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Operator
Good afternoon, ladies and gentlemen.
Thank you for standing by and welcome to the Macerich Company second quarter 2010 earnings conference call.
(Operator Instructions).
And now I would like to now turn the conference over to Ms.
Jean Wood, Vice President of Investor Relations.
Please go ahead.
Jean Wood - IR
Hi, thank you, everyone for joining us today on our second quarter 2010 earnings call.
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 these risks, please refer to the Company's press release and SEC filings.
As this call will be webcast for some time to come, we believe it is important to note that the passage of time can render information stale, and you should not rely on the continued accuracy of this material.
During this call, we will discuss certain non-GAAP financial measures, as defined by the SEC's 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 in the supplemental 8-K filings for the quarter, which are posted in the Investor section of the Company's website at www.marcerich.com.
Joining us today are Art Coppola, CEO, Edward Coppola President, Tom O'Hern, Senior Executive VP and Chief Financial Officer.
And also joining us today is Randy Brant, Executive VP Real Estate.
Randy oversees our department store and retail leasing.
And I want to invite you all to attend our Investor Day on October 5th.
And with that, I would like to turn the call over to Tom O'Hern.
Thomas O'Hern - Senior EVP, CFO
Thanks, Jean.
Today we're going to be discussing second quarter results, our capital activity, the opening of our fantastic new mall, Santa Monica Place, and our outlook for the rest of 2010.
Our operating metrics were strong for the quarter.
Occupancy levels were improved, retail sales increased, and same-center NOI was positive for the second quarter in a row.
The releasing spreads turned positive after being negative in the first quarter of this year.
Looking at the spreads, we signed leases on 331,000 square feet of space, that was 222 deals.
On average, this includes consolidated, as well as joint venture assets.
The average new starting rent was $39.34 a foot, for a positive releasing spread of 4.6% over the expiring rent.
Occupancy levels increased 130 basis points, compared to a year ago.
We were at 91.8% at June 30, compared to 90.5% in of June 30, 2009.
Average rent in the portfolio increased to 42.31, that's $42.31, compared to just about $42.00 even at year-end.
Occupancy cost was 13.9%, and that's based on the trailing 12 months ended June 30.
Looking at now at FFO, FFO per diluted share was $0.57 for quarter, that compared to $0.67 for the quarter ended June 30, 2009.
It's important to keep in mind, that as a result of our stock dividends of last year, and our equity offers of October and April, that we now have over 141 million shares outstanding.
That compared to 89 million shares outstanding for the quarter ended June 30, 2009.
As a result of that, we had quarterly earnings dilution of approximately $0.17 per share from the additional shares outstanding in the second quarter of 2010, compared to the comparable quarter a year ago.
Same-center NOI was up 2%, compared to the second quarter of 2009.
This is mainly driven by occupancy gains, as well as lower bad debt expense.
The expense recovery rate also improved.
And that includes joint ventures, it was almost 96%.
That compared to 92% in the second quarter of last year.
This improvement was due to significant cost reduction measures that were implemented in 2009, as well as the positive impact having about 70% our leases today, based on fixed CAM compared to triple net.
The mentioned bad debt expense dropped significantly, compared to a year ago.
Bad debt expense was down over $2 million, at $1.4 million for the quarter, compared to $3.8 million in the second quarter of last year.
Yet another sign of renewed tenant health.
Moving down the balance sheet, we continue to have a significant amount of financing activity.
Our recent financings includes Stonewood Center, where we arranged a $114 million financing on this joint venture asset.
The new loan is a seven year loan with an interest rate of 4.6%.
That pays off the old loan of $71 million that had a much higher coupon of 7.41%.
And we expect that to close in September.
Upon completion of the Stonewood transaction, we will only have a $118 million of remaining loan maturities in 2010.
And one of those maturities is the old CMBS loan on Santa Monica Place.
That's $76 million at a rate of 7.8%, and we plan to pay that off in October, and leave that asset unencumbered.
In addition, we have started on our 2011 maturity schedule, and we have arranged a $250 million loan on Danbury Fair Mall.
The new loan has a fixed rate of 5.5%, a ten year maturity, and it will pay off the existing loan of $160 million, that has a coupon of 7.51%.
There's other transactions, other 2011 maturities we're working on, and are out for bid right now.
The market is strong, and we're going to take advantage of that activity.
In addition, in April, we executed one year extension on our $1.5 billion credit facility, that takes it out to April of 2011.
And we currently have a zero balance on that line of credit.
Our average interest rate for the quarter was 5.69%, and the averaged fixed rate was 6.15%.
The interest coverage ratio was a very healthy 2.14 to 1 for the quarter.
And debt to total market capitalization today is 46%.
We recently declared a dividend of $0.50 per share on our common stock.
The dividend is payable in cash on September 8th, to stockholders of record on the close of business on August 20.
Now focusing on earnings guidance, we are reaffirming our previously provided FFO guidance range of $2.60 to $2.80, no change there.
Taking now a quick look at tenant sales.
Sales per square foot, was $421 for the year ended June 30, 2010.
That's up 3.4%, compared to year-end which was $407 per foot.
Looking at tenant sales, total tenant sales were up 3.3% for the quarter, compared to the second quarter of last year.
Taking a quick look at that by region.
Arizona was up 5%, the central region was up 2.9%, the eastern region was up 2%, northern California and the Pacific northwest was up a very strong 4.8%, and the southern California region was up 1.1%.
Again, on average, the total increase for the whole portfolio was 3.3%, compared to the second quarter of last year.
And with that, I'd like it turn it over to Art.
Arthur Coppola - Chairman, CEO
Thanks, Tom.
As you know over the past couple years, going to back to September of 2008 when the capital markets crashed, we had to begin to make some difficult decisions.
And as we move into the fall of 2008 one of the first decisions we had to make was the conservation of capital.
And the biggest place to conserve capital is, for us, is in our development program, and our redevelopment program.
And at that point in time, in September, October and November of 2008, we had 30 to 40 projects in our shadow pipeline.
Some of them were fairly imminent, some of them were under construction, and some of them were a little bit further out.
We sat down, and we said, all right, we're in a very capital constrained market.
We have a financial crisis, retail sales are plummeting, and we need to cut this back to mission critical.
And we cut it back to Scottsdale Fashion Square, as you know, which was opened last year very successfully, to Cerritos the completion of the Nordstrom relocation.
And we're now in the process of process of re-merchandising the old Nordstroms.
Finishing up on Northgate -- but most importantly, and the real key decision that we had to make, was Santa Monica Place.
And we had to make that decision in November of 2008, if we were going to open in August of 2010.
And it was a tough decision.
It was a lot of money.
It was $275 million.
And there was a perception in the marketplace that the Company had liquidity issues, given the debt that was coming due in the following year, an amount of mortgage debt to the point, and also given the term notes that were coming due, and just the uncertainty in the whole marketplace.
But we sat down, and we made the tough decision.
That in spite of the fact that luxury retail was plummeting fast, and we had plans for luxury retail at Santa Monica Place -- that Santa Monica Place was a such a unique location, probably in our view, the single best piece of real estate to build upon, that we have ever come across in the United States.
That we had to go forward.
It was a tough decision.
We made it, and today I'm thrilled that we made it.
As you know we also then, in February, March and April of 2009, made some tough decisions on the capital front.
And on our last call and throughout, we've outlined what those steps were, what we did and how we executed culminating in our April 14, equity offering.
And that's resulted in us having a tremendously strong balance sheet today, lots of optionality to take care of opportunities, lots of cash on the balance sheet, the lowest debt to market cap, and best coverage ratio that we've ever had.
Santa Monica Place opened on Friday, three days ago.
It feels like it was a month ago.
It's just been incredible.
The typical shopper reaction is, oh my gosh, this is Disneyland of retail.
Myself, and Randy is here, we spent as much time as we could with shop owners and retailers, as we tried to fight our way through literally, roughly, probably 100,000 people at least per day on Friday, Saturday and Sunday in that shopping center.
And they were all just overjoyed.
We have many anecdotals from various retailers, but it is hard to extrapolate from three days.
But just -- for example, the food court, we had a tenant in food court, in a kiosk, did more business in one day than any of our full-line restaurants, which is kind of a testimony to the food court.
And all of our full-line restaurants couldn't be more elated.
Most of them, and they are all chef-driven, six of them, most of them wish that they could -- but they, the ones that only took one location, wished they had taken two.
The restaurant interest that we're getting from all over the country is just unbelievable.
From an apparel and retail viewpoint, and from Bloomingdale's viewpoint, they're all just thrilled.
Virtually across the board, you had retailers saying, best store in my chain, doubled, tripled my plan.
And all of them were saying, you've created, meaning Macerich, a new destination in Los Angeles, a must-see place.
If an international tourist or tourist is going to come to LA, and sometimes they think maybe they have to go and see Disneyland, or they have to go see Universal City.
Well, Santa Monica Place, and the Third Street Promenade, along with the Pier Venice boardwalk, and we're in the epicenter all of that, it is now a must-see destination.
It is, without question, the most exciting retail venue that I personally have ever been to in the United States.
And I have been to almost every one of them.
