Macerich Co (MAC) 2009 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank for you standing by.

Welcome to the Macerich Company first quarter 2009 earnings conference call.

Today's call is being recorded.

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

Following the presentation, we'll conduct a question and answer session.

Instructions will be provided at that time for you to queue up questions.

I would like to remind everyone that this conference is being recorded and would now like to turn the conference over to Ms Jean Wood, Vice President of the Investor Relations.

Please, go ahead.

Thank you, everyone, for joining us today on our first quarter 2009 earnings conference call.

During 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 webcast for some time to come, we believe it is important to note that the passage of time can render information of stale and you should not rely on the continued accuracy of this material.

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

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

Joining us today are Arthur Coppola, CEO and Chairman of the Board of Directors.

Tony Grossi, Senior Executive VP and Chief Operating Officer, and Tom O'Hern, Senior Executive VP and Chief Financial Officer.

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

Thank you Jean.

We will be discussing first quarter results recent financing activity in our financing liquidity plan for 2009 and 2010, as well as the outlook for the remainder for 2009.

During the quarter, the operating metrics generally remain solid with continued respectable occupancy levels and strong releasing spreads.

Mall sales per square foot for the 12 months ended March 31, 2009, were $440 per foot down 6% from a year ago.

We signed 318,000 square foot of leases during the quarter with average new rents at $43.28 a foot for a positive releasing spread of 21%.

Occupancy levels remain high albeit down from a year ago, but mall occupancy at March 31 was 90.2%, that was down 210 basis points from a year ago which was at 92.3%.

Most of that reduction, however, related to big box closures with three tenants making up 1.2% of the decline and 1.7% being made up of five tenants.

All five of those tenants paid rents that were substantially below our portfolio average.

We had Circuit City vacating 189,000 square feet.

They were only paying $16.00 a foot in rent.

Linens 'n' Things 123,000 square feet paying $12.00 a foot in rent.

Steve & Barry's vacated 93,000 feet at $5.75 a foot.

KB Toys vacated close to 100,000 square feet.

They were paying $23.00 a foot and finally, Comp USA vacated 64,000 feet and they were paying $11.00 a foot.

So on an average, those tenants were paying under $14.00 a foot.

That compares to our portfolio average of $42.55 a foot.

Although, it represented 2.1% occupancy decline, it represented a far lower percentage of economic decline.

And again these were all bankruptcies we were aware of last year and they were factored into our guidance that we gave in January.

Again, occupancy costs as a percentage of sales was 13.3% for the quarter up slightly from year end at 13.1%.

FFO per diluted share for the quarter came in at $1.16,that compared at $1.05 for a year ago, first quarter of 2008.

Consensus was $1.03 and our guidance was $1.00.

There were a few major nonrecurring events that impacted the quarter.

The first was the adoption of APB 14-1.

That was a new interpretation and it changed the accounting for convertible debt effective January 1st of 2009.

This change was also rolled back to the beginning of last year, had an adverse impact on the quarter of $0.03 a share.

That was an increase in interest expense, noncash.

Also, in the first quarter, we retired 50 million of convertible debentures at a 45% average discount to the face.

We reflected at $23 million gain on early retirement of debt.

You recall when we gave our 2009 guidance, we included $20 million of gain on early distinguishment of debt, so we exceeded that by a small amount.

In the first quarter, we also had a reduction of our work force.

As part of that riff, we had incurred approximately $5.5 million in severance cost.

That showed up as an expense in the management Company's expenses in the first quarter.

Same Center NOI -- for the quarter, excluding termination revenue and SFAS 141 was down -- it was basically flat.

It was down 0.12% compared to the first quarter of 2008.

The negative comparison was primarily driven by the occupancy decline and a $2.3 million increase in bad debt expense.

Lease termination revenues including joint ventures was $1.9 million, that was down $580,000 from a year ago.

The expense recovery rate, including JV's was at 90% that was down from 94% in the first quarter of 2008.

That reduction was due primarily to higher non-recoverable expenses, including the bad debt expense increase I just mentioned, as well as higher legal costs.

Straight line rents were down -- $650,000 for the quarter and ended at $1.5 million.

SFAS 141 income was $4.2 million, that was down from $4.7 million a year ago, and gain on sale of undepreciated assets during the quarter was $1.4 million down about $300,000 from the year before.

In addition during the quarter, the impact of the vacant Mervyns store reduced NOI by approximately $5 million for the quarter, compared to the first quarter of 2008.

Shifting now to the balance sheet, we continue to make a significant amount of financing progress.

The average interest rate in the portfolio is now 5.12%, and the average rate on fixed rate debt is 5.96%.

We had a interest coverage ratio of a healthy 2.0 times for the quarter.

At quarter end, we had $7.9 billion of debt outstanding including JV's at pro rata.

As of today only $143 million remain for the 2009 maturities.

We have approximately $400 million of capacity in our line of credit today plus $123 million of cash on the balance sheet as of quarter end.

During the quarter, we were able to retire $50 million of our convertible notes at a discount.

That takes a total amount of convertibles outstanding at quarter end of $660 million.

Included in today's 8-K supplement on pages 14 and 15, we show our 2009 and 2010 financing plans.

