General Growth Properties (GGP) Sandeep Mathrani on Q4 2015 Results - Earnings Call Transcript

Feb. 2.16 | About: General Growth (GGP)

General Growth Properties (NYSE:GGP)

Q4 2015 Results Earnings Conference Call

February 02, 2016, 09:00 AM ET

Executives

Kevin Berry - VP, IR

Sandeep Mathrani - CEO

Michael Berman - CFO

Analysts

Steve Sakwa - Evercore ISI

Michael Billerman - Citigroup

Christy McElroy - Citigroup

Caitlin Burrows - Goldman Sachs

Ki Bin Kim - SunTrust Robinson Humphrey

Alex Goldfarb - Sandler O’Neill

Jeremy Metz - UBS

Vincent Chao - Deutsche Bank

Paul Adornato - BMO Capital Markets

George Auerbach - Credit Suisse

Mike Mueller - JPMorgan

Floris van Dijkum - Boenning & Scattergood, Inc.

Rich Moore - RBC Capital Markets

D.J. Busch - Green Street Advisors

Linda Tsai - Barclays Capital

Operator

Good day, ladies and gentlemen, and welcome to the General Growth Properties' Fourth Quarter 2015 Earnings Conference Call.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Mr. Kevin Berry. Sir, you may begin.

Kevin Berry

Good morning, everyone, and welcome to General Growth Properties' fourth quarter 2015 earnings call hosted by Sandeep Mathrani, our CEO; and Michael Berman, our CFO.

Certain statements made during this call may be deemed forward-looking statements within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to a variety of risks, uncertainties and other factors. Please reference our earnings press release and SEC filings for a more detailed discussion.

Statements made during this call may include time-sensitive information, accurate only as of today, February 2, 2016. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the earnings release and supplemental filed on Form 8-K with the SEC and available on our website.

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

Sandeep Mathrani

Thank you, Kevin, and good morning, everyone. Thank you for joining our call.

My prepared remarks will cover the following main topics. A recap of our fourth quarter activities followed by our observations of the retail environment during this past holiday season and update our recent development activities and urban assets and finally an outlook for 2016.

Let me first begin by addressing the topic that I believe is on top of everybody's mind, which is the recent high volume of trading in our stock on certain days. As a matter of policy, we don't comment on rumors in the marketplace and don't intend to do this morning or in the future.

What I will do is remind our investors of our corporate governance guidelines that we put in place when GGP was recapitalized and recommend investors review this information, which is on file with the SEC and available on our website.

The Management Team and the members of the GGP Board take our fiduciary responsibilities seriously and recognize that as stewards of this public company, we will always act in the best interest of our shareholders.

This represents the extent of my comments and any questions during our Q&A session related to market rumors will not be answered as it would be irresponsible and inappropriate to do so.

Now turning to our results for the fourth quarter, same-store NOI increased 6.7% followed by 6.5% increase in EBITDA, FFO per share increased nearly 14% to $0.43, the top end of our guidance range.

For the full year, same-store NOI increased 4.8% followed by a 5.4% increase in EBITDA. FFO per share increased nearly 9% to $1.44, which is near the top end of our guidance range.

Lease spreads for 2015 commencement were nearly 11% and spreads for 2016 commencements continue to be healthy. The same-store portfolio was nearly 97% leased at yearend and over 92% permanently occupied.

Looking into 2016 our goal is to lease approximately $9 million spare feet. To date we've leased over 60% of our goal. We raised our guidance for 2016 by a $0.01 at the midpoint, primarily to account for the accelerated rent commencement date at 730 Fifth Avenue and other [indiscernible], representing nearly a 7% per share growth and also declared our first quarter dividend.

Comparable rent sales were up 3% on a square foot basis. A point to be noted is if you back out Apple sales, growth include 4.5% for sales of retailers less than 10,000 square feet and over 4% for all retailers excluding department stores.

Passing the portfolio by quality grade, we experienced sales increases throughout the country. Nearly every major retail category was up with the exception of electronics, primarily due to Apple.

Shopper traffic in our centers has been strong. Looking back over the past several years, from our estimate, we've experienced positive trends in each year. In 2012 traffic was up over 4%; in 2013, 3%, flat in 2014 and up 2% in 2015.

During the holiday season, I had the opportunity to visit several of our malls. During the Thanksgiving weekend, I was at several of our malls between 11:00 PM and 02:00 AM and I noticed that the parking lots were full and the most interesting thing to me was the shoppers were generally millennial.

We're regularly comparing the productivity of our portfolio to the national average. We look at overall trends, category trends down to specific retailer trends. The overwriting premise and what we've set as our missing is that the high quality retail should outperform over the long term.

I would like to share some of our observations with you this morning. To set the stage though it is important to put retail sales in perspective. In 2015, retail and food service accounted for about 30% of the U.S. GDP and eCommerce accounted for about 2%.

