Macerich Co (MAC) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by.

Welcome to The Macerich Company fourth-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 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, ma'am.

Thank you, everyone, for joining us today on the fourth quarter 2012 earnings call.

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

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

As this call will be webcast for some time to come, we believe it is important to note that the passage of time can render information stale, and you should not rely on the continued accuracy of this material.

During this call, we will discuss certain non-GAAP financial measures as defined by the SEC's Regulation G. The reconciliation of each non-GAAP financial measure to the most directly comparable GAAP measure is included in the press release and the supplemental 8-K filings for the quarter, which are posted in the investor section of the Company's website at www.Macerich.com.

Joining us today are Art Coppola, CEO and Chairman; Tom O'Hern, Senior Executive Vice President and Chief Financial Officer; and Robert Perlmutter, Executive Vice President, Leasing.

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

Thanks, Jean.

Today, we will be discussing the fourth-quarter results, capital activity and our outlook for 2013.

Also, most of you noticed in the supplement this morning we have reintroduced the additional tenant sales per square foot by property disclosure.

We have also stratified what percentage of our NOI comes from each major sales group.

We have also added some additional joint venture disclosure and NOI by state.

Looking at the operating metrics for the quarter, the fundamentals continue to be good in our business.

Retail sales had another good increase.

We saw a very significant increase in occupancy level to 93.8%, which is a 110-basis-point increase from a year ago.

Leasing volumes were good and spreads were good as well.

We signed 373,000 square feet of leases in the fourth quarter, averaged new rent of $46.66 for approximately 15.4% positive re-leasing spread.

The occupancy level I mentioned a second ago, 93.8%, was also up 80 basis points sequentially compared to September 30.

Occupancy cost as a percentage of sales averaged 12.8%.

That's in total, combining joint ventures and wholly-owned.

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

That was up from $0.87 per share a year ago.

For the year, FFO was $3.18, up 10.4% from $2.88 last year.

Same-center NOI in the fourth quarter excluding lease termination revenue and SFAS-141, was up 2.8% for the quarter and 2.9% for the year.

Negatively impacting the quarter were lease termination revenues, which were down $1.7 million compared to a year ago.

Also, SFAS-141 revenue was down significantly, down $2.1 million compared to a year ago.

And lastly, also negatively impacting the quarter was a $2.5 million charge for acquisition costs on the Kings Plaza acquisition.

So, combined, those three items were a negative impact of about $0.045 to that fourth-quarter FFO number.

Management company expenses for the quarter were down slightly at $18.6 million compared to $19.6 million last year.

And we also in the quarter had a significant gain on remeasurement of assets.

That is not in FFO, but it does impact net income.

And, essentially, that was marking to market the portion of Arrowhead Town Center and FlatIron Crossings that we owned prior to buying out our partners in the fourth quarter, which took our ownership of both assets up to 100%.

Looking at the balance sheet, our debt to market cap at quarter end was 43.5%.

During the quarter and to date in the first quarter 2013, there has been no activity on our ATM program.

During 2012, we had a lot of significant financings.

We completed $2.5 billion in total; that's our pro rata share.

Including recent financings that were done in January of Kierland and Green Acres, we've have closed on over $1.6 billion of financing since November 28.

That includes Kings Plaza, Deptford, Queens Center and Santa Monica Place.

Looking at all those transactions that have been closed since the end of November, the average term was 8.2 years; the average interest rate was 3.35%.

At year end, if we look at debt to market cap pro forma after the acquisition of Green Acres, debt to market cap is 45.3%.

During the year, we also reduced our floating-rate debt, which was 28% at the beginning of the year, down to 21.7%.

Most importantly of all those statistics, we increased our average maturity schedule from 3.2 years at the beginning of the year to over 5.5 years after the closing of Green Acres.

Our interest coverage ratio in the fourth quarter was a very healthy 2.75 to 1.

The current balance on our $1.5 billion line of credit after we've closed on Green Acres is $580 million.

That leaves us $920 million of capacity before any deleveraging from dispositions in 2013.

Focusing now on FFO guidance, in this morning's earnings release we gave our range of $3.32 to $3.42.

Looking at the key assumptions in that range, we included an assumption of a range of $500 million to $1 billion of dispositions during 2013.

This is a generic assumption.

We assume these happened midyear at an average cap rate of 7.5%.

It assumes property level debt for about a third of the sales price with an average interest rate of 5.5%, and the remaining two-thirds of the purchase price is assumed to come in the form of equity which goes down to pay our line of credit, which currently has an interest rate of 2.25%.

As a result of those disposition assumptions, we're factoring in $0.07 on the low side to $0.14 on the high side for dilution from those midyear dispositions.

Also in the guidance was same-center NOI growth range of 2.75% to 3.25%.

We also factor in $0.06 per share of dilution from the assets we sold midyear in 2012.

The remaining effect will come through 2013, and that's a negative $0.06 a share.

Other than Green Acres, we have assumed no 2013 acquisitions in the guidance and (technical difficulty) give guidance quarterly, split on guidance, the first quarter approximately 23% of that total FFO, second quarter approximately 24%, third quarter -- this is post disposition assumption -- approximately 23%, and fourth quarter 30%.

Tenant sales came in for the year up 5.7%.

We reported portfolio sales per foot of 517, and that is up from 2011, when it was 489.

At this point, I'm going to turn it over to Art.

Thank you, Tom.

First of all, I want to review with you -- and welcome to our call -- the results of 2012 and give you my outlook for 2013.

2012, in my view, was a great year for Macerich on many fronts.

One year ago, we gave our Board of Directors a five-year plan on where we wanted to take the Company.

At our Board meeting last week, I told them that, frankly, I felt that in the last 12 months, we had accomplished almost 80% of that five-year plan.

One of the big things that we had that we wanted to address in our five-year plan was to make a material extension and laddering of our debt maturities as well as to address the debt that was coming up in 2012.

Tom and his team did a great job.

You saw the significant more than $2 billion of refinancings that were done during the year at very attractive interest rates.

We have the ability to layer out the maturities so that they are extremely well spread out over the next 10 to 12 years.

The average maturity schedule was taken out significantly and we have an opportunity, obviously, this coming year to further add to the extension of our maturity schedule and to layer in some very attractive new debt.

Another objective that the Company had in 2012 was to increase the percentage of income that we get from wholly-owned assets.

During 2012, we were able to do that by acquiring at an attractive price our partners' interest in FlatIron Mall in Broomfield, as well as our partner's interest in Arrowhead.

Finally, on the acquisition front we were able two acquire to extremely attractive opportunities for us in the greater New York area with Kings Plaza and Green Acres.

On the development side, our goal was to execute the two major developments that we had in process and to really identify for the future and clarify our development pipelines.

At Fashion Outlets of Chicago, we now are over 87% signed in terms of leases with another 10% out for signature.

