Macerich Co (MAC) 2009 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by, and welcome to the Macerich Company's fourth quarter 2009 Earnings Conference Call.

Today's call is being recorded.

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

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

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

I 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 fourth 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 it is important to note that the passage of time can render information stale, and you should not rely on the continued accuracy of this material.

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

The reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure is included in the press release.

And the supplemental 8-K filings for the quarter, which are posted in the investor section of the Company's web site at www.macerich.com.

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

With that, I'll turn the call over to Tom.

Thanks, Jean.

And welcome, everyone.

Today, we'll be discussing the fourth quarter results as well as the results for the year.

Recent balance sheet activity, we'll give you an update on the selling of our noncore assets, and our expectations for 2010, including earnings guidance.

In terms of the operating metrics, occupancy levels have remained good and retail sales have shown signs of improvement.

If we take a look at releasing spreads for the year, we did roughly a million square feet for the year, average new rent was $40.25, that was a positive releasing spread of 14%.

If we look exclusively at the fourth quarter, which is a relatively small sample size at just over 200,000 square feet, we averaged new rent of $35 per foot compared to expiring rent that was down 0.8%.

Slightly negative in the fourth quarter.

Again, a small sample size, for the year we were positive 14%.

Occupancy levels have remained high and up from last quarter with mall occupancy at 91.1%.

That was up from 91% at September 30.

And down about 120 basis points from the 92.3% at December 31 of '08.

Most of that reduction versus a year ago however, came from big box closures such as Circuit City, Steve & Barry's and KB Toys that accounted for about 0.7% or 70 basis points of that 120 basis point decline.

Again, large space users, low rent payers, however.

Our occupancy cost as a percentage of sales was up to 14.1%.

Although that's up from 13.1% a year ago, that's still very healthy, and that increase was mostly driven by the 7% decline in tenant sales.

Looking at FFO for the quarter, it came in at $0.90.

That compared to $1.92 in the fourth quarter of last year.

Included in the fourth quarter of this year was a charge of $0.07 per share for impairment on two small noncontrolling joint ventures where our partner determined there was an impairment and we took our pro rata share.

If you add that back to the reported $0.90, that's $0.97 compared to consensus of $0.91 per share.

The annual results came in at $3.77 excluding the impairment in the fourth quarter.

And that was well in line with our updated guidance that we gave in October, which was a range of $3.50 to $3.80.

So, we came in near the top end of that range.

Looking at same center NOI for the quarter excluding termination revenue and SFAS 141, we were virtually flat, down slightly at 0.22% compared to the fourth quarter of last year.

The negative comparison to 2008 was mainly driven by the decline in occupancy that I mentioned a few moments ago.

Year-to-date, same center NOI excluding lease termination and SFAS 141 was down 0.74% for the full year, 74 basis points, and that was better than our October guidance, which was based on being down 1% to 1.5%.

Lease termination revenue including JVs at pro rata was $7.5 million, and that was up compared to $3.6 million in the fourth quarter of last year.

The expense recovery rate improved to 93.3%.

That includes JVs at pro rata, that compared to 90% for the entire year 2008.

This improvement was due to significant cost reduction measures that were implemented throughout 2009, and the positive impact of having over 70% of our leases now based on fixed cam as compared to triple net.

CPI rent increases were $2 million higher than in the fourth quarter of last year, straight lining the rents were up to $3.5 million compared to $0.9 million for the fourth quarter of '08.

Shifting now to the balance sheet, our average interest rate is 5.55%.

And our average rate on fixed rate debt is 6.24%.

The interest coverage ratio for the quarter was a very healthy 2.25 to 1.

At quarter end, we had a total of $6.6 billion of debt outstanding including JVs at pro rata.

That is $1.4 billion less than December 31 of '08.

This resulted from joint venture transactions, noncore asset sales, cash retained from operations, and the proceeds from the October equity offering.

We have over $900 million of capacity on our line of credit today, plus at year end, we had $164 million of cash on the balance sheet.

During 2009, loans were closed for just over $880 million.

Looking at 2010, the total maturities in 2010 are $560 million, however, $168 million have built-in extensions and $48 million of those maturities have already been financed.

So that leaves us with only $248 million of financings to do on roughly seven property level financings.

A very, very, very manageable level.

We have gotten some comments about why we did not put in our detailed debt maturity schedule for 2010.

But frankly, all of the details are there.

It is a relatively small financing amount, and when we put forth our estimated loan proceeds number on that schedule, we found that it proved to be a competitive disadvantage, and in fact, a ceiling when we went out for the financing efforts.

So, you've got the basic information there, again, there is a very small amount of maturities in 2010, and in our opinion, very, very manageable.

Looking at the dividend, consistent with last quarter and as part of our ongoing effort to conserve cash and delever, we again declared a quarterly dividend of $0.60 per share payable on March 22 to stockholders of record on February 16.

90% of that dividend will be paid in stock.

Looking now at 2010 earnings guidance, the guidance is in a range of $2.90 to $3.10 per share.