We made great progress on the 2009 maturities with over $480 million of new loans done already this year, generating close to $100 million of excess loan proceeds.

The estimated loan proceeds that show up on pages 14 and 15 have been modified to reflect the underwriting conditions that we are seeing in the market today.

We have been very active in the market.

We outlined that in a press release about three or four weeks ago.

And we continue to update those schedules based on what we're seeing, or transactions that are actually closing.

The property loans that mature in 2010, excluding loans with built-in extension options, total only $318 million.

Even using today's very conservative underwriting of 12-14% debt yield, we should easily be able to take out maturing debt and generate some excess proceeds.

The $446 million of unsecured term notes also mature in 2010, and as part of our deleveraging efforts.

We plan to pay those notes off from cash from operations or other liquidity events.

In 2011, also excluding loans with built-in options, we have property loans of $950 million maturing, based on the current NOI divided by the current debt principle of those maturities you see resulting 4.8% debt yield, well within today's underwriting standards.

In summary we continue to make good strides on our debt maturities, this is just one aspect of our liquidity and deleveraging plan, which Art will be addressing in detail in a few minutes.

This morning, we also updated 2009 guidance, we adjusted our guidance range for FFO per diluted share to reflect the impact of more shares outstanding as a result of the stock dividend that we announced last week.

Although, we fully expect to close this year estimating the exact timing is difficult, so we have not assumed any asset disposition or joint ventures in the guidance.

When those events happen, we will modify guidance accordingly.

At this point, I would like to turn it over to Art.

Thank you, Tom.

I want to talk about the retail environment in general and how that impacts our leasing and occupancy.

Secondly, just a brief update on what is happening with our development and redevelopment pipe line.

And thirdly, most importantly, further color on our recent dividend change that we implemented in our capital plan and map to deleveraging our balance sheet, so that we can thrive over the next several years.

In terms of looking at the retail environment, look, we're still in a very tough retail environment.

There is still plenty of head winds as measured by sales from our tenants.

Over the last 12 months, we have had sales on a run rate off 6-7%.

In the last six months in particular have been very difficult for our tenants in terms of sales trend.

However, in spite of that we have maintained very strong leasing spreads.

And the question is, you know, how long can that continue with the declining sales.

At the current time, our sales per square foot are at 13.9%.

Our cost of occupancy, excuse me, is at 13.9%, with sales per square foot of $440 per foot.

But if you dig deeper down into that, you get a lot of comfort.

We take a lot of comfort from where those sales are being generated, what the cost of occupancy is from our highest and higher producing assets.

And the EBITDA that is being generated from our highest assets, just some anecdotal statistics.

Our top 20 properties out of 75 generate sales of $610 a foot, even after the declines over the last six months and 12 months.

They generated almost 46% of our EBITDA and the cost of occupancy as a percentage of sales from these assets is actually below our portfolio average of 13.4%.

Our top 25 assets generate $583 a foot.

Cost of occupancy remains at 13.4%.

Our top 40 assets generate over $518 a foot with cost of occupancy at 13.1%.

And our top 50 assets generate $490 a foot, cost of occupancy at 13.1%.

And those top 50 properties generate over 80% of our EBITDA.

.

So we have still plenty of room to endure further sales trends downward and still maintain positive leasing spreads.

And as indicated in our first quarter of this year and our fourth quarter of last year, leasing results as well as over the last seven years of leasing results quarter by quarter, we have been able to generate very strong increases.

Turning now to development and redevelopment updates, all of our development and redevelopment projects are moving along on track and on schedule and on budget.

We recently had the opening in the first quarter of the final major phase of the Oaks and with the addition and the opening of the Muvico theater.

Others major boxes or anchors that open during the quarter include Costco opening at Lakewood, Macy's opening at Santan Village, in Phoenix, Best Buy, and Dick's Sporting Goods Combo Anchor opening up at Fiesta Mall in the Phoenix Mesa marketplace.

Turning to Scottsdale Fashion Square, we're on track to have our Fall opening here.

Leasing continues to be strong with additional names such as Michael Stars and Buvlgari added during the quarter, as well as a new concept store for Banana Republic.

Santa Monica Place, now that the anchors have settled upon their opening date, we have picked and selected our opening date for this exciting project to be August 6th of next year, which will coincide with our anchor opening.

Turning now to the capital markets and our plan for deleveraging.

As we look at our capital markets, a lot of the analytical community likes to debate whether or not companies are have's or have not's.

We clearly are a "have" Company.

We have great assets.

We have terrific people and great sponsorship and platform within our Company.

We have great relationships with our tenants, with our lenders and our partners.

And I can't emphasize enough how much those relationships have been paying off with us, with our tenants,on our continued strong releasing activity, with our lenders on our continued strong refinancing activity.

And with -- with our partners as we seek to go ahead and enter into new joint ventures.

Doing deals and joint ventures with partners is in our DNA.

It is something that goes back to the foundation of our Company over 35 years ago.

And we're counting on those relationships to deliver new partnership arrangements that will deliver upon the asset equity plans that we'll outline here a little later and that we brought up in our last conference call in February.

We are willing to make the tough decision to de-lever our balance sheet to allows us to thrive over the next three or four years.

