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Operator
Good day, ladies and gentlemen.
Welcome to the Macerich Company first quarter 2012 earnings conference call.
At this time, all participants are in a listen-only mode.
Following the presentation, we will conduct a question-and-answer session.
(Operator Instructions)
I would like to remind everyone that this conference is being recorded, and now, I would now like to turn the conference over to Jean Wood, Vice President of Investor Relations.
Please go ahead.
Jean Wood - Vice President of Investor Relations
Hello, and thank you, everyone, for joining us today on our first quarter 2012 earnings call.
During the course of this call, Management will be making forward-looking statements which are subject to uncertainty and risk 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's 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 the supplemental 8-K filings for the quarter, which are posted in the Investor section of the Company's website, at www.Macerich.com.
Joining us today are Art Coppola, CEO and Chairman of the Board of Directors; Ed Coppola, President; Tom O'Hern, Senior Executive Vice President and Chief Financial Officer.
With that, I will turn the call over to Tom.
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
Thanks, Jean, and welcome, everyone.
Today, we are going to be discussing the first quarter results, capital activity, and our outlook for 2012.
As we expected, during the quarter our fundamentals continued to improve.
Retail sales had a strong increase and same center NOI was positive for the ninth quarter in a row.
The re-leasing spreads showed double-digit increases.
Although occupancy dropped slightly, it remained at a very healthy level of 92.1%.
Leasing volume and spreads were both good.
Leases signed during the quarter were 216,000 square feet.
The average new starting rent was $46.06 a foot, and the average re-leasing spread on a trailing 12-month basis is 15.8%.
Average rent per square foot in the entire portfolio was up 5% to $45.87 compared to March 31 of 2011.
Occupancy costs as a percentage of sales dropped to 12.9% compared to 13.5% a year ago.
Looking at the results for the quarter, adjusted FFO, which excludes the impact of Valley View, was $0.76 per share, up from $0.52 per share in the first quarter of 2011.
The operating results were good, including same center NOI growth, excluding termination revenue and SFAS 141 income was up 3.4% for the quarter.
Lease termination revenue was up nearly $800,000 to $2.9 million.
Bad debt expense is also up somewhat, at $800,000 compared to $400,000 in the first quarter of last year.
Both management company expense and REIT G&A expense were down.
Management company expense was down approximately $3 million, to $22.5 million; and REIT G&A was down to $4.5 million compared to $7.6 million in the first quarter of last year.
That was due to the first quarter 2011 being unusually high in both of those categories, as there was a full year's worth of bonuses that were accrued in the first quarter of '11.
Subsequent to that, bonuses are accrued throughout the year, with 25% of the estimated amount booked in each quarter.
That change accounts for the drop in both categories -- REIT G&A and management company expense.
During the quarter, we also booked an impairment loss on Valley View.
Valley View has been in the hands of the loan service since mid-2010.
On April 23 -- last week -- it was sold for approximately $33 million, and concurrently with the sale, the debt and all accrued interest was forgiven.
As of quarter-end, because the sale price that was expected in April was less than our carrying value of $88 million, we recorded an impairment writedown of $55 million in the first quarter of '12.
That hits net income, but not FFO.
Then, in the second quarter, we turned around and on April 23, with the asset sale, we booked a gain on extinguishment of debt of $104 million.
We have not included the impairment, nor the gain on extinguishment of debt in our AFFO numbers.
Valley View in the attached financial highlights of this morning's press release was included in discontinued operations.
Looking at our balance sheet, our debt-to-market cap at quarter-end was 42.3%.
Net debt to EBITDA was 7.6 times, and our interest coverage ratio is a very healthy 2.57 times.
Looking at recent loan activity, in March, we closed on $140 million loan on Pacific View.
That was an unencumbered asset.
We put a 10-year fixed rate financing in place at 4.08%.
Also, in March, we paid off $438 million of the remaining convertible debentures.
Those debentures are now paid in full.
During the quarter, we also put $140 million bank construction loan on the Fashion Outlets of Chicago.
That loan is extendable for a full maturity of five years and floats at LIBOR plus 250.
In addition, we received a commitment for $220 million of fixed rate financing on The Oaks.
The new loan has a fixed rate of 4.11% and a 10-year term, and we expect that to close within the next week or two.
In addition, we're currently getting fixed-rate quotes on Chesterfield and Rimrock, two currently unencumbered assets.
The proceeds from those financings are estimated to be $160 million to $180 million, and those proceeds will be used to reduce floating rate debt on our line of credit.
We also expect a significant amount of excess loan proceeds when we refinance Queens later this year, and those proceeds will also be used to reduce outstandings on our line of credit.
Excluding the loans that have built-in extension options, we only have $150 million of 2012 loans remaining -- maturities remaining.
In terms of FFO guidance, in this morning's earnings release, we maintained our adjusted FFO per share guidance with a range of $3.06 to $3.14.
The guidance range excludes the impact of Valley View -- both the impairment as well as the gain on extinguishment of debt.
Although we beat guidance in the first quarter, we are not prepared to increase guidance at this time, but will readdress it after the second quarter.
Looking at tenant sales, tenant sales continued to improve.
Mall tenant sales per foot for the trailing 12 months ended March 31, 2012 came in at $504 per foot.
That's up 12.3% compared to portfolio mall tenant sales per foot a year ago, which was $449.
At this point, I would like to turn it over to Art.
Art Coppola - Chairman and Chief Executive Officer
Thank you, Tom, and welcome to our call.
As you can see from the numbers, our leasing, our rents, and our same-center NOI have had very good growth and continued good growth here over the last five to six quarters.
The outlook is really quite strong on the leasing front, and that's really buoyed by the fact that we do have strong sales increases across the board, that we have a great product offering, and that our centers really are faced with very little impending competition.
Our occupancy levels will continue to improve over the course of the next year or so.
