Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

General Growth Properties Inc. (NYSE:GGP)

Q1 FY08 Earnings Call

April 30, 2008, 09:00 AM ET

Executives

Timothy Goebel - Director of IR

John Bucksbaum - Chairman and CEO

Robert A. Michaels - President and COO

Bernard Freibaum - EVP and CFO

Analysts

Lou Taylor - Deutsche Bank

Jay Habermann - Goldman Sachs

Michael Bilerman - Citi

Paul Morgan - FBR

Michael Gorman - Credit Suisse

Michael Mueller - J.P. Morgan

Louis Taylor - Deutsche Bank Securities

David Toti - Lehman Brothers

Christy McElroy - Banc of America

Nathan Isbee - Stifel Nicolaus

Ben Yang - Green Street Advisors

Tom - Goldman Sachs

Jeffrey Spector - UBS

David Harris - Lehman Brothers

Richard Moore - RBC Capital Markets

Ambika Goel - Citi

Operator

Good day, everyone, and welcome to today's General Growth Properties first quarter conference call. As a reminder, today's call is being recorded. With us today are John Bucksbaum, Chairman and CEO; Bob Michaels, President and COO; and Bernie Freibaum, CFO. At this time for opening remarks, I would like to turn the call over to Mr. Tim Goebel, Director of Investor Relations. Please go ahead, sir.

Timothy Goebel - Director of Investor Relations

Thank you, Stacey. Please note that this conference call and webcast will contain forward-looking statements, including guidance for 2008 core FFO. Actual results may differ materially from the future operations suggested by these forward-looking statements due to various risks and uncertainties. Please consult documents General Growth Properties, Inc. has filed with the SEC, specifically the most recent forms 10-K and 10-Q for a detailed discussion of these risks and uncertainties. The company disclaims any obligation to update any forward-looking statements. GGP has furnished its quarterly supplemental information to the SEC and an 8-K filed yesterday as well as posted it to our website, ggp.com.

With that, I will turn the call over to John Bucksbaum, our Chairman and CEO.

John Bucksbaum - Chairman and Chief Executive Officer

Thank you, Tim. Good morning, everyone. This is John Bucksbaum, and thank you for joining us. Also with me this morning are Bob Michaels and Bernie Freibaum.

During the first quarter, we produced core funds from operations of $0.76 per fully diluted share. Core FFO for the quarter increased approximately 18% versus first quarter 2007. The quarter was highlighted by comparable NOI gain in our consolidated properties of 5.1%, while unconsolidated properties increased by 7.3%, giving the overall portfolio a 5.4% gain. Occupancy for the quarter was 92.7% versus 92.9% in the first quarter of 2007.

According to a recent survey by Marcus & Millichap, retail vacancy is expected to increase by only 50 basis points on a national average in 2008. This is a powerful endorsement of the strength of retail real estate. Last quarter, I spoke to you about historical periods of slowing retail sales that have not necessarily translated into a marked increase in store closings. Most retailers today are in better financial shape with stronger balance sheets than retailers in years past. While it is true that we saw a slight increase in closings due to bankruptcies during the quarter, a fraction of 1% of our mall shop square footage. It is important to note that those closings had good locations and strong properties, making re-leasing an attractive alternative for GGP.

During the quarter, we signed leases totaling approximately 1.6 million square feet of space. The majority of these leases will commence in 2008. We also opened 317 stores during the quarter. This shows that despite the softening retail environment, retailers are continuing to expand. Another good indicator that retailers are continuing to look for good productive locations is evidenced by the 124 portfolio review meetings we held throughout the first quarter, an average of more than two per day.

Total sales per square foot increased to $460 versus $459 a year ago. Comparable sales increased nine-tenths of 1%. Indicative of the strength within our portfolio is the performance of our 50 most productive United States centers. These properties generated average sales per square foot of $648 versus $635 at year end. Not only do these 50 centers produce tremendous sales per square foot, but they also represent approximately 50% of our total mall NOI. This is one more example of the quality of our portfolio, and quality will be more important than ever as we move forward in 2008.

There is no question the world we operate in has changed dramatically from last year. The credit markets we have known are either not available or have changed considerably. The strong employment environment we have enjoyed during the last three years is weakening. Consumer confidence is down and sales have softened. Is this reason to set off the alarms and abandon the ship? Of course, not. But it is reason to draw upon our experience and our approach to business, which allows us to continue to grow and operate as a consistent, stable and profitable company.

We are a blue-chip company and blue-chip companies are renowned for quality and the wide acceptance of their products and services. Most notably, blue-chips consistently make money and pay increased dividends year-after-year. This continues to be who we are. We have always had plans at GGP to guide us. Whether it is to build a building, lease the building or finance a building, our plan is always to do what is right. We continue to make the right decisions as we move forward.

Over the last 54 years, we have implemented different plans during different cycles. This is no different. Everyone at GGP is focused on executing the current operating, development and financing plans in the most efficient, realistic and profitable manner. I've often used four words to describe our approach to the future, words that come from our past: boldness, excellence, innovation, and passion.

Boldness ruled the day and led to the expansion of this company. Excellence is what we expect from ourselves. Innovation is what continues to allow us to excel and to keep growing. And passion is why we have been successful for all these years -- passion for the business, passion for the promise of the future, passion for continuing to be the best.

You'll find that in an environment of increasing difficulty, the company with the best properties, the best talent and the best plan will be the most successful. We expect a lot from ourselves and I know you expect a lot from us as well. I remain very enthusiastic about our business. The world we live in, as I said, has changed dramatically from just nine months ago. We recognize this change and we are adapting to it. Do we expect it to be easy? No. Do we expect to be successful at it? Yes.

This company is blessed with great properties and great people. Certain external challenges do exist, but I promise you, just as we have done in the past, we will meet every challenge within our reach. I would now like to turn the call over to Bob Michaels to discuss past, present and future performance in the areas of asset management.

Robert A. Michaels - President and Chief Operating Officer

Thank you, John. In the first quarter, our sales were up slightly, but basically even with those last year. So much has been published over the last three to six months about retail sales that to now see that April sales are apparently going to be somewhat better is a breath of fresh air. The flat sales of the first quarter can be attributed to the slowing economy. However, both weather and the calendar also played a part, the way retailers report their sales.

In 2007, there was one extra week in the retail calendar versus the number of weeks in 2008, which had the effect of one less week in 2008. Despite the flat sales numbers, we and the retailers remain cautiously optimistic that sales will pick up as we get to the third and fourth quarters of this year. We believe that the economic stimulus checks which are now being received, the continued low interest rates, the pent-up demand for fall fashions, and the fact that this is an election year will all have a positive impact on sales later this year, and that we will see higher positive sales comparisons in the third and fourth quarters.

Another factor that is important -- for most mall-based retailers, we are either their largest or second-largest landlord. And the depth of our relationships where we have 15 to 20% of their total stores is a real advantage for us during this period in terms of store closings, renewal and new store openings. As John mentioned, our occupancy remains strong at 92.7% and our overall sales productivity of $460 are strong indications of the strength of this portfolio.

As I told you in our fourth quarter call, 2008 will be challenging with more store closings throughout the year than in 2007. And most of these store closings are coming from established retailers closing certain divisions within their Company, such as Talbots with their men and children's division, and PacSun, which closed a demo. We have anticipated many of the 2008 closings and have completed negotiated settlements with some of the retailers and have already leased much of the space.