In that guidance, we have not forecast any acquisitions, dispositions or additional joint ventures.

We have not assumed any equity issuance other than the continuation of the stock dividend.

Built into the guidance is same center NOI growth of positive 0.5% to 1%.

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

Thank you, Tom.

And welcome to our call.

I'm going to review specific sales, retail sales results in our portfolio for the year, as well as the quarter.

Review our leasing activity, recap some of the areas on the balance sheet activity for '09 that Tom has already mentioned.

Move onto the development activity that is still underway in the Company, and then we'll be opening it up to Q&A.

In looking at retail sales, retail sales for the year ended up pretty much exactly what we had anticipated.

You may remember that in February of last year, we felt that retail sales would most likely be down double digits around 10% per quarter for the first three quarters, and our hope was that in the fourth quarter, sales would flatten out.

In fact, sales were off roughly 10% to 11% for the first three quarters of the year, and sales for the fourth quarter were basically flat at down 1.9%.

This is exactly what we had anticipated.

Looking at this by region, the Arizona region in the fourth quarter was down 1.5%, and down 9.9% for the year.

Our central region was down 2.7% in the fourth quarter, and down 6% for the year.

Our eastern region was down 0.5% for the fourth quarter, and down 6% for the year.

The northern California Pacific northwest region was down 2.6% for the fourth quarter, down 2.6% for the fourth quarter, and 6.7% for the year.

And our southern California region was down 2.4% for the fourth quarter, and 8.3% for the year.

So again, the fourth quarter was down approximately 1.9%, and overall sales were down about 7% for the year.

As we look forward, we have seen decreasing, decelerating trends in still, declines during the first three quarters.

The fourth quarter was basically flat.

It is hard to prognosticate what we're going to be looking at in 2010, but I think most retailers are anticipating that sales will be at least equal to what they were in 2009, and hopefully up 3% or 4%.

All of this has resulted in a retail sentiment that is far better than what we were looking at at this time last year.

As we've talked about in previous calls, retailers had major cost reductions during the course of the year.

They had a business plan to reduce their inventories, and to plan their sales to be down for the year.

They actually exceeded their sales expectations during the course of the year.

They maintained their margins, and virtually all of our retailers made money in the fourth quarter, and are in a far better cash position than what they were looking at last year.

So, from a leasing perspective, overall, while we were pleased with our performance in 2009, it was clearly a tough year for the retailers to be making new commitments, but we're definitely seeing early signs that with the help of the retailers, their balance sheet and their cash position, that they're willing to make new commitments going forward.

And we anticipate a strong leasing year in 2010.

As we look back on '09, I'm sure you've heard on most real estate calls, as well as most corporate calls, that obviously it was the most difficult year in any of our recollection from a financial viewpoint.

However, we charted the course for you in February of last year, and we exceeded all of our expectations in terms of execution and timing.

On the noncore sales, we exceeded our expectations.

And did just over $150 million of sales.

The joint ventures were executed much quicker, and in a pricing level that was well within our expectations.

And during the course of the year, we raised about $1.14 billion in cash that went towards reducing debt overall by about $1.4 billion.

The difference there being that part of our debt on the joint venture properties has now been allocated to our partners.

We're very pleased to have been able to do this through a combination of the noncore sales, the joint ventures, the reduction in our dividend, going to a stock dividend and the equity offering we did in October.

We're very pleased to have had this very significant debt reduction, while only increasing our share count approximately 20%.

Most importantly, during the course of '09, we dealt with some very significant pending maturities, as Tom mentioned, we refinanced about $900 million of property debt.

Over the past 14 months, we've reduced the balance on our convertible debentures that come due a little over two years from now by roughly $350 million.

Over the course of the past year, we retired about seven months before maturity, $450 million worth of our term notes.

And we reduced the balance on our line of credit by just over $500 million, giving us almost $900 million of capacity.

All of this activity and sticking to our game plan in terms of the financial planning and road map that we laid out for you, resulted in Macerich achieving and delivering in the top two or three total shareholder return performance in the entire REIT world in 2009.

So while we're very pleased to have executed well in a tough environment in '09, we also are looking forward to 2010, realizing we still have plenty of work to do on the debt reduction and delevering side, but it is all very manageable.

As Tom mentioned, we're faced with a year with very light debt maturities and those are mainly on two properties, Santa Monica and Modesto, and we anticipate significant excess refinancing proceeds from each of them.

And we have a very modest development pipeline that we're left with, and an improving climate for our core business, and an improving view towards the leasing that we see going forward.

The major development that we have left in our pipeline after completing Scottsdale Fashion Square and Northgate in the fourth quarter of last year, remains Santa Monica Place.

This is one of the most heavily-anticipated retail developments to be delivered in years.

Santa Monica Place, as you know, will open in August of this year with Bloomingdale's and Nordstrom.

Leasing is now -- leases are signed on roughly 70% of the small store space, and letters of intent are out for over 20% or so of the total space so we're -- at this point in time, roughly 90% committed.

