Taubman Centers' (TCO) CEO Bobby Taubman Hosts Taubman/Starwood Capital Transaction Conference Call (Transcript)

Jun.19.14 | About: Taubman Centers, (TCO)

Taubman Centers, Inc. (NYSE:TCO)

Taubman/Starwood Capital Transaction Conference Call

June 18, 2014 11:00 AM ET

Executives

Ryan Hurren - Manager, IR

Bobby Taubman - Chairman, President and CEO

Lisa Payne - Vice Chairman and CFO

Analysts

Todd Thomas - KeyBanc Capital Markets

Michael Bilerman - Citigroup

Jeremy Metz - UBS

Ross Nussbaum - UBS

Albert Lin - Morgan Stanley

Vincent Chao - Deutsche Bank

Steve Sakwa - ISI Group

Daniel Oppenheim - Credit Suisse

Ben Yang - Evercore Partners

Mike Mueller - JPMorgan

D.J. Busch - Green Street Advisors

Operator

Thank you for holding. And welcome to today’s Taubman Centers’ 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 Ryan Hurren, Manager, Investor Relations.

I will now turn the call over to Ryan for opening remarks.

Ryan Hurren

Thank you, operator, and welcome everyone to today’s call. The slide presentation we’re about to discuss is available for download on the Investors section of our Web site under Events & Presentation. During this conference call, we’ll make 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’ll also discuss non-GAAP financial measures as defined by SEC Regulation G, because the transactions have not yet been completed and some of the specific uses of proceeds have not yet been determined, as well as other uncertainties surrounding the contemplated transaction, it is not reasonably possibly at this time to provide comparable estimates of net income or reconciliations of the NOI figures discussed to comparable net income measure.

A replay of this call is provided through a link on the Investor Relations section of our Web site. Also 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 the call over to Bobby.

Bobby Taubman

Thank you, Ryan. Good morning everyone. And thank you for taking time out of your schedules on such short notice to join us this morning. We’d like to quickly walk through the transaction we announced today, give you some further context as to our objectives and anticipated outcomes. And of course address additional questions you may have. As we said in the press release, we distributed this morning given today’s investor interest in high quality regional malls. We have taken advantage of the opportunity to further enhance our growth and evaluation, while increasing our industry leading productivity and modestly reducing the size of our base.

Moving forward, the Company’s development and redevelopment pipelines will have an even greater impact on our growth. Before we talk about the transaction further, first a bit of history, I’ll ask you to turn to Slide 3 of that investor presentation. Those of you who have followed Taubman Centers since our IPO know that this transaction is consistent with our longstanding strategy to recycle capital for growth, minimizing the need to raise equity.

Our growth has been essentially self-funded, evidenced by the fact that on a net basis we had issued only $300 million of common equity over the last 22 years, while nearly quintupling the size of our Company and the history is interesting. When we went public in 1992 we owned 19 centers. When this transaction is completed later this year, we will own 17 a net decrease of 2. But over the last 22 years, we’ve developed 14 centers, acquired 10 and sold or exchanged now 26. And with the six new properties emerging over the next three years from our domestic and Asian development pipelines, we will own 23 centers by late 2016 just two years from now.

To briefly summarize the transaction, let’s move to Slide 4. We have agreed to sell seven centers to Starwood Capital Group, for a little over $1.4 billion. Based on forecasted 2014 NOI with our current cost allocations, this price equates to a cap rate of 6.6%, because we know you would want to model our business post transaction. We estimate there will be approximately $3 million of costs currently allocated to these centers that will be allocated to the remainder of our portfolio. We expect to close sometime in the fourth quarter later this year.

As I said earlier, we believe this opportunity is transformative for the Company. It will significantly enhance the resulting Taubman portfolio which will consist of 17 market dominant assets, producing average sales per square foot of $825 to $850 more than $100 higher than our already industry-leading performance. In addition, we expect faster overall NOI growth by about 50 basis points over the next five years. Furthermore, our post transaction, 17.2 million square foot portfolio represent 86% of the Company’s 2013 NOI. The more consistent, smaller base also allows management to focus where the greatest NAV is created, our strongest strategic assets as well as our redevelopments and development pipeline.

