The Macerich Company (MAC) Q2 2008 Earnings Report, Transcript and Summary

Good afternoon ladies and gentlemen. Thank you for standing by and welcome to The Macerich Company Second Quarter 2008 Earnings Conference Call. Today's conference is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] I would like to remind everyone again that this conference is being recorded and now I would like to turn the conference over to your host Mr. Tom O'Hern, Vice President of Investor Relations. Please go ahead.

Thanks. Actually this is Tom O'Hern, EVP and CFO. But I am here to welcome you and also to introduce Jean Wood. Jean is our new Vice President of Investor Relations. Jean is a CPA by background, Stanford grad and a 14-year veteran to the Macerich financial services team. I am sure Jean is going to do a great job for us and for you as well. So, with that I am going to turn it over to Jean.

Thank you, Tom and thank you everyone for joining us today on our second quarter 2008 earnings call. During the course of this call, management will be making forward-looking statements, which are subject to uncertainties and risks associated with our business and industry. For a more detailed description of these risks, please refer to the company's press release and SEC filings. As this call will be webcast for sometime to come, we believe it is important to note that the passage of time can render information scale and you should not rely on the continued accuracy of this material. During this call, we will discuss certain non-GAAP financial measures as defined by SEC 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 filings for the quarter, which are posted in the Investor section of the company's website at www.macerich.com. Joining Tom and I today are Art Coppola, President and CEO; and Tony Grossi, Executive VP and COO. With that I would like to turn the call over to Tom.

Thanks, Jean. Today, I will be discussing the second quarter results, recent financing activity, status of our redevelopments, upcoming opportunities and our outlook for the balance of 2008. Focusing first on operating metrics, the operating metrics remained strong in the second quarter, the continued high occupancy levels, and strong releasing spreads. Total mall sales per square foot for the trailing 12 months were 468 that’s up 2% from the 458 reported a year ago. In fact our top 25 properties are now averaging over $625 per square foot. Occupancy remained strong with the occupancy coming in just slightly below 93%, we came in at 92.9% at June 30th down slightly from 93.2% a year ago. Leasing activity continue to be robust both in terms of volumes and spreads. We signed 370,000 square feet of mall store leases in the second quarter that was up 8% from a year ago. The spread was very strong with new rent starting at 45.51 per square foot. We had a positive releasing spread of 26.5% in the quarter. Our average rent per square foot in the portfolio was up almost 7% to 41.13 a foot compared to $38.44 a year ago. FFO per diluted share was up almost 12% compared to the second quarter of last year. FFO per share was $1.16 for the quarter, and that compared to $1.04 for the quarter ended June 30, 2007. Midpoint of our guidance was $1.12 and the Street consensus was $1.15 the quarter exceeded both. Earnings per share for the quarter were $0.25 and that compared to $0.15 for the first quarter… excuse me, the second quarter of last year. Impacting the quarter we had same center NOI excluding lease termination revenue, and SFAS 141 we're up approximately 3.35% compared to the second quarter of last year. Lease termination revenue including JVs at pro rata was 2.3 million for the quarter that was down about 900,000 compared to 3.2 million in the second quarter of last year. Rents recovery rate was 93.4% that was down from 94.7% in the second quarter of last year. CPI rent increases were 1.7 million higher than in the second quarter of last year. Straight line rents were at 2.6 million and that was down from 3.1 million in the second quarter of 2007. SFAS 141 income was 3.9 million up from 3.5 million in the second quarter of last year. The gain on sale of un-depreciated assets during the quarter of approximately 2 million and that compared to $200,000 loss in second quarter of last year. Looking down to balance sheet, we've had a tremendous amount of financing activity in the past 90 days. I'll be discussing some of those transactions in more detail in a few moments. Our average interest rate is 5.31, the average interest rate on our fixed rate debt is 5.95 and the average remaining maturity on the fixed rate debt was 4.25 years. Our debt-to-market capital at quarter-end was 59% and the interest coverage ratio is a very healthy 2.15 times. At quarter end, we had a total of 7.8 billion of debt outstanding including JVs at pro rata. As of today we have only three loans totaling 88 million at our remaining 2008 maturities and two of those loans have already received the take out commitments. We'll be closing our notes later this year. Taking a look now at the transactions we completed since the last earnings call. We closed on six separate financings in the past 90 days. Generally these loans were done with lenders where we have a long relationship. The deal terms ranged on the short side from three years with an extension to five years up to seven years. Total amount of the financings were 1.45 billion and the excess proceeds above the old loan amounts came in at 600 million. The details of the individual deals are in the press release, so I'm not going to repeat them here. Suffice it to say it was a very busy quarter, we generated a significant amount of liquidity and we now have a substantial amount of capacity available under our line of credit. An outline of credit by the way which… the schedule the maturities of 2010 is extendable to 2011. If you look at the 2009 maturities in the supplement, we have an extension option beyond 2009 on six of those loans totaling 258 million. That leaves us with a very manageable maturity schedule of 689 million for 2009. Those loans are on some of our very best malls, which is Queens Center, Northridge Mall, Biltmore Fashion Square, Village at Corte Madera and Washington Square. The average sales per square foot in those centers with maturities next year $586 per foot. All the centers where we have maturing loans, the average sales per foot is nearly $600 a foot. The average leverage level on those loans is approximately 35%. So we have our loans maturing in 2009, very high-quality malls, very low leverage. We are currently in discussions with lenders for many of those 2009 maturities and we feel confident that we will generate a significant amount for the excess proceeds, just as we have recently done with the 2008 maturities. Looking now at guidance, we are reaffirming our previous FFO range for the year of $5 to $5.15 which at the mid-point reflects a 9.85% increase from 2007. Reminding you all we do have seasonality in our earnings and we allocate approximately 24% of the annual earnings to the third quarter and then the balance of what is remaining would follow through in the fourth quarter. That guidance is based on our current view of the current market conditions in our business. At this point, I will turn it over to Art.

