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Operator
Good afternoon, ladies and gentlemen, thank you for standing by.
Welcome to the Macerich Company first quarter 2007 earnings conference call.
Today's call is being recorded.
At this time, all participants are in a listen-only mode.
Following the presentation, we will conduct a question-and-answer session.
Instructions will be provided at that time for you to queue up for your questions.
I would like to remind everyone that this conference is being recorded and would now like to turn the conference over to Suzanne Karpick, Director of Investor Relations.
Please go ahead.
- Director - Investor Relations
Thank you, everyone for joining us today on our first quarter earnings call.
If you don't have a copy of our earnings release, you may access it at the company's website at macerich.com.
During the course of this call, management will be making forward-looking statements, which are subject to uncertainties and risks associated with our business and industry.
For a more detailed description of the risks, please refer to the Company's press release and SEC filings.
Management will also be discussing certain non-GAAP financial measures as defined by SEC regulation G.
The reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure is included in the press release and supplemental 8-K filing for the quarter, which is posted in the investing section of the Company's website.
Joining me today are Art Coppola, President and CEO, and Tom O'Hern, Executive VP and CFO.
With that, I'd like to turn the call over to Tom.
- EVP & CFO
Thank you, Suzanne.
Today we'll be discussing the first quarter results, recent capital transactions, upcoming opportunities, and our development and redevelopment outline, as well as our outlook for the balance of 2007.
The operating metrics remain solid in the first quarter, with good tenant sales gains, continued high occupancy levels, strong releasing spreads.
Total same-center tenant sales for the quarter portfolio wide were up 5.5%.
Taking a look at that geographically: Southern California was up 4.2%; Northern California and the Pacific Northwest was up 4%; the inner mountain region was up 13.7%; the eastern region was up 8.4%; central region was up 0.8%;, and Arizona was up 4.4%.
Comp tenant sales at same space for the first quarter of '07 versus the first quarter of '06, comp tenant sales were up 4.4%.
Total mall sales for the 12 months ended March 31, 2007 were $454 per square foot.
For the entire portfolio that compared to $424 at March 31, 2006.
That's a 7% increase.
Occupancy levels remain strong.
The portfolio occupancy at quarter end was 92.8%.
That compared to 92.5% at the end of first quarter of last year.
On a same-center basis, it came out 92.8% compared to 92.8%, flat exactly.
In terms of leasing volume, we signed 359,000 square feet of shop leases in the first quarter and the average rents on the new signings were almost $43 per square foot.
It was a 23.8% positive releasing spread compared to the expiring rates.
Average rent in the portfolio now stands at $38.22 per square foot.
That's up from $36.81 a year ago.
Looking at the FFO for the quarter, FFO per share diluted was at $0.96.
That compared to a $1.05 per share last year in the first quarter.
This result exceeded our guidance by $0.01a share and met consensus estimates.
EPS diluted was $0.04 per share for the quarter and $0.11 -- compared to $0.11 for the first quarter of last year.
Impacting the quarter with same-center net operating income, excluding termination revenue, was up 1.7% compared to the first quarter of last year.
Last year if you'll recall we had a very large lease termination payment for retail Brand Alliance, which flowed through the first quarter.
That was $9 million in termination revenue and that compared to $3.4 million recognized in the first quarter of this year.
Gain on land sales was $900,000 for the quarter and that compared to $100,000 in the first quarter of last year.
The expense recovery rate for consolidated assets was 99%.
The consolidated assets went up the same level of last year.
CPI rent increases were $1.3 million higher in the quarter than in the first quarter of last year.
Straight-line rents, a non-cash item, decreased to $1.6 million.
That was down from $2.4 million a year ago.
Another non-cash item, SFAS 141, also dropped to $4 million and that compared to $4.6 million a year ago.
During 2006, we sold eight centers.
Some of those centers were sold mid year and some of them were sold at the very end of the year, but the earnings drag on the quarter resulting from not having those assets was approximately $0,035 per share.
Interest rates the first quarter, we still felt the impact of the increases in LIBOR rates being about 25 basis points higher than they were in the first quarter of last year.
Our floating rate debt averaged about $1.2 billion during the quarter.
That being said, as a result of our convertible offering, our floating rate debt is now down to only $500,000 and we should not have difficult comps as it relates to LIBOR for the balance of the year.
Looking now at the balance sheet, the balance sheet was significantly improved during the quarter.
On March 12th, we did a $950 million convertible note offering at 3.25%.
The initial conversion price was up 20%; however we entered into cap call agreements that took the conversion price up to 40% or $130.06 per share.
The max stock price was -- excuse me -- $92.90 when the deal priced.
Concurrent with the debt transactions, the Company also bought back $75 million worth of Macerich stock.
The net proceeds from this transaction were used to pay down floating rate corporate debt with an average interest rate at payoff of approximately 6.8%.
One way we looked at this deal was purely on a cash basis.
We took the cost of the call spread,, we took the fees, we factored those in and factoring everything in, on top of the 3.25% coupon, would result in a total rate of 4.9% and that compared to debt that we were paying off at 6.8%.
If you'll look at the cash benefit here, setting aside the GAAP treatment, is very, very beneficial financing for us.
The issuance of the converts continue the strengthening of the balance sheet that started last year.
At March 31st, we had $6.6 billion of debt, including $1.7 billion, which is our pro rata share of joint venture debt.
Our floating rate debt as a percentage of our total debt has now been reduced to 7.7%.
That's down from 20% at year end, and that's down from 36% at the end of 2005.
Our total debt-to-market cap was 44% at the end of the quarter and the interest coverage ratio was 2.02 times.
Looking now at guidance, in this morning's press release, we reaffirmed our prior guidance of FFO of $4.58 to $4.68 a share.
Our initial guidance, which was given in mid February, was in that range and it was done only a few weeks before the convertible debt deal I just mentioned.
We had contemplated that transaction into our guidance and had factored that in when we gave guidance, so we're not adjusting for that.
There are two ways to account for these converts.
One is on a net share settlement basis, where shares are only issued for in-the-money amount at conversion.
This is the more accretive treatment, but it's currently under review by the FASB and very likely may change.
Our guidance, however, was based on the more conservative approach, which is to assume full issuance of shares at redemption for the full amount, not just the in-the-money piece, and that is how we factored the guidance in when we gave guidance.
Also just to reiterate the quarterly split on FFO guidance for the balance of the year, we estimate 22% in the second quarter -- excuse me -- 26% in the third quarter, and the balance in the fourth quarter.
And with that, I'd like to turn it over to Art to discuss developments, redevelopments, and other major events.
- President & CEO
Thanks, Tom, and welcome to the call.
I'm going to break up my points between the major projects that we currently have underway.
I'm going to talk about where we stand on the overall Federated recycling.
And also, then we're going to take a look at the Phoenix 2020 program we have in terms of developments that we currently have underway that were contemplated back when we bought the Westcor and merged with them in 2002, as well as to give you a little bit more insight into the future projects that are coming there.
As far as the major projects that are underway right now, we've discussed in previous releases and conference calls, the Oaks.
