Macerich Co (MAC) 2008 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the Macerich Company third quarter 2008 earnings conference call.

Today's call is being recorded.

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

Following the presentation, we will conduct a question-and-answer session.

(OPERATOR INSTRUCTIONS) I would like to remind everyone that this conference is being recorded.

I would now like to turn the conference over to Jean Wood, Vice President of Investor Relations.

Please go ahead, ma'am.

Thank you, everyone for joining us today on our third quarter 2008 earnings call.

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

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

As this call will be web cast for some time to come, we believe it is important to note that the passage of time can render information stale and you should not rely on the continued accuracy of this material.

During this call, we will discuss certain non-GAAP financial measures as defined by the SEC regulation G.

The reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure, is included in the press release, and the supplemental 8-K filings for the quarter, which are posted in the investor section of the company's web site at www.macerich.com.

Joining us today are Art Coppola, CEO and Chairman of the board of Directors, Toni Grossi, Senior Executive VP and COO and Tom O'Hern, Senior Executive VP and Chief Financial Officer.

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

Thanks, Jean.

Today we're going to be discussing third quarter results, recent financing activity, the status of our redevelopments and our outlook for the balance of 2008.

The operating metrics generally remain strong in the third quarter with continued high occupancy levels and strong releasing spreads.

Total mall sales per square foot for the 12 months were up 0.65% to 463 a foot compared to 460 a year ago.

The occupancy level remained high with quarter end occupancy at 92.8%, that was down 10 basis points sequentially from last quarter, and down from from 93.5% a year ago.

Most of the reduction versus a year ago relates to big box spaces with Steve & Barry's accounting for 20 basis points, and CompUSA representing another 20 basis points of the decline.

Those were both very low rent payors.

Steve and Barry's average rent was $4 a foot.

CompUSA average was about $11 a foot, both well below our portfolio average of $41 a foot.

The leasing activity during this quarter continued to be robust with strong releasing spreads, we signed 266,000 square feet of leases, average starting rent of $43.47 a foot, that was a 21% positive spread versus the expiration.

Average rent per square foot in the portfolio is up almost 8% to $41.36 a foot compared to $38.40 a foot a year ago.

Focusing now on results for the quarter, FFO diluted was $1.16 for the quarter, that compared to $1.15 for the quarter a year ago.

Consensus was $1.19 and our guidance midpoint was $1.21.

And the primary difference between the forecast and the actual results was almost entirely attributed to a forecast being on sale of undepreciated assets of $5 million and that compared with actual results of $600,000.

During quarter same center net operating income, excluding termination revenue and SFAS 141 revenue was up 2.2% compared to the third quarter of last year.

Year-to-date same center NOI is up 2.9%.

During the quarter lease termination revenue including JVs at pro rata was $4.0 million, that was down about $1million from the third quarter of last year.

The expense recovery rate including JVs at pro rata was 93.2% down slightly from 94.1% in the third quarter of last year.

CPI rent increases continue to benefit us, they were $1.7 million higher in the third quarter of '07 than they were in the third quarter -- excuse me, in the third of '08 compared to the third quarter of '07.

Straight line rents were $3 million compared to $4 million a year ago.

SFAS 141 income was almost $5 million that was up from $4 million up from the third quarter of '07.

Now, shifting emphasis to the balance sheet, we continue to have had a tremendous amount of financing activity.

I will be discussing those transactions in more detail in a moment.

Our average interest rate for the quarter was 5.41%, and the average rate on fixed rate debt is 5.65%.

The interest coverage ratio is a very healthy 2.1 times for the quarter.

At quarter end we had $7.9 billion of debt outstanding including JVs and pro rata.

As of today, we have no remaining maturities for 2008 other than a very small $2 million joint venture loan that's in the documentation stage.

We have over $500 million of capacity on our line of credit today, plus $48 million of cash on the balance sheet.

And as you will see in a moment, we have a very manageable maturity schedule, even in this challenging Capital Market.

Included in today's 8-K supplement are three new schedules.

One shows the 2008 financing activity and the tremendous amount of liquidity that we've generated as a result of these 12 financing transactions this year.

In addition, we've included our financing plan for 2009 and 2010.

Looking briefly at 2008, which is page 14 in the supplement, we had 12 transactions, our pro rata share of proceeds funded were $958 million plus our pro rata share of additional capacity under those loans is almost another $200 million, and that's primarily for construction draws.

These proceeds generated $800 million in excess of proceeds beyond the maturing loans.

The most recent financing activity included on October 15, the company closed on a $90 million fixed rate loan on South Towne Center in Sandy.

Utah.

The seven year loan had an interest rate of 6.25%.