It's clearly going to be, the most productive, in terms of sales per square foot, shopping mall that we own.
I have previously indicated to you, that I felt that sales should reach a $1,000 a foot on maturity.
I could be pretty low on that number.
We'll just have to see, you can't extrapolate from three days.
But, we feel very, very comfortable.
Santa Monica Place is unique in so many respects, and that's why we pulled the trigger.
We built Santa Monica Place basically off of cash on hand, cash flow, using our line of credit.
But now when we pay off the mortgage on Santa Monica Place in the next month or so, and we finish construction, we're going to own that asset, free and clear.
And it's nice to have an asset that is worth -- some analysts have estimated, and I would say they're conservative, $3.00 a share, $4.00 a share, maybe.
It's not even rolling through our numbers right now, in terms of share NAV.
It is first-of-market, in so many different ways.
It is the first Nordstrom, west of the 405, to service west LA.
And Nordstrom has been doing business in LA now for over 30 years, and it's their favorite market, southern California.
They've been dying for a location like this for years.
And our conversation with the family and the chief executives of Nordstrom, they just can't wait for the August 27 opening.
It is the first time that Macy's has ever exited a market, in favor of it's sister company, Bloomingdales.
Now when they merged with May company, they took some excess boxes, and added Bloomingdales at places like South Coast Plaza, Fashion Valley, places like that.
But they've never left a market with Macy's, and put in a Bloomingdale's that I can think.
I believe it's the first center to open with a Bloomingdale and Nordstroms as the anchors.
It is the first Bloomies SoHo concept.
It's called Bloomies So Cal So Cool, I think is what Michael calls it.
It's an incredible store.
You have to see it.
It's just unbelievable.
It's SoHo, but in a modern building design.
They have 18 foot ceiling height, and the layout of the merchandise is just, just fabulous.
It's the first time we've ever dedicated an entire floor to food.
A combination of the six chef-driven restaurants, the food court dining hall, which as I mentioned one food court tenant alone, did more than any one of our 8000 square foot restaurants, some of them are that big, in one day.
That is a testimony to what that food court might do.
It might be the most successful -- it could easily be, and probably will be, the most successful food court we own, and could easily be in the top handful in the United States.
It was a big bet, putting food up on that third level.
And today, I think most people believe that it's the most attractive element of what we do.
We've been having ongoing entertainment.
We've taken the street performers that currently are on the promenade.
And we -- because we have private property, and that's public property, the Third Street Promenade, we pick who our performers are.
We partnered with KCRW, which is a local public radio station, and they brought in -- they do a sunset spin on Friday night.
Anyway, all of this, is available in the social media.
I believe that it is available on our website, through various links, or it will be.
The numerous -- the media coverage has been unbelievable.
And it's going to be unbelievable.
And the interesting thing is, we have only just begun.
I mentioned the third level.
On the third level, we still have another sit down restaurant ready to open.
We still have two or three food court tenants that haven't opened.
We have the whole market, which is really -- if you think about the ferry market building in San Francisco, and our Chelsea Marketplace, it's that interestingly enough, the community is getting more excited about that than anything.
We held that off the market on purpose, and we're not opening it until November 15.
Because we knew that once people came to the property, and saw the traffic, and realized what they had, in the way of views, that the demand for a new concept of market, of the nature the ferry market building, in a regional shopping center, the demand then will become overwhelming.
And interestingly enough, a lot of demand now is coming from our restaurant owners.
These chef-driven restaurant owners who have great access to food resources that nobody else has access to, and that is why the restaurants are so good.
They all want to come in now, and open up a unit or two in there.
And then the thing we haven't been talking about, but now we're beginning to evolve our thinking, is that as part of a conversion of Macy's to Bloomingdales -- that used to be 150,000 foot building.
And Bloomingdales shrunk it down to 100,000 feet, two levels.
But we retained the third level, up on the dining deck for ourselves.
And it's been shelled out, and it's 50,000 feet.
We still -- we're going to wait and see what the great idea is.
We already got a half dozen great ideas, but we're going to wait for the optimum idea.
So you've -- it's hard to avoid the press, if you read anything, or listen to anything in the national media, or the local media, radio or TV.
This is clearly the shopping center of a decade.
If I look back five years, there's nothing been built like it in the US.
Period.
If I look forward five years, I can't imagine -- there's nothing on the drawing board that is out there.
For us it's a generational opportunity.
It's a generational development.
And again, we've really only just begun.
We still have Nordstrom to come and open August 27 -- the community can't wait for that.
We've got the market to open.
And then the -- and then we'll have the fine tuning to open.
We have logistics that we still have to work through.
The first couple of days of opening of this center, three or four or five miles from us, east from us, on the freeway -- on the Santa Monica Freeway, evidently, the powers-that-be, that run the freeway system, were running electronic reader boards saying, City of Santa Monica parking is full, period -- kind of like, don't even bother coming.
And there's thousands and thousands of parking structures - parking stall, besides the ones that we own.
We have a typical 4 to 0 ratio ourselves, but when you add in all the other garages up and down the Promenade, you probably have a 12 to 0 ratio.
Everything was full.
So we have logistics to work out.
Nobody ever has experienced the kind of vehicular pedestrian traffic that we've got here.
Three or four years from now, we're going to have the light rail system, that is going from downtown Los Angeles, and it terminate Katty-corner to the Bloomingdales.
About a couple of years from now, the City of Santa Monica is going to open an eight acre public park, immediately to the south of the 10 freeway, which is going to be a place to come for families.
They're going to build a pedestrian bridge, they hope, over the Santa Monica Freeway, to connect exactly into Santa Monica Place.
Again, remember, Santa Monica Place is at the epicenter of proven attractions, the Third Street Promenade, that has already been doing a $1000 a foot at it's peak, in over 250,000 or 300,000 feet a couple of years ago, The Santa Monica Pier, which is a huge tourist attraction, the Venice beach, the Santa Monica beach, and the Santa Monica Civic Center.
And now we are at the epicenter of it all.
We can't wait to have those of you who are going to join us -- join us for our October 5th Investor Day.
And this really shouldn't come as any surprise to any of you, because as you know Macerich's expertise, and our core competency is taking existing retail properties, and rethinking them, reimaging them and recreating them.
And we've done that time and time again.
This is the just the best one that we've ever done.
If you think back in recent history look at what we did at Queens.
Look at what we did at Tyson's Corner, right as we bought it, we added a 200,000 foot expansion, as we got rid of Penney, as we added an entertainment wing, and a theatre wing.
And that was tremendously successful.
We took a center we owned in Ventura, and virtually tore down everything but the anchors, and rebuilt a one level mall, to a two level mall, tremendously successful.
The Oaks, we doubled it in size, when we were able to get a couple stores back from Federated, as part of their merger.
The Scottsdale Fashion Square, we expanded it again and again.
Northgate, a complete redo that we've done.
And the list goes on and on.
And that's in our DNA.
Where we sit today on the development front and the redevelopment front, is that we have no shovels in the ground, other than finishing up Santa Monica Place.
But we got a lot of thoughts, for the future of Santa Monica Place.
We have really only scratched the surface of Santa Monica Place.
Our experience in great, great centers, is that is you have 30% or 40% of your retailers just do unbelievable business, and another 30% or 40% do really good business.
And then another 20 or 30% for whatever reason, they just miss the markets.
And you have the opportunity in a situation like that, to recycle those spaces.
And the one thing I can tell you, and we got a leasing meeting later on this afternoon, is that the word has already been put out.
Any retailer that is sitting on a lease, that they haven't executed, if it's not executed in the next 48 hours, the lease is retracted.
The markets rents at various places in the center are being doubled.
And that's just reflective of the fact that what we knew was going to be true, was true beyond anybody's expectations.
And again, we've only just begun.
Nordstrom hasn't even opened yet, the marketplace hasn't even opened yet.
And so, as we look at our pipeline going forward, we're carefully analyzing different projects.
Some of them are going to be major, some of them are going to be minor.
We've announced that we're recycling the Filine building at Danbury, and making $25 million and $30 million investment there.
We're going to see, like a 14% 15% return on that investment.
We're looking at a number of different opportunities within our portfolio.
We've had developers come to us, and cities come to us, already, and say, we want what you did at Santa Monica.
And of course, you have cities that are equally as difficult as Santa Monica has a reputation of being, coming to us and saying, if you're able to embrace the community of Santa Monica, and to deliver a project like that there, then we want you to come and talk to us.
So our future is very bright.
We don't need to go out and buy centers from others.
And that's going to be -- look, that's going to be a limited -- a limited source of opportunity, I think going forward.
Our embedded growth is in the retail that we own.
And fortunately 15 years ago when we went public, we decided to buy properties as we expanded from a base of only ten properties.
Basically, the basic premise was to buy properties in high barrier to entry markets, and to buy good properties or great properties that we could make greater.
And that's where we sit today.
We're carefully analyzing where the next opportunities are.
We're raising the bar again at Santa Monica Place, because again we have only just begun.
And the good news is, is that due to your support, and our equity offering in April, we have the balance sheet, and we have the cash on hand to take advantage of those opportunities.
So, if you sense a little ebullience and optimism, you are not misreading me.
