Pennsylvania Real Estate Investment Trust (PEI) 2017 Q4 法說會逐字稿

Good morning, my name is Julie, and I will be your conference operator today. At this time, I would like to welcome everyone to the PREIT Q4 2017 Earnings Call. (Operator Instructions).

I would now like to turn the call over to Heather Crowell. Heather, you may begin.

Thank you. Good morning, and thank you all for joining us for PREIT's Fourth Quarter 2017 Earnings Call. During this call, we'll make certain forward-looking statements within the meaning of Federal Securities laws. These statements relate to expectations, beliefs, projections, trends and other matters that are not historical facts and are subject to risks and uncertainties that might affect future events or results. Descriptions of these risks are set forth in the company's SEC filings. Statements that PREIT makes today might be accurate only as of today, February 15, 2018, and PREIT makes no undertaking to update any such statements.

Also, certain non-GAAP measures will be discussed. PREIT has included reconciliations of such measures to the comparable GAAP measures in its earnings release and other documents filed with the SEC.

Members of management on the call today are Joe Coradino, PREIT's Chairman and CEO; and Bob McCadden, our CFO.

I'll now turn the call over to Joe Coradino.

Thanks, Heather, and good morning to all. In celebrating the Philadelphia Eagles' Super Bowl victory, Eagles center, Jason Kelsey, eloquently said, "Hungry dogs run faster". Hearing that, it occurred to us that this has always been PREIT's model. Hungry dogs run faster. We've demonstrated this in a number of ways over the past 5 years. We were the first to pursue and conclude a large-scale, low-productivity mall disposition program. We've been bringing in dining and entertainment to our properties for years. We were the first to aggressively take on replacing department stores. And we think now is a good time to point out that as far as we can tell, our Q4 same-store NOI results were ahead of the entire mall REIT sector. And we put out 2018 expectations in line with hope -- high productivity peers for our wholly owned portfolio. Our core operations are doing quite well.

So for PREIT, 2017 was a year of running faster, even as we faced headwinds. And we believe that the results we shared yesterday and our projections for 2018 and beyond prove that we've distinguished ourselves as a quality-mall REIT, having delivered on all elements of our strategy.

We delivered on our anchor replacement strategy, leading the industry in leasing 9 of 11 vacant stores, setting the stage for future growth and strengthening our foundation. We delivered on our capital plan, strengthening our balance sheet by raising over $450 million, reducing our borrowing costs and securing liquidity to fund our value-creating redevelopment program. We delivered strong same-store NOI in occupancy growth along with record new leasing activity in the face of a contracting retail environment. Mall occupancy grew 180 basis points, since the last quarter, with same-store NOI up 3% for the quarter, both driven by leasing activity that was nearly double of our 2016 activity.

We also delivered on renewal spreads. In the fourth quarter, we improved our renewal spreads at 10.8% for tenants under 10,000 square feet to end the year at a solid 5.1%. These results confirm that our strategy to drive to quality was the right approach. Moreover, our instincts to pursue certain initiatives ahead of many of our peers were spot on and positions the portfolio well.

It's noteworthy that the 17 malls we sold, 25 anchors have closed or are set to close, and these are generally in markets where further capital investment would not be a prudent decision.

As you've heard from our peers, the industry is in a state of evolution, and we believe we have been a step ahead of the sea changes and through our intensive portfolio management strategy, have positioned ourselves with an asset base that generates tenant demand, where tenant sales are improving, and our redevelopment projects are generating strong returns. While vacant boxes are abundant around the country, we've adeptly dealt with closings, many of which were preplanned.

On the anchor replacement front. As 27 kicked off -- 2017 kicked off, PREIT had 11 vacant anchors. During 2017 and January 2018, 5 of these anchors have been replaced with operating tenants. As we move into 2018, PREIT executed leases for 4 additional replacements. This leaves 2 vacancies, both with leases, pending execution.

The results in this -- of this initiative is 17 sought-after tenants, spending 7 diverse uses, paying rents 8x greater than the space was previously generating. But the story expands beyond these impressive figures. In replacing dated department stores, we're transforming our properties, driving new customers and reinventing our platform.

