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Operator
Good afternoon, ladies and gentlemen.
Thank you for standing by.
Welcome to the Macerich Company third 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 now like to turn the conference over to your host, Miss Jean Wood, Vice President of Investor Relations.
Please go ahead.
- VP IR
Hi.
Thank you, everyone, for joining us today on our third quarter 2009 earnings call.
During the course of this call, management will be making forward-looking statements, which are subject to uncertainties and risks associated with our business and industry.
For a more detailed description of these risks please refer to the Company's press release and SEC filings.
As this call will be webcast for some time to come, we believe that it's important to note that the passage of time can render information stale, and you should not rely on the continued accuracy of this material.
During this call, we will discuss certain non-GAAP financial measures as defined by the SEC's Regulation G.
The reconciliation of each non-GAAP financial measure to the most directly comparable to GAAP financial measure is included in the press release and the supplemental 8-K filings for the quarter, which are posted in the investor section of the Company's web site at www.Macerich.com.
Joining us today are Art Coppola CEO and Chairman of the Board of Directors, Ed Coppola, President, Tom O'Hern, Senior Executive VP and Chief Financial Officer, Tony Grossi, Senior Executive VP and Chief Operating Officer.
With that, I would like to turn the call over to Tom.
And before I go, I just wanted to mention we're looking forward to seeing many of you next week at NAREIT.
- SEVP, CFO
Thank you, Jean.
Today we'll be discussing the third quarter results, our recent financing activity, recent joint ventures, the status of our noncore asset sale program, as well as our recent equity offering.
The operating metrics for the quarter generally remain solid with continued respectable occupancy levels and releasing spreads.
Mall sales per foot for the past 12 months ended September 30 were $418, that was down 3.3% compared to $428 last quarter and compared to $463 for the 12 months ended September 30 of 2008.
During the quarter, we signed leases for 294,000 square feet of specialty tenant space.
That's up from 266,000 square feet signed in the third quarter of last year.
Average new rent was $40.98, and the average releasing spread versus the expiring cash rent was 14.2% positive.
The occupancy level remained very high at 91%.
That's up 50 basis points from 90.5% at June 30, but down from 92.8% a year ago.
Most of the reductions versus a year ago relates to big box closures, which makes up 1.2% of that 1.8% decline that includes Circuit City, Steve and Barry's, Shoe Pavilion, KB Toys and Linens N Things.
The average rent increased to $43.06 per foot.
That compared to $41.36 per foot a year ago.
FFO for the quarter was $0.97.
That compared to $1.12 for the quarter ended September 30, 2008.
Consensus was $0.93 and the quarterly results were in line with our updated guidance that we gave two weeks ago, prior to our equity offering.
During the quarter, same-store NOI, excluding termination revenue, was down 1.56% compared to the third quarter last year.
The negative comparison was mainly driven by the decline in occupancy and a $1.6 million increase in bad debt expense.
Year-to-date, same center NOI, excluding lease terminations and SFAS 141 revenue was down 1.8%.
Lease termination revenue, including JVs at pro rata was $11.1 million for the quarter.
That was up compared to $4 million during the quarter ended September 30, 2008.
$6 million of that total came from one tenant that terminated leases at four of our top locations, Tysons Corner Washington Square, Freehold, and The Oaks.
The expense recovery rate including JVs was 90.4%.
That was down compared to 93% a year ago.
However, it was higher than the full-year 2008 recovery rate of 89%.
Most of that reduction related to higher nonrecoverable expenses, primarily bad debt expense.
CPI rent increases were $2 million higher than a year ago.
Straight lining rents were up $400 compared to $3.5 million for the quarter compared to $3.1 million in the third quarter of 2008.
SFAS 141 income was down to $3.2 million.
That's down about $1.5 million from a year ago.
The impact on the quarter from vacant Mervyn's stores was approximately $0.08 a share.
Also during the quarter, REIT G&A costs were $7 million.
That's unusually high for us.
This compares to $2.9 million in the third quarter last year.
The increase was primarily related to $3.5 million in transaction costs relating to the ventures that we formed during the third quarter.
It was a very active quarter for the balance sheet.
We had a significant amount of financing activity.
For the quarter, our average interest rate was just under 5.5%, and the average rate on our fixed rate debt was 6.17%.
The interest coverage ratio for the quarter was 2.04 to 1 and with the recent equity raise, we expect that to improve in the quarters that follow.
At quarter end, we had $6.99 billion of debt outstanding, including JVs and pro rata.
That's $900 million less than at June 30.
As of today, after factoring in the equity offering of two weeks ago, our debt outstanding is $6.6 billion.
As of today, we only have $30 million in remaining 2009 maturities.
That's basically one loan that we're in the midst of finalizing an extension on.
We have approximately $800 million of capacity on our line of credit.
Plus we've got $148 million of cash on the balance sheet at quarter end.
With the closure of various liquidity events and the cash conserved by continuing stock dividends in lieu of cash, we paid off $446 million of term notes during the quarter.
Those were term notes that were scheduled to mature in May of 2010.
Last week we closed on the financing on the Village of Corte Madeira with an $80 million 7.2% fixed rate seven-year loan.
The prior loan was $63 million at 7.75%.
Included in today's supplement on pages 14 and 15, we showed the maturities for 2009 and 2010 as I'd indicated, the 2009 maturities had virtually all been handled.
We have done over $874 million of new loans completed this year and we've generated over $190 million in excess loan proceeds.
The estimated loan proceeds reflected in the supplement for 2010 reflect the underwriting conditions we see in the market today.
Looking at 2010, excluding loans with built in extension options, we only have $268 million of maturities.
Even with today's very conservative underwriting, we should be able to take out the maturing debt and generate significant excess proceeds.
We've been extremely active the past 12 months in paying down or paying off our unsecured debt.
We've reduced our unsecured debt by $1.1 billion in the past 12 months.
That includes a paydown of our revolver, the reduction of our debentures by $331 million, mostly at a large discount, and a complete payoff of the term notes.
In summary, we continue to make great progress on our debt maturities.