We previously paid off that loan, so, at the time the loan closed, the asset was unencumbered.

We used that liquidity to take advantage of another very significant opportunity.

In late October, due to technical pressure on convert hedge funds, we were able to retire some of our convertible preferred bond, with a 2012 maturity at a very, very, substantial discount.

To date we have been able to retire over 125 million of face amount of bonds at an approximate cost to us of 58% of face value.

This was a very unique opportunity and we were able to take advantage of it because of the strength of our balance sheet.

Now looking at 2009 maturities, which is supplement page 15, on the surface they're $945 million of loan maturities in 2009.

However, over $267 million of those have extension provisions built in, or we have negotiated for them.

That leaves $679 million to refinance in 2009.

Looking at those maturities in 2009, they're on some of our top performing assets such as Queens Center, Washington Square, Biltmore Fashion and the Village of Corte Madera.

The centers with loans maturing in 2009 are top quality and average over $560 per square foot in annual sales.

Those assets are also lightly leveraged today with average maturing loans under 40% of loan to value.

The low end of our financing plan that you will see on page 15 of the supplement, shows us generating excess proceeds on new financings of over $380 million next year.

One such example is already under contract.

We've come to an agreement on a $250 million refinancing of Washington Square Mall in Portland, Oregon, that seven year fixed rate loan is expected to close in the fourth quarter, and the interest rate has been locked at 6%, the current loan is $128 million, and was scheduled to mature in February of 2009.

Our pro rata share of the excess proceeds on that transaction are estimated to be $62 million.

Now, for a look at 2010 maturities which is in supplement page 16.

The face amount of the maturities is $1.9 billion, however that includes our line of credit which has a built in extension feature to 2011.

Excluding the line and other loans that have built in extensions, that leaves us with 2010 maturities of approximately $766 million.

Including in those maturities are nine property specific loans, all of which are under $100 million.

In addition, we have a $450 million term note maturing, we have assumed that loan will be refinanced in a smaller amount, but that there's more than ample capacity generated from the other financings to accommodate that.

In summary, our balance sheet is in strong position, we've had a very busy year and successful year on the financing front and we expect that to continue next year.

We're very fortunate in that we have many long tenured relationships with our bank group and many life companies and pension funds whom we've doing business for many years.

As noted in our press release this morning we're increasing our previous guidance range for FFO per diluted share up $0.35 to a range of $5.35 to $5.50.

The three major reasons for this change are, first, on the refinancing of debt, I mentioned earlier a very significant opportunistic retirement of the ventures which generated a significant gain on early extinguish of debt.

We also expect to incur some prepayment penalties during the quarter on other debts that we will retire early in order to put new loans in place.

We expect a net gain on early extinguishment of debt during the quarter to be $0.47 to $0.52 per share in that range.

Also impacting the adjusted guidance was in our original 2008 guidance we included $12 million of estimated gain on sale of un-depreciated assets.

To date, we recorded only $4 million of such sales so the remaining $8 million, or $0.09 per share is now being taken out of guidance as we feel those sales are unlikely to occur during the balance of 2008.

Lastly, due to a slower retail sales forecast or slower retail sales than we had originally forecast, we're reducing our estimated percentage rent for the quarter by $0.03 per share in the fourth quarter.

Netting out all of those factors gets us to the $0.35 a share increase in guidance that we gave this morning.

And now, I would like to turn it over to Art.

Thank you, Tom.

I will be brief in my prepared remarks here and then we'll jump into Q&A.

I want to make it very cleat that we are well aware of the global liquidity crisis that we are facing today that is really unprecedented.

Here in the US we have not only have impacts of that global recession, but we even find ourselves in a situation in Arizona where it actually begins to feel like a depression.

But in spite of these global facts and the global economic condition, as well as the illiquidity that we find in the Capital Markets, we have continued to be able to put up very strong operating results across the board, as measured by leasing results and same centers NOI results.

Today in my prepared remarks I want to talk about Macerichs' access to capital, about our development activity, as well as about where we stand on the Mervyn's portfolio that we bought about 10 months ago today.

Any company whether it be a real estate or otherwise needs two things to survive in today's global liquidity crisis.

One is a very strong balance sheet which we have as outlined by Tom but more importantly is access to capital.

Access to capital is required not only to run our business but it is also required for us to be able to be opportunistic.

If we didn't have a strong balance sheet as well as access to capital, for example, Tom would not have been able and we would not have been able to go in and to buy those convertible debentures at the price point that we were able to buy them.

So, as you can see, in the increased and improved disclosure that we have on our maturity schedule, we've got plenty of access to capital, and this is capital that is being funded to us from long standing partners and lenders that we've been doing business with for over 30 years.

