Macerich Co (MAC) 2009 Q2 法說會逐字稿

Welcome the Macerich Company second 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 will conduct a question-and-answer session.

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

I would like to remind everyone that this conference is being recorded.

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

Please go ahead.

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

During the course of this call, Management will be making forward-looking statements which are subject to uncertainties and risk 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 nonGAAP financial measures as defined by the SEC's Regulation G.

The reconciliation of each nonGAAP 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.

We're looking forward to seeing you November 10th at the NAREIT conference in Phoenix.

You will be receiving more details shortly.

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

With that, I will turn the call over to Tom.

Thanks, Jean.

Today we'll be discussing second quarter results, recent financing activity and the status of our liquidity plan for 2009 and 2010, as well as our outlook for the remainder of 2009.

The operating metrics generally remained solid in the quarter with continued respectable occupancy levels and strong re-leasing spreads.

Mall sales per square foot for the 12 months ended June 30th, 2009 were $428, down approximately 7.8% from a year ago when they were at $464.

We had average re-leasing spreads versus expiring rents, up 21.2% for the quarter.

Occupancy levels have remained high, albeit down from last year, with occupancy at 90.5%.

That was down about 210 basis points from a year ago which was 92.5%.

Most of the reduction versus a year ago, however, related to big box closures with five tenants making up 1.7% of the decline.

Circuit City was 50 basis points of the decline, Linens 'n Things, 40 basis points, Steve & Barry's, 30 basis points, KB Toys, 30 basis points and CompUSA, 20 basis points.

All those tenants were big box users, paying relatively low rent, on average less than $12 a foot compared to our average rent of $42.72.

$42.72 is the average rent at 6/30/09.

That compared to $41.13 at 6/30/08 up 5.4%.

Occupancy costs as a percentage of sales remained healthy even with declining sales.

Occupancy costs was 13.9%.

Looking now at FFO, FFO as reported for the quarter was $0.67 compared to $1.12 a year ago.

Included in the quarter was an impairment charge of $27 million or $0.31 a share.

The impairment related to a write-down of non-core assets that have been sold in the third quarter.

Excluding the impairment FFO per share for the quarter was $0.98, consensus was $1, our guidance was $0.98.

During the quarter, same-center NOI excluding lease termination revenue and SFAS 141 revenue was down 1% compared to the second quarter of 2008.

The negative comparison was driven primarily by the decline in occupancy as well as the $2.8 million increase in bad debt expense.

Without the bad debt expense, same-center NOI was actually up 0.6%.

Lease termination revenue during the quarter was $1.3 million, down $1 million from the second quarter of 2008.

The expense recovery rate included JVs at prorata was 92%.

That compared to 94% the second quarter of last year but compared very favorably to the full year 2008 recovery rate of 89%.

CPI increases positively impacting the quarter was $1.9 million.

Straight line rents were also down during the quarter, down $550,000 to $2.1 million compared to $2.6 million a year ago and SFAS 141 income was also down about $900,000 for the quarter.

The impact of Mervyn's during the quarter was approximately an $0.085 a share drag on earnings relating to the Mervyn's big box space vacancy compared to 2008 in the second quarter.

On the balance sheet we made some very significant progress this quarter.

Our average interest rate is 5.17% and the average rate on fixed rate debt was 6.08%.

Interest coverage was a healthy 1.91 times.

At quarter end we had $7.9 billion of debt outstanding including JVs at prorata.

As of today, we only have $55 million of remaining 2009 maturities, if you exclude extensions and loans where we've got term sheets and have agreed to terms on refinancings.

We have $100 million of cash on the balance sheet at quarter end.

And as of last week, we closed on the Queens JV as well as $66 million in non-core asset sales.

With the liquidity provided from those events we paid down the term notes by $200 million this past week.

With the closure of other liquidity events and cash conserved by continuing with the stock dividend, we expect to be able to pay off the remainder of those term notes fully by the end of the third quarter.

During the quarter we were also able to retire another $27 million of our convertible notes at a cost of $20 million.

We recorded a $7 million gain on early extinguishment of debt, on average it was about a 25% discount.

We included a $0.30 a share in our guidance of such gains and through the first quarter we'd recognized about $0.22 a share, so this rounds out our expectation for the year and what we had factored into our guidance for gain on early extinguishment of debt.

Included in today's 8-K supplement on Page 14 and 15 are schedules that show our 2009 and 2010 financing plans.

As I mentioned, we're almost completely done with 2009 with over $1 billion of new loans committed or closed during the year.

Estimated loan proceeds on those schedules have been modified to reflect the underwriting conditions that we see today.

Included in the press release were some specifics, such as Corte Madera, where we've got a commitment on an $80 million fixed rate loan for seven years at 7.20%, a financing on Paradise Valley Mall, which is unencumbered asset at $90 million at a REIT of LIBOR plus 4% and added a three year term extendable to five.

As well as the construction loan on Northgate for $80 million.

That's also an unencumbered asset and that's at LIBOR plus 4.50% for a term of three years, extendable for one.

Looking at the 2010 maturities, if you exclude the term notes which we've indicated will be paid off by the end of the third quarter there, excluding loans with built in extension options, there's $318 million of loan maturities.

Even using today's very conservative underwriting, we should easily be able to take out the maturing debt and generate some significant excess proceeds on those financings for 2010.

