Federal Realty Investment Trust (FRT) Earnings Call Transcript & Summary

Greetings, and welcome to Federal Realty Investment Trust Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Ms. Leah Brady. Thank you. You may begin.

Good morning, everyone. Thank you for joining us today for Federal Realty's Fourth Quarter 2019 Earnings Conference Call. Joining me on the call are Don Wood, Dan G, Jeff Berkes, Wendy Seher, Dawn Becker and Melissa Solis. They will be available to take your questions at the conclusion of our prepared remarks. A reminder that certain matters discussed on this call may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any annualized or projected information as well as statements referring to expected or anticipated events or results. Although Federal Realty believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, Federal Realty's future operations and its actual performance may differ materially from the information in our forward-looking statements, and we can give no assurance that these expectations can be attained. The earnings release and supplemental reporting package that we issued yesterday: our annual report filed on our Form 10-K and other financial disclosure documents provide a more in-depth discussion of risk factors that may affect our financial condition and results of operations. These documents are available on our website. [Operator Instructions] And with that, I will turn the call over to Don Wood to begin the discussion of our fourth quarter results. Don?

Thank you, Leah, and good morning, everyone. So for the tenth year in a row, FFO per share was higher than the previous year, excluding, of course, last quarter's Kmart real estate acquisition charged to the income statement for accounting purposes. And barring some unforeseen collapse, 2020 will be the 11th year in a row, as Dan will talk about in a few minutes. Please let that sink in. We've grown earnings, bottom line earnings, every single year over this past decade and expect to do so again next year. Yes, growth has slowed, as the industry continues to morph into something different. But it's still growth, and there's not a single other publicly traded strip peer that can make that claim. In fact, of nearly 200 U.S. equity REITs in every sector, less than 5% were able to grow FFO per share each year. Not surprisingly, those companies have a combined average multiple of nearly 21x. One of the things that differentiated Federal a decade ago when growth flowed following the 2008 recession was the way we relied on our balance sheet strength and broad skill sets to move forward with initiatives that would power us in the years that followed, but which were not helpful with generating immediate earnings. We aggressively move forward with master plans for Pike & Rose, Assembly Row, other long-term initiatives despite the challenging environment. And as a result, we were able to outperform a sentiment change because we were that far ahead. This feels like that to me. At this time, rather than dealing with a broad recession and planning a large, decade-long, mixed-use projects, we're dealing with oversupply and changing consumer preferences, but we're doing equally forward-thinking things. Things like doubling down an already successful mixed-use communities with less risky and mostly nonretail additional phases that capitalize opportunities we've already established. We're constructing new midsize projects like CocoWalk in Miami and Darien Shopping Center in Connecticut, and listening to what retailers, restaurants, and the communities they serve, tell us about what's important to them. By the way, if you look at our year-end balance sheet, you will note $760 million of construction in process, more than we've ever had in our long history. We're aggressively moving forward with solidifying our core portfolio by proactively acknowledging the haves and have-nots among retailers and shopping center environments. We're beefing up incredibly well-located, high-quality centers for the next decade with better tenancy, with alternative and additional uses and with attractive place-making using sustainable methods and environments. We're recycling assets with little opportunity for future growth, nearly $300 million worth at Plaza Pacoima, Free State Shopping Center, the office over retail building in Hermosa Beach, California and the Kohl's portion of San Antonio Center. And we're reinvesting those proceeds in far better opportunities in Hoboken, New Jersey; in Brooklyn, New York; and Fairfax, Virginia. In other words, in a naturally cyclical business, we're always focused on growing long-term FFO per share, no matter what the current environment looks like. So let's talk about the transactions that closed in the fourth quarter to demonstrate the point. We did what we said we would do. First, we received the full $155 million in December from the Los Altos, California, School District for the 12-acre portion of San Antonio Center through the condemnation process we've been discussing for months now. The elevated cash position on our year-end