I would like to open it up to questions.
Operator
(Operator Instructions).
We'll go first to Craig Schmidt of Bank of America Merrill Lynch.
Thomas O'Hern - Senior EVP, CFO
Hi, Craig, you were here.
Craig Schmidt - Analyst
Yes, great.
Good afternoon and or morning.
I just want to thank you guys.
You threw heck of party in Santa Monica on Friday.
I felt like I was at a resort, more than a shopping center.
But thanks a lot for that.
And my question is, I don't know if you've done any research on this, or have an opinion.
But what area is surrounding the Santa Monica Place will you be drawing that at a greater pace than you were when the old mall opened?
Has trade area grown?
And what areas might be delivering in stronger sale?
Arthur Coppola - Chairman, CEO
Sure let me take a stab at that and Randy may want to jump in.
The area that we're drawing from now, that we didn't used to draw from is 20 feet away from us, it's the Third Street Promenade.
When it was an enclosed mall, we weren't drawing from the Third Street Promenade at all, except for one thing, and one thing only, and that was our food court.
That was the first thing that -- that abutted the Broadway the deli, and Broadway the street.
And that is what you walked into, and the food court was always successful.
I mean, I think, we had people counters in that food court.
And we were running 16 million people a year through that food court.
And that was as we were closing the center down even, we were running that -- huge numbers.
But we were never getting business -- you were never seeing people from the Promenade into the enclosed mall, when you stood on top of the enclosed mall.
Today, when you stand on the third level of open air mall, having torn the roof off, that's all you see is, people coming from the promenade into the shopping center.
And by the way, I always maintained that the promenade itself, is an anchor through Santa Monica Place.
When you got 200,000 and 300,000 feet doing $800 to $1000 a foot, right next door to you, that is an anchor, just as much as Nordstrom and Bloomingdales, is an anchor.
Just as much as the amusement, Santa Monica Pier is an anchor.
So that's the first place right there.
Then along with that, the tourists.
Santa Monica Place without question, and I'm talking about -- this is coming from the retailers based upon who they're already selling to, and who have got a pulse on the market, they firmly believe that Santa Monica Place, itself in conjunction with the promenade, that Santa Monica Place will become a true destination for anybody visiting Los Angeles.
Not just the shopping destination, a destination, period.
It goes way beyond, as you know having been here, the shopping experience.
It's an experience itself.
It's a people experience, it's an entertainment experience, it's a view experience, it's a dining experience.
It's all of the above.
We originally looked at our market, and we to be safe, we said look, we should be able to draw from Malibu through the Palisades, through Brentwood, through Santa Monica, through Venice, Marina del Ray, and maybe drop down into Manhattan beach.
And we really felt we could do that.
And of course, the income level that are serviced there are unbelievable.
The consumer still having a tough time in the US, but not the consumer I just mentioned.
Anybody lives within two miles of the Pacific ocean, from Malibu to Marina del Ray, is generally just doing pretty fine.
So we counted on that, but I think what we're going to see, is that it's going to become a regional draw for a long distance.
I mean, I never counted on Beverly Hills.
You already have media people who live in Beverly Hills, say I can't wait to go out to the beach this weekend, and oh, by the way, go to the new Santa Monica Place.
I think we're going to be -- we have a merchant whose base is in west Hollywood, who says, I don't think there's any question that my west Hollywood shopper is going to come here.
And Randy, do you want to jump in in terms of trade areas that we might get, that we had not anticipated?
We were pretty conservative in the beginning, but I think the reach -- to establish what is going to be one of the three or four places, that is a must-see place to see.
I'm not sure I'd counted on that.
Randy Brant - EVP, Real Estate
I think one of the things that we're going to experience is a deeper presentation into the more mature customer.
Third Street Promenade, except for Fred Siegel, which is just off Third Street Promenade, had very little appeal to anyone but juniors.
With our tenant mix, we'll be bringing in the more mature and more well-to-do customers from Malibu, and I think all the way to Manhattan beach and Hermosa beach, the beach cities.
Arthur Coppola - Chairman, CEO
Randy and I were at the Bloomingdale's charity event, a few -- five nights ago.
And they limited it to 200 people, and it was a high dollar tickets item.
But they -- at their private shopping day on Thursday, and then on Friday, I mean they've got their highest consuming credit card customers for all of Bloomingdales coming to this store.
And then, of course, you have Nordstroms not even opened yet.
We know that Nordstrom is going to do something at this store, even though it's not a huge store, but it's a good size store with what -- is it a hundred?
Randy Brant - EVP, Real Estate
135,000
Arthur Coppola - Chairman, CEO
So it's big enough.
It's adequate.
They're going to do something really special.
And we have huge aspirations.
And people like Hugo Boss, I was talking to the manager of Hugo Boss yesterday.
And he said, we're doing really good.
But he said, so far, people are just so overwhelmed by the place, that they're just in awe of the beauty of it, that they almost aren't walking in the stores yet.
So he said, our typical -- we have quite a few high end customers, that we have personal shoppers for, that will come into the store once every two months, and spend a lot of money.
They're not going to come out on a weekend, when they know there is a 100,000 people there, and can't find a parking place.
They are going to find a way to sneak in.
But even yesterday there were quite a few celebrities that were noticed.
And, I guess, in terms of trade area, the word is it's going to be a destination for southern California.
Anybody that comes to southern California is going to have to come to Santa Monica Place if they want to get the full experience.
It's hard to say that about a shopping center, I've never been able to say it.
I don't know another shopping -- because there are very few of them, that you can say that about them.
Craig Schmidt - Analyst
Thanks a lot.
Arthur Coppola - Chairman, CEO
Go ahead.
Craig Schmidt - Analyst
Thanks a lot, and congratulations on your new mall.
Arthur Coppola - Chairman, CEO
Shopping center, retail, plaza, not a mall anymore.
Craig Schmidt - Analyst
I hear you.
Arthur Coppola - Chairman, CEO
I keep telling my wife and kids we tore the roof off it.
Quit calling it a mall.
Next question.
Operator
And we will move on to RBC Capital Markets, Rich Moore.
Richard Moore - Analyst
Yes.
Hello, guys.
With 97% of that mall leased, and Cerritos a 100% leased.
It sounds like you're going beyond Santa Monica, there's something good going on for retailers.
I mean should we read the recently leasing successes, as retailer demand starting to really come back?
Arthur Coppola - Chairman, CEO
Let me jump in, and Randy may -- will clearly speak more eloquently than I can.
We monitor the earnings reports, and earnings calls, transcripts.
I don't want my leasing team, wasting their time listening to a wrap of an hour and a half call, when they can read the transcript in 20 minutes.
But they have to read the transcript of every one of their accounts.
And we're an account based system.
All of our top retailers are making a lot of money.
Because going back to February of last year, they redid their business model, and that was a secular change.
And they redid their business model to make money on less sales.
And now they are very confident in their profit margin.
So they're really willing to pay a little higher cost of occupancy because they know, what difference does it make if I'm paying 16% of occupancy versus 15%, when I'm really confident on my profit margin on the other 84% of my sales.
If they are not sure, what the profit margin is going to be on the bulk of their sales, they don't want to pay you 10% as a cost of occupancy.
So I think you're seeing it with us.
You are seeing it with other big comparable names to us.
I think you've seen volumes pick up.
I know with us, you saw in the quarter leasing volumes pick up.
And look, I'm not calling it robust, but the retailers are making money.
They're talking.
They're clearly coming to the realization that the supply of great centers is limited.
And we are blessed to have well over 80% of our EBITDA.
And now that number has just gone up, because we've manufactured a AAA class of piece of EBITDA from Santa Monica Place, by getting that open for business.
They know that when they do business with us they're going to get proven winners.
And they know -- they know there's a limited supply of those.
So you are in a good position there.
Just in terms of retailer's attitudes, Randy, do you want to add some color to it?
Randy Brant - EVP, Real Estate
Well, you touched up upon it.
The retailers -- did change their business model.
They have lots of cash.
Every -- every percent of increase sales, a large percentage is going back into their pocket, and they want to expand.
And you said you wouldn't call it robust.
I would certainly call it robust in our top 25 and 30 shopping centers, very robust.
And the retailers are -- they want to make deal.
Richard Moore - Analyst
Okay, good.
Thank you, guys.
And then -- (Multiple speakers).
Arthur Coppola - Chairman, CEO
On the committed side, we said 92% leased, and 97% committed.
And I also mentioned earlier in the call, that the 5% between the leased and committed, if those guys aren't signed by Wednesday or Thursday of this week, we're back to 92% committed and leased as far as I am concerned, because those guys have just lost their leases.
Okay, thank you
Rich Moore
You had kind of mentioned that redevelopments, have once again come onto the horizon.
Would you see any ground up development at this point?
I mean you had talked a little bit at the ICSC about maybe outlet centers, that kind of thing.
But is there a regional mall ground up development or lifestyle centers?
Anything like
Art Coppola
We're
clearly going to open two major ground up development in the Phoenix,-Scottsdale marketplace in the next ten years.
I can't predict when they're going to open.
If I had -- if you made me dial it in, I'd say somewhere between four and seven years is when they'll open.
