Macerich Co (MAC) 2016 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Macerich Company's third-quarter 2016 earnings conference call.

(Operator Instructions)

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

Good morning. Thank you for joining us today on our third-quarter 2016 earnings call. During the course of this call, management may make certain statements that may be deemed forward-looking within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to a variety of risks, uncertainties and other factors.

We refer you to today's press release and our SEC filings for a detailed discussion of forward-looking statements. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the earnings release and supplemental filed on Form 8-K with the SEC, which are posted in the investor section of the Company's website at www.Macerich.com.

Joining us today are Art Coppola, CEO and Chairman; Tom O'Hern, Senior Executive Vice President and Chief Financial Officer; Robert Perlmutter, Senior Executive Vice President and Chief Operating Officer; and John Perry, Senior Vice President, Investor Relations. We look forward to seeing many of you at our investor event on Monday, November 14 in Phoenix, in conjunction with the NAREIT conference. And with that, I will turn the call over to Tom.

Thank you, Jean. Consistent with past practice, we are going to be limiting this call to one hour. If we happen to run out of time and you still have questions, please don't hesitate to give me or call, or John or Jean.

The third quarter reflected continued strong operating results, as evidenced by the strength of most of our portfolios' key operating metrics. For the quarter, FFO was $1.04 per share, up from $1.01 in the third quarter of last year. Same-center NOI increased by 4.2%, compared to the third quarter of 2015, which was a very tough comp quarter, that was up 7%.

This was positively impacted by $7.8 million of lease termination revenues in the third quarter, so in most cases, we were accelerating revenue we would have received in the fourth quarter and beyond into the third quarter. Year to date, our same-center NOI growth is 6%, and as we discussed on our last earnings call, most of the impact of the major tenant bankruptcies this year will be felt in the third and fourth quarter, which means lower same-center NOI growth in the third and fourth quarter than we saw in the first half of the year.

Our same-center-estimate for NOI for the year, the range is being tightened to 4.5% to 4.75%. As we look forward into 2017, we're not giving full guidance for the year, but we are going to give some guidance on our expectation for same-center NOI growth. It will be down slightly from this year, and we expect a range of 3% to 4% same-center growth in 2017.

Keep in mind that for the first half of 2016, we had the comparative benefit of the expense cuts that were initiated in the third quarter of 2015. We will not have that comparative benefit as we compare 2017 to 2016. Our gross operating margin on a same-center basis for the quarter improved to 69.6%. That was up from 68.5% in the third quarter of 2015, and if we compare it to the third quarter of 2014, two years ago, it's a 399 basis point improvement.

Year to date, the same-center gross margin was 69.33%, up from 67.9% during the same period of last year. Bad debt expense was a modest $300,000 for the quarter, down compared to $800,000 in the third quarter of last year. As I mentioned previously, lease termination fees were $7.8 million for the quarter, that compared with 3.4 million in the third quarter of last year.

Most of these termination fees came from Sears at Kings Plaza, where we exercised a right to terminate their lease early. This had the effect of accelerating about $2.5 million of rent that would have been paid in the fourth quarter into the third. During the third quarter, the average interest rate was 3.48%, up slightly from a year ago when it was 3.3%.

The balance sheet continues to be in great shape. At quarter-end, our balance sheet metrics were healthy, with debt to market cap at 37%, an interest coverage ratio of over 3.5 times, debt to EBITDA on a forward basis of 7.2, and the average debt maturity after the financing of Fresno Fashion Fair, which happened on October 6, is now over 6.5 years.

The financing market for high quality regional malls remains good. A couple of examples. On October 6, we closed a $325 million loan on the previously unencumbered Fresno Fashion Fair. It was a CMBS loan, the first one we've done in a while, 10-year fixed rate loan with an interest rate of 3.59%. The proceeds from that financing were used to pay down our line of credit, which subsequent to that pay down is approximately $750 million outstanding.

Also on August 5, we closed on a $225 million loan on the Village at Corte Madera, that was a life insurance company loan. The term is 12 years, and had a fixed interest rate of 3.5%. I'm sure you saw in this morning's press release that we tightened our previous estimate of diluted FFO per share.

We narrowed the range to $4.05 to $4.10. That was down from $4.05 to $4.15. The revised FFO guidance comes primarily from reducing the midpoint of the range for the year on same-center NOI to 4.50% to 4.75%. That is down from our original guidance range of 4.50% to 5%.

The dilution from the sale of Capitola Mall, which was not included in the initial guidance, is offset by the gain on extinguishment of debt on Flagstaff, which also is not in the original guidance. And now I'd like to turn it over to Bob to discuss the tenant environment.