Since 2010, total retail sales in the U.S. have grown nearly 13% and it should be noted that our portfolio has grown over the same period 23%.

We see this not only in sales productivity, but also the lack of vacancy within the mall as the pent-up demand for space. The mall continues to evolve in step with consumer demand and interest and we see it occurring throughout our portfolio. For example eCommerce retailers like Warby Parker, Bonobos, Shinola, Birchbox are scaling up operations by opening stores.

Grocers like Wegmans and Krogers are coming into the malls. Personal services like Soul Cycle and Drybar are important elements on the outsides of our malls and of course entertainment venues and restaurants.

Expansions in new store openings by existing brick and mortar retailers this past year include H&M adding 220,000 square feet in 10 stores, Our House Furniture with 45,000 square feet in three stores, PINK with 40,000 square feet in nine stores, UNIQLO with 40,000 square feet in four stores, House of Hoops, a Footlocker concept now opening their own bricks and mortar stores with 39,000 square feet and five stores and the list goes on.

It should be noted that one of the first eCommerce retailers to open the store, opened six stores within our portfolio in the past year.

As there is no new retail square footage on the horizon, new concepts are going into the B plus or better malls. As mentioned in our release yesterday, we closed on several property transactions recently as we continue to prove the low Tier non-core assets on the portfolio.

We sold our remaining strip shopping center in Lockport, New York during the fourth quarter. In January we closed on a number of transactions including the following.

We sold our interest in owning those malls to our JV partner Kimco. We sold Eastridge Mall in San Jose, California. We sold our interest in Provo Towne Center in Provo, Utah and finally we sold our minority interest in 522 Fifth Avenue in New York City.

In stock contrast to the other end of the quality spectrum and evidenced by a number of transactions recently, the valuations prescribed to A malls continues to be very strong, a divergence from current public market valuations. A malls are irreplaceable assets in high demand by tenants, highly desired by consumers and very attractive to institutional investors.

Looking globally, it is clear that the U.S. is over retailed compared to other developed countries. New green feel is a rarity in the mall space and given the negligible new supply expected over the foreseeable future and the likely reduction of overall retail GLA due to the eminent closure of lower quality retail assets including malls, the fortification of A malls within the areas will continue.

Our top 100 malls account for 94% of our NOI and post sales over $600 per square foot. Our 74 A malls account for 75% of our NOI and post nearly $700 per square foot.

On the redevelopment front, we were very pleased to open several major projects during the fourth quarter on time and on budget including, the expansion of Ala Moana with a return of 11%, the expansion of Baybrook Mall with the return of 9%, the completion -- complete renovation of Southwest Plaza with a return of 9%, the grand opening of Nordstrom at Ridgedale with a return of 8%, and the grand opening of Nordstrom at Mayfair mall with the return of 8%, a number of other redevelopment products across the portfolio.

As we look at 2016, we will get started on Stag Night and malls expansion and renovation, the relocation of Nordstrom at Ala Moana and the various redevelopment opportunities within our joint venture with Seritage, two of which have just begun at Coronado Center Staten Island Mall and we anticipate another four to commence at least by year end.

And lastly, later this year we will start Norwalk Connecticut, our new mall anchored by Nordstrom's and Bloomingdale's envisioned upon final approvals by city and state officials.

On the urban retail update, we have entered into a lease for 23,374 square feet with Coach Inc. to open a global flagship for the Coach Brand and at Stuart Weitzman at 685 5th Avenue.

At 730 5th Avenue we've renewed the lease with Bulgari and as I mentioned earlier we sold our 10% interest in 522 5th Avenue, which we acquired in 2014. The IRR on this investment is almost 50%.

Our improved outlook for 2016 continues to be based on our key growth drivers, improved occupancy, positive leasing spreads and incremental income from our redevelopment activities.

These organic sources of growth and GGP's irreplaceable portfolio are the bases of our outlook this year and beyond.

Finally, I would like to take this opportunity to recognize our teams located at our Eastern Seaboard properties who are literally weathering the storm that hit little over a week ago.

Due to the severity of the storm, a number of our properties closed early, so people get home safely and remained closed until we -- until it was safe to reopen.

Our teams worked together tirelessly over that weekend and to measure the storm's impact and to determine when to reopen. You know who you are and I sincerely thank each of you for your dedication to GGP.

What I'll like to do -- with that I'll like to turn over to Michael to review our financial results in more detail and expand upon our expectations for 2016.

Michael Berman

Thank you, Sandeep, and good morning everyone. First, turning for the fourth quarter, as you know FFO per share came in as $0.43 putting us at the high end of our guidance range.

With $10 million ahead with approximately $5 million from dividend expected same-store NOI, $4 million of which related to better than expected net real estate tax recoveries and we had about a $1 million higher than expected lease term fees.

The remaining $5 million came from a small land sale and somewhat better than expected interest expense. Our development projects contributed $9 million of growth in the fourth quarter, which was consistent with our prior forecast.

