Taubman Centers' CEO Discusses Q1 2014 Results - Earnings Call Transcript

Apr.25.14 | About: Taubman Centers, (TCO)

Taubman Centers, Inc. (NYSE:TCO)

Q1 2014 Results Earnings Conference Call

April 25, 2014, 11:00 am ET

Executives

Barbara Baker - Vice President, Corporate Affairs and Investor Relations

Robert Taubman - Chairman of the Board, President and Chief Executive Officer

Lisa Payne - Vice Chairman of the Board, Chief Financial Officer and Director

Analysts

Craig Schmidt - BoA

Samir Khanal - ISI Group

Christine McElroy - Citi

Alexander Goldfarb - Sandler O'Neill

Albert Lam - Morgan Stanley

Michael Mueller - JPMorgan

Todd Thomas - KeyBanc Capital Markets

Vincent Chao - Deutsche Bank

Ben Yang - Evercore

Tayo Okusanya - Jefferies

Andrew Rosivach - Goldman Sachs

Michael Bilerman - Citi

Operator

Thank you for holding, and welcome to the Taubman Centers' first quarter 2014 earnings conference call. The call will begin with prepared remarks and then we will open the line to questions.

On the call today will be Robert Taubman, Taubman Centers' Chairman, President and Chief Executive Officer, Lisa Payne, Vice Chairman and Chief Financial Officer and Barbara Baker, Vice President, Corporate Affairs and Investor Relations.

Now, I will turn the call over to Barbara for opening remarks.

Barbara Baker

Thank you, Nicole, and welcome everyone to our first quarter earnings conference call. As you know, during this conference call, we will be making forward-looking statements within the meaning of Federal Securities laws. These statements reflect our current views with respect to future events and financial performance, although actual results may differ materially. Please see our SEC filings, including our latest 10-K and subsequent reports for a discussion of various risks and uncertainties underlying our forward-looking statements.

During this call, we will also discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included in our earnings release and in our supplemental information.

In addition, a replay of the call is provided through a link on the Investor Relations section of our website. When we get to questions, we ask that you limit them to two and then if you have more, queue up again. That way everyone has the opportunity to ask a question.

Now, let me turn over the call to Bobby.

Robert Taubman

Thanks, Barbara, and good morning, everyone. Yesterday we released our results for the first quarter of 2014. FFO $0.90 for the quarter was even with last year. Lisa will talk about the year-over-year variances shortly, but as I said in the release, this result was generally in line with our expectations and we are maintaining our guidance.

Comp center occupancy was the same at 90.3% on both March 31, 2014 and 2013. This result is consistent with our guidance that occupancy will end 2014 about even albeit we may have some quarterly fluctuations. Lease space in comparable centers was 92.6%, up 0.4% and a healthy 230 basis points higher than ending occupancy.

Comp NOI for the quarter, excluding lease cancellation income was up 2%. We were negatively impacted by higher than expected weather related expenses, including snow removal and utilities. These costs negatively impacted our NOI growth by over 100 basis points. Keep in mind that a $1 million in quarterly variance causes roughly a 60 basis points swing in quarterly NOI growth.

On a portfolio wide basis, our releasing spread was about 11%. As we said in the past, given the size of our portfolio, our releasing spread percentage is a very sensitive number. You can certainly see it in the unconsolidated joint ventures up 39%, while our consolidated center spread was flat. Remember, it is not necessarily same space, same tenant or even same center. In addition, the mix of centers can greatly impact the figure and as a result, our leasing spread numbers sometimes fluctuate immensely. This quarter is a perfect example of that.

Rather we would point to the consistent combined portfolio growth we have had and the steady average rent per square foot growth that we generated the last few years. Average rent per square foot for the portfolio was $50.21 in the quarter, up 3.6%.

Now turning to sales. Trailing 12 month sales are now $712 per square foot, down 0.7%. For the quarter, sales were down 5.7%. It is difficult to pinpoint precisely the cause. There were a lot of potential factors. The harsh winter. The four week, five week January retail calendar and of course the late Easter. As we look at our categories, women's ready-to-wear, junior apparel and electronics are still hurting. In fact, excluding Apple, our sales trend for the quarter would have been nearly 200 basis points better.

Home furnishings remained strong. Full-service restaurants and jewelry also performed well. Generally speaking, luxury outperformed non-luxury. We don't think this quarter is a trend, neither do the retailers we talked to. Leasing demand is good. Leasing activity has been strong and our occupancy remains near all-time highs.

Now for an update on our development projects. At University Town Center in Sarasota, Florida, we remain on schedule for October 16 opening later this year and on track to meet our projected cost of $315 million and return of 8% to 8.5%. The names of many tenants have started to become public through the permitting process. We are not announcing stores this time, but we are over 90% leased and committed. We are very pleased with the merchandising which will feature over half our stories unique to market. We are excited to be opening this center soon and welcome you to come to the opening.

Construction continues at The Mall of San Juan. Both anchors, Nordstrom's and Saks are also well along in their process. The new interchange to our site is coming along steadily and will be completed this fall. We are now 98% bought out and remain on our cost budget of $475 million.

On the leasing front, we are not ready to provide a list of tenant names but to give you a flavor, we are delighted to announce that both Louis Vuitton and Gucci will be leading the lineup of the many luxury names that will open with us in this project.

At International Market Place in Hawaii, our groundbreaking was in March. We began the demolition and plan to start full construction later this summer. We have had tremendous response from retailers and restaurants as we have begun leasing the project. We believe this will be one of our most productive centers.