We're very pleased in terms of the retail interest that we've got in the property.

We're pleased to have been able to achieve the rents that we've been able to achieve.

Even though we were leasing this during a very tough year, in '09, and we started the leasing in the fall of '08.

But leasing definitely has been picking up in the last couple of months, and again, the anticipation amongst the retailers is tremendous.

On the development pipeline, we roughly have about $150 million left to spend in our entire development pipeline.

And virtually all of that, around $125 million is that Santa Monica Place.

So, the development pipeline is dwindling down, and we are now set over the balance of this year and into next year to reap the benefits of the expansions and the redevelopments that have largely been funded out of cash on hand, and now will start to generate income.

So with that, I would like to open it up for Q&A, and we look forward to answering your questions.

(Operator Instructions).

Let's take Michael Mueller with JPMorgan first.

Yes, hi, a couple of questions.

First of all, on 2010 guidance, Tom, can you elaborate a little bit on expectations for occupancy, say at the end of 2010, how you think rent spreads will come in compared to the 14% that you had this year?

Mike, I'll hit occupancy, and then Tony or Art may want to jump in on the spreads.

In terms of occupancy, that works out to an occupancy neutral environment.

That forecast would basically leave us at the level we are today.

Then Mike, on the leasing side, at this point in time, I would anticipate that leasing spreads will basically be flat to up a few percentage points.

As you know, we had roughly a 14% leasing spread in 2009, but as we look at 2010, the expiring rents that are expiring in 2010 are roughly 9% greater than those that were expiring in 2009.

We did have roughly a 7% sales decrease in 2009, and so with that on balance, we anticipate a flat to modestly up year in terms of the leasing spreads and activity.

We think that that's a cautiously optimistic viewpoint, but we are very hopeful that based upon the interest that we're seeing, that we can do better than that on the spread side, and hopefully on the occupancy side, but neither one of those are built into our guidance numbers.

So, we look to hopefully outperform on the upside on the leasing side.

Okay, so, opening rents are pretty much holding.

It is just the expiring levels changing, is what you're saying.

Yes.

We also did have sales decreases in '09.

Overall, that's the reason for roughly flat to up a little bit leasing spreads that we anticipate for 2010.

Okay.

And just thinking about the Mervyn's boxes, can you talk a little bit about how much NOI is expected to come on line that you're not recognizing right now in 2010, and then just how much potential NOI is there still to come from the dark boxes?

Right.

Some of that came online this year, Mike.

When I say this year, I mean 2009.

There is an incremental $0.10 coming on in the guidance in 2010, and then that leaves us with a number of boxes that we've still got to resolve.

So, there could be another $0.10 that could come online beyond 2010, depending on the ultimate outcome of the boxes that are vacant today.

Okay.

And last question, just on the dividend, I'm assuming guidance assumes a stock dividend throughout the year, is that correct?

That's correct.

Okay, and then what about the expectation in terms of going back to a cash dividend?

Is that a possibility at all in 2010 or is that more of a 2011 or 2012 event?

At this point in time, we're assuming a stock dividend through the balance of the year.

And on the other hand, that is reviewed on a quarterly basis.

And if we are able to delever the Company, in ways through additional asset sales or some other viewpoint that makes us comfortable in going back to a full cash dividend, we will.

But at this point in time, we think it is prudent to guide you towards the stock dividend being in place for the balance of this year.

Okay.

Appreciate it.

Thank you.

Thanks, Mike.

Let's go now to Paul Morgan with Morgan Stanley.

Hey, Paul.

Good morning.

On the leasing environment, just generally, there is a lot of renewals were taking place on a short-term basis for the past 18 months or so.

And I'm wondering, as you see a little bit of a pickup there, do you think the new renewals you will look at for 2010 will still be kind of primarily three years or a big chunk, three years or less, or we're going to start to see a bigger percentage of the more normalized into kind of the regular five year renewals.

Yes, I definitely think that retailers are going to be willing to commit to longer term leases, and we're going to be willing to commit to more traditional longer term leases during the course of this year.

Retailers are just now coming off of their all-important fourth quarter.

And definitely, the mood has picked up dramatically.

So, I think the percentage of short term renewals that we did have, which was at a relatively high level compared to other years in '09, will definitely go down substantially in 2010.

Okay.

And then on the discussion about the maturities in 2010, so you took it out of the supplemental.

But is it -- should we assume that maybe there are some upside to the proceeds versus what you had disclosed in the third quarter?

Or is it basically in line?

Paul, there's really only -- there's seven loans.

Excuse me, there's six loans that we're talking about here that are maturing in 2010 that aren't extended or already refinanced.

Art mentioned the two biggest ones, Santa Monica Place and Vintage Fair.

And those were loans that have been on the books for about ten years.

So, those assets are very underleveraged.

And I would expect significant excess proceeds to come out of those, too.

And of the $248 million of maturities, they are $140 million of the $248 million.

So, the lion's share sits with two properties that are very, very, very strong properties.

And we already have a high level of institutional lender interest in those, even though those maturities, one is in November and one is in September.

