Macerich Co (MAC) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by.

Welcome to The Macerich Company fourth-quarter 2014 earnings conference call.

(Operator Instructions)

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

Please go ahead.

Thank you, everyone, for joining us today on our fourth-quarter 2014 earnings call.

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

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

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

Joining us today are Art Coppola, CEO and Chairman of the Board; Tom O'Hern, Senior Executive Vice President and Chief Financial Officer; and Robert Perlmutter, Executive Vice President, Leasing; and John Perry, Senior Vice President, Investor Relations.

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

Thanks, Jean.

Welcome.

It's been a couple of months since we saw most of you at our Investor Day on November 18th in Santa Monica.

We had some great acquisitions leading into that Investor Day, and we had many of our management team members presenting on a variety of topics, including development project status.

We'll be updating much of that information for you today as well as our view on 2015.

Consistent with past practice, 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, or John Perry, or Jean.

It was another very strong quarter for us across the board.

We continued to see strong operating results.

Leasing spreads were good, and leasing volumes were very significant.

We signed leases on 516,000 square feet of space; that compared to 330,000 square feet in the fourth quarter of 2013.

The re-leasing spreads were positive 22%.

Mall occupancy was at 95.8% -- that's up 125 basis points from a year ago.

Looking at that stat on a same-center basis, we were up 70 basis points from 95.1% at December 31, 2013.

Temporary occupancy was 5.1% of that occupancy compared to 5.8% at December 31st of last year, so down about 70 basis points from a year ago.

But we still have a lot of progress to make on that front.

And that will continue to be a focus for us.

Average mall store base rents are now over $50 a foot.

They increased to $51.15, up 6% from $48.16 a year ago.

Looking at FFO for the quarter, reported FFO was $0.99 compared to $0.94 in the fourth quarter of last year.

Reflected in FFO was a $9.1 million early extinguishment of debt penalty, $0.06 a share.

That was on the early payoff of Vintage Faire and Fresno Fashion Fair loans, which were a combined $250 million and had an average interest rate of 6.2%.

We have arranged a new $280 million, 3.49% 11-year fixed-rate loan to be placed on Vintage Faire, essentially replacing that debt that we paid off.

And Fresno will remain unencumbered for now.

Excluding the prepayment penalty, we came in at $1.05 for the quarter, right in the middle of our guidance range.

Impacting net income for the quarter but not FFO was a $1.5 billion remeasurement gain that is recorded for accounting purposes as a result of converting our ownership of Queens, Lakewood, Los Cerritos, Stonewood and Washington Square from an unconsolidated 51% to a consolidated 100%.

The gain is essentially the value of our 51% interest at the date of the transaction, less our book basis.

Same-center NOI for the quarter increased by 5.8% compared to the fourth quarter of last year.

This increase was driven by increased occupancy, positive re-leasing spreads, annual CPI increases on leases.

We think, however, it's more meaningful to look at a full-year same-center NOI.

For the year ended December 31, 2014, same-center NOI growth was 4.24%.

During the fourth quarter we had stronger occupancy lease term revenue and percentage rents than we had forecast.

Term fees are included in same-center NOI, as they are a recurring part of our business and, unlike straight-line rents, it is a cash revenue.

It can cause some quarterly fluctuation as it relates to same-center NOI growth, and that's why we feel it's more meaningful to look at a 12-month calculation for that metric, or at least a year-to-date calculation.

Lease terminations for the year came in at $11.8 million.

That was only slightly higher than our guidance level of $10 million.

And, in fact, our average annual lease termination revenues over the past five years has averaged $9.6 million.

We had a $2.6 million gain on land sale during the quarter, and offsetting that gain and included in REIT G&A costs were $3 million worth of transaction costs related to the acquisition activity in the fourth quarter -- and that is included in REIT G&A and caused the increase to $12.1 million in total.

Bad debt expense quarter was $700,000.

That compared to $1.1 million in the fourth quarter of last year.

And as a results of refinancing activity and the interest rate environment we've been in, our average interest rate is down to 3.5% compared to 4.2% in the fourth quarter of last year.

The balance sheet continues to be in great shape.

We have the strongest balance sheet in the history of our Company.

At quarter-end, some of the balance sheet metrics included debt to market cap at 33%; interest coverage ratio of 3.8 times; debt to EBITDA on a forward basis, 7.2 times; average debt maturity, 5.2 years; and floating rate debt as a percentage of total debt is 17%.

We continue to see a great financing environment given our ability to borrow at such attractive rates.

As I mentioned, we paid off Fresno Fashion Fair and Vintage Faire early and secured a very attractive 3.49% financing on Vintage Faire -- that's an 11-year fixed-rate term.

We also have some other attractive financing opportunities ahead of us this year, including Lakewood Mall, which is very underleveraged and currently carries a 5.43% interest rate; and Washington Square, which has a 6.02% coupon.

Those will be financed later this year, no doubt at substantial savings.

In this morning's press release we also gave FFO guidance -- the range was $3.80 to $3.90 per share.

This assumes no asset sales in 2015.

It does include dilution of about $0.10 a share from the assets we sold in 2014.

It reflects a same-center NOI growth rate of 4.25% to 4.75%.

We are seeing the benefit of the pruning that we did to our portfolio in 2013 and 2014, and that's reflected in this assumption and our expectation of seeing accelerating same-center NOI growth.

The guidance assumes $10 million of lease termination revenue, just slightly less than actual of $11.8 million this year.

There's been no acquisitions factored into that guidance, and there has been no gain or loss on early extinguishment of debt factored into the guidance.

And you can see that guidance -- those guidance assumptions detailed in our supplement.

