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General Growth Properties (NYSE:GGP)

Q3 2012 Earnings Conference Call

November 1, 2012, 10:00 am ET

Executives

Kevin Barry – Head of IR

Sandeep Lahkmi – CEO

Michael Berman - CFO

Analysts

Alexander Goldfarb – Sandler O'Neill

Ross Nussbaum – UBS

Cedrick Lachance – Green Street Advisors

Rich Moore – RBC Capital Markets

Michael Mueller – JPMorgan

Caitlin Burrows – Goldman Sachs

Michael Bilerman – Citi

Ben Yang – Evercore Partners

Operator

Good day, ladies and gentlemen, and welcome to the General Growth Properties third quarter 2012 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 call may be recorded. I would now like to introduce your host for today's conference, Mr. Kevin Barry. You may begin.

Kevin Barry

Thank you, (Ashley). Good morning, everyone. Welcome to General Growth Properties third quarter 2012 earnings conference call hosted by Sandeep Lakhmi, Chief Executive Officer and Michael Berman, Chief Financial Officer.

Certain statements made during the call may be forward-looking statements and actual results may differ materially from those indicated due to a variety of risks, uncertainties and other factors. Please refer to our (report) filed with the SEC for a more detailed discussion.

Statements made during this call may include time sensitive information accurate only as of today, November 1, 2012. We will discuss certain non-GAAP financial measures and have provided a reconciliation of each measure to its comparable GAAP measure.

Reconciliations are included in our earnings release and supplemental information package, both filed with the SEC and available on our website. Sandeep, you may begin.

Sandeep Lahkmi

Thank you, Kevin, and good morning, everyone. Thank you for participating in our call today. At the top of everyone's minds today is the impact hurricane Irene is having along our East Coast. I know I speak for everyone at GGP when I say our thoughts and prayers are with those affected by this storm.

We are very grateful and humbled by the commitments and sacrifices made by the First Responders in the area. Our utmost, highest priority is to ensure the safety of our employees, customers and others involved with our properties in the area.

In preparation for the storm's arrival, we decided to close 19 of our malls in eight states. I, along with other members of the senior team, have been communicating on a daily basis with our teams to ensure safety. As of this morning, all but one of the malls have reopened.

Although we're still assessing property damage, it seems relatively minor and limited to issues of ceiling leaks and damaged landscaping.

I will now provide an overview of our financial and operating results and then turn the call over to Michael to review in more detail our financial results and guidance for the remainder of the year.

Earlier today we reported FSO per share of $0.23 for the third quarter. FSO increased 8.8% from the same period last year and increased over 10% on a year-to-date basis. EBITDA increased 5.1% from the same period last year and 5.8% on a year-to-date basis.

NOI from the regional mall portfolio increased 4% from the same period last year and 4.8% on a year-to-date basis. As we start to get the full-year benefit of the leasing activity and the developments come online, our NOI, EBITDA and FSO will continue to increase in an accelerating manner.

Tenant sales have continued for a positive trend increasing 8.2% from the same time last year to $541 per square foot and our portfolio-wide occupancy cost is 13%.

The Europe mall portfolio's total lease level increased to 95.5%, up 130 basis points from this time last year. The 95.5% lease figure includes 87.3% of permanent occupancy, 5.4% of temp occupancy and 2.8% of leases signed that have not taken occupancy yet. These metrics exclude certain properties, as Mike will explain further in his remarks.

Increasing permanent occupancy is one of the three growth drivers for GGP. Based on our extraordinary leasing achievements to date, we currently expect permanent occupancy to increase at least 200 basis points ending this year at approximately 89%.

It is good to note that we have converted 230 leases comprising 564,000 square feet or approximately 1% of our total G&A from a temp occupancy status to a permanent status. And in the process, rents for those tenants have increased 120%, ie from about $25 a square foot to about $55 a square foot.

Turning to the second driver of our growth, increasing rents, suite to suite rental rates have increased 10.4% over expiring rents for over $4.7 million square feet taking occupancy this year. Keep in mind that these rents are based on gross rent figures that includes base rent, CAM and taxes.

Counting out CAM and taxes to compare rent spreads for base rent only, our suite to suite stats would have been 14.7%.

The third driver of our growth is our $1.6 billion redevelopment and expansion pipeline encompassing 51 regional malls throughout the United States. We have committed approximately 80% of this amount to a number of Class A plus and Class A malls such as (inaudible) and Fashion Show.