And may be one of them will open three or four years from now.
One of them will open five or six or seven years from now.
We have got to wait until the Phoenix marketplace really begins to come back.
And that's when you're really going to be able to get the rents.
It will be silly to build something, and lease it into a headwind, on a piece of property, an irreplaceable piece of property, and the two sites.
One in particular, the north Scottsdale site we have, two of them, they are irreplaceable, at Scottsdale Road and 101 And it'd be silly to build something before its time.
So those are the two ground ups.
We are being approached by other folks.
But it's mainly in the redevelopment arena.
And again, I want to go back to the redevelopment.
And I mentioned some of the examples of the bigger redevelopments, the Queens of the world, and the Oaks doubling in size.
And now Santa Monica Place.
I mean, that -- we've been doing that for a living for 35 years.
And it was only two years ago, that we basically said in our case, other than these four, we're putting everything on hold.
Now that we've completed Santa Monica Place.
We've got our balance sheet in order.
We've got cash on hand.
We've got the talent here, and we're sitting on a huge winner.
When -- retailers love winners.
And there isn't a retailer in Santa Monica Place that isn't saying, my gosh, your people are the best people I've ever worked with to get my store open, in a difficult environment, in terms of getting certain approvals from certain agencies.
They had to deal with state agencies, coastal commission, all kinds of people.
City of Santa Monica actually, at the end of the day, was tremendously cooperative, at the end of the day.
That's our DNA -- is redevelopment.
So it's timely now to really revisit that.
And that's where -- that's where the big value creation is on, because you've got a proven commodity.
We knew the day that we broke ground on Santa Monica, it was going to do a $1000 a foot, because the Promenade was doing a $1000 a foot.
And it was -- no reason to believe that in a properly conceived extension of the Promenade shouldn't do as well.
Now, I will admit that putting all of those restaurants, and all that food on the third level, that was a risk.
But we believed in it.
We had -- we went -- Randy and his team, they went out and got six major chefs to open terrific concepts, and the architectural design -- Craig's seen it -- and when you all see it October 5th, I think you will love it.
And the best design that we have is, we arranged for Pacific Ocean to be about 200 yards away.
And the beautiful sky to be open above us, by tearing the roof off.
Richard Moore - Analyst
Okay, good.
Thank you.
And then if I could real quick, I know you're not going to spend $600 million -- the rest of your cash on redevelopments.
Do you have any -- any plans for the $600 million that you have on the balance sheet?
Arthur Coppola - Chairman, CEO
Yes, we're going to treat it as really precious long term equity capital.
We are not going to feel compelled to spread invest it.
It is painful to see earnings less than 0.5% on it, in the meantime.
But my friend, Milton Cooper, said to me one day in the toughest of times, eighteen months ago, he said, you can never be too thin, you can never be too rich, and you can never have too much equity or too much powder on your balance sheet.
And he's right.
And who knows where the economy is going?
Richard Moore - Analyst
Okay.
Arthur Coppola - Chairman, CEO
We can always use it to further un-encumber the balance sheet.
And then take unencumbered assets as mortgages come due.
And then take those unencumbered grade assets, and that could be your dry powder for when the next big opportunity comes through.
So we're assessing everything.
I think once we go through a complete reevaluation over the next 30 days, of the reality of our redevelopment pipeline.
And the possibility, and even though I said don't expect any acquisitions, and the possibility of maybe something happening in that arena.
Then we'll evaluate whether or not it makes some sense to maybe use some of that capital, and just pay down some of the debt, including debentures, including mortgage debt, things like that
Richard Moore - Analyst
Okay, good.
Thanks.
And Tom when is the Q coming out?
Thomas O'Hern - Senior EVP, CFO
Today, Rich.
Richard Moore - Analyst
Okay, great.
Thanks guys.
Operator
Next we'll hear from Michael Bilerman with Citi.
Michael Bilerman - Analyst
Yes, good morning up there.
Quentin Velleley is on the phone with me as well.
Maybe Tom sticking with you, can you sort of walk through -- I think you sort of reiterated guidance, $2.60 to $2.80, a $1.22 year-to-date, sort of leaves a pretty wide range for the back half of the year.
Can you sort of highlight where your comfort level is within that range?
And I know there's a lot of seasonality within that range -- but on average, it would seem -- how do you sort of get from point A from this past quarters results, up to point B, which would be implied second half FFO?
Thomas O'Hern - Senior EVP, CFO
Well I think, for starters, Michael, you've got the impact of Santa Monica coming on line.
We've got $7 million or so of NOI coming in from that asset just for this year.
We had a variety of things happen.
We had some swaps burn off in April that were pretty expensive.
And so we're going to pick up some benefits there as it relates to interest expense.
Our re-financings are rolling through.
That's going to really provide a pretty significant benefit.
I mean we got some loans and coupons at 7%, even 8% that have been re-financed, and we haven't gotten the benefit of that yet.
So that will flow through the second half.
And then, obviously, we've got a lot of seasonality.
We've recognized virtually no percentage rent until the fourth quarter.
And that's as a result of the accounting rules, where you can't recognize it, until you exceeded the annual break point.
So we typically always had a lot of seasonality, and this year will be no different.
Plus you will have the impact, the positive impact of the re-financings, the lower coupons, as well as Santa Monica opening.
So I think if you --
Arthur Coppola - Chairman, CEO
Northgate's has been growing into itself this year.
The Oaks has had some further gains.
Cerritos has had some gains moving into the year.
So, there are redevelopments that still were lagging through this year, and are coming online gradually through this year, especially Northgate.
Thomas O'Hern - Senior EVP, CFO
So Michael, if you took the midpoint of the guidance $2.70, and subtracted out the FFO year-to-date through June, which was a $1.22.
And then the balance I'd say, would be split 47% or so in the third quarter, and the balance 53% in the fourth quarter.
Michael Bilerman - Analyst
Okay, so it would it be like around $0.70 to high 70s in the fourth quarter.
I guess it's just that -- it's that ramp going from 57 reported in this quarter, up to 70 with -- on a 140 million share base, that's a pretty big dollar increase.
And I know Santa Monica comes on, but I also thought that you were going to stop capitalizing interest.
So I think it would be -- while it would drop to the bottom line, it wouldn't be as big of an impact right?
Thomas O'Hern - Senior EVP, CFO
Well, you are picking up a lot of that You are going to pick up the percentage rent, especially leasing the bulk --- especially leasing those in the fourth quarter.
And historically, we've also have a bulk of our lease terminations revenues comes in the third and fourth quarter.
And that's a guess.
That's a bit of a guess.
Last year, I mean we had $18 million of lease termination revenue that came through in the third and fourth quarter, that's not in the first two quarters.
So historically that's been somewhat seasonal as well.
So, obviously we're comfortable with it, Michael, or we wouldn't have reaffirmed guidance at that level.
Michael Bilerman - Analyst
I was just trying to be very specific, with the Street, in terms of what's -- sequential, in terms of the ranges, in moving up $18 million.
Just wanted to make sure that we understand the breakdown of what's driving in sequential increase in FFO.
At least your (inaudible) involving has been very light year-to-date, at $3 million.
Arthur Coppola - Chairman, CEO
That matches where we were last year almost exactly.
Michael Bilerman - Analyst
And so you expect a bigger second half?
Thomas O'Hern - Senior EVP, CFO
It's -- it's hard to say.
I mean historically, that's what we have always seen.
I mean we may -- that's part of the reason we have a wide range, is because certain things such as lease termination revenue are less subject to prediction than other things.
Michael Bilerman - Analyst
I just want clarification.
You talked about average base rents in portfolio, and you give the detail in the supp.
Both consolidated and the unconsolidated were up, relative to year-end.
But they actually fell a little bit modestly from the first quarter.
And I know you mentioned the leasing spends were positive, so I was just trying to figure out, what was -- what would of caused the average portfolio base rents to decline sequentially on a trailing 12 months, if the lease spreads were positive?
Thomas O'Hern - Senior EVP, CFO
Well, the lease spreads were positive on average.
On wholly-owned assets, they dropped slightly.
At joint ventures were up, fairly significantly.
And I will have to get back to your question on average rent, if the question was how come average rent dropped between now and year-end.
I actually think it was up slightly.
Michael Bilerman - Analyst
It was relative to year-end.
It actually fell sequentially from the data in First Q.
Thomas O'Hern - Senior EVP, CFO
I'll have to get back to you, Michael, I don't have that in front of me.
Michael Bilerman - Analyst
Alright, thank you.
Thomas O'Hern - Senior EVP, CFO
Thanks.
Operator
Christy McElroy from UBS, has the next question.
Christine McElroy - Analyst
Hi, good morning.
Congratulations on Santa Monica.
Looking forward to seeing it.
Arthur Coppola - Chairman, CEO
Thank you.
Christine McElroy - Analyst
Just with regard to -- just following up on Michael's question, with regards to your capitalized interest.
I think it was $8.8 million in the quarter.
Can you break out how much of that will start to get expensed, now that Santa Monica and Los Cerritos are coming online, Q3, Q4.
And the just for the rest of it.
What other projects are you capitalizing interest on currently?