Again, looking at the quarterly split on the FFO guidance, the first quarter is expected to be 21%; second quarter, 24%; third quarter, 25%; and the fourth quarter, 30%.

Looking at tenant sales for a moment, total portfolio sales per foot for the year were $587; that compared to $562 last year.

If you look at that calculation on a same-center basis, it was $587 compared to $574.

The top regions for us were Arizona and Southern California.

And if we take a look at total sales for the period, the quarter-ended December 31, 2014, total sales were up 2.2%.

So at this point I would like to turn it over to Art.

Thank you, Tom.

First of all, I would like to briefly address the speculation in the market regarding Simon Property Group's investment in Macerich.

As you likely know, in November 2014 Simon announced that it had acquired a stake in our Company.

At this point there is really nothing more that we can share with you.

It is our policy not to comment on market rumors or speculation, and we do not intend to make any further comments or statements during this call regarding Simon.

With that, I want to remind you all that the purpose of today's call is to discuss our fourth-quarter and full-year's earnings results as well as our outlook for 2015.

We would appreciate it if you could please keep your questions during the Q&A session focused on these topics.

Turning now to the results for 2014: as Tom has outlined for you, it was a terrific year for our Company.

It wasn't transformational, but it was certainly an evolutionary year where many important benchmarks were reached.

From an operating viewpoint, we put up some very good numbers, with occupancy levels increasing.

Leasing was extremely strong.

The environment is extremely good.

Our spreads remained very good during the year, up 22% for the trailing 12 months.

As Tom outlined for you, our balance sheet is in terrific shape.

And we see the opportunity in the next 18 months to even further enhance it with some very opportunistic refinancing opportunities coming up available to us.

Development: we had some significant milestones during the year and some great accomplishments on portfolio management.

As we look at the development activities during the course of 2014 and our outlook for 2015, again, we had some very good milestones.

At Tysons our office tower is now over 80% leased.

The residential tower is leasing up extremely well, and the hotel is poised to open here later on at the end of this quarter, the beginning of next.

At Scottsdale Fashion Square as well as Cerritos, we are well underway on construction to add two new junior anchors at each of them -- a sporting goods operator, Dick's, at each of them; and a major theater complex, Harkins, at each of them.

Speaking of theaters, the theater at Santa Monica Place -- construction there is going along well, with an opening there anticipated here later on in the third quarter, early fourth quarter of this year.

Coupled with the second-generation re-leasing of the center, that theater is already spawning significant renewed interest into the center, particularly into the third level.

Looking to the third level of the property, for example, we recently signed and are actually under construction on the recycling of some existing restaurant space into a new Cheesecake Factory, which we think will do terrific here in this market.

We also have new major tenants, such as UNIQLO, that has replaced Love Culture.

And I'm sure there may be other retailers at Santa Monica Place that Bob may point out to you that we have either recycled or are recycling, all with a view towards really taking this center up to a very significant level in the productivity.

At Broadway Plaza we had a terrific first part of our expansion there, with the demolition and complete reconstruction of a parking deck that was contiguous to Nordstrom.

This was necessary to create the footprint for the expansion of Broadway Plaza.

That was done and completed all within six or seven months, which is really terrific.

At Fashion Outlets of Niagara, our expansion opened up on schedule, on budget, well leased -- well over 85% leased.

At Kings Plaza, our remodel and re-merchandising is going tremendously well.

We are moving along very well on our entitlements at The Gallery.

From a portfolio management viewpoint, we further recycled out of a couple of lower-productivity centers and into some high-productivity properties.

So with the disposition of the assets we sold in 2014, we then turned around and during the course of the year increased our ownership at Fashion Outlets of Chicago to 100% and also to 100% in five malls in the Ontario transaction.

Another key investment that we made during the year, obviously, was The Gallery in Philadelphia, and we are very bullish about that.

As I look forward to 2015 and beyond, the Company is extremely well poised as a result of our portfolio management that we have done over the previous three or four years.

Our balance sheet is well positioned to finance all of our activities here going forward.

The leasing outlook is terrific.

As I look at upcoming development activities that we have and new ones that we've announced -- we announced a couple of months ago our joint venture to build a 500,000 square feet outlet center at Candlestick Park in San Francisco.

Demand for that center from the retailers' viewpoint has been very significant.

We are very bullish on that.

At Green Acres, we moved that project up to our active development pipeline.

That is really the expansion of our retail campus.

We are adding 335,000 square feet of restaurants, pads, as well as operators such as Dick's, HomeGoods, Ashley Furniture, and others.

We are very optimistic about the impact that that's going to have to the retail campus.

This is a center that -- you may remember -- when we bought it a couple of years ago, it was doing $500 a square foot.

Today it's doing over $575 a square foot.

Leasing activity in the mall has been very dramatic.

This expansion of the retail campus, we think, is going to even further enhance the retail destination.

We think that it will actually cause the campus to exceed $1 billion in sales over the years to come.

And we anticipate the announcement of a new anchor that will be attached and part of the enclosed mall itself in the very near term.

A new project that's in our -- that we talked about but is now in our shadow pipeline is the further densification of Scottsdale Fashion Square.

You should think of Scottsdale somewhat in the same context that you think about Tysons Corner; it's a huge retail project.

And we are blessed at Scottsdale to have excess land that is going to enable us to further densify that property.

Again, we talked about the expansion of the property that's currently underway; and this densification, we think, will just further enhance the retail destination.

Speaking of the destination, at the Super Bowl this last week, the NFL had their Fan Fest tent and activities at Scottsdale Fashion Square on the seven acres of vacant land that we have outlined as densification opportunities.

We generated over 0.5 million visitors to that project during the course of the four or five days leading up and into the Super Bowl.

And it was very dramatic in terms of the traffic increases and sales increases that were enjoyed.