Page 5, list the seven centers we are selling to Starwood, they include Fairlane Town Center, MacArthur, Northlake Mall, The Mall at Partridge Creek, Stony Point, The Mall at Wellington Green and The Shops at Willow Bend. As Lisa likes to say when we talk about individual centers, we love all of our children. So selling these centers is particularly bittersweet as we developed each and everyone. But as I said in the release, we believe we are taking advantage of strong investor interest in regional malls to enhance both our growth and valuation. These centers will fit well within the Starwood portfolio and will continue to thrive under their management.

On Slide 6, we have shown our revised footprint. As you can see the post-sale domestic portfolio remains national in scope. It is large enough to continue to give us important economies of scale, especially with the world’s best retailers. Our size will also allow us to maximize the potential of every property. Every asset receives the attention of the most senior management.

Moving to Page 7, you can see the timeline of our upcoming new development openings. By late in 2016 we have essentially the same number of assets as we have today. In all cases we are building Class A assets of the highest quality and performance. We believe the value created by these projects will materially increase our growth.

Moving to Slide 8, we anticipate the stabilize NOI of just the three U.S. development assets will nearly replace the NOI of the sale portfolio’s seven assets. Perhaps more importantly we expect the NOI of the remaining portfolio to grow at a faster pace. While selling only 14% of the portfolio, we are anticipating a 50 basis point increase in our core NOI growth. As you look at the middle bar, 2017 projected, we wanted to point out that because we report NOI at 100%, the blue and green bars appear disproportionate. Our share of Asia shown in green will only be about 30%. Our share of the U.S. new developments shown in blue will be about 75%.

Now moving to Pages 9 and 10, we’re showing the number of our more important operating statistics is this the transaction occurred at the end of 2013. That is the post-sale performance statistics exclude the seven sold centers from our portfolio. As you can see tenant sales per square foot would be up more than $100. Our sales growth would have been 50 basis points higher. Our NOI growth would have been 120 basis points however higher at 4.6%. Last year’s numbers were influenced by significant roles at Dolphin and Millennia. As we said, on an ongoing basis we’re estimating NOI will grow 50 basis points faster. On the bottom right of the page, we have shown year-end occupancies which would have been 160 basis points higher.

Now turning to Page 10, average rent per square foot, average rent per square foot growth and re-leasing spreads, all would have been significantly higher. Our occupancy cost ratio would have been the same. Being at 13% with the remaining portfolio of dominant assets, certainly suggests we should have strong rent growth.

At the top of Slide 11, we have given you look at our anchor exposure both currently and after the sale. We continue to believe having the industry’s best department stores is important in creating large critical mass of retail thereby providing high levels of customer convenience would drive great regional malls. On the rest of Slide 11 and on Slide 12, we have included some portfolio demographics which as you can see are all improved.

So now let me turn the call to Lisa.

Lisa Payne

Thanks, Bobby. On Slide 13, we have provided an overview of the transaction and a discussion of use of proceeds. While dilutive to FFO in the near-term, this transaction will provide the Company with at least $268 million of capital for additional investment. While we did not do this for the liquidity, it’s a nice byproduct of a smart strategic decision. Now let me walk you through the details.

As Bobby discussed we are selling the seven asset portfolio for $1.4 billion consisting of 785 million in cash and 620 million of debt that is assumed. This price is for 100% of the assets. Our partner’s share of proceeds is 19 million. We also have an estimated $45 million of transaction costs which include our estimates for defeasance of the above market debt on four of the assets. So the net cash proceeds totaled $721 million. Given the tax basis on the assets, 453 million of the proceeds are available for 1031 exchange or a special dividend to shareholders will be required. This leaves $268 million of retained cash that will be utilized to fully pay down our line of credit. We will have a cash balance of over $200 million at closing. We expect to maintain our current quarterly dividend of $0.54 per share and while the initial transaction would be dilutive to FFO, it will provide us with additional capital for investment, share buybacks and a further reduction of leverage on the portfolio.

Moving onto Slide 14, we show how our already strong balance sheet gets even stronger. The table shows that every one of our key balance sheet metrics is improved. Additionally upon closing we will be, and as I said, in significant cash position.

