Macerich Co (MAC) 2006 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, thank you for standing by.

Welcome to the Macerich Company first quarter 2006 earnings conference call.

[OPERATOR INSTRUCTIONS].

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

Please go ahead.

Thank you and thank you everyone for joining us today for the Macerich earnings call.

If you do not have a copy of the release you may access it on the Company's website at www.Macerich.com.

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

For 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 is posted on the Company's home page under the section entitled Investing.

I would now like to 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 now turn the call over to Tom for his opening remarks.

Please go ahead, sir.

Thanks, Georganne.

Today we'll be discussing the first quarter results, recent capital transactions, upcoming opportunities and our outlook for the rest of 2006.

The operating metrics were again strong for the quarter with good tenant sales gains, continued high occupancy levels. strong releasing spreads, significant redevelopment activity and capital activity.

Total same center tenant sales were for quarter were up 4.8%, looking at that by region, southern California was up 2.2%, northern California and the Pacific northwest was up 7.2%, the inner mountain region was up 6.4%, the eastern region up 3.5%, central up 3.5%, and Arizona, again, strong in double digit growth at 10.3%.

Looking at a comparable tenant sales number that's space by space comparison with the first quarter of last year, tenant sales were up 2.9%, and the total mall sales per square foot for the rolling 12-minute period ended March 31, of '06.

Was $424 per foot.

The occupancy level at quarter end was 92.5%, on a same center basis excluding recent acquisitions the occupancy level was 92.6%, versus 92.2% a year ago.

Looking at the leasing activity, as we mentioned on the last call, we made a move to writing new leases with stated cam amounts compared to our historical approach of writing triple net leases, so in order to get a true comparison, we're now looking at the base rent plus the stated cam amount on new lease signings compared to the expiring rent and charges on a space by space basis.

There were 470,000 square feet of leases signed during the quarter, and on average, the-- the spread between the expiring rent and charges to the new rent and charges was 15.1%, again, this is on a cash basis.

If we were to do this on a straightlining of rent basis, that's spread would be even wider.

Average rent in the portfolio at quarter end was $36.81 per foot.

FFO per share for the quarter diluted was $1.05, that's a 6% increase compared to $0.99 in the first quarter of last year.

EPS diluted was $0.11 per share for the quarter ended March 31, of '06 compared to $0.30 for the first quarter of '05.

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

FFO per share of $1.05 although $0.01 below consensus estimate does match our very specific guidance which we gave for 2006, which was $4.50 to $4.60 with 23% of that coming in the first quarter.

Looking at some specifics for the quarter, same center NOI was up 7.6%.

However, as-- as previously mentioned when we gave guidance, there were lease termination income expected from retail brand alliance.

As a result we recognized about 7 million more lease termination income in the first quarter of '06 compared to the first quarter of '05.

Excluding those termination payments, same center NOIs grew 4.1%.

We got back about 145,000 square feet from retail brand alliance. 50% of that is already leased, another 25% is in lease documentation.

The rent expiring-- or the rent that they were paying on average was $29 per square foot with total charges of 47 per square foot which is right in line with what our new rents have been in this past quarter in terms of the total charge.

Gain on land sales for the quarter was 100,000 compared to 1.6 million in the first quarter of last year.

The expense recovery rate for the quarter improved to 98% for consolidated assets on blended rate with joint ventures.

It's about 94%.

That compared to consolidated recovery rate of 94% in the first quarter of last year, and this is primarily related to our switch to the stated cam approach.

CPI rent increases for the quarter was 1.2 million higher than the first quarter of last year.

The quarter results were adversely impacted by 1.8 million prepayment penalty on the payoff of some of our acquisition loans from Wilmorite that resulted from the January equity offering where we raised $474 million in proceeds.

Interest rates for the quarter averaged 6.02%, that compared to 5.85 % at March 31 of last year.

Average maturity on the debt of 3.73 years.

For fixed rate debt portion only, the average life is 5.2 years at an average interest rate of 6.1%.