This is just one aspect of our liquidity and deleveraging plans, which Art will be discussing in more length in a few moments.
Today, we are reaffirming the earnings guidance that we issued two weeks ago that's a range of $3.50 to $3.80 for 2009.
That guidance reflects the equity offering, the impact pact of the recently completed joint ventures, the stock dividends for the year, the noncore asset sales.
We also revised down our same-center NOI estimate for the year down to negative one to negative one and a half.
That is just a reflection of what we've seen through the first three quarters of 2009.
Most of that declined from the original guidance on the same center growth was driven by higher than originally forecast bad debt expense.
Consistent with last quarter, and as part of our ongoing efforts to conserve cash and deleverage, we, den, declared a quarterly dividend of $0.60 per share payable on November 12 to stockholders of record and 90% of that dividend will be paid in stock.
At this point, I'd like to turn it over to Art.
- Chairman, CEO
Thank you, Tom.
Welcome to the call.
Again, we look forward to seeing many of you at NAREIT, either on one-on-one meetings next week or on the investor tour, which is November 10, Tuesday.
If any of you have not been able to sign up for the investment tour and would like, to please contact Jean Wood.
Today I'd like to focus on three primary levels of activity.
One is our deleveraging and equity activity over the course of this year.
Secondly, the focus on some operating fundamentals, sales, leasing and the composition of our portfolio after the completion of our joint ventures.
And finally, the status of our redevelopment program.
On the deleveraging side and equity activity back in February, you'll remember that we were primarily focused on raising $500 million of equity from joint ventures and noncore dispositions over the course of the next 12 months, we told you.
That was in February of this year.
We said we hoped to accomplish that over the course of the next year, and that money was all earmarked with in mind of the retirement of the $450 million unsecured term note that was due in spring of 2010.
At the time, we guided you to cap rates on the mall joint venture which was the lion's share of the program between 7.5 and 8% cap rates, but we also said on various calls as well as in meetings with you that we were agnostic on the joint venture program.
We seed we knew we were going to be able to complete the joint ventures that pricing would be a function of the marketplace and that time would tell on that.
We're very pleased to have been able to report over the last three months the completion of our joint venture program, and I do want to emphasize the word completion at this point in time.
Our joint venture program is completed.
We do have a tremendous amount of interest from folks that would love to do new joint ventures with us.
At this point in time, the joint venture program that we put into place has accomplished what it was intended to accomplish.
It's been completed.
It's been done at a very efficient execution with average cap rates around 7.5.
We've got some great partners, some existing partners, Cadillac Fairview, that came into Queens and some new partners but old relationships with Heitman and GI Partners that came into Flatirons, into Freehold and Chandler.
Chandler, I would emphasize, by the way, is in Arizona.
That was somewhat of a landmark joint venture and they recognize the fact that even in Arizona there's some great retail assets that Macerich controls.
This was certainly I had one of them that has a bright future.
Chandler is one of the two assets, by the way, that you will be seeing on the investor tour next week.
We look forward to showcasing that property as well as Scottsdale Fashion Square for you next week where we've just completed a major expansion, so we completed $450 million of joint ventures with some great partners and we did it much faster than people anticipated at much better rates than people anticipated.
We've completed a little over $100 million of noncore dispositions.
It should be, as I've indicated in a previous call, potentially up to another 25 to $50 million of noncore dispositions that could happen over the next several months.
And having completed that, we always gave you guidance but we're reviewing this sequentially, and that we were fully focused on the joint venture program and only after the completion of the joint venture program would we consider tapping into the equity markets as a means to further deleverage the Company and take us to the levels we wanted to do.
We completed the joint venture program.
We considered new joint ventures back in September and decided, at that point in time, given the differential from the private markets and public markets were not nearly as dramatic as they were in the spring.
We still think there is a very large difference between the private market and public market valuation of our Company.
There has been a shrinking of that gap, we decided to raise $400 million in equity and we did that a couple of weeks ago.
So between the noncore sales of $100 million, the joint ventures of $450 million, the equity raise of $400 million, the dividend cut and the stock dividends, we've raised equity over the last eight, nine months here over about a $1.1 billion.
That $1.1 billion has allowed us to delever the Company by paying off about a $1.1 billion of unsecured debt and then of course as part of the joint ventures, there's roughly another $470 million or so of pro rata debt that was attributed to our partners as part of that joint venture.
Just under $1.6 billion of deleveraging that's been accomplished here over the last three months.
We raised our equity transaction a couple of weeks ago.
We went out with the $350 million offering and with the shoe being exercised, we did 400 million.
Now, you might ask, why that particular size?
Well, the size was completely dictated in terms of what it was intended to accomplish for us.
Going back to February of this year, we were looking at four pieces of debt that were in our balance sheet.
One was property level debt.
We knew that our property level debt in spite of the skeptics was something that not only was not a problem it was an opportunity that we were going to be able to refinance our property debt and on balance, we were going to be able to generate significant excess proceeds from that debt over the course of this year next year and even the following year.
In fact, we did that, we've been reporting those numbers to you.
We see additional excess proceeds coming from our property refinancings next year.
The other three pieces of debt that we focused on was our unsecured term note.
We addressed that.
We did the joint venture step that has been paid
The other two pieces is the next sequential piece of our unsecured debt is our revolving line of credit, which comes due with extensions in spring of 2011.
Having completed our joint venture program, we decided that it was time to raise equity to substantially reduce our line of credit, to put us into a position where we would have capacity under our line of credit where today we have roughly $800 million of capacity under a line of credit.
It would also put us on a position on our revolver to be in a position next year at the appropriate time to extend and renew that revolver on terms that would be most advantageous to the Company.
We raised the equity.
We now have capacity on that revolver and we now are in a position when it comes time toll renew it that we will be in ape very strong position.
As to our convertibles, going back to last year, we had $950 million of outstandings give or take on our convertibles, which come due in 2012.
Over the course of the past year, we've retired mostly at substantial discounts, well over $300 million of those convertibles so we just have roughly over $600 million of them outstanding today.
Today, they're trading at levels well over $0.90 on the dollar.