(inaudible) 19 malls with redevelopment activities totaling approximately $770 million have commenced. Over 90% of this $770 million number have been committed to A plus and A malls. We currently expect double digit unlevered returns on these (inaudible) investments.

At the second half of next year, we will have commenced another 14 redevelopments requiring approximately $200 million of invested capital. We believe reinvesting in our current portfolio provides a very attractive risk adjusted return even if you take the development risk in these projects, which in my experience can have a variation of about 100 basis points.

Our focus is on high quality malls. We want to own and operate high quality regional malls in the best markets. To this end, we've been very focused on identifying opportunities to acquire assets that fit within the strategy and also identify and ultimately dispose of these assets we consider – or those assets we consider non-core that do not fit our long-term plans.

We actively look at opportunities as they arise in the markets and we have the financial resources to execute our strategy. Through September 30th of this year, we've invested almost $0.5 billion to acquire additional joint venture interest in our malls and to acquire anchor box space within our portfolio.

As previously disclosed, subsequent to the quarter end, we invested approximately $200 million to increase our ownership state in (inaudible), our mall platform in Brazil. On the disposition front, excluding the spinoff of the 30 malls earlier this year, we have disposed of over 3.9 million square feet of non-core assets comprised of malls, strip shopping centers and office properties including the recently closed (Summerland) office portfolio in Las Vegas.

After satisfying about $150 million of property level debt, we netted about $143 million from these sales. Perhaps more important than the sales proceeds is the significant process we are making on selling non-core assets. We expect to close several more transactions before year-end.

Our total net operating income from the mall portfolio is over 98%. The non-core assets are now less than 2%.

Turning to big box leasing activities, during the third quarter we entered into six leases for 343,000 square feet. Year to date, through September, we've entered into 29 leases for almost 1 million square feet.

The positive sales trends and earnings from some of the department store retailers continues to drive demand to this space within the mall and not only at the high quality malls. Year to date through September, we've entered into seven leases for approximately 1 million square feet. This activity includes three store openings this year and four next.

I'd like to provide and update on our plans and progress regarding the 11 Sears pads we acquired earlier this year. In each location, besides two, we are reconnecting the pad with either a full line department store, a grocer, a sporting goods store, or in the case of (inaudible), adding over 300,000 square feet of additional in line space which we anticipate opening in 2015.

Of the two, (West Oaks) is under contract to be sold in November, so all we would be left with is one without a perspective (test).

In addition, we recently announced the opening of a Nordstrom's at (Woodlands) mall in Houston and we anticipate announcing tenants for the remainder in the very near term.

Before I turn the call over to Michael, I'll take this opportunity to emphasize to you that the work we do, the decisions we make are always in the interest of increasing value for all our shareholders over the long term. That is our goal. That is what we were hired to accomplish on the behalf of our shareholders.

GGP has one of the highest concentration of Class A malls within its portfolio contributing approximately 70% to our net operating income. We expect this contribution to grow in 2013 and in the years that follow as a result of our leasing and development activities.

We're signing leases at healthy spreads on a suite-to-suite basis. We are leasing vacant space, converting them to perm, while managing the tenant mix and the location within our malls to maximize productivity and reporting capital back to fortify these assets from producing compelling returns when they start coming online in late 2013.

As we go through our annual budget process, mall by mall, suite by suite, we can see the true productivity potential of the portfolio. For 2013, we have approved and have signed approximately 60% of the targeted leasing activity. Our revenues next year will be positively impacted by the heavy lifting we've accomplished and we expect better growth next year.

I'd like to express my gratitude to my fellow colleagues at GGP, our shareholders and those who have interest in GGP for their continued support of our activities. I will now turn the call over to Michael to cover our financial results and the outlook for the remainder of 2012.

Michael Berman

Thank you, Sandeep. I will make some comments on third quarter results and discuss our fourth quarter guidance before moving on to our balance sheet and then opening it up for questions.

At times I may sound very precise with respect to my numbers, however, please appreciate these numbers are intended to be a point on a range.

For the third quarter of 2012 compared to 2011, mall NOI, excluding non-core assets, was $515 million, or up 4% over last year. Company NOI was $527 million, up 3.7% to last year. We were generally a little better than our plan and if we add net management costs to our company NOI, our NOI grew approximately 4.8% over last year.