During the first quarter, we had a major reduction in force in our Company.

It was painful but it was something that had to be done and was clearly related to our decision to cut back significantly on our development pipeline to only those projects that were mission critical, those projects that were already construction in progress.

We recently announced the difficult decision to make a major significant cut in our dividend.

Our dividend was cut from $0.80 a share for the quarter to $0.60 a share for the quarter.

And we elected to pay out 90% of that dividend in the form of stock.

This will generate in excess of $65 million per quarter for us in additional liquidity that we can use to deleverage.

Over the last six months, we have been willing to make the tough decisions to accept market pricing on our refinancing.

At times we have accepted refinancing to take a bird in the hand, if you will, such as the refinancing we did in the fourth quarter on Queens.

We could have tried to hold out for more proceeds but we elected to accept market pricing and market terms to accomplish our goals.

And in particular, as Tom outlined, we are in extremely good shape in terms of the way that we see the secured debt in our balance sheet looking forward over the next three years.

In our last conference call, we pointed out that we saw that we would generate over $500 million of equity through selling off noncore assets and joint ventures.

During the course of negotiations, we have been and we are willing to accept market pricing and market reality on these disposition.

Like to report to you on where we stand on these at this point in time.

On the asset sales we currently are in letter of intent or contract on roughly $125 million of noncore assets.

These are being sold at cap rates in the neighborhood of 8.5 and 8.75.

These deals should close over the next 60 to 90 days.

On the asset joint venture side, this will fill the balance of the $500 million or so of asset equity that we indicated in February that we would raise over the 12 months forward from February.

These are tough deals to do.

It is always tougher to bring a joint venture partner into an existing asset than into a new asset that you're buying together.

The issue of pricing has to be addressed.

An additional complication is it is difficult and tough to make the long-term decision in bringing in a new partner, especially when you are deciding between a couple of competing proposals from valued partners on the same asset.

We are making excellent progress in terms of where we are on the asset joint venture side.

We are in serious discussions with joint venture partners and we can report to you now with confidence that we will be -- we will be entering into these joint ventures and that our current estimate is that we will close during the third quarter of this year at EBITDA multiples of 12-13 times EBITDA, which translates into something in the neighborhood of 7.5 to 8.5% cap rates.

If anything, the size of the equity that we will raise from asset joint ventures will go up over the next two years because of the level of interest that we have in the assets that we have exposed to long-term relationship partners that we do business with.

And because of the attractiveness of raising equity at these kinds of multiples at this point in time.

The final component of our deleveraging plan will involve the issuance of additional common equity.

We are committed to accepting market pricing on this and this will be market driven.

And the ultimate decision will require a balancing act between the raising of equity from asset equity-joint ventures and common equity through new stock issuance.

And that is something that will be a decision, clearly, that will be taken very seriously.

Will be market-driven but will definitely require a balancing act between the asset equity raised and the potential common equity raised both in terms of size and the when and to where and the how.

A common question that is being asked these days of companies is what is a proper amount of leverage for your company?

At this point in time, we feel extremely comfortable as Tom has outlined for you with the property specific debt that we have coming due over the next three or four years.

Our biggest year going forward is 2011, as Tom pointed out, our debt yield on the maturities during that year is roughly 14.8%.

So we feel very comfortable in terms of where we stand on the property side.

If anything, we will continue to see that as a source of generating excess cash flow.

But in terms of looking at where we would like to be and what is the proper amount of leverage for our Company, clearly we want to retire our unsecured debt.

In particular, we want to retire our term notes that come due next year.

We want to retire our convertible debentures that come due in three years.

And we want to have maximum availability on our line of credit.

We would like to have frankly a zero balance -- a zero balance due on our line of credit with the entire amount of the line available to us to give us maximum flexibility going forward, and to give us maximum amount of deleveraging.

In terms of how we get to that point, if you take a look at our stock cut, our stock dividend cut and the fact that we have moved to 90% stock dividend, you can see that we're generating roughly $260 to $265 million a year of excess cash from that resource.

And that particular policy could easily stay in effect for two to three years.

On the asset equity side, we have indicated before and we're confirming to you now that we see generating $500 million plus or minus of equity from asset sales and joint venture equity.

These should close within the third quarter of this year.

If anything, we can see the size of equity raised from assets going up by $250 to $350 million over the next 18 months to two years.

And the final component of that if you take a look at what would be required to retire the face amount of our convertible debentures, our term notes and to take our line of credit down to a zero balance would be a common equity issuance and the plug number if you take a look at all those numbers is roughly $500 million.

Again, it will require a fine balancing act between asset equity and common equity and making that decision but we remain extremely confident on the joint venture side and the asset equity side.

Obviously, stock dividend cut and moving to stock dividends is something that is within our control and at this point and time, I would like to open it up

(Operator Instructions)

We'll take our first question from Quentin Velleley with Citi.

Hi guys.

I'm here with Michael Bilerman.

Just wanted to firstly ask on Biltmore and Wilton -- which it looks like you extended till 2026, with higher interest rates that you would like.

Just wondered if you could provide detail on what sort of happened with the negotiations there.

And also whether there are any other mortgages that have these kind of options.

Yes, Quentin, Those loans were loans that were done ten years ago.