Looking now at earnings guidance, we are not adjusting our guidance for FFO.

We are staying within the range of 425 to 455.

We will addresses the guidance range once we've closed on the next series of joint ventures.

If were you to calculate the 2009 impact for Queens, it's a reduction of $0.05 a share.

That will keep us within the range and there are other factors that are going the other way.

Consistent with last quarter, as part of our ongoing effort to conserve cash and to deleverage, we again declared a quarterly dividend of $0.60 per share payable on September 21st to stockholders of record on August 12th and 90% of that dividend will be paid in stock.

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

Thank you, Tom and welcome to our call.

As you have observed with other companies and you can get from ICSC retail sales report, sales remain tough but they are not getting worse and we really don't see this trend changing much through the end of the third quarter with high-single-digit types of comp sales decreases.

One thing that I do believe that will be a key measure will be the fourth quarter this year in particular, because the fourth quarter of last year was -- had such a negative drop, compared to the fourth quarter of the previous year.

So our belief is that sales decreases will moderate in the fourth quarter but we're running our business to manage our business and lease our space in the current environment.

We're doing a very good job of maintaining occupancy and leasing in this environment.

One thing that I would point out to you that you can pick up on, if you listen to other public retail companies, the retailers themselves conference calls, they are clearly managing their businesses and their expectations to the level of sales that they are doing.

So in this environment, even with 8% to 10% decreases in comp sales, they can actually be making significantly more money than if their sales were flat to even up, if they had miscalculated their inventory.

So the key really is for a retailer is whether or not he's achieving or she's -- it's achieving the sales that they expect and a big budget for 10% decreases and they hit the 10% decrease, then they're going to hit the margins that they had projected.

And while retailers are notoriously famous for being tied into their daily, even their hourly sales with today's information systems, they're managing their business to this level of sales, making money, and therefore, making commitments to us on new leasing, which is reflected in the leasing spreads that we continue to enjoy, which is a function of the fact that our sales overall in our portfolio remain extremely strong, our occupancy levels remained extremely strong.

So on a core fundamental basis, our business is as expected.

It's not what we would love it to be, but it's as expected.

There's a sense of stability out there with the retailers where they do have a sense that there is a sense of bottoming out here.

We don't know when sales are going to trend back up or-- and how fast and at what levels.

But business is stable enough that retailers are making new commitments and they're talking about new business.

They're not anxious to spend a lot of new capital right now on new tenant build-outs, nor are we.

And we both are keeping mindful of that in the way that we do our leases.

So in this environment we do tend to do some shorter leases for each of us, because we're essentially deferring the time that the tenant needs to spend capital to redo, extend, expand their store.

As Tom pointed out on the financing front, we're making terrific progress, both with like companies as well as banks.

And in that context, I know we were mentioned along with a couple of other companies, as being in the queue for TALF financing.

Look, like anybody, we're keeping -- we're mindful of the opportunities to do TALF financing.

Look like anybody we're keeping-- we'er mindful of the opportunities to do TALF financing, but you have to remember, we were never ever tied to the syndicated mortgage market.

We have always tended to focus more with lenders that we can talk to.

And that leaves us with like companies and banks as being our primary relationships, primary sources that we're going to be borrowing from.

So I would not really anticipate Macerich to be a big player in the TALF market, if at all.

On the development front, we have a very tight, narrowed focus on development.

We have Santa Monica Place is coming along terrifically.

We're just finishing up on Scottsdale Fashion Square which we look forward to highlighting for you at the upcoming NAREIT.

So on the fundamental side of the business, I feel good about where we are.

We are at least as far along on operating results as we anticipated, if not stronger.

In the context of that also, on the Mervyn's front, results are as expected year-to-date.

We are extremely focused on the re-merchandising of the Mervyn's boxes outside of the malls in which Mervyn's used to have location-- used to have stores within the Macerich malls, which as you know are all fully committed with either expansions, re-developments or new tenants.

And we're very focused on the recycling of those spaces, the selling of certain of those stores.

That's not going to hit this year's numbers but it will definitely flow through next year's numbers and roughly I would say if we had to say a $0.25 drag on earnings from Mervyn's this year, compared to where rents were pre-Mervyn's bankruptcy from the Mervyn's boxes, I'd say we could recapture roughly half of that amount next year as we go about the re-leasing and re-merchandising of space both with some single user big boxes as well as with, in some cases, a multi-tenant redemise.

A few days ago we made a very significant announcement as it relates to the joint venture that we entered into with our long-time partner, Cadillac Fairview on Queens Center.

As you remember back in February, we announced that given the marketplace and the disparity between public market valuations and private market valuations, that we were going to dispose of and tap into roughly $500 million of equity from selling assets and doing joint ventures during the upcoming 12 months from February of 2009 through February of 2010.

There was a lot of skepticism along the way as to whether or not we would be able to achieve those goals.

A lot of boogie men were put in front of us in terms of we wouldn't be able to do joint ventures for about 42 different reasons.

And the reality is that we always knew that we were going to be able to tap into the joint venture market because of the fact that it's in our DNA.

It's in our history.

It goes back to the days when we founded our Company.

We're the only Company that was founded on the premise of doing business with joint ventures with financial institutions.

And it's in our DNA and we have a great list of existing partners.

