Macerich Co (MAC) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to The Macerich Company fourth 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.

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

Please go ahead.

Thank you, everyone, for joining us today on our fourth quarter 2011 earnings call.

During the course of this call, management will be making forward-looking statements, which are subject to uncertainties and risk associated with our business and industry.

For a more detailed description of these risks, please refer to the Company's press release and SEC filings.

As this call will be 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 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; Tom O'Hern, Senior Executive VP and Chief Financial Officer; and Randy Brant, Executive VP, Real Estate.

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

Thanks, Jean.

Today we're going to be discussing fourth quarter results as well as annual results, our recent capital activity, and our outlook and guidance for 2012.

During the quarter, our fundamentals continued to improve.

Retail sales had a good increase.

Same-center NOI was positive, for the eighth quarter in a row.

The re-leasing spreads also showed strong increases.

Although occupancy did drop compared to year-end 2010, there was an 80 basis point improvement from September 30.

Leasing volume and spreads were both very good.

During the quarter we signed 272,000 square feet of leases.

That was 184 deals.

The average new rent was $46.86.

The average re-leasing spread compared to expiring, and that's over a trailing 12-month period, was 13.7%.

So, through the course of the year it was 13.7% positive spread.

The occupancy cost as a percentage of sales dropped to 13.0% for the trailing 12-months.

That was down from 13.4% a year ago.

Average rent in the portfolio was up to $45.37, that compared to $42.47 at the end of 2010.

For the quarter, adjusted FFO which excludes the impact of Valley View and Shopping Town, was $0.87 a share.

That was up 13% over $0.77 a share in the fourth quarter of 2010.

Same center NOI, excluding termination revenue and SFAS 141 revenue, was up 1.7% for the quarter and up 2.5% for the full year.

Lease termination revenues was up slightly at $4.1 million, compared to $3 million in the fourth quarter last year.

Bad debt expense continued the positive trend which was a reduction to $1.4 million, compared to $1.6 million in the fourth quarter of 2010.

For the full year, bad debt expense was down to $5.3 million, and that's down from $8 million in 2010.

Included in income and equity of joint ventures was the fact that the Company and its joint venture partner in the SDG partnership, SDG Macerich, that owned 11 regional malls, broke that portfolio and distributed the assets.

Six of the 11 assets were distributed to Macerich in December.

We received 100% ownership of Eastland Mall in Evansville, Indiana, Lake Square Mall in Florida, SouthPark Mall in Moline, Southridge Mall in Des Moines, NorthPark Mall in Davenport, Iowa, and Valley Mall in Harrison, Virginia.

Those assets that we received, for accounting purposes were recorded at fair value at the date of transfer.

And that resulted in a gain for Macerich -- that compared to the book value, resulted in a gain for Macerich of $188 million.

That was reflected during the quarter.

As mentioned in the press release this morning, we are planning a significant amount of non-core asset sales in 2012.

The range of the asset sales in the guidance is $300 million to $350 million.

The timing of those sales is expected to be in the first half of 2012.

In-place debt on those assets is approximately $125 million, with an average interest rate of 5%.

The net cash proceeds from the transactions will be used.

That's estimated to be about $225 million.

And that will be used to pay down our line of credit which today has a rate of about 2.25%.

So, as a result of these sales and the debt reduction, we have factored in about $0.08 a share in FFO dilution for our 2012 guidance.

So, $0.08 is reflected in the guidance we gave today.

So, if the midpoint as issued was $3.10, that was reduced by $0.08 for the expected non-core asset sales.

Looking at the balance sheet, our debt to market cap at year end was 44.9%.

Debt to EBITDA was 7.7 times.

Our interest coverage ratio for the quarter was a very healthy 2.67 times.

We had recent loan activity, including $125 million of seven-year unsecured note at LIBOR plus 2.20%.

The proceeds were used to pay down our line of credit.

We also just recently closed a $75 million, 10-year financing on La Encantada that had a rate of 4.22%.

In addition, we have arranged $140 million, 10-year fixed rate loan on Pacific View Mall.

That loan is expected to have an interest rate of approximately 4%.

Right before year end, through a deed in lieu of foreclosure, Shopping Town Mall was taken by the loan servicer and the $39 million loan was forgiven.

The book value of that asset was written off.

That resulted in a loss on extinguishment of debt of about $3.9 million.

Valley View still remains in the hands of the CMBS special servicer.

We expect that $125 million loan to be forgiven in the first half of 2012.

That will result in a large gain on early extinguishment of debt.

Both the Shopping Town and Valley View results have been excluded from the reported AFFO, and are not included in the 2012 AFFO guidance either.

The Company has about $430 million of convertible debentures due in mid-March.

We plan to use the proceeds from the Pacific View financing I mentioned a few minutes ago.

Also, proceeds from the long-term financing of two or three of our currently unencumbered assets to pay off the converts and to stretch out our maturity schedule.

