The Macerich Company (MAC) Q3 2011 Earnings Report, Transcript and Summary

Please standby. Good day, ladies and gentlemen. Thank you for standing by. Welcome to The Macerich Company Third Quarter 2011 Earnings Conference Call. Today’s call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session and instructions will be provided at that time for you to queue up for questions. Again, I would like to remind everyone that today’s conference is being recorded. I would now like to turn the call over to Jean Wood, Vice President of Investor Relations. Please go ahead. Jean Wood – Vice President, Investor Relations : Thank you for joining us today on the third quarter 2011 earnings call. During the course of this call, management will be making forward-looking statements which are subject to uncertainties and risks associated with our business and industry. For a more detailed description of these risks, please refer to the company’s press release and SEC filings. As this call will be webcast for some time to come, we believe it is important to note that the passage of time can render information stale, and you should not rely on the continued accuracy of this material. During this call, we will discuss certain non-GAAP financial measures as defined by the SEC’s Regulation G. The reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure is included in the press release and the supplemental 8-K filings for the quarter, which is posted in the Investor section at the company’s website at www.macerich.com. Joining us today are Art Coppola, CEO and Chairman of the Board of Directors; and Tom O’Hern, Senior Executive Vice President and Chief Financial Officer and Randy Brant, Executive Vice President, Real Estate. We look forward to see many of you at NAREIT Convention in Dallas in two weeks. With that, I would like to turn the call over to Tom. Tom O’Hern – Senior Executive Vice President and Chief Financial Officer: Thank you, Jean. Today, we are going to be discussing third quarter results, our recent capital activity and our outlook for the rest of 2011. During the quarter, our fundamentals continue to improve, retail sales had a very solid increase, and same center NOI was positive for the seventh quarter in a row. The re-leasing spreads also showed good increases. We did have a drop in occupancy, but that was almost exclusively due to 14 Border stores closing as well as a large lease termination at ESTN zone in North Bridge Mall in Chicago. During the quarter, we signed 180,000 square feet of lease deals that was 121 deals the average new ramp was $41.11 per square foot. Our average releasing spread versus expiring on a trailing 12-month basis is up 10.8%. On occupancy we did have a 70 basis point decrease, 91.9% versus 92.6% on a same center basis a year ago. As I mentioned much of that was due to closure of The Border stores as well as ESPN zone. On the ESPN zone space, which is 34,000 square feet, we received $2.8 million lease termination revenue, which is reflected in the third quarter. Average rent increased to 44.05 per foot, that’s up from 42.24 a year ago. Occupancy cost declined to 13% for the trailing 12 months that compares to 13.5% at yearend and that was down as a result of leasing activity as well as tenant sales increases. Looking at FFO now for the quarter, the adjusted FFO, which excludes the impact of Valley View and Shoppingtown, two centers in the receiver ship, number was up 13.6% to $0.75 per share and that compared to $0.66 a year ago. The other operating results, same center NOI excluding lease termination revenue and SFAS 141 was up 2.82% compared to third quarter of last year. I would like to point out that that increase does not include Santa Monica Place and any impact from Santa Monica Place. Lease termination revenue increased to $4.7 million compared to $3.5 million in the third quarter of last year. Most of this was due to the ESPN zone space at North Bridge I previously mentioned. Bad debt expense for the quarter continued to trend down and was only $900,000 compared to $1.7 million in the third quarter of last year. Management company expense was down to $20.2 million compared to $22.1 million for the third quarter of last year. Looking now at the balance sheet, we continued our recent trend by paying off the Rimrock mortgage. That loan had a 7.6% interest rate. It was a $40 million loan. Rimrock has now been added to our unencumbered pool of assets that includes 14 centers that generates nearly $100 million of NOI. This gives us a very significant balance sheet flexibility and capacity that we have not had in the past. On September 29, we closed on a $230 million seven year fixed rate loan at 4.25 that’s on Arrowhead Town Center that paid off the prior loan, which was $73 million at an interest rate of 6.9%. Subsequent to quarter end, the company retired at par plus accrued interest of $180 million of our convertible notes that have a stated maturity of March of ‘12 that leaves us with a balance of $440 million on those debentures. Looking ahead to the 2012 loan maturities on the surface, it looks like a total of $1.8 billion, however, $800 million of those loans have built in extension options. Of the remaining 1 billion of maturities as of September 30th the debentures were $619 million. So excluding those we have property level mortgages with expirations in 2012 of $380 million for a manageable level given the financing we’ve done over the past few years. Today, our debt to market cap is 46%. Our average interest rate is 5.08%, and our interest coverage ratio for the quarter was 2.39 times. In this morning’s earnings release, we reaffirmed our adjusted FFO per share guidance of $2.84 to $2.92 for the year. This guidance range excludes the impact of Valley View and Shoppingtown two properties under the control of either a receiver or loan servicer. Based on a very strong balance sheet our positive outlook for the rest of this year as well as 2012, we feel very comfortable in increasing our dividend. In fact we just announced a 10% increase in the dividend to $0.55 per share per quarter. That dividend is for shareholders of record on November 11th at the close of the business and is payable on December 8. Moving now at tenant sales, mall tenant sales per square foot were $467 for the 12 months ended September 30th 2011. That is up 9.6% compared to the year end at September 30th 2010. If you look at the geographical split, we were fairly strong across the country with Arizona being up 9%, Central region up 10%, Eastern region 8%, Northern California 7.5%, and Southern California 12.5%. At this point, I’d like to turn it over to Art. Art Coppola – Chairman and Chief Executive Officer: Thank you, Tom, and welcome to our call. In the Q&A section I will be happy to address questions about our business, but at this point in time I want to share with you some thoughts on the recent passing of the founder of our company Mace Siegel. Mace Siegel is the Mace in Macerich, that’s where the name came from and Mace was not well-known to a lot of you on this call, but he was extremely well-known to the main street of our business, the shopping center business, to the main street of the communities in which he did business, to the main street of his favorite hobby, thoroughbred horse racing, where he was a legend in that business and was one of the leaders in seeking reform and good treatment of the athletes, the horses themselves and the business itself. He was a giant of the man and I feel compelled to share my thoughts with you about Mace both because of my personal feelings, but also because it is the vision of Mace that gives me the confidence to look into the future of this company that you follow today on this call and in the future and have great confidence in the future, because the fingerprints of Mace’s vision for our company are completely embedded in the DNA of our company, you know Tom, you know Ed, you know me for the 17 years, but we’ve been public, but what you don’t know is the guidance and the wisdom that we got from my friend and my brother and our founder Mace. He had simple truism that he shared with us early in our careers with him, simple things like be true to your word, treat others as you would want to be treated, do the right thing for the real-estate, and the real estate will do the right thing for you. He was a student of life, a student of the game, he was continually learning. And it is the guidance that he has given us that has created our company to be the different company that we are. The fact that we value relationships so highly with our investors, with our vendors, with our tenants, with the communities that we do business with, with our people is what makes Macerich different. It’s what gave us the ability to see our way through the tempest of 2009 because we were able to rely upon those relationships that were built by listening to Mace’s founding words of treat others as you would want to be treated that gave us the lender partners and the financial partners that helped us see our way through and gave us our Board of Directors and investors had helped to see our way through that past. So, he was a great man. It’s been said that the only sadness in life is not to be great, and today the day that we will be burring Mace later today, there is no sadness. We look forward, we are proud to know him and you will see – you see his wisdom in everything that we do. And it is what makes Macerich different and while it’s just deeply personal for me, it does relate completely to our company and it is the reason Macerich is different. So, with that I do welcome you to this call. I look forward to seeing you in a couple of weeks in Dallas. And I would like to open it up to Q&A.