As a side note, we moved four more properties out of our same store this quarter but they are still in our company NOI. We also excluded these properties from our operating metrics, so instead of going from about 86% permanent occupancy at year-end 2011 to about 88% at year-end 2012, we are going from about 87% to about 89% permanent occupancy, as Sandeep indicated.

We are forecasting the same 2% improvement we have been discussing all year long. As noted in our supplement -- I think it's on Page 22 -- three of these assets have been transferred to special servicers, one of which is under contract of sales and one is being prepared for development.

All other income and expense items, excluding financing costs, came in at a minus $38 million compared to minus $36 million last year. We benefitted from some increase fees and continue to manage our overhead expenses.

Financing costs were about $257 million, down from $259 million last year. We financed 14 properties over $2.3 billion during the quarter and I will comment further on these transactions shortly.

Overall, FFO came in around $231 million, about 9% higher than last year. Excluding discontinued operations, it was about 12% higher than last year.

Moving on to fourth quarter guidance, we anticipate FFO between $0.28 and $0.30 per share, more NOI which includes US and international is expected to be around $580 million, up about 5.2% to last year. And company NOI is expected to be around $593 million, up almost 5% to last year.

The difference between the mall NOI and the company NOI are the non-core assets. We expect all other income and expense items, excluding financing costs, to be minus $51 million. This is flat to last year's fourth quarter.

Financing costs in the fourth quarter are anticipated at $250 million, down from $262 million last year. This does include an increase in interest expense from our (inaudible) investment of $6 million, so our domestic interest expense is expected to be $18 million less than last year.

And FFO at the midpoint guidance for the fourth quarter is expected to be around $292 million, up from $253 million or approximately 15.5%.

For the full year of 2012, mall NOI is expected to be around $2.11 billion, up almost 5% to last year and up almost $100 million. Company NOI is expected to be around $2.16 billion, up around 4.5% to last year. We expect all other income and expense items, excluding financing costs, to be minus $165 million for the year, versus minus $152 million in 2011.

Property management costs and G&A are flat to last year. Fees are favorable and disc operations is an offset.

Financing costs are expected to be around $1,020,000 for the year, savings of over $20 million versus last year. Finally, company FSO for the year is anticipated to be around $975 million, up $100 million or almost 12% to last year and up approximately 9.5% on a per-share fully diluted basis.

Excluding the disc ops in 2011, we'd be up almost 15% on the FSO and up 13% on a per-share fully diluted basis.

Moving on to our balance sheet, the mortgage markets have been very strong this quarter and we continue to be so. We continue to look at finance and loan to value ratios generally around 55% to 60% on average.

All of my numbers are (inaudible). We had a very busy third quarter after a very busy first half. With 14 properties' financing totaling $2.3 billion, the financings were generally in the 10 to 12-year maturity range with an average coupon of under 4.5% and an average (length) to treasury of less than 240 basis points.

We were able to achieve net proceeds of $360 million and we paid off $360 million of unsecured (inaudible) bonds in the quarter.

Since the end of the third quarter, we have closed a new loan on Fashion Show, one of our flagship properties. The new loan is worth $835 million at a rate of approximately 4% with a term of 12 years. We have an additional seven loans we expect to close by year end.

These seven loans total $1 billion of proceeds with coupons less than 4%, average spread to treasuries of around 210 basis points and maturities ranging from seven to 10 years as we continue to manage our maturities schedule. The eight loans combined will generate net (sets) of $750 million of net proceeds.

As mentioned in our press release, we intend to repay $600 million of unsecured (inaudible) bonds that are formally due in May of 2013. By the end of this quarter, we will incur a $15 million debt extinguishment expense, which we are excluding from our FFO guidance.

By the end of the year, we will have refinanced approximately $7 billion of mortgages at share, taking the average rate from 5.3% to a little less than 4.3% and generating $1.4 billion of net proceeds.

Looking ahead at 2013, we have about $320 million to refinance at share and an additional $460 million is due in early 2014.

Now, let's open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Alexander Goldfarb – Sandler O'Neill.

Alexander Goldfarb – Sandler O'Neill

Just I guess going to the big elephant in the room first, Sandeep, you've now had several months to deal with the Persian Square letters. Certainly it seems to have subsided, although media reports suggests that maybe he'll file a proxy by next year. Just curious how much time this has taken from you and what the impact on the troops has been.