Approximately 90% of our 2008 leasing is complete and much of our emphasis is now working on 2009 and 2010 deals. While the emphasis over the last three months by the media has been on the negative side of retail, many retailers both domestic and foreign, are aggressively seeing this as an opportunity to secure space in our centers. The retailers do not operate their business on a month-to-month or quarter-to-quarter timeframe. But rather, since most of the leases we have are ten-year lease terms, they are in business for the long term and make their plans accordingly.

Most of the retailers in our centers today have managed their inventories extremely well during the last six months. Their balance sheets except for a few certain retailers, who have been in the headlines, are in good shape. And if we have flat or minimums sales increases for two or three quarters or even longer, they are well-prepared to handle this.

Next month, we will be attending the annual ICSC leasing convention in Las Vegas. And despite the slower economy, our calendar for meetings are full, and I expect the convention to result in good participation by the retailers as they look forward to 2009 and 2010.

In the first quarter, we opened the first phase of The Shoppes at River Crossing in Macon, Georgia, a joint venture project. We opened The Shoppes at The Palazzo in Las Vegas and the expansion of Nordstrom's, an 80,000 square feet and Ala Moana Center in Honolulu. All three of these projects are doing very well.

One positive aspect of the slowdown is that fewer new projects will be built over the next three to four years, which will increase the demand for space in our existing centers. We're already seeing this in our portfolio review meetings. The selective redevelopment of our existing centers continues to be a strong vehicle. The retailers remain very interested in our redevelopment because of the cram-sized [ph] nature of the centers which they want to be a part of. This is true whether the retailer is expanding an existing store or opening a new concept. And as always, there are a number of retailers entering new concepts, which we have discussed in the past, that continue to perform very well.

The challenges of 2008 will continue into the second quarter and beyond, but having anticipated many of the already announced store closings well in advance, we have taken advantage of the opportunity to complete our settlements and re-lease many of these spaces.

I would now like to turn the call over to Bernie Freibaum, who will discuss our financial results for the first quarter.

Bernard Freibaum - Executive Vice President and Chief Financial Officer

Thank you, Bob. In the first quarter of 2008, our operating performance remained very strong and property cash flow continued to grow. Following on the heels of a 5.1% increase for the full calendar year 2007, comparable net operating income increased by 5.4% in the first quarter of 2008. We continue to anticipate that we will average at least a 5% improvement in comparable net operating income for the full two calendar years, 2008 and 2009. The vast majority of the retailers in our centers are effectively managing through the current soft sales environment and are looking forward to improved conditions later this year.

We, too, have adjusted many of the discretionary aspects of operating our company and our properties. Among other changes, we have placed greater emphasis on maximizing near-term cash flow. With respect to the intermediate and longer term, we have reduced our estimate of aggregate future development spending by almost $600 million. However, no projects that are currently underway will be halted.

After this reduction, we now anticipate incurring approximately $1.5 billion in future development costs over the next 17 quarters from April 1, 2008 through June 30, 2012. Accordingly, our current estimate of average annual future development spending has declined to approximately $350 million a year. Commercial banks are still taking a very cautious stance with respect to financing for development projects. As of March 31, 2008, we have incurred approximately $1.35 billion of development costs for numerous projects in progress, including our share of these expenditures from unconsolidated affiliates. We currently anticipate that during the fourth quarter of this year, and continuing into the beginning of 2009, we will obtain construction financing, which, given the aforementioned $1.35 billion of equity that we have already invested, will likely cover 100% of the remaining future costs of our development projects.

Subsequent to completion of these projects over the next few years, we also anticipate that new loans will both repay the construction loans we expect to obtain as well as return a substantial portion of the equity that we have invested in the form of excess refinancing proceeds.

Property operating metrics were also very strong in the first quarter. Total provision for doubtful accounts of just $3 million represents only 32 basis points of total property revenues of approximately $946 million or less than half of the 74 basis points equivalent that we expensed in the first quarter of last year. Many taxpayers began receiving direct deposits of their federal tax rebate payments at the beginning of this week. Both we and many of the retailers in our centers anticipate that some of that money will be spent at the malls. And, the current historically low levels of consumer confidence will begin to show improvement in the second half of this year.

There is still little or no demand for lots for production housing in either Summerlin or Maryland as the builders are still working hard to sell their unsold homes. Both Bridgeland and The Woodlands, however, continue to experience reasonable demand due to the strong energy-driven economy in Houston and because they offer much more desirable and affordable alternatives in markets that were not dramatically overbuilt.

The total provision for income taxes of $10.3 million in the first quarter exceeded the $6.9 million of Master Planned Community net operating income that we reported, due primarily to Book-Tax/Timing differences. Accordingly, total FFO per share was $0.75 or $0.01 below core FFO per share of $0.76.

In April, we continued to make good progress, obtaining new mortgages and reducing and refinancing near-term maturing debt. Since March 31st, we closed on $375 million of new mortgages on unencumbered properties. With these mortgages plus cash and credit on hand, we repaid and refinanced the $522 million outstanding balance of the $750 million short-term bridge loan that we utilized to purchase 50% of Homart I in July of 2007.

In addition, we closed on the sale of the two Maryland office buildings that we announced last January when they were put under contract. While by no means robust, we have seen minor improvements recently in the commercial mortgage market. Spreads on secondary trading of existing CMBS notes have tightened and a few new pools of loans have actually been sold to investors, following six to nine months of little or no new issuance whatsoever.

Just as we did last quarter, at or near the end of June, we expect to provide you with a summary of all the debt and/or other capital transactions that were completed or will close during the second quarter of 2008.

We currently estimate 2008 core FFO per share to be in the range of $3.52 to $3.58 per share or 18.5% to 20.5% above actual 2007 core FFO of $2.97 per share. This represents a very modest reduction of our initial 2008 core FFO guidance of a range of $3.58 to $3.61 per share.

Please note that in the first quarter of 2008, we produced $0.11 of the total estimated range of $0.55 to $0.61 of full-year 2008 core FFO per share improvement. Due to timing differences, we currently expect a flat second quarter. Accordingly, we now anticipate that all of the remaining estimated $0.44 to $0.50 of improvement in core FFO per share for 2008 over full year 2007 core FFO per share will occur entirely in the second half of the year.

At this time, we'd be pleased to answer any questions that you might have.

Question and Answer

Operator

[Operator Instructions]. We'll go first to Lou Taylor with Deutsche Bank.

Lou Taylor - Deutsche Bank

Thanks, good morning guys. Bob, can you talk about the store closures and lease termination fees? Is this the bulk of it for the year or do you expect more closures or more lease term fees in either the second or third quarters?

Robert A. Michaels - President and Chief Operating Officer

Well, I think you're probably going to see more closures, Lou, in the second and third quarters than we have in the past. I think that at least that's what we're anticipating and -- but when it's all said and done, I don't think that it's going to be appreciably more than what we saw in 2007. We did complete some of our settlement agreements in the first quarter. There will be more I think as we go forward, but it's hard to tell as during this period of time as I mentioned, I think April sales based on what we're hearing from the retailers, and this is pretty much across a very broad spectrum, are much better. But we'll have to wait and see how the stimulus package works and how the retailers perform during these quarters. But I do think you'll see a few more closings, there is nothing major on our radar screen, but that's what we're anticipating.