Through our portfolio repositioning effort, our exposure to potential additional department store closures has been dramatically reduced, and we continue to look to proactively take back stores, where prudent. We've reduced our Sears store count from 27 to 8, which includes Willow Grove Park, subleased to Primark. We've gone from 31 JCPenney stores to 16. We went from 25 Macy's to 14, and we only have 2 Bon-Ton stores.

Demand for quality space is robust, and we've capitalized on this, having executed 76% more new leasing than in 2016 for a record amount of space in 2017. As a result of our tenant diversification strategy, the tenancy takes a new shape than in years past. As we look at the leases we signed in 2017, excluding the few traditional department stores we signed, 2/3 of the space we leased was committed to a mix of tenants that are the foundation of the mall of the future. Dining and Entertainment made up 19%, off price accounted for 14%, Fitness was 9%, Sporting Goods accounted for 8%, Fast Fashion was 8% and Shoes and Accessories made up 9%.

As we move into 2018, we're in a strong position to drive revenue into the future, having executed leases for our future openings for 33%, more space than we had at this time last year. As you know, many legacy retailers filed for bankruptcy protection last year, and one early this year. As the choppy retail orders of 2017 became apparent, we quickly adjusted our operating plan to mitigating the impact of rent relief and early closings through an aggressive focus on driving ancillary revenues and expense reductions in an effort to maintain our operating margins and NOI objectives without sacrificing quality.

We renegotiated contracts to reduce expenses. We reduced staffing as appropriate. And we instituted new revenue sources through the introduction of digital advertising boards.

In addition to our intense focus on operations and evolving our mall experience, we executed on our plan to strengthen our balance sheet, which continues to be a top priority. Since detailing our capital plan in January of '17, we've raised gross proceeds of over $700 million, resulting in net proceeds of over $460 million. Notable accomplishments include the sale of 3 low-productivity malls and a noncore office building.

On the financing front, we secured a $250 million term loan tied to Fashion District, Philadelphia, an early refinancing of Lehigh Valley Mall, generating excess proceeds and reducing the interest rate; refinanced Francis Scott Key Mall; and issued 2 new preferred shares series for $292.5 million at significantly lower coupon rates from our existing preferred shares and a redemption in full of our 8.25% Series A preferred shares.

Being nimble is key to success in retail, and we're pleased to have raised the liquidity to fully fund our value-creating redevelopment projects well in advance of the spending needs. As such, we continue to work through additional noncore land and asset sales. Our redevelopment efforts are also generating outstanding results. At Mall of Prince Georges, we've delivered on our redevelopment plan. We look forward to the openings of DSW, Opal Cosmetics and Express later this year, along with 3 fast casual eateries, solidifying this DC powerhouse that continues to perform even while under construction.

The common area renovation is complete, new leasing is 95% committed, and the project will be completed in June.

At Woodlands Mall in Grand Rapids, Michigan, we're making good progress on the merchandising of the new wing that will lead to Von Maur. For the planned new remerchandise space, we are 65% committed, with a robust pipeline of interested tenants for this 2019 project.

In Philadelphia, this is a year we'll open up Fashion District. We've incorporated our share of NOI in our guidance and look forward to releasing details, including the opening date and our tenant roster, later this year. We continue to work with third parties to explore the vertical development of this project to incorporate multifamily housing.

It's noteworthy that on our completed projects and those nearing completion, such as Capital City, Mall at Prince Georges and Viewmont, we've been delivering these projects under budget, on time and at returns that are accretive to these assets. And given the newly curated tenancy, our cap rate transformative.

Now before I turn the call over to Bob, I wanted to take a minute to update you on governance and sustainability improvements we've implemented. Last week, our board appointed JoAnne Epps as a new trustee. She brings a unique background and a wealth of experience, and we look forward to her contribution and fresh perspective, as we continue to evolve PREIT. We also continue to evolve our sustainability efforts. In 2017, we added 3 new solar arrays to the 2 that existed in our portfolio and now offer electrical vehicle charging at stations at 4 properties.

