Macerich Co (MAC) 2010 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the Macerich Company first quarter 2010 earnings conference call.

Today's call is being recorded.

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

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

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

I'd again like to remind everyone that this call is being recorded.

I would 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 first quarter 2010 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 the SEC's Regulation G.

The reconciliation of each non-GAAP financial measures to the most directly comparable GAAP financial measure is included in the press release and the supplemental 8-K filings for the quarter, which are posted in the Investor Section of the Company's website at www.Macerich.com.

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

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

Thanks, Jean.

Today we will be discussing the first quarter results, our capital activity, as well as our outlook for the rest of 2010.

During the quarter, the operating metrics generally improved.

Occupancy levels were up.

Retail sales increased, and same center NOI was positive for the first time in six quarters.

The volume of leasing deals was also up significantly.

Looking at leasing during the quarter, we signed 413,000 square feet.

That's almost twice of what we did in the first quarter of 2009.

That was 250 leasing deals.

The average re-leasing spread was a negative 2.9%.

Some of the reasons for negative spread was that we did a significant number of shorter term deals at some of our less productive centers.

We think spreads will improve over the balance of the year as we indicated when we gave guidance.

We thought throughout the year that spreads would be flat to up modestly.

We still believe that will be the case.

Many of the deals that we did sign in the first quarter had been negotiated and committed to tenants in the second and third quarter of 2009.

So to some extent, that was recession pricing that carried over into 2010.

The average re-leasing spreads on a trailing 12-month basis were a positive 7%.

Looking at the occupancy, it increased portfolio-wide to 91.1%.

That was up 100 basis points from March 31 of 2009.

In addition, compared to year-end, which is usually our highest occupancy period, the occupancy remained even with year-end portfolio occupancy.

That's a very positive sign as historically we've seen a 50 basis point to 100 basis point decline between the fourth quarter and the first quarter.

Average rent in the portfolio is at $42.50 that was up from $42 at year-end.

Occupancy costs, as a percentage of sales, was 13.9% for the trailing 12 months.

Looking now at FFO, FFO diluted per share was $0.66 for the quarter.

That was down from $1.16 last year in the first quarter.

The first quarter of 2009 did include $0.28 per share of gain from extraordinary debt extinguishment.

Same center NOI was up 1.8% excluding lease termination revenue and SFAS 141.

The positive comparison was driven to a large degree by occupancy gains.

Lease termination revenue for the quarter was $1.6 million.

That was down from $1.9 million in the first quarter of last year.

We saw an improving expense recovery rate, which came in at 95.6% for the quarter that compared very favorably with 90.5% for the first quarter of 2009.

That's including JV's at pro rata.

This improvement was due to significant cost reduction measures implemented in 2009 and the positive impact of having over 70% of our leases now on fixed CAM versus triple net.

There was a big decline in straight-lining of rents of $1.3 million during the quarter.

There was $1.2 million decline in SFAS 141 income for the quarter.

Looking now at the balance sheet, we continue to have a significant amount of capital activity, which has improved the balance sheet significantly.

Recent financings include the closing of a $135 million loan on Vintage Faire Mall.

That was a five-year floating rate transaction at a rate of LIBOR plus 3%

We also closed on $105 million financing of South Plains Mall, Lubbock, Texas.

That was a CMBS transaction.

That was a very effective execution, and we closed out with a five-year deal at 6.08% interest rate.

We've also got financings in process on Panorama Mall and Wilton mall.

Once those are completed, we will only have $155 million of remaining maturities for 2010.

In April, the company executed our one-year extension option on our $1.5 billion credit facility.

That credit facility currently has a zero balance on it.

The average interest rate in the portfolio at March 31 was 5.62% and our average rate on the fixed rate debt was 6.2%.

Debt-to-EBITDA at quarter-end was approximately 9.0.

However, factoring in the recent equity transaction, the Net-Debt-to-EBITDA is approximately 7.5 times.

We recently declared a quarterly cash dividend of $0.50 per share of common stock that dividends payable June 8 to record holders as of the close of business May 10.

This represents our return to 100% cash dividend, and at the dividend level we are very comfortable with both in terms of the payout ratio but also getting back to our historical practice of increasing the dividend annually.

That is our plan in this case as well as we move forward.

Also, this morning we adjusted our FFO guidance.

The FFO guidance range was moved to $2.60 to $2.80.

The guidance range was moved exclusively as a result of the upsized equity transaction and our return to an all-cash dividend.

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

Thank you, Tom.

I'm going to comment on tenant sales by region.

A little bit about leasing activity.

Some updates on our Santa Monica place, development activity, and then move on to the balance sheet.

Then we'll open it up for Q&A.

On the sales front, sales for the year ended March 31, 2010 are up to $416 a foot on the portfolio.

That's up from the 12 months ended December 31, 2009, which was at $407 per foot.

Total tenant sales for the quarter were up 3.4% overall.