Turning to our plan for 2016, please remember my remarks are intended to be points on a range. We're increasing our FFO per share guidance range to $1.52 to $1.56 for midpoint of $1.54 or about 7% growth.

The increase as Sandeep noted, some of which comes from leasing activity that occurred in late December and additional expense savings across various line items, these offset an additional $8.5 million in interest expense that we will have in our variable rate debt.

I think it’s helpful to review our 2016 guidance model given that the 2015 numbers are now final. The numbers in our model reflect the recent sales of East Ridge Provo Towne Center, Owings Mill and 522, Fifth Avenue.

We continue to expect same-store NOI growth of 4% to 5% on a base of approximately $2.24 billion. Development projects are expected to contribute approximately $40 million for same-store NOI growth in 2016, consistent with what we said in last quarter's previously stated guidance.

We expect EBITDA growth of 8% to 9% on a base of approximately $2.1 billion. We previously said about 8% EBITDA growth and the incremental upping guiding adds to the EBITDA growth rate of about 50 bases points.

Expected EBITDA growth would be about 4.5% to 5.5% without the condo development we mentioned last quarter and we expect FFO to be around $1.475 billion with a share count expected of around $960 million. The previous guidance was about $10 million less.

For the first quarter of 2016, our expectations are same-store NOI of around 4% growth or approximately $555 million. We expect development to contribute around $9 million of same-store NOI to the first quarter.

We expect EBITDA of approximately $525 million or growth of 6.5% to 7% and we expect FFO in the range of $325 million to $345 million or FFO per share of 34% to 36%, representing growth of approximately 8.7% per share as the midpoint.

And with that let’s open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Steve Sakwa with Evercore ISI. Your line is now open.

Steve Sakwa

Good morning, Sandeep, I was just wondering if you could talk a little bit more about the Coach lease. Clearly you guys have been in a kind of buy it, fix it and then it seems like monetizing phase.

And I was just trying to figure out how we should be thinking about this lease in particular and then I know you won't probably provide specific comments on the actual ramp, but how did the ultimate negotiations come in relative to your I guess 6% yield expectation?

Sandeep Mathrani

So good morning Steve, one is you’re actually right, I won't comment on the rent per square foot on the transaction and as we’ve maintained we buy these assets and we stabilize them to a 5% to 6% yield and it did come in as performer.

We will deliver the space to Coach by May of this year and we’ll evaluate how we should handle the transaction going forward. Whether we hold or sell, it is our job to allocate capital. It’s also our job to make sure that we prune assets and we recycle capital. So we’ll evaluate that later in the year.

Steve Sakwa

Okay. And I guess second question just given that we're now through the holiday shopping season and we’re in the period where tenants may file for bankruptcy or talk about store closings. Just what is your expectation and how was that changed as we look forward and has that changed at all in the way you think about your guidance for this year?

Sandeep Mathrani

So, again we actually do believe that this year will be better than last year. We’ve mentioned in several meetings in NAREIT, we’ve always had concern over a couple of tenants.

I think the jury is still out on those tenants and so we’re not n a rush to change our guidance, which in as we had mentioned we had reflected -- we were conservative in holding back a reserve for bankruptcies. I think we have to see how the first quarter goes before we can reverse any of those expectations.

Steve Sakwa

Okay. Thank you.

Operator

Our next question comes from Christy McElroy with Citi. Your line is now open.

Michael Billerman

Hey. Good morning. It’s Michael Billerman here with Christy and Sandeep I’m not going to ask you to comment on any rumors about GGP, but I would like you to walk through a little bit about how you and the Board reacted when BAM made an offer for Rouse on a Saturday morning and I’m just curious you think about your role in the independent Board members when that occurred, is there any level of preparedness that you’re going through either engaging bankers or lawyers so that you are well prepared in the event that they potentially do the same thing with GGP.

And I understand all the shareholder agreements, but I think it's helpful for investors to understand how well prepared you would be and the independent Board members would be should they make a similar approach out of the blue.

Sandeep Mathrani

So Michael you are Canadian, you should -- one of the Canadian thing to do. So as we've maintained consistently -- as I did in my original comments, the Board is always prepared -- this is not the first time we’ve had this experience. So we had with Ackman in the past. We’ve had it with other companies in the past.

So our Board has always been prepared. We have corporate guidelines listed, which allows us to understand just slightly different I think than in the case of Rouse. And so we're prudent and we will do what’s right for the shareholder and we always have maintained that.

Michael Berman

So nothing changed relative to after that occurred per se.

Michael Billerman

No.

Michael Berman

Okay, Christy has a question too.

Christy McElroy

Hey it's Christy. Just what’s the timing of the drawdown of the remaining proceeds from the JV sales at Ala Moana and in the context of your source as been used this year, where do you expect that to end the year from a leverage standpoint?

