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Operator
Good afternoon, ladies and gentlemen.
Thank you for standing by.
Welcome to the Macerich Company first quarter 2008 earnings conference call.
Today's conference 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 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 Vice President of Investor Relations.
Please go ahead.
- Vice President of Investor Relations
Thank you everyone for joining us today on our first quarter 2008 earnings call.
If you don't have a copy of our earnings release, you may access it at the company's web site at www.macerich.com.
During the course of this call, management will be making forward-looking statements, which are certain -- which are subject to uncertainties and risks associated with our business and industry.
For a more detailed description of these risks, please refer to the company's press release and SEC filings.
Management will also be discussing certain non-GAAP financial matters 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 the supplemental 8-K filings for the quarter, which is posted in the investors section of the company's web site.
Joining me are Art Coppola, President and CEO, Tom O'Hern, Executive VP and CFO and Tony Grossi, Executive VP and COO.
With that, I would like to turn the call over to Tom.
- Executive VP, and CFO
Thank you, Suzanne.
We will be discussing the first quarter results, recent capital transactions, status of our developments and redevelopments, upcoming opportunities and our outlook for the balance of 2008.
Focusing on the operating metrics, generally they remain strong in the quarter, with continued high occupancy levels, strong releasing spreads, but with some softening in retail sales during the quarter.
Total mall sales per square foot for the past 12 months came in at 468.
That was up 3% from the same statistic a year ago and down slightly from the year end number of 471.
Total same center tenant sales for the period were down 1.1%, and looking at that by region.
Southern California was down 2.1%, Northern California down 1%, the eastern region was up 4.2%, central region up 1.5%, and Arizona down 5.4%.
Occupancy levels have remained high with quarter end occupancy of 92.7%, that compared to 92.8% a year ago.
On the same center basis, occupancy was at 92.5%, down from 93.0% a year ago.
Leasing activity continues to be robust in terms of both volumes and spreads.
We signed leases for mall shops, 336,000 square feet.
New rent came in at $44.71 per square foot, for a positive releasing spread of 24.3%.
That's on a cash basis, excluding any straight line of rent impact, which would have increased that spread.
Average rent per square foot in the portfolio was up almost 5.6%, to $40.36, compared to $38.22 at 3/31/07.
The FFO for the quarter was up 13% compared first quarter of last year.
That put FFO diluted per share at $1.09 for the quarter, compared to $0.96 for the quarter ended March 31st, '07.
That was $0.01 less than the midpoint of our guidance and $0.02 less than street consensus.
We are not reducing guidance and we are reaffirming that guidance as previously issued of $5 to $5.15 for the year as we expect to pick up the first quarter shortfall in the second quarter.
Earnings per share for the period was $1.30 for the quarter, compared to $0.04 for the quarter ended March 31st , 2007.
Included in net income and therefore impacting EPS but not FFO, was a $99 million, noncash gain on the disposition of the Rochester assets, which I will get into in more detail in a moment.
Impacting the quarter was same center NOI growth excluding termination revenue of 3%, as compared to the first quarter of '07.
This was up from the 2.42% for the entire year 2007, and slightly less than our guidance range of 3.5% to 4% for the year, but we still remain hopeful for this assumption for the balance of the year.
Lease termination revenue including JVs at pro rata was $2.4 million, that was down about $1 million from the first quarter of last year.
The expense recovery rate, including joint ventures was 94%, down slightly from 96% in the first quarter of '07.
CPI rent increases were $1.7 million higher than the first quarter of '07.
Straight lining our rents for the quarter came in at $2.1 million, compared to $1.6 million in the first quarter of last year.
FAS 141 income was $4.6 million from the quarter, up from $4 million in the first quarter of last year.
And gain on sale on undepreciated assets during the quarter was $2 million compared to $900,000 in the first quarter of last year.
Focusing now on the Rochester redemption.
As noted in our press release this morning, effective January 1st, 2008, the former owner of the Wilmorite portfolio exercised its right to exchange 3.4 million preferred units, in exchange for the company's interest in Eastview Mall, Greece Ridge Center, Pittsford Plaza and Marketplace mall.
These Rochester assets were transferred with pro rata mortgage debt of approximately $218 million.
The average sale per square foot of that group of assets was $360 per square foot, about $110 per foot less than our Macerich average and there was a noncash gain of $99 million recorded in the first quarter.
In looking at this redemption and consulting with our accounting firm, the original accounting treatment that was used when we entered into this transaction in 2005 was reevaluated.
The accounting is a combination of very complicated obscure accounting rules for business combinations and accounting for redeemable securities.
In hindsight, it was determined that the minority interest accounting, combined with accounting for redeemable securities should have been used rather than purchase price accounting.
The net result is a gain on the redemption of $99 million.
It will also require us to restate 2005 for a noncash change to the initial purchase accounting.
The initial adjustment to 2005, will be reversed in its entirety at 1/1/08, the date of redemption.
