Macerich Co (MAC) 2005 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the Macerich Company fourth quarter 2005 earnings conference call. [OPERATOR INSTRUCTIONS

I would now like the turn the conference over to Georganne Palffy of the Financial Relations Board.

Please go ahead.

Thank you, everyone, for joining us today for the Macerich fourth quarter earnings call.

If you do not have a copy of the release, you may access is it the Company website at www.macerich.com.

During the course of this call management will be making forward-looking statements, which are a subject uncertainties and risks associated with the business and industry.

For a more detailed description of the risk, please refer to the Company's press release and the SEC filings.

Management will discuss certain non-GAAP financial measures as defined by SEC regulation G. The reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure is included in the press release for the quarter, which posted on the Company's home page under the section entitled investing.

I would now like the introduce the members of management with us today.

Mr. Art Coppola, President and Chief Executive Officer, and Tom O'Hern, Chief Financial Officer.

And I will turn the call over to Tom for his opening remarks.

Please go ahead, sir.

Thank you, Georganne.

Art and I will be discussing the results for the year 2005, as well as the fourth quarter, recent transactions, upcoming opportunities, and our outlook for 2006.

We had another very good quarter.

Our business fundamentals continue to be very strong, with good tenant sales gains, continued high occupancy levels, very strong releasing spreads, significant redevelopment and capital activity, and double-digit -- and another double-digit quarter for FFO growth.

Total same-center tenant sales for the portfolio were up 5.5% for the quarter and up 5.8% for the year.

Looking at the sales growth by region for the quarter, Southern California was up 3.1%, Northern California and the Pacific Northwest was up 3.9%, the Inner Mountain region was up 1.5%, the Eastern region was up 3.4%, the Central region was up 3.7%, and Arizona was up strong once again, up 14.5% for the quarter.

On a comparable tenant sales basis, sales were up 4.5% for the quarter and 4.4% for the year.

Looking at total mall sales per square foot for the year, they came in at an average of $417 per square foot; that compared to $391 at 12/31/04, for a 7% increase.

Occupancy levels remain very high, with a quarter-end occupancy at 93.5% on a same-center basis.

Excluding the 2005 acquisitions, the occupancy level was 93.3% compared to 92.5% a year ago.

The leasing activity was again excellent.

We signed 325,000 square feet of specialty-store leases.

The average new starting rent was $37.41 per square foot.

The average releasing spread was up 22.5%, that's on a cash basis.

That excludes any impact for straight lining of rent, which would increase that positive spread.

The average releasing spread for the year was 20 -- positive 20.1%.

Occupancy costs as a percentage of sales remains as a healthy level, slightly lower than last year.

On a blended basis for wholly-owned and JV, it came in at 12.0%.

The average rent per square foot in the entire portfolio is currently at $33.40 a foot.

Now taking a look at results of operations for the quarter, FFO per share diluted came in at $1.32.

That was a 13% increase compared to the fourth quarter of last year.

EPS was $0.38 per share for the quarter, compared to $0.51 in the quarter ended December 31, 2004.

The drop in EPS was primarily due to increased depreciation amortization expense, primarily resulting from the acquisition of the Wilmorite portfolio.

The strong growth in FFO per share for the quarter was driven by same-center NOI growth of approximately 3.4%.

For the year, same-center NOI growth was 3.1%.

Gain on land sales in the quarter was $200,000.

That's down from $1.5 million in the fourth quarter of last year.

Rental revenue attributable to SFAS 141 for the quarter was $5.1 million, compared to $3.4 million in the fourth quarter of last year.

CPI rent increases contributed $850,000 to the quarter, compared to the fourth quarter of 2004.

Also impacting FFO for the quarter was the refinancing of Valley View Mall.

We put a new loan in place of $125 million at 5.7%, fixed for five years, and we paid off the old loan of $51 million at 7.9% interest.

That was an advantageous refinancing for us, but there was a prepayment penalty of $1.7 million, which adversely affected FFO for the quarter.

Excluding that, FFO for the quarter would have come in at $1.34.

Interest rates during the quarter, the average interest rate was 5.89%.

That compared to 5.5% for the fourth quarter of 2004.

The average maturity of the debt was 3.91.

Looking at just the fixed-rate debt, the average life is 5.24 years, and the average rate on the fixed rate debt's 6.1%.

On January 27, we declared a quarterly dividend of $0.68 per share to shareholders of record on February 23, 2006.

That's payable on March 8.

Based on the mid-point of our 2006 guidance, our dividend payout ratio is a very healthy 59.6%.

Since our last earnings call, our balance sheet has been significantly improved.

At year end, before our equity issuance, we had $6.85 billion of debt, including our pro rata share of unconsolidated entities of $1.55 billion.

Our floating rate debt to market cap at that time was 20%.

Our floating rate debt was 35% of our total debt, and our debt-to-market cap was 56%.

Interest coverage for the quarter was 2.2 times.

During the quarter, we swapped an unsecured corporate-level loan of $450 million from floating to fixed with a five-year term.

That bears an all-in rate of 6.2%.

In addition, we continue to pursue our strategy of putting long-term fixed-rate mortgages on properties, and using the excess proceeds to pay down floating rate debt.