Michael Berman

The tightening of the second payment on Ala Moana is the fourth quarter consistent with certain construction timeline. We’ve always expected it to be at that time and we don’t expect our debt level to be higher between now and the end of the year. Hopefully it will start ticking down. We think we’re about 8 to 8.5 net debt to EBITDA number for 2016.

Christy McElroy

And then Michael just given your recent financing, I’m wondering maybe you could give us some observations around this financing market from malls around the cloud, just sort of a cost of quality spectrum and how that maybe changed in the last three to six months?

Michael Berman

A malls is never really in the discussion. Very strong market, lot of appetite, when you move away from the A and, really top B-plus malls everybody wants to group them all together as one giant pot.

Our view is every aspect has its own business plan, its own story, it's own leverage requirement. We did three B malls in the fourth quarter and got we thought were pretty good deals considering the volatility in the marketplace. We have a couple of B malls that we have coming due this year and we would expect to be able to address them successfully.

The market has gotten more volatile in terms of dealers committing spreads for treasuries have come down. You haven’t really seen a lot of change in the overall interest rates that you're being quoted.

Christy McElroy

Thank you.

Operator

Our next question comes from Caitlin Burrows from Goldman Sachs. Your line is open.

Caitlin Burrows

Hi, good morning. You mentioned that your sales were up 3% on a comparable basis and I think that’s on a trailing 12 month basis. I was wondering could you comment on your 4Q and holiday sales in particular and whether you saw any difference by markets?

Sandeep Mathrani

Actually not, as I mentioned it was 3% for less than 10,000 feet and actually for all retail excluding department stores and it was about 4.5% ex Apple and all 4% for all retail ex department stores without Apple. And the holiday season stayed in that same wheel house. It was about the same 3% to 4% up.

Caitlin Burrows

Okay. And then just when you think about leasing up your portfolio over the course of the year, I know somebody asked before about your expectation for bankruptcies and you said there could some, but could you just comment on how you expect that to play out?

Sandeep Mathrani

Again we've maintained that in the last quarterly call that we have held a credit reserve because we anticipated at the time several large bankruptcies to occur in 2016 and the jury is out whether they will occur in 2016 and I think usually we will wait till the end of the first quarter because that is the time when you start to see the Telco signs whether someone is going to file and so at this moment in time we’re going to maintain our course and hold our conservative debt reserve.

Caitlin Burrows

Okay. Thank you.

Operator

Our next question comes from Ki Bin Kim from SunTrust. Your line is open.

Ki Bin Kim

Thanks. First just a follow-up on that last question does -- and I believe the reserve was $50 million, does that reserve cover 100% of what you’re considering large bankruptcies or is that a kind of midpoint of in case that event occurred?

Sandeep Mathrani

The reserve was $20 million. It's embedded in guidance. It's not necessarily specific to any particular tenant. It’s just a general conservatism that we built in for the guidance model.

Ki Bin Kim

Okay. And Sandeep if you could maybe comment on 685 Fifth Avenue, I know you’ve refined the Bulgari lease for less space, could you comment on where the yield -- where the yield is coming out for that asset. I know your original guidance was $70 million to $80 million when you first talked about that project but where is it today?

Sandeep Mathrani

So 730 Fifth Avenue for the Bulgari lease it's not 685 just to clarify about that.

Ki Bin Kim

Sorry about that, yes, yes.

Sandeep Mathrani

It's okay. I'll continue on the line and our expectation was 5% to 6% yield which is exactly the same, so it's $70 million to $80 million.

Ki Bin Kim

Okay. Thank you.

Operator

Our next question comes from Alex Goldfarb from Sandler O’Neill. Your line is open.

Alex Goldfarb

Good morning. First question is on the street retail, Sandeep you mentioned the potential to sell assets as you lease them up, stabilize them. Previously I thought that you guys had spoken about wanted to develop a portfolio akin to a mall type square footage in street retail.

So can you just walk through the differences if maybe there is a difference between certain properties where what’s done is done and therefore the best opportunity is to sell versus the street retail assets that you would keep to maintain over time?

Sandeep Mathrani

Again as I -- what I did say was I said we would evaluate like we evaluate all our assets and determine based upon the growth rates, based upon our partnership interest, which ones we would hold long-term and which ones we would sell.

At this moment in time, our intent is to hold the assets that we have at 685 and 730 Fifth Avenue, but we will make that decision as the year goes on. I think 730 Fifth Avenue you can assume will be a long-term hold and the others we will evaluate based upon our partnership interest with our partners.

Alex Goldfarb

Is that have anything to do with recent changes or softness in street retail or that’s -- it seems to be a little bit of a shift, so just curious?

Sandeep Mathrani

So actually it will be -- a little bit in the reverse because it’s huge demand institutional and private wealth demand and very aggressive cap rates. I would say two to three cap upon New York City real estate and we’ve been able to achieve our pro forma rent.

So if anything it may be prudent to take advantage of the major disconnect in private and public pricing and we will evaluate like I said as the year goes on.