Now on to Slide 15, we show you that there will be no material changes to any aspect of our balance sheet. Our laddered maturities and balance sheet composition are maintained after the transaction. With the completion of the transactions we finished earlier this year, we have no more maturities in 2014. We don’t have another loan due until April 2015. The biggest maturity in 2015 is Short Hills, which will actually provide further liquidity. Our balance sheet composition is preserved as well. Our exposure to floating rate debt as a percentage of total outstandings remains modest. Furthermore this graphic does not include the use of 268 million of cash proceeds that will be used to fund our development and redevelopment pipelines and paid down our debt so the transaction will decrease our expected balanced on the line of credit. In all, I felt very comfortable about the state of our balance sheet, and this transaction makes me even more comfortable.

I’ll turn it back to Bobby.

Bobby Taubman

Thanks, Lisa. So turning to our last slide, I think you can see why we are so delighted with this transaction. Consistent with our history and our strategy to continuously find ways to recycle capital for growth, we have found, at a moment in time, strong investor interest for group of our assets that will result in an even stronger portfolio of dominant assets, a better balance sheet and a business with excellent future prospects.

So with that we would like to turn it over to your questions. Operator, are you there please?

Question-and-Answer Session

Operator

Certainly, thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. (Operator Instructions) We ask that you limit yourself to one question and one follow-up question in the interest of time. If time permits you will be able to re-queue for more questions. Our first question comes from the line of Todd Thomas with KeyBanc Capital Markets. Your line is open.

Todd Thomas - KeyBanc Capital Markets

Hi, thanks, good morning. I am on with the Jordan Sadler as well. I guess, just first question, I was just wondering if you could talk a little bit about the competitive environment. As you put these markets up for sale, I was just curious like how many other serious bidders were there for these malls?

Bobby Taubman

Good morning, Todd and Jordan. We’re not going to talk about the process we’re not going to comment on any details of it. Suffice it to say, as I said, there was very strong investor interest in regional malls today, and we’re delighted with this transaction, and I’m very happy to announce it.

Todd Thomas - KeyBanc Capital Markets

Okay. And then, just following up on that, was just wondering as you contemplated selling some properties, is this everything that you considered selling? And are you finished with asset sales here?

Bobby Taubman

We’re not going to comment on sort of our decision to include or exclude individual centers. It’s never been our practice to comment on things like that. Again we are very pleased with this transaction. It’s a terrific -- it’s a win-win for both parties. We think Starwood is going to a great job with this portfolio. And we are very pleased with our remaining portfolio.

Todd Thomas - KeyBanc Capital Markets

Okay, thank you.

Operator

Your next question comes from the line of Michael Bilerman with Citi. Your line is open.

Michael Bilerman - Citigroup

Yes, good morning. Bobby, I was wondering maybe at least, and you said you won't comment on process, but at least can you share a little bit about whether this was something that you started, or whether you were approached? At least from the perspective of, when did you collectively make the decision that -- because it is sizable, it is a big piece of your portfolio, it is a major transaction. Was this something that you contemplated, and when did you start contemplating it, and how did that come about?

Bobby Taubman

Well, first of all as we said in the release, this is very much part of our ongoing strategy to recycle capital. We hired Eastdil, and Starwood became the winning bidder. I think I was asked down at your conference whether we would ever consider selling assets and how many et cetera, et cetera. So my answer than was very consistent with this results. So again a very strong investor interest out there for malls especially malls of this quality. And we’re pleased that Starwood ended being the winner.

Michael Bilerman - Citigroup

That's helpful. As we think about sort of the proceeds, and Lisa, you talked a little bit about $453 million that would need to be sheltered either through a 1031 or a special dividend, are you looking at any acquisitions today? And then, what would be the drop-dead date to when you would need to get something in the tent, to know whether that would have to be distributed out to shareholders or recycled into new assets?

Lisa Payne

Yes, okay. We would love to find a strategic asset to buy. We are not just going to buy anything we’re very, as you know focused on quality. The way the 1031 rolls work, we have about 45 days from today to identify properties, I am sorry, from closing you’re right. So 45 days from closing to identify properties and we have 180 days post closing to close on that sale. But we are in the middle of trying to identify properties and frankly they’re right thing to do in a 1031 is execute as quickly as possible. I think we’ll give you data points along the way as to what our expectation are, if we do not find any properties to buy we would plan on a special desk distribution no sooner than January 2015 or potentially sometime during 2015 but within that six months of closing.

