated [Indecipherable] and obviously we know what our weighted average cost of capital is. And there is the delta is good and there is a buyer is somebody that has a credit tenant or a net leased REIT. It has just a different borrow cost and objective than we do. I mean, I still gather there might be more but and if we've been again pretty methodical and doing it, and you guys are the first to know.

Caitlin Burrows -- Goldman Sachs -- Analyst

Got it. Okay and then just in terms of the expected gains for 2019. I think you're guiding now to $21 million to $24 million but it seems like you've already essentially recognized all or most of that. So I guess I'm just wondering, wouldn't it be reasonable to assume that those gains continue into 4Q of this year?

Louis Conforti -- Chief Executive Officer

You do need to back out from what you see on the income statement about $4 million is the number that relates to actually selling depreciable real estate. So still got the proceeds, it's just not included in the FFO for the NAREIT definition, only undecipherable problem.

Caitlin Burrows -- Goldman Sachs -- Analyst

Okay. I guess that it seems like, it seems like over the course of this year that has continued to rise and it makes it seem like it would continue to -- do you agree with that? That line of the guidance?

Lisa A. Indest -- Executive Vice President and Chief Accounting Officer

I mean, basically we -- that's the range that we expect to have closed this year and we did updated from last quarter.

Caitlin Burrows -- Goldman Sachs -- Analyst

Yeah. Okay and then. Yes. Lou like you were talking about, I know you guys have generated the liquidity to address that April maturity next year, so that's great. It seems like these proceeds are getting used kind of along the way though for other users, since the line of credit is where it is. So I guess, I was just wondering as we go into 2020 and you actually do address that maturity, should we expect the line of credit to go up further when that's actually paid-off?

Louis Conforti -- Chief Executive Officer

I mean, we've built capacity -- credit facility and so our expectation is that, we will use the credit facility. But just remember from where we were at the end of the third quarter we do run the proceeds from the ground lease transaction. And we're expecting, within the next 9 to 12 months another $50 million of proceeds from the Four Corners outparcel sales.

Mark E. Yale -- Executive Vice President and Chief Financial Officer

As well as increased -- as well as increased FFO.

Caitlin Burrows -- Goldman Sachs -- Analyst

Okay. And then on...

Louis Conforti -- Chief Executive Officer

While we have transformed our assets, I beg you guys, the ubiquitous you guys, go look at what we've done and things out and other than the Scottsdale and the Austins. We are very vibrant and those that aren't, we have a -- we are addressing on a real-time basis. I mean, and -- I'm not just talking it. Look at the leasing -- look at the leasing. And if it doesn't perform to kind of that stair-step linear kind of -- here I say Wall Street definition of kind of step-by-step. We are changing tenants and diversifying tenants and our guests love it. And guess what, they're spending more dough. They're spending more dough. But you got to come and look, you got to come and look.

Caitlin Burrows -- Goldman Sachs -- Analyst

Okay. And then last one on the Forever 21, so you did mention that you're only expecting two or three closures there. And versus Forever 21 bankruptcy filing that is less. So I guess I'm just wondering what's that original list just irrelevant or the other is expected to have rent adjustments or what is your outlook for Forever 21, and how much is known versus unknown at this point?

Louis Conforti -- Chief Executive Officer

As it pertains -- as it pertains to them, I mean, look, they're going put out a list of what they want to do. They're going to go back negotiate with all of the landlords. I'll tell you, our portfolio in general from an occupancy standpoint is, I don't want to say probably, is the lowest, as it pertains to way more across the Board. [Speech Overlap]. Right. So we'll -- I'm sure we'll take a haircut on a couple of things, but we're -- I don't anticipate any major degradation.

Caitlin Burrows -- Goldman Sachs -- Analyst

Got it. Okay. I think that's all. Thanks.

Louis Conforti -- Chief Executive Officer

Thank you.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Lisa A. Indest -- Executive Vice President and Chief Accounting Officer

Louis Conforti -- Chief Executive Officer

Mark E. Yale -- Executive Vice President and Chief Financial Officer

Joshua Lindimore -- Head of Leasing

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Caitlin Burrows -- Goldman Sachs -- Analyst

Vince Tibone -- Green Street Advisors -- Analyst

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