One of the reasons that we have not seen spikes on occupancies is that we have been a little bit stingier in terms of the rents that we are willing to accept, because we are in a very strong landlord-oriented market today.
I foresee this being a landlord's market for quite the foreseeable future.
For me, the foreseeable future is the next three to five years.
There's been a lot of focus lately on cost of occupancies and sales trends with tenants; and while sales have been extremely good with tenants, and while I'm thrilled to see comp center sales increases across the board, to me, the more important story has been what I've been saying for the past six quarters, which is that the retailers have got very strong operating margins, and when you multiply strong operating margins by strong sales levels and positive comp sales results, you find yourself a retailer who's got cash on their balance sheet.
They are making money, and they are looking to expand their footprint and their store count across the board.
That makes for a very strong leasing environment, and we think that, that's an environment that we're going to be able to tap into for years to come.
Helping us to tap into that, I would like to welcome to our executive team, as an Executive Vice President of Leasing at Macerich, Bobby Perlmutter, who is a well known industry veteran.
I've known Bobby -- Eddy and I have known Bobby for 20 years now.
He's got a long history, formerly being -- running the mall operations at Heitman Financial back in the 1990s when they had investments in up to 48 malls.
And, more recently, as the managing partner and founder of Davis Street Properties, which he recently wound down.
He joined us April 23.
I see him helping us dramatically in terms of our merchandising of our centers, and that's really the key to the future for us, because now we can begin to focus more so on merchandising, being more selective on the retailers that we accept, so that we can drive sales to even greater levels by bringing the most productive retailers from that results.
With greater rents, and obviously, that turns into greater same center NOIs as we move forward.
On the development front, things look great right now.
Tyson's Corner continues to move along, on target, and progress is very good there.
On the leasing front, we have nothing to announce in the office leasing, and we talked about that in detail in our last call.
But things are looking very good there.
Fashion Outlets of Chicago is well over 50% signed and executed leases, and it's -- the vast majority of the space has been committed to.
We're looking at a fall of next year opening.
We're very excited about that.
We are currently in the pre-leasing phase of the expansion, the 150,000-square-foot or so expansion of Fashion Outlets of Niagara.
That's being extremely well received by retailers, and we see that opening also within the next two years.
During the quarter, at Broadway Plaza in Walnut Creek, the much-awaited Neiman Marcus store opened there.
And, it's -- talking to the Neimans folks, it's probably one of the most beautiful stores that they have ever built.
It's a small, edited version store, which is thematic to the trends in department stores today, which is to try and build more productive stores.
It's just under a 90,000-foot store, and other retailers at the center have seen huge sales increases as coincident with the entry of Neiman Marcus to the center.
Nordstrom, in particular, has seen great increases by the introduction of Neimans.
This just further bolsters our confidence that we need to find a way to expand Broadway Plaza.
We're in talks with the city.
We're at a critical juncture there in terms of looking at different ways to expand the Center.
When we have more details there, we will certainly share them with you, but this is a great location; great anchor line-up, and we really see it as one of our next great centers.
During the quarter, a little bit of significant note, actually, is that we purchased 500 North Michigan Avenue.
That's an office building complex which is contiguous to our North Bridge Mall in Chicago -- downtown Chicago.
The reason that we purchased this is that it is the missing link to the ownership that we have there of the square block bounded by Michigan Avenue on the east, Rush on the west, Illinois, and Grand.
It's the missing piece that the original developer had not been able to assemble.
By buying this office building, we currently have plans to consolidate the first five levels of office space into a new, three-level, iconic, probably 40,000- to 45,000-square-foot retail store with the possibility of even integrating that store into North Bridge Mall.
There's furthermore the possible addition of an additional expansion to that retail location on the first level, just to the south of the 500 Michigan Avenue location -- maybe a 20,000-foot anchor store.
When you're talking about Michigan Avenue, where street level rents are approaching $400 a square foot, and it's really enjoying a transformation, we think this is going to be really a very important piece to the repositioning and taking of North Bridge Mall to the next level.
North Bridge is a terrific mall.
It's anchored by Nordstrom.
It's been rumored that, that's the number one Nordstrom in terms of sales in the United States, and it's got huge upside, and the acquisition of 500 North Michigan is going to enable us to tap into that upside.
So, we are very bullish on our operating fundamentals.
We are very patiently working on expanding our footprint in our core markets of New York, DC, Chicago, and the West Coast; and I would like to open it up for questions at this point in time.
Operator
(Operator Instructions) We'll go first to Christine McElroy from UBS.
Christine McElroy - Analyst
Hi, good morning.
Art Coppola - Chairman and Chief Executive Officer
Hi, Christine.
Christine McElroy - Analyst
Tom, I just wanted to go back to your guidance.
With regard to the first quarter, you guided to roughly 21% of the full year, implying a range of $0.64 to $0.66.
Can you just walk us through all the different factors that caused the actual results to be much higher than you expected?
What was recurring versus nonrecurring?
Why wouldn't that then translate into a higher full-year forecast?
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
Well, there's a lot of factors, Christy.
One in particular, we ended up with $3 million or so of lease termination revenue, and that's a number that, frankly, every year is a guess.
And, we look back on history and we'd forecast $12 million, but we hadn't forecast any of it coming into the first quarter.
So, that's a piece of it.
We had slightly higher SFAS 141 income as a result of the -- some of the acquisition activity that we've had over the last nine months, and also some straight-lining of rents as a result of tenant changes went our way.
So, there are a few pickups there that may not be recurring.
Again, remember, when we gave guidance, we also indicated that we would have asset sales in the range of $300 million to $350 million, and we factored in some dilution there.
It's too early to conclude one way or the other on how that will go.
We've got roughly either closed or under contract about $100 million of those sales.
So, that's another part of it.