Is your sense that maybe things have died down and maybe perhaps you've accepted the position that it is now, that he was a part of the emergence and part of bringing in the new management team or your sense is you guys are going to have to gear up for another go at it next year?

Sandeep Lahkmi

First, I cannot speculate what Persian Square may or may not do. As I said in my remarks, our focus is to enhance shareholder value. Michael and I have visited – personally have spoken to (inaudible).

We do appreciate that this is a distraction for Michael and I. But the troops are focused on performing at the asset level. We, like you, view this to have subsided but we are unable to speculate what his next moves will be.

Alexander Goldfarb – Sandler O'Neill

And then turning to the redevelopment plans you guys have been talking about, as you look around the portfolio and you've been buying in some boxes, et cetera, you're looking at redevelopment plans, do you see equal growth potential from both bringing in new anchors or perhaps non-traditional big box to malls or do you see more of the growth from the redevelopment on expanding in line space?

Sandeep Lahkmi

We actually see more of the former, which is redevelopment of bringing in either new anchors to the mall or ordinate uses such as the distorting goods or (inaudible) tenant. The only malls that we're really adding a fair amount of inline space is (inaudible) and you have to appreciate that after $1.6 billion, almost a third of it is in (inaudible).

Alexander Goldfarb – Sandler O'Neill

The operating expense seemed a little lower than we were expecting. Was there anything going on in the quarter or is this a new run rate that we should expect the improved margins?

Michael Berman

We have focused all year long on keeping our expenses in line and trying very hard to beat budget and the operating team has just done a fantastic job all year long managing it. It's always hard to project out, Alex, whether or not you're going to continue those trends.

Sometimes they're just the flow of items that you have to do later and sometimes you get lucky on the weather. But overall, I would say the team has done a great job. I would not expect 2013 to be at zero growth on expenses. On the other hand, I wouldn’t look for a huge pop either in expenses next year.

Alexander Goldfarb – Sandler O'Neill

Maybe like 3%, 4%?

Michael Berman

Too early to comment.

Operator

Your next question comes from the line of Ross Nussbaum – UBS.

Ross Nussbaum – UBS

Can you comment at all on why the decision was made not to form an independent committee of the board?

Sandeep Lahkmi

First, the – as you mention – and I don't want to spend the entire call focusing on Persian Square, I might add. I think it's more about the operations and health of GGP. But I will the answer the questions.

As you follow the 13B filings, the process started last October, so the board has been intimately involved and has had discussions all the way from last October till the time we issued a press release in the summer of this year.

And independent committee is formed when there is something to consider. There is nothing for us to consider at this stage of the game, hence not formed. As we said publicly, we have hired appropriate legal council to guide us through the process and the board meets regularly to discuss all items that relate to any shareholders' requests.

Ross Nussbaum - UBS

Can you look forward to 2013 without giving us any numbers, per se? You accomplished a lot strategically this year in progressing the refinancing of the debt, getting the occupancy moving in the right way; you've got some pricing power again. Should we expect anything materially different from general growth strategically in 2013 or is it just more of the same year?

Sandeep Lahkmi

As I said earlier, we are laser focused on our existing portfolio. We'll continue to drive home the three drivers that we have, which is increasing occupancy, increasing rent and our redevelopment pipeline. Of course increasing occupancy has a subset to it, which is the temp to perm conversions.

So we focus on 2013 to be more of the same and we'll start to then see annualized returns based upon our heavy work or the uplift that we have done this year and so, as I said in my comments, we're not giving guidance for 2013. We anticipate our results to be better next year than this.

Ross Nussbaum - UBS

When do you anticipate giving that 2013 guidance?

Sandeep Lahkmi

At our fourth quarter call which would be early next year.

Ross Nussbaum - UBS

Then finally, Michael, if I'm looking at the supplemental correctly, you guys stopped breaking out your new and renewal leasing spreads. Was there any rationale behind that?

Michael Berman

We have – I think when I came on I said I was going to be looking at all of the disclosure to see what we thought people would benefit from, what people wouldn't benefit from, what extra – what was a lot of work, what was a little work.

We started to notice that there really was no benefit to us (operating) the business to see that difference and it was a lot of work to prepare and check, so there was really no mystery behind that. There's really no financial element going on there. It was just a way to though streamline what is rather expensive disclosure package.

Operator

Your next question comes from the line of Cedrick Lachance – Green Street Advisors.