The higher interest rates, primarily on the flooding rate debt had a negative impact on the quarterly results of approximately $0.05 a share compared to the first quarter of last year.

Looking now at the balance sheet, at March 31 of 2006, we had 6.3 billion of debt including our pro rata share of debt from unconsolidated entities of 1.6 billion.

As a result of our equity offering in January, and our refinancing efforts, our floating rate debt to total market cap at total end was reduced to 13.7% and our floating rate debt as a percentage of our total debt was reduced to 28% at quarter end.

We have a number of refinancings just completed or in process, including Salisbury and and the IBM portfolio and once those refinancings are completed our floating rate debt as a percentage of total debt will be down to 23%.

That's down from a high of 38% a year ago.

Our total debt to market cap was 48% at quarter end, and the interest coverage ratio for the quarter was 2.03 times.

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 corporate debt.

Two recent examples include the refinancing of Salisbury Center where we last week paid off an $80 million floating rate loan and replaced that with a fixed-rate $115 million financing at 5.79% fixed for 10 years.

In addition, tomorrow we expect to close on the refinancing of the IBM portfolio.

That's a portfolio that consists of a group of 12 malls owned in joint venture by Macerich and Simon Property Group.

The total debt that exists on that today is $626 million, of which about $268 million is floating.

It all has an average interest rate of 6.5% today and secured by all 12 of the properties.

Tomorrow we're placing a series of seven new 10-year fixed rate loans on the properties totaling almost $800 million at an average interest rate of 5.81% fixed.

The mortgages that will be encumbered as part of that financing are Eastland Mall, Empire Mall, Granite Run Mall, Rushmore, Mesa, Southern Hills Mall, and Valley Mall.

After the financing five of the malls in the portfolio will be unencumbered.

This financing not only reduces our floating rate debt, allows us to take advantage of some good long-term interest rates, but we gain a tremendous amount of flexibility but getting rid of the cumbersome cross-collateralized series of loans that were in place when we acquired that portfolio in 1998.

Moving now to earnings guidance for 2006, in this morning's press release, we reaffirmed the FFO guidance for 2006 with an annual range of 4.50 to 4.60.

Furthermore, we are reaffirming the quarterly split of that FFO per share, which was approximately 23% in the first quarter, which did factor in the lease termination payments when we gave guidance we knew retail brand alliance would be terminating some leases, and we factored that into our guidance.

That was in fact one of the reasons we give such a specific quarterly split. 22% of that annual guidance is expected in the second quarter. 24% in the third quarter and the balance of 31% in the fourth quarter.

I have noticed that some the estimates on the street have not factored in the quarterly guidance, so to the extent you haven't done so I would like to reiterate that and have you take another look at your estimates.

At this point I would like to turn it over the Art to discuss redevelopments and other major events impacting Macerich.

Thanks, Tom.

As you can see we had another very strong quarter with very good same-store retail sales, leasing activity was very good.

We anticipate a very busy ICSC session coming up in a couple of weeks with lots of appointments and lots of interest from retailers.

Our integration with with the Wilmorite portfolio continues to go well.

Our redevelopment pipeline continues to perform well and is extremely busy, and our new ground-up development portfolio, particularly in the Phoenix area is getting under construction and ramping up rapidly.

Our densification efforts at properties such as Tyson's Corner, Biltmore Fashion and now Scottsdale Fashion Square, as a consequence of getting back the Robinson's May store there, are intensifying and we are very optimistic about the opportunities that we're going to be able to achieve there.

One of the big stories of the quarter and maybe the biggest story the quarter was the final acquisition of those 11 Federated stores by us in 10 centers that there was overlap.

Turning back to the redevelopment portfolio itself, our project in Boulder remains on time and on target with the first major phase of it opening up in fall of this year, and then finalization of it in spring of next year.

Fresno Fashion Fair's life-style expansion will be wrapping up here in summer of this year.

It looks great.

Sales are doing fabulous.

Sales at this center could easily hit $600 a foot over the next year or two.

