Macerich Co (MAC) 2006 Q3 法說會逐字稿

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

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

Today's call is being recorded.

At this time, all participants are in a listen-only mode.

And following the presentation, we will conduct a question and answer session, and instructions will be provided at that time for you to queue up for the questions.

Once again, we are recording today's call, and I would now like to turn the conference over to Suzanne Karpick, Director of Investor Relations for Macerich.

Please go ahead.

Thank you, operator.

Thank you everyone for joining us today on our third quarter earnings call.

If you do not have a copy of the release, you may access it at the Company's website, 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 our business and industry.

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

Management will also be discussing certain non-GAAP financial measures, as defined by SEC Regulation G. The regulation of each nonGAAP financial measure to the most directly comparable GAAP financial measure, is included in the press release, and supplemental 8-K filing for the quarter, which is posted in the Investing section of the Company's website.

Joining me today are Art Coppola, President and CEO, and Tom O'Hern, Executive VP and CFO.

With that, I would like to turn the call over to Tom.

Thank you, Suzanne.

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

It was another quarter with good tenant sales gains, continued high occupancy levels, strong releasing spreads, significant development and redevelopment progress, and capital events.

Looking at retail tenant sales.

Total same center tenant sales for the quarter were up 5.3%.

Breaking that down by region, southern California was up almost 3%, northern California and the Pacific Northwest 8%, the inner mountain region 13%, The Eastern region 5%, the Central region approximately 1.5%, and Arizona 5%.

Comparable tenant sales, that is comp space comp tenant compared to the same quarter a year ago was up 3.1%.

Looking at total mall sales per square foot on a rolling 12 month basis, total sales per foot were $436, that is up almost 5% from our year-end number of $416 a foot.

Now looking at the occupancy level.

Occupancy levels have remained high with a quarter end occupancy at 93%.

Again, one of the top in the industry.

On a same center basis, that compared to 93.6 a year ago.

Now the bulk of the lost occupancy, you know really came from the Sam Goody Musicland closures, that was 255,000 square feet.

We also had 165,000 square feet that was negotiated to closure from Retail Brand Alliance this year in the first quarter.

That Retail Brand Alliance space, however, generally very good space.

And that is 70% leased as of today, with additional space under negotiation.

For the Musicland space which frankly is a little bit tougher generally, on the 5 or 10 yard line in a given wing of a mall, and paying a relatively low $18 a foot in rent on average, which is about half of our average.

We have currently leased about 50% of the space.

So the remaining space there really makes up the bulk of the decrease in occupancy compared to a year ago.

Looking at the leasing activity, it was another good quarter.

We had signings for 326,000 square feet of space.

The average starting new rent was almost $41 a foot, it was $40.88, for a positive average releasing spread that includes joint ventures of prorata, as well as wholly owned, of 23.7%.

The average rent per square foot in the entire portfolio today stands at 37.25.

Now focusing on FFO and EPS results for the quarter, FFO per share diluted for the quarter was $0.98.

That compares to a $1.04 in the third quarter of 2005.

EPS was $0.66 for the quarter, and that compared to $0.07 during the third quarter of last year.

This large increase in EPS was primarily due to the sale of 4 noncore assets Great Falls Marketplace, Greeley Mall, Holiday Village Mall, and Parklane Mall.

We recognized a gain on sale of 46 million, which equates to almost $0.52 a share.

Looking at same center NOI for the quarter, it was up approximately 2.66% compared to the third quarter of last year.

However, if you factor in the rent that would have been earned the third quarter from retail brand alliance, where we received termination payments roughly equivalent to one year's worth of rental income, factoring that in the same center NOI for the quarter would have been 3.8%.

For the 9 months ended September 31st 2006, the same center NOI growth has been 4.2%.

Gain on land sales in the quarter was 2.3 million, up from 1.3 million in the third quarter of '05.

We had an improvement in the expense recovery rate to 94.4%, compared to 92.6 from the third quarter of last year.

This increase is primarily due to the shift from triple net leases to fixed CAM.

CPI rent increases for the quarter were 1.3 million higher than the third quarter of last year.

We had some declines in some non-cash category straight line rents decreased to 3.5 million, that is down 900,000 from the third quarter of last year.