An example of this was the refinancing of Valley View Mall, which happened in late December.

We have similar refinancing planned on the IBM portfolio and on the Los Cerritos Center, both of which are 2006 maturities.

On January 11, we agreed to sell our underwriters 9.5 million shares of our common stock before the Greenshoe.

The initial proceeds without the Greenshoe were $650 million.

The price paid by the underwriters was $68.25 per share, and they were resold the next day to the investors $69.50 per share.

The invest or demand warrantied the Greenshoe, which was exercised for an additional 1.4 million shares, so the total shares issued were 10.952 million.

Total proceeds were $747 million.

Those proceeds of $747 million were used to pay down the remaining Wilmorite acquisition debt of $619 million, and the balance went against our revolving line of credit.

Post offering, our floating rate debt as a percentage of market cap dropped to 13%, and a total -- floating rate debt as a percentage of total debt dropped to 27%.

The total debt-to-market cap today is about 48.5%.

This recent activity left our balance sheet in excellent shape, with the capacity to handle upcoming development and redevelopment activity that Art will be discussing in a few minutes.

In this morning's press release, we gave earnings and FFO guidance for 2006.

This guidance reflects the recent capital activity including the equity issuance, the Valley View refinancing, and the interest rate swap.

The range of guidance for FFO is $4.50 to $4.60 per share.

It is also important to note that our -- what our quarterly split is with an estimate of 23% being in the first quarter, 22% of that estimate in the second quarter, 24% in the third quarter, and the balance of 31% in the fourth quarter.

The assumptions included in that guidance were same-center NOI growth of 3 to 3.5%, very comparable to this year.

We assumed that LIBOR well increase to 5% by the end of 2006.

That, for the most part, matches the one-year forward LIBOR curve.

Obviously, there's a negative impact on 2006 versus 2005, based on the fact that short-term rates are up 200 basis points from a year ago.

I think on average with our assumptions, we expect that LIBOR will be about 100 basis points higher on average than it was last year, And even though the Company's reduced our floating rate debt significantly, it'll still have a negative impact on the comparison to 2005.

Our estimate of that negative impact versus 2004 is about $0.20 per share.

At this point, I'd like it turn it over to Art to discuss redevelopments, developments and other major events and opportunities for us.

Thank you, Tom.

As you can see, we had another great year in terms of our sales results, our leasing spreads, and our occupancy levels.

All of our fundamentals are in very, very good shape, and we are very much looking forward to 2006 and beyond.

Obviously, the big highlight of 2005 was the acquisition of Wilmorite.

One of keys in acquiring Wilmorite was to properly execute the 400,000 square foot expansion that was underway when we went under contract on Wilmorite in December of '04.

We were able to open up that 400,000 square foot expansion on time and at revenue levels above our previous estimates.

The $130 million expansion -- and remember we own 50% of this center with the Alaska Permanent Fund -- was opened up on September 29.

We had originally predicted return on investfun -- on total investment up around 11% on that expansion, and it came in at 12%.

Sales are absolutely on fire at Tysons Corner, and it is taken its place as one of the top handful of regional sales in the United States.

Sales are currently in excess of $700 a square foot.

We are making good progress on a three million square foot entitlement on the perimeter of the Tysons Corner.

It would involve office and residential and hotel, and are hopeful that by the mid part of this year, that that entitlement will be in place.

So, obviously, we're extremely happy with our acquisition of Wilmorite.

When we bought Wilmorite, we'd indicated at the time that we felt our first year total return on total investment would be approximately 6%, and that our second year -- full year ownership would be about 6.75%.

We have just completed our 2006 budgets for Wilmorite, and we currently see returns in excess of those levels for 2006 at approximately 7%.

And that's all without taking into consideration any straight lining of rents or SFAS 141 returns, which will take the return on the portfolio up to about 7.25% for this year.

So we're very, very thrilled with our integration of Wilmorite and with the execution that we've had there, as well as the upside that we see in that portfolio in the years to come.

As you know, during 2005 we debated about whether or not to bring a partner into Wilmorite.

And we decided, as you know, to keep ownership of that asset for our shareholders, because of the upside that we saw in the portfolio.

We're extremely happy to have been able to do this to rebalance our balance sheet through our recent equity offering, which gives us the capacity to fund a very big and deep development and redevelopment pipeline that I'll be discussing in a few minutes.

After the close of the year on February 1, we also announced that we have acquired a super regional center in Eugene, Oregon, Valley River Mall.

It's approximately a 916,000 square foot center, does $420 a square foot.

We bought it at going in returns around 6.6%.

It is currently anchored by Meier & Frank, which is a May Company operation, that will be converted to a Macy's, JC Penneys, Bon Marché, which will be sublet to another department store user by Federated -- it will be an announcement to come -- and we're under construction on the addition of a new 75,000 square foot Regal theater to be added to do that center.

Again, as I mentioned, our redevelopment and our development pipeline is extremely strong.

I visited Boulder last week, met with the city manager and visited our site. 29th Street is going to be a fabulous project.

The vast majority of the project will open up in late October and November of this year.

We're hopeful to still be able to get our theater open this year in November.

That could slip until just after the first of the year.

But this project's approximately $130 million of new investment.

