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The Macerich Company (NYSE:MAC)

Q3 2009 Earnings Call Transcript

November 5, 2009 1:30 pm ET

Executives

Jean Wood – VP, IR

Tom O’Hern – Senior EVP, CFO and Treasurer

Art Coppola – CEO and Chairman

Tony Grossi – EVP, COO and Chief Economist

Analysts

Quentin Velleley – Citigroup

Michael Bilerman – Citigroup

Michael Mueller – JP Morgan

Craig Schmidt – Merrill Lynch

Steve Sakwa – ISI Group

Nathan Isbee – Stifel Nicolaus

Rich Moore – RBC Capital Markets

Christie McElroy – UBS

Alexander Goldfarb – Sandler O’Neill

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Macerich Company Third Quarter 2009 Earnings Conference call. Today’s call is being recorded. At this time, all participants are in a listen-only mode.

Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. I would now like to turn the conference over to your host Ms. Jean Wood, Vice President of Investor Relations. Please go ahead.

Jean Wood

Thank you, everyone for joining us today on our third quarter 2009 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 of the company’s website at www.macerich.com.

Joining us today are Art Coppola, CEO and Chairman of the Board of Directors; Ed Coppola, President; Tom O’Hern, Senior Executive VP and Chief Financial Officer; Tony Grossi, Senior Executive VP and Chief Operating Officer.

With that, I would like to turn the call over to Tom. And Before I go, I just wanted to mention we're looking forward to seeing many of you next week at NAREIT.

Tom O’Hern

Thank you, Jean. Today we’ll be discussing the third quarter results, our recent financing activity, a recent joint ventures, the status of our non-core asset sale program as well as our recent equity offering.

The operating metrics for the quarter generally remain solid with continued respectable occupancy levels and releasing spreads.

Mall sales per foot for the past 12 months ended September 30th, were 418, that was down 3.3% compared to 428 last quarter, and compared to 463 for the 12 months ended September 30th of '08.

During the quarter, we signed leases for 294,000 square feet of specialty tenant space, that's up from 266,000 square feet signed in the third quarter of last year. Average new rent was $40.98 and the average release spread versus the expiring cash rents was 14.2% positive.

The occupancy level remained very high at 91%. That's up 50 basis points from 90.5 at June 30th, but down from 92.8% a year ago. Most of the reductions versus a year ago relates to big box closures which makes up 1.2% of that 1.8% decline that includes Circuit City, Steve and Barry's, Shoe Pavilion, KB Toys and Linens-N-Things.

The average rent increased to 43.06 per foot that compared to 41.36 per foot a year ago.

FFO for the quarter was $0.97 that compares to $1.12 for the quarter ended September 30th, 2008. Consensus was $0.93 and the quarterly results were in line with our updated guidance that we gave two weeks ago prior to our equity offering.

During the quarter, same center NOI excluding termination revenue was down 1.56% compared to the third quarter of last year. The negative comparison was mainly driven by a decline in occupancy in a $1.6 million increase in bad debt expense. Year-to-date, same center NOI excluding lease terminations and SFAS 141 revenue was down 0.9%.

Lease termination revenue including JVs at pro rata was 11.1 million for the quarter, that was up compared to $4 million during the quarter ended September 30th, 2008, $6 million of that total came from one tenant that terminated leases at four our of top locations Tyson's Corner, Washington Square, Freehold and the Oaks.

The expense recovery rate including JVs was 90.4% that was down compared to 93% a year ago. However, it was higher than the full-year 2008 recovery rate of 89%. Most of that reduction related to higher non-recoverable expenses primarily bad debt expense.

CPI rent increases were $2 million higher than a year ago. Straight lining of rents were up 400,000, compared to $3.5 million for the quarter compared to $3.1 million in the third quarter of '08. As SFAS 141 income was down to $3.2 million, that’s down about a $1.5 million from a year ago. The impacts on the quarter from vacant Mervyn stores was approximately $0.08 a share.

Also during the quarter, REIT G&A cost was $7 million. That’s unusually high for us that compares to $2.9 million in the third quarter of last year. The increase was primarily related to $3.5 million in transaction costs relating to the ventures that we formed during the third quarter.

It was a very active quarter for the balance sheet with a significant amount of financing activity. For the quarter, our average interest rate was just under 5.5% and the average rate on the fix-rate debt was 6.17%. The interest coverage ratio for the quarter was 2.04 to 1, and with the recent equity rates, we expect that to improve in the quarters that follow.

At quarter end, we had $6.99 billion of debt outstanding, including JVs at pro rata. That’s $900 million less in the June 30th. As of today after factoring in the equity offering of two weeks ago, our debt outstanding is $6.6 billion.

As of today, we only have $30 million in remaining 2009 maturities. That’s basically one loan that we're in the midst of finalizing an extension on. We have approximately $800 million of capacity on our line of credit, plus we've got a $148 million of cash on the balance sheet at quarter end.

With the closure of various liquidity events and the cash conserved by continuing with the stock dividends in lieu of cash, we paid off $446 million of term notes during the quarter. Those were term notes that were scheduled to mature in May of 2010. Last week, we closed on the financing on the village of Corte Madera with an $80 million, 7.2% fixed rate seven-year loan. The prior loan was $63 million at 7.75%.

Included in today's 8-K supplement on pages 14 and 15, we showed the maturities for 2009 and 2010, as I'd indicated the 2009 maturities have virtually all been handled.

We have done over $874 million of new loans completed this year and we've generated over $190 million in excess loan proceeds. The estimated loan proceed reflect in the supplement for 2010 reflect the underwriting conditions we see in the market today.

Looking at 2010, excluding loans with built in extension options; we only have $268 million of maturities. Even with today's very conservative underwriting, we should be able to take out the maturing debt and generate significant excess proceeds.

We've been extremely active the past 12 months in paying down or paying off our unsecured debt. We've reduced our unsecured debt by $1.1 billion in the past 12 months that include the pay down of our revolver, reduction of our debentures by $331 million mostly at a large discount and complete payoff of the term notes.

In summary, we continue to make great progress on our debt maturities.

This is just one aspect of our liquidity and de-leveraging plans, which Art will be discussing at more length in a few moments.

Today, we are reaffirming the earnings guidance that we issued two weeks ago that's a range of 350 to 380 for 2009. That guidance reflects the equity offering, the impact of the recently completed joint ventures, the stock dividends for the year, the non-core asset sales.