Cedrick Lachance – Green Street Advisors

Just going through the redevelopment schedule, you have a list of other redevelopment projects for about $70 million, 7% returns. Are those some of the other Sears boxes or is there anything else in that list?

Sandeep Lahkmi

They are – some of them are the Sears boxes and they are – it could be a movie theater addition. It could be a small sporting goods addition. So they are smaller projects that we focused on which could use further innovation anchors that exist.

Cedrick Lachance – Green Street Advisors

And earlier you talked about expecting to close several mall transactions by the end of the year. Can you give us more color on that?

Michael Berman

When we get to the closures, we will do that. They are similar in style to what we have done so far in terms of the types of assets that we're selling, no real change in terms of the types of things that we're doing. We've non-core assets. It's another handful of malls, three of which are ones we have mentioned with respect to working things out with the special (inaudible).

Cedrick Lachance – Green Street Advisors

Are there more than those three that may be going back to the banks?

Michael Berman

No.

Cedrick Lachance – Green Street Advisors

And in regards to – sorry to jump back – but just going back to the redevelopment schedule, in terms of Fashion Show, there's been a pretty sizeable change in your expected yield on that redevelopment and the price came down as well. Can you give us more details as to what is changing at that project?

Sandeep Lahkmi

It's focused on a couple of things. Let's see. We've now bought the box back, which we hadn't done at the time. We had projected it originally. We have also got a better handle on the cost side of the project as well as our leasing activity is now firmed up as to what the actual plan would be, so it's really more the leasing plan, which has now been finalized, that has projected a higher income, which results in actually a higher return.

Cedrick Lachance – Green Street Advisors

What was the impairment charge in the quarter related to?

Michael Berman

Some of it was related to the special servicer assets and then there were a couple of other properties that we had contracts for that just had less than book value. There wasn't anything that's impacting our income and we think that this is – we're not expecting any further charges. You never know with a particular property down the road but some of these properties had deteriorated over the last couple of years and in getting contracts.

We thought that it was time to take the impairment charge. I just want to make one comment on our development disclosure. Please appreciate that we are sharing with you real-time where we think we are. It's going to change over time.

We put down returns as if they are very precise and the development process is not that clean and so things are going to be moving around. We will try to keep you up to date as to what happens but we think it's more important to give you a flavor for the pipeline rather than worrying about whether or not it's 10.9 or 9.9 or 10.2.

Operator

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

Rich Moore – RBC Capital Markets

Was any – Michael, was any of that impairment, was that on the (Summerland) Office portfolio that you guys sold?

Michael Berman

No.

Rich Moore – RBC Capital Markets

Then looking at same-store NOI growth for a second, I think it was 3.1% in the quarter as I read the supplemental. And then what would that be? You gave the other NOI numbers for the year. What would that be for the year for the US regional mall portfolio – your expectation for the year?

Michael Berman

Yes, I think it's in 3.5% to 4% range. We did pretty good the first half of the year. Appreciate just given the company's history, the quarter-to-quarter individual growth rate can be affected by adjustments that were made coming out of the bankruptcy that could just be flip month, high or lower than something.

So part of the reason why we give you maybe more metrics than most companies would is to give you a flavor for how the business is doing and try to keep those adjustments – because they're not really that important – in the background. For the year we think we're going to be same-store NOI growth of 3.5% to 4%.

Rich Moore – RBC Capital Markets

And then going back to the leasing spreads for a second, help me understand exactly what that means. Is that everything you signed this quarter that relates to the rest of 2012 and '13 opening or is that everything you signed (inaudible) will open at all in 2012 and 2013?

Sandeep Lahkmi

We actually broke it down a little bit so that the suite-to-suite spread that I gave you was for everything that is to commence in 2012 and also provided you separately everything that is to commence in 2013.

And everything we provided you is everything that is signed. But just as an example for 2013, if I had to – we show the suite-to-suite spread of 9.8%. But if I had to include all the deals that have been approved, the documentation had been processed, the suite-to-suite spread of next year will be 11.4%.

Rich Moore – RBC Capital Markets

And is that – that's everything I assume that you did in 3Q, Sandeep. Is that right?

Sandeep Lahkmi

Correct.

Rich Moore – RBC Capital Markets

And then on the redevelopment front, it looks like most of that stuff will probably be – most of the $1.6 million will probably come online year '15 and beyond. Is that true?

