Macerich Co (MAC) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by.

Welcome to the Macerich Company third-quarter 2012 earnings conference call.

Today's call is being recorded.

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

Following the presentation, 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.

Hi.

Thank you, everyone, for joining us today on our third-quarter earnings call.

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

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

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 filing 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; Ed Coppola, President; Tom O'Hern, Senior Executive VP and Chief Financial Officer; and Robert Perlmutter, Executive VP Leasing.

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

Thank you, Jean.

Welcome, everyone.

First off, I would like to say our thoughts and prayers are going out to those of you that have been affected by Hurricane Sandy.

From our end, we are mobilizing all our malls in the region with the Red Cross to help with the recovery where we can.

Fortunately, we have sustained no material damage at our malls.

Today we'll be discussing the third-quarter results, capital activity, and our outlook for the balance of the year.

It was another strong quarter for us, in terms of the fundamentals in our business.

Retail sales had a strong increase.

We saw very significant increases in occupancy, up to 93%, which is 190 basis-point increase from a year ago.

The leasing volumes were good.

We signed 247,000 square feet of mall shop leases in the quarter, and the average re-leasing spread was a positive 18.5%.

If you look at occupancy sequentially, compared to June 30, we were also up.

We were at 92.7% the end of June, and we were at 93.0% at the end of September.

Occupancy costs as a percentage of sales for the trailing 12 months was at 12.6%, that compared to 13% a year ago.

Looking now at results of operations for the quarter, adjusted FFO was $0.78 a share, up from $0.75 a year ago.

Same-center net operating income, excluding termination revenue and SFAS 141, was up 2.6%.

Negatively impacting the quarter were lease termination revenues, which decreased by $3.2 million, compared to the third quarter of last year.

Also negatively impacting the quarter on a comparative basis was the reduction in SFAS 141 revenue, which was a $1.9 million decrease from the third quarter of last year.

Management company expenses were up from the quarter at $20.7 million, compared to $20 million, but they're flat year-to-date at $66.9 million, compared to $67 million for the same period in 2011.

Other income has been up this year compared to last.

In each of the last three quarters, we've been averaging about $11 million a quarter in this category, which is mostly our business initiatives and includes garage and parking income, advertising income, sponsorship income, interest income, gift card income, and a variety of other miscellaneous items.

Looking at our balance sheet, our total debt-to-market cap for the quarter at quarter end was 38.3%.

Our interest coverage ratio is a very healthy 2.85 times.

We continue to be in a situation to be able to take advantage of this great financing markets.

There's a significant amount of capacity, and obviously the rates are fantastic.

As a result of this market, we began the year with an average debt maturity of 3.2 years.

As a result of the refinancing and the debt reductions, as of September 30, we've extended the average maturity to 4.2 years, and by year-end, we expect the average debt maturity to be over six years.

In addition, most of the loans we've been putting in place are long-term fixed-rate loans, and the excess proceeds are being used to pay down our line of credit and other floating-rate debt.

Our floating-rate debt at September 30 was 23.6% of our total debt, and that's down from 28.2% at the beginning of the year.

I would expect that trend to continue as we move forward with the financings planned for the fourth quarter.

We have a $1.5 billion line of credit, and as of September 30, only $255 million was outstanding on that line.

Looking at the recent capital activity, in August and September, we sold 2.9 million shares of common stock under our ATM program.

The average share price for those sales was $60.06, and the net proceeds were a little over $176 million.

As we mentioned in the press release this morning, we have arranged for a $600 million financing on Queens Center.

This is a 12-year fixed-rate loan.

The interest rate has been locked at 3.487%.

This loan is interest-only, no amortization.

The loan proceeds will go to pay off the existing $317 million loan that bears interest at 7.3%.

The closing is expected in December, and our pro rata share of excess proceeds will be approximately $135 million.

We have also committed to a $205 million loan on Deptford Mall.

This is a 10-year fixed-rate financing, and the expected interest rate will be approximately 3.75%.

In September, we also financed Westside Pavilion, again, a 10-year fixed-rate loan and an all-in rate of 4.49%.

That was $155 million financing.

And in September, we also put a $110 million loan on Chesterfield Towne Center.

That asset had been previously unencumbered, so that was $110 million of additional liquidity that came in during the quarter.

To date, we have closed $1.1 billion in financings at our pro rata share and another $500 million is expected to close before year-end.

On the recently announced $1.25 billion acquisition of Kings Plaza and Green Acres, we are anticipating putting a $500 million loan on Kings Plaza and $275 million to $300 million worth of loan on Green Acres, both of which will be long-term fixed-rate financings.

We recently, on October 25, announced an increase in our quarterly dividend.

The dividend was increased to $0.58 per share, per quarter.

That's a 5.5% increase over the prior dividend.

In this morning's earnings release, we gave additional confirmation of the FFO guidance range of $3.06 to $3.14.

That range is unchanged.

Looking now at tenant sales, small tenant sales per square foot came in at $511 for the portfolio at September 30.

That was up 9.4% from the 12 months ended September 30 of 2011.

If you look sequentially at June, and if you exclude NorthPark Center from the June numbers, and compare those to September, we had a 2.6% increase in just that one quarter, in sales per foot.

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

Thanks, Tom.

I just want to echo our thoughts and prayers on the folks on the East Coast.

I know that it's devastating.

All of our properties are open for business today, with the exception of Freehold, which has a power issue.

We anticipate that will be open shortly.

And again, we are mobilized at each of the properties to provide help with the recovery efforts, and we will do everything that we can to assist in that regard.

If you take a look at what we are reporting to you this quarter, you will see that it is a precise reflection of what we laid out for you in my shareholders letter to you 18 months ago in March of 2011.

We've extended our maturities, we've lowered our debt levels, we've sold non-core assets, and we've invested into our core markets.

We've increased the productivity of the portfolio and increased the focus of the portfolio, all with what I feel is great discipline.

On the operations side, you can see that sales continue to be very strong, that occupancies are very good.

Leasing spreads continue to be very strong.

We are very optimistic on the leasing side.

We have had continued good progress on a number of fronts on the leasing side and on the operating side of the business.

Even though I'm sure that a lot of the discussion today will be balance sheet, dispositions and acquisitions, I want to reemphasize that the operating side of our business is extremely strong.

I've seen some people write recently about the possibility of, has this month's sales, has the rate of increase declined a little bit or not?

That's really irrelevant.

You need to understand that our retailers are making commitments for 10 years.

We could care less what happened this month or last month.

Bottom line is, as was focused on recently, I think by Green Street, which we've been talking about for two years, operating margins are excellent, and that's the key number.

They are making money.

They are making deals.

You have the global retailers, now, are getting shy, as well as the US retailers, of their expansion plans around the globe, in Europe and Asia, and they are refocused here in the US.

And that reflects itself in a lot of the activity that we have seen and that we are seeing.

So, I can't tell you how bullish I am about the portfolio today, about our business today, and very happy about the addition of the new assets that we've added.

On the sales front, I'd like to point out just a few statistics and trends.

Year-to-date, sales in our top 10 centers are up roughly 9%.

Our next 25 centers up roughly 8%.

Our top 40 centers, overall, are up 8%.

And then our next 20 centers, year-to-date, are up just over between 3% and 4%.

So, that's exactly what you would anticipate -- the most productive centers continue to get better at an increasing rate, and the more mediocre centers just have slower growth rates.

That reflects itself in leasing spreads at the bottom tier, as well as at the upper tier.

The upper tier you get better leasing spreads, the bottom tier you don't get the same leasing spreads.