Arizona was up 5.3%.

The Central region was up 5.1%.

The Eastern region was up 3.1%.

California and the Pacific Northwest lagged behind, with Southern California being up 1.2% and Northern California and the Pacific Northwest being up just a little bit under 1%.

As Tom mentioned, with the quarter, we had very good leasing activity, very high volumes in terms of square footages that are leased and our occupancies remain strong.

Our Santa Monica Place development is proceeding along very well.

We're moving forward towards a dual opening in August with Bloomingdale's in the mall scheduled to open August 6, and Nordstrom is scheduled to open August 27.

Leasing is doing terrific with 93% of the space committed.

And we're very, very bullish on the addition of Santa Monica place to our portfolio as it will continue to upgrade the quality of the overall portfolio.

Our portfolio's in great shape right now and well positioned for growth.

If you take a look at our top 20 properties in the portfolio, they average a little over $610 a foot and generate 46% of the EBITDA of the company.

Our top 50 properties average $490 a square foot and generate a little over 79% of the EBITDA of the company.

So, from the viewpoint of the composition of the portfolio and the quality of the portfolio, we feel like we're in a very good place to generate solid growth going forward.

As you know, on the balance sheet, we've had a tremendous amount of activity over the last 14 months.

14 months ago, we laid out a plan -- that was an ambitious plan to delever the company hopefully by a level of over $2 billion over the following three years.

In fact, we've been able to accomplish significantly higher deleveraging of the company in a much shorter period of time as we executed on our disposition and joint venture programs that generated over $600 million of cash, our October 2009 equity program which generated just over $400 million of cash.

Our stock dividend, which between the stock dividend that was in place for a year, and the dividend reduction generated $200 million of cash and then our April recent common equity issuance generated just over $1.2 billion of cash to pay down debt.

These sources generated $2.4 billion of total cash available to pay down debt and to put cash on the balance sheet.

Then when you add in pro rata share of debt that went over to the new partners on new joint ventures of just under $500 million there, we have total deleveraging of $2.9 billion.

That puts our balance sheet in the best position it has been in, in a very long time in terms of the various metrics that you might measure it by.

Total -- debt to total enterprise value is right now in the mid-40s, around 45%.

And debt-to-EBITDA is currently at a run rate of around 7.5 times.

When you look at our balance sheet and you look at these ratios and the fact that we're sitting on significant cash from our recent equity offering, we are very confident about our opportunity to grow our company potentially through external growth and/or to reinvest that capital into the existing portfolio.

It was with the confidence of that -- of the balance sheet being in such a strong position that our Board of Directors elected to go back to a full cash dividend at the level of $0.50 per quarter on this most recent dividend announcement.

We're very pleased to be in this position at this point in time and to be in a position where we can take advantage of potential opportunities as they may arise over the coming months and coming year.

At this point in time, we'd like to open it up for Q&A.

Thank you very much.

(Operator Instructions) Our first question of the day comes from Craig Schmidt from Banc of America Merrill Lynch.

Hey, Craig.

Hey, good afternoon or good morning, I guess.

Just looking at the sales information, looks like by looking at December 31, 2008, to the end of the first quarter consolidated sales per square foot fell 10.2% and the unconsolidated fell about 2.3%.

Is there anything that accounts for that difference in drop?

I think those are really just coincidental.

I don't see any real reason to point to the differences there.

Craig, was your question why did they drop more on the wholly owned than the joint ventures?

I guess.

It just seems -- a pretty significant difference.

But I don't see the same difference let's say in occupancy or some of the other metrics.

I just wondered if there was a concentration in one part of the region that might have fallen harder?

We do have a lot of joint ventures in California and on the West coast, so there's a significant joint venture activity there.

Okay.

And then, in terms of potential acquisitions, do you see that opening up in the second half of the year or no different than the first year?

You just want to be ready to strike for opportunities?

Our policy is not to comment specifically on acquisitions or dispositions.

But look, we think that there could easily be some opportunities for us to profitably invest this excess cash that we've raised.

And we're confident that there will be opportunities, and we wanted to be in a position to participate in those opportunities should they arise.

So we'll just have to see how it plays out.

But we are very happy to be in a position where, if an opportunity were to present itself to us to make an attractive acquisition, that we can do so without putting pressure on our balance sheet.

Great.

Thank you.

Thanks, Craig.

And next we'll hear from Quentin Velleley with Citi.

Hi, I'm here with Michael Bilerman as well.

Good morning.

Just, in terms of the short-term leases you commented on that were dragging the spreads down, I'm just curious how much leasing you did in the first quarter that was actually short-term as a proportion of the title?

It was about 66% of the leases in the first quarter, Quentin, were less than five years, which is unusual for us -- was something we did more of in 2009 than we've historically done.

We didn't want to lock-in rates for long-term when we were negotiating in the midst of a recession.