And, we've also got quite a bit of financing in the works right now.
So, we'll be in much better position at the end of next quarter to address it than we are at the end of just one quarter.
Christine McElroy - Analyst
I think you had talked about on the last call $0.08 of dilution regarding the asset sales.
Is that something, I guess, you'll revisit next quarter as far as how much dilution you'll ultimately see?
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
Right.
We'll take a look at all the major assumptions, and do an update at that point.
Christine McElroy - Analyst
Okay, and then you've talked about encumbering some of your unencumbered assets.
I think a $2 billion pool you've talked about.
Do you have any restrictions on your unencumbered asset base and any of the covenants on your credit line?
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
No, none whatsoever.
There's no requirement for an unencumbered pool.
Christine McElroy - Analyst
Just with regard to Fashion Outlets of Chicago, can you talk about how the project economics will work with AWE Talisman?
Are there any fees being paid to either party?
What's the total project cost?
And, what's your share of the cost and the construction loan?
Art Coppola - Chairman and Chief Executive Officer
Yes, we -- I think we've disclosed that in the past, but I'm happy to review that again.
Our ownership of the project is 60%, fee simple ownership today.
And, we will be funding the equity component of the project.
The loan is about $140 million, and the total cost is around $200 million.
We anticipate a double-digit cash on cash return, and we have the right on a formula basis to look at buying out the 40% interest owned by AWE Talisman after a period of time -- I think three years after the grand opening.
And, we're very, very excited about the project, and it's shaping up to be a terrific project.
Christine McElroy - Analyst
Thank you.
Art Coppola - Chairman and Chief Executive Officer
Thank you.
Operator
We'll take the next question from Rich Moore from RBC Capital Markets.
Rich Moore - Analyst
Hi, good morning.
Art Coppola - Chairman and Chief Executive Officer
Hey, Rich.
Rich Moore - Analyst
Another mall CEO said this morning, Art, that there's kind of a department store resurgence that he sees going on.
Do you see something similar going on as well?
Art Coppola - Chairman and Chief Executive Officer
Look -- all of our retailers -- the retail environment is very healthy.
That just goes across all sectors.
And you know, it even includes the national retailers, whether they be department stores or specialty stores.
They've quit giving merchandise away, and they quit doing it in the fall of 2009.
They gave up chasing sales and started chasing operating margins.
And so, when you go back and you make a secular change to your business model, and you figure out how to make money again -- then you're going to have a resurgence.
So, yes, they are very healthy.
All of our retailers across the board are in very good shape with the -- pretty much across the board.
Rich Moore - Analyst
Okay.
So, the addition of a Neiman Marcus, that kind of thing, or similar department stores could occur more often in your portfolio, you think?
Art Coppola - Chairman and Chief Executive Officer
Well, it has occurred really on a nonrecurring/recurring basis every year that we've done business.
We're constantly recycling and adding and subtracting and repositioning anchor stores.
I would hate to think of how many we've done over the past 35 years, but it's a very large number.
I'll bet we've recycled 40% of our anchor space in the last 15 years alone.
Rich Moore - Analyst
All right, okay, good.
Thank you.
When you think about densification -- the addition of office space and multi-families that had gotten so much attention and kind of resurged again.
Do you still find that to be a good idea in general?
Are you going to be doing more of that going forward?
Art Coppola - Chairman and Chief Executive Officer
Right now, our plans are limited to Tyson's Corner.
So, that's it for now.
Rich Moore - Analyst
I got you.
Art Coppola - Chairman and Chief Executive Officer
But, we clearly -- and we've got a great project in the works there, and we're doing it for all the right reasons.
It's adding 8,000 visitors per day to the customer base, who will live there or work there, that are currently not there.
So, it's going to be great for the mall.
We're making money on each of the components, and we just think that in a transit-oriented development, which this is, as the rail comes to the site, that it's appropriate.
It's going to happen all around you, so you might as well be a part of that and not just be an old suburban mall stuck into the middle of a new central business core.
That's really what drives it.
It's not a panacea to go mixed-use, but where it's appropriate and you have -- it's really the most appropriate where you have a transit-oriented development.
Rich Moore - Analyst
Okay, great.
Thank you, Art.
And then, Tom, real quick, on the variable rate debt, I think it's around 50% at the end of the quarter of the debt portfolio.
You mentioned some of the activities you're doing that will bring that down.
Does that take you, you think, overall back to maybe the 20% level, that kind of variable rate?
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
I think by the time -- Rich, by the time we get to the end of the year, it's going to be under 20%.
Subsequent to quarter-end, we had $140 million of proceeds that came in on Pacific View financing.
That was used to pay down variable rate debt.
The Oaks, which I mentioned, is going to go from floating rate debt to fixed.
That's $220 million.
The excess proceeds on Queens -- Queens financing will be fixed, and that will go to pay down floating.
So, almost every move we make on the financing front is going to be reducing that floating rate debt.
Rich Moore - Analyst
Okay, and most of these fixed rate loans, probably in the 4%-plus range, 4% to 5%?
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
They are in the low 4%, Rich.
They are in the very low 4%.
I don't think we've even done one over 4.25% lately.
So, it continues to be a fantastic environment to be a borrower, especially fixed and long-term.
Art Coppola - Chairman and Chief Executive Officer
You can break 4%.
You can get into the 3% depending on your terms.
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes, if you went for a five-year, seven-year deal, you would be under 4% easily today.
Rich Moore - Analyst
Okay, great.
Thank you.
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
Thanks, Rich.
Operator
The next question comes from Nathan Isbee from Stifel Nicolaus.
Art Coppola - Chairman and Chief Executive Officer
Hey, Nathan.
Nathan Isbee - Analyst
Hi, good morning.
How are you doing?
Just focusing on the balance sheet, long-term debt is readily available, but at the same time, you do have quite a bit of activity, two projects in Chicago, the Tyson's, Niagara.