Thank you, Tom. I think that we have already put a lot of the information that we need to that are out there. I'm very, very optimistic in terms of where I see our business going. And I'd like to open it up for questions. Question and Answer

Thank you. [Operator Instructions]. And we will take our first question from Christine Mcelroy with Banc Of America Securities. Please go ahead.

Hey, good morning or good afternoon guys. Can you comment on what you are anticipating in terms of Mervyns' store closings in the portfolio going forward and I know that you had plan to sell some of the boxes that weren't in your centers. How would your plans change at this point, if at all?

They really haven't changed. Our Mervyn's investment was a purely a real estate investment and at this point in time we feel very comfortable with that. And we will see how things go with them, but we don't anticipate any major changes there.

Christy, at this point in time we have no knowledge of any closures of the stores we own and it will be easier to assess at that point, we do have a letter of credit that backs up those leases, those leases are also across defaulted, so it is too early to tell whether there is any economic impact as a result of their filing, but as we mentioned in the last call, we were very comfortable with the quality of the real estate and that's why we entered into that transaction at the end of last year.

Had you anticipated a potential bankruptcy when you are underwriting the purchase of the portfolio?

I wouldn't say we anticipated it, but we certainly raised that question and we consider that as a possibility and factored that into our decision. On that standpoint, there is not...we have done for years to just create value by recapturing big boxes, those rents on those spaces are between $8 and $9 a foot and historically we have done much better than that on our big box space. Tony Grossi is here and Tony and his crew have gone through each and every space and considered what we would do in that space back and we are very optimistic about our ability to create value there Christy, that's what we do.

I think one of our goals Christy was to control this real estate, the million square feet of space represents an opportunity for us, re-deploy that FAR in 13 very, very important assets for us and we have looked at each and every one of the alternate, we have multiple scenarios where we can redevelop the boxes, randomize [ph] the boxes or replace it with tenants, so we are comfortable that we have a contingency plan that we get back any of this real estate. As well as when you look at our track record in 11, federated boxes that we redeployed and lot of them are coming into fruition this year, we have a proven confidence where by we can recycle this FAR and these boxes into increased value.