Lou Taylor - Deutsche Bank

Great, thank you.

Operator

We'll move next to Jay Haberman with Goldman Sachs.

Jay Habermann - Goldman Sachs

Hey, good morning. I guess for John or for Bernie, I guess just some updates. Last conference call, you talked about asset sales, possible joint ventures, etcetera. And I think you really sort of left it open to any and all opportunities. But I'm just wondering how far along you are in these conversations? Who you are speaking with? And again, just sort of update some sort of size and potential deals, and even pricing at this point in the market, what you're seeing. So, I guess just sort of a summary of those conversations where you are today.

Bernard Freibaum - Executive Vice President and Chief Financial Officer

We've been talking for many months, this new credit environment that we're in, where mortgages that were previously readily available are now dramatically less available about all the different types of capital that are available to us. And we issued a press release, called it a roadmap, we talked about joint venture sales, asset sales, preferred equity, all sorts of capitals; mezzanine debt, additional preferred equity at the individual asset level, as opposed to company preferred equity. And we continue to pursue all of these sources of capital to try to quantify it which we've done at least once in a press release as well. We're pursuing what in the aggregate has the potential to be billion, $3 billion, $4 billion of total capital among these various types of capital.

But we don't need that much capital, we don't need anywhere near that much. Mortgages over the long-term will continue to be our principal source of capital. We fully expect that mortgages for our malls will be substantially more readily available in the future. We're not saying whether it will be in a month or six months or even longer, but it's fairly clear to us that mortgages which have been around for 100 years are not disappearing, and that they probably will still be the best form of financing for regional malls that have very predictable and stable cash flow.

As far as conversations, we've got lots of people speaking to lots of institutions who would be interested in all these various types of capital. I expect that we will do some pieces of all of the different capital. But the timeframe to keep it in mind, so that we can maximize the results as such that by pursuing four or five times the amount that we actually need over the next few years, we can choose whichever of it makes the most sense for the company at the time that it's able to be executed. So we're having a lots of discussions. This is not a point in time when there is huge line of people knocking on our door or anybody else's for that matter, to buy assets or to enter into new joint ventures.

However, there is a significant interest in discussing this; we're by no means in a hurry. We have no need to do this anytime soon. And to the extent that we do JVs or additional asset sales, we'll only do them if the terms make sense for us in the long-term. There is no fire sale being conducted, there is no need to do a fire sale. And the terms that we're talking about and all these different types of capital in many respects already make sense for us, and you'll see us take advantage of some of these types of capital throughout the rest of this year and into next year. But again, I think there is a -- there appears to be a perception that we need to do something immediately or very, very near-term, and that's not the case.

As I said in my remarks this month, we got new mortgages on $375 million of new mortgages on unencumbered assets, and we used those funds in addition to cash that we had to pay-off what was left of the $750 million bridge loan that we took out last July to buy Homart. That was a significant maturity that was coming up and we've now repaid that. For the rest of this year, we have only mortgages left and we're very optimistic that we'll be able to get substantial new mortgages, some actually in the last two months of this quarter which we'll announce at the end of June, when we summarize all the capital that we've transacted this quarter.

Operator

Thank you. We'll move next to Ambika Goel with Citi.

Michael Bilerman - Citi

Good morning, it's Michael Bilerman here with Ambika as well. Bernie, can you just go over -- you had Fashion Show and Palazzo, which have a maturity date later this year. I'm not sure if you have extension options there. Can you just go over those loans as well? What proceeds did you use to repay the $522 million on the bridge?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

Well, I can answer the latter part first. As I said, we got $375 million of new mortgages, so that was $375 million out of the $522 million. The other $147 million was the combination of cash that we had left over from the equity offering that we did at the end of March plus a small amount of draw on our revolving credit facility. The mortgages on Fashion Show and Palazzo were very purposeful when we did them in January. And they each had a different rationale. Palazzo is a brand new project, it's just opening. Many of the tenets are not open yet. The sales there, given the project that it's located in, is still opening in some ways with respect to the rooms that are available. Getting the people that come to Vegas more familiar with the project, and the structure under which we purchased the asset, whereby we paid an initial price based on estimated NOI, and then there will be additional payments throughout the next three years that will take into account the additional NOI. So any type of a long-term mortgage on Palazzo made no sense whatsoever.

And in fact, we wanted it to be near the end of the year because the mortgage on the adjoining property which is literally, physically connected to the Palazzo, The Grand Canal Shoppes, it comes due in May, I believe of '09, but it's open to be prepaid in early '09. And the huge improvement in NOI that we've had on that center compared to when we purchased it, will provide us a huge amount of additional proceeds, which may make sense for us to take the Palazzo and The Grand Canal Shoppes and get a new mortgage that covers both of those assets. So we wanted the flexibility to potentially combine those two at year-end or perhaps do something else. Fashion Show is little bit of a different situation. The income there continues to grow very significantly, well ahead of our comp NOI average, and we expect that to continue. There are other things that we've been telling people for years that we're trying to get done there including, getting a certain portion of the project land in the Northeast corner under control, where we might be able to do additional development of that site, given its highly lucrative location right on in the [strip]. So we wanted that flexibility.

In January when that mortgage came due, we had offers from our groups of life companies. We could have done a five-year or a ten-year mortgage at the same proceeds level, but given the things we want to change there and the outside growth in NOI, we didn't want to commit to a long-term mortgage there either. So given that those are two of our very best assets in our top five, no doubt, we have little concern about the ability to refinance them at the end of this year when they come due.

Michael Bilerman - Citi

Do you have extension options at all?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

No, we don't.

Ambika Goel - Citi

Can you go through and review the covenants that exist on the credit -- the term loan? And where GGP stands relative to those covenants?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

We have our debt service coverage and a loan-to-value coverage. And we're nowhere near the minimums on either one of those.

Michael Bilerman - Citi

It's a question for Bob. You talked about the top 50 centers, and it may have been John referencing this that, the sales went from $635 to $648, but the total portfolio was relatively flattish. I guess what does that say for the other half of the portfolio? And what are the sort of the trends that you're seeing, maybe its asset quality, maybe it's regional that's -- effectively sales are down in the back in the other half of the portfolio.

Robert A. Michaels - President and Chief Operating Officer

Well, I think they are flat, Michael. I think for the most part, the increase that John talked about was -- the $648 is a big number from all sales, but compared to a year ago, it's up but it's not up dramatically. I would say across the portfolio, it's pretty flat. Regionally, I think Southern California, I think parts of Florida, certainly Michigan are states where we've seen slower sales then we have across other parts of the country. The Northeast remains strong, the Southeast remains good, the Midwest because of the farm economy and the commodity prices has remained strong. But we were up 0.9 of 1% on comp store sales, which -- in my remarks I said, it's really flat. And that 0.9 of 1% probably is more heavily weighted towards the top 50 centers obviously, and the balance of the centers are probably flat to maybe down 0.5% or 1%.

Operator

We'll move next to Paul Morgan with FBR.

Paul Morgan - FBR

Good morning. Sticking with the sales there for a second, Bob, you had kind of talked over the past couple of years that you prefer to look at total sales growth as opposed to comp sales growth, and this quarter it's actually less. I'm just hoping you can maybe reconcile how -- it's a trailing 12-month number, and if it's up 0.2% last quarter, it was like up 4%, and how I can reconcile that three of those quarters are the same and yet it would have fallen by so much?