We also revised down our same-center NOI estimate for the year down to negative 1 to negative 1.5, and that is just a reflection of what we've seen through the first three quarters of 2009. Most of that decline from the original guidance on the same center growth was driven by higher than originally forecast bad debt expense.

Consistent with last quarter and as part of our ongoing efforts to conserve cash and de-leverage, we, again declared a quarterly dividend of $0.60 per share payable on November 12 to stockholders on record on December 21st and 90% of that dividend will be paid in stock.

At this point, I'd like to turn it over to Art.

Art Coppola

Thank you, Tom, and welcome to the call. Again, we look forward to seeing many of you at NAREIT either on one-on-one meetings next week, or on the investor tour, which is November 10, Tuesday. If any of you have not been able to sign up for the investment tour and would like to please contact Jean Wood.

Today I'd like to focus on three primary levels of activity. One is our de-leveraging and equity activity over the course of this year. Secondly, focus on some operating fundamentals, sales, leasing and the composition of our portfolio after the completion of our joint ventures and finally, the status of our redevelopment program.

On the de-leveraging side and equity activity back in February, you'll remember that we were primarily focused on raising $500 million of equity from joint ventures and non-core dispositions over the course of the next 12 months we told you. That was in February of this year. We said we hoped to accomplish that over the course of the next year, and that moneys with all earmarked with in mind of the retirement of the $450 million unsecured term note that was due in spring of 2010.

At the time, we guided you to cap rates on the mall joint ventures, which was the lion share of the program between 7.5% and 8.5% cap rates, but we also said on various calls as well as in meetings with you that we were agnostic on the joint venture program. We said that, we knew we were going to be able to complete the joint ventures that pricing would be a function of the marketplace and that time would tell on that.

We're very pleased to have been able to report over the last three months the completion of our joint venture program, and I do want to emphasize the word completion at this point in time our joint venture program is completed. We do have a tremendous amount of interest from folks that would love to do new joint ventures with us, but at this point in time, the joint venture program that we put into place has accomplished what it was intended to accomplish. It's been completed. It's been done at a very efficient execution with average cap rates around 7.5.

We've got some great partners, some existing partners Cadillac Fairview, that came into Queens and some new partners, the old relationships with Heitman and GI Partners that came into Flatirons, into Freehold and Chandler. And the Chandler, I would emphasize by the way, is in Arizona, and that was somewhat of a landmark joint venture and they recognize the fact that, even in Arizona there's some great retail assets that Macerich controls, and this was certainly one of them that has a bright future.

Chandler is one of the two assets, by the way, that you will be seeing on the investor tour next week. So, we look forward to showcasing that property as well as Scottsdale Fashion Square for you next week, where we've just completed a major expansion.

So, we completed $450 million of joint ventures with some great partners and we did it much faster than people anticipated at much better rates than people anticipated.

We've completed a little over $100 million of non-core dispositions. It should be, as I've indicated in a previous call, potentially up to another $25 million to $50 million of non-core dispositions that could happen over the next several months.

Having completed that, we always gave you guidance but we're reviewing this sequentially, and that we were totally focused on the joint venture program and only after the completion of the joint venture program would we consider tapping into the equity markets as a means to further de-leverage the company, and take us to the levels we wanted to do.

We completed the joint venture program. We considered new joint ventures back in September and decided at that point in time that given the differential between the private markets and the public markets were not nearly as dramatic as they were in the spring.

We still think there is a very large difference between the private market and public market valuation of our company. But given the fact that there has been a shrinkening of that gap, we decided to raise $400 million in equity and we did that a couple of weeks ago.

So between the non-core sales of $100 million, the joint ventures of 450, the equity raise of 400, the stock dividend – the dividend cut and stock dividends, we've raised equity over the last eight, nine months here over about a $1.1 billion. That $1.1 billion of equity has allowed us to de-lever the company, by paying off about a $1.1 billion of unsecured debt.

And then, of course, as part of the joint ventures, there's roughly another 470 million or so of pro rata debt that was attributed to our partners as part of those joint ventures. So, there is just under $1.6 billion of de-leveraging that's been accomplished here over the last three months.

We raised our equity transaction a couple of weeks ago. We went out with the $350 million offering and with the shoe being exercised, we did $400 million. You might ask, why that particular size? Well, the size was really completely dictated in terms of what it was intended to accomplish for us. Going back to February of this year, we were looking at four pieces of debt that were in our balance sheet, one was property level debt.

We knew that our property level debt in spite of the skeptics was something that not only was not a problem for you us, it was an opportunity that we were going to be able to refinance our property debt, and on balance we're going to be able to generate significant excess proceeds from that debt over the course of this year, next year and even the following year. In fact, we did that, we've been reporting those numbers to you. We see additional excess proceeds coming from our property refinancing next year.

The other three pieces of debt that we had focused on was our unsecured term note. We addressed that. We did the joint ventures so that's been paid off. The other two pieces is the next sequential piece of our unsecured debt is our revolving line of credit, which comes due with extensions in spring of 2011.

Having completed our joint venture program, we decided it was time to raise equity to substantially reduce our line of credit to put us into a position, where we would have capacity under our line of credit where today we have roughly $800 million of capacity under a line of credit.

It would also put us on a position on our revolver to be in a position next year at the appropriate time to extend and renew that revolver on terms that would be most advantageous to the company. We raised the equity. We now have capacity on the revolver and we now are in a position when it comes time to renew it that we will be in a very strong position.

As to our convertibles, going back to last year, the end of last year, we had $950 million of out standings give or take on our convertibles which come due in 2012. Over the course of the past year, we've retired mostly at substantial discounts well over $300 million of those convertibles, so we just have roughly over 600 million of them outstanding today.

Today, they are trading at levels well over $0.90 on the dollar. So the yield – the maturity on those converts is somewhere around 7% today. So at this point in time they're not a very attractive piece of debt for to us retire. So our focus right now is on simply getting capacity on the revolver which we've done and putting us into a position to renew that at the appropriate time.

We're extremely pleased to have accomplished and exceeded the equity raising and the de-leveraging that we hoped to accomplish over the course of the 12-month period and to have done it over the course of a seven or eight-month period of time. So I am very pleased about that.