I am convinced that it's going to be one of the great mixed-use lifestyle-type of centers in the United States, and that it's going to be extremely well received in the city of Boulder.

Leasing is going terrific.

We're going to have a fabulous group of tenants that are going to be there, and our return on our new investment there still looks to be solid at around 11%, so we're very, very happy with that.

Again, based upon the strength of our Arizona marketplace, we are moving forward with two new regional sites over the next three years.

In Gilbert, we are moving forward with the 1.2 million square foot SanTan Village.

That will open up in phases, with the first major phase opening up in 2007 and the second phase opening up in 2008.

At Astrella Falls, which is in Goodyear, that project will open up in phases also; most likely with the first phase in 2008 and the second phase in 2009.

I say that we are opening these in phases because of the fact that we are building these in an open-air configuration.

Also, in addition to that, there has been some turbulence in the Phoenix marketplace with the acquisition by Macy's of May Company, so that has caused Macy's to have to digest the commitments that May Company had made to these two new projects.

And, so, we're not exactly certain when Macy's will open in the projects.

But the vast majority of SanTan Village will open up, it appears at this point in time, in late 2007, with the balance of it in '08.

Also in 2007, we are going to be completing about a 400,000 square foot power center and remodel of our Flagstaff Mall in Flagstaff, Arizona, at a cost of around $50 million, returns of around 10.5 to 11%.

We're under construction right now on a large, independent theater project, operated by Landmark Theaters, at our Westside Pavillion project, which will cost us approximately $28 million with returns of between 8 and 9%.

Overall returns on both SanTan Village, as well as Astrella Falls, which is Goodyear, will be in the 10 to 11% neighborhood, with overall costs in the $200 to $250 million neighborhood.

Looking further at our pipeline in 2008, we anticipate completing the expansion and redevelopment of Thousand Oaks Mall, The Oaks, which is in the city of Thousand Oaks.

That project is one we hopefully are going to accelerate as a consequence of the May Company and the Macy's merger, as it will allow us to go ahead and to bring Nordstrom's into the project about a year to two years sooner.

We are now in with a reconfigured site plan with the city of Thousand Oaks.

Once we get that approved, we'll be able to disclose total costs there, as well as returns.

But clearly, that will also be a project of quite significance, in the $150 to $200 million neighborhood.

Our project at Santa Monica Place was also is going to be freed up for earlier redevelopment than we hoped.

We'll be working with the city of Santa Monica over the next six months to get an entitlement to go ahead and to redo that center.

We are hopeful that most likely by the year 2009, we will have that completely redeveloped.

As time goes on, we'll be happy to share more details.

In terms of the large densification projects that we are working on, I mentioned the three million square foot entitlement that we're working on at Tysons Corner.

That's coming along very, very well.

And also recently were able to get approval to add four new towers to build more fashion park.

We are currently working with the city of Phoenix to go ahead and to finish off our entitlements of those towers, but that could easily involve the addition of another 500,000 to 600,000 feet of office, residential and/or hotel for that project, so we're very, very enthused there.

We can easily see that over the next four to five years that we will have development, redevelopment opportunities in the $300 to $500 million neighborhood per year.

And that, really, is what drove us to decide here earlier this year to really rebalance our balance sheet, and to give us the fire power and the ammunition to fund this large and deep redevelopment and development pipeline.

On the redevelopment front and on the Federated front, we continue to discuss with Federated the 11 locations where they have dual locations with us with both a May Company and a Federated store.

We're hopeful to be able to make an announcement about our progress on that over the next 30 to 60 days.

We're very optimistic that we're going to be able to work out something that makes a lot of sense for Federated, as well as Macerich.

And we're confident that it's going to trigger an accelerated redevelopment and expansion of the Oaks, of Santa Monica Place, of Scottsdale Fashion Square, of Paradise Valley Mall, of Cerritos, of Lakewood, of Pacific View, and of Danbury in Connecticut.

So we are very, very bullish on the overall anticipated results that opportunities are going to be created from those discussions.

At this point I'd like to open it up to Q&A.

[OPERATOR INSTRUCTIONS] We'll take our first question from Michael Bilerman of Citigroup.

Art, I was wondering in terms of reloading the balance sheet, you talked a lot about the redevelopment and development opportunities which are pretty exciting.

Has your thought -- have your thoughts changed at all in the acquisition market?

What do you see out there?

You've been opportunistic and you've done a few transactions.

I'm wondering if anything's changed?

I really don't see much opportunity in the acquisition market at this point in time.

We knew that Valley River was the center that we managed.

It fits very nicely in our Pacific Northwest portfolio, and we were in a very good position to buy that when it came on the market a couple of months ago.

I don't see anything in the near future that's going to be coming on the market that's going to be of great appetite to us at all.

And that's -- again, as I discussed in recent conference calls, one of the things that drove us to make the decision not to bring an entity-level partner into the Wilmorite portfolio because the scarcity value and the opportunity to buy assets of the quality that we've been able to buy I think is dwindling very much so.

And I really don't see anything on the current horizon acquisition- wise that is going to be of great interest to us, other than the opportunity to acquire several of the Federated May Company stores directly from them. but that's obviously not a full property acquisition.

It's an augmentation.

Okay.