PREIT properties now produce more than 8 million kilowatt-hours of electricity from solar panels per year. The environmental benefit accrued through the production of renewable energy at these 5 properties is equivalent to a reduction in greenhouse gas emissions from more than 1,200 passenger vehicles annually.

Additionally, as part of our Woodland Mall redevelopment, we recycled more than 20,000 tons of concrete from demolition to be reused as building pads, parking lot base and site grading during the expansion phase of the mall.

Now I'll turn the call over to Bob to cover our 2018 guidance, quarterly and full year results and our capital plan. Bob?

Thanks, Joe. Our 2018 FFO guidance has raised a number of questions. It's quite simply the result of our move to quality and a simplification of our asset base. So let me take you through a reconciliation of 2017's actual FFO results to the midpoint of our guidance range for 2018.

Let's start with FFO in 2017, where we reported FFO of $130 million or $1.67 per share. We will experience dilution of $6.8 million or $0.09 a share from dispositions. This includes one of the property we anticipate selling this quarter. On a normalized basis, adjusting for this dilution, our starting point for this year is $1.58 per share.

Our 2017 results include a number of items, where we expect a lower contribution in 2018. Historical tax credit income will be $1 million lower. Corporate revenues and other income will be lower by $2.5 million as a result of lower sales, land-sale gains and other items.

2017's nonstore revenue -- same-store revenue included $1.7 million of accelerated lease-intangible income, which is not expected to recur. These items account for $0.07 a share, taking us to $1.51.

Excluding lease termination fees, our same-store NOI at the midpoint of our guidance range adds $4.5 million of NOI or $0.06. Lower lease termination fees and slightly higher interest expense, net of G&A cost savings and lower preferred share dividends, results in an approximate $0.03 reduction, taking you to $1.54 per share.

The incremental contribution from Fashion District had a slightly higher share count, account for the remaining difference to the midpoint of our FFO guidance range of $1.55 per share.

This short-term dilution is a natural consequence of our strategic move to quality. By shedding noncore assets and redeploying the capital into our remaining portfolio, we are building a stronger foundation for future growth.

So let's go on to talk about our capital plan and operating results. We have made significant progress on our capital plan since the beginning of this year. Last month, we and our partner closed on a $250 million 5-year term loan for Fashion District. The joint venture initially borrowed $150 million, with remaining $100 million available to us via a delayed draw option. We used our share of the proceeds to reduce borrowings under our credit facility. As of today, we have no outstanding amounts under the facility.

Having closed on the term loan, we now have immediate available liquidity to fully fund our anchor replacement and redevelopment program.

In January, we also expanded our $69 million floating rate mortgage loan at Francis Scott Key at the existing spread and swapped the loan to a fixed rate of 5.01%. With the available 1-year expansion option, the final maturity of this loan is 2023.

Earlier this month, our joint venture closed on a 3-year extension of its mortgage loan on the land parcel across from Fashion District. We are in documentation to finance the construction loan on Gloucester Premium Outlets with the new loan, which is expected at proceed at or above the current loan balance, and we'll close that loan by the end of the first quarter.

After all these 2018 maturities are addressed, our next significant mortgage maturity won't occur until 2021.

We continue improve our balance sheet. After giving effect to the first quarter's financing activity, we have approximately $325 million of total liquidity available to us. At the end of December, our bank leverage ratio is 50.65%, and our net debt to EBITDA was approximately 8x.

Our cash interest rate was 3.9% -- 3.98%, a 4 basis point reduction from a year ago. 92.9% of our debt is either fixed or swap, and our debt maturities are well laddered. We are well positioned to manage through a period of rising interest rates.

We are in various stage of the completion with other transactions that we anticipate will generate up to $70 million of incremental proceeds during the balance of the year. These include the sale of our remaining noncore office property, various land parcels and other assets.

We invested $37 million in our capital program during the fourth quarter and $196 million for all of 2017. At the end of 2017, we had approximately $300 million remaining to spend on our redevelopment and anchor replacement program. We expect to spend about $180 million to $200 million this year and the balance in 2019.