On Queens in particular, we had probably over two handfuls of people of unsolicited interest from different investors that wanted to join hands with us on Queens.

These joint ventures are tough deals to do but we are very, very pleased with where we are, between the Queens closing and the other non-core asset dispositions, we raised over $225 million of equity to date towards our earlier stated goal of at least $500 million.

We are -- so we are way ahead of the timing curve and we would anticipate that as time goes on, that we will exceed that $500 million, significantly.

Again, I mentioned that these joint ventures can be tough deals to make because you're taking an existing asset and you're bringing a new partner into an asset that you've owned for a while.

Also, because of the fact that you're forming a partnership and you're not selling an asset, you also want to be very careful about who you do business with.

You want to make sure that their yield expectations and their vision for the property itself that you're talking about matches your yield expectations.

And as a consequence, when you sit down and you structure a deal, you end up, again, forming a partnership and not running an auction.

If we were to run an auction in terms of doing the joint ventures that we've been working on, I'm sure that we could have easily achieved 5% to 10% better pricing but that's not the way that you conduct a partnership.

We see these partnerships, they're not one-off transactions.

They are really the beginning of a new business opportunity for us and our partner that can yield positive results both from that partnership but also from many other different activities.

The choice of Cadillac Fairview, which is owned by the Ontario Teachers Pension Plan, one of the largest institutional investors in Canada, has been someone that we have talked to about joint venture in Queens for a number of years.

Cadillac has been a key strategic partner of Macerich for 11 years.

We did our first joint ventures with them in 1998 and 1999.

They've been a terrific partner.

We wanted to select a partner on Queens that we felt would be a -- have the vision that we have for Queens going forward and somebody that we can count on to make the right decisions going forward.

And we're just thrilled to have partnered with Cadillac Fairview on Queens.

As you may know, Cadillac is the premier owner of retail centers in Canada.

So they're able to bring a lot of operating synergies and sharing of knowledge base between the two companies as we have done over the last ten years.

So the transaction goes way beyond the cap rate of the deal.

The cap rate of the deal on Queens has been closely monitored and asked about and several analysts have indicated that they had back of the envelope guesstimate that the real estate cap rate was somewhere in the 7% to 7.25% cap rate.

And again, cap rates are really in the eye of the beholder in terms of what NOI are you capping but clearly by all most institutional investors as well as owners such as ourselves, I would validate that the range of the real estate cap rate on Queens was in that 7% to 7.25% basis.

As far as where we are going forward, and today on joint ventures, our total focus is on completing the joint venture program that we initiated several months ago.

Once we've completed that joint venture program, we're going to assess where we are and we are just in the process now of re-evaluating and opening up the opportunity for additional joint venture conversation and a new round of joint ventures that we very well may enter into.

The joint ventures that we are working on that we would anticipate would close over the next 30 to 60 days are with institutional investors that are household names, in terms of the people that they represent.

We are not going to be -- we're not in a position today to disclose who those institutional investors are, but they're household names, some domestic pension funds, possibly a global investor, global sovereign fund that could be involved also.

The types of properties that are involved in the new round of joint ventures that will close over the next 30 to 60 days are very strong regional malls, Class A regional malls that's Macerich owns that currently generate sales, average sales per foot of just over $450 a square foot.

And our anticipation is that once we've completed the current round of joint ventures that we will have raised in excess of $450 million of equity from the joint ventures, so that's a combination of Queens plus two others.

And also when you take into consideration the off-loading of mortgage debt to the partner, in terms of their prorata share of the debt that they assume, the total deleveraging that will come from those transactions will be just under $1.1 billion.

So there'll be an excess of $600 million of mortgage debt that will be allocable to the joint venture partner as part of those transactions.

But again, our focus today, it's totally on consummating the deals on the other joint ventures.

And we will announce those transactions as well as additional non-core asset sales as they close.

This is our policy to announce these deals as they close, not before the fact.

But again, we are much further along in timing than where we would hope to be on the joint venture side in terms of the identity of the partners.

We are thrilled to have the opportunity to do this deal with Cadillac Fairview and the other two major partners that we're talking to are partners that we have known for a long time.

Going back to partnerships, I want to re-emphasize that the formation of partnerships are not one-off transactions.

They are really the entering of new business ventures.

Some of our existing partners have been involved with us in a number of different ways.

Northwestern Mutual Life Insurance Company has been involved with us as a partner, as an investor in Macerich, as a big mortgage lender to Macerich.

Cadillac Fairview through Ontario teachers, we've been involved in the number of ways that we've talked about.

We entered into a joint venture with CalPERS through their advisor Miller Capital Advisors, going back just under ten years ago and now that deal today has grown into four joint ventures and there's a possibility of that growing in the future.

We have another strong partner, the Alaska Permanent Fund was our partner at Tysons Corner when we bought Wilmorite.

And since we formed that deal with them, that relationship expanded into the ownership of North Bridge Center in Chicago beyond that.

There's been a lot of questions asked of us about cap rates in general on these deals.

I've given you the cap rate information on Queens and that's all that I am going to give you.

Previously I'd indicated the cap rate ranges on the joint ventures in our last earnings call would be between a 7.5% an 8.5% cap rate.

Today if I were to average out the joint ventures that I believe will close between Queens and the other two over the next 30 to 60 days, the average blended cap rate on the real estate income from those three transactions will average in the mid-7s.

