Macerich Co (MAC) 2013 Q1 法說會逐字稿

Good day ladies and gentlemen.

Thank you for standing by.

Welcome to the Macerich Company first-quarter 2013 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 for questions.

I would like to remind everyone that this conference is being recorded and would now like to turn the conference over to Jean Wood, Vice President of Investor Relations.

Please go ahead.

Thank you everyone for joining us today on our first-quarter 2013 earnings call.

We look forward to seeing many of you Tuesday afternoon June 4 in Chicago for our construction tour of Fashion Outlets of Chicago, as well as the tour of the Shops at North Bridge on Michigan Avenue.

Please contact me for the details.

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

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. A reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure is included in the press release and the supplemental 8-K filings for the quarter which are posted in the Investors section of the Company's website at www.macerich.com.

Joining us today are Art Coppola, CEO and Chairman of the Board of Directors, Tom O'Hern, Senior Executive Vice President and Chief Financial Officer, and Robert Perlmutter, Executive Vice President [of Leasing](technical difficulty).

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

Thank you for joining us today.

First, I would like to introduce John Perry, our Senior Vice President of Investor Relations.

We are very pleased to welcome John to our management team in this newly created position to expand our Investor Relations efforts.

We've known John for many years at Deutsche Bank, and we know he is going to be a great addition to our team.

As most of you noticed, we added a new disclosure in the supplement today, the development pipeline on Page 30 of the supplement.

Art will elaborate on this pipeline later in the call.

Today, we are going to keep our introductory comments brief to allow plenty of time for Q&A.

That being said, we will be limiting this call to one hour.

If we run out of time and you still have questions, please do not hesitate to call me, Art, John Perry or Jean Wood.

On the operating metrics, we continue to see strong fundamentals in our business.

Leasing volumes and spreads were both good.

We signed leases for 325,000 square feet during the quarter with an average re-leasing spread on a trailing 12-month basis of about 15% -- 14.9%.

Occupancy rose nicely from a year ago at 93.4%.

That compared to 92.1% at March 31, 2012.

Adjusted FFO was up 13% in the quarter to $0.86 compared to $0.76 a year ago.

Same-center NOI increased by 3.4% compared to the first quarter of last year.

And it's important to note on that statistic that it does not include straightlining our rents or lease termination revenue.

This increase in same-center NOI growth was driven by increased occupancy, positive re-leasing spreads in 2012 that are now rolling through our 2013 numbers, and the CPI increases on our leases.

This is above our guidance range of $2.75 million to $3.25 million.

But this is just one quarter, so we are not ready to modify that guidance yet, but we will readdress that guidance after the second quarter.

We had a gain on land sales during the quarter of $2.2 million.

Those were sales that we had anticipated and they were included in our previously issued earnings guidance.

There was significant savings on interest expense during the quarter as our average interest rate went down to 4.1% compared to 4.7% in the first quarter of 2012.

Over the past 12 months, we have made significant progress on our balance sheet.

Our debt to market cap at quarter end was down to 42.6%.

Our floating rate debt had been reduced to 23% compared to 36% a year ago.

Our average debt maturity duration has increased to almost 5.5 years compared to 3.4 years a year ago.

We continue to take advantage of this great financing market.

During the past 12 months, we've completed over $2.6 billion of financings.

That's our pro rata share.

The average term of those financings has been [8.3] years and the average interest rate 3.4%.

These low interest rates that we've been locking in have had a significant positive impact on our cash flow.

Our interest coverage ratio, for example, has improved to 2.9 times compared to 2.5 times a year ago.

There's only about $480 million remaining in maturities for 2013.

In there, we have two big loans coming up.

One is FlatIron Crossing with an interest rate of 5.32% and the other is Tysons Corner mall with an interest rate of 5.22%.

Both are very under leveraged with interest rates in place significantly above where we could finance today.

Going forward, we will continue to put long-term nonrecourse financing in place and continue to stretch out our maturity schedule.

In this morning's press release -- last night's press release -- we gave guidance, updated guidance, on FFO.

We increased our previously issued estimate by $0.03 at both the bottom and top end of the range with the new range being $3.35 to $3.45.

The increase in guidance is due to the strong first-quarter performance, including occupancy gains, rental and recovery growth, and other operational efficiencies.

We've also encountered a better interest rate environment and loan environment than when we did our initial 2013 forecast.

The guidance range includes an assumption of $500 million to $1 billion of dispositions during 2013.

That has not changed from our original guidance.

As part of that assumption, we also assume a midyear execution of those dispositions on average at an average cap rate of 7.5%.

Art will be discussing dispositions in more detail shortly.

As I mentioned and, again, we are not going to modify at this time our same-center NOI growth assumption, but we'll revisit that at the end of the second quarter.

And the revised guidance quarterly split for the remainder of the year would be of the total FFO, 23% will come from the second quarter, 23% from the third quarter, and 29% from the fourth quarter.

Now, I'd like to turn it over to Art.

Thanks Tom.

First of all, I'm going to talk about our dispositions recycling program.

Then I will talk about our development, both underway as well as our shadow pipeline, as outlined in our supplemental.

Then I want to talk a little bit about our same-center NOI growth and the prospects for the immediate future.

On the topic of dispositions, I'd like to first of all revisit the why behind our recycling program.