Our Power Center 440,000 square foot expansion in Flagstaff, Arizona is about to get under construction.

As I mentioned in the last call that's a 45 to $50 million project which we anticipate seeing around 10 to 11% return on with an opening there in fall of 2007.

And finally on the redevelopment side, our major theater expansion as an independent theater as well as restaurants at Westside Pavilion is underway and we anticipate completion of that in fall of '07 with a cost just under $30 million on that project and returns around 10%.

On the development pipeline, we are under construction at SanTan Village in Gilbert.

This will be a 1.2 million square foot regional center anchored by Dillards and Harkins, and ultimately another department store.

We anticipate over time that there are also be mixed use elements that will be added to the property including approximately 100,000 feet of second-level office space, the possibility of residential on top of parking structures, and maybe even hotels.

This project will open up the major phase of it will up in late next year with the final retail phases opening into 2008.

At Goodyear, our Estrella Falls project continues to move along well with planning there, and we anticipate that the first phase of this project should open in 2008 with completion of the major retail 1.2 million square foot mall completed in 2009.

On the densification front, we are continuing on our efforts to obtain a 3 million square foot entitlement to be of office residential and hotel to be added to Tyson's, and we're moving along well with that process as well as the opportunity to add three or four towers at Biltmore.

And now the opportunity to consider densification at Scottsdale Fashion Square.

As I mentioned, the big story for us this quarter was we were able to successfully acquire all of the 11 Federated overlap stores located in 10 of our malls that we-- that we had our eye on and that we talked about a couple of months ago.

In total there were 12 overlap stores and one of those stores Federated made a direct deal with Gottschalks up in Eugene, Oregon and just sublet that store to them, but for us this opportunity is going to open up a tremendous number of opportunities for us at the 10 properties that are affected.

We are effectively recapturing and giving the ability to recycle almost 2 million square foot of GLA that we are acquiring in these 11 boxes, and when you look at it we think about the land area and the mass of land that we are also picking up.

We're also picking up somewhere between 120 and 140 acres of developable land that was either previously encumbered by a Federated lease or was owned by Federated previously.

The nature of the redevelopment that will be triggered at these ten properties will vary, property by property.

We're going to be very, very patient as we go about the process of redeveloping these asset.

These 10 properties are all very, very strong assets as they are today with sales per foot averaging approximately $500 per square foot today.

As I mentioned on previous calls, should we will successful in getting these boxes back, which we now have, I indicated that I fell that it would tremendously accelerate the redevelopment and the expansion of a couple of properties in particular.

One in particular the Oak Shopping Center in Thousand Oaks.

We reacquired two boxes from Federated there.

We now anticipate opening a new Nordstrom at the Oaks with the full expansion and remodel completed by late 2008, which was roughly 18 months faster than what we had hoped to be able to accomplish there.

We are still finishing up our entitlements, finishing up our approvals in the city but we're very bullish on that particular location.

At Santa Monica Place this gives us an opportunity to redevelopment Santa Monica Place, and we believe that it will accelerate the timeline of getting an approval there to reposition that property through the addition of adding an open air element it to taking the roof off of sections of it, hopefully adding another specialty retail department store and then adding a significant number of complete remerchandising of the center as we seek to take it high end.

Again, each of the properties will be redeveloped in different ways, and we're going to be very patient.

They are all well anchored, they all do great sales per foot and the fact we have a dark box at each of the properties should not have any material effect at any of them.

Under the terms of the confidentiality agreement with Federated we are not disclosing the total purchase price, but I can indicate to you that on average we paid something in the neighborhood of 50 to $60 per square foot of the GLA that we acquired back from Federated.

At this point in time, we would like to go ahead and turn it over to Q&A.

[OPERATOR INSTRUCTIONS].

We'll take our first question from the site of Michael Bilerman with Citigroup.

Please go ahead.

Hi, guys.

Hi, Michael.

I was wondering Tom, maybe you can just review with us the total amount of lease term fees you had in the quarter and how much was in consolidated versus down in the JVs.