Okay. And then can you break out how tenant sales growth and same-store NOI growth has trended specifically in Phoenix?

From a qualitative perspective, if you look across our five regions, we are fine in the North East and Central and on the Pacific Coast we are holding our own and in terms of our softening of sales we are feeling it primarily in Arizona.

Can you quantify that at all?

We don't have a breakdown at this point.

Okay. And then my last question for Tom, last quarter you provided a forecast of 3.5% to 4%, maybe I missed it, same-store NOI growth for the year given that you have averaged a little bit below that in the first half, would you say the year kind of still in track for that average for the full year?

Well Christy, If you look at that, we are maybe 25 basis points below that 3.5%, if you take the average for the year and we think that we are going to be somewhere near that 3.5% for the full year, but it would have missed by even 50 basis points that is only 3 million of NOI. So that is less than $0.03 a share and it is well within our range and there is other things that have come along, better than expected and so we don't think that is going to be an issue. We do consider 3.35% same-center NOI growth to be pretty solid the way we calculate it which is probably more conservative than most so we are pretty happy with that and obviously we would not have reaffirm the guidance that we are comfortable with where we are headed.

Great, thank you so much

Thank you

We will take our next question Christine Ken [ph] with Deutsche Bank, please go ahead.

Hey, good morning guys.

Good morning.

Just going back to Tom, you mentioned about some other things and some positive things offsetting, maybe hitting the low end of your same store NOI growth target. What are some of those positive offsets?

Well, we had in this quarter you may have noticed in the JV income there was other revenues noted and with we had forecasted some leasing... excuse me, some sale commissions on land sales on some properties that were adjacent to SanTan Village and they came in at $0.06 or so a share for the quarter. We had forecasted $0.04 so there is $0.02 right there, just as one example. So there are a lot of little things, but to say most of our global assumptions such as lease termination revenues are coming in pretty much as expected we forecast, 10 million for the year and year-to-date I think were 5.5 million so all the assumptions are holding up pretty well in a variety of places.

Great.

Interest rates as well, Christy we are down from our forecast.

Great, and just in terms of your leasing, could you update us on where do you stand on your '08 and '09 renewals and maybe a little commentary on house prices holding up?

Certainly. We are finished for 2008 we're well into 2009, 2010 and what we are finding as a general rule that retailers are looking for quality. They are securing space in the best mall and the traction that we have in our renewal leasing and our new leasing is very, very good and really exceptionally [ph] to the quality of our portfolio. In terms of deal specific, deal terms they are holding up as we expected. There has been no erosion in rents or increases in TA. The only measurable or noticeable difference between last year and this year is that retailers are taking a little bit longer to decide, a little bit longer to do due diligence in each of the markets and the administrative side of the leasing maybe taking a little longer. Other than that, the terms of each specific deal are holding up.

Great that's helpful thanks.

And we will take our next question with Michael Mueller with JPMorgan. Please go ahead.

Yeah hi, Just wondering if you could share some… either some metrics in terms of pre-leasing for the '08, '09 redevelopments or at least some commentary about how the leasing is progressing relative to your expectations heading into this year?