The disposition of the recycling program was really driven by our observation that, as a result of the acquisitions of Kings Plaza and Green Acres, that we were able to do a tax advantaged reverse 1031 exchange and take 14 assets and essentially allocate the high basis, the new basis, of the two centers that we had bought into 14 older centers, which therefore would make them tax efficient for disposition.

Secondly, one of the drivers behind the decision to expose a number of properties to the market, and we exposed a larger number than we thought would be purchased because we had no idea what properties the buyers would be interested in.

A second major driver of that decision was to reload our balance sheet after the $1.7 billion of acquisitions.

As you remember, those acquisitions were funded using property level or other corporate level debt of $1.2 billion, which is an unnaturally high amount, and we knew that it was temporal.

We decided to reload the balance sheet through dispositions.

Another driver of the decision to go through the recycling was to essentially think about this as recycling capital from older, slower growth assets into Class A higher-growth assets, such as Tysons and Fashion Outlets of Chicago, and the others outlined in our supplemental in the shadow pipeline.

Another driver was our decision to prune our portfolio to increase our brand value so that when retailers think about us, they are really thinking about the best centers in the US, and an extremely high-quality pure portfolio.

We wanted to prune the portfolio also because we had come to the -- we had observed and it was intuitive as well as actual that, over the last 10 years, if we look at it, when we look at our lower productivity centers versus our higher productivity centers, the better centers produced better NOI growth.

The bigger centers produced better NOI growth than the smaller centers.

The smaller centers are very stable, but they just don't have the same dynamic qualities that a real powerhouse has.

And finally, the decision to recycle capital of these lower sales productivity and non-core geographic locations was to heighten our focus of our management team on fewer, big assets.

We did not want to dilute our focus and our attention.

Now I'd like to report to you how the disposition and recycling program has been going.

We started the process in December with early teasers through brokers, and we exposed the properties to a number of buyers and we had a significant amount of interest.

And we are pleased with the progress and the status of the disposition.

Having said that, while I am willing to entertain questions about the disposition program, please respect the fact that we are in highly sensitive negotiations with various buyers.

Some of the deals, the buyers have money at risk.

That's not so sensitive.

Some of the deals, the buyers are under contract, and it's essentially a free look during the due diligence period.

And other deals we're still in either a first or a second round of bidding, so talking about the size of the disposition and the recycling program and the status of it to some degree could compromise our negotiations.

So if we get into sensitive territory, please respect the fact that I may say, look, I can't answer that question.

Interest has been strong.

We've probably received bids from at least 10 groups on a selection of 14 assets.

We also marketed three assets in the Seattle area.

And two retail assets and an office complex received numerous bids.

The bids came from a combination of private equity folks, large private equity well-known folks as well as some public companies.

At this point in time, I'm pleased to report to you that our current guidance remains $500 million of dispositions for the year to $1 billion.

We are on track and on target with that.

I feel extremely comfortable with the low end of the range.

We feel very solid at that end of the range.

And that's not to mean we're not going to hit the high end of the range, but really to get into great detail about specific dollar amounts at this point in time would really compromise our overall program.

So our guidance remains basically what we gave you three months ago, but our execution is really in very good shape if you think about it, the process of first of all packaging up the tax attributes that needed to be handled to make these properties ready for sale, and then the process of marketing and going through multiple bids, and now to actually be in contract on numbers of assets and actually be hard on assets, that's really good progress in a matter of four or five months.

So I'm pleased with where we are there.

And we're going to accomplish the purposes that we sought to accomplish.

Turning to the development pipeline, as Tom noted, there is obviously the new supplemental that we have there.

Chicago, we will look forward to having a hard hat tour with those of you that want to join us in June at NAREIT.

We look forward to the grand opening in August.

We are extremely proud and pleased.

Retailers are -- have very high expectations, and we also have very high expectations.

This is a one-of-a-kind opportunity.

One of my board members said, so, how many more of these are going to do?

And I said, well, I don't think there are too many other sites right next to the one of the busiest airports in the world that you're able to get this kind of tenant mix on.

So it's one-of-a-kind, but we are happy to have had the opportunity to get involved at this point.

And we think it's going to establish our presence in the outlet industry not as being big in terms of size or quantity by any stretch, but certainly being productive on those that we own, which is consistent with the strategy that we outlined for you a couple of years ago when we said that we were going to move into this arena.

Looking at our Tysons development, very pleased to be able to deliver on our prognosis for you that we gave you on our last call that we anticipated signing a second anchor tenant in the office complex.

We are pouring I think about a floor a week in that office building.

I think we are up to the fourth floor above grade now, so that's coming along great.

Leasing activity is very strong there.

Let's remember that Tysons is a one-of-a-kind property.

So when you look at the DC market overall and you look at the different components of office or residential on a macro level, sure they've got headwinds.

But Tysons is a universe to itself.

You look at the combination of the intersection of Tysons One and the Tysons Galleria and put the Metrorail in between the two of them, add to that the hot lanes that have now been opened both to north and the south on the Beltway, which has cut the commute for shoppers and employees by half, taken a 45-minute commute and reduced it to 15 minutes or 20 minutes.

And this is just a one-of-a-kind location.

You've got almost 3 million feet of Class A retail at one intersection.