Thank you. (Operator Instructions) And we will take our first question from Nathan Isbee from Stifel, Nicolaus & Co.

Hi, Nathan. Your line is open. If you’re on a speakerphone, please do press the mute button or pickup the receiver. And hearing no response we’ll go to Paul Morgan with Morgan Stanley. Paul Morgan – Morgan Stanley: Hi, Art. My condolences on the passing of Mace (indiscernible). On the outlet projects and the growth in that I was interested in just the location of the new Chicago project relative to where outlets have traditionally been developed, retailers at least at one point we’re concerned about proximity of selling their discount merchandise competing with their full price at regional malls and this being sort of inside if they would feel in Chicago. I mean, are they changing that and what could that mean for new outlet projects around the country if retailers sort of willing to kind of break that tradition in terms of where outlets are located in that area?

That’s a big question. So I’m not going to try and get into a long discourse on the future of the business than what the implications are from the past. It is an evolutionary project, the Fashion Outlets of Chicago that we’re building. It does break all the rules of the outlet business. I acknowledge that. I will tell you that the leasing of the center is just fabulous in terms of the pace, the momentum, and the merchandise mix. And I’ll tell you that the retailers that are coming to our center have locations at each of the other two properties through their other channels of distribution. It reminds you that retailers think about the world and their businesses as being three channels of distribution, full price, off price or outlet, and online and so in the same context, we could say well online retailing is going to compete with their full price retailing. They factored all of this and they see it as an opportunity and we see it as an opportunity and we look forward to announcing the names of the tenants. I acknowledge that it is a departure from what was perceived to be the roles of engagement of the past, but I also will tell you that the retailers see this as being just a massive opportunity. The location is tremendously is unique also by the way. You don’t get very many locations right next door to an international transit facility that gets 76 million passengers per year. So may be that’s the pyridine shift – think about it that way too. Paul Morgan – Morgan Stanley: Right, of course. And do you have any type of preliminary sort of yield expectations for this?

For (indiscernible) for Chicago, sure, the total project cost is estimated to be $200 million and we fully anticipate seeing a 10% to 11% unlevered cash-on-cash return on the total investment. Paul Morgan – Morgan Stanley: Okay, great. My other question is on multifamily. I saw that you’re at least proposing multifamily at Broadway Plaza. I know you’ve got going on at Tyson’s and you’ve talked about at one point Biltmore having some. I mean, you’ve got some peers who have done some multifamily themselves and you’ve got a lot of projects where it makes a lot of sense, I mean, and given how strong the sector has been, have you given any thought about how you might structure these any differently in terms of the amount of risk you’ would be willing to take on. How core you think it is to your business and whether you might do more of it yourself?