Thanks, Tom. Leasing activity during the third quarter was consistent with the first half of the year, producing strong re-leasing spreads and stable occupancies. Trailing 12-month leasing spreads were 16.1%. This is unchanged from the second quarter. Leasing spreads were relatively consistent through all of the regions.

Average rent for leases signed during the trailing 12-month period was $56.52. During the third quarter, a total of 803,000 square feet of leases were signed, down slightly from the previous quarter. The average term for leases signed in the third quarter increased to seven years.

Occupancy at the end of the third quarter was 95.3%. This represents a 30 basis point increase on a quarter-over-quarter basis. Portfolio sales were $626 per square foot, and on a same-center basis, sales were up 1.3% year over year.

I'm going to talk a minute about development. The third quarter represented an important milestone for the Company, as the developments at Broadway Plaza and Green Acres Commons celebrated their official grand openings. These two projects are illustrative of the Company's strong development skills, taking unique retail locations and expanding their market dominance through densification. Combined, these two developments represented an investment of $263 million, and will produce a blended stabilized return over 9%.

Over ten years in the making, the expansion of Broadway Plaza began in 2012 when Neiman Marcus joined existing anchors Nordstrom and Macy's at the center. We are extremely pleased with the merchandise mix created at Broadway Plaza, and more importantly, the initial sales results from the tenants. The new space is 94% leased, and we anticipate all of the retailers will be open by this holiday season.

Green Acres Commons celebrated its grand opening on October 6. This two-level power center, anchored by Dick's Sporting Goods, is a strong addition to the Green Acres retail campus, and provides a home for many big box retailers looking to tap this attractive New York market.

There were also a number of important anchor openings in the portfolio. These serve to further increase the draw from these established retail centers. At Fashion Outlets of Chicago, Nordstrom Rack opened its store on September 30. The center is now only one of two outlet venues in the US that feature Nordstrom Rack, Saks OFF 5TH, Neiman's Last Call, Bloomingdale's Outlet and Barneys as its anchors.

Dick's Sporting Goods opened a new store at The Oaks on October 11. In addition, three restaurants were added adjacent to Dick's. And finally, JCPenney had a very strong grand opening at Inland Center on October 21. The reception from the community was outstanding.

I'm going to take a minute to talk about tenant bankruptcies. There has been significant attention surrounding the health of certain specialty store tenants. You'll recall, we entered 2016 cautious in our expectations regarding tenant bankruptcy.

During the third quarter, the three most prominent bankruptcies of 2016 were resolved, albeit in very different fashions. First, the bankruptcy of Sports Authority resulted in the liquidation of the entire chain. Almost all the stores were closed, except for a small number of leases purchased by other retailers.

Second, PacSun completed their restructuring with a major creditor maintaining control of the Company. PacSun emerged from bankruptcy in September with a restructured balance sheet, and most of its store fleet intact. Finally, Aeropostale will emerge under the control of a consortium of buyers. It is anticipated that up to 500 stores will be retained.

Most of the economic impact from these bankruptcies will be felt during the fourth quarter of 2016, and into 2017. As Art has discussed in the past, throughout the portfolio, our focus is to reduce the exposure to weaker, lower productivity tenants, well before they enter the restructuring process. For example, in 2012, Aeropostale had 45 stores in our portfolio.

When they entered bankruptcy, this number had been reduced to 27. This was achieved through the disposition of lower productivity centers, replacement at lease expiration with more productive tenants, and early termination when the tenants still had the financial resources to pay termination fees. We expect our exposure with Aeropostale at the end of 2016 to be 19 store locations, or approximately 78,000 square feet.

Looking forward, our leasing focus in the coming year will be to repurpose under-productive anchor department stores, and replace the vacancy caused by recent tenant bankruptcies and early termination agreements. We believe opportunity exists in the anchor buildings by tapping demand from the big box and large formatted specialty retailers.

As discussed on the last earnings call, the opportunity to retenant the Sears box at Kings Plaza with retailers that include Primark and Zara represents a unique opportunity to move the center to the next level, in terms of traffic, sales productivity, and merchandise mix. And with that, I'll turn it over to Art.

Thank you, Bob, and thank you, Tom. Welcome to our call. As you can see from our numbers and our announcements, we had a very strong quarter.

Our leasing spreads remained extremely strong, consistent with our belief that we have embedded growth within our portfolio. We culminated an 18-month period of improving operating margins, and achieved our goal of improving our operating margins by 400 basis points. And as Bob pointed out, during the quarter we successfully completed on time, on budget and at the returns that were expected the Green Acres expansion and the Broadway Plaza expansion.