At Tysons Corner we are underway with perfecting the next phase of entitlements.

And that's really spawned by the confidence that we have and the leasing activities that we have, particularly on the residential side.

We anticipate that at The Gallery in Philadelphia that we will be in a position to announce jointly with our partner, Penn REIT, the scope of the project; the size of the dollars; as well as the incremental returns over the next quarter or so.

At Chicago in North Bridge, it was announced during the quarter that we acquired a square block contiguous to -- across the street from Nordstrom, which is either the number-one or number-two Nordstrom store in the United States in terms of sales volume.

That square block was acquired -- it's about 65,000 square feet of building area.

We see that we will have opportunities to integrate that into Upper Michigan Avenue, with the opportunity to have FAR on that site of about 780,000 square feet.

We are in early planning phases on that project.

A likely outcome will be that we would do the retail, and anything that would go vertical above that would most likely be an air rights deal, with other folks doing that development.

Another significant activity that happened somewhat in the development arena that will affect us in this year and next year is that Sears announced that they, along with Macerich -- through our cooperation, Sears announced that they are going to bifurcate their stores at Freehold and Danbury -- two of our great centers -- where Sears will occupy one level of their two-level store, consolidate and rationalize into that.

And they have sublet the other level of their anchor store to Primark.

We think it's a great addition to each of those centers, a high traffic generator; and we were happy to cooperate with Sears as they made their deal with Primark.

And they will be responsible for all capital in connection with that addition.

As I think about 2015 and beyond from an operating viewpoint, I take great confidence in the same-center results that we've had in the previous year, the outlook that we have for this year and beyond.

You may remember at our Investor Day that Tom outlined a footprint for you as to how he felt and we feel that we will be able to achieve over the next five years a range of same-center NOI that would generally land in the midpoint of around 4.5%.

We are very confident, given our outlook for the future as well as financial modeling, as well as just the retail environment, that that type of same-center NOI growth is available to us.

With that, I would like to open it up for Q&A, operator.

(Operator Instructions) Craig Schmidt, Bank of America.

I guess a couple of questions on development.

At Kings Plaza, that seems to have been scaled back a little bit.

Maybe some explanation?

I'm not sure what you are referring to.

I guess -- I thought the Kings Plaza was a $90 million to $100 million investment; now it's $65 million to $75 million?

No, that's probably just an update in terms of our current view of the costs there.

So, actually, as I'm looking at our supplement there, the $65 million to $75 million, I think, is the possible re-merchandising, redemising of the Sears store, Craig.

The other cost that we talked about is really the re-merchandising and remodeling of the center and refurbishment of the parking structure.

Okay.

And maybe just a little color on what you want to do at the Westside Pavilion?

You know, that's a great center.

It's a great location.

It's about to get enhanced through the addition of a rail station that connects downtown Los Angeles to Santa Monica Beach.

The rail station has two stops near major retail centers -- one across the street from Bloomingdale's at Santa Monica, another one one block away from Westside Pavilion.

But it's a center that we really -- still needs to be reimagined.

We think there are densification opportunities there.

We've had a significant number of developers and users in the area come and talk to us about that opportunity, particularly as it relates to office and residential.

We are going to be debating that and thinking that through.

But to pave the way for the future there, we are already beginning to de-lease and short-term lease the retailers that we have there.

The center at last report was doing around $350 a square foot, which is not at all in keeping with its potential.

So we are in early stages of reimagining the center, and we anticipate that over the next year or so, we will be getting some entitlements to make that possible.

But this is a situation where we will have some significant positioning of the center for the ultimate repositioning of it.

We don't have anything clear-cut to outline today, other than it's not what it should be.

It's a great location, and we are convinced that five years from now, it will be significantly better and more profitable and productive than what it is today.

Thank you.

Paul Morgan, MLV.

Art, you mentioned a number of projects that are in your shadow pipeline.

And you've got, on a pro rata basis, I guess, about $600 million in what you provide in your supp.

How should we think of that number as changing over the next year or two, as you roll off Tysons out of it and put some of these other projects into it?

What's kind of a -- if you look out over the next two or three years, what's a number we should think of as kind of being in that active pipeline?

We are constantly taking a look at opportunities, Paul, to enhance our portfolio.

And I think that we are going to make an effort here on a quarterly basis to keep it fresh.

I think I have said in previous calls that we feel very comfortable with a range of putting into place $250 million to $500 million a year of redevelopment, densification, and new development spend.

That's kind of the range.

As we -- as some color comes into some of these to be determined, such as Philadelphia and Candlestick, we will be able to refine that number better for you.

But the bias is toward the uptick in terms of the opportunity, and we are just trying to identify for you the activities and real projects that we see in the portfolio -- and as we see new ones coming, to give you a heads-up in the supplement.

Okay.

Thanks.

And then there's been a lot of press, past month or so, about some of the apparel retailer bankruptcies and store closings in the malls.

Maybe you could just provide a little bit of color -- you know, you provide your same-store guidance, and then you provide the breakout.

It looked like there maybe was a little bit more seasonality in what you suggested.

Is that due to some of the closings that might take place in the beginning of the year?

And then how would you characterize kind of your expectations for a mark-to-market on some of the space you will be getting back?

I'm going to ask Bob Perlmutter to address that for you.

And maybe as part of that, Bob could give you an update on what happened with the store closings that were talked about at the beginning of last year -- the Love Cultures, and the Coldwaters, and such.

And then, also, the characterization of the productivity of the store closings that we see coming in the upcoming year; their lack of productivity; the fact that they are in great centers, in our view, and the opportunity to remerchandise them.

Sure.

Paul, this is Bob Perlmutter.