Although it will require that we file an amended 2007 10-K to reflect the change in accounting treatment, none of these changes will impact FFO, cash flow for net operating income.
The only other net impact other than the $99 million gain in the first quarter of '08, will be slightly less depreciation in 2005 and 2006 and 2007, which will increase net income in those years by amounts ranging from $2 million to $5 million per year.
Focusing now on the balance sheet, at year end, we had a total of $7.6 billion of debt outstanding, including joint ventures of pro rata.
About $347 million of that debt matured this year.
Our average interest rate is 5.62%, and our average rate on fixed rate debt is 5.95%, with an average remaining maturity of 4.5 years.
Our debt-to-market cap at quarter end was 55% in the interest coverage ratio was 2.0 times for the quarter.
As you can see from the detailed debt schedule that we included in the supplement this morning, we have a very manageable maturity schedule.
We have some of our top assets with low leverage loans expiring this year, such as Fresno Fashion Fair, Broadway Plaza and West Side Pavilion.
We have been very active in the debt markets lately and here's the status of our '08 maturities.
On May 6th, we put a new $100 million floating rate loan on the mall at Victory Valley.
That property was unincumbered at the time of the financing.
The initial interest rate is 4.43% and it's a five-year facility.
On March 14th, we closed $100 million construction loan on Cactus Power Center at Prasada in Surprise, Arizona.
That loan floats at LIBOR plus 135 and has a three-year term extendible to five.
On May 15, we expect to close an $82 million construction loan on the market of Estrella Falls.
That loan is a three term and has an initial interest rate of 4.3%.
We also received $150 million loan commitment from one of our relationship banks for the currently unincumbered SanTan Village regional mall.
This is a five-year loan and it's expected to fund in June.
We've also reached agreement on $170 million financing on a seven-year term at a fixed rate of 6.76% on Fresno Fashion Fair.
That new loan of $170 million will pay off the existing $63 million mortgage and is expected to close in July.
At West Side Pavilion we have a $91 million loan that matures in July.
We have an agreement for a three-year loan, extendible to five for $175 million.
Loan closing is expected to be June 1st on that transaction.
And in addition, we have negotiated a $300 million combination construction loan, and mini perm loan on The Oaks Mall.
That's a super regional mall that's undergoing an expansion in addition to Nordstrom and that loan is expected to close by June 30th.
With the above transactions, that we discussed, are expected to generate in excess of $500 million of excess proceeds.
Those proceeds will be used to pay down our line of credit.
Today the line stands at approximately $1.25 billion, and by the end of July, we will have completed these transactions, I expect the line to be down under $800 million.
The total line is $1.5 billion, so that would leave us with a substantial amount of capacity.
In 2009, we also have a very manageable maturity schedule.
It's about $700 million, that generally includes low load to value mortgages on high per square centers, such as Queen Center, Washington Square, Caramel Plaza and the Village at Corte Madera.
This morning, we reaffirmed that we are comfortable with the previous range of FFO guidance of $5 to $5.15 per share for the year.
At the midpoint, that reflects nearly a 10% increase versus 2007.
As I mentioned earlier, we are very comfortable with a $0.01 shortfall in the first quarter that will be picked up in the second quarter.
At this point, I would like to turn it over to Art to discuss the strength of our business, our pipeline and other items impacting our
- President and CEO
Thank you, Tom and welcome to our call.
Our first quarter started off with a bang, with the acquisition of North Bridge Center in Chicago.
We talked about that in the last call, so I won't go into detail on that, but it's a great center.
We are already seeing strong leasing demand on some of the releasing that we plan at the center.
Again, this is the center anchored by Nordstrom.
It's the second highest Nordstrom volume center Nordstrom store in the U.S.
It gives us probably five of the top ten Nordstrom stores in the U.S.
by sales volume are in our portfolio now.
And it's a center, which at $839 a square foot adds to those premier centers that we have that exceed over $700 a square foot.
As Tom went through we have a great quarter in terms of fundamentals in spite of an obvious tough economic times, in spite of the fact that from my view point, that we are in a recession.
Our first quarter leasing spread, is at 24%.
Remember, compared to 28% in 2007, 19% in '06, 20% in 2005, and between 20% and 25% in 2002, through 2004.
So this remains a very consistent trend.
Our leasing for the year is virtually complete.
We are already working on 2009 releasings.
Our occupancy levels remain very solid during the quarter.
This is consistent with our history over the 17 years that we have been reporting occupancy levels and is really a function of the quality of the real estate we have, highly productive centers in location, with extremely high barriers to entry.
Our redevelopments are coming along terrifically.
The Oaks is schedule to open with a major enclosed mall redevelopment opening up and being completely remerchandised by fall of this year and then portions of the open air center opening up later on in this year and then into the first quarter of next year.
Early preleasing at Santa Monica Place is extremely exciting.
Everything is coming along terrific there.
Our rents are coming in at the levels that we anticipated.