The Broadway Plaza expansion is an important one to contemplate. Broadway Plaza recently celebrated its 75th year in business. 75 years. We bought Broadway Plaza about 31 years ago, and at the time, it had an NOI of $3 million.

Upon stabilization, we anticipate that NOI to be roughly $40 million, so this is testimony that great real estate in the hands of great management with well-capitalized balance sheet can succeed in spite of any challenges to the retail environment, and any changes to the retail environment. Our future we see to be very strong and bright.

I am pleased, however, in the context of concerns over the retail environment, that at this point in time with the completion of the Green Acres and the Broadway Plaza expansion, we have modest exposure in terms of our capital spend to a possible weak retail environment going forward, over the near term. We only have Philadelphia and Kings Plaza in process, and both of those are proceeding as planned in terms of the merchandising and the leasing.

Having said all of that, we feel the pain of our investors and those of you on this call that follow our Company and our industry. Back on August 1, only a little less than three months ago, Macerich was trading at $91 a share, and the RMZ was at 1280. Today we are roughly at $72 a share, the RMZ is down to is 1105.

Malls as a sector are obviously down 500 to 600 basis points more than the other sectors that comprise the RMZ. Is it fundamentals about the mall business that has caused us to underperform? I would say from the viewpoint of our management, that we see our fundamentals to be at least as strong today as they were three months ago, six months ago, nine months ago.

But it is hard to ignore the difference in terms of the performance of the sector. If we are going to look at what event happened during the last three months that potentially led to and has led to this underperformance, it's hard to ignore the August 11 announcement by Macy's that they were closing 100 department stores. Many of our investors have expressed concern over this.

I want to share with you our view about those store closures. First of all, it is healthy for any retailer to prudently prune their portfolio, and to weed out unproductive business units, and to focus their attention on their more productive business units. That's what we do as a Company. Closing stores is a prudent thing, and a stronger Macy's makes for a stronger mall base.

As I look at our exposure to Macy's and to these closures, it's our understanding that when those closures are announced, that we will have one store in our portfolio at that point in time, that will be on the closure list, and we see the closure of that store to be a positive, not a negative. It's most likely going to be a West LA store, and it's a situation that is ready for redevelopment, as we've discussed in previous calls.

As I think further about department stores, and I think bout the anxiety that people have about department stores, I'd also think about what has happened over the past 10 or 12 years with department stores. And one of the seminal events that happened in the department store industry was in 2005, when Macy's bought May Company, and that caused a significant consolidation within the department store business.

The combination of that event and the general underperformance of department stores over the last 10 or 12 years has actually been arguably a positive for mall-goers. I know that seems strange for me to say that, but let me share with you the reason why. With the consolidation of Macy's and May Company going back 11 years ago, many of the brands that really make up the excitement within a department store began to look at the balance of power that they had in their negotiations with department stores, and decided that they wanted to add another channel of distribution to their omnichannel approach, and albeit 11 years ago, I doubt that word was really used that much. But many of the great brands had relied predominantly on their distribution to be wholesale distribution through the department stores.

And over a period of time, those brands have decided to open up full-priced retail stores, and in many cases flagship stores, and they comprise many of the best names that we have in the mall today. Names like Kiehl's, Michael Kors, Eileen Fisher, Hugo Boss, Diane von Furstenberg, AllSaints, Louis Vuitton, Tory Burch, Ted Baker, Armani, MAC Cosmetics, Burberry, True Religion. The list goes on. And we see that trend continuing, which is a trend that as I have mentioned in the past, is a trend that you see generally in place in the global portfolios of other owners of shopping centers around the world.

So we see the store closures of Macy's to be a positive, not a negative. We see its impact on Macerich to be a positive, not a negative. And as I look at the overall health of the department store business, let's not lose sight of the fact that it was only three years ago that many folks that probably are on this call right now felt that JCPenney was doomed, in terms of their future.

And at that point in time, we were a bit of an outlier, where we said look, one name that we see out there that we think is going to be in existence as a retailer 5 or 10 years after 2013 is going to be JCPenney, and there's been much written about their turnaround. I can tell you that JCPenney stores look better than ever, and we're very happy with the new Penney's store we just opened at Inland Center.

Again, I feel your pain, I understand it, but the fundamentals that we have here remain very strong. With that I'd like to open it up for questions.

(Operator Instructions)

We'll take our first question from Christine McElroy with Citigroup.