So the yield at maturity on those converts is somewhere around 7% today.
At this point in time, they're not a very attractive piece of debt for to us retire.
The focus right now is on simply getting capacity on the revolver, which we've done, and putting us into a position to renew that at the appropriate time.
We're extremely pleased to have accomplished and exceeded the equity raising and deleveraging that we hoped to accomplish over the course of the 12-month period and to have done it over the course of a seven or eight-month period of time.
So I'm very pleased about that.
Moving to operating fundamentals.
We've been reporting obviously our sales and leasing activity.
On the sales side, I want to talk about sales and talk about our leasing activity and our leasing spread.
As you know in the fourth quarter of last year, sales were off in general around 15% give or take, for most of the major mall owners including ourselves.
That was a disastrous comp sales decrease from a retailer's viewpoint.
Because it was totally unexpected from the retailer's viewpoint.
As a result of that, it put the retailers into a freeze mode, not only into a freeze mode, they even got into a cutback mode, because it was totally unexpected.
Over the course of this year, the retailers made major changes in their cost structure, major changes in their inventory levels and major changes in their business plan.
Made plans for their businesses to be down roughly 10 to 15%.
In February this year, we told you that we anticipated that for the first three quarters of this year, that we anticipated double digit sales declines, and at the time, frankly, that was not a very thrilling prospect.
In fact, we've had double digit sales declines, off 12% in the fist quarter, 11 in the second quarter, nine in the third.
But we're seeing a moderation in the decreases, but more importantly, and I said this on the last call, is that you have to be careful about the comp sales, because this year the difference between the first three quarters of this year and the fourth quarter of last year is that our retailers planned to have their sales be off at this level.
This was their business plan.
They are meeting their business plan.
They are maintaining their margins.
So being off 10% when you plan to be off 10% and you keep your margin is a significantly different situation than being off 15% when it wasn't your plan and your margins were decimated.
As a consequence of that, it's put our retailers into a mood where they're willing to talk about new leasing and we're able to look at beginning to have some pickup in store growth.
The moods of the retailers, and you've heard this on the other conference calls with our peers, is improving dramatically.
They went from being in a freeze mode in the fourth quarter of last year, to things began to fall out in the second quarter of this year around ICSC.
Now we're really having positive conversations with our retailers about how they can grow their business and how we can grow our business together.
In spite of these sales trends, we've had very positive leasing results.
The fourth quarter of last year for example, we had 23% leasing spreads, in all of 2008 we had 24% leasing spreads.
As we move into 2009, we've had average re-leasing spreads of 18%, with first quarter re-leasing spreads of 21, second quarter of 21, and third quarter of 14.
One might ask, because I'm aware of the fact because we're an outlier amongst some of our peers in terms of positive leasing spreads, how we are able to give these leasing spreads even in spite of the negative comps and the moods of the retailers that we have.
It's really simply a function of the costs of occupancy of sales that our tenants have in our portfolio today.
Our portfolio is one of the most productive portfolios in the business.
Our cost of occupancy coming in was roughly 13%.
When you've got a 13% cost of occupancy in a portfolio that is highly productive, there's still plenty of room for retailers to sign new leases, make new commitments and to pay spreads to us that give us the results that we've been able to enjoy.
It's really the embedded growth that is in our portfolio that we start with a highly productive portfolio.
Add to that a modest cost of occupancy, a great leasing team and that's when's been able to enable us to enjoy strong re-leasing spreads.
On the leasing side, I'm feeling better about things.
Our retailers are feeling better about things.
And I'm anticipating that as we move into next year, that we'll have good leasing activity.
Now, we are looking at the next year, where we have higher rents that are expiring than we have this year.
So leasing spreads could come in as a function of that, but leasing activity in general, we see as something picking up, our pricing power is there.
People want to grow their business and there's a number of different camps of retailing that we've been able to enjoy having good business activity with.
We've also been asked the question after doing the joint ventures that we did, what does that do to the composition of the quality of your NOI.
First of all, I want to point out that on all of our joint ventures, we have control rights that generally enable us to maintain ownership of the asset this almost any situation.
Options to buy any number of different agreements that are there.
Secondly, I point out that we have relations with our partners, we're very careful about the partners that we enter into partnerships with, and generally, the partnerships that we enter into are relatively permanent in terms of the view of our partner and us that we go in to review ourselves when we do these partnerships not as being finite but as being something that really has more of a perpetual life.
We view them as partnerships that are intended to grow in that property but in additional properties.
That's been reflected in our history of one of the most glaring and highlighted examples would be the bringing of the Cadillac Fairview into Queen Center, which is an extension of a long time partnership that we had with them.
In looking at the quality of our income stream after doing the joint ventures, today, after doing the joint ventures, roughly two-thirds of the net operating income of Macerich comes from our top 36 properties.
Those 36 top properties average today $549 a square foot.
That's after doing the joint ventures.
Another 25% or so of our net operating income comes from our next 23 properties, or so that average around $335 a foot.
Then we have around 8% of our net operating income comes from a group of assets that average around $280 a square foot.
You can see that the vast majority of our NOI is coming from a portfolio that exceeds $500 a square foot in sales, and that's after doing the joint ventures.
We see this as being something that's very positive for the Company.
We see our joint venture partners as being groups that are going to be part of the growth of the Company going forward as a consolidation of our industry continues.
We anticipate that our current partners will anticipate with us in the consolidation of our industry.
I want to turn now to our redevelopment activities.
You'll remember back in February that we cut our redevelopment activity down to mission critical projects.
Primarily The Oaks, Scottsdale Fashion Square, Northgate, Santa Monica Place.
We've completed The Oaks.
We're in the throes of completing the major first phase of Northgate.
We just completed the expansion of Scottsdale Fashion Square, and we have Santa Monica Place that is schedule for completion in August next year.
So we are winding down our redevelopment activity.
We have no major redevelopments in the pipeline.
We look forward to highlighting for you Scottsdale Fashion Square next week.
Hopefully you'll be with us on the investor tour on Tuesday.
If you're not there on Tuesday, we can arrange for private tours for you.
This is a fabulous expansion.