Sandeep Lahkmi

Correct, '14, '15, '16, correct.

Rich Moore – RBC Capital Markets

And then last thing, the (inaudible), you guys have a lot of cash on the balance sheet. Do you just use your cash to take those out? Is that the basic idea?

Michael Berman

Cash is cash. We are generating proceeds in the quarter in order to specifically take out the bonds. If we used our cash it would just be a replacement.

Rich Moore – RBC Capital Markets

Then what is left on the (inaudible) bonds after that?

Michael Berman

There is a $90 million piece that's due in May of 2013 or November. I always get the dates mixed up. And then there is another $610 million that is due in November of 2015 that could be repaid potentially earlier in 2014 if we so choose.

Operator

(Operator Instructions) Your next question comes from the line of Michael Mueller – JPMorgan.

Michael Mueller – JPMorgan

I guess after this quarter's non-core asset sales, what's left to be sold?

Sandeep Lahkmi

We have – well, we can answer that a little bit. So we have – we would have by the end of this year, we hope, a hand full of strip shopping centers left and we would have predominantly the Columbia Office buildings left. That's if what we have under contract of in negotiations today get – the transactions complete before the year end.

So I would presume it's just a handful of strip shopping centers and the Columbia Office building complex.

Michael Mueller - JPMorgan

What's the amount that could be sold this quarter then if it goes through?

Michael Berman

About $50 million to $100 million.

Michael Mueller - JPMorgan

I guess Michael, you mentioned for mortgage refis in next year and early 2014, I think the numbers were about $320 million, $460 million coming due. Do you anticipate finance – refinancing a lot more than that or is it going to be a lot closer to actually what matures in each of the years at this point?

Michael Berman

No, I just wanted to give everybody a flavor for what was maturing in 2013 and when I say early 2014, I mean January. So I wanted everybody to have a sense for what was actually maturing in the next – for that calendar year.

We will continue to look at opportunistically refinancing assets, so our activity level may be higher. We just haven't finalized our plans yet and, therefore, I'm not prepared to share it.

Michael Mueller - JPMorgan

I guess on the temp to perm conversions, is that generally Tenant A goes away and it's replaced with Tenant B or you're keeping Tenant A onboard and just extending them to a more normalized, longer-term lease?

Sandeep Lahkmi

It's more of the former, which is Tenant A goes away and you replace them with a permanent Tenant B and then as a matter of fact, you actually try to take Tenant A and move them into, I would call it, a different location within the shopping center.

So we're doing both. So it's more of Tenant A goes away and you replace them with a long-term, viable Tenant B.

Operator

Your next question comes from the line of Caitlin Burrows – Goldman Sachs.

Caitlin Burrows – Goldman Sachs

I don't think you mentioned this. I was just wondering if you looked at the properties that made search box from (inaudible) earlier this month so and, if not, why not; and if so, what happened there?

Sandeep Lahkmi

Yes, we did look at them. They did come onto the market early in the summer. When they came onto the market in the summer, our focus was to stay focused on our existing asset base, not to buy any new toys and we like both the assets. If they came on the market today, we would definitely be in active pursuit.

Operator

Your next question comes from the line of Michael Bilerman – Citi.

Michael Bilerman – Citi

Michael, just in terms of – there's been a lot of obviously refinancing. How much left is there that you can prepay early without any make holes or any penalties?

Michael Berman

We have about $5.5 billion give or take in the portfolio that is prepayable that does not include anything that is maturing coming up. The coupon range is in the 4.75% and given the extraordinary movement in spreads, particularly over the last two to four weeks, quite frankly, we are going to be again looking at that portfolio a little bit more aggressively.

I think the last time we had our earnings call there wasn't really much of a pickup that we felt we could get but things may have changed, knock on wood, and hopefully we can continue to be opportunistic on our financials.

Michael Bilerman – Citi

Again, just maybe a high level, if you take a look at that $5.5 billion, would you think the excess proceeds potentially could be generated out of that? Are we talking potentially another $1 billion could be the rate even on a 10-year basis would be sub 4%. So we can quickly do that math in terms of the accretion to the bottom line. But I'm just curious how much more capital can be taken out.

Michael Berman

First, I would note that we have been trying to do the better assets first, the ones that were easier to finance first. So you're moving towards – closer towards the end of the line. I wouldn't necessarily project out similar types of excess financing proceeds and much better rates as we have had already.