balance sheet reflects this. And while we have the obligation to use a portion of those proceeds to pay existing tenants on the site, the timing and amount of those payments is uncertain at this time, but the net value to us is more than a little impressive. We also closed on Costco-anchored Plaza Pacoima in Los Angeles in the quarter for $51 million. When these fourth quarter dispositions are combined with the sales of Hermosa, Free State and a couple of smaller parcels earlier in the year, $300 million of capital was raised at a mid-4% cap rate based on expected 2020 cash flows. And where did we recycle that capital into? Hoboken, New Jersey, where 37 of the 39 buildings we bought in our new partnership, closed in the fourth quarter. The other 2 buildings will close this month. We also closed on Georgetown Shopping Center in Brooklyn, and in January, the retail strip adjacent to our previous holdings in Fairfax, Virginia. Basically, $300 million invested in properties, which generated going-in yield modestly in excess of the assets that were sold with an IRR that's 200 basis points higher. And we expect to be able to expand further, given that Hoboken partnership and the opportunities we're seeing. Transactionally, the fourth quarter was extremely active. Operationally, it was, too. We ended 2019, having signed 457 retail and office leases for nearly 1.9 million square feet at average rents of $41 a foot. And we signed more than 2,300 residential leases at average rents of $2.82 per foot, $34 per foot per year. Just the retail and office leases combined created $77 million of growing annual contractual rent obligations for the next 7 plus years. Our rental stream comes from an incredibly diverse set of retail, office and residential tenants. On the development side, we're incredibly active with 700 Santana Row complete and just turned over to Splunk last week; $210 million, which is on budget and yielding 7.5%. This building is a home run at the end of the street anchoring Santana Row and really something you should check out on your next trip to Northern California; it's impressive. Across the street, at Santana West, construction is well underway, roughly $100 million of spend in '20, $150 million of spend in '21, with no income until '22. Strong interest in the building at this very early stage is encouraging. Full-blown construction at Assembly, on both the residential and the office building, continues unabated. Both projects are on schedule and on budget. Roughly $200 million of spend in 2020; $100 million in 2021 with no significant income contribution until late 21. This is one big development phase that will really change the field of Assembly Row. PUMA's North American headquarters is the office anchor there. Construction of 909 Rose, the flagship office building at Pike & Rose that will house Federal's new headquarters in August of this year, is on budget, is on schedule, with roughly $50 million in spend expected in 2020. We're currently trading paper with other tenants for more than 40,000 square feet in line with our underwriting. CocoWalk is moving along beautifully, with 87% of the retail space and 57% of the office space spoken for, under signed lease or fully executed LOI. Another $30 million of capital is programmed there for 2020 and income will begin to be generated here later this year. And finally, we can now say that demolition and construction are underway at Darien, where we will completely change the character of the grocery-anchored shopping center, where we'll add 75,000 square feet of new lifestyle-oriented retail space to complement our strong Equinox asset banker, 122 apartments, and 720 parking spaces directly adjacent to the Noroton train station in Darien, $120 million at an incremental 6% yield with $25 million spent in '20 and most of the balance beyond that. No incremental income here this year or next. I'll go through the status of just those large development projects for obvious reasons. Our balance sheet at year-end shows $760 million of construction in progress. And while the Splunk building at Santana delivers this year and will reduce that number, an additional $400 million or so will be added in 2020 and $300 million in 2021 before these projects have turned over to rent-paying tenants after that. Back to the remarks I made initially. We're doing a ton of investing in leading-edge real estate projects and markets as we look toward a very bright, but different future, with change in consumer demands and retailer business plans. We expect to be at the forefront of that change, all while continuing to grow FFO per share, albeit more slowly, in the near term. That's about it for my prepared remarks. All the focus on short-term occupancy, current earnings and lease-up expectations at this uncertain time is understandable and it's certainly important. But a company's clear path to growth and mid- and long-term relevancy of its real estate long after the current vacancies have been leased up is, in our view, far more important. Let me turn it over to Dan before addressing the questions. Dan?