Robert A. Michaels - President and Chief Operating Officer

I think it all goes back to the calendar, Paul. I think that as I mentioned earlier, there was one extra week in the retailer calendar, if you look at 2007 versus 2008. We do prefer to look at total sales because I think it gives you a much better overall indication of what's actually going on in the center because this reflects the new retailers coming in. And I would expect that as we get into the second and third quarter, you will again see that the total sales will outpace the comparative store sales which they have done in most quarters over the last number of years.

Paul Morgan - FBR

So I mean there is nothing in particular that would have caused it to reverse, so, kind of sharply, as you brought on the first quarter of '08?

Robert A. Michaels - President and Chief Operating Officer

No. I mean nothing except the calendar change, and again, I think as we get into second, third, certainly fourth quarters, the total sales will be a much more important number.

Paul Morgan - FBR

Thanks.

Operator

We'll move next to Michael Gorman with Credit Suisse.

Michael Gorman - Credit Suisse

Thank you. Bernie, actually, I had a question on the NPC business. Could you just walk me through some of the adjustments in the estimated value of the assets there? I guess I was a little bit surprised to see it go up given the impairment charge that you took at Columbia last year. Can you just talk about, was that entirely offset by Texas? What is your view on Vegas at this point? Was that flattened evaluation? And I guess where are the numbers are going there?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

The valuation of land that's being developed over 30 years is very different process than valuing unsold homes for example, if you're a builder or even lots owned by a builder who has obviously got them in inventory. So the valuation process involves a long-term cash flow model with numerous assumptions, and this is what we use both for this annual evaluation as well as a re-valuation and effect every quarter to determine how much of our cost is attributable to land that it sold for booking profit. We did have a write down in Columbia and Fairwood fairly significant one but the total holdings there and the book value attributable to that land is low. So, the land in Vegas and Huston did make up for the reduction in the value of Columbia and Fairwood. Huston, the Woodlands and Bridgeland are two of the best projects in the city.

The city remains very strong, very strong employment, the energy economy there is keeping things well balanced. There never was a bubble there, and in Las Vegas it's difficult to explain this, but never the less because of the limited availability of land in the valley and in particular in Summerlin. I know, Summerlin is just a section of the valley in the west, but if you look at the Summerlin submarket there isn't any additional land available and our company owns literally all the undeveloped land in Summerlin. The rest is owned by the Bureau of Land Management.

And, the way the model works, if you do a 20 or 30 year long-term projection and you consider the net price of value of all that activity, you get a number and despite the soft current environment for housing including in Summerlin because builders have excess inventory. Yes, it has an impact on the land valuation in Summerlin, because the shorter-term cash flow has been reduced because of the lack of demand for land, but when you factor in the intermediate in the longer-term, and also I mentioned last quarter that after adjusting the estimate of salable acres during the last couple of quarters there, which hadn't been really visited for 5 or 10 years because of the nature of the way the land is developed in sections, would determine that we had a greater number of salable acres as well. So, that's another factor that when you take it into consideration despite the write down in Columbian Fairwood, the overall valuation of the entire portfolio remains where it was at the end of last year.

Michael Gorman - Credit Suisse

Okay. And just quickly, I am sorry if I missed this. The new mortgages in the refinancing that you are doing so far in 2008, are those still non-recourse loans or are the banks asking for recourse at this point?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

The loans that we done with life companies are fully non-recourse. Four of the six loans we did in the first quarter with life companies and they were non-recourse. There is some recourse with respect to the fashion show and [colossal] loans. And, as we discussed new loans currently, the life company loans are still non-recourse, but depending on the type of loan with the bank and whether it's on individual asset or numerous assets, it is likely that there will be some limited recourse that we will give in connection with those loans, but not to full recourse.

Michael Gorman - Credit Suisse

Thank you.

Bernard Freibaum - Executive Vice President and Chief Financial Officer

You're welcome.

Operator

And we will move next to Mike Mueller with J.P. Morgan.

Michael Mueller - J.P. Morgan

Hi, couple of number of questions. First of all, in terms of clarification Bernie when you said second quarter flat where you implying, where you saying, did you mean sequentially or year-over-year?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

Year-over-year FFO is expected to be flat.

Michael Mueller - J.P. Morgan

Okay. And then, previously you used to went together and gave some more guidance for some of the non-cash items, straight-line rent, 141, debt premium, things like that. I mean, can you aggregate those in terms of, where you think those could come out in '08? They know they balance around from quarter to quarter.

Bernard Freibaum - Executive Vice President and Chief Financial Officer

Yeah, they do. I mean, I don't have that information at my fingertips here. But, we -- they do bounce around, and we have a lot of other variables that bounce around that's why the quarterly components of our FFO do tend to add some larger swings, but I don't have that information in hand right now.

Michael Mueller - J.P. Morgan

Okay, thank you.

Operator

Moving next to Louis Taylor with Deutsche Bank.

Louis Taylor - Deutsche Bank Securities

Thanks. Bob, can you talk just a little bit about your comp store sales trends on the consolidated shares has been really pretty flat for the last, say 15 months or so. Can you talk about the regional differences in there, and what regions may be performing well, and which ones may be bringing the average down?

Robert A. Michaels - President and Chief Operating Officer

Well, again Louis, I think that, you know, we said earlier that -- I think that, there has been some weakness in Southern California, parts of Southern Florida and in Michigan, I would say would be the three areas of the country where the sales are probably the weakest today. Southern California, because of the sub-prime issues, that area, certain areas of Southern California had been hit harder. Southern Florida has been under pressure for probably the last 12 to 18 months. And of course, the auto industry and the unemployment in Michigan, but you know, we continue to see strong strength in the Northeast. The mid-west is holding out extremely well, partly because of the higher commodity prices that you're seeing in the Farm belt. And, but overall I would say those would be the differences that we see there.

John Bucksbaum - Chairman and Chief Executive Officer

I think, we do have, I will say greater majority of the smaller centers, the smaller markets and the consolidated portfolio.

Louis Taylor - Deutsche Bank Securities

Right, thank you.

Operator

And moving next to Dave Toti with Lehman Brothers.

David Toti - Lehman Brothers

Good morning, just a quick question and forgive me, if you covered this. Can you provide a little bit of color on the recent equity issuance in terms of you now the timing, why you decided to go then, what the demand was like, just a little bit background and that will be great?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

We always consider when we should issue equity, we've tried to limit it in the last 15 years to only those times when we think it's absolutely needed, because it does create dilution. And it was in the back of our minds, but the reason that we did it, when we did was primarily the result of a couple of reverse increase from major shareholders, asking whether or not we have considered issuing any equity and upon reflection and discussion with the board and understanding the environment that we were in with respect to the other types of capital and the challenges that we face, we decided to see if we could issue a fairly significant amount of equity primarily to our largest existing shareholders. It wasn't technically in the strict security sense of right to offering but we kind of viewed it as a our own kind of private overnight, if you will rights offering because virtually all the shares were sold to large existing shareholders and, management as well purchased a fairly large chunk of it. We didn't like issuing equity at $36 a share. We think our stock even today is significantly undervalued in terms of what the long-term value of the shares ought to be. But, it appeared that the market was pushing our stock price down and taking way out of proportion the issue with respect to debt.