And we had a decline in SFAS 141 income down about 800,000 to 4 million, compared to 4.8 million in the third quarter of last year.

Also during the quarter, lease termination income decreased by 700,000 versus the third quarter of last year to 800,000 for the quarter.

We had a fairly significant swing in income tax expense compared to the third quarter of last year.

During this quarter we recorded income tax expense of 535,000, that is primarily related to tax on land sales in our taxable REIT subsidiaries.

This is about a $2 million swing compared to the third quarter of last year, where we saw a $1.5 million tax benefit recognized.

By far, the greatest negative impact on our results for the quarter compared to the third quarter of last year were interest rates.

The average interest rate in our portfolio at September 30th 2006 was 6.1%.

This is 52 basis points higher than the third quarter of last year.

And the increase negatively impacted FFO per share by approximately $0.095.

The average maturity of the debt is 4.58 years.

For fixed rate debt only, the average life is 5.31 years, and the average interest rate is 6.01.

It is very rare for us to have a decrease in comparable quarter FFO per share as we did in the third quarter.

The reasons for this decline are summarized as the increase in portfolio interest rates of 52 basis points, that was $0.095 a share, the decrease in the non-cash revenue items, straightlining of rents, $0.01 a share, the decrease of the non-cash item SFAS 141 of $0.01a share.

The increase in income tax expense was about $0.023 a share, and the FFO drag is a result of the sale of the 5 assets sold in the second and third quarter was about $0.01 a share.

So taking out those items, the increase over the third quarter of last year would have been approximately 8.5%.

On October 27th, we increased our quarterly dividend by 4.4% from $0.68 per share to $0.71 per share.

This is the 12th consecutive year that we have increased our dividend.

The dividend is payable to shareholders on record of November 15th, and the dividends payable on December 8th.

Looking now at the balance sheet, we continue to make a tremendous amount of progress on our balance sheet.

At quarter end we had 6.5 billion of debt including our prorata share from unconsolidated entities which totaled 1.6 billion.

Our floating rate debt as a percentage of our total debt was reduced to 18.6% at quarter end.

That is cut almost in half from the 35% that it stood at at year end.

Our total debt to market cap was 48% at quarter end, and the interest coverage ratio is a healthy 2.06:1.

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

In July a $61 million loan was placed on Crossroads Mall.

It is fixed for 10 years, at an interest rate of 6.6%.

The proceeds were used to pay down floating rate debt.

We are currently under contract to refinance Prescott Mall with a $60 million 5-year fixed rate loan at 5.78%, and that replaces a $40 million floating rate loan.

In addition, we swapped out of 400 million of unsecured corporate debt, to a 4.5-year fixed rate of 5.08% plus the applicable line of credit spread.

As a result of the refinancing activity, our balance sheet is in great shape today, and is well positioned with the capacity to handle the robust development and redevelopment pipelines we have ahead of us.

Looking now at '06 earnings guidance, we are revising slightly our FFO guidance per share down $0.05 for 2006, to an annual range of $4.40 to $4.50.

The primary reasons for the change in guidance are all non-cash items.

Both straight line rents and FAS 141 income have trailed forecasts in the third quarter of '06, and is now expected to do so in the fourth quarter for an impact of about $0.03 to $0.04 per share.

And that impacts our downward revision.

In addition, we have incurred approximately 2.6 million in acceleration of investing on restricted stock to our former COO, who resigned effective October 31st of 2006.

That had not been previously forecast in our guidance.

Also just to highlight again, when we gave guidance last quarter, we included land sales of 5 to 6 million of projected land sales in the fourth quarter.

That is still included in our fourth quarter guidance.

At this point, I would like to turn it over to Art to discuss developments, and other major events impacting our business.

Thank you, Tom.

We've had an exciting quarter and actually period post quarter on the redevelopment front, as well as the development front and the entitlement front.

Looking at recent events on October 12th, we opened up our project in Boulder, Colorado, Twenty Ninth Street.

That has had rave reviews and fantastic results with opening tenants occupying in excess of 87% of the space.

There are a number of tenants that have stated that they are opening at Twenty Ninth Street was their best opening ever, and many, many tenants had said they exceeded their plan by as much as 300 to 400%.

It has gained a lot of momentum.