Are the asset sales going to be enough in your mind to keep your debt levels in check?
Or, do you foresee needing to come back to the equity markets?
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
No, I think if you looked at the asset sales, Nate, and then, keep in mind, we're not talking about developing to a 5% or 5.5% return on cost.
We're developing these projects at double-digit returns, and the value in the end is going to be a cap rate substantially below that.
So, there's -- in developments of that nature, there's an embedded piece of equity there that's not going to stretch our ratios.
So, the balance sheet is in great shape.
I see no need to do that, absent any major acquisition activity.
Art Coppola - Chairman and Chief Executive Officer
Just to further on that -- over the next three years, our development activity on Fashion Outlets of Chicago and Niagara and Tyson's, and those are really the only three that are clearly in our open-to-buy pipeline.
Our total share of those, of that outlay of dollars, is not more than $400 million.
And, when you have a $2 billion pool of unencumbered assets, that's why we created that pool, was to create the fire power to fund new developments, redevelopments, expansions.
So, we're in very good shape.
Our development pipeline is really self-funded at this point in time.
Nathan Isbee - Analyst
Okay, thanks.
And then, just having recently visited Desert Sky, and I guess finally understanding what you're trying to do there.
Can you just talk a little bit about how it's evolving at Desert Sky and the other malls that you plan to replicate this?
And, what is your long-term view of these assets?
Would you say that they are core, and you would like to hold on to them?
Or, is it that you are trying to get them to a certain place -- perhaps package them and sell them off?
Art Coppola - Chairman and Chief Executive Officer
We're just trying to maximize the productivity and the profitability of centers that have more than 50% of their primary trade area servicing one ethnic group.
And, in that particular case of Desert Sky, as well as four other of our properties, we find ourselves with half a dozen properties where well over half of our primary trade area is Hispanic.
And, we feel that centers that are located with that primary customer base need to be marketed different.
They need to be leased differently and operated differently than shopping malls in different demographic profiles.
I think we're learning a lot in terms of how we go about the marketing and the leasing and the operating of centers that are primarily located in [Hispanically]-dominated trade areas.
And to me, I would rather figure that out than expand my business operations to South America, quite frankly.
So, when you take half of the population growth in the United States, in the next 40 years, is going to come from that segment of our population.
It's the fastest growing, and probably, has some of the most, highest disposable incomes.
It's just really -- it's good business sense to try and figure out a way to maximize your productivity in those markets.
Given our base here in Southern California, and given that this is the melting pot of the world, we're constantly learning how to cater to different ethnic groups.
At Cerritos, we think about how can you cater best to the Asian predominance of population that we have there.
At Queens, we try and figure out how you cater best to the 89 different language-speaking groups that are in our immediate trade area.
It's just trying to be -- all it is, is it's the main paradigm is being in touch with your customer, and that's just all we're trying to do at Desert Sky.
Where we go with it in terms of core/non-core, it's really -- that's unknown, because personally, I believe in that business.
I believe that there's great upside there, and I believe that there is an opportunity.
And, we'll just have to see how it plays out.
Again, you cannot ignore as an owner the fact that 50% of the growth in population in the United States is going to be Hispanic-based in the next 40 years.
You cannot ignore that.
You would be foolish to ignore it.
One would be.
Nathan Isbee - Analyst
Do you get any sense from the national retailers that they are taking a fresh look at that mall now that you've actually changed it a little bit?
Art Coppola - Chairman and Chief Executive Officer
Yes, we're actually educating them.
I met with a CEO of a national retailer recently, and I said, you know, you do really well in our Hispanic trade areas.
And he goes, yes, I know we do.
That's our largest customer base.
And I said, you know, your real estate and research people don't know that.
He goes, yes, I know.
I need to help educate them to that.
So, look, there's a whole bunch of retailers that do particularly well in that particular demographic segment.
And so, yes, people like Vans, Aeropostale.
There's a whole bunch of retailers that do particularly -- Journeys -- well, and we're going to populate our centers with those folks.
But, a lot of it is marketing.
We have a whole different marketing calendar in centers like Desert Sky.
It's really just being in touch with our community.
That's all.
Nathan Isbee - Analyst
Okay, and then if you just look at the Phoenix area malls in your portfolio, where are sales today versus where they were pre-crash?
Art Coppola - Chairman and Chief Executive Officer
Tom, do you have that handy?
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes.
We have caught up with pre-crash, as we mentioned on the prior calls.
Phoenix has been one of our best markets in terms of sales growth, and that continued to be the case in the first quarter.
The Arizona market, which is predominantly Phoenix for us -- the Arizona region was up 9.4%.
Nathan Isbee - Analyst
Do you know what that is on just a dollar basis?
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
Not off the top of my head, Nate, no.
Nathan Isbee - Analyst
Okay.
Art Coppola - Chairman and Chief Executive Officer
I'm sure it's in excess of [2007] sales levels in Arizona, because for Arizona, the crash really started in late spring of '08.
Nathan Isbee - Analyst
All right, thanks.
Art Coppola - Chairman and Chief Executive Officer
Thank you.
Operator
We'll take the next question from Michael Mueller with JPMorgan.
Michael Mueller - Analyst
Yes, hi.
Thanks.
First of all, I was wondering if you would talk a little bit about the timing of the Michigan Avenue office building purchase?
How much did it cost?
When did you buy it?
Anything on -- anything else on economics you can give us?
Art Coppola - Chairman and Chief Executive Officer
Sure.
We paid $70 million for it, and we bought it February 29 of this year, and we are currently -- we bought it at a -- between a 6% and 7% going-in return.
The opportunity here is really to reposition that first five levels of office building space into three levels of retail.
So, we're going to increase the ceiling heights and create a really iconic retail location there.