Moving to operating fundamentals. We've been reporting, obviously, our sales in leasing activity. On the sales side, I want to talk about sales and I want to talk about our leasing activity in our leasing spread. As you know, in the fourth quarter of last year, sales were off in general around 15% give or take, for most of the major mall owners including ourselves. This disastrous comp sales decrease from a retailer's viewpoint because it was totally unexpected from the retailer's viewpoint. And as a result of that, it put the retailers into a freeze mode not only into a freeze mode but they even got into a cutback mode because it was totally unexpected.

Over the course of this year, retailers made major changes in their cost structure, major changes in their inventory levels and major changes in their business plan. And their plans for their businesses is to be down substantially, to be down roughly 10% to 15%.

In February of this year, we have told you that we anticipated that for the first three quarters of this year, we anticipated double digit sales declines and at that time, frankly, that was not a very thrilling prospect. In fact, we've had double digit sales declines. They were up 12% in the fist quarter, 11% in the second quarter, 9% in the third. But we're seeing a moderation in the decreases. But more importantly, and I said this on the last call is that you have to be careful about just the comp sales because this year the difference between the first three quarters of this year and the fourth quarter of last year is that our retailers planned to have their sales we offered. This was their business plan. They are meeting their business plan. They are maintaining their margins.

So being off 10% when you plan to be off 10% and you keep your margin, is a significantly different situation than being off 15% when it wasn't your plan and your margins were definite. As a consequence of that, it's put our retailers into a mood where they're willing to talk about new leasing and we're able to look at beginning to have some pickup in store growth. And the moods of the retailers and you've heard this on the other conference calls with our peers, is improving dramatically. You know, they went from being in a freeze mode in the fourth quarters of last year. So, things began to fall out in the second quarter of this year around ICSC.

And now we're really having conversations with our retailers about how they can grow their business and how we can grow our business together. In spite of these sales trends, we've had very positive leasing results. Fourth quarter of last year, for example, we had 23% leasing spreads in all of 2008. We have 24% leasing spreads. As we move into 2009, we've had an average releasing spreads of 18% with first quarter releasing spreads of 21%, second quarter of 21% and the third quarter of 14%. One might ask because I'm aware of the fact because we're an outlier amongst some of our peers in terms of the positive leasing spreads. How we are able to get these leasing spreads in spite of the negative comps and the moods of the retailers that we have.

It's really, simply, a function of the cost of occupancy of sales that our tenants have in our portfolio today. Our portfolio is one of the most productive portfolios in the business. And our cost of occupancy coming into this year was roughly 13%. And when you've got a 13% cost of occupancy in a portfolio that is highly productive, there's still plenty of room for retailers to sign new leases, make new commitments and to pay spreads to us that give us the results that we've been able to enjoy. So, it's really the embedded growth that is our portfolio. When we start with a highly productive portfolio, add to that a modest cost of occupancy, a great leasing team, great property and that's what’s been able to enable us to enjoy strong releasing spreads.

So, on the leasing side, I'm feeling better about things. Our retailers, more importantly, are feeling better about things. And I'm anticipating that as we move into next year then we’ll have good leasing activity. Now, we are looking at the next year where we have higher rents that are expiring than we have this year. So, leasing spreads could come in as a function of that. But, leasing activity, in general we see as something that is picking up, our pricing power is there. People want to grow their business and there's a number of different examples of retailers that are out there, that we've been able to enjoy having good business activity with.

We've also been asked the question after doing the joint ventures that we did, what does that do to the composition of the quality of our NOI. First of all I want to point out on all of our joint ventures, that we have control rights that generally enable us to maintain ownership of the assets in almost any situation, be it by the virtue of Rights of First Refusal, options to buy any number of different agreements that are there.

Secondly, I would point out that we have relations with our partners. We are very careful about the partners that we do partnerships with and generally, the partnerships that we enter into are relatively permanent in terms of the view of our partner and us when we go into a review ourselves. And we do these partnerships not as being finite level partnerships but as being something that really has more of a perpetual life.

We view them as partnerships that are intended to grow not only in that relations in that property but in additional properties. And that's been reflected in our history of one of the most glaring and highlighted examples would be the bringing of the Cadillac Fairview in the Queens Center which was an extension of a long time partnership that we have had with them.

In looking at the quality of our income stream after doing the joint ventures, today after doing the joint ventures, roughly two-thirds of the net operating income of Macerich comes from our top 36 properties. Those top properties average today $549 a square foot. So, that's after doing the joint ventures. Another 25% or so of our net operating income comes from our 13 [ph] properties or so that average around $335 a foot. And then we have around 8% of our net operating income comes from a group of assets that average around $280 a square foot.

So, you can see that the vast majority of our NOI is coming from a portfolio that exceeds $500 a square foot in sales and that's after doing the joint ventures. So, we see this as being something that's very positive for the company. We see our joint venture partners as being groups that are going to be part of the growth of the company going forward as a consolidation of our industry continues. We anticipate that our current partners will participate with us in the consolidation of our industry.

I want to turn now to our redevelopment activities. You'll remember back in February that we cut our redevelopment activity down to mission critical projects.

Primarily the Oaks got for Fashion Square, Northgate, Santa Monica Place. We've completed the Oaks. We're in the throws of completing the major first phase of Northgate. We just completed the expansion of Scottsdale Fashion Square and we have Santa Monica Place that is scheduled for completion in August of next year. So we are winding down our redevelopment activity. We have no major redevelopments or ground up developments in the pipeline.

We look forward to highlighting for you Scottsdale Fashion Square next week. And hopefully, you'll be with us on the investor tour on Tuesday. If you're not there on Tuesday, we can arrange for private tours for you. This is a fabulous expansion. It's one that's anchored by Barneys. We have a lot of first to market retailers in the center. We have some great restaurants in the center.

We've brought in new luxury retailers in conjunction with the expansions like Bogree [ph], Tillana [ph], for 7 For All Mankind. We've got True Religion, Michael Stars. You'll see a number of great new tenants in there, Banana Republic, Forever 21, Love Culture, Arthur, H&M is coming in the spring. And we are very, very excited about this expansion.