We have not felt an adverse impact at Flatirons in Broomfield from it, because it's really an entirely different product.

And that particular opening has been extremely well received by the community.

On October 21st, we had a Grand Re-opening celebration at Carmel Plaza in Carmel, just in the Monterey region here in California.

It was not a huge investment in terms of dollars, but it was a very significant repositioning, and value creation recycling of that asset, as we recaptured two small Saks 5th Avenue stores a year ago, and then recycled that into a number of high-end tenants, including first to market Wilkes Bashford out of San Francisco, Anthropologie, as well as other tenants, Tiffany, that are doing a fabulous job and are creating a lot of value for us.

Just a couple of days later, we received on October 23rd our final entitlement to proceed on the expansion of the Oaks Mall in Thousand Oaks.

We will be breaking ground on that in January of this upcoming year with completion projected for fall of 2008.

On November 1st, we received approval final approval at Biltmore Fashion Square for the addition of between 4 and 5 towers of the property, which will occupy space of anywhere from 120 to 165 feet in height each.

They can be designated and used for anything, from residential to hotel to office.

And that has been the culmination of a lot of work.

We bought Biltmore Fashion Square just over 2 years ago.

The center was doing just over $400 a foot at the time, today Biltmore is doing well over $700 a foot.

It is the address in Phoenix for residential and commercial and office and it's entitlement will be worth a tremendous amount, as we monetize it going forward.

In the raw development ground up pipeline at SanTan Village in Gilbert, we are marching along towards a fall of 2007 opening there.

Leasing is going terrific.

We are well over 70% leased.

We have got tremendous interest from our retailers.

We are being very selective in the retailers that we are picking for the market.

And we anticipate a very strong opening later on in 2007 from that project.

In the shadow pipeline, we are continuing to work on our entitlements for the major expansion that we are pursuing at Tysons Corner, and are very optimistic that will be received in the very near future.

At Santa Monica Place, we are making great progress, in terms of getting an entitlement from the city to reposition that as a pure retail development now.

We anticipate repositioning the center with a Grand Re-opening in 2009, and with it becoming a luxury center as part of our Luminati group.

We are also making great progress on new lifestyle additions to our Vintage Faire Mall in Modesto, California, as well as Freehold Mall in Freehold, New Jersey, both of which could be opened up as early as late 2007, late next year.

So we are pleased with that.

On the recycling of the Federated and the May company buildings, the 11 buildings that we reacquired from Federated as part of that merger.

Of course the Oaks is the most eminent one, that is being benefited from that recapture, Santa Monica Place is moving along well, in terms of the progress that we are making there.

We are making great progress on all of the other 8 centers in terms of either replacing the anchor, or doing a complete repositioning and redevelopment of the anchor pad, which could involve even tearing down and rebuilding the anchor pad.

Our policy on those projects is going to be only to announce the new anchors, and/or the new expansions when they are fully entitled in the cities, and we anticipate many announcements to be made very positive announcements being made at those centers over the next 6 months.

As Tom mentioned, we have spent a lot of time working on beefing up our balance sheet to fund our very robust pipeline of developments and redevelopments that we have coming down the next 4 to 5 years here in the Company.

We have got our balance sheet very well repositioned and we continue to do both refinancing, as well as through asset sales, raise the capital to redeploy into the development and the redevelopment pipeline.

As was mentioned in our press release and Tom mentioned, for the past 4 or 5 months we have completed sales of 5 assets with Macerich share of gross proceeds being just under $200 million, and our share of net proceeds being around $150 million.

We sold those assets at an average cap rate of around 7.5.

And the assets themselves that were sold, were doing between 250 and $260 of sales per square foot.

While those sales were mildly dilutive in 2006, we think it's the right thing to do for us to sell noncore assets, and to redeploy those proceeds into our redevelopment and our development pipeline.

A very exciting development that we were able to announce yesterday, is that Tony Grassi will be joining the company as our new Chief Operating Officer effective January of 2007.

We have known Tony for over 8 years.

Tony has been Executive VP of Operations at Cadillac Fairview, the premier real estate company in Canada.

We have known him through our partnership with Cadillac Fairview, which goes back now 8 years, with roughly a $2 billion partnership.