Okay, Bob, so just following up on your releasing spreads, which had been pretty consistent in the last few quarters, around that 14% to 16% level, and we know that doesn't include the rent adjustments. But just looking at your average base rents, your ABR growth is pretty flattish over the last year.

So realizing that those may be two different pools, but just wondering why with that strength in spreads, you're not seeing more flow through into ABR. Has that been impacted by the rent relief at all? And with your comment that the biggest impact from the three bankruptcies should be in Q4 and in 2017, how should we think about that trend in ABR over the next two quarters?

Christine, it has been flat over sort of if you look at the 2015 compared to the first three quarters of 2016. It is somewhat two separate pools, so we have to be careful about that. But where I think as a general rule, we continued to see strong growth in the more dominant centers, we continue to see moderate to weaker growth in the lesser productivity centers.

And in terms of the impact of the lease amendments we did run those numbers, and the impact is not really material in our numbers. And what you need to remember is, within the pool of these restructurings, some of the stores are closed which obviously don't affect the spreads. Some of the stores are assumed, which don't affect the spreads. So if you do look at your lease amendments, it's only the ones which are modifying the lease, which tend to be some percentage of the total leases, but not 100%.

Okay, and then just Art, just to follow-up on your comments. Do you think that these bankruptcies and the granting of rent relief, and all this negative rhetoric around it, could potentially translate into tougher lease negotiations, in terms of normal course leasing, just from the perception that it creates?

No. No, demand remains very strong from a growing list of retailers. It's part of the process every year, and always has been. So no, I don't see it as having a secular impact on our position of strength in terms of lease negotiations.

Thank you.

Our next question is from Vincent Chao with Deutsche Bank.

Yes, just wanted to go back to the Aero commentary. Sounds like 19 stores so about eight of them going away. Is that a total number, or is some potential for that to change from here?

There's always the potential for change, but that's our best estimate, right now. Those deals have been agreed to but are not yet documented, so that's in process. Just to understand part of the thinking on this process is, we look at what's in the long term best interest of these centers and we believe very strongly in our real estate and we don't necessarily solely focus on the short-term impact, if we think that it's the right long term decision.

Okay, and just with the stores themselves, I thought most of them were undergoing liquidation sales. I guess, is that not the case at this point?

No, I think you're correct. The liquidators are part of the consortium that buys it, and they have them through the end of the year, and then Aeropostale will take them over.

Okay, and then I guess maybe any update, I guess there's is some talk of project out in Carson, California, an outlet project. Any update on that front?

Not since our last call. We have an agreement with the city there, and we're proceeding under the terms of that agreement. When we have more to announce, we will.

Okay, I think that's it for me. Thanks.

Our next question comes from Todd Thomas with KeyBanc Capital Markets.

Just first question for Bob. You noted your rather cautious view heading into 2016, and I was just wondering if you could share your thoughts about how you feel late in the year here, as we head into 2017 about the leasing environment and additional store closures or bankruptcies in the year ahead?

As Art mentioned, our viewpoint through the entire year has been relatively consistent. We do feel like many of the circumstances that caused some of these bankruptcies are still present. We don't think that its gotten necessarily worse. We don't think it has gotten materially better, so we continue to be cautious. We continue to try to be realistic, and we continue to try to make the right decisions long term for these properties.

Okay, and then a question maybe Art or Bob, also. I was just wondering if you have a view over how the Aero process ultimately played out with the consortium that stepped in, and what you're seeing with that process so far? And do you think we could see more of that going forward with other troubled retailers, and would Macerich look to potentially get involved?

Well I'm not going to comment on the future, but as it relates to the process, I think that I'm positive on the fact that Aero has a chance to potentially live another day. They had plenty of stores that were performing very well, and we'll see.

Okay.

So I guess I'll indirectly say thank you to my friends at General Growth and simon for being instrumental in that.

Thank you.

Our next question comes from Jeremy Metz with UBS.

In terms of the margin improvements, you're about a year in, I think, and a significant portion of the expense efficiencies are pretty well baked to this point. So can you just talk a little bit more about the revenue side, and where you're at today, pushing some of those revenue enhancements? And how much more runway is there? Are we talking about maybe another 100 basis points of margin expansion in that 3% to 4% in 2017 same-store expectation?

Sure, I'm happy to take ownership of that. Look, without a lot of time to really calculate how much margin improvement we thought that we could obtain, we put out a goal of 400 basis points over a two-year period. We announced that about 18 months ago and we've achieved that in less than the two years.