Thank you, Don, and good morning, everyone. Another record year of FFO per share as we posted $1.58 for the fourth quarter, with the full year for 2019 at $6.33 as adjusted for the acquisition of the Kmart at Assembly. An uptick in FFO versus the same periods in 2018, and remember, in 2019, we faced an increase in G&A of roughly $0.02 per quarter from the new lease accounting standard. The numbers in the fourth quarter were driven primarily due to higher term fees and higher rental income than last year, offset by a shift in timing on property level expenses. Both from real estate taxes were a meaningful forecasted tax refund was pushed into 2020 and nonrecoverable property-level expenses, which were pulled forward from 2020. Both of these are primarily timing issues that should come back to us positively in 2020 but represented roughly $0.02 of drag in the quarter versus forecast. While this quarterly FFO result may seem muted, this was driven primarily by timing, and we had a really successful quarter in terms of all the positive activity Don highlighted in his comments. Our comparable POI metric came in at 2.4% for the fourth quarter and 2.9% for the year, basically in line with our previously increased annual rents. With respect to retail space rollover, the 99 comparable retail leases during the fourth quarter for 462,000 square feet were written at an average rent of $37.78 per foot, 7% higher than the prior rent. Those results closely tracked the 379 full year 2019 comparable deals, which were written at $40.48 on average or 8% higher than the deals they replaced. Our portfolio remains well leased at 94.2%, though we do expect that to move lower in the first half of 2020. While we don't typically provide guidance on our occupancy metrics, given the aggressive level of proactive re-leasing and some of the recent retailer fallout, we expect our occupancy metrics will trough in the first half of 2020 to the mid-93% level for leased and the mid-91% range for occupied. However, we should see a steady rebound back up to historic levels over the latter half of 2020 and into 2021, given our strong pipeline of leasing activity. A few additional comments I'd like to highlight in our disclosure this quarter that further demonstrates the strength in our business that is not directly reflected in the quarter's numbers. On our development schedules, in the 8-K, please note on Page 17, we closed out another $50 million in projects in 4 of them, on time and on budget. And on Page 18, we raised our projected yield on 1 Santana West to 7%, reflecting continued strength in rental growths at submarket for the amenitized office product we offer there. Now, why do I mention this? It's because the redevelopment and mixed-use development we do is challenging. And it's really difficult to execute effectively. Through Federal's experience and 20-year track record, we have meaningfully derisked these parts of our business model. Now we'll turn to 2020 guidance. We have formally provided a range of $6.40 to $6.58 per share. This formal guidance takes into consideration some of the projected tenant failures that have occurred since our late October 3Q call. A.C. Moore, Pier 1 and Fairway are the most prominent. We felt it prudent to take a more conservative posture as these restructurings play out. This range represents 2.5% growth in 2020 FFO at the midpoint. While this guidance range reflects some discrete headwinds facing us in 2020, which I will get to shortly, our diversified platform is executing on all cylinders, as evidenced by delivering Santana -- 700 Santana Row to Splunk last week at a return in the mid-7s, the stabilization of the Phase 2s at Assembly and Pike & Rose, delivery of smaller projects over the course of 2020, including the prime store JVs, Freedom Plaza aka Jordan Downs beginning delivery to start this year; Bala Cynwyd residential opening in Q2; and a newly renovated CocoWalk expected to start delivering to tenants in the second half of the year. While none of these smaller projects will meaningfully add to 2020, they will be additive in 2021. We also have the stabilization of the $50 million of redevelopment at a blended incremental yield averaging 9%. And we also have a core portfolio, excluding headwinds caused by term fees, repositionings and recent tenant failures, which otherwise would deliver comparable growth in the 2.5% to 3% range. Also note that we executed on roughly $300 million of new investments and over $300 million of noncore asset dispositions during 2019, which will be a couple cents accretive in 2020, but provide more meaningful value creation and growth over the longer term. What other retail REIT can tout an asset recycling program that's accretive to FFO in year 1? These items together would drive FFO per share growth into the 6% to 7% range, if not for some discrete but somewhat disproportionate headwinds. Let me give some additional color. First, term fees. We had a record year in 2019, earning over $14 million in gross fees, whether it provides headwinds or tailwinds we include term fees in our metrics because it is part of our business. And the overall strength of our lease contracts provide us with a competitive advantage we can leverage over time. While we expect a strong year again in 2020, we do not forecast getting back to 2019's levels, and therefore, forecast a meaningful drag here. A second headwind. Late last year, we identified several attractive, proactive, remerchandising and repositioning opportunities across our portfolio and continue to evaluate additional opportunities, which will drive significant longer-term value creation but at the expense of 2020 FFO. Changing out struggling retailers with limited runway in terms of long-term relevancy and replacing them with tenants who we project to be thriving in 2030 and beyond will be another source of 2020 drag. Add in the forecasted impact from the recently announced retail failures on top of those previously identified, such as Dress Barn, and collectively, these items get us to a range of 1% to 4% FFO growth in 2020. With respect to other assumptions behind our guidance, comparable POI growth is expected to be at 0% to 2%, which reflects the headwinds we just highlighted. The first and second quarters of 2020 will be the weakest and may even be negative due to turnkey drag. We assume roughly 100 basis points of credit reserve comprised of bad debt expense, unexpected vacancy and rent relief. This is roughly in line with past year's projected reserves and actuals. Please note that projected lost revenues from the recently announced tenant failures, previously mentioned, have been incorporated into our guidance and are not part of this reserve. With respect to G&A, we forecast roughly $11 million per quarter, up modestly from 2019's run rate. On the capital side, we project spend on development and redevelopment of roughly $450 million to $500 million. As is our custom, this guidance assumes no acquisitions or dispositions over the course of the year. We will adjust guidance for those as we go. And finally, we are projecting roughly $60 million to $80 million of free cash flow generation after dividends and maintenance capital. Now on to the balance sheet. As has become a Federal Realty custom, we have positioned our capital structure exceptionally well, to handle the current wave of value-creating development and redevelopment activity at the company. We finished the year with over $100 million of excess cash and nothing outstanding on our newly expanded and extended $1 billion credit facility. As a result, our net debt to EBITDA now runs at 5.5x, our fixed charge coverage ratio holds steady at 4.2x, our weighted average debt maturity remains near the top of the sector at 10-plus years and a weighted average interest rate on our debt stands at 3.8%, with all of it effectively fixed. Our A-rated balance sheet equipped with a diversity of low-cost funding sources allows us to execute our diversified business plan with a meaningfully lower cost of capital than anyone in the sector, which is another way we derisked the development activity we have underway. Our game plan for 2020 has all the components in place to position Federal for sustainable outperformance in both FFO and NAV growth over the next decade. That's all I have for my prepared remarks, and we look forward to seeing many of you in Florida in a few weeks. Operator, please open the line for questions.