So, you say it is consistent with or better than what you provided in the third quarter?

On the proceeds level, the proceeds level are still ending up in the 13% to 14% range.

And since we don't have final proposals on either, I'm not going to put an opinion out on that.

But I think we'll very comfortably exceed the maturing debt.

And we do see an improving permanent financing market both from the life companies as well as the investment banks.

They all have far more capacity and allocations this year than they did last year.

So, I would expect both term as well as proceeds levels to improve this year.

It is too early to tell where ultimately those two come out.

Okay, great.

And then last question, any color on the noncore sales in the fourth quarter, and I guess the not in guidance for 2010.

Have you sort of worked your way through those or could we see more?

At this point in time, there are no planned additional dispositions but we have definitely seen over the course of the last six months, some very significant equity capital emerge that has shown interest in investing in this space.

And they've shown interest in investing into what I would categorize, most people would classify, as the B mall category.

So, while it is not in our guidance numbers, I did allude to it in my comments that it is not out of the question that we could see ourselves take advantage of some of the capital that is emerging and showing interest in the B type of mall category, and do some dispositions in that arena.

But that would be something that is on an ad hoc basis, but the environment is definitely improving in that arena and it is not out of the question.

Great, thanks.

Thank you.

Ian Wiseman with the ISI group.

Go ahead, please.

Yes, two questions, please.

You talked about flat occupancy for the year.

I guess my question is, does that assume that we should expect light bankruptcies this year but also continued challenges for releasing your big box exposure?

On the big boxes, that area remains challenged.

But you're seeing a number of names emerge that are seeing opportunities to make a real estate grab, and there are a number of retailers that are beginning to fill up those big boxes.

So, while it remains a challenging category, the category killers that generally occupied those big boxes, you are seeing new names emerge that are taking up that space.

And on the occupancy side, we do see continued strong interest, and it is our hope to improve occupancies over the balance of the year.

But that's not in our guidance numbers.

Another indication of that is in the fourth quarter, the bad debt expense was only $2.4 million.

That was significantly less than what it had been on an each quarter in the first half of the year.

So, we've seen fewer bad debt expenses.

We've seen fewer bankruptcies in the second half of the year, and generally seems to be improving in that regard.

And requests for rent relief are down substantially.

And look, the unknown is always the devil in the details.

But while a year ago at this time I think, while nobody knew exactly where the failures were going to come, people were relatively convinced that they were coming.

But the profitability of retailers overall in our portfolio is dramatically improved over one year ago today.

So, our anticipation is that rent relief requests, which we did not grant very many of last year, are going to be way down, and unexpected failures will also be down from what they were last year.

Who are some of those big box retailers leaving sort of the, looking to expand their footprint?

Can you say?

There are a number of them out there.

You've got some electronics stores that are out there that are expanding.

You've got people like Forever 21 continues to take space.

Kohl's, Burlington Coat Company.

We've got some large shoe companies that operate on a promotional price basis, as well as we have interest from midsized boxes such as Love Culture and Charming Charlie's.

As well as H & M, which is a big space user for us.

And we were delighted last year to really monopolize or open to buy, and we expect more of that for 2010.

And there is a number of regional electronics guys that are out there expanding, Ultimate Electronics is doing new deals.

hhgregg and so there are a number of people that are looking to take advantage of the opportunity to get some irreplaceable real estate, and they are demanding lower rents than they were getting -- than they were paying two, three years ago.

But they're beginning to fill the spaces.

And finally, we've heard from a number of companies about the amount of capital that is sitting on the side lines.

Since you have been out of the market place, sold a number of properties into joint ventures, where would you say cap rates have moved over the last several months?

Is there enough capital out there pushing cap rates down 50 basis points, since where you did deals?

I think most people would say that cap rates have come down at least 50 basis points.

I think more importantly, in the cap rates have emerged in the B type of mall category, whereas I would have had a very hard time answering the question on what I felt cap rates were for B malls a year ago at this time.

But there is significant capital that realizes it is not going to be able to invest in the A malls.

And is beginning to look very closely at the B malls, and I think you're going to see a lot more activity in our industry this year in the B mall sector.

But it is pretty easy to say -- I would say the cap rates for the A malls, which compromise roughly two thirds of our portfolio, have come down at least 50 basis points and maybe more.

If you take a look at where certain companies are trading these days, you would -- it would suggest to you that they have come down 50 to 100 basis points, and certainly the appetite and the number of players that would be interested in getting involved in A malls have gone up fairly dramatically.

A year ago, cap rates were confused and money was confused because they were convinced that general growth, that there was a high probability that general growth was going to liquidate itself, goes back a year ago, and that it was going to flood the market with product.

And I think most of those folks are now convinced that that's not going to happen.

And they now realize the scarcity value once again of A malls and the quality of the properties that are owned by companies like Macerich, and so that's clearly driven the number of interested players up.

And cap rates down.

Finally, just because you mentioned that there's some price discovery on B malls, where would you put the spread between A and B malls today?