We are very bullish and the tenants are very bullish about that property, and the grand opening on that is set on August 1. All of the income that we are receiving in terms of the leases signed as well as the costs that we're spending are on plan and on budget in every way.

The densification of Tysons -- the goal there was to identify and sign a hotel flag, which we did with Hyatt Regency.

We think it's a perfect complement to the people that frequent the trade area as well as to the shopping public that comes to the Tysons Corner area.

And the key goal was to land a major anchor tenant for the office tower.

And we were able to do that, which we announced a couple months ago.

It is a relocation from the Bethesda area with INTELSAT, who is taking between 188,000 and 217,000 square feet square of that building, and we will talk further about that as I move into 2013 on our goals there.

So the densification there is doing extremely well.

On the leasing side, we had great results in 2012.

We had a very solid year in terms of our same-center growth and anticipate a strong year in the year ahead.

Dispositions we identified early last year.

We gave you guidance that we would be selling some non-core assets.

We did, in fact, do that, and we recycled that money basically into the acquisition of the $1.7 billion of assets that we acquired through our partner's interests at Flatiron, Arrowhead and the two properties that we acquired.

One of the highlights of the year was on the people front.

We were able to convince Robert Perlmutter to join our team as EVP heading our leasing team, as well as Tom Leanse, former partner at the LA office of Katten Muchin, to replace our retiring longtime general counsel, Rick Bayer.

We welcome them to the team and we think that this gives us a tremendous bench going forward.

Looking forward to 2013, there are no new acquisitions seen on the horizon.

Obviously, that's something that is always hard to predict, but we don't see anything on the horizon.

There's certainly nothing in our guidance at this point in time.

Our debt schedule, as I mentioned, is extremely manageable and we have opportunities through some major refinancings of three great properties to continue to ladder our maturities, raise excess refinancing proceeds and to take advantage of the current low interest rate environment.

With Scottsdale Fashion Square, we are currently in the market doing a refinance, getting bids on that.

Later on this summer, we'll be in the market on FlatIron, where we anticipate the ability to significantly over-finance that.

And then of course, later this year, at the end of this year, we have the opportunity to refinance Tysons, which we think will be an interesting opportunity for us.

And as I've mentioned to you in the past, if we would choose to, we could easily refinance the shopping center alone there and completely repatriate all of the dollars that we put into the densification of the project.

On the development side, as I mentioned, we have the grand opening of Fashion Outlets of Chicago coming up this year, August 1. On Tysons, we are already beginning to get interest from an additional anchor tenant in the office tower.

We anticipate that over the next quarter or so we will be announcing an additional anchor that will take us to well over 65% committed.

And on the shopping center side of Tysons, we are beginning to get a lot of interest from retailers as they are awakening to the opportunity that is being created by the densification and the introduction of the rail.

We're getting a lot of new retailers that are looking to come here and we are beginning to shuffle retailers around as we begin to prepare the introduction of the plaza into the new second level of the expansion there.

And we also are beginning to do the re-leasing of the expansion wing that we created in 2005 as those leases are expiring over the next 24 months we are already beginning to talk about, with tenants recycling, coordinating and redeveloping the entire wing.

On a smaller note, at Victor Valley, we had jcpenney open very successfully.

They went from a 50,000-foot store to roughly a 100,000-foot store at Victor Valley in the high desert here in California.

And we have Macy's opening at that center in March of this year.

We are very bullish on what is happening there.

We also have -- Dick's Sporting Goods is going to backfill the old jcpenney store.

If you take a look at the schedule of our historical sales at Victor Valley, it's actually interesting and topical to note that that's a center that, over the last four years, has had two vacant department stores.

And in spite of having two vacant department stores and surviving solely on a small jcpenney and a moderate-sized Sears store, sales at that center increased because of the strength of the market.

With the addition of jcpenney a couple of months ago and now bringing a fashion anchor with Macy's to the market, we are extremely bullish on the opportunity at that property.

At Fashion Outlets of Niagara, we have talked about that in the past.

The pre-leasing for our 150,000 square-foot expansion is going extremely well and we could break ground on that project later this year with the possibility of an opening late next year or into 2014.

There has been great interest in that project.

It has met all of our hurdles in terms of the economics.

We are going to see double-digit returns on our incremental costs, which should be around $75 million to $80 million, very bullish on that.

Broadway Plaza in Walnut Creek -- we added Neiman Marcus to Broadway Plaza in March of this year, and we finally have a plan that we feel extremely comfortable with that will be acceptable to the anchors as well as to the city of Walnut Creek.

We have had some logistics that are in dealing with Army Corps of Engineers issues and other issues, but we now have a plan that we are extremely excited about, that the retail community is extremely excited about.

Roughly, we will be, if things go according to plan, demolishing in phases about 50% to 60% of the GLA that's in place at Broadway Plaza, and then rebuilding in phases so that we would start that demolition in January of 2014 with the first phase reopening in 2015 and the second phase reopening in 2016.

So we are very, very excited about that.

That's about a $220 million expected budget.

We do have a partner there, so our half is $110 million.

And we expect to see high-single digits, probably 9%, incremental types of returns on the new money that we are putting in over the income that is in place today.

At North Bridge, we announced during the year that Eataly is going to be coming to join the center.

We expect them to be open later this year.

We're going to be opening up a new entrance from Rush Street up into the center which we think will dramatically improve the circulation.

We have completed the recycling and relocation of office tenants on levels two, three and four of the office building so that we can create a signature 25,000-square-foot, give or take, street iconic flagship retail location that we think is going to be of great interest.

Kings Plaza -- we are already deep into the conversations about bringing new merchants to Kings Plaza and we think the opportunity to do a major development at that project, all within the four walls of the project, is something that's going to happen sooner rather than later.

As we look at the opportunities there, we think -- and the retail community clearly sees the vision that that's an opportunity to take Kings and to bring it into the conversation, whether it would be in the same conversation as Queens Center in terms of the dominance of its trade area.

Green Acres has, likewise, received great reception in the retail community.

We are already in conversations with several big boxes that are interested in coming to the center, several retailers that are interested in coming to the center, as well as the possibility, as we look at it, jcpenney would love to expand their store there.

We are supportive of that idea and we are in the early stages of having those conversations.

At Santa Monica Place, we have been working for quite some time on identifying and working out with the city of Santa Monica the opportunity to put an anchor on the third level of that center.

We believe we are very close to working out an arrangement with the city where we can place an entertainment type of anchor on the third level of the center in the 50,000 square feet that sits above Bloomingdale's.

So we are very bullish on that.

In that connection and the tying into same-center NOI, Tom gave you guidance for our same-center NOI in 2013.

I would like to point out that at each of these development opportunities -- North Bridge, Tysons Corner, Santa Monica Place, Broadway Plaza and a couple of others, but certainly those four in particular -- we have significant high rents that we get.