And just to start with last year, probably the three most significant store closures or bankruptcies were Love Culture, Coldwater, and Juicy.

And that represented about 27 stores in our portfolio.

Generally the stores were located in some of our better centers, so the real estate was strong.

We have -- as we sit today, about 62% of that has been re-leased in terms of signed leases or deals that have been approved by both the tenant and the landlord and are in documentation.

So we picked up about two-thirds of it.

In terms of economics, we are looking at about a high mid-single-digit increase in total occupancy cost.

So there is a reasonably good pick-up.

But one of the key elements for us is an improvement in quality in terms of bringing in more productive retailers.

So to give you a sense, some of the new tenants we've brought into those spaces include Soft Surroundings, Anthropologie, H&M, Boston Proper, Soma, Aviva, Hanna Andersson, St.

John's, Vera Bradley, Karen Millen, Kiehl's, Godiva, Pandora, and UNIQLO.

So we've really been able to upgrade the merchandise mix significantly because of the ability to reclaim the real estate and combine that with some uptick in rentals.

In terms of the 2015 bankruptcies, a couple of comments.

The five retailers that have been the most significant include Wet Seal, Body Central, Deb Shop, Delia's, and Cache.

The comment that I would make is: none of these bankruptcies come as a surprise.

These are all retailers who have been struggling for many years.

Their sales within our portfolio average $212 a foot.

Our centers are just under $600 a foot.

So we've planned, in terms of our budgets in our 2015 forecasts, these store closures.

And, again, we believe it will present an opportunity to bring in more productive retailers who ultimately will pay more rent.

That means -- there's a little bit of a difference probably, I guess, in the productivity of some of those guys that are bankrupt this year versus some of the ones that were last year.

Is that going to be reflected in a different mix in terms of the malls?

Maybe some of the space might not have quite the same demand, or is it just going to be more upside?

Obviously, every location is unique.

In that group, Wet Seal was probably the most significant store in terms of store count.

So they were in a variety, really, throughout our portfolio.

I think we had them in just under half of our centers.

So they probably have the most diverse real estate.

Conversely, Cache is generally in the top-tier centers and presents a very strong opportunity.

We had a very small exposure to the other three.

Okay.

And then generally these are kind of reflected -- you are reiterating -- well, you just provided, I guess, in terms of your same-store guidance is reflective of this -- the bankruptcies that have been announced today?

Yes.

We budgeted conservatively.

For example, I think Wet Seal -- we only factored in one month of rent from the Wet Seal portfolio in our guidance.

So it hasn't factored in.

That's why you see some of the seasonality earlier in the year, Paul.

Great.

Thank you.

And, Paul, I don't want to downplay it, but look -- this happens every year, and we see this coming usually two to four years before it happens.

So you know that a tenant is underperforming, obviously, well before a liquidation or a illiquidity event occurs.

And you are ready for it.

The question is: is it a tenant that is located in the property where demand exceeds supply?

Virtually, across the board, every one of our properties, demand exceeds supply.

So the outlook is that, look, it's an opportunity to take back a space before the natural expiration and to bring in better tenants than were there before, as outlined by what Bob indicated that we did in 2014 -- recycling of Love Culture, etc.

Ki Bin Kim, SunTrust.

Just a general question on stock issuance.

Because of certain circumstances with Simon, your stock is doing very well -- implied cap rate trading at 4.5%.

And while you're balance sheet is in decent -- good shape, you do have a lot of uses of capital coming up soon, with all the new projects.

So why not issue stock here?

And are there certain things that, when you are in the middle of something like this with Simon, maybe nothing happens, or something happens, but does that preclude you from issuing stock at all?

First of all, look, as we said in our prepared remarks -- which I rarely have -- we are going to focus today on fourth-quarter and full-year results.

And we are not going to really comment on anything that relates to Simon.

As it relates to how we think about funding our development pipeline, we are sitting on a virtually unused line of credit.

We have the opportunity to raise very significant financing proceeds from maturities that are coming up in the next 18 months.

Tom, I don't know if you've got --

Yes, we have got -- well, Vintage Faire is unencumbered.

That would support a very sizable loan.

We've got Lakewood, which is significantly underleveraged, Washington Square.

So some of our bigger, better assets are either unencumbered or have light leverage and loans coming due.

So we've got the opportunity to put nonrecourse, long-term, low-coupon fixed-rate financing on there and generate proceeds that can be used for the redevelopment projects.

And look, from a portfolio management viewpoint, historically over the last three or four years, you could think of the recycling of the disposition proceeds -- while not perfectly matched, that's essentially what has been funding our development pipeline over the past several years.

Even though from an earnings viewpoint that's not necessarily earnings accretive day one, from an NAV viewpoint and from a future earnings viewpoint, which I think is beginning to be reflected in our current same-center numbers, it's the right move to make.

When we think about stock issuance, it's really -- is there a reason to do it?

In November of last year, we had that discussion with Ontario.

And we funded an acquisition with all stock, because it made sense for the balance sheet.

And it was actually accretive to do it.

In today's environment it would be potential for that same situation to exist.

So that's kind of the way we think about it.

Okay.

I was trying to keep it more towards Macerich, but -- so it sounds like you're --

No, I understand.

I appreciate that.

I appreciate that.

You know, at this point in time, as it relates to stock issuance -- again, I would point you back to what we did in November.

And that made some sense; we issued stock.

It was accretive at the time.

It made sense to the balance sheet.

But we are not prone to be issuing stock just to be -- because we like the price.

But if there was a capital event where we had an investment opportunity, and we decided that it made sense to fund that through the issuance of stock, that's something that we would consider.

All right.

Thank you.

Todd Thomas, KeyBanc Capital Markets.

First question on guidance, sort of two parts.