It's one that's anchored by Barney's.
We have a lot of first to market retailers in the center.
We have some great restaurants in the center.
We've brought in new luxury retailers in conjunction with the expansions, like Bvlgary, Tijuana, Seven For All Mankind.
We've got True Religion, Michael Stars.
You'll see a number of great new tenants in there, Banana Republic, Forever 21, Love Culture, Arthur, H & M is coming in the spring.
We are very, very excited about this expansion.
This expansion, I might remind you, was triggered by the merger of May Company and Macy's a few years ago, and in that transaction, we bought back 11 stores from Macy's, which triggered the redevelopment of many of our centers, including Scottsdale Fashion Square, it opened the way for this expansion which is a fabulous expansion.
It opened the way for the major redevelopment expansion of Oaks and the addition of Nordstrom, it opened up the way fort complete redevelopment and virtual recycling of Santa Monica place where we're bringing in Bloomingdale's and Nordstrom.
That May Company Macy's merger three or four years ago when we got back around 11 boxes from Macy's as part of that merger opened up a whole wave of remerchandising opportunities, redevelopment opportunities, which are just now coming to fruition.
We've just completed the Scottsdale fashion square expansion.
That expansion will be generating close to $10 million of new NOI going forward.
It was paid for with cash.
So we'll be reaping the benefits of that as we move into next year.
Santa Monica Place, we're making great headway there.
We've reported during the course of the quarter new tenants such as Burberry, Michael Kors, CB2, Nike.
A number of new tenants that are going to be coming there.
We're very, very excited about that.
We're excited about the completion of that.
The size of that project is roughly $260 million.
It's being paid for out of cash on hand and upon completion in the fall of next year, and it will be completed basically and leased up in phases over a six to nine month period.
We anticipate a new 9% to 10% return on that capital.
So we're very pleased with where we are on the redevelopment program, and at this point in time, I'd like to open it up to questions.
Operator
Thank you.
The question and answer session will be conducted electronically.
(Operator Instructions).
Your first question comes from Quentin Velleley.
Your line is open.
- Analyst
Good afternoon.
I'm here with Marco.
Just in terms of Mervyn's, I'm wondering over the quarter, was there any NOI that was coming in from the Mervyn asset over the quarter?
- SEVP, CFO
There's a very small amount that started to come in thousand the quarter.
And Tony can give you an update on the activity but there's been quite a bit of activity.
We've done quite a few deals and the rent is just starting to come through.
For the quarter, we only had $930,000.
That compared with a year ago $9.2.
From those boxes.
But our guidance when we gave guidance originally was that this would be very little income that flowed through 2009 as a result of those boxes, but they'd start to -- we start to reap the benefit of those now deals in 2010.
- SEVP, COO
Quentin, just at the beginning of this year, we had 44 boxes that would control through the Mervyn's transaction.
And we're pleased that we've done 27 deals on those boxes, and at the start of the year, we announced we had 21.
So we've made some progress throughout the year.
As Tom said, we advised and guided that because the lead time to completing these deals were long for the bigger boxes that we didn't anticipate a lot of the income in 2009 and most of the income would be in 2010.
As well as we have transactions in the work that we hope to enact shortly and about three or four additional locations of the boxes that remain.
- Analyst
And what was the book prices of the remaining Mervyn's asset?
- SEVP, CFO
I think on average, we paid $8 million to $10 million per store.
That's an average.
It's going to vary by location in the underlying economics.
- Analyst
So that's $8 million to $10 million on the 44?
- Chairman, CEO
Correct.
- SEVP, CFO
No, Quentin, on 41.
We bought 41 and we had 3 on a shorter term lease that were not part of the sale leaseback transaction.
As part of our guidance next year, we will obviously be baking in the rents from the Mervyn's stores that have been re-leased and remerchandised.
- Chairman, CEO
Many of the rents are really just kicking in, in the fourth quarter with a lot of openings and Kohl's and others for example September 30.
But in previous calls, I've indicated that I felt that of the $0.25 per share drag that we would have this year that we should be able to claw back at least about half of that next year.
That will be baked into our guidance, but our current thinking is approximately the numbers around $0.12 a share that should begin to flow through the income next year that was not there this year.
- Analyst
Okay.
And just the second one.
In terms of the $566 million of capital that you've spent, on the current development pipeline, how much NOI was being generated on that capital in the quarter?
- Chairman, CEO
That's primarily related to The Oaks.
Most of which has come online last year.
And that shows up on the schedule but that's been placed in service so that's not in CIP.
So The Oaks has come online.
The rest of that list is just being completed now.
Scottsdale Fashion there'd really be little impact in the quarter as a result of We're the only one on that schedule is The Oaks and if you look at the far right hand column, the last page of the supplement, you'll see that it indicates that The Oaks was placed in service in 2008.
- Analyst
Art, it's Mike Diamond speaking, when you look at the three joint ventures you did with Cadillac, GI and Heitman, and you've always talked about just doing a straight up type transaction, was there anything in those deals in terms of a preferential term to the partner or anything else that may have altered pricing?
- Chairman, CEO
There was nothing -- I mean, they were complicated joint ventures.
The GI deal was a 75/25 deal.
the Heitman deal was 59/49.
All in, when you look at the overall real estate cap rates after consideration everything, the cap rates are roughly 7.5%.
We did grant warrants to GI Partners, which was disclosed to buy shares that the exact number shares, Tom?
- SEVP, CFO
Not offhand.
Roughly $31 a share.
- Chairman, CEO
There was warrants to buy shares at $31 a share, and we granted warrants to Heitman to buy shares at roughly $48 per share.
There are complicated transactions.
There's options to repurchase from our viewpoint at our option down the road.
But basically on balance from our viewpoint, they're generally straight up 50/50 joint ventures or pro rata joint ventures.
- Analyst
But there's no preferential return, that would affect cash flow, when we're thinking about the 7.5% yield.
Obviously, if there is a preferential return to any of the joint ventures, your net cash flow would be affected.
And it would affect FFO.
I'm just trying to see if there's anything on that side?