From a tenant's standpoint, our standpoint on short-term leases made sense.

Do you have a breakdown on what the spreads were on those shorter term leases versus the longer term leases?

Not at my fingertips, no.

Obviously, they were the majority of the leases signed were under five years.

So it was going to have a heavy -- very heavy influence on the spread.

So the shorter term leasing you are expecting that to drop off through the year?

I would.

Yes.

Again, a lot of these deals were deals that had been negotiated and agreed to as the tenants and ourselves were working our way through some pretty tough times in 2009.

Clearly, the shorter term leases are going to have lower spreads because the tenant is not making a long-term commitment.

And, you're both just doing a shorter renewal and the spreads tend to be lower.

Yes.

I just got a modeling question as well.

I think on the last call, you said that this year there would be about $0.10 of additional upsides from Mervyns in your guidance number.

How much of that came through in the first quarter?

First quarter, that was probably about $0.01 of the $0.10 came through in the first quarter.

Okay.

Part of that is that there were some straight-lining of rents related to Mervyns that went the other way that reduced that.

Greater straight-lining in 2009 than we do now as it relates to that portfolio.

It's Michael Bilerman speaking.

Hey, Michael.

Just a question.

As you think about putting capital to work, obviously, you are monitoring the M&A situations that are happening in your sector.

But outside of that, as you are evaluating deals, how much do you see is being proprietary book where you may have access to deals that others don't?

As you think about the timing putting this capital to work those transactions earlier rather than waiting for assets to come up to market?

I don't want to comment in particular on the breakdown there.

There are a number of different uses that we can put that excess capital to.

To the extent that we might be in the middle of conversations with some proprietary situations, it really doesn't serve us well to comment specifically on that.

So I'd prefer to stay with our policy of not really giving specific guidance on acquisitions or dispositions until they're much more certain or they're closed.

As you think about having brought in joint venture partners last year and potentially bringing either buying in partners or finding other assets in the marketplace.

Is your desire to own those wholly or to bring in new joint venture partners to acquisitions?

It really depends on the size of the transaction.

If we were presented with a large transaction, then we might be more inclined to bring in a partner into that.

If we're consolidating ownership in the existing asset, I don't see us bringing a partner into a situation like that.

It really depends on the size.

I think the first use of capital would primarily be to own assets wholly owned, given the cash that's sitting on our balance sheet.

We'll have to just measure the opportunities by the size and how -- where they came from.

What's the status right now of the warrants to GI and to Heitman?

Well, obviously the stock price has moved fairly significantly even since quarter-end.

So at this point, the GI warrants are in the money and I believe Heitman warrants are not at this point but may be getting close --

They haven't shown any desire to exercise them?

I can't speak for them on that, Michael.

I'm not sure, but again it's not -- These aren't terribly big numbers we're talking about.

Much ado is made about the warrants but, the reality is, in total, there's not that many shares that are related to them.

Even as they get in the money, you account for those on the treasury method.

There's not likely to be a big dilutive impact even when they are on the money.

Right, but it's more cash on your balance sheet.

And it sounds like you already believe you may have a little bit more cash than you need.

Generally, I would say that if they were to opt to exercise the warrants, they have opportunities to elect net share or net cash settlement.

The company can elect net cash settlements so I don't see it as bringing in a lot of new -- bringing in new capital to the company if they exercise the right to do a net cash or a net share settlement.

I've just got one last question.

In terms of the construction in progress, I think last call you had a breakdown of what the elements of construction in progress were.

Tom, do you have that at your fingertips what Santa Monica was and Mervyn's, et cetera?

Well, in the development pipeline now there's really just two projects, Santa Monica, which we're all pretty familiar with.

The total project size is $265 million and through March 31, $191 million had been spent.

And so that's the bulk of what remains for development -- redevelopment spending this year.

There's also a much smaller project, and that's in Los Cerritos, where we have a small expansion and we're adding a Nordstrom.

And our share of the project costs there are about $28.5 million and about $22 million have been spent.

And in fact that has its grand opening later this week.

So that's completed and I imagine by the end of the second quarter, the full $28 million will have been spent.

So that's it.

We've got $129 million to spend on those and the bulk of that is Santa Monica place.

I'm sorry, $129 million.

I'm sorry, I misspoke.

I think it's about $80 million left to spend with about $75 million of that being Santa Monica place.

Were there any Mervyn's boxes in CIP?

Not much.

Nominal.

Not much.

One or two.

Thanks, guys.

Thank you.

And our next question will come from Christy McElroy with UBS.

Hey, Christy.

Good morning, guys.

Good morning.

Just following up on Quentin's question.

Aside from Santa Monica and Los Cerritos, just looking at the rest of your CIP balance, looking at everything else that's in there.

Is there anything else in there that's currently revenue generating?

No.

If it's revenue generating, it gets moved out of CIP and into operations.

Okay.