And it was not uncommon for CMBS deals of that vintage to be structured with a 30-year maturity, but prepayable after 10 years.

And that is what we have in those situations.

It is actually a 30-year loan, but it is free to be prepaid after ten and the interest rate goes up after ten.

So in those cases the interest rate has gone up or will go up at the ten-year anniversary.

And that is our motivation to get them prepaid and refinanced.

But the maturity is actually 2029.

: It was a built-in structure.

But you do have the option to refinance them at lower rates?

Yes absolutely.

Yes.

And I just wanted to flick across to the Mervyns NOI impact.

I know in the last quarter you said there was $0.25 of potential impact for the full year of the 2009.

I'm just wondering if you have the numbers in terms of how much of how much of that was weighted into the first quarter?

It is really rateable, the $0.25 through the balance through the year it is roughly $0.06 a quarter.

Okay so it is an even impact--

Yes, because we're assuming in our assumption and our guidance that we do not have any new leasing of any Mervyns boxes that we currently have not made deals with people like Forever 21.

.

So anything we do with the vacant boxes and there is plenty of activity on those vacant boxes will be upside

Art, this is Michael -- can you just walk through -it's helpful to go through your sources and uses.

Can you talk a little bit about -- you talked about the $500 million being a plug and in terms of being able to have nothing drawn on the line of credit and repaying the converts.

And the excess cash.

I assume none of that assumes a continued buyback at a converts, a discount.

How did it also play into you have development spend remaining at about $305.

And have you taken into account the excess proceeds that you have targeted in terms of the refinancing remaining in 2009 and then into 2010?

Sure, the -- you know on the -- unsecured I was really looking at the face value assuming no discount on the converts, even though we have obviously been buying them at discounts.

And even though converts in corporate America are generally trading at discounts.

You know in looking at -- the sources, again, we see up to three years of stock dividend and cuts of generating $800 million asset equity.

Really $500 to $800 million, and then common equity roughly $500 million as being the sources of capital to retire that $2.1 billion of face.

And obviously, they can move within the category back and forth between asset equity and common equity.

But we have got very strong interest on the asset equity for joint ventures.

And Michael the component in there that Art didn't mention was excess proceeds, if you look at the schedule for what remains for 2009 and 2010, that is about $440 million.

And again, we took a look at that and used some pretty conservative assumptions.

Probably nothing more aggressive than a 14% debt yield -- in some cases, more conservative than that.

The excess proceeds you're generating from that is not within your -- your laying out your sources and uses.

You will take out at least per your schedule another call it another $350 million, if the numbers don't change -- of amounts over and above the secured loans?

Yes and we're really thinking of that being a source of funding, the balance of development pipeline over the next 18 months.

Kind of six of one and half a dozen of another.

Whether you think the stock dividend is funding the redevelopment pipeline or the refinances are funding it.

Does that make sense?

Yes, that is very helpful.

On your equity specifically though, you talk about it is sort of the plug to get you there.

We obviously have been seeing a substantial number of companies actually do it.

Do you want to complete the asset sales and the joint ventures before coming out and raising the $500 million?

Or you know would you sort of take it if you can get it today?

I think it is going to require a fine balancing act between the two.

And -- you know that is really the best way that I can answer it at this point in time.

You know one thing I will say is that in everything that we're doing, you know we're fully prepared to you know accept some tough decisions.

Tough decisions on the cut of the dividend.

Tough decisions on the stock dividend.

Tough decisions on parting with joint venture interest in our best assets, you know at -- frankly at cap rates that we still think are very attractive to an investor.

And cheap, frankly compared to where we really view pricing for those assets.

But we're agnostic the pricing as long as we have been efficient in the marketing.

And we're going to be realistic on the common equity too.

We're not going to get hung up on what the stock pricing is or is not.

It just requires a fine balancing act.

But I know a couple of three months ago, I was probably thinking the common equity would be the final component.

At this point in time, I just think it is going to require a balancing act between the two.

One thing that has clearly happened in the last three months, however, is that a significant amount of clarity has come on the issue of joint ventures in a positive vein, both on the pricing side.

It is better than what most people thought we can do in terms of discussions we're having.

And also in terms of the breath of the market.

Besides the folks that we are in very serious conversation with, we're getting significant inquiries from additional parties.

We think now is the time to get involved with great sponsorships like Macerich and great assets that Macerich owns.

So that is another thing that has evolved.

But it is going to require a balancing act.

And just moving to the portfolio, you have said basically how tough it has been over the last six months, which is what a lot of your peers have been saying.

And a lot of your peers have reported that had they have had an increase in one to two year leases on lease renewals.

Is that something that you have been experiencing across your portfolio this year?

In a market where you may have some centers and some spaces where you don't feel that you're getting pricing that is reflective of a longer term lease.

Yes, we are shortening up lease terms.

If you want to compare, we're slightly under 40% of our leases that we've done under the first quarter are under five years.

And that is up -- a little bit from the same period last year.

So we're -- the trend is up in terms of doing leases less than five years.

Okay.

Thank you.

Thank you.

And we'll take our next question from Ben Yang with Green Street Advisers.

Hello, Ben.

Thank you for taking the call.

Art, I just want to start off that we appreciate the detail on the road map.