Then, Tom, a couple of questions on the balance sheet and guidance.

You were talking $450 million that you refined at 6.2%.

What -- when did you do that in the quarter and what was the expiring rate?

It was a swap, Michael.

We had some unsecured debt that was floating at LIBOR plus 150 and we swapped it out for five years.

And that was done mid-quarter.

Okay.

And then, in terms of '06 guidance, any land sales in there?

There is a very modest amount of land sales about $500,000 and that compared to about $3 million, I think, in total for this year.

Okay.

And then, in terms of the management income line, which is a negative -- negative $25 million in '05, negative $16 in '04, I guess we net-up their income and expense.

How does that look for '06?

I expect '06 to look comparable to what our last two quarters were.

And the only reason -- just to reiterate, the only reason that looks negative is we don't charge ourselves a management fee on our wholly-owned assets.

So, if you took the wholly-owned revenues and took a market-management fee of 4%, that would equate to our differential between the revenues and expenses.

So we typically operate the management company at a breakeven.

Okay.

And then do you have the debt amortization in terms of FAS 142 and straight line rent numbers for the quarter?

The amortization I don't have here, Michael.

That'll be in the Q that'll get filed in the next couple days.

But in terms of straight lining of rent for the quarter, straight line rent for the quarter was $6.4 million, and that compared to about $100,000 for the fourth quarter of last year.

And then going the other direction, lease termination revenues for the quarter were about $600,000, and that was down from $2.6 million in the fourth quarter of '04.

And your $6.4 million is on a -- your share of the JV's as well?

Yes.

It's JV's at pro rata.

Was there something.

It was $3.7 million last quarter.

Was there something that caused it to rise considerably?

It was a true-up on the Wilmorite acquisition that increased some of that, particularly at Tyson's.

We also had quite a few new leases starting Tyson's with the expansion that included a straight lining component.

Is there anything in '06 guidance that would change from what you've experienced in '05, related to the non-cash items?

No.

Nothing burns off at all?

Well, you've got new leasing activity.

It is a little hard to predict how much of that's going to include a straight-lining component.

As we've said for years now, our preference is to not build in a fixed bump, but rather go with CPI increases.

So, generally, when we have big fluctuations, it's as a result of acquisitions where the leases have already been cast before we've done our acquisition and that was the case this year with Wilmorite and, in particular, Tyson's.

Thank you.

Thank you.

We'll take our next question from Lou Taylor of Deutsche Bank.

Hi, Lou.

Good morning, guys.

Art, you had mentioned that you thought you'd have $300 to $500 million of redevelopment spend annually over the next four or five years.

Did I get that right?

Redevelopment and development.

Redevelopment and development.

Yes.

Okay.

Second question is for Tom.

Tom, given the better balance sheet now, any plans to redo that line, because that spread's looking a little expensive?

That's a great idea, Lou.

I love it.

We're definitely watching that, Lou.

We've got a group of about 26 participants that not only participate in that line, but a lot of other business we do.

They were paid off as scheduled on the acquisition debt for Wilmorite, and they're, I think, eager to do more business with us, so we'll definitely do that.

We're keeping an eye on it and as spreads tighten on the unsecured lines, as well as the -- occasionally the covenants and provisions get more favorable, we monitor that constantly and it's entirely a possibility for '06.

Operator?

We'll go next to Ross Nussbaum with Banc of America.

Hi, it's Christi McElroy here with Ross.

Your G&A seemed a bit low in the quarter at $2.2 million.

Just wondering what was behind that and what level you're assuming in your '06 guidance?

Christine, on G&A you really have to take an annual number, and a lot of the G&A ends up being front-end loaded with audit fees and Sarbanes Oxley costs and things like that, so I wouldn't annualize the fourth quarter. 'd use the annual number, which ran about $12 million for the year, and it's going to be in the $12 to $14 million range is our estimate for '06.

Okay, great.

And then the refinancings of IBM and Los Cerritos, is that in your guidance, as well?

Yes, it is.

It is, okay.

Do you own any of the stores that Musicland plans to close, and what's your total exposure there in terms of number of stores and annual base rent?

Yes, we do have some Musicland stores and we estimate that about half of those could potentially be closing.

We've got 60 and we'd estimate that 26 to 30 may close, so that would be 100,000 to 125,000 square feet, something like that.

The rents they're paying are in the neighborhood of $29 a foot.

Okay, great.

Thank you.

Thank you.

We'll go next to Alexander Goldfarb with Lehman Brothers.

Hey, how are you?

Great.

It is good to hear that there's progress on Santa Monica Place.

We also have a new city manager, frankly, that I think is a real doer.

I met with him -- last week was city manager week and I met with him on Thursday, I think ,of last week, and was very, very enthused.

One of the problems we've had in Santa Monica is we have not had a strong city manager to stand up to that council for three or four years.And this city manager is a very strong city manager.

He was actually city manager in Durham, North Carolina, and helped Urban to build the mall that they build there about four or five years ago, and understands the games.

So, between a combination of hopefully being able to recapture the Robinson May box from Federated, and getting some traction with this new city manager, I'm very hopeful that we're going to be able to move forward with that project and really do something exciting.

Okay.

Well, then, hopefully we'll see good press come out of this this time.