Then just with a few projects in there still that had previously been put on hold.

How do you think about the costs associated with those projects from an impairment testing standpoint?

Any plans to start new development projects over the next 12 months to 24 months?

We're revisiting our redevelopment pipeline right now.

Most of those were in the entitlement phases, the different projects that we had been examining.

And we don't see us breaking ground on those internal expansions any time soon, but in the horizon of 12 to 24 months, we could be breaking ground on some of those.

But we need to get a few more months and quarters of good strong leasing activity to really have it make sense to pull the trigger on those.

There's definitely future opportunities within the portfolio to do some expansions and redevelopments.

Historically, those have been great rev -- NAV producers for the company.

And we're keeping an eye on the different opportunities, but we don't see it breaking ground on any additional expansion this year for sure, but it could happen as early as next year.

Okay.

Then wondering if you could comment on Valley View and your plans there given the $125 million of debt coming due in January?

And what's the quarterly on annual FFO drag from this center, if any?

At this point in time it's nom -- there's some small FFO drag from the center.

And, yes, at this point in time, I really have no comment on that at this point in time on Valley View.

Okay.

Just lastly with regard to the refinancing of Vintage Faire.

Can you discuss your decision to put floating rate debt on the asset as opposed to fixing it?

And as you stand today, given the changes we've seen in the debt markets and re-emergence of CMBS market, what do your different options look like for raising debt capital?

And what do you consider to be your most attractive sources of capital today?

I'll address the Valley View part of that first -- or excuse me, Vintage Faire part of that first.

In Vintage Faire, that was a deal that evolved in 2009 when the life companies were making pretty nice deals for themselves, very big spreads.

A number of our banks said hey, we're going to get into that business of doing some long-term and intermediate-term lending.

The Vintage Faire deal evolved from that.

That was one of our lead banks.

They came in with a deal that looked like -- almost like a life company deal.

The difference was it was floating.

And the great thing about that is we have the choice of whether to swap it to fixed or leave it floating.

As a result of the equity raise and paying our line of credit to zero, we don't have a lot of floating debt left on the balance sheet.

So, we're comfortable with that currently floating and that was a decision process.

During the last six months, the debt markets have improved significantly.

As I mentioned, we participated in what I believe was the first CMBS deal to be done certainly this year, and that was a transaction.

We had a $500 million CMBS deal in total.

Ours was $105 million of that $500 million, pretty effective execution.

There is definitely a demand there, and I'm sure the sector will see additional CMBS deals done as we move through the year.

The life companies generally are saying they have an appetite that's four times to five times larger than it was last year.

So there's little competition this year.

Of course the bank market has been pretty resilient.

They were active last year.

That's even gotten better.

So, the market is not only far better than it was a year ago.

It's far better than it was three months ago, in my opinion.

But we've got a lot of choices out there.

The property-specific non-recourse debt markets remain our most attractive source of debt capital, Christy.

As Tom was saying, proceeds levels are going up significantly from a lender's viewpoint and the debt constants are coming down significantly.

So that market is improving dramatically from a borrower's perspective.

Again, on Vintage Faire, we felt very comfortable letting that float given that it is a five-year deal, and also given than we have very little floating rate debt in the portfolio now that we've paid off the line of credit as well as some other matters.

Okay, great.

I'm on with Ross, he has a question as well.

Just two quick questions.

One, Tom.

What are the spreads that you've been quoted in the last 30 days or so on the new financing (inaudible)?

They vary based on duration and quality of the asset.

The floaters are looking like LIBOR plus 3% with no floor.

Fixed rate has varied depending on how far out the curb you go.

I think realistically, probably 250 to 300, maybe better.

That's tightening.

As rates have gone up, actually the spread has narrowed.

It's probably more like 225 to 250 today depending on how much leverage you go for, and that's for longer term money, seven to 10-year (multiple speakers).

Right, understood.

Art, two quick questions.

One is it safe to say on Valley View that you are in discussion as to what you really ultimately want to do there, that it's not a straightforward solution?

That would be yes, we're examining a lot of different alternatives throughout this point in time.

Okay.

As I think you know, we were at NorthPark a few weeks ago.

I thought your partner told me there were plans to expand that center.

And you were going to be involved potentially not in an equity investment but as a lender to help expand that asset.

Did I hear any of that wrong?

I don't know.

We wouldn't be participating as a lender in something like that, but there is expansion land at that property and there is an opportunity down the road to potentially invest money on an equity basis to help expand that property.

Thank you.

Thank you.

Next, we'll move to Rich Moore, RBC Capital Markets.

Hey, Rich.

Hi, guys.

How are you?

Great.

On the bankruptcy front.

How are you guys seeing things in general tenant interest in the first quarter in particular which is usually what I think of as bankruptcy season?

Far less than usual, Rich.

I mean, we probably have one or two or three tenants that are on the bankruptcy list.

None of which are significant.