We were never one of the companies that got addicted to CMBS debt.

We always had a healthy balance of life insurance company debt in our portfolio and our representations within our line of credit for example, includes just over 20 some institutions, whether they be commercial or investment bank, each of which are there for one reason and one reason only and that's to do more business with us.

Looking to our development activity, the vast majority of the development activity that we have today is in absolutely 100% location.

The bulk of our development activity today is the largest project is Santa Monica Place.

We are in the process of finishing off Phase I of the expansion of The Oaks with phase II opening up next year and the third major development that we have going on right now is Scottsdale Fashion Square.

As we look at Santa Monica Place, we are pleased and thrilled during the quarter to have been able to announce that -- JW Nordstrom -- Nordstrom will be replacing the old May company, a store that operated under the name of Robinsons May, at Santa Monica Place.

And we were able to work out an arrangement with Macy's for them to agree to convert their Macy's store to a very hip Bloomingdale's store.

If any of you have been to Bloomies SoHo store in the south of market area in New York City, that will give you a flavor for the type of merchandise that we'll getting here, it will not be a full line Bloomingdales store, it will be very hip and very trendy and dialed into the Third Street Promenade customer, that Santa Monica acts as -- Santa Monica Place acts as an anchor to.

Looking to our other major development activity that we have here, Scottsdale Fashion Square, this is truly one of the top five or ten fortress assets in the United States, our leasing activity remains very robust there as well as at Santa Monica place.

The Oaks and Scottsdale Fashion Square, and we look to see an opening there of Scottsdale Fashion supporters, the most recent expansion to be late '09.

One thing that you will note in our supplemental filing, related to the development costs is we are not in our, in this particular Q we are not listing the mixed use developments of office and residential that you've heard us refer to in previous calls and also filings that were being planned at Biltmore Fashion Square and in particular at Tyson's Corner.

The reasons for that is that while we have been very successful in and are thrilled to have the entitlement to add vertical components to each of those properties, both the residential and the office markets today, would dictate that this is really no market to be adding significant investment into office and to residential at those two locations.

We're completely able to sit back and to nurture that entitlement that we have at those two locations, but we're not going to jump into try to mine the value we have created there with our entitlement until the markets really have got a very substantial head wind behind them.

The third item that I wanted to refer to and talk to you about today, is Mervyn's.

As you know during the quarter, Mervyn's, the Junior regional chain filed chapter 11during the third quarter of this year.

I'll refresh your recollection that in December of last year, that Macerich entered into -- acquired 41 Mervyn's stores in a sale leaseback transaction.

Mervyn's it is currently conducting GOBs and is actually going to auction on 26 of the 171 stores that they have today.

Mervyn's will no longer operate under the Mervyn's name in about three months from now.

So, they are moving from chapter 11 to liquidation of the company.

They are currently liquidating inventory at the company and will then, there after, be liquidating their furniture and fixtures and then they are beginning to expose these stores, these 170 stores that they have left here to retailers.

Of the 41 Mervyn's stores that we have in our portfolio, we have a very robust level of interest from retailers wanting to take over these locations.

We currently have identified replacement retailers for over two-thirds of the Mervyn's locations that will be going dark in the next three months.

So, that is really testimony to the quality of the real estate transaction that we entered into when we bought Mervyn's in the sale lease-back transaction in the 41 stores.

Again to refresh your recollection, the reason that we bought those 41 stores is that it was the only way to protect our destiny at 11 very strong regional malls that Macerich owns and as the years play out we will be very, very happy that we were the ones that controlled our destiny at the 11 regional malls where we ended up doing sale lease backs.

So, give the fact we have two-thirds of the Mervyn's stores accounted for today and we're not in a position to identify the nams today, but we will as soon as we have signed agreements with these folks.

Then that leaves us with potential exposure about one-third of the stores that we have acquired in 2009.

And if we didn't lease one of those stores in 2009, you would be looking at basically vacancy allowance for those stores with close to $0.10 a share in 2009.

But the reality is that we have very robust interest in each of those stores whether they be the two-thirds of the ones where the hand has already gone up and its been spoken.

Or the remaining 15 or so locations where we currently are negotiating with a variety and a mix of retailers including the possibility of tearing down the Mervyn's stores in some locations and replacing them.

With that I'd like to open this up to questions and look forward to answering you as we go on here today.

Thank you.

(OPERATOR INSTRUCTIONS).

We will take our first question from Lou Taylor with Deutsche Bank, please go ahead.

Thanks, good morning guys.

Art, can you just expand a little bit on Mervyn's, of your locations, and I mean the 41, are you going to have to bid at auction to get full control over the space, or are you going to get it completely back in that and have freedom to negotiate?