Alex Goldfarb

Okay. And then the second question is for Mike. Mike just in the -- some of the recent CMBS trade publication articles on volatility based on dealer inventory levels being low and issues with the retention pieces and all that dealing with new regulation, so as you guys look at your financing platform and strategy, is there any -- is there any view to potentially shift away or broaden away from the mortgage whether it’s life or CMBS or you guys view that the issue is a bit -- the mortgage markets are dealing with right now will eventually be worked through before you get to the more meaningful maturities in '17, '18, '19?

Michael Berman

I think we’re going to stick with the mortgage markets as our primary outlet. Keep in mind that one of the big changes in the CMBS market is the requirement for issuers of paper to retain more of the -- I believe the riskier pieces and that is forcing the market to deal with that element.

From a long term perspective, I actually think that's a very beneficial element. It's going to make the underwriting cleaner. It’s going to make it the better properties and the better sponsors are going to benefit in an environment where there is more of a focus on quality of earning and quality of assets.

So I don’t necessarily -- I'm not making a comment on the CMBS market overall. I just think that GGP given its assets base and its history will continue to thrive in the mortgage market.

Alex Goldfarb

Okay. Thank you.

Operator

Our next question comes from Ross Nussbaum from UBS. Your line is open.

Jeremy Metz

Hey good morning, Jeremy Metz on with Ross. Just one quick one Michael, I was wondering if you can talk about the same-story results this quarter with particular was a big uplift. Was it just redevelopment or was there some earlier than expected condo games, maybe from Ala Moana stating to creep in there?

Michael Berman

The Ala Moana condo games don’t hit us until approximately the second quarter and again it depends on the construction process. Anything that was one time that we knew about we had already put into the guideline, it was really as I said there was a helpful net tax recovery, which is not unusual at the end of the year.

We got a little bit more in lease termination income. So $5 million in a particular quarter is almost 1% on the same-store NOI growth.

Jeremy Metz

Okay. And then just trying to redevelopment, just in terms of Miami and Staten Island, first maybe Staten Island cost went up again. I don’t know if that you had mentioned the Seritage box you just start working on, but obviously yields were unchanged. So I'm guessing you’re -- you'll be able to recover that rent.

And then in terms of Miami, it looks like you took your ownership up just a little bit in the designed districts, so I was just wondering who was selling on the other side down if there is an opportunity and I guess desire to increase that further in 2016.

Michael Berman

So again in the case of Staten Island as we refine our costs which are now finalized because we bought other trades and that’s based upon the final approvals that we've gotten and again we've done a fair amount of leasing, so it has no impact on the yield to the yields that are the same if not slightly better.

So I think that -- and the construction is about at Staten had actually started in a way but gets going in full force in about 90 days and that’s a $200 million-ish extension.

Miami design district, we've always liked the asset and even though we have a 12.5% interest we felt that there was an ability to incrementally increase ownership interest in the property. We had an option to increase it by 2.5% and it came half from Dacra and half from L Capital.

And I think we'll see it more comes available and if we're a player to continue to buy more of that asset, but at this moment in time we're happy with the 15% interest that we will evaluate as the year goes on whether we deploy more capital into that asset.

Jeremy Metz

Thank you.

Operator

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

Vincent Chao

Hey, good morning everyone. Just wanted to go back to the comments on the private total market discount and maybe to congratulate the still very strong average in the street retail market.

I was just curious if you were to monetize those assets, maybe do have some development capital to spend, but just curious where you think that money would build towards, that’s my first question.

Michael Berman

Well one of the interesting things as we've said in the past is that when we bought the urban retail assets, it has impacted our debt-to-EBITDA ratio because we've taken on debt to buy those assets with no income on the other side.

And so if one does sell any of those assets there is obviously a very positive impact to debt-to-EBITDA ratio and with the additional capital again we'll evaluate to make capital allocation decisions between what we've done in the past, which is the debt pay down or reimbursement in our development pipeline.

And at this level of our stock we're not purchases of our own stock. We've very prudent about that but cognizant of our leverage issues. And we only look to buy stock at a deep discount and what we believe is NAV.

And we've been prudent and showed you our hand in what that price would be and so we would evaluate it to either pay down debt or investment into the development activities that you see.

Vincent Chao

Okay. And then just understanding that it sounds like you don't consider stock today at a significant discount and I think you're buying back $25.

But to the extent that you're still trading at a discount to NAV, just curios, I know we've had many, many discussions about leverage and your thoughts on leverage and that kind of thing.

But it does seem that that's clearly one thing that does weigh on the stock relative to some others, if the discount persists and is that something you would ever revisit in terms of the overall leverage cost?

Sandeep Mathrani

Well, we already -- as I mentioned to you, you asked me what I would do with the capital, one, our debt-to-EBITDA ratio for 2016 will be in the 8% to 8.5% range as Michael said.