Turning to operations. We performed in-line with our expectations and are ahead of consensus for the quarter. We reported FFO as adjusted of $0.51 a share and a net loss of $0.05 a share.

Same-store NOI, excluding lease terminations at our wholly owned properties, increased by 4%. Contribution from anchor replacements, other new tenant openings, higher ancillary income and cost savings more than offset the $1.9 million revenue impact from bankruptcies and cotenancy adjustments. We also observed an additional $500,000 of bad debts related to fourth quarter and first quarter 2018 bankruptcies and higher-than-expected snow removal costs due to inclined weather in December.

In contrast to the performance of our wholly owned properties, same-store NOI, ex lease terms, and our joint venture properties declined by 4% in the quarter. Bankruptcy is accounted for $300,000 of the decline in joint venture NOI. Overall, same-store NOI, ex lease terminations, blended to a 3% growth rate for the quarter.

We ended the year with total mall occupancy of 95.9%. Nonanchor occupancy was up 10 basis points compared to last year at 93.8%. Total lease-to-occupancy was 96.6% and nonanchor lease-to-occupancy was 94.9%.

As we look forward at our same-store properties, we assigned leases for a total of 600,000 square feet of new tenants that will open in 2018 and 2019, which will contribute approximately $7.2 million in annualized rent at our share.

With respect to guidance. We introduced our FFO and net income guidance for 2018, with FFO per share expected to be between $1.50 and $1.60. GAAP earnings are expected to range from a loss of $0.16 to $0.03. I've already discussed the reconciliation of the 2017's results, but I'll walk you through some of the underlying assumptions. 2018 same-store NOI growth, excluding lease terminations, is expected to be a positive $1.25 million to $2.25, comprised of a positive 1.5% to 2.5% growth rate at our wholly owned properties and negative 2% to 3% at our joint venture properties. Bankrupt tenants, net of replacements, are expected to reduce 2018 revenues by an additional $1.3 million on top of the $5.6 million impact, we experienced in 2017. Cotenancy adjustments are expected to be approximately $2 million in 2018, compared to $1.3 million in 2017, reflecting the full year impact of anchor closings.

In the case of bankruptcies and cotenancy adjustments, the impact will be more significant in the first part of the year and will be mitigated, as replacement anchors open in the third and fourth quarters of 2018.

We'll open anchor replacement tenants at Magnolia, Moorestown and Valley Malls in the second half of the year, as set forth in our anchor replacement schedule in the supplemental. We assume lease termination revenues of $1.5 million to $3.5 million compared to $3.2 million in 2017. Capital expenditures, including recurring CapEx and tenant allowances, are expected to be in the range of $220 million to $240 million, and we anticipate recognizing a gain of approximately $2.5 million from the sale of our joint venture interest in our noncore office property in the first quarter. And this will be a non-FFO gain.

Finally, our guidance does not assume any other operating asset sales, capital market transactions other than mortgage loan financings in the ordinary course of business.

And with that, we'll open it up for questions.

(Operator Instructions) And your first question comes from Ki Bin Kim with SunTrust.

Can you first talk about the cadence in the same-store NOI that we should expect in 2018, given the -- some of the moving parts that you've mentioned?

So I think the first quarter will probably, if you look at it on a quarter-by-quarter basis, will be the lowest growth quarter, and we'll start to see acceleration in the second quarter and through the end of the year.

Okay. And I think this, historically speaking, there's been some, maybe, the few assets have been a little bit too bullish in certain years, just given some of the moving parts. Maybe you can help just wrap it all around for us. And all else equal, once you finish your redevelopment projects, including FOP, your guidance for next year is $1.55. What is the longer-term FFO potential from Penn REIT after some of these projects are completed?

I think a year ago, we layed out our capital plan and outlook for the next couple of years through the 2020. I think the bankruptcies have probably set us back a little bit from a timing perspective. But we still expect to be on target to reach the goals that we set out a year ago.

Okay. I guess I was trying to see as if $1 add from $1.55 is the growth potential, like $1.85. Is there something more concrete like that?

At this point, we're not really prepared to give guidance beyond the current year, Ki Bin.