Pleased to see that the Metrorail has -- is just in the process of awarding in excess of a multi-billion dollar contract to extend the rail from Tysons Corner to Dulles.

So now we'll have the rail going all the way from Dulles with the primary stop at Tysons Corner to downtown.

We are seeing synergies between the five elements that we have here in our densification.

The office users, for example, both INTELSAT, which by the way just went public, for those of you that might want to know more about who that is, obviously Deloitte is a household term.

Both INTELSAT and Deloitte's HR departments have already started talking to our residential fee developer, Kettler, about getting pre-reservations for residential units for their employees.

When you add the number of employees that are going to be there in our office building to the number of employees that are in the immediate trade area, there's I think 170,000 office workers in the immediate trade area, it's a very natural thought that those employees would want to have a live, work, play pedestrian environment.

A young urban professional who has to travel a lot, they could live without a car.

Why wouldn't you?

It's a great new urban paradigm in what was originally obviously a suburban environment.

So the residential, we anticipate, notwithstanding the macro noise that you hear in the market, that our residential building is clearly the Class A building in the market.

You don't have any other buildings in the entire market, and certainly looking at Tysons, it has the amenity package that we have that has the access to mass transit that we have, both by car with the hot lanes as well as the rail that takes you to the airport as well as downtown.

That has the shopping, the dining, the entertainment and the choices that you have.

So, we are very bullish on and comfortable on the residential component here.

The hotel operator that we have, Hyatt Regency, they are extremely excited.

They operate the hotel over at Reston.

And they look at the Plaza that we are creating, which is almost 2 acres compared to the public space that they have at this other project, which is 10% of that in size.

And they are so enthused about the opportunities for special events, weddings, banquets and other events that they can host there.

They see the fact that the Plaza is the key glue that ties the office, the residential, the hotel and the retail together.

We are seeing synergies in the retail.

Leasing is really beginning to take on a new view with the retailers now taking space that formerly was viewed as very good space, which is essentially the new entrance area that connects to the plaza, and they now see that as the 50-yard line.

Very enthused about that.

Moving to Fashion Outlets of Niagara, we have internally greenlighted that project.

We are over 50% pre-leased in terms of handshakes and commitments.

I'm not going to get into details on how many leases are signed because, at this point in time, you are not at that point, but we are greenlighting it from the viewpoint of moving forward with an anticipation that we open that project in late '14, early '15.

We are anticipating at least a 10% stabilized return on our investment there.

Other projects that are in our development shadow pipeline that we are obviously very enthused about, Kings Plaza.

Kings, you'll see in the supplemental now is doing $700 a square foot.

Sales were up 9.4%, comp sales for the first quarter of this year.

Green Acres.

Sales were up 7% for the first quarter of this year.

So Kings we've had development teams working there almost on a weekly basis, and we are very, very bullish on what we are going to be able to accomplish within that center.

And the time frames that we anticipate for that are indicated.

The expenditures that we've outlined -- this is a very broad range in the shadow pipeline and that's why it's in the shadow pipeline and not the hard pipeline -- is $75 million to $100 million.

We anticipate very good double-digit returns there.

We are looking at major re-merchandising, maybe a new food court most likely.

And this does not involve recapturing any anchor space or recycling any big boxes within the center.

This is really essentially doing what we do best, which is simply re-merchandising and refreshing and repositioning centers.

As you know, Brooklyn is on fire.

You can barely go a week without picking up a magazine or newspaper article.

I read them in LA.

Just last Sunday, it was talking about how Brooklyn is now the hippest spot in the US.

And we are very pleased with that.

Green Acres, we are pleased to let you know that we closed a couple of weeks ago on the acquisition of 20 acres of contiguous land right off of the Sunrise Highway, so it's exactly contiguous to the center.

So the opportunity to buy 20 acres of land for about $20 million exactly contiguous to a center that's doing over $800 million in total sales, we are very pleased with that.

And we have -- we are putting together our thoughts.

We are demand sourcing right now from retailers, got lots of demand from big boxes as well as anchor tenants that want to either come in or reposition or expand.

I now want to talk briefly about same-center NOI growth and our outlook.

I first of all want to say that, on the same-center NOI growth, that I do want to observe that, in the same way that I observed that simply putting out numbers of sales per square foot was only two-dimensional and it didn't add a third dimension of adding the quality of the sales per foot and adding the NOI associated with the properties, but I think that the focus on same-center NOI, we get it, that same-center NOI is going to be a key driver for our share performance and for anybody's share performance, especially when share prices are getting lofty.

But I do have to remind you that one has to be careful in the operation of a regional shopping center, not to be short-sighted in your research.

You can chase same-center NOI at the expense of long-term value creation.

So we do keep that in mind.

I will take responsibility for the fact that, going back to January of 2011, as we were coming off of 2009 and 2010, that I drew the line on rents.

And I did draw the line on rents across the portfolio.

Frankly, in retrospect, it may have been a better idea to draw the line on rents only in the highly productive centers and to be a little more relaxed on rents in the Bs and the Cs that we own, and to maybe chase occupancy a little bit more in the Bs and Cs that we own.

But we are very clear on our strategy today.

We had to take a hard line to reestablish the balance of power in negotiations between the landlords and the tenants because the tenants had a heyday in 2009, and that had to stop.