For Miami Worldcenter is South Florida, we continue working on documentation with both the landowner and our development partner, The Forbes Company. We are not yet in a position to announce costs and returns. We would expect to do so by year-end.

Now in Asia. We continue to make progress on construction, leasing and financing for all three projects. We are still a year and half away from our first opening. In addition, we have begun leasing for a fee, the retail portion of Studio City in Macao. This is similar to our arrangement as a service provider in South Korea, where we are leasing and managing IFC in Seoul.

Studio City is a large cinematically themed integrated entertainment and gaming resort. It is nearly 3,000 square feet of retail space. We will not be an investor in the project but it is very synergistic with our other Asian business. Our Asia team is focused on the execution of these projects. We do not anticipate announcing any new developments in Asia in 2014.

On the redevelopment front, everything is progressing normally on projects that we disclosed last quarter. As a reminder, we have five projects totaling an anticipated investment of $265 million. We expect to receive a weighted average return of 7.5% to 8%.

I will now turn the call over to Lisa and return at the end with some closing comments. Lisa?

Lisa Payne

Thanks, Bobby. I will first talk about our year-over-year FFO variances and they are listed on page nine of the supplemental. This quarter, our FFO per share was $0.90, equal to our first quarter 2013 FFO per share.

Taking a look at the variances, first rent. Rents are up $0.04 from the prior year. This is due to increased rent per square foot in our centers and a modest increase in average occupancy.

Next, percentage rents. We are unfavorable by $0.01 from lower sales. As Bobby said, sales were negatively impacted by a few items including weather.

Net recoveries were unfavorable by $0.01, also a result of weather related expenses, including snow removal cost. Other income, unfavorable by $0.01, primarily a result of lower national sponsorship income.

General and administrative expense was favorable by $0.01 primarily due to the timing of certain expenses. We continue to expect our quarterly run rate to be between $12 million and $13 million.

Non-operating income, unfavorable by $0.015, mainly a result of gains on the sale of marketable securities and a land sale in the prior year. These are two of the one time items Bobby mentioned in the press release.

In addition, the impact of the preferred equity offering that we completed in March of 2013 affected our results unfavorably by $0.015. This is the final quarter that we will have this variance.

Interest expense was favorable by $0.05, a result of numerous items. We had interest savings from the pay-off of our loans on Beverly Center and Stony Point and greater capitalized interest on our development projects. Also our loan on the mall at Green Hills is now floating at favorable rate as we proceed with the expansion of the center.

And then finally the impact of our recent dispositions and non-comparable centers affected our results unfavorably by $0.04 in the quarter. A little more than half is due to the disposition of Arizona Mills and our 49.9% interest in IP. The rest is a result of Chesterfield.

Turning to our balance sheet and the quarter's financing activity. Earlier this month, we closed on the construction loan for The Mall at San Juan. We obtained over 65% loan to cost on the facility. The $320 million loan has a three-year initial term with two one-year extension options. It's interest-only for the entire term. The spread is 200 basis points over LIBOR and may be reduced to 175 basis points upon meeting certain conditions. We were very pleased with the terms we received and the strong interest from lenders on this project. The loan was led by U.S. Bank and J.P. Morgan Chase. In total nine banks are participating in the loan.

We plan to begin working on the construction loan for International Market Place in Hawaii this fall. IMP is scheduled to open about a year after The Mall of San Juan. In March, we extended our secondary line of credit. This is our smaller $65 million line. The interest rate is unchanged. It will continue to bear interest at LIBOR plus 140. The line will now expire in April 2015. The completion of this transaction means we have no more maturities in 2014. We don't have another loan due until April 2015.

We are very happy with the status of our balance sheet. At March 31, the weighted average rate on desk was 4.28% and we had a debt to total market capitalization ratio of less than 34%. Further, our debt to EBITDA ratio stands at 6.6 times, a number we are very comfortable with. Having completed these financings and the transactions in January, we are currently in a net cash position with over $1 billion of availability on our line of credit. We remain committed to preserving our strong balance sheet, conservative leverage and laddered maturity.

I will now turn it back to Bobby. Bobby?

Robert Taubman

Thanks, Lisa. As we said in the release, we are maintaining our FFO guidance. Now we would like to open up the call for questions. As Barbara said, please limit your questions to two. Nicole, are you there, please?

Question-and-Answer Session

Operator

(Operator Instructions). Your first question come from the line of Craig Schmidt from BoA. Your line is open.

Craig Schmidt - BoA

Thank you. I was wondering if you have looked into the land site at 223, Canoe Brook Road next to Short Hills? Could that have been the possibility for expansion at that center?

Robert Taubman

Craig, we have spent a lot of time looking at every possible contiguous land parcel anywhere near Short Hills. So I think that's all I can say though on that particular piece of land.

Craig Schmidt - BoA

Okay, and then are you thinking about any dispositions of your portfolio?

Robert Taubman

Well, I mean, there is no question that there is plenty of demand out there for good regional mall assets, as was evidenced by our sale of International Plaza. Be clear, as Lisa just outlined, and I always feel strongly that our balance sheet is very strong, really strong as it sever been with the most liquidity that we do not need to do anything at all in order to fund our development pipeline. We have always had a strategy to recycle capital for growth and if it makes sense at some point to do something we will, Craig.

Craig Schmidt - BoA

But you are not marketing anything right now?

Robert Taubman

Well, if we were, we certainly would make any comment about it.

Craig Schmidt - BoA

Okay. Thank you.

Operator

Your next question comes from Samir Khanal from ISI Group. Your line is open.