Well, the press will never be good in Santa Monica. [LAUGHTER] But the results for our shareholders will be.

Well, one can hope.

My questions are first just an accounting question.

The share count, what share count should we use for '06?

I noticed it went up but I'm not sure if that's just -- could have been the money shares or not?

You'll have to add the newly issued shares and --

So, we should add them to Q4 share count, or is that Q4 share count higher than it should have been?

No, it's -- add them to the Q4 sair share count.

Okay.

Great.

My next question is turning to Phoenix, it's a two sided question.

One is the Palestine development, is that a new development or is that a renaming of the one of the existing sites?

Second on Phoenix, with Simon's major acquisition in that market of the DaimlerChrysler site, do you see any other large development sites like that coming to market?

First of all, on Palestine, that was formerly called Paradise Ridge by us, so that was always one of our pipeline assets.

That is 2000 acres at the northwest intersection of the 101 and Scottsdale Road, which we anticipate will be coming up to auction by the Arizona State Land Department most likely next year.

And we've got the right of last look, or right of last refusal to build that project, so that's really a renaming of that particular project.

In terms of other large sites that are going to become available, we currently have got another four or five properties that we have got under option that we've been working on, as we look at what we call Phoenix 20/20.

And at the right time, as those developments take more shape, then we are going to be announcing exactly what we foresee.

But we've got a very deep pipeline of new opportunities as we continue to go out past the ring roads, as the new freeways are built, and as we go into the areas of the high growth in the Phoenix and the Tucson marketplace.

We anticipate a lot of activity there, also, that we'll be reporting on this year.

Okay.

You said that that land auction is next year '07?

Well, it's when the Arizona State Land Department decides it's going to be, but from all appearances, it should be early next year.

Okay.

And then, these four or five sites, these are ones that are already locked up under option or you're looking at locking them up?

We have a couple of them und -- we have three under option, and then others that we will be discussing in our next conference call.

Okay.

My final question just goes back to the equity raise.

Does -- this equity raise, in your view, does it represent a resetting of the leverage for the Company, or is this merely recharging the balance sheet and we should expect leverage to go back up as the development and redevelopment pipeline comes to fruition?

It all depends on dispositions and how that plays into the equation.

I really viewed it as being something that is -- was done to give us the firepower to fund this large development pipeline that we've got coming up over the next four to five years.

Okay, so we should expect leverage to go back up?

Well, I think it may go up as these are being constructed but, remember, we're building this stuff at a 10, 11, 12% return on costs, so there's a built-in equity component when these projects are finished.

So, although we'll be using capacity, I don't think you'll see the overall leverage as it relates to asset value or market -- well, not so much market cap, that's hard to predict.

But in terms of asset valu,e because when we're done with these projects, there's going to be a built-in element of equity there when we are finished, above and beyond our costs, and above and beyond whatever leverage we've had it use. debt in our line of credit.

And certainly this year with significant amount of refinancing activity that we'll have, that'll be leverage-neutral, because we'll essentially be taking and refinancing mortgages at higher proceeds levels and then taking those proceeds to reduce balances on our floating rate debt in our line of credit.

So, I would anticipate our leverage levels this year to be right about where they are right now.

Okay.

Thank you very much.

Thank you.

We'll go to our next question from Matt Ostrower with Morgan Stanley.

Good afternoon.

Hey, Matt.

Hey.

Just to try to understand your guidance a little better, I guess conceptionally.

So if I read your disclosure on the variable rate exposure, you're sort of talking about a $0.20 to -- it looks like as well to 2006 numbers if interest rates weren't to change the 100 basis points that you basically built into your forecast.

Is that a safe number and if so, then that's about 6% on your growth rate, so if we hold interest rates constant, would it be fair to say your guidance would have been something in the 9 to 11% or 10 to 12% range?

Is that a fair way of looking at it?

That's correct, Matt.

And so, can you just sort of walk through -- you've give us the same-store NOI piece, which is the sort of -- I guess if you lever that up, you're talking 5 or 6% growth on FFO.

Where does the remainder come from, and to what degree is that being affected by things other than development?

I was surprised by the magnitude it, given the offering and the dilutive nature of that.

I am sorry, Matt, you broke up a little on the last part of your question.

Sure.

The remainder -- I guess I can explain about half of your growth rate, maybe a little bit less of that, the ex-interest rate growth rate.

I can explain about half of that, using same-store growth you've provided.

Is the remainder just accretion from the developments that you're delivering, or the redevelopments you're delivering?

No, I would say it is your first full owner -- year of ownership of Wilmorite in 2006 is what's going to deliver the balance.

In '05, we didn't bring online a significant dollar amount of redevelopments and then in '06, our major redevelopment that's going to hit the books is going to be in November -- 29th Street, so a big component of it is the Wilmorite, also.

We've also got Washington Square and Fresno, which are two redevelopments that are going to come online and have a positive impact in '06.

Okay.

Okay.

I guess I was a little bit surprised by how accretive Wilmorite was given the initial yield but, obviously, NOI has improved there.

When you look at the cost of the debt that you had and the nominal cost of the equity you issued, it wasn't that far off from the Wilmorite yield, I guess?