Michael Bilerman - Citigroup

Thank you.

Operator

Your next question comes from the line of Ross Nussbaum with UBS. Your line is open.

Jeremy Metz - UBS

Hi. Good morning Jeremy Metz with Ross. Clearly a transaction puts greater emphasis on the development you have going on. Can you just give us an update on leasing at Puerto Rico and China? And just if that stabilized yield and specifically within Puerto Rico is still achievable in that 2016 timeframe?

Bobby Taubman

Well, we obviously we’ve reported in the last quarter about the status of leasing and the status of the projected returns on all of our projects. At Puerto Rico we also announced the acquisition of the two leases for Louis Vuitton and Gucci. And we underscored, again the -- that we believe that this will be very much luxury venue. And that we are very pleased with the merchandising content and direction of it. We, if anything changes at any point on our returns or expected opening of that center we would announce it. Today we are as we announced on our last call is still within the range and schedule that we told. We’re opening Sarasota on schedule for October 16 of this year. We talked about being over 90% committed. We’re very happy with the merchandizing there. You asked about Asia, we also talked about on the last call both the merchandizing but we did not talk specifically about the commitment level and we have not done that in recent times, until we get very close much closer to the openings. But again, we reaffirmed the timing in both the China projects for late 2015, the Korean projects for late 2016 and we did not change the return expectations at all.

Ross Nussbaum - UBS

Hi, it’s Ross Nussbaum as well. So I understand strategically you left with a higher quality U.S. portfolio I think that’s pretty obvious. But as I think back about how the stock has performed over the year or so, it would seem to me that there’s been a discount NAV perhaps probably because of people’s concern over whether it’s the size of the development pipeline or concerns over the Asia expansion. And that this strategic maneuver adds additional emphasis to the Asia pipeline and the pipeline overall and I guess perhaps highlights one of the concerns of the investment community had over the last year and I am just curious how you’ve thought about that consideration as you’re moving into this transaction?

Bobby Taubman

Well, I mean number one it does reduce, it mostly reduce the size we’re based, as we said by 14%. So there is 15% in theory increase in that growth rate due to the development pipeline. We are clearly focused on the execution of our pipeline both U.S. as well as in Asia. We have status that publically that in Asia, we don’t plan announcing a new project this year, clearly our balance sheet even before this transaction was announced, was in very good shape. Lisa has said that, did not do this for liquidity purposes. It is a very strategic decision on our part. We’ve made a lot of money over the year into development. So we believe in development it is part of our DNA and that we know that public capital markets they are good reasons for people to feel the risks of development and nonetheless overtime we have proven our ability to execute and to create enormous net asset value for our shareholders. So there will be times, when it feels bumpy, the ride. On the other hand, we’re very confident that overtime we create tremendous NAV by doing what we do so well.

Lisa Payne

And I would only add to what Bobby said, as you can only imagine a transaction of this complexity and magnitude is incredibly difficult to accomplish and markets change market timing. This was a very calculated strategic decision that the timing was right. We feel like it was a win-win as Bobby said, and yes, the byproduct happens to be a slightly more concentrated position in our development properties, but we are continuing to be frankly very confident in what those are going to provide to this Company over the long-term.

Ross Nussbaum - UBS

Thanks, I appreciate it.

Operator

Your next question comes from the line of Handel Sanchez with Morgan Stanley. Your line is open.

Albert Lin - Morgan Stanley

Yes, hi guys this is actually Albert Lin. Can you guys comment on the range of cap rates, and the sales for the entire portfolio? I guess, give -- provide like a bandwidth for what you just sold?

Bobby Taubman

I think we were very specific about the cap rate. We said 6.6% there is $3 million worth of G&A in essence that was allocated these assets and now we’ll be allocated the rest of the portfolio. You know specially given all the noise recently and cap rates were being very specific as to the sales productivity the portfolio we’re not going to comment specifically on the sale portfolio, but we have said is that the remaining portfolio would have had over $100 square foot motor sales productivity in 2013.

Albert Lin - Morgan Stanley

Okay, thank you.

Operator

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

Vincent Chao - Deutsche Bank

Hey, everyone. Just curious, I mean, since this was not a liquidity-driven sort of transaction or strategic in nature, just curious why it made sense to do it now, and take the cash flow dilution today when some of the replacement cash flows are still a few years out?