I don't think there's greater, that there's significantly more room for margin improvement on the expense side, but we remain diligent about expenses at all times. I do believe that there is continued improvement on the revenue side, but I'm not going to put a target out there, that we'll be held accountable for, other than a promise that we'll report to you as time goes on, and my suspicion is that there's upside in that number.

Okay, appreciate that.

That's certainly our goal, and we have plans, and we know how we're going to get there, but we'll report that one as we go along.

All right and then just as a follow-up, just given some of the pressures we're hearing on the higher end outlet space, has this impacted any of your thinking on a fashion outlet to San Francisco at this point, or still too early?

No, it has not affected our thinking. But look, as I mentioned, there are anxieties out there, in general, coming from many different arenas. It's hard to ignore the headwinds that come from all different places, whether it be the strong dollar, the tourism spending, reducing -- whatever the anxieties are.

And so as I mentioned in my comments, I think that we are pleased to have a modest capital spend in place. We're in good shape at this point in time in terms of our marketing and leasing of the two projects that we're spending money on, Kings and Philadelphia, and we have the ability on anything else that we do in the future to time the shovel in the ground to signed leases.

Thanks.

Our next question comes from Craig Schmidt with Bank of America.

Nice to hear the good news, you're only having one Macy's close out of yours. However, we're starting to look like the REITs in general will not have as many closings as other private malls. But what do you think might happen to some of those lower quality private malls, as they lose the Macy's, and their ability to remain viable?

The good news is I don't have to spend time thinking about that, and I don't have an answer for you right off the top of my head. We made a decision, the flip side of that is that, look, it's not surprising that the public companies, which tend to own the better properties have lesser exposure. It's not surprising that Macerich, which has been extremely diligent in pruning our portfolio, has even less exposure than you would expect.

Look, we see it as healthy for Macy's. Here is the flip side to all of that, also. If Macy's had ignored the idea of pruning the portfolio, I think the louder commentary should be, why aren't they closing stores? So here they come out, and they decide to be prudent and smart, and running their business. And all of a sudden, I understand it.

And look, it came out of left field for a lot of people, everybody thought well, God, I thought Macy's was okay. But it's good for their business, and what's good for them is good for us. And whether it be Macy's or any other anchor that we have in the portfolio that we own, we see it as opportunities, generally. We see the opportunities to replace them with other uses that draw traffic and that do the job of what an anchor is supposed to do. So from my viewpoint, I don't see it as a negative at all.

Okay, and then just, has there been any forward progress in terms of Fashion Outlets of Philadelphia and some of the bigger space getting taken up?

Yes, and announcements will be made as leases are signed and as we deem it appropriate in terms of the marketing of the property. But we just had an all day session with our leasing team on that project yesterday, and we're in good shape at this point in time.

Thanks.

Our next question is coming from Michael Mueller with JPMorgan.

So Tom, the 3% to 4% same-store NOI for 2017, is that being impacted significantly at all by changes in lease term expectations, compared to what you're booking in 2016?

Well, we haven't gotten down to that level of disclosure in the guidance. But at $19 million for 2016, that's extraordinarily high for us. We've been averaging $10 million to $12 million but it's always a tradeoff when you take that termination. For example, we made the decision to terminate Sears early, because you're foregoing future minimum rent and charges. But it is factored into, I think in general, that we will not have lease term revenue that's as high as we get this year.

Got it, okay. And then looking at a couple of your top centers, so Queens Center sales the past couple years have been about $1,100 a foot. This year it looks like they are over $1,300. Ad then Washington Square, where they were $1,100 a foot for the past couple years, it's down to about $1,000. O was wondering is anything specifically going on with those two centers, or a little bit of color?

Yes, this is Bob Perlmutter. The Queens had an Apple store that annualized, and was brought into the pool, so that impacted the sales per square foot. And Washington Square is a no sales tax state, so we actually had the opposite, in terms of some of the commercial sales being transferred out of the retail store into other venues.

Got it. Okay, thank you.

Next we have Alexander Goldfarb with Sandler O'Neill.

Maybe Tom, just some quick guidance questions, and then I'll go to maybe Bobby. But first, in the guidance, some of the changes that we noted were the impact of asset sales from last year and earlier this year, now expect to be $80 million versus $75 million, and then the debt gain impact also changed, it went from I think a negative down 2 to positive plus 4.5. Can you just walk us through what happened from second quarter when you provided the guidance to now what changed in that?

Yes, and you may have missed it, Alex. We already talked about this earlier in the call, but there's really two things. We sold Capitola, which happened in the second quarter we obviously knew about that, but we were not about to knee jerk react and change guidance just for that one item, because we were also in negotiations with the loan servicer on Flagstaff for that asset to go back.