We do have a lot of debt, we have a lot of assets, cash flow is very stable. And, as I said we expect to be able to continue to get mortgages over the long-term, and that market will improve. So, the reason for the willingness to issue equity that we will say the price well below where we think the stock should be trading on a long-term basis was directly connected to our view that by doing that we would reduce the cost of all the capital that we would be raising after that including on mortgages, and it's only been a month. But, hindsight being 20-20, I can tell you that the discussions that we were having prior to issuing that equity. The discussions with those same parties about all the different types of capital, whether they will be mortgages, or preferred equity, or joint ventures, they will all improve dramatically. And, when you look at the very modest dilution on a share basis and even on a estimated FFO per share basis with 30 days of high insight now. I think it's fairly clear that that was absolutely the right thing for the company to do.

David Toti - Lehman Brothers

Alright, thank you.

Operator

We'll go next to Christy McElroy with Banc of America.

Christy McElroy - Banc of America

Thank you. Good morning. Can you remind us of what process will occur in Q1 2010 when the final Summerlin distribution will be made to the huge areas, how will that value be assessed at that point? And will the distribution be done in the form of an equity issuance?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

It's a fairly simple process, it's an appraisal process, and there will be an appraiser appointed by general growth and appraiser appointed by the representatives of the areas of power used. Those two will appoint the third, and the group will come up with the valuation. Its difficult to value but its not impossible to value, and there will be opinions, but ultimately there will a number, a single number and the agreement requires that whatever that number is, the issue to areas in the form of general growth stock. So, we have shares available and we will issue them whatever number of shares based on our stock price two years from now that is necessary to give them net value. The decision as to whether or not we buyback those shares or there is no dilution or we sell half of the land to an investor, take that cash and buyback the shares or do some combination of those things or get a loan on the land and use that to buy the shares. Those are all, what we consider to be attractive flexible options as to how to acquire the remaining half of that land. And we'll make our decision as we get closer to the time when it's relevant.

Christy McElroy - Banc of America

Okay. And then, what kind of LIBOR assumptions are embedded in your guidance for this year? And I'm not sure if you have this at hand but it would be helpful in terms of gazing the LIBOR change impact. What portion of your variable rate debt or the interest cost currently being capitalized?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

Well, you can see the amount of capitalized interest in our supplemental each quarter. So, if you want to impute at our total weighted average interest rate, which dropped from 5.7% as of December 31 to 5.46% as of March 31. You can impute how much is being capitalized and it isn't necessarily just capitalized interest on the floating rate debt, the capitalization is the result of our weighted average rate because much of our development comes from re-financing proceeds on long-term mortgages. So there is not necessarily a direct connection just for the floating rate debt to the dollars that are spent on development. The LIBOR assumptions as we've always said, there are 36, when we counted them a few years ago, different variables that have a fairly wide range. One of them being termination payments for example, which year-over-year tend to track and have been increasing but we found can come in any given quarter.

We have a fairly wide range for what the interest will be on our floating rate debt. LIBOR is even more difficult to estimate today because we're in the past. It tended to be about 12 basis points above hedge funds. We've all been looking the papers for the last few months and we've seen that 30-day and 90-day LIBOR are about 50 basis points higher than they have historically been in terms of their relative level to Fed fund. So, we have a fairly wide range, I don't know what the Fed will announce later this afternoon, nor what they'll do going forward, but that it's one of our wider numbers and that's one of the factors that we consider as we update our annual guidance each quarter when we report our results.

Christy McElroy - Banc of America

Thank you.

Operator

We go next to Nathan Isbee with Stifel Nicolaus.

Nathan Isbee - Stifel Nicolaus

Hi, it's David Fick here with me. Given the fairly extended track record you guys have of double-digit dividend increases. Can you walk us through the thought process you're going to have this year given the dilution and capital requirements that you've got going forward?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

It's an annual Board decision and thought process will be the same. I can't tell you what the result will be and I don't think it's appropriate to look in the crystal ball, the decision will make about six months from now. We'll look at the current environment and what the Board expects the future environment to be and make a decision. I think John said in his remarks that, we're facing challenges that over the long-term we're committed to growing our FFO by double digits and growing our dividend and I think through this year at a 10% compounded annual growth rate of our dividend over the last 15 years where if not the highest dividend grower near the top and regardless of what we do in six months because that it will be primarily a function of what our business is like at that time plus our outlook for the 12 months beyond that. But regardless of this next decision I think we do still believe that long-term shareholders of general growth should expect a substantial dividend increase.

Nathan Isbee - Stifel Nicolaus

Thanks.

Operator

We go next to Ben Yang with Green Street Advisors.

Ben Yang - Green Street Advisors

Going back to the regional sales differences we talked about earlier. One region that you did not mention was Las Vegas, and one of your peers actually recently stated that they are starting to see some softness in sales in this market and that they expect that this trend to continue for sometime. Given your large investment in Vegas, are you starting to see a similar slowdown?

Robert A. Michaels - President and Chief Operating Officer

We have five properties in Las Vegas, The Boulevard Mall, The Meadows Mall which are suburban centers and then Grand Canal, Palazzo, and Fashion Show on the strip. I would say as it relates to the strip, businesses has remained very, very strong. Fashion Show, in particular, the sales continue to increase. NOI continues as Bernie mentioned earlier, to increase more than our normal Fashion Show today is trending over a $1000 a square foot. So, as it relates to the strip assets, volatility -- occupancy maybe down a little bit in the hotels. Business remains very, very strong. We have seen some weakness in the suburban markets in both Meadows and Boulevard, and we think we'll continue to see that but it's pretty much in line with our overall sales that we announced earlier. Las Vegas has been for the last five years on a real tear in terms of retail sale.

So a little slowing is to be expected. But overall I would say, we're satisfied with it. We think the overall year will be good. And as I mentioned, the strip assets will remain very strong. I think it's also important to note that in Hawaii, obviously another very important market to us, but Hawaii has remained very good as well. In Hawaii, I mean the unemployment in Hawaii is probably in the 2% range today. That's the biggest problem is, finding workers not only constructions workers, but just overall. And, sales at Hawaii have remained very, very strong.

Ben Yang - Green Street Advisors

Okay.

Bernard Freibaum - Executive Vice President and Chief Financial Officer

We really didn't elaborate much on the expansion of valley Moreno, but it -- the Nordstrom store is just doing terrifically well. And the new shops that have opened in conjunction with Nordstrom are performing at a very high level as well.

Ben Yang - Green Street Advisors

Great. Thanks, guys.

Operator

And we'll go next to Jay Habermann with Goldman Sachs.

Jay Habermann - Goldman Sachs

Hello again, couple of questions. Actually just -- Bob, when you referenced sort of the improvement in the later half of the year, and your reference maybe tax relates. I'm just wondering, why you feel so confident? Is that really that sort of assumption of retailers I guess, is sort of given that you're seeing falling home prices continue as well as just rising gas and electric bills? And I guess the second part for Bernie is, back to mortgages and just be gazing the appetite of lenders. You mentioned your top 50 malls, obviously the sales per square foot over 650. But I'm wondering, sort of what's the difference between sort of an A versus a B mall in the appetite of lenders. So, perhaps the high-end mall generating 600 plus dollar square foot in sales versus maybe 400 square foot?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

Well, as it relates to sales change, I think that, that only the rebate tax, but I think are important. I think, that obviously we won't see all of those in the malls as the people receive them, but I -- but I do think that we've been through a tough time here in the first three months of the year. The last three months of 2007 was difficult. I think as the interest rates, as I mentioned continue to trend down, the rebate checks, I think the fact that it's an election year, I think there's going to be some kind of demand as well. You know, for forward fall fashions, and if you talk to the retailers this is exactly what they are saying, and where they're coming from. And you know, do we have a crystal ball that we can get accretive - no. But, I do think that the signs would certainly point that way.