But when you are doing major expansions or redevelopments, you tend to put the leases into limbo, and/or you put certain tenants out of business.

We had to put certain tenants out of business at North Bridge.

At Santa Monica Place, we are currently holding off on certain leasing to announce the new anchor on the third level.

We are into a second generation of re-leasing at Santa Monica Place that's going to dramatically increase the merchandise mix.

We don't take those expansion wings that are in centers like that out of our same-center NOI.

We treat the entire property holistically.

But income at Tysons and at North Bridge, for example, and even Broadway Plaza, is going to be down in 2013 as we either have frictional vacancy making the way for new tenants that want to come, or we are decommissioning space to bring in anchor tenants or decommissioning space to create a new entrance to Tysons Corner.

It's a different story at each one, but if we were doing normal day-to-day leasing at those centers, my guess is that our same-center NOI growth this year if we were not taking space off the market would be another 50 to 75 basis points over the announced levels.

I know that dispositions is something that you are all interested in hearing about.

We decided, after purchasing Kings and Green Acres, as we looked at our balance sheet and we looked at the fact that we had acquired those two centers and Arrowhead and FlatIron's partner interest, using 72% property-specific or other property-level debt, that we did want to raise equity to reduce that debt level to a more normal level in terms of what we would normally do on an acquisition, and also to raise equity for the purpose of funding our development pipeline.

We came to the conclusion that there was a great opportunity to do a reverse 1031 striker exchange into Kings Plaza and Green Acres, and we took about a dozen assets that we had a very low tax basis in, and we did an exchange into those properties so that it would enable us to expose those properties, which generally are older properties that we have owned for a long time, generally in the secondary and even tertiary markets at times, that generally have sales per foot that are in the $330 per square foot, let's say, average range.

We started the conversations in late November.

We hired a broker, Eastdil to expose 14 assets to the market, and we hired another broker to expose three assets, all three assets that we own in the greater Seattle area to the market.

So there are 17 assets that are being exposed on the retail side of the market, and our office complex at Redmond Town Center is also in the market right now.

The reason we exposed that number of properties is that those would be the properties that either our partner wanted us, up in Seattle, to expose to market, or that we wanted to give the opportunity to the buying public to invest into, to raise equity.

The intent was not to sell all 17 of the assets.

The intent was to offer a sampling on a limited time offer, and that's what we did.

We have gotten a significant amount of interest.

There's half a dozen groups that are bidding on the 14 assets that are in the market right now.

Some of those groups are bidding on one asset, some are bidding on 2 or 3 assets, a couple of groups are bidding on 3 to 5 assets, and there's a group bidding on even more than that.

We are in the middle of -- they have all been doing extreme amounts of due diligence since early December, and we are probably in that phase where we are in the point of a second round of conversations on pricing, and we are very close to beginning to identify the appropriate mix of the buying groups as we look to capitalize on the current environment.

It's hard to know exactly how the buying groups will perform.

As a buyer ourselves, when we are buying something, we have complete confidence after we have done our due diligence that we are going to perform.

You just never know when you are on the flip side of that.

We have done our best in giving you our guidance at $500 million to $1 billion, and our best in terms of trying to predict the timing.

Time will tell, and we will see where we go with this.

I'm fairly optimistic that the minimum threshold of that guidance level will be achieved.

I know you are going to be interested in the pricing.

As you can imagine, that's an extremely sensitive topic to be talking about.

But you could interpolate into Tom's guidance numbers, I'm sure, that the pricing levels are probably in the mid-7 cap rates for the assets that will be exposed.

I'm going to talk a little bit about our outlook for the future here and some specific sub-markets.

Arizona is absolutely on fire at a real estate level today.

Employment is up dramatically.

Arizona is leading the nation in terms of employment growth.

You have got areas like Coolidge and Queens Creek in Southeast metropolitan Phoenix that, 3 or 4 years ago, had 4 out of every 5 homes on the street rumored to be underwater or in foreclosure.

Now that exact same ZIP code has homebuilders coming in and buying raw land and coming in and doing improvements.

You have affordable housing in Arizona, and we think that the sustainable growth for Arizona is going to be back.

If you look at Arizona and Phoenix over a 60-year period of time, every decade it has one or two years that are off, and the other 8 to 9 years, it generally is in the top 2 or 3 economies in the United States.

The anomaly we had this time was that we had a very large U-shaped depression where the depression lasted for roughly 3 years, probably 4 years.

But now that we are rebounding, we have a very bullish outlook on it.

Segueing from Arizona, where our friend Phil Mickelson just won the Phoenix Open, to California, we wanted to talk about our California properties also.

As you can see in the supplemental, roughly 27% of our net operating income comes from California.

And of that, roughly 16% comes from the Southern California region and about 11% from Northern California and Central California.

Included in Northern California is Fresno and Modesto.

Both of those economies -- as you know, the Northern California economy is on fire; you know that from all of the other sectors.

But Southern California, I can tell you at a ground level, is rebounding very strong.

Santa Monica is now called Silicon Beach.

You have got the housing market here is on fire again, if an entry -- not even an entry, but if somebody wants to buy a $2 million or $3 million home in West LA, you are in multiple bidding processes now.

And the overall economy and the outlook here looks very good.

Notwithstanding Phil Mickelson's comments about his income tax situation in California after Proposition 30, there have been questions that have been raised as to whether or not the legislature here might take a step towards taxing real estate in a more aggressive manner.

So we took a look at our entire California portfolio and asked ourselves the question -- what would happen if our commercial property portfolio here were reassessed to current market values?

Because that's essentially what Prop 13 does not do is it limits -- what it does is it limits the growth in market value from the date that you either acquire a property or the date that you redevelop it to roughly 2% a year.

So if you've owned a property for a long period of time, chances are it has only been going up 2% a year.

And if you have been driving the income, chances are it's under-assessed.

We took a look at our whole portfolio, and interestingly enough, about 40% of our portfolio has been recently assessed in one way or another, either because of a major new redevelopment like The Oaks or Santa Monica Place, or because of just recent new negotiations that we have had with assessors.

About 60%, or 50% to 60% could be exposed to a Prop 13 revaluation.

When you take into effect the entire possible increase in real estate taxes, I believe that the net effect in terms of earnings after taking into effect our recovery pools was about $800,000 a year that we would have in slippage.

I believe our people came to the conclusion that you might have a potential tax increase of $13 million in our entire California portfolio, and that our slippage on that might be $800,000.

The effect of those taxes going up would have the effect on the properties affected of taking their cost of occupancy levels from 13.3% up to 14.2%.

So, while we certainly are going to do everything possible to support the idea of keeping Prop 13 in effect and, certainly, given that all of our conversations with the Governor's offices indicates that they are not coming after Prop 13, and even if they did, the Jarvis Amendment group from the 1976 era is powerful in California.

It's just really hard for me to imagine that Prop 13 would come under attack.

