Macerich Co (MAC) 2011 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the Macerich Company first quarter 2011 earnings conference call.

Today's call is being recorded.

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

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

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

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

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

Please go ahead.

Hello, and thank you for joining us today on our first quarter 2011 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 filings 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 measure to the most directly comparable GAAP financial measure is included in the press release and the supplemental 8-K filings for the quarter, which are posted in the investor section of the Company's website at www.macerich.com.

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

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

Thank you, Jean.

Today we will be discussing first-quarter results, our recent capital and acquisitions activity, and our outlook for the rest of 2011.

During the quarter, our fundamentals continued to improve.

Occupancy levels improved significantly, retail sales had a very solid increase, and we had good same-center NOI growth.

The re-leasing spreads were also positive for the quarter.

During the quarter, there was 289,000 square feet of leases signed, 177 deals, average new rent of [$38.53], and a positive re-leasing spread for the period ended March 31, of 9.6%.

Mall occupancy was up 140 basis points, closing the quarter at 92.5%.

That was down compared to the year-end number of 93.1%, but that's normal, and that's what we've seen in the past 10 years without exception.

There's always a little bit of a drop-off in the first quarter.

The real meaningful comparison here is how it stood versus a year ago.

The occupancy cost as a percentage of sales were up 13.3% for the trailing 12 months ended March 31.

Looking at FFO -- FFO diluted was $0.52 for the quarter, compared to $0.66 for the quarter ended March 31, 2010.

Negatively impacting FFO during the quarter was a $9 million prepayment penalty on the early extinguishment of debt on a 9.1% participating loan on Chesterfield Towne Center.

Same-center NOI, excluding lease termination and SFAS 141, was up 2.54%.

Straight lining rent dropped $600,000 during the quarter.

SFAS 141 income was flat with the year before, at just slightly less than $3 million.

Lease termination revenue was $2.1 million, up slightly from the $1.5 million reported in the first quarter of last year.

The expense recovery rate improved to 93.6%, compared to the rate of 92.3% for the full year of 2010, another sign of continuing tenant health was that bad debt expense dropped significantly.

It was down $2.5 million, to $800,000, compared to the $3.3 million in the first quarter of 2010.

Also during the quarter, management company expenses -- they were up about $3.6 million.

This was virtually all due to severance payments that related to a right-sizing we did in the first quarter.

We had excess capacity in a number of departments, so we reduced headcount by about 30.

As the result of that reduction, we will be seeing savings for the balance of the year and going forward on management company expenses.

Moving now to the balance sheet -- during the quarter, we refinanced 29th Street.

We put a $107 million loan in place, which closed in January; and that new loan bears interest of LIBOR plus 2.63%.

We also received a commitment on Los Cerritos Center; that's a 7-year fixed rate financing, $200 million of 4.46%.

Capitola was another financing transaction where we made the decision to pay that loan off.

That was a $33 million loan with a high coupon of 7.13%; and that asset will remain unencumbered.

Lastly, on the balance sheet, we concluded on May 2 a new line of credit.

This is an unsecured line of credit.

There was very strong bank demand to be in the facility.

The terms and pricing are very attractive.

Today it is a $1.5 billion line with a term of 4 years plus a 1-year extension.

There is a pricing grid, but at our current leverage level, the borrowing rate is LIBOR plus 200; we've got some great banking relationships, and that was reflected in this transaction.

It all came together in less than a month, and it was oversubscribed.

It also important to note that we have the ability under this facility to increase the line to $2 billion at our choice.

Today, our debt to market cap is 44%; our average interest rate is 5.58%; and our unhedged floating-rate debt is 7.3% of our total market cap.

Our interest coverage ratio of 2.21 times.

In this morning's release, we reaffirmed our FFO per share guidance in the range of $2.78 to $2.94.

That is unchanged.

As a result of continued strong fundamentals and significant interest savings from a $400 million swap that expired in April, plus recent debt reductions, we expect to see about 26% of the annual FFO coming through the second quarter, and another 26% in the third quarter, with the balance to roll through in the fourth quarter.

Looking now at tenant sales.

Tenant sales per square foot for the 12 months came in at $449.

That is up 7.9% from the year ended March 31, 2010.

Looking at the regional split on sales, Arizona was, again, very strong, up 6.7%.

The Central region was up 4%.

Eastern region up 4.2%, Northern California combined with the Pacific Northwest was up 7%, and Southern California was up 5.5%.

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

Thank you, Tom.

First of all, I want to wish all the mothers out there happy Mother's Day in the next few days.

Today, Happy Cinco de Mayo to all of you.

I have to think good thoughts after watching the Lakers not show up last night.

That was depressing.

Anyway.

Cinco de Mayo.

That is actually an important day here in Los Angeles.

Besides it being date and day, I bring it up, because when you think about it, the population here in Los Angeles and Southern California is approximately 50% Hispanic today.

And then you think about the growth in the United States -- over half of the growth in the United States over the next 40 years is projected to come from the Hispanic area.