Absolutely. When you look at our development pipeline for ’08 and ’09 the one theme that comes across is the quality, is the market, the constrained markets that we are building in and the dense markets that we are building, these markets are fully developed there, proven assets and we are taking fortress malls and just making them better. Start off with Santa Monica Place, Santa Monica Place for us will be a luxury flagship we are 60% committed, we have just announced Nordstrom to be the second anchor in Santa Monica Place and we will be making further announcements on retailers of global luxury bases that are very much aligned with Nordstrom and exceeds price points set Nordstrom presently offers. As well as we have got tremendous momentum on the restaurant side, we have a collection of seven restaurants going on to the third level, each one specifically addressing a certain cuisine and two of them are run by celebrity chef. So, we are hugely confident in terms of how Santa Monica Place is rolling out. Secondly, Scottsdale Fashion Square and our expansion 150,000 square foot expansion with Barneys, we are 60% committed there and as well Scottsdale Fashion center is a fortress' asset for all of Arizona and adding of 160,000 square feet of luxury and aspirational retail to a non-rating [ph] successful center is going to bolster the future for Scottsdale Fashion as well. The level of confidence that retailers have specifically in this asset has been tremendous. And opening this fall, on a phase basis starting in September actually at the Oak we have Nordstrom that will open its first store inventory accounting on September 5, we're very excited about that. The first-to-market Nordstrom for the Thousand Oaks Community and that will be followed later in October by the unveiling of our interior renovation as well as our exterior retail expansion and we have many first-to-market retailers there as well that are catering to the junior fashioned area, which is an underserved component of the Oaks merchandising plan. And following into spring, December and at the spring we will have movie [inaudible] movie theatre first location in the West that we will open late December, early January and then a restaurant campus featuring Ruth Chris, Lazy Dog, and Devon Seafood that will open in fact outside the musical theatre in the spring. So we are hugely excited about our work and about the quality of the inventory that we've introduced in the Thousand Oaks Community.

Okay. And as you move away from say the three big redevelopments there, is progress equally as good as the balance of the projects?

Yeah, we have further out we have, Estrella Falls is scheduled to open in 2010 and we’ve improved the quality of that round-up development, in addition to Harkins, in addition to Dillard’s, we are... we’ve also announced the Macy's deal. Now what we’ve cautiously, I think we have reported in our last earnings call that we shifted the opening years to allow the market to mature just one additionally and as well as the line, the anchor opening together as Macy's with opening in 2010. That gives us a better package, a better opening statement, if you will, to lease into, and the leasing is going very well into Australia.

I would clarify the vast majority of the development... redevelopment dollars we’re spending in '08, '09 on are on Santa Monica Place and Scottsdale Fashion.

Absolutely, I understood. And last question, Tony, when you are talking about the contingency plan for the Mervyn's locations, were you primarily taking about the 13 that are in Macerich centers, and if so, what's the contingency plan for the other two buckets?

We've looked at each and we've looked at similar alternatives. We continued to talk to the landlord and they have shown interest in repatriating their states of course. But the plans are to redevelop fall into three categories really, one is the [inaudible], one is to replace it with another equal size box, and where we control the 13 stores, there are opportunities to turn that into smaller shop. As well as what I would like to point out is that in addition to buying the 41 Mervyn's stores, we also negotiated additional rights in the Mervyn's leases to recall that we bought not only the leases, but the tracks of land and we controlled the tracks of land in this business five, six, seven, acres of land where we can have additional development opportunities to exploit as they present themselves. So, we are looking at those alternatives as well.

Okay. Great, thank you.

Thank you.

Thank you.

And we will take our next question with Craig Schmidt with Merrill Lynch. Please go ahead, sir.

Most of my questions have been asked, but it sounds like Santa Monica Place might have surprised you on the upside or had you always intend to take it as luxury as [inaudible]?

When we look at the Santa Monica market, you look at all of LA basically and you look at how luxury is distributed and how the income and demographic is distributed, the West side of LA is tremendously underserved at a demographic that earns over a $100,000 for household. It was always our intent to market this and to lease it up to aspirational and luxury retailers. Third Street presents an offering that is perhaps more entertainment based, perhaps a little more junior and with all this our view to be complementary with Third Street not competitive with and that positioning really and the voice is in the luxury segment.

Would you say that you might have the most premium pricing if the Santa Monica want to get open?

Our pricing for Santa Monica Place, we pushed for rents, we are very aware of what Third Street rents are, and we're aligned with Third Street rents in many, many cases.

Great. Thanks a lot.

Thanks, Craig.

Thank you, Craig.