But even if it did happen, it's manageable.

Taxes on balance in California today are generally lower than elsewhere around the United States.

So while our income taxes are higher and sales taxes are pretty healthy, our property taxes are lower.

So that would be the effect of that.

I'm going to open it up for questions here in a minute, but I want to finish by just talking a little bit about the new disclosures that we have come out with, and particularly the property level sales per foot and attributable income disclosures.

For about two years, I have been frustrated with the myopia of the two-dimensional sales per square foot metrics that we all in the mall space report to, and I have also been frustrated by the chasing of optics that some people would want us to pursue, either by disposing of low sales per foot centers or something of that sort.

We don't run our business on optics.

We do sell a significant number of assets as part of our pruning of assets, of assets that would have a tremendously beneficial impact on the sales per foot of our portfolio.

If you take them from, say, 517 a foot to the mid-500's -- 550, 560 -- all of the centers that are being looked at to be disposed of are below the top 30 centers in our portfolio.

We are not doing that for optics.

We are doing it because it's good business.

Going back to my frustration with sales per foot by itself, from 1990 to 2000, the metrics that most people talked about with regional mall owners in terms of gauging the power of their portfolio was how much GLA did you own.

As we moved into the next decade, we started talking more and more and more, obviously, about the sales productivity.

And there's a tremendous amount of focus on that today, as there should be.

What has not been talked about or disclosed is where is the money coming from.

And that's what we wanted to do.

We wanted to give you what amounts to an economic sales per square foot number.

And that is why we came out and we give you not only the sales per foot for the most recent year, we also wanted to show you the trends since the last time that we reported and we wanted to show you where the money is coming from, from each of the deciles of assets that we own.

And remember, those numbers are our pro rata shares of those income.

We felt that by doing so, it would give you greater visibility into the tremendous quality of our Company and our portfolio and the visibility that you deserve.

With that, I would like to open it up for questions.

Craig Schmidt, Bank of America.

Is it possible to get the breakout of retail sales by region?

Sure, Craig.

The retail sales by region -- this is for the trailing 12 months on a per-square-foot basis -- the Central region was up 7%, Northern California [up] 6.6%, Southern California 5.3%, Arizona 4.0% and Eastern region 5.5%.

Okay.

And the strength that you had mentioned in the Phoenix area -- are you seeing that widespread throughout Phoenix, or is it concentrated in certain areas of the city?

No, it's widespread.

As I indicated, probably the toughest-hit area in all of Phoenix was the area south/southeast of Gilbert, the Queens Creek and Coolidge area.

And that has even got home builders -- we own a piece of land there that we thought was going to be a retail site that we had pretty much written off in our minds, four years ago.

And we have got home builders coming to us that want to buy just broad desert and come in and improve it to do subdivisions.

You have got the old GM Proving Grounds east of Mesa that DMV owns, the 5000-acre tract that they own there.

They have just had half a dozen home builders come in and buy big tracts of land to do work there.

So it's across the board.

You have got high-end luxury rental apartments being built throughout the area.

A lot of urban infill is happening around the Scottsdale Fashion Square area, a lot of action around Biltmore Fashion Square.

Obviously, the Kierland area is doing great.

West Phoenix is beginning to rebound nicely, which actually gives us confidence that our site out there in Goodyear is something that is going to be something that we will want to build on in the foreseeable future.

So it's the entire trade area extending all of the way down through the corridor going down to Tucson.

Okay, I am going to turn it over to Jeff.

Thanks, Craig.

Just one question -- I definitely appreciate the additional disclosure.

And I thought it was interesting from group 3, your top 21 to 30 malls, that's where you saw the largest increase year-over-year in sales per square foot, lifted by a couple of the malls.

But I don't know if there's anything there you want to talk about, anything by mall or by region in particular.

I don't think there's anything necessarily profound in those numbers there.

Okay.

I don't think there's anything profound there.

Okay, thank you.

Nathan Isbee, Stifel Nicolaus.

Again, thanks for additional disclosure.

As you look at your portfolio and how much of your sales are coming from the higher productivity malls, can you comment on what you believe is a reasonable internal growth rate from your portfolio?

As I look at the 2012 and 2013 combined, even if you add back the redevelopment disruption, it's about 6.5%.

Some of your peers are trending better during that period.

Well, we have a long history of being able to attain same -- are we talking about same center NOI growth?

Yes.

Okay.

We have a -- Tom could even go through the history with you over a number of years about what the same center over a period of time has been.

And I did want to give you color into specifically 2013, and that also applied to 2012, my comments.

I do know that, look, if we are redeveloping a center, unless we are shutting it down, it stays in our same center NOI.

And you can have drops in the income, and significant at times, as you are taking, especially in a high-end center or a center where you have got big rents, you can actually have a reduction in income from frictional vacancy as you are replacing, moving tenants out and moving tenants in.

And the advice I would give you for 2013 is, if we are not doing that at the four or five centers that I identified, our same center growth for 2013 would easily be 4%.

Nate, everybody defines that same center growth a little differently.

It's not a GAAP number.

So I think what's important is how it is relative to how we have done in the past, because we have had the same definition.

And 2013 as we have given guidance will be our highest same center NOI growth rate since 2006.

But it's not what we aspire to.

I understand your point that, at 2.75% to 3.25%, that appears to lag others.

I understand that point; I get it.

Okay, no, because the color is helpful.

Yes, thank you.

And then just on the planned addition on the top floor at Santa Monica, what are you envisioning there in terms of a credit tenant and how much capital you would expect to spend there?

Well, it would be -- it's a large project that involves something there as well as something on the promenade.

It involves a development agreement that we are negotiating, hopefully, with the city.

So we are not prepared to be more specific.

It would be less than $50 million of the total project.

It would have greater than 10% returns on it.

But much more importantly, it would be a huge traffic generator for the third level.

It would be the use that would be the most natural use to put onto the third level with all of those restaurants, and also to drive huge traffic up through the center.

So you could speculate that's an entertainment use.

The city of Santa Monica is in desperate need of a first-class cinema.

We don't have one, haven't had one for a number of years.

It's public knowledge in Santa Monica that AMC had plans to build a new theater at Fourth and Arizona, and they backed away from that agreement a couple of months ago.

So we will see where that all goes.

We have always felt that the natural anchor would be a theater use.

And there's lots of political issues that have to be dealt with, but we're fairly optimistic that everybody's interests are aligned and that that's something that we can finally tap into over the next year.

Okay, great.

And then finally, to Tom, what does guidance assume in terms of the ATM during 2013?

There's no equity assumption in 2013.

Okay, thanks.

On that point, we were asked the question as to were we intending to reload our balance sheet after the $1.7 billion of acquisitions three months ago.

And our statements to you were that, yes, we did intend to reload our balance sheet, and that we felt that dispositions of non-core assets would be an excellent way to go.