Samir Khanal - ISI Group

Good morning, guys. On sales, weather was clearly an issue but can you talk about maybe sales in other parts of the country, like in malls in may be in Florida or maybe even in Denver where weather was not as bad as many parts of the Northeast or Midwest?

Robert Taubman

Yes, there is no question that Denver and other parts of the West were much better than the Midwest and Northeast. In Florida specifically, there was impacts. There were impacts from canceled flights. Supposedly in the first quarter, there were 80,000 flights canceled in the United States, largely weather-related. It was way over the normal number. So as you think about Orlando as an example or Miami, where there is a huge tourist population from the Northeast, there were plenty of families that had their vacations canceled or shortened as a result of planes that were canceled on them, because of snow issues. So there is no question that travel was impacted in Florida as a result of the weather conditions in the Midwest and Northeast. In addition, in Florida we are seeing the impact of the Venezuelan policies. We have a significant proportion of people that live, as an example around the Dolphin Mall, that are Venezuelan and that country has limited the amount of cash and credit that people can spend in the United States on a yearly basis. You also have the well-known and was discussed in the media issues in Brazil. But as I said, this first quarter, while negative on trend, neither us nor our retailers that we talked to believe that this should sustain itself through the year.

Samir Khanal - ISI Group

Okay, and secondly, can you provide any further color on maybe the financing environment in Puerto Rico, especially after closing on your loan? Maybe how rates compare to what you are seeing in stateside, in domestic U.S.A. I think everybody understand that U.S. retailers on the island do well in terms of productivity. But any color on the financing side would be certainly helpful.

Lisa Payne

Well, I guess we were very pleased with what we hope to accomplish on the construction loan and frankly going into it. This one is going to be a new kind of transaction for us in Puerto Rico. So we are pretty positive that with the center, we won't need to refinance this now loan for up to as long as, I guess, four or five years. At that point, we should have a very productive operating asset. We feel very good about the ability to get institutional interest. There have been major insurance companies that have done loans in Puerto Rico and I think it is going to be based on the quality and the sustainability of the asset. It is still viewed as one of our territory. So it is unlike we are going, it's not like it is in Asia and I think we have seen good quality institutions making long-term real estate loans and doing well there in that state.

Robert Taubman

And I would just add that the whole bond deal, obviously this was well oversubscribed, I think alleviated a lot of pressure and a lot of view that is the negative on Puerto Rico. It hasn't solved all the problems, but it really made a difference. And tourism is just incredibly strong. I mean, it continues to grow at very good rates. So we are very positive on Puerto Rico long-term and we are delighted with our assets and the way it is coming together.

Samir Khanal - ISI Group

Okay. Thank you.

Lisa Payne

I would just say that the spreads that we saw were modestly higher in Puerto Rico, but not that significant.

Samir Khanal - ISI Group

Okay. Thanks, guys.

Operator

Your next question comes from Christine McElroy from Citi. Your line is open.

Christine McElroy - Citi

Good morning, guys. Just looking at your releasing spread, Bobby, I appreciate your comments. I know it's not a same case number. So I am wondering if you could talk a little bit about the mix of what's opening and closing and maybe anecdotally what are average rent spreads on a same case basis for leases that are being executed and commencing this year? And how would you expect the number that you report to trend for the balance of the year?

Lisa Payne

I will take that one, Christy. As Bobby did say and we have said it to all of you, probably you are tired of hearing us say it, but it is a very, very volatile number and that's why we point you to focus on the average rent per square foot growth, which is less volatile and much more consistent.

Here is the example. In this quarter, if we pulled out four of our consolidated centers that we are doing some remerchandising and/or redevelopment, if we had pull those four out, the spread would have been 19% instead of the 11%, and the consolidated, instead of being negative, we would have been 8%.

Now, I do want to mention the reason we do this statistic the way we do it, is because this is actually what's hitting NOI in the quarter. So it is the explanation, it's what's opening and closing in the quarter. It is a direct linkage to NOI. Those of our peers and it is not wrong, but when they are doing openings and closings in same space, for us that could be definitely not in the same quarter, it could be in the quarter if you had a renewal but we do clearly a lot of renewals but we do a lot of remerchandising. So the reason, historically we have done it the way we have done it, is as we manage this is what is impacting our NOI back in the quarter directly.

But I gave you that example. We do believe that this year, we expect opening rents to increase more in back end than we saw this quarter .So we do expect opening rents to increase.

Spread is dependent on closings. Obviously much more difficult for us to project if we had more unscheduled, and we are seeing more unscheduled this year than we had in the past with certain of the bankruptcies and other things happening. We are seeing a little more unscheduled. So much more difficult to predict the closing.

So I hope that's helpful.

Robert Taubman

Yes, and Christy, let me say what I said in my comments. Leasing demand is good and leasing activity has been strong. So we continue to believe we are going to see good average rent growth through the year. We feel good about it.

Christine McElroy - Citi

Very helpful. Thanks. The second question is, you found meaningful uptick in your cash balance obviously following the assets sold in the quarter. Can you give some color on how you are thinking about the stock buyback program today in terms of near-term use of proceeds? Have you bought back anything, any stocks since the end of the quarter?

Robert Taubman

Well, we are not going to comment on sort of the timing or the amount of our repurchases, Christy. As we said in the supplemental, we continue to have $148 million available and when we think it makes sense and we think it is appropriate, we will buy more and there are always a lot of reasons that you make decisions on repurchases. So its very hard to comment at a specific moment in time.

Christine McElroy - Citi

Thank you.