And in spite of the fact that some of the luxury retailers are taking pause on some of their expansion plans, we are getting extremely strong interest from that level in the center and interestingly enough, we are getting extremely strong interest from restaurants at the center in spite of the fact that in general across the board, restaurants are scaling back some of their expansion plans in the United States.
Our other major redevelopment Scottsdale Fashion Square remains on schedule.
Target and the leasing there remains terrific.
Our new developments remain on track and on target.
Some of you may have noticed that we are continuing to refine our 8-K disclosure.
As you remember, our first 8-K that we filed showing our development pipeline was for Q4 of last year.
And what we noticed in looking at it is that many of the open air centers that we're building in order to provide better disclosure to you, we need to recognize the fact that they open up in phases and particularly that would relate to Estrella Falls, the regional center for example.
On the other hand, some of you also noticed that on a couple of our PowerCenters, we phased them and delayed some of the openings or at least recognized that he will be opening up in phases.
And that's really just in recognition of the fact that the PowerCenter business in general is probably the area of our business which is again really a complimentary business to our regional mall business.
Across the board, these are the types of retailers, the big box retailers that are beginning to cut back on expansion plans.
We are trying to be prudent in recognizing those openings.
None of those changes and the refinements to the 8-K are material.
We are just trying to give you better disclosure as the time goes on.
I would like to talk to you about some broader issues.
First of all I want like to talk about logical concerns that REIT investors should have for any real estate company, concerns about liquidity.
Secondly, I want to talk to you about concerns that you have and have shown for owners of retail real estate, and in particular, regional mall landlords and how we are managing our way through the recession and through the weakening consumer demand.
And finally, I want to address my current thinking on our Arizona portfolio, which, again, is something that Arizona, in particular -- particularly with the home builders, has obviously had weaknesses.
But I want to address the impact of the economy there in Arizona on our portfolio.
First of all, in terms of looking at concerns that you should have for any real estate company.
The biggest concern that I think anybody has today in the real estate world relates to liquidity.
Liquidity is obviously the biggest issue that most capital-driven companies are facing today, and I won't go back and repeat what Tom went through, but you can see that we are at a very high level of activity in terms of doing property-specific, non-recourse moderate loan to value type of fixed rate mortgages and through that we're raising very significant excess refinancing proceeds that are going to -- that are being used to repay our unsecured debt, our line of credit and to bolster our drive power and to put us in an even better position from a balance sheet perspective going forward.
2009 looks equally promising in terms of the maturities that we have, in terms of the opportunity to generate significant refinancing proceeds there.
At times like this when you do have a liquidity crunch, it does cause one, though, to -- to recognize once again the precious commodity of capital.
And in a market like this, we are taking a look at our shadow development pipeline, and really beginning to prioritize that development pipeline, to only begin to move forward and, again, these are projects that we are going to talk to you about to a great extent.
But only beginning to move forward on those projects that meet a very high standard of return and quality, and NAZ creation opportunities.
That's another thing that we do in terms of managing our company at times of liquidity crunches.
Secondly, concerns that you have expressed towards all retail landlords.
We talked to you in the past about the fact that if you have high barrier to entry, highly productive regional malls, that we have a long history of surviving through either recessionary or even depressionary times and that remains the case today.
We are already well over 90% preleased for 2008, and beginning to work on our releasing for 2009.
We are continuing to maintain very high historical occupancy levels which again is consistent with our history over the past 17 years that we have been reporting our occupancy levels to you.
Our occupancies are fueled to a great extent by our long-term credit leases that we enjoy with tenants, with leases averaging ten years.
We also have a certain floor to our growth in terms of our leases, with the CPI clauses that we went into putting into effect over five or six years ago.
I believe that we probably have more leases with our top line tied to the CPI than most other regional mall companies, at least we believe it will -- it will bode us extremely well and even in times of flat retail sales and in times of recessionary consumer demand.
At times like this, when we are dealing with a weak consumer environment and recessionary environment, we focus even harder on our profit margin.
And so there's a tremendous amount of focus that we've got today on initiatives to -- on our sustainability initiatives, on energy savings initiatives, on taking a look at real estate tax controls and savings that we can obtain there and our business development and specialty leasing.
We see great opportunities to continue to operate our centers at even better operating margins than we have in the past.
At times like this, in a recessionary environment, it's prudent to exercise the caution, and prudence on your development pipeline.
I think that particularly on some of the PowerCenters that are further out there at Prasada, for example, we are doing that.
It's also prudent to investor capital in great markets with extremely high barrier to entries, where the tenants -- where these are must-have locations, locations like The Oaks, Santa Monica Place, Scottsdale Fashion Square.
Another thing that might seem a little incongruous to you that we do in times like this, in terms of managing our portfolio, is that we really begin to focus on recapturing space from unproductive tenants.
At times like this, where we have tenants in a center of $700 a square foot, you will have a spattering of 10% to 15% of your tenants doing $300 or $400 a foot, another 20% or 30% doing $1,000 a foot, all averaging $700 a foot.