Bobby Taubman

I think that the fact this is there is enormously strong investor interest in assets today. Interests are pretty low and nobody knows how long that will be. There is plentiful capital out there for transactions like this and it is proven overtime these kinds of assets would be good places to put capital, so again I think this is a good transaction for Starwood and a very transaction for Taubman.

Vincent Chao - Deutsche Bank

Okay, thank.

Operator

Your next question comes from the line of Steve Sakwa with ISI Group. Your line is open.

Steve Sakwa - ISI Group

Thanks, good morning. Could you just maybe talk about how you are thinking about the redevelopment program, and whether this transaction was additional capital? Kind of get you to think about other new developments, or whether some of the redevelopments you were thinking about, have now been sold?

Bobby Taubman

As we try to say for some time we’ve been -- we are always focused on redeveloping and investing in our assets and over half our assets are either brand new or once that we significantly invested in over the last period year. So redevelopment is not a new thing to us. I think that we packaged in a way recently the people can see it visibly. We have the five projects that we have announced. We have others that we have been working on. Yes, we had a strong balance sheet before. We did not do this for liquidity. There is more liquidity but unless we have good program to go on a redevelopment, we’re not just spend money. So I don’t think that this transaction will create more new redevelopments that we haven’t been already contemplated, but it certainly enables that I guess or facilitate it. I think that’s how I can answer your question.

Lisa Payne

Yes, the only thing I’ll add is I know it’s obvious this transaction puts -- we have greater percentage in the development. We also by the way -- this will -- most of our redevelopment opportunities were in the assets we’re keeping, so we’re going to get a greater percentage share or participation or it’s going to mean more to the bottom line with the new portfolio.

Steve Sakwa - ISI Group

Okay. And then just as a second question I guess, to maybe follow-up on Ross’ point about development, as you think about the size of the development pipeline relative to the existing asset base, what are you comfortable in terms of kind of the risk profile of development being as a percentage of the EV?

Bobby Taubman

Look, I think we have a very extremely robust development program today. As I said, we are very focused on execution both here in Asia we’re not starting a new project in Asia this year. We’ve announced Miami World Center project is our next project here in the U.S. We are working on those five redevelopments and we’re busy. We’re very busy. So I don’t think if it in the context of absolute percentage, but I know we’re busy.

Operator

Your next question comes from the line of Daniel Oppenheim with Credit Suisse. Your line is open.

Daniel Oppenheim - Credit Suisse

Thanks very much. I was just wondering in terms of the 1031 -- clearly, you have got 45 days from closing to identify something. But from a dilution standpoint, presumably it would be much better to have something closing in a similar timing to this asset sale. Is that how we should think about what you are -- would like to do in terms of goals, minimizing dilution from this?

Lisa Payne

Oh, absolutely. I mean the sooner as I said the better in a perfect world. We would time it right at closing. We don’t have anything under contract now. I want to be clear. And I also want to be clear it’s hard to find assets that this Company wants to buy or fits into our portfolio. So we’re very comfortable, if the result here is that we have to make a special distribution we believe our shareholders -- can’t imagine they’re going to be unhappy with that. And we contemplated in this transaction, we’re comfortable with size of the Company exactly as we have it with that special distribution, but it does mean that if we can identify a good property now it’s the time to buy.

Bobby Taubman

If you know of any let us know.

Daniel Oppenheim - Credit Suisse

Okay. And then, I guess, secondly in terms of negotiations with key retailers, your comments that you don't think that this really impacts that. Is that thinking about just the overall quality in terms of that the -- you want --the retailers want to have the development in these malls? Or given where the size will be, you don't think that is an issue at all in terms of negotiating leases and such with the key national or international retailers?

Bobby Taubman

Absolutely not, we have a portfolio very consistently, very dominant assets the retailers want to be in and we’ve been talking about balance sheet. We have a balance sheet that provides us lots of flexibility to finance our core activities as well as our growth and on a very competitive basis. Again pound from pound, we have as good balance sheet as anybody out there.

Daniel Oppenheim - Credit Suisse

Thank you.

Operator

Your next question comes from the line of Ben Yang with Evercore Partners. Your line is open.