Operator

Your next question comes from Dan Oppenheim from Credit Suisse. Your line is open.

Unidentified Analyst

Hi, guys. This is Chris for Dan. Couple of questions on Miami World. Obviously, you landed two great anchors for the project and I was just wondering if you could provide an update on the interest from the in-line space and have you seen that those anchor have led to a significant demand for the in-line space?

Robert Taubman

There is no question, you are right to focus on those two anchors. Macy's and Bloomingdale's are by far and away the dominant stores in Florida and in Southern Florida, especially for Bloomingdale's. Everything we see about Miami is that there is tremendous demand from retailers for more supply. There is a tremendous limit on supply for all kinds of reasons, the entitlement process, the availability of land. It is just a lack of retail supply and you are seeing it reflected in some of the greatest shopping centers in the country.

Our center, Dolphin Mall is one of the best, but there are a bunch of other great centers there and you can talk about Sawgrass, Bell Harbor, Aventura, Dadeland. There are great centers at very high volumes and the reason is that there is a growth in that market. There is excellent tourism in that market. And there is nothing that appears its going to abate it. There is really tremendous demand from the retailers that we talk to for more locations there and you see it in the supply that there really are three projects that are being created on a simultaneous basis.

The Design District to the north of us about two miles and then the Swir Brickell project that's about a mile south of us. The one south of us is about 600,000 feet and the one north of it is part of a bigger mixed-use project. But again, it is a likely to be about 600,000 feet. The Design District is meant to be very focused on luxury. We are at the very focused on tenants that should be next to Macy's and Bloomingdale's. We think also that Brickell will probably be in a similar mode.

So that there is a tremendous amount of supply, but there is a tremendous amount of demand in that market and we are also working to, in a sense, those three projects should be very synergistic to the demand.

Unidentified Analyst

Okay. It sounds like the conversations are still ongoing with your partners there. But is there any update on your ownership share that you have in that asset?

Robert Taubman

No. Until we get further down the road, it's a later triggering point and when we put out there the cost and the returns, at that time, we will likely be talking about whether we will be a third or as much as a 50% owner in the project.

Unidentified Analyst

Thank you very much.

Robert Taubman

Thank you, Chris.

Operator

Your next question comes from Alexander Goldfarb from Sandler O'Neill. Your line is open.

Alexander Goldfarb - Sandler O'Neill

Good morning out there. Just first, nice job on the San Juan loan. Certainly a lot tighter than we expected. Two questions here. First, just going back to the dispositions, do you guys have a set level of development, like a ratio of development assets, to stabilize assets that you look to maintain? Or is it more of a floating level so that you are not looking to maintain a certain asset base relative to a development pipeline?

Robert Taubman

No. Alex, there is no absolute platform size level. As I said, recycling capital has always been part of our thought process. We started life as a public company 22 years ago with 19 properties. Along the way we built 14 and we acquired 10, but we sold 19. So that on net basis, we have gone from 19 to 24 assets. Yet we more than quintupled the size of the company. So we are not shy about changing and evolving the mix of our centers and we are really the only ones out there that are doing that within our sector in the same way. So this is just normal for us, what we are doing. We are trying to find the best assets always and we are trying to build growth in our portfolio and in development you find assets that over time will be able to grow better typically. So the combination of the two has worked very well for us, and we have got a great crop of properties in front of us now. So we think the next period of years will be very healthy for the company.

Alexander Goldfarb - Sandler O'Neill

Okay. I mean obviously right now there is a huge opportunity, as you guys pointed out, given everyone seems to want to own B-mall. So clearly there is a window now. On going to Christy's question, on the move outs, can you just give a little bit more color, sort of what is a typical year? What percent of move out is typical and what that level is now? And are you seeing more move outs at like 50 yard line space or is it sort of scattered where it's scattered throughout the mall? Just trying to get a sense of what the upside is from some of these move out spaces.

Lisa Payne

I do not think this year is atypical. I would say, as you saw in the spread of the new JVs that we are very, very strong. We did have some malls in Millenia that absolutely impacted that goes back to this volatility where when you have a center like that that's reaching its normal role, you will see it. I think probably the biggest impact for our spread is the mix. Definitely the mix. If in a certain quarter, we have more openings and/or closings, more closing from centers that are more highly productive therefore higher rent, that mix and it's definitely different pools in both of those opening versus closing. But I have actually ask David Joseph what's our percentage role versus percentage renewal. My guess is, it will probably half and half, but I don't really have direct data to prove that as to how many of them do not renew in place and actually I am not sure frankly we get higher rents from one versus the other. We are always driving for the best merchandise and the best rents we can.

Alexander Goldfarb - Sandler O'Neill

Okay. Thank you.

Robert Taubman

I would only add that I think it's much less than half that actually renew in place. I think historically, it has been less than a third that actually renew in place. We will get tenants that stay in the shopping center, they get bigger or smaller based on their newest concepts and their newest programming. But it does change based on the mix of the center and the timing and everything else.

Alexander Goldfarb - Sandler O'Neill

Okay. Thank you.

Operator

Your next question comes from Haendel St. Juste from Morgan Stanley. Your line is open.

Albert Lam - Morgan Stanley

Hi, guys. It's Albert Lam for Haendel. Your occupancy cost is 14.5% which is the highest it has been in the past few years. Can you remind us where you think you can push this going forward if you continue to expect higher rents?

Lisa Payne

Well, I guess first of all for the full year in 2013, it was about 13%, a little bit more than 13%. So I do think you are at generally this quarter occupancy costs is at a higher level than what you would expect over the full 12 months. And we do think it peaks as a portfolio probably in the mid 14% to upper 14%. So we do think we still have more room to push rents.