Thomas O'Hern - Senior EVP, CFO
Well, Santa Monica obviously the biggest one.
And we've got roughly 80% of the tenants are open right now.
So some of that will continue, Christy.
Now we've got a variety of other projects, including Danbury and other locations, where we've bought the department store buildings.
There's quite a few locations.
I mean we can't go through everything here, and we typically haven't done that.
But the bulk has been Santa Monica, of the total.
Christine McElroy - Analyst
So, roughly call it 60% to 70% of it, will start to get expensed?
Thomas O'Hern - Senior EVP, CFO
Well, of the Santa Monica piece.
I would say of the $8 million, will probably be reduced by $4 million.
Christine McElroy - Analyst
By $4 million, okay.
And just following up on Danbury, I could be wrong, but it seems like you started to do some work there.
Can you confirm that it is Dick's and Forever 21 taking the old Filene's space?
And do you have a replacement tenant already lined up for the old Forever 21 space?
Randy Brant - EVP, Real Estate
The answer to all three, this is Randy, is yes.
Christine McElroy - Analyst
Okay.
Who is taking the old Forever 21 space?
Randy Brant - EVP, Real Estate
I don't have that in front of me, I know that it's committed.
Christine McElroy - Analyst
Okay.
Randy Brant - EVP, Real Estate
And the fact, that it is not signed
Christine McElroy - Analyst
Got you.
And then given that your sort of out there, looking at potential acquisitions, can you provide some color as to what you're seeing sort in terms of opportunities and pricing.
And just wondering if you looked at Pearlridge in Oahu?
Arthur Coppola - Chairman, CEO
Yes, we passed on Pearlridge in December three or four months before it came to the market, because it's owned by our partner, Northwestern Mutual.
And the reason we passed on it is, not because it's not a very, very, very solid asset.
It is a very solid asset.
But we just couldn't get our arms around owning that as our only asset in Hawaii.
And that's why we passed on it.
We also have a member of our Board of Directors who used to be the Chief Investment Officers at Northwestern Mutual.
Sometimes you can know too much about an asset.
But I think it will be a fine acquisition for whomever might buy it.
It just didn't make sense for us.
And we're very stingy about how we're going to approach our opportunities.
And I would definitely not model any acquisitions, of any kind into our numbers, any time in the near future.
Christine McElroy - Analyst
But just in terms what else you're sort of seeing there, is there just sort of nothing?
Arthur Coppola - Chairman, CEO
Zippo.
Christine McElroy - Analyst
Okay.
Thank you.
Operator
We'll go on to Ian Weissman with ISI Group.
Ian Weissman - Analyst
Ah yes, good afternoon.
Question on Valley View Center, I know -- I read recently in the Dallas press, that you guys hand the keys back on the property.
Just wondering if you could walk us through that, and tell us maybe what the NOI on the property was, given that you had about $7 million of debt service.
Thomas O'Hern - Senior EVP, CFO
Yes -- no, I would be happy to go through that with you, Ian.
Valley View is in Dallas.
It's a center, we had a $125 million CMBS loan that matures in 2011.
Subsequent to the time we bought that center, there's been a huge growth in the amount of retail space in the Dallas markets.
It's gone from seven regional malls to ten regional malls, from 9 million square feet to 13 million square feet.
And the over-building in that trade area pretty significantly and adversely affected Valley View mall.
That combined with the consolidation of the department store business, really left us with two vacant anchors, and a pretty low occupancy rates.
So we made a very difficult decision recently, and that was to turn the asset back to the special servicer.
We've seen the NOI decline to it's current level which is $5 million, and that's on a $125 million loan.
And although the loan still remains on our books today, and we expect to have title transferred and debt relieved before year-end.
It's currently in the hand of receiver, and they are moving to make that transfer.
Ian Weissman - Analyst
Okay thank you very much.
Thomas O'Hern - Senior EVP, CFO
Thank you.
Operator
And Paul Morgan, from Morgan Stanley has our next question.
Arthur Coppola - Chairman, CEO
Hi, good morning.
Paul Morgan - Analyst
On the redevelopment that you talked about, is there any additional detail you can -- like kind of what centers -- for example, Tyson was a big project that you spent a lot of time planning, and whether the Metro is under construction, whether there would be something there, or any other areas where you can see kind of large scale investment in the properties, in the next two or three years?
Arthur Coppola - Chairman, CEO
This is Art.
I would be happy to amplify on that.
Again we are carefully taking a look at that over the next 30 days.
One of the big opportunities is the 50,000 square feet of space that is sitting on top of the Bloomingdale's building at Santa Monica Place, that we have -- that really nobody knows about it.
When I told a couple of retailers about it the other day, they said, you still got 50,000 feet here?
And we said, yes.
It's the third level of the old Macy's building.
And if we wanted to, this dining deck could be 50,000 feet bigger.
So that's going to be one area of focus, and that's in a center that's a a huge winner.
We talked about Danbury, huge nice little redemise of the Filene's building, and we're looking at some other things there.
Broadway Plaza, we're under construction on Neiman Marcus right now.
Now that construction by itself, is the addition of Neiman Marcus, which is great.
And Nordstrom is taking one of their top five stores in the world and expanding it.
But we're also working with Macy's to work out some plans for them to redo their store.
We're talking about the possibility of adding Bloomingdale to that center.
We're looking at the possibilities of an expansion of that center.
Because when you've got line ups, like a new Neimans, one of the top three Nordstrom anywhere, Macy's.
And then some great current specialty shops.
And you've got some inefficient parking structures, you've got an opportunity to completely revisit them.
Broadway Plaza could be our next Santa Monica Place.
Not in terms of its entertainment per se, because it's more of button collar environment than Santa Monica is.
But it could be huge.
The Pacific View, we have been searching for the right combination up in Ventura to expand an area north of the -- of the enclosed mall area.
And we've got roughly, what is it, about 100,000 feet of space that we are either demo'ing and redoing, Randy, -- and we're -- who did we just make deals with?
Trader Joe's?
And BevMo, I think.
And anyway, and a couple -- and Staples -- so that type of thing we're doing.
Nordstrom --- at Cerritos, we relocated Nordstrom to the old May company building.
And now we have a wing of shop space, and the old Nordstroms building, so in total it must be 180,000 feet of space to rethink and redo at Cerritos, big opportunity.
Tyson's corner, we've got -- we just perfected a reapproval of the propers with the county, Fairfax county, with respect to residential, the office, and hotel components of Tyson's Corner.
And based upon some agreements that we reached with the county, and some rethinking on the design, we now have green-lighted the project to move forward with architects and brokers on the residential component, and on the office component.
And my anticipation would be, that that project would probably make sense to deliver around the time that the rail lands at Tyson's Corner, which will be around the end of 2013, 2014.
You're talking though about a very significant project.
You're talking about $400 million to a $500 million project there.
And based upon the returns I'm seeing, they are very acceptable residential returns, in the -- compared to other residential rental returns.
And the office returns looks to be acceptable.
I know that Tyson, I know the northern Virginia Fairfax County has got vacancy in the B class of office space, but that is also most of the office space they have.
We intend to build a world class office tower, and only build it when it's pre-leased.
So that's an opportunity that's out there.
We're working out final details for Nordstrom to expand their store at Corte Madera.
And that's a fabulous market (inaudible).
It's a center that does over $500 a square foot.
And we could easily be looking at 30,000 to 40,000 foot there.
We've got some final work and expansion to be done at places like the Oaks.
We're looking at redoing the outside retail at Flat Irons Crossing, in the Boulder -- Boulder Turnpike area.
And there are a number of these projects, Panorama City, we're looking at a complete redo.
We're looking at a future expansion of Queens Center.
We're looking at adding an expansion to Biltmore Fashion Square.
We got a -- we're working on a prelease with a credit tenant who'd do an office tower there -- actually sometime for delivery four years from now.
But it would be preleased mainly to one user.
We've got 15 acres of land to the north of Scottsdale Fashion Square, that we're in the process of getting entitlements on.
A lot of our work is going to be in the entitlement arena.
But these are all real projects and they're at locations, that are great locations.
And again, that's where we make our big money, is taking great real estate and making it even better.
So, Washington Square, up in the Portland marketplace.
We have that whole free standing area of building pads, to the north of Sears to be redone.
South Town, we're looking at adding an additional anchor that could be very exciting up in Sandy / Salt Lake City area.
And so -- and Willard's Point -- we're in the running to be considered to be the master developer of Willets Point, next to Shea stadium.
When and if the city of New York City is able to finalize the eminent domain proceedings that they are going to have to do, which they seem to have the fortitude to do.
So, and then we've been approached by a couple owners, frankly of some great shopping centers recently, where they've said, we've seen what you've done in different places.
And now we've seen Santa Monica Place, and we want you to do that in our city.
And we've had one major city come to us at the grand opening on Friday, and say we want you to completely redo our downtown.
So I think that the pipeline could be very good and very robust.
Looking in the rear view mirror, it's easy to see that's what we do.
And looking through the front windshield, it's easy for us to see that's where the big opportunity is for us.
Not acquisition, it's redevelopment.
And ultimately, a couple of developments.