It has been very helpful with your Company.

So appreciate with that.

I have a question on the retailer bankruptcies.

It seems like there have been fewer bankruptcies that many of us would have expected so far this year.

And I guess the lack of dip financing may be a big reason for this.

Maybe, perhaps, landlords accommodating, struggling retailers offering certain concessions might also be helping to mute the retailer bankruptcies so far.

Do you think we're still in the early ends of the bankruptcy?

Or do you see this picking up as the year end progresses.

It is Tony.

Just on the bankruptcy front, when we headed into this year, the expectation was there was going to be a flurry of bankruptcy activity.

This first quarter has not shown that.

We have fewer than 70 leases.

Not stores or chains but 70 leases in one form of bankruptcy or another.

So it is well below our expectation.

Now will there be additional bankruptcies?

Most likely.

We have our watch list and we handicap what we think is coming due.

And your comment about DIP financing, while it is not available it is not necessarily applicable to a lot of the tenants on our watch list at this point.

.

While we feel there will be additional bankruptcies this year, we still maintain that this first quarter setting a trend is that it is really an under

Do you have an amount on bankruptcies in 2010?

I can't see that far out.

Okay, great.

Thank you.

Thanks.

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

Hi, most have been answered, but I think you sold a couple of Mervyns boxes in the quarter.

I just wonder if one you could give us some color in what terms of prices are, and would that be your noncore strategy in terms of going forward --

They're in the pot of assets that I referred to as noncore assets.

And we can't disclose pricing on any individual asset.

But we did not close on any of the Mervyn boxes during the quarter in terms of selling them.

I can tell you that.

But the total pot of noncore assets is roughly 125 million that will be sold.

And the EBITDA multiple is around 12 or inversely the cap rate is 8.5 to 8.75.

And that is overall and that is over many assets.

Okay, okay.

And with respect to the malls, I just want to clarify something when you're moving outside the noncore and looking at malls, you're primarily talking about joint venture.

Correct?

Not out right sales?

We're looking at a combination.

We are looking at our guidance and our plan is for joint ventures.

But if that were to evolve into a conversation, where it were to end up in a disposition of 100% of any given asset, it is not something that we would preclude.

If it gets us to our goal of deleveraging our balance sheet sooner and in a more efficient way than waiting, we will definitely take market reality, market pricing and efficiency and over waiting so -- clearly a possibility.

Okay.

And Tom, there has obviously been a lot written about the life companies in terms of the pullback this year.

Any color over the last month or two?

Do you see anything changing at the margin?

Yes, for starters Michael, I don't think you can believe everything you read.

There was a publication that talked about 12 life companies being out of business.

That was on a Friday and I was getting ready on Sunday to get on a plane and getting ready to go back to one of those so named life companies and do a $205 million financing.

So they are in business, they like strong assets with strong sponsors and they continue to do deals.

So we have not seen the life companies disappear.

They're being choosey about the assets they select.

And they're also very specific about the sponsors.

They want strong sponsorship.

So we continue to be very active with deals being written by the life companies.

Okay, and actually last question.

If we're looking at the lease spreads which were 21% in the quarter.

If we factor in the percentage of rents that the tenant was paying in the old rent rate, how much does that spread compress?

It is still fairly healthy, I'm assuming just a minor number?

I'm sorry, Michael could you repeat that.

Yes, sorry.

Your cash spreads are 21% in the quarter, new versus old rent, if you factor in the percentage rents that you will lose, if you happen to have that number handy, but how much is the more effective cash spread -- how much would that come in by?

It really doesn't change it to a material degree.

We don't have a lot of percentage left in there, but to change is less than half of 1%.

Okay, great, thank you.

And we'll take our next question from Craig Schmidt with Bank of America.

From the institutional investors point of view, could you describe some of the advantages from direct investing to your JV, versus other ways like buying the stock?

Well, I mean first of all for most people it is viewed as different pockets of money, completely different pockets of money.

Some people view securities and direct investments as being in the same general pocket.

As those people tend to want to do a little bit of each.

But generally most investors when they look at a direct investment through a joint venture, you know they like the control elements that are involved in a direct investment with a joint venture in terms of path liquidity.

They're generally investing a lot of money, so they're investing a couple hundred million dollars into one or two assets which is tough to get your hands on in the open market and the securities markets.

But it is really different pockets of money for most investors.

Okay, and you know when -- looking at Scottsdale opening next year, have you -- deemphasized luxury at all or do you feel that the pressure on luxury is short term at all that it really hasn't entered into your thinking of the expansion of that asset.

When we look at what we have done with expansion.

First of all, Scottsdale will be at 2 million square foot, so it has something for everybody.

The expansion, in particular, is anchored by Barney and of course, that is definitively luxury.

When you come to the opening please, Craig, we have got a mixture of better priced merchants.

And we'll have the H&M and Forever 21 to the world also in that expansion.

So we have a blend.

And the opening is this Fall, by the way.

Sorry, Yes, -- I pushed you back a year there.

Yes --

I don't want you to miss the opening.

Yes it sounds great.

Maybe aggressive fashion but maybe not at that higher price point.

As those retailers from my view have not been as negatively impacted.

We're delivering that --

Great thanks a lot.