Michael for the quarter, we had 9 million, and that compared with 1.7 million last year.

I don't have the exact split with me between the wholly owned and the JVs, but generally speaking, these things tend to be two-thirds wholly owned, one-third JV.

That's a generalization, but that will give you a pretty good frame of reference.

It sounds like the releasing effort is well underway and rents are pretty much where the expiring or where the previous RVA rents were?

Yes, we think over the course of a year it should be NOI neutral.

Yes.

And that's one reason we gave the quarterly guidance.

Really, this whole exercise will be to-- it accelerated a lot of the income into the first quarter and takes some of that out of the second and third quarter as we lease it up, but at the end of the day we end up hopefully NOI neutral with a better tenant mix.

Is there anything else on the horizon in terms of lease-term fees or other debt extinguishment charges or other write-offs we should be aware that may be embedded in guidance.

We always have a certain amount of termination fees we still had almost $2 million in the first quarter.

I don't see any anything that's extraordinary like retail brand alliance.

Speaking to the-- the debt extinguishment costs we-- we did give everybody a heads-up on that when we did our equity transaction and when we evaluated that for dilution, we did indicate there I would be a couple cents of write-off of-- of loan fees there.

Typically those are things that are hard to predict, where you've got an opportunity to do something very positive for the balance sheet, and you have got to take advantage of that even if it means a short-term non-cash earnings hit.

And then in terms of the IBM portfolio.

I guess leaving five of the assets unencumbered, the strategy is then to go out and maybe dispose of those assets is sort of maybe pulling out another 3 to 400 million gross out of those assets reasonable?

It wouldn't be of the question.

And is that something that you're embarking on and sort of embedded within guidance given those are probably higher cap rate assets?

No, that is not in our guidance at this point in time.

And at this point in time, we have not made a final decision on which of those assets may or may not be sold, but clearly, the decision not to put new tenured debt on the assets would give you an indication that they are clearly being considered as possibilities for candidates to be sold somewhere down the road, but as far as the timing on when and how and-- and how much those assets would generate, we're not prepared at this point in time to-- we are-- we just don't have those details for you at this point in time.

But certainly the fact that we didn't put long-term mortgages on them meant that we wanted the flexibility either to redevelop or to dispose of them.

The final question you moved Scottsdale 101 into asset sale and you still have Oklahoma mall-- the mall in Oklahoma, what is the progress on those two assets, and what do you expect in terms of proceeds and timing?

At this-- you know, on acquisitions and dispositions we prefer not to talk about transactions until they are completed.

As between the two assets that we are talking about, I would anticipate that one of them would sell sometime in the next 3 months or so, but for lots of reasons, especially given the fact that we might be in the middle of a due diligence period with somebody with one of the others of those assets it's very difficult for a seller to comment on that during that period of time.

But I would make the assumption that one of the two would end up getting sold this year and certainly if-- if and when that happens, we'll be making that announcement as soon as it happens.

Is there a strategy, maybe to accelerate some of the sales within some of the urban villages and the power centers that you have in Arizona similar to Scottsdale 101?

Not at this point in time, no.

Okay.

Thank you very much.

Thank you.

We go next to the site of Paul Morgan with Friedman, Billings, Ramsey.

Please go ahead.

Good morning.

Hi, Paul.

Hi.

I appreciate the detailed guidance and in that break down on a quarter basis you must have done some calculation for where you expected short-term rates to be to come up with that.

Are still consistent with the forward LIBOR curve, is that how you are looking at it when you do the break out on a quarterly basis and maintaining quarterly guidance.

Yes, Paul.

The assumptions are essentially the same with the exception we did revise our view on interest rates.

LIBOR's gone up a little bit.

I think the original guidance was based on a year end LIBOR rate of 5.0%, we bumped that up to 5.25.

We're still factoring in same-center NOI growth for the year at 3 to 3.5.