Excluding the converts and the loans with built-in extension options, we only have about $300 million of 2012 property level loans maturing.

Regarding the $790 million of loans that can be extended to 2013, those are all prepayable without penalty.

We plan to take advantage of the great long-term interest rate market that we're in right now.

In fact, we're currently negotiating long-term fixed rate loans for $425 million, which include several of those 2013 maturities.

In this morning's Earnings Release we did give adjusted AFFO guidance in the range of $3.06 to $3.14.

That guidance range excludes the impact of Valley View and Shopping Town.

The guidance assumes the above financing activity that I just mentioned.

It also factors in our plans to sell non-core assets in the first half of 2012, which I just elaborated on.

Keep in mind, that results in $0.08 of dilution.

The non-core asset sales, also included in that guidance was same center NOI growth, which is factored in at a forecasted range of 2.5% to 3.5%.

The AFFO split by quarter is estimated to be 21% in the first quarter, 24% in the second quarter, 25% in the third quarter, and 29% in the fourth quarter.

Looking now at tenant sales, mall tenant sales per square foot for the year came in at $489.

That compared to $433 at December 31 of 2010.

That's a 12.9% increase.

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

Thank you, Tom.

Welcome to this call.

As you can see from our results, we're coming off of a very good year on the operating front.

Another very good year in terms of the total shareholder return that our equity holders have enjoyed.

ISS recently came out with a new peer group ranking system where they rank each company with another 20 to 24 companies that they measure it against.

Over the last three years, against our peer group of 24 companies that ISS came up with, we're the number one ranked Company in terms of total shareholder return.

Obviously, you know the numbers in terms of how we ranked over the last one, two and three years.

We are very optimistic that the fundamentals that are in place today, and the feeling that we have a little wind behind our backs -- both on the operating side and the balance sheet side, will result in very strong operating results over the next couple of years.

Actually, over the next foreseeable future.

Hopefully continue to result in, at least on a relative basis, very strong total shareholder returns.

As I mentioned, we're pleased with the improvement on the sales front.

In particular, we're seeing sales in our strongest centers continue to get better.

These sales at these levels are now roughly back to the peak levels that they were at, say, roughly four to five years ago.

Leasing appears to be picking up steam, and price discovery appears to be taking place.

I'd say, if I were to characterize the year, 2011, the first six months were really characterized a little bit with a tug of war between the landlord and the retailers over our price discovery on rent.

Given the fact that we felt that there is a significantly improving marketplace in the middle.

We found ourselves reaching agreement on a number of deals.

You've seen the rent spreads, which are very good.

The prognosis on the leasing side, we think, on all levels is very good for us going forward.

I mentioned our balance sheet and Tom went through the details.

I would note that we are very pleased with where we find ourselves today.

As we go ahead and clean up our converts this year in the next couple of months, which we'll be doing by taking our very large $2 billion unencumbered pool of assets and putting 10-year mortgages, basically at fixed rates on several of those assets to retire that debt.

Adding into that the 2013 and 2014 very low and/or manageable maturities, our balance sheet is certainly in the best shape that it has ever been in our life as a public Company.

We're pleased with our ability to report to you a significant increase, in our view, of what our financial performance will be in the upcoming year.

We did want to be careful and to try and include in those numbers the dilution that will undoubtedly occur as we continue to prune our portfolio.

So, that we do not have to revise guidance for those events that we definitely see will occur in this upcoming year.

The dispositions that we see in our pipeline are, at this point in time, pretty much all non-mall dispositions.

They are non-mall assets that we own in Arizona and, also, in Washington.

The non-mall strip centers in Arizona, urban villages and an office building that we own at Redmond Town Center.

Our development and redevelopment pipeline is continuing to proceed very nicely.

We have great clarity and vision and transparency into what our pipeline is.

They're predominantly centered around three assets right now.

One is the building of Fashion Outlets of Chicago, which will open in August of 2013.

The expansion of Fashion Outlets of Niagara, which we anticipate we'll start construction on that.

We've already started the pre-leasing of it and that should be completed within the next two years or less.

Then, we are in the ongoing mixed use development at Tysons Corner, which will be coming online roughly in the fall of 2014.

You add those three developments together, our pro rata share of those developments is roughly $600 million.

If you take a look at what we've reported our returns to be from the various components, and were to average them out right now, you're looking at roughly 9% real going-in, cash-on-cash returns on balance from these developments.

And in each of the product types that we're building and at the quality levels that we're building, we think that, that represents, first of all, great additions to our portfolio.

They'll definitely be significantly NAV accretive to our portfolio, as well as add to our future earnings growth.

So, we're very optimistic about this upcoming year.

I look forward to addressing our view on this upcoming year by opening up to questions with you right now.

(Operator Instructions).

Craig Schmidt from Bank of America-Merrill Lynch.