You asked me what I would do with the capital, I've proven the theses that last year we paid down $600 million of debt as the Ala Moana proceeds and if we did sell another retail asset, we would either pay down debt at this stage of the game or redeploy the capital in redevelopment activities, which produce 8% or better returns, which again has the same impact which is to increase the EBITDA and reduce debt-to-EBITDA ratio.

Vincent Chao

Okay. Thank you.

Operator

Our next question comes from Paul Adornato from BMO Capital Markets. Your line is open.

Paul Adornato

Thanks. I was wondering if you noticed any impact from the international luxury shopper the way your peer reported last week.

Sandeep Mathrani

Hi Paul. The answer is yes. If you look at retail productivity in Ala Moana it was down almost 8% to 10% in Fashion Show mall and Vegas was down 3.5% to 4%. So we did see fair amount of impact. If you actually take out Ala Moana and Vegas, our retail sales which I said earlier went up by 4.5% would have gone up well over 5%.

Paul Adornato

Thanks for that. And at the low end, could you perhaps provide a few sales growth metrics for malls under $450 square foot?

Sandeep Mathrani

They've been obviously at the lower end of the spectrum although they would have been positive. The B & B Plus malls have been positive, flat to up 1% or 2%. Obviously, the disparity is a lot greater in the -- to the A malls which have grown much faster than the B & B Plus malls.

And obviously, the B & B Plus malls are positive as a result of bankruptcies of tenants that come out of the equations.

Paul Adornato

Great. Thank you.

Sandeep Mathrani

Our next question comes from Craig Schmidt from Bank of America. Your line is open.

Craig Schmidt

Thank you. And looking at your top 10 tenants, the GAAP in third quarter went from 3.5% to 2.8% this quarter. I wonder what drove that down.

Sandeep Mathrani

Stores closing, which I view to be a positive. We were able to obviously not renew stores with lower productivity. We were able to replace them with higher productivity retailers. So we actually view that to be a part of it.

Craig Schmidt

Was natural role that closed or…

Sandeep Mathrani

Yes. Natural role, natural role, natural role.

Craig Schmidt

Okay. Thanks. And then on Quail Springs, what are your thoughts on what to do with the Macy's Anchor?

Sandeep Mathrani

So we were actually pleased to be able to get that space back. Again, we are working on a redevelopment plan to potentially relocate the movie theater and replace the existing movie theater with more restaurants. So it's actually going to more entertainment.

If you know the shopping center, it sits in the midpoint. So it doesn't anchor either end of the mall. It was a very low productivity store that we were happy to be able to have the option to recapture it.

Craig Schmidt

Great. And then on SOHO -- SoNo collection, sorry. I see the stabilization as 20-20. What opening does that assume?

Sandeep Mathrani

Late 2018, early 2019. It all depends on when we start construction Craig. So we'll be conservative.

Craig Schmidt

Okay. Thanks a lot.

Operator

Our next question comes from George Auerbach from Credit Suisse. Your line is open.

George Auerbach

Thanks. Good morning. Michael, you mentioned that development would add about $9 million of NOI to the first quarter and $40 million for the full year. I guess why would the NOI run rate have a stronger ramp as we move through the year and more store open up and as a follow-up, how should we think about the yield run rate on the development assets as we exit 2016 and head into 2017.

Sandeep Mathrani

Okay. The first one you're going to have to repeat because you want real fast. The second I think the yield on the current spend is north of 8% and it ramps up to the end till where we get to the 9% to 10%. Can you repeat the first question a little bit slowly please?

George Auerbach

Yeah, sure. Also I also misheard you guys, I said that in the first quarter development would add about $9 million of NOI and about $40 million for the year and I guess I would have thought that the run rate would have had a bit more of a ramp to it.

Sandeep Mathrani

Remember that’s the debt to incremental change and it does come in pretty ratably over the year given the timing of the project.

George Auerbach

Right, I guess on the $1.2 billion of development that’s open as of the fourth quarter, do you have a sense for what the NOI was coming off of the assets?

Sandeep Mathrani

It’s about $90 million to $100 million.

George Auerbach

Great. Thanks and then last for me. I think you said that there was about $10 million or better operating asset NOI growth in the new '16 guidance, Sandeep mentioned in his opening comments that part of its due to the faster rent commencement at 730 Fifth avenue, but is that the entirety of the increase, were there other revenue or expense items that you now have more clarity on.

Michael Berman

Some of the growth came from the Urban leasing back in our non same-store NOI. The rest of the increase came from items such as G&A, lower than expected tax provision. It wasn’t the same-store NOI per se that changed.

George Auerbach

Great, thank you.

Operator

Our next question comes from [Caroline Layton] from JPMorgan. Your line is open.

Mike Mueller

Hey, I think -- it's supposed to be for me it's Mike Mueller. So, I think the average portfolio occupancy cost is in the mid 13s for 2015 just wondering can you talk about how that compares to where you're signing leases, where the leases signed in 2015 we're.

