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Executives

Kevin Berry - Vice President of Investor Relations

Sandeep Lakhmi Mathrani - Chief Executive Officer, Director and Chief Executive Officer of GGPLP

Michael B. Berman - Chief Financial Officer and Executive Vice President of Capital Markets

Analysts

Craig R. Schmidt - BofA Merrill Lynch, Research Division

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Christy McElroy - UBS Investment Bank, Research Division

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Vincent Chao - Deutsche Bank AG, Research Division

Joshua Patinkin

Cedrik Lachance - Green Street Advisors, Inc., Research Division

Quentin Velleley - Citigroup Inc, Research Division

Michael Bilerman - Citigroup Inc, Research Division

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Benjamin Yang - Evercore Partners Inc., Research Division

Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division

General Growth Properties (GGP) Q1 2013 Earnings Call April 30, 2013 9:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the General Growth Properties First Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to host for today, Mr. Kevin Berry. Sir, you may begin.

Kevin Berry

Thank you, Ben. Good morning, everyone. Welcome to General Growth Properties First Quarter 2013 Earnings Conference Call hosted by Sandeep Mathrani, Chief Executive Officer; and Michael Berman, Chief Financial Officer.

Certain statements during the call may be deemed forward-looking statements and actual results may differ materially from those indicated due to a variety of risks, uncertainties and other factors. Please refer to our reports filed with SEC for a more detailed discussion. Statements made during this call may include time-sensitive information accurate only as of today, April 30, 2013. We will discuss certain non-GAAP financial measures and have provided a reconciliation of each measure to its comparable GAAP measure. Reconciliations are included in our earnings release and supplemental information package, both filed with the SEC and available on our website.

It's my pleasure to turn the call over to Sandeep and Michael.

Sandeep Lakhmi Mathrani

Thank you, Kevin, and good morning, everyone. I'll begin with the overview of our financial and operating results, our recent activity and then turn the call over to Michael.

On the financial side. Yesterday evening, we reported FFO per share of $0.25 for the first quarter, actually slightly above $0.25, $0.03 higher than this time last year. Total funds from operations increased 13.6% to $252 million. EBITDA reached $496 million or 5.7% above last year. And NOI after property management costs rose to $511 million or 5.8% over last year.

As you know, we've been pruning our non-core assets, whether they are malls, office or [indiscernible] centers. Excluding FFO from sold properties, which accounted for $5.3 million in the prior quarter and essentially nothing in the current quarter, our total per share FFO increased over 16% from the prior quarter. Our same-store NOI, as reported, increased 3.7% over the prior quarter. Important to note that in the current quarter, we had a nonrecurring or onetime tax charge. Excluding this item, our same-store NOI increased 4.9%. These results were primarily driven by NOI growth and interest expense savings and are a testament to the high quality of our portfolio, the positive impact of leasing activity over the past couple of years, strict expense control and continued demand for stable durable cash flows from the lending community.

On the operating metrics side. Our operating metrics continued with a positive trend. The U.S. mall portfolio was 95.8% leased at quarter end a full 2.1% higher than the prior year end. Occupancy, which includes covenants and temp tenants, ended the quarter at 92.5%, an increase of 3.1%. And permanent occupancy was 88.6%, 2.1 -- 2.3% higher than this time last year, partially aided by the decrease in temporary occupancy which decreased 50 basis points to just under 5%.

During the quarter, we converted 58 leases or 150,000 square feet to a permanent basis, more than doubling the rent from $25 a square foot to $58 a square foot. About 40,000 of that will take -- took occupancy in the first quarter, the remainder as the year progresses.

In our supplement on Page 18, we report 4.3 million square feet of leasing activity that has been signed and taking occupancy this year. In addition, there is 2.5 million square feet that has been mutually approved by both landlord and tenant but not yet signed. Taken together and assuming the approved leases are signed, we've leased 6.8 million square feet up to this point. That's about 85% of our goal for the year. It would be interesting to note, of the 6.8 million square feet, 4 million square feet is new leasing. That is 97% of our goal. And 2.8 million square feet is renewals or 75% of our goal, hence, the 85% number.

Based on the continued leasing momentum across the portfolio and given the fact that we've nearly accomplished our 2013 goals, we feel very comfortable with our year-end permanent occupancy target of 92%.

Turning to 2014, we've so far leased about 1.7 million square feet, representing 25% to 30% of our goal for the year. On a suite to suite basis, our signed and approved leases taking occupancy in 2013 encompasses 2.7 million square feet. Initial rents are slightly better than $64 per square foot or about 11% higher than expiring rents. Keep in mind that our reported rent figures are provided on a gross basis, spread between new and expiring rents on just a base rent basis would be higher. We expect our rent spread on a suite to suite basis for 2013 to be in the 8% to 10% range.