I was wondering how you decided on the six assets to keep from the IBM portfolio.

Did you alternate picks or just negotiate it out?

I'd love to give you a funny answer to that.

But it was really simple.

It was really fast and amicable.

And we just sat down with our partner, with whom we've enjoyed a good partnership there, and came to a resolution on an appropriate split there in a relatively quick way.

Okay.

And how are you coming on the plans for Atlas Park?

Atlas Park is getting nice interest level.

We're continuing to monitor the vacant land that's being put on the market next door.

Let's keep that in context.

It's a small investment for us.

It's in one of our core focus markets.

But it's going to take a couple of years to go ahead and report tangible results there.

But we're feeling very good about our investment there.

And can you do any updating on the pre-leasing of Tysons, the mixed use there?

We've got very strong interest on the office side and we will be reporting those deals as they are signed.

The first deals that will be most likely announced will be large anchor deals.

That's where we're focused right now.

Deals that would take significant portions of the building.

I don't anticipate announcing those in the next quarter or two.

But I would anticipate this year they'll be announced.

Still a full two years before the opening of the building.

Great.

Thank you.

Quentin Velleley, Citi.

I'm here with Marco, as well.

Just in terms of guidance number for 2012, and I think you mentioned that you had the $440 million of converts maturing which you would refinance with new 10-year mortgages.

I'm just curious as to what the interest rate differential would be between the converts and the mortgages.

I think the converts were on a GAAP basis at about 5.4%, so I assume you would get the benefit of some accretion from that.

Yes.

Really the source for paying off the converts, Quentin, will be the term note that we did in December for $125 million.

And then encumbering three or four of our currently unencumbered assets, probably 10-year money.

The assumption would be a 4% interest rate or thereabout.

And that would be taking out the converts which have a pay rate of 3.25% but a GAAP interest rate, given the new accounting rules there, of about 5.4% or 5.5%.

And that's been factored into the guidance.

Right.

And then the new line of credit, is there restrictions on the size of the unencumbered asset pool?

No, there's no restriction on the unencumbered pool, whatsoever.

In fact, there's no requirement to have an unencumbered book.

Got it.

And then in terms of, I notice that Prescott Mall, it's only small, you've got a $60 million nonrecourse mortgage.

It looks like that may be handed back.

Can you just talk through what happened at the asset.

And then maybe if you could give us with the NOI or what the FFO impact of that asset is.

I assume it might be a drag on FFO like Valley View was.

Yes, that was one of the assets that was part of the Westcor portfolio that was acquired in 2002.

It is an Arizona market that's more remote than most we operate in.

The loan is in maturity default and we are in negotiations with the servicer.

So it's too early to tell the ultimate outcome but that asset is not refinanceable at that level today.

Okay.

Lastly, just in terms of occupancy, over the year it was down 40 basis points.

Just curious as to what the driver of that was.

And whether or not some of it was -- I assume it's not the Simon joint venture assets because they haven't come through yet.

So I'm just curious as to what the driver of that would have been.

Part of it we reported last quarter which we still see as a great opportunity.

We've assembled a block of 90,000 feet of street level retail, contiguous to North Bridge Mall just off Michigan Avenue.

So we de-leased three different tenants, roughly 30,000 foot each.

I'm sure that has a big amount to do with the occupancy levels.

And Tom, in addition?

You have the day-to-day stuff.

But if you were going to look at, try and say what was a major thing, it's clearly that 90,000 feet that we have assembled in terms of an opportunity there for a major retailer or group of retailers.

Certainly weighs in that number heavily.

Yes, we got two blocks of space back subsequent to year end last year, Border's and Anchor Blue.

And collectively they're about 200,000 square feet of vacancy we're working through.

That's about 70 basis points right there, Quentin.

Okay.

Thank you.

Paul Morgan from Morgan Stanley.

You mentioned $300 million to $350 million of non-core asset sales.

You said something later.

I'm confused.

How much of that is non-mall, the Arizona, the Redmond stuff?

None of them would be malls.

None of them are malls.

Okay.

Are you contemplating, given the recovery in CMBS market, possibly marketing some of the B/C malls that you thought about selling over the years?

Look, that's an ongoing market that's evolving.

But our disposition does not include the disposition of any mall assets, even though we have a history and we have an intent to continue to prune the lower levels of our mall portfolio.

But the dispositions that we've identified that run through our numbers are non-mall, urban village strip center assets in Arizona.

And a single tenant office building up in Redmond.

Okay.

And then you mentioned the developments of $600 million.

Do you have any color on planned redevelopment expansion spend over the next year or two?

I know it's usually quite a bit throughout your portfolio of opportunity there.

Could you talk about investment?

There's nothing approved by our capital committee that we're plowing forward on, other than the three major developments that we talked about.

We have ongoing $5 million and $10 million and $15 million opportunities that we are currently revisiting.