That's a center that will open up with an expanded center with 230,000 feet of new building area.
We just announced recently a new 75,000 square foot state-of-the-art Mann theater that will anchor the open-air lifestyle component, and of that 230,000 square feet of additional building area, again, roughly 75,000 feet will be dedicated to the theater and the balance to mall shops, restaurants, et cetera.
We've previously announced that the project cost on that is $250 million.
At this point in time, we have not calculated an exact return on cost because we're doing some value engineering on the $250 million number and hope to have some savings as we go forward.
But if we had to pick a number today in terms of what our return on investment would be as this center opens in the first year, it's going to be between 6% and 8% going in.
Again predicated upon finalizing the leasing at what rents we get and finalizing the cost.
which we're hopeful to get some savings, so that could tend towards the upper range of the -- of the returns.
Now in addition to that, we are bifurcating around a 15-acre parcel of land that is being excluded from the regional center that today is part of the regional center, and the reason we're able to exclude it is because we're building excess parking garages.
The regional center is fully parked from a ratio viewpoint and we've really created of residual land that in today's market, in that market could easily be worth anywhere from $4 million to $6 million an acre or more.
And that's something that we're going to be very careful and patient about how we go about redeveloping that.
Obviously, if we were to include those kinds of numbers into our expansion costs and yields, our yields would go way up or costs would go way down if we were to sell the asset, the 15 acres, so we're very pleased with what we're doing there.
The Oaks, as you know, is a center that's doing $573 a foot today and we anticipate that this is going to be the true regional anchor in the northern part of the San Fernando Valley.
As we discussed in previous calls and the press release, the development of the mall at SanTan Village remains on time, on budget.
And as we've disclosed in previous calls, in excess of a 10% going in return on a project cost of around $210 million.
In previous calls and today we've -- in our press release we've disclosed the Casa Grande one million square foot combination regional center.
I use the word combination because we've not only got department stores and theaters, but we've also got free-standing power-center types of tenants, as well as mall shop type of tenants.
In today's world, this kind of a development is called an ALLS, A-L-L-S.
So that project's coming along well and we'll open up in phases starting late this year and then into '08.
We continue to decide what is the best way to monetize the very significant entitlements that we achieved at Biltmore Fashion in Phoenix recently and at Tyson's Corner that we've achieved recently.
And construction on some -- on the Tyson's Corner project, as well as the Biltmore project, could easily start next year, with some of the initial phases opening in '09 and '10.
Looking at the Federated ten malls that were affected by the stores we bought from Federated, I'd like to bring you up to date mall by mall as to what our thinking is.
First of all.
in Arizona, we bought back the Macy's store at Fiesta Mall.
We intend to demolish that and to create a lifestyle center, as well as a large scale type of -- lifestyle type of anchor that will, hopefully, open up in that center in late '08, sometime into '09.
We're finalizing our thinking on that expansion and this center has continued to do well, as it has enjoyed sales approaching $400 a square foot.
At Paradise Valley mall in the Phoenix marketplace, we anticipate demolishing the old Macy's store and Macy's actually took the [Rob May] store, which is the same as what they did at Fiesta, but let's just refer to this as boxes that we reacquired, because in many cases Mace's took the Rob May box because it was newer, better located or better positioned.
So we anticipate demolishing the anchor that we bought and we anticipate having an '08 opening of an anchor to be announced, a large scale format retail anchor that we would anticipate will do in excess of five or six times the sales that the old anchor was doing.
Scottsdale Fashion Square, we talked about that recently, and this is a generational opportunity.
We announced that we made a deal for flagship Barney's store to anchor a 100,000 square foot luxury retail extension of the mall out to Barney's and also we are retaining an additional pad location for another anchor and/or high-rise residential or other uses at this project.
We anticipate the retail component of this project opening up in '09 and we'll talk about it further, but this is a generational opportunity to essentially free up over 15 acres at the best location in the entire marketplace and on a true landmark center, Scottsdale Fashion Square.
At Inland Center in San Bernardino in California, we anticipate and -- announcing soon a new anchor to replace the box that we bought and also a plan to distribute the 50,000 plus or minus square feet of excess FAR that we are attaining as a result of the recycling in that box around the site.
Very optimistic about that.
Lakewood Center, we are in the process of negotiating a deal with a large scale retailer that would take the place of the old Macy's store, and again, Macy's at this location took the Rob May store because it was better located.
And again, we anticipate that this large scale retailer will do in excess of $100 million or many time multiple over the retailer that was there before, which was Macy's, in fact.
At Los Cerritos Center we anticipate converting the old Rob May building into mall shop expansions.
Those shops could open as early as '08 and/or '09.
Very excited about the demand that we're getting there and will give more color on that as we pencil it out.
As Pacific View in Ventura, we have not announced it, but I'll announce it right now.
We've closed on a deal for Target to take the old Rob May building that closed this week and we're very excited about this because the other Target store that's in the market does a very significant volume, probably two or three times the volume that was being done by Rob May, and we're very excited about that opportunity.
Santa Monica Place, by obtaining control of the Rob May building again, we anticipate a very major redevelopment of this center to be announced very soon.
We anticipate that that redevelopment would open up in '09 and it will be very up scale towards even the luxury category, but it'll also have a mix of upscale tenants also, and hopefully there'll be an announcement in terms of the recycling of the Rob May building itself within the next six months.
At the Oaks, we've talked about that before, but again it's important to note that it was the acquisition of the two stores from Federated, which was the Robinson's main men's store and the Macy's women's store, that really accelerated the pace on this expansion and allowed us to do the new Nordstrom's that we're introducing as well as the theater, all of this opening up in late '08 and into '09.
Now I'd like to talk about -- oh, the other center, I'm sorry, that -- where we acquired box was Danbury Fair mall.
.
This is a great center that does close to $600 a square foot.
We're in the process of updating the interior of the mall to make way for the replacement of the Filene's building, which is front and center of the mall, with an upscale fashion retailer.
We hope to make an announcement on that as to the identity of that retailer in the very near future.
And we see this center as clearly being a center that can do significantly more business than it what it is doing today, as it dominates its marketplace.
Now I'd really like to look at the Phoenix 2020 strategy and the Arizona strategy that we have.
Talk about -- a little bit about what we told you we were going to do, what we're currently doing, and where we intend to go with this platform.
Phoenix 2020, as many of you know, is our vision for the retail landscape in the year 2020 and we started this vision several years ago right after we bought Westcor in 2002.
At the time that we bought Westcor, we had three hopeful new development projects in the pipeline.
We told you at that point in time we really didn't know when they were going to be build or whether they were going to be built, but we said they would be market driven.
And, in fact, we are pleasantly surprised that the markets have grown rapidly enough and retail demand has come on strongly enough that we are opening up SanTan Village, the mall, and over 1.2 million feet later on this year with the majority of it opening up in fall of '07.
Given the open air nature of this and the retail demand and -- we will be opening up in phases through '08.
It's important to note that we are 87% leased, which is fabulous for the retail component here.
And we anticipate the possibility of additional anchor announcements to Dillard's and Harkens Theater, which it just opened, as a matter of fact a few weeks ago and is doing terrific.