We are doing our best to cater directly to that population here in Los Angeles, Arizona and other markets where we have strong concentrations.

In particular, at Desert Sky today, there is large celebrations going on centered around Cinco de Mayo, and I would encourage you to go to the Macerich property website for Desert Sky to take a look at that, and see some of the activity that we have, and I'll touch a little bit more on Desert Sky here in a minute.

Toward the end of Tom's comments, he mentioned the renewal of our -- actually, a new line of credit that was put into place.

This is more than just a passing event.

If you think about it, going back a year ago or so, it would have been very hard to imagine that today we would be sitting here announcing to you that we have a $1.5 billion completely untapped line of credit with an accordion feature up to $2 billion, with a term that goes out to five years, including options in the term of the line of credit.

Added to that, we now have a very large, separate from the line of credit, unencumbered asset pool that is the result of using a lot of our cash over the last year to pay off debt on assets, and use that as a cash management technique, as well as to give us firepower to go forward.

When you think about the firepower that we have going forward, we are in a terrific position.

As we look at where we can deploy that firepower, our first and foremost place is going to be in the development, the redevelopment, and selected acquisition arena.

Back in November, we announced to you that we had very good clarity that our development and redevelopment pipeline, as well as some potential acquisition activity, and developments inherent in those acquisition activities, should approximate $750 million to $1 billion over a 5-year basis.

We said it would be heavily weighted toward the back end of that life cycle.

As we look at it today, we look at our current activities, and we take measure of our recent acquisition of interest in Kierland, and Desert Sky and Atlas Park.

As I look forward today, I see that pipeline of developments and redevelopments and acquisitions to be much closer to $1 billion on the low side, to around $1.5 billion on the probable side.

And we feel very comfortable with that and are confident that through a combination of development activity, redevelopment activity, and acquisitions, that we are going to continue to upgrade the quality of that portfolio.

During the quarter, as Tom mentioned, we increased our ownership of Kierland, which is a great center in the Phoenix market place.

It does well over $600 per square foot, about $650 per square-foot.

We increased our ownership at Desert Sky.

And as we take a look at Desert Sky, I would encourage you -- I'm not going through all the details on it -- to go to our Desert Sky property website.

You can get a video as well as a lot of information on the new Mercado that we opened up at Desert Sky.

Desert Sky is a property that, when we bought Westcor nine years ago, was really a forgotten property.

But we have more than doubled the NOI of the property over the last period of time, and now we are taking it to its next level and its next generation with the opening of our Mercado in a vacant Mervyn's box that we opened up in December, four months ago.

It's getting rave reviews.

The property has terrific traffic gains.

And again, I encourage you to go to our property website to get more color on that Mercado.

We have identified about a dozen properties in our portfolio where our immediate trade area is more than 50% Hispanic, and Desert Sky is a prototypical example of how we intend to do a much better job of penetrating that market and serving that market.

We are very confident that this is going to be an opportunity for us to cater to the mix that we have in our trade areas, and to dramatically increase over time our operating results from those centers.

As we look up to the development and redevelopment pipeline, our Tyson's Corner project is just getting stronger and stronger, in terms of its reception in the marketplace.

As most of you have been monitoring the residential, and the office REITs that have large presences in the DC market, I don't have to tell you how strong that market is; and we are very excited about the timing and the opportunity to deliver our expansion of Tysons Corner with an office and residential component approximately 3 years from now.

So we are very, very positive in terms of how we see this pipeline.

Again, we see the current size to be about $1 billion to $1.5 billion.

That's a combination of developments, redevelopments, and acquisitions.

Now as we look at how that money will be deployed, I think that it will most likely be deployed on a much more ratable level over a 5-year basis; so on a weighted average, fairly ratably over a 5-year basis.

Turning now to broader issues and broader outlooks, I'd like to comment on Arizona in particular.

With our acquisition, increasing our ownership at Kierland, as well as increasing our ownership at Desert Sky, it is appropriate for us to comment on Arizona.

The Arizona marketplace, as Tom mentioned, leads the way for us in terms of top sales and total sales growth.

We've got centers like Scottsdale Fashion Square and Arrowhead, Kierland -- all approaching or in excess of $600 per square foot; as well as Biltmore -- all showing very strong sales in the first quarter, and I would make note, as you probably heard on other mall calls, that March was a surprisingly good month given the late Easter and the early returns on April are also very good.

So the first quarter of this year's sales look very strong, and we are very bullish on that.

Looking at the Arizona market, it is now ranked as being one of the most affordable markets in the United States.

This is very good for the opportunity for job growth, for external job growth, for companies moving into Arizona.

83% of all the households in Phoenix right now are able to afford a median-priced home of $132,000, so it is very affordable.

That is something that when the bubble was in place 3 or 4 years ago, Phoenix had gotten to the point to where it was less affordable; it was stifling some of the external growth in terms of the companies moving into Phoenix and Scottsdale area; but now with the correction in housing prices, that has reversed itself, and you've got major employers coming to Phoenix.