And, our belief that the profit, that the real opportunity here is to take a retail store -- linear frontage -- all the way from Grand Avenue to Illinois and have one continuous, seamless retail storefront there on Michigan Avenue that we could offer to retailers.
Our belief is that we'll get more rent out of the first 45,000 feet of this 324,000 foot office building and net operating income than we got from the entire building when we bought the building.
And, that we'll have basically owned the top 29 floors -- 15 floors for -- not for free, but that will be gravy.
And long-term, we may then after we carve out the retail, street retail component, condominimize the building and sell off the upper office levels back to a natural office user.
We bought the building to get our hands on the street retail and to turn it into street retail.
Michael Mueller - Analyst
Got it.
Art Coppola - Chairman and Chief Executive Officer
And, we anticipate that it will take -- that's a retail store that we're currently showing to retailers today.
So, it could easily be something that that retailer is going to be an iconic retailer most likely, going to be a flagship most likely.
There's a lot of flagships being created on Michigan Avenue.
Burberry is building a new five-story building.
Top Shop just came.
AllSaints just came.
There's a whole bunch of retailers that are doing major stores on the street there.
It wouldn't be out of the question for that store to be open in 18 months to two years.
Depending on how big of an integration that we try and accomplish between that building and the mall, there's one plan that we have that actually takes that office building and has it seamlessly integrated into the mall itself, and so that's a possibility.
Michael Mueller - Analyst
Great.
Art Coppola - Chairman and Chief Executive Officer
The dollars are not that great actually, because that will likely be -- we've offered -- we moved very quickly on that acquisition, and our partner, the Alaska Permanent Fund in the mall has -- we've offered them the right to be our partner in it which undoubtedly they will take us up on.
And, the total redevelopment dollars to create this street front retail opportunity and repositioning is less than $25 million, and so our half of that is half of that kind of number.
So, it's not a huge capital event, but it's a very big repositioning event and profit event.
Michael Mueller - Analyst
Okay, great.
And then, maybe switching gears for a second, on the asset sales.
Going back to that, you closed $65 million.
I think, Tom, you mentioned you have maybe $100 million that's closed or underway.
It sounds like another $35 million is in the works.
Should we think about, with the initial target being $300 million to $350 million, does it still feel like you'll end up doing that this year?
Art Coppola - Chairman and Chief Executive Officer
Yes.
Michael Mueller - Analyst
Okay.
Art Coppola - Chairman and Chief Executive Officer
And, the balance of that pipeline will likely close in the second quarter, and we'll disclose those events as they occur.
Michael Mueller - Analyst
Okay, great.
And last question, the reported leasing spreads have been ticking up each of the past few quarters.
Any color or commentary in terms of what you're seeing in signing today relative to the prior 12-month rolling level of about 16%?
Is it comparable?
Is it still ticking up?
Art Coppola - Chairman and Chief Executive Officer
The numbers, you always have to be careful of.
The quality of the leasing and the pace of the leasing and the interest levels that we've got is extremely strong.
So, on a color viewpoint, on a qualitative viewpoint, it's very strong.
Sometimes a 12% leasing spread, if it's up against some huge rents that are expiring can be more impressive than a 20% leasing spread against some more modest rents.
But look, over the past 18 months, the leasing environment has improved dramatically.
It is very strong right now, and I see no reason that it is going to be anything other than very strong for the next three to five years.
Michael Mueller - Analyst
Okay, great.
Thank you.
Art Coppola - Chairman and Chief Executive Officer
Thank you.
Operator
And moving next, we'll go to Craig Schmidt from Bank of America.
Art Coppola - Chairman and Chief Executive Officer
Hi, Craig.
Craig Schmidt - Analyst
Hey, given Vornado's statement that everything is on the table.
I wonder if you would say, is there an interest on your part to looking at their mall portfolio, and in particular, I'm thinking of Green Acres Mall?
Art Coppola - Chairman and Chief Executive Officer
Well, they have some properties that are in the markets that we have indicated that we would like to expand our presence.
Clearly, they are in the greater New York area.
It's no secret that we love doing business in the boroughs of New York, and that's a high priority for growth for our Company.
We talked about that actually in our shareholders' letter 14 months ago, that we were going to be primarily focused on Chicago, New York, DC, L.A., and San Francisco for our -- and Arizona for our growth opportunities.
We've been delivering on our growth in those markets over the past 14 months, and we see great opportunities to grow in those markets in the future and that could be part of it.
So, look, we have a -- we love doing business in melting pots.
My office -- our office is here in the center of the melting pot of the world, Los Angeles.
So, we know how to do business in melting pots, and certainly centers that Vornado owns fit that demographic profile.
Craig Schmidt - Analyst
Great, and do you know offhand the size of the Neiman Marcus at Broadway?
Art Coppola - Chairman and Chief Executive Officer
88,000 feet.
Craig Schmidt - Analyst
Great.
Okay, thank you.
Art Coppola - Chairman and Chief Executive Officer
Thank you.
Operator
We'll take the next question from Quentin Velleley from Citi.
Quentin Velleley - Analyst
Hi, how are you?
Art Coppola - Chairman and Chief Executive Officer
Hey, Quentin.
Quentin Velleley - Analyst
Just in terms of going back to floating rate debt and the line of credit, which I think about $800 million drawn now that you've bought back the converts.
How should we think about where that line balance is going to be by the end of the year?
If you put in the unencumbered assets that you're putting mortgages against at the moment, some excess proceeds in the asset sales, will the line be down to about $300 million by the end of the year?
Is that a fair assumption?
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
Only if Art goes out and buys something.
It should be a lot lower than that, Quentin.
It's at $640 million today because we used the cash that was on the balance sheet at quarter-end from Pacific View to pay that down.
We could generate $180 million or so from Chesterfield and Rimrock refinancing.
That will take it down to under $500 million.