I think we’re definitely going to do more a bit of ourselves. I don’t think it’s going to be even 5% of our total business, but it’s going to be a meaningful part of our business. We’re going to do it what we think that we can generate better returns through (indiscernible) of adding residential then we could with retail. So I mean at Broadway Plaza, we are looking at adding maybe a third or fourth and a fifth level of residential to one and two level new retail buildings. The fact because you wouldn’t be leasing retail at the third, the fourth and the fifth level and you can get very high rents for the third, the fourth and fifth level of residential. We’re not – I don’t see us moving into the residential business separate from our retail business, but in the context of residential development here at Broadway Plaza at (indiscernible) we were looking at possibly built more definitely. The amenity package that we have to offer to the residential tenants is great retail, and that’s a tremendous amenity. So I like in that to the old days of the golf course community builders were if you build in a great golf course and in this case we haven’t build these great retail centers, why wouldn’t you also want to participate in the development of the home sites around it for all the people that want to be close to it, so that’s the way I look at it. Paul Morgan – Morgan Stanley: Okay, great. Thanks.

Thank you.

And we’ll now go to Quentin Velleley from Citi. Quentin Velleley – Citi: Borders Stores, I’m just wondering if you can give us an update in terms of the leasing of those stores and then also given Gap’s recent announcement, I know they’ve been closing stores overtime. Just whether or not you have had any additional discussions with Gap recently on their plans?

Hello, Quinn. Randy is going to address that. Actually your question kind of you came in half way, so we miss the first half of the question. It sounded like you wanted us to still talk about the releasing of Borders and then also what we see as the implications of the Gap’s announcements, that what it was? Quentin Velleley – Citi: Yes, that’s perfect.

Okay, thanks. Randy, do you want to go and address that?

I will start with the Gap, my first. We’ve had many conversations of the Gap since our announcement a couple of weeks ago and the bottom line is, nothing changes as it relates to us. There’s a few stores that are on the bubble with them, no more than three or four. The remainder of the stores that we have in our portfolio with the Gap are stores they want to keep and either expand, reduce, or remodel. As it relates to the Borders, we have 10 Borders remaining to be leased. Of those 10, two are scheduled to open before the end of this year and four will open next year and the remainder are scheduled to open in 2013. Quentin Velleley – Citi: Okay, got it. And then, maybe one to Tom, just in terms of the balance sheet; floating rate debt hitting about 25% with buyback of the converts and they’re maturing in March next year. I’m just curious in terms of potential capital rising. I would have thought that sort of 25% floating rate debt would be almost as high as you want to go. So I’m just curious as to what the plans might be there? Tom O’Hern: Well, I mean, we keep an eye on that and obviously given where swaps are today, there is the opportunity to swap out some of that. You may see us do a term note and take out some more of those converts and we will certainly consider doing a swap, I mean the price of swaps today is remarkably low and in fact you could probably swap out seven years for about 170 swap rate. So depending on what your spread is, you could easily get some seven year money at 4%, five year money and less than that. So that’s something we will keep an eye on as we go forward.

The other thing I would point out in addition to that is that remember 25% of our current debt levels amounts only 10% to 11% of our total capitalization of this company. Quentin Velleley – Citi: Okay. Thank you.

Thank you.

Our next question comes from Craig Schmidt from Bank of America. Craig Schmidt – Bank of America: Condolences, regarding Mace Siegel as well.

Thanks you, Craig. Craig Schmidt – Bank of America: Well, this point seems to be heating up; I’m just wondering f there’s a timetable when the bidders are going to know who is going to be awarded the project.

I probably have read in the press that the people that are limited to be bidders are bound by confidentiality agreements not to even comment on whether or not they are a bidder. Craig Schmidt – Bank of America: Okay.

So what I’ve heard and I followed it closely is that they will likely announce a developer in March maybe six months from now is my guess. I’ve heard that they are interviewing folks; I’ve heard that they are in negotiations with less than a handful of folks. We’ve been following it closely also, because of its competitive influence on coin center and our very high degree of interest in expanding our footprint in the New York greater marketplace. So it’s some interesting project. Craig Schmidt – Bank of America: And where are you with regard to, I guess, pre-leasing the office tower at Tysons? Is that moved forward from the second quarter comments?

Well, pretty much as I have to go back and check what we said in the second quarter because we’re so focused on deal negotiations right now with different anchor tenants. So right now we’re at a very interesting decision point further along that I would have thought one, and actually two, anchor tenants that could really kickoff the leasing and have this building be over 50% leased probably by the midpoint of next year or higher well, well in advance for the opening and even well in advance likely of the ultimate groundbreaking here. So leasing is – I have to hedge my prognosis here, because when you’re dealing with one or two tenants that could occupy a very high percentage of the building, 30% to 40% of the building, it’s a visible transparent process. But, we got great interest from tenants out there. We think it’s the signature building and I’m pleased with where we are so far. Craig Schmidt – Bank of America: Okay, thank you.

Thank you, Craig.

And we’ll now go to Christy McElroy from UBS. Christy McElroy – UBS: Hi. Good morning, guys. Just to echo prior comments, my condolences on Mace’s passing as well.

Thank you, Christy. Christy McElroy – UBS: Just with regard to your same store NOI growth from the quarter, how much of that was driven by the annual rent bumps? I know you have CPI escalators in there and fair amount of leases. Can you remind us about the process of how that gets reset and as CPI growth keeps rising, when does that start sort of following through the rents?