Examples that we've seen in the news include Intel announcing in February a $5 billion investment in the new Chandler facility that opens in a couple of years, adding 1,000 jobs with average salaries over $122,000.

eBay PayPal is adding 300 employees to Scottsdale.

Macy's is expanding their fulfillment center in Goodyear.

Amazon is expanding their Goodyear facility by 900,000 square feet.

SunTech is expanding and opening their first US manufacturing plant in Goodyear in October.

They just did that in October.

There are several solar energy-oriented companies that are coming to the marketplace, led by First Solar at the old GM proving site in Mesa, which has just announced that they are investing $300 million into a new factory there, creating 600 new jobs.

And the examples and list goes on of external growth from companies moving into the Arizona, predominately the Phoenix-Scottsdale, marketplace.

Housing starts have begun to bottom out.

I believe they are now currently in the 7,000 housing starts per year range in Phoenix.

At the peak, it had gotten up to 60,000 or 70,000 housing starts; but most of our friends in the residential community are fairly confident, we will return to the norm of 30,000 to 40,000 housing starts per year by the end of next year, which will then create substantial growth in the construction industry, and those related jobs.

So we are very bullish on where we see our Arizona portfolio, and I would encourage you to keep an eye on what we are doing there and on the growth opportunities that we see there.

Tom mentioned our leasing results, moving to leasing now.

In our annual report, we pointed out that, look, the retailers today have clearly defined their strategy to be full-price stores, outlet stores, and then their Internet dot-com presence.

We are very well-positioned with them in the full price arena, as we mentioned in previous calls; in the outlet arena, we see that as a logical extension of many of our retailers, part of our overall profitability.

We are monitoring closely in that arena.

As we mentioned, it is quite likely that we will enter into that arena as time goes on here.

And then if you take a look at the dot-com presence of our retailers, it is very clear to all of us observers that the dot-com presence of our retailers completely supports the brick and mortar stores.

It also supports our shoppers.

It allows our shoppers to go ahead and do their comparison shopping before they come to the mall; but when they do come to the mall, they are able to shop more efficiently, and we are very convinced that the Internet and the entire dot-com presence of our retailers is very much a positive for us in terms of extending their brand.

It's a cheap form of marketing for our retailers.

As we look forward for ourselves, we are completely convinced that it makes the shopping experience for our shoppers, our ultimate consumers, a much more enjoyable and efficient process, resulting in higher sales, a better experience, and better rents.

With that, I'd like to open it up for Q and A.

Thank you.

(Operator Instructions) And our first question will come from Christine McElroy with UBS.

Hey, good morning, guys.

Having raised your forecast for acquisition, development and redevelopment, is most of the increase weighted toward acquisitions as you are seeing more opportunities out there?

Are you feeling better, on the other hand, about pre-leasing of development and development projects?

Really both.

The acquisitions that we've got out there, of particular like Atlas Park, there will be significant redevelopment inherent in that.

And just in general, we see the opportunity for some selected acquisitions here to be more realistic that we forecast six months ago.

Six months ago we were not even forecasting increasing ownership at Kierland or Desert Sky or Atlas.

It is really both.

And we are also dusting off more and more of our redevelopment plans from the past, and we are seeing that there are, given the leasing environment opportunities to consider some redevelopment activities in selected market that really had been taken off of our radar screen 2.5 years ago.

It's a combination of both, but the real message here is that the pipeline is bigger.

It's more visible, and the expenditure will be much more ratable over the next five years.

Now, the ratability is a function of some acquisitions than what we have forecast six months ago, and that's the message we want to deliver.

Okay.

And then with regards to your management company expenses, I understand it can be lumpy from quarter to quarter, but I am trying to understand exactly what was the normal recurring expenses in that line?

If I think about the expenses versus what you are recovering through management company revenues, how would you characterize those net management company expenses?

Is that property level operating expense, or is that G&A?

It's property level.

A lot of what you may think of as G&A gets allocated to properties, but that's property level expenses.

The question has come up before, how come that runs in a negative?

That's always going to run in the negative.

That's because the expense line includes 100% of the properties and pro rata share on the JVs, but on the revenue side, we don't charge ourselves a management fee, so that's always going to run a negative.

But if you look at the expense side here, the normal run rate is going to be $20 million to $22 million on expense per quarter.

So if that's mostly attributable to property level operating expenses, why would that not be reflected in your same store NOI calculation?

It is.

Oh, it is, I thought you back it out.

No.

The only thing that gets backed out, Christine, is if there is anything that is not the same center, that is not comparable.

Okay.

At a property level, if there is a management fee, it may show up on these statements as a revenue, but at that property, it shows up as a management company expense.

And that is reflected when we calculate same-center.

And moving on.

Our next question will come from Quentin Velleley of Citi.

Good afternoon.

I'm here with Michael as well.

Hey.

Hey.