Ben Yang - Evercore Partners

Hi, thanks. Good morning. So Bobby, I think that most, if not maybe all of these seven malls fall below the portfolio average, given the impact on the metric and growth. But can you talk about how you chose these particular malls to sell? I mean, did you have to throw in some of the good ones, along with maybe some of the lower sales ones just to get the portfolio sold?

Bobby Taubman

Well, while strong assets, they still are lower productivity than the balance of our assets. They also were generally smaller NOI contributors, which you can see in the 14% and the 86%. And therefore they were less strategic and they’re likely to have slower growth relative with our portfolio. It doesn’t mean that they’re not going to growth. So as I’ve said, I really do think that under Starwood’s leadership, these properties will do very-very well. Most of the assets were 100% owned or nearly 100% owned or controlled and that also makes the transaction like this, it eases the transaction. So we’re very happy with the group of assets as I said several times and we are very pleased with the overall transaction.

Ben Yang - Evercore Partners

Okay. And maybe just a follow-up, you mentioned the 50 bps improvement to your same-store growth. But what is budgeted same-store growth for these seven malls for 2014?

Bobby Taubman

We’re not giving specifics if Starwood wants to do that that’s up to them, but we’re not giving specifics on the sale portfolio at all.

Ben Yang - Evercore Partners

Thank you.

Operator

Your next question comes from the line of Mike Mueller with JPMorgan. Your line is open.

Mike Mueller - JPMorgan

Yes, hi. You have obviously talked about the plans, or what you would like to do for the $453 million, but what are you thinking about for the $268 million of cash? I mean, is the preference to also to put that in some sort of acquisition? Is the preference to just kind of keep it there and use it for development funding? I mean, how are you thinking about that, that pool of cash?

Bobby Taubman

Well, we have a few opportunities. We can continue to just deleverage the balance sheet if you want to say that by putting it into the developments and not using our line of credit as was planned. We clearly have authorization to continue stock buybacks. We are going to obviously observe what happens to our stock with this transaction. We feel this really-really -- this transaction position us enormously well and we obviously, with this cash have more liquidity than we’ve had in the past for the share back buy program. And yes, I mean, acquisitions we have the 1031 opportunity that we really need to shelter all of the 1031 in numbers of 453. We really need to buy an asset more in the $800 million range. So we have clear, dry power for acquisition, if we can find once the strategically correlate to our existing portfolio.

Mike Mueller - JPMorgan

So I mean, what does your gut tell you, the likely scenario for the 268 million would be, assuming it doesn't go into acquisitions? Is it more that development funding scenario?

Lisa Payne

My gut tells me, I watch what’s going on with our stock price, I think you know buying back our shares might be very attractive but I don’t know what our share price is going to be and I’m going to look across the table at my partner here and we’ll consider that as well, but it’s not off the table.

Michael Mueller - JPMorgan

Got it. Okay, thank you.

Operator

(Operator Instructions) Your next question comes from the line of Todd Thomas with KeyBanc Capital Markets, your line is open.

Todd Thomas - KeyBanc Capital Markets

Hi, thanks. Just two quick follow-ups, first, in terms of the sales productivity for these seven assets, I know your calculations may differ based on specific reporting requirements or reporting GLA maybe and some other variables, but if you back into it, it seems like sales are around $515 a square foot. Is that a fair number to assume?

Bobby Taubman

I appreciate you trying but we’re just going to comment about the sale portfolio in specificity like that, you know we give you a lot of metrics about the remaining portfolio, you know Lisa talks about stock buybacks and things owing more of our remaining portfolio, is a good thing. So it’s a very-very good group of assets.

Todd Thomas - KeyBanc Capital Markets

Okay. And then just one more, you mentioned in the past, and I think on this call you have emphasized more than once, that you don't plan on announcing another investment in Asia this year. But does this transaction and the net proceeds that you are generating, does that give you increased confidence to increase exposure in Asia in general? Maybe not so much in 2014, but as we think ahead in 2015 or beyond, some of the in-process projects become a little more visible?