Our focus on same-center NOI growth is primarily driven by four factors today.

One is to drive our rents and our merchandise mix at our A malls.

Two is to drive occupancy at our B malls.

A third way of driving our same-center growth is to recycle out of our B malls and recycle that money into the repositioning of our A malls, so that's a big part of the strategy.

Four is expense controls.

We had some very significant renegotiation of our total facilities contracts in the mid to latter part of last year that are beginning to flow through our properties this year.

So I'm very pleased about that.

But on same-center NOI growth, if you look at our history over 20 years, we've always been in the top tier of our peers.

I recognize the importance of this measure going forward, but I also want to let you know that value creation is more important than same-center NOI growth many times.

And your brand protection is more important at times.

There are times that you are better served to take a little bit less rent in an A center to take a better tenant mix which enhances the brand, enhances the sales of the overall center.

And as you've heard, rent is a function of sales.

And if you take care of the sales, the rents will take care of themselves.

So we are very bullish in terms of our prospects for same-center NOI growth.

We are very focused on it.

If you take a look at the average rents that are in place in our portfolio today, March of '13 versus March of '12, we are at $47.63 a foot versus $45.87 a foot and occupancies are up 130 or so basis points.

And we are very focused on this going forward, and that's part of what gave us the confidence to increase our guidance.

We could have likely increased our guidance a little bit more, but given the noise and the lumpiness and the uncertainty of the recycling disposition program, we felt that what we did was prudent.

At this point in time, we would like to open it up and welcome your questions.

(Operator Instructions).

Craig Schmidt, Bank of America.

Thank you.

You know, I'm seeing really strong performance in rents and rent recoveries in the first quarter.

And I wonder if there's any concentration of where that lift came from, or maybe just some color behind that those strong numbers.

Really it's across the portfolio, Craig.

You see nice growth in recoveries, and particularly if you look at the recovery percentage, it's up because we were able to hold our expenses in line with last year.

And that combined with topline rental growth really was a big part of the growth in the first quarter.

We cut about what amounts to 1% of same-center expense out of our operating expenses, which is just beginning to flow through our numbers, and those flow equally through every single property.

Okay.

Great.

I was wondering if you had a sense of where the occupancy might be at the Fashion Outlets in Chicago when it opens on August 1.

We don't control the tenants' opening dates.

That's always -- we don't control the permanent process, the building inspector process, all of those things.

Look, we are over 90% signed.

Our anticipation is we're going to open with 90% of the lights on.

But we don't control that.

We work with them well and we have expediters all over the place helping them.

The tenants are very bullish on what they are doing, and they're doing everything they can to make sure they're open.

But we don't control that process.

And then just finally the 20 acres next to Green Acres, obviously there would be a lot of big-box interest.

But is there something better that you can do with that?

We are evaluating it right now.

Look, the strength of Green Acres is catering to the masses.

And it's a center that does, as we mentioned when we bought it, over $800 million in total sales.

So that's a powerhouse.

We're going to add retailers that bring shoppers.

We've already got a very large selection of specialty stores in the mall, so there's no reason to try and expand that offering.

But you know, we are evaluating it right now.

It was a no-brainer to buy it.

It had been sitting there forever, and when we saw that we had an opportunity to buy it and it was owned by Viacom and there's an old theater there, when we saw the opportunity to buy it, you couldn't have bought a more beautifully positioned piece of land.

There's not even a street in between it.

The driveway that's in between it is owned by us.

I mean, I've never seen where you can buy a property that's doing $800 million in business and you can buy 20 acres of contiguous land right next door at that kind of value.

It was a no-brainer.

there's tons of tenant demand and we will see what we do.

There could be an expansion of the mall and part of that land is used for surplus parking, which is much cheaper than we would've had to have faced using deck parking.

We will see.

Yes, that was a pleasant surprise, and it's so soon.

That's great.

Thanks.

We started working on buying the land before we even signed a contract to buy the mall.

But thank you.

(Operator Instructions).

Rich Moore, RBC Capital Markets.

Hello, good morning guys.

One of the things we had heard of recently is that getting CMBS debt for B quality malls was getting more difficult than it had been.

Do you guys have any thought about some of your buyers for the 14 assets might need CMBS debt.

I'm curious.

Do you have any thoughts on the CMBS market and specifically with regard to regional malls, and maybe the B assets in particular?

Sure.

We are not financing any "B"s that's on our own, so we are not a good proxy for that.

I would point out to you that we've placed $820 -- or $925 million of debt on two malls that had J.C. Penney as an anchor.

Now, that was Queens and Green Acres all in the last three months, but obviously those are not B malls.

The buyers that are working on deals with us generally are putting between 60% to 70% debt on the properties.

And it's I think CMBS in every case.

The rates that I am seeing that they are seeing are pretty attractive.

They're within 50 basis points of where we have been borrowing even as they stretch their leverage up to 65% to 75%.

Some of these malls have J.C. Penney and Sears as two of the three anchors.

All of them have one or the other, and some of them have both as part of four.

I have not seen any impact whatsoever in terms of the lending world on that.

I've heard the noise about that on other calls.

I have not seen the impact.

Now, it doesn't matter where your J.C. Penney is located.