As we mentioned, we've got asset sales planned for the year.
The excess proceeds there we'd use.
So, I would say comfortably and conservatively, we'll be under $200 million by year-end.
Quentin Velleley - Analyst
And then, maybe if we just go back to 500 North Michigan, where are you holding that on the balance sheet?
Is that in CIP?
Because I think CIP went up by about $100 million over the quarter.
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
No, it's not in CIP.
CIP -- the change in CIP is primarily for Fashion Outlets of Chicago because construction started on that.
Quentin Velleley - Analyst
Got it.
And then, with 500 North Michigan, the office tenants in there.
The development clauses in their leases, is it a simple exercise to get them to exit the building?
Or, is there some more work that needs to go in there?
Art Coppola - Chairman and Chief Executive Officer
Nothing's ever simple, but it's manageable.
Quentin Velleley - Analyst
Okay, and then just lastly, in terms of Valley View.
I think it was a $2.6 million negative impact on FFO in the quarter.
Just for NAV purposes, can you break out what the NOI was that you got from Valley View in the quarter?
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
NOI has been running negative, Quentin.
I think it's running roughly $500,000 negative a quarter.
Quentin Velleley - Analyst
Okay.
Thank you.
Art Coppola - Chairman and Chief Executive Officer
Thank you.
Operator
The next question will come from Paul Morgan with Morgan Stanley.
Art Coppola - Chairman and Chief Executive Officer
Hey, Paul.
Paul Morgan - Analyst
Hi, good morning.
Art Coppola - Chairman and Chief Executive Officer
Good morning.
Paul Morgan - Analyst
Do you have the rest of the regional breakout for sales?
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes, we've got most of it here.
As I said, Arizona was 9.5%.
Southern California was 15.9%.
Northern California, about 8%.
Central region, 13.4%, and eastern region was at the low level of 7.2%.
So, that was the range.
Southern California being the high, eastern being the low, and everything else in between.
Paul Morgan - Analyst
Anything in particular?
You've got quite a bit down there in Southern California.
Anything in particular that's driving that 16%?
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
Santa Monica Place.
Art Coppola - Chairman and Chief Executive Officer
Well, it's really across the board though.
You've got-- The Oaks is doing really well.
Cerritos is on fire.
We've had double-digit increases there at Cerritos, but it's really across the board.
Paul Morgan - Analyst
Thinking about the spreads, you present your spreads quite conservatively and not everybody does it the exact same way.
Do you have the gap spreads as well?
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
No.
We really don't look at that, Paul, because we're moving towards all of our leases being on CPI anyway.
Paul Morgan - Analyst
Yes.
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
It would obviously expand that because of the effect of the straight-lining of rents would make that spread even wider.
But, it's not something we track internally.
We switched eight years ago to structuring our leases with CPI increases, and so, straight-lining of rent has been a dwindling number for us over the past four, five, six years.
Art Coppola - Chairman and Chief Executive Officer
We traded basically annual CPIs for stepped rents.
And, had we done -- remained with all of our leases being stepped rents, if you think about it, back in the days and probably today, the average step rents have rents going up 20% over the course of a new 10-year deal.
Say, 10% or more during the first five years, and another 10% bumped somewhere else.
So, if we still had those type of -- that lease structure -- I think if I do the math correctly, it seems to me that our spreads would be 10% higher across the board.
But, we don't do that.
Paul Morgan - Analyst
Do you look at it on a gross basis, like some folks do, too?
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
It's -- this is the minimum rent versus expiring minimum rent.
Paul Morgan - Analyst
Okay.
And, I think that -- yes, the only -- I guess that's it for me.
I think everything else was taken care of.
That's all.
Thanks.
Art Coppola - Chairman and Chief Executive Officer
Okay, thank you.
Operator
We'll take the next question from Todd Thomas from KeyBanc Capital Markets.
Todd Thomas - Analyst
Hi, good morning.
Art Coppola - Chairman and Chief Executive Officer
Good morning.
Todd Thomas - Analyst
First question, the construction loan at the Chicago Outlets.
We haven't seen a whole lot of construction financing for large projects like this, particularly an outlet.
I was just wondering what the demand was like from the lending community for that financing?
And, whether or not you expect to see more construction financing becoming available for outlet space overall from the banks today?
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
Well, Todd, I think it's a function of the strength of the sponsor and the project.
Art Coppola - Chairman and Chief Executive Officer
And, the leasing status of the project.
We're not going to comment on the state of outlet financing across the board.
We're only going to comment on that one project.
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
But, it was led by two very strong banks that are part of our line group.
It was a typical construction loan, and they were very happy to get involved with the project.
As Art said, it's over 50% pre-leased and even higher than that in terms of what's been committed.
So, it's a good loan from the bank standpoint, and I would -- we're happy to move forward with that.
Todd Thomas - Analyst
Okay, and then based on what retailers are telling you and what you're seeing, are you still projecting sales at the outlet center to be $800 a square foot or in excess of that?
Art Coppola - Chairman and Chief Executive Officer
Well, we're not going to project that today, but we think it's going to be a very, very strong center, and those type of sales results, as it matures, are clearly, in my view, possible.
Todd Thomas - Analyst
Okay, and then just -- you mentioned Queens Center as also a refinancing opportunity.
I was just wondering, that loan has a March 2013 maturity date.
But, when is that open for prepayment?
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
That opens up later this year for prepayment, and we are in conversations with the existing lender today who has got an interest in taking a look at that early.
Art Coppola - Chairman and Chief Executive Officer
That's a -- it's sponsored by a life insurance company.
So, we have the ability to talk to them about a blend and extend program where you extend the loan and increase the size early without getting into yield maintenance issues.
So, that's the nice thing that you get when you're dealing with lenders that you can talk to as opposed to publicly securitized debt.