As far as common equity, there's been a lot of speculation about where that fits in our overall road map and financial plans.

And I've been consistent in saying to you for over six months now, that we see the common equity as something that is a possibility but it's really a matter of sequencing and we believe that it should be the final piece of the equation of a deleveraging process, after other pieces of the puzzle that we have total control over have been put into place.

The size, the timing of additional asset sales and additional joint ventures will dictate whether and when and how much of an equity raise that we could make in the future.

Again, I want to re-emphasize today that our focus is totally on closing the new joint ventures that are underway right now on the additional couple of assets, on considering a new round of joint ventures and asset sales.

And so long again as we see the disparity between the private market valuations and the public market valuations being as great as they are today, we think our shareholders are best served for us to tap into real estate equity as opposed to common equity in this environment.

At that-- at this point I'd like to open it up to questions, operator.

(Operator Instructions) And we'll take our first question from Nathan Isbee with Stifel Nicolaus.

Hi, good morning.

Hey, Nathan.

A few quick questions.

Just going back to your comments you made just a few minutes ago about the JV that you expect to close over the next few months, you expect those to have blended caps of about 7.5%, is that correct?

No I said that the combination of Queens and the other joint ventures would average in the mid-7s is exactly what I said.

Okay.

Sorry--

Queens is -- it's 7% to 7.25%, so that would infer that the other two are just north of 7.5% and the blended rate is in the mid-7s.

Okay.

Can you just talk about -- I mean, when you look at a Queens generating $867 a foot as of year end versus what you're looking to sell now in the mid-$400s, why the spread would not have been wider?

The spread on what?

On cap rates?

Correct.

Well, I mean these are-- we basically are pricing the transactions at prices that our partners feel comfortable with and Queens is clearly a Class A asset.

But Macerich owns 75 malls out there and a lot of investors would view at least two-thirds of them to be Class A malls.

And when you look at coming into an investment, the investor makes the decisions that they make for a multitude of reasons.

And these are-- the new deals that we're doing are very solid citizens where their sales are at $450 a foot today and the portfolio is off 10% and that means roughly a year ago their sales were $500 a square foot.

The centers that we're working on are diverse geographically with one of them in the middle part of the world, of the US, one of them in the Western part of the US and one of them the Eastern part of the US.

And I did try and give you some guidance in terms of the sales per foot so you didn't end up speculating that the next joint venture would be Tyson's Corner or something like that, really not.

And I wanted to give as much specificity as possible to you all because I know those questions ask have been asked in the past.

But they're clearly Class A assets with great anchors, great demographics and great futures.

All right.

On the Queens Center, was the Cadillac offer the only offer you received on that?

No, as I indicated, we had probably at least a dozen of folks that showed unsolicited interest and the way that we -- we don't run auctions on joint ventures.

We gauge where the interest levels are without casting the net out to the world, because we know the players in the world in terms of the institutional investor marketplace, and we choose who we want to do business with.

And our track rate -- our track rate in terms of picking a partner and consummating a deal is virtually 100%.

I mean once we decided who the right partner is, we know what their yield expectations are, what their hopes and their goals are and we offer them the opportunity that's virtually 100% certain that they're going to step in and shake hands and say let's do this together and move forward.

All right and just with--

Had we chosen to run an auction we could have had dozens of offers on Queens but we didn't do that.

Okay and just switching to the portfolio, your same-store guidance was positive 50 bips to up 1%.

You're trending to about down a little less than 1% through the first half of the year.

Are you still comfortable with that original guidance?

Sure.

Yes, Tom, you want to add some color to that?

Sure, Nate.

If you exclude bad debt expense, we were exactly where we had forecast.

We've gone through and taken a look at that and primarily what rolled through as bad debt expense in the first six months was related to one of two things.

One being bankruptcies that happened in the last half of 2008, most of which have cleared the system now.

And then second being mom and pops just struggling in this economy and not having the balance sheet to endure.

So where we've incurred about $7 million in bad debt expense year-to-date, we expect that to taper off dramatically through the rest of the year.

We don't expect it to exceed $10 million for the year.

And we still think that legitimately we'll be between flat same-center NOI or up 1%.

And again there's some other factors coming in, get in an environment like this and you tend to see some acceleration of lease termination revenue which is something we are expecting in the second half of the year.

Okay.

Thank you.

Thank you.

Moving on we'll take a question from Rich Moore with RBC Capital Markets.

Hi, good morning, guys.

Hey, Rich.

Hey, how are you?

Question for you, Tom, on the line of credit.

It expires I believe in 2011 with the extension and I'm wondering if you've had any I guess early negotiations or early conversations with the lending group?

Well, Rich, consistent with what Art had indicated, sequencing is very, very important and that line of credit is unsecured and I think we will be in far greater position once we've paid off our term notes, reduced our line of credit and/or paid off some of the unsecured debentures to go in there.

So we're not in a rush right now, Rich.

We have great relationships with those banks.

In fact, many of the banks in the line of those banks that are stepping up and making loans on Paradise Valley and Northgate and some of these other project loans.

So it's definitely something we're sequencing and now is not the right time to jump in and do that.

Okay.

I mean, so clearly, Tom, you have some time and you're thinking that you do the joint ventures, then you start having the line discussions and then maybe you think about whether or not you want to do a common equity offering, that kind of thing?