Tenant Sales for the U.S. mall portfolio ended the quarter at $558 per square foot, continuing a positive trend that began in 2010 and 6.3% above last year's figure of $525 per square foot. The sales growth rate came in as we expected at a level that I've been talking about for the last year or so. Sales per square foot across the mall sector are at all time highs. As a matter of fact, in the GGP portfolio, it is 21% higher than the peaks reached in 2007. It's simply not possible for retail sales to grow at several multiples of the economy's growth rate. Looking ahead, we expect sales to continue growing this year between 4% and 5%, which even at the level demonstrate the underlying fundamental strength of the high-quality, retail mall portfolio.

Redevelopments. Turning to redevelopment projects, we've commenced over $900 million of projects to date and will commence another $150 million in the second quarter, which includes $100 million redevelopment of Ridgedale Center in the Minneapolis-St. Paul market. In that project, we announced a Nordstrom's will open and Macy's will expand. Returns continue to pencil at the 9% to 10% on level cash on cost returns. We recently opened Macy's men's store at Fashion Show Mall in Las Vegas, anchoring the new in-line expansion area. Fashion Show is an example within our portfolio where we identify early an accretive redevelopment opportunity underwrote the costs and expected returns and now expect the costs not only to come down but the returns to strengthen. In addition, it's not common for us to find additional value creation opportunities during a project. Like Fashion Show, where we acquired the Bloomingdale's home box and at Northridge Fashion Center in Los Angeles, which we just completed.

We're always looking for additional opportunities within the portfolio. In addition to the $1.5 billion already identified, we are very confident that they exist -- and the risk adjusted returns are very attractive.

Other highlights during the quarter. We're excited to own more of Village of Merrick Park in Coral Gables, the Miami market, one of our better assets. We acquired an additional 15% equity interest from our partner, and now own 55% of the project.

Our acquisition strategy is focused. We'll be aggressive for high-quality retail properties that are in line with our business strategy. We truly believe that over the long term, good things happen to good assets. We disposed of 2 C malls: Southlake Mall near Atlanta and Mall of the Bluffs in Iowa. We'll continue to opportunistically prune our portfolio of noncore assets, which now comprises of less than 1% of our total NOI.

We've closed 8 big box leasing deals for 256,000 square feet, including 2 H&Ms. One at Pembroke Lakes in Southeast Florida and the other at Perimeter Mall, north of Atlanta. We called the remaining unsecured Rouse bonds for early redemption using net proceeds from our property-secured refinancing of activity to repay higher interest rate debt and continuing to derisk GGP.

We have a very successful perpetual preferred offering, raising $250 million. Following the warrants purchase, we were in a position to make modification to certain terms of the warrants, no longer requiring a quarterly mark-to-market adjustment to our P&L and balance sheet, simplifying our financial reporting. We proudly announced Von Maur would open at Quail Springs Mall in Oklahoma City. This was one of the 11 Sears we acquired last year.

In closing, before I turn over to Michael to discuss the financial results in more detail, I'd like to say thank you to each of my colleagues at GGP for their dedication and belief in our mission and embracing our core values of high performance, attitude, do the right thing, together and own it. Our success is only possible if we work together as a team to achieve the same goal. We have accomplished extraordinary amount over 2 plus years, and we'll achieve our future growth by working together towards our mission of owning and operating best-in-class retail properties, which provide an outstanding environment and experience for our communities, our retailers, our employees, our consumers and our shareholders. Michael?

Michael B. Berman

Thanks, Sandeep. I'll take a few moments to outline my agenda for today's call. I'll make a few comments on our first quarter results, followed by guidance for our second quarter and update to our guidance for the full year of 2013. And lastly, I will provide an update on our balance sheet activities before we open it up for questions. Please remember any forecasted numbers are intended to be points on a range.

Our first quarter 2013 results exclude a onetime make-whole payment of approximately $3 million related to our February pay off of $92 million in Rouse bonds. Our full year guidance numbers exclude another onetime make-whole payment of approximately $20 million related to the upcoming May pay off of $610 million in Rouse bonds.

Then looking at the first quarter of '13 versus the first quarter of '12, same-store mall revenues came in at $728 million, up 5.1% to last year, and same-store NOI came in at $513 million, up 3.7% to last year, about $8 million ahead of our internal expectations. We came in above our expectations, primarily due to our occupancy being partially offset by a long-standing real estate tax dispute settled in the quarter, which is a $6 million net impact to NOI. Without the settlement, our expenses would have been slightly better than budget and same-store NOI growth would have been 4.9% or 1.2% higher than we reported.