First, in terms of the same-store NOI, growth forecast of 4.25% to 4.75% -- how much of a contribution are you expecting from occupancy gains in that number?

And then, also, in terms of the lease term fees in the quarter, just curious whether that was sort of one transaction that really accounted for a good portion of that, or what really caused the big jump?

And how much of that was in the same-store pool?

Okay.

First, your question related to occupancy in the 2015 guidance.

The overall number -- we are occupancy-neutral, but we are expecting to continue to reduce the amount of temporary occupancy we have.

As I said, it was 5.1% and at year-end, and our goal is to take that down between 50 basis points and 100 basis points.

We typically double the rent we achieve when we can convert the space from temporary occupancy to permanent occupancy.

I think your other question had to do with lease termination payments in the fourth quarter.

We had an active fourth quarter on the leasing front.

It was also fairly active in terms of generating termination payments.

That wasn't from any one tenant.

We did get a decent-size termination payment from Juicy; but then there were quite a few others.

And, again, as I mentioned, that's a fairly normal number for us.

The year came in at $11.8 million.

We have averaged $9.6 million over the course -- annually over the course of the last five years.

Our guidance in 2015 is -- again, includes $10 million as our assumption for that.

The piece that hit in the fourth quarter that related to same-center pool, which I think was another part of your question, was $5 million.

That compared to about $600,000 last year.

But again, that's one reason we look at that statistic on an annual basis rather than a quarter is the lease termination revenue -- and there's a cost for that, because you give up occupancy.

So it hurts your NOI in another way, although it benefits you in terms of getting that cash compensation up front.

We really think that's a statistic where you have to take a trailing 12-month number -- a full-year number -- to really have a meaningful look at what's going on there in terms of same-center growth.

Okay.

Understood.

And then second question, just on acquisitions: I think, Art, last quarter you hinted at there being a potential acquisition in one of your gateway markets.

And it sounded like a more traditional sort of operating asset.

I know you announced San Francisco, and the acquisition of interests in the Chicago outlets and the Ontario Teachers' deal; but just any additional update or thoughts on that other acquisition that you had mentioned?

Is it still in the works?

Maybe you can just shed some light on what's happening there?

You know, I'm not sure exactly what I was referring to at the time.

It could have been the consolidation of our partner's interest at FOC, but it also could have been, on our last call, the announcement of our involvement in the Candlestick development opportunity in San Francisco.

But whatever I had in mind at the time was done.

Either I may have been referring to Candlestick or FOC.

I will say, since you prompt the question -- do we see anything new this year?

I think there is an opportunity that there will be a new development project that we will announce this year that will be in a significant market and that will be a fashion outlet.

Okay.

Thank you.

And I'm going to get a printed transcript of what I just said so that I will be ready for your question next quarter.

Jim Sullivan, Cowen.

Two questions.

First of all on Primark, Art, if you can help us -- I think in your comments you indicated that there was -- the deal with Sears was with your approval.

And Primark's initial location that they announced some time ago was in Boston, and that's kind of a street retail, like more of a traditional downtown department store location.

And I think it's about 110,000, 120,000 square feet.

The subleases or the leases from Sears are closer to 70,000 square feet.

So I guess my question is: going forward, to the extent you have been in a dialogue with Primark at all about their ambitions in the US, should we be expecting them to stay with that kind of smaller footprint, number one?

And number two, would you expect that you will be doing some deals directly with them in the coming year or two years?

I do expect that we will do additional business with them in the upcoming year or two.

Their footprint really varies based upon the opportunity.

The location they picked in Boston was a pretty prime location.

Right now they are focused in the Northeast.

They have acquired, as I understand it, a very large distribution center in Pennsylvania.

And they are very serious about their commitment here.

So I do anticipate that away from Sears doing deals with them, that Macerich will do deals with them directly.

I would say 70,000 feet is probably on the low end of the type of deals that they would be doing with us.

It's hard to predict a range, but they could be 30,000, 40,000 feet, bigger than that in certain markets.

Okay.

Second question from me: obviously we've had a very strong US dollar now for some time, and certain individual assets in your portfolio as well as certainly some geographic markets -- call them kind of gateway markets -- have benefited, looking back over the last several years, from international inward-bound travel and that foreign shopper.

And I'm just curious, as you think about the business -- well, any impact you saw in the fourth quarter?

And as you think about the business going forward, whether you assume that that strong dollar is going to dampen demand or the amount of sales you are going to do from what's been a really strong source of demand?

I'd say for our portfolio the answer is no, that I do not anticipate seeing any significant impact in terms of the dollar -- with the exception of one property, and that's Fashion Outlets of Niagara, which does rely rather significantly on Canadian cross-border traffic.

And with the currency changes there, it's just more expensive -- the shopping opportunity in Niagara Falls.

So we have felt some impact on our sales there.

But conversely, as I think about our more international tourist centers, such as Santa Monica Place, centers such as Scottsdale Fashion Square, Tysons Corner, and Fashion Outlets of Chicago -- Fashion Outlets of Chicago, sales are on fire.

Traffic is up 30-some % this week versus last year for the last three or four months.

Santa Monica Place -- traffic and sales are very, very robust.

Same is true at Scottsdale Fashion Square, Tysons Corner.

So those are the centers that I think of that benefit from international tourism.

And those shoppers are generally well-heeled; they plan their trips well in advance.

And when they are here, it's for, usually, extended stays.

One of their favorite pastimes is spending money.

Okay.

Very good.

Thanks, again.

The numbers speak for themselves.

We disclose sales per foot by property, so you can look at the centers that you know are beneficiaries of international tourism.

And you can see the impact.

Okay.

Great.

Thanks, guys.

Steve Sakwa, Evercore ISI.