Just on the 30 person headcount reduction, can you talk a little bit about that, what area that came from, and if it has been any changes to the organizational structure or any changes to the reporting lines?

Sure, we can address that.

It really goes across lines, really just is a consideration of something that we feel we need to do periodically now.

When we did our reduction two years ago as a necessity, we learned that we need to do a better job of pruning from time to time, and it is really part of our overall process of trying to prune our portfolio, both on the people side as well as the property side going forward.

So it cut across all lines, development, marketing, leasing, all lines.

It's just a process of right-sizing as opposed to what we had done a few years ago.

And organizationally, we are trying to continue to keep the organization lean and to operate with maximum speed and efficiency.

We think it helps us to do that.

It also helps us to flatten out some of the organizational structure.

And just going forward, we think it better positions us.

It's really something that we will be doing periodically, and I think every company really needs to do it periodically, otherwise, if you wait then it gets to be more painful down the road.

Okay.

And then just in terms of the same-store NOI, I know that excludes any additional leasing of Mervyn's boxes.

Can you just give us an upside on what testing with those additional Mervyn's boxes that haven't had any activity or hadn't had any activity on the previous call?

Well, we are down to a very small number, Quentin of Mervyn's boxes.

I think we've got seven or eight right now that are not either leased or have been sold.

We are working on deals on most of those.

They are at a variety of choices.

Most of those centers are not in our portfolio, but it has dwindled down to the point where it has a very small impact on us.

One particular case, we are working -- we are working with TJ Maxx on a potential deal, in another case, we're working with Safeway on a potential deal, but really those will have a minimal impact if any on earnings and same-center NOI when they come on line.

A quick question.

If I remember back in 2009, and I can't remember if there was something last year, some of the ventures that you had done, the partners had some warrants or options on stock, I didn't know if those were exercised or where that stands today in terms of their ownership.

Yes, there were two particular deals where there were warrants issued, in the case of GI Partners, which was the Mall at Flatiron.

Those have been exercised and they're in the share count, and they have been for over a year now.

The others are outstanding and have not been exercised yet, but they get factored into the diluted share count.

Okay.

Thank you.

And moving on.

We will go to Rich Moore of RBC Capital Markets.

Good afternoon.

How are you guys?

I am curious, you have this big line, this big new line of credit area, and would you, Tom, continue to unencumber assets and maybe put some of the mortgages on the line and eventually do an unsecured note to take those out, and that kind of thing?

Well, it's certainly a possibility, Rich.

Today we've got a couple more assets we plan to unencumber this year when the prepayment window opens, and that's at Rimrock and Pacific View.

When that is done, we will have about $95 million of NOI coming from unencumbered assets.

That certainly gives us capacity if we decide to put our mortgages on those.

Obviously, as Art indicated, we expect to be very active over the next five years, so we felt that a $1.5 billion line was the right size , and having the flexibility to take it up to $2 billion gives us even more flexibility.

I mean, we do have some converts that are maturing in 2012, and we kept that in mind when we structured the transaction, so the balance sheet today has a lot of capacity, that's for sure, and there is any number of ways we

Okay.

So you think you would think about the unsecured route at all, or is that not really something you are interested in?

Well, after seeing the response to the line of credit, Rich, there is a very deep bank market for unsecured notes, even unrated notes.

We have no intention of going in and getting a rating, but that does not mean that we would not -- if the terms weren't right and the pricing wasn't attractive, that would not stop us from doing an unsecured banknote.

We've done that in the past pretty successfully, and there's a strong market for that right now.

Okay, all right, good.

Thank you.

When you look at the outlet center world, are you in a mode where tenants, Art, are saying, if you come up with something, if you show us something, we'd be interested because we're interested in outlets.

Or have you actually found maybe some sites that you think are interesting to you and you are showing to tenants to see what their interest is?

Both

So there's a possibility you could be further down the road maybe than I had thought originally here.

Well, I never want to try to figure out what you are thinking now.

But I would say, look, we are taking this very cautiously.

We first started talking about this, about nine months ago.

The one thing we are clear about is that, look, the retailers are very clear in their strategy.

Full price, outlet, dot-com.

Three strategies.

With the vast majority of the focus on full price, but the other two distribution channels enhancing the profitability.

And we think that given our size with all of our retailers that we should have touching points with them in all three distribution channels.

And we do intend to do that.

We intend to support their dot-com strategies in various ways, and to the extent that their outlet expansion strategies, and our sites happen to coincide, then we should support their growth strategies in those arenas too.

So, look, it's something we take very seriously.

If it happens, it will have been well thought-out.

If it doesn't happen, it was really never in our five-year business plan last year anyway.

But I think that there is, clearly, an opportunity for some very select, limited growth for us in this arena, and I think that the retailers would welcome that if it was the right site, and if it was overly supportive with our efforts and our focus, and our attention area if we do something, no matter where it is, whether it be Santa Monica Place delivering that quality of a center in Santa Monica, or if it be Desert Sky in Phoenix and delivering a center that caters to the Hispanic market there, whatever we do, we are going to serve our markets, and that includes our retailers and their strategies and then the ultimate demographic.