And as those become entitled and validated, we'll give out numbers on those.

But all in, $600 million is the total identifiable pipeline over the next 30 months.

Okay.

And then just a last question, a little bit more on mortgage re-fi.

It looks like you've got a few under-levered potentially assets.

NorthPark coming due in this year, Queen's a little bit further down the road.

Are there plans to take out a lot more proceeds from a re-fi?

Or anything specific in terms of mortgage maturities?

Each of those will be measured on a case by case basis.

Right now we wanted to balance out the funding of the retirement of the convertible debentures with a long-term capital source.

And the long-term capital source that we found to be the most attractive to us was to take some unencumbered assets and put 10-year fixed-rate mortgages on them to accretively on an earnings, but also in terms of the maturity level extend our maturities dramatically to retire that debt.

At this point in time, we have nothing outstanding, or little outstanding, on our line of credit.

So we're not actively out there looking to overfinance properties, per se.

Clearly, we have a ton of capacity in a lot of our different assets.

I'm not going to comment on the individual assets that you mentioned because, even though from a coverage level you could infer that there's opportunity to refinance for more dollars, when you get up to a certain size and you're talking $300 million, $400 million $500 million of debt per property, that's quite a large loan in anybody's mind.

So, we have a ton of capacity available to us in terms of an unused line of credit, in terms of the fact that we really have no maturities that we have to deal with, in terms of the fact that we're going to have a construction loan, for example, that's going to fund the Fashion Outlets of Chicago project.

We may look at doing one on the Fashion Outlets of Niagara project.

We're not really looking to overfinance so much.

We're looking to appropriately finance to get the best rate in each circumstance.

We have the luxury of being able to do that at this point in our balance sheet career.

Thanks.

Christine McElroy with UBS.

Tom, you mentioned with regard to the 2012 guidance, you mentioned $0.08 of dilution from the asset sales.

But just with regard to the 2013 maturities that you're working on refinancing early, how much of that is currently variable rate?

And what's the projected dilutive impact included in your guidance from potentially fixing some of that?

All of those are floating, but they were done in 2008 and at that time there were some artificial LIBOR floors put into most of those loans.

I think the average rates we would be rolling out of are between 3.5% and 4%.

So there will be some dilution.

But given where the Treasury rates are today, 10-year money's under 2%.

And the spreads we've been hearing about, there will be some dilution that we factored in but it's a pretty good time to move out of those floating rate loans and go into fixed.

And just to make sure I heard you right, the $425 million, that's all 2013?

Right.

They're loans that we can freely pay them off today without a penalty.

But a lot of those were structured, Christie, as three-year deals with two one-year extensions, which take them out to 2013.

But we like where rates are today so we're not going to wait.

Then just looking at your sales per square foot numbers on page six, for the consolidated versus the unconsolidated portfolios, I'm just looking at Q4 versus Q3.

I assume it was the transfer of the Simon JV assets from the unconsolidated to the consolidated that caused the consolidated number to go down quarter-over-quarter and the unconsolidated number to jump pretty materially higher.

Was there anything else going on there like a full quarter inclusion of Santa Monica Place?

You're right, the biggest move was moving the midwestern assets, the six that we mentioned, up into wholly-owned, and out of the JVs.

That was the biggest.

What was the sales per square foot on those assets?

They were in the low $300s.

And if I look at each of those pools today, the consolidated versus the unconsolidated, do you have what the apples-to-apples year-over-year growth in sales would have been?

So on a same center basis?

I don't have that, Christie.

I'll have to get back to you on that.

Okay And then just lastly, just with regard to the non-core asset sales that you're planning, have you already begun to market the assets?

And do you have any sense for cap rates that you could get?

And what caused you to say now's a good time to dispose of those?

We're pretty actively involved in three separate transactions.

And as such, we're really not going to talk about cap rates because it could hurt our negotiating position.

But obviously we factored these in to happen in the first half of the year.

So we're obviously pretty comfortable with putting them in the guidance.

But we're not in a position to talk about cap rates because we're still negotiating and still in the middle of these transactions.

And we'll give you the full color when we close.

Great.

Thank you.

Todd Thomas with KeyBanc Capital Markets.

I'm on with Jordan Sadler, as well.

With the development projects discussed in your prepared remarks over the next 30 months or so, you didn't mention Scottsdale Fashion Outlets.

Is that still on the table?

Is that something you could give us an update on?

It's still on the table.

And we are continuing to talk to tenants about that.

And what we'll do is take a look at the market as it develops.

What we will not do is contribute to an oversupply situation in that marketplace.

And if we come to the conclusion that the market is getting over-supplied with product of that nature, we will go ahead and hold off moving forward with that project until the time that we feel it's appropriate.

But that's consistent with our thinking in Arizona throughout.

Because of our presence in that market, we feel we own all of the best development sites.

And we have no pressure to develop any of them until we believe they are right.