Sandeep Mathrani

It's again being very consistent, if you are in the A mall business you're at 15% to 17%. If you're in the B Plus business, you're between 13% to 15% and if you're at B business it is what it is.

And the new leases are getting signed depending on the productivity of the center in the range that I told you averages about 13% again please appreciate you only have five million square feet out of 60 million square feet that rolls every year. So the impact of that occupancy cost is not going to be dramatic year-over-year.

Mike Mueller

Got it, and then it looks like you booked some land sale gains in NOI, same-store NOI in the fourth quarter, I think it was about $10 million, is anything embedded in the 2016 same-store NOI guidance similar to that?

Sandeep Mathrani

In the fourth quarter we had -- the other half of the land fill we did at Ala Moana in the 2016, there is some one-off events that that are part of the overall guidance.

Mike Mueller

Got it. Okay. That was it. Thank you.

Operator

Our next question comes from Floris van Dijkum from Boenning. Your line is open.

Floris van Dijkum

Thanks. Sandeep you guys have about 5% temp tenancy right now, 97% overall occupancy, do you expect that you'll see some of that temp tenancy in the next 12 months be turned into potentially permanent occupancy?

Sandeep Mathrani

Well we're hopeful barring bankruptcies do get that 92.3%-ish permanent occupancy up to 93% by year end. So that’s our goal to reduce the temp down by call it 50 to 100 basis point.

Floris van Dijkum

Right. Right, and could you maybe talk about -- obviously most of your redevelopment capital your -- according to our estimates, you're retaining about $600 million of cash flow every year that you're putting back in your redevelopment.

How are you, as you think about the allocation to fortifying existing A asset as opposed to turning some of your B malls into potentially A malls, maybe talk about the thought process and also may be touch upon what you think is happening at Southwest Plaza in Littleton.

Sandeep Mathrani

So most of us spend almost 70% to 80% of our spend has been on the A malls and fortification of the A malls and we haven’t done much beyond as you know densification for retail purposes at the A malls to date.

We did take a couple of B, B plus assets and invest capital in them to that come to mind one is Southwest Plaza as you mentioned, we were very pleased with the opening of Southwest Plaza, the food hall and the retailer productivity has gone up dramatically.

We see that mall which is probably a 300 mall with a 50% occupancy, 50% occupancy to climb to 90% by yearend and sales productivity to be well over $400 a square foot.

The traffic was very good during the holiday season. So it seems that that investment will pay off handsomely. The return on our investment was almost over 9% there. So we deployed whatever it was $70 million to $90 million and got a 9% return.

So we would net to be so far successful and again we were able to do that there because the demographics justify the expenditure.

We did do that at one more mall. We did that at Lynnhaven Mall in the Norfolk market where we invested I don’t know $40-ish million and I think that mall is now almost a $500 plus mall.

And so again when the demographics are prevalent investing in the B plus assets we do get an opportunity to upgrade the asset to high quality assets. But still 70% to 80% of our capital gets deployed into what we would call A malls.

Floris van Dijkum

Thanks.

Operator

Your next question comes from Rich Moore from RBC Capital Markets. Your line is open.

Rich Moore

Hi good morning guys. You’re off to a pretty good start this year in terms of B mall dispositions and I’m curious how much more of that you have in the pipeline and maybe how aggressive you’re going to be at targeting dispositions in same?

Sandeep Mathrani

As Rich as we’ve said consistently our job is to one keep pruning the lower quality assets. We’re not with the B malls are not very cap rate sensitive because our business as I mentioned earlier hundred of our malls, which are B plus or better gives us 94% of our NOI.

So the B malls are probably 3% or 4% and other assets are probably 1% or 2% of the NOI. And so we’re not cap rate sensitive, but the market is not deep enough and we will continue to prune the portfolio opportunistically in a disciplined manner. And so you could expect us to dispose more B malls as the year progresses.

Rich Moore

Okay. And Sandeep what is the market like for those assets? Is there a lot of interest when you take in the market or is it pretty thin?

Sandeep Mathrani

It’s a very -- in our opinion, it’s a very thin market. You generally got the money sources to be the same people that tie up with different local entrepreneurs throughout the country and so it’s a fairly thin market.

It’s also conditioned upon the financing markets and the Eastridge mall was financed by Bank of China, the Provo Mall was financed by Bank of America. So there is a market, there is a bank market, but it’s obviously not as deep as well.

Rich Moore

Okay. Great. Thank you, guys.

Operator

Our next question comes from D.J. Busch from Green Street Advisors. Your line is open.

D. J. Busch

Yes just a follow-up on Rich's question. Knowing that the bottom call it two dozen or so are not long-term holds and they're not price-sensitive but how do you go about operating those in the meantime and then compared to kind of the B plus malls where you said there is some rental demand, what is the demand for space at your B centers right now?

Sandeep Mathrani

So actually what we are actually seeing is that there is a move of several retailers that used to occupy space at A and B plus malls who have gotten price out of the market which are mall operators, mall tenants going into the B malls.