Bobby Taubman

Well we are, we feel it’s important to build pipeline in Asia, we are number one focused on our existing pipeline, that’s what we talked about. We want to get more confidence and we think you know by the end of the year into next year we will have more confidence about that execution including lease up, construction, the timing, all of those things. So we don’t have a project that we’re waiting to pull the trigger come January 1, just to be clear to everybody. We’re going to do things in a logical way. We have not felt constrained of capital, that’s not the issue, now we have more liquidity, it doesn’t mean we’re going to run off like drunken sailors and go spend some more money wherever, whether here or there, we’re going to do things that make sense and there’s a reason that I don’t think there’s another company out there that has quintupled the size of their business over the last 22 years and only spent $300 million worth of equity. We have found smart ways to recycle capital and allocate that capital over many years. We’re going to do the same thing. So I know people are worried that we’re going to go do X, Y, or Z but we’re going to try to find smart things to do. We think this is a smart transaction, it positions the company extremely well and we love our future prospects.

Todd Thomas - KeyBanc Capital Markets

Okay. That's helpful. Thank you.

Operator

Your next question comes from the line of D.J. Busch with Green Street Advisors, your line is open.

D.J. Busch - Green Street Advisors

Thank you. Bobby, what was the -- how long was the timing from when you set out and had -- and signed up with Eastdil to market the portfolio and today's announcement? How long was that timing?

Bobby Taubman

I would say again, we don’t want to talk specifically about the process but in the range of three to four months.

D.J. Busch - Green Street Advisors

Over that time, did you see any change in the pricing of the portfolio as you were going through discussions or marketing it?

Bobby Taubman

You know as I said we’re very happy with the transaction in front of us, the market for these kinds of assets has been extremely strong, you know interest rates have generally stayed very low, there’s been lots of noise out there about interest rates and capital availability but nothing really has changed really in the last year, so you know when you look at sort of a month to month or day to day you know these kinds of decisions aren’t really made that way, they’re really long term capital decisions both for us as well for Starwood and you know it’s, so, I don’t think you can see anything in the movement weekly or monthly.

D.J. Busch - Green Street Advisors

Okay, great. Thank you.

Operator

Your next question comes from the line of Michael Bilerman with Citi, your line is open.

Michael Bilerman - Citigroup

Yes. I just wanted to get some clarification, just on terms of pricing and cap rates. So you have quoted the 6.6% on the $1.4 billion, and Lisa I think you mentioned $45 million of -- I think it is predominantly defeasance -- so it is about 20 bips on that cap rate. And then, Bobby, you have talked about $3 million. I assume that is allocated overhead up to the assets, that you have -- you are going to reallocate to the others. So effectively that is another 20 basis points. So as I think about from an accretion dilution standpoint, it is effectively a 7% cap rate, in terms of -- a use effectively in terms of where you start from. Is that right?

Lisa Payne

Depends on how you look at those defeasance costs, you know, you’re adding it to the cap rate like you said, like you’re doing it, that’s not, I mean I’m not sure that’s how, and we’re not in the buyer’s shoes, but that’s mathematically correct, I mean we really think of it as the six-six, but we also off of the transaction gross price have to basically defease that’s a little bit above market.

Michael Bilerman - Citigroup

Right. I assume the buyer would pay $45 million less effectively, right? If you delivered them free and clear, he is willing to pay one price. If you deliver it with debt in place, he is willing to pay a difference. So I sort of look at that -- that 20 basis points to me is simple. It was the $3 million of cost, and I didn't know what that was. Is that just allocated overhead that you have each of the assets, that you can't -- that doesn't go along in the sale that you are effectively keeping? So or were you effectively, you have to reallocate that amongst others? So if the portfolio produced $93 million of NOI, it effectively is -- effectively a $96 million hit, because you have $3 million of costs that are not going along with it?

Lisa Payne

Yes, I guess the way we look at it is, we’re not going to be able to eliminate all of the G&A that’s associated with these assets, and therefore that’s going to reduce the remainder NOI from the remaining portfolio, that is, so that extra $3 million will stay in the company and be a deduct from NOI going forward.

Michael Bilerman - Citigroup

Right.

Bobby Taubman

I would argue that the real estate world would view this as a six-six cap rate and you know I’m not going to speak for Starwood but I think they would agree that their cap rate that they look at is very-very close to this, so defeasance is a negotiation, you know who shares what piece of it and where it’s going and what the absolute terms are of the individual loans, I mean you can do it, you can do it in the fashion that you suggested but I don’t think most of the real estate world would view it that way, but from an FFO perspective perhaps you’re right.