But we are seeing good growth, even in our bottom 20 assets, or, as some people would call them, our B assets, and a lot of that growth is driven by occupancy and also just scarcity of opportunity for the retailer.

At quarter end, our top 40 centers in our portfolio generated about $571 a square foot, and generated about 78% of NOI.

When you bring Kings Plaza and Green Acres into the portfolio, and into the top 40, which is where they will land, then that takes our top 40 centers will have sales of, say, closer to $580 a foot, and the NOI generated from those top 40 centers will be somewhere in the low 80s -- 83%, 84%.

So, as we've outlined to you in the past, our goal is to have over 90% of our NOI coming from what we consider to be core centers, fortress centers, and we're making great strides in that front, increasing our ownership of FlatIron and buying Kings and Green Acres are certainly good steps along the way.

Next, I want to talk about dispositions and then acquisitions, and then developments, and then we'll open it up for questions.

On the disposition side, we gave you guidance last quarter that we anticipated that the full-year dispositions would be roughly $450 million, and that's what they ended up to be.

With the primary disposition in this quarter being the sale of our financial interest in NorthPark Mall in Dallas.

A little bit about NorthPark Mall in Dallas, we bought into that center with a $75 million investment in 2004.

At the time that we went into it, throughout that period of time and today, we are bound by confidentiality agreement with the family that owns it, and so we do have some limits on what we can discuss, but let me give you the details of what we can discuss in history.

We went into the property with a $75 million investment, with a preferred return on that investment that protected us from development risk as the center was about to go through an expansion.

And also, with an internal rate of preferred return that was to be paid to us if and when earned and also if and when our partner were to decide to buy us out.

The partner had the right, in this year, to consider buying us out.

And to do that, they were required to pay us a fixed price, which was essentially our original investment plus an amount of cash equal to that amount, to get us to a 9.625% internal rate of return.

We had a hope certificate when we went into the deal that it would emerge into a co-operating position.

It didn't work out that way.

We've never managed the center, we've never leased the center, and while the optics of having it in our numbers, which effected our sales numbers by roughly $15 a square foot, which is why our sales are $511 instead of $526, give or take at quarter end, the opportunity to de-lever by almost $300 million and take that money off the table was attractive to us.

We do have certain ongoing rights, as a consequence of our original agreement, and should the owner of that center decide they want to bring in an equity partner in the future, we do have certain rights of first refusal over that.

But again, from our viewpoint, it was a good financial investment.

It was something that was a very good hope certificate.

It did not work out to be a full co-management and co-operating partnership.

We don't have any other partnership agreements that have that type of provision.

It was, again, a preferred equity position, which I think you've heard us say at different times in the past.

Looking to the acquisitions that we've done, I want to lay out for you exactly how we have, in fact, already financed the acquisition of Kings Plaza, Green Acres, and the 75% interest in FlatIrons Mall.

Kings Plaza and Green Acres have a total acquisition price of $1.25 billion.

Our acquisition of our 75% interest that we did not own in FlatIron Mall was roughly $323 million.

So let's say that's $1.575 billion.

Here's how we are financing that or have financed that.

There was $127 million of our pro rata share of debt that we assumed in the purchase of our partner's interest at FlatIron.

There's roughly $800 million of new debt, about $500 million on Kings, that we are about to circle at a sub-4% interest rate, and probably $300 million, give or take, maybe more, on Green Acres.

So there's $800 million of property-level debt that will have term of between 7 and 10 years on the two different loans, probably 7 at Kings and 10 years at Green Acres, that will finance that portion of it.

So, property-level debt is $925 million, give or take.

That leaves you with the $650 million component to fund in the equity of these acquisitions.

Here's how we funded it.

We raised $170 million through the equity issuance under our ATM.

We raised $245 million as our pro rata share of equity from the dispositions that we did this year.

We will be receiving roughly $140 million as our pro rata share of excess proceeds from the Queens refinance, and we raised roughly $110 million, but let's say we used $95 million of it in the encumbering of an unencumbered asset -- Chesterfield Mall.

You add that up -- the $170 million on the ATM, the $245 million on the equity from the dispositions, the Queens refinancing excess proceeds, and the Chesterfield mall unencumbered -- encumbering the asset; that totals $650 million, and that is exactly how we financed it.

Now, what's the impact on our earnings?

If you take a look at the equity at the centers that we sold, which had $245 million of equity, $466 million total, on a full-year run rate, that $245 million would have been approximately $0.10 per share, diluted.

If we had taken that $245 million and basically just paid off our line-of-credit debt that has a pay rate of, say, 2% or so, and we had roughly an FFO yield on the $245 million of equity that we raised of just north of 8, that comes to about $0.10 per share, diluted.

Now, because the dispositions were done during the course of the year, how much of the impact on 2012?

Probably, let's say, $0.05 per share, $0.06 per share, something in that neighborhood.

Tom will be able to -- not on this call, but in one-on-one meetings at NAREIT and by phone -- give you much more precise guidance on that specific number.

So, the equity from the dispositions, with dispositions are always dilutive to earnings -- I don't see them as dilutive to NAV, if you see that you got a full price, but they're always dilutive to earnings in this environment -- was roughly $0.10 per share.

When you add up exactly how we financed this transaction and the equity cost of our ATM equity, the FFO that we lost on the equity of the dispositions, and the interest rate on the debt that we are putting onto the properties that we bought, as well as the debt that we used to finance the balance of the transaction, from the Queens refinance and the Chesterfield financing, we not only claw back the entire full-year run rate of $0.10 per share dilution, but we add $0.10 per share of accretion.

So from an earnings viewpoint, that's very attractive to be able to have fully financed, on a long-term basis, including equity and dispositions, the transaction and also have an earnings benefit that on a full-year run rate, going forward, after deducting the full-year run rate of dilution, on the equity dispositions, it's $0.10 per share accretive.

This is precisely what we told you we were going to do 18 months ago -- that we were going to recycle money out of non-core assets and into core assets.

You might ask me a question, why do I consider NorthPark to be a non-core asset?

It was non-core because we didn't operate it.

We didn't lease it.

We didn't manage it.

Our partner was very proprietary about that.

We didn't get any of the platform synergies from it.

That's what made it non-core.

Again, we had the hope certificate on it, but that didn't work out.

But we're very pleased with how we, in fact, financed these transactions.

We're very pleased with the opportunity to buy back our interest from our partner in FlatIron.

Now I know there's probably a cynic on this call that's going to say, oh gee, you brought in that partner, and they put up $120 million or so to get into the deal, and now you paid them a $196 million, 3 years later.

Well, guess what?

I would do that all day long.

Remember, when we brought in our partner into FlatIron, and Queens, and Chandler, and Heitman, and Freehold with Heitman, we did that in lieu of doing what everybody else in the universe was doing, which was selling survival equity.

To raise that same $120 million that our partner put into FlatIrons three years ago, we would have had to have sold 10 million shares of stock back then to raise that same money.

The way that I see it, we are looking at being, basically, today, with $195 million that we used to buy them out at today's stock price, we saved the issuance of roughly 7 million shares of stock.

And at today's stock price, the way I see it, we are around $400 million ahead on that one deal alone.

And the same math applies to Queens, and the same math applies to Chandler and Freehold.

But I am very pleased to bring this back into a wholly-owned category.

We have great hopes for FlatIron.

We have a re-tenanting plan where we are looking to relocate JCPenney from a mall that is headed in the wrong direction to the south of us, down in Westminster, and bring Penney up to our mall.

And we are repositioning the outdoor village, not at a lot of money; it's around a $10 million, $15 million max, total redo.