Granted we beat that this quarter with 4.1 excluding the lease terminations but we still feel that's a good growth rate for the year, but in terms of interest rates, yes, we did update it to match the forward curve.

Anything in particular that came out better than expected that would lead you to maintain guidance or just a bunch of things even though you raised the interest rate.

We gave that guidance really only 2.5 months ago.

And it's hard to jump to too many conclusions based on the results from one quarter so we went through it again and-- you found that we were still very comfortable with that range, you know, even based on updating some of these assumptions.

Okay.

On the way you're now disclosing the-- the rent spreads I mean could you just characterize that 15%, whether that's in line-- maybe give some sense of historical there since that's a different way than you have been presenting it before and whether that would be your expectation on a full-year basis as well?

Before we were using the average expiring rent for the year, which is a little less precise than when you actually look at the space that's expiring and the related rent on that space.

And again, we have only got one quarter here and just to refresh memories the first quarter of last year our positive spread was 17%, and I think we ended up positive of about 21% for the year.

So we-- we still think that we're in for some, you know, strong results there in terms of the releasing spreads based on the expirations we see coming up over the next year or so.

Okay.

And in terms of the Federated May acquisitions it's early to kind of give details on what you plan to do with all of them but could you just maybe characterize on a broad brush basis whether-- what the mix might be between replacing them with department stores or non-retail or life-style components or it is just a mix of all of those?

There will be a mix of-- of all of those.

They'll be-- I mean, as I look at the list of the 10 centers that are affected, probably 1, 2, 3, 4, 5, 6 of them will end up having another department store either take the location of the box that we have acquired, or they will be added to the center as part of a redo of the center.

At probably another 3 or 4 of the centers, we may not replace the anchor at all, and we may replace the square footage with an entertainment, slash life-style type of expansion, and then at some of the more powerful urban centers such as Scottsdale Fashion Square, given the location of the Robinson's May store that we have there and the 270,000 foot opportunity to recycle, we're looking a major densification opportunity there that was not on the table previously.

So we're looking at the possibility of hotel.

We're looking at the possibility of maybe a specialty 100,000 square foot type of anchor.

We're looking at residential towers.

It just opens up a whole wealth of opportunity there for us, so-- there will be a little bit of-- of-- each one will be done, but again in a very patient way, and in a way that we feel is going to maximize the opportunity, and again, the great news is-- is that we're getting back square footage and acreage in a portfolio of 10 properties that already is doing over $500 a foot.

So it's great real estate that we getting back.

Would you so this as being like maybe a five-year process to work there?

Certainly the finalization of some of the expansions will not be finalized for a period of up to 5 years that's certainly true.

Some of the-- the simple replacements of one anchor by another-- so for example we work with Federated to orchestrate the replacement of one of the anchors up in Eugene, Oregon with Gottschalks; they'll be open in a couple of months.

Maybe a couple of the other centers that you are going to have simply another anchor replace the Federated box.

I would anticipate they could be open probably early next year.

And on the other hand, with the Oaks which I mentioned, this really kick starts the opportunity to accelerate a very major expansion there that we are currently shooting for a 2008 time frame and certainly some of the mayor expansions that we're looking at here could easily end up given the titling process and everything else '09 and 2010 openings.

But it's a very, very significant opportunity.

We usually will have an opportunity to hear-- to profitably invest another $1 billion into these properties over all.

Again, some of them will be as simple as-- simply turning around and selling the box to another anchor, but others are going to-- say for example Scottsdale Fashion Square -- that could easily -- that densification project itself could be a couple hundred million dollars expansion itself.

So it's really across the board and we're going to be very patient and careful about how we go about taking advantage of a fabulous opportunity for us.

We're very, very excited about this because these properties did not have to end up in our hands.

They could have easily ended up in the hands of other parties such as other retailers that didn't exactly raise to the top of our list in terms of what we wanted to do with the assets, so we're very, very happy with where we have ended up with the negotiation as is Federated and the interesting segue to that is it's public knowledge that Lord and Taylor is up for sale now.