Albert Lam - Morgan Stanley

Okay, and then you mentioned in your opening remarks that luxury was doing better than non-luxuries. Can you dive a little deeper to break out which retail segments did particularly well?

Robert Taubman

Well, I don't want to get specific with the names but I would say that women's specialty in the luxury was pretty good. Fine jewelry was very good, and not just one or two names, but a handful of four or five names in fine jewelry were good. Actually jewelry was also good for moderate priced. But I think generally women's specialty and jewelry were the two areas in luxury that were the strongest.

Albert Lam - Morgan Stanley

Okay. Thank you.

Operator

Your next question comes from Michael Mueller from JPMorgan. Your line is open.

Michael Mueller - JPMorgan

Yes, thanks. I was wondering, is there any update at this point for Stamford Town Center with the Saks box and even just how you are thinking about that center with the general growth development up the street?

Robert Taubman

Obviously, we have spent a lot of time thinking about Stamford. Stamford continues to do pretty well. We have a lot of good tenants in there. The restaurant wing that we created has really expanded its draw of the shopping center pretty dramatically and the town itself has done well. So we are continuing work with the city as well as potential retailers on the Saks box and we have not yet come to the conclusion about the best opportunity for that center. There have been discussions out there about the (inaudible) site but we are pleased with our progress at Stamford for the time being.

Michael Mueller - JPMorgan

Thank you.

Operator

Your next question comes from Todd Thomas from KeyBanc Capital Markets. Your line is open.

Todd Thomas - KeyBanc Capital Markets

Hi, good morning. Jordan Sadler is on with me as well. First question, just following up on the occupancy costs. For the full year, I understand that it will likely flatten out when the fourth quarter is taken into account but year-over-year, in the quarter it was up 120 basis points. So I know that you encountered robust sales growth over the last few years but now occupancy costs are rising as we see the first hint here of slowing sales and sales fell somewhat abruptly now over the last few months. So do you think that you will get the rent growth over the coming years if sales don't reaccelerate in this environment and are conversations with retailers changing at all over the last few months here?

Lisa Payne

I will talk about occupancy costs. I will let Bobby talk about conversations with retailers. In 2009, we were up as high as nearly 16% in the whole portfolio. The year was 15.8%. Clearly we saw the 14.5% this quarter is a direct, all it was is max, sales dropped. It wasn't like that that's what happened. We have always said that, yes, if sales would continue to moderate decline, you are going to have a much tougher time. The retailers are going to have a different mindset. We do not believe, as we said, that this first quarter is a trend and we do believe particularly in our high quality assets that we are going to have as a place for retailers they want to be and they aren't building them like this and we have some of the best in the country and particularly in those kind of assets we are going to be able to push rents further than we have them today. Sales are critical to our business.

Robert Taubman

Yes. I think Lisa said and I said it earlier, there is very good tenant demand. Leasing activities has been strong. Our average rent growth is maintaining itself at a very good pace, as it has throughout the last several years. There is no new supply being built. We are the only ones building new shopping centers out there and the supply demand factors are there. There is market value for our space, regardless really of how sales are doing, but over time, retailers, they do more business in a location that make more money in the location are willing to pay more rent to be in that location. So that's how market rent gets shaped and if there is very little supply and there continues to be very strong demand there will be pricing power. So we think that over time our average rents are going to continue to grow, just as they did this quarter.

Lisa Payne

I would add that as we think of sales and I think this is clear that as the retailers are dealing with omnichannel alternatives, our centers and the quality of our centers, their sales definition is maybe broader than what just happened literally at our cash register. Because they are doing a lot of business with their brands in our centers and when we talk sales, these retailers are doing incredibly well, given their omnichannel approach and there is no place they can be that just demonstrates their brand than in the kind of malls we own.

So we do feel that one of the reasons I think we continue to have very strong discussions with these retailers because in our malls is where they want to show their brands to their customers that may buy all different ways. And you may add to that, Bob. It's kind of a clarification of what you were saying.

Robert Taubman

I think it is extremely well said.

Lisa Payne

We call sales a very broad definition of clearly its what's in the store, its also what that store means to their sales productivity as a retailer.

Robert Taubman

The brick and mortar is critical for the omnichannel retailer and our assets are very dominant assets in nearly every market that we operate in. So we feel very well positioned, and it is critical to their branding and distribution and their ability to really present their brand the most holistic way to have the physical brick and mortar locations that they do have. Thank you.

Todd Thomas - KeyBanc Capital Markets

Okay. Thank you. That's helpful. And then just second question. I know that the hotel and casino in San Juan does not directly impact Taubman's development, but just curious if you could share with us what the latest, most recent developments are with regard to the other components there? Anything you can share would be helpful.

Robert Taubman

Sure. It does appear our partners' financing of the hotel is moving forward. In any event, the hotel opening is going to be subsequent to the opening of the center. They have negotiated for a 225 room four-star brand, which we cannot announce, which is an excellent brand. And it's likely the hotel will now open in 2016. At some point in 2016. But we are hopeful that the financing will be complete soon.

Todd Thomas - KeyBanc Capital Markets

Okay. Thank you.

Operator

Your next question comes from Vincent Chao from Deutsche Bank. Your line is open.

Vincent Chao - Deutsche Bank

Hi, everyone. I appreciate all the comments on the spread and the volatility of the spread in the given quarter. But I am just curious you think we should be thinking about just the broader trend, which seems to be downward here over the past, say, four quarters or so, fairly consistently? Just curious, what your thoughts are there?