But we think that the center is definitely on an uptick, and we are very pleased about it.

Turning to Kings and to Green Acres, in particular, and what our thinking is there.

We're just thrilled with the opportunity to add Kings and Green Acres to our portfolio.

When I thought about and had talked about wanting to increase our presence in the New York markets and the Washington DC markets, there were two centers that came to mind as being really the two centers that we would have loved to have added in the New York market.

And we were able to make this deal to buy Kings and Green Acres, and we are just thrilled.

We have a tremendous track record in the boroughs of New York.

Besides owning Queens, we also manage a center in Yonkers, and it's a fabulous market.

We see the opportunity at Kings to do something along the lines of what we did at Queens.

When we bought Queens, it was doing $600 a square foot, and before we ever did any expansion of the center, we went through a re-leasing process, where we took the tenants that were underperforming, and we replaced them with tenants that would perform better than the mall average.

And over the course of the next five years or so, we raised the sales at Queens Center from $600 per foot to $1000 per foot, just through a recycling of tenants and going from unproductive to productive.

We see the opportunity to do something along the same lines at Kings.

It is a fabulous market.

It has a lot of the density characteristics that we enjoy at Queens.

It has a further opportunity, beyond the fact that where there is an opportunity to do some re-merchandising here, you also have a functionally obsolete department store with Sears.

It's over 330,000 square feet.

And they have already indicated that they would like to downsize dramatically.

So, the opportunity is there is to have a conversation with them to recycle a significant amount of space there, possibly as much as half of their space, either into shop space or into the addition of another anchor, whether the anchor be a department store, a theater, and/or shops.

We are going to be very patient about Kings.

The first step is going to be the re-merchandising of unproductive tenants into productive tenants.

But the opportunity there is really quite significant.

And it's nice, because we can do it all within the four walls of the property.

Because you have that 339,000-foot box of the Sears building that we have reason to believe in conversations with them, that they want to reduce in size, and then we are going to recycle that into more productive tenants.

So, we are just really thrilled about that.

Occupancy costs at Kings are roughly 19% of sales.

The answer to that is you increase the sales by bringing in more productive tenants.

Every year that we've owned Queens Center, whether it was doing $600 per foot or $1000 per foot, occupancy costs at Queens Center have been 20% of sales.

The key is to bring in more productive tenants, and the other opportunity is to recycle some department store space to shop space that pays you real rent.

Green Acres is also an opportunity but on a different scale; it's more of a suburban mall, obviously, than Kings.

I liken it to some of the centers that we own in the Los Angeles marketplace.

We are extremely familiar with how to do business in markets like this.

There is an opportunity here at Green Acres to take one of the department stores, JCPenney, who has some of the highest sales per foot for JCPenney of any Penney store that we have in our portfolio, and they want to get into a new full-line store.

And the nice thing is that the space that they occupy really is mall shop space.

It's right on the 50-yard line of the mall, and the opportunity there would be to expand them possibly outboard, convert their store into shop space, maybe even dream a little bit and add a second level and connect it into the existing 1-acre second level that's got a food court and is only anchored by Sears, so then you'd have a fully two-anchored second level that would have both Sears and Penney on them.

We see a lot of upside there.

Green Acres does -- [we enter up] Green Acres in 1995 when Vornado bought it, and they ended up buying it back then.

Green Acres today does $800 million of total business on-campus.

Now to put that into comparison, NorthPark in Dallas and Tysons and centers like that, those are numbers like those types of centers, in terms of total business.

Obviously, it's coming from a lot of the big boxes, and not so much from the fancy luxury tenants.

But, it's still a very productive center.

It certainly fits with the category of, you cater to the masses and you eat with the classes.

So we are very optimistic about where we are going to head with Kings and Green Acres, and we are thrilled to have them in our portfolio.

Turning now to developments, there's also been some folks recently that have said, gee, Macerich, between their development pipeline and now this new acquisition, what are they going to do about their balance sheet?

Well first of all, as Tom pointed out, our balance sheet, from a maturity schedule viewpoint, has gotten significantly stronger over the past few months, and is going to continue to get stronger.

From the viewpoint of floating-rate debt versus fixed, any ratio you want, debt-to-EBITDA, any ratio, coverage ratios, it is much stronger after these acquisitions than it was even at the beginning of the year.

Looking at our development pipeline, to remind you, the imminent development pipeline that is unfunded is only roughly $250 million, which is our share of the development at Tysons Corner.

And you may remember that I pointed out to you on our last call that we have a loan at Tysons Corner coming due February of 2014, which only has a balance of $300 million on it.

So the idea of completely repatriating the dollars that we and our partner, Alaska Permanent Fund, are putting into Tysons Corner in 16 months or so is certainly there, and our partner is amenable to such an idea.

So that is very manageable.

Looking to Tysons Corner and the development itself, I'm pleased to announce today that we have signed on with Hyatt Regency for them to come in and operate and use the Hyatt Regency flag at the hotel component that we are adding to the property.

They are very bullish on the prospects there, and there will be a separate press release that will be coming out of the organizations either today or tomorrow that will point that out.

I am also pleased to report to you that we are making significant progress on the leasing of the office tower.

I would not at all be surprised if before we report to you on our next quarterly earnings call three months from now; I would not at all be surprised to have announced to you that over half of that building has been leased to a very one or two significant tenants.

So we are making good progress there, so I think the idea that once the infrastructure gets up to the podium level, sometime in the spring of next year, the idea that we continue to go completely vertical is most likely in the cards.

And on an office tower of this nature, once you've got it 50%, 60% leased, the rest of the tenants really kind of fill in quite nicely.

So we're very pleased about where we stand on that.

Fashion Outlets of Chicago, the leasing remains terrific, we are not releasing the names of tenants, maybe even until the opening.

But I can assure you the quality of the merchandise mix there is going to be second to few.

August 1 is the grand opening date.

We are online on budget.

And I'd point out to you that the equity that we are putting into the Fashion Outlets of Chicago has already been funded.

That's what primed the construction loan.

The construction loan will be used to fund the balance of it.

So that does not have any development overhang.

We are very happy to announce that, also in Chicago, at North Bridge Mall, the addition of Eataly to our project.

Eataly will be occupying space just off of Rush Street in a location across the street from Nordstrom, basically.

60,000 feet, it's even larger than the Eataly that you know in New York.

The owners and sponsors of Eataly, the Farinetti family and others and Mario Batali, are extremely bullish about the prospects in Chicago.

Local folks in Chicago, real estate folks and otherwise, firmly believe that this is going to have a significant shift of the balance of traffic down towards our side of Michigan Avenue, the more southerly section of Michigan Avenue.

And it even further bolsters our decision to open up North Bridge to Rush Street by creating a new opening soon, over the next six months, and a new escalator up into center court there that will take advantage off of the current traffic that we have off of Rush Street and that will drive traffic in more than one way into the mall.

Right now, we only have significant traffic coming off of Michigan Avenue.

But this will give us another level of traffic off of Rush, which is actually one level below upper Michigan Avenue, and we are very bullish about that.

Everything that we are doing in connection with Eataly and the escalator court and everything else is going to have great impact on the center, but it's not a lot of money.

Our share of the CapEx for that alone is less than $10 million.

Big bang for our buck, not a lot of money.

So we are very pleased about where we stand right there.

And then just kind of getting back to what Macerich does every day.

We had an opening during post-quarter close on October 5th of a relocated JCPenney store at Victor Valley Mall in the high desert in Victorville, California.

It's an interesting center.

It does $459 per foot in spite of the fact that, over the last of couple of years, it's been operating with two vacant department stores.