I was wondering if you could just talk about the Group Five assets?

I know you haven't planned for any dispositions, at least in your guidance, but just how do you think about these assets conceptually in the portfolio?

The NOI on these centers were down 3% this year.

Sales were up modestly.

And I'm just wondering, given the attractive financing environment today, why not look to prune these sort of while the opportunity is there?

We've talked about that in previous calls, in terms of the fact that we really see that our disposition and portfolio management has been -- is roughly complete.

But you are right.

Look, I see if it made sense four years ago, and last year or the year before, to recycle out of lower productivity and slower-growing assets into more robust opportunities, then it makes sense today.

At this point it is not in our guidance this year in terms of any planned dispositions, but we have said that, look, we see this as a reservoir of capital that we do intend over the next five years to recycle out of those assets and into either new opportunities or more productive assets.

So it's just a question of timing, Steve.

And at this point in time, the market is getting increasingly comfortable with buying these types of assets.

So we don't feel compelled to rush into further dispositions here.

It's not in our guidance, but it's clearly in our long-term plan.

I would define our long-term plan to be the next three to five years.

Yes -- I guess just to push a little bit, in five years it's not clear the financing environment will be as robust as it is today.

So is it just a lack of having the capital -- that you need the capital to put it into deals?

Is it just not wanting to take earnings dilution short-term?

Is it just a lack of buyer pool, you think, for these kind of assets?

No, no, no -- they are not for sale.

That's what it is.

They are not for sale.

And when we get inbound inquiries, which we get them every day, we tell them at this point in time, these are not for sale.

That doesn't mean that that's not going to change.

Is it in our guidance for 2015?

No.

But, look, we demonstrated more than most that we are perfectly willing to do what we believe is the right thing, and that is to repatriate capital, keep it for our shareholders, and to plow it back into great opportunities.

And I think that we have a unique track record in our space, and that it's something we are going to continue.

But it's not in our guidance for this year.

Having said that, if there is an unforeseen opportunity to redeploy capital in a profitable way, that's a great source of capital to fund that.

Okay.

And if I could just ask Bob to just kind of follow up on some of the bankruptcy-related questions -- as you just kind of look at your tenant watchlist today, I realize that we've had maybe more bankruptcies than we have been accustomed to the last couple of years.

And some of those situations, while they had been out there for a while, all maybe came to a head at the same time.

When you just sort of look at your watchlist today, how would you characterize it?

Bigger or smaller than it has been in the past?

Well, a couple of things.

I think if you look over the last couple of years prior to 2014, we had abnormally low bankruptcies.

So while it's elevated, I don't think we feel it's elevated to a degree that's different than the longer-term history.

I think many of these tenants are struggling for different reasons -- whether they are in certain respects obsolete, like a Radio Shack; or if they are more of a women's apparel store that's not distinguishable from their competition.

So everyone is a little bit different.

But I think our list has been pretty consistent over the last 24 months.

And I think each tenant is there for a different reason.

But at the end of the day, the disposition process and the improvement in the portfolio, we think, mitigates our exposure to whatever degree of weakness the tenants have.

Okay.

Thanks.

Mike Mueller, JPMorgan.

When do you see the office and residential components at Tyson stabilizing?

Well, the office is well over 80% leased right now, so to me it's stabilized.

And then the residential occupancy will fill up over the course of this year.

So we anticipate that it will be fully occupied by the end of the year -- or stabilized and occupied.

Tom, do you have anything to add to that?

No, I would agree with that.

Office will probably continue to pick up over the course of the year and go from 80% to probably 90% by year-end.

Got it.

And then, Tom, for 2015 guidance, are there any material land sales assumed in there?

No.

Okay.

Thank you.

Alexander Goldfarb, Sandler O'Neill.

A question for you.

In LA you've got a lot of redevelopments going on.

Obviously, down south of you, Del Amo; you've got Century City; you've got Beverly Center.

You guys originally did Santa Monica Place; and now, obviously, you are launching Westside.

How do you think of all the redevelopment and all the capital that's going into the market as far as -- do you envision that each center is going to focus on a different shopper point?

Or is it simply because of the traffic -- you know, the shopper rings are very tight to each center, and therefore there is not as much competition as all these different entities reinvest in their assets?

Thanks, Alexander.

Great question.

So let's first of all keep in mind that there are four, or five, or six major retail centers in Southern California that are under significant -- either redevelopment or about to be redeveloped.

They are generally all in extremely good locations.

They are in unbelievably high barrier to entry locations.

They are generally all in the middle of a wonderful demographic.

But of all of the names that you just mentioned, I do think that The Grove, Beverly Center, Century City, Santa Monica Place, and maybe even Del Amo -- they are all kind of chasing the same customer.

I think therein lies the opportunity for Westside Pavilion, is to distinguish itself from that and not to chase that same customer.

We have a wonderful demographic in the very, very -- it's a really high, dense, well-affluent and -educated population in the immediate area of Westside.

And then you have the impact of the rail, which is going to give access to Westside from -- all the way from Santa Monica to downtown LA.

And we see people using the rail to go to Westside from both directions.

Landmark Theatres is one of the top two independent film theater venues in the United States.

So we see it as a great opportunity.

And as you think about the four or five developments -- and remember, they are all redevelopments, not new supply.

It's really generally recycling supply.

Remember, it's in the middle of a market that is the ninth largest economy in the world.

So it's money that's getting put into a pretty vibrant economy.

Okay.

And then the second question is for Tom.

Tom, you spoke about some of the refinancings that you have upcoming.

But just if you step back and just look at your debt schedule, you've got a meaningful amount of debt that's floating at a time when interest rates are at all-time lows -- although we all say that, and then they go lower.