Since they haven't happened yet, it is hard to say.

But a year ago, I would have easily said it is at least 200 to 300 basis points in the cap rate range.

Today, I would say it is probably under 200 basis points spread.

But they haven't happened yet, it is hard to say.

Okay, thank you very much.

Thank you.

Let's go on to Michael Bilerman with Citi.

Yes, maybe just sticking with guidance, Tom, can you just review some of the other more volatile items that are embedded in the $2.90 to $3.10, thinking about lease term fees, the G&A guidance, any land sales?

What we typically have to do in those things, Michael, is use a historical benchmark, and that's what we have done in this case.

So, bad debt expense, for example, we're expecting that to get back to a normal level, which for us is typically $5 million a year, not the $10 million a year we incurred this year.

We've gone back to some normal ranges for things like that, and that would include termination fees, this year were on the high side at $22 million, and we've scaled those back to $12 million, which is more in line with our historical average and exactly what we saw in 2007 and 2008.

And that's what we factored into the guidance.

And G&A I would say is roughly going to be flat going forward.

Well, flat.

I mean we did incur, as a result of some of the transactions this year, we had about $4 million of incremental G&A costs in the fourth quarter that related to a tax indemnity.

Exclusive of that $4 million, I would expect it to trend pretty consistent with what we saw this year, which reflected most of the cost savings.

We implemented a major reduction in force in the first quarter of this year.

And we have not reversed that, so I would expect that cost savings to carry forward in 2010, and that's what we've reflected in our guidance.

On the land sales, just to finish the answer there, they are nominal to none, actually, in our guidance numbers.

Yes.

We have not factored any land sales in.

Then just thinking about -- because you've had so much joint venture activity, and clearly the fourth quarter is normally seasonal, and you've given the same store guidance, but maybe can you break out NOI and interest just as dollars between the consolidated and the joint venture, so at least we can marry things up correctly for the full year?

We're not really in position to do that as it relates to the guidance.

But if you look at the fourth quarter, all of the joint ventures have taken place in the fourth quarter, and so you do have one full quarter where all of the pieces have basically already been moved.

And typically for us, the fourth quarter represents 26% or 27% of the full year NOI.

Okay.

Is there anything on cap interest that would reduce and make interest go higher or -- because I know you also have the swath expiring in April.

I don't know if you're going to let that float to the end of the year.

We will not replace that swath, at least in terms of what we've done for the guidance.

We assume that that swath burns off and we get the benefit of that.

And then on cap interest?

I don't know the answer to that off the top of my head but typically, we don't give guidance on cap interest.

And then in terms -- .

We obviously have less going on on the construction front.

The only construction project that is of any magnitude that's still going on is Santa Monica Place.

Right, because it was about $26 million for the year, but obviously started to trail off a little bit.

I'm just wondering if that would have a negative impact or a positive as a development in NOI comes on.

Well, you've got -- you obviously have less capitalized interest, which is a negative, but it also means that that development has been put in place and the NOI is coming online.

So, if we're doing our job right, the NOI coming online more than offsets the decreased capped interest.

Exactly.

Do you know, you broke out the $0.10 from Mervyn's, but do you know how much development pickup you're getting in 2010?

Yes, it is roughly between Northgate and Santa Monica, it is roughly $0.11 to $0.12 a share I think, and then Scottsdale Fashion Square came online in the fourth quarter, so you've got some pickup there also, in that that was built by cash and that would probably be another $0.04 to $0.05.

So, I would say overall, Tom, it is around $0.15 give or take.

That's right.

That's in the ballpark.

Tom, I appreciate you calling out that $7 million loss on the JVs.

I think we sort of missed that in our numbers.

Is there anything in terms of -- Art, you talked a little bit about the fact that there's no acquisitions or dispositions, and no additional equity or joint ventures in guidance.

In response I think to Mike's question in terms of leverage, you talked about maybe the potential for sale in terms of not issuing any other equity.

Do you have a sense of where sort of leverage target is in your mind as we go from here?

The main thing that we were faced with last year was obviously a relatively high level of leverage, but we also had some significant maturities that we had to address.

And so, on the maturities side, we're in very, very good shape over the balance of this year.

Our goal is to continue to reduce our leverage, and we have plans to do that.

And over the course of the year, we fully anticipate that our leverage levels will go down.

At this point in time, I think our -- a lot of people look to the ratio of debt divided by EBITDA, and we're just over 8 times, around 8.5 times today which if I were to go back a year ago, I would say that ratio was probably closer to 10.

So, we've made some very significant strides there.

Again, in terms of the macro dollars, we've reduced our debt levels over the past year by just over, was it $1.4 billion, Tom?

That's right.

If you look at the balance sheet today, we have very little unsecured debt on the balance sheet.

A year ago, we had term notes of $450 million.

We had almost $900 million of debentures.

Today we have no term notes.

We only have $600 million of debentures that mature in 2012, plus we have a line of credit with a balance of under $600 million.