So we are -- our occupancy is actually doing quite well in the B mall sector. We've dedicated a team of professionals and leasing people to focus on the bottom call it 15, 18 malls to get them more focused so that we can make sure that the leasing activity stays strong because as I've always maintained the B mall sector is an occupancy play not an occupancy and rate play.

But if demand seems to be there you've got tenants like Dress Barn, Maurice's, rue21, Children's Place, Footlocker, Victoria's Secret they've continued to take space in those malls and also you've got the bigger players, the bigger users of space, the valued retailers that are not coming into this malls. So we actually see a healthy lease of. Again it’s a occupancy play, not an occupancy rate play.

D. J. Busch

So based on those comments, I think that those comments would be similar to what we may hear from owners that predominantly own B malls. It sounds like there is a demand at that level of mall quality.

So what makes the market so thin if it is not kind of the operational prospects, is it simply the lack of financing or the perceived financing risk that comes with these B malls that makes the market so thin?

Sandeep Mathrani

I think its two things, I think it’s the equity backers who are skittish on long term potential and I think it’s the debt markets. Although we've been successful in selling, we sold Provo, which was a $230 square foot mall in January a week ago; close to a week ago and so there is a market, it’s thin.

D. J. Busch

Okay. Maybe just one last question on the top of the mall quality spectrum, you have plenty of -- very high-end A mall to make up a good percentage of NOI or value.

If you see your discount grow even further, the discount to where your stock is trading relative to NAV, at what point do you start to look through the portfolio for maybe A malls that are stabilized they don't have the redevelopment opportunities going forward and you look to kind of close the gap by selling some of those assets as opposed to some of those retailer or lower productivity malls?

Sandeep Mathrani

D. J. as I mentioned in my comments actually there was a disconnect between private and public market valuation of the A Plus malls and there is a commended demand by institutional investors.

Again the Board and I view that disconnect and would evaluate at what stage we decide to bring in joint venture partners for a portion of those assets if we do it all because we have points well taken and we're in deep thought.

D. J. Busch

Okay. Thank you.

Operator

Our next question comes from Linda Tsai from Barclays. Your line is open.

Linda Tsai

Hi. Thanks for taking my question. In light of your comments on holiday traffic, do you think you will comment on traffic going forward? I think in the past you didn't like to discuss it because it came from external flash unreliable sources but now you are measuring it in your malls.

Sandeep Mathrani

I think as we continue to measure them we're happy to give the data because the irony is that the loan traffic is actually up and one of the biggest pain points during the holiday season was lack of parking. So we're obviously seeing people come to the mall. We're seeing then stay longer at the mall. They're shopping a lot of fewer stores when they come into the mall, but they’re definitely roaming the malls and shopping.

So if you've got the product the retailer -- the consumer is redoing the research on their mobile device and coming into the mall to shop which is why still to date from a soft goods perspective, almost 95% of all soft goods are bought in the bricks and mortar store.

And I think the other fact is that people are really built into the equation is that the return rate on the soft goods is incredibly high. I think its 38% of eCommerce purchases of soft goods that are bought online or returned in the bricks and mortar store.

So to really get a true and proper understanding until the retailer stock to show you exactly what the return rate is and how it’s being impacted is really hard to evaluate in this Omni channel world why one growth is bigger than the other because you have to take the return rates into account, which really no one does.

And just case in point, you go to Amazon opening bricks and mortar book stores and their goal is to open as I understand 300 to 400 book stores, and it should sit back and say that the last mile is all important, which is why Bonobos is opening bricks and mortar store and Warby Parker is opening bricks and mortar stores and Birchbox is cutting their overhead to open bricks and mortar stores.

It’s a very interesting evolution because the cost of the last mile is that important. And again the mall business if you appreciate which is more focused on fashion is very different than a staple business where you’re buying commodity and so you know in the mall business, the impact of eCommerce is a lot less, it’s actually your friend not your enemy.

Linda Tsai

Thank you. And then just a follow-up for Michael, of the $20 million you have reserved for store closures, how much of that might be split between department stores versus inline?

Michael Berman

It’s a general number. There is no specificity attached to it.

Linda Tsai

Okay. Thanks

Michael Berman

I’d sort of sit back and say that the rents that are paid by the department stores have virtually nothing. So on the contrary, if a department store closes, the only impact you will have is you have co-tenancy impact, but it effectively will be, should be an positive add-on on at least a 100 of our top malls for the ability to really step at positive spread.

And so I’d sit back and say that 90% or so I am making that number up, but a large percent of the $20 million is allocable to the in line terms.

Unidentified Analyst

That’s helpful, thanks.

Operator

And I'm showing no further questions at this time. I would like to turn the call back over to Sandeep Mathrani for closing remarks.

Sandeep Mathrani

Thank you all for joining our call this morning. Please do contact Michael or Kevin with any future questions. Have a great day.

Operator

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

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