But as part of our repositioning plan there, we relocated Penney from 50,000 feet, a small store, to 100,000 feet, give or take.

They had 7 stores open this fall, including some in urban locations, big cities, and they tell us that that particular store at Victor Valley was the best-performing store of the 7 that opened.

We can see it already from the traffic that the community loves it, and we fully anticipate that when we take the other vacant store, which is currently under construction, which was an old Gottschalks, and we bring up a more fashion, for that market, store, Macy's, to replace them, which will open up in March of 2013, we think that the center will easily surpass $500 per square foot.

That's an example of taking a B mall and turning it into an A mall, if you're going to measure it by sales per foot, similar to what we did at Modesto and Fresno -- the types of things that we do every day here.

So with that, I would like to open it up for questions and welcome you to this call.

Thank you.

(Operator Instructions)

Michael Bilerman, Citi.

A quick question on NorthPark.

Just from what I understand what the income statement impact is, in terms of -- I recognize the $75 million was a preferred investment.

What were you actually accruing, in terms of NOI, within the unconsolidated joint venture statement?

Was it just a preferred return on the $75 million, or were you actually earning 50% of the NOI?

The FFO impact was based on our investment, our equity investment, and it was approximating $10 million a year.

It had nothing to do the NOI.

It related to the preferred return, I believe, right Tom?

Yes.

Right, so [inaudible], and I think there was some investor concern that from an NAV perspective, that your NAV, you would've been picking up 50% of the NOI, but clearly, on the implied sales price for an asset of that stature, it would imply something much less.

So, what you are saying is the NOI that was being derived was off of a $75 million base, and in some fixed percentage of that, rather than 50% of the NOI?

Yes.

The bottom-line impact was $10 million over the last couple years, as the investment grew to over $100 million.

So roughly 9.625% return on that amount.

Right.

And the debt, there was $163 million of debt, right?

(multiple speakers).

Well, and there was also a kicker on top of that debt that could've been as much as $75 million to $80 million.

Okay.

And then, in terms of FlatIron, I completely agree, selling assets at that point was much, much better than selling stock.

I just want to make sure I understand the dynamics in terms of the yield that you are buying back in at.

I see there's been some growth in NOI.

Is it unfair to assume that the buyback was at about a 6.5% cap?

Free and clear, closer to 6%.

Okay.

(multiple speakers).

Partner buybacks are difficult to talk about, but you are in the zip code, but it's closer to 6%.

Okay.

And then it was extraordinarily helpful, Art, as you went through the sources and uses.

I guess from an ATM perspective, you talked about what was done in the third quarter.

I assume that means that nothing was done in the fourth quarter, or are you continued to tap that?

We've done nothing in the fourth quarter, Michael.

And then, as you think, going forward, clearly, just as sources and uses, there was more debt and getting the excess proceeds.

Do you think about adding more equity to the base?

Or you feel comfortable where you are today going forward?

No, if you roll it through pro forma and factor in the acquisition at Kings Plaza and Green Acres, we're comfortable where we're at.

The debt-to-market cap is about 45%.

As we said, the average maturity schedule gets pushed way out to over 6 years.

And the debt-to-EBITDA is in the high 7s, low 8s.

All levels, we are comfortable with.

Okay.

(multiple speakers).

On the other hand, I will say that when we announced earlier in January that we were going to be disposing of non-core assets, at the time, it was really intended to recycle capital, predominantly into our portfolio, whether it was going to be into the redevelopment pipeline, the development pipeline, reducing leverage, just focusing on our core opportunities.

The opportunity, through these acquisitions, to effectively have recycled that money, from dispositions directly into a home, turned out to be terrific for us.

And, given the size of the acquisitions and the accretions, -- look, I'm not a big fan of creating earnings accretion through cheap debt; it's just a function of the math -- but, the fact that we did also use a fair amount of equity, as part of consummating the transaction.

Between the equity of ATM equity and the real estate equity is over $400 million of equity that was recycled into these acquisitions.

So they weren't completely levered up.

However, our goal remains the same.

We can never have too much equity, and it can never have too little debt.

You can never have too much core assets, and you can never have too few non-core assets.

So, the idea of continuing to opportunistically go ahead and think about recycling out of some of what we consider to be our non-core assets, which will include malls that we might consider, some would consider to be B malls or even Cs, maybe even an A, over the course of this next year, is clearly something that we will consider.

And when you are sitting on $0.10 per share of forward-looking, and when you really look at the acquisition as a total, if you got to $0.10 by clawing back the $0.10 of dilution, it's really $0.20, when you really do the math of the acquisitions.

There's an opportunity to do continued dispositions, which will take debt off the balance sheet, raise equity to reduce further debt, improve the ratios, and still have a decent amount of accretion from this activity and have an even stronger balance sheet.

And we are going to continue to do it.

(multiple speakers) There are no further dispositions planned that will happen this year.

There are clearly dispositions that are being looked at in the near-term.

Thanks, Michael.

Paul Morgan, Morgan Stanley.

Basically, when you were talking about the non-core sales last quarter, people maybe didn't expect it, but that actually included NorthPark and not a lot of the other sort of B malls that you've talked about being in the bottom 20 of your centers.

It includes both.

In the beginning of year, it was primarily the other stuff.

As the year went on, when we raised our guidance level on dispositions, it began to include NorthPark, but that was still up for debate as to whether or not that was going to be disposed of.

But I clearly consider NorthPark to have been non-core, in fact, de facto, because we didn't manage it, we didn't lease it, we didn't get any synergies from it, we didn't control it.

It was just a financial investment.

It had a big hope certificate.

And you know what?

I would do that with South Coast Plaza and Bellevue Square and centers of that nature all day long.

I would make the same investment with the hope certificate that it became a real pari passu.

It did not.

It is what it is.

The opportunity recycled $300 million of debt and equity back into opportunity by Kings and Green Acres and owning all of FlatIron; worked out terrific for us.

Great.

And then on Tysons, the last quarter, you talked about March, April being kind of the next step where there would be more focused go, no-go decisions.

Based on your comments today, it sounds like, at least in two of the three components, that if it continues to lean more towards a go at that point, is that fair?

Well, the only thing that was potentially no -- the only thing that was potentially going to be paused was the office tower.

The platform that gets built -- and believe me, this is a one-dimensional communication and it's a three-dimensional project, so I know it's probably hard to imagine -- but we are doing all of the subterranean infrastructure right now, which includes couple thousand subterranean parking spaces.

We build it up to a platform, which is 2 acres of a plaza, up in the air, that is above the ring road, above the parking lot, feeds into the metro lane, and feeds into the second level of the mall.

And then, sitting on top of that is the hotel and the residential tower and the office tower.

The hotel is a go.

It's Hyatt Regency.

We are very happy about that.

The residential is a go.

The thing that I mentioned before, in terms of the phasing of the construction, was that our go/no-go decision on the office tower would be -- we would have to make that decision in the spring, March, April, May, to have it continue to be on exactly the same schedule as the others.

My prognosis, and the thing that would drive it, is if you're more than 50% leased, or you feel really good about the leasing, which is really a lead tenant or two.

Today, I'm much more optimistic -- that can change -- about where we stand on the leasing.

And again, I would not at all be surprised if we were to make an announcement before our next earnings call that would show that we are more than a half leased, that we have anchor tenants there that would cause us to continue with the office tower.

And in fact, the result of all that is that the office tower opens before any of the three towers.

It opens up, I think, in the spring of '14, and then, I think, the hotel and the residential tower come mid- and then late '14.

We are very, very bullish about where we see our conversations on the leasing on the office side.