Well in terms of the debt, Rich, I mean, I think we've said before that we view ourselves going forward as being almost exclusively a secured property level borrower with the one exception being a line of credit of some size to give us the latitude to handle construction projects and periodic acquisition activities.

So that's the direction we're heading and at the right time we will address the line of credit.

As Art indicated in his comments, we've got a sequence here and if there were to be an equity transaction, it would be in the proper sequence, which would be at the end, after these other things have been accomplished.

Okay.

And Tom, I'd like to add on to that.

Look, we're running our business, Rich, is the way that we would normally run our business in normal times and that fits perfectly with the business plans of the major banks that are in our line of credit.

Under normal times, with a revolver that doesn't come due for almost a year and-a-half with an extension, you and the banks would sit down six months to nine months in advance of that and talk about the terms of the extension.

There's no reason to talk about it a year and-a-half in advance.

And even in talking to the banks today, they say, hey, there's no reason.

The answer they say is look, we're there for you.

We're going to be there for you.

But frankly, you'd be crazy to sit down with us right now and start talking about an extension because undoubtedly your spreads would go up and the only reason that you would want to go ahead and talk to us about an extension is if some investment banker was putting a gun to your head as part of you doing a common equity deal saying you needed to extend your revolver before it needed to be extended.

So we're running our business the way that we feel is prudent and appropriate given our relationships with our banks.

And our banks feel very comfortable that we are making the right decision, even though it's to their interest to try and encourage us to renew the revolver today and get a higher spread today.

Okay, all right.

Good, thank you, Art I appreciate that.

And then as you guys -- well as you look at the re-development scene, the group of projects you have underway, how is that going in general?

I mean, are you seeing any positive sort of momentum on the leasing front?

Are tenants getting more interested in those projects or maybe just an update on those would be great.

Sure.

Well, right now today, the -- by far, the major focus in dollars that dwarfs the other two is Santa Monica Place.

Just on the other two, you've got Scottsdale Fashion Square has its major grand opening the middle of October which we look forward to showcasing for you all at NAREIT.

And leasing is there, it's coming along fine.

It's coming along good.

It's-- we had targeted more of the luxury market as part of the expansion but that's the market that's been hit hardest so we've scaled back on that but it's doing just fine.

Northgate is doing just fine in terms of it's well over 90% committed, be opening up in phases later on this year, the small shop space, even though the anchors have been open throughout and then into the spring.

But by far, Santa Monica Place dwarfs the other two in terms of importance to the Company, in terms of size of the capital spend and it's a very legitimate question as to where we are, given that we're spending well over $260 million, $270 million on that project.

On a cost side of it, project is coming along roughly on time, on budget.

The project grand opening is October 7th -- or August 7th of next year with the opening of Bloomingdale's Soho, it's their Soho concept, which you will see in Manhattan there.

So it's really truly a one of a kind with the only other Bloomingdale's concept store of that nature being in Soho.

And then Nordstrom opens up three weeks later.

The small shop space opens up on August 7th with Bloomingdales.

Leasing is fabulous and we're just -- I couldn't be more excited about that project.

It has the potential of truly being one of our flagships, one of our three or four flagships in the entire Company, so I'm truly excited.

But I'm also very aware of the fact that it's an irreplaceable location and that we're leasing into a tough environment.

So it's the type of a center that we're going to-- we have the ability and we have the willingness to be patient in terms of the rents that we're willing to accept.

And if we end up opening at less than 100% occupied, that's okay on a center like that.

Because we know how fabulous the center is going to be.

And if our knowledge of the success of the center surpasses a tenant's belief in terms of their expectations to the point to where they're not willing to pay the rents that we want and that we demand, then we'll hold some space off the market but the leasing is terrific, going along fabulous.

I couldn't be more excited.

We went through that project, it's two blocks from our office, every week and I just get more and more excited as each day goes by.

So I couldn't be happier and again, Santa Monica comprises well over 75% of whatever development, re-development activity we have and we're looking forward to showcasing that next fall.

Okay.

Great.

Thank you, guys.

Thank you.

Thank you.

Moving on we'll take a question from Michael Mueller with JPMorgan.

Yes, hi, I just wanted to clarify first of all, you said by the time the second series of JVs is done, the next two in this string, you'll have raised $450 million.

Is that including the non-core assets and Queens or is that just with Queens in there?

No it would be $450 million of joint venture equity and Queens is $150 million, so that would imply that there's roughly another $300 million of equity to come from joint ventures on deals that are basically in process right now.

Okay.

And then just thinking internally, I mean how do you guys think about where and what drives the decision about where to draw the line in terms of round one of JVs, potentially a round two?

Is it more right hand side of the balance sheet driven or is it maybe something where you look at your prorata ownership of the NOI and the assets and say we're comfortable selling down to here.

I mean, how do you think about that internally?

Well, I hope I understand your question.

I'll try and answer it.

The way I think about it is that it's basically a very simple decision for us as we sit down and look at it.

And we know that the private real estate markets are valuing our real estate at closer to what we would think, what we believe they're worth or at what we believe they're worth, than the public real estate markets -- the public securities market.

And it makes it a simple decision to raise equity.

Look, it's a simple decision to delever the Company, so we know we're doing that.