Okay. And can you just remind me how your lease modifications work? I believe that you have to have an extended term for those leases to be in the lease spread page in your supplemental. But for the ones that are just pure rent modifications, what does that look like, and how does that impact your view on 2018?

Well, I think our guidance, as I mentioned, reflects specific lower revenues from bankrupt tenants, where most of the lease modifications are occurring. So that's really baked already into our estimates for the year.

Your next question comes from Christine McElroy with Citi.

Just first on Fashion District and thinking about the $1.5 million to $2.5 million of NOI from that project this year, how should I think about the timing of rent commencement. Is that the majority of that in Q4? And then sort of related to that, how should we be thinking about the capitalized interest that will start expensing of those costs? Will you start expensing everything, or is it more gradual, since the project isn't fully stabilized?

As it relates to the income -- Christy, it's Joe. As it relates to the income from Fashion District, yes, that will be the fourth quarter, all fourth quarter.

And it relates to capitalized interest, that'll come in phases as the property comes online. Those spaces that come online at the -- your corresponding amount of allocated dollars will stop capitalizing interest on those spaces. But it will take -- the cessation of capitalized interests will occur over a period of time.

Okay, okay. Got you. And then just thinking about the sources and uses, I heard the $180 million to $200 million of spend on redevelopment. I think I heard you say, $70 million of proceeds from sales. I assume the rest of the spending is funded off of the line of credit. Just how should we be thinking about the movement of capital, and how you -- and your leverage profile, and how you would end the year from a debt-to-EBITDA perspective, just given that, not a lot is flowing yet from the projects in 2018?

Okay. So as I mentioned, we still have -- the joint venture has $100 million of undrawn capacity under the FDP term loan. So that will be, probably, our initial source of funding for Fashion District, and the balance will come from line of credit until the proceeds from the asset sales are realized. On a debt-to-EBITDA, we're sitting at the end of December of '17, at about 8x. That will peak at about 9.1x at the end of 2018. And then as the NOI starts coming on from FDP and the other anchor replacements, that -- we expect to be kind of the peak of our leverage at the end of 2018.

Your next question comes from Karin Ford with MUFG Securities.

Just -- thank you for all the color on what's baked into the guidance from a bankruptcy and cotenancy perspective. I was just curious if those numbers include any prospective bankruptcies that haven't been announced yet? Or is that -- or box closures for that measure -- matter? Or is it just what you know, and what happened already, year-to-date?

So the numbers that we -- I cited were related to 2017 bankruptcies. When we build our guidance for the year effective where we bake into our numbers on a unit-by-unit basis, what we think the likely outcome will be from existing tenants. So the extent we enter the pay closures or any rent modifications, that's baked into our baseline growth level and it's not included in the numbers that I quoted. They're really related to bankruptcy -- our bankrupt tenants that have already announced.

Got it. And are you expecting any box closures in 2018?

I think at this point, we feel good about the future regarding box closures, and we're -- as I said, we're -- we've really, dramatically, reduced our Sears count. We're down to 2 Bon-Tons, and any box closures that might occur this year we think, would be proactive, where we went out and decided to take back a particular anchor store where we had a tenant to step in. As we continually look at opportunities to, again, mitigate the exposure to, sort of, risky anchors, shall we call it.

Got it. Next question is, it looked Valley View Mall moved from being held-for-sale to back into the operations. Why did that fallout, and did you -- are you seeing a change in a bid for asset sales?

Well, as it relates to Valley View, it's a pretty good asset. I mean, look, we've sold off 17 malls. We certainly are proficient in doing that. But when we looked at Valley View, it has rising NOI. We successfully replaced an anchor. And we didn't want to do a relatively, what we thought, was a high-cap rate deal, and we decided to sit back and wait for a little bit of a better time. And really, we've got a noncore office building that we're about to close on in the -- this quarter. And we've got a lot of focus, obviously, in anchor replacements and in-line leasing. And we'll sit and wait for better times, if you will.

Got it. And last question, just going back to Christy's question on leverage. So with -- you're headed towards 9x debt-to-EBITDA by year-end. Any thoughts on reconsidering the JV sale of a core asset, or any additional asset sales to bring that number down?