Tony is a fabulous addition to an already deep management team.

And given our focus on adding mixed use intensification, revivifications, as well as the consolidation as our anchor locations and our portfolio, Tony brings some great experience in those fields, as he has been dealing with that in Canada over the past 20 years.

He knows all of our senior management, as well as our mid management through our partnership that we have enjoyed with them for the past 8 years.

We welcome him as he comes on board in January.

We anticipate that our partnership with Cadillac will continue to grow.

It's been a fabulous relationship for us, and we look forward to him coming on board in the next 60 days.

At this point, we would like to open it up for questions.

Certainly, today's question and answer session is conducted electronically. [OPERATOR INSTRUCTIONS] We will go first to Jonathan Litt with CitiGroup.

Ambika Goel with John.

Just on the Arizona Phoenix housing market, it looks like there's been a slight pull back.

Has that affected any of your future developments in the area, either impacting yields or completion dates?

No, not at all.

If anything on yields it could help us on the cost side of the business.

Because with building materials not being required for as many housing starts as they have had, that could take some of the pressure off of cost of materials, as well as labor.

But, you know in Phoenix, Phoenix historically aspired to have up to 40,000 housing starts a year, and it had gotten up to 60,000.

But even with this modest pull back, there is still between 40,000 and 50,000 housing starts per year.

And the place where the new starts are being deferred, are in markets that are at least 10 to 20 miles outboard of any projects that we own, or are contemplating today.

This quarter other income was high.

Can you give some color on what was in there?

Yes, that can tend to be lumpy through the course of the year.

If you look at it year-to-date it's 22.7 million versus 17 million last year.

But a slightly bigger portfolio on average.

During the third quarter, we did have a larger than usual amount of interest, because as we sold those assets, we temporarily invested the cash in short-term investments, and the investment income shows up in the other income category.

Other than that, there was a variety of other things in there.

Okay.

And just one clarification on guidance.

Was the $0.03 of land sale gains in the third quarter assumed in your previous guidance?

Yes, it was.

Okay.

Thank you.

Thank you.

And we'll go next to Craig Schmidt with Merrill Lynch.

Good afternoon.

Good afternoon.

The October sales same store sales seemed to suggest the more affluent shopper was still remaining active, and possibly the moderate shopper a little less active.

It may just be a breather, but I was wondering, were you see seeing stronger sales in your Luminati centers, versus some of the rest of your portfolio?

Well, definitely the Luminati centers, and luxury in particular did extremely well.

But if you take a look at even regions for us, places like the inner mountain region, which does not have a tremendous amount of Luminati centers, for example.

Sales there are were very good through the quarter also.

They were up 13%, I believe.

Tom is that the right number on the inner mountain region?

Yes.

And so even in northern California and the Pacific Northwest, where we only have a couple Luminati centers, sales were up 8%.

So sales in general are holding up very well.

Luxury is holding up particularly well.

But even in markets that in previous years had not been as strong, like the inner mountain where it had stabilized for a while.

They have been surprisingly strong this year.

Great.

Thank you.

And in terms of the Santa Monica Place, have you made any further decisions on the direction you want to take that renovation into?

Yes, we have made the decision that we are going to take the roof off.

It's going to go open air.

We do need the approval of the city of Santa Monica, we have had great progress in working with them on getting that approval.

That's really pretty much the major thing that they have to say something over.

We have probably gone through 20 some community outreach meetings with different communities, civic groups.

We are making great progress on the approvals there.

The actual project as we envision it today, it's going to be luxury.

And we anticipate adding a high end specialty anchor, and a number of luxury tenants that you currently would find in places like Rodeo Drive, Montana, and other locations in southern California.

Thanks, appreciate it.

We'll go to Jeffrey Spector, UBS.

Hi, Jeff.

Good afternoon.

Touching on Queens Center.

In prior calls you had mentioned a potential to build adjacent to the site.

And I know there is a partial between the Center and Long Island Expressway, could you give an update on that?

We are not going to announce that until we have finished all of our entitlements on it.

But I would anticipate an announcement in the next three months, and it does involve the site that you are talking about which is a 2-acre site directly between the center, actually between the J.C.

Penney and the LIE, and we would anticipate seeing a theater be located there.