Well, I mean, it’s flowing through the rents now. We’ve got as of January 1st of 11 I think most of leases used 1.3% escalator CPI. It’s based on 12 months ended September the prior year, Christy in most of the cases. We got about 80% of our leases on CPI. So of the 2.8 increase is about 1% to 1.2% of that is CPI increases and the balance is releasing activity and although the occupancy was down quarter-over-quarter you have to look at the quality of the occupancy and the occupancy was down because of big spaces, but we’ve reduced the amount of temporary tenant space that’s in our occupancy numbers and for the better part of the year occupancy has been up over the prior year, so that’s part of it as well. Christy McElroy – UBS: Okay. And then I’m just trying to reconcile the difference between reported FFO and adjusted FFO and the timing of the impact from Valley View and Shopping Town. I know that you had the $0.25 impairment charge in Q2 and then another a few cents FFO drag in Q3. If I look at your six months ended income statement the difference between reported and adjusted was $0.25, but for the nine months ended the difference is $0.30, so I’m wondering when that other…

The difference is really default interest on those two loans. Christy McElroy – UBS: Okay.

We’ve decided to just break those out separately, those two centers because we don’t control the timing. They are either under the control of the loan receiver – loan servicer or the receiver, so in both cases whatever you recognize is a deduct from FFO now when the asset ultimately goes back to the lender it flips around and it becomes an increase to FFO. So the difference is really we’re including the impairment, we are including default interest and we’re separating those two numbers. Further complicating the things and this is an industry wide factor. May we came out yesterday and gave new guidance regarding the treatment of impairments in FFO and the new guidance is that impairments should not be reduced from FFO and that’s a departure what’s been done in the past, so I think you’ll see a lot of that changing in the fourth quarter not just for us but others. So with that I would encourage you to focus on the adjusted FFO numbers and not the base FFO number. Christy McElroy – UBS: So the default interest had been included in the adjusted FFO number before, but it’s not now?

No, it’s in there both cases. The adjusted FFO number did not change. The underlying FFO number changed because we pulled out the default interest and we had not done that in the past. Christy McElroy – UBS: So is the current guidance range for adjusted FFO apples-to-apples versus what you’d provided last quarter?

Yes, and it hasn’t changed. Christy McElroy – UBS: Okay. So, in terms of the additional drag from Valley View and Shoppingtown for the full year that’s primarily driven by default interest?

Right. For what remains in the year, yes. Christy McElroy – UBS: If there’re any negative NOI there?

No. It’s negligible. Most of the negative is just a default interest. Christy McElroy – UBS: Okay.

But the NOI is less than the interest. Christy McElroy – UBS: Right. Excluding the default interest, does the NOI below the debt service?

There you are talking about operating income, Christy. Christy McElroy – UBS: Sure.

Is the operating income negative? Christy McElroy – UBS: Right. Tom O’Hern: Slightly, but it’s…

It’s a debt service. Yes, it’s well below the debt service. Otherwise, it wouldn’t have gone back to the servicer, right, Tom? Tom O’Hern: Yes, the NOI covers operating expenses, but it does not cover debt service. Christy McElroy – UBS: Okay. And that accounts for the drag that you’ve reported? Tom O’Hern: Right. Christy McElroy – UBS: Okay. Thank you. Tom O’Hern: It’s not negative cash flow, but it’s to be board at service, but is definitely less than debt service. All right. Thank you.

Just to reiterate, this is all non-cash. Christy McElroy – UBS: Thanks, guys.

Thank you.

We’ll now go to Michael Mueller from JPMorgan. Michael Mueller – JPMorgan: Hi. Our condolences as well on the passing.

Thank you, Michael. Michael Mueller – JPMorgan: Thanks. So Tom, going back to Valley View and the other assets one more time, so was it safe to say that as longevity on the books you’re looking at about $0.02 a quarter of FFO drag NOI?

That’s right. Michael Mueller – JPMorgan: Okay. And any idea of the timing, any do think…

Again, we don’t control it, we think Valley View, it's still possible it could be off our books in the fourth quarter, I might have to say it's more likely it will be the first quarter of next year, and Shoppingtown my guess, best guess at this point would be second quarter of ’12, but again since we don’t control it, we just thought it was a lot easier to follow if we broke those out separately. Michael Mueller – JPMorgan: Got it. Okay. And then looking going back to the Chicago development of second (indiscernible), you talked about the economics being about 10% to 11% return which is similar to other projects, other developments on the outlet side, but if we are thinking about it, it’s next to an airport, it’s pretty infill, it's going to be in a closed center, how does the occupancy cost of something like this look like compared to a traditional outdoor center?

Well, surprisingly, well, they are a little bit higher, but you know surprisingly enough at the Macerich full price centers. Many times our outdoor centers have occupancy cost for commonary maintenance that are not that different than in close malls because you spend money on other things like landscaping and irrigation and a lot of other things. Each center is different, each center is unique. At this particular center the charges are not that heavy compared to a normal and close center. So it's very manageable that will allow the retailers to pay us a fair rent and for us to see a good return on our investment, for them to have a great forecast of the profitability for their stores. Michael Mueller – JPMorgan: Okay. And lastly any update on the Strayfalls…

Not really other than, it's clearly on the radar screen of our anchor tenants and we will proceed with ground breaking when we see fit and at this point in time I think on the last call, I think our best estimate at this point of time is 2015. It’s – it’ll be a 33-motnth heads up and that’s the process. 33 months from the time that we go thumbs up as when it’ll open. So, we’ll give you a big thumbs up when it’s ready. Michael Mueller – JPMorgan: Okay, thank you.

Thank you.