This expansion, I might remind you, was triggered by the merger of May Company and Macy's a few years ego. And in that transaction, we bought back 11 stores from Macy’s, which triggered the redevelopment of many of our centers including Scottsdale Fashion Square. It opened the way for this expansion which is a fabulous expansion. It opened the way for the redevelopment expansion of Oaks in Nordstrom. It opened up the way for the complete redevelopment and virtual recycling of Santa Monica Place where we're bringing in Bloomingdale's and Nordstrom. So, that May Company Macy's merger three or four years ago where we got back around 11 boxes from Macy's as part of that merger opened up a whole wave of remerchandising opportunities, redevelopment opportunities which are just now coming to fruition.

So, we’ve just completed the Scottsdale Fashion Square expansion. That expansion will be generating close to $10 million of new NOI going forward. It was paid forward cash. So we'll be reaping the benefits of that as we move into next year.

Santa Monica Place, we're making great headway there. We've reported during the course of the quarter new tenants such as BurBerry, Michael Kors, CB2, Nike, a number of new tenants that are going to be coming. Again, we're very, very excited about that. And we're excited about the completion of that. I will remind you that the size of that project is roughly $260 million. It's being paid for out of cash on hand and upon completion in the fall of next year, and it'll be completed basically and leased up in phases over a six to nine-month period. We anticipate a new 9% to 10% return on that capital.

So, we're very pleased with where we are on the redevelopment program, and at this point in time, I'd like to open it up to questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from Quentin Velleley. Your line is open.

Quentin Velleley – Citigroup

Good afternoon everyone. I am here with Mr. Michael. Just in terms of Mervyn's, I'm wondering over the quarter, was there any NOI that was coming in from the Mervyn assets over the quarter?

Tom O’Hern

There's a very small amount that started to come in through the quarter. And Tony can give you an update on the activity but there's been quite a bit of activity. There’s been quite a few deals and the red is just starting to come through. But for the quarter, we only had $930,000 and that compared with a year ago of $9.2 million from those boxes. But when we gave guidance, originally, it was a very little income that actually flowed through 2009 as a result of those boxes but they'd start to – we start to reap the benefit of a few deals in 2010.

Art Coppola

Quentin, just at the beginning of the year, we had 44 boxes that we controlled through the Mervyn's transaction. And we're pleased that we've sold 27 of them, we have done 27 deals on those boxes and at the start of the year, we announced we had 21. We made some progress throughout the year and as Tom said we advised and guided that because the lead time to completing these deals. We long for the bigger boxes that we didn't anticipate a lot of the income in 2009 and most of the income would be in 2010. As well as we have transactions in the work that we hope to enact shortly in about three or four additional locations of the boxes that remain.

Quentin Velleley – Citigroup

And what was the book prices of the remaining Mervyn's asset?

Tom O’Hern

I think on average, we paid $8 million to $10 million per store. But that's an average. It's going to vary by location in the underlying economics.

Quentin Velleley – Citigroup

And so that's 8 to 10 million on the 44?

Tom O’Hern

Correct. No, they are on 41.

Quentin Velleley – Citigroup

14

Tom O’Hern

Bought 41 and we had 3 on a shorter term lease that were not part of the sale leaseback transaction.

Art Coppola

And as part of our guidance next year, we will obviously be baking in the rents from the Mervyn Stores that have been released and remerchandised. Again, many of the rents of which are really just kicking in, in the fourth quarter with a lot of openings and with Kohl's and others for example, September 30. But in previous calls, I've indicated that I felt that of the $0.25 per share drag that we would have this year that we should be able to claw back at least about half of that next year. That will be baked into our guidance, but our current thinking is approximately the numbers around $0.12 a share that should begin to flow through the income next year that was not there this year.

Quentin Velleley – Citigroup

Okay. And just the second one. In terms of the $566 million of capital that you've spent, on the current development pipeline, how much NOI was being generated on that capital in the quarter?

Tom O’Hern

Well, that's primarily related to the Oaks. Most of which has come online last year. And that shows up on the schedule but that's been placed in service so that's not in CIP. So the Oaks has come online. The rest of that list is just being completed now. Scottsdale Fashion, there is really very little impact in the quarter as a result of that, that would be primarily fourth quarter next year. So, the only one on that schedule is the Oaks and if you look at the far right hand column of the last page of the supplemental, you will see that it indicates is Oaks are priced and service in 2008.

Michael Bilerman – Citigroup

It's Michael Bilerman speaking, just a quick question just on the joint ventures. You said about the three joint ventures you did with Cadillac, GI and Heitman, and you've always talked about just doing a straight up type transaction. Was there anything in those deals in terms of a preferential return to the partner, put rights or anything else that may have altered pricing?

Art Coppola

There was nothing. I mean, they were complicated joint ventures. I mean the GI deal was a 75:25 deal. You know, the Heitman deal was 51:49. All in, when you look at the overall real estate cap rates after consideration everything, the cap rates are roughly 7.5%. We did grant warrants to GI Partners, which was disclosed to buy shares that gave the exact number shares, Tom?

Tom O’Hern

Roughly $31 a share.

Art Coppola

Though we want to buy shares at $31 a share and we granted warrants to Heittman to buy shares at roughly $48 per share. There are complicated transactions. Those actions are repurchased from our view point at our option down the road. But basically on balance from our viewpoint, they're generally straight up 50:50 joint ventures or pro rata joint ventures.

Michael Bilerman – Citigroup

But there is no preferential return. Would that affect cash flow when we're thinking about the 7.5% yield? Obviously if there is a preferential return in the joint ventures, your net cash flow would be affected. And would affect as well but I'm just trying to see if there's anything on that side?

Art Coppola

On the Queens joint venture, there are no preferential cash flows. On the Heitman joint venture, there is a cash flow preference. And on the GI Partners joint ventures, there is a cash flow preference on each of those joint ventures; we would anticipate that over the course of the first, second year or so, with those preferences will be academic by the second year or so.

Michael Bilerman – Citigroup

And that's just from NOI increasing or from refinancing?

Art Coppola

Just from as the NOI flows through. We went through the projections and generally, it's by the second year or so that the preferences become academic.

Quentin Velleley – Citigroup

How much higher is that over the 7.5, if you had to flow it through?

Art Coppola

I really don't want to get into any details but it's less than a 100 basis points on average.

Quentin Velleley – Citigroup

Okay.

Art Coppola

I mean from the confidentiality view point, I'm not in a position to get into the details on each one, but I will tell you that on average between the two, that it's less than a 100 basis points over the 7.5 cap REIT on average.