We'll take our next question with Rich Moore with RBC Capital. Please go.

Rich?

Mr. Moore, your line is open.

I'm sorry. I am in now?

You are in.

Good morning, guys. Would you, Tom, do you think you might need equities at some point here with everything you guys have going in the development pipeline?

No, Rich, you might have missed, this part of the commentary, but, obviously, we generate a lot of liquidity with the last round of financings. And looking at 2009, I think we have the same opportunity there because the assets that are maturing high quality very under leverage than I think there is going to be a significant amount of excess proceeds generated in this next, this next round of financing so, I'd say we're not even remotely considering equity.

Okay. So, even if, Tom, even if you add $700 million or $800 million more of expenditures on the development pipeline over the next couple of years, you still don't think it's... you still don't need to see any need to sell assets or issue common or preferred or anything like that?

No, no, no need whatsoever, Rich. I mean keep in mind, when we develop these things, just for illustration sake, if you... if you build them on a 10% return, the values got to cap rate substantially less than that, so you've almost created enough equity right there or not to budge your leverage level. It's far different than needing capital to go out and do acquisitions at 5% or 6% cap rate developing on a 10, you really don't stretch the leverage level at all. So we are extremely comfortable with the balance sheet and where we are and see absolutely no need to go after equity, Rich.

Okay, good, fair enough. And then, Tony, on your existing spaces, on your existing centers, are you running into tenants looking for concessions or I mean, you’re actually looking for them, but I mean are you having to offer more concessions than usual to get tenants in these spaces?

In the quality assets and we look at our top 50 doing $500, $550 per square foot, we really haven't add to offer concessions. Now we have lower tier of assets, good markets and bad markets are always doing creative deals in those. So those would be hard to measure as the creativity always been high. But for the balance of the portfolio, that represents the majority of our EBITDA, we haven't found ourselves at this time having to sacrifice our deal terms.

Okay. And then on the development front, I mean one of the big issues with retailers over the past quarter, let's say, has been they're kind of cautioned toward developments. Are you seeing any of that or are you seeing maybe a lessening of interest in some of the developments?

We're not, and I think we may have a skewed perspective because of the quality that we're introducing to the market. These are fully developed proven assets that we're making better. Retailers see it as quality. There is very little risk in a retailer taking a position in The Oaks Santa Monica Place or Scottsdale Fashion, so the demand is there. Our pricing is being achieved, so I can't say that retailers are pulling back from those quality assets.

Okay, okay, very good. And then, Tom, last thing on those lands sale gains in the joint venture, is there more of that to come or was that kind of the--?

Well, we have other land sales, Rich, but this is kind of a unique situation, we're, based on our partnership structure, we get commissions on land sales.

Okay. So that won't carry forward into the next couple of quarters?

No, I wouldn't factor that into your model every quarter.

Okay. Very good, thanks, guys.

Okay, Rich. Thanks.

Thanks Rich.

And we'll take our next question with Bill Bilerman with Citi. Please go ahead.

It's Michael Bilerman. Tom, just on that JV, so the commissions are in the other in that $10 million that's being booked?

Right.

And then the $1.4 million represents the net gain on land sales.

Right.

Okay. On the Mervyn's boxes held for sale, the $284 million, you haven't been actively marketing those at all, right?

Well, there is a subset of those, Michael, that are in malls owned by some of the other public companies and we have had some conversations there. Presumably that those companies are better capitalized than some of the smaller private owners, but we're just advancing those discussions, as well as considering marketing few of the other properties.

And how much is your letter of credit that you have from them?

Letter of credit is approximately $8 million.

And you haven't taken any, and I guess on your guidance, no write-offs or anything regarding the rent until you get more clarity?

No, we've paid the rent, I mean, we're currently--

We are current at this point.

Okay. In terms of debt, Tom, you've completed all of the billion dollars of financings, which I know you've been working very hard last six months on, how have the discussion or terms changed on… the upcoming refinancing, you talked about how, they are under leveraging some of the best malls in your portfolio and so generous [ph] try to get a sense of whether the terms have changed at all rate… or in terms of thinking about next year?