We'll take our next question from Rich Moore with RBC Capital Markets.

As you look at the various buckets, whether they're asset sales or joint ventures or new loans, are things loosening up a bit in each of those categories, say where they were in the beginning of the year?

You know asset sales is such a noncore piece of our business, I would say no.

I mean I just think we're -- to that, not a lot of money, we just accept the pricing and dispose of the assets.

And I don't have an opinion as to whether it has gotten looser or tighter, if anything my sense is it could be a little bit tighter as interest rates have gone up.

On the joint venture side, though, we clearly have got much more visibility into the number of folks that are very, very interested in pulling the trigger and doing joint ventures with us on the assets that we're exposing that we had three months ago.

And we've got visibility in terms of their level of interests, and the is much broader.

And in addition to that the pricing is in line with what we had anticipated in terms of their yield expectations.

But it is significantly better pricing from our view point than most pundits and analysts thought would be available to us say three months ago.

And on the loan side?

On the debt side I will let Tom answer that--

What I'm thinking Tom you talked a little bit about the -- is the overall debt environment you know from the lender's side of things?

Is that improving at all?

I mean from the beginning of the year?

Or are they loosening up a bit or not really?

No, I think it is fairly consistent, Rich, we're still early in the year.

And the under writing is conservative, I say debt yields are at 12 and 14%.

And you have to make your own assumptions, but that will put you with some pretty conservative leverage.

You know they're picking their spots, the banks are still active to some extent.

So deals are getting done for good assets and good sponsors.

But it is still a tough market out there for the time being.

Okay, all right.

I got you.

Thank you.

And then on the -- on the leasing side, are we -- how far along are we, Tony, would you say with 2009 leasing?

Are we close to done for the year?

No, on our leasing activity, we're 80%, over 80% committed at this point.

Okay, so for year end occupancy, what do you think?

Well Rich, we have -- we haven't changed our -- we have the same thinking we have when we gave guidance, which is you know year-end occupancy around, 91%.

You know the bankruptcy that hit us in the first quarter, we were well aware of that when we gave guidance, which was year end occupancy, which was around 91%.

The bankruptcies that hit us in the first quarter, we were well aware of them when we gave guidance.

The first quarter is the lowest quarter of the year and that was exactly away we saw.

Okay, and is there any change ahead?

You guys had talked about 22 of your Mervyns that you had addressed.

Is there any additional Mervyns stores out of the 41 that you made progress on?

You talked about a couple that were for sale, but anything else on the side?

We have got quite a bit of progress.

We feel that we have got deals, active deals in eight to ten additional boxes with -- with four very, very close to signing.

We hope to announce those shortly.

Okay, all right great.

Thanks.

And then I thought I had one more thing here.

But oh, yes, I was going to ask you.

The tenants that are showing interest, I mean you know you guys talked about how tough it is for these guys.

Who is really on the -- in the front end for you guys in opening new stores?

You talk about specialty tenants?

Yes, exactly.

The price is definitely a theme in terms of who we're talking to.

The H&M's, Forever 21, Zumies, Aeropostale We're still doing deals with Apple, Love Culture (inaudible).

Theme is fashion at a price.

Okay, and then last thing is ICSC .

How is that looking for you guys in terms of what your expectations are?

You know what the meeting schedules look like,

You know we went into this -- went into this conference with reduced expectations.

We'll have a reduced number of people attending.

And -- much to our surprise, our meeting schedules are full.

Completely jam-packed.

Okay, great.

Thank you.

Thanks Rich.

And we'll take our next question from David Wigginton with Macquarie.

Hey, David.

Thank you.

Hey, Art.

And we'll go next to Alexander Golfarb with Sandler O'Neil.

Was there a question from David Wigginton?

He said his questions have been answered sir.

Okay, thank you.

I didn't hear that.

We'll go next to Alexander Golfarb.

Hey, good morning out there.

Just want to first go back to leverage.

In -- as you guys put the capital plan, which has been very helpful.

How do you think, what is the driver for how you calculate the leverage in terms of the different pieces, how they all came together?

Well, I think if you look at the structure we have used for years, it is primarily long term, fixed rate property specific debt, and that is still the bulk of what our balance sheet is.

And you know based on our financing activity, we're very comfortable with the levels that we put on each individual asset when we finance it.

So for us, the unsecured debt, the two primary areas, the term note of 446 million.

And the converts which at quarter end, I believe were $635 million.

And those are the two pieces of the capital structure that we can see being eliminated completely.

So that is over a billion dollars worth of leverage that we plan to take care of over the next two years.

And you know additionally we would like to see the line of credit, which is also unsecured, reduced.

So that is really where we're focused.

I mean we're going to continue to go out and do property level debt at leverage levels of 50-55% loan to value.

And we're very comfortable with that.

Okay.

So --

Over a 10-year term by the time that -- that loan is due for refinancing, that leverage level started out at 50-55% as we grow NOI has dropped to something in the 30s.

But as an all in corporate, do you use like fixed charged, do you use like debt to EBITDA?

Do you use market cap?

Well we have our own internal calculations.

We have a calculation we use with our bank group that shows us comfortably at a 59%- 60% LTV but that is a defined calculation.