Those are anticipations, but again I would anticipate an announcement over the next 90 days of a firm plan to move forward.

And is there still the possibility for a fifth floor expansion?

Yes.

Okay.

That's really an entitlement that we are going to be careful in terms of monetizing, because until we get exactly the right use, and the right rents, that type of an FAR entitlement is so scarce, that we want to be careful about how and when we monetize that.

Okay.

And just last, regarding Tysons Corner, how much of the success of the redevelopment depends on the completion of the Dulles Metro extension?

Well, the retail redevelopments are done, and it's doing fabulous, doing terrific.

In terms of the extension itself, of the 3.5 million entitlement that we are working on, we would anticipate, and again we don't have the entitlements yet, but we would anticipate having the right to immediately, close to about half of that, which is just over 1.5 million feet, with the balance of it being contingent upon the status of the link.

Great.

Thank you.

Thank you.

We will go to Paul Morgan with FBR.

Hi, good morning.

Hey, Paul.

Morning, Paul.

When I look at the, you think about the mixed use projects that have built more, Tysons and Scottsdale, places like that.

Have you determined how you plan to structure those?

Do it on your balance sheet, joint ventures with specialists in the property types, or ground leases, or whatever?

We have not decided yet.

You know, now that we have gotten the actual full entitlement at Biltmore, we are commencing those discussions with a residential hotel.

They have already been in discussions, but now we are beginning to take those discussions a step further.

And they could involve joint ventures with other operators of other product types.

But with a fair degree of protection and insulation from the execution risk with that being placed on the party that has got the expertise, in either the office or the residential component.

And when do you think we could start to get some visibility maybe I guess at Biltmore about how you might structure things?

Definitely over the next 6 months.

Over the next 6 months, okay.

Tom you said on the guidance that one of the reasons it was off was straight-line rent and FAS 141.

I'm just not clear how, what would have been the variance there versus what you thought last quarter?

Well, it's pretty complicated, Paul.

You literally have to do both calculations for thousands of leases and to the extent you get somebody that terminates early, it can create volatility in those numbers, because you have got to write off whatever the balance was.

And that is related to terminations?

I'm sorry?

It's related to lease terminations basically?

Yes, but quite often a lease termination where you may not get a payment.

You may not get a corresponding revenue pickup through a lease termination payment.

Okay.

Great.

And last thing, any additional thoughts on the IBM portfolio, the positions?

We clearly have said in the past that we are going to selective expose some of those assets to the marketplace.

We are doing that, but again, as with acquisitions, dispositions fit into the same boat that we only announce them when they are done.

And nothing is in your guidance?

No.

Okay.

Thanks.

Our next question is from Michael Mueller with JP Morgan.

Yes, hi.

Tom, first on Paul's prior question about FAS 141 and straight-line rents, if we look at the Q3 run rates for those items, are they appropriate for Q4, as well as heading into 2007?

Mike, they are, but again with the caveat that you get an unexpected termination or two, and that can create volatility in either of those numbers.

It's something we have just got to monitor quarter to quarter.

I think if you use the fourth quarter run rate that's going to be fairly realistic at this point, for the next couple quarters.

Okay.

And just going back to the comments on sales at Biltmore, since you have taken over the property a couple of years ago, sales went up from I think 400 to $700.

Can you just give us some color as to what you see that drove that massive increase?

Great management.

Okay.

No, you know it's a great market.

And we have recycled some of the tenants, but it's a fabulous market.

Phoenix in general is on fire, and has been over the last three years, and that property is part of the, it's basically the bulls eye of Phoenix, and it's clearly benefited from everything that's happening in the marketplace.

But it's going to be a great center, and we anticipate it only getting better as time goes on.

We have many centers in the Phoenix market that have gone up in percentages like that.

Chandler, for example, when we got involved with Chandler Mall 4 years ago was doing $400 a foot, today it's doing over $600 a foot.

The same story of seeing roughly 50% increases over the last 3 to 4 years kind of plays out at virtually every center that we own in Phoenix.

Okay.

And you also mentioned sales being better than expected at the opening of Twenty Ninth Street.

What happens in that sort of situation where sales look like initially that they are much stronger than expected?

What happens in terms of asking rents for filling up space?