But it's redevelopment; taking good assets and making them great, and taking great assets and making them greater.
That's what we specialized in, more than anybody in the business for 35 years.
And right, now we're coming off the best one we've ever done.
Paul Morgan - Analyst
That's great.
Is it too early for you to kind of have a feel for the dollar volume in investments, say for 2011 and 2012 that you might have from kind of ?
Arthur Coppola - Chairman, CEO
It's too early -- trust me I would love to give you real exact numbers and returns, and I'd love to give them to you yesterday.
But it's too early to give you those numbers.
But clearly, I threw out some exemplary numbers on Danbury.
I threw out on Tyson, that I felt that we were going to achieve above market development returns both on the office component and the residential component, when we delivered that $400 million to $500 million expansion.
We do have a partner there, so it's 50% of that, and roughly 2014 or so, whenever the market is right.
But we will give you those numbers, as they develop.
Some of them are going to be very major.
And some of them -- Ventura, the expansion up in Ventura is a $15 to $20 million expansion, but it is a 15% to 20% return on it also.
So some of it is fine tuning, and some of it is quite significant.
So what we see a lot of our opportunities, and the -- and we're now ready to go ahead, and dust off the old pipeline, but also embrace the new one.
Paul Morgan - Analyst
Great, thanks.
My other question is just on leasing, I mean -- can you comment on where we're seeing some of the pick up in the occupancy.
I mean -- is it -- new concepts, some larger store formats, mini anchors types of things, and then maybe some color on the A's versus the B's?.
Randy Brant - EVP, Real Estate
This is Randy.
It's been a combination of all those things.
We've had a lot of activity from H&M, as they move west.
We've been able to procure a number of deals, and there's lot of interest in deals that are not yet executed.
New concepts like Charming Charlies is expanding an accessory concept, AllSaints.
It's been -- a lot of the core retailers are beginning to expand again.
So it's really been a mixed bag.
Paul Morgan - Analyst
And any differentiation -- we keep hearing a lot about it, I guess, between between As and Bs?
Arthur Coppola - Chairman, CEO
The retailers always want the As, But we've had some good occupancy gains and activity in the Bs, don't you think Randy?
Randy Brant - EVP, Real Estate
Absolutely.
The As and Bs have been very strong.
Paul Morgan - Analyst
Okay, great.
Thank you.
Arthur Coppola - Chairman, CEO
Fortunately, we only got 4% to 5% maybe of our EBITDA comes from Cs
Paul Morgan - Analyst
Great, thank you.
Arthur Coppola - Chairman, CEO
Thank you.
Operator
And move on to Omotayo Okusanya, with Jefferies & Company.
Arthur Coppola - Chairman, CEO
Hi.
Omotayo Okusanya - Analyst
Hi, good afternoon.
Congratulations on Santa Monica Place.
Arthur Coppola - Chairman, CEO
Thank you.
Omotayo Okusanya - Analyst
Can't wait to see it on the 5th.
We'll definitely be there.
In regards to the quarter, want to focus a little bit more on the cost side.
And just operating expenses, G&A have come in meaningfully since first quarter, and just curious in regards to the back half of 2010, how sustainable that will be, especially on the G&A side?
Thomas O'Hern - Senior EVP, CFO
The -- your question was that the G&A was higher in the quarter, and is it going to be higher going forward?
Omotayo Okusanya - Analyst
No, the G&A was lower in the quarter.
Thomas O'Hern - Senior EVP, CFO
Lower in the quarter?
I'm sorry.
Omotayo Okusanya - Analyst
Operating expenses, too, were much lower than I was expecting.
So you still seem to be doing a very good job of cost containment.
Tom O'Hern
Yes, Tayo, in the G&A, you kind of have to look at the full-year together, because some of that is timing difference on certain G&A cost like audit fees, and annual report production and things like that.
But year-to-date, we're about at $11 million.
And that compares to $10 million last year.
So I would say on an annual basis, quarter-by-quarter, we're going to run between $5 million and $6 million a quarter on average.
And that is probably a good run rate.
One of the reasons you see a drop in operating expense, part of it is cost containment.
Part of is also is that we have a total four major assets, that moved from being wholly owned last year to being joint ventures.
So they no longer show up on the shopping center expense line.
They're included in equity income of unconsolidated joint ventures.
Omotayo Okusanya - Analyst
Got it.
That explains that.
Alright, appreciate it.
Thomas O'Hern - Senior EVP, CFO
Thanks.
Operator
And next we will hear from Jay Haberman with Goldman Sachs.
Jonathan Haberman - Analyst
Good morning, everyone.
Art, could you touch on asset sales, and what you are thinking about?
I know in the last few calls, you talked about your top 50 assets and 80% NOI.
But are you thinking about, with all the capital on the sidelines, perhaps selling some of those lower tier assets and becoming a little more self-funding, so using those proceeds to fund future redevelopment, or even pay down some the converts coming due?
Arthur Coppola - Chairman, CEO
Well, I think I've been consistent in our projections of what we would like to achieve.
We're in a rare position, with 80% of our -- in excess of 80% now, as you bring Santa Monica Place on line, free and clear especially that adds another couple of points of our income coming from A assets.
And look, we want to get that to over 90% of our income, coming from A assets.
And that's going to come from a combination of manufacturing the income, either through releasing spreads, occupancy gains, expansions, redevelopments, developments, but it's also going to come from eliminations and disposition.
Valley View unfortunately is our first situation, where we've had to take an asset and give it back to CMBS lender.
But it is equivalent of selling an asset that is in serious decline, at a four cap rate.
So from NAV viewpoint, it's pretty attractive.
To the extent that we can find, look at -- in late 2006 -- debt markets drive buyers of Cs and Bs.
If buyers can borrow lots of money at low interest rates, and leverage up with mez debt.
Then your market for Bs and Cs gets much deeper.
So now -- that's one thing that might occur, and that's what we had at end of 2006.
And we took advantage of it.
And I think we sold $600 million of Bs and Cs, and really as they turned out, mostly Cs.
Would I do that again, would I do it today?
Absolutely.
And so, to some degree, I think some larger institutional investors are going to find themselves realizing, that there just aren't very few As available, and they are going to be willing to invest in the Bs.
I've never really seen it happen yet per se, but if it does happen, are we going to be willing to participate in that?
You'll know we're going to suffer short term earnings dilution.
I mean, if you're selling asset at 11 or 10 multiple, even B or C, and your Company is trading at the higher multiple, it's going to be short term diluted -- dilutive.
But it's the right thing to do, from an NAV viewpoint, and that's what we do, is create value.
So, yes, we would love to do it.
I do believe that the market is going to evolve through that.
And if it does, we will not hesitate.
Jonathan Haberman - Analyst
And I guess just on Santa Monica, with the plans to pay off the existing mortgage, do you plan on eventually putting debt on that asset, and would that potentially be a source for a joint venture?
Arthur Coppola - Chairman, CEO
Neither one.
No debt, no partner, any time soon.
Because this is an asset.
You don't finance and you don't sell a piece of an asset, until it's relatively stabilized.
We are scratching the surface at Santa Monica Place.
There's so much growth to come, in terms of some things that I mentioned.
But also like I said, when you have a great asset, you actually have turnover, because you get people -- they started paying high rent, $150 a foot.
And they're only doing $600 a foot, which is pretty good in most places.
And they're not making any money.
And then you've got 30% or 40% of our tenants doing $2000 a foot.
And you got a line up of people who know they can do $2000 a foot, and want to take that space of the guys that are doing $500 or $600 a foot.
So there's way too much growth at Santa Monica Place to come, with the opening of Nordstrom August 27, with the opening of the Marketplace November 15.
We've got that 50,000 held in reserve, with the rollovers, and the business development sponsorship income, way too much upside in the next couple years even to think about financing in any way today.
Might that change?
Sure.
Would every lender in the world love to have that loan, yes?
Would every partner in the world love to own a piece of that center?
Yes.
But you don't do that until you've got a little more stabilized.
And I mean that from a growth viewpoint, not from a downside viewpoint.
Jonathan Haberman - Analyst
Fair enough.
And lastly for Tom, just on the floating rate debt that matures over the next year or so, is there a anticipation to turn most of that out?
And just give us a range of where you see floating rate as a percentage of total debt, moving in the near term?
Thomas O'Hern - Senior EVP, CFO
Well we've seen that historically seen that between 15% and 20% in our portfolio.
Obviously, that stuff is easier to prepay, than some of the fixed rate that have penalties involved.
But I can see over time, that pretty much settling out at 15 to 20%.
Jonathan Haberman - Analyst
Great, Thank you.
Congrats on Santa Monica.
Arthur Coppola - Chairman, CEO
Thanks, Jay.
Operator
And from JPMorgan, Michael Mueller.
Michael Mueller - Analyst
Yes, hi.
I know you think there's a lot more growth to come from Santa Monica down the road.
But if we are looking at the initial underwriting performance that you've talked about, I think I penciled it out at about a 9% or 9.5% return.
When do you hit that stabilized run rate?
Is it the first part of 2011, is it by year-end 2010.