In a weak time like this, this is an opportunistic time for us to go back through our portfolio and to look at recapturing unproductive space and then releasing that to the tenants that's should be there.
So actually times like this give us an opportunity to really get back space that otherwise we may not have an opportunity to get back.
That's another thing that we do in an environment like this.
In terms of looking at our Arizona portfolio, I want to talk to that issue also.
We enjoy a very dominant portfolio there.
We enjoy a portfolio that over the past five years has seen its sales increase from $387 a square foot to well over $540 a square foot.
One of the things that's very unique about our portfolio in Phoenix and Arizona in particular, is the diversity of the portfolio.
The portfolio ranges from super regional centers like Scottsdale Fashion Square and Chandler Mall, to more neighborhood, like Fiesta Mall, and Desert Sky to open-air centers like Kierland Commons, to luxury lifestyle centers like La Encantada in Tucson.
So we are serving multiple segments of the market place and that gives us a tremendous amount of diversity and opportunity to go ahead and to do extremely well, even in this environment.
Tom mentioned that our sales were off in Arizona a little bit in the first quarter.
And a significant part of that is that we delivered a brand new regional mall in Gilbert in the southeast valley, in the fall of last year and that did have an impact on Superstition Springs and Fiesta to a lesser degree on Chandler.
The impact was not that significant.
It was roughly a single digit impact which shows us that the market was ready for Gilbert San Tan, and that the other centers will easily survive that, and that is the case.
Looking at our Arizona portfolio, also it's important to think about it in terms of its -- its place within the balance of our company.
Our Arizona portfolio comprises roughly a little bit less than 20% of our net operating income for the entire company.
Again, I mentioned that the high productivity level at roughly over $550 a square foot.
It's an extremely powerful driver for us, and we anticipate that it will continue to be so in the future.
But as you look at the balance of our portfolio, you look at the rest of our concentrations.
An almost equal amount of operating income come from the New York City area portfolio which is doing extremely well for us.
A little bit lesser amount is coming from southern California, from central California from the Washington, D.C.
sub marketplace, from northern California.
When you add up all of our top high dense metropolitan areas, where we have centers with extremely high barriers to entry, our portfolio is a little bit over 80% of our net operating income is sitting in these major metropolitan areas where, again, we have extremely highly productive centers and very high barriers to entry.
So with that I would like to open it up to Q&A and again welcome you to the call.
Operator
Thank you.
(OPERATOR INSTRUCTIONS) We'll go first to Lou Taylor with Deutsche Bank.
- Analyst
Thanks.
Good morning, guys.
- President and CEO
Hi, Lou.
- Analyst
Tom, can you talk a little bit about the Wilmorite gain, in terms of was there any economic gain there from that transaction?
- Executive VP, and CFO
No, Lou, it's purely and accounting gain and results from some very complex accounting rules but it's noncash, noneconomic.
- Analyst
Okay, and I know there's a little bit in terms of share price differential between what it was at January 1 and what it was in April of '05.
Did that -- does that influence your share count or anything along those lines?
- Executive VP, and CFO
No.
No change in share count.
- Analyst
All right.
And then next question, just pertains to kind of financing discussions you've had.
I know you have life companies.
You have your relationship banks.
Are there any other newer sources coming into the discussion, whether it be future CMBS lending or is it really just the two main sources right now?
Is it broadening out at all?
- Executive VP, and CFO
Well, we haven't seen it broaden out yet, Lou.
It stands to reason that it probably will.
It doesn't appear to have much CMBS activity at this point.
I think there may have been one deal that got done.
We've seen a pretty strong appetite from our bank group and the life companies we have been able to line up attractive financing.
So we haven't really to seek alternative sources, but I think there are probably some starting to surface.
- Analyst
Okay.
And then last question with regards to the kind of items that slip from Q1, that you expect to receive -- I'm sorry, slip from Q1 to Q2.
What were those items, the lease term fees, land sales?
- Executive VP, and CFO
All of those, Lou.
We go into the year, those two are really just a guess in terms of timing, and they tend to, flow unpredictably through the year.
But we looked at our assumptions for both land sales and lease termination payments and we are comfortable with those and we expect to see some pickup in -- in 2Q that we didn't get in the first quarter.
- Analyst
Great.
Thank you.
- Executive VP, and CFO
Thanks, Lou.
Operator
We'll go next to Paul Morgan with FBR.
- Analyst
Good morning.
- President and CEO
Hi, Paul.
- Analyst
Where are you at now in terms of the percentage of your rents that are on CPI leases?
- Executive VP, and CFO
We're at about 55% now, Paul.
And virtually every lease that gets signed these days has that feature.
- Analyst
So have you kind of done the math to see what's the contribution of the CPI bump is to your same store NOI?
- Executive VP, and CFO
Well, these reset, January 1st of every year, and I think on average, the CPI rate that was used was about a 2.4% rate.