Company NOI for the quarter came in at $540 million, $27 million better than 2012 or 5.2% growth. And SG&A for the quarter, which is the expenses less the fees we earned, was a minus $44 million, flat to 2012 but $3 million higher than we budgeted. However, most of the increase will reverse later in the year.

As Sandeep mentioned, EBITDA was $496 million for the quarter, up $27 million from the last year or 5.7% growth. This was approximately $5 million better than our guidance. Financing costs for the quarter were approximately $243 million, down from $252 million last year, and about $2 million behind budget as we pushed some financings forward a bit.

Overall, company FFO coming in at $252 million would be at the top end of our previously stated guidance range of $245 million to $255 million and about $30 million better than last year or an increase of about 13.5% on a per share basis.

Our first quarter share count is around 999 million, down from 1.16 billion last quarter. This change reflects the warrant purchase in January as well as dilution from the remaining warrants due to changes in the stock price. Please remember the warrant purchase happened during the first quarter, so our average count of 999 million includes about one month of 2013 at the old level. As we progress through 2013, we expect the share count to remain between 990 million and 1 billion.

Moving on to the second quarter guidance. We expect same-store NOI growth of 4.1%, and company NOI growth of 4.9%. EBITDA is expected to be around $494 million or over 3% growth from 2012. The second quarter includes an unfavorable comparison to 2012 of approximately $6 million due to onetime development and financing fees received in the second quarter of last year. EBITDA growth would be 4.6% without the onetime fees.

We expect financing costs of approximately $238 million, compared to $253 million in 2012. The $238 million includes approximately $8 million in savings in the quarter from the May Rouse bond payoff. We expect second quarter FFO of $245 million to $255 million or $0.24 to $0.26.

The 2013 guidance for the full year, a quick update based on first quarter results. We expect approximately 4.4% same-store NOI growth versus the 4% we said on the last call. We expect approximately $30 million in interest savings from our financing activities, which I will go through in a moment. As a result, we are increasing our FFO per share guidance range to $1.11 the $1.15 for the year per share or 15% growth.

For our balance sheet, on our last call, I mentioned expectations to refinance 12 loans. With approximately $1 billion maturing, we expected to generate $600 million of proceeds at share for the year. For the most part, this represented our 2013 and early 2014 maturities. From that group, 7 deals have closed, $700 million of the $1 billion maturing and $500 million of the $600 million of anticipated proceeds. We have 3 more transactions expected to close later this quarter. The final 2 of the budgeted loans are third quarter events, so that takes care of what we needed to do this year.

Given the strength of the financing markets, we decided to take advantage of other opportunities. We financed another 2 deals in the quarter, with $100 million maturing and generated $200 million of proceeds. And finally, we decided to access the bank loan market. We just closed on a $1.5 billion loan, refinancing $1.3 billion and achieving around $200 million in proceeds. This loan involves 16 properties, has a floating rate of LIBOR plus a spread of 2.50% with an initial term of 3 years and 2 one-year extensions. As a result of these opportunistic endeavors, we felt confident in calling the remaining Rouse bonds early.

So through the end of April, we have refinanced $2.1 billion and generated 900 million of proceeds at share. We have taken the weighted average rate on these loans from approximately 4.5% to a little less than 3.2%. Still remaining from our budget are $300 million in maturities, which we expect to generate another $100 million in proceeds.

And with that, I'm going to open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Craig Schmidt from Bank of America.

Craig R. Schmidt - BofA Merrill Lynch, Research Division

Regarding leasing, I think your current occupancy costs for the malls is 12.8%. At what occupancy costs are you leasing the new deals?

Sandeep Lakhmi Mathrani

So in general terms in the A malls, we are leasing at 15% to 16% occupancy cost. In the B malls, it's more like 13% to 15% occupancy cost. But you have to appreciate that these are average numbers. It all depends upon the productivity of the tenant. So you can have the A mall with a very productive tenant, such as Apple, who's not going to pay you the same 15% to 16% occupancy.

Craig R. Schmidt - BofA Merrill Lynch, Research Division

Okay. And given you're pretty rapid climb in sales per square foot, is there any sticker shock from the tenants or are they appreciative of the increased business? And are able to take the new occupancy cost levels?

Sandeep Lakhmi Mathrani

I think there has been no sticker shock. I think tenants believe just as we -- as they should, which is that the productivity of the tenants is good in the mall -- we're all in business to make some money and to get a 15%, 16% occupancy cost in a climbing environment is reasonable.

Craig R. Schmidt - BofA Merrill Lynch, Research Division

And do you have an opening date for Bloomingdale's at Galleria?

Sandeep Lakhmi Mathrani

Fourth quarter 2013. I think it's November some time. I don't know the exact date.