Well, we continue to engage in dialogue regarding JV asset sales. At this point, nothing has really whet our appetite, if you will. Because those kinds of deals are deals that pricing is critically important. And given the fact that we've secured the capital to fund the redevelopment, and while '18 is a peak year for us from a leverage debt-to-EBITDA perspective, as the redevelopments come online. And much of that is already executed deals where you're under construction, and you have firm opening dates, et cetera. So it's not a risk, if you will, a high level of risk. So again, we're -- we'll continue to look at JVs, as we look at all opportunities to improve the balance sheet. But it's not at all costs, if you will.

Your next question comes from Michael Mueller with JPMorgan.

Couple of things. First of all, I am curious. I mean, the stock was halted for 1, 1.5 hour or so yesterday? I mean, do you have any color on why that happened, and why you reported, pre-close?

Though we made a mistake and hit the wrong button at the wrong time. Corrected it quickly and issued our release prior to market closed after deliberations with counsel and the New York Stock Exchange. And we think that's -- it was really in a blip, and it's behind us.

Okay. Is - -switching gears now on asset sales. Joe, I think you mentioned something was going to close in the first quarter, and then you also talked about noncore office, maybe some land. Just, can you size up the total dollar amount that you're expecting for 2018 in terms of asset sales?

Mike, it's Bob. We mentioned, it's about $70 million.

Okay. So that includes what you were talking about at first, something closing in the first quarter as well?

Right. So that's the only operating asset that we'll be selling in our -- at $70 million number. The rest would be land parcels and other nonincome-generating assets.

Okay. So the only operating asset is going to be the office portfolio then, or the office buildings?

Yes.

Okay. Got it. And is that most of that number or a good chunk of it or think about how much of it?

It's about 1/3.

Okay. And the rest land? Got it. And then last question on CapEx and TIs. You mentioned -- I apologized if I missed this, but the $220 million, $240 million number, that obviously has some bigger projects in there. What do you think about normal coursed TIs leasing commissions outside of major projects?

So you -- between recurring CapEx, TI, it's probably at $40 million.

Your next question comes from Floris van Dijkum with Boenning.

I wanted to -- Joe, I want to make sure, I caught this right. You said that on the anchor replacements, the 9 of 11 that you have signed up, is that correct that we have you -- we should expect an 8x rent multiple on those spaces?

That is correct, Floris.

So what would be the return that you would have gotten on the investments into those boxes?

High-single digits.

High-single digits, great. And the $300 million -- and just a follow-up question on the capital spend. You mentioned $320 million left to spend. That, presumably, does not includes potential Bon-Ton recaptures or any further Sears recaptures, correct?

So the -- Yes, just to correct. The number is $300 million, Floris, if I just wanted to make that clear. And that does not include any capital expenditures for any potential Bon-Tons.

Your next question comes from Linda Tsai with Barclays.

It sounds like closures in your unconsolidated properties are weighing on your excess NOI outlook. How long will it take to get the excess NOI growth into the positive range? And then what do you think is a more of a sustainable-slash-stabilized growth rate for those properties? Is it in-line with the consolidated?

It's probably going to be a little less than the consolidated, because the -- a number of those unconsolidated ventures are the power centers which have lower growth trajectory. We're anticipating that most of the bankruptcies that currently plagued that part of our portfolio gets filled by the end of 2018, and we start -- should start to see return to growth in 2019.

And then would you ever considering selling out of your power centers?

Yes. We certainly would, and we continue to work on that.

Any noncore assets that we have I mean, they give you -- there was several questions regarding our FFO guidance and really what's driving that is -- our moving to -- our continuing to move to our core business, right? And moving the quality, simplifying the portfolio and getting out of noncore businesses and the sale of the power centers, it's certainly on our list.

Your next question comes from Caitlin Burrows of Goldman Sachs.

You talked about liquidity, but maybe as it relates to your dividend, the disclosure shows that the payout ratio on FAD was up to 91% in 2017. I guess, just how do you think about the sustainability of the $0.84 annual dividend at this point, and balance that use of cash with other potential uses?