Who knows which direction that will go, whether that will be a real estate play, or whether it will be an operating play, or a combination of the two.

And we have got three Lord & Taylors in Banbury and Freehold and Tyson's Corner, all three of which are sitting in fabulous shopping malls, so we may have an opportunity to tap into further opportunities here as Federated disposes of excess real estate that they picked from May Company.

Great that helps.

Thank you.

Thank you.

Thank you.

Next we'll go to the site of Ross Nussbaum with Banc of America Securities.

Hi, it's Christine McElroy here with Ross.

At SanTan Village, can you talk about any progress you have made signing another department store anchor there, and if you're currently in talks with anybody, and if you see any obstacles to signing another anchor?

The project is being designed open air for a lot of reasons, one of which is to minimize it's impact on some of the other retail that we own.

We clearly, had the Federated May Company merger not happened, we would be opening up two traditional anchors along with the theater anchor late next year.

May Company and Dillards really dominated that market.

Now that Macy's as acquired the Robinson's May operation in the area, they are evaluating all of their opportunities, we're leaving room for them, and I wouldn't at all be surprised to see Macy's find them at SanTan village as time goes on-- not next year but as time going on.

And we're leaving room for them at this point.

And who is building the office and residential components there?

The office we're building it just as part of building the project.

It's second level office space on top of first-level retail.

It's 90,000 feet.

The residential is something we're looking at.

And it is quite possible that we will do it and it could take the form of basically building some excess parking structures with the opportunity to build residential on a platform on top of that, and that really fits into a lot of our thinking on mixed use in densification opportunities, plan for it get the entitlement for it and then decide as time goes on how to monetize it.

But the decision on how to monetize the residential type of opportunity at SanTan has not been made, but certainly getting the entitlement and doing the planning to allow for it to happen is well under way.

Are you still expecting about 9 to 10 million of lease termination fees in '06 that that forecast hasn't changed at all?

Actually we got the bulk of that through in the first quarter.

Okay.

That's what we were referring to it's was the expected resolution of Retail Brand Alliance.

In terms of the next 3 quarters you don't really see much there?

Just the ordinary level which is about 1 million to 2 million a quarter.

What was your straight line rent adjustment in Q1?

Straight line rent was 2.3 million for the quarter.

And the bulk of that was on the-- the Wilmorite portfolio purchased in May.

Great.

Thank you.

Next we'll go to the site of Christeen Kim with Deutsche Bank.

Please go ahead.

Hi, just to clarify on the leasing fees this quarter the majority of that was coming from the retail brand alliance terminations.

Yes.

Okay.

And in terms of G&A, I saw it ticked up from Q4 and also from first quarter of last year, about $1 million.

What was driving that increase?

Well a lot of that is just timing difference.

You broke up a little on the question I think it had to go DO we the G&A expense for the quarter.

Yes.

It's a little higher in the first quarter which is typically-- that's typically when we have audit fees, and printing fees and things like that relating to the post year end work so that's not unusual.

Probably a more normal level in the 3 million to 3.2 million a quarter range, which if you annualize that that's probably about where we'll be on an annual basis I don't know we'll have a run rate anywhere as high as this first quarter, which came in at 3.7 million.

Great.

Thank you.

Thank you.

Next we'll go to the site of Matt Ostrower with Morgan Stanley.

Please go ahead.

Hi.

Hi, Matt.

How are you?

You talked about the $1 billion, I would guess is sort of a rough and dirty number in terms of the potential spending on the Federated May side, over four or 5 years you are talking about 200, $250 million a year there.

You have got a pretty clear development pipeline going out using Westcore in Phoenix and with Wilmorite, it seems not hard to get to a number where you are going to have capital needs of 3 or $400 million a year for development and redevelopment spending.

I'm wondering if you would agree with that number and second if that's correct how would you plan on funding that?

And third if those numbers are all right does that not sort of lower your demand for acquisitions going forward?