So in the same context that we feel we have the best development site in the West Valley for the next traditional regional mall out in Goodyear, back when things were rocking and rolling in 2006 and '07, we thought that might open in 2009 or '10.

But everything in the Arizona market has been pretty well slid out five years.

As it relates to Fashion Outlets of Scottsdale, that's a little bit different situation.

But it is a very competitive market.

There's a lot of conversation about supply.

And if we find that the market is getting oversupplied, we are not going to add to that.

We'll still be sitting on the best property and we'll bring it to the market when we deem it's appropriate.

Could be sooner.

Could be later.

Okay.

That's helpful.

And then looking at your top tenant list, it looked like you lost leases with almost every retailer on that list.

And I know you lost some malls through the Simon JV.

Do you expect to see these national retailers continue to close stores?

And then who's taking this space in these malls where you're losing Gap and Abercrombie and The Limited brand stores?

I'm not sure I'd use the word lose with The Gap.

There are many stores that The Gap would love to renew with many of their landlords that we all have found higher and better uses.

I'm not sure exactly what schedule you're looking at but I can tell you on a qualitative level that we clearly have the same degree of credit quality, tenant quality and breadth of platform quality throughout our portfolio overall.

And see that continuing in the future.

There could be some anomalies due to just some accounting reporting requirements, but there's certainly nothing secular that's going on.

Okay.

And then just lastly, a clarification.

With regard to 2012 guidance and the $0.32 share positive impact from Valley View, can you just clarify what the breakout is related to the FFO drag versus the gain from the debt transfer that you're forecasting?

It's mostly gain from the debt transfer.

We think that's going to happen within the next month or two.

So there's $0.01 or $0.02 negative from operations but most of it is a gain on debt forgiveness.

Okay.

Great.

Thank you.

Vincent Chao with Deutsche Bank.

Just wonder if you could provide an update on your outlook for occupancy by the end of the year.

What are you looking for, for 2012?

I'd say we're looking at -- Tom will answer the question from a guidance viewpoint.

Actually, Tom, if you don't mind, why don't you let him know what guidance assumptions are on occupancy.

But then I'll give you more of just a market overview on how we view occupancies after Tom answers.

We include in our guidance a same center NOI range of 2.5% to 3.5%.

And as you get to the top end of that range, that takes the occupancy level up about 50 basis points on average, compared to where it was this year.

Okay.

Thank you.

Market-wise, I clearly see occupancies improving across the portfolio on all levels.

Okay.

And then maybe if you could just talk about the leasing velocity here.

Fourth quarter looked like it picked up nicely.

Just wondering what you're seeing so far early in 2012.

Is that continuing?

Sure.

Randy Brant, do you want to address that?

Yes.

The velocity is very strong.

There's many new and expanding tenants.

C. Wonder, Kiehls, Athleta, Tesla, Microsoft.

Leasing is very robust.

We're seeing something new for the first time in a long time.

We're seeing sub-brand tenant growth.

Nike has a new concept called Salvation.

Footlocker has two concepts, Run and House of Hoops.

Sports Authority, TSA Elite.

Banana's has a Banana men's concept.

So very positive going into 2012.

Okay.

And just one last question.

Just wonder if we could get the regional breakdown of sales growth?

Yes.

Arizona was again close to top of the list, up about 11%.

Southern California was very strong after trailing most of the year.

Southern Cal was up about 15%.

Northern Cal, 8% or 9%.

East was down a little bit at 7%.

That's roughly the regional breakout.

Okay.

Thank you.

Steve Sakwa with ISI Group.

Yes, Steve Sakwa with ISI.

To, I just was trying to get a little more clarity, you answered a little bit on the same store.

So, at the high end you're saying occupancy up 50 basis points.

How are you thinking about just re-leasing spreads against the 13.7%?

And bad debt expense was a bit of a contributor to the growth this year, given that it was down $200 million.

How are you thinking about bad debt in 2012?

$5 million (bad debt) portfolio-wide for a year is about a normal number, Steve.

So I don't think that's going to continue to trend down.

I think it's moved down from a high of $12 million during '08, '09 to where it is today, which is a normal level.

And, all of that, by the way, is not same center.

Some of that's going to relate to some of the assets that we already disposed of or will dispose of.

So if you look at the spread, you've got expirations on consolidated centers of about $35 a foot in 2012, and about $41.50 to $42 on the JVs.

And we had a very strong third and fourth quarter.

And as Randy said, there's a lot of leasing momentum.

And we see that continuing.

So we go through our budgeting tenant by tenant.

But I think we believe that we're going to be able to continue to have strong double-digit re-leasing spreads as we move through the year.

Would you anticipate the number being better in '12 than '11 when you roll it all up at the end of the year?

Instinctively I would.

We haven't gone through and looked at every single space to come up with that number.

But certainly it seems like we have more momentum today than we had a year ago.

Okay.