So if it's a J.C. Penney that's in a mall that's doing $220 a foot, you're not going to be able to get a CMBS loan, just like if it was a Nordstrom anchored center that was doing $220 a foot, you're not going to be able to get a CMBS loan.

So really the productivity of the center I think is the more relevant fact.

Certainly, the lenders are willing to lend.

I would characterize it as still being very aggressive in the CMBS world.

We were out not two weeks ago with SanTan Village and it was very, very, very competitive.

And as Art said, we are not financing any "B"s right now but we have been hearing from the brokers as it relates to some of the assets in our disposition program.

And they still characterize the borrowing environment as very borrower friendly in that the underwriters and CMBS are being very, very aggressive.

That's a --

Again, the quality asset is key, so remember that.

The other point I would make is that, look, one of the guys that's really active in the CMBS market is the same investment bank that just loaned $1.75 billion to J.C. Penney.

Yes, fair enough.

Good guys, thank you.

Michael Mueller, JPMorgan.

Hi.

A couple quick ones here.

We are looking at the disposition range of $500 million to $1 billion.

Is there a certain number within the range that's ideal the way you look at it?

Is $1 billion better than $750 million?

No, not really.

It's opportunistic.

$500 million could be a great result.

$1 billion could be a great result.

It's very opportunistic.

We are not chasing a number.

We are just exposing these properties to the market.

We are very far along in the process, but very far along could mean that we've got somebody that is in due diligence, and their go-hard date could be tomorrow.

So, it's really hard to talk about the process right now other than we've had substantial interest, and we are extremely confident about the low end of the range.

We don't control whether buyers actually perform.

We don't control whether they step up and go-hard when their go-hard date is, so we can't prognosticate what the ultimate number would be.

Got it, okay.

And then if we look at the year-over-year occupancy gain that you posted this quarter, was that a pure same-store increase, or how much impact was there from acquisitions and dispositions in there?

That was mostly same-center.

You've got the detail in the supplement where you not only see sales by asset, but also occupancy.

So, you can see the relative occupancy levels.

In some cases, actually the acquisitions have a lower occupancy level than our reported numbers.

so most of that was same-center gain in the quarter.

Got it.

Okay, thank you.

Paul Morgan, Morgan Stanley.

Hi, good morning.

On the development schedule, just maybe you could provide a little bit of color.

Art, I think you said last quarter that you really have kind of plans for the majority of the top couple tiers at least of your portfolio and the way you group them.

And you chose to put the ones that you did in the development.

How should we think -- what does that mean for those versus the others?

When would you -- what do you characterize being kind of real enough to provide that disclosure and kind of how would that evolve going forward?

I would expect that you will see the shadow pipeline grow each quarter for the foreseeable future.

And I would expect that you will see properties that are in the shadow pipeline move up to the in-process grouping periodically.

I would expect that, if it shows up on the shadow pipeline, I'd say the probability it is going to become a reality is extremely high.

We took the attitude that let's kind of start with a skeletal approach on this first quarterly provision of the supplement.

And we'll be adding to it.

One of the debates was that we do have many properties where we have a $10 million or a $20 million repositioning that we are pursuing, or an $8 million opportunity that is still creating value.

We didn't want to -- we are still kind of debating.

And John Perry is helping us think about how we provide kind of clean disclosure without it being a syllabus of activity.

So, you'll see additions to the shadow pipeline.

My guess is every quarter for the foreseeable future.

You're two for two on the disclosure side in this quarter, so I look forward to what comes out next quarter as well.

On occupancy --

(multiple speakers) guidance from you on that and then we can try and go (multiple speakers)

I have given you some.

I'll give you more if you like.

On the occupancy, I appreciate the detail there.

When you actually look at it, a lot of that kind of the pick-up in occupancy, your mid-tier centers are kind of 20 malls that are up 200 basis points.

In the context of what you said earlier, is that a reflection of a change in strategy?

Is it some of it may be kind of driven by some of these are being marketed, or are you seeing a pick-up in mid-tier demand that is kind of noteworthy?

Bobby, you want address that?

This is Bob Perlmutter.

I would say, in general, it reflects an improving environment for some of the mid-tier centers.

And I think that improves a couple of ways.

One is just starting with the supply, the shrinkage is much lower than it was a couple of years ago where bankruptcies and rent release were much higher.

So I think there's some stabilization in performance.

And I think the other thing we see is the activity with the national retailers.

A number of national retailers are rolling out formats more targeted towards the mid-tier centers.

People like Crazy 8s and Rue 21 and Maurice's.

So many of the retailers have open to buys in this category that a couple years ago they didn't have.

So I would say it's general improvement in the environment and the retailers' demand for the mid-tier centers.

Okay, great.

And kind of lastly, on the Deloitte deal, were the rents versus your kind of pro forma going in?

How did you do?

It hit our pro forma.

It's -- we are in very good shape.

Both the two anchor deals we've got are right at pro forma, so our anticipation is that the balance of the lease-up, we should easily hit our pro forma or above.

We feel very good about -- we feel really good about where we are on the entire project in all five elements of it.

And I do want to emphasize all five elements of Tysons.

And the Plaza is one of those five elements, because that's the staging area and the connectivity that is going to make this such a unique property, and it's going to feed each of the properties, the retail property.

It's -- the synergies of having one owner develop this are massive.