So that is the overall plan.

We are feeling pretty confident that it is an arena that we need to continue to explore very seriously.

I hope that answers your question.

Yes, that's good.

Thank you.

And then the last thing for me is with all the opportunities you guys have or that you are looking at, would you consider accelerating your asset recycling, do some more dispositions at this point to fund some of that?

Dispositions are not something you can accelerate or decelerate, unless you have a commodities product.

If you have a commodity product, a triple net leased asset or someone like that, you can pretty much put it on the trading block and it will trade at a price.

Malls are a little bit more difficult on the disposition site.

My guidance to you would be that over the next five years, that we will dispose of, my guess, at least $500 million of assets.

They will be lower quality assets, well under $300 a square-foot.

And if you think about a portfolio balancing act, we see ourselves adding a $1 billion to $1.5 billion investments into very high quality retail centers, either through acquisitions, expansion, redevelopment or development.

And then we see ourselves disposing say $500 million of assets that we consider to be non-core or that we don't see there are opportunities to have great growth, assets that are generally doing, let's say on average $250 a square foot.

That is the master portfolio plan at this point in time.

All right.

Very good.

Thank you guys.

Thank you.

And moving on.

We will go to Craig Schmidt of Banc of America-Merrill Lynch.

Thanks.

My questions are on Santa Monica Place.

I wonder if you could tell me the size of True Foods Kitchen on the main floor and the size of the Market on the third floor.

Yes.

I'd probably be guessing on True Foods.

I think it is about 6,000 or 7,000 square feet.

They open May 9.

Last night, actually, was their celebrity soft opening.

It is going to do great.

It is right next door to Second Street valet on the first level, which will balance out our presentation by having a great food operator on the first level of the Center, and we've got great experience with Sam Fox.

We have multiple, multiple restaurants with him with different concepts in the Arizona market place.

He's a terrific restaurateur.

We have True Foods at Biltmore.

It's a fabulous center and restaurant

And the marketplace is about 17,000 square feet, give or take.

There is a little over 20 vendors that are in there, we are really excited about that.

We think that has the potential of being really almost an anchor to Santa Monica Place.

And there is a lot more information on the Market at Santa Monica on Facebook or our property website.

Instead of repeating everything you can see there, that's where I would direct you.

Are you getting a lot of support from the foodies in LA given this development customer?

Absolutely, we just hosted on April 14 and 15th a two-day event on the third level, which is, we have been holding back.

We've warehoused that of the old Macy's building which is on top of Bloomingdale's.

We hosted Artisanal LA, their semi-annual event.

I think they had 10,000 foodies through the event.

We probably had 100 or so vendors in there, all organic food types of vendors.

Very much the foodie community.

We think that the restaurant and the food and the artisanal community is extremely excited about what we are doing at Santa Monica.

It is really, very connected to the Santa Monica Farmer's Market and there will actually be a vendor I think, that will have the best of the Farmer's Market.

There will be a cooking school that will have chefs, famous chefs from Southern California, demonstrating how to prepare certain foods that they had bought that morning, at the Farmer's Market that's two blocks away.

So the foodies are really excited about what's happening here, and that is really -- when you think about our demographic, for Santa Monica Place, that's part of our core demographic when you think about who we are catering to.

So it's going to be great.

And then just finally, the space on top of Bloomingdale's, you are still planning to convert that to small shop space?

It was really never small shop space, we are not really sure what we are going to do right now.

We have set it up so it is available for events.

We are hosting events there, which is driving traffic to the third level, and so we are using it as an events center.

With that, it will support the restaurants on the third level, as well as drive traffic to the center.

And it is really just sitting there in inventory for us to decide what we want to do with it long-term.

And having it as an event center could be what we do long-term.

Taking the marketplace and turning it into a much grander plan could also be what happens where we expand the marketplace into that third level, which is 45,000 square feet of space right across from the Market Place.

And I would remind you, that third level is right at the corner of Fourth and Colorado overlooking the new rail station that opens four years from now, which is the light rail that will connect Santa Monica to LA Live Downtown.

Not that there is going to be that many people going to the Lakers games probably four years from now, but we are very excited about it.

It's an unbelievable location and we are really keeping our optionality by using it as an event center right now.

People go into it right now and there's views and two panoramic views of the City looking east and south.

They just can't believe the space, so it really enhances the feel of that third level.

It becomes more and more and more a destination, which is really what we are looking for.

Great.

Thank you.

Thanks.

And our next question will come from Michael Mueller with JPMorgan.

Hi, going back to capital deployment.

You talked about being more bullish on acquisitions, should we think about that as similar to what we saw on Kierland and Desert Sky where you are buying out partner interests, or are you thinking more about pure third-party acquisitions?

Yes, I'm not sure.

It's really just in the overall mix.

What the hand plays out for you.