Goodyear.
We are opening up Estrella Falls in '09 or '10 time frame.
We've talked about that in previous calls, but again, this was part of the original pipeline that we bought when we bought Westcor.
Our north Scottsdale strategy, which is now entitled [Palacine], we're very hopeful to see that project be driven by market demand.
Again, this is a piece of land that we're the master developer of that includes 2,200 acres of arguably the best real estate in Arizona and a marque address.
It's right there at Scottsdale Road on the 101.
At this point in time, we do not own the land that we are proposing to build Palacine upon, but the Arizona State Land Department will be bidding out the commercial piece of this land in summer of '07, and we are very hopeful that we'll be able to finalize our negotiations with the State Land Department later on this year to become the developer of that parcel.
Obviously given our knowledge of the market we're very optimistic.
To the platform of those three centers and malls, which are all going to be fabulous, we had no vision whatsoever of Casa Grande when we bought Westcor.
And in fact, that will open up in phases starting late this year.
It's a project that is $130 million project.
We own 51% of it.
We anticipate 10% plus returns.
Again this is one of those projects that we call an ALLS, and very excited about that.
And again, this wasn't even thought about or dreamt about when we bought Westcor in '02 and it'll be --open up later on this year.
We also have announced in the news you'll have seen our involvement in a project called Prasada in Surprise, Arizona, which is in western Phoenix area.
Prasada is a 3,400 acre master plan community that sits at the gateway to the northwest Phoenix' growth corridor.
More than 1,200 acres of the project will be dedicated for neighborhood and power centers, an auto park, a hospital and related medical offices, a regional shopping center, office, hospitality, and entertainment venues including restaurants and theater.
We have control over the retail component of it, the regional mall component of it, as well as the power center and other neighborhood retail centers that will be developed here.
These will be developed based upon market demand.
This is a very significant project, as you can see from the size of it, being 3,400 acres.
And it'll be developed based upon demand and based upon demand, I would anticipate that early phases of it, including the power center and auto mall -- it's a very significant auto mall -- would be opening up as soon as late '08 and into '09, and prior to the regional center, which will most likely be a little bit after '09, again based upon market demand.
Very excited about that.
Another project that we really haven't talked about much that we have under control and we own is North Black Canyon.
Now that is a project that will be developed and is located in the North Black Canyon quarter of Phoenix on I-17.
We own 110 acres there along the northern I-17 quarter.
Initially it will be developed as an auto park, and we're currently working with the Arizona State Land Departments in negotiating a lease to become the developer of a contiguous 100-acre retail site upon which a shopping center destination will be built.
We're optimistic about our opportunity to become the owner and/or the lessee of that retail shopping destination, and that we anticipate will be negotiated over the upcoming months with the Arizona State Land Department.
We're very optimistic about our position here, given the fact that we own the 110 acres exactly contiguous to the retail site that's going to be auctioned off by the State Land Department.
In addition to that, we have -- we have purchased 300 acres of land in Marana at the intersection of Tangerine and in the city of Marana.
We're very excited about this project,.
As northwest Tucson continues to grow, it'll be a great opportunity for us to add major department stores, specialty centers, a power center, an auto mall, and additional commercial components.
Again, this will be driven based upon retail demand.
And for us it's not only a location, location, location in our 2020 strategy, it's timing, timing, timing.
So as you can see we've added Casa Grande, Prasada, North Black Canyon, Marana, that we have -- or have been in the papers and disclosed.
These will all be built and are being built at Casa Grande based upon market demand, and we anticipate there's plenty more in the shadow pipeline here that we're just not in the position to disclose at this point in time.
The important thing to note here is that this platform that we acquired in the existing centers of Westcor when we bought that is being built out based on original anticipation and now is being built out way beyond initial anticipation.
At this point in time I'd like to open it up to Q&A,,
Operator
(OPERATOR INSTRUCTIONS) We'll go first to Jeffrey Spector of UBS.
- Analyst
Good afternoon.
- President & CEO
Hey, Jeff.
- Analyst
Could you just talk about Barney's decision to enter Phoenix and, of course, joining Scottsdale Fashion?
- President & CEO
Well, it's a one-store market for them.
They have very few of these flagship stores outside of Beverly Hills and Manhattan.
They opened recently with us in a flagship location at North Park, a center in Dallas, which is the premier center in certainly the Dallas/Fort Worth area and one of the top two in the whole state.
And they picked Scottsdale Fashion Square because they felt that it was the fashion location in the Phoenix Scottsdale marketplace today and for many years to come and we agreed with them.
It gives us the opportunity, as we have been, to add 100,000 square feet of luxury retail which we're very pleased about and will really solidify this property to be in the catagory of a South Coast Plaza in Orange County in L.A., a North Park in Dallas/Fort Worth, one of the great centers in the U.S.
And Barney's picked it because it's the best location in the market.
They considered other locations, I can assure you, including the City North project as well as the One Scottsdale project and they picked our project.
- Analyst
Great.
And can you provide an update on the performance opening of Twenty-Ninth Street?
- President & CEO
Well, it's opening up in phases.
Unfortunately, the theater ran into some difficulty in terms of getting building permits, but that will -- the theater, which is going to be a very major part of the project and is eagerly anticipated, it's anticipated to open up in June now, late June.
The project is doing extremely well as of today, so again, the next major boost that we'll get at the project will be the opening of the theater.
In addition, the project has been impacted by the fact that Whole Foods is buying Wild Oats.
Now, Wild Oats was to be one of our anchors at Twenty-Ninth Street.
It's completely built.
They're currently interviewing employees and we would anticipate that that would open up sometime in the summer of this year.
But again, that's still somewhat up in the air because we certainly didn't anticipate when we negotiated the lease with Wild Oats that they were going to get bought by Whole Foods.
I really see this as a great opportunity for Whole Foods to have one of their flagship Whole Foods stores, which is just two blocks away, and the flagship Oats store be in the same market with both of them performing tremendously.
This is the project, given the open air nature of it and the combination of power center with regional types of retailers, that naturally opens up in phases.
And it's actually -- that really promotes the marketing because each time that you open up a new phase, you're able to have a new marketing event and really add more boost to the energy of the center momentum to the leasing.
The initial phases have opened up very well and we're really excited about the results that we've got to date, but really looking forward to the additional openings that will be coming in the months to come.
- Analyst
Great.
And then just a final question for Tom.
On the convert, you said that you assumed the full issuance of shares of redemption in your guidance.
Would you be able to quantify that?
- EVP & CFO
In terms of the impact on the '07 guidance, Jeff, with roughly the timing that we had and the size of the deal, which was up sized somewhat from original guidance, but we expect, assuming the as-if-converted approach to settlement, we would -- we would have had a pick up of about $0.12 in the year and that's what we had in guidance.
- Analyst
Great.
Thank you.
- President & CEO
Thank you.
Operator
Thank you.
We'll take our next question from Lou Taylor with Deutsche Bank.
- President & CEO
Hey, Lou.
- Analyst
Hey, guys, good morning.
How are you?