And we’ll now go to Rich Moore from RBC Capital Markets. Rich Moore – RBC Capital Markets: Hello guys, good morning. You have three centers essentially with AW Talisman or some relationship with AW Talisman, they have three other centers as well, I think it’s Miami, Vegas, Santa Fe, I think the Miami one is in development, any interest in those other three that they have?

We talked a little bit about this on our last call and we tried to guide you towards the fact that Chicago likely would be the one where the relationship would expand. So the other names that you mentioned I’d say are fairly unlikely. Rich Moore – RBC Capital Markets: Okay, all right. Good, thank you. And then, could you give us an update on Santa Monica, where you guys are at this point and what you’re thinking about the center?

Sure, we’re feeling very good about where we are. We are – the biggest news is that we’re into a second generation of leasing, only 14 or 15 months into – after the grand opening. That’s really a little bit unusual. It’s not unusual to give the opportunity to start doing some releasing within a year of two after a great center opens for business, so for example, when we opened the Queens Center expansion, within a year or two after the opening in the expansion area, we’re already doing some minor recycling because it becomes really obvious to everybody what works really well and what is not working. And the pressure of success essentially causes the replacement of weaker retailers with stronger ones. That’s going to happen on a much grander scale at Santa Monica. The remainder here is that we lease that in the worst of times in my recent memory for the type of retail that it is, which was the spring of 2009. We have three or four major tenants, retailers that I consider major that are in the 10,000 to 25,000 square foot neighborhood that are looking for homes in Santa Monica that are international, global retailers that are not currently here and several if not all of them want to be at Santa Monica place. And these are tenants that are custom to paying high rents for signature iconic locations that helped to further their brand. The names like Uniqlo for example and Topshop is looking in the market and people like that. I’m not saying they are going to end up at Santa Monica place, but it’s the best location in Santa Monica, and they want to be in West LA, and it’s a logical place for them to come. So right now the challenge is really assembling space for them, but again being a great center you have some tenants that are doing terrific at Santa Monica place, some tenants that are not doing the mall average. And so I think that you’re going to see two years from now believe it or not the center is not getting even look like what it looks like today. So, that’s how dramatic the second generation of leasing is going to be. And I will also tell you anecdotally that the second generation of leasing that I’ve taken a look at generally the rents are anywhere from 50% to 75% higher than the contract rents that are being replaced. So as we’re replacing tenants like Charlotte Russe, which had corporate issues and people that we did original leases with, sketchers people like that they are being replaced with much better name, sketchers is being replaced by the free people, Randy and then there are some of the bigger names that I mentioned. So the big message is we’re into a second generation of leasing already and it’s a great second generation of leasing. Rich Moore – RBC Capital Markets: Okay, very good. Thank you, guys.

Thanks, Rich.

And we will now go to Todd Thomas from KeyBanc Capital Markets.

Hi, Todd. Todd Thomas – KeyBanc Capital Markets: Hi, good morning. First question for Tom as a follow up on the balance sheet, as we look ahead to 2012, I think you mentioned $380 million or so property level debt that does not have extensions. How are you thinking about handling the consolidated and JV maturities. Some of those mortgages have fairly high coupon, so I was just wondering if you’ll retire a portion of those mortgages as you have throughout the year or look to refinance some of those. Tom O’Hern: We don’t have too many of those Todd, I think generally speaking we’ll refinance the rates are certainly extremely attractive as evidenced by the Arrowhead Town Center financing we just closed, seven year fixed at 4.25. So if we can get seven to ten year money at 4.5 or less that’s pretty compelling and you’ll probably see as go ahead and put mortgages on those. Todd Thomas – KeyBanc Capital Markets: Okay. And then just the follow up on Borders, can you talk about what kind of leasing spreads on average you are seeing so far and what you are expecting at those 14 sites overall, and then any progress on ESPNs and Woodbridge. Tom O’Hern: Well, in terms of Borders we have to look at each location individually, on average they only pay us $18 a foot of rent, so it’s a pretty low hurdle and I’ll defer to Randy on some of the specifics that people were putting into replace them and so the economics.

It’s across the board and one location in Arizona where it’s likely in the upper level of Borders with Pottery Barn and the lower level with Crate and Barrel again incredible impact on the merchandising at this particular center. But, the types of tenants are across the board and there’s spends across the board, the good news is all those spends are positive. Todd Thomas – KeyBanc Capital Markets: Okay. And just quick update on the ESPN Zone at Woodbridge?

North Bridge. Todd Thomas – KeyBanc Capital Markets: North Bridge, sorry.

Do you want to talk about the bigger plan there, Randy, a little bit or…

So it’s an interesting situation through confluence of events. We’ve been able to take that location as well as I believe an office location that we had roll over as well as some other space that we were able to roll over. And the bottom line is we’re able to consolidate now with the ESPN location about 90,000 square feet on two and a half to three levels, and so there may be a mezzanine involved here, a continues space. So, it actually probably the most interesting retail space sitting in the Michigan Avenue area right now and we’re actually also looking to open up North Bridge to Rush Street, which is emerging and so very powerful street and ESPN Zone here is just right at that intersection there of Rush, where within there being close small area. So we’re looking at really signature type of people to go there, because it’s so impossible to gather 90,000 square foot contiguous space in the vicinity of Michigan Avenue. It could be cut up, but it could be consolidated in the one, two, three users. I guess it’s going to be a great opportunity for us. We’re going to be patient. We’re doing the renderings and the planning and the reconfiguration and some cubical three dimensional design, not only of that, but the actually entrance of North Bridge Mall. So we’ve some pretty good thoughts that have been put together lately on how to make North Bridge a more three-sided center instead of just having access limited to that the entrance that we have off of Michigan Avenue. We have that rush street entrance also where at (indiscernible) is right now I think and we’re going to looking at opening up an entrance into the center that could to be the most powerful entrance frankly we’ll have at the center and SPN zone is right in proximity to that. So it’s going to be very, I think it’s going to be a huge opportunity for us in the middle of some intriguing conversations with some retailers that just cannot possibly get their hands on that kind of square footage anywhere and so there is a real premium for scarcity and size that we think we’re going to be able to capture there. It’s – we think it’s got a great future there and we’re very optimistic. Todd Thomas – KeyBanc Capital Markets: Okay, thank you.