Thanks.

Cedric Lachance from Green Street Advisors.

Tom, when you look at debt financing nowadays, what are the most attractive sources?

The CMBS market?

Or is it unsecured term loans?

Or is it life insurance companies?

Where do you get the most attractive terms?

What we're really focused on, Cedric, is long-term fixed-rate financing.

And as Art said, we're price sensitive.

We're rate sensitive.

We're not so much proceeds sensitive.

I've spent time with most of the big life companies over the last month or so to see what their appetites are going into 2012.

And they've almost all indicated they've got allocations that are bigger than last year.

They're very focused on quality.

And even though, historically, we haven't seen life companies lending at levels close to 4%, they're very willing to do it.

We may see some floors come in at 4%, all in, but from our standpoint that's still pretty attractive.

So I'd say the life companies are the most attractive today.

They may not touch lower-quality assets.

But if you had an asset that you wanted exposed to the CMBS market you would probably be looking at a little bit higher leverage but also probably 50 to 100 basis points higher spreads.

So if the life company deals long-term are 200 over the Treasury, I would expect the CMBS in general to be, albeit at higher leverage levels, but to be more like 300 over.

Just to amplify on that, we're really a life insurance company borrower.

And that is by far, for our product type, the most efficient market.

The life companies love our asset class.

They're very aggressive.

In our Earnings Release, we made reference to a 10-year all-in fixed-rate financing of 4%.

I'd have to go back and check but I honestly don't remember, in my entire business career, signing a 10 year fixed rate interest rate deal at sub-4%.

That is like an all-time great print.

And that's the market, though.

And it's reflective of the quality of the asset, the coverage that's available.

As Tom said, we're not price sensitive.

We are price sensitive, we're not proceeds sensitive these days.

We have the luxury of being able to drive the best pricing.

And when you can borrow nonrecourse fixed rate, between 4%, 4.5%, 10 years, that's something that's very attractive to our Company.

And you're also dealing with lenders going forward that you can talk to.

And that's just really important when markets get disintermediated in the future or when you have opportunities to do something positive to the real estate.

So that's really always been our core source of debt capital.

I hope and relatively certain it will remain our core source of capital.

That doesn't stop Tom and the team from tapping into different sources of other debt capital like the seven-year unsecured term loan that they were able to do at a very attractive yield.

But it's reflective of very full appetite with the life company lenders to aggressively lend on this asset type.

And following up on a question that was brought up earlier, the CMBS lenders, they take confidence from this.

And so they're gradually moving back into the market.

We are seeing CMBS activity increase.

And, yes, it is possible, going back to an earlier question, that as that CMBS activity increases, it could fuel some interest in B type of asset quality malls where we would be interested in combining buyers with CMBS loans to allow for some opportunistic pruning of those type of assets in the future.

They're not in our business forecast for the year.

But opportunistically we will take advantage of that situation if that window does open up for us this year.

And all appearances are, is that it does feel like it's opening.

Okay.

That was very helpful.

And just going back to your Goodyear site, I think in the past you had thought about a start date that would result in an opening date of 2014.

And it appears to be delayed a little bit at this point.

What are the circumstances in the Phoenix market that may create that delay?

There's no circumstances other than we have no reason to build it until we can get what we think is a very opportunistic return on our investment.

We don't feel that the velocity of the wind at our back is sufficient to go and tie up that real estate for the 10 to 20 year terms that you're going to tie it up at.

And we have the luxury of sitting on land at a very low basis that we can bring to market when we want to bring it to market.

Our buildout period, the plans have been pretty much done, is really ready to go.

It's a 33-month start-to-finish project.

And when we're ready to break ground, you'll have a 33-month heads up.

You don't have a heads up today.

Okay.

Thank you.

Alexander Goldfarb with Sandler O'Neill.

Tom, just thinking about once you take out the convert with the new encumbrances, what percent of the portfolio will be encumbered at that point?

We still have about 10 or so assets that are unencumbered, but that's more than we've ever had before.

We are a non-recourse, long-term, fixed-rate borrower.

Which is fairly consistent in the mall business.

And, in fact, the 25 banks in our bank group are pretty comfortable with that because our revolver does not have any unencumbered pool requirement.

And we picked up some unencumbered assets as part of the swap of the IBM portfolio with our partner.

So we'll still have at least $1.5 billion, give or take, of value in the unencumbered asset pool after we go ahead and retire our converts by taking out mortgages on some of those assets.

So it's, in rough numbers, $1.5 billion or about 10 malls, is that fair?

Yes, that's in the ballpark.

I'm just approaching it from the sense of flexibility that you can substitute assets in and out depending on what's going on.

The second question is, Tysons Corner, the office, maybe I missed it but did you say that you were starting the buildings already or you're waiting until you sign anchors before you start building?

We're doing all of the infrastructure work which is really the long lead time work.