So if you apply that to roughly half the portfolio, that's 1.2% or so of that 3.5.
And obviously, we are looking forward to getting our whole portfolio on CPI so we'll get the full benefit of that.
- Analyst
Okay.
Great.
Could you comment on the plans for the Mervyn's portfolio in light of the reports about Mervyn's financing issues.
- President and CEO
Sure, we are receiving significant demand and interest from third-party owners of centers where we now own a Mervyn's building.
You have to remember, the Mervyn's transaction was a real estate price transaction.
It does show a nice return for us, but the price at which we allocated to the portfolio and to the individual assets were prices that, not to wish anybody ill will, but prices that we would be extremely happy to take the real estate over at, and, in fact, if you just look at our portfolio alone, if we were able to recapture all 11 stores from Mervyn's, the profit we could make from that alone would have paid for the entire acquisition of all 40 stores.
It very much is a real estate deal, that enjoys a good return in the meantime.
- Analyst
Are you making any efforts to kind of pro actively, capture some of the space now or is it basically you have the lease for the duration and you'll see what happens?
- President and CEO
No.
We did recapture one space, and that was in Mesa, Colorado, but the stores that we bought are all stores that Mervyn's is showing a four wall profit on, that they are doing good business in and they are not interested in giving any of them back.
Which is fine, and which is certainly -- was in our game plan.
But these are all stores that Mervyn's is happy with and considers to be long-term keepers.
- Analyst
My last question on the sales and the implications for percentage rents.
I mean, I know you don't have great visibility, it will be dependent on sales, the year-over-year number was down $1 million.
How should we think about how the full-year percentage rent if the comps persist like we are seeing first quarter?
- Executive VP, and CFO
In terms of percentage rent, Paul, that was an expected rotation from percentage rent into minimum rent, which happens when leases roll and it also happens in certain cases of new developments when tenants go from percentage rent to starting to pay minimum rent.
So so far we haven't seen anything that's changed our view and our guidance for the year.
We still think that we will be in the 3.5% to 4% same center growth and it's hard to draw any conclusions from changes in percentage rents because quite often it is really a function of rotating from percentage into base much more so than the actual sales activity.
We've got less than 6% or 7% of our tenants that actually pay percentage rent.
So we're not real sensitive to quarter to quarter fluctuations there.
- Analyst
Okay.
Thanks.
- President and CEO
Thanks, Paul.
Operator
We'll go next to David Toti with Lehman Brothers.
- Analyst
Hi everybody.
Just a couple of questions with regard to your pipeline.
Have you changed any of your timing assumptions around the projects?.
I know it is not visible in the schedule, but just wondering what your perception is there.
- President and CEO
No, on the yield assumptions, everything is still online and on target in the deals where we are actually out doing releasing.
And on the timing assumptions, they are really reflecting the current 8-K versus the previous 8-K.
To a great extent, it's just clearer disclosure to give credence and recognition, to the fact that on an open-air center, and in particular the open air regionals that we open.
They tend to open in phases as compared to all at once.
- Analyst
Okay.
And then any change in sort of the temperature of the preleasing environment?
- President and CEO
Our preleasing environment from -- mall preleasing, remains extremely strong because of the product that we are offering to people.
I think in general, if you take a look at preleasing today of a big box anchored center, it's weaker than it was six months ago, clearly.
And we are to a great extend taking that into consideration and being prudent in terms of the openings we are looking at and particularly at Prasada.
- Analyst
Okay.
And then just relative to the potential pullback on your shadow development pipeline, does that impact any of the prior numbers that you put out relative to investment spending over the next three years?
- President and CEO
No, because none of those numbers -- we never talked to you about any of those numbers to date.
- Analyst
Okay.
- President and CEO
This is really the opportunities that we're working on that we really haven't begun to talk about in terms of -- in terms of the quantifying with you at this point.
It's really just, I bring that up in the context of recognizing that in a capital constrained environment, how do you manage your company?
An environment like that?
And one of the things that we do is in an environment like that, we really go back and rescrutinize everything that's in our pipeline, put a very high standard and high bar in terms of performance for the development to get capital allocated to it.
It's really just a prioritization that we do in times like this to recognize the preciousness of the commodity and the capital.
- Analyst
Great.
Thank you very much.
- President and CEO
Thank you.
Operator
We'll go next to Christie McElroy with Bank of America.
- Analyst
Hey, good afternoon.
Tom, other than the Q1 shortfall to be made up in Q2.
Have your quarterly guidance assumptions changed from the back half of the year?
I think you previously talked about 24% in Q3, and 32% in Q4?
- Executive VP, and CFO
No, those haven't changed.
As you mentioned before, Christie we have a lot of seasonality that comes through in the fourth quarter.
That's where the bulk of the percentage rent is recognized.
That's also where we get a disproportionate share of our temporary tenant revenue activity comes in that fourth quarter.
So we are still expecting that this year.
- Analyst
Okay.
And then just a follow-up on the preleasing question.