So Caitlin, this is Bob. We're very comfortable with the sustainability of the dividend and our multiyear forecast shows actually increases in our dividend, once we complete the current redevelopment and anchor repositioning cycle. So we're not going to give a specific target for us -- potential dividend increase, but certainly, it's something our board looks at quarterly. And we're optimistic about where the company is headed. So we're not even considering any adjustment downwards to the dividend.

Yes this is Joe, I would just, sort of, they know that and say that, we are completely comfortable with our dividend now. Again, many of the -- much of the work that we're doing is executed leases for construction in progress.

Okay. And then just on the consolidated portfolio, in particular, you gave same-store '18 guidance of up 2% to 2.5%, but that also includes some of the development openings later this year. But that stabilized in '19. So I was wondering if you could get any detail on the NOI. You expect those development openings to contribute to 2018, kind of, what that means for the rest of the portfolio, and/or said differently, the same-store growth excluding the impact of development?

Yes, I don't know that we can break that piece out, because it's -- basically anchor replacements not so much the -- I think we talked about Fashion District as a kind of a pure redevelopment. The only other pure redevelopment that we have would be the Woodland Mall, which is under construction. So I don't think we're in a position to be able to kind of break out that piece.

What about like, the Mall at Prince Georges, Capital City and Magnolia, that's what you're referring to?

Well, the mall of Prince Georges is really just a remerchandising. There was no anchor replacement there. It's just adding new retailers to it. We altered the DSW, as and for instance, H&M, et cetera. And so -- I'm not sure, we can break those out easily.

Okay. But there is some NOI delve that will start this year, but it all stabilize in 2019 and take it from there?

Yes. And actually, I can give you a kind of big picture view. If you look at the revenue contribution that we expect from the whole anchor replacement program, we expect by 2020 -- this is -- when everything's open and fully annualized, and this is the anchor replacement as well as this includes the program at Woodland Mall. Incrementally, it's about $17 million of additional revenue coming out of our current program, again, excluding Fashion District.

(Operator Instructions) Your next question comes from Ki Bin Kim with SunTrust.

What were the 2018 same-store in line guidance of 1.75% be at any point, without the contribution from incremental NOI from the Springfield Town Center project?

Yes, we're not, Ki Bin, we do not break out individual analyze from specific properties, but it's -- overall it's -- the same-store growth is $4.5 million or 1.8%.

Okay. And can you remind us how the Veneto promote would work on a Springfield Town Center and when is that eligible?

At this point, we don't anticipate making any promote payments to Veneto as it relates to the Springfield Town Center project.

Okay. And, I know you mentioned some CapEx guidance for 2018, but what would FAD guidance be compared to that, $155 million FFO guidance for '18?

Somewhere in the $1 range.

Your next question comes from Karin Ford with MUFG securities.

What is the year end occupancy assumption that you have baked into your same-store guidance?

So we have a 50 to 100 basis point improvement in non-anchored leasing.

Okay. And then your adjusted EBITDA to fixed charge coverage ratio came down to about 1.89x this quarter. And you obviously have a little bit of a lag between when EBITDA comes on versus your increasing leverage this year. Are you comfortable that you're not going to come near to your 1.5x covenant level?

Yes, we're really nowhere close to breaching any of our covenants. We have sufficient caution in all of our financial covenants.

There are no further questions at this time. I will now turn the call back over to Joe Coradino for closing remarks.

So we continue to view the business through a lens of evolution. The work we did in '17 in replacing anchors, bringing in new and diverse tenants is expected to continue in 2018 as we open up a variety of new tenants and continue to evolve our approach to enhancing the customer experience. In 2018, we'll bring fitness centers, grocers, off-price, dining and entertainment, venues to our ever evolving properties. Our team is energized to expand our revenue sources through innovative pop-up experiences, activated customer conveniences and new business development. We'll also continue to exploit the underlying value of our locations through the execution of our multiyear extensification strategy, which we anticipate will be a significant source of growth for our portfolio in the future. So remember, hungry dogs run faster. Thank you, all, and have a great day.

This concludes today's conference call, and you may now disconnect.