So there's a significant amount of ring road realignment, utility work, all of that work is being done.

The hole for the subterranean garage for the office building is going to be dug.

We've already ordered steel to frame in the hole and start pouring the foundations there.

So we're moving along.

But would you go vertical before signing a tenant?

Or you would do all that and then if there's no tenant by the time you would finish you would just cap what's there and wait?

I fully anticipate that that project will open up in the fall of 2014.

If for any reason we felt it was appropriate to delay it from that point in time, it's no big deal from our viewpoint.

We would have done all of the infrastructure work.

But at this point in time the leasing environment for that particular location is very strong.

I know there's a lot of noise in the marketplace about office leasing in the greater DC marketplace.

However, this is Northern Virginia and it is the only Class A-plus building that's going to be on the market, in the market, three years from now.

And it is by far the only building that has the amenity package for the location that this particular building has.

And you have significant blocks of major office users in the Northern Virginia market that are constantly having space rolled over.

So at this point in time, we think that we are in a landlord's market.

The overall market, the noise in the market would clearly indicate that there's a lot of headwinds for other owners of office space in that market and in other submarkets of the DC marketplace.

But not for this building.

Is Lerner still going ahead or has he slowed down his?

He's still going ahead.

That's not a factor, though, for us.

Look, he doesn't give his space away.

He's good competition.

And if you can just remind us how big your building is.

Just over 500,000 feet.

Very manageable.

Thank you.

Wes Golladay from RBC Capital Markets.

It looks like in the fourth quarter the same store NOI decelerated to 1.7%, and recoveries were a little bit lower.

Anything special going on there that's just one-time in nature?

Yes, we had some adjustments to recoveries in the fourth quarter of '10, Wes, that bumped up fourth quarter '10.

So that was nonrecurring activity then that didn't flow through '11.

Real quick, Tom, what would you say your target would be for fixed mortgages versus the variable at the end of the year, excluding construction loans?

We're going to take a big chunk.

I think I mentioned we've got over $700,000 of 2013 maturities.

And those are floaters that we are going to, at least half of those will move to fixed.

So we're going to be moving back closer to our historic levels for non construction borrowing, which is more like floating at 10% to 15% of the total.

Directionally, it's a great time to be taking floating rate debt and moving it into longer maturity fixed rate debt, and that's what we're doing.

Especially when you get the 4%.

Hopefully you guys might be able to get a three-handle soon.

Congratulations on that one.

Tom just three months ago talked about, because that's where the market was three months ago, that when you can do seven year deals at 4.5%, it's a great time to be able to do it.

And in the meantime, we just had a print at 10 years, 4%.

So you're right, we're headed in the right direction.

But the preferred lenders on these assets are life insurance companies.

So they do have a certain floor below which they're not going to go.

And even though the yield spreads to Treasuries, et cetera, might indicate something sub-4%, that's hard to imagine any time soon.

We're more than happy and feel that a 4%, 10-year deal is eminently fair for all parties.

Thank you, guys.

Ben Yang with KBW.

Based on your comments it's clear that you're not planning to do this.

But I'm curious if there was any consideration to maybe doing another round of converts to extend the existing maturity?

No, no, no.

Has there been a market to do something like that today for you or anybody else?

I don't know.

Because that word is banned here.

I have no idea.

There is a market, Ben, but it's not something we're --

No.

Sorry, Ben.

We never talk about it.

Switching gears, one of your peers recently suggested that they might do spec outlet center development, basically starting construction without any minimum level of pre-leasing.

Is that a strategy that you guys might also consider as you build out your platform?

And is it something that you're actually doing in Chicago given that, I think you commented that you're going to start construction pretty soon?

And then you'd also recently stated that there's a lot of competition nearby.

What are your thoughts on that?

The competition I was talking about was in Arizona in the Phoenix marketplace.

I'm talking about last quarter when you commented on Chicago.

Okay.

Chicago, we are far along in terms of our leasing activity there.

And we undoubtedly will be 50% signed and executed with a construction loan in place within the next 30 to 45 days.

So we're very far along on the leasing there.

If anything, we're at the point on Chicago where we're at a point to where we're ready to slow down on the leasing because we're so far along.

And as we get closer to the opening, we think we'll even get better rents.

We don't have any hard and fast rules about spec development.

I have a hard time believing that we would necessarily do spec development of anything.

But I could see building a building if I was just certain from the momentum that I had in the marketplace.

It could be an office building.

It could be Tysons Corner where we don't have a signed lease but we have so much activity and so many conversations going on that we're just not worried about it.

And if we're building it off of our balance sheet anyway, that we don't have a construction lender telling us what to do, we could easily start construction.

And it could be that that's what the competitor or peer that you were referring to has in mind.

Maybe they had in mind that they've got so much activity in terms of the leasing, they're not going to get a construction loan anyway and why should they constrain themselves with any rules out there.

I can't comment on other people's thinking.