[Operator Instructions] Our first question comes from Nick Yulico with Scotiabank.

Just first question on the guidance. If you look at the FFO range you put out versus the goalpost you talk about on the last call, you mentioned that A.C. Moore, Fairway and some others, I think, affected things. Was there also a decision to start more redevelopment? Is that also causing any additional drag versus what you expected last quarter?

No, no. I think that -- hey, Nick, by the way. Good morning. We -- the additional redevelopments really didn't come into. It was really just taking a more conservative posture as we looked at some of the news that has come out since late October, 3.5 months ago. Really, that was the primary driver.

Okay. That's helpful, Dan. And then, I guess, the second question is, as we think about this year, and you talked about earnings growth being affected by a few significant move-outs that are unrelated to tenant bankruptcies and you've always been sort of ahead of the curve in terms of remerchandising boxes, but this year is clearly a more impacted year than most. So what I'm wondering is, is this a function of the retail environment and is it going to be a new theme in the Federal portfolio? How should we think about risk of there being a similar type of downtime vacancy impact in 2021?

Yes, Nick. Let me start on that. We've taken a very holistic approach to all of our centers and really trying to take a look at where we believe these things will be more powerful in 2025 and 2026. And that means the notion of place and place-making is a much -- it's always been an important part of what we do, but it's a more -- it's a bigger focus in terms of what we're creating, including the type of co-tenancy that is happening there. Clearly, less clothing if you will, more experiential type of stuff, including health and beauty, including food and different food sources. So we look at this holistically as a major change in how retail and centers, including mixed-use centers, serve their communities over the next 10 years. And as you know, our stuff is not in the middle of the country generally, it's sitting in the coast, in populated areas, with lots of money and lots of people around. So we are forward-thinking, if you will, in terms of that. And it's not just about backfill of space. So does this continue? Yes, I do think it continues because I think this is a major change in how people are going about their lives when it comes to interacting with retail, but we do it on a balanced basis. And there's nothing more important than that to us to note that as a public company, we can't tell you, "Well, you know, our earnings are going down, but it's going to be great in the future." We need to balance both of those things, current earnings along with the sustainability of great real estate, and that's the needle that we thread.