And we knew when that ultimately happened, and title was transferred, we would recognize a gain, and those two were roughly offsetting. So it certainly didn't warrant us changing guidance down for Capitola, and then turning around in the next quarter and moving it up for Flagstaff. So those two netted out.

Okay, that's helpful. And then second is on the street retail versus the malls, here in New York you obviously got Kings and Queens, that would presumably compete with some of the street retail locations. And in Chicago you have 500 North Michigan, that's on the avenue as well as has in line. Have you noticed a change in the way that retailers, as you talk to them, as they're viewing their street retail presence versus the mall presence?

My point is, do the retailers think of those in concert, or do they think of each as different? And the street retail is a different leasing decision than the mall retail? Or within a certain metro or sub market, they view it together, and it's just basically where they think they can get more traffic?

Alex, it's Bob Perlmutter. I'd say they really view it different. A couple of distinctions, Kings and Queens really don't compete with the street retail in Manhattan or New York. It's a more traditional mall mix, and their strength really comes from the density of the population and the lack of alternatives for these retailers.

North Bridge has a little bit of both. It has both the traditional mall space, as well as some street space. Generally, there's a pretty big distinction between what the retailer is trying to achieve on the street of these flagship locations, or inside the mall. So they tend to be different decisions, and often the real estate decision is controlled by different people within the retailer. So there's not really a situation where somebody says that I'm going to -- the street market is getting soft. I'm going to put more resources into the mall, or vice versa. They are really, in our mind, two independent decisions.

Okay that's helpful. Thank you, Bobby.

Our next question comes from Tayo Okusanya with Jefferies.

This is George on for Tayo. Just a question on Fashion Outlets of Philadelphia. Are you running into any issues on the leasing front with radius restrictions?

I'm sure that we run into those everywhere, but nothing that is getting in the way of us delivering a very good project.

Okay, thanks. That was it.

Our next question comes from Paul Morgan with Canaccord Genuity.

Thanks for the color on the same-store next year. I'm trying to triangulate the various numbers. So if I take where your guidance is now for this year, you did about 7 in the first half of the year and 4 this quarter, so that would put you, I guess around 1 or so in the fourth quarter? And I know that some of that's due to lease term income, it sounds like. But if the back half is in a 2 to 3 range, it sounds like there's some movement higher as you look into next year. Is there anything getting wrong, or if there is movement higher, what would that be due to?

Well I think you've got a number of things impacting the fourth quarter. We accelerated some rents, Sears for example, at Kings Plaza, and we pushed that into the third quarter when it normally would have been in the fourth, which was fairly sizeable. That was about $3 million in rent that got moved. We also were going against very tough comps in the third and fourth quarter, because we had the benefit of the expense cuts in the third and fourth quarter on a comp basis last year, compared to this year, and that won't be recurring.

So we see next year being a fairly normal year. We're wrestling through the final aspects of some of the bankruptcies from this year, but really, our same-center growth is driven by rent increases, which in general tend to be 2.5% to 3% in a given year, and generally we look at these things on an occupancy neutral basis. And so I think fourth quarter was pretty unusual, and we don't think it's indicative of what next year will be like, and that's why we gave the guidance for next year.

I guess it's safe to say that you don't see anybody in terms of your watch list for first quarter or post holiday bankruptcies?

I'll defer to Bob on that.

In terms of specific names, no, but again, we do maintain a watch list, and there are certain tenants that we're looking to reduce our exposure to.

Just last question on Macy's. That's good color there too. Macy's, in addition to culling the bottom of the portfolio mentioned that they might try to, like they did this year, take a couple of opportunistic closings at malls, where there's a higher and better use. And I'm just wondering in your portfolio, say you've got a handful of malls where there's more than one Macy's and stronger assets, is this something you would look to potentially recapture? Has your appetite for recapturing department store space changed at all now, given your view of the leasing environment, or is that still something you'd look to do?

Well I do think that -- thanks for the question. I do think that the one store closure that we're anticipating fits exactly into that category, that there's a higher and better use, and a user that's willing to pay them a compelling number to convert their store to a higher and better use, and they've deemed it to they look at their overall representation, and deemed that to be appropriate for them. And we see it as potentially an opportunity for us.

As we look at the rest of the stores that we have with Macy's, there are opportunities in certain locations to repurpose either some of their square footage, downsize them, or maybe even completely replace them with a higher and better use. We're in conversations with them. This is going to be, I think, a longer conversation.