What percentage preleased is your ground of development pipeline currently?
And then with regard to, Art, I think you touched on the malls, but then with regards the PowerCenters have you found it incrementally tougher to lease up this space given some of the pullbacks and expansion plans and store closings among the big box retailers?
- President and CEO
Yes, on the PowerCenters, there's clearly been some pullback and I think that that's -- that's great extent what I mentioned before, that is the reason for being a little prudent.
We can decide when we want to deliver those PowerCenters and so on some of them, we phase them and in some of them we move them back a little bit, in particular Prasada.
On the mall preleasing, you know the only one -- the ground up opportunity that we are in the preleasing process of right now is Estrella Falls and that's at a high level of preleasing activity and doing extremely well.
We have given ourselves plenty of time in terms of the opening of the center but we anticipate that that center will easily be well over 90% leased at opening without any question.
We've got virtually every retailer that joined us at San Tan and Gilbert wants to have a store with us at Estrella Falls in Goodyear.
That's a center that at one point we were going to open up in 2009, just to give ourselves a little bit more cushion to make sure that in this environment that we could open up a very high percentage of our retailers all at once.
We moved it to '10 and it could be as preleased as we would choose it to be at this point in time, but it's in very good shape, that one.
- Analyst
Okay.
So you are kind of holding back on some of the commitments there, hoping that the environment improves over the next year or two?
- President and CEO
No, we are not holding back.
We are leasing it in the ordinary course of business.
And it's coming along very well.
- Analyst
And then what kind of yields are you projecting on your projects, specifically?
- President and CEO
Generally on the PowerCenters, we anticipate yields of 9 to 11% on costs.
- Analyst
Thank you very much.
- President and CEO
Thank you.
Operator
We'll go next to Jay Habermann with Goldman Sachs.
- Analyst
Hey, good morning.
Here with Tom Baldwin as well.
- President and CEO
Hey, Jay.
- Analyst
How are you?
- President and CEO
Good.
- Analyst
Art, you already mentioned same store occupancy down 50 basis points year-over-year.
Any surprises in there or by geography, or that pretty much what we have been reading about in the papers.
- Executive VP, COO
It's Tony here, Jay.
No, there's no consequence to that occupancy tied to any retail fallout.
If you really want to look at our bankruptcy picture, we've got about 150,000 square feet of stores in formal bankruptcy, about 80 stores, with us.
We dealt with about 60% of that right now.
And a big part of it was Disney.
It wasn't an economic driven bankruptcy.
Our store closing, we have a great handle on that, as part of our normal course of business.
We are not surprised or alarmed at what's been reported to us in the media.
And a voluntary closure, it's minimal and the largest impact being pack, sign and demo stores, and we had no impact on Talbot's men or babies.
We only had one store with them.
That activity is very, very manageable.
So I can't say that there's a direct tie to that 50 basis points differential in our occupancy.
- Analyst
And you mentioned the comfort was 3.5% to 4% NOI growth this year.
Is that really a function of just the 90% leasing you have done year to date of these expires.
- Executive VP, COO
Yes, it's largely driven by that.
We have pretty good visibility to the deals in the process right now, and it is a function of what we have rolling.
Very good releasing spreads and that was evidenced by the deals that were signed in the first quarter.
We expect that to continue through the year.
- Analyst
And just following on that, Art, you mentioned recapturing space in some of our top malls.
Can you just give us some examples there?
Is this pushing out weaker retailers?
Is this month to month or are you having to go and proactively buy them out?
- President and CEO
Generally we don't have to buy them out.
It's something that may sound incongruence to most people.
Why would a landlord in a recessionary environment seek to get an early termination of a lease?
Well, the reason you do it is because in times like this, if you have an unproductive tenant -- it's really just a function of productivity.
So, I mean, if you have a tenant that's in at $700 square foot center and the tenant is doing $300 a square foot, then one of two things have to happen.
The tenant has to get smaller, or get out.
Now in better times, the tenant may be able to limp along and survive in an environment like that but, in tougher times it could be an opportunity where we work together with the tenant.
Many times we enter into an option agreement with them as opposed to a buyout, where we say, look, we know times are tough for you.
Give us the option to early terminate your lease and when we find a replacement tenant to replace you, we'll let you off of your lease.
And a lot of tenants are happy to do that for us.
So it's really just something that I wanted to bring up that it relates to the subject of how do you manage your business during a recession?
And during a recession, there are opportunities that may not otherwise occur to people.
And that is a big opportunity.
- Analyst
Okay, and for Tom, that $2.5 million run rate in lease term fees, is that a good number for the rest of the year or do you expect that to pick up in Q2?
- Executive VP, COO
I think our assumption for the year -- and I don't have it in front of me, Jay is $10 million for the year.
- Analyst
I think Tom has one question.
- Executive VP, COO
It will pick up slightly.
- Analyst
Hey, guys.
Just a quick question on the acquisitions front.