We just wanted to give you visibility into what we see so we can give you good visibility that six months ago we told you $750 million to about $1 billion of development, redevelopment, and maybe some acquisition activity over the next five years.

Now we are raising those numbers substantially, and part of the confidence is due to the acquisitions that we just did, and there may be some more coming down the pipeline, but let the hand play out if you will, please.

Okay.

And then thinking about the development and redevelopment components of that, you talk about the timeline being a little flatter over the five-year period.

And you talked about the Tysons deal, obviously, but can you maybe bucket some of the redevelopments that we could see earlier in that five-year phase and then the ones that are likely to be later?

Yes, the redevelopments won't be accelerated beyond - or the developments of what we've already talked about, so what will fill up the bucket in the next year or two would be in the acquisition arena most likely.

Okay.

Got it.

And development activity associated with acquisitions, a la Atlas Park, for example.

But there may be other acquisitions that are out there that could have some development components, too.

Okay.

Thank you.

Thank you.

And moving on.

Our next question will come from Alex Goldfarb of Sandler O'Neill.

Hey.

I guess it's still morning out there, so good morning.

On the Phoenix, I don't think I heard you mention the Goodyear mall.

I think on the last call you mentioned starting that mall development later this year, just want to see if that's still on track or if that was more sort of a broad-based comment that you intend to restart the development out there, and it wasn't meant to target a specific date.

As I rattled through the employers that are expanding, you probably took note that five of them were in Goodyear -- six of them, actually.

Right.

There's a lot of activity there.

It remains the most under-served market in the higher Phoenix metroplex.

So we are still very confident that we have a great site.

The retailers are still very interested in it.

We have said previously that we'd see that, most likely as being out there three years from now, but definitely in the next three to five-year horizon, but I would say closer to three.

It looks very solid.

It's just a question of when we decide to pull the trigger, and I think we did indicate earlier that it would be quite possible that we would pull the trigger by the end of this year.

We will see how it goes.

It is still quite possible we will do that, but good signs are on the ground in Goodyear.

There's a situation where the concerns that some people have about the dot-com world, I think four of the six companies that I mentioned that were expanding in Goodyear, are expanding their national or international distribution and fulfillment centers for their dot-com arenas and employing lots of people, generating a lot of activity.

So it cuts both ways.

Okay.

And then switching coasts.

Your comments about Atlas Park and major redevelopments, just want to get a sense of how -- now that you've had the asset for a few months, how it's going, if you think it's going to be sort of a complete scrape, keep the garages, or if you think that maybe you can make the existing layout work.

I may have misspoke if I said major redevelopment associated with Atlas Park.

I do see some development activity associated with that, but most likely more in the remerchandising arena.

The more significant major redevelopment or development activities that could be associated with an acquisition might relate to some other opportunities that are out there that we are looking at, not necessarily Atlas Park.

What we are going to do at Atlas Park would most likely be confined to the four walls that are there of the buildings today.

It would be a significant change for the merchandise mix we think, going forward.

Okay.

Final question is, as you focus more on the Hispanic market ..

Just sort of curious if there are any South American or Mexican or other similar retailers that you may bring north of the border to bring to the 12 centers that you spoke about.

We are constantly working in that arena.

We were one of the first companies, if not the first company, to do business with a department store based here in Los Angeles, La Curacao, and we now have a couple of locations with them, and they are a great anchor to our Panorama Mall as well as Desert Sky.

Los Angeles, Southern California is a great hotbed.

We don't have to look much beyond this market for retailers that do well in Hispanic markets, so really this is where we look.

This is really the breeding ground right here in Southern California.

Okay.

Thank you.

Thank you.

Next, we will go to Cedric Lachance of Green Street Advisors.

Hello, Cedric.

Hi.

Just to stay on the Hispanic theme are there more centers where you think you can move to surveying the Hispanic population a little more, either in your portfolio are actually more as acquisition target where you can reposition the assets?

Clearly, in our portfolio, we have identified that we can do a better job in about a dozen of our properties.

We are taking it a little slowly here with Desert Sky to try to perfect the model.

A lot of it has to do with marketing and the way that you market the property.

And if you -- I am not going to go into it right now, but it's all sitting right there on Facebook and our property websites in Desert Sky and just about what we are doing marketing-wise there.

To give you a clue, we really view marketing as being a virtual anchor to a Hispanic center.

We think that a number of our centers, ranging from Inland Center to Pacific View, and Ventura to Northridge and Salinas, Stonewood, Downey, Panorama.

There is about a dozen of them in our portfolio where we have a predominance of our population well over half in our trade area being Hispanic.

We are just not doing as good a job as we should be doing.

There are opportunities to do better, and there is opportunities to create a property that is much more focused on its community.

I am very confident that this is going to be something that is going to reflect good operating results for us.

It could reflect itself in growth for the company outside of the properties that we own today, but, the interesting thing I would also make note of is, don't get too focused on sales per-foot in centers that cater here to these trade areas.

Desert Sky, for example, does under $300 per square-foot.