Craig R. Schmidt - BofA Merrill Lynch, Research Division

Okay. And finally, it sounds like you've gotten pretty close to getting rid of your assets with less than 1% of the total NOI. At this point, is it just sort of the maintaining of calling the assets? Or do you still have assets that are still on your plate that you would like to dispose of?

Sandeep Lakhmi Mathrani

The 1% NOI, let me just be clear. It's really the office and the strip portfolio, which is less than 1%. Those, over a period of time at the market, is that we will sell. On the mall side, we're down to 124 malls. And if we reduced that, it would be on the margin of 1 or 2 malls. But I think they're pretty content with that portfolio.

Operator

Our next question is from Alex Goldfarb of Sandler O'Neill.

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Sandeep, in your annual letter to shareholders and to the company, you spoke a lot about culture. I'm just sort of curious if this is something that came from the top down? Or is this based on feedback from the field of what the people at GGP what they want, what -- the way they envision the company?

Sandeep Lakhmi Mathrani

I think it's a combination. I think we've got the philosophy that if you have the right culture, you're going to win. Winning teams, winning cultures is my philosophy. Philosophy taken by a guy, culture guru by the name of Larry [indiscernible]. So I'm quoting him, so I'm giving him credit. And the aspect here was it's not -- it's a fortification of a culture. It's you take the best of the organization and you emphasize upon it, and I think it's an important element why the company, across the board, desires of. So yes, it was an idea, a bond to fortify the good points of the company by a senior management that has been embraced by the entire organization.

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

And has this also affected like management training and the way that folks move out throughout the organization? Or is that a separate -- or would that be separate from this initiative?

Sandeep Lakhmi Mathrani

The answer is, I think you're asking 2 different questions, is we are taking this cultural fortification program to the entire company. So far, about 1,000 of the 2,000 employees have been through a process. Another 500 people are going to go through the process tomorrow. Coincidentally, when they get promotions, there is definitely a point where we all consider whether it's based on the promotions on how we work together, how we perform, whether we are entrepreneurial. These softer qualities are definitely important versus only the mathematical how much did you lease and what your EBITDA was?

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Okay. And then, Mike, for my second question, you guys obviously have done a lot with the balance sheet. And just given how competitive lenders are and how rates are low, how early can you go after the 2014 maturities? Like when can those discussions start in a serious way of being able to do refi activity with those maturities?

Michael B. Berman

We've done some already. We're looking to do a few more. And just given the rate environment and the current state of the capital markets, we're trying to move as quickly as we can.

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

So can you sort of quantify a number, like are there roughly $800 million or so that matures next year? How much of that can be done early versus you have to wait until next year?

Michael B. Berman

I think of the $800 million, I think we've done around half of it already.

Operator

Our next question comes from the line of Christy McElroy of UBS.

Christy McElroy - UBS Investment Bank, Research Division

Michael, does the 4.4% same-store NOI growth expected in '13 include the tax settlement? So does that reflect the 3.7% in Q1 or the 4.9%?

Michael B. Berman

It includes the 3. -- it includes the tax settlement so...

Christy McElroy - UBS Investment Bank, Research Division

It includes it? Okay. And what are you assuming for percentage rent growth?

Michael B. Berman

Percentage rent growth for the full year, I think, is roughly flat.

Christy McElroy - UBS Investment Bank, Research Division

Flat. Did you disclose the cap rates on Mall of the Bluffs and Southlake? And who were the buyers for these types of malls?

Michael B. Berman

The cap rates are kind of meaningless in those 2 situations. I -- the buyers are private buyers, more entrepreneurial than an established private equity firm.

Christy McElroy - UBS Investment Bank, Research Division

Okay. And just lastly, can you give us any sense for where you expect the CapEx to look like this year, so repairs and maintenance and leasing costs? Obviously, last year was a pretty big year as expected. Just trying to get a sense for what '13 should look like.

Michael B. Berman

'13 should look similar to '12, given the leasing activity. And the maintenance CapEx, I think, is a pretty good run rate what we did last year and this year. We might tweak it with incremental refreshes, but it's not a lot of dollars in the scheme of things.

Operator

Our next question is from the line of Jeff Donnelly of Wells Fargo.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Maybe just following up quickly on Christie's question. If the cap rates are meaningless, can you maybe just share with us where, roughly, where sales per square foot fell out on those 2 assets that were disposed off during the quarter?

Michael B. Berman

I think they were around $250 a square foot.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Okay. And correct me if I'm wrong. Just on Southlake, I think that was a default, actually? Or was that actually a sale?

Michael B. Berman

No, we gave that back to special services.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

I'm curious. Just -- in that case, I think the mortgage wasn't due until 2019. Does that just imply that, that property wasn't generating enough cash flow to cover the debt service and that was the reason to walk away?