So, from our standpoint, we've always had success financing long-term assets with long-term financing, and our preference has always been seven to ten year fixed rate nonrecourse financing, which has been available and we've done a substantial amount of that the last two years.

We've done over $2 billion worth of that type of financing.

We're comfortable with that in the 50% to 60% LTV range, or these days, it is probably measured more like a 12% to 13% debt yield.

And the piece that was somewhat unnatural on our balance sheet was the unsecured term note and to some extent, the convert.

As you see us reducing our unsecured debt, the more we do that, the more comfortable we are with the overall leverage level and the balance sheet.

The interest coverage ratio is already a pretty healthy 2.25 to 1.

So, that's not challenged at all.

Right.

In terms of the line of credit, you talked about the supplemental about pursuing the extension option.

Right.

Are you going to have any discussions about maybe extending that further or redoing the line of credit this year, or is that really just a late 2010, early 2011 discussion at this point?

Well with the extension, it will mature in April of 2011.

We're very close to our bank groups.

We do business with them all the time in other areas.

It is kind of on-going conversations.

And there will be a time, I'm sure, we sit down in the second half of this year, and open that up for discussion and come up with what makes the most sense for us in terms of size and structure and everything else.

But obviously with a balance below $600 million, we're a lot more confident that we're going to be able to structure something that works pretty well for us than we may have been a year ago when the balance was over $1 billion and there was not a lot of capacity in the unsecured market.

There is a substantial amount of capacity in that market today, and it is improving by the month.

Art, your comments on B malls are interesting.

Does that give you any thought about the equitable portfolio you hold with Simon?

Really isn't directed towards that portfolio at all.

It is really more of a general comment about what I'm seeing in the overall capital markets, and it was really somewhat in answer to the question of what's happening with cap rates.

And again, there is a very significant amount of capital that now realizes that it, to some degree, missed the boat in '09, and it also realizes that there is definitely going to be a real scarcity of opportunities for them to invest that capital in a very desired space.

And I think that's what's caused an emergence of capital that's beginning to become interested in the B mall type of categories.

So, it remains to be seen.

That's really more of a prognostication and -- but it does reflect my current pulse on what I see happening.

But we'll just have to see.

I don't want to get into much more details than that because it remains to be seen as the year goes on.

It's not making you rush out and put a book together on that portfolio.

No.

Okay, and just last clarification.

Tom, the same store guidance of 0.5 to 1, is that Macerich at pro rata share GAAP without lease termination fees?

That is the way we report, which excludes lease terminations and it excludes SFAS 141 and it is pro rata.

Perfect.

Thank you very much.

Thank you.

Let's move on to Craig Schmidt with Bank of America Merrill Lynch.

Thank you, good afternoon.

Hi, Craig.

Hi.

I'm looking at the -- if I've written the sales down right, it looks like Arizona, from being last in terms of sales change, has now come up to third or even second, I guess, in fourth quarter.

Is it possible that Arizona could return faster than say southern California for you in your portfolio?

It is hard to say.

But there's clearly a better feeling that -- in Arizona overall right now than we had last year at this time.

I think some fundamentals in the Arizona market that are definitely on the upswing, and it does have a tendency to move faster on the downside than most markets, and faster on the rebound than most markets.

So, it is possible that you could see sales improve in Arizona even at a faster rate than southern California.

But that really remains to be seen.

Okay.

And my sense is obviously now you are winding down your development dollars, but if they were to pick up, I'm assuming they would return in the form of Phoenix projects?

Anything -- frankly, anything that we have in the development arena is still so far off that it would be hard to state.

We do have a couple of opportunities in the Phoenix area for developments but they're still several years away from any opening dates, and certainly well over a year away from any conceived starting dates.

So, that's where they would be.

On the other hand, we also have historically been able to very profitably redevelop and expand our existing assets.

As you know, that's really our culture and our DNA is to redevelop existing assets.

And when we put all of our development spending on hold, other than mission critical projects 18 months ago, we have dozens of redevelopment opportunities in our existing portfolio that we had identified and we put them all on hold.

I would anticipate, frankly, that the developments -- redevelopment activity of existing assets would emerge before any new developments would emerge, but at this point in time, the development pipeline really basically just consists of Santa Monica Place, which we're extremely excited about, and there's nothing else of any consequence on the horizon at this point in time.

But there's plenty of opportunities in the portfolio at the right time to pull the trigger on and to move forward on.

Okay, thank you.

Thanks, Craig.

Christy McElroy with UBS, your line is open.

Hi, good morning, guys.

Hi, Christie.

In your conversations as you're working on refinancing the six assets that you have coming due this year, can you just give us a sense for what kind of quotes you're getting from both banks and life insurers?

We're seeing the life companies have competition, which didn't exist last year, and this is in the mid to long-term range, 5 to 10 years.

And we're also seeing some signs of life from investment banks in that regard.

So, I would say from the life companies, we're seeing debt yields in the 12% to 14% range, and we're also seeing competitive quotes in terms of proceeds that would meet or beat that from the banks that want to participate.