If there's no other bidders the answer is, we get it fully back.

But, you think of it as a sandwich we've got the ground lessor position, where the building was (inaudible) position on the one end.

And then we're protecting ourselves at the auction to make sure that we control the identity of the ultimate lessor and we're bidding in a percentage of our rejection damages, which are really somewhat, soft dollars or future dollars and compensatory dollars as our bids.

So, we have controls of the real estate not only through the sale lease back, though the REA's that we have that encumber these premises, but we also do have a shadow bid sitting out there for all of these locations.

So, I would be shocked if any one of these locations end up in the hands of the retailer that we would prefer to have had another retailer take over, so we are in very good control position.

We have -- one of our Senior Executive's on the Creditors Committee, the seven man and woman creditor committee of Mervyn's and we, Eddie and myself, are very close to and have a working relationship with the board of directors at Mervyn's.

So, we feel that we're in a unique position to control our destiny which was really the business plan a year ago when we bought these 41 stores, Lou.

Okay, and are all of the stores subject to auction I mean as the process unwinds or is it just a smaller percentage?

If there's -- those stores which have not been spoken for by the auction date, will be subject to auction but I suspect that there will be -- a significant number of stores will end up being sold to a major retail player, prior to the time that they go auction.

As many as -- my guess, 36 or 37, close up to 40 stores will be acquired by major retailer and/or retailers before they ever hit auction.

And of -- if that plays out the way that I suspect it will play out, then a major retailer and or retailers will have spoken for over half of the 41 stores that we have with Mervyn's, before they ever hit the auction block.

Okay, great.

And then second question is for Tom.

Tom, in terms of the 2009 and 2010 debt maturities, what's the profile of the current note holder in terms of life company, CNBS or bank?

I figure with the banks and the credit lines, but in terms of the property level mortgages, what percentage are CMBS versus life companies or others?

It's about 50/50 Lou.

And that's not an exact number, but its a combination of life companies and CMBS on most of these, and we are well on our way in conversations on 2009 maturities.

I mentioned the one deal that we already have under contract, but we've probably got at least half of the others where we are in deep discussion with lenders on those.

So, obviously we were very successful in 2008 and the assets we were refinancing in 2008 were good assets, but not of the same quality of what we're looking at in 2009.

So, we feel that financing plan that we put in the supplement you know is reasonable and on the low end frankly conservative.

Okay and then -- last question and I'll get back to Art; in terms of just the Scottsdale Fashion Square in Estrella, are you hearing anything from retailers that are maybe asking you to maybe slow down those projects, maybe hoping more in 2010 or a little bit later given just the status of the Arizona economy?

Well Scottsdale, the expansion wing is opening in fall of '09, so that's set in concrete and we are virtually 100% leased in the expansion wing there today.

Estrella, we currently have targeted fall of '10 as our opening date.

It is possible that -- well as a matter of fact it is likely, that we will open up Estrella Falls in phases, with some phases opening up in 2010 and the balance opening up in '11 and '12.

But from a retailer perspective, we have department store commitments that are all focused around our 2010 opening and we've got pre-leasing at Estrella Falls, so that is well over 60% of the space is already accounted for.

We do have the ability to gauge exactly when we want Estrella to open up and it is possible that we could voluntarily make the decision to get the most bang for our buck with an opening in spring of, lets say, 2011 at Estrella.

Likewise for example, Lou, at Santa Monica Place our original plan was to open up in its entirety, the expansion of Santa Monica Place in the fall of 2010.

But because of the fact we have Bloomingdale's taking over the Macy's store at Santa Monica Place, we all of the sudden are faced with a situation where in November and December of 2009, both the May company building and the Macy's building will be dark.

So, we're currently going through our process and even though the fact that we are well over 60% signed and committed in our small shops spacing, or 80% of total GOI is committed at Santa Monica Place.

It is possible that we will end up moving the grand opening date for Santa Monica Place to coincide with the Bloomingdale's opening date which currently looks to be February of 2010.

So, it's barely even a full season we're talking about, the difference between a November opening date for Santa Monica Place, this major first phase to February, so that is something that would -- we could decide in the next three to four month to move the grand opening date of Santa Monica Place of February of '10 versus the November of '09 that's shown in the supplement that is filed today.

Great.

Thank you.

Thank you, Lou.

And we'll take our next question from Christy McElroy with Banc of America.

Please go ahead.

Good morning guys.

What types of lenders do you see as most likely to issue new debt to take out your CMBS coming due in 2009, 2010?

Are the life companies willing to have those types of discussions today?

Well, Christy, yes, there's no question.