So if you have X dollars in place now for the tenants that are up and running, is the space that you are marketing at the margin significantly higher?

Well, there's not that much that's left to be leased.

But clearly it gives you strength in your bargaining position.

And as a result of the strong lease-up that we were getting at Twenty Ninth Street, we became even more stingy, in terms of the rents that we were demanding.

But with an 87% occupancy level of the shop space at opening, that is very healthy, but it still also is healthy as it gives us room to fill up the balance of space with even tenants producing better rents.

And the good news is that with the center doing as well as it's doing today, it's going to benefit even more so, because as is typical with an open air center, these tend to open up in phases, and the bookstore, the large bookstore is going to be opening up in the first quarter of next year.

The Wild Oats is going to be opening up in the first quarter of next year, and then the major theater complex is probably going to be opening up probably late second quarter of next year.

There are three big users that fuel the lifestyle and the entertainment component that aren't even open yet.

My anticipation is that when they open, the sales of the shops as well as the retail space are going to be, you know, even stronger.

Anecdotally, the manager of the Macy store, which is our sole department store at Twenty Ninth Street today, said off the record that there have been days that that particular store has even done better than the Macy's store at Broomfield at Flatirons, which we also own.

So I mean, it's a very good testament to the market that we have got there, and we just think that Twenty Ninth Street is going to be a huge home run, and is going to have great legs as time goes on.

Okay.

Thanks.

Thank you.

[OPERATOR INSTRUCTIONS] We will go to Christy McElroy with Banc of America Securities.

Hi I'm here with Ross Nussbaum as well.

Hi Christy, hi Ross.

What have the average releasing spreads been on the Retail Brand Alliance and Musicland space that has been leased so far?

It's been across the board.

On average we've been up slightly.

The retail brand space is about 70% released.

I think our average rent on that space when we got it back was about 28 or $29, and the releasing has been in the 31 to $32 range.

We are seeing better spreads on the Musicland space.

But again that is expiring at about $18 a foot, which is substantially below our portfolio average.

Okay.

And then as you work through the rest of the space, can you give us a sense for how long before you expect to see flat or positive year-over-year occupancy trends?

Well, again, I mean from our standpoint, I'm not sure we are willing to see our leasing spreads drop dramatically, just to fill some of that space.

You know, again when you have got vacant space that's at the 5-yard-line and relatively low rent, that is not as costly a vacancy as if you have got space paying you $60 or $70 a foot at center court somewhere.

Again, we're not going to rush to fill it quickly at the expense of the new rent we are getting.

So that is going to take some time to lease that space, but we think it'll be absorbed over the next 12 months.

Okay, and then any changes to the EBITDA growth and LIBOR assumptions in your '06 guidance?

I think before you said 3 to 3.5% EBITDA growth and 570 LIBOR.

No change there.

No change, okay.

And then how much square footage can be built at Biltmore Fashion Park?

Well, that's really a function of the type of the particular buildings.

And there really is no limit on the total square footage.

The only limit that is imposed on the site is height.

And so it's really going to just be the economics of each building that will dictate how big the floorplate will be.

The parking that will be provided for each building, will be as would be typical in an office or residential building, but it will be self-parked and self-contained, meaning subterranean parking.

So at a minimum, you could be looking at 150,000 to 200,000 square feet per building.

You are looking at 4 to 5 buildings, you could easily be looking at over 1 million square feet over time, of new building space that would be added.

But there is really no pure FAR in position or limit.

It's really more just height driven.

And the height that we got is pretty much the highest in the marketplace.

Do you have an estimate of what the land value would be per buildable square foot?

Well, I've heard numbers thrown around of between 50 and $100 a square foot of FAR.

And it wouldn't shock me if those kind of values were able to be monetized.

Okay.

Thank you.

We will go to Lou Taylor, Deutsche Bank .

Thanks, good morning, guys.

Tom, can you talk a little bit about maybe some of the potential financings next year, in terms of your mortgages that mature.

Ballpark, what kind of excess proceeds do you think you can get out of those maturities next year?

Well, we have worked the balance sheet pretty aggressively this year.

And there are a few maturities coming up next year, not a huge amount of size there.

But I think we can comfortably pull out probably 200 million in excess proceeds if we are to refinance each and every one of those for maximum proceeds.