I wouldn't predict there will be any announcements from us on any time soon, but I would predict there will be announcements that would fit the category of converting some of their square footage in a location or all of their square footage in a location to a higher and better use. That should happen some time in the future. I also would anticipate that there will be announcements in the future of where we and Macy's have worked together to just make the overall environment more profitable, and that could involve something that could be a monetization for them too.

Great, thanks.

Our next question is from Richard Hill with Morgan Stanley.

This is Ronald Camden on Richard Hill's line. Two quick ones for me. The first is on the financing market. I know you got Fresno done in the CMBS side. Maybe give us a little color what you're seeing out there, and if Eastland is still a potential financing you're trying to get done for this year.

Well, Eastland is an unencumbered asset, and it's available for financing. We haven't started that process yet, but it is certainly possible. We had good experience at Fresno. We exposed that to the CMBS market.

The pricing, as you probably heard 3.59% for a 10-year deal, was fairly competitive. I would say it would have been very competitive with a life company quote had we gone that route. And I don't know how deep the market is. We were just really are trying to finance that one particular asset, but I will tell you that it was very competitive, and there was probably five or six investment Banks that stepped up with some pretty competitive quotes on that 10-year fixed rate deal.

The only other thing I'd add to that, Tom, is look, regional malls remain one of the most attractive asset categories for lenders to place long-term fixed rate mortgages on.

Great. And then just going back to the same-store NOI, if I back out the lease termination fees, my quick math is showing 2.1% growth for the quarter. Is that right? And then when you look to 2017, is it possible where it's a tale of two halves? Meaning that maybe some of the weakness you're seeing gets more impacted in the first half of the year, and then you have a pick up in the second? Thank you.

Well, there's two parts to that. Number one, I think your math is right, but I'm not sure the logic is right. Lease termination revenue is part of our business. So we're making an active decision to take the cash now rather than spread it out over subsequent quarters.

So although it causes lumpiness, we think it should be in the calculation of same-center NOI. It's not like straight lining a rent in FAS 141, that are non-cash items. It's a business decision that loads to cash revenue, so that's why we factor it in.

I think next year what we will see in the first half of the year is, we'll be going against very tough comps in the first and second quarter, because we still had the comparative benefit in 2016 of the expense cuts. So that may cause some of what you were referring to as a tale of two halves with the same-center NOI being higher in the second half of the year than the first.

Great. Very useful. Thanks so much.

Our next question comes from Floris Dijkum with Boenning.

A quick question for Art. Maybe if you could comment on your view towards share buybacks at the moment?

We've completed our program. Nothing else is on our radar screen.

So despite the fact that I think your average share buyback was around $80, if I'm not mistaken, even though the share price is lower, you wouldn't contemplate buying back more stock at the moment?

It was actually $78. Look, this is something we look at periodically. At this point in time, the best use of our capital is to put it back into our business.

We're pleased with the program that we did. We announced it. We executed it. We're done with it. And now the best use of our capital and attention and focus is on our core business, and reinvesting in our core business.

Great. And could you maybe also comment on your relationship with Cadillac and GIC, and how you -- they are both partners, and have been partners in assets and also in your stock? Does that change the dynamics at all?

The relationship with each of them is very good. Different types of relationships, GIC has proven to be a very good partner. We see eye to eye in terms of the future of our real estate.

Cadillac, obviously, we've had a longstanding relationship with them for over 20 years, and they've been a great operating partner also. So even if we don't have real estate in joint venture anymore, just because of the overall broad relationship, we continue to share best practices, we continue to share cross-border movement of tenants to the north and to the south, so that's a very productive and positive relationship, and The Macerich Company is better for it.

Great, thanks.

Our next question comes from Ki Bin Kim with SunTrust.

So going to your informal same-store NOI guidance for 2017, what has to implicitly happen to, or embedded in that guidance, has to happen to either lease spreads or overall tenant sales productivity to hit the low end or high end?

Well the leasing spreads are pretty much dictated. We have got three quarters of this year through, and that's what pushes the revenue that you recognize from releasing spreads. So really, it's a function of occupancy, and whether there's occupancy fluctuation, whether we're able to lease up is some space such as the Sports Authority space we got back, we had six Sports Authorities that closed.

And although that doesn't show up in the occupancy stats because that's an anchor, it's nonetheless an economic impact, so if we were to fill some of that space sooner rather than later, that would have a positive impact on that range. That's probably the biggest variable.

Okay, and just the second question, I actually got it from a client of mine. Maybe it's not always about anchor store closures, but are you having any conversations with some of your anchors where they are asking to put more CapEx into a mall, or resolve some things sooner than you'd like, in a way to -- for them to stay in the mall?