Had we sold off the air rights to any one of the towers, the opportunity to cross-market, cross-brand, and plan the traffic between the different elements, would have been lost, which would have been a shame.

So Alaska and Macerich, the Alaska Permanent Fund, which is a very thoughtful investor, and we planned out from the very beginning and thought about selling off development rights to others and came to the conclusion that we should -- we need to build this on our own to protect the golden goose, which is the retail, but to make sure that it all works together.

And the thesis that there was synergy and the opportunity to cross-market and cross-brand, we're already seeing the reality.

Great, thanks.

Quentin Velleley, Citi.

Good morning out there.

Just in terms of the new development disclosure, which is great to have, I just wanted to try and basically reconcile some numbers.

If you look at the schedule, you've got a total of about $179 million, which is your CIP or your pro rata capitalized costs.

But then if you look across at the balance sheet, there's a total that's more like $430 million.

So, there's roughly a $250 million gap between the two.

You just mentioned a couple of questions of ago that some of it is the smaller-type projects.

But can you maybe just run through how much are the smaller projects and what else is in that spread?

Yes, I'll do a quick reconciliation for you, not to take too much time here because we don't have that much.

On Page 7 of the supplements, you've got your consolidating balance sheet, and you've got $317 million listed as CIP for wholly-owneds.

And Chicago is $67 million of that, on Page 30.

We have Estrella Falls, $31 million, and Niagara $10 million.

In addition to that, we have a numerous things that we've got to capture in CIP for GAAP purposes that are non-cash items.

In some cases, it's imputed land value which is what we have in Chicago.

In some cases, you have to capitalize interest even though you don't have a construction loan that's a non-cash GAAP entry.

And there's about $100 million or so of those non-cash allocations in that CIP number.

Then there's about $100 million or so are small projects, probably 20 or so projects in total that make up that number.

If you look at the joint venture number there, it's $112 million in CIP.

Our pro rata share is disclosed in Footnote 3 there on Page 7. And that's made up of $67 million from Tysons Corner, which ties to Page 30, $4 million from Broadway Plaza which ties to Page 30 also, and then the other JVs and the accounting adjustments are about $40 million or so.

That gets you to the $112 million.

Okay.

That's helpful.

And then just secondly, can you just talk a little bit about your schedule at RECon in Vegas in a few weeks' time, how it compares to last year and is there any sort of new concepts we should be thinking about?

I can speak from our experience.

Our schedule is very strong, stronger than last year.

We actually extended our hours on Sunday for a full day, which previously was a half a day.

So, I think the lease environment continues to improve.

We talk a lot about new concepts and new concepts coming.

Two of the centers gets a lot of press, but if you look at our 10 largest tenants, they really are equally or more important to us.

And generally our 10 largest tenants are doing very, very well, and that really bodes well for the coming years.

Christine McElroy, UBS.

Hi, good morning.

Maybe I'm being a little too technical or reading too much into this, but the updated quarterly percentages that you gave for guidance would imply 25% for Q1, which at $0.86 would put you at the upper end of your new range.

Is that what we should take away from that, or should we be thinking about the Q1 number sort of excluding any one-time items like the undepreciated asset sales?

The first quarter was $0.86 and at 25%.

It gets you in the range, but there's always rounding in these things.

To be accurate, I'd have to take it out three or four digits, and that's not really implied.

I could've said 23% to 24% for Q2 and 3 and 24% to 25% for Q1.

So I wouldn't read too much into that.

Especially, with the dispositions not controlling the timing of that, I cringe when I hear Tom give quarterly guidance with all of that activity going on because if a disposition closes one month versus another, it can change things.

So, I'd look at, for this year in particular I'd be looking at the year, but obviously Tom is giving you his best guesstimate on the guidance on the quarters.

Obviously, we'll revisit it at the end of the second quarter when we'll have even more information on the disposition program and we can true it up then if need be.

Then with regard to other income, the last two quarters, it's kind of spiked higher.

Wondering if there's anything one-time in there and what we should be looking at for sort of a run rate going forward.

No, part of it is a function that we have more wholly-owned assets now because we bought up our interest in FlatIron from 25% to 100%.

Obviously, we did the same with Arrowhead; we added Green Acres and Kings.

So if you go to the consolidating income statement in the supplement, you see that, if you take other income all the way across, it's about $19 million for the quarter.

And that is a good run rate.

We are going to run, on average, $19 million to $20 million per quarter in there.

There's a lot of things that go in there -- advertising, telecom, income, vending machines, gift cards, sponsorship income, and it's an area of emphasis.

But I think that's probably a pretty good run rate.

Got you.

So previously it was in the JV NOI then?

That's right.

Just lastly, on the last quarter, you mentioned a $2 million acquisition cost on Green Acres.

Was that in operating expense this quarter?

Yes, it was in, and I think we came in a little bit less than that.

We came in about $1.5 million, $1.6 million.

Okay, thank you.

Josh Patinkin, BMO Capital Markets.

Good morning out there.

Niagara Fashion Outlet, I'm wondering how much of the customer base there is Canadian driving in from Toronto.

Obviously, Premium Outlet opens in August in Toronto.

And can the greater superregional market support another 600,000, 700,000 feet of outlet space?

80% of our customers come from Canada, and they come to Fashion Outlets of Niagara because of the embedded differential in prices.