Tenants like Kiddy Kandids, for example, where I think we have ten small locations.

So, if you go to the next level of concern, it's the tenant watch list.

And last year, that was probably two and a half pages long.

We do credit monitoring every month on our tenants.

Today, I'm happy to say there's only about 12 tenants on that watch list.

Those tend to be tenants where we don't have a lot of locations -- Rite Aid, where we have three, Cost Plus, where we have five, Borders, we've got 16 locations.

They're on the watch list for us.

That's our own proprietary watch list, by the way.

It's something we keep a pulse on.

Given the cost of occupancy as a percentage of sales and a lot of other issues.

So it's improved significantly, Rich.

You can tell from the volume of deals.

We mentioned we did 250 deals in the first quarter.

Typically, your first quarter's your slowest quarter because you've got a lot of retailers with January year-ends.

They just back off the transactional activity as they close their year out.

So, it's a very good sign.

I mean, the occupancy pickup, the leasing volumes and fewer tenants that are of concern to us, far fewer than a year ago.

And you're seeing a fair amount of private equity transactions with some private equity sources helping to recapitalize some of these retailers.

There was a certain jeweler that I won't mention but has been on the watch list -- for everybody's watch list over the last year or two and they just got an equity infusion from a private equity firm.

So, I'd say right now, if you take a look at the retailers overall, the health of the retailers is as good as it has been in a number of years because they've re-cast their entire cost structure.

Many of them have recapitalized.

Many have gone from having large outstandings on their lines of credit to having cash on the balance sheet.

They're beginning to get ready to make commitments to start to grow again.

Okay.

Thank you.

On the -- on that note, it seems that you would want to begin thinking about redevelopments at this point, but it sounds like you are a little hesitant still so maybe it's not -- the tenant environment's not that great yet.

Like I said, we want -- we need to get some momentum here.

We don't have it yet.

I'd say we clearly feel like we've bottomed out in a lot of markets and we're gradually seeing improvement.

We want to see -- we're making long-term investments in these redevelopments.

We prefer to be doing the leasing in a strong, robust environment.

But it's on the horizon.

It's in the pipeline.

I don't see us starting anything new this year.

By the mid to latter part of next year on redevelopments, it's a possibility.

Okay.

Good.

Thank you.

Then on the straight-line rent, Tom, that was Mervyn's that dropped from fourth quarter to first quarter?

It wasn't all Mervyns.

Again, keep in mind, Rich, our straight-lining has been dropping for years because we're moving away from fixed bumps to CPI.

That's one of the byproducts is you are no longer building up the straight-line rent number.

It is actually declining over time.

Sure, I got you.

On the depreciation side, it seemed we missed our projection for the first quarter both the JV portfolio as well as the consolidated.

Was there something unusual that happened to D&A in fourth quarter in both portfolios?

There may have been some component depreciation, Rich, in there.

But I'll have to look at that and get back to you.

Tom, on G&A, is the run rate for this quarter, you think, is a reasonable rate going forward?

There's always some lumpiness in there, Rich.

I mean, you'll notice the management company expenses were down $1 million versus a year ago, $1.3 million.

G&A was up $2 million; you net those out, it's about $1 million because there's overhead components in both line items and it can be a little bit lumpy.

I think if you use a run rate of $6 million to $6.5 million a quarter, you're going to be pretty close at the end of the day.

It won't be straight-lined.

That one's always lumpy quarter to quarter.

Good.

Thank you.

When do you expect to file the Q?

Within the next two days.

Friday at the latest.

Great.

Thank you, guys.

Thank you.

Paul Morgan with Morgan Stanley has our next question.

Hi.

Good morning.

Hi, Paul.

On the spreads, you talked about the compression in the rent spreads contributing to shorter term deals and some of the less productive malls.

As you think about the B malls and given that it's pretty tough in this environment from a leasing perspective.

How does that -- I mean, when you think about opportunistic investment, is it still -- is it just primarily A malls or would you consider lower quality assets?

Well, I mean, look, if we can take a B mall and turn it into an A mall, we'll do that all day long.

And there are a number of properties in our portfolios that at one point in their lives they were B mall and we've converted them to A malls.

Good examples are properties like Modesto Vintage Faire, Fresno Fashion Fair.

There are a number of assets like that, but we're clearly focused on owning highly productive, high barrier to entry properties that are really fortress type of assets.

Over the years, we found that we've been able to drive the income from these larger properties at a faster rate than the secondary and tertiary markets that we've been involved in.

So, I think that over time we're going to continue to try and have an even greater percentage of our EBITDA come from the A assets.

And as part of that plan, we'll be creating some A-assets through development and redevelopment, like Santa Monica Place will become an A-asset.

But we'll also be looking at times to opportunistically dispose of some Bs and C assets.

If we can do that we're going to do it.

Because we do want to, over time, continue to upgrade the weighted average productivity of the portfolio so that the vast majority of it is coming from A-type of assets.