Todd Thomas - Analyst
Okay, and then just lastly -- I was just wondering, we've heard a lot about the warmer weather both impacting expenses and also tenant sales during the quarter as consumers may have been sort of out and about a little bit more.
Any evidence that the warmer winter pulled forward demand, and that we may see that trend sort of reverse a little bit in April and May?
Art Coppola - Chairman and Chief Executive Officer
No.
Todd Thomas - Analyst
Okay.
Thank you.
Art Coppola - Chairman and Chief Executive Officer
Thank you.
Operator
We'll take the next question from Tayo Okusanya from Jefferies.
Tayo Okusanya - Analyst
Yes, good afternoon, everyone.
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
Good afternoon, Tayo.
Tayo Okusanya - Analyst
Quick question on the outlet center space, just kind of given all the competition in the space, wondering how you are assessing any opportunities for you to do your portfolio?
Art Coppola - Chairman and Chief Executive Officer
Sure.
When we announced that we would be entering into the outlet space, we said that we were going to only be pursuing locations that we felt were -- had the opportunity to be dominant centers in the space.
Since we restricted ourselves to that type of quality profile, we indicated that, look, if we owned five or seven outlet centers after five years into this program -- that would be success.
I would say that that probably is still the way we view it.
That if we owned five or seven or a few more strong outlet centers after our first five years of introduction into the outlet arena that I would be very happy with our status, and we're certainly in no race for size or in no race to deliver.
We think that it's a natural compliment to our core businesses, but our goal in being involved in the outlet arena is to be involved with what we view as core-type of projects.
So, we have pretty modest expectations on the outlet side.
But, the nice thing about a Company that is big enough to matter, like we are, but still small enough to be nimble and to move the needle, is that if you add five strong outlet centers to a portfolio of our size, that moves the needle very considerably over a period of five years.
Tayo Okusanya - Analyst
That's helpful.
Could you give us a sense of what kind of markets in general would meet your definition of a market you would be interested in?
Art Coppola - Chairman and Chief Executive Officer
The starting point is the markets that we currently are strongly interested in which is the West Coast, the East Coast, Chicago, and Arizona.
Tayo Okusanya - Analyst
Sounds good.
Thank you very much.
Art Coppola - Chairman and Chief Executive Officer
Thank you.
Operator
We'll take the next question from Ben Yang from KBW.
Ben Yang - Analyst
Yes, hi.
Thanks.
Art Coppola - Chairman and Chief Executive Officer
Hi, Ben.
Ben Yang - Analyst
Hi, how are you doing?
Art, you made a comment that the development front looks great, and you talked about some of your near-term plans, but you did not mention Phoenix.
But, at the same time, you also talked about sales in this market coming back pretty strong.
So, it seems like ground-up development here might be only a matter of time.
So, I was hoping you could just remind us first how much land you own or control, in and around Phoenix.
And then, maybe if you had any thoughts on what this land is worth today?
And, how investors should think about valuing this opportunity for you?
Art Coppola - Chairman and Chief Executive Officer
Well, when we -- we have control of land in different pockets.
Sometimes, we have options on land.
Sometimes, we own the land.
Like we own the land for the new mall that we would like to build in west Phoenix, in Goodyear.
We own that land.
It's at a fairly nominal cost there.
We don't have -- we have not announced an opening date for that.
We own land in North Scottsdale, at Scottsdale Road and the 101.
And, we have not announced any plans for construction there.
We own land north of Tucson, between Tucson and Phoenix and Marana.
These are parts of the growth Corridors in Phoenix, but until we announce that we're coming out of the ground, I would not try and monetize those land positions in terms of the way you view that land.
As we announce the projects, the value of the land will be evident in the overall returns -- expectations that we expect to see.
We own all of the land that we own free and clear.
We don't owe any money against any of it, I don't think, right, Tom?
We're all free and clear.
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
Correct.
Art Coppola - Chairman and Chief Executive Officer
So, it's a non-income producing asset that we think will serve us well in the years to come.
We think we own the right land in the right locations, and -- but we are committed to the idea of only building when we think it is time to build.
When you have a market like Phoenix where you control the best land, you're in no rush to build something before it's time.
We're not going to build projects in Phoenix before their time.
Ben Yang - Analyst
Got it.
It just seems like maybe a few years from now, it could be the most interesting part of your story.
So, do you own and control 500 acres?
Is it 1,000 acres, or even more than that?
Is that the opportunity that's in front of you, obviously, several years down the road?
Art Coppola - Chairman and Chief Executive Officer
It's less than 500 acres total.
It's a full site in west Phoenix.
It's a full site in north Scottsdale, and then, there's other land holdings that we have that would serve smaller developments.
But, those are the primary sites that we've got.
Ben Yang - Analyst
Okay.
Thanks.
Art Coppola - Chairman and Chief Executive Officer
And, we control land in different ways.
We have a right of first refusal on 2,000 of acres of land on the west side of Scottsdale Road and the 101.
Ben Yang - Analyst
2,000 -- .
Art Coppola - Chairman and Chief Executive Officer
And, it costs us nothing to have that right of first refusal on state-owned land.
Ben Yang - Analyst
You said 2,000 acres?
Art Coppola - Chairman and Chief Executive Officer
2,000 acres.
Ben Yang - Analyst
Okay, that's helpful.
And then, just final one on the balance sheet.
Is there any reason your average maturity on your debt hasn't really moved over the past few years?
It's still where it was before the crisis and much lower than what your peers are reporting.
Do you report maturities excluding extension options?
Or, is there maybe something else holding you back from pushing maturities out even further?
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
Well, that's what we're in the midst of now, Ben.
Most of the debt that we put in place in 2008 was three extendable to four or five years.
So, we have that group of financings that we're working through right now.
And, as I mentioned, Queens is going to be financed here shortly.
The Oaks was one of those loans that was initiated in '08.