All right, Don. Yes, that makes sense. Just last question is, on the re-leasing progress on the spaces that are a drag on 2020 NOI, for example, Kmart at Assembly, Stop & Shop, Darien, and Banana Republic at 3rd Street in Santa Monica?

Yes. Let me go through those because those are big ones. The Kmart at Assembly, we may temporary lease up the space. But the purpose of that was -- that's an acquisition to be developed. And that will be a continuation of Assembly Row. Now we've got entitlements to do, that takes a couple of years. The timing and the planning is necessary, so we'll certainly look for some kind of mitigation, if you will, of the lost Kmart rent, but it's not the driver. The driver is the value that will be created on that 6 acres, which is why I -- [ still owners ] in the accounting that has to go through the P&L, frankly. That is an acquisition, all day long. Come up to Darien. We are now under construction. That Stop & Shop is gone, going away. And so as a result, that will be a completely different use on that parcel and so you won't see income contributed there. We're not trying to backfill the Stop & Shop; we knock it down. And so the whole notion there is how to create a whole bunch of value on a piece of land that was obsolete. That shopping center wasn't needed as another grocery-anchored shopping center at that train station. So look forward to that in the coming years. In terms of Banana, Jeff, I don't know how much you want to say at this point, but we're making some real good progress on backfilling that at an incremental rate.

Yes. Thanks, Don. And Nick, we can tell you more, hopefully, next quarter. We're down the road, but not to the point where we can really give a lot of detail on the leasing progress there because we're in negotiations. So more to come on that one, but trending in the right direction.

Our next question comes from Christy McElroy with Citi.

And thanks for the call-out on our conference for promoting it. In terms of -- Don, you talked about $400 million of additional spend in 2020, $300 million in 2021. I know you have many options for capital you're using to fund that. But just sort of generally, how should we think about the mix? Dan, you said free cash flow this year is $60 million to $80 million. You've also got equity issuance as an option, but how should we think about the potential for additional depositions as well?

Yes, that will always be part of our plan, Christy. So first of all, let's start with the balance sheet that you're looking at, which has over $120 million of cash on it. So starting out with a balance sheet that, as you know, is about as strong as it can be, including a completely unutilized $1 billion credit line. So that's not a bad start. On top of that, there's no doubt we will continue to recycle the portfolio that you should still assume, and I can't -- I'd love to say $150 million or $200 million of dispositions, but the reality is that's very opportunistic and it depends. We just did $300 million last year. We did much less than that the year before. I don't know exactly where that will be in 2020, but it's part of the program. It's part of the capitalization, if you will, of the company, and we're comfortable in doing that because of the uses of capital that we have to reinvest. So between the existing balance sheet capability, along with asset sales, along with cash flow generated by the business, we're more than covered, I think, as kind of we've shown you for the past 10 years.

Okay. And then, Dan, thanks for all the color on sort of the drivers behind the comp POI range. I'm wondering if there's any properties that are sort of entering the pool in 2020 that have sort of an impact there. And then in regard to the term fees, it sounds like they'll be relatively back-end loaded through the year. I'm wondering if you could say how the 2020 absolute amount is supposed to come out in FFO relative to the $14 million in 2019.

Okay. Well, maybe I'll start with the term fee question. $14 million is significantly in excess of our 20-year average, which typically is about $5 million per year per annum over the last 10 years. It's been about $6 million per annum. Maybe a better way to look at it because we've grown over time. It's roughly 80 to 90 basis points of total revenues. So that creates a bookend of maybe $5 million to $8 million of term fees, which is kind of what we have currently in the range. We don't expect to get back to the $14 million level. I wouldn't say necessarily it's back-end weighted. We'll probably have a little bit of a tougher headwind in the first quarter from term fees because we had such a big one in the first quarter of '19, with the lowest term fee at Orchard Supply. And then with regards to your first question, can you just repeat it?

Yes. So just what's entering the pool in 2020 that might have an impact there?

There will be some things moving around. I mean, I think that we're -- but they won't be materially kind of moving things. We are going to move the residential at Assembly Row into the pool. We're going to be moving Phase 1 of Pike & Rose as well as the residential in Phase 2 into the comparable pool. And we'll probably also be moving house and residential, but all of those have stabilized. And so there won't be a material boost that you'll see from those entering the pool. They've stabilized in kind of the -- kind of 1-year seasoning we do as part of that methodology for comparable, but you won't see a big boost there.