Thank you.

Our next question comes from Alex Goldfarb from Sandler O’Neill. Alex Goldfarb – Sandler O’Neill: Hi. Good morning out there. Just going I guess I’ll take easier ones first before get to the detail ones. Just quickly in Queens, Hemmerdinger has his industrial park for sale, I would have imagined that he would have discussed with you guys initially if you had an interest. So I guess one were you initially shown at it and if two if you weren’t initially shown at before you marketed it is what he is asking is that something that the number has worked for you guys?

Look, first of all, we have a relationship there with the family and yes we met with him and know him, and we did have an opportunity to take a look at it. In terms of the values that they are looking for, I can’t, I don’t know what the market would pay or if they will in fact sell it, but if they get the prices for the land that I’ve heard that they are asking for it. It means that the parking garage and the all of the buildings and all of the rent that we bought at Atlas Park, we got for free, because they are asking as much for that land as we paid for a vertical project. Alex Goldfarb – Sandler O’Neill: Okay, that’s helpful. And then going to the Chicago outlets, in your comments about the occupancy cost of some of your outdoor centers versus this project, I mean should we think that this outlet would have like 12%, 13% occupancy cost versus because I think typically outlets are more like 8% or 9%, so just trying to get a sense of what the – of where we should think about the actual occupancy costs coming out?

I think the retailers and that’s the most because remember the denominator to that formula is the sales projection that comes from the retailer that doesn’t come so much from us, it’s the retailer, I can tell you that in their minds they think they are paying mid to – mid high level single-digit occupancy costs, because they have huge expectations of sales productivity from this center. Definitely well under double-digit cost of occupancy at inception is what most retailers that we are talking to have in their forecast. Alex Goldfarb – Sandler O’Neill: But to get to the returns that you want from a center that costs space as same as a mall, you’ll certainly need mall like occupancy cost right?

No, because if you are getting sales that are double per foot what we see in the rest of our mall, you don’t need to see mall occupancy cost to be right? Alex Goldfarb – Sandler O’Neill: Yes. Okay. So the point is that you’re expecting like $800, $900 a foot out of this?

We are – it’s really more our retailer’s expectation as well as own, but we know that our retailers extremely high expectations that would certainly fit that level of performance, it wouldn’t shock the retailers or us if they hit that level of performance or above. Alex Goldfarb – Sandler O’Neill: Okay. And then Tom, your CapEx expectations, recurring CapEx expectations for the full year and year-to-date, I miss those in the 8-K and maybe I should take it further, but can you just remind us what they are? Tom O’Hern: Well, if you look at what we – during the last two years ‘09 and ‘10, ‘09 was light year at 40 million, ‘10 just about 60 million, if you annualize what we have to-date, it's about 64 million. So that’s a pretty good run rate. Alex Goldfarb – Sandler O’Neill: Okay, that’s helpful. And then finally on the guidance I guess, going back to Christy’s question on it, I guess I’m a little confuse because in 2Q you guys included the gain from Granite Run, it looks like the base guidance, the 252, 260 changed from the 259 to 257 and maybe that’s because of the addition of both centers now in their delta, the breakout of both centers versus before which is one center, but if as we think forward about what’s in guidance and what’s now, are, so impairments aren’t going to be in there anymore and the debt forgiveness gains those won’t be in there anymore, correct? Tom O’Hern: Well, really look we’re talking about two centers because we have debt activity that goes back and forth. Our net debt activity is actually a loss for the year of about $4 million. But, if you look at those two centers, you’ve got two components in there right now. You’ve got the shortfall as it relates to interest and default interest which is relatively small amount and then you have the impairment of $0.25, $0.245 on Shoppingtown that hit in the second quarter. Okay. The rest of the numbers that show up they are both for Valley View and $0.01 or $0.025 for Shoppingtown really relate to the interest in default interest that’s a shortfall and that’s accrued. Now, when those properties are ultimately off our books that will reverse. Rather having these things that are beyond our control going in and out of the FFO, we’re taking them out to show an adjusted FFO number. It’s just on those two properties in a different between this and what we had in the second quarter was a default interest. But on a separate note, and related to those two assets, we do have new guidance on how to treat impairments and not just on properties that go back to servicers or receivers, but in general the recommendation from NAREIT as of yesterday that impairments not be a deduction from FFO. So and I think you’ll see our numbers changing and others to reflect that. However, that will not change our adjusted FFO guidance or numbers. Alex Goldfarb – Sandler O’Neill: And then, do they make any comments on the debt gains when you hand back your booked gains? Tom O’Hern: We would not. We would not. We include the debt gains either. Alex Goldfarb – Sandler O’Neill: But, Granite Run wasn’t there?