That's going to close in the next couple of weeks.
So, you will gradually start seeing our maturity schedule lengthen over the course of the next 12 months pretty significantly.
Ben Yang - Analyst
Okay, great.
Thank you.
Art Coppola - Chairman and Chief Executive Officer
Thanks.
Operator
We'll take the next question from Alexander Goldfarb from Sandler O'Neill.
Alexander Goldfarb - Analyst
Good morning out there, and thank you.
Just, Tom, along those lines, on Queens Center and NorthPark.
Those are two loans that are coming up.
On Queens Center, sort of curious, just given it would seem to be a bit underlevered.
Should we think about something in the $500 million, $600 million range on a refi, or possibly bigger?
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
I think in the range of $600 million is in the ball park, Alex.
You're right.
It is very underleveraged today.
Alexander Goldfarb - Analyst
Okay, and then on NorthPark.
What are some -- because again, same -- I would assume same thing sort of applies there?
What should we think about?
Art Coppola - Chairman and Chief Executive Officer
On that one, I would -- I wouldn't put anything into your modeling other than that the loan will get extended at current levels.
Alexander Goldfarb - Analyst
Okay, and then is there sort of an unencumbered minimum that you want to maintain?
Art Coppola - Chairman and Chief Executive Officer
No, we just think that having an unencumbered pool is something that we had never enjoyed until the last two or three years, and we created that pool through the liquidity events that we have had over the last two to three years.
It's a very efficient way to fund future development and redevelopment and acquisition opportunities because it doesn't cost you anything to have the pool unencumbered.
Having a line of credit that's unused has a standby feature that's attendant to that.
So, we just think it's a great, great source of fire power for us.
It's self-imposed -- the idea that we want to have an unencumbered pool.
Four years ago, I'll bet we didn't have $200 million of unencumbered assets.
Today, we've got $2 billion.
Alexander Goldfarb - Analyst
Art, I'm not talking some sort of covenant.
I'm just talking internal management.
Like, hey, we want to have $1 billion, we have to have $1.5 billion.
Something like that.
Art Coppola - Chairman and Chief Executive Officer
No, we don't have any specific self-imposed minimums.
We will -- we decided to build up a large unencumbered pool a year or so ago because we knew it would be a great source of capital to fund our development pipeline, and so we did it.
Alexander Goldfarb - Analyst
Okay, and then just final question.
Tom, this is sort of going back to Christy's question at the beginning.
In the income statement, a lot of the lines seem to move around.
Was there anything that happened from bringing on the unwind of the Simon JV that changed any of the individual lines on the income statement?
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
Well, they went from being unconsolidated joint ventures to being consolidated entities, so they moved up to the same lines that you would see for other wholly-owned assets.
So, yes.
They all changed.
Alexander Goldfarb - Analyst
No, I know that.
But, I was wondering if there was any reclassification or anything like that that occurred?
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
No.
Alexander Goldfarb - Analyst
Okay.
Thank you.
Tom O'Hern - Senior Executive Vice President, Chief Financial Officer and Treasurer
Thanks.
Operator
Today's last question will come from Cedrik Lachance with Green Street Advisors.
Cedrik Lachance - Analyst
Thank you.
Good morning.
Art Coppola - Chairman and Chief Executive Officer
Good morning.
Cedrik Lachance - Analyst
Just wanted to go back to some of your comments on the retailers' margins, Art.
When you look at, let's say sales productivity over the last year or so, and you look at what's happening with the retailer margins.
Do you think today, to charge more from an occupancy cost ratio or from a percentage of sales is generated by those retailers than you were able to do so, let's say a year or two years ago?
Art Coppola - Chairman and Chief Executive Officer
Yes.
Cedrik Lachance - Analyst
If you were to separate that from, let's say the $600 a foot or $700 a foot malls versus the $300 or $400 a foot, by how much would that margin differ?
Art Coppola - Chairman and Chief Executive Officer
Actually, I don't think there's a great difference.
I was looking at those numbers yesterday, and I was actually pleased to see that leasing spreads in our lower productivity malls, if that's your question, were as healthy as the higher productivity malls in the last three to six months.
Cedrik Lachance - Analyst
But, if you look at, let's say, market rent over the last year instead of releasing spread, which is more like over the last five to seven years.
How would you gauge the improvements at the $300 or $400 a foot versus $600 to $700 a foot?
Art Coppola - Chairman and Chief Executive Officer
Good.
I would gauge the improvement to be good.
You've got retailers who are willing to consider some of the lower productivity malls today because of the scarcity of supply that's available to them when they couple their own internal demand needs and the lack of supply available to them after they run through the top 200 malls in the United States.
They have no choice but to then look into lower productivity centers that are still very well anchored, very well located, and many times, monopolistic in nature.
So, the level of appetite from retailers in those locations is good and certainly better than it was a year ago.
I have to say, Cedrik, that the piece that your firm did on operating margins, I thought was one of the more thoughtful pieces that I've seen recently because you are focusing on not just sales per foot, but operating margins.
And so, that applies to the $300-a-foot centers as much as the $700-a-foot centers.
Remember, that if the retailer is making money, then he's making money in the $300-a-foot center also.
That is evidencing itself in terms of the demand that we are getting and the deals that we are making in those centers.
Cedrik Lachance - Analyst
Okay, that's great.
Thanks for the positive feedback, and thanks for the answer.
Art Coppola - Chairman and Chief Executive Officer
Thank you.
Operator
That does conclude today's question-and-answer session.
I would like to turn the conference back over to our speakers for any additional or closing remarks.
Art Coppola - Chairman and Chief Executive Officer
All right.
Well, thank you so much for joining us, and we look forward to seeing you at the upcoming industry events over the next month or so.
Thank you so much.
Operator
That does conclude today's presentation.
Thank you for your participation.