The 3 to 500 million per year of development, redevelopment and now the redevelopment that gets triggered by the Federated acquisition here, we-- that number has been out there for a while, and we still feel that that is the range of capital expenditures that we will be-- that we will be engaging in over the next 5-year horizon.

If anything, I think that, your know, in '08, '09, and '10 we'll start to push up to the higher end of that range and we now take advantage of a lot of these Federated opportunities.

In terms of how we will go about funding it on new construction such as SanTan Village, we'll put a traditional construction loan on it, Estrella Falls, traditional construction loan on it, so we put in our share of the equity and then do a traditional loan.

Scottsdale Fashion Square is tremendously underlevered and that loan comes due next year, I think.

So most all of these assets, frankly, are going to be able to self fund themselves as I look at the Federated list of assets, where we're going to have major expenditures.

We've got a major plan at Cerritos, for example that we're going to be working on and that's a tremendously underlevered loan that we will most likely as we refinance it, put it into essential a bank accordion feature.

On the redevelopments, most of them will be able to be funded a at an asset level because we have kept the assets financially flexible in order to fund them.

On the new developments, construction loans and then the balance will be just simply refinancings within the portfolio as well as selective disposition of assets as time goes on.

And on the acquisition front, Art, if you buy something now, given what you just described in terms of funding, would you-- would you-- theoretically an acquisition could demand external capital like an offering or something like that?

No, it wouldn't require anything of the sort.

At this point in time, the acquisition market is not that deep, and certainly anything that we might be looking at could easily be funded by any one of the refinancing that we have done.

We have got a very large capacity that's going to be available to us on our line of credit as well as, again, a selected disposition that we have referred to earlier on the call today.

So-- I see all of these activities being basically self funded.

Okay.

And then the yields you have given on the 300 to 500 million before was that double digit numbers or high single digit?

We'll be releasing those as we basically come out with each specific project and get it entitled, so we have been pretty specific about things like -- we're finishing up on a $130 million project on 29th Street this year and we anticipate seeing an 11% return on our capital there, which we still feel comfortable with.

Some of the life-style expansions like Fresno and Washington Square, they have been in the 9 to 10% neighborhood.

The new mall development at SanTan Village, depending on the final scope of the project, we still feel that that's a 2 to $250 million project and we should be able to see double digit returns there.

As we get specific on the other major redevelopments that we'll be targeting, especially within the Federated portfolio, and as we get them entitled we'll certainly be very specific about the returns and dollars we see at each project as we kick each one off.

Great.

Thank you.

Thank you.

[OPERATOR INSTRUCTIONS].

We go next to the site of Mike Mueller with J.P. Morgan.

Please go ahead.

Question for Art, did you mention Santa Monica Place when you were talking about redevelopments because it's the second one that should hit or just because it's a larger undertaking?

I did mention it it.

And getting back one of the 2 boxes we think is going to accelerate our opportunity to redevelopment that property.

We have a new city manager there, which we're encouraged about, and we are working-- beginning to engage in another set of outreach to the community, and I would be hopeful to have a plan at Santa Monica that would be entitled hopefully by the early part of next year, which could be implemented and in place by late 2008 to early 2009, but, again, we have to remember we're dealing in a community that is challenging, but getting back the Robinson's May store at Santa Monica Place opens up a whole wealth of opportunities there in terms of what we can accomplish there and how quickly we can accomplish them, so I'm very encouraged about getting back that square footage especially on such a tightly constrained site.

After the Oaks that's most likely the one we're going to be hearing about in terms of coming on?

It's hard to predict because I'm dealing with Santa Monica, so it's the entitlement issue.

If we could just work off of a blank piece of paper and say this is what we're going to do, it's something that could be put into place right away, but again, we're going to be very, very patient on these Federated recycling, but there are tremendous opportunities at each one of these properties.

Certainly, the Oaks gets kick started earlier, and I believe-- and I'm hopeful that Santa Monica Place gets moved up in terms of our opportunity to tap into increasing the value and the viability of that property, and we-- we have fabulous hopes for it but we still have to get it entitled and approved.

Got you.