- President & CEO
Morning.
Great.
- Analyst
Art, can you talk a little bit about SanTan, and I know you were in the city of Gilbert trying to get some density and height changes in residential, nonretail pieces.
Any luck there?
- President & CEO
Oh, yes, we're going to have -- right now, frankly, I'm glad we didn't move on the residential component and potentially even further office components.
Because if we had moved on those and tried to get entitlements on those a year ago, we definitely would not get the height that we anticipate getting now.
There's been such growth in the Gilbert marketplace and with the airport that serves Gilbert just a couple -- four or five miles away from us, which will be a very significant regional airport facility in the Phoenix marketplace.
Now we anticipate significantly higher densification that we'll be able to achieve in our entitlement, but we're taking it very carefully.
That'll really be one of the last pieces of the puzzle and really the icing on the cake.
The other thing to note is that there are competitive factors at work in the marketplace in Gilbert, and general growth recently jumped on board, I guess about six months ago, with another developer to develop a main street commons-type of project just two or three miles away from us.
And we're anticipating that's not going to have much impact on us at all, but it's a very competitive marketplace.
Having said that, we're 87% leased And retail demand is just getting better and better as we get further into the project, so we're very, very excited about that.
- Analyst
Great.
Second question is Santa Monica Place, you seem to be a little bit more optimistic there in terms of that being actually -- being redone.
Can you give us a sense of the entitlement process in terms of what kind of hurdles you'd still need to get over and when you think you should be through the entitlement process?
- President & CEO
Well, we submitted, I believe -- don't hold me to this, but I believe it was March 6th to the city of San -- first of all, we've had a significant amount of interaction with the community action groups.
And based upon all of that community interaction and the planning department and the staff of the city, we've come forward with an open-air concept for Santa Monica Place that involves taking the roof off and then recycling the old Robinson's May.
It was March 6th that we submitted the formal plans to the city of Santa Monica and redevelopment agency for an adaptive reuse of the center.
And we anticipate that we'll get -- that we'll complete our entitlement process within the next four to six months and begin construction, meaning taking the roof off the center with the goal of opening up the new center -- and actually the new center because we're going to -- there will be -- other than Macy's virtually every retailer will have to go out of business starting early '08.
And then they'll all reopen basically in fall of '09 and the recycling of the old Rob May store either into a couple, two or three major retailers or one major retailer.
That'll be announced what we're doing there over the next three to five months.
We're optimistic, but we've been optimistic before.
And I'm confident that within two to three years we're going to look at this center and we're going to be very, very proud of it as being a fabulous performing center from an NOI return on cost, but really just in terms of it being an unassailable, high-barrier entry-to-entry asset that's completely irreplaceable.
If you look at everything that surrounds Santa Monica Place, as you well know this is by far the most valuable piece of dirt left in entire west Los Angeles.
And we're very optimistic we finally have hit a harmonious note with the community and the city, and that we'll get our final entitlements in a few months with an opening in late '09.
We're very excited now and hope to continue to report positive progress on that process.
- Analyst
Great.
And then last question is pertains to Palisene, what's your confidence level there that you'll be able to complete that purchase of the land from the state?
- President & CEO
Well, it's a lease.
The state by law, or at least by policy, on commercial developments they do ground leases and on residential developments they sell the fee, so this is a 2,200 acre parcel of land.
The first major piece of the land will be auctioned off in summer of '07 and that'll be the regional center site.
We have some significant rights vis-a-vis other bidders in that we were the master planner for the whole 2,200 acre site.
And my confidence level that we will be the -- that we will negotiate a lease with the city -- with the Arizona State Land Department very shortly after the auction is extremely high, I'd say probability is well over 80%.
- Analyst
Okay, super.
- President & CEO
That's really due to the fact that it is a bidding process, but we have some unique knowledge of the site given the fact that we are the master planner.
And also we have some rights that are built into the fact that we're the master planner vis-s-vis other bidders to essentially get what amounts a last look at the bids.
- Analyst
Great, congratulations.
Thanks.
- President & CEO
Well, it's not -- it's too early for that, but we're very optimistic.
Thank you, Lou.
Operator
We'll take our next question from Michael Mueller with JPMorgan.
- Analyst
Hi.
Tom, what would cause you to switch your accounting treatment in terms of the convert to net cash and how much extra accretion would that be?
- EVP & CFO
Well, we structured the security, Mike, so that we could either settle with all shares or do net share settlement.
And part of that is, as we know that currently the treatment of net share settlement securities is being reviewed by the FASB, and the outcome could result in something that's very earnings unfriendly compared to the existing structure.
So we felt that the most conservative way to go would be the gross share settlement and that's what we factored into our guidance and our documentation of the securities.
- Analyst
Okay, so you don't have any plans really at any point to switch over the treatment of this?
- EVP & CFO
Well, I think we certainly have preserved that ability, depending on how the -- ultimately the accounting rules come down.
We're structured so we can go either way, but our intent right now is to use gross share settlement.
- Analyst
Okay, and if you do go net, what would be the earnings differential.
I think you said about -- hypothetically you said about $0.12 this year in '07.
What would it be under the other method?
- EVP & CFO
It would be -- the difference would be probably about $0.05 or $0.06, Mike, I haven't specifically looked at it, and that would grow over time.
- Analyst
Okay.
Could you quantify -- you rattled off a bunch of development redevelopment projects, some of which are new, can you talk about a dollar volume of what could come online '08 and '09 in each year roughly?
- President & CEO
You know, it's -- for '07, '08, '09, '10, '11, over that five-year period, we anticipate that currently between the recycling of the Federated malls, the new developments, and the redevelopments it'll easily be -- we said a year or two ago, $300 million to $500 million per year.
And generally they come online in the fall because that's the ideal time to open up a retail development.
So the year that they're completed, really doesn't affect the returns for that year.
It's going to be the following full-on year.
And then we feel that most likely that there'll be opportunities to successfully invest into these developments and redevelopments at least $500 million on average each year starting this year for the next five years.
It'll vary, but an average of $500 million per year is a pretty good number to use and that's a pretty good number to use, basically for this year, next year and the following year.
But right now prefer to deal on averages, but we're announcing, obviously, specific numbers on specific projects as they go under development.
- Analyst
Okay, and last question.
Tom, when you were talking about the 1.7% same store, I think you mentioned something about the lease term.
Doesn't your -- I thought your same-store number backed out the lease term.
Does it not?
- EVP & CFO
Yes, it does.
- Analyst
It does?
- EVP & CFO
Yes.
- Analyst
So is there anything else driving the little bit lower 1.7%?
- EVP & CFO
No, if you look over the years quarter by quarter, we varied from 1.0% flat over the last four years to a high of about 3.6%.
Granted, we calculate that fairly conservatively, we don't include any redevelopment activity coming online until it's been a full period in both years.
First quarter historically can be a little bit slower.
We expect to see some pick up as leases that are signed but the tenants haven't opened, you're not picking up the economics of that occupancy, and we expect to see some pick up there.
So at this point, we're still comfortable with our -- the guidance we gave before, which was 2.5% to 3.5% same-center NOI growth.