Michael B. Berman

Yes.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Okay. And on JCPenney's, I'm just curious. Has Penny's reached out to guys or other landlords since the change at the top of the house? And do you guys have a view on maybe your return to the prior strategy? And do you see this as a positive light or -- what's your take?

Sandeep Lakhmi Mathrani

So we think -- we were obviously very supportive of Mike Ullman at the helm. He's an operating person. He understands the company well, understands the strategy well. And I think he can stabilize JCPenney, hopefully, relatively quickly. We think the strategy on the pricing, if that's what they focus back to, is actually the right strategy America wants a sale and you can't get away from that. Everyone has tried it. Walmart has tried it. Macy's has tried it. It's been difficult. So I think, going back to the strategy, a high-low strategy of having a sale is the right strategy. We can't take away from that fact that the stores actually look very good. The merchandise looks good. Now it's just a question of getting the right pricing strategy and stabilizing sales and starting to grow the sales.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

I think when Ron Johnson was there, for most part, the public landlords kind of towed the line, if you will, very supportive of even Ron Johnson's strategy. But I'm curious now that there's been that shift. Behind closed doors, I guess, were you and other landlords critical of their initiatives and trying to maybe address the falloff in sales with them? Because, publicly, I think that most landlords seemed fairly supportive of even the prior strategy.

Sandeep Lakhmi Mathrani

As a matter of fact, I've been very consistent saying that the one thing I strongly disagreed with what the sales strategy was the pricing strategy. And I think I still feel exactly the same way. I think the pricing strategy was wrong, and that you can't, unless you have a store completed in whatever form or fashion, and you've got the -- and you haven't lost customers, you can't change the pricing strategy. And so I've been very consistent that the way the stores look are very good, the pricing strategy was wrong. I'm still saying the same thing. You can't take away from the fact that the stores actually look good. The merchandise is good. Now we've got to get to where the private labels back, at which were sidelined, which was the driver of JCPenney. And you got to make sure the customer returns. But I think the customer will return if the pricing is right. Customers are not as loyal as we think. They focus on price. It's a big driver. The good news though, for them and for the mall owners though, is that reading transcripts of the various other anchor department stores, it seems that the sales have transferred within the mall. It didn't go off mall. So these are customers, still the mall customers.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

And just the last question on -- just the sources of your revenue growth the next few years. With the portfolio sitting at roughly 96%, is it fair to say that over the next 2 to 3 years, you expect the majority of incremental growth to be coming from the same-store rents? Or do you see that there's further upside in occupancy? I'm just curious how you guys see that breaking out.

Sandeep Lakhmi Mathrani

Okay. So firstly, we get to 88.5%, 89% permanently occupied today, we'd get at 92% by year end. We'd appreciate that leasing activity and the numbers really for the full year is 2014 for that 92% occupancy. So you are going to see the increase of the work we do this year next year like we are seeing increase this year than what we did last year. And we've come from 84% permanent occupancy to 89% in the last 2 years. We hope to get to 92% by year end. We think it will stabilize at, call it, 94%. So you will see another year of increase from leasing vacant space. 2 is -- again, we're not going to stop right there. You lease vacant space, you increase rents. Our spreads continue to be healthy, and you're going to see same-store spreads again to be the second driver of growth. And the third is the redevelopment pipeline, which is starting to come online slowly but surely in 2013. We'll get up to steam in 2015, '16 and '17. And hence we've said consistently, as we stabilize the portfolio from an occupancy perspective, our redevelopment pipeline starts to come online, call it $0.5 billion round numbers in 2015, '16 and '17 and call it 9% to 10% returns. That gets you to $40 million to $50 million growth in those years. So from now until 2017, we should have consistent growth. As we stabilize the portfolio, the redevelopment will come online.

Operator

Our next question comes from the line of Vincent Chao of Deutsche Bank.

Vincent Chao - Deutsche Bank AG, Research Division

Just a follow-up question on the JCPenney situation. Just curious after they had engaged with some folks to help them shore up their financing and prior to this announcement of a secured debt deal or term loan that they secured. I was just wondering if they had approached you or engaged with you guys in any significant way on sale-leasebacks prior to that announcement.

Sandeep Lakhmi Mathrani

The answer is, we hadn't engaged in any significant way, although we would have been a proponent of doing sale-leasebacks on these -- on a select number of assets.

Vincent Chao - Deutsche Bank AG, Research Division

Okay. And, I guess, as you think about the rate that they got on the secured term loan versus what you would be -- would have looked for in a sale-leaseback transaction, I mean, do you think you were in the ballpark as far as pricing wise?

Sandeep Lakhmi Mathrani

I think they got a good deal.