Lisa Payne

Well, I guess, I need to be a broken record but I guess I would point to the fact that we did continue to grow average rent per square foot for the quarter, up a healthy 3.6%. So again we do expect, we are expecting opening rents to increase through the year and we feel very good about our NOI growth for the year, and frankly, I think that's what we will point you to. What's going to happen next quarter on spread, is just very difficult for me to project.

Robert Taubman

If you look at average rent, quarter-by-quarter, over the last several years and even beyond, it's very, very steady. It tends to be between 2%, 4%, 4.5%. It is always within that range. And that's really what matters. Because that's really what shows you where cash flows is going to go.

Vincent Chao - Deutsche Bank

Okay, and just maybe a different topic. I thought I heard, Lisa, you say that about half of the year-over-year difference in the dispositions in non-comparable centers was Chesterfield? Is that correct?

Lisa Payne

No, it was over half was due to Arizona Mills, and less than half was due to Chesterfield. I am sorry, IPM Arizona due to discontinued the sale process we went through, then less than half was due to Chesterfield.

Vincent Chao - Deutsche Bank

Okay, well, I guess I will maybe just ask it another way. Can you give us an update on how things are trending there, leasing activity? And when that may not be a negative variance?

Robert Taubman

Well, the key brands are doing well and new leasing has been strong and we announced the Coach which is a very important brand for the outlet sector, and it goes with brands that we already have there like Polo, Ralph Lauren, Banana, Gap, J. Crew, Restoration Hardware. People like that. It is a very competitive situation. As we said over time, we would expect that this will be a successful center and a sustainable asset and it is going to be negative through the year and hopefully it will get better. This would be sort of the bottoming out and in 2015 it will improve.

Vincent Chao - Deutsche Bank

Okay. Thanks.

Operator

Your next question comes from Ben Yang from Evercore. Your line is open.

Ben Yang - Evercore

Hi. Thanks. Lisa, you just mentioned that sales are critical to your business. One of your malls here talked about how sales really have no correlation with their ability to grow their NOI and cash flow because they are kind of like underperformers. It just seems like the dynamic is a little different for you guys. And I was just wondering if you had any thoughts on why that might be the case?

Robert Taubman

David's right. There is a market rent for space and at some point the sales productivity is less important to the extent that there is demand, and only X amount of limited amount of supply. Historically, sales have been the barometer. They continue to be the barometer of profitability in a store, but as Lisa said, that sort of broadening with omnichannel retailers is making sales only one way, only one data point. There is another data point which is just broadly the synergy that occurs as we tell that brick-and-mortar and what happens on that app, on that phone, either in the store, when they leave the store, when they are at home or you know later that night or two days later based on what they saw. So these dominant assets, they absolutely have a market rent. And that market rent does move with demand and supply. So if you are the dominant asset, you are going to get rent and even if sales start to shift. So you absolutely hear me say, David is right.

Lisa Payne

I think it's a little bit of how you define sales and what I would suggest is that really dominant assets where the tenants want to be, the tenants that are driving through many of their channels of their omnichannel, will not necessarily just look at the sales they are doing in that mall in that store. But I think there is still the need to continue to focus on as we think of our marketing programs, sales are still a very important component. But they are considering other things that they look at the quality of the space and the quality of the mall and how it is going to impact their brand with what they are trying to do with their omnichannel business.

Ben Yang - Evercore

Sure. So that makes sense, but I guess I am trying to get a sense if you think that maybe your sales and hence your rents are topping out. It's tough to grow when you don't have that population and income growth, and it is really kind of a victim of your own success. Do you get the sense that maybe for, at least, the foreseeable future that, and it is kind of showing up in your sales, would you think that it will be maybe another few years before your sales start to pick up again and match what your peers are reporting?

Robert Taubman

I don't view it that way at all. If you look at the markets that we are in, the markets that we are in are generally growing at least with the GDP of the country. Population growth in the United States is about 1%. It's nearly 1% compounded. The very basis of retail sales growth starts with that number. Why is the country so strong, because we have been able to continuously grow, no matter, regardless of our base, at about 1% a year and those people tend to be growing in markets that we are in, places like Florida. Okay. Like they are in plenty of places in the East. So that growth is around our assets.

Tourism has been very strong. It is around many, many of our assets. These are the dominant assets to the extent that there is accuracy in weaker assets. Who is the beneficiary of that? It's going to be the better assets. So we actually see, I keep saying it, very good demand from retailers and very good leasing activity and they, like us, believe that these markets are going to continue to grow as they have over many years.

Certainly there are cycles that we go through and we had a huge cycle in 2009 and then a huge recovery in 2011 and 2012. I think 10 or 11 quarters in a row of double-digit sales increases like we have never had before. This quarter was the first quarter of 17 increases in a row, the first quarter down. And it was very impacted by the weather, which you have heard from every one of our peers.

So I don't feel us and our retailers do not see this as a trend, I think we said for many years that we will tend to grow at least with inflation over long periods of time. There is very low inflation right now. Yet we still found ways to grow to 2%, 3%, 4% over many years on a compounded basis. And I see no reason that will change.

Ben Yang - Evercore

Great. Thank you.

Operator

Your next question comes from Tayo Okusanya from Jefferies. Your line is open.

Tayo Okusanya - Jefferies

Yes. Good morning. My question is just around some of the luxury brands. Conversation seems to be that they are all trying to slow store count or slow growth going forward, particularly in China. Just wondering whether that's changing how you guys are thinking about your merchandising mix for some of your upcoming developments, both in China and San Juan?