Okay.

Great.

And just lastly, do you have the regional sales growth?

Yes we do.

Yes, regional sales growth was 17% in Arizona, 6.7% in the East, 11% in California, 10.8% northern California, and Pacific Northwest 11%, Southern California 10.8%, and Central region, on a comp basis, excluding NorthPark, up 8.2%.

Great.

Thanks.

Nathan Isbee, Stifel Nicolaus.

Art, just going back your comment before about the pro forma debt-to-EBITDA in the high 7s to low 8. Was that including all the development projects and redevelopments you have teed up?

Nate, this is Tom.

No, that's as of January that's showing close on Green Acres.

Obviously, the developments don't stretch the value as much as an outright acquisition, because obviously we are looking at strong returns in the 8% to 10% range and values substantially lower than 6%, so there's built-in equity there.

Okay.

So you're comfortable that, even with all that activity -- (multiple speakers)

Well obviously, the developments will temporarily, until they come online and start servicing debt, will increase --

Right.

-- that EBITDA slightly.

But on the other hand, you've got the disposition effort that Art mentioned that we expect to be ongoing.

We are not done with that initiative of selling non-core assets and redeploying capital.

That will be going on, as well.

And that could involve outright dispositions; it could also involve the possibility of allowing somebody to co-invest with us on a partnership level on certain assets.

Okay.

Thanks.

And then, on Kings Plaza, when you talked about the efforts there to take the sales from the $650 up to the Queens-Center-type level, Kings Plaza -- clearly it's a good asset, but has not had a lot of money put into it for many years, both interior and exterior.

Can you talk about what type of dollars you might have to spend there just to get those sales up to attract those types of tenants?

The truth of the matter is you don't have to spend anything to do the day-to-day re-leasing that we do that increase the productivity.

We took the sales at Queens Center in the first five years of ownership from $600 to $1,000 per foot and didn't put a penny into it.

And it looked -- it was pretty old and beat up, too.

So, look, it's a great opportunity to give it a fresh face.

Do I think it's a Queens Center in terms of $1,000 per foot center?

No.

But, I think it's got the opportunity to have at least $200 per foot in productivity increases, which isn't so bad, especially when you also have the opportunity to potentially increase the mall shop GLA by recapturing anchor spaces.

It's what we do everyday.

It's taking big spaces that defensively got leased to big boxes and carving them up into smaller spaces.

It's recycling functionally obsolete huge anchors -- I mean 339,000 feet, four levels for an anchor store is ridiculously big -- and recycling that square footage.

It's what we do everyday, and it doesn't involve having to buy any more land, building.

It's all within the four walls of the building.

We have taken a look at some numbers.

And we actually have a plan to, one of them, to recycle about half of the Sears building into shops and/or anchor space and freshen up the mall, and I think that plan is in the $50 million to $75 million neighborhood total.

But the returns on that, which are not in our acquisition numbers, because we don't control the recapture of the Sears space, were mid-teens cash-on-cash.

Our development money that we spend, because it has a high hurdle, especially when you are buying a center that has not been brought up-to-date.

And look, we own centers that have not been brought up-to-date also.

Just so you know.

Yes.

(laughter)

We try and stay ahead of the curve.

But, you spend the money when it makes sense to spend the money.

You don't spend the money just to be spending the money.

The time to spend the money is as part of an anchor repositioning, and then you completely reinvent the center.

Do I think that five years from now, you could walk into Kings Plaza with a blindfold on, compared to today, and you wouldn't recognize it?

I totally believe that.

Totally believe that.

So, it's safe to say that any significant work there would be coupled with some activity on the Sears space?

Well, that's the big opportunity.

But on the other hand, there's lots of low-hanging fruit, but what we do -- and that's not a criticism of the former owner.

It's just that we, look, we bought Queens from somebody that was a pro.

We bought Santa Monica Place from the Rouse Company, okay?

They were pros.

Okay?

Any time a new owner comes in that has a vision that's different from the old owner's vision, and the vision can be made to reality, and it was a good idea, we make a lot of money.

But we generally -- that's what we look for when we buy.

Okay.

And then just focus on Green Acres for a minute.

Is that an asset that you clearly want to own long term?

Or is it more that it came along in a package, and you are evaluating your options with it?

We had a conversation with the owners of Vornado 1 year ago.

And they own more than just Kings and Green Acres.

And if you'd have told me a year later that we were able to get control of Kings and Green Acres, I would have said, boy, that was good year's of work.

We're very happy with the outcome.

Okay.

Thanks.

Jeff Spector, Merrill Lynch.

I wanted to focus on operating metrics, specifically, same-center NOI.

I am not sure how much you can say or not, but when I look at the increase in sales per square foot over the last, I don't know, seven, eight quarters, and the last time you reported occupancy cost-of-sales, it seems like there's a big opportunity here to push same-center NOI over the next 12, 24 months.

I don't know how much you can talk about that.

Well, Jeff, the re-leasing spreads really relate on a given year to about 8% to 10% of the portfolio.

So, if you were to have a positive spread of, in this case, 18%, you have to multiply that by 10%.

You are going to pick up 1.5% to 1.8% on your same-center NOI line, so it's certainly a key part of that.

But given the trends, it would indicate that the sales are going up faster than our rents.

It's just cause we can only get our hands on 10% of that space any given year.

But it does bode well for the future.

Let me answer it a little more granularly.

We just came through budget meetings with the executive team and with Bobby Perlmutter, who's with us now, and actually a lot of you will be meeting him at NAREIT, so that will be great.

We have great visibility into each asset.

We are very bullish about the activity we have.

I don't care if it's Queens; Corte Madera; on North Bridge, I'm bullish; on Tysons Corner, there's great things happening; Washington Square; Santa Monica Place, we're doing some terrific things; Cerritos; Kierland Commons; Broadway Plaza, on the development side; Arrowhead; Fashion Fair, Fresno -- I go through each and every center, and I see great activity levels.

Now when we don't see great activity levels, and we just see flatness and stability, or even a downward trend, those are the ones we're going to be exposing to the disposition market.

But the keepers, the ones that are in that top 85% to 90% of NOI on a granular basis, I could spend 30 minutes on every asset with you and talk to you about what we see in the next year or two.

So yes, we see great same-center NOI.

It's up to us to produce it, and we can't do it to meet quarterly expectations, because we are always thinking about the bigger issue, which is value creation.

So, we are patient about how we do it.

But you add the day-to-day stuff that we are doing at every one of our centers.

I do think there's some opportunities at the acquired centers.

There's an opportunity at FlatIron that I mentioned earlier in the call.

And then you add to that, bringing online fashion outlets to Chicago in August, which is going to be just a huge hit.

Yes, we are very optimistic about where we will be on that, and obviously, we will be giving you guidance for next year on the next call.

Okay.

And then, sorry if I missed this, but did you discuss, I guess, development, specifically given the high sales increase again in Arizona?

We talked about the developments that are underway, which is Tysons and Fashion Outlets of Chicago, where there's real money being spent.

Other than that, we talked about a lot of action going on at North Bridge, but not a lot of money.

Okay.

So nothing else new?

No.

Okay.

And then, I wanted to ask an update on Santa Monica Place.

I just heard, Art, you mention it quickly.

Any new updates there?

It's going to be one-by-one.

There is a lot of activity going on.

I can tell you that it's in the second generation of leasing, as I said before.

It's unusual for a new center to be in the second generation two years in.

It's not unusual for a great new center to be in a second generation, because, within two years, it becomes really obvious what concepts are working and what concepts are not.