- Analyst
Okay.
Thanks.
Operator
Thank you.
We'll go next to Craig Schmidt with Merrill Lynch..
- Analyst
Good afternoon.
- President & CEO
Hey, Craig.
- Analyst
Yes.
I was wondering if we could get a little more color on the Oaks lifestyle addition beyond the movie theater?
Are you able to talk any tenants or at least give a description of what it's going to be like?
- President & CEO
Well, it's going to be upscale tenants.
We anticipate restaurants will be anchoring that part of the open air component.
The theater will be the outward bound anchor of that component.
And the specific tenants -- I don't believe that we've announced the individual tenants in terms of who will anchor it, but it'll be a typical upscale lifestyle -- I mean, very upscale lifestyle center, because it's essentially anchored by the theater at one end and Nordstrom at the other end, as well as the Macy's men's store and some good restaurants.
So significant restaurant activity, probably 31,000 feet of major sit-down restaurants.
We're completely creating a food court down by -- across from J.C.
Penney in that area of the mall.
And we'll be announcing individual tenants as the leases are signed.
And I think you'll be impressed, as we should be, with the names because this is a center that is a prudent success at just under $600 a foot today.
And to that we're adding Nordstrom, all of these shops, as well as the major theater, so we'll be announcing individual names as they're signed up.
- Analyst
It was my sense that it could be a good deal upscale on the lifestyle.
Obviously the lifestyle component can run a certain gamut, and I'm happy to hear it's going going to be towards the higher end.
- President & CEO
It's not going to be luxury.
- Analyst
Right, no, no.
I just think that, having seen the trade area and the number of foreign cars in your parking lot at that shopping center suggests that they would definitely appreciate an upscale approach to the lifestyle aspect.
- President & CEO
Well, the demographics of this trade area are fabulous.
Nordstrom, they're new to market in this trade area.
The demographics are extremely high, I would say with household incomes easily exceeding over $100 ,000 per household in the immediate trade area.
- Analyst
Next is just a technical question.
The timing of the buy back of the stock, Tom, when does that occur?
- EVP & CFO
It happened on the same day as the offering.
- Analyst
Okay.
- EVP & CFO
I think it was at right around $92 to $93 a share on average.
- Analyst
Okay.
Thanks.
Operator
Thank you.
We'll take our next question from Jonathan Litt with Citigroup.
- Analyst
Hi, this is Ambika with Jon.
Given that the Oaks redevelopment was at a 6% to 8% yield, could we assume that similar yield for other Federated May redevelopments?
- President & CEO
No, that's really towards the low end of what we'll be seeing.
There was very, very significant costs involved with acquiring the two anchors from Federated making the Nordstrom deal.
And then, again, what I want to point out is that we over invested in the parking garages for the regional site to free up 15 acres of residual land to the far east of the center, basically outboard of the theater.
Had we not done that and built excess parking, the cost would have been significantly less than the $250 million number.
But by building that excess parking, we've created a 15 acre give-or-take parcel of land that, as I indicated, is easily worth $4 million to $6 million an acre in this marketplace.
We chose to do the right thing for the long-term, and we're very confident that, as this expansion opens up, that the demand for that 15 acres will be something that we'll want to very patiently parcel out and tap into because it's just going to be -- it'll be the best 15 acres in the entire trade area that'll be available through development.
- Analyst
Okay.
And then on guidance, are there any changes to lease term fees and land sale guidance?
And also, is there any big factors that are in guidance today on financing, dispositions, or acquisitions that we should be aware about?
- EVP & CFO
Ambika, in terms of the first two you mentioned, I believe were land sales and lease terminations, as we indicated when we gave guidance, those are areas that are fairly highly variable in nature.
No changes at this point.
The lease terms we had about $10 million in for the year.
We got $3.4 million in the first quarter, so we'll readdress that in the second quarter call.
Gain on land sale, as well.
I think most of that we head back-end weighted in the year and we'll take a look at where we are in negotiations and contracts in the second quarter.
But at this point in time, no adjustments -- excuse me -- are needed there.
In terms of financing, we're always involved in financing.
We're very active on the balance sheet and we don't put out all the assumptions on all those various activities.
You can look at our maturity schedule, and anything that's due to mature in '07 we're certainly going to take a run at financing.
Spreads have widened a little bit, but it's still a very, very attractive financing environment.
Scottsdale Fashion, for one, is a maturity coming up that we're looking at doing something on.
So that's just a part of continuing to work the balance sheet, push out or maturity, which was advanced significantly when we did the convert.
And we'll just continue to work the balance sheet every chance we get to lower our overall effective interest rate.
And in terms of sales, as you know last year we sold some lower-quality assets.
It was a great real estate move.
We realize when you do that, when you're selling some of your lower quality stuff, it may be somewhat dilutive, but it is the right real estate move.
And to the extent we have some opportunities to do that this year, we will.
As we said in our guidance, we didn't factor that in because it's very difficult to know if and when you're going to sell something, so that hasn't been factored in one way or another yet.
- Analyst
Okay.
And then I think you might have reviewed this already, but I'm not sure.
On same-store NOI, was there anything weighing it down in the quarter?
- EVP & CFO
No, no, I think it was -- first quarter we can get in a situation, which happened this year where we have leases signed but the tenants haven't taken occupancy yet so we haven't started receiving income, and that's what we think we've got here and should pick up in the second quarter.
- Analyst
Great.
Thank you.
- EVP & CFO
Thanks.
Operator
We'll take our next question from Matt Ostrower with Morgan Stanley.
- Analyst
Hi, good afternoon.
- President & CEO
Hey, Matt.
- Analyst
Tom, could you go through again just so I understand the guidance.
I looked back out your comments from last call.
Just first and foremost, your 2.5% to 3.5% guidance, is that -- for NOI growth, is that GAAP or cash?
- EVP & CFO
That is GAAP.
- Analyst
Okay.
And so, I guess if I sort of look -- roughly speaking the guidance calls for 6% to 7% growth in the midpoint for the year and so could you just walk me through the logic.
Call it 3% midpoint same-store NOI growth, that gets you to about 6% FFO growth, which is sort of close to the low-end of your growth guidance.
You then add on $0.12 from accretion from this deal, which is significant.
And I know that you've -- you sold some stuff last year, but you also bought some things and you've got some developments like in Boulder coming online, do those wash out?
Help me understand piece by piece where you get to the growth of 6% to 7%?
- EVP & CFO
Matt, I don't think you've adequately factored in the sales there.
I wouldn't say that they're a wash with the acquisitions.
The acquisitions were A-quality assets at lower cap rates and the sales were C-quality assets, so we are expecting to see -- as I said we had $0.35 of negative impact on the sales in the first quarter from those sales, so I think you're light on that.
And also Art discussed it in his comments, there is some redevelopment drag that I don't think you've factored in, Matt.
Santa Monica Place, for example, we're going to be down about $2.5 million in NOI this year versus last year, and we'll see a little bit more of that in '08 as we get ready to close that for the redevelopment.
You've also got to factor in some redevelopment drag.
- Analyst
Okay.