At least the initial yield, but I guess with expansion there, I guess it becomes more accretive?

Is that --

Well, I mean -- Well, first of all, we were very conservative, I think, when we announced the initial returns and we said we saw the first year to be around 6% and the second year to be around 7.75%, and we're very conservative in our underwriting.

And just from an operational view point, we've been able to realize some enhancements.

And then, of course secondly, the Tyson's redevelopment -- the $130 million expansion there came in at better returns than we anticipated ,and then we'll have that expansion in our full year numbers.

So Wilmorite definitely is driving a significant share of the growth in '06.

Okay.

Great.

Just a couple of other detailed questions.

It looked to me like the recovery ratio was certainly higher than year-ago levels, but seems to be sort of running at the same level versus 3Q.

Just for forecasting purposes, is that sort of a decent runrate to use, Tom, or something unusual there?

Yes, if you look at it on a full-year basis, Matt, we were right about 94% and that compared to like 95.5% last year.

I think you'll see that gradually move up, as we go to more fixed-cam provisions.

About 26% of our leases are fixed-cam today, and our goal is to have that about 50% next year.

So, I think if you use the 95% recovery rate, that's going to be in the ballpark.

Okay, great.

And then, I think the only other number that I didn't get from the call was did you give a full-year rent spread number?

Yes, full-year rent spread was a positive 20.1%.

21% you said?

20.1%.

Okay, thank you very much.

Thank you.

Thanks.

We'll go next to Michael Mueller with JP Morgan.

Hi.

Hi, Mike.

Hi, Mike.

How are you?

Good.

A few things here.

I know you touched on the refinancing of IBM and the Los Cerritos, but do you have update in terms of timing or what you expect your share of the excess proceeds to be?

We're -- in IBM, we're out right now in the market, Mike, reaching out to a number of institutions that have been providing debt-to-book matris in Simon on a regular basis, and we expect those bids to be coming in shortly.

We've got a lot of flexibility here.

We're taking a pool of twelve assets that's previously been cross-collateralized.

We're going to do single asset financings.

They will not be cross-collateralized, but I think we can easily refinance the existing debt completely by putting mortgages on only seven or eight of the assets.

If we choose to go higher, we could probably each pull out as much as $100 to $125 million of excess proceeds.

It remains to be seen whether we're going to encumber all of those assets or just a few, but we've quite a few opportunities and we'll be, as a partnership, deciding what to do on those over the next 30 to 60 days.

If we look at your variable rate exposure right now, you're not looking for it to drop materially?

It'll drop.

There is $130 million of that debt floating, Mike, and I believe we're going to, in all likelihood, refinance all this debt fixed.

Okay.

And the timing on that would be -- that loan is payable on May 1.

Okay.

And Art, I think you mentioned and I apologize.

I missed this earlier.

You mentioned a 400,000 square foot power center and a remodeling in '07.

What was the center and what was the amount of capital for that?

It was $50 million, and it was Flagstaff in Flagstaff, Arizona.

And that's '07 opening?

Yes.

Okay.

And last thing for Tom, I know you touched on FAs 141 adjustment and the straight line rent -- the $6.4 million straight line rent and $511 FAS 141.

Are they decent runrates heading into '06 or are they not?

The FAS 141 is, Mike.

The -- a more normal runrate, I think, on straight line, it'll be closer to $5 million.

Okay, great.

Thanks.

Thank you.

We will go back to Michael Bilerman with Citigroup for a follow-up question.

I just had a follow-up on the refinancing.

Where's your line of credit today, in terms of the balance post the equity offering?

We're at about $750 million out of $1 billion line.

Okay.

And then when you think about the refinancings for IBM, Los Cerritos, and Salisbury, and the excess proceeds generated, you think it's a positive or negative impact to 2006 FFO?

We factored in that those refinancings would be done on a fixed-rate basis, and that that excess capital will go to pay down the line of credit.

So it's been factored in and it should be slightly positive.

Okay, and then in terms of your lease term fees, did you say how much it was for the for the year and how much you're expecting next year?

The total for the year -- bare with me here a second.

We're going to have a little bit of an unusual situation in '06, as is most of the sector, and that relates to the fact that Retail Brand Alliance is going to be closing a substantial number of their stores.

So we know we're going to have a fair amount of lease termination revenue that's going to be in in the first quarter, and then that's going to be followed by some vacancy as a result of them closing their stores.

So that's why -- you'll notice when we gave you quarterly guidance, the first quarter was higher than the second and the third.

That's because we're expecting a lease termination from Retail Brand Alliance in the first quarter.

Excluding that, we've been running -- for the year we had $5.9 million of termination fees.

That compared to $6.2 million in 2004, and we typically have been in a forecasting in the $4 to $5 million range.

And that's what we have absent the Retail Brand Alliance situation, which will be above and beyond that, and we expect that to hit in the first quarter and be in the $5 to $6 million range net, after we write off straight lining of rent and things like that relating to that chain.

So embedded in your '06 guidance you have about $9 to $11 million of --

9 to 10.

$9 to $10 million of the --

Yes.

And of that, 5 to 6 is in hand, already.

Right.

Where do you think the Street was off in terms of their estimates for 2006 relative to your guidance?

Well, I didn't really study anybody's model, Mike.