I think if you look at April sales, and the information we're getting, now this is partly due to the calendar, but it's also partly due to the bad weather that has really been around most of the country during the first three months of the year. April sales do appear to be quite a bit stronger than they have been. So, I think as you get into certainly the third and fourth quarters, I think you are going to see an uptick now. It may not be 3% to 4%, but I think you'll be in the -- certainly in the 2% to 2.5% increase for those last two quarters of the year.

On the financing part of your question, Jay, there is a huge difference between a lender and an owner of a property. A lender hopes to put a loan on a property, collect his interest and get his money back. It's not a participating loan of any kind. There's no upside. There is only downside if his loan doesn't get repaid. The -- you call them B properties lower sales per square foot. As we've continued to try to explain to people, we've got lots of centers that are $350 a foot that we consider A plus properties, because they are located in middle markets with very little competition and great trade areas. We've got dozens of examples, a lot in the mid West. There number are very small, but very dominant sets of right word properties even in the inner-mountain region that we acquired as part of the JP royalty portfolio.

So, when a lender looks at that, there is plenty of interest in making loans, and because of the reduced supply the lenders that are making loans a day are getting lower loan to values, which from a credit perspective dramatically enhances their loan. If they should decide to securitize these, if that market improves in the future or sell participations based on underwriting standards that were in existence. Recently, these loans would all be AAA type loan to values.

So, a loan on an asset is very different then ownership of an asset and also there continues to be a perception, which I know perception is supposed to be reality, but I can assure you running our business that lot of those centers not in the top 50 are much better to own than some of the ones that are in the top 50 from the point of view of competition, NOI growth etcetera. So, that's why we've always believed that to make the most money in this business, a large national portfolio of very highly productive center is always smaller, less productive from a sales per foot point of view, but nevertheless centers where retailers can operate stores that will make money.

Tom - Goldman Sachs

Hey it's actually Tom here with Jay with just a quick follow up question. It sounds like that the life companies have come to play a pretty prominent role in the provision of mortgage step for you guys. I am just curious about their capacity longer-term to continue I guess supplanting the CMBS market, which is really no longer there.

Bernard Freibaum - Executive Vice President and Chief Financial Officer

We have read debt notion and stories and we have asked the all the life companies that we deal with, whether or not they are going to be out of money, or we shouldn't ask them if they are interested in making loans on our properties and not a single one has discouraged us from doing that. Some of the loans we're paying off are through life or from life insurance company. And, a lot of them want to maintain or grow their exposure to general growth. So, you should speak directly with them to find out. I can't speak for them, but when we do inquire, we haven't had a single lender to say no we are through, we are debt out don't send us anymore mortgage packages.

John Bucksbaum - Chairman and Chief Executive Officer

It wasn't too long ago in this industry where the life companies is really covered almost a 100% of the mortgages. So, this is an unfamiliar territory for them.

Tom - Goldman Sachs

Okay. And, then I am just curious about your personal thoughts with regard to the CMBS market and the extent to which it returns to a level even some what comparable to what it had been say in early 2007, to the extent it doesn't ever return to those levels as functionality and it's permanently impaired. What your thoughts are regarding mortgage financing going forward?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

We do think a lot about it, but it doesn't impact anything we're doing currently. If we need to adjust our capital structure, our amount of debt, our types of debt because of the high quality assets and stable cash flow that we have, we will be able to do that. Having said that, there is this huge tendency for people to extrapolate the present into infinity, and I hate to say that history will repeat itself. But, to us it seems highly unlikely that the CMBS market is gone forever and will not return.

The concept makes a lot of sense. The pressure on it came primarily from sub-prime mortgages on single family homes, which don't produce income. There is no doubt that you can blame who ever you like, we've all read all the stories. But, people were given mortgages to buy homes that with hindsight, people said what were we thinking, what did we do and that never should have happened and as a result all mortgages became a dirty word. Mortgages on commercial assets, there haven't been much to fall. I don't concern myself much with other property types, because we're looking for mortgages on mall and not on the other property type.

So, we believe that some form of securitized mortgage will continue to be available in the long-term. If we have any expectation whatsoever is that the loan to values will decline, and the spreads may increase, but the availability will still be there.

So, if that does happen because we have dozens of mortgages maturing every year, it will gives us the opportunity to adjust our capital structure longer term and if necessary reduce both our nominal debt and our relative debt to loan to value.

Tom - Goldman Sachs

Great, thanks a lot guys.

Operator

Moving next to Jeff Spector with UBS.

Jeffrey Spector - UBS

Good morning. Just wanted to see if you could provide any more color on your thoughts about the joint ventures? May be talk about little bit more about what institutional clients are saying, what they are asking for, may be levered IRR expectations? Is this possibly some of the more productive malls, the weaker malls?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

There is lots of different objectives on the part of the institutions that we are speaking with. Some of them would love to do just our very best assets, others are willing to consider a group of assets and in general, if I can step back, we are not saying we absolutely guarantee that you should see, you should expect us to do a significant joint venture in the future. Whether it's this year or next year even, but it is one of the more appealing capital alternatives to us because it accomplishes two very important things.

It creates a slug of cash, which we can use to finance our business or reduce debt. But, also at the same time just hypothetically, if it's a $4 billion portfolio with $2 billion of debt that we own a 100% of and we sell half a bit that would bring in a $1billion of cash, but it would also reduce our total debt which we include, our unconsolidated assets are a share up by another $1 billion. So even though that's not cash, the other billion is very significant relative to reducing the company's leverage. So, the idea of a joint venture and perhaps a big one or a number of joint ventures which in the aggregate would be large, is an appealing thing to us.

Having said that, I emphasize that you don't see many deals being done in this environment in any property type. And until and unless there is a transaction that has appropriate pricing and valuation and governance and terms and conditions, we won't be doing a joint venture. But having said that, there is a talk among the pension fund type investors that they are going to be allocating a substantial amount of new money to what they call core investments in the second half of this year.

And because we're not in a timeframe as I suggested earlier, it maybe that it's more likely that if we do anything it will happen towards the end of this year. And I think people are adjusting their IRR expectations. They are waiting to see what happens in the mortgage market because all real estates operate more effectively both from a capital and an IRR point of view with some amount of leverage. And until what the new normal is, it's apparent to everybody there is reluctance to come up with very specific targets for expected IRRs and returns.

So I think people are -- we're talking to many people, there is a lot of interest, but we're not pushing, we're not on a schedule as I said, and a joint venture for the regions I gave would be attractive. So, its higher up on our list but it maybe that the other types of capital end up being more effective and a joint venture happens next year.

Jeffrey Spector - UBS

Would you consider partnering with one of these pension funds to take out maybe one of the smaller public mall rates or at this point your conversations are strictly focused on your portfolio?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

We haven't had any thoughts nor did we have any conversation about any other mall companies. We're focused on maximizing the cash flow from our business and on coming up with different types of capital to deal with the maturities and other capital needs that we have. So there has been no thought or discussion of acquiring any other companies.