And we're in a unique position to be able to do that in terms of the size of the company.

Would you consider any of those asset sales this year?

Yes.

Okay.

Just on Santa Monica, you mentioned real quick, how's the -- where do you expect to -- what lease rate do you expect to open at?

How's the mix coming versus what your expectations were originally?

We've got less luxury than what we had originally thought we might have, and that was to a great extent caused by the fact that we were doing the leasing during a time when the luxury tenants were in a state of depression, not recession.

But we're very happy with the tenant mix that we've got there and I think all of the retailers, starting at the top with Bloomingdales and Nordstrom and then just moving through the list of retailers that we've got lined up here, are extremely excited about the sales that they're going to generate at the property.

I'd say that we'll open up probably by fall, we'll be around 75% to 80% occupied in terms of small store space.

We're currently 93% committed but some of the retailers will be opening up later into the year as well as into the spring of next year.

We're very, very excited about the tenant mix and the retailers themselves are very bullish on the productivity that they expect to generate from the property.

Like we've said before, we think it's going to be one of the best projects built over a ten-year span between 2005 and 2015 if not the best anywhere in the US.

We think it clearly is going to be one of our top handful of properties and potentially even a flagship type of property for us.

Great.

My last question.

We're just a couple of weeks from ICSC and last year was obviously a tough time to have that.

Do you have any color on how the meeting book is shaping up and whether the recent sales improvements we've seen might change the tone considerably or a little bit?

We expect a very good tone.

Retailers are in, again, their balance sheets and their profitability is in very good shape.

We were pretty well fully booked in terms of appointments last year since some of the conversations were more hand-holding than new deal-making.

So, I think we'll go from hand-holding to handshaking this year.

Thanks.

Our next question will come from Michael Mueller with JPMorgan.

Hey, Michael.

Hi.

Art, you talked a little about redevelopments.

Can you give us a sense as to a year or two down the road when they start to come back which projects may surface first?

They're scattered around the whole portfolio.

So, again if we were ready to announce that we were -- that we're ready to move forward, we would do it.

But, we really just need to see a lot more traction.

Again, right now, as we continue to work on some entitlement activity at various properties.

At this point, we're not ready to go out and come out with a revised pipeline, but the opportunities are there.

Okay.

Switching gears for a little bit, looking at the supplemental tenant allowances, et cetera, they are still trending fairly low relative to prior years' levels.

Can you talk a little bit about how tenants are viewing the trade-off in terms of lower rent versus lower TI dollars?

Is it changing at all at the margin heading back to more normalized levels?

I think there may have been a secular shift, frankly, on tenant allowances in 2009.

And it was caused by a number of factors, including the fact that you had one very large landlord that quit giving tenant allowances in 2009 and that tended to infiltrate its way throughout the other larger landlords such as ourselves and others.

I think that tenant allowances are definitely at lower levels than they were clearly in 2007, 2008 and I don't see any significant changes there.

Again, the retailers are getting to be very well capitalized.

I think the landlords are being more disciplined in terms of the allowances that they're granting.

Mike, if you look at total tenant allowances granted in 2008, it was about $35 million including JVs at pro rata -- in 2008.

In 2009, it was about $25 million and we would expect to be at that level perhaps even less this year.

Current run rate would be more like $15 million.

Okay.

Last question on the JV transactions you did last year, I think the blend of pricing was mid-sevens to maybe a little north of that.

If you are looking at transactions happening today for the different types of categories --the As, Bs, maybe the Cs.

Could you take a stab at where you think cap rates have moved to for those components -- for those types of properties?

On the As, I would say it's easy to say that cap rates have compressed by at least by 100 basis points.

And, on the Bs, I don't know but there's been, I think, a year ago there really wasn't much of a market for the Bs and Cs.

Today, I think there is capital for those types of properties.

Certainly the B-type of assets.

Cap rates may have even come down more on the Bs just because there either wasn't a market or they were -- the market was in the high single digits.

It's hard to say on that.

I think it's easy to say that on the A type of properties, the cap rates have easily compressed 100 basis points.

Okay.

That's it.

Thanks.

Thank you.

Omotayo Okusanya with Jeffries has your next question.

Yes, good morning.

Couple of quick questions.

In regards to lending terms you've seen for secured financing.

I know you talked about the rates a little bit, but could you talk about LTVs and service coverage ratios that some other banks are asking for?

Well, if you go back into the fourth quarter, I think people are still targeting LTVs closer to 50%.

But that has changed somewhat.

The terms on our CMBS deal that we closed a few weeks ago is probably most indicative.

That was an asset that was underwritten probably fairly conservatively.

And based on their underwriting, it was a 60% loan-to-value.

The all-in rate was 6.08%.

That was a five-year term.

So I still think the end writing is conservative but it's certainly better than it was last year in terms of proceeds.