I mean, we've had quite a few conversations, we're very active this year and primarily those have been life company deals.

We did do two pension fund loans, and depending on the type of asset and if its been a recent redevelopment or if its got a construction component we've done some bank financing.

But generally speaking for the take out on the CMBS its going to be life companies.

And in the financing plan disclosure that you provided, can you discuss kind of a general assumptions that you used when calculating the new loan amounts and your low and high refinancing scenarios including cap rates and loan to value?

We could be here all day doing that and debating cap rates, but suffice it to say, its conservative underwriting and the existing loans, almost by anybody's underwriting assumptions are under 40% leveraged today.

So, it's conservative underwriting and each individual property has a different set of assumptions.

But it's been very conservative and I think our results in '08 speak for themselves, when you look at what we've done there, '09 isn't a stretch all.

And are there any contingencies, rate changes or costs associated with exercising any of the extension options you've outlined in your '09 and 2010 debt maturities?

No, they're almost all at the election of the borrower as long as the loan is not in default.

Okay.

And then just lastly on Mervyn's, can you comment on what types of retailers or what retailers specifically are looking to take over that space of the two-thirds that you said you have interest in?

Sure.

Kohl's has got a very high level of interest in some of the spaces, there are sporting goods operators that have shown interest and then there are other retailers that have shown interest in taking over stores.

Some of which are really kind of new to market in terms of size, but we're very pleased with the level of activity and interest that we see in these stores.

And you know, you have -- remember, this is interest that is being expressed while the retail landscape in general is at the weakest moment that its been at in many years, so again that's testimony to the strength of the real estate that Mervyn's is located within at the Macerich Centers as well as the centers where we entered into sale lease backs.

But, I would say in most cases it's going to be a national chain.

And those 40 stores that will probably be acquired by a major retailer, is that Forever 21?

That's the one that is working on 40 stores, yes.

Okay.

Thank you.

We'll take our next question from Jay Habermann with Goldman Sacks, please go ahead.

Hi, Jehan, here with Jay, actually, as well.

Looks like you're proceeding pretty much on track with your current development schedule for '09 and '10 deliveries and we're just trying to get a sense for how you've been thinking about future development projects versus trying to preserve capital in this environment and maybe even how you're return requirements might have changed when you think about underwriting new projects.

Sure.

No problem.

This is Art, I'm glad you asked that.

You know there are no funding obligations that we have in any one of our development projects that could not be funded from the current annual cash flow that we have within the company.

But the reality is that we're funding our development pipeline with proceeds, excess proceeds of -- of refinancing proceeds from centers that we've owned for a long period of time.

So, the process is very simple, that we have properties that mature, we go ahead and we refinance them, we take out a lot of dollars and then we either use that money to take down our line of credit or we plow it back into a development or redevelopment.

So, again I want a emphasis that not only do we have a very strong balance sheet, but we also have a very, very strong access to capital in today's markets.

And certainly the thought of preserving capital is not in our vocabulary at 401 Wilshire Blvd today, because while we are respectful of the demands that capital has and the hurdles that the capital requires, the fact that we've been respectful of the demands and the hurdles that capital requires for our entire history and clearly our last 15 years as a public company, that is the absolute reason that we have a strong balance sheet and that we have access to capital.

If we were not respectful of capital then we could be in a position where we were using the word preservation, but that is not in our vocabulary at 401 Wilshire Boulevard.

Okay.

And then would it be fair to say you are still sort of targeting yields on new developments in that 8% to 10% rate and then maybe a couple of percentage points higher on redevelopments?

Everyone -- every piece of chocolate tastes differently in this case, but the range is generally, lets use a range of 9 to 11 on new deals, and 6 to 10 on redevelopments.

And part of the reason I have the lower end of the range on the redevelopments and expansion is that any time we do a major redevelopment we kind of go through a punch list of items that are required to bring a property fully up to date and a lot of those expenditures are not income producing but it's part of being a good steward in terms of owning your properties than making sure they're constantly being brought up to date.

Our hurdles for returns remain fairly constant in terms of what we see.

We are very demanding though I would say, from a disciplined viewpoint to make absolutely certain that the projected returns are hit and there's a big difference between sending out a pro forma and talking about a pro forma and meeting a pro forma and so there's a great deal of focus on that and we have a tremendous track record of bringing in projects on time and on budget.

Okay.

And then just one more question, it looks like your same-store NOI for the quarter was about 2.2% over the prior year, and with this (inaudible) the same region, is it still sort of from Phoenix, that's driving a lot of that moderation, and then again, what would be your projection for year end NOI at this point?

Yes, we don't really look at that regionally, that 2.2 is a blended rate across the whole portfolio.