Quentin Velleley – Citigroup

And just one last question. In terms of coins, spot on. From a modeling perspective, what were the exact settlement dates of those two transactions?

Art Coppola

Quentin, I'll have to get back to you on those. I believe Queens was late July and FlatIron was early September, but I will get back to you the exact timing.

Tom O'Hern

On the closing dates?

Quentin Velleley – Citigroup

Yes, the settlement date as it affects NOI.

Art Coppola

We'll give you exact dates before the call is over.

Quentin Velleley – Citigroup

Perfect. Thank you.

Operator

The next question comes from Michael Mueller from JP Morgan.

Michael Mueller – JP Morgan

Few things. Obviously, there's been some moving parts in terms of G&A and but that's moving into the joint venture report. Tom, can you run through just what you see is going to be ongoing run rates for, say, G&A management revenues and expenses?

Tom O’Hern

Yes, I mean, G&A, we typically are running between $3 million and $4 million a quarter, and I think that would be consistent going forward. As I mentioned earlier, we had some unusual transaction costs that flowed through there and created some lumpiness that I would not expect to see on an ongoing basis. We are typically around $4 million a quarter and I would expect it to be $4 million a quarter going forward.

And then in terms of management, we just completed some joint ventures so the management company revenues are going to go up. We typically get, you can go through the calculation like we typically get 4% or so as a management fee.

Michael Mueller – JP Morgan

Okay. What about management expenses?

Tom O’Hern

They should not go up appreciably. They're fairly consistent.

Michael Mueller – JP Morgan

Okay. Going back to the Mervyns' question from before, it looks like in Q3 what I gathered you had about $900,000 in income, annualize that about $3 billion, $4 billion dollars. If we fast forward a year forward, by year end 2010, what do you think that annualized run rate is of properties that are up and running and contributing NOI? How much does it go up from 3 to 4 today?

Tom O’Hern

I wouldn't. If you're going to analyze this quarter, because we really didn’t have anything in the first and second quarter, we had $900,000 this quarter. But As Tony and Art both indicated that, we've got the bulk of those boxes done, 27 deals done out of 44. I would expect that to be more along the lines of on a quarterly basis probably closer to $6 million to $7 million a quarter next year.

Michael Mueller – JP Morgan

Okay.

Tom O’Hern

And that will be gradually, we won't get that full benefit in the first quarter. I said earlier in the call, I would anticipate the benefit next year. It's not this year to be around $0.12 a share but that we will bake it that our guidance.

Michael Mueller – JP Morgan

Got you. Okay. And then going back to the last question on the lease expirations, in the 10k going to your comments, Art, it looks like explorations on the consolidated portfolio are about $41 next year. I mean is it the anticipated expectation at this point

Tom O’Hern

No. Not at all. You have to be careful because you have to drill down into where the explorations are, the explorations are Queens, Tysons, then you could have 50% spreads. So, you do have to drill down into it and that will be baked into our guidance next year. But with this thing, when you look at our leasing spread, they come from all types of different properties. It becomes a moderate number but if you look at the last five years running through 2008, our average leasing spreads were 20%, you know, all things considered. This year, all things considered, they were first quarter 21. The second quart other 21, third quarter 14. You know, leasing spreads could moderate next year.

But really, we have to go through on a very granular basis and do the ground up number to go ahead and do it. And we’ll take a look at it. It'll be baked into our guidance.

But the most important thing from our viewpoint is that our sense of pricing power and momentum and activity is definitely feeling much better today than it was, say, three or four months ago. And that'll all be baked into the guidance. We're feeling much better on the leasing side, frankly, than we did nine months ago.

Michael Mueller – JP Morgan

Okay. Thank you.

Tom O’Hern

There was a question asked about the closing date on the joint ventures. Queens closed on July 30. FlatIrons closed on September 3. The Freehold and Chandler transaction closed September 30.

Operator

The next question comes from Craig Schmidt from Merrill Lynch.

Craig Schmidt – Merrill Lynch

Thank you. I just wanted to get an update on the Forever 21, fashion department store since you guys are sort of having a curve there what's happening. How do they differ from the smaller stores? Maybe more importantly, what's the impact of adding 80 to 90,000 square feet of junior space on your existing junior businesses specialty stores?

Tony Grossi

Hi, Craig. It's Tony. Forever 21 has had a tremendous start. We’ve done them in 13 boxes. They're not all open yet. They're building flagships. They built the flagship in FlatIron with us in a very large format; the second one will be in December. And they'll cycle through the renovations. And as they cycle through the renovations, you'll see a spectacular looking store open. In taking over the stores, they're delighted with the volume. We are delighted with the traffic. The traffic by our measures and the sales by our measures could be and should be greater than what Mervyns is creating for us. They are investing in additional product lines. They advised us that they have hired somebody to focus in on cosmetics.

They hired a person who is focused on home goods. So there is product extension in order for them to develop their gross sales they feel, they need, and we would like to see in a bigger box format. As it relates to any transference of business from other junior categories into Forever 21. That's quite the opposite effect. We're finding that the junior retailers such as H&M, their preference or Love Culture, their preference is to be around Forever 21. So we see them today as being quite a magnitude, creating a halo effect for the mall where there's an aggregation of junior retailers in and around those stores. First of all, for all of you that would be on the investor tour next week, you are going to see one of the latest and greatest. It's not an 80,000 foot box but it is a significantly sized stores. You'll definitely see two other stores. Scottsdale Fashion Square is brand new. It open opened and there is a store in Chandler as well. Both of them are approximately 25,000 to 27,000 square feet. So they are not the huge large format stores but you will see a good representation of what they can do.

Art Coppola

Our experience has been in the large format stores that in several of them, they're trending at volumes that are relatively close to what the Mervyn’s volume was but more importantly, they feel like and from our traffic counts, are generating roughly twice the traffic count that Mervyn's was generating previously where we replaced Mervyn's with Forever 21. It's a very interesting question. Look, we are way ahead of the curve, and so far we're very, very pleased with what's happening here. The founders of Forever 21 are just, you know, really terrific retailers. They've got a great organization. They have a balance sheet that's incredible. They do roughly $3 billion of sales, and they generate EBITDA numbers that are very significant. I can't put out their numbers. They're a private company. But very significant. They've been rumored to be sitting over $1 billion of cash. They're a private company. And I can’t comment on that

But if you look at their balance sheet and profitability and compare them to almost any public specialty retailer or even some of the anchor retailers it's quite an impressive story.