And we're well into that process.

Thanks.

Christy McElroy, UBS.

I will join the fray, and thank you for the disclosure.

It's really much appreciated.

How long does INTELSAT have to decide whether or not -- just the full 50% of Tysons office building?

And are you not actively marketing that additional space because of that option?

They will be deciding in a couple of months.

In an agreement like that, you have backup people, but I'm not sure what they will do.

It's actually, when you look at the building, it's about a 520,000-foot office footprint, the entire building.

So they are just over 40%.

But like I indicated, we are far along with another anchor tenant, in the letter of intent stage, and hope to be able to announce that soon.

That would take us up over 65% leased.

And after that, it's just -- you have a whole bunch of tenants that are single floor, take the whole floor type of tenants.

So we are very bullish on where we are headed with that, and we are -- it is a go project on all three towers at this point in time.

Okay, and then regarding the Fashion Outlets of Chicago, you have spoken in the past about forging a link between the center and the airport through shuttle buses and bag checks, things like that.

Can you talk about some of those initiatives that you are working on to drive tourist traffic from the airport?

And will they be in place day one?

I believe they will be.

As we get more color on that, I will let you know.

We have a TSA-approved provider that is approved by the Department of Homeland Security to actually do the baggage claim checks and issue tickets and things of that nature at the center.

So, look, it's in progress.

We think it's an opportunity, but we think the center is going to do terrific just from its regional draw through automobile and rail traffic and mass traffic.

To the extent that we are able to tap into the layovers or the people going to and from the airport, that's a bonus.

But it's a bonus that I think will take it into extremely high levels of productivity.

And we are going to open up every door of opportunity that we can there.

And then just lastly, at North Bridge, I know the buildout isn't costing you much.

But can you say what Eataly is paying in rent?

So just trying to figure out what your direct return on that investment is, aside from indirectly just driving more traffic to the center?

I'm sorry.

I cannot.

But it's --

Have you given a return on that?

Pardon me?

Have you given a return on that project?

No, but it's -- I think I did indicate, the total project is under $20 million.

From all the efforts that we are doing there, I would anticipate that we will raise the NOI at least $5 million from that activity.

But I don't really think of it as being a 25% return, but that would include the Eataly deal, yes.

I got you.

Okay, thank you.

Cedrik Lachance, Green Street Advisors.

I just wanted to add my voice to all of those that have already thanked you for significant additions to the disclosure package.

It is very much appreciated and it's very much going to help the work we do.

Thank you.

When I look at your asset disposition plans and those investments you have made in the fourth quarter, depending on the number of properties you are able to sell during the coming quarters, you may still have perhaps some equity that you may want to fill.

Given where your share price is at, at this point, how interesting is it to issue more equity now?

Well, it's not disinteresting.

We did tap into the ATM at around $60 to $61 a share in September, so that's some guidance.

But at this point in time, even though we have a wide range on the dispositions, we think, look, a lot of people have put a lot of work on the buy side, the different private equity groups as well as a couple of public companies -- that we need to let that hand to play out and see where we end up.

It's possible that we could raise $1 billion of equity from these dispositions.

So we just really need to let the hand play out and sequentially revisit that topic as time plays it out a little bit.

It's not disinteresting, but right now, I think we are inclined to let the hand play out.

You know, look, if there is a significant slippage, for whatever reason on the buy side -- and again, I will be the first to tell you as a seller, I can never predict what a buyer will do.

I can always predict as a buyer what we will do.

But if there was slippage on that side of it, then the idea of tapping into the equity markets either through the ATM or in a direct deal would be something that we would have to seriously consider, given our overall goals to reduce our debt to EBITDA ratios but, more importantly, just to raise the capital from the equity markets or dispositions to fund our development pipeline.

That's really what is driving it.

is we have got this development pipeline here that we would prefer to fund with either a rollover of asset sales or, potentially, common equity.

On the refinance side, we have enough that we can refinance out of the 3 or 4 properties that are coming up this year, we could fund our whole development pipeline doing that.

But that would tend to drive our debt levels up.

And I think, as I said the last quarter, you can never have too much equity; you can never have too little debt.

And I guess I will add to that, you can never have too much disclosure today.

That's good.

And in terms of the potential buyers into the 17 properties you have in the market, is there anyone that would be interested, rather, in a joint venture with you, or are those all outright sales?

If we opened up the idea to joint ventures, it would take the universe to a much larger group of people.

Yes, there is definitely -- will be -- some of those folks would be interested.

But if we opened up the ideas to joint ventures, there's a significant amount -- significant amount of capital from many sources that have approached us.

But one of our goals at this moment in our life is to increase the percentage of income that we have from wholly-owned assets.

We just think that that's a better goal for us at this point in time, and it's a goal that we can take advantage of at this point in time.

And to some degree, a lot of these assets that we are selling are unencumbered, and we could go and raise a tremendous amount of money just by encumbering the assets.

But that runs counter-productive to pruning the portfolio and to the idea of just keeping our debt levels, continuing to drive them down without a specific goal, but the only goal being that you can never have too little debt; you can never have too much equity.

Great, thank you.

Michael Mueller, JPMorgan.

I guess one question, looking at the tiering of the assets, how do you think about the lower productivity Arizona assets where, obviously, essentially you have a big stake in the market there, but you have a handful of assets that are lower, lower productivity.

Are those properties that you hold onto just because of your concentration in the market, or are they assets that could make their way to other buyers at some point?

They fit different buckets.

But I would say that, overall, they could be assets that could be in the conversation to end up in other people's hands, especially the lowest tier.

Got it, okay.

And then, Tom, just a couple of quick ones -- are there any acquisition costs in the first quarter?

There's acquisition costs on Green Acres that is factored in the guidance, Mike.

Okay, and about how much is that?

It's going to be approximately $2 million.

And as I mentioned, we had about $2.5 million that ran through the fourth quarter related to Kings Plaza.

Is that in G&A?

That's in shopping center expense.

That follows the assets.

Got it.

And then just last question -- what is the assumption on the transactional items for 2013, if you think of lease term or outparcel gains?

Well, lease term is always a tough one to predict.

We went a little bit on the light side on our assumption at $7.5 million, which is roughly where we ran this year.

Over the last 5 or 6 years, we averaged $12 million, but the assumption is in at $7.5 million for next year.

And I don't think -- we have nothing in for outparcel sales, do we?

No.

(multiple speakers) You can see in our portfolio, Michael -- I know that it runs through certain other folks' numbers, but that's not something -- you rarely see that come through our numbers.

A lot of it is because we have predominantly urban centers that don't have excess land to be sold.

Got it, okay, great, thank you.

Quentin Velleley, Citi.

I will thank you guys for the disclosure as well.

That's the most fun that we've had 6.30 AM in the morning for a long time.

Just in terms of your bullishness on Arizona, does that bring the Goodyear development project potentially back onto the agenda?