But I can tell you it's a very vibrant center.

Sales are on a definite uptick.

And more importantly, rents are on a definite uptick, and NOI is on a definite uptick.

We see that this is something -- we are based here in the melting pot of the world with the predominance of our population being Hispanic.

Again, as I mentioned in my early remarks, over half the growth in the US is going to come from the Hispanic market.

So it would be crazy for us not to say to ourselves, we can do a lot better job at targeting that customer.

And that is really what we are trying to do.

Okay.

And in regards to the credit quality of the tenant base and your ability to push OCRs, how do you underwrite your tenants, and how far can you push on the OCRs?

Of our portfolio?

When you look at Hispanic-focused centers?

You cannot look at that at that metric, because of the sales number and the profit margins.

The sales can have higher profit margins.

That would be apparent to others, and you could have the cost of occupancies that on the surface appear to be high.

Yet the tenants are definitely still willing to pay the rent, which means they are making money.

Okay.

And then just going back to the entire portfolio.

What percentage of your portfolio currently is on short-term leases?

Tom, do you want to address that?

Yes.

Today, what I would call very short-term between six months and a year is about 5%.

Then if you take the next segment, which is shorter term than normal of beyond a year but less than three years, that's probably another 20%.

And, we think that has been shrinking over the last year.

A lot of those deals were done in 2008 and 2009.

You know, we will see those burn off over the next couple years and get to a more normal level where we have probably less than 10%, less than the three years.

And in terms of the rent differential, how far -- where are those rents in the short-term leases versus your full price market rents?

Well, I will speak to the 5% that we really call temporary occupancy.

It hits our occupancy number, and that number at a low is 2%, on a high is probably 6%, we are 5% today.

On average, those are about half of our average rent.

If our average rent is $44, those tenants tend to be about half of that.

Okay, great.

Thank you.

Thanks.

And moving on, we will go to Ben Yang of Keefe, Bruyette & Woods.

Hi, good morning.

Pulling on an earlier question and possibly taking back share at some of the mortgage joint venture back in 2009, do you have any thoughts on what it would take to buy your partner at maybe a Queens Center just to give an idea of how far rates have come in since the crisis back in 2009?

And I ask, because I would imagine that you have greater insight since you still own and operate those particular properties as well.

Was the question what has happened to cap rates on malls like Queens?

I'm just curious, if you were to have those conversations with your partner.

I mean, is it 200 basis points lower than what you sold it for?

Is it more than that?

Is it less than that?

Just a kind of get an idea of maybe, a market for what high-quality malls would be today.

That's a fair question.

First of all, look, our partnership with Cadillac Fairview there at Queens, is a long-term partnership.

And that particular joint venture had been talked about for six years prior to the time that it occurred.

We view it as a long term partnership.

So please don't think for any stretch, that there would be any conversations about buying that partnership out, because there is not.

They are a terrific partner.

But if you want to look at the joint ventures that we did, the big three joint ventures that we did a couple years ago, I would say cap rates have easily come down 200, 250 basis points on average.

If you were to market the centers and sell 100% of the centers today, I don't know, the number could be 250 easily from where they were a couple years ago.

You mention your partner at Queens being a long-term holder.

How about your partners at Flatirons and some of the other properties that you joint ventured?

Well, even -- we value those -- we were very careful at selecting our partners there, and each of our partners that we brought into the Company, either by expanding their current investments and properties with us or bringing them in as a new partner, have huge appetites for more growth with us.

And, those were not sales.

They were strategic relationships.

We have great relations with all of our partners, including the ones that we expanded or brought in new in 2009.

So we view them -- I may have mentioned in a previous call, look, our private equity stakeholders are our partners.

There are times that they are extremely important to the health of this Company, and they were vital to the survival of Macerich in 2009.

They are very strategic and helpful as we think about new business, we had partners that have helped us source new deals.

We view it as an asset to the Company and definitely part of our long-term capital plan, and capital stack, and method of doing business.

I hope that answers your question.

It does.

That's helpful.

Even the higher Macerich guidance, are they approaching you about teaming up with potential acquisitions similar to what you did at Atlas Park, or is that not conversation you're having today?

We've got several, several billion dollars of appetite amongst existing partners to grow their business with us.

I am not going to try to list them all, because I don't want to leave anybody out, but virtually all of our existing partners want to do new business with us.

They've got plenty of capital to do it.

It's a question of finding the right opportunities.

That's just a question going forward.

Okay.

And just final question, the several billion dollars of appetite, how far down the quality spectrum does that appetite go to?

I mean, is there down to $300 per-foot, is it only $400 per-foot and above in terms of sale?

What does that look like?

I'd say on a broad market basis, the institutional capital today is willing to go into the B markets, whether it be B markets or B sales as measured by folks like Green Street.

So, the $300 per-foot assets, are there institutional investors that are willing to invest in those today?

It appears that there are, which is something that we had predicted would happen back in January of last year, and it hasn't -- it has not been self-evident or reported in the marketplace yet, but I see it happening.