Okay.

That's helpful.

Could you also talk about what your occupancy costs were this quarter?

It's hard to do on a quarterly basis.

You really need 12 months to get that number.

For the 12 months ended March 31, they were 13.9% which is down slightly from year-end.

I think year-end we were at 14%.

That's helpful.

Last question, when I compare some of your trends for the quarter, such as the same-store NOI growth and rental sales growth, it's somewhat below what some of your other peers reported during the quarter, specifically Taubman and Simon.

I was just wondering whether that's more of a mix issue or if there was something unique to the quarter that resulted in your numbers not being quite as strong as theirs?

Well, I'll speak to NOI, and Art can comment on sales.

In terms of NOI, each company does that somewhat differently.

Ours basically strips out straight-lining of rent -- SFAS 141 -- it strips out development activity because that can obviously skew the number as you bring a development in.

So I think what's really relevant, Tayo, for us is we had forecast same-center NOI growth for the year to only be up 50 basis points to 100 basis points, and the first quarter came in positive 1.8.

So it was a strong quarter.

It was a positive quarter and that was a reversal of a trend that existed for the four quarters or five quarters before that.

In terms of tenant sales it's hard to comment on the comps other than the first quarter of last year was tough on the luxury type of tenants.

And the first quarter of this year, the luxury tenants generally did much better.

That may be reflected in some of the results that you referred to at one other company there.

On another big company that you made reference to, I believe that they're now combining all of their business segments into one number, and it could be that one business segment performed differently than the mall segment.

That's fair enough.

Thank you.

Okay.

Thanks.

Next is Nathan Isbee with Stifel Nicolaus.

Hey, Nathan.

When you look at your post-offer debt levels in the 7.5 times debt-to-EBITDA, is that like a target level where you want to keep it or would you let that trend up with the acquisitions?

Well, I mean, we feel very comfortable at that level.

We've certainly operated at higher debt-to-EBITDA levels in the past, but, I think that we are looking to keep our leverage ratios certainly in the zip code of where they are right now.

We feel very good about having our balance sheet to be as well positioned as it is today.

And while the acquisition activity could cause those numbers to go up if any potential disposition activity could also cause the debt-to-total enterprise value levels to actually go down, and the net debt-to-EBITDA levels to actually go down, too.

So I see us remaining in this zip code for the foreseeable future.

I mean, if you had a $500 million to $700 million acquisition come down the pipe this year, do you think you'd go back to equity markets?

I don't see any need for that.

No.

Thank you.

Thank you.

Our next question will come from Jim Sullivan with Cowen and Company.

Thank you.

Hey, Jim.

Question on same-store NOI.

A follow-up to some of the earlier questions here.

The -- Tom, I was wondering if you could comment.

The shopping center expense line on the consolidated was, of course, down and part of that, I guess, is attributable to some of the movement in the assets.

But I wondered to what extent, if at all, the favorable comparison was attributable to lower bad debt provision?

Bad debts were down a bit, Jim, probably not enough to really move the numbers in a meaningful way.

If you look at consolidated bad debt it was down about $500,000 from a year ago.

So it had a little bit of an impact but not really as much as moving those JVs from wholly owned to the joint venture category.

That was the biggest cause of the drop.

Okay.

And you had referred earlier -- you reminded us that your guidance for the year assumed same-store NOI positive 50 to 100 Bips and of course, you're plus 1.8% in the quarter.

What is your current expectation for the full year?

Again, I have for many years, cautioned people not to take one quarter and come to too many conclusions, especially when that's a first quarter.

And that goes for spreads as well as same-center NOI.

At this point this early in the year, we're not prepared to revise our guidance on that.

Fair enough.

And, comment --- well, really, I guess, a question for Art.

You had talked about the regional sales variation with the relative weakness.

I guess we could characterize it that way in Southern California.

I'm curious what your guesstimate is for the year.

Do you think that, that current lagging trend in terms of sales is going to continue for the full year or do you think it's going to turn around sooner than that?

I wish I could predict that for you.

If I could predict things like that, I might take up a different profession.

I think there's some real issues that we're dealing with here in California, and really the whole Pacific Rim that have caused sales to remain modestly flat to up a little bit.

It could be a while before you see a recovery here.

It's hard to say.

The good news is the assets that we own are all generally very, very strong assets.

It's not adversely impacting our leasing activity or our EBITDA results but look -- we would much prefer to see those sales be up 5% to 10% but they're not there yet.

Okay, so it's probably fair to say that at least in the first quarter there may be some positive offsets in Northern California and the Pacific Northwest that you're not seeing for whatever reason in Southern California.

Actually, Northern California and Pacific Northwest, those sales were very identical to Southern California with the Northern California, Pacific Northwest being up just under 1% and Southern California being up just over 1%.

I'm sorry.

I must have taken it down incorrectly when you spoke sooner.

Great, thanks.

Thanks, Jim.