It's certainly something we will be heavily focused on this year.

The department stores are telling us that they have got it in their sights; retailers are warming up to the idea.

So we will be making a decision, I think, as the year progresses.

I would not be shocked as we moved into the latter part of this year if we were to make an announcement that we were going to go forward.

It takes -- it's about a 33-month time line from announcement to grand opening, so we are not making that announcement yet.

But I would not be shocked if we were to make it later in 2013.

Okay, and just going back to the --

You have to remember, just when you look at the market that, when you look at the market, there are 700,000 people in the Goodyear trade area that do not have a regional mall to go to.

And it's the only place on the 10 Freeway between Phoenix and Los Angeles that a center wants to be built in the next 10 to 20 years.

So it's by far the most underserved portion of the market in Phoenix.

You could argue that the southeastern portion is fairly well over-served.

But certainly, the western portion of the market is extremely underserved.

So it's not a question of whether, it's just a question of when.

Okay.

Just in terms of the 14 potential asset sales, is the demand or the level of interest equivalent across all of those assets in terms of quality or productivity, or is it fair to say that there's less interest in those lower-productivity, lower-quality assets in that pool?

Yes.

Everybody wants to play the optic game, especially the public companies that are bidding.

They just want to do high sales per foot, and that's what they are focused on.

So if it's low sales per foot, even if it's got a great opportunity to make money, if it doesn't meet the optics that they think that people want to hear, then they don't think they are supposed to do it.

The private equity guys, I think, are a little bit more intuitive about that and they are more value oriented.

And so their interest tends to be broader across the spectrum.

We did not know which assets would be interesting to which teams.

So again, when we put 14 assets out there, it really wasn't our intent to -- we didn't expect all 14 to go, and we certainly didn't expect any one person to come in and bid on all 14.

But they are in different regions, they are different geographic concentrations, and we found a real mix of bids.

We had one group that bid on 6, another group bid on 5 of them, another group bid on 4 of them, and another group like more than 8 of them.

And it's interesting.

The overlap isn't necessarily exact.

Some people wanted just only game in town.

Some people wanted high sales per foot.

Some people wanted bigger markets.

It's an interesting mix.

We didn't want to decide for them.

We just said, look, this is what we are willing to expose.

We exposed it.

I will say that they have done a tremendous amount of work because we have indicated to them that we are not just putting our toe in the water; we are real about this, and that we are willing to take earnings dilution to do the right thing for our balance sheet.

And we will see where it goes.

I can't -- again, we don't control their performance.

But it has been a healthy amount of interest and we will see where it goes.

That was another big reason for, again, I touched on it, disclosing, is that, look, if all 14 of them would go, then the optics of our portfolio as reported in one single number would have magically looked terrific.

But then I said, you know what, we don't control the buyers.

So why don't we just show everybody where the money is and where the sales are, and then they can realize that, well, that bottom 12 assets is only 3% or 4% of their income.

So effectively, by telling you what is there, that's almost as good as selling them.

And in the meantime, we are very committed to the process.

The buyers are very committed to the process.

We are at that point to where we are picking buyers on the 14, the group of 14.

The Seattle group is about a month behind, and we will see.

I think that, certainly, by three months from now, we will have great clarity on all of that.

And that's another final reason, frankly, for putting these numbers out here is that if we sell, let's say, 7 or 8 of them or whatever, 10 of them, everybody is going to want to know, well, which ones did you sell, and what did you do?

And we could say, oh, well, we sold centers that averaged $330 a foot, and it raised our overall productivity to $550 a foot.

Or, we could give you all this detail and then you can see exactly what went out the door and then what we owe.

Perfect, thank you.

Alex Goldfarb, Sandler O'Neill.

I guess I will join the crew.

It was exciting -- to use Quentin's term, it was exciting to see the return of the disclosure.

Before I get to that, just two other questions.

First, Art, to your comments on Prop 13, what do you think the impact would be to your tenants if suddenly they had to bear market rate property taxes?

There's no free lunch, so it may be a pass-through from your perspective.

But clearly, the tenants have to be able to absorb it.

What do you think the impact would be on them?

So I may have been talking rapidly.

It would increase their occupancy cost by about 90 basis points from 13.3% occupancy cost as a percentage of sales to 14.2%.

Okay.

So from a sales productivity and a margin perspective, you would expect that probably the vast majority of the tenants will be able to bear that.

Yes.

It's about $5 a foot, my guess, is what it would be.

The centers are averaging $[500] -- I'm using very round numbers.

90 basis points is $4.50 -- it's about $5 a foot, so it's a typical tenant.

Okay, okay, then that's helpful.

Next --

And then the other thing, just when you think about it is that -- look at Chicago.

Chicago, in Cook County, the big regional malls, they have taxes $26, $30, $35 a foot.

And yet, those great regional malls in Chicago are very well occupied, and you are still getting decent rents.

What happens is the retailers -- they accept it as a fact of life in places like Chicago, Minneapolis, anywhere where they fund their entire budget from real estate taxes or they fund their school districts, like in Iowa, from real estate taxes.

The real estate taxes can be quite high.

But if you want to be -- if you are a tenant and you want to be in Chicago and you want to service the Chicago market, you accept the fact that taxes are high, and then you go there anyway.

If that were to happen in California, I don't think people are going to say I don't want to do business in San Francisco, I don't want to do business in Los Angeles.

And in the meantime, their burden might be going from, whatever, $6 a foot to $11 a foot.

It's still, on balance, not that bad compared to other places.

But I clearly do not expect it to happen, but it's a very legitimate question.

Look, the first thing that I thought other than what Phil Mickelson thought when they passed Prop 30 and increased our personal income taxes retroactively was, my gosh, I wonder if they are coming after Prop 13.

And we went and met with the governor's office and we are very involved with the California Business Properties Association, which is the strongest lobbying group here.

And it would be super hard for them to come after Prop 13.

It's in the drinking water in California.

But even if they did, I wanted to tell you -- I don't want to be a political prognosticator.

I want to tell you what the impact would be if it happened.

Yes, I appreciate that.

It's a large amount of income we have here.

Yes, I appreciate it.

KIMCO mentioned a number of years ago when they bought the PNP and everything reset then the market fell out that some of the tenants suffered because they have the twin effect of taxes going up and then their sales going down.

That's why I was just curious.

Second question is, Tom --

That makes sense, in that business.

If you are buying strip centers at a low cap rate, and you are dealing with tenants that are -- you are taking their occupancy cost from $10 to $20 a foot, that could hurt.

In a mall, if they are going from $55 to $60, it's more manageable.

Okay, that's help -- Tom, the preferred market -- a number of folks this quarter have been commenting about the attractiveness of pricing.

Given that preferreds aren't tied to the corporate, there is no default ability or whatever, would that be a market that you would look at to access for additional capital?