Arthur Coppola - Chairman, CEO
I would say it's probably the end of the first quarter of 2011, my guess, rough.
By the way I noticed lately that some people are including capitalized interest in the return on cost, and some people are not.
We include capitalized interest.
If you took it out, the net return is more like 10%.
In any event, given that we're going to be so patient.
You heard me say that we are leased and committed -- leased -- leased -- under lease, and then 97% committed.
And that you heard me say earlier, anybody that has a lease out for signature, that hasn't signed it.
If it's not signed by the end of this week, that lease is going to get retracted.
And we're going to be so patient.
Like I said market rents in some parts of the center have just doubled, as far as I'm concerned.
And stabilization, I don't know.
But it's clearly going to hit that number by the end of the first quarter of next year.
But that again is really only scratching the surface.
So much yet to come.
Michael Mueller - Analyst
Okay.
Got it.
Okay.
Tom, -- and going back to
Arthur Coppola - Chairman, CEO
And this is the one center, excuse me, where you are actually going to have percentage rents that were never in our numbers, because we don't project percentage rents.
But with these kind of volumes, you are going to see percentage rents, and they are really going to be meaningful,
Michael Mueller - Analyst
Okay.
And,Tom, going back to the lease term, how much was embedded guidance in your $2.60 to $2.80?
Thomas O'Hern - Senior EVP, CFO
We used historical average of last four years at $16 million.
Michael Mueller - Analyst
Okay
Thomas O'Hern - Senior EVP, CFO
And again, just for frame of reference, we had $22 million last year.
Michael Mueller - Analyst
Got it.
Okay.
And then last question, just going back to the topic of acquisitions.
And I know it seems like the focus is more on the redevelopments at this point.
Just think, if we would of gone back to the last first quarter conference call, commentary around there, seemed to be a little more bullish about acquisitions, whether it was buying out partner interest, or just something that may pop up from just pure third party.
Just curious as to what caused the thinking, from at least where we are sitting, seemingly change a little bit over the past three or four months, to the point where it seems like that's on the back burner?
Arthur Coppola - Chairman, CEO
Well, two things.
We had a number of partners that were interest in monetizing their interest towards the middle part of last year, to the end of last year, and even into the first quarter of this year.
And they've observed two things happen.
One, the retail marketplace, sales have improved.
People's view on retail have improved.
Scarcity value of regional malls have come back, because people realized that General Growth is not going to be liquidated, and broken up into pieces.
And going back to 18 months ago, there were...
there was a whole camp of investors out there, that were of the belief that we were going to have 200 centers hit the market all at once.
And it was going to flood the marketplace, and raise cap rates and lower values.
That didn't happen.
The other thing that didn't happen, is that the Company remained independent.
Had a certain company that was trying to buy that company, bought that company, undoubtedly, they probably would have ended up maybe selling off some assets.
And we could of, maybe been somebody that they might have wanted to have talked to, as part of maybe, meaning like for anti-trust issues, so who knows.
So, each of those things have happened.
And I would also say that -- I guess the main thing is, is that the people that we're thinking about may be selling, have realized that what they're sitting on, is in their view - they've come to the belief that it's more valuable than what they thought it was.
So it's just -- at this point I just -- I have to be very agnostic.
And I would rather surprise you on the upside.
But I probably shouldn't minimize the fact that I think a lot of people believe that there was more than a 50% probability, that Simon's bid was going to be successful in buying General Growth.
And I think a lot of people believed that if he bought them, a lot of assets would have to be spun off to satisfy certain anti-trust issues.
And I think we believed, that maybe that we would have been a buyer of some of those assets.
And that wasn't a small dollar number.
Michael Mueller - Analyst
Okay.
And actually last question, Tom what's a normal working cash balance, where you would see yourself just carrying because you have what $600 million on hand?
Thomas O'Hern - Senior EVP, CFO
Yes, normally we probably would have $50 million to $70 million on a consolidated balance sheet.
And then a $50 million to $60 million on JVs.
Michael Mueller - Analyst
Okay, great.
Thanks.
Thomas O'Hern - Senior EVP, CFO
Thanks Mike.
Operator
And Vincent Chao of Deutsche Bank has the next question.
Vincent Chao - Analyst
Hi, everyone.
Just a couple clean up questions.
Thinking about the line of credit coming due in April 2011, what do you guys think of in terms of size, in terms of (inaudible) today (inaudible).
Arthur Coppola - Chairman, CEO
Vincent, well those are conversations, we're going to have in the coming weeks with our bank group.
The capacity now is totally available at $1.5 billion.
So we could see us downsizing it, obviously we've got cash on the balance sheet.
But if we were to make a decision today, I would have to say it would have to be a $1 billion, possibly less.
But we'll see.
We don't need to make that decision right away.
We' got a great bank group and a lot of support from them.
And they're eager to recast it, and move forward.
And so that's a conversation we're going to have over the next three or four months.
We'll be able to give you better guidance on that on the next call.
Vincent Chao - Analyst
Okay, and then just on Valley View Center, until that gets transferred, are you guys subject to sort of a higher rate term period?
Thomas O'Hern - Senior EVP, CFO
No, there's not.
Vincent Chao - Analyst
No default rate on that?
Thomas O'Hern - Senior EVP, CFO
Not at this time.
Vincent Chao - Analyst
Okay, just one last question in terms of -- I know overall conversations are going pretty well if you think about the recent -- some retail sales have been a little bit lighter more recently, has that changed the conversation at all?
Maybe not necessarily the top 20 centers, but just as you look at the overall portfolio, are there anything -- is there anything happened in the last four weeks changed?
Arthur Coppola - Chairman, CEO
No.
First of all July sales were half way, decent especially some of the luxury guys.
Neiman's was up double digits.
Nordstrom was up pretty good.
And look, tenants are not making decisions based on a weekend of sales.
They're making million dollars decisions when they take a space.
With centers like we have, they know that when a space opens up, it's a generational opportunity.
Their sales from the last month don't mean anything.
The fact we were able to lease Santa Monica Place in the worst possible leasing environment that I can ever remember, in terms of leasing to a sector that got hit harder than anybody, which was luxury in 2009, is testimony to the fact that tenants realize that these are scarce commodities.
They don't let one year's sales affect their thinking, especially because they're making money.
Sales have never been more irrelevant than they are today.
Vincent Chao - Analyst
Okay.
And actually one last question, just on the Santa Monica -- if any?
Arthur Coppola - Chairman, CEO
What are the what?
Vincent Chao - Analyst
What other capital needs do you have on Santa Monica at this point?
Arthur Coppola - Chairman, CEO
We don't have needs.
We just have opportunities to be identified, and as we identify them, and that 50,000 feet we're holding back, we'll go ahead and do it.
In the terms of cash, to finish, Tom, did you already give that number out?
Thomas O'Hern - Senior EVP, CFO
Yes.
At the end of June, it was $70 million, but a lot of that would have been spent in July and August.
My guess is at this point, once we rolled all of those construction costs through, there's probably $25 million remaining for final build outs of some spaces and things like that.
Arthur Coppola - Chairman, CEO
And then the real question is what do we do about the 50,000 square feet of space sitting on the dining deck, which is the most desirable level for people to be on because of the entertainment value.
We're sitting on 50,000 feet up there.
We're going to decide, but I'm sure we're going to get interest from folks that we've never dreamed of before.
Vincent Chao - Analyst
Thanks a lot.
Arthur Coppola - Chairman, CEO
Thank you.
Operator
Next question from David Wigginton of Macquarie.
David Wigginton - Analyst
Thanks, good morning, guys.
Arthur Coppola - Chairman, CEO
Hi, David.
David Wigginton - Analyst
You have spoken a lot about redevelopment , just wondering if you can maybe give us an update on Northgate and the Oaks, with respect to the to how much spend is left on those?
And maybe when the approximate completion date and what the
Arthur Coppola - Chairman, CEO
On Northgate, I believe that when we started out on that construction we said we should see 9% return on the incremental money that was being spent there, and we're on target with that.
And we're still opening up tenants, aren't we Randy, at Northgate?
How open are we?
Randy Brant - EVP, Real Estate
Virtually, they are all open.
Arthur Coppola - Chairman, CEO
We're well over 90% open there.
As of today, we're pretty much open at the Oaks, we're adding a restaurant or two there.
Does that answer your question?
David Wigginton - Analyst
Yes, are those -- how much of those are in the second quarter numbers at this point, and how much factoring into the remainder of the year?
Arthur Coppola - Chairman, CEO
The Oaks, was pretty much -- would have been in the second quarter numbers, but Northgate there was still several tenants opening up in the middle of the year.
And, Tom, maybe you can give some color on that.
But my guess is that there were probably $2 million or $3 million of income that was not in place for six months, that will be in place in the second six months.
Thomas O'Hern - Senior EVP, CFO
Yes.
That's about right, Art.
We will probably see a pick up about $2 million to $3 million versus the first half of the year, for Northgate.
David Wigginton - Analyst
Is that an annual number, or is that the actual amount coming in the second half the year?
Thomas O'Hern - Senior EVP, CFO
The actual amount.
David Wigginton - Analyst
Okay, all right.