We had the chairman of one of the largest department store companies out there with us the other day, and we were walking him through one of the large format stores where that department store and Forever 21 has a store.

We're very interested in his thoughts on it. He was just really impressed. I think, terrific. He said, here you are, generating great traffic. They're not competing with me, per se, and they're bringing more people to the property. So, you know, so far, look it is an experiment. So far so good. And we're very pleased with the way it's come out so far.

And again, I think you'll be pleased to see one of the newest prototypes, not the big bucks, but more than just prototypes at Scottsdale Fashion Square next week.

Craig Schmidt – Merrill Lynch

It's very helpful. I look forward to the tour.

Art Coppola

Great.

Operator

The next question comes from Steve Sakwa from ISI Group.

Art Coppola

Hi, Steve.

Steve Sakwa – ISI Group

Hi, how are you. Just a clarification for Tom. If I look at page 10 of the 8k, there you got a construction of progress figure of 549. I just want to make sure, was there any NOI kind of in the quarter that relates to that or is that really all kind of non-income producing?

Tom O’Hern

Once it starts to generate income, it gets moved out of CIP and into its appropriate category on the balance sheet.

Steve Sakwa – ISI Group

Okay. Is there a way to kind of just reconcile that number to the information that's on page 15. I'm sorry, not 15, on 16 where you kind of break out the projects? I am just trying to –.

Tom O’Hern

There's really just the major projects on page 16. There's a lot of other things that are in process. When we buy a department store building that goes into CIP until we ultimately put it back in service. And something like that's not going show up on your schedule to the extent we own land somewhere. That’s not going to be on page 15, land to be developed in the future. So, there is probably 50 line items of a small variety that’s show up in CIP are on that schedule.

Steve Sakwa – ISI Group

Okay. Thanks.

Operator

The next question comes from Nathan Isbee from Stifel Nicolaus.

Nathan Isbee – Stifel Nicolaus

Hi, good morning.

Art Coppola

Hi, Nathan.

Nathan Isbee – Stifel Nicolaus

Given the amount of capital you did raised over the last few months and couple of that with the credit market, at least for now is improved.

Have you dialed down the amount of capital in your mind that you need too raise over the next few years? And I guess specifically are you still expecting to maintain the dividend in 80% stock?

Tom O’Hern

On the dividend issue that's something that's going to be considered on a quarterly basis. It is possible that we'll maintain our stock dividend into next year, but we're going to definitely look at that on a quarterly basis. We feel comfortable with the equity that we've just raised and the capacity that we have on a revolver but at this point in time, we have plenty of capacity to handle all future capital into our any other needs that we have.

Again, on the future capital side of things, you know, I would point out and emphasize that really the only significant project that we have left on the drawing boards is Santa Monica Place. And we've got money that is left to be spent on that. If we think about the sources and used of fund, If we've got $160 million left to spend on Santa Monica Place, whatever that number is, Tom, our current production is that we'll have refinancing proceeds available to us on the two major properties that expire next year that would be sufficient to take care of that.

At this point in time, again, we cut back our redevelopment spend in mission critical projects only in February and the only major one left here is Santa Monica. So, we'll be finishing that up. And we feel that from internal organic sources that we have all of the capital that we need to go ahead and handle the redevelopment pipeline that’s out there and again the redevelopment pipeline that’s out there is the only thing is left are consequences of Santa Monica.

Art Coppola

If you look at the last page of the supplement, it shows net cost remaining to be incurred on the various five or six projects. And in total, there's only $190 million, $22 million for the remainder of this year. About $170 next year, most of which is Santa Monica Place. So we really significantly cut back on the spend.

Nathan Isbee – Stifel Nicolaus

Okay. Are you comfortable with your current debt levels?

Art Coppola

Yes. Look, we are long term. Our goal is to continue equity capacity to give us Look, long term, our goal is to continue to give us the opportunity to be opportunistic in the event as time goes on there is a further consolidation in our business that we would want to participate in. Certainly for the operation of our business as it sits and not looking to external growth, we have all the capacity that we need. We could have raised significantly more equity couple of weeks ago. We had the offerings of most of the industry as rumored it to be was way, way, way oversubscribed. And we could have raised much more equity, but we felt it was the appropriate amount we wanted to raise, that amount which would give us the capacity to be somewhat opportunistic in your capacity, to operate out. And more importantly put us in a strong position for the extension of our revolver.

So we feel comfortable with where we are, but as my friend Milton Cooper says, you can never have too much equity so who knows? As time goes on, we may extend that stock dividend beyond where we are for example as a mean to continuing to retain cash and continue to delever the company. That would be the obvious place to further equitize and delever.

Nathan Isbee – Stifel Nicolaus

Okay. And then moving to 2010, just going back to that, where do you stand today in terms of 2010 leasing versus last year?

Art Coppola

Tony, you want to address that some.

Tony Grossi

Sure. We are progressing for 2010 leasing. Last year we reported approximately 50% done. It's the same level that we're at right now. By deal count, we're about 50% committed. By GLA, we're approximately 54% committed.

Nathan Isbee – Stifel Nicolaus

Okay. So it's not, like you've dialed back your efforts right now waiting for a better holiday season or anything like that?

Tony Grossi

No. There's no conscious effort in terms of delaying any 2010 leasing. We are, we are fighting for our rates and where we don't get rates, we will do shorter term leases. I think we've reported that in prior calls as well.

Nathan Isbee – Stifel Nicolaus

So the stuff that you have signed, where were your spreads?

Tony Grossi

I don't have that number here. We'll report our thoughts on guidance and spreads at the end of the year, when we fully develop our business plan.

Tom O’Hern

To the extent that those deals have been signed this year and they are in the leasing spread numbers they're already spoke to 21% in the second quarter, 14% in the third.

Tony Grossi

In the third quarter, leases that were signed in the third quarter, many of those may have been for renewals that happened in 2010.

Nathan Isbee – Stifel Nicolaus

Okay. Great, thanks.

Tony Grossi

Thanks.

Tom O’Hern

Thanks, Nate.