At the same time, your duration -- or the maturity is only about five years.

So what are you thinking as you look out over the next year of activity?

Where do you think that debt maturity average is going to go?

On the floating rate that is out there, what are ways that you can bring that down to lock in today's rates?

Alex, for one thing, if you financed every asset you own for 10 years, you know what your average maturity would be?

It would be five years.

Exactly.

Exactly.

Yes.

So that's what we have been doing.

That's pretty much a normal level that you are going to get to.

The floating-rate debt is temporarily high, because we paid off Vintage Faire and Fresno right before year-end, and we used our line.

So when we finance Vintage Faire on March 1, that's going to go straight to reduce floating-rate debt.

So that will flip right there.

So you've seen us be extremely active in the financing market.

If you look at our maturity schedule, it's very attractive in terms of how it's evenly layered out.

As you get past -- you know, you look at 2019, that's the highest level at about $700 million of maturities.

Everything else is under that, going all the way out to 2025.

That's why we picked 11 years for Vintage Faire; that drops it into 2026.

And then the 2016 bucket, which looks somewhat high right now, is going to be reduced when we refinance Washington Square.

We'll probably go out 10 or 11 years on that.

And then our line of credit in 2018 causes that year to be a little bit lumpy, but we are going to continue to go long when it's available.

I think you are going to see the floating rate debt come down fairly significantly, just as a matter of refinancing some of these assets we've been talking about.

Okay.

Thank you.

Vincent Chao, Deutsche Bank.

I have a quick question going back to the bankruptcy discussion.

We've been talking about normalization of bankruptcies for a little while, I mean, in getting back to a more historic level, which -- from a lower-than-average level.

But I was just curious: it looks like bad debt in the guidance is about $4 million.

I think, Tom, if you could correct me -- I think it's about $5.7 million or $6 million or so this year.

So just curious how those two tie in since the bankruptcy outlook seems to be going up, but the bad debt is going down a little bit?

Well, bad debts -- for us it's a specific calculation.

Some of these tenants that we are talking about potentially going out here in the first half of this year -- we have already reserved for them.

So the bad debt expense for many of those tenants hit in 2014.

By the time they go out, it's too late.

So you have basically reserved against that.

And we've averaged -- in 2012 for the year, it was $3.5 million of bad debt; 2013, it was $4.8 million.

This year it was a little bit higher, $5.1 million.

And as we go through and look at specific tenants, we are very comfortable with the $4 million that we've guided to in 2015.

It's not too far off from our average over the last five years.

Okay.

Thanks for that.

And then just jumping a little bit over, back to the shadow pipeline -- you guys are showing about $500 million or so at 100%, but quite a few TBDs, and quite a few of the larger projects on the TB side.

I'm just curious, just as a -- I know you are not giving out the number, but just from an order of magnitude, it seems like you could fairly easily double that $500 million.

And then if you throw in the fashion outlet project that may be coming down the pipe here sometime this year to be announced, and then there's Goodyear that's still out there somewhere.

Just curious, is that the right way to think about just, again, order of magnitude?

Yes.

Other than Goodyear is down the road significantly.

Right.

But definitely, when we put a number on The Gallery later on this year -- maybe sooner rather than later; on Candlestick, maybe sooner rather than later; at a total cost level for those two, that could easily result in a doubling of the shadow pipeline.

Yes.

Okay.

Thanks.

Just -- I'm sorry -- just looking at the expected deliveries on the ones that we do have some clarity on, it does seem like that -- just given how they are all sort of bunched in that 2017, 2018 time frame, that the $250 million to $500 million could potentially go higher than that?

Is that -- am I thinking about that wrong?

Yes.

No, you are not.

And you know what?

We are going to do a little better job over the next quarter of helping to answer that question of what the normalized development spend is per year on a five-year period from this point for you.

So we will get you a little better answer.

We are trying to give you a heads-up on projects as they are clear to us, even if we don't know the exact number.

But I understand your need in modeling to do that.

And we will work on that and get you some better model numbers -- all of you.

Okay.

Thanks a lot, guys.

D.J. Busch, Green Street Advisors.

I just wanted to follow up on some of your earlier comments on the equity issuance.

Aside from Ontario Teachers', you have a couple other long-term JV partners in some of your best assets.

Given where the equity is trading today, have you been more proactive or had discussions with some of these partners about a similar opportunity to sell their current ownership stake and take an equity position in the entire portfolio?

No.

Okay.

And then --

Would we be willing to do that?

Of course.

But it's not -- look, it's their choice as to where they prefer to have their capital and what vehicle they prefer to have it in.

The other folks there are -- you know, they're very happy with the investments that they have, and they would love to have more with us.

Okay.

But at a real estate level, not necessarily a conversion of real estate for common equity.

Okay.

And then, Tom, just one more question, if I may, on the secured market.

You mentioned that financing was attractive at your Investor Day and then again today.

You know, the 10-Year is down over 50 basis points since then.

I was wondering if you just could provide a little bit of color on -- you know, if spreads widen and pricing is similar to what it was in November, or if secured rate is falling even further down as the T has gone down?

Well, they have.

At some point you hit -- you know, some floors come in.

But our recent example of Vintage Faire was very competitively bid, even though we were pushing for kind of an off-market term at 11 years, D.J., which is not normal, but a lot of CMBS bidders on that.

It was very competitive.

And I think rates had even come down a little bit since then.

We locked that in about a month ago.

So it's very, very, very competitive out there.

So maybe not 50 basis points, but -- so the spread has widened, but not to the extent of the full decline in T?

Correct.

Okay.

Thank you, guys.

Haendel St.

Juste, Morgan Stanley.

Art, your Company is in the midst of a rather heavy redevelopment phase within its lifecycle.