Robert Taubman

Well, we announced on San Juan today, Louis Vuitton and Gucci and there is many luxury brands that we expect in that project. So we are very, very pleased with where we are on luxury side that in San Juan. You are actually right that in Asia, specifically many of the luxury brands that have been expanding graciously have slowed and they are pulling back in their broader expansion plans in, I will say, Asia generally, but in China specifically as well and it has been well documented.

So there are, in certain markets where they may have been a possible tenant for us or other developers, they are not there. But there are so many tenants looking for growth in China including domestic tenants, domestic to China, domestic to South Korea. We are very pleased at this point both with the international brands, as well as domestic brands that are showing good interest in our projects there.

Tayo Okusanya - Jefferies

That's very helpful. Thank you.

Operator

Your next question comes from Andrew Rosivach from Goldman Sachs. Your line is open.

Andrew Rosivach - Goldman Sachs

Sorry to harp. Two questions on the C mall. But I wanted to ask you about Stamford. If you go in on the train, you guys may know this, but investors may not, there is a massive advertisement on Uniqlo. And correct me if I am wrong, that mall's now got Hizzara and H&M and a Uniqlo. I guess my question is for, I know that Saks is going, but generically, for lack of a better word, the B malls, can these fast fashion become the new anchors? Or do you need more for a mall like Stamford to work.

Robert Taubman

Well, there is no question fast fashion has become an anchor. I mean they are very large stores. Lots of classifications. Very deep assortment. And customers love being in those stores because you are getting so much fashion for price. So they are absolutely an anchor in any center. In Asia, they are critical anchor. In the properties we are building, we are looking for those kinds of tenants in those centers. So they are international brands that are respected globally by shoppers.

So, yes. They are very important tenant. And Stamford does very good sales productivity. I would actually not classify it in the way you just did. It does have a strong mix of tenants. And the merchandising is very solid and a very good draw.

Andrew Rosivach - Goldman Sachs

And then just as a follow up to that. I am guessing all those tenants that I just mentioned, a, they pay rent and, b, they are over 10,000 square feet and this is a topic that's been coming up on a lot of mall calls. How do you take credit for some of these really highly productive growing sales tenants that pay rent that aren't showing up in your 10,000 and below numbers?

Lisa Payne

They are in NOI.

Robert Taubman

Yes, they are in NOI and they in average rent growth. You do see them that way. You don't see them in the sales metric. That's true. The convention of 10,000 square feet has been there for many, many years. It's hard to change conventions in an industry because everybody comes out differently. But over time there may be a decision to include larger stores. At one time, we included all stores of 20,000 square feet and lower. At one time we were 40,000 square feet and lower. But as the industry moved from 40,000 feet to 10,000 feet, we were disadvantaged in our metric reporting. So we went to where everybody else was. But it was at one time 40, 20 and then 10. So it's a good question.

Lisa Payne

And I would add that, in this quarter, one of the reasons the 3.6% growth looks better than the opening rent is when in the 10,000 square feet users we did have a positive impact on the quarter from 10,000 square feet that's not in the rent spreads.

Andrew Rosivach - Goldman Sachs

And you wouldn't happen to know if you went to 20,000 or 40,000 square feet, what would happen to your sales growth numbers?

Robert Taubman

I don't know. We have to do an analysis. So I don't know.

Andrew Rosivach - Goldman Sachs

Understood. Thanks very much.

Operator

(Operator Instructions). Your next question comes from the line of Christine McElroy from Citi. Your line is open.

Michael Bilerman - Citi

It's actually Michael Bilerman. I guess we are approaching good morning, good afternoon. So I just have a question on Asia and China. So in the sup page 15 on the breakdown of the cost, it looks like the China projects went down from your capitalized cost to date sequentially, but your total project cost did not. I don't know if that is currency-related or if there was some rebate or something that happened. So I was just wondering why currency affected one not the other, if that's the case?

Lisa Payne

It was definitely not currency. I think that was cost reimbursement to our partner, but let me double check that and you are talking about page 15.

Michael Bilerman - Citi

Xiang went down $0.5 million, Xing Du went down $100,000 and then Korea went up. I would have thought there would have been more spending sequentially as the projects start to move forward. You are about a third complete in terms of spend, but the spend went down and I recognize we got pegged. But I said no, something else was going on in terms of the numbers?

Lisa Payne

Yes, and I think some of this we prefund and when it hits our books but the trend should definitely start being increasing numbers but it does not have anything to do with currency.

Robert Taubman

The prefunding has to do with getting the money in the country on a timely basis. It is not based on currency and there are reimbursement.

Lisa Payne

I am sorry. I was asking somebody here. It does include foreign currency translation, I just don't believe we had significant. But I will check and see what the impact of currency was.

Michael Bilerman - Citi

Right, now I guess maybe I just step back on Asia overall, you are a third of the way through in terms of your capital committed. Has there been any discussions in terms of financing out part of your equity and/or bringing in Popco partner? Maybe you can update on any of those discussions?

Robert Taubman

Well, on the financing, we continue to make progress. It's not done yet as you recall. We said this repeatedly. We are not assuming any financings in Asia in our liquidity plan. We are certainly hopeful to be able to find financing that makes sense to us in Asia. In terms of bringing in a partner, it has always been a possibility, whether on a project basis, on a country basis or on a Taubman Asia basis and we have nothing to comment on it this time, and if we make some decision on that, we will announce it, of course.