Operator

The next question comes from Rich Moore from RBC capital.

Rich Moore – RBC Capital Markets

Good morning, guys.

Tom O’Hern

Hi, rich.

Rich Moore – RBC Capital Markets

Art, I remember a time when you would always tell us about the many projects you had coming in three, four, five years down the road.

Are those days kind of gone, do you think, and will you have a whole do you think in 12, 13, 14 if you are not starting anything or thinking about starting something currently?

Art Coppola

No. As I look at it, we look at the opportunities for growth for this company going forward. The opportunities remain in the redevelopment pipeline.

There are limited opportunities on the external side to grow this company because there are limited properties to buy. And I’m not going to comment on other major portfolios out there. But I am, for my viewpoint, I view the external acquisition environment as being certainly limited in scale and scope. There are finite number of properties out there that would be of interesting to anybody. So that leaves you with ground up development. And redevelopment as being the drivers of your significant kind of non-remerchandising growth and on the development side of it, we have nothing eminent out there, but when the economy rebounds, which it will one day in Phoenix, we’re well positioned down the road in Phoenix. But we’re talking several years down the road in Phoenix.

And on the redevelopment pipeline, we had roughly 30 or 40 properties that were candidates for redevelopment at different points and still are. But, in February of this year and before, we cut our redevelopment activity down to just mission critical activity, and at this point in time that’s where it remains, these properties and these redevelopment opportunities aren’t going to go away because we own the properties. So it’s embedded growth that you can tap into when you want to tap into it. And there will be opportunities. Some of you may have noticed in some of the press, for example, that we had announced plans to expand our property at Walnut Creek, Broadway Plaza last year.

And we had announced plans to expand it by adding Neiman Marcus to our line up of Nordstrom and Macy’s there, and we just won an election there was a another developer that thought to stop our development because he wanted to do another development to compete with us down the road.

We just won the election on Tuesday by a vote of 71% to 29% in favor of allowing us to add Neiman Marcus. That’s a deal that is scheduled for opening in 2012. It’s not a highly capital intensive deal but it is of very significant anchor addition who is going to trigger a whole ways of new leasing at the property. And it’s just one example of something that’s out there for the future and one of the reasons we are wanting to have capacity today is to be opportunistic frankly to be able to tap into our redevelopment pipeline as time goes on. So the redevelopment pipeline is still there.

It’s kind of in the future embedded growth, and it’s just something that we will tap into when, markets are much more robust when the time is right, and we have plenty of free capital to go ahead and tap into it. So, it’s really, you’ve got embedded growth in your leases. You’ve also got embedded growth in your redevelopment opportunities. And there’s still clearly and always have been the company was built on its redevelopment expertise. It was built on buying centers from others and repositioning and redeveloping them.

We think we do that as well as anybody. And it's going to be the future of the company as time goes on. But we're not going to tap into look until we feel that our balance sheet is continuingly improving condition and the market in which we're operating is robust. And we have the (inaudible) we can to do that because you already own the assets.

Rich Moore – RBC Capital Markets

I got you. And so are you doing this sort of early work at this point on any of this stuff or is it all wait and see until there’s demand kind of thing many.

Art Coppola

There is different phases of early work, this is a good time to be doing entitlement work, for example, so we do a lot of entitlement work in a market like this where we get approvals to do things in the future. That's a great time to go into a city and to talk about doing something for the future to build jobs and, create taxes for the city so we have great success on the entitlement side and in environment like this.

It's part of the reason, frankly, I think that the voters in Walnut Creek which is a no-vote community today voted 71 to 29 to allow to us to add Neiman Marcus as part of it because of the economy we find ourselves in. So it’s a great environment to get entitlements. Even though you don’t intend to tap in to. We do spend a fair amount of time and have been spending a fair amount of time really getting the entitlements for our properties enhanced so that we really have a pipeline for the future to tap into at the right time.

Rich Moore – RBC Capital Markets

Okay all right. Very good, thank you and then Tom, if I could real quick, on the lending side of things, who are the lenders that are most interested at this point. And are you hearing any changes or have you seen any changes in the past few months as you look at, at secured mortgages in terms of loan-to-values or recourse, that kind of thing, pricing?

Tom O’Hern

Well I’m not going to give away trade secrets, Rich, and give you the names of all of lenders. But I will tell you that the life companies continue to be active for quality assets, quality sponsors, and, conservative deals, but that we've seen the pricing income and significantly the deal we just closed, Corte Madera for example that was negotiated 90 days ago.

If that were negotiated today, at some clearly certain of that the rate wouldn't be at 7.2, it would be something in the mid-sixes. So availability seems to be somewhat better. And rates are definitely better. And the banks have been fairly active for us as well. But again those are relationship transactions with both life companies and banks that we have a long-term relationship with.

Rich Moore – RBC Capital Markets

Okay. Did they require greater recourse, typically, Tom, or no change there?

Tom O’Hern

Well the life company deal, its not typical to every course and we have not really done any of those life company deals recourse on a bank deal it's pretty typical to have some recourse depending on the type of the project. So it depends on something like a Northgate if we put financing on that because there is a construction component to it and expected to be a significant amount of recourse at least until lease up was done and the construction was done.

Rich Moore – RBC Capital Markets

All right. Great, thank you.

Tom O’Hern

Thanks, Rich.

Art Coppola

Thanks Rich.

Operator

We'll take the next question from Christie McElroy from UBS.

Christie McElroy – UBS

Okay. Good afternoon, guys. Just following up on your lease termination fees excluding the six million from the one tenant that you mentioned earlier, can you just provide a little detail on the composition of the other five million, was it high end or moderate tenants. Was there a regional trend just trying to get a sense for where the closings are coming from. And then also was there an impact from the write-off of straight line rents in Q3 associated with the termination?

Tom O’Hern

There's always some of that, Christie. What you'll see is you'll see some lumpiness both in straight-lining of rent and SFAS 141 income. And it usually relates to tenant that terminate in a given quarter and you’ve got to write off either the receivable. And then in SFAS 141, it can either be a receivable or liability so it could go either direction, we have some of that. In terms of the lease terms, it was a variety of different tenants.

There was no real trend other than the big one, the $6 million termination fee we got was from rule. And it was, a concept, they're not aggressively pursuing any longer. And as it turned out, those were stores that four of our better malls. So its quality space and they came in and we are able to strike a deal that worked for both sides. So that was the only one that was a large amount from one particular tenant, the rest of that was scattered geographically and by tenant.