Our current partners -- if we say, look, we have a business plan to make money off of a $300 square-foot group of assets, they would be there with us all day long.

But that has not been our recent focus, and is not really our current focus.

Okay, great.

Thank you very much.

Thank you.

Moving around, we will go to Tayo Okusanya with Jefferies & Company.

Yes.

Good morning.

A couple of questions.

Could you give us an update on the status of the foreclosures on Valley View and as well on Granite Run?

Sure, Tayo.

On Valley View, it has been in the hands of the receivers for nine months.

It's currently being marketed.

Once that is sold, it will be officially off our books.

We are not investing any additional cash into that project.

We are accruing a small, maybe $500,000 a quarter, negative accrual, operating accrual on that.

That's the only real impact on the results for the quarter, and we expect that to be gone either in the second quarter or the third quarter.

In terms of Granite Run, that has been in the hands of the servicer.

But the joint venture property that was managed by our partner.

They made the recommendation, we concurred and it went back to the servicer, and there was a deed in lieu completed on April 1 or 2nd.

As of the beginning of the second quarter, that is no longer on our books.

And does that impact the numbers in any way?

There will be a gain on early extinguishment of debt on that one in the second quarter on Granite Run.

Okay.

That's the first question.

The second question, if could you talk a bit just about the situation with Anchor Blue in your mall?

Yes, we talked about that a little bit on the last call, I believe.

We had a total of 20 Anchor Blues, about 112,000 square feet.

Quite a bit of that has already been spoken for.

I think about a third of that has already been spoken for.

A lot of the rest of it is in negotiation.

We are talking with people.

We've got a couple deals with Tilly's.

We are talking to Papaya, K-Momo for another, Limited on another, Joppa for three, Rue 21.

So there's been a lot of activity.

Generally speaking, it's pretty good space, and on average, they were paying rate around $25 per-foot, far less than our average.

We expect to do pretty well on the releasing of that space.

So you are expecting the new rents to be higher?

Yes.

And then the management company operating expenses, post the restructuring.

What kind of savings are you expecting to get?

Well, the $3 million that I mentioned was roughly equal to 1 year salary, so we will see $750,000 in savings a quarter.

Thank you very much.

All right.

Thank you.

Your next we will go to Vincent Chao with Deutsche Bank.

Hi, good morning, guys.

Going back to the pipeline discussion.

Just given how rents have trended and also material costs, I'm just wondering if your yield expectations have changed at all on the development side of that pipeline?

Could you repeat that, please?

I'm just wondering on the development side of the capital deployment plan, have there been any changes in your expected yield there given how runs have trended as well as how material costs may be trending?

I would say overall, things are improving.

The overall outlook, in terms of development returns, for many, many different reasons.

You've touched on a couple of them.

Yes, the construction costs are getting to be more reasonable in certain areas, just broad markets getting better, I mentioned in my early comments -- I mean, you all cover the office and residential companies that do a lot of business in Washington DC, so you know how hot that market is You know, we've got our pro rata to share 50% of the $400 million development at an office and residential tower that's going to be delivered in three years where that market is on fire in DC.

So those are macro indicators.

I would say, trending up but still in the 8% to 10% targeted returns on development and redevelopment that we talked about back in November.

But looking better.

Okay.

Thank you.

And then just a couple more run rate questions.

In terms of the income tax benefit, last quarter I think that was discussed as maybe $5 million for the year from NOL burn-offs, and it looked like you burned through most of that already.

I'm just wondering if that outlook has changed at all.

Should we expect more benefits going forward?

It is generally relatively a small number per quarter.

$1 million to $2 million is what we were on average.

If I had to put something on the run rate, I think I would probably put $1 million.

That would likely be a little conservative.

Okay.

And I know we talked about the management company expenses booked in the quarter, but the G&A line itself also looks like it's kind of elevated relative to where you talk about run rates in the past in the $4 million to $6 million range.

I'm just wondering if you could provide some color on what was going on there.

Well, the first quarter tends to be heavy because you've got your 10-K, you've got a lot of your cost, you've got your audit costs, you've got things like that are pure G&A, so that number isn't going to be flat through the quarters.

If you take a look at it versus the first quarter 2010, we are virtually right on top of the first quarter 2010 at $7.5 million last year versus $7.6 million this year.

Through the course of the year, that may be $20 million to $22 million, but the first quarter is going to be the highest quarter and historically has been.

Okay.

Thank you very much.

Thank you.

And now I will turn it back to Arthur Coppola for any additional or closing remarks.

Thank you.

Thank you for joining us.

A gentle reminder, get out there and shop for Mothers Day.

For those of you visiting Southern California, please come see our new market, Santa Monica Place, opening May 20.

Those of you who will see us at the ICSC in a couple of weeks, I look forward to seeing you there.

Our meeting schedules are very strong.

I look forward to seeing you soon at all of the above.

Thank you very much.

And that does conclude today's conference.

We would like to thank you all for your participation.