And you had talked in the last call about a potential $0.06 land sale gain that slipped from last year.
I guess it sounded to me from reviewing the comments that you had actually included that in your '07 guidance.
Is there any -- is that worth commenting on at this point or it's still hanging out there as a possibility?
- EVP & CFO
Yes, and as I said, we'll take a look at that particular assumption in the second quarter, but that is a great parcel of land.
We have a high level of interest, and we're still considering that as a potential '07 transaction.
- Analyst
Okay.
And then finally, on the convert, did you say what -- for GAAP purposes what effective interest rate you're actually using there to calculate your earnings impact?
- EVP & CFO
No, we talked about the cash rate, Matt.
The GAAP rate would be the 3.25% plus the amortization of fees and expenses, so it's in the ballpark of about 3.6%.
- Analyst
Okay.
- EVP & CFO
The economic impact I gave you -- again, from our standpoint, we're looking at the cash impact here, not whether it's a good thing to do, GAAP or whatever.
And as a result of that we said, okay, we're going to take that call spread and we're going to amortize that in.
What are we really saving here on a cash basis?
- Analyst
I like that you're looking at that.
Can you talk about the motivation behind the buy back?
Obviously there's sort of the happy meal, help satisfy the [R] pressure.
Was that your thinking?
And why do it if -- obviously there's an impact on leverage and why do that as opposed to just letting the R pressure hang out there for whatever, a week or two, and then the market sort of resolves that over time?
- EVP & CFO
Well, we talked about that at length, Matt, with the underwriters, and in the end we're convinced that the best execution would happen if we did a buy back.
And that was a bit of a smaller buy back than they may have liked, but what we were really after was a very effective execution on the debt issuance and we were convinced that that was the right way to go.
And if you look at the share price from announcement to closing on the deal, there was very little deterioration.
And that was meaningful for us because we were taking very seriously what the conversion premium was going to be and where it was going to end up.
- Analyst
Right, okay.
So it was about pricing to debt as opposed to my viewing, taking that as a statement about the attractiveness of your stock of something like that, per se?
- EVP & CFO
I think if you look at these deals, they aren't all done with a buy back, but a large percentage of them are.
- Analyst
Yes.
Okay, thank you.
- President & CEO
Thank you.
Operator
We'll take our next question from Christy McElroy with Banc of America.
- Analyst
Hi, good afternoon.
On the line with Ross Nussbaum, as well..
- President & CEO
Hi, Christy, Ross.
- Analyst
Were there any one-time items in G&A in Q2?
It seemed a little high versus your previous run rate.
- EVP & CFO
In G&A, this year there's a non-GAAP expense for incentive compensation relating to the LTIP plan, and it's non-cash, but that's the way the GAAP rules go.
And that -- that's in the first quarter of '07.
It was not in last year.
- Analyst
What portion of that is nonrecurring?
- EVP & CFO
I wouldn't say it's not recurring, it's just not comp with last year.
It's a three-year plan, but the accounting rules require you to accelerate the recognition of it, so a greater chunk of it will be recognized the first year of the three-year plan.
- Analyst
So this is a good run rate for the rest of the year?
- EVP & CFO
I would use that as a run rate, yes.
- Analyst
Okay, and just regarding Palisene, at what point are you officially able to start signing tenants and getting department store commitments?
Are you waiting until you acquire the land this summer?
- President & CEO
We'll be announcing the department store commitments, Christy, basically after we negotiate the lease with the Arizona State Land Department.
There is significant -- a number of retailers and combinations of what we might do there in terms of a very, very high-end luxury or other price points, both with the anchors as well as with the small shops.
So the first step is really to negotiate the deal with the state and we're not going to build that center -- that site until the market is truly ready for it.
And we don't believe that north Phoenix to north Scottsdale is really ready for million square foot new center in today's time frame.
We really believe the right time -- and we're committed to this == as part of the Phoenix 2020 strategy is to build when the market is right and when the timing is right and the demand from the retailers is right and the demand from the demographics is correct.
And again, we anticipate being the success -- attaining control of the commercial site here hopefully by fall of this year.
We're highly confident that we'll do that.
And really the development of that is going to be based upon retailer demand, but it could be as early as in portions of it '09, but more likely '10, '11.
We want it to be built not before its time and we want it to be built at the right time, which is what we've done with Gilbert, Goodyear, and the other centers that we have built in the marketplace.
We built them based -- totally based upon tenant demand.
I wouldn't anticipate disclosing the identity of the retailers that would be coming to the site any time soon after we get control of the property, because once we have control of the property then we'll begin to go ahead and shuffle the deck and come up with the maximum combination of retailers.
And at that point in time, I think we'll have lots of different alternatives to pick from in the way of the retail landscape.
It's the marquis address for the next new big retail development in Arizona and we're highly confident that we'll control it.
We don't have complete control of it today, but we're highly confident that we'll have control of it later on this year and then we'll begin to start the process of beginning to announce, as time goes on, the retailers, the optimum site plan and everything else.
- Analyst
Okay.
And then I believe Ross has a question.
- President & CEO
Hey, Ross.
- Analyst
Good afternoon, actually good morning to you.
Curious about any plans you would have or any thoughts you're having on the international front.
Because actually, as I'm sitting here, it just dawned on me that you're the only major mall owner in the U.S.
that doesn't have-- or at least announced a big international push.
- President & CEO
That's right.
- Analyst
Any chance that changes any time soon?
- President & CEO
No.
- Analyst
Okay.
- President & CEO
We got our hands full.
- Analyst
No, I'm not say -- it's not a negative, it's an interesting comment that you're now literally the only one not going down the road.
- President & CEO
And we intend to be that way for a while.
- Analyst
Okay.
The second question is --
- President & CEO
Just -- Ross, I think you know this that if you talk to investors that invest internationally, both in the U.S.
and other places, they'll tell you that there is no really paradigm for major success of U.S.
companies in the financial services industries and/or retail real estate industries as they seek to expand from a U.S.
base to an international base.
Look, some of the folks that are going international I'm sure are going to have great success in what they're doing, but we feel very comfortable in allocating our capital to projects that we know the legal system inside and out, that we don't require local partners -- that is a part of the announcement of all the international programs -- and that are going to be projects that we know are going to be successful, there's no doubt about them the day that we open them.
That's what's part of our $500 million per year pipeline and really that could be a low number as we get into this deeper and deeper.
And I would not -- I just -- I'll tell you what, I don't believe that it is really the proper use of my time or Ed's time, Tom's time, the other major players here, to be traveling over abroad for projects that might be $50 million $100 million investments that take two or three years to negotiate and think about, when we've got massive redevelopment opportunities and development opportunities right in our own backyard.
- Analyst
Makes a lot of sense, and --
- President & CEO
And I've never really commented on it, Ross, and I really appreciate you asking me --
- Analyst
That's honestly why I brought it up is because it just sort of starts standing out now that even CBL's in China.
- President & CEO
I know.
And I want it to stand out, by the way.
I want it to stand out.
I want that to be a differentiating point between us and the rest of the retail landscape.
- Analyst
I think you've made that point here.