Our next question comes from Samir Khanal with Evercore.

I guess just shifting subjects a little bit here on the acquisition front. You guys were pretty active in 2019, kind of wondering what's in the pipeline at this time.

Samir, you don't want me to give you the LOIs that we've got, right? I mean at the end of the day, the -- our pipeline for acquisitions does change all the time. There is no question that we were heavily focused on the New York metropolitan area in 2019, and that will stay. So we will continue to try to increase our holdings in those markets where we just entered. But that doesn't mean that -- and then, by the way, the same thing for the Northern Virginia market. That doesn't mean something else won't pop up. One of the things that we are noticing, right now, are clearly more sellers who are looking to get out for all the reasons you would assume. The trick, for us, is making sure that we're picking up assets that we believe in the long term for. That could even be a box center in the appropriate play in a place or 2, but it really depends on the metrics. So there isn't anything that is imminent at this point, but you should see us active, if you will, throughout 2020, particularly in the areas that we've targeted for future growth.

And what about on the disposition side. I know you guys -- you kind of had the strategy to sort of dispose some of the noncore assets. You're a little bit active at last year? I mean, what should we -- how should we be thinking about that sort of disposition volume possibly in 2020 from a modeling perspective?

Yes. I don't know how to say too much more than I did on the first question to Nick, whether -- I don't know whether the number is $150 million or $200 million or what it should be. I will tell you, we've identified assets that we would like to dispose of because we have things to spend that capital on. But in the preparation for the -- those packages and figuring out what the market -- what makes sense in the marketplace, we do that very opportunistically. And so there is not a budgeted number, if you will, that you can just put in the model of how much dispositions we would have. You should assume that anywhere from $0 to $2 million or $250 million is what we have historically done, and we'll approach it the same way in '20 as we have over that period of time.

Our next question comes from Derek Johnston with Deutsche Bank.

So we're going urban, so Hoboken and now Brooklyn. Can you go through the near-term opportunity at Georgetown Shopping Center, mark-to-market opportunities, merchandising improvements you're planning? I mean, they have a Fairway, they had a Dress Barn, a GameStop, a buffet; to be fair, some stronger retailers, Starbucks, Carter's, Five Below, Chipotle. So the question is, what's the near-term plan? And where are you actually going with this longer term? It's a 9-acre parcel and has 575 parking spaces.

So Derek, let me just start something, and I'm going to ask Wendy to jump in there after that, but we're going urban. I mean, we've built around the density and the population centers. So I don't think there's any change in Brooklyn, New York than there is for Bethesda, Maryland; or Santa Monica, California; or Fairfax County, Virginia. That is what we are. We're those close-in suburbs, if you will, of major CBDs. And so I think, frankly, a grocery-anchored shopping center with the density that Brooklyn has, at the price that we got it at, was hard to pass up, to tell you the truth. And obviously, we underwrote the weakness in Fairway, as the -- as part of that underwriting process, didn't know and still don't know the timing, in particular, of what we can do there, but we know the demand for grocery there is ridiculously strong. And so you should assume that that will be a grocery-anchored shopping center in the middle of a very densely populated area with rent upside, based on how it was previously managed and run compared with how we will previously -- how we will prospectively run that shopping center. So you shouldn't expect it to be torn down and something else happening there. You should expect that to be a really -- in my view, hopefully better run, higher rent, better tenanted 9-acre park -- open parking lot, in the middle of Brooklyn.

Okay. And then San Antonio Center, certainly, seems to have worked out fine. I think you guys paid around $62 million in 2015. So it was sold under condemnation for the $155 million. When will you have to pay out the tenant award portion from the proceeds? And can you share how that's determined and how that works?

Jeff, you want to take it, carefully?

Yes, it's going to play out over the next couple of years. And we've been able to work things out with most of the tenants but not all of the tenants, so still TBD on that. The process is relatively straightforward and mechanical. But it's not going to start -- not going to start for a couple of years. So, Don, I don't know if there's much more than that, that we want to add.

Well, the only thing I would point it to, maybe a point or 2, is the financial statements where there is a recorded gain. And obviously, inherent in that gain is an estimation of the expenses that are -- that have to be paid out. So I hope that's helpful. And you should know that that is by design very conservative.