The guidance we gave originally for the year was 2.5% to 3%, so we're currently at 2.9% so we're right in the middle of that guidance range.

You will probably -- noted that my conversation about guidance, I guided part of the guidance was a reduction relating to percentage rent and we have moved that down a little bit.

So, we still feel we will finish the year on same center NOI between 2.5% and 3%.

And we have factored that into the revised guidance.

And Tom, just to add on to that we are aware of the fact and are happy to disclose to you the items that will drive NOI growth throughout the portfolio in fourth quarter of this year and throughout '09, at the end of the day, 0.5 of it is CPIs, because we have over half of our leases are subject to annual CPIs.

So, that's kind of a built in insurance policy for same center growth.

But beyond that you have to really look at releasing spreads in occupancy levels and our Phoenix releasing spreads are consistent with the balance of the United States.

They've been exceeding 20% just as the United States has exceeded 20%.

So, while there are woes in the marketplace and on main street in Arizona for the home builders the fact of the matter is that the pricing power that we have in Phoenix in particular is so strong that we are able to maintain 20% spreads on leasing, in spite of the fact that we are experiencing a regional depression in the Arizona marketplace, and you know, not only have we been able to meet those -- those leasing spreads to date, but we're already well over 80% committed for 2009 across the board and that includes Arizona.

Great.

Thanks for that.

Thank you.

Okay, we'll take our next question from Michael Bilerman with Citi.

Please go ahead.

Hi.

It's Quentin Vellely here, I'm with Michael.

Just back to Mervyn's, I can understand how you want to control our own destiny with the 11 Mervyn's boxes that are in your malls.

But with the 17 in the other malls, how are you going to balance managing the different interests like your interests, the other land lords and Mervyn's or the new tenant?

Thank you for asking that.

We're going to act in our own enlightened self interest on all of those stores and make as much money as we can on each and every one of them.

I love that answer.

Okay.

And so, I mean if you're re-leasing these potentially to new tenants, then I'm just wondering what the potential CapEx spend could be when you are doing that?

I would say de minimis.

All of the deals we are working on are "as is, where as" deals with retailers.

So, I would say across the board it is de minimis.

So, would there be a rental down time at all.

A rental void?

We'll you know we have three months of a line of letters of credit that protected us once the spaces are no longer paying rent and while spaces have announced they're going to have GOB sales, Tony and you can help me on the process on this, but even though they announced a GOB sale we're only just completing GOB's on 26 of the 171 stores.

And I think they're getting ready to start the GOB process on the other 145, generally a GOB takes, goes on for around 90 days, it can be 60 to 90 days and at that point in time the store on the other becomes dark and then it goes to an auction.

So, as we see it, before the auction date hits, we will have identified virtually across the board replacement users.

Does that answer your question?

Yes.

And Art just going back to the other, the other land lords, what rights would they have in terms of, you know, potentially blocking you from being able to put in a replacement tenant to be able to maintain your rental stream and I guess you sell that box back to them to alleviate that concern.

Well, we're friends with all the other land lords and I don't anticipate any problems there.

Just another one on the, on the leasing that you've done for '09 you said that 80% of your leasing was up for the redevelopment.

I am just wondering what kind of tenant incentives or rent frees you've had to have give away for that and whether that's been increasing.

This is Tony

(Inaudible) because that was too much of a soft ball.

We don't use the word give away.

We consider it to be an investment in our retailers futures.

So, Tony, if you can step in now.

Sure, the -- you know at this point, the quality still is being priced much, as we talked about in prior quarters, you see it in our spreads and actually the amount of TAs out the door if you track it, as an amount of effective rent, actually it's been going down over the last four quarters.

So, the quality of the deal deals that we're doing continues to improve and especially on the better assets.

We're not finding that there is an erosion in the business terms.

Now, the retailers are taking a little longer to run it through their process, and they do have fewer stores that they want to open, so they want to make sure when they do their due diligence they take the risk out of a store opening.

So, you could see a little bit of a delay in terms of the number of stores or a little bit of a time lag in terms of getting these retailers to commit in this environment.

Okay.

Thank, guys.

Thank you.

We'll take our next question from Michael Mueller with JPMorgan.

Please go ahead.

Yes hi.

First, of all nice debt schedule, Tom..

It would be better if there wasn't anything there, Michael.

There you go.

Looking at the -- basically can you go through and quantify where you think the refinancing rates will be when you look out to 2009, I mean what sort of terms are lenders putting out there?

I know you did the 6% mortgage on Washington Square but I'm assuming that was probably negotiated a little while ago?

Mike, if I could tell you where rates were going be by 2010, I would be retired and probably very liquid and sitting on a beach in Hawaii somewhere.