And then Darwin takes over and the productive guys come in, and they pretty much force their way in to take over the unproductive guys, with our assistance.

Okay.

And then, my last question, I'm not sure if you can answer this, but, just to give us a feel for Kings Plaza, Green Acres performance, can you mention how their sales trend there looks over the last 12 months?

They've been similar to our portfolio, and they're in positive sales trends at both.

Okay, great.

Thank you, guys.

Rich Moore, RBC Capital Markets.

Just curious, more broadly, what you guys are hearing in general from the tenants out there, especially for the regional malls, as they look going into the holiday season, here, and then into next year, as well.

They are making capital commitments.

They want to grow their business.

Nobody knows what Christmas and holiday sales are going to be until December 31.

I don't mean to be trying about it, but it's just you know we get this question every year, and I don't know.

(multiple speakers)

(multiple speakers) Art, in a reduction --

-- prospects for the next year to two years, to five years, to 10 years, they are bullish as can be.

I do hear some anecdotal evidence that those that you can measure on the department store side are increasing their hiring to have more staff on the floor, in anticipation of greater sales.

But, you know what, it's going to be what it's going to be.

Do you sense any change from --

Can you tell me who's going to win the election?

I'd take a shot at that, but I really won't do it here.

(laughter) I'll bet, at a minimum, that it would be half right.

The thing is, I'm in Ohio, and, listen, my vote is open for a sale.

(laughter) What I was thinking more of, Art, is from, say, the last quarter to this quarter, is there any change?

I mean, are they accelerating the way their (inaudible) their positive thought process, or are they, maybe, gotten a little more cautious?

Sure.

Bobby is here, Bobby Perlmutter.

You want to comment on the leasing side, Bobby?

I'd say as a general rule; we see the market continuing to improve.

I think, generally, people think it will be a good, but not great, holiday season.

I think one of the real positive trends is some of the companies with larger fleets are really more focused in the BB plus category for their expansion, which is probably a significant improvement over the last couple of years.

But we look at our biggest tenants, and our biggest tenants, generally, their business is good, and when their business is good, they open more stores.

In particular, Gap, who is a large tenant for everybody, seems to have stabilized significantly over the last 12 months.

Okay.

So if we think about year-end occupancy as the -- where are you thinking, I guess, year-end occupancy for this year?

Well, the occupancy always moves up a little bit at year-end.

Last year it was 92.7%, and that was up from about 92% at the end of the third quarter.

So we expect to see that, and maybe 93.5%, something like that, Rich -- a little bit of a pickup in the fourth quarter.

Okay.

All right.

Good.

Thank you, Tom.

And then, on kind of a strange question, we don't have the JV data yet.

The depreciation expense in the JV seemed to go down substantially, which changes, of course, the FFO, based on what the income line is.

Is there anything special that happened in the DNA, I guess, of the JV line?

So you're saying the JV line went down sequentially or compared to last year?

Yes, sequentially, exactly.

I'll have to get back to you on that one, Rich.

That's okay.

That's all right.

That's fine.

And then the last thing I had was the $255 million on your line of credit.

Tom, are you comfortable leaving a balance on the line, or do you have some plans, I guess, to clear it down to zero?

Well, there's a lot of capital activity, Rich, and as we raise cash, it will go against the line.

Obviously, going the other direction, is we borrow for the development of Tysons.

But, certainly we have a lot of capacity above that.

I mean, it's a $1.5 billion line that we can take up to $1.8 billion, and we've got less than $300 million outstanding at the end of the quarter.

So we are very comfortable with that.

Keep in mind the interest rate is about 2% on that, and also keep in mind, throughout all these other transactions, we keep pushing down the percentage of our floating-rate debt in total.

And so, when you combine all those things, yes, we're very comfortable with where we stand on that.

All right.

Very good.

Thank you, guys.

Thank you.

Samit Parikh, ISI.

What was the timing during the quarter of the NorthPark sale?

NorthPark was in mid-August.

Okay.

Thanks.

I know you said that you don't have any other structures similar to NorthPark in your JVs, but just one question on the Heitman JV.

I know there is a repurchase agreement for Macerich seven years from when it occurred.

Is that repurchase agreement -- is that a fixed price that's already been negotiated, or is that more of an at-market price.

My recollection is that it's a formula price at a fixed number.

Those joint ventures, as well as the FlatIron joint ventures, had disproportionate shares of income and residuals, at times, coming to us after the investors saw a certain return.

But, you are right.

We did get the opportunity to have some form of a formula right in that agreement with them, but, look, they're a great partner, and they would love to expand their relationships with us.

So, I don't see that as a factor.

Okay.

That's helpful.

Thanks.

Todd Thomas, KeyBanc.

Appreciate the color on Green Acres, Kings Plaza.

Just wanted to follow up on Nate's question from earlier.

It looked like, from the language filed with regard to the acquisitions, that the Green Acres sale was conditioned on the closings of Kings Plaza, but it was a little hard to understand from who's perspective that might be from.

Sounds like they both have additional investment opportunities and some upside, but was one of those centers more attractive, in your view?

Yes.

Kings was the more attractive, because there are very few centers that have the opportunity to do something along the lines of what we did with Queens.

At Queens, we hit a grand slam four times in the same game.

At Kings, we think we've got huge opportunities.

Green Acres is just a real solid citizen.

It's very solid sales -- over $530 per foot.

The total center does $800 per foot.

We have a very specific, profitable, simple, easy-to-execute expansion plan that doesn't involve a ridiculous amount of money.

And we own plenty of centers in Los Angeles, like Lakewood and Stonewood in Downey, that are in markets like this that are incredibly dense, high-barrier-to-entry markets where the density protects you, on the downside, and it also gives the opportunity on the upside.

Which one do I think has got the opportunity to become an A+, A+?

Kings But Green Acres is a very solid citizen, and it's a type of property that I grew up on, in terms of the tenant mix and the anchor lineup.

The fundamentals are basically very good there.

But the big opportunity is Kings, and don't forget -- and I'm not going to speak for them -- but there were different owners of the two centers, two different public companies.

So, we were happy to transact on both of them and are happy to transact on both of them.

As to any linkage, I would recommend you talk to the sellers, not to me.

All right.

Great.

That's helpful.

And then you mentioned that there was minimal damage, if any, at your properties from the hurricane.

Any update on Green Acres and Kings Plaza, how they fared during the storm?

Yes.

We are in close contact with the folks there, and they're both open for business.

Nominal damage at each.

I would say they fit into the category of a whole of bunch assets, as well as lives on the East Coast that things could've been a lot worse.

Sure.

Okay.

You all know that better than I do, because I wasn't there for it.

But I understand natural disasters, and we feel for everybody.

It could have been a lot worse, just from our own selfish viewpoint.

But at the end of the day, we were closed one to two days at a half a dozen properties, including Kings and Green Acres, which by the way, we don't have a history of announcing acquisitions at the time that we put them under contract and definitive agreement.

It's hard to say this, but it was material for the seller but not material for us, but that's what they told us, so it had to be disclosed.

Okay.

And then a question for Tom, in terms of leverage, I get the improvement in fixed-charge coverage ratios and the reduction in floating-rate debt and the extension of the average duration of your debt portfolio that's set to improve meaningfully, but the absolute level of leverage is edging higher.

And I was just wondering what specific metric do you focus on for leverage, and where are you comfortable taking that to?

Well, Todd, we don't focus on just one metric.

I think that's a mistake.

We look at, certainly, layering out the maturity schedule, trying to not have too much rolling in any one year, and that was really the emphasis this year, and we've extended that significantly.