Frankly, there's been some pretty healthy spreads out there, the life companies have been enjoying.

And the banks are after some of the business.

So, we now have three alternatives for those financings, where last year, realistically, we only had one.

That was life companies.

Just to give you a flavor for their capacity, one of the larger life companies that we do business with, who was active in 2009, they have increased their capacity and their allocation for real estate this year four-fold.

And that's just one example.

So, there is a lot more capacity and a lot more appetite, and with that, I would expect proceeds level to return to more normal levels.

The 14% debt yield is extremely conservative, and I would expect that to come down.

Are the larger banks looking to place the debt into new CNBS fields?

The investment banks are.

There is a number of investment banks out there now actively working on CNBS pools.

But the banks, it's all balance sheet lending.

They may club a few deals and bring in some participants, but generally, it is for their balance sheet.

Okay.

And then with regard to the GI Partners warrants, have they been exercised or do you expect them to be in the near future.

And even if not, to what extent will they be considered in the money for diluted share count purposes?

They have not been exercised.

To our knowledge, they've no intention to do that near term.

In terms of dilution, it is just a simple calculation.

I think the conversion price was up 25% or 30%.

I don't recall off the top of my head.

And you just do the calculation of when that is diluted to earnings, and it goes in the numbers, but I don't think they're there yet.

Okay, just looking at your sales per square foot data, in your consolidated portfolio, sales were down 12% year-over-year.

But down only about 4% in your unconsolidated portfolio.

Just wondering why the big differential.

Is there a (inaudible) in the mix.

Keep in mind, we moved Queens from being holy owned to a joint venture.

Right.

You didn't change the prior year data?

No, we did not.

Okay.

Gotcha.

That's the biggest reason for the change.

Okay.

And then just a follow-up on Santa Monica.

Based on the occupancy that you expect the center to open at, is there an additional pickup in 2011 or do you basically expect it to open fully occupied?

It is going to open up less than fully occupied by plan.

I made reference to the fact that while I'm pleased with where we are from a leasing perspective, we were actively leasing that center, still are, but during the toughest of times, in '09.

We made a very active decision that we were not going to accept rents that we felt were inappropriately low, and while we are roughly 90% committed right now, we're going to be very stingy with the balance of the space.

And in the fourth quarter, I would anticipate that during the fourth quarter, roughly 70% to 80% of the space will open up during the fourth quarter.

But the big pickup in terms of the NOI that will be realized from that development will definitely be in 2011.

Okay.

Thank you.

All right, thank you.

A question now from Nathan Isbee with Stifel Nicolaus.

Good morning.

Good morning, Nathan.

Art, can you just give a little more detail of what you would characterize as a B mall?

Most -- Green Street seems to be the one that is kind of making the market on that definition.

I think that they define B malls would generally be roughly between $300 and $400 a square foot, but generally in the $300 to $350 range in terms of sales productivity.

Interest is going all the way down to the 300 to 350.

Yes.

And it really depends -- look, $300 a foot in a small market where it is the only mall in town, can be very good productivity, and frankly, can be better in terms of the strength that you have in leasing than $400 or $500 a foot in a major metropolitan market.

$500 a foot in New York City is not very impressive.

But $350, $400 a foot in Billings, Montana can be relatively impressive.

And can give you strong leasing leverage.

So, it really depends on the market in which those sales are being generated.

Sure.

Okay.

Could you break out in your-- you have a $583 million construction in process.

Can you break out the main pieces in there now?

On the construction in progress?

Yes.

Well, the vast majority of that in terms of the construction in progress that is there is Santa Monica Place where again, we're just completing -- we just completed Scottsdale Fashion Square in the fourth quarter.

Completed the vast majority of Northgate in the fourth quarter.

But in terms of the cost to -- that is still remaining, $125 million or so of the $150 million of cost that is still remaining to be spent resides at Santa Monica Place.

No, not with remaining to be spent, I'm saying the actual -- what you have spent already that's still on the balance sheet in construction in progress.

$583 million.

There is some Mervyn's in there, some Santa Monica Place.

Can you break it out with a little more granularity.

Sure.

Tom will correct me if I miscue here, but roughly $65 million of that is Scottsdale Fashion Square.

$224 million is the Oaks.

$14 million was a big box department store repositioning in Flatiron.

$66 million was Northgate.

$141 million give or take was Santa Monica Place.

$42 million was Fiesta Mall.

The $14 million was Lakewood.

$21 million was Cerritos, and that all adds up to the construction in progress that was in place as of the end of the year of roughly $580 some million as you indicated.

Does that answer your question?

Yes.

There's no Mervyn's in there?

Nate, I think your question was what's still sitting in CIP?

Mm-hmm.

Okay.

Because some of the things on that list have been placed in service.

CIP probably has 50 different items in there.

They have department stores we've bought back, not just Mervyn's but others.

I think there's two or three Mervyn's that are in that number.

There are a variety of projects.

Any time we have a tenant allowance going on somewhere, that shows up in CIP.

So, there is a whole host of things in there.