Vincent Chao - Deutsche Bank AG, Research Division

Okay, great. And then just on the same-store NOI growth, I mean, it seems like it's up a little bit from what you had talked about previously. It sounds like occupancy was a little bit better than you thought in the first quarter but the permanent occupancy expectation remained 92%. Just wondering, since you have started off a little bit better maybe than expected, what do you think the upside is to that 92%, I mean, if things continue to trend similarly to the first quarter?

Sandeep Lakhmi Mathrani

We're not going to project it to be higher than 92% at this moment in time.

Operator

Our next question is from the line of Josh Patinkin from BMO Capital Markets.

Joshua Patinkin

On the real estate tax items, it looks to me like it's about $12 million more than the prior few quarters. $6 million of that is explained. Can we expect real estate taxes to be higher from here?

Michael B. Berman

The $6 million was a net number. The actual expense was around $11 million, and we anticipate a $5 million recovery in that number, with an old long-standing case that incorporated a number of years, which would explain less than the normal recovery rate.

Joshua Patinkin

Okay. So we can expect it to normalize back to where it's been over the last several quarters?

Michael B. Berman

Yes. There's definitely pressure on real estate taxes throughout the country, but we think we hopefully have taken care of it in our guidance.

Joshua Patinkin

Okay. And then on the dispositions, going back to them. It looks to me like you guys got about $88.5 million and relieved $121 million of debt. Did -- so you made payments to the banks in that situation? Or would you mind going into those details?

Michael B. Berman

There was one loan we paid down a little bit of capital, but the other one was not.

Joshua Patinkin

Okay. And what does the private market for these types of assets look like today? Were there lots of interest in these assets?

Michael B. Berman

That's a very market specific, asset specific. You're talking about assets where they're -- we call them C class malls. They're entrepreneurs in different local markets. We've had a nice history over the last couple of years. I'm happy to find the 1 or 2 guys in the local market who might be interested in a particularly property. I wouldn't say there's a deep market for it, but we seem to be doing a very nice job of finding a home for many of these places.

Joshua Patinkin

Okay. And finally, on the secured corporate loan just announced. Any indication on -- if you'll swap that out to a fixed in the near term?

Michael B. Berman

We'll see. We have very little floating rate exposure. This is really it. The banks do have a requirement that above a certain rate of LIBOR, you are -- you put in an interest rate cap, that's like a 3% LIBOR. So there is a little floating rate risk there, but we feel comfortable with what's going on. If we see a change in the marketplace, we can always adjust and put on some protection.

Operator

Our next question is from the line of Cedrik Lachance of Green Street Advisors.

Cedrik Lachance - Green Street Advisors, Inc., Research Division

Just going back to JCPenney. In regards to the loan that they recently got, does that put an end to negotiations you might have had in buying joint venture interests that they have in 3 of your properties?

Sandeep Lakhmi Mathrani

No, it doesn't. Those are JV interests that are, I believe, carved out of the security. As we mentioned I think on the last call, of the 3 JVs that we have, there were 2 that we would have interest in at the right price. But we do have right of first refusal on those assets. And so at the right price, we'd be a buyer.

Cedrik Lachance - Green Street Advisors, Inc., Research Division

Okay. Going back to Merrick Park, are you able to share a cap rate on this transaction?

Michael B. Berman

It's around 5%.

Cedrik Lachance - Green Street Advisors, Inc., Research Division

Why were you not able to buy the entirety of the joint venture there? Were the other partners unwilling to sell?

Sandeep Lakhmi Mathrani

No, Cedrik, there were 3 partners there. We own 40% of the other 2 owned 60%. One of them was a seller who owned 30% and that was split between the 2 remaining buyers.

Cedrik Lachance - Green Street Advisors, Inc., Research Division

Okay. Then if a look at Page 17 in your disclosure, when we look at the bottom half of the page in-place rents for all less anchors in 2013 versus 2012. The number comes down a lot primarily in the consolidated mall portfolio. And I'm curious as to what caused that.

Michael B. Berman

We made a definitional change last June to include more big box in the -- all less anchored categories. So you'll see the numbers rightsize themselves next quarter. It doesn't really change the overall performance of the portfolio. Just given the level of activity that we had, we thought it was important to make that change.

Cedrik Lachance - Green Street Advisors, Inc., Research Division

So you're including more large boxes, let's say, the exporting goods or large H&M or Forever 21 in there that you did not include in 2012?

Michael B. Berman

For order of magnitude, the anchored category was including things that we felt were more important to include into the nonanchored categories.

Cedrik Lachance - Green Street Advisors, Inc., Research Division

Okay. Then final question, in regards to the expected 7% to 9% yield at the Woodlands from the transition from Sears to Nordstrom, it seems to imply a fairly healthy rent from Nordstrom. Is that the case? Or do you get -- or do you factor other additional income in your 7% to 9% expectation?