Given that I can't do that, I will tell you what we have been seeing and you can, you know make your own judgment as to whether that continues.

Obviously, the rates have been bouncing all over.

We've seen good interests and the lending levels, most comfortably are between 50% and 60%, probably have more conservative under writting than we've seen in the past but nonetheless, you know quite effective for us.

And should allow us to continue to see refinancing proceeds in excess of the debt retirement, and you know, generally speaking, they've been averaging about 250 over the treasury.

I will say that when the treasury dropped, significantly, you know, 30 days ago, it started to either increase or floor started to show up, but it's not too far from traditional underwriting.

I'd say a good A-mall today at 50% to 60% leverage is going to be, you know, treasuries plus 250.

I mean we have been going with seven year financings just because the yield curve was fairly steep between 7 and ten years but tenure money is available also.

Okay.

And again it's for high quality assets and good sponsorship.

Okay.

And then maybe one question for Tony, when you take a look at them -- I know you guys don't have 2009 guidance out, but based on leasing you've seen so far for 2009, does it feel like you're going to hold the line in terms of occupancy or any erosion will be minimal at this point.

Yes, we're in the process of planning right now, and we're typically out anywhere between 12 and 18 months in our leasing.

And there could be some occupancy pressures on bankruptcies that we know of today.

It's not going to be significant but what we're seeing so far is that occupancy should hold in and around the level that we have today.

And the pricing, as I mentioned in the last question, we still have that same view on pricing on the quality.

Okay.

Okay, thank you.

Thank you.

We will take our next question from Steve Sakwa with Merrill Lynch.

Please go ahead.

Hi, good afternoon.

Just I guess, two questions first for Tony.

When you're talking to retailers, I guess and you're looking at different productivity levels and they're thinking about store openings, store closing, how are they thinking about I guess productivity in a mall, and you've got clearly a range of that here in the portfolio from 350 up to 800.

Has the -- I guess has the first down marker been moved in terms of where they won or maybe stores or locations that is are under more pressure today?

You know, as a retailer, the conversation is really about the longer term.

You know, productivity is an important measure for them in terms of what, of how they measure success.

So, they, if they were to look at, at this season and they are very, very concerned about this season and totally focused on Christmas and trying to get their business model out, keeping their margins (inaudible), but productivity is important.

And you know, it drives their affordability on rent.

But they do take a longer term view of it, especially on the, on the better assets where really occupancy remains high in those assets, and to get an opportunity for the right location, in those assets, regardless of the fees and regardless of the time, they are going to be very keen on trying to establish their business in the better mall.

But I guess you're not seeing them driving a harder bargain, in say malls that do sales less than $400 a foot?

Well those, I mean those in -- in any times those deals are far more creative.

Those deals, those centers for us, we do have them, but they don't really drive our business, our top 50 assets really driver over 85% of our business, so that's our focus in trying to drive the pricing on those assets.

Okay.

And then Tom, maybe sort of a related question, how do the lenders look at properties obviously in a $800 a foot mall?

It seems to have no issue but what about properties doing $325, $350, $370 a foot.

How are lenders looking at those today?

Well, I think to a large degree, it's the quality of the sponsorship, Steve.

If you look at what we did in 2008, those centers averaged about 450, but there are a couple of centers in Phoenix that we just closed on October 1 that were doing -- one was doing $300 a foot, one $400, and you know, they look for the quality of the tenants, you know, they still see national credit tenants in there even if the sales are only $300 or $400 a foot.

So, we got both of those transactions financed about about $250 over the treasuries and that was done with a pension fund and deals can still get done.

I will tell you they're picking their spots and look heavily on the sponsorship.

Right, but if you look at sort of Chandler, basically the debt maturing was effectively equal to almost to the new loan proceeds where you look at something like Victor Valley you almost double the loan proceeds and -- .

I think that there's a store behind Chandler, we have a partner in the Chandler (inaudible), I believe Tom, don't we and the partner has a major tax disadvantage if they were to refinance at the levels above the current debt if that's the one you are referring to.

Yes, there were some tax considerations there Steve that generally aren't in play on the other transaction.

But I don't think you can really draw a comparison between those two.

You know, but a good example, Tom, would be Northridge Mall and Paradise Valley mall, I mean North paradise valley, I don't have it in front of me, but lets say its a high $250 to $370 a food center, you know you've got strong refinancing interest in that that's going to generate some very substantial refinancing proceeds.

Yes, no, there's been a tremendous, actually you now that you mentioned Paradise Valley, there's been a tremendous level of interest in Paradise Valley.

Steve, there's only $20 million in debt there.