Our floating-rate debt has come down a lot, because we look at that as well.

All of today's rates are extremely low.

That could change pretty quickly, so we really focused on reducing the floating-rate debt level, which is something we look at.

We do look at debt-to-EBITDA, but we realize that's going to move up and down a little bit, depending on where we are in the development cycle and where we are with dispositions, and that's done that.

At the moment, at the end of the third quarter, debt-to-EBITDA was about 6.9 times, which is unrealistically low.

That was after we raised the equity from the ATM and before we'd closed on FlatIron.

After most of this activity, it will be closer to 8 times, and we're not uncomfortable with that either, given the coverage levels.

We look at overall leverage, we look at the maturity schedule, we look at the amount of floating-rate debt, and we look at debt-to-EBITDA.

I'll chime in on that.

Again, it's one of those that you can never have too much equity, and you can never have too little debt.

But the most important metrics that has changed for us in the last 2 to 3 years, and even in the last year, is the impending maturity schedule and the average length of the maturity schedule.

As Tom mentioned, I think you mentioned, Tom, that by the end of the year, our average maturities will be 6 years.

Those are average maturities of fixed-rate loans that are nonrecourse at a property level that Tom and his group have been staggering out.

We are at the point to where, today, we sit here and debate with each other over whether or not we have too much debt coming due in the year 2022.

Okay?

That's a quality problem compared to worrying about how much debt do I have coming due next month or next year.

So, look, we've lengthened out our maturity schedule dramatically.

We do have a couple of big maturities coming up next year and the year after, but they're in great assets.

You've got Scottsdale Fashion Square, I think, is next year.

Freehold is a healthy one next year, but we have the opportunity, if the market looks like it does today, to increase that nonrecourse financing significantly, if we wanted to.

And then, February of 2014 is probably the most under-levered asset that we have; it is a big mortgage at $300 million, but that property could support a mortgage, a big multiple of that if it wanted to.

And then you look at our overall liquidity levels, and we're sitting there with, let's say, $1 billion over capacity left on our line of credit.

But we do have, in our ongoing business plan, the idea that we're going to continue to prune our portfolio, and pruning our portfolio is, to me, is more important than optics.

Okay?

Though that's what I mentioned earlier on NorthPark.

It was not an operating platform asset, and the opportunity to reduce our leverage and repatriate equity to the tune of $300 million, at a cost of depressing our sales per square foot that we report to you by $15 per foot; I'll trade the optics for the cash and the lower debt all day long.

We are going to continue to do that on the balance of the portfolio.

I want to emphasize the financing for Green Acres, Kings, and FlatIron is done.

There's no short-term borrowing plan here; we are not borrowing short to buy long.

The equity is permanent equity.

The equity from the dispositions is permanent equity.

The Queens refinance was 12 years.

The Chesterfield refinance was 10 years.

The Kings Plaza financing is seven years, likely, and Green Acres will probably be 10.5 to 11, and FlatIron has a loan coming due next year that we can over-finance and take a lot of money out of if we want to.

I feel very good about where we stand, balance-sheet-wise.

And on the metrics, our goal is just to make them stronger and stronger and stronger, but keep in mind that we are a nonrecourse borrower.

These are asset-level property debt.

And the maturities have been extended dramatically, and the upcoming maturities are extremely light for the foreseeable future.

And our development pipeline is virtually funded on the projects that are underway, with the exception of Tysons, and you know what that number is.

We also told you how that can be repatriated, whether it be over-financing, refinancing Tysons in February of 14, or we may elect to fund it through selling assets in the next six months, too.

That's a great use of our balance sheet and of our capital.

Very helpful.

Thank you.

Thanks.

Alexander Goldfarb, Sandler O'Neill.

Just going to Kings Plaza and Green Acres, as you've outlined, Kings Plaza, your intention is to bring it to a Queens-Center-type mall.

As you see Green Acres, do you see that -- you talk about the big sales it generates.

Do you see that, as you think about your redevelopment, being more of a big-box center, or you think it's going to still be a lot of in-line.

Where do you see more of the growth, essentially -- adding more big-box or adding more in-line?

It's repositioning Penney to a prototypical store, so, right now, they've got about 97,000 feet, but it's all in-line shop space, and half of it is basement.

And in spite of that, they are doing the highest sales per foot of any Penney I think that we have in our portfolio.

I didn't mention this earlier, but the two stores that Macy's has at Kings and Green Acres rank in the top four Macy's stores that we have in our company out of 60 stores.

The Penney store at Green Acres is maybe the highest sales per foot we have in our portfolio.

And Sears, the stores that they have at Green Acres and Kings, both are in the top 10% of the 40-some Sears stores that we own.

But the opportunity is to help Penney.

They very much want to build a new store there.

They see a massive opportunity here for themselves.

They see it as one of their top priorities in their company.

You talk to Macy's about it.

They talk about that store just doing gangbusters.

And the specialty tenants are doing $530 per foot.

So the simple opportunity, as I see it, is to help Penney look at an expansion in a new building, outboard of their existing building, redemise their existing shop space into more traditional mall retail, and potentially connect that new two-level Penney into the existing, partial second level, which is only anchored by Sears and the food court and other shops.

It's really -- I don't want to say it's routine, but it's pretty routine; it's what we do every day.

It's fairly (inaudible).

And the Wal-Mart, I forget if that's a super or not, but is that also a source of potential improvement, or do they own their box?

They're a tenant.

They're a tenant.

They lease space.

Okay.

So is their upside there to expand their size?

I think there's an expansion and a significant increase in rent that's underway, right now, in documentation.

Okay.

So Tom, as you think about financing these, sometimes we hear folks say, if they are going to redevelop assets through short, floating rates, short-term debt, that they can improve the NOI before long-term fixing it out.

You guys are long-term fixing it out.

Is that more because of the attractive rates that exist today, or is that because the timing of the redevelopment is uncertain at this point, and therefore, it may take several years versus something more in the near term?

Well actually, it's a function of being a very strong borrower's market, Alexander, so rates are good.

Spreads are good.

We are able to build into the documents latitude to do expansions on those space, recapture that space.

I've got to tell you, the Queens financing was very, very competitive.

We saw the same thing on Deptford.

Kings and Green Acres are going to be the same, and we are able to get a fair amount of latitude to get our hands on the asset and redevelop down the road.

Okay.

Look, if we were closing down the center like we did at Santa Monica Place, the idea of putting 7-year financing on it, you wouldn't do it.

But all the work that we are going to be doing is within the confines of what can be carved out in a new loan.

Look, being able to borrow $500 million at a sub-4% interest rate for 7 years, give or take, at Kings takes a lot of interest rate risk off the table.

From the viewpoint of, does it take proceeds, 5 years or 7 years from now, opportunity away from yourself, I would say not so much.

In the meantime, I'd rather be locked in at, say, 3.6% for 7 years and not play the interest rate game.

So we do see huge upside there, in terms of what we can do.

It will take some time.

Realistically, on a property like that, it's 3 to 5 years, give or take.

If the loan would have gotten in the way of the redevelopment, and you could not carve it out, then you wouldn't put a long-term loan on it.

And we have been one of those people that say such a thing.

We think it's just prudent balance sheet strategy to go ahead and take advantage of the proceeds level.

We have no maturities to speak of in 2018.

We could've gone 10 years, but like I said earlier, we are already beginning to say, all right, we got a lot of stuff coming due 10 years from now because of all the work that we've been doing lately.

That's a good problem to have.

Just a final question is on Tysons.

Can you give some color as to the tenants?

Are these tenants who are relocating from nearby submarkets, or are these tenants who are growing substantially and therefore need to have new space?