I'm not sure how people arrived at their numbers.

There was a very big range out there, and I think some people maybe put a number out there before we did our equity raise and didn't modify it, is my guess.

If you look at the core numbers that we're forecasting, same-center NOI's very close to what we had in forecast this year.

Occupancy levels are still factored to be strong, even with closures from Retail Brand Alliance.

The real difference is just on the capital side of the equation, I think.

It was just people not focusing on the equity raise and really what's happened with interest rates.

How do you view that equity raise in terms of dilution to your expectation prior to doing it?

Well, we said at the time we raised the capital that we felt it would be about $0.05 a share.

That capital was paying off what had gotten to be some fairly expensive acquisition debt.

And then just lastly, in terms of your rate increases for 2006, if you assume 25 early on and 25 later in the year?

We basically match the LIBOR curve.

So take a look at where the LIBOR spreads are for 30, 60, 90 days and then a full year, and we match that in our forecast.

Okay.

Great.

Thank you.

Thanks.

We'll go next to a question from Ralph Block of Focus Financial Corporation.

Hi, guys.

Hey, Ralph.

Are you seeing any signs that retailers are getting a little less aggressive in their space requirements, maybe due to a perception of slower consumer spending?

No, they're more aggressive and, again, this keeps coming back to the fact that -- you know, you're going to have to remember that it's the law of supply and demand, and our retailers are all growth-oriented companies themselves.

And the amount of supply that they have available to them is not growing at the same pace that their appetite for growth -- that they have in their appetite for growth.

So I think that that is very much evidenced.

The proof of all of that is in the leasing spreads that we have consistently been able to maintain over the last 20 to 30 quarters.

And when you have strong product ,you have strong sales productivity, which we do, strong occupancy levels, and you do business in high barrier entry markets and it's just the law of supply and demand.

Okay.

And I apologize if this question was asked and I just overlooked it, but what do you see in terms of store closings for this year versus last year?

Well, Ralph, in '05 it was a year where we did not have a lot of store closings.

We've got a few that are fairly visible that we think are coming up.

Retail Brand Alliance which I mentioned, and we have in the neighborhood of 40 stores with them, and we're negotiating final terms to a termination.

That's Casual Corner, Petite Sophisticate, August Max.

They do have a couple of chains they're continue to operate, Adrian Vittadini and Brooks Brothers.

And then, of course, Musicland, which is in bankruptcy.

We've got 60 stores with them and our feeling right now is we negotiate with them that 25 to 30 of those will be closed over the course of the year.

Okay, great.

And particularly for my wife's sake, I wish you well at the Oaks.

Thanks, Ralph. [LAUGHTER]

Thanks, Ralph.

We'll go next to Jamie Feldman with Prudential Equity Group.

Thank you.

Where would you estimate a stabilized yield on Value River Mall?

We announced it on acquisition around 6.6%, and we see good growth in that yield.

We see above average growth compared to the rest of our portfolio, and see that we can easily maintain 3 to 4% top-line growth out of that asset over the foreseeable future.

Okay.

And then as we think about the $300 to $500 million of development and redevelopment you mentioned --

Yes.

-- how do we think about that going forward in terms of -- is it safe to assume you're doing the low-hanging fruit first, and then overtime the yields should come down?

Or do you think across the board, it should kind of stay a -- I guess I'm just trying it figure out how to think about the returns in our model going forward?

Well, as we -- we've been specific about the returns on 29th Street that's coming in this year, $130 million, opens up in November around 11%.

On SanTan Village and on Astrella Falls, those are each $200 to $250 million projects, and we see those returns at being in the 10 to 11% neighborhood.

These are really market-driven deals.

The market and the retailers want these deals.

We obviously have hurdle rates of double-digits that we try to attain, especially on a new development, and we had a history of being able to attain that, and we anticipate being able to continue to do that.

And I guess the one thing that I would emphasize is that that pipeline, which -- the $300 to 500 million really that's starting 2007, but that's work that's going to be started this year with completions starting in '07.

If anything, that's on the light side of what I really anticipate, and that really is just picking up the big projects that we've identified.

We also have literally dozens of other projects that, from time-to-time, we're working on, whether if be a $10 million theater expansion at Victor Valley or the $28 million theater and mixed use expansion in Westside Pavillion.

We always have those types of projects in the planning stages coming off the success of the Fresno Fashion Fair lifestyle expansion and the Washington Square lifestyle expansion.

We're looking at doing more of those in our portfolio and those will also add up, as time goes on, at each and every one of these -- throughout our portfolio.

Is it safe to assume that it if the acquisition market were to look for attractive, that you'd probably pull in some of this spending?

Pardon me?

Is it safe so assume that if you found more attractive acquisitions in the next couple years that some of this redevelopment might slow down?

No.

We'd do both.

Alright.

Thanks.

Redevelopments and new developments we've always had delivered for us higher returns than going in acquisition returns.

And when we buy something, what we're really buying and the big criteria that we have when we buy something is does it have better growth or at least equal growth that we have in our current portfolio of assets, and are there major redevelopment opportunities.

And clearly in the Wilmorite portfolio, there are massive redevelopment opportunities and expansion opportunities and new development opportunities and that's really our criteria when we go to buy something.