We keep an eye on that market, Alex.

It was pretty heated up in the fourth quarter, cooled off a little bit.

The calendar got kind of crowded or whatever.

But we keep an eye on it.

It's still likely in the low 6% range, which is kind of pricey compared to the long-term financing we are getting.

But we keep an eye on it.

It's not overly appealing, but we do keep an eye on it.

Okay, that's great.

Listen, thank you.

Paul Morgan, Morgan Stanley.

I usually don't like to pile onto these, but I think this is worth it.

I really do appreciate going back to the disclosure on the sales and the NOI as well.

And just looking at that, if I look at some of the malls that have shown the biggest compound sales growth in this window here, at least, some of them maybe because they fell a lot during the housing bust.

But some of them may also signal opportunities for expansion.

And I am wondering whether you might look at it that way, things like Washington Square or Los Cerritos or Corte Madera, which are up double-digit on a compound rate over this period -- are there more opportunities there?

You've mentioned what you have got in your pipeline now, but do you look at things that way?

Yes, there's a huge opportunity at Washington Square.

We own excess land there that we are debating about how to handle it.

Sears owns a very large building there.

I'd say it's close to 250,000 to 300,000 square feet.

I'm not going to predict if that's going to come back to us.

But if it did, there's a huge amount of FAR development opportunities and a huge number of tenants that would want to be there.

At Cerritos, we have a huge development opportunity that we are not really talking much about right now because we are pinning down exactly what it's going to be.

But a year or two ago, we relocated Nordstrom from an older building to a new building.

And now, we have that whole wing that we are deciding what to do with and, again, a huge Sears store there.

That's clearly in the expansion horizon.

As you look just at our top 10 centers, there's something going on at each and every one of them.

We're talking about a new anchor at Biltmore Fashion Square and/or an expansion there at Corte Madera.

Nordstrom is effectively tearing down their store, expanding it, and we're looking at a modest expansion there.

But it's going to have a dramatic impact.

And I think Corte Madera fits that profile, Bobby, of centers that, even though sales are on fire there, we have been moving tenants around in preparation for bringing in some new, more highly productive tenants.

That hurts the income.

Tysons Corner -- you know the story there.

North Bridge I've talked about.

Santa Monica Place -- you have heard me talk about that.

Cerritos is huge.

Kings Plaza -- we think that's a fabulous opportunity.

Tucson -- we are talking to a specialty department store about the possibility of coming there.

The list goes on -- Broadway Plaza, we talked about that.

Kierland Commons -- there's an opportunity to add a significant anchor retailer there.

Everyone of -- as I'm going through the list of the top 20, we have got an expansion plan that I could talk about in detail on every one of them.

So, then, summing that all up, as you think about what your aggregate or annual development CapEx over the next 3 to 5 years would be, do you have a rough number on --

I am not really ready to revise that number.

As we identify the opportunity, we will put the number out there.

I did just mention that, clearly, Tysons is a full green light on all aspects of the development, so we are moving forward there.

We're finishing up Chicago.

Niagara -- it's roughly $75 million to $80 million, the expansion, double-digit returns there.

As we -- and Broadway Plaza; I mentioned a number on that today, on the call, $220 million.

Our half is $110 million.

And Santa Monica Place -- it's hard to know what the number is.

It could be $25 million, give or take.

It could be $50 million, including some other land that we might get involved with in the city, but it would show a very nice return.

So I'm -- we will work on identifying that pipeline.

But I would really prefer to just keep the tangible ones in front of us, the ones that are going to be opening in the next 18 months to two years.

But there's clearly opportunities.

And then, you know, there has been speculation about obviously 1 or 2 anchors maybe going in a different direction.

Virtually every center that -- certainly, at your best centers, virtually every center we would have a very interesting plan if that space were to come back at us.

And it's hard for me to update that pipeline for you, but it's something we will be clearly working on over the next 3 months to 6 months.

Okay, and then just, lastly, you mentioned the 50- to 75-basis-point hit to same-store NOI this year.

As you look into 2014 -- a lot of this stuff is still going to be going on, then.

Is it also roughly that same number below a baseline, or will we start to see this improvement?

Or is really the improvement, the acceleration relative to what is coming out now more kind of 2015?

It tends to -- that which we are taking out of service or having frictional vacancy on in 2013, you will have tenants in their paying rent in 2014, in a lot of these cases, which will probably result in above-average same-center growth in 2014.

Great, thanks.

Todd Thomas, KeyBanc Capital Markets.

I'm on with Jordan Sadler as well.

Just following up on asset sales, to the extent that some of the buyers don't commit or you are not getting the pricing or really seem to demand that you would like for the assets of the market, is a joint venture a viable option, or is that off the table, given your plan to try to avoid joint ventures at this point?

It's clearly an option.

And one of the options would be, there's money sources that are out there that really want to invest in this category; let's go ahead and say the B mall category.

Their big issue usually is finding the right operator.

And their strategy usually is to build a little bit of a platform with the idea of ultimately 5 to 7 years out selling it or creating a new platform that would be a new operating entity, whether it be public or private.

If we were to say that to different sovereign groups that are out there that would love to pursue something like this, that, look, we will be your operator, but there's going to be an exit strategy because this is not an asset class that we want to own forever and hang in there for 5 to 7 years, there's any number of folks that would want to pursue that with us.

But I think a cleaner approach for us would be a simplification and a reduction of headcount and the pure recycling of capital.

Time will tell, but that's clearly something we could consider.

We have not gone down that path because we have enough strong interest from the buyers that would take 100% ownership.

Okay, and then I just wanted to clarify on follow-up to last question about the same-store growth rate on a more normalized basis.

Are you implying that without some of this activity in the portfolio, the expansions or redevelopments, which inevitably there will always be some every year, that the same-store growth rate of the portfolio today would be around 4%?

I can speak year by year, and for 2013, I would say it would be closer to 4. It's possible we could hit 4 this year.

We gave guidance at the range that we gave it at.

But we know that -- we have -- some of these best centers that are in here actually have income decreases.

And you say, well, why did you have those income decreases?

And the answer is always either frictional vacancy where -- if you are taking a tenant, a 10,000-foot tenant and you are not allowing them to renew at Queens Center and they are paying you $200 a foot, that's $2 million a year that you are displacing.

And if you have got 6 to 9 months of down time, even if you are replacing the new guy at $300 a foot, it's expensive.

So at your best centers, when you are recycling tenants, like Santa Monica Place, Tysons Corner, Queens, Washington Square, centers of that nature -- frictional vacancy really affects short-term results, but it doesn't affect value creation.

Value creation is huge.

So I guess I'm going to have to say that same-center NOI is also, on the optics side, a little two-dimensional because it does not take into account the value creation that can come from being patient on same-center NOI; like, for example, not chasing occupancy as hard as you possibly can because you are holding the rate.

That can reduce your same-center NOI.