Christie McElroy – UBS

And then just following up on the geographic differences, can you discuss differences in trends and sort of market rents and occupancy and Phoenix versus California versus your East Coast assets and what’s your outlook for each region over the next year?

Tom O’Hern

Yes just on the leasing side, we saw positive spreads across all regions. So we're delighted with the activity in each. On the sales side, the most improved regions using September really and we don't have October sales, but we’re, we understand from our retailers, they're similar to September sales. The best improved regions are Arizona, Northern California and our Eastern portfolio.

Christie McElroy – UBS

Okay. So Arizona's improving?

Tom O’Hern

Very much so.

Christie McElroy – UBS

Okay. Great. And then just two really quick follow-ups. I think you provided same-store sales metrics in the past. Can you just comment on what same-store sales trends work year-over-year and quarter-over-quarter?

Tom O’Hern

Oh, sure. Yes on just using…

Christie McElroy – UBS

The same store.

Tom O’Hern

Yes, same store. Using Q3 sales, Southern California on a year-to-date basis up 12%, Northern California about 8.5, the east is 7.5, central is about 8.5 and Arizona is 11.

Christie McElroy – UBS

Okay and that's year-over-year, I assume.

Tom O’Hern

Yes.

Christie McElroy – UBS

And then just one follow-up on Steve's question earlier. The CIP and through its vacant boxes. Does that include the vacant Mervyn's boxes?

Tom O’Hern

Yes.

Christie McElroy – UBS

It does, okay. Thank you.

Operator

The next question comes from Alexander Goldfarb from Sandler O’Neill.

Alexander Goldfarb – Sandler O’Neill

Thank you and good afternoon.

Art Coppola

Hi, Alexander.

Alexander Goldfarb – Sandler O’Neill

Just going into redevelopment for a moment. Obviously driving up the dig and you pass by a Cross County to see all the activity that you guys are doing there. How else do you keep your redevelopment and development team busy? You guys have created some good stuff over the years, but if the opportunity set right now is sort of limited, how do you balance, retaining people versus having to cut back where you need to?

Tom O’Hern

Well, we had a very major reduction in force in the company back in February and March of this year with the lion's share of it frankly being in the development and construction areas. And going forward at this point in time, we've got, again, I made reference to the fact of Rich's question, I think a lot of those folks that are involved in the redevelopment side also have very strong skill sets in the area of entitlement.

So one of the things that we do, for example, in times like this is if you don't have a shovel in the ground that one of the things that can be a very productive use of some of those folks time. Is to work on the entitlement side of it which in many cases can take a significant amount of time, but there is huge amount of value that's achieved by tapping into those entitlements as I mentioned in this environment it is a particularly good environment politically to be working in most communities to get entitlements, given the state of the economy.

So we basically, again we had very major cut backs to scale down to the level of development, redevelopment activity that we have and then you do begin to rotate people more into the soft site of the business or the entitlement side as opposed to the hard side of the business or the actual brick and mortar side?

Alexander Goldfarb – Sandler O’Neill

Okay. And then a question for Tony. As you see tenants starting to re-expand again, are you seeing more domestic tenants interested in expanding or are you seeing some overseas? Or was that one center may be talking about I guess it's charted Mexico coming up. Just want to get your take.

Tony Grossi

Yes we see some international retailers testing the waters with concepts. But one of the retailers that we're getting momentum is (inaudible) and we've done a couple of deals you'll see in lots [ph] of fashion in terms of their location it won't be open just yet. But we have several deals worked through with them and they've been in the U.S. for five years now. But they haven't worked their way west. And now that they are expanding west, we have a very deep pipeline for that.

So we're seeing expansion from international players such as H&M as well some additional new concepts from domestic players. Gymboree has a new concept we've done several deals with them. Arab Hotels has a new concept called TS. And we've done business with them and as well as there is a California entrepreneurial company that's similar to H&M or Forever 21 called Love Culture. And we also have a significant pipeline with them.

Alexander Goldfarb – Sandler O’Neill

So would you say it's still mostly domestically driven or would you say the internationals are growing quicker in the U.S. than the domestics?

Tony Grossi

I wouldn't say the internationals are, I think that I would say they're testing the market right now.

Art Coppola

The expansion in the U.S. is primarily still domestic driven retailers. But the international influence frankly is a complete add on which is nice to have.

Alexander Goldfarb – Sandler O’Neill

Okay.

Art Coppola

It's a new source of demand. So you have your existing source of retailers whether they would expand. Now we had a new group of retailers that are moving in. so that it's a nice increment.

Alexander Goldfarb – Sandler O’Neill

Great. A final question just goes to your holiday expectations. How are you guys doing as far as your temporary leasing both on a cart and then vacant in line where you're able to refill it with the temporary tenant. How are you doing this year versus your historic patterns for that?

Art Coppola

We have two products. We have mall program and business development program. And we're pretty much the same as last year in terms of our mall activity. We've got good occupancy and good rate, we haven't seen much push back in those areas. We're doing very, very well in the east. It seems that there is tremendous demand rising (inaudible) for on-mall activity.

And as well as we're really gaining some momentum on the mall as a media concept. And we've done that for a couple of years now, and we've managed to increase our business 15% year-over-year in that area with the likes of Sony and Microsoft, nationwide Amex just to name a few.

Tom O’Hern

We were up for the quarter and specially leasing. We came in at $10.9 million that was up about 6% compared to the third quarter of last year.

Art Coppola

Just back to the Mervyn's comment, the empty boxes that we had, we took the opportunity to populate them with the Halloween business. And just that one activity generated about a million dollars for.

Alexander Goldfarb – Sandler O’Neill

Okay. Thank you.

Operator

And this is all the time we have today for questions. I will now turn the conference back over to the speakers for any closing remarks.

Art Coppola

Great. Thank you for being with us. We look forward to seeing many of you on one-on-one meetings next week in Phoenix at NAREIT. And again, we'll see many of you on Tuesday at our investor tour.

And again, for those of you that were not able to get signed up on that, we may still have some room so please contact Jean Wood here in our office. And look forward to seeing you next week. Thank you very much.

Operator

This does conclude today's conference. We thank you for your participation.

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