And we're going to put below substantially in excess of that at least 100 million in excess of what's maturing there and there has been a very high level of interest there.

Okay, thanks.

Thank you.

And we'll take a follow-up question from Michael from Citi.

Please go ahead.

I just wanted to come back on, on the convert buy back, just understand how you thought about that while having capital capacity to do it, given the fact that when you did it you had a capped call which put the convert price at 130.

So, effectively this was more trading like a bond.

And you effectively retired it at 3.25 coupon.

You effectively got it at a 6% cost relative to you, and you, I guess thought about it from the perspective of 2012, will be (inaudible) USA so why not buy at a discount today?

Michael, from an investor standpoint those bonds were trading close to 25% yield and maturity.

September 30, those bonds were trading in the neighborhood of 85, and as a result of the turmoil with the convert funds, they plummeted and we had a very unique opportunity to retire debt, you know, at under 60% of face value.

So, from our standpoint we have just created a tremendous amount of value.

It was a very, very attractive opportunity anyway you look at it.

But the nominal cost of your -- that you had on that debt was in the threes at least today.

So, even if you bought it at a discount you effectively -- .

It is basically a push from an earnings perspective

Well, it was the economics of it were incredible.

I mean we created over $50 million worth of value and you can't be driven solely by what happens to your interest expense because as you know, there's some new accounts rules that would have driven that 3.25 up anyway.

Yes.

So, you got to look at what is good cash economics and I think anybody on this phone that could retire their mortgage in $0.55 on the dollar or $0.57 on the dollar would jump at that all day long.

And that's exactly what we did.

And your $0.47 to $0.52, that is your net number for the gain on the buy backs of the convert.

Less potential charges you may have on other debt retirement?

Right.

In this market if you've got the opportunity to get a financing put in place and it means you've got to deal with a little bit of a prepay penalty here and there.

We feel its prudent to do it and expect to have some of those between now and the end of the year.

Okay.

Thank you.

Thank you.

And we'll take your next question from Paul Morgan with FBR.

Please go ahead.

Hi, Paul.

Hi.

Are you -- do you consider that a one time event with the converts or would you still be pursuing that?

Paul, there are some size limitations in terms of what we can do according to our counsel, and in other considerations liquidity.

So, we kind of balance the two.

We just closed on the South Towne financing and so we had just generated $90 million of cash.

And we felt we could comfortably given what was on our plate, in terms of future financings and development, et cetera, we felt like we could comfortable spend, you know, $70 or $80 million to take advantage of that opportunity.

Okay.

So -- .

And I suspect after this call, and this disclosure, the pricing on those is probably going up.

Alright, have you worked through or, have I missed it, did you have you provide any detail on the accounting changes in the impact next year for the way it will show up for you?

No, we haven't done it, Paul.

Everybody, has been kind of in the same boat, but I suspect that rather than using the 3.25 faced for those converts it will be like 4% or 4.25 or something like that.

It it gravitates to your average interest rate.

And the amount currently outstanding is -- ?

It's in the ball park of $810 million, something like that, $810 to $820.

Okay.

Alright.

Great.

Thanks.

Thank you.

Thank you.

And we'll take our last question from Ben Yang with Green Street Advisors.

Please go ahead.

Hello, good morning.

Hi, Ben.

Art, you made the comment earlier in the call that Arizona feels like a depression.

In light of comments like this can you reinstitute the practice of providing regional sales differences within your portfolio?

Actually, no reason not to.

Can you tell us that now?

Yes, absolutely.

Ben, it is Tony here.

I'll provide some color, and direction on that.

Consumer struggle has been struggling all year and the confidence really was stripped in September.

And Tom reported our sales were up a tad, 463.

But when you break it down, you know, our -- our eastern region is still doing quite well on the heels of Tyson's and Queens, our Central region is doing -- its still well, so these are substantially in the positive territory.

Eastern is up 14%, central is up 5%.

Northern California is flat.

Southern California were off almost 5% for the quarter, and Arizona is the trailer, and we are off 9% in that region.

And you said that's for the quarter; right?

Yes.

Okay.

And then, have you published a list of the 41 that you acquired last year?

I don't recall seeing one?

If we haven't I'm happy to do so.

I know its in the public domain somewhere.

Would you guys mind making that available to us?

No problem.

Thank you, that's it.

Thanks.

Thank you, Ben.

Okay.

That was our last question, we really appreciate you being with us.

Look forward to seeing many of you in a couple of weeks its the (inaudible) conference here in San Diego.

And again thank you for joining us and we look forward to seeing you in a couple of weeks.

Ladies and gentlemen, this will conclude the Macerich third quarter 2008 earnings conference call.

This does conclude the conference ask you may disconnect at this time.