No. I actually have to laugh a little bit because the conversation is the flip of that. It's us talking to them, because we're always ahead of them in terms of our forward thinking, in terms of keeping our malls up-to-date, and reminding them of what we're doing, and suggesting to them that they join forces with us and update their store, while we're updating the mall.

Okay, thank you.

Our final question comes from Christine McElroy with Citigroup.

It's Michael Bilerman. I'm curious, you think back over the last 18 months, and you met, you executed, in relation to your stock trading at a big discount to your NAV, was selling assets, returning capital to shareholders through special dividends, as well as share buybacks, financing a lot and extending your maturities or lowering your interest costs, and then obviously focusing on margins. All of the things that one would expect to drive stock. And as you were doing your opening comments, and talking about how the stocks have been quite volatile since August, I guess I was starting to think about well, what does that mean?

Your stock is at $70. What's the honing in on, in terms of frustration with that, and what you could do. And I recognize you want to use all your excess capital to put it into your assets right now, but as you start to think about furthering asset sales or interest in asset sales, or other means to arguably arb what is still a pretty large discount and take advantage of the volatility in the marketplace?

That's a good question. I wish you would have asked me that question on August 1, when we were trading north of $91 a share. It would have been easier to answer.

Today, look, we are not traders in our stock, we always, if anything, have had a very long view in terms of value creation, and we firmly believe that if we do the right thing by the real estate, and we do the right thing in terms of our performance, that over time, we will be rewarded with a reasonable share price. And I think if you look back at our 21-year history as a public Company, our total shareholder returns have reflected the fact that when you do good things at a real estate level and put up good results, you generate well above average, in our case, top quartile returns compared to the broader index.

I can not ignore the fact that we are in the bottom quartile as a group, and as a Company this year, compared to all REITs. Like I said in my comments, I feel all of your pain. We're doing what we can do to address the things that we can address, and we're trying to share our views on some of the things like Macy's store closures, occupancy costs, influence, releasing spreads, the health of the specialty store business, we try and address those for you, so that you can see our views, and maybe have another viewpoint.

But look, it's a very fair question, but we're in this for the long haul. I think we're extremely well-positioned, Michael, for the near and long term, and we're open to all ideas at all times. But the idea of trading in our stock is not something that we would find to be appealing at this point in time.

But I'm thinking about the public market investors are obviously more fickle, and they can trade by the second. The private market investors, maybe you can share some of those conversations, or whether they've expressed the similar concerns about the fundamentals, and how they perceive asset values. Because if you aren't going to buy your stock, you certainly have the opportunity which you've done clearly with Heitman, with GIC, and you sell interest in assets to modify an arb, the public versus private market disconnect, or maybe there is concern of the public market? I'm trying to get a sense where that sits.

Okay, let me refine my answer for you, thank you for clarifying the question. We think we have an extremely good pulse on the private market's view on our portfolio. Our sector and our Company, and in particular, our properties.

And we felt that it was important a year ago to monetize that view, and to show to the rest to all of you that was the way that we saw the private markets valued our assets and we felt at the time there was a significant disconnect between the private market's views on our Company and the public markets views. The private market's views on our asset base have not changed. If we were to go out today and talk about a similar pool of assets that we joint ventured, I would suspect that we would be looking at a similar execution.

But the discrepancy, and the disparity, and the percentage differential between the public market and the private market valuations of our Company have arguably never been greater than they are today. So that is true, it is a fact, and we'll keep a pulse on it. In the meantime, what we need to do is to continue to earn the appreciation for our portfolio, by increasing the income and the valuation of each of our assets, which is what we're doing. But look, the private market, public market disparity has probably I can't remember when its been greater, but it's very high today, and much higher than it was a year ago.

And I guess part of the hesitation of selling more joint venture interest is you're encouraged by the potential growth in value as you invest in your assets, and while you could arb some of that spread today by selling a50% interest, pick Queens or Kings or do something there, you lose that potential upside in terms of growth. So you have, I guess your optionality, or your options are a little bit more limited to narrow that spread. Does that make sense?

My view is that it's a huge disparity. If we see an opportunity with a long term view to deliver value to our shareholders, by monetizing that disparity, it's something we have considered in the past, as recently as a year ago, and we would consider it in the future, but not today.

Thanks for your time. Have a good weekend.

Thank you. Well listen, thank you all for your participation. We look forward to seeing you at NAREIT in a couple of weeks, and on our tour on the day that Jean Wood announced. So thank you, and see you in a couple weeks.

And that concludes today's presentation. We thank you all for your participation, and you may now disconnect.