Next, we'll hear from David Wigginton with Macquarie.

Good morning guys.

A couple of quick questions.

Drilling down on the same-store NOI growth for the quarter, how much of that was attributable to CPI escalators?

Not as much as prior years.

I think that the differential between the first and second quarter was probably about $800,000, something like that.

So --

Okay.

Just to make sure.

You guys have [fours] for those numbers, right?

It's not just purely based off the index?

Every deal is different, Dave.

It's generally -- CPI, it can never go negative.

Sometimes it's CPI not to exceed a certain number and if there is a cap on it, generally we have a makeup provision where if we get capped out one year but the following year or years does not reach the cap, then we can make up what we missed out on.

In this case, obviously inflation was very low if not even negative for parts of 2009.

There just wasn't as much to roll.

What we did pick up was the amounts over the cap from prior years.

It was a low CPI-rolling year for us this year compared to prior years.

Okay.

My final question is with respect to capitalized interest, it jumped in the quarter.

What was the cause of that?

Spending on Santa Monica Place.

Great.

Thank you.

Thanks.

And our next question will come from Ian Weissman with ISI Group.

Good afternoon.

A quick question on luxury.

Luxury has clearly been leading the recovery here, yet this week we had an announcement that Saks is closing a store in San Diego.

I was wondering if you could maybe just comment on the department store consolidation.

Do you think that will be a continued trend?

Well, it has been for 35 years that I've been in the business, the department store consolidations.

You picked out a name in particular, Saks, which I think has openly acknowledged that they're going to reduce their store count overall and concentrate on fewer markets.

The luxury has generally done better here, but I think they need a few more quarters underneath them, also, to say that they're in full recovery.

The good news is that when you look at the relative financial health of a lot of our department stores and traditional anchors, they're in much better shape today than they were a year ago or even two years ago.

I think maybe our largest department store anchor, Macy's, is feeling very good about their new My Macy's program where they are targeting merchandise more to the regions.

And they're putting up good numbers and talking about -- they just raised their guidance in terms of sales increases that they're forecasting for this upcoming year and even beginning to talk about new stores.

So on a -- you look across the board, I think our anchors are in certainly much better shape today from a financial held viewpoint than a year or so ago.

Consolidation is the nature of the beast and, we're always going through consolidation.

We had a new one come out last week where Gottschalks who went away into bankruptcy two years ago now started talking about opening new stores again.

That's a new one on me.

I guess what I'm surprised about is you have Saks closing at the A-quality mall.

I know there was an article in Real Estate Alert talking about Neiman Marcus, also a high end luxury retailer selling a couple of stores in Las Vegas.

I guess the consolidation that I'm concerned about is in the better quality markets, the better quality malls.

When I say accelerating, do you see that occurring in your A-quality malls?

Would you be in a position to buy back those boxes if presented today?

First of all, I think on the Neiman's Real Estate Alert article -- that was misleading.

I think those were sale leasebacks that were entered into a long time ago when Neiman Marcus was owned by Carter Hawley Hale.

I think it's the landlord that's actually selling their position, it's not Neiman selling their stores.

Again from, a health viewpoint, I see our anchors as being in relatively good health and looking to grow their business here.

Okay.

Thank you.

Thank you.

Next we'll hear from Ben Yang with Keefe, Bruyette & Woods.

Hi, good morning.

Art, I recalled you previously stated an expectation that lease term fees would total about $12 million for the year which sounds about high given that very little was reported during the first quarter.

Also, your earlier statement that the tenant watch list is a lot smaller than it was a year ago.

Are you expecting lower term fees this year?

And if not, I wonder where the weakness might come from your portfolio?

Ben, as it relates to term fees we typically don't see that much in the first quarter.

For example, last year, we had total term fees for the year of $22 million, and only $1.9 million was in the first quarter.

We have averaged -- going back to 2006, we've been on average about $16 million, $17 million a year, and most of that tends to come in the latter half of the year.

We're still comfortable with that.

It's not always a function of bankruptcies.

Sometimes it's just a tenant downsizing space or we see an opportunity and we go after it proactively.

We're still comfortable with that assumption.

So your tenant watch list is purely bankruptcy related as opposed to maybe risk of store closure?

Yes, if they're not going to go bankrupt, they still have a financial obligation if they decide to close a store.

Then it becomes a negotiation.

Makes sense.

Finally, the 31 million common shares that you sold last month.

Does that include the overallotment or did you end up increasing the share sell by another million?

That includes the overallotment.

Great.

Thanks, guys.

Thank you.

And that does conclude our question and answer session.

I will now turn the conference over to our host for any closing or additional remarks.

Thank you very much for joining us.

We are very confident about our results that we will be reporting to you over the upcoming year.

We look forward to seeing a lot of you in Chicago in a month at NAREIT.

Thank you very much.

That does conclude our conference call.

Thank you for your participation.