A preliminary guesstimate would be probably flat on proceeds right now, not taking a look at any future growth, and I'd be reluctant to give you a sense of spread. The Class A, the Class A plus has been driving the markets but these have done pretty well but it isn't the same kind of $150 million, $175 million spread.

So I wouldn't – I'd dampen your expectations with respect to the remaining amount, that there's as much juice left as in the last $5.5 billion.

Michael Bilerman - Citi

And then just in terms of the $100 million impairment – I apologize – I didn't catch all the disclosure. Was that all – how much of that related to assets that has already been sold versus assets that are still held for sale? And I guess is all related to assets held for sale?

Michael Berman

These are all assets either under contract or sold or are in the hands of special servicing.

Michael Bilerman - Citi

Then can you just break out the amounts just so if we're carrying something in our NAV on an asset base then – I apologize, that's my son; I'm at home – how much is left?

Michael Berman

How much is left? We have – one of – there are seven assets in this particular pool. Three of the assets are the ones that are special servicer related. One of those is in sales assets.

About 50% of the impairment came from those three properties. The other four came from assets based on a contract and an expected sales type. If you need more detail than that, I'm happy to discuss that offline.

Michael Bilerman - Citi

Then just, Sandeep, you haven't had a question on (inaudible) since the beginning of the call, so I figured enough time has lapsed on the operations. I'm just curious – why hadn't the special committee been formed? I recognize the process had started last October but if there's some truth to all the letters on both sides, it would appear that a majority shareholder was involved in some transaction.

It would appear that your largest competitor was in receipt of a material information, that the (inaudible) was signed. Why wasn't there a special committee at that point of board formed? I'm just curious why you wouldn't want that in terms of the transactions that were already looked at?

Sandeep Lahkmi

Again, Michael, I'm going to repeat what I said earlier. There was nothing for us to consider. We sought legal advice. Legal advice was very clear, therefore, we did not have to set up an independent committee.

The board discussed it at length. We did discuss it with the independent directors without the majority shareholder in the room and it was determined that at this stage there was no necessity for an independent committee. So we followed legal advice.

Operator

Your next question comes from the line of Ben Yang – Evercore Partners.

Ben Yang – Evercore Partners

You had previously talking about leasing some of your (inaudible) being strong and I was just curious if your opinion has changed since you made those comments last quarter. Obviously we've seen back to school. You have certain expectations going into the holiday season.

Is the strength still there? Are the fundamentals getting better for some of your less productive assets or would you walk back on those comments at this point?

Sandeep Lahkmi

I would say that the B mall business is actually getting stronger and the reason for the strength has been lack of new development, tenant demand. Tenants are getting lower productivity. Mall tenants are getting squeeze out of the A malls, therefore going into the B malls. I actually think B malls are getting stronger as time goes on. So we're as committed to the B malls and thinking of strength as we were in the last quarter.

Ben Yang – Evercore Partners

Again, are there any particular retailers you can say that have expressed an interest in rolling their B mall (inaudible)? I remember Chicos came out a while back publicly stating that was their goal and I was wondering if there are any other retailers that you've talked to that are following a similar path?

Sandeep Lahkmi

There are several. You've got the Dress Barn, Justice of the World, the sporting goods guys are looking to grow their B mall portfolio, so we have several retailers that would do very well in them and we'll continue to grow it.

So we look at occupancy going up. As a matter of fact, if you look at sales productivity, actually at all levels. You've got A, B mall and C malls where sales productivity has increased to the last quarter. So we're looking at a pretty stable business.

Ben Yang – Evercore Partners

And obviously the NOI is increasing at all those malls as well but maybe at a slower pace, at the least (inaudible)?

Sandeep Lahkmi

For sure, the sales productivity is the greatest at the best malls and as you go down the scale, they do get less. It's much more of an occupancy play in the B malls versus an occupancy cost in the B malls. NOI continues to grow across all mall segments.

Operator

I am not showing any further questions in the queue. I'd like to turn the call back over to Mr. Sandy Mathrani for any further remarks.

Sandeep Lahkmi

Thank you for the call this morning. I must apologize that I actually mentioned hurricane Irene when I started off. I meant to say Sandy. I guess Irene was still in my mind because I did have personal damage during Irene, not in Sandy, thank God. I wish everyone a great day. Thank you.

Operator

Thank you, ladies and gentlemen. Thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.

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