Okay.

Thank you.

Thanks.

At this time we'll go back to Lou Taylor for a follow up question.

Please go ahead.

Back to the IBM portfolio.

With loans only going onto seven, eight of the dozen properties, are you considering selling the other four or five?

Is it still a potential outcome?

That's a potential outcome.

We're discussing it with David and his group, and we want to maintain flexibility on those assets because to the extent we decide to sell them in today's market with the entrepreneurial-types of buyers that are out there paying the best prices for some of these lesser-quality assets, they get more aggressive on free-and-clear assets because they can put 85, 90% leverage on them and see higher entrepreneurial-types of returns on the small amount of equity at the put into the deals.

We want to maintain the flexibility on the assets that we may want to prune in that portfolio to be able to get the types of buyers that are paying the highest prices for these sub-A class assets to give them an opportunity to pay us the highest price.

Great.

Thank you.

Thanks, Lou.

We'll take our next question from Greg Andrews with Green Street Advisors.

Good morning.

Hi, Greg.

Tom, maybe I missed it.

Did you mention the amount of the swap?

Yes, $450 million.

Okay.

Thanks.

And my only other question was we've heard a lot about construction costs over the last year being higher, and I'm just kind of interested in what your experience has been on a construction cost front?

Costs are definitely higher.

I think it depends somewhat on your market.

So far, we were able to just recently complete both our Fresno Fashion Fair, lifestyle expansion, Washington Square lifestyle expansion, each of them were completed on time and either on or under budget.

We just completed on September 29 of 2005 the $130 million very complicated Tyson's Corner expansion, which was really completely done and built-out between December of '04 and September of '05.

But it's clearly an issue and something we've got to be cognizant of and it may result, in some of our new developments, in us being willing to accept returns of let's say 10, 10.5, 11% as opposed to returns that we used to be able to achieve of 11 to 12%, solely because of not revenue reduction but because of cost increases.

And to the extent that we find ourselves in a sub-market where construction costs are just completely out of control, there could be times where we'll defer a project to a time when there's more rationalization in the construction side of the business.

Are you seeing -- are the costs escalations sort of tapering off rate now, or have they just continued to rise in recent months, for example?

Again, from our experience, we've been able to hit our numbers and hit our budgets, but it is clearly something that, when we do a budget, for example, the other thing we do is in terms of our contingencies.

If we used to put X amount of contingency in our budgets, we're doubling and almost tripling our contingencies on our new budgets, as we move forward.

Great.

Thanks.

Thanks.

We'll take our next question from Ross Nussbaum from Banc of America.

Hi, guys.

Good afternoon.

Hey, Ross.

How are you?

Good.

I may have missed this.

Did you give your occupancy cost for the portfolio?

Yes.

The blended occupancy cost is -- including JV's and wholly-owned is 12%, and that's slightly better than last year, which blended was 12.1%.

How different is the Westcor assets from that portfolio average?

I would think about the strong sales growth it might be a little lower?

-- off when we bought Westcor three to four years ago, that portfolio occupancy cost was around 13.

yes, it was higher than our portfolio average, and I think it's sales have increased so dramatically that's moved closer to our average.

Okay.

The next --

Even though we've been able to drive -- as we discussed in our previous conference call -- income dramatically in that portfolio and rents dramatically in that portfolio.

Okay.

The next question is a little qualitative and that is, now that Macerich is really a national company, have you made any changes from an operational perspective in terms of the way leasing is handled and the operational decisions?

And I guess when I say national, more of a national profile than you had before?

Are you talking about solely leasing.

Leasing, operational decisions, buying, sourcing materials, just a little bit of discussion on how things have changed over the last year, now that the East Coast presence is a little deeper?

Well, from a leasing perspective, we generally are more decentralized than most developers, period.

We generally believe in having our leasing people on-site at the property that they are leasing.

So that's for starters.

Secondly, from a leasing perspective as we've gotten bigger, what we've tried to do is we've tried to functionally reorganize our leasing team.

So, for example, we formed a brand that we call Lumenati, which is dedicated towards leasing and catering to luxury tenants, So that group handles the eight or ten luxury-oriented centers that we have in our portfolio.

We all now have recently formed the something called a national restaurant leasing group, that does nothing but lease restaurants across our portfolio.

We formed a big box and peripheral leasing group that does nothing but that across the portfolio.

We have always been decentralized in terms of bodies, but we have gone to some functional centralization according to product type, whether it be restaurants, big boxes, luxury, that type of thing.

From a real estate services view point, we've gone more horizontal Company and we've got very senior development and redevelopment people located in different regions around the country.

And so we've gone a little bit more of a horizontal system when it comes to development and redevelopment because we feel we can get better results that way.

Thanks.

That's helpful.

Okay, thanks.

With that, we will conclude our question and answer session.

I would like the turn the conference back to over to management for any additional or closing remarks.

Thank you very much for joining us.

As you can see we're extremely enthused about our prospects for '06.

We're very, very pleased with our results for '05, very pleased that over the last five years that we've been able to deliver 383% total shareholder return, which has been in the top ten of the entire universe over that period of time.

So we look forward to this coming here. t's a very exciting year, and we thank you for your continued support.