- SEVP, CFO
On the queens joint venture, this are no preferential cash flows.
On the Heitman joint venture, there is a cash flow preference.
On the GI Partners joint venture, there is a cash flow preference.
On each of those joint ventures, we would anticipate that over the course of the first, second year or so, with those references will be academic by the second year or so.
- Analyst
And that's just from NOI increasing or from refinancing?
- SEVP, CFO
Just from as the NOI flows through.
We went through the projections and generally it's by the second year or so that the preferences become academic.
- Analyst
And how much higher is that over the 7.5 if you had to flow it through?
- Chairman, CEO
I really don't want to get into nigh detail but it's less than a hundred basis points on average.
- Analyst
Okay.
- Chairman, CEO
I'm not in a position to get into the details on each one but I will tell you on average between the two that it's less than 100 basis points over the 7 1/2 cap REIT on average.
- Analyst
Just one last question.
In firms of coins, from a modeling perspective, what were the exact settlement dates of those transactions?
- Chairman, CEO
Quentin, I'll have to get back to you on those.
I believe Queens was late July and Flatirons was early September.
I will get back to you with the exact timing.
- SEVP, CFO
On the closing dates?
- Analyst
Yes.
The settlement date as it affects NOI.
- Chairman, CEO
We'll give you exact dates before the call's over.
- Analyst
Perfect.
Thank you.
Operator
The next question comes from Michael Mueller from JPMorgan.
- Analyst
Obviously there's been some moving parts in terms of G&A.
Tom, can you run through just what you see is going to be ongoing run rates for, say, G&A management revenues and expenses?
- SEVP, CFO
Yes.
I mean, G&A we typically are running between $3 million and $4 million a quarter.
That would be consistent going forward.
As I mentioned earlier, we had some unusual cans action costs that flowed through there and created some lumpiness that I would not expect to see on an ongoing basis.
We're typically around $4 million a quarter, and I would expect it to be $4 million a quarter going forward.
In terms of, management, we just completed some joint ventures so the management company revenues are going to go up.
You can go through the calculation like we typically get 4% or so as a management fee.
- Analyst
Okay.
What about management expenses?
- SEVP, CFO
They should not go up appreciably.
They're fairly consistent.
- Analyst
Okay.
Going back to the Mervyn's question from before.
It looks like in Q3 you had about $900,000 in income.
Annualize that about $4 million If we fast forward a year forward, by year in 2010, what do you think that annualized run rate is of, properties that are up and running and contributing NOI?
How much does it go up from 3 to 4 today?
- SEVP, CFO
I wouldn't -- okay, if you're going to annualize this quarter.
We didn't have anything in the first and second quarter.
We had $900,000 this quarter.
As Tony and Art both indicated, we've got the bulk of those boxes done.
27 deals out of 44.
And would I expect that to be more along the lines of on a quarterly basis probably closer to, 6 to $7 million a quarter next year.
And that will be gradually.
We won't get that full benefit.
- Chairman, CEO
I said earlier in the call, I would anticipate the benefit next year that's not there this year to be around $0.12 a share, but that we will bake it into our guidance.
But that we will bake it that our guidance.
- Analyst
Okay.
Going back to the last question on the lease expirations.
In the 10-K going to your comments, Art, looks like expirations on the consolidated portfolio are about $41 next year.
And the expectation at this point that spreads are flattish next year?
- Chairman, CEO
No.
No, no, no.
Not at all.
You have to be careful because you have to drill down to where the expirations are.
If the expirations are at Queens and Tysons, you could have 50% spreads.
You have to drill down into it.
That will be baked into our guidance next year.
Look, this thing, when you look at our leasing spreads, they come from all types of different properties.
It becomes a homogenous number.
Our average leasing spreads are 20%, all things considered.
This year, all things considered, they were first quarter 21.
The second quarter other 21, third quarter 14.
leasing spreads could moderate next year.
Really, you have to go through on a very granular basis and do the ground up number to go ahead and do it.
It'll be baked into our guidance.
The most important thing from our viewpoint is that our sense of pricing power and momentum and activity is definitely feeling much better today than it was, say, three or four months ago.
And, that'll all be baked into the guidance.
We're feeling much better on the leasing side, frankly, than we did nine months ago.
- Analyst
Okay.
Thank you.
- SEVP, CFO
Thanks, Mike.
- Chairman, CEO
There was a question asked about the closing date on the joint ventures.
Queens closed on July 30.
Flatirons closed on September 3.
The Freehold and Chandler transaction closed September 30.
Operator
The next question comes from Craig Schmitt from Merrill Lynch.
- Analyst
Thank you.
I just want to get an update on the Forever 21 large-format fashion department store since you guys are sort of ahead of the curve there what's happening.
How do they differ from the smaller stores?
Maybe more importantly, what's the impact of adding 80 to 90,000 square feet of junior space on your existing junior business of specialty stores some.
- SEVP, COO
Hi, Craig.
It's Tony.
Forever 21 has had a tremendous start.
We've done them in 13 boxes.
They're not all open yet.
They're building flagships.
They built a flagship in Flatiron with us in a very large format.
The second one will be in Toledo in December.
And they'll cycle through the renovations.
As they cycle through the renovations, you'll see a spectacular looking store.
In taking over the stores, they're delighted with the volume.
We're delighted with the traffic.
The traffic by our measures and the sales by our measures could be and should be greater than what Mervyn's has created for us.
They are investing in additional product lines.
They advised us that they hired somebody to focus in on cosmetics, they hired a person to focus in on home goods, so there is product extension in order for them to develop a gross sales they feel they need and we would like to see in a bigger box format.
As it relates to any transference of business from other junior categories into Forever 21, that's quite the opposite effect.
We're finding that the junior retailers such as H & M or Love Culture, their preference is to be around Forever 21.
So we see them today as creating a halo effect for the mall where there's an aggregation of junior retailers in and around those doors.
- Chairman, CEO
First of all, for all of you on the investor tour next week, we're going to see one of the latest and greatest.
It's not an 80,000 foot box but it is a significantly sized store.
- SEVP, COO
You'll definitely see two of their stores.