Sandeep Lakhmi Mathrani

So they cover things in the case of Woodland 1, it's obviously, the Sears wing we're adding a small expansion there. So it's the in-line GLA that's new. It is also just the year that we opened increase in rent in the Sears wing. So we have obviously been retenanting that wing to take the retailers, the type of retailers to the top. So only that 1 year's activity, incremental rent is included.

Operator

Our next question is from the line of Quentin Velleley from Citigroup.

Quentin Velleley - Citigroup Inc, Research Division

Just in terms of the 2013 same-store NOI guidance, just wanted to clarify. I know it has that one-off tax settlement unit, but were there any other one-off items in that guidance number?

Michael B. Berman

Nothing significant. The tax thing really was the driver.

Quentin Velleley - Citigroup Inc, Research Division

Okay. And then just in terms of the dividend. How should we be thinking about the dividend? The payout ratio is now very low, in the low 40%. What do you think a more normalized payout ratio might be? And, I guess, what other things need to be done on the balance sheet until you're more comfortable in maybe increasing that payout ratio further?

Michael B. Berman

Well, what we have said is we would follow along with our taxable income in terms of growth not necessarily focused on the payout ratio per se. We would expect, again, we have an upcoming board meeting. We'll likely talk about dividends, so I don't want to front run that. What we have said in the past is, we would expect FFO growth is up order of magnitude 10% per year. We would expect the dividend to be in that range.

Michael Bilerman - Citigroup Inc, Research Division

Sandeep, it's Michael Bilerman speaking. Just had 2 quick questions. Just on Brazil, obviously, some of the luster has come off recently in the region. I'm just curious how you're sort of thinking about your investment there and where things stand.

Sandeep Lakhmi Mathrani

Earlier the -- obviously, we all read even today's Wall Street Journal about Brazil. And the good news is the portfolio that we have comprises of 17 malls, or 6.5 million square feet, with a couple of malls under development, 2 malls under development. NOI has grown and EBITDA has grown over 30%. Same-store sales is over 10%. This shows predominantly a large part of the Rio and Sao Paolo market. So even though the economy slowed down, retail sales -- and it's been slow all of 2012. So we're looking at these numbers, you got 2012 numbers in comparison to 2011. On the contrary, I -- so I just gave some guidance on sales productivity of first quarter 2013, which seems to be, again, double digit higher. So at least, the type of malls that we own, which serve the middle market Brazilian seems quite stable. There's no job loss, jobs predominantly in agriculture and in energy and infrastructure. So, again, we feel quite good about the Brazilian investment.

Michael Bilerman - Citigroup Inc, Research Division

And just second, you talked at the beginning of the call about the changes on the warrants that you were able to negotiate. Can you just talk about what had to be given up? Or with that relationship with Brookfield, how the change going from cash to a stock option change sort of -- was there any giving back and forth or, I guess, what did...?

Michael B. Berman

Very simply, Brookfield was willing to give up the cash requirement that they had in the event of the takeover. That's what was putting it on as a liability in the balance sheet. They're willing to give that up and that allowed to be carry changed. It was not more complicated than that.

Sandeep Lakhmi Mathrani

And we didn't have to give anything to get that.

Michael B. Berman

Right.

Operator

Our next question comes from the line of Rich Moore of RBC Capital Markets.

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Following up for a second on Brazil. Is that -- is the 47% percentage change in NOI on Page 4 same-store? Or is that including new stuff that you put in?

Sandeep Lakhmi Mathrani

It includes the new developments that come in. Not same store. They don't have a same-store concept in Brazil.

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Okay. So you don't have any idea what that might be?

Sandeep Lakhmi Mathrani

We really don't.

Richard C. Moore - RBC Capital Markets, LLC, Research Division

You really don't? Okay, all right. And then on the anchor box thing, beyond JCPenney, are you guys in any discussions to do more of the purchase of anchor boxes owned by the anchors themselves? Is that kind the kind of a big deal at this point? Or is that like the Sears deal has sort of passed?

Sandeep Lakhmi Mathrani

We've been, since day 1, a buyer of our anchors as when they become available, whether they are leased or not. We bought 2 Neiman Marcuses that were leased to Neiman Marcus early in the game. We bought the [indiscernible] boxes from Eastridge. We bought the Sears boxes. Sears, we bought some Bloomingdale boxes from Bloomingdale's, also Macy's. And so as and when they become available and we are proactive in some cases, it's going to be part of our business.

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Okay. So nothing really going on at the moment, Sandeep?

Sandeep Lakhmi Mathrani

No.

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Okay. And then, Michael, on the -- I'm curious how you're thinking about the use of the core, the operating guidance. Now that you've gotten rid of the warrant issue and you've basically moved beyond the Rouse prepayment type issue. Is there any need for that metric? Can we just use regular FFO going forward? Or what do you plan to do there?