But we don't have a history of building projects before their time, and that's really the relevant question.

Would we build a project before its time that would result in a project being very unoccupied or open up very weak?

We don't have a history of that and we don't intend to start a history of that.

It's not our style.

We will only build when we feel the time is right.

And that certainly applies to the north Scottsdale question that came up earlier.

I thought maybe it was a possibility since you're doing that at the office space in Tysons.

Yes, so, any product type that we're just so convinced.

We started construction on Santa Monica Place without any percentage of leasing done but that's because we knew that the demand was very strong.

We obviously got hit by a global turndown in luxury in all retail within a month of the time we started the demolition and the construction, but it opened up well-occupied.

It opened up with great sales.

And now we're just doing better from there.

Our sector is generally blessed with strong landlords that are not out there repeating any of the mistakes that other business cycles and other sectors and other markets have committed over the last 35 years.

You've got four or five guys doing what we do and on balance you just don't find oversupply situations.

You could find a submarket in a subcategory where you could have some oversupply.

If we see there's oversupply in a situation like that, like north Scottsdale and Phoenix, we have no compulsion to bring any product, whether it be a full-price mall in Goodyear or an outlet mall in North Scottsdale to market before its time.

We've got the best real estate in the market and we're not going to bring it until it's appropriate.

Are you proactively pursuing the outlet development in Phoenix at this point?

I thought I already answered that but the question would be it's very high on our radar screen.

Okay.

Thank you.

Tayo Okusanya, Jefferies & Company.

Just a quick question in regards to the leasing organization at Macerich.

We recently heard that it was realigned whereby leasing stats is now aligned more by property rather than by accounts.

Just curious what drove that change and what the results of that change have been in regards to leasing activity at the Company.

Yes, we recently realigned our leasing organization.

We decided to put our best people on our best projects and to flatten it out to accelerate the leasing process to have owners of particular properties.

And so far it's been very well received by both our staff and the retailers.

It's certainly not anything that we announce so you must have one heck of a good source of information within Macerich.

It's certainly not a reorganization.

It's not anything to take huge note of.

It's really just a tweaking of the way that we do business.

But if you were to be in our offices, we tweak our business every minute of every day.

So you haven't had any staff turnover as a result of the change?

There wasn't a change.

So what I'm saying is --

Of the realignment.

Whatever source of information you think you have is overrated, is all I'm telling you.

It was a tweak.

All right.

Thank you.

Michael Mueller with JPMorgan.

Two quick ones.

First of all, is there any update on Broadway Plaza?

And then, secondly, Tom, could you give us some numbers in terms of what's baked into guidance for lease term and land sale gains?

I'll start with Broadway Plaza.

The update is that we are moving along with our entitlement plans with the city of Walnut Creek.

The community has embraced our ideas in terms of how we want to intensify that property.

We are eagerly looking forward to the opening of what we think is just going to be a fabulous Neiman Marcus store at Broadway Plaza in Walnut Creek on March 8 of this year.

And invite you all to come out and take a look at it.

And to the extent that we believe that there's an opportunity to expand that center significantly by as much as through recycling square footage to recapture, and to create another 200,000 feet of specialty space, we think it's an opportunity to take that property from being a very high-performing, smaller regional center to an extremely high-performing super regional luxury center.

And we think it's probably -- somebody asked us 15 months ago, where is your next Santa Monica Place and we speculated that it was Walnut Creek a year-and-a-half ago.

And my view on that today is that it's really beginning to feel like that's our next huge opportunity to take a property up to the next level.

So we're really bullish on what's happening in the Bay Area.

The Bay Area is on fire from a retail perspective.

And Walnut Creek is one of the best submarkets, one of the most sought after markets in the entire Bay Area.

You can't find a better retailer that doesn't want to be there.

So we're really bullish on that.

It's not in our 30-month projected pipeline of activity but if it happens and we get the entitlement, that's a project that could easily be in our future.

And could be a project that we could be inviting you to the new expanded grand reopening of the center four years from now.

But it's not in our 30-month pipeline that we've been discussing today.

But it's definitely in the year after that as a possibility.

Just as there are other things that are out there as possibilities that we've already talked about.

And, Tom, you want to address that other question?

Mike, in terms of lease terminations we had, just as a frame of reference, actual in 2011 $13.4 million.

We factored $12 million into the 2012 budget.

That's a pretty light assumption, looking back on recent history.

We probably averaged over the last six or seven years more like $15 million or $16 million.

But we've got $12 million in the guidance, and there's nothing for land sales in the guidance.

Got it.

Okay.

Thank you.

Thank you.

We have no additional questions.

I'll turn things back over to our speakers for any additional or closing remarks.

Thank you for joining us.

We look forward to seeing you as the year progresses.

Thank you.

Thank you.

Ladies and gentlemen, that does conclude today's presentation.

We thank you for your participation.