- President & CEO
Yes.
- Analyst
Your Surprise, Arizona project.
Talk a little bit about, if you could, Glimcher's going out of the ground with a project.
David Glimcher's going out of the ground allegedly with a second project.
I guess you've got your arrow -- is it Arrowhead Center up there that's been servicing that market?
Are we about to see over building in Surprise, Arizona?
- President & CEO
Not on our site, but I do believe on some of the other developments that have been talked about, including -- other people have been trying to work their way into this market, like General Growth hooked up through management and some other agreement with another company to try and develop 0.5 million square foot open air kind of a new -- a replication of Kierland Commons.
And as we are leasing our SanTan Village, which is just a few miles away, it's the site of choice for us, and if the other site does get built out, I don't think it'll be a competitive threat.
Just as the site that some of the other names that you have mentioned are building upon are sites that we've -- that have been offered to us numerous times over the years and that we have felt that the better bet is to -- for example, the other project that they're talking about also in the trade area of Surprise.
We're confident that we made the bet on the right land.
We got 3,300 acre there that we control and that site in Surprise won't even touch Arrowhead in terms of its impact at all.
I do think there'll be some over building done, but not by us.
- Analyst
I guess I understand that.
But if somebody else is doing the over building, you're suggesting that you've got the better site and survival of the fittest will win?
- President & CEO
You bet.
- Analyst
Thank you.
Operator
Next we'll go to Dennis Maloney with Goldman Sachs.
- Analyst
Hey, good afternoon, guys.
Tom, I think I recall you having mentioned that spreads on financing have widened a little bit.
I was hoping you could provide a little more color on that and maybe talk about how you think it could affect your financing going forward?
- EVP & CFO
Dennis, at this point we have been getting some financing bids on Scottsdale Fashion.
It's coming in and they're very attractive, although we do continue to hear a lot of conversation and noise about spreads widening, underwriting getting tougher, et cetera.
I think that may affect higher leverage deals, but certainly for A-quality malls I still expect to see some very attractive pricing with spreads, including the swap spreads, well under 100 basis points.
- Analyst
Okay.
Thanks.
Appreciate that.
Operator
Thank you.
We'll go next to Paul Morgan with Friedman, Billings, Ramsey.
- Analyst
Morning.
- President & CEO
Hey, Paul.
- Analyst
Art, you talked a little bit about the residential plans, Tysons and Biltmore and Scottsdale.
I know you're not ready to give us any details, but maybe you could just give a little bit of the thought process of how -- how you're going about it, how important it is to you to have the economic incentives aligned or just sell outright entitlements and have it be controlled by somebody else or whether you're inclined to go with the same partner on multiple projects?
Just a little bit of the way you're looking at it.
- President & CEO
I'm sure there are many people that would love to be the same partner with us, the multiple projects.
We're not going that way.
But the one thing we want to keep in mind is that even though we have this massive entitlement at Tysons, it's all about that 2.2 million square foot center that is going to do probably $1 billion in sales in the next couple of years and we're not going to do anything to adversely impact that.
We're going to be very careful about how we monetize that at Tysons.
My bet is that on the office component, we'll be an owner of the office component one way or the other, maybe with a partner, maybe not.
On the residential component, if it becomes a for sale component, which is probably where it would be headed, we most likely would be involved in terms of selling the entitlement rights to the proper developer and then having some kind of an earn out based upon the ultimate performance of that.
And then the hotel component, I don't see us as an investor in the hotel component at the component of Tysons.
I see basically a ground lease of some sort there, maybe with a participation.
Ask then of course the retail component of that expansion we would control 100%.
The same really hold true for Biltmore, the same philosophy.
Office we'll be owning.
Residential we'll figure it out, but most likely if it's condo we'll get a base selling price with a tail or an earn out.
And then if there's a hotel component to Biltmore, which there very well could be, probably a ground lease type of arrangement.
That's the paradigm for how we see monetizing.
That could change, but that's really what we see that we'll be doing and we think that's the optimum thing in terms of maximizing the value from the entitlement and the monetization.
- Analyst
Okay.
That's helpful.
- President & CEO
Thank you.
- Analyst
On the component of the Federated deal that are going to be simply anchor replacements, how should I think of the yield on that?
Are you -- is it case by case you're going to sell the land to somebody like Target or are you going to have leases in place and there's going to be some income yield?
Or is it more just sort of a holistic way of thinking of it in terms of the impact on the mall?
- President & CEO
Most of it -- I kind of mentioned it already what we were going to do with each property.
I don't know --
- Analyst
No, I know you did, but I didn't get a feel for the economics of those.
I understand the lifestyle additions, I think, but when you're just flipping to another anchor, whether it be a fashion anchor or discounter or whatever, the ec -- some sense of the economics of that type of transaction?
- EVP & CFO
Well, on the Target deal, I think the total purchase price was probably -- the sale price was about 45% higher than our basis.
- President & CEO
Yes, but the most important thing as we recycle from one box to another is who is the anchor and who is the replacement.
And again, at Ventura we -- we're announcing today that Target has bought that box from us and we anticipate Target will do two to three times the business that the previous anchor was doing.
At Lakewood and Paradise Valley, we anticipate selling the box to a large-scale format retailer that'll probably do probably five times the volume that the previous anchor was doing and therefore generating traffic.
We clearly anticipate selling or ground leasing the parcels that we have at a profit to what we had before in the monetization.
And then clearly at the Oaks, Santa Monica Place, Cerritos and Scottsdale Fashion Square and Fiesta we're talking about really -- either really demolishing a lot of the anchor space that we bought and replacing it with small shop space and introducing new anchors, clearly at Santa Monica Place as well as at Scottsdale Fashion Square, and also at Danbury.
So each one changes, but I think if you review the transcript of this, you'll see that we were very specific, I think on what we announced we were doing.
And we see this as being a huge platform for growth and very profitable and accretive growth.
And also, to the extent that it's the flip of it from one anchor to another, the extent we're flipping an anchor -- a site to a new anchor that's going to do anywhere from three to five times the business of the previous anchor, that's got to translate in higher sales per foot and higher rents in the mall itself.
- Analyst
Sure.
And if you flip the site, does that flow through the income statement in the period that you do it?
- President & CEO
I doubt it, no.
- Analyst
No.
- President & CEO
Generally not.
It all depends, but --
- EVP & CFO
In the case of Target, that was a sale and that'll flow through as sale of depreciated real estate, so it'll affect net income.
- Analyst
okay.
- President & CEO
But not hit FFO, right?
- EVP & CFO
Correct, it won't hit FFO.
- Analyst
The last thing on -- you mentioned a number of auto malls in the Phoenix area, and I was just won -- and North Black Canyon in particular.
Is this something -- you don't develop auto malls all over the country and I'm just curious as to, is it related to the people you acquired the land from or who had the controlling interest originally?
- President & CEO
No, it's really related to a master planning of the projects.
In order for the cities that we work with to be able to afford the infrastructure that is required to be put into these projects and then from which we can carve out the -- kind of the hole in the donut, the diamond in the rough from that, they need sales tax revenues to pay for their, in some cases, hundreds of millions of dollars of infrastructure.