Jeffrey Spector - UBS

And last question. Can you just talk a little bit about your international expansion plans, what's going on in Brazil, Turkey? Thank you.

Bernard Freibaum - Executive Vice President and Chief Financial Officer

The biggest chunk of our international investment today, it's been Brazil. We couldn't be more pleased without the centers that we bought and we built, and have been operating. They've had huge increases and NOI, the country as a whole is creating a whole new middle class that has not been in existence before today. Stories of Brazil's natural resources and all other things that they have there make it one of the best if not the best large country in our view to try to build a shopping center platform.

And so we're continuing to look for new developments, the acquisition market there doesn't currently seem to be an effective to grow, the valuations have gotten extremely high, very, very low cap rates which, in our minds don't justify using capital today. But one of the best things about Brazil for the future is that, there really isn't much conventional mortgages debt available there today at all. And we do expect that in years to come, that will become available. So, we'll have all these centers that are unleverged with no debt that will allow us to put cheap mortgage debt on and then use that capital to further develop new centers or otherwise grow the business.

So Brazil, I wish we had a lot more than we have but what we have is doing very well. Turkey is a smaller investment but the first center that we built and opened last October, it's fully leased. It beat our expectations dramatically in terms of return. We're under construction now for our second center; this one was in Istanbul in a hugely populated trade area. We have great expectations for that. And just like in Brazil, the acquisition market in Turkey has gotten to the point where the yields are so low that it doesn't make sense for us to buy assets. So, we continue to use our development capabilities to try to find locations to build new assets. And then we continue to look in other parts of the world and are optimistic that we're going to have some opportunities outside of Brazil and Turkey as well. So we continue to pursue it.

Jeffrey Spector - UBS

Great, thank you.

Operator

We'll move next to David Harris with Lehman Brothers.

David Harris - Lehman Brothers

Yeah, good morning. Bernie sorry to [reflect] this but just in terms of the mortgage discussion you're having, are these full amortization transactions as you're talking about? Is loan-to-value still -- that kind of sweet spot around 50 or maybe even 60?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

No.

David Harris - Lehman Brothers

Any comment you've got to in terms of, what I'm hearing is that many life companies are reluctant to extend on any individual mortgage beyond about a $100 million. Does that mean if you're talking you want more, you have to put a couple of these guys together?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

The second part of your question is the one I'll answer first, it's the easiest. There is a tendency for mortgages above -- depending on the bigger life insurance companies, I probably put the number at $125 million, but call it $100 million or $125 million, there is a tendency for the larger life companies to prefer taking a part of the loan. As I mentioned earlier, we had offers from a group of life insurance companies to put a new loan on fashion show of the same amount that we chose to borrow from banks, $650 million, and that was a group of them. And unlike competitors in other industries, they're very comfortable, in fact, very happy to participate with each other on loans. So, the larger loans, if they're coming from life companies, typically do come from a group of them.

With respect to the other part of your question, the life companies that we've taken loans from today are benefiting from the reduced supply that typically was provided by the CMBS market. So, where they would have been very comfortable and very aggressive with their spreads at 65% loan-to-value, maybe they are getting 55%, certainly not having to do more than 60. So, I would say that the current range is still in the 60's range, but things in the last couple of weeks in the CMBS market in terms of secondary trading and then what people think and what their expectations are, we need to believe that we'll be getting ample mortgage money. And going to 65% loan-to-value at a reasonable outline rate, it won't be an issue for us.

David Harris - Lehman Brothers

And these are full amortization mortgages you're talking here?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

The life companies in the recent deals that we've done have 30 year amortization.

David Harris - Lehman Brothers

30?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

But obviously there is a balloon payment at maturity.

David Harris - Lehman Brothers

Okay. And the -- maybe I missed this, but the reference that you made to scaling back for your development program, I think you threw out a number of 600 million lighter than we were talking three months ago?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

Right.

David Harris - Lehman Brothers

Is that decision motivated by funding pressures or if you just raised the bar on terms of what the returns you're looking at and then decided one project is in and one project is out. I'm just wondering if you could give a little color on that decision making process?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

We take all the aspects of our business into account. Funding challenges are something that were a factor in that decision. I can't say they were the primary factor, I think actually, although there were a number of variables that I'd say maybe even a little more important than the current funding challenges that are in this environment, it is the fact that a lot of the projects were what we would call nice to do in a good healthy environment but are not necessary to do from a timing perspective. And as Bob said, there are a lots of our new projects that had been on the Board so to speak but now it's clear it won't get built. So, a lot of the reduction, virtually all the reduction came in the form of expansions and redevelopments that we might have done in a more robust environment relative to anticipating competition from new projects, but because of the reduced development of new projects dramatically reduced, we were able to fairly easily take a number of projects aggregating $600 million without hurting our business or our growth and say we will revisit those in the future when the environment is better.

David Harris - Lehman Brothers

Okay great thanks so much.

Operator

We will go next to Rich Moore, RBC Capital Markets.

Richard Moore - RBC Capital Markets

Hello good morning guys. Occupancy cost have stayed kind of flat for the past several quarters and as you guys grow in '08 about 5% annually and you see occupancy cost kind of rises, is there a point you think it was retailers begin to get a bit more nervous? I mean, are they just sort of taking all this in stride or getting a bit nervous here?

John Bucksbaum - Chairman and Chief Executive Officer

Our occupancy costs, I think are they have been in the mid 12's for many, many years and other companies have much higher occupancy costs I believe. The long-term issue for retailers is profitability. It isn't just sales profitability. Now there is a tendency to look at occupancy cost as a percentage of sales that in fact it maybe invisible to the analyst but the bigger driver is profitability. And, margins seem to be holding up a better and despite the softening or declining sales are really the key that will drive our ability to raise rent.

You see the change in the new leases compared to the expiring lease of 20%. I think that number it may have some softness in the near term, but that type of increase which gives us the ability to make a major contributor as a 5% NOI growth just from rollovers and the leases should continue to be the case. And, we've always been striving to push our occupancy cost frankly up. We'd like to see it gets 13%, but at the end of the day, its NOI in cash flow that you measure and determine to our growth and that's been growing very well.

Richard Moore - RBC Capital Markets

Bernie, have you, are you hearing the, or Bob, are you hearing any whimpering from retailers at this point. I mean there sales in your portfolio have been and in the others as well have been flat for several quarters. I mean, do they just seem to look to passed all this, or is it, is there a bit of request for concessions or how is that unfolding I guess?

Robert A. Michaels - President and Chief Operating Officer

Well this time, I mean you have always hear a little whimpering when times are very, very good. I mean the retailers like to whimper a little bit. But, I would say overall that, they look at this as a very long-term business, and as I said earlier, most of the leases are 10 year leases. They've had a couple of quarters where sales have been slow. I mentioned April looks to be better. I think, we're going to get better as we get into the third and fourth quarters. I think the second quarter will continue to be slow. I mean, there is some concern out there among the retailers in terms of going forward. But, in terms of pulling back up on stores, you are seeing a little bit, but it's in the neighborhood for retailer who is going to open 40 stores in 2009. For the most part, may be they have cut that to 35 stores and John mentioned our portfolio review meetings.