We have got Westside Pavilion coming up, we have got Fresno Fashion Faire, we have got South Towne Center.

Those are good centers, that today if you looked at debt to market cap, it's probably close to 30%.

And the way, the investment grade valuation of these CNDS mortgages goes, we are looking at very attractive rates all the way up 60 to 70% leverage.

So that would be normal for us to take those, and leverage those up to about that level.

Okay.

Great.

And then the second question, just maybe in terms of potentials asset sales in '07.

Do you anticipate exposing any other properties in the market next year?

As usual, Lou.

You took the words out of my mouth.

I would anticipate that the pace of dispositions next year will be very similar to what we have just accomplished in the last 6 months, meaning a couple hundred million dollars of our share of proceeds, and this year, for example, that resulted in around 150 million of net proceeds.

I could easily see that pace achieved or exceeded next year.

Great.

Thank you.

We are going to be very aggressive in terms of selectively disposing of our noncore assets, and then redeploying those proceeds into our development and redevelopment pipeline.

Great.

Thank you.

Thanks, Lou.

We will go to Dennis Maloney with Goldman Sachs.

Good day, just a quick follow-up question to Lou's question there.

I was just wondering if you could talk a little bit about your recent asset sales, in terms of the interest level versus expectations, things like the number of bidders, where pricing ultimately came out versus expectations.

And then if you could talk a little bit about the profile of the buyers.

Are they leveraged?

And what are the plans for the assets longer term?

Sure.

Our approach to dispositions is if we entertain disposing of an asset, it's always with reserve, and if we get the right price that we are happy with, and the right buyer, then it will be sold.

With virtually each of the assets, with the exception of Scottsdale 101, the power center that was sold, the buyers with each of the assets, the buyers were highly leveraged opportunistic buyers.

The type of buyers that you see buying up a lot of assets, both in this sector, as well as other sectors in the real estate business today.

The buyer of Scottsdale 101 was more of a pure core institutional investor, and not a highly leveraged type of investor.

But other than Scottsdale 101 the power center that we sold, they all fit the profile of opportunistic buyers, who were willing to take on significantly higher debt levels on the assets than we traditionally have on any of our assets.

Great.

Thank you.

Just wondering what accounted for the slower sales on a relative basis in southern California?

Is it the nature of the assets?

I don't think there is anything magical about that, in terms of the pace there.

There were a couple of centers that were adversely impacted.

The Oaks was adversely impacted by the opening of a new center just 10 miles up the street in Simi Valley, so that was adversely impacted itself.

But there is nothing other than a couple of one-off instances that really impacted the overall sales, there is certainly nothing in the general economy here that's impacting sales.

And lastly, Tom, you made great progress in terms of terming out your floating rate debt.

What's your ultimate target on that front, and could you give us a sense of timing there?

Well, I think our ultimate goal was 20%, and we went past that with the financing of Prescott, I think we will be below 18%.

You may just see us naturally progress down to 15%.

But I think our goal at this point would be to stay between 15 and 20%.

Thank you very much.

Thanks, Dennis.

Our next question is from Matt Ostrower with Morgan Stanley.

Hi, it's Mick Chiang here.

Seems like the tenant allowance this year was significantly up.

Could you guys talk about the reason behind that?

Yes, Mick, this is Tom.

The reason for the increase is to a large degree, we went through and redemised and retenanted Carmel Plaza.

We put in some high-end luxury tenants there, and we paid some significant tenant allowances to some higher-end tenants, like Tiffany.

We had a large Dick's sporting goods shop that went into a big space at Salisbury that got a fairly sizable tenant allowance.

So it was kind of an anomaly, not that I would expect that every quarter.

I think if you exclude this quarter and look at our run rate for the first two quarters that's more the norm, and this was just the extracurricular activity of filling a couple big boxes, as well as doing some major work at Carmel Plaza.

Thank you very much.

Thanks.

Thank you.

And there are no other questions, at this time I will turn the conference back over to our presenters for any additional or closing comments.

Thank you.

Thank you again, all of you for joining us.

We look forward to seeing you all next week in San Francisco at NAREIT.

So thank you, and see you next week.

This does conclude today's conference.

Thank you for your participation.

You may disconnect at this time.