The Vintage at Scottsdale Fashion Square is brand new, it opened October 15, and there's a store in Chandler as well.
Both of them are approximately 25,000 to 27,000 square.
So they're not the huge large format stores but you will see a good representation of what they can do.
- Chairman, CEO
Our experience has been in the large format stores that in several of them, they're trending at volumes that are relatively close to what the Mervyn's volume was but more importantly, they feel like and from our traffic counts, are generating roughly twice the traffic count that Mervyn's was generating previously where we replaced Mervyn's with Forever 21.
It's a very interesting question.
We are way ahead of the curve, and so far we're very, very pleased with what's happening here.
The founders of Forever 21 are just, really terrific retailers.
They've got a great organization.
Got a balance sheet that's incredible.
They do roughly $3 billion of sales, and they generate EBITDA numbers that are very significant.
I can't put out their numbers.
They're a private company.
They've been rumored to be sitting over a $1 billion of cash.
They're a private company and I can't comment on that.
If you look at their balance sheet and profitability and compare them to almost any public specialty retailer or even some of the anchor retailers it's quite an impressive story.
We had the chairman of one of the largest department store companies out there with us the other day, and we were walking him through one of the large format stores where that department store and Forever 21 has a store.
We're very interested in his thoughts on it.
He was really impressed.
He said, here you are, generating great traffic.
They're not competing with me, per se, and they're bringing more people to the property.
So, so far, look it is an experiment.
So far so good.
We're very pleased with the way it's come out so far.
I think you'll be pleased to see one of the newest prototypes at Scottsdale Fashion Square next week.
- Analyst
I look forward to the tour.
- Chairman, CEO
Great.
Operator
The next question comes from Steve Sakwa of ISI Group.
- Analyst
If I look at page 10 of the 8k, you have a figure of 549.
I just want to make sure, with as there any NOI kind of in the quarter or was that all non-income producing?
- SEVP, CFO
Once it starts to generate income, it gets moved out of CIP and into a appropriate category on the balance sheet.
- Analyst
Okay.
Is this a way to kind of reconcile that number to the information that's on page 15 many -- I'm sorry, not 15, on 16 where you kind of break out the projects?
- SEVP, CFO
There's really just the major projects on page 16.
There's a lot of other things in process.
When we buy a department store building that goes into CIP until we ultimately put it back and something like that's not going to show up on your schedule to the extent we own land somewhere.
That's probably not going to be on that page 15 if that's land that's going to be developed.
There's probably 50 line items that aren't on that schedule.
- Analyst
Okay.
Thanks.
Operator
The next question comes from Nathan Isbee of Stifel Nicolaus.
- SEVP, CFO
Hi, Nathan.
- Analyst
Given the amount of capital you did raise over the last few months and couple that with the credit market, at least for now is improved.
Have you dialed down the amount of capital in your mind that you need too raise over the next few years?
I guess specifically, are you still expecting to maintain the dividend in 80% stock?
- Chairman, CEO
On the dividend issue that's something that's going to be considered on a quarterly basis.
It is possible that we'll maintain our stock dividend into next year, but we're going to definitely look at that on a quarterly basis.
We feel comfortable with the equity that we've just raised and the capacity that we have on a revolver that at this point in time, we have plenty of capacity to handle all future capital and/or any other needs that we have.
Again, on the future capital side of things, I would point out and emphasize that really the only significant project that we have left on the drawing boards is Santa Monica Place.
We've got money that's left to be spent on that.
Over the next 12 months, it will be spent off of cash on hand, if we think about sources and uses of funds, we've got 160 million left to spend on Santa Monica place, whatever that number is, Tom, our current production is that we'll have refinancing proceeds available to us on the two major properties that expire next year that would be sufficient to take care of that.
At this point in time, again, we cut back our redevelopment and development spend only in February and the only major one left here is Santa Monica.
We'll be finishing that up.
We feel that from internal organic sources that we have all of the capital that we need to go ahead and handle the redevelopment pipeline.
All that's left are consequences to Santa Monica.
- SEVP, CFO
If you look at the last page of the supplement it shows net costs remaining to be incurred on the various five or six projects.
In total, there's only $190 million, $22 million for the remainder of this year.
About 170 next year, most of which is Santa Monica Place, so we really significantly cut back on the development spend.
- Analyst
Okay.
Are you comfortable with your current debt levels?
- Chairman, CEO
Yes.
Look, long term, our goal is to continue to create equity and capacity for the Company to give us the opportunity to be opportunistic in the event as time goes on, there is a further consolidation in our business that we would want to participate in.
Certainly, for the operation of our business as it sits, and not looking to external growth, we have all the capacity that we need.
We could have raised significantly more equity a couple of weeks ago.
Offering most of the industry had rumored it to be was way, way, way oversubscribed.
We could have raised much more equity, but we felt it was the appropriate amount, we wanted to raise that amount which would give us the capacity to be somewhat opportunistic, to give us the capacity to operator our business, and more importantly put us in a strong position for the extension of our revolver.
So we feel comfortable with where we are, but as my friend Milton Cooper says, you can never have too much equity so who knows?
As time goes on, we may extend that stock dividend beyond where we are, for example, as a means of continuing to retain cash and continue to delever the Company.
That would be the obvious place to further equitize and delever.
- Analyst
Where do you stand today in terms of 2010 leasing versus last year?
- Chairman, CEO
Tony, you want to address that some?
- SEVP, COO
Sure.
We're progressing with 2010 leasing.
Last year are reported we were approximately 50% done.
It's the same level that we're at right now.
By deal count, we're about 50% committed.
By GLA, we're approximately 54% committed.
- Analyst
So it's not like you've dialed back your efforts right now waiting for a better holiday season or anything like that?
- SEVP, COO
No.
There's no conscious effort in terms of delaying any 2010 leasing.
We are, we are fighting for our rates and where we don't get rates, we will do shorter term leases.
I think we've reported that in calls as well.
- Analyst
So the stuff that you have signed, where are your spreads?
- SEVP, COO
I don't have that number here.