And it's a simple decision to delever the Company by raising money from assets as opposed to from common stock.

We just happen to have the luxury of having assets that are in the highest possible demand from investors around the world.

So it makes it -- I don't want to say it's simple but it's simple.

It's really black and white.

And the only question right now is how much more asset equity we're going to raise over what period of time.

And then once we have finished that sequencing of that round of asset equity, if we find that the asset equity market and the common equity markets tend to move more closely in terms of their valuations, then the common equity market is something that we can more closely consider.

But one point that I do want to make is that joint ventures are a positive, they're not a negative.

We never enter into a joint venture that we do not believe that there won't be -- that we are not going to receive more benefits from the relationship in the future than the closing of the transaction.

These are not financial transactions, even though they have financial impacts.

So every joint venture that we have ever done, we believe that more will come from the relationship than that simple transaction and the proof of the matter is that that has been the case.

So if you follow that logic, I would feel comfortable if every one of our properties was in a joint venture if I believed, which I do when we enter into them and our history has shown it to be the case, that I'm not-- that one plus one equals three each time that we enter into a joint venture.

And that has been the case.

It's in our DNA.

It's what make Macerich different than every other real estate company out there.

And that's why we've been so confident that we could do these joint ventures and that's why we feel so good about what we've done.

And in particular, the partners that we've selected for the first round of phasing we just couldn't be happier with the partners.

Again, going back to Queens, we had as many unsolicited indications of interest as you could imagine, but we pre-selected Cadillac as being our number one choice and for lots of good reasons and we're thrilled about the opportunity to have done that deal with them.

And we just see more of that coming in the future.

So doing joint ventures is not a choice of last resort, it is a choice of first resort for Macerich.

That's an important distinction for people to realize.

Okay.

Thank you.

Thank you.

And moving on, we'll take a question from Ian Weissman from ISI Group.

Yes, good morning, good afternoon.

Hi, Ian.

How you doing?

You guys lost a little over 200 basis points of occupancy year-over-year, yet the stocks don't seem to be discounting or accounting for this consumer led recession.

Do you think that we are nearing the bottom of the cycle at this point or no?

Well, the only way that I have the ability to measure the consumer recession personally is our monthly sales reports from tenants and I see 12,000, 15,000 sales reports per month from tenants.

I don't study each and every one of the tenant sales each month but I see them each and every month.

That's a very good barometer and pulse.

So when you're taking the pulse of the consumer every month with-- through multiple retailing venues, both in terms of geographic location and retailer type, you get a sense for where the consumer is.

And again, as I indicated, our sales declines have pretty much stabilized in that 8% to 10% neighborhood.

So we had-- basically the consumer got very spooked in September, October of last year, it resulted in a very rough fourth quarter of last year with double-digit sales decreases.

Sales remain off year-to-date compared to last year in that high-single-digit neighborhood.

But they're not dropping further from where they were in the fourth quarter.

So things don't seem to be worse.

And that of course for me, the person who has the best feel for the consumer is our retailers and they're the best judge of what's happening with the consumer.

And they make that judgment by making decisions on whether or not to take down new stores from us and they've been making -- they've been voting with their pocketbook as they've been doing new deals with us at good leasing spreads for the Company.

And so they do have some very guarded, very guarded optimism and outlook for the future.

But again, they make long-term decisions as we do, so --

So would you say though the differences today versus maybe six months ago in your conversations with retailers who were looking to retrench are actually reversing course and looking to take on new space?

I don't think I'd go that far.

I'd say that the retrenching is probably behind us and now it's just kind of okay, I'm open to the conversation of looking forward, and some of them are stepping up and signing leases.

But I don't want to say that they're actively expanding again because that's just not true yet.

And have rent relief requests abated or are there still-- they're still requesting them?

They've been basically about the same, which is not -- I'd say actually they've abated because the first round of rent reliefs, it's kind of check the box for any business, is okay I've got 22 vendors, I don't care what business you're in okay and the chief operating officer says to whomever, you've got to go cut costs at all these places.

Macerich is a vendor.

So yes, probably all of our retailers in one way or another asked for some form of relief and 99% of them ended up with no relief whatsoever.

And finally, you talked about a lot of the vacancy that you are hit with as related to the big box.

What has sort of been the demand for big box today relative to sort of in line stores?

It's very rough.

It's probably the toughest retail market to lease into today, for us, given that-- but we're not a power center developer.

We're not-- we don't specialize in the 30,000 square foot category, killer type of retailers, even though we have good relations there.

But it's tough right now.

Those people have a lot of square footage to pick from.

Anybody that would say they don't has blinders on.

But we're making progress and the biggest bulk of the square footage that we have to deal with are the Mervyn's boxes outside of the Macerich malls and I'm personally, along with the other Senior Executives, I'm in meetings every week, with a team of a dozen folks working on thinking through the remerchandising of those spaces and we're making good progress.

And finally if you had to just segment the big boxes versus the in line stores how much would you say the rents are down on the big box versus in line for the space you're trying to market?

Okay.

On the in line spaces, you know that we-- you know what we reported our leasing spreads to be positive versus the expiring leases, so you know where those numbers are.

On the big boxes, I guess the best way that I can answer that for you is to take a look at the spread -- at the new big box rents versus the types of rents those types of tenants paid, say two years ago and I'd say they're 10%, 15% down from where they were two years ago, in that ballpark, maybe 20%.