So there's a number of factors, but we will be quite comfortable after we reduce the debt by the amounts we indicated.

Okay.

And just switching to the JV sales, I think you mentioned about 500 to 800 million in equity.

Can we think about this being sort of like 50/50 ventures and that these assets are unencumbered so if we were modeling this, we could think of twice that value as the gross value and then sort of back into what the Company would look like after?

Yes, the 125 million of noncore asset that are being sold that are in those numbers, those are currently unencumbered, so take those off to the side.

And that will leave you with say 375 to 600, let's say 350 to 600 million of additional capital potentially to be raised for joint ventures and for assumption purposes, assume that that is for 50% of the equity in a -- in a group of assets that are currently 50% levered.

So if you're doing 500 million of joint ventures then that really represents 2 billion of property, subject to a billion of debt.

So you're -- so $500 million of debt would be attributable to the joint venture partner if you want to look at the calculation.

Okay, that is helpful.

And then switching to the equity issuance, in your proxy for this year, you're seeking authorization to increase the shares that are issuable.

If you do the math that is currently available on the current line, it comes out to about a billion equity, and you had mentioned maybe doing 500 million.

So is the thought to have additional cushion if you want to issue more be equity if the sales don't come through?

Just want to get your thought on that.

The request and the proxy have nothing to do with what plans we may have.

It is just from time to time at the attorney's advice, we go back and reload the shares available.

They have got to handle technical issues like the excess share provision and things like that, so it really has got nothing to do with the capital plan.

Okay, and then the final question.

Up front you mentioned some debt yields that were in the market.

And I didn't hear what your current debts yields are and what your current unencumbered NOI is--

We didn't mention that.

We went through some of the maturities that are coming up.

And we took a look at 2009 and -- what we have underwritten there for financing is you know at 14% unless we have a deal specifically in the works.

The maturity at 2010, and the proceeds we have shown in the supplement, those are also based on some very conservative debt yields of between 12 and 14%, depending on the asset.

And in 2011, we took a look at the $950 million worth of maturities and we looked at the in place NOI today, cash NOI, a net yield of 14.8% debt yield.

And have you disclosed your unencumbered NOI?

No, we haven't.

Okay, thank you very much.

Thanks.

And we'll take our next question from Jay Habermann with Goldman Sachs.

Hi, Jay.

Hi.

Question going back to the equity and asset sales.

And obviously you have given your guidance, a billion eight of deleveraging and about a 1.3 of that being equity and some of it was a dividend over a multi year basis, but it sounds like you would be willing to up the sales portion perhaps to as much as of 750.

I guess you know would you expect there to be perhaps an increase even beyond that just given the pricing you mentioned?

That sounds favorable, 7 to 8%, in line with expectations?

Well, I think I previously said we would raise 500 million in equity from asset sales or joint ventures and I could see that number going up by roughly 250 million or so over the next 18 months or so.

And the primary driver of that would be doing some additional joints ventures over and above what was in our -- guidance number, really our forecasted number back in our February conference call.

So it is just the level of interest -- in terms of doing joint ventures with us -- is even stronger than we had anticipated and getting stronger by the day.

You know, we have got more than one group looking at each of the opportunities that we're -- that we have exposed to the market.

The assets we have exposed are great assets, are some of our best assets.

And you know we're giving people an opportunity to get entry into great assets with a great sponsor like us.

And they're very, very interested.

And so I can clearly see that as being something that we expand.

And yet it is also important, while I said it is tough to do these deals, it is always tougher to do a joint venture where somebody is coming into a historical basis as opposed to buying a new asset together.

It is always tough to choose between competing proposals when you got more than one player looking at an asset.

It is also something as we look at it we want to make the right decision in terms of bringing in the right partner on any one or two assets.

Because we really see this as a continuation of an existing partnership relationship or the beginning of a new partnership relationship that will expand and evolve into other opportunities as the years go on.

So it is a very careful and thoughtful decision that has to be made.

But clearly, the level of interest is much stronger than we had even anticipated.

And I guess what was asked in the context if we're going to see better GDP growth in the second half of the year and into 2010.

Does that sort of change your decision one way or another in the stock -- perhaps as credit market continue to firm up a bit more?

No, it does not.

And just I know Tom in the past you have given the sales trends.

Any thoughts or updates in terms of Phoenix and southern California or the other regions?

Yes, the sales trends, we have the east and southern California performing a little better.

They're minus 3%, minus 4%, northern California, Pacific Northwest, minus 8%.

We're flat the central, and Arizona is off 16%.

Okay, and in terms of the assets that are being considered as part of this pool for sale, are these assets in the different buckets would this be sort of a top 20 pool like the your very highest productivity centers -- I know you mentioned a mix.

But we'll include some of those top 20 assets?

The joint ventures are in the top 20 assets, the out right sales, noncore, and that is what is in that pool right now.

Although like I said, one of our malls that we're currently talking to people about the possibility of a joint venture could evolve into an out right sale if the terms were attractive.

And the G&A savings, can you compute that on annualized basis in terms of what you will be saving as a result of those difficult decisions you had to make?

It is approximately $11 million on annual basis, G&A.

And then second year leasing spreads, did we hear any comments -- are you expecting them to come in from 21%?