Well, Granite Run wasn’t one of those two properties. It’s a relatively small number. We had more than enough going the other way. We had $9 million of loss under the extinguishment of debt going the other way, Alex, so. Alex Goldfarb – Sandler O’Neill: Okay.

You know we’re trying to limit this to big items that are lumpy and run multiple quarters. Alex Goldfarb – Sandler O’Neill: Okay, I appreciate it, thank you.

Thank you. We will now go to Ben Yang with KBW. Ben Yang – KBW: Hi, good morning. Tom, you mentioned the same NOI for the quarter excludes Santa Monica Place, but it also looks like you’re now including this asset, your sales and occupancy numbers obviously without making any adjustments to the prior years, and when you do that it kind of distorts the picture a little bit, sales are a bit higher than maybe otherwise would have been the case and occupancy is a bit lower when you include the property. And I appreciate some detail that you offered on Santa Monica, but I was wondering if you can comment on where sales and occupancy are today for that asset and when you think that potential is for productivity once the center is stabilized. Tom O’Hern: I don’t want to comment specifically on Santa Monica, but I will tell you if you exclude Santa Monica from occupancy, it doesn’t move the number at all because it’s 91% and the others are – our average was 91.9, so doesn’t move it at all. And if you were to pull it out of the sales per foot number it would go down $3, so you’d still have a 9% positive increase rather than 9.6, so it’s relatively immaterial to those numbers as well. Ben Yang – KBW: Okay, great. That’s helpful. And then is it surprising at all that you are already into generation leasing here after just one year, I mean is this typical for new development or maybe are the rents maybe a bit too high for some of the tenants that came in on day one.

It’s very atypical to be this far into second generation of leasing. It’s testimony to the strength of the asset to the success of the asset. It’s basically evidence of the Darwinian theory of survival at work on steroids, because you have the concepts that work and great retailers are obvious and the ones that don’t work that likely were a function of leasing into the serious headwinds that we had in January, February, March and April of 2009. We knew exactly what we’re doing when we did that leasing. We knew we were likely leasing to some retailers that may or may not make it. We didn’t know which one’s necessarily may or may not make it, but we had a good pretty good idea of what was going to happen. And it’s really just function to the strength of a center, the better the center, the more turnover you have. Now if you have turnover and you don’t have replacements in it that’s a problem. If you have turnover, massive turnover opportunities and you have massive interests from great retailers that’s a huge opportunity and its testimony to the success of the project and what’s happening in the trade area. The story is bigger than Santa Monica Place, the shift in the gravity and power in the entire community is shifting to the point to where – when you look at the all of the developments around Santa Monica Place and the public parking garages that have been torn down up on the Third Street Promenade, as well as the developments that are happening to the south of Santa Monica Place. Santa Monica Place is rapidly and every square foot within Santa Monica Place is becoming the 50-yard line of the entire community, so it’s really testimony to the asset. Ben Yang – KBW: Okay. And can you just comment on who is leaving, is it any particular segment within retail and it sounds like it was tenants that indeed fail, but not miss still a year voluntary choice to kick them out of that, is that fair as well?

You know I mentioned two names like Charlotte Russe was one name that I mentioned in my comments, and I mentioned another name Skechers. Charlotte Russe had issues corporately and looked for rent relief from all of their landlords corporately and so when they asked for rent relief here, we elected not to give it to them Skechers had different issues. They had double locations on the Promenade and the Santa Monica Place and they experiment it with trying to do both and they just, it didn’t work for them. So, look in general luxury and hip SoHo type international tenants are doing great. So the All Saints of the world, the Tiffanies of the world, the Louis Vuittons of the world, the Nordstrom’s, the Bloomingdale Soho store here, they are doing fabulous. You’re more middle of the road, you’re juniors and people of that nature, they’re not doing so well. And so that’s and when you look at who wants to be here, it’s again the global hit brands. So you’ve got – Uniqlo wants to be in the trade area, we think we have the best location for people like Topshop who want to be in the trade area, we think we have the best location for them. Other folks like Banana Republic are going to likely relocate from where they are in the Promenade and there is another couple of big users. So I mean that’s kind of symptomatic of what the demand is, it’s again just wait and see. It’s a very good sign though. Ben Yang – KBW: Okay, that’s helpful. And just one more question I apologize if I missed it. But did you comment on any outlet sites that might compete with the Chicago outlet development that you just announced because obviously in other markets we see other developers raising to get preleasing and place to win those markets, I’m curious if there is anything on the radar in Chicago as well?

It’s a very competitive environment. So it’s a big market. So yes, there is plenty of other activity in the market. Ben Yang – KBW: In terms of outlets?

On all fronts. Ben Yang – KBW: Okay, all right. Thank you.

Thank you.

We will go next with Vincent Chao with Deutsche Bank. Vincent Chao – Deutsche Bank: Quick question going back to financing side of things, it sounds like given where interest rates are, would you be inclined to refinance your 2012 mortgages, what are your expectations as far as going out to excess proceeds on those maturities?

Vincent, I mean when we typically when we do a 10-year financing or seven year financing we do up to the investment grades, so it tends to be 60% , 65% life company financing has been extremely attractive over the last couple of years and that tends to be a little bit more conservative. So it just depends on the asset how much we’ll be pulling out, but it will probably be more than enough to take out the maturity level and maybe a little bit more beyond that. So there is question earlier about floating rate debt, if that’s the case obviously the excess proceeds get used to pay down our line of credit which is floating and we’ll reduce that number. Vincent Chao – Deutsche Bank: Okay. Can you provide the NOI that’s coming off of these mortgages?