One of your competitors recently put an asset on the market in the Stamford, Connecticut area.
I was wondering what your thoughts are with respect to that particular asset and if it's something you would consider performing due diligence on, in the future.
- President and CEO
Well, you know, we don't -- we don't really comment on acquisitions until they are complete.
So I really -- I don't have a comment on that.
- Analyst
Okay.
Thanks a lot, guys.
- President and CEO
Thank you.
Operator
We'll go next to Michael Bilerman with Citi.
- Analyst
Hi, this is Ambika with Michael.
You mentioned that some of the luxury tenants are slowing down their expansion plans.
How does that impact your redevelopment program?
- President and CEO
Tony, do you want to go?
- Executive VP, COO
Hi Ambika, it's Tony.
The level of quality that we have in terms of our -- the redevelopment of Santa Monica Place or Scottsdale fashion that's anchored by -- by a Barney's.
The luxury retailer today is globally minded, they don't have a choice necessarily of cities but they have a choice amongst the countries.
So our quality that we are introducing in Scottsdale and Santa Monica Place, ranks really up there in terms of the global quality.
These are truly global locations and they attract the luxury player that typically in any year, they really open between three and five locations.
They are very, very choosey.
And we're quite happy with their level of interest in both of those sites.
- President and CEO
And I really brought that up in the context, frankly of the fact that you may not have really seen it so much yet.
But over the next six months, you are going to begin to see anecdotal evidence from the luxury retailers, but it's consistent with all retailers.
Where they are beginning to cut back a little bit on their expansion plans, but I bring that up in the context of even though that's going to hit the -- that noise is going to hit the press, it's not impacting the leasing that we're doing at our luxury centers.
- Analyst
Okay.
Great.
And then on the occupancy, on comp occupancy in the fourth quarter, you mentioned that you got back a fair amount of space at Biltmore and bankruptcies remain low so far.
So I guess, could we assume that occupancy, comp occupancy would start to be trending positive year-over-year or should we assume the same negative comp throughout the year?
- Executive VP, COO
You are referencing Biltmore only.
- Analyst
Assets similar to Biltmore where you took back space.
- Executive VP, and CFO
Yeah, well at Biltmore, we are remerchandising and walked it together with a lot of the folks on this call and you saw the work we are putting forward there.
It is a work in progress.
We have a lot of deals opening up later this fall in that site.
As it relates to bankruptcies, I spoke about the 150,000 square feet, half of it has been dealt with, some of it will come at us in Q3 and Q4.
As we work through some of these negotiations, as some of the smaller ones, some of the smaller bankruptcies really today are still trying to figure out what they want to do.
But it's not going to be significant.
- Analyst
So then on comp occupancy, what do you expect?
Down 50 basis points year-over-year?
- Executive VP, and CFO
It's too tough to tell.
I'm not sure how these smaller bankruptcies are going to through.
- President and CEO
And there's so many small items that can affect occupancy.
Until you see two or three or 400 basis point movement, to me, there's not that much change and we have never seen that type of movement in our occupancy levels.
We've reported occupancy levels over a 17-year period and if occupancies change 50 to a 100 basis points plus or minus per year, that would be a lot.
At 93% give or take, maybe 94% occupancy levels, that's kind of like, in the macro economic environment, that's kind of like full employment given the frictional vacancies and the slippages.
That's a very, very solid number that we have been able to put up in great times and recessionary times.
- Analyst
Okay.
Great.
Thank you.
- President and CEO
Thank you.
Operator
We'll go next to Michael Mueller with JP Morgan.
- Analyst
Yeah, hi.
I know the PowerCenters aren't that big of a part of the business but going back to there for a second.
How close was the demand?
Was it close enough to the point where if you wanted to move forward with the centers, you could or there was just too wide of a gap and so the only choice was to push them off?
- President and CEO
We are not really pushing them off but phasing them more than anything.
I don't want to overstate that, but I do want to recognize that if there was a weakness -- if there is a weakness in demand for new space in the retail world today, it is in the big box arena.
I can't deny that.
It is true.
Big box development that we do is, as you know, it's always a precursor to a mall and so the pact that we may -- that we would decide to only up open up virtually 100% occupied levels and then phase the future development is really just and exercise of judgment and prudence and not any broader statement than that.
It certainly -- I wouldn't use the word "pullback" or anything like that.
It is really just building to the demand.
- Analyst
Okay.
And then similarly looking up at The Oaks where a portion of that was pushed off.
Was it push off or was that just the disclosure or the phasing?
- President and CEO
That was just a disclosure.
- Analyst
Okay.
- President and CEO
We found, again the 8-K pipeline report has been a long time coming.
Our first one was three months ago.
And we found that the protocol we were using was that we were basically using the grand opening date, even though it may have been phased some of the openings and we began to look at it, oh, wait a minute for the analytical community in order for them to better model their numbers, they really need to see when the dollars are coming into play.
And so in particular on the open air centers, like Estrella Falls and/or The Oaks expansion, it's not at all atypical for that to open up in phases.