We'll report our thoughts on guidance and spreads when we fully develop our business plan.
- SEVP, CFO
To the extent those deals have been signed this year, nature, they're in the leasing spread numbers they're already spoken 21% in the second quarter, 14% in the third.
- SEVP, COO
In the third quarter, leases that were signed in the third quarter, many of those may have been for renewals that happened in 2010.
- Analyst
Okay.
Great.
Thanks.
- SEVP, CFO
Thank you, Nate.
- SEVP, COO
Thanks, Nate.
Operator
The next question comes from Rich Moore from RBC Capital.
- Analyst
Good morning, guys.
- Chairman, CEO
Hi, Rich.
- Analyst
Art, I remember a time you would always tell us about the many projects you had coming in three, four, five years down the road.
Are those days kind of gone, do you think, and will you have a hole in 2012, 2013, 2014 if you are not starting anything or thinking of starting something currently?
- Chairman, CEO
No.
As I look at the opportunities for growth going forward, the opportunities remain in the redevelopment pipeline.
there are limited opportunities on the external sad to grow this Company because this are limited properties to buy.
And I'm not going to comment on major portfolios out there.
For my viewpoint, I view the external acquisition environment as being certainly limited in scale and scope.
There are a finite number of properties out there that would be of interest to anybody.
That leaves us to ground up development and redevelopment as being the drivers of your significant kind of nonremerchandising growth, and on the development side of it, we have nothing imminent out there, but when the economy rebounds which is will one day in Phoenix, we're well positioned down the road in Phoenix.
We're talking several years down the road in Phoenix.
On the redevelopment pipeline, we had roughly 30 or 40 properties that were candidates for redevelopment at different points.
And still are.
But, in February of this year and before, we cut our redevelopment activity down to just mission critical activity, and at this point in time that's where it remains.
These properties and redevelopment opportunities aren't going to go away because we own the properties.
So it's embedded growth that you can tap into when you want to cap into it.
And there will be opportunities.
Some of you are may have noticed in some of the press, for example, that we had announced plans to expand our property at Walnut Creek, Broadway Plaza last year.
We announced plans to expand it by adding Neiman-Marcus to our lineup of Nordstrom and Macy's there, and we just won an election that was another developer that fought to stop our development because he wanted to do another development to compete with us down the road.
We just won the election on Tuesday by a vote of 71% to 29% in favor of allowing us to add Neiman-Marcus.
That's a deal scheduled for opening in 2012.
It's not a highly capital-intensive deal bust it is a significant anchor addition that will trigger a whole new wave of leasing at the property, and, it's just one example of something that's out there for the future and one of the reasons for wanting to have capacity today is to be opportunistic frankly to be able to tap into our redevelopment pipeline.
The redevelopment pipeline is still there.
It's kind of in the future embedded growth, and it's just something that we will tap into when, markets are much more robust when the time is right, and we have plenty of free capital to go ahead and tap into it.
So, it's really, you've got embedded growth in your leases.
You've also got embedded growth in your redevelopment opportunities.
That's still clearly, and always have been the Company was built on its redevelopment expertise.
Built on repositioning and redeveloping them.
We think we do that as well as anybody.
It's going to be the future of the Company as time goes on.
But we're not going to tap into it until we feel that our balance sheet is in a continuingly improving condition and the market in which we're operating is robust.
And we have the luxury to do that, because we already own the asset.
- Analyst
Got you.
So are you doing the sort of early work on any of this stuff or is it all wait and see until there's demand kind of thing many.
- Chairman, CEO
There's different phases of early work.
This is a good time to be doing entitlement work, for example, so we do a lot of entitlement work in a market like this where we get approvals to do things in the future.
That's a great time to go into a city and to talk about doing something for the future to build jobs and, create taxes for the city so we have great success on the entitlement side in an environment like this.
It's part of the reason, frankly, I think that the voters in Walnut Creek which is a no-growth community today voted 71 to 29 to allow to us add Neiman-Marcus.
Part of it is because of the economy we find ourselves in.
It's a great environment to get entitlements.
We do spend a fair amount of time and have been really getting the entitlements for our properties enhanced so that we really have a pipeline for the future to tap into at the right time.
- Analyst
Very good, thank you.
Tom, if I could real quick, on the lending side of things, who are the lenders who are most interested at this point and are you hearing any changes or are you seeing any changes in the past few months as you look at secured mortgages in terms of loan-to-values or resource, that kind of thing, pricing?
- SEVP, CFO
I'm not going to give away trade secrets, Rich, but I will tell you that the life companies continue to be active for quality assets, quality sponsors, and, conservative deals, but we've seen the pricing come in, significantly the deal we just closed, Corte Madeira, for example, that was negotiated 90 days ago.
If that were negotiated today, I'm fairly certain the rate wouldn't be 7.2, it would be something in the mid-sixes.
The availability seems to be somewhat better.
Rates are definitely better.
The banks have been fairly active for us as well.
Those are relationship transactions with both life companies and banks that we have a long-term relationship with.
- Analyst
Did they require greater recourse, typically, Tom, or no change there.
- SEVP, CFO
In a life company deal, it's not typical to have recourse, and we have not really done any of those life company deals recourse.
On a bank deal it's typical to have some recourse depending on the type of the project.
So it depends on something like a north gate if we put financing on that because there is a construction component to it.
I don't expect there to be a significant amount of recourse until we set down the construction.
- Analyst
All right.
Great.
Thank you.
- SEVP, CFO
Thanks, Rich.
Operator
We'll take the next question from Christy McElroy from UBS.
- Analyst
Good afternoon, guys.
Following up on your lease termination fees, excluding the $6 million from the one tenant you mentioned earlier, can you provide detail on the composition of the other $5 million?
Was it high end or moderate tenants.
Was there a regional trend?
Just trying to get a source for where the closings are coming from.
Then also, was there an impact from the write-off of straight-line rents in Q3 associated with the termination?
- SEVP, CFO
There's always some of that, Christie.
What you'll see is you'll see some lumpiness both in straight lining rent and SFAB 141 income.
It judicially relates to tenants that terminate in a given quarter, and you've got to write off either receivable.