There's a between 12% and 15% difference in the price structure for multiple reasons.

And we -- our retailers that are leasing space in our 172,000 foot expansion are very confident that that market and that price advantage will remain and they're very bullish in their interest level and the rents that they will pay us for the expansion.

So, look, obviously it's going to have an impact on the marketplace, but my guess is that it's going to have more impact on Toronto retail than Fashion Outlets of Niagara.

And I assume a lot of the merchants that you're talking to will open up two stores at these centers.

Is that fair to say?

I I guess you wouldn't know if they're going to be in Premium Outlet.

I can't comment on their tenant roster, because I haven't really paid attention to it because I don't really think it's relevant to what we are doing.

What they are doing is fine and great for them.

I'm sure it will be a great tenant roster.

But I really don't see those centers being competitive at all with each other.

Okay.

On Kings Plaza, as you guys acquired, it looked like to me that Gap closed their brands at the Center.

Do you have any insight into their decisions?

This is Bob Perlmutter.

I think Gap's decision to close their Gap store was based on underperformance within the center and our ability to take a larger space and bring in more productive tenants at higher rents.

They continue to operate the Old Navy, which is pretty productive, and has term left.

So I think that was really a specific tenant that didn't resonate with the customer.

And I'm curious if Green Acres and Kings came as a package deal, or could you have bought these two separately?

And would you have wanted to do that?

We spent a lot of time on the last earnings call talking about that question.

So, I can tell you that we were offered both properties at the same time, and we were actually offered more than both properties at the same time.

There were other properties we were offered, but we always wanted to buy these two properties.

We bought these two properties, and we are thrilled that we bought these two properties.

Okay, thanks very much.

Alex Goldfarb, Sandler O'Neill.

Good morning out there.

It is amazing to have 20 acres just for sale next to Green Acres, and it wasn't bought.

Two questions, my two questions.

The first question is, Art, after last quarter, you did your listening tour.

And apart from releasing the day before promptly at 4 P.M., which is great, what was the feedback that most surprised you?

I don't remember, honestly.

I'm not being cute with you either, honestly.

I guess, if I had to answer that, the conclusion that I came to was that we could do a better job telling our story.

And that's on all levels.

Disclosure is just one of them.

We have a great story, and I came to the conclusion that we could do a better job telling our story.

And a better job of telling our story, part of it's disclosure, but part of it is also telling the story to more than the normal universe of investors that we have told in the past.

So going forward, we're going to be seeking to make inroads into investment groups that currently are not in our shareholder base and may not even be in the REIT shareholder base.

I guess -- look.

Whether it's surprising or otherwise, the biggest take-away I had was that doing a great job running your business is not enough, that you have to also do a great job telling the story that you're doing a great job running your business.

I know we do a great job running our business, and I guess I may have slipped into a belief that that was enough, that everybody would notice.

But I did come to the conclusion that we could do a better job telling the story.

Disclosure is just part of that.

Okay.

And then Tom, on the 6.2% growth in sales, I'm assuming that's on a total portfolio.

Do you have the number for what it would be on a comp pool so we can see the impact of the acquisitions versus what the same-store pool grew in sales?

Alexander, your assumption is right that it's total portfolio compared to the portfolio a year ago.

And although I don't have it, you've got the detail there, so you can have a pretty good idea of what the new assets, Green Acres and Kings, may have done to that number.

But they are close.

It's not going to move too much on a same-center basis.

But I don't have that --

Green Acres was right at the average, and Kings was a little bit above the average.

But when you look at the overall pool, if you're 200 basis points above the average, it doesn't move it that much.

Right.

We had a disposition last year that was well above our average instead of going the other way.

Okay, thank you.

Tayo Okusanya, Jefferies.

Good morning.

Just first of all, congrats on a great quarter.

Just a quick question on the tenant base.

You've been talking very positively about what's going on with the tenant base, but just kind of curious.

Are there any retail categories where there are issues that you are worried about?

Are there any kind of tenants on a watchlist that you are worried about?

We definitely have tenants that are watched closely in all categories, both the specialty stores as well as the big boxes.

And some of those tenants that were on that list a couple of years ago, many of them were junior tenants that have actually rebounded fairly strongly.

In past quarters, people like Best Buy and others have been getting a lot of press.

So, many of them have rebounded.

I would say that, in general, we are finding the watchlist to be stable or declining.

We see the overall health of the retailers being better.

In particular, we see the big boxes moving more into the mall environment.

Particularly in some of the B centers, that's been a big improvement.

People like ULTA and T.J. Maxx and others are now looking at the mall as an expansion of their store base.

So, in general, it's overall an improving environment.

It doesn't mean that there aren't isolated incidences.

Most of them are isolated companies as opposed to categories.

That's very helpful.

Thank you very much.

I think we have time for a couple of more questions.

Cedrik Lachance, Green Street Advisors.

Thank you.

Thanks again for the new disclosures on the occupancy cost ratios.

Looking at those numbers, your Group 2 of centers, so the top 11 to 20, has an occupancy cost ratio that's meaningfully lower than Group 1, somewhat lower than some of the subsequent groups.

Is there anything you can do in particular in some of those centers to push rents, or is it related to the mix, including the Fashion Outlets being part of the group that's depressing the occupancy cost ratio?