We are trying to give you better visibility and transparency into the pipeline so that you can do your financial models.
- Analyst
Gotcha.
And last question, look at the 2010 component.
It's about $270 million, is there room for that number to grow or is that a pretty good number at this point?
- President and CEO
That number could grow, yes.
- Analyst
Okay.
Thank you.
- President and CEO
Absolutely, absolutely.
Thank you.
Operator
We'll go next to Rich Moore with CBS capital markets -- RBC Capital Market.
- Analyst
Curious what your equity needs are for the next 18 months, let's say?
And how you might go about meeting those?
Would it be primary dispositions or are you thinking about joint ventures or public markets?
I mean, how do you view that.
- Executive VP, and CFO
Rich, I don't think we have any equity need.
As I walk through the various financings that we are in the midst of, we will get our line of credit down below $800 million or so, which gives us quite a bit of capacity.
And most of these projects that we are talking about we are seeing decent yields, 9%, 10%, 11% and obviously they will be valued at a much lower cap rate.
There's built-in equity there.
So I see no need to do anything on the equity front.
We are having no real difficulty financing our ground up developments, as evidenced by a couple of the recent project loans that we put on the PowerCenters.
So I see no need for that any time soon.
- Analyst
Have you guys had any discussions or thought about potentially joint venturing some of your existing assets or is that not really of too much interest to you?
- President and CEO
Well, there's a huge amount of interest from our -- both our existing partner base which we enjoy great partners with people like the Alaska Permanent Fund and Cadillac Fairview and Northwestern Mutual, people like, that and other Walton Street.
We have a great current partner base that would love to do more with us, but generally we've really been doing partnership deals really more on new acquisitions as opposed to -- of an existing asset.
But to the extent that we would went to bring partners into existing assets, there's a huge amount of pent-up demand, both from our existing partner base and from other -- from other people that would like to be partners with us.
- Analyst
Okay.
Very good.
Thank you.
And then what day, Tom, did North Bridge close?
Was that January 10th.
- Executive VP, and CFO
I believe, that's right, rich.
- Analyst
Okay.
Good.
Thanks, guys.
Operator
We have a follow-up question, Michael Bilerman with Citi.
- Analyst
Art, I just wanted to come back to the Mervyn stores, the 31 sites you are holding, sort of held for sale that are not in your centers.
I think you had spoke previously last call about $250 million of value that you ascribed to those.
Where are those rents if Mervyn's was not a tenant?
- President and CEO
Well, in some cases -- well, from my view point, if the buildings were to be released as is, we were confident, when we looked at it, that the rents that were attributed to the Mervyn's building could be replaced with another tenant.
If it the building was to be released as is or redemised.
The really big opportunity is in the regional malls where Mervyn's has locations.
Where most likely, in our case, for example, and I know in many, many, of the other regional malls of which we now own Mervyn's store, the landlord would undoubtedly use the opportunity to get back Mervyn's to recapture FAR.
So they wouldn't be trying to lease out a big box at big box type of rents.
That would be cutting up that FAR into smaller pieces and instead of renting it out at $8 or $10 a foot, renting it out at $50 or $60 a square foot, even though they would be rebuilding.
That's the really big opportunity in the regional mall locations is the -- is the recapture of FAR.
- Analyst
And are you actively marketing any of these sites today in terms of having met with brokers?
- President and CEO
We have -- we are beginning the process of actively marketing about -- about a dozen of them in the next -- in about a month or so.
We've also had active conversations with several of the -- of the counterparty owners of centers in which we now own Mervyn's and several of them have shown significant amount of interest.
- Analyst
And you have -- this is not a mass released situation.
You have individual leases on each site?
- President and CEO
Absolutely.
Yeah.
Individual leases on each site, but we have the full faith and credit of Mervyn's overall.
- Analyst
Okay.
Thank you.
- President and CEO
Okay.
Thank you.
Operator
And having to further questions, I would like to turn the conference over to Art Coppola for any additional or closing comments.
- President and CEO
Okay, well we appreciate your being with us.
We feel we are in very, very good position here, in terms of the -- our balance sheet.
We think that's extremely important in today's environment.
We feel that we are in very good position in terms of the way we are managing the company through this recession.
We have a lot of experience in doing it.
I feel very good about not only our redevelopment pipeline, but the new development pipeline, as well as the opportunities we have planned for the future that are not even in our current 8-K pipeline.
We are going to be prudent and we are going to be balanced and we are going to use judgment in terms of how we allocate capital to new developments that are not currently underway, but all of the developments that are listed in our 8-K right now.
They are all solid, on track, on target and we are very bullish and optimistic about that.
Look forward to seeing many of you the next couple of weeks, either at the shopping center show, or at NAREIT in New York.
So again thank you very much for joining us.
And look forward to talking to you again soon.
Operator
This does conclude to the's conference.
Thank you for your participation.
You may now disconnect.