And with respect to your management business, the operating expenses, I recognize that it's a lumpy number and it fluctuates, but is there a way we should be think being about modeling that going forward?
Arthur Coppola - Chairman, CEO
In terms of the shopping center expenses?
David Wigginton - Analyst
No, your actual management business operating expense?
Thomas O'Hern - Senior EVP, CFO
The reason the management business looks different than last year, both on the revenue side and expense side, is because we've got four new joint ventures, and four relatively big assets that we had 100% owned in the past, were not impacting our management company revenues, and today they are.
So if you took the second quarter and use that as a run rate, that would be fairly indicative of what you will see going forward.
David Wigginton - Analyst
Okay, and this is my last question.
With respect to the same store NOI growth, I recognize that the majority of that was a result of occupancy increases, but what percentage of it was distributed to favorable bad debt comparison?
Thomas O'Hern - Senior EVP, CFO
You can tell by going back to one of the schedules on the press release this morning.
We reconciled to same center growth, and the same center NOI for the quarter was $146 million.
And the decrease in bad debt expense for the quarter was approximately $2 million.
So, $2 million on the base, and 146 is about 1.3%.
David Wigginton - Analyst
Okay.
Great, thank you.
Arthur Coppola - Chairman, CEO
Alright, thank you.
Operator
Next from Sandler O'Neill, Alexander Goldfarb.
Alexander Goldfarb - Analyst
Good morning.
The picturesin the LA Times were impressive with the crowd.
Valley View, in your numbers, is there anything in there for either impairment or debt gain from -- on that asset, either for the year, and also is there anything in your guidance for that?
Thomas O'Hern - Senior EVP, CFO
No, to both.
Alexander Goldfarb - Analyst
Okay, as far Art, on the redevelopment, that's pretty consistent, what are your thoughts on outlet side?
Obviously, Talbots spoke about that on their call, they're really trying to get some thoughts down to launching theirs.
What do you think about outlets versus your talents and redevelopment?
Do you think there's a chance to do both?
Or do you think the opportunity set on redevelopment is much more than there could possibly be on the outlook side?
Arthur Coppola - Chairman, CEO
Maybe to a fault, but I've chosen to guide this Company with a very tight focus.
And so we've chosen to stay in the continent of the United States.
We've chosen to do what we do best.
And we've found no limit to opportunities to deploy our talents.
We don't want to be the biggest, but we want to be the best.
To jump into the outlet business, could be interesting, maybe.
I could imagine why retailers would love to see more players in that business.
There is one location that we own, where I can see us doing something that would be in that arena.
But I don't see us jumping into that business, no.
Alexander Goldfarb - Analyst
Okay, and then as far as all the people who are coming to you to have them do a redevelopment in their area, I am assuming for the most part, you would look to own assets, or have interest in them, rather than just do it on a fee basis?
Is that correct?
Arthur Coppola - Chairman, CEO
The only time we do third party fee business is if we believe that we will end up with an ownership business, period.
And the ones -- there is a couple, but they are just recent.
They are very fresh conversations.
We would definitely be making, we would have either a venture investment, or we would potentially have a 100% ownership.
But they're in the early, early days -- but -- that's not in my -- our pipeline, but it's fresh conversations as of Saturday morning.
Alexander Goldfarb - Analyst
Okay.
And just on a final question, on the disclosure front, when do you think we'll see the development redevelopment table come back?
And also perhaps it would be helpful in the opening on the press release just to get the overall portfolio releasing spreads?
That would be useful.
Thomas O'Hern - Senior EVP, CFO
Yes, Alexander, the stat we did give was the overall stat.
Alexander Goldfarb - Analyst
Yes, having that in the press release would be helpful.
Thomas O'Hern - Senior EVP, CFO
It was in the comments section of the press release, the 4.6% I believe.
That's combined.
Alexander Goldfarb - Analyst
Okay.
Thomas O'Hern - Senior EVP, CFO
And then, in terms of the pipeline page, I guess maybe if we had a volume that would warrant it, we would reconsider it.
Alexander Goldfarb - Analyst
Okay, thank you.
Operator
And Ben Yang from Keefe, Bruyette & Woods.
Please go ahead.
Ben Yang - Analyst
Good morning, guys.
I recall you down-scaled the luxury focus of Santa Monica from what you had originally planned.
And now that the center appears to be a big success is there an opportunity for you to get some space back in afew years.
And, I guess, more than the natural turnover you previously mentioned.
Basically I am curious, because any early tenants do short term deals that give you some type of kick out option?
Arthur Coppola - Chairman, CEO
Well, we have a kick outs on a number of leases, from a performance viewpoint in a center like that.
We clearly were forced, and we've said it before to cut back on the square footage that we devoted to luxury, because of the luxury environment in early 2009 when we were leasing up the center.
On the other hand I also have to say though, that we do live in a community where the one of the early questions people had was "am I going to be able to afford to shop there too?" So finding the right mix of price point goes to the tourist, and the local population, as well as the wealthy population is a fine balance.
And it's like a restaurant.
It takes a while to get your menu perfect even after you open.
So the good news is it's a quality problem.
We have all kinds of luxury retailers that said, no, either because they just didn't have the finances to do it, or they just were skeptical, are beating our doors down now.
We have merchants of every category jumping all over the weekend and this morning all over our leasing people saying I can't believe I didn't do this, is there any way I can do that.
We're in a position of total strength, we're on offense there.
And the good news for us, is winners like winners.
And a lot of retailers there now want to talk to us about a certain locations where they can do comparable stores with us.
And -- it will become infectious throughout our portfolio.
So we're going to find the right mix.
And we got a great mix today.
When you walk the center, you'll see it, you'll feel it.
We probably, Mike Gould, the chairman Bloomingdales, called me right after his opening.
He says, the one thing I should have done, is put more kids into my store, because I forgot how many moms and kids and strollers are here.
We had more strollers, and more moms and kids in that center over the weekend.
And it was just unbelievable and these are the people you don't see on the third street promenade, because they just didn't necessarily feel safe.
That's the advantage that having a private property owner in the common area Santa Monica Place that we have.
Our security is very high.
Anyway the right mix is something we'll fine tune overtime.
The good news is we have a long list of retailers, restaurants, and users from every category wanting to get into that center today.
Ben Yang - Analyst
Okay great on the sales potential for Santa Monica you mentioned a $1000 per square foot, I'm just curious what impact the food and restaurants have on that number, given that you have more space allocated to food than at a typical mall?
Arthur Coppola - Chairman, CEO
On average the restaurants will do at least that number.
The third level will do at least that number and may be more.
Ben Yang - Analyst
Okay, so it's not food that's necessarily bumping up or boosting that number, it's just the overall mix you had mentioned earlier?
Arthur Coppola - Chairman, CEO
It's definitely not food.
And by the way we have no Apple store at Santa Monica Place.
Ben Yang - Analyst
And congratulations by the way.
I used to live and work in that area.
I think it's a great add in that community.
Arthur Coppola - Chairman, CEO
Have you seen it?
Ben Yang - Analyst
Not yet but I will in October.
Operator
We'll take our final question from Cedrik Lachance, with Green Street Advisors.
Cedrik Lachance - Analyst
Just going back to the management company revenue expense line items.
When I look at the three months results, the management company revenue grew about $2.8 million, the expenses grew about $5.6 million.
And so I am just curious whether or not the addition of the joint ventures, is there is something unprofitable or from an asset management perspective, or are there other expenses that are also included in management company any expense line item?
Thomas O'Hern - Senior EVP, CFO
Cedrik, there's also expenses related to assets we own at 100%.
So if you look back historically, the expenses have always been twice the revenues for the management company.
And that's because we don't charge ourself a fee on wholly owned assets.
Cedrik Lachance - Analyst
But if the difference is largely related to the joint venture, why would it grow in the same base here?
Thomas O'Hern - Senior EVP, CFO
Well, when you do a joint venture, it's going to be more labor intensive than if you own it at 100%.
It's not exactly proportional, so there were additional costs versus a year ago.
And to some extent, there are some lumpy costs in there, depending on what happened the year before, what happens this year.
Some of this straight lined through the year, and some it is seasonal, and some of it just fluctuates quarter to quarter.
Cedrik Lachance - Analyst
So you mentioned some expenses are related to 100% owned entities, so what percentage of the expenses will be related to those entities?
Thomas O'Hern - Senior EVP, CFO
I don't know off the top of my head, if you you're trying to see the management company breakeven, take the revenues, the total revenues times 5 %, because that's the management fee you would charge.
So take your consolidated revenues, or at least minimum rent, percentage rent and recoveries at 5%.
And if they charge themselves a 5% fee to manage those, the management company revenue would be higher by that amount.
And then you would see that it is basically a breakeven business for us.
Cedrik Lachance - Analyst
Okay, that's all.
Thank you.
Operator
And gentleman we will turn the conference back over to you for any additional closing comments.
Arthur Coppola - Chairman, CEO
Thank you very much for your joining us.
Look forward to seeing you.
Come join us on October 5th, and again, can't wait to see our newest, latest and greatest creation.
Thank you very much.
Operator
Ladies and gentlemen, that does conclude today's conference.
We thank you for your participation.