Michael B. Berman

We still have some lingering issues from the bankruptcy that are just going to last until they burn off. It may be years before some of the items burn off, obviously, they're not as big any more. It's difficult to separate out the straight line rent issues between what was before and what was after. So I think the cash numbers will continue to be what we do to explain how we're operating. I think cash is the best way to do it personally. So you may still see some of these adjustments, but the big ones are really over.

Operator

Our next question is from the line of Michael Mueller of JPMorgan.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Looking at the lease spread data and all the leases signed there, it looks like the average duration is under 6 years, call it, 5 to 6 years. And intuitively, it just seems a little bit shorter, given how well sales have done, where occupancy is trending. And, I mean, is that the number that you expect to see move closer directionally to, say, 10 years over the next few years?

Michael B. Berman

Most of the new deals are done order of magnitude 10 years. The renewals have average order of magnitude 5, then there's still a bunch of renewals to go. So that number may change.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Okay. So basically, it's renewals pulling that down?

Michael B. Berman

Yes.

Operator

Our next question is from the line of Ben Yang of Evercore Partners.

Benjamin Yang - Evercore Partners Inc., Research Division

You guys were obviously very active with closing several noncore malls over the past year. A pretty big chunk of the portfolio so maybe a more meaningful impact on some of your metrics than typically is the case. I'm just curious, maybe focusing on those, can -- do you have the same property tenant sales growth over the past year excluding the impact of these noncore dispositions?

Michael B. Berman

You're asking -- one more time, Ben. It's been hard to hear you.

Benjamin Yang - Evercore Partners Inc., Research Division

Well, I mean, the noncore mall sales out of the denominator of your sales growth metric. I mean, the 6.3% was the reported number. But if you took those out, I mean, what was kind of the same property tenant sales growth, again, excluding the impact of these noncore dispositions?

Michael B. Berman

It would've been around 5% if you did it purely on a same-store basis.

Benjamin Yang - Evercore Partners Inc., Research Division

Okay, great. And then sticking on dispositions, coming back to the Mall of the Bluffs, the loan was cross-collateralized and had some recourse to GGP. You basically had to sell $18 million to sell it. It doesn't look like the mall went to the servicer. So I'm curious why you ended up selling the mall, given the fact that there was still some term left on the loan. And -- but also it looked like you bought 2 anchor boxes at this mall last year as well. So while sell now versus kind of wait it out?

Sandeep Lakhmi Mathrani

It was part of the cross-collateralized loan that we refinanced. And so to take us out of the cross-collateralization, we had to pay down the loan.

Benjamin Yang - Evercore Partners Inc., Research Division

Okay. And then the anchor box purchase last year, was this kind of all contemplated at that you would do this matured loan? Or did you have other plans for the mall when you decided to buy those anchor boxes back? Or I'm curious what the intent was back then.

Sandeep Lakhmi Mathrani

They were part of a bigger transaction. So in the case of the target box, we did a couple of deals as part of the bigger transaction. It's just a question of allocation of dollars.

Benjamin Yang - Evercore Partners Inc., Research Division

Okay. And maybe just final question. I mean, you previously made some positive comments on the B mall space, given what you're seeing in the portfolio. I mean, has that changed at all over the past few months in the new year? Are you still generally positive on the B mall space that these properties have stabilized for the most part?

Sandeep Lakhmi Mathrani

Yes.

Operator

Our next question comes from the line of Nathan Isbee from Stifel Nicolas.

Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division

You took advantage in the first quarter the -- with the preferred. I'm just curious what your thoughts on or some other steps you might take on the balance sheet side in the near future, perhaps initiating an ATM given the recent run-up in your shares.

Michael B. Berman

I think we're going to take a couple of hours, and take a deep breath after the full, fast and furious first quarter. Capital markets grew this quite active. I don't think we will institute an ATM. We appreciate the rise in the share price, but, see, our funding needs are generally taken care of given our current financing plan.

Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division

Okay. I mean, but -- wouldn't you say that, clearly, it's not going to happen overnight. But wouldn't you say ATM would be a good way and perhaps a sign to the market of your intent to slowly and perhaps more incrementally reduce leverage?

Michael B. Berman

Yes. We think the best way for us to make a meaningful impact on the leverage rather than trickling out through an ATM program is to continue to focus on operations, get the EBITDA to continue to rise at a 5%, 6% pace. Those are pretty heavy-duty numbers.

Operator

And I'm showing no further questions in queue. I'd like to turn the conference back over to management for any closing remarks.

Sandeep Lakhmi Mathrani

Thank you for participating in our earnings call this morning. If you have any questions, please contact Michael or Kevin Berry. Have a great day.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect. Have a great rest of the day.

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