Look, it's a goal of ours to -- it's probably our number-one internal goal, to aggressively manage and do a better and better job at same-center NOI growth, because on a risk-adjusted/reward basis, growing your income by an extra 1% a year, you make a lot more money than even building a new center.

So that's our priority.

But there is an explanation for the numbers.

It's hard to say what the number is going to be every year for the next five years, but we are very bullish on -- our sales support, very good rental growth, and the things that we are doing at centers are positioning them for strong growth.

Okay, that's helpful.

And then just, lastly, just a quick question on the new disclosures, which we appreciate as well.

Should we expect to see this level of disclosure each quarter going forward at this point?

I don't know.

We'll have to think about that.

Maybe, I don't know.

I would -- Tom is nodding yes.

(Laughter) You can tell we hadn't even talked about it.

Alright, great, thank you.

Ben Yang, Evercore Partners.

Maybe.

Art, I have another question on the asset sales.

I think you mentioned that you do not -- you don't think you will end up selling all 17 malls that you are trying to sell.

I'm sorry if I missed this, but does that $1 billion sales guidance assume you do sell all 17 malls this year?

No, it would be a lot more than that if we did.

Oh, okay.

So if you ended up selling all 17, it's actually less than $1 billion in total value for those malls?

If we sold all 17, it would be way over $1 billion.

Well, okay, okay.

It all depends on which malls they are, but $1 billion could be comprised of 6 or 7 of them, or -- each -- there's some centers in there that are worth one number and some centers in there that are worth 10 times that number.

So there's a range.

Okay, fair enough.

And then, so it looks like you are not going to sell all 17 this year.

And I am curious -- what's the time frame for completing the reverse 1031 on these assets, just to get that tax benefit on the exchange?

We have already done pretty much everything that we need to do, so we are in good shape on that.

Okay, so there's no urgency to sell in the next 18 months or so?

You can wait it out if you don't get the price and the buyer is not quite there (multiple speakers).

We have taken care of the tax side of it, but we are -- look, it's disruptive, the process, to expose that many properties, so we are highly motivated to bring it to a head quickly and to either get on or get off with the different folks that we are working with so that the noise of this is not persistent.

So our expectation would be anybody that's going to do a deal with us, if they were to say they wanted to close later than midyear, they had better have a very good reason.

And that's why we gave midyear guidance, because we think that's probably about when, on average, things will happen.

So it's coming to a head.

It's an awkward time to be talking about it, given that we are different routes right now.

But obviously, it's something that we needed to put into our numbers, given that it's something that is going to happen this year.

Okay, great, thank you.

Tayo Okusanya, Jefferies.

First of all, congrats on a great quarter and, again, thanks also for the additional disclosure.

I just want to talk about two particular assets, Santa Monica Place -- I believe last quarter, there had been some conversations about some potential changes in the tenant mix on the second floor and also the restaurant bankruptcy that happened.

Could you just talk a little bit about the progress on those initiatives?

Sure.

We are well underway in the idea of recycling first-generation tenants into second-generation tenants.

On the second floor, for example, we recycled Skechers out and brought in Free People, which is a more appropriate tenant.

And my guess is on that second level, there will be significant recycling on the second level over the next couple of years, where some of the more moderate-priced juniors would be replaced by other tenants that we think will be more appropriate for the center.

We have had good occupancy gains on the first level.

We just recently opened an Emporio Armani store.

Bobby, do you want to give some color on that?

Bobby Perlmutter will add some color on all that, please.

What I would say, from a general description, what you'll see at Santa Monica Place is the ground floor will continue to get deeper in its luxury presentations.

That has been an over-performer to date at the center.

So Emporio Armani recently opened; kate spade recently signed a lease.

So we are going to bring additional luxury into the ground floor and improve the luxury mix that we have there.

The second floor will migrate more towards a traditional better mall tenant mix.

Some of those, as Art mentioned, like a Free People.

But some of those tenants are currently located in the market on Third Street Promenade that we think are more appropriate for our customer base and our anchors and our tenant mix.

So we will work to relocate them.

Certain of those traditional, better regional mall tenants are not in the market, so we will bring them into Santa Monica.

And then the last piece, as was mentioned earlier, we have a large commitment to restaurants and food on the third floor.

We want to augment that with an additional entertainment anchor.

And I think, to your specific question, we did sign a lease with Redwood Grill, who is going to soon start construction on the third floor on the vacant restaurant space.

And they will be opening up midyear.

They are a restaurant operation from Toronto that actually our partners Cadillac Fairview introduced to us, and they've wanted to be here for a long time.

This was a restaurant that recently went out of business, is the Japanese sushi restaurant, Ozumo, and that is right next door to the third level of Bloomingdale's, where we would hope to put the new theater.

So we've got folks that would be interested there, but at this point in time, we are really focused on the anchor, on the third level of Bloomingdale's.

And once that happens, then we think that the restaurant presentation as supplemented by a first-class theater will get very robust, that we will be in a good position.

So there's a case where you are essentially holding some space off the market because you know that you -- you have a strong belief that you have a very good announcement that's coming.

And once you have made that announcement, the list is going to get really long in terms of the players that would want to be up there with the theater.

The theater opportunity here in Santa Monica, given the visibility of this community to the people that run Hollywood and the people that work there, the directors, the producers and the actors at Malibu and Bel Air and Santa Monica and West LA, is massive.

And it's maybe the number one theater-underserved quality market in the United States.

So we think it's a great thing to do at the center, and, yes, it will drive the growth.

But we know that, between frictional vacancy there and just holding space off the market, that the income at Santa Monica Place this year won't be what it could be if we just went ahead and leased it anyway.

But the value creation is being patient, and that's why I say sometimes same-center quarterly growth can be myopic or two-dimensional.

It's very important, but you have to think about value creation as being the primary thing to chase.

And sometimes you have to sacrifice same-center growth for value creation.

We think that's the better choice, where appropriate.

: That's helpful.

Could we get into any similar commentary on your redevelopment effort at Atlas Park?

Not quite as robust, but (multiple speakers).

Atlas Park is obviously a much smaller project in terms of scale, and we made some progress.

It's basically more of a community open-air center that we worked the leasing discussions along with Queens and now Kings and Green Acres.

So that gives us a very strong presence in that market.

We recently signed a lease for Forever 21.

We have made a lot of progress.

It's primarily going to be some juniors, some convenience and some small-sized boxes within the center.

So I think the summary there is, we got a slow start, but we are making a lot of progress at the center.

And you will see some improvement in terms of the occupancy over the next 12 months.

Helpful, thank you.

At this time, we have no further questions in the queue.

I would like to turn the call back over to our speakers for any additional or closing remarks.

Thank you very much for joining us, and we look forward to speaking with you soon, and thank you.

Goodbye.

That does conclude our conference for today.

Thank you for your participation.

You may now disconnect.