And so to the extent that we take and we spin off parcels to auto malls -- and the auto show that we're developing at Prasada is one of the most significant auto show malls that's going to be built in the country -- we'll be selling that off.
And that'll generate sales that the city can then take and put into into infrastructure improvements, and then at the end of day make a profit on that themselves.
It's really a strategy that kind of primes the pump to give the city the capital, the income to generate the bonds to do these infrastructure improvements at their costs and still they turn a nice profit and then the icing on the cake for them is when we build a regional center, and that's really the same strategy up at North Black Canyon.
- Analyst
Okay.
That makes sense.
Thanks.
- President & CEO
Thank you.
Operator
Thank you.
We'll go next to Jim Sullivan with Greenstreet Advisors.
- Analyst
Thanks.
- President & CEO
Hey, Jim.
- Analyst
How you doing?
- President & CEO
Great.
- Analyst
Tom, can you walk through the math that you're using on the convert getting to a cost of 4.9%?
Maybe you can build up from the coupon at 3.25% and the key pieces that you use to get to 4.9%.
Our math, when we layer in the fees and the cap call options, gets us to something higher than that.
- EVP & CFO
Well, the fees were 2%.
Well, part of that was passed on as a discount, so 1% underwriter fee, 1% discount to the buyers.
And then the -- the cap call cost was about $60 million.
- Analyst
What about the other option?
- EVP & CFO
I'm sorry?
- Analyst
What about the other option that gets from zero to 20?
Did you factor that into the cost or not because you're talking about cash?
- EVP & CFO
No, we're talking about cash in that regard.
We factor that into our dilution.
- Analyst
Okay.
What did you view the cost to be on an economic basis, the (inaudible) basis?
What was the all-in value of this deal versus doing straight unsecured at the time or doing some combination of equity and unsecured or even doing mortgage financing?
- EVP & CFO
Well, we looked at the straight unsecured, which is basically what we were paying off, which is our [line of use of] term debt, and there was a substantial benefit for us -- economic benefit, 190 basis points or so.
Yes, I understand the old unsecured was at a high rate, but what if you were to reissue?
But if -- part of that was, but the other was on a recently renegotiated line of credit, which was at about 660.
So in any event, we were going substan -- even when we threw everything in the equation to look at what our cash rate was compared to what we were paying off or what we could go out and get somewhere else, it was very attractive.
Even on an extremely highly desirable financing, like Scottsdale Fashion Square, we'd still be looking at a rate somewhere in the mid five's.
- Analyst
Okay.
Maybe we'll follow-up offline with you.
- EVP & CFO
Okay, great.
Sure thing.
Operator
Thank you.
We'll go next to Rich Moore with RBC Capital Markets.
- Analyst
Good morning, guys.
- President & CEO
Hey, Rich.
- Analyst
Management expense, Tom, that was higher, is there something behind that?
Higher in the quarter.
- EVP & CFO
You heard of all of these projects Art mentioned that we're working on.
That has required us to staff up a little bit to be prepared for that, so that's basically what that is, Rich.
- Analyst
Okay, very --
- EVP & CFO
It's head count.
- Analyst
Yes, got you.
And then as far as you guys didn't ta -- you didn't talk about the bankruptcy outlook.
I assume it's pretty benign and store closing environment pretty -- looking pretty good going out forward from here?
- EVP & CFO
Not that lot on the radar screen in terms of tenants on the watch list, Rich.
And we had very little bad debt expense during the quarter, and so things are really looking pretty healthy.
- Analyst
Okay.
Very good.
And then I'm sorry, an auto mall, is that a fancy car dealership, is that what that is?
- President & CEO
Well, it's a very major series of car dealerships that in today's world in that marketplace, for example, in North Black Canyon, you're not going to see any huge balloons of some animal or something floating up in the air.
They're really very attractive developments the way they're being built today and they're huge economic engines for the city.
That's the whole key.
It's the economic engine that creates the sales that allows the city to build the infrastructure from which we can carve out our regional site and build upon it without incurring significant off-site costs ourselves.
And that's why, when we build these new regionals in the Phoenix metroplex center and in the Tucson area, that's why we're seeing double-digit returns in terms of the return on cost on new developments.
It's not that usual today for people to be able to attain 10%, 11%, even 12% returns on brand new developments.
and a lot of the reason for that is because of the infrastructure cost that's involved in it.
That's really what cuts into your return.
So our strategy is to create an engine for the city in which we're doing business so that they can afford to even do all the infrastructure, or the majority of it, at a profit and give us a site that we don't have massive off-site costs.
Not to say we don't have off-site costs because we do, but again, we're really creating the economic engine.
And this is really kind of the first primer that happens on these 3,000 and 5,000 acre developments are the auto malls because then that's really kind of the first phase, then it evolves to the power center phase, then it evolves to the regional center phase, and then around it you then begin to have all of your residential and/or other mixed-use types of developments, including medical centers, hospitals, et cetera.
So we're building whole communities here, in some cases like Prasada, in terms of what's being developed, but our focus is purely on the retail component in terms of what we'll own.
- Analyst
Okay.
I got you.
So do you actually build the auto mall?
Is that something that you put together or do you just sell it to somebody -- sell the land to somebody to do it?
- President & CEO
It basically varies, but generally what we're doing is selling the land to the auto mall people and then they're developing it.
But we have complete control over what's built quality wise and the identity of the auto retailers that are put on that site.
There's a tremendous -- by the way, there's a tremendous symbiotic relationship between auto malls and regional centers.
If you look around the country, where you see a highly-successful auto mall within close proximity to a major regional center, you're going to find that that regional center does a huge business.
And one of the reasons is that, first of all, by definition if the auto mall is there, that means they're only building where there's very high disposable incomes by definition.
And secondly, surprisingly enough, like at Cerritos, I think we have the number one auto mall in the U.S.
basically a quarter of a mile away from us.
People will basically come to the regional center associated with a trip to the auto mall.
It's also very symbiotic in terms of the retail performance of the regional center that gets built after the auto mall.
- Analyst
Very good.
That's a good education.
Thank you.
- President & CEO
Thank you.
Operator
Thank you.
At this time there are no further questions.
I'd like to turn the program back over to Mr.
Art Coppola for any additional or closing comments.
- President & CEO
Thank you very much all for joining us.
As you can see, we remain tremendously excited about the projects that we're developing out.
We have been pruning and tuning last year in terms of recycling out of lower-producing assets and reinvesting that into our core new developments and redevelopments.
We're going to continue that process.
We have an upcoming ICSC convention, as you're all undoubtedly aware of, in the coming weeks.
Lots of retail demand is going to be coming there.
I'm sure we'll be seeing a few, if not a lot of you there.
And then, of course, a couple of weeks after that, the annual investor conference in New York.
We'll again look forward to seeing you had in one-on-one meetings there.
Look forward to sharing with you more information on all of this on a one-on-one basis over the next 30 days and appreciate your joining us today.
Thank you very much.
Operator
That does conclude today's conference.
You may disconnect your lines at any time.