But they're down, they're not up.

Okay.

Thank you.

Thank you.

(Operator Instructions) And moving on we'll take a question from Quentin Velleley from Citi.

Good morning, everyone I'm here with Michael Bilerman.

Hey, guys.

Just going back I guess to the equity raising question, we can understand you're sort of selling assets or forming joint ventures given that the implied value is below what's implied in the share price.

But I'm just wondering what's the risk that after doing those joint ventures that markets being volatile have corrected and the share price is lower again, I'm just wondering how you're sort of thinking about that?

I think there's a definite risk that share price of any company in corporate America is going to be lower in the future than it is today and that's not specific to Macerich.

Our business strategy is not dependent upon selling new stock, period, case closed.

We can manage all of our maturities that we have on our balance sheet without selling any additional stock.

Now, if you take a look at our stock dividend, some people could say oh, well that's a stock sale and that's-- look, is it an apple or is it a orange, if it's six of one, half a dozen of another.

So you could call that a stock sale, I don't think-- most of our investors don't see it as a sale.

And we could continue and we will continue to retain cash but through the reduction of our dividend as well as the payment of our dividend and the way the stock dividend.

If we were to extend the period of time that we did our stock dividends, we do our stock dividends from beyond this current year into another one or two years beyond this, which we can do, then we clearly can manage all of the maturities that we have to deal with over the next three or four years through a combination of joint ventures and stock dividends, retention of cash and that requires no common equity whatsoever.

Again, I've acknowledged that as part of a total comprehensive common equity plan, that common equity -- a deleveraging plan, that common equity has a place so I'm not excluding it but I'm not price-driven either.

What I-- what we are is we are logic-driven and logic says when you can raise capital from the private markets at far more attractive rates than the public markets, that's what you do.

Art, is there, this is Michael Bilerman speaking, is there a risk -- you looked at the stock dividend which has been mandated for this year, potentially for next year it gets extended but that's not a definite, that that changes your thinking a little bit without having the ability to do a stock dividend in 2010 or at least I think you had talked about doing it for three years?

So that would roll off--

Well we-- first of all, we could cut our dividends further if we wanted to, probably.

But more importantly, before the current revenue ruling that allows 90% -- that allows you to do a 90% stock dividend came out, basically all the case law and the rulings supported something close to an 80% stock dividend.

So it's-- we're not dependent upon the revenue ruling that this year's 90% stock dividend is dependent upon.

So before this year, you could have done an 80% dividend and most people -- all tax people believe that no matter what happens you could continue to do at least 80% dividends going forward.

And I think you go back to last call, I think you were very detailed in terms of how you thought about your capital plan and you were very clear in terms of the equity and very clear that it was the last piece of the puzzle and that you were going to sequence it.

I'm just -- relative to those and that budget that you had thought about, it sounds like you are more inclined to do more joint ventures.

I think you said you'll sell everything, sell every joint-- sell every asset to joint venture than doing common equity anywhere different from where the stock is trading on an implied cap rate basis.

At this point in time, it's a very simple decision that the right thing for our shareholders is to continue on our raising of cash from joint ventures.

And again, I want to emphasize, our focus -- we've got our eye completely on the ball on finishing up the joint ventures that are well under way right now that'll close in the next 30 to 60 days and we're just -- and we are considering what exactly is going to be involved in round two.

But it's something we feel very comfortable with and from a sequencing viewpoint, I remain committed that we need to control those items that we can control.

And most people don't think that we can control doing joint ventures, going back six, eight months ago.

We knew we could because we know the market., it's in our DNA.

And we're going to work on those things that we can control.

We can't control our stock price.

The only thing we can control is we can remove negatives that hang over our stock price and we have and we will do that both through the way that we've done our property financings.

We've reduced our dividend, gone to a stock dividend, raising asset equity.

We can control those things.

We can control our leasing, occupancy levels, things like that.

The stock price will take care of itself, once we've removed the negatives and made progress and we see some parody between the two, then common equity could be part of the final piece of the equation.

But it's a simple decision today.

And it remains the last piece.

Can you just go through -- I think you talked about joint ventures that you've done in the past and where one plus one is three.

Can you talk a little bit about some of the tangible benefits that have come out from those joint ventures that you don't think would have been able to be done if you had owned the asset 100%?

Just trying to get more clarity as to the benefits of historical joint ventures and the ones to come, other than just being a financial play.

Sure.

I mentioned Northwestern Mutual Life Insurance Company, so that should potentially be obvious, the correlation there.

We're partners together today on a joint venture.

They're a big OP unit holder investor.

Before we went public we were joint venture partners on eight deals.

The public information on the company probably discloses the fact that they are a large lender to Macerich and in the last year or two's environment, we're one of their very much preferred borrowers.

And I think that that's definitely related to the fact that we have a long-standing partnership relationship, even though it's only personified in the form of one joint venture today.

We still think of each other as business partners, alliance people and we do business together in numerous ways in that context.

We've managed real estate for them for a fee basis in the past, bought real estate from them in the past.

Ontario Teachers which owns Cadillac Fairview has been a great resource for the Company.

They've been a big investor in Macerich.

When we first started our relationship with them in 1998, they started the relationship by picking a partner in the US retail marketplace.