My question here, I guess, is: as you look to manage your portfolio for cash flow optimization, what do you think the margin impact will be over the next two, three, four years as your redevelopment activity slows and as your re-merchandising efforts take hold?

Your margins have been kind of low to mid 60s, excluding certain fees of late.

How much upside should we be thinking about on that front?

My guess is that there is at least -- as a result of the portfolio recycling, and just everything, all things considered, at least 300, 400 basis points improvement available there.

I will tell you that as it relates to that -- to operating margins, that's not a number that most people focus on in running regional shopping centers, historically.

It's certainly a very topical number these days for a lot of sell-side analysts.

But if you force me to focus on that metrics, I would tell you that there is definitely 300 or 400 basis points of improvement available there.

As I think about the development pipeline, I would point out that some of the new shadow projects are still a couple years down the road from being put into place.

We are constantly thinking about development opportunities and redevelopment opportunities.

So the whole purpose of that -- one of the major purposes of the portfolio management on selling assets was to enable us to have the capital to profitably move from slower-growing, less-productive assets, and to plow it into proven winners.

But also, to have the management to focus on time -- to think about fewer opportunities but bigger opportunities, and really to focus on great redevelopments.

And we are constantly on the lookout for those.

There is one that -- there is an addition of a new specialty anchor that will be coming at Corte Madera in the next month or two that we will be talking about.

Not a huge capital spend, but is a redevelopment of sorts, an expansion of sorts.

And it's just in our DNA.

We are -- you know, our history is taking great properties, great real estate, and then bringing them up to their full potential.

So we are constantly on the lookout for that.

Does that answer your question?

Yes, it certainly gives me some color, some food for thought.

And just one more -- if I could follow up on some of the conversation earlier about bankruptcies.

I'm looking at your lower lease term fee guidance for this year, $10 million versus $11.8 million last year.

It seems to imply, obviously, fewer store closures.

It seems a bit counterintuitive in the environment of higher retailer bankruptcies.

I'm kind of curious the thought there.

Is that because your current portfolio is a bit less exposed to weaker retailers, given some of your recent asset sales?

Does that explain it?

That number is just really an average, and it's hard to predict.

In fact, when a tenant goes bankrupt, you usually don't get a lease termination payment from them.

They get to walk away.

That comes when you are able to negotiate with a tenant who is still in business, but they are either reducing the amount of space they are taking, or they are not productive in your location.

So, again, that's based on what we have seen in the last five years.

It's about the average of what we have seen.

It's not really indicative of the bankruptcies that we've talked about.

Because typically there you don't get anything.

Appreciate that, Tom.

We started a little bit late -- so if we can take one more?

Christy McElroy, Citi.

It's Michael Bilerman here with Christy.

Art, I recognize you sort of said you had nothing to share on the Simon rumors, but it's not every day that a competitor takes a 4% stake in another company and says they may ask for a waiver to go to 15%.

So I guess, just from your perspective, how should we take it that you don't want to comment on it or take any questions on it?

I think the market clearly has a pretty good understanding of your Company, given the Investor Day in November, the conference call today.

So I'm just curious -- why not try to make a comment about it to sort of at least tell the market where things stand?

Because that would involve speculation on my part about speculation.

It would involve me speculating on what somebody else is thinking, and that's a relatively dangerous endeavor.

Well, I guess, then --

If you want to ask me about any of my actions, and our Company's actions, or our business, or our prospects for our future, I'm happy to answer that in great detail.

But it's really inappropriate for me to try and talk about what somebody else is thinking or doing.

Well, I guess the question is whether you have been engaged at all with them in those conversations or not, right?

So if they have approached you for a waiver, do you give it to them or not?

So those are things that, I guess, Macerich would do in terms of reaction to it.

And if you have had no reaction and no discussions, then that's fine.

Then I would just want to know that as -- in the marketplace.

I'm not asking for what Simon is doing; I'm asking sort of how you have reacted and what you have done about it, knowing that they have taken a stake.

We have kept our focus on our business.

We are 100% focused on our business.

And that's where we have been spending our time; that's where we are going to spend our time.

Look, I would love to engage and chat about speculation, but given the fact that I have already indicated I am not going to talk about it, this is -- my answer is really just consistent with the buzzkill announcement that I gave you at the beginning of my prepared remarks.

Right.

Maybe just generally, in terms of how the Board -- you know, this is not the first time that there has been scuttle in the marketplace.

I go back to 2003, 2004, I remember covering the stock, and there was a lot of chatter in the marketplace about strategic alternatives and things like that.

Maybe just help us understand from a Board perspective how the Board looks in evaluating different things in creating shareholder value?

I don't know -- that's probably more than one question, but in any event fits into the category of something that would be speculation and just not appropriate for me to comment on.

I would say that if you look at the makeup of our Board, we have a terrific Board.

We have a very representative Board, a very thoughtful Board, a very sophisticated Board.

There are a lot of adults in the room, and they are conducting themselves, historically, as they should in protecting shareholder value.

Back in 2009 they didn't panic, like so many other companies did, and sell survival equity.

They were very thoughtful about thinking about shareholders, and they do that every meeting and every conversation.

That does conclude today's question-and-answer session.

At this time I will turn the conference back over to Mr. Art Coppola for closing or additional remarks.

Thank you.

Again, thank you for joining us.

As you can tell, we are very proud of our results for 2014.

Again, while it was not a transformational year, maybe, it was certainly a year where a lot of benchmarks were set.

And our view for the future is very, very bright and very, very positive.

And we look forward to sharing our thoughts about our business with you in the meetings that we will be having with you over the balance of this year.

So thank you again for joining us.

Ladies and gentlemen, this does conclude today's conference.

We thank you for your participation.