There's not very much of it is Mervyn's because most of those deals were pretty much as-is deals, I believe.

I think there were only two or three that we took out of service, and they're in CIP.

But the biggest piece of CIP is going to be Santa Monica Place.

Okay, great.

And I guess I ask the next question half tongue in cheek, but how much have you budgeted toward Mid-Atlantic northeast snow removal?

Well, it is certainly a lot less than southern California than it is there.

I can tell you that.

We won't tell you what it is like here today, Nate.

I'm jealous.

Here, we have mud removal.

What's that?

We have mud removal in southern California.

I'll take that over the snow.

All right, thanks.

Thanks, Nate.

Gentlemen, a question now from Ben Yang with Keefe, Bruyette and Woods.

Hi, good morning.

Going back to the capital sitting on the sidelines.

Art, you talked about possibly taking advantage of this environment.

Would you be more likely to sell some of your B malls outright, or is it your preference to perhaps venture these instead?

That remains to be seen.

So, we'll just -- I'm not avoiding your question.

But on the other hand, these are some thoughts that we have in mind.

There may be some negotiations that were currently underway.

It could go either way.

And I'm not saying it is going to happen, because as Tom indicated, there are no dispositions or acquisitions in our guidance numbers.

But clearly, if a market place that is emerging, and Macerich has always shown itself to be willing to prune its portfolio.

I think that's prudent at all times, and whenever you can do it in a way that is efficient in the market place, we've been willing to do it.

As you may remember, we did some very significant sales back in 2007, 2009 was obviously marked by some noncore dispositions of nonmalls.

As well as the joint ventures.

The market's improving for all classes of malls going forward, and I could see us tapping into it.

But it is not in our guidance.

Whether it would be an outright or a joint venture, I can't speculate at this time.

If we do it, we would do it in a way that would be the most efficient for the Company.

And then as this market starts to unfold, what would it take for you to pull that trailer?

Is it purely based on pricing, or would there be any other things to consider if you do indeed joint venture or sell some of your malls?

It would really -- it would be driven by a lot of factors, almost too many to enumerate.

But if we find that the market becomes attractive, and that we have an opportunity to prune our portfolio and to kind of keep our focus on the most productive assets that we have and the highest quality assets that we have, we're going to take advantage of it.

But it would have been hard a year ago to say that that was in the cards, but today I can see it in the cards, and we'll see as the year unfolds.

Okay, great.

Just last question, there was an article recently that indicated the (inaudible) that 29th Street mall in Colorado was cut in half last year.

I'm just curious if that's due to lumpiness of those tax receipts or perhaps the new forward city project taking some market share from your property.

Well, the sales tax receipts from 29th Street didn't get cut in half last year.

I don't know what article you were reading.

It may have been, 29th Street is in a larger district that the city of Boulder measures its sales from, and again, I cannot even imagine that their sales taxes were off the percentage that you indicated, but I would suspect that even in those numbers, they would include things like hotel sales taxes and I think hotel sales taxes are down everywhere.

Clearly, that was not the sales results of 29th Street.

It was a local paper.

It indicated for one or two months, the sales were chopped in half.

That's why I asked, if it is just the lumpiness of those receipts or maybe anything more -- anything else going on there but it sounds like it is a nonissue.

It is a nonissue.

You can't always believe what you read.

Okay, thank you.

Thank you.

We have time for one final question.

Let's go to Rich Moore with RBC Capital Markets.

Hello, guys.

Good morning.

Just a quickie on dispositions.

Tom, what was the -- what were the noncore assets exactly, and do you have more of that kind of stuff that you're still seeking to get rid of?

Rich, we had earmarked and said when we laid out our capital road map for 2009 that we were going to sell $150 million of noncore assets, and we did just that.

It includes six community centers in Phoenix, five department store buildings that were located in malls that we didn't own, and 14 restanding retail buildings.

So, we had earmarked those.

We were successful.

And that program is finished.

We have not factored anything new in our 2010 guidance.

Okay.

So, there's really nothing else that falls into that category that you might think about selling in the near future?

Nothing that's in our guidance.

But again, I want to emphasize that we pride ourselves on being -- at being in very close touch with the real estate capital markets, and relative valuations that people are willing to put on our malls, and I could see some activity happening this year but it is not in our guidance.

Okay, great.

Thanks, guys.

Thanks, Rich.

Since we have no further questions at this time, let's go ahead and turn the conference back over to our presenters for any closing remarks.

Great.

Well, look, we appreciate your being with us.

As you can tell from our comments, we're very pleased with the results over the past year.

And we are looking forward to reporting strong activity within the Company over the course of this upcoming year.

The environment's definitely feeling much better on all fronts whether it be capital markets, the debt markets, the retailer's sentiment, so we're very cautiously optimistic that we're going to have a very strong year, and look forward to reporting to you as the year goes on.

So, thank you again for joining us.

Ladies and gentlemen, once again, this does conclude Macerich Company's fourth quarter earnings conference call.

Thank you for your participation.