And it's very conservative, but it's actually in excess of what we expected, and we had kind of guided folks to the kind of net proceeds after those payments of $90 million to $100 million. And net-net, we're closer to $110 million. So -- and that's with a conservative estimate. So obviously, a good result and better than we had hoped.

Our next question comes from Craig Schmidt with Bank of America.

Yes. On Page 17, you break out the delivered projects, which are returning at 9%, and then the active redevelopment projects, which are delivering at 6%. I wonder if the 6% is the new norm or it's just a temporary mix issue.

Yes. Well, a little bit of both, Craig. I think it's a great question. The result is -- the reality is: man, construction costs are high. And they are significantly higher than they were a couple of years ago as we started these other projects. So that's certainly part of it. Call it -- I don't know whether it's half of the difference or whatever else. The other half is certainly mix, certainly mix. And you can see that Darien has a disproportionate piece in it. That's a complete redevelopment of a shopping center. And one of the reasons we're willing to do at Darien or something like that at an incremental 6% is because of the nature of the project and where we believe the future in that asset goes. This isn't the same as putting a pad out on a -- out in front of a shopping center where the new income is the new income, and that's what it will be for 10 years. That's something like Darien with a big residential component, too, you should say, "You darn tootin' we'll do Darien at 6%" because of the incremental rent increases we expect to get, not only on the residential side but in terms of lifestyle part of the center as it gains traction. So you've got a big mix component in that, but also, as I said, construction costs are up.

Great. And then in terms of re-leasing space, like A.C. Moore or Pier 1, can any of that occur before the end of 2020? Or is that all a 2021 event?

There's nothing better than be looking at Wendy's here right now, and -- because I love that you asked that question. Wendy?

Thank you, Craig. I do think that we will be able to do some of the re-leasing and get those documents signed in 2020. In terms of them opening, I think you'll see that more in 2021, but we do have some strong activity in the pipeline right now, which gives me encouragement that we will get a fair amount of it done in 2020.

Our next question comes from Jeremy Metz with BMO Capital.

Don, Dan, I just wanted to go back to the growth topic again. You guys mentioned growth this year, growth next year. And obviously, appreciating you are in this for the long game. Also, you specifically detailed the number of projects in your opening remarks, which is clearly helpful. But it sounds like income will be a little more phased and possibly back-end loaded through 2021. So just broadly thinking about a bridge, is it fair for us to be thinking we should have some tempered expectations at this point for any sort of big reacceleration? Or any reacceleration of growth next year? Obviously, recognizing there's a number of the moving pieces in the pipelines and the repositioning as guys have talked about.

Yes, Jeremy, you understand it well, and you've kind of laid it out really well there. There's a lot of -- there's clearly uncertainty in our business. I love what we're doing in terms of what we're -- what the capital that we're putting to work. Its contribution, as you said, will be later in 2021. The big question and answer to your question is how many holes are there on the bottom -- at the bottom of the bucket. And that's what is -- for anybody in this space, in retail space, the big unknown. And so it does make us -- it does make it harder to predict. It does make it harder to say, "Okay, growth will go back to this number on May 6, 2022, or something like that." But all we think we should be able -- should be doing is looking towards making sure this stuff, all of this portfolio, is extremely relevant and as good as it's ever been and better as we go through the '20s. And so balancing it to keep that growth -- to keep growth in place, but not knowing when we're able to really accelerate to another level is just the facts today. And I would tell you, it's the facts with everybody no matter what they tell you. The difference is, we got $1 billion of incremental capital that will create that incremental growth going forward. But what's the negative coming out of the bottom of the bucket, that's the unknown.

Yes, that's fair. Dan, just a quick one. You mentioned the 100 basis points of credit reserve. You also mentioned the A.C. Moore, Fairway, Pier 1. Just wondering, are those baked into that 100 basis points that you're giving yourself, are those on top of the 100 and that's separate?

Yes. Our guidance reflects a projection of what lost revenue we should achieve or what we'll be hit with in 2020. So that's reflected in our guidance. If we deviate and it gets more negative than that's covered in the reserve. But kind of an expectation of how things will play out with regards to those recently announced retail failures is reflected in the guidance, and then a reserve on top of that if it's worse than we project. Is that fair?