I know you usually talk about sales by region, but just wondering if you can talk about any dramatic changes you are seeing in terms of sales or tenant interests once you move from some of the more urban locations versus some of the more middle market or rural?

Well, urban and hybrid entry locations are always the-- the locations that we get the strongest tenant demand and have been historically any locations that we have been able to drive our sales growth over time.

But it's a mixed bag.

I mean, we also take locations like Fresno Fashion Fair and Modesto where we take mid-market centers and over a period of five to 7 years of redevelopment took the sales per foot from like 2.70 a foot to 5.50 a foot in each of those and income obviously went up tremendously also.

But in terms of sales in general, Arizona just remains extremely, extremely on-- I'm not going to say on fire, but it remains hot.

Okay.

Because they are still having a little drought going on, there but Arizona remains fabulous for us.

Tyson's Corner, the existing tenants are doing great.

The new tenants are doing great.

Danbury, Freehold.

Danbury in particular we have high hopes for.

Sales are doing strong there.

Generally, the more urban area locations are where we see our sales growth.

And clearly our strongest rent demand.

And last question, in terms of just general cap rates for the various tiers of properties, how tight with the ranges once you start moving to say the B's and the C malls?

Are they still fairly wide?

I mean, that's hard to say.

I think with interest rates going up, some of those-- certainly the C mall cap rates, I think are going to be pushed higher in-- in this kind of an environment.

We're dabbling in exploring the possibilities of selling some of our lower productive assets, thinking about it.

And I would not at all be surprised to see at least a 200 to 250-basis point differential between an A mall today and a B minus to C mall today.

Okay.

Great thank you.

Thanks we have a follow-up from Michael Bilerman with Citigroup.

Please go ahead.

I just had a few follow-ups.

On the same-store NOI, the 4.1% lease termination fees is that cash number or a GAAP number?

It's a GAAP number, but it's not going to include much straight lining of rent if that's your question, Michael.

Keep in mind most of the leases we're signing now have CPI increases.

So it doesn't entail booking any straightlining of rent.

Most of where the straight lining of rent comes in from us is on the acquisitions where we inherit those leases that have fixed bumps.

That 4.1 is GAAP but it's going to very, very closely approximate cash.

I was thinking more on the FAS 141, the mark to market leases--

141 doesn't really come into play because, by definition, that's not acquisition, so that isn't on your same set of numbers.

To the extent an acquisition is in your same set of number for you know two periods that number is going to be the same.

That amortization is going to be the same.

So it really shouldn't have much bearing at all, at least the way we do it.

In terms of your recovery rate I think it was at least in the consolidated pool about 98 you sort of guided towards 95.

Was there anything in the first quarter that boosted that up?

No, but-- but again as I said before you can't really take 1 quarter in that regard and annualize it when it comes to recovery rate because expenses don't flow in ratably over the year and we are moving more towards stated cam.

So I think we will see that trend up -- last year in the first quarter it was 94% of the wholly owned assets.

I think you're going to see it between 96, 97% something like that for the year this year on the consolidated and it's primarily as a result of the way we're doing the new leases with stated cam rather than pro rata cam.

Last question for Art.

Are you look at all internationally or studying any markets or trying to get more intelligence internationally?

We're certainly keeping our pulse on what is going on internationally, but you know, for us we have got so many opportunities here domestically that it would be hard for me to imagine replicating those kinds of opportunities, and also having the type of risk reward ratio that we enjoy here particularly in markets like Arizona, where we are building such a deep development pipeline that it's going to fund our growth for literally dozens of years to come.

Great.

Thank you.

Thank you.

And there are no further questions at this time.

I would like to turn the conference back to to your hosts for any addition and or concluding comments they would like to make at this time.

Again, thank you for joining us.

We're very, very excited about where we stand today on all fronts and look forward to talking to you in a couple of months, so thank you very much.

Ladies and gentlemen, this does conclude today's conference call.

At this time I would like to thank you for your participation.

You may now disconnect and have a great day.