No. That’s not something we normally do, but if you underwrite these using a pretty conservative 12% debt yield we can refinance out all of them quite comfortably. Vincent Chao – Deutsche Bank: Okay and then just another question, it sounds like your adjusted FFO guidance is same to same, but on the same-store NOI I think the last guide provided was plus 1.5 to plus 2.5. It seems like you’re running a little bit ahead of that right now year-to-date. Is there anything in fourth quarter that would take the run rate down from where it’s been, maybe partial quarters some of the impact?

No. I think it’s looking more like a 2.5 to 3 based on where we are today in the fourth quarter. Vincent Chao – Deutsche Bank: Okay, okay. Thanks that’s was it.

And our last question comes from Nathan Isbee with Stifel Nicolaus. Nathan Isbee – Stifel Nicolaus: Good morning. Sorry about that before, my condolences as well. As you look at the Chicago project and as you said before it does change the landscape a bit from the normal positioning between full pricing and outlets. And your discussions with the retailers, how much sales cannibalization are they willing to leave with and are they underwriting here in this process?

I think that – I answered that question, but I'll answer it again. I think they factored in everything that they need to factor in including the impact that their store here will have on any other store that they have in the world, whether it be 10 miles away or thousand miles away or on the Internet. And they factored this in their REIT decision that they make. They factor in what’s the impact going to be on my brand. Is this going to enhance my brand, and many times that will influence the retailers decision to open a store. So, the retailers make their decisions and we – I’m fairly confident that the idea that they might be herding with Woodfield or Oakbrook is not even on their agenda. I never heard it even to comment it up on by any of the retailers that are coming with those, not even suggested, but that’s also very consistent with what I’ve been saying is that we've – look, we understand that the retailers have three outlet channels, full price, off price, online? Nathan Isbee – Stifel Nicolaus: Yes. When it gets to a certain proximity I mean, granted there are some who will be some tourist dollars in there as well, but it is --

Yes, it’s a very legitimate question. I get it. I understand what you’re saying. I totally understand what you’re saying. Let's go ahead and let the hand play out. I will give you an example that I’ve been told that there’s a location in Milan where Loro Piana has full price store and an outlet store, literally 100 yards from each other and there view is that one does not hurt the other because it's a different customer. Nathan Isbee – Stifel Nicolaus: Okay. All right. And now that you have Chicago out of the bag, how many other outlet centers deals either development or acquisitions would you see working on now that, that are real and could be announced soon?

I wouldn’t hold your breath for anything soon. We’ve announced another development project a while ago, six months ago and we are proceeding on that in Scottsdale. And we’ve consistently said that if we could grow this to be a business where we own five, may be as many as ten of these centers over the next five to ten years, we think that would be a great accomplishment. We have extremely high expectations and hurdles of quality and productivity. We want them to be high barrier to entry type of locations. We want them to be reflective of the top 30 or 40 assets that we have in our full price portfolio in terms of quality, geography and success. So, I don’t anticipate it’s going to be a huge number, certainly one hand maybe two. But you know what we are of a size where adding that amount can be meaningful, and we are excited about our limited entry into this business and we are open to looking at opportunities in the major markets that we have interest in LA, San Francisco, New York, DC, Chicago; these are the markets that we have great interest in, Arizona and – if we can expand our footprints in these markets either full price or outlet, we’re going to be really interested in doing it with the same skill that gave us the ability to operate well within these certain high barrier and core markets for us. Those same skills enable us to work through entitlement issues, identification of proper locations and then just niches within markets also in these core markets. So, look for us to expand in the markets that we’ve talked about being important to us in the future. Nathan Isbee – Stifel Nicolaus: What’s happened in Scottsdale over the last quarter or so?

Ongoing conversations and multiple announcements from multiple people it’s like they need development horse race in the outlet businesses there’s lots of conversation going on, the time will tell. Even if we don’t get to the proper level of leasing, that we feel is appropriate we could usually differ the timing of the opening of that project or if the conversations go better as time goes on here, then what we would anticipated we could accelerate the opening. Its – time will tell. There is nothing new to report on that. The major news that we have to report is that on our last earnings call. We gave you kind of a tip of hat that you might look for an announcement that Chicago might be something we might announce. We have announced that. We’re very bullish on that. The success that we have got going on Chicago, the next big announcement that you’ll probably see out of us will be an expansion of the Niagara Outlet Center that we bought, and that could be very meaningful and that could be an expansion of 200,000 to 250,000 which is really almost as significant as opening a new outlet center. And frankly I’d rather open a 250,000 foot expansion to a center that’s doing $700 to $800 a square foot then open up a brand new center that’s 300,000 or 400,000 feet that does $300 $400 a foot. So you know what, consider that to be your third major real project, the expansion of Niagara Falls. Nathan Isbee – Stifel Nicolaus: Great, that’s helpful. Thank you. Art Coppola – Chairman and Chief Executive Officer: Thank you so much and thank you for joining us and thank you for your wishes and look forward to see you in two weeks. Thank you.

And we have no further questions in the queue. And ladies and gentlemen, that does conclude today’s conference. We thank you all for your participation.