They picked Macerich.

We tried to do some deals together where we got outbid by some other buyers and then they decided that they wanted to formalize the relationship and they made $150 million preferred equity investment in Macerich in midpoint of 1998.

We then did a joint venture together to buy properties from Safeco Insurance Company, the [Winmare] portfolio.

And then they were our partner later on as we equitized the Company in late 1999 in an environment that was post Russia default, not completely dissimilar to today, not as severe as today.

But they were there for us in tough times then and they're there for us during tough times today.

CalPERS through Miller Capital Advisors, I mean we started out with one deal with them, that's now grown into four joint ventures.

Very comfortable, tight relationship.

They don't do business with just anybody and we see them as a partner going forward.

Alaska Permanent Fund was our partner at Tyson's Corner when we bought that and as time went on they had an inside track on North Bridge and brought us into that deal and we bought that deal together, which we're happy about.

Going back to Cadillac, we also-- we meet with each other quarterly.

And during those meetings we share a tremendous amount of operating core information with each other.

We've shared IT system information back and forth with each other.

Again, they're the premier shopping center owner in Canada.

We send tenants north of the border, they send tenants south of the border.

There's lot of different ways that we see these joint ventures are of value to us beyond the financial side of the transaction.

Just switching back to the development pipeline, just wondering if there's been any changes in the (inaudible) expectations on any of your projects?

There have not been changes in the expectations on our projects on the three that are in process.

You kind of broke up on the question, but if that answers your question, there have not been any changes on yield or costs on the three projects that are under way.

And can you just remind me what Santa Monica place was?

In terms of a yield-- on a yield on new cost basis?

Yes, a stabilized yield on total project cost.

Yes, I've always said -- I've always indicated that that would have a new yield return of roughly 9% to 10% on total project cost and we still are tracking on a stabilized basis to be in that neighborhood.

Okay.

Got it.

Thank you.

Thank you.

Thank you.

Moving on we'll take a question from Alexander Goldfarb with Sandler O'Neill.

Yes, hi, good morning out there.

Just want to go to the sales front.

As the tenant sales are declining it sounds like flattened out, at this point assuming -- how much more could sales decline where the tenants may start to push back as you negotiate the re-leasing of their spaces?

Sure, I'll be happy to answer that, Alex.

Thank you for being on the call.

Sales basically would need to go below the tenant's expectations for them to cut back on their new store commitments.

That's what happened in the fourth quarter of last year.

Sales were way below the retailer's expectations and that's what spooked them.

And that's what caused them to retrench and of course we all know the environment that we were in in the fourth quarter of last year, it spooked the entire world in every business.

Sales now are tracking along levels that are within their expectations.

And it-- again, I would encourage folks that are confused or interested in the subject to listen to some retailer conference calls.

You have the opportunity to do that.

And you're going to hear them say that they are managing their business for sales to be down on a comp basis while maintaining their margins.

So it all comes down to are they doing the business that they expect to do.

And if they expect to be off 10%, and in fact they're off 10%, then they're making the profit that they planned for and it's all about meeting their plans.

And at this point in time, over the last six months, they've been meeting their plan and I have every reason to believe that they are realistic in their plan going forward and that they're going to continue to meet their plan going forward and that's why they have cautiously put their toe back into the water and begun to make new commitments.

Okay.

And then on the line of credit, can you draw all the way up to the limit, to the $1.5 billion, or is there some sort of step limit ahead of that?

Tom, you want to go ahead and address that?

Yes, there's no limit on that, Alex.

Okay.

And then in Walnut Creek, there seems to be a lot of noise coming out of there, looks like one of your competitors sponsored an initiative.

Would you view what's going on at Walnut Creek as sort of typical whenever you're trying to do a new development or is this beyond the sort of typical noise that we would normally hear?

Well, I'd have to say it's not typical at all and I can speak from personal experience that Macerich personally, that Macerich personally, Macerich has never ever gotten involved in spending Macerich's shareholders' money to fight another development when the retailers have made the decision to go to another development.

We believe that once the free market and the retailers have made their decision, that using a legal process and using shareholders' money, worse of all, to go ahead and to fight a development, that that's a waste of our shareholders' money and we have never done that and I don't ever anticipate doing that.

So I view the activity that's going on as being certainly very atypical from my viewpoint.

I've never seen anything like it.

Never been exposed to anything like it.

And personally, I think it's a total waste of the other company's shareholders' money and a total waste of our money when the free market has decided where it wants to be.

The department stores have decided where they want to be.

And they told the other developer that even if he's legally able to stop this development from going forward, there is no way that those department stores are going to go to the development that he wanted to build, that the retailers didn't want to go to.

I think it's totally atypical and I appreciate you asking the question.

Okay.

I guess with that I'll step off.

Thank you.

Thank you.

Thank you.

And unfortunately we have no time for further questions from our queue at this time.

I'd like to turn the conference back over to Mr.

Coppola for any additional or closing remarks.

Well I want to thank you all for being on the call and again look forward to seeing you the day before NAREIT, November 10th, I believe Jean, is that the date?

That's the date, Art.

And we will look forward to seeing you there and reporting on our progress to you over the very near future.

So thank you very much and see you soon.

Bye.

Thank you again, ladies and gentlemen.

That concludes today's conference.