Michael Bilerman - Citigroup

Well, and I guess, that is where -- and I don't know Lisa how much you can share, but obviously, depending on whether you buy an asset or do a special dividend. But also as you think about the cash, the dilution here I guess, in the most extreme case, right, assuming a special dividend, and that you just sit on cash, could be substantial? I mean, we are talking double -- mid teens type dilution off of next year's number, again if you pay the special, and just sit on the cash. I guess, how should we be thinking about -- or at what point will you start sort of guiding the Street a little bit about sort of a range of potential of FFO dilution that comes from the sale?

Lisa Payne

So, we do not feel we’re able, we’re likely to be able to do that in July, there’s a lot of moving pieces as to the timing of the closing and any organizational restructuring that we’re going to be able to do. Our current expectation is that we hope to be in a position by the third quarter call to provide the guidance range for ’14 I want to be clear like a restated ’14 number. We don’t give guidance for ’15 normally till yearend call which is in early February, whether or not we decide we can do that earlier, frankly we haven’t had a conversation around here but clearly we understand for the street that actually knowing what ’14 looks like fully, not -- have given you NOI which frankly we think was very good because now you can at least see the NOI attached with the cap rates, but we appreciate that we do need to be giving you more information on ’14 where you can build off what ’15 looks like, and hopefully we’ll be able to do that in the third quarter call.

Bobby Taubman

And Michael I would just also comment that we hope that people are also going to look at NAV, because I think when you really look at the NAV of a group of assets, that are at $825 a square foot in Newark, with the consistency of this portfolio and the breadth of this portfolio you know I think that people will understand the tremendous discount that little loan with the new development assets that we believe in that are coming forward you know that the company may be selling at a significant discount.

Michael Bilerman - Citigroup

And I guess, from a stock buyback perspective then, if you have been working on this for the last four months, you have been completely out of the market on your ability to buy back stock?

Bobby Taubman

I think you could come to that conclusion.

Lisa Payne

Come to that conclusion, correct.

Michael Bilerman - Citigroup

Okay. And then, just I want to make sure I understand on the dividend. You had talked about it being maintained, is that being maintained regardless of whether a special is paid or not? Because if a special is paid, you are looking at -- again, it is just simple math, right? $0.35-ish of FFO -- I recognize the investors get $5.00 a share, but just from a base perspective going forward, you feel comfortable with the payout ratio moving up in that case?

Lisa Payne

Yes, we would maintain the dividend even with the special dividends.

Bobby Taubman

And grow our payout ratio down over time.

Lisa Payne

Correct.

Michael Bilerman - Citigroup

And then, the sales productivity, I don't know -- my math tells me that the portfolio is about $430, $435 a foot, just using your specialty GLA between what you have, and what you are going forward with. So I know you are not talking about it, but that seems to be at least in the ballpark of $430, $440 in terms of productivity?

Bobby Taubman

And as I said we really are not in a position to comment on the metrics of the sale portfolio.

Michael Bilerman - Citigroup

Okay, thank you.

Operator

(Operator Instructions) Your next question comes from the line of Ross Nussbaum with UBS, your line is open.

Jeremy Metz - UBS

Hi, it’s Jeremy again. Just one quick follow-up, it sounds like you were just saying that Miami is definitely going forward. I thought based on some conversations coming out of ICSC, just given the Squire project going on, that it wasn't necessarily 100%?

Bobby Taubman

We’re planning on starting construction if not late this year then beginning of next year, and we look forward to making more announcements about the project.

Jeremy Metz - UBS

Okay. And then just one last one, just it doesn't sound like there is any -- you will not stay on in any capacity to manage these projects for Starwood at all?

Bobby Taubman

Well, we’re going to be managing them until the closing which we again we said is likely to be in the fourth, this year but subsequently, no we are not, they have a very substantial platform, they have 21 assets today, this would mean 28 assets for them. They have over 200 people, they’re based in Chicago, and their platform you know, is a very good one that as I said will allow them to manage these assets well.

Jeremy Metz - UBS

Okay. Thanks.

Operator

And we have no further questions in the queue at this time. I’ll turn the call back over to our presenters.

Bobby Taubman

Thank you, we do appreciate you joining us on such quick notice and we will be happy to try to answer whatever questions you have in the coming days. Thank you everyone, bye, bye.

Operator

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

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