Michael Bilerman - Citi

And is there anything, if you keep track of some of the press and some of the local companies what they are doing over there. There has been obviously some discussion on some pressuring of yields within some second-tier cities and development in other competing mall projects, not within your projects but in other cities around China. You had the big article in the Journal last week talking about some large scale Chinese pulling out and selling assets. I am curious how when you are watching, and I recognize you have talked about this being a once in a generation opportunity, but just the current dynamic in terms of yield and asset pricing and how that's evolving and whether it is having an impact on your forecast for your projects?

Robert Taubman

Look, there is lots of different types of projects over there that have gotten built. Some of them much better than others and there has been a lot of residential focused projects that have retail for one reason or another, generally entitlements, where the residential developer has not planned the retail well. So it's hard to comment in a generic way, because you have to look very specifically at the individual projects, regardless what city they are in, whether first tier, second tier, other markets. We o find it interesting when you look at valuation, there have been very few sales of any comparable projects for what we would think about. There have been a few in Tier 1 cities. There have been almost none in second-tier cities, but the range of those sales, when there is one for a decent project, had been between 3.5% and 5% cap rates.

Now, most recently, the CapitalLand, as I am sure you all know, has now discussing privatizing CapitalMalls Asia. Their offer is generally according to consensus. It was a 20% plus offer above their currently traded stock price and the consensus is that essentially that the price they have been selling at is roughly 10% below NAV. So if you think about their multiple, which is better than 20 times. So in essence like a 5% cap rate. It was being suggested that that group of assets, which is a large group of assets, the largest foreign owned group of assets by far, that group of assets and that platform and their growth opportunity is worth a much lower cap rate than 5%.

So again, while all this is sort of anecdotal data points, I think it does suggest that the values in China for good projects and for good assets are extremely strong and again very, very little supply out there to really test what the pricing is.

Michael Bilerman - Citi

Okay. That's really helpful commentary. Just two quick others. Page 10 in the sup, you have a new category here, other non-operating income under non-operating income, and I recognize this is under $1 million. I just didn't know what it was.

Lisa Payne

What page you are looking at?

Michael Bilerman - Citi

Page 10. It's other, under non-operating income and it is called other non-operating income.

Lisa Payne

I think that's a one time item. Yes. So we did a transaction on our office building where we bought it and it's a one time items associated with that purchase. So that's what that category is.

Michael Bilerman - Citi

And this led that flow into FFO also, I guess. Right?

Lisa Payne

That does impact FFO. Yes.

Michael Bilerman - Citi

And then, Lisa, You talked about unscheduled closings outside of the normal bankruptcies. Can you just elaborate a little bit on that comment about what was on schedule? What surprised you? Does it indicate a trend? And what happened? And maybe tie that to the higher lease term fees? I don't know if one of them are, if it is in the same, sort of tied together?

Lisa Payne

I would say, we have been usually low over the last few years. So I think maybe we are going to come back to a more normalized level, and I think it is negotiations with tenants that are underperforming. We did get a few more lease cancellation. There is a little bit more bankruptcies. But frankly, nothing that at least we, as managing the business, are concerned about because it come off of an extraordinarily maybe unsustainable low level.

Robert Taubman

So the bankruptcies that we have seen in the first quarter and more recently in the early part of the second quarter are completely within the normal range of any history. And if you go back and look at all our history over the last 22 years, we have talked about bankruptcy statistics as the number of tenants out of the total tenant roll in the portfolio, how many, what percentage of them actually are in bankruptcy. That does not mean that they actually close. Sometimes you renegotiate the lease. Sometimes they reject the lease. Sometimes they do a Chapter 7 and just liquidate everything. Okay.

But it's not a reorganization. But when you look at the statistics, we were about 50 basis points in the first quarter. As we look at what has happened since, we think that will grow. It's going to be at least another 50 basis points in the second quarter maybe it could be as much as a total for the first half of the year of 1.5%. But if you look at the history of roughly between, say 1% at the low for the year, and 4.5% at the high, we are likely right its going to be in the middle.

As Lisa said, it's been low over the last couple of years. So maybe it is back to sort of the middle. I don't know, but we are adding tenants (inaudible) on nearly every space that is being discussed, that is in bankruptcy.

Michael Bilerman - Citi

Okay, I would say, I am sorry. I thought I heard Lisa say, it was outside of bankruptcy. There were some unscheduled closings that had come up. I don't know if that's like Sony closing some of the stores in your malls or other sorts of tenants. It was something unscheduled outside, I know bankruptcies on the schedule, but I am sure there are some weaker tenants that you can track that you knew they were going in. It sounded like there was tenants you didn't realize were going to ask you to close their stores and pay you to get out.

Lisa Payne

Yes, Sony is the perfect example of that. But frankly we have been extremely low on those as well in the last couple of years, and those also definitely are moving, maybe moving a little more. We find those many times, although they are unscheduled and may have an impacted on occupancy, terrific opportunity, generally to drive better rents. But yes, I think we probably have are going to trend back to a more normal unscheduled outside of bankruptcies as well.

Robert Taubman

Yes, and Sony we had four spaces. They did close three. They left one open. So there is an example of even as they change their business strategy they are still keeping one open for the time being.

Michael Bilerman - Citi

Okay. Thanks. That's it from us.

Lisa Payne

Thank you.

Operator

There are no further questions at this time. Mr. Taubman, I will turn the call back over to you.

Robert Taubman

Well, we appreciate everybody joining us and we thank you, Nicole, for your help and of course, we look forward to your continued questions. Thank you very much. Bye-bye everybody.

Operator

This concludes today's conference call. You may now disconnect.

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