When we gave guidance, it was 18-20%.

In the first quarter, it was a fairly small sample size, but the first quarter came in right in line with that guidance.

So we're still comfortable with that guidance.

Thanks guys.

And we'll go next to Michael Mueller with JPMorgan.

Hi.

A real quick follow up on Jay's question.

The G&A savings of 11 million.

How much of that is capitalized versus expense?

And can you throw out what a rough range for G&A for the full year would be?

I missed the first part of that.

The second part in terms of G&A, it was fairly close to what we saw in the fourth quarter.

So I think you can use this quarter for the run rate.

You had a question about capitalizing the -- what was your --

Yes.

I mean how much of the 11 million in savings was expensed versus capitalized, if we're thinking about it that way.

The severance cost was 5.5 million.

By definition severance cost has to be experienced.

None of that gets capitalized.

If you have 11 million of over head savings was all of that being experienced on the P&L or was some of it development overhead.

Probably 25% of it was overhead.

Okay.

And then I think I know the answer to this, but the capital plan for the $800 million of cash flow coming from the dividend, the stock dividend, I mean should we be operating under the assumption that going forward beyond 2009, the stock dividends stays in place?

If not -- just going to be a 2009 event in your mind?

Yes, when I laid that out, the assumption was that the stock cuts and stock dividend -- the dividend cut and stock dividend -- if it were to remain in place -- through the maturity of the convertible debentures for example, which was roughly three years, then you would be looking at 800 million of cash that would be raised from that resource over the next three years, yes.

Okay, thank you.

And we do have a follow-up question from the group with Quentin Velleley with Citi.

The big group here, that is -- Michael Bilerma.

I just want to come back just making sure, I fully understand on the joint venture side.

So 500 million of equity, 125 is noncore unleverage.

Which sort of leaves you with 375 of equity to take out of what would be the joint ventures And I think you had said that -- the potential of equity out of the joint venture source could be in excess of 250 to 350 over that.

So call it about 625 to 725 of potential equity from doing joint ventures, is that?

Yes, that is right.

Now if you just do the math, you know 50% joint ventures, 50% leverage, you're talking somewhere in the magnitude of 2.5 to 3 billion assets over your existing base of 7 billion.

That just doesn't feel right from the amount of assets you're selling.

So it would leave me to believe you're selling unencumbered assets because I don't think you're sitting here trying to sell almost 40-45% of your assets.

I can tell you that the numbers are right.

And that you know again, while -- the expectation we put out there in February was that roughly 350 or so of equity would be raised from joint ventures, which you know that -- if it is 50% interest in a property.

And if the property is 50% levered that would imply a billion four, billion five of total assets being exposed to the opportunity of a joint venture.

And if you double that number, Yes, you're looking at 2.5 to 3 billion assets.

And if the numbers are right, we're looking at the very best assets that we're exposing to the joint venture partners, assets like Queens and other assets that I'm not going to mention.

Assets that are some of our very best assets that are throwing off very expensive amounts of EBITDA compared to the balance of the portfolio.

Where does that leave you again gross assets moving to the joint ventures.

The Company would almost be call it a 3 billion asset on the consolidated, and then you would be managing call it 8 billion asset of joint ventures.

A much different mix, relative today where you certainly have higher proportion in the consolidated base?

Yes, I mean you would clearly have more joint ventures.

By the way to get to the numbers I talked about, we're only talking about exposing maybe 3-6 properties to new joint ventures.

So if you want to look at 75 properties that we own today that is what you're looking at in terms of numbers of properties that would be exposed to new joint ventures compared to what is in Joint Ventures today.

And effectively get you to that 2 billion, sort of have a 2.5 billion debt?

Yes, it could absolutely.

And do you think getting -- there was an earlier question by Craig Schmidt in terms of the institutional partners, buying the stock versus buying assets.

I guess given the magnitude of assets, has there been any discussions at all in just buying the whole company, given such a substantial amounts of assets that you're selling.

Is there any discussions on that front?

No.

Okay.

A question just for Tom in terms of the guidance change, there are certain companies doing a stock dividend on a retroactive basis rather than just going forward, how have you treated the stock dividend in your guidance?

Well, we modified the guidance specifically for the stock dividend.

So the assumption in terms of guidance is that from the dividend we just announced plus the remainder of the year there would be a stock dividend roughly in the same proportion of what we announced last week.

I know there is no clarity yet from the big four, but some companies have gone back and retroactively changed the entire year as if the stock had been issued the entire year rather than just issued it on a sort of waited average basis.

We haven't done that in our guidance.

So effectively -- it is effectively only two quarters, right?

It is the June dividend.

No, it is three quarters.

So it would be full for the , second quarter, third quarter and

Right.

You estimated at the shares that fall 2.5, 3.0 million a quarter?

I believe we used a price of -- approximately 16.

Okay.

And there was -- has there been any other changes in guidance at all?

No.

Thank you.

And that does conclude the question and answer session.

At this time I would like to turn the call over to Mr.

Arthur Coppola for any closing remarks.

All right, thank you for joining us.

And we look forward to the progress that we'll be making over the course of this year.

Thanks again.

And that does conclude today's conference call.

We appreciate your participation.

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