I would tell you that there's a couple of items that are probably more mix-related than drawing any general conclusions.

You mentioned the outlet center.

Broadway Plaza is obviously a center that is going to potentially be substantially redeveloped, so right now it's got a lower cost of occupancy as we keep tenants short-term.

The other factors, you have a number of open-air centers there, which generally have lower CAM and operating expense costs than some of the enclosed centers.

So I would say that it's more just a nuance of the mix and the timing that some of those centers are in their lifecycle as opposed to any conclusions.

There is the one point that I would make is that -- hopefully I'm reading my - our own charts correctly.

If I'm reading them correctly, our top 10 centers do $831 a foot and that the next group does $623 a foot.

There is a totally different dynamic at a center that does $1000 a foot than a center that does $650 a foot.

You have tenants at places like Queens Center, Tysons Corner and even Kings Plaza now where their occupancy costs might be 30% of sales at times, and you go to try and replace them and they can't leave because they have to be in the center to protect their own brand.

Likewise, when you're offering space that happens to be a be available in a center like that, it's not at all out of the question to set the rent at levels where the tenant believes they are paying 15% to 20% of their sales because, at those sales levels, they can make money at that kind of occupancy cost.

So I would totally expect the most productive centers to have the highest rent as a percentage of sales.

Queens, we've been running Queens for 18 years at roughly 20% cost of occupancy as a percentage of sales.

Now, what happens is -- the good news is we've increased the square footage from 130,000 feet to 430,000 feet, and we've increased the sales from $600 a foot to $1000 a foot.

And therefore, the income has gone up more than 600%.

So, it is also a natural dynamic of high productivity centers.

And as Bobby said, in the next grouping, open-air centers generally are going to have lower cost of occupancies, and we also had centers in that second group that are awaiting to come into the -- to be redeveloped, so we are many times just renewing leases on a short-term basis and the rents are staying basically at the same levels that they have been.

So, Broadway Plaza, even though it's a high productive center, we are not driving rents there because we are keeping the leases short because the long-term plan is to demolish the majority of the center.

Okay.

So if you could renew all your leases at today's market rates, what do you think would be the occupancy-cost ratio in the first grouping of centers versus some of the lower groupings?

You mean theoretically if you said (multiple speakers).

Theoretically (multiple speakers).

I mean, as Art mentioned, one of the dynamics we are seeing at the most productive centers, the Queens Centers and the Tysons Corners of the world, is historically we've always looked at an opportunity to take a larger space at a lower rent and make it smaller spaces at a higher rent.

We are actually seeing the opposite happen at some of the centers where tenants are paying premiums for multi-level flagship stores.

And tenants step up to an occupancy cost that is partly based on their P&L and partly based on the importance of the store within their store program and at these iconic centers.

So, we are reaching 20% and higher at the top top part of the portfolio, and anywhere from the mid to high teens at the balance of the top-tier.

Look.

If I had to take a stab at that answer, I would tell you that our top 10 centers, if you started with a palette that had the land that they're located on, the department stores that are in place, and the small shops sitting there waiting for us to come in and lease them with complete flexibility that you would have occupancy costs of 20% at least on those top 10 centers, which is actually the situation that we are creating at Broadway Plaza.

We are running a little bit short on time, and we do -- I think we have one more question.

Cedrik, do you have anything else you would like to cover right now?

No, thanks for much for the answers.

Ben Yang, Evercore Partners.

Good morning.

Thanks.

Art, you mentioned feeling extremely comfortable that you'll sell at least $0.5 billion of the disposition program, which is probably only three or four of the 17 malls that you're actively marketing.

And I know you kind of threw everything out there.

But are buyers actually taking a look at all 17 malls, or is it going to be concentrated at the higher end of the malls that you're trying to sell?

At the end of the day, we will probably sell six or seven properties out of the 17 that were offered, and that's about the best I can give you in the way of an answer right now.

That doesn't mean there are not people asking about others, but to get more specific could jeopardize some conversations.

There could be people looking at all of them.

I really can't -- I don't want to get into any more detail on the numbers.

Remember I said there could be some sensitive questions.

That gets into a sensitive area.

But I think the relevant issue for our balance sheet is how many dollars are we going to recycle?

I feel very comfortable at the low range and at the range that we're going to recycle the raise $500 million of new cash to redeploy.

Okay, fair enough.

So, you think six or seven malls this year, maybe some interest in some of the other malls that don't end up selling.

Do you think you will kind of continue this program into next year to see -- to try to sell more assets basically at that point, or is this going to be once you sell those six or seven initially?

We advertised it as a limited-time offer, and that's what it is at this point in time.

It's a one-time limited time offer, and then we will see where we go from here.

I've gotten, frankly, as a result of sitting in management committee meetings with buyers and having a renewed focus on some of these assets, frankly I see the upside in them that is there.

So, look, it's a one-time limited-time offer, and I would not at all be surprised if this is it for now.

But also, I wouldn't be surprised if we continue to prune.

We'll see where we go.

I want to thank you all for joining us.

And sorry for running over a little bit but we did want to take Ben's question.

And we look forward to talking to you soon.

We look forward to seeing those of you that are going to join us on the hard hat tour in Chicago in a month or so and seeing you in-person there at NAREIT.

So thank you very much.

This does conclude today's presentation.

We thank you for your participation.