Yeah. I think again keep in mind we are relationship borrower, we always have been, we’ve got a lot of banks in our line of credit, and we do a lot of business with those guys. We are very tied with… a fair number of life insurance companies that we have been doing business with for many, many years, and so we have… I think has these transactions fairly successfully done and structured? I think the toughest times out there were probably March and April. In my view, that's when it was toughest to do a deal and the yields were very wide indulging around quite a bit… the spreads. I think they have come in quite a bit and just to give you a probably most our current information, I mean we’ve recently came to terms on a couple of power center financings that have maturities later this year and they are about 60% LTV deals, they are in the Phoenix market, and those spreads were 250 over the treasury. I would say in April or March that probably would have been 3.25 to 3.50 over the treasury, but I think things have stabilized a little bit and we have had some very positive discussions actually with the '09 maturities. Some of them are locked to prepayment or frankly we would have done them already.

And none of these have recourse, right?

One…in one case in April we gave recourse, but we gave it to get better pricing. It was not an asset, we were even the slightest bit worried about and we gave—

It was partial recourse.

Partial recourse, 20% recourse, but an exchange for that we got a 25 basis point improvement in the interest rate.

With one was that?

That was Westside.

And it's for Tony, your finding… where is the pushback coming from retailers and sort of maybe put them into categories that where you are having ease of transactions versus those retailers are doing more difficult? And you guys talked this specific retailers maybe just categories of how those negotiations are occurring?

Sure. On the retailer today pullback in terms of they are open to buy. And because of the scarcity of open to buy, they are looking for the best opportunities, and they want to be assured of that, so there is a constant dialog and they… they see the quality. They may take a little bit more time deal that they are in because of the scarcity of the open to buy. They are taking a little bit more time because their real estate committees are asking more questions. They can't afford to wait for store contribution. They need it immediately. Those are the reasons why there is a flight to quality. We are not really seeing at all deterioration in our deal terms and in our deal expectations. It's getting tougher to get the deal signed. No doubt about that, but the terms are holding.

And then just, Tom, just a request I know you’re going to be filing the Q shortly but if it's possible to get a balance sheet or even summary information with the earnings release that would be helpful, just updating models and seeing where things stand.

Yeah, we will look factor that into the supplemental next time. The 10-Q will be filed tomorrow by the way, but we will get that in the next supplemental.

That's helpful.

Thank you.

Thanks.

We will take our next question with Jay Habermann with Goldman Sachs. Please go ahead.

Hey, guys. This is actually Tom Baldwin here with J. On the $689 million in mortgages that are rolling out next year, what you guys targeting in terms of duration. I know on the billion or so, you did over the course of the last 90 days, you had a good mix of three, five, and seven-year stuff. Just curious what the breakout might look like next year?

That depends, Tom. I mean part of whether we go seven or ten depends on what our maturity schedules looks like. You will notice, we don't have a huge amount of maturities in any given year and that's by design. So we will take a look at what make senses, so we don't overload one year on a mature asset, we were not planning to do a redevelopment. Anytime soon we tend to go longer on the yield curve. Also what we may depend on the sharpness of the yield curve at the time we did that seven-year deal, there was about 30 or 40 basis point differential between a seven-year and a ten-year deal. So it made sense to go seven and that's why we went seven. On a center such as The Oaks, we're going to go shorter because we just expanded it, we just brought in Nordstrom, we want to give ourselves a little bit of time for that asset to mature because when you take it out for financing after you’ve added an anchor and you've got a little bit of sales history, you end up getting up far better results. So, there is a strategy with each and every asset. So you will see us continue to pick up our spots depending on the asset and what we plan to do with the near term.

Okay. And as a follow-up looking out at those re-financings next year, do you guys say you’re more biased towards fixed or floating rate?