Just, clearly, the stories coming out of DC on the office site have not been to upbeat.

So, sort of curious where these tenants are coming from, if they're new to the market, if they are just relocating, or if they need to really expand.

Just a little more color.

Relocation.

From within DC or within the suburbs?

I'm really not going to get more specific than that.

Okay.

That's fine.

Thanks a lot.

Thank you.

Ross Nussbaum, UBS.

Not to beat a dead horse, but I just want to be crystal clear on what you are saying.

You have no intention to issue any common equity in the next couple of months to either fund the acquisitions you've done or otherwise?

Is that what the message you are trying to get across, here?

We are fully financed at this point in time, permanently financed, and I'm not going to say anything more than that.

Okay.

If I just think about FlatIron, did GI have a put rate?

What enabled the timing of that now versus in the future?

That was very much a financial transaction at the time.

They are more of a financial investor than a real estate financial investor or a mall real estate financial investor, a dedicated mall type of partner.

So it was a fairly structured deal where they had the rights after a three-year period to -- No, it was not a put.

They had the right to look at exposing their position to the marketplace.

They did that, and along the way, we elected to step in and take control of the asset, once they had some clarity as to what the marketplace felt their position was worth.

We were already into significant promote on the property, over and above our 25% interest, and that enabled us to buy in at a fairly attractive rate, which represented part of our promote, too.

So not even quite a buy-sell, either?

Look, there's a buy-sell in every partnership agreement, generally, that I've ever seen.

That's not what was used here.

They just had the right to take their position to the market, and then while they were doing that, we were in constant conversations.

And we elected to go ahead and to take control the asset.

We had to balance that against other opportunities that we were looking at in the marketplace, and when it felt that this was the best place to put our capital, we stepped up and did it.

Thanks.

I appreciate it.

Thanks.

Omotayo Okusanya, Jefferies & Company.

I'll give him a pass for that, that's okay.

(laughter) A quick question, just curious how you guys are thinking about the unsecured market at this point.

Just when I think about all the financing you are doing, a lot of it is basically secured.

Yes, Tayo, we look at that from time to time.

The unsecured that we have on our balance sheet is primarily just our line of credit, but we do keep an eye on that market.

However, given the size and quality of our assets, they tend to be very, very big financings, institutional quality, and we are getting some extremely attractive rates.

We see some good financing on the unsecured side, but it would limit what we could do on the secured side, if we were to go that route.

We are very happy with the direction we've gone and the type of financings we were able to put in place, but we do realize the unsecured market looks good, as well.

Okay.

That's helpful.

And then, Art, just a quick question in regards to Arizona and that whole market, how you're thinking about it at this point.

I know it's still a lot of interesting things you could be doing there.

You haven't put a timeline, but I'm just curious whether that's getting closer or whether it's still watching it, and it may take a while before you do anything new in that market.

The market continues to get better.

You are right about that.

By many measures, it's a lot better than what people realize.

Homebuilders are building again, and they're just complaining a little that they got labor shortages, believe it or not.

There's tech coming into the marketplace.

All of the fundamentals are really good in Phoenix.

If you look at the cycles in Phoenix, it's up and down, about every ten years something happens, and usually it's like a year or so, and it bounces back.

This was highly unusual that this was like a 3-year bottom, but it's clearly on its way back.

When we feel that we have sufficient tailwind, that justifies new development, ground-up development in Phoenix, then we will be talking about it.

We're not talking about it today.

Okay.

That's helpful.

Thank you very much, guys.

Thanks.

Cedrik Lachance, Green Street Advisors.

Just two quick questions.

Just going back to the JV theme, so I'm crystal clear on that, in all the JVs you have at this point, are there any ventures in which your economic position is different than the position that is represented in the 8-K at the moment?

I think the only ones would be on the plus side that there are some promotes that we have where we have a bigger piece of the upside in a couple of joint ventures that are out there.

But, as Tom indicated earlier, if you were applying whatever cap rate you were applying to our portfolio income, the NAV accretion or dilution on the sale of NorthPark is relatively de minimis.

But there's nothing else of that nature in the portfolio.

Okay.

And just staying on NorthPark, the interest cost was roughly $11.5 million per year, I think, on the loan that was in place and prior, so if there's a $10 million FFO hit, that means that you've been reporting so far $21.5 million, or something of that nature, as part of your unconsolidated NOI on that property.

Is that correct?

Yes, the NOI was closer to 20.

Okay.

But in fact, you're trying to come up with an NAV, a piece that you may not be aware of is there was a kicker on that loan.

When that loan came due, there was a kicker due to the lender.

So, you'd have to factor that into your valuation, as well.

What were the circumstances around that kicker?

That's got nothing to do with us, Tom.

Honestly, it did not affect our position.

It affects the property's position, and the family that owns it now's position doesn't affect us, never was going to affect us.

We had a preferred equity position, and at the end, the total FFO that was coming in from that preferred equity position, Tom said earlier, was around $10 million.

Period.

Okay.

All right.

Thank you.

And the dilution from getting rid of that $300 million investment was around $0.05 per share.

And the dilution from the other dispositions was around $0.05 per share.

And when you take into consideration where we put that money, the accretion is net $0.10 per share positive.

We've gone from non-core to core, and we are very excited to be where we're at.

Okay.

Thank you.

Thanks.

Ben Yang, Evercore Partners.

Just a quick one for me.

I think, Art, you mentioned buying partners out can be quite noisy, highly structured transactions, but at the same time, I think you said your partners at FlatIron tested the market for that piece.

Just curious how far that 6% is from a market, maybe more arm's-length transaction.

Is there a good rule of thumb to adjust cap rates when we see stuff like this happening?

Could you repeat that, please, Ben?

You were kind of coming in and out on that.

Yes, I'm just wondering, 6% on FlatIron, highly structured, but at the same time, the partners tested the market out, as well.

What's a good rule of thumb to adjust, I mean, what would a market cap rate look late on FlatIron?

Is it 6%?

Is it 5.75%?

Just curious if you have any thoughts on that, given the fact that they did test the market.

Look, the property on its own, on a standup basis, would probably trade at least 100 basis points lower than the position that we were to come back in at, but that was a function of the structure of the deal that had structural advantages in the deal, that aren't necessarily transparent to everybody just reading that we owned a 25% interest in the center, that we had another 20% promote that we were already into the promote on.

There is no rule of thumb.

Okay.

But for this one, you think it's about 100 basis points inside -- (multiple speakers)

On that one, but look, the bottom line is, if you are buying a partner out, the partner wants to believe that they got full value, and you don't want to pay more than full value.

And you do it for reasons that are the reasons that you do it for at the time.

So we felt it was a very good use of our capital.

We were happy to do it.

There really are no rules of thumb.

It was a very attractive transaction from our viewpoint, and it was an attractive transaction from our partner's viewpoint, both at the inception and at its conclusion.

Got it.

(multiple speakers)

(multiple speakers) -- the basis of good partnerships.

Got it.

Is this still kind of a mid-$400 per foot mall, or have sales trended up since you pulled that interest to your partner?

No, sales are north of $500 per foot, and we've got some very attractive, simple plans there that we think are going to help us take it up to its next level.

It's a great center.

Couple that with our --

Right.

-- 29th Street, just 8 or 10 miles up the street, it's a very nice concentration that we've got there.

Okay.

Great.

Thank you.

Thanks, Ben.

Look, we look forward to seeing all of you in a couple of weeks in San Diego.

Thank you for joining our call.

And ladies and gentlemen, that concludes today's conference call.

We thank you for your participation.