And then in SFAB 141, it can either be a receivable or a liability, so it can go either direction.
We have some of that.
In terms of the lease terms, it was a variety of different tenants.
There was no real trend other than the big one, the $6 million termination fee we got was from RUEHL.
And it was a concept they're not aggressively pursuing any longer.
As it turned out, those were stores that four of our better malls.
It's quality space and they came in and were able to strike a deal that worked for both sides.
That was the only one that was a large amount from one particular tenant.
The rest was scattered geographically and by tenant.
- Analyst
Then just following up on the geographic differences, can you discuss differences in trends and market rents and occupancy and Phoenix versus California versus your east coast assets and what's your outlook for each region for the next year?
- SEVP, CFO
Just on the leasing side, we saw positive spreads across all regions.
So we're delighted with the activity in each.
On the sales side, the most improved regions using September really and we don't have October sales, but we understand from our retailers, they're similar to September sales.
The best improved regions are Arizona, northern California and our Eastern portfolio.
- Analyst
Okay.
So Arizona's improving?
- SEVP, CFO
Very much so.
- Analyst
Okay.
Great.
Then just two really quick follow-ups.
I think you provided same-store sales metrics in the past.
Can you just comment on what same-store sales trends worked year over year quarter over quarter?
- SEVP, CFO
Oh, sure.
Just using --
- Analyst
Just same store.
- SEVP, CFO
Yes, same store.
Using Q3 sales, Southern California on a year-to-date basis off 12% northern California about 8.5%.
The east is 7.5%, central about 8.5% and Arizona's 11.
- Analyst
That's year-over-year, I see.
Then just one follow-up on Steve's question earlier.
The CIP includes vacant boxes.
Does that include the vacant Mervyn's boxes?
- SEVP, CFO
Yes.
- Analyst
Okay.
Thank you.
Operator
The next question comes from Alexander Goldfarb from Sandler O'Neill.
- Analyst
Good afternoon.
- Chairman, CEO
Alexander.
- Analyst
Going into redevelopment for a moment.
Obviously driving up the Deegan, you pass by cross county and see the activity you guys are doing there.
How else do you keep your redevelopment and development team busy?
You guys have created some good stuff over the years, but if the opportunity set right now is sort of limited, how do you balance, retaining people versus having to cut back where you need to?
- Chairman, CEO
Well, we had a very major reduction in force in the Company back in February and March of this year with the lion's share of it frankly being in the development and construction areas.
In going forward at this point in time, we've got, again, I made reference to the fact that to Rich's question, I think, a lot of those folks that are involved in the redevelopment site also have very strong skill sets in there of entitlements.
One of the things that we do in times like this is if you don't have a shovel until the ground that one of the things that can be a very productive use of some of those folks' time is to work on the entitlement side of it in many cases can take a significant amount of time, a huge amount of value that's achieved by tapping into those entitlements as I mentioned in this environment is particularly good environment politically to be working in most communities to get entitlements, given the state of the economy.
We had very major cut backs to scale down to the level of development, redevelopment activity that we have and we do begin to rotate people more into the soft side of the business or entitlement side as opposed to the hard side of the business or brick and mortar site.
- Analyst
Okay.
Then question for Tony.
As you see tenants starting to reexpand again, are you seeing more domestic tenants interested in expanding or are you seeing some overseas?
I was at One Center and they were talking about Chassa it's from Mexico coming up.
Just want to get your take.
- SEVP, COO
We see some international retailers testing the waters with concepts.
One of the retailers that we're getting momentum with is H&M you'll see Scottsdale Fashion in terms of their location won't be open just yet.
We have several deals worked through with them.
They've been in the US for five years now.
They haven't worked their way west.
Now that they are expanding west, we have a very deep pipeline for that.
So we're seeing expansion from international players such as H & M as well some additional new concepts from domestic players.
Gymboree has a new concept, we've done several deals with them, Aeropostale has a new concept called TS.
We've done business with them and as well there's a California entrepreneurial company that's similar to H & M or Forever 21 called Love Culture.
We also have a significant pipeline with them.
- Analyst
Would you say domestically driven or would you say the internationals are growing quicker in the US than the domestics?
- SEVP, COO
I wouldn't say the internationals are -- I think I would say they're testing the market right now .
- Chairman, CEO
Expansion in the US is primarily still domestic-driven retailers.
The international influence is a complete add on which is nice to have.
It's a new source of demand.
Your existing source of retailers expand.
Now you have a new group of retailers that are moving in.
It's a nice increment.
- Analyst
The final question just goes to your holiday expectations.
How are you guys doing as far as your temporary leasing both on a cart and vacant in line where you're able to refill it with the temporary tenant.
How are you doing this year versus your historic patterns for that?
- Chairman, CEO
We have two programs.
We have the mall program and business development program.
We're pretty much the same as last year in terms of on-mall activity.
We've got good occupancy and good rate.
We haven't seen much pushback in those areas.
We're doing very, very well in the east.
Seems like there's tremendous call for on-mall activity.
As well as we're really gaining momentum of the mall of the media concept.
And we've done that for a couple of years now, and we've managed to increase our business 15% year-over-year in that area with the likes of Sony and Microsoft, Nationwide, Amex just to name a few.
- SEVP, CFO
We were up for the quarter on specialty leasing.
We came in at $10.9 million.
That was up about 6% compared to the third quarter of last year.
- Chairman, CEO
Back to the Mervyn's comment, the empty boxes that we had, we took the opportunity to populate them with the Halloween business.
Just that one activity generated about $1 million for us.
- Analyst
Thank you.
Operator
And this is all the time we have today for questions.
I will now turn the conference back over to the speakers for any closing remarks.
- Chairman, CEO
Great.
Thank you for being with us.
We look forward to seeing many of you on one-on-one meetings next week in Phoenix at NAREIT.
Again, we'll see many of you on Tuesday at our investor tour.
Again, for those of you that were not able to get signed up on that, we may still have some room so please contact Jean Wood in our office.
Thank you very much.
Operator
This does conclude today's conference.
We thank you for your participation.