Our preference generally and again it depends on the asset what we plan to do because obviously you have free pay considerations if you go fixed rate, floating, you have got a lot more flexibility, but generally we like to do longer-term financing. These are long-term assets and we’ve historically used long-term fixed-rate financing.

Do you guys have any commitments in place for the debt you’re looking to refinance next year?

Well, we don't, because most of it is in pre-payable, yet, Tom, but I will tell you, for example, Washington Square, we've been approached by the existing lender, who really doesn't want to lose that loan. They love the asset, they like the quality of the asset, and it's a real high quality situation to be in.

Okay. One final question, I know you guys don't have a regional breakout for sales growth, but have trends changed much from what we saw last quarter, when there were pretty significant declines in sales growth in Southern California and in Phoenix, particularly?

No, I think the trend is holding, it's holding a... it's a similar trend.

All right, guys. Thanks a lot.

Thanks, Tom.

And we'll take our next question with Paul Morgan with FBR Capital Markets. Please go ahead, sir. Paul Morgan - Friedman, Billings, Ramsey & Co.: Good morning. On the 45% LTV that you provided for 2009 re-financings, what cap rate did you use for that?

While I didn't use just one cap rate, we look at each asset. There are a variety of different qualities. Paul Morgan - Friedman, Billings, Ramsey & Co.: I understand, but like on a blended basis?

I don't know what the blended cap rate was. We did it asset by asset. It was conservative. Paul Morgan - Friedman, Billings, Ramsey & Co.: So, in the sixes?

I don't know what the blended rate was. Paul Morgan - Friedman, Billings, Ramsey & Co.: Could you... on the… there has been a lot of discussion about visibility towards holiday seasonal and specialty leasing, maybe if you could talk about what you are seeing in your models for that component, what do you expect sort of any growth or consistent growth this year or whether there is... to what extent there is visibility than you normally have at this point in the year for the holiday?

No, we are not in a position nor we experts in getting into the retailers’ mind as to what do they expect coming this holiday season. Paul Morgan - Friedman, Billings, Ramsey & Co.: Not, what do you expect for leasing, not what do they expect for sale.

[inaudible]. Paul Morgan - Friedman, Billings, Ramsey & Co.: No

Okay. Paul Morgan - Friedman, Billings, Ramsey & Co.: I'm talking about the… key as a temporary asset and normally run higher in the fourth quarter, whether you have… what your expectations are for that component which ramps up and even though on short-term leases, do you--?

I understand the question that enough, thank you. On the special leasing front, we don't see any material change on trend, it was a growth business for us over the last two years, we saw a double-digit growth in specialty leasing. It's slowed a bit to single-digit growth and that’s our expectations for the balance of the year. We also have and are introducing some new initiatives on the specialty leasing business development front over the mall media, our new gift card launch, we announced a new partnership with American Express, those deals are more lucrative for us and the financial impact of those new deals will be appearing in the fourth quarter. Paul Morgan - Friedman, Billings, Ramsey & Co.: Okay. Thanks and last question on the sales, is it just that you got, I know it's in your supplemental, you mentioned that you only had the sales through May is that why you are not providing or is there or are you reconsidered providing sales on a retail basis from the macro?

Well, Paul, we are still rolling up our sales numbers for June. Paul Morgan - Friedman, Billings, Ramsey & Co.: Okay. So we will get that later?

We are going to file another supplemental, I mean, I think what we put out there is in hold for next quarter. Paul Morgan - Friedman, Billings, Ramsey & Co.: Okay. But it's not whether you to stop providing, it’s just that they are late this time around and so--?

Right. Paul Morgan - Friedman, Billings, Ramsey & Co.: Okay. Thanks.

And at this time, there are no further questions. I would like to turn it back over to management for additional or closing remarks.

Thank you, everyone. I appreciate you being on the call with us today. We look forward to continued positive results going forward in the next two quarters. Thanks.

Thank you.

Once again, ladies and gentlemen, this will conclude today's conference. We thank you for your participation. You may now disconnect.