As we continue to look out in 2009, 2010, the demand for space by the retailers while probably not as robust as it was 18 months ago, is still pretty strong. So, I wouldn't say that they are not concerned, but I think that they do have a much longer term perspective on their business

John Bucksbaum - Chairman and Chief Executive Officer

Thank you I also add to what the Bob said is our ten year leases in general, and so when they are coming up for a renewal, they are coming off of leases that are quite low by the as Bernie said it's about profitability and productivity of their stores. Just to use fashion shows as an example, because it was mentioned earlier that it's attracting around a $1000 a square foot.

I think when we brought fashion show in 2004. It was at about $600 a square foot. And so you can only imagine, what's going on with the new leases that have been executed at fashion show based on the productivity that that centre is doing and there is numerous examples of that.

So it's not so much the current environment that is dictating what the new lease, I mean, what they did last quarter and if the lease comes up in May of this year, a flat quarter isn't going to influence the kind of negotiation or the new lease terms just based on what's happened during the last 10 years

Richard Moore - RBC Capital Markets

Okay great good. Thank you guys.

Operator

We will move next to Paul Morgan with FBR.

Paul Morgan - FBR

Thanks just a follow up. Bernie, when you put up the release in March about your mortgage financing, you mentioned that you expected to do, anticipated doing a 1.5 billion by the end of second quarter with a $1 billion of excess proceeds. Is that still your expectation or did the equity offering kind of changed the way you -- you planned to time? Thanks.

Bernard Freibaum - Executive Vice President and Chief Financial Officer

I frankly don't recall that we said we would do that in the second quarter. I think, we talked about things we would do throughout the balance of the year.

Paul Morgan - FBR

No you said -- in fact we will close during the second quarter of 2008?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

Okay. Well, thank you for reminding me of that. The equity offering did change that to some extent. But, we are in decisions now and as I said we've made a good start with $375 million of proceeds on what we're unencumbered assets and we are in discussions now on additional loans, which could possibly aggregate $1.5 billion or even more that would all close this quarter. But, they may not all close and if they don't they will spell in to that third quarter.

Paul Morgan - FBR

And then, in your guidance that you refined, I mean, how are you incorporating kind of all the options that are on your plate? Is this just -- I mean, what's the base case scenario that is embedded in the guidance now?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

No, there is no, we don't have a base case and then a better case in the lots of case. We have a number of different variables that have a fairly wide range in some cases. So, it is difficult that dependent down also coupled with the environment that we are in and the typical seasonality that comes in the fourth quarter of every year and the greater difficulty today of looking out that far into future and having a sense of what business will like in the fourth quarter, but depending on what it is, most of the capital is capital that would a coupon. Whether it's preferred equity at a property level, or secondary equity, or additional mortgages, it's all kind of coupon driven.

There is no anticipation of issuing any additional common equity. So, the only other thing is an outright asset sale, which would in fact reduce NOI but it would bring in cash and reduce debt. So, those don't create a huge issue with forecasting. A bigger issue is a possible joint venture and whether or not we do a large one and or when it happens, because there is a lot's of NOI, but there's also gain of fees that we didn't have before from managing the assets for the joint venture. So, that we have got a lots of moving pieces and the guidance is much more of a challenge as a result of that but we were very careful in calculating the guidance and we believe that the guidance that we issued today is something that you should expect within that range.

Paul Morgan - FBR

Okay, last little thing did you have any kind of abandoned projects expense from reassessing all these developments?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

We every quarter have an assessment of all of our projects and progress and virtually every quarter have some minimal amount of write-off of what we call [bid] money. There wasn't a particularly large write-off this quarter, as I recall. It was kind of inline with what we typically do. A lot of the projects that we're part of that $600 million are projects that we really didn't have any incurred cost on. They were just things that we were internally considering and as a result hadn't expanded any dollars.

Paul Morgan - FBR

Okay. Thanks.

Operator

And we have time for one final question; it will come from Ambika Goel with Citi.

Ambika Goel - Citi

Hi, just a follow-up. On the lease term fees, it seems like those could have been a prepackage deal or was that just related to store closure that are expected to occur later in the year?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

Well, I mean it's just, the normal termination fees that we got during the first quarter. I don't want to get into the detail because they are firm retailers and retailers can make their own announcements on those kinds of issues. But it was the amount that we received in the first quarter.

Ambika Goel - Citi

A couple of the other mall [rates] have commented that second quarter lease term fees will be high, is that a similar trend within the year that we should see with GGP?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

I mean not necessarily. I think, it's all timing how these are negotiated and when the dollars actually come in and, we don't say when -- what we think our lease termination fees are going to be because we really don't know. And, but I wouldn't expect that in the second quarter that they would be significant. Lease term fees in our business, at least the way we look at it are not non-recurring. They are a normal part of our business and perhaps we are more proactive than some of the other mall companies in trying to find a way for a tenant that's not performing well to leave the center.

And the good news is that we're getting these payments from retailers that are not going bankrupt, but that are reducing their store account or closing divisions. But as we've always said, and I look back myself, there is no magic about when these payments come. We've had some years where we've gotten a majority of our lease termination payments in the fourth quarter for example, but we encourage you to look at this year-over-year. Last year, we had $35 million. The year before, we had $31. I would expect, although we don't budget it. As Bob said, that when we get to the end of 2008, it will be in line with what we've seen in the last couple of years.

Ambika Goel - Citi

Okay. And then, bad debt expense on a year-over-year, comparing first quarter '08 with first quarter '07 was down. Is there anything specific that was driving that? And how do you expect it to, I guess trend, given retailer's operating performance?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

There wasn't anything specific. We pretty aggressively reserve for any credits that we think are in jeopardy. And sometimes we collect money that has been written-off and that impacts what we reserve for the current quarter. But, we had a very good quarter this quarter but I would say that throughout the rest of the year and for the full year, you should probably look for a higher bad debt expense in terms of basis points of the percentage of our revenue, and we achieved in the first quarter.

Ambika Goel - Citi

Okay, great. And then my last question, on paying down the Bridge facility, you mentioned that there was 375 from new mortgages. Was that on assets that were previously unencumbered?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

Yes.

Ambika Goel - Citi

Okay, great. And the rates on those loans are similar to what we've seen earlier in the year?

Bernard Freibaum - Executive Vice President and Chief Financial Officer

They are bank mortgages. So they are -- they would be similar to the Fashion Show and Palazzo mortgages.

Ambika Goel - Citi

Okay. And the term on those loans, is it --

Bernard Freibaum - Executive Vice President and Chief Financial Officer

We'll give a very detailed summary of all our financing at the end of the quarter. And we'll include describing these mortgages at that time.

Ambika Goel - Citi

Okay, great. Thank you.

Operator

And that will conclude our question-and-answer session. At this time, I'll turn the conference back over for any additional or closing remarks.

John Bucksbaum - Chairman and Chief Executive Officer

Hello, we appreciate all of you joining us. And for those of you who will be in Las Vegas later next month, I'm sure we'll be seeing a number of you and with more into that. Visit the malls in Las Vegas and you'll see that business continues to be good. Thanks everybody.

Operator

Thank you ladies and gentlemen. That will conclude today's conference.

.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: General Growth Properties, Inc. Q1 2008 Earnings Call Transcript
This Transcript
All Transcripts