Jean Wood - Vice President, Investor Relations Art Coppola - Chairman and CEO Tom O'Hern - Senior Executive Vice President and CFO Robert Perlmutter - Executive Vice President, Leasing.

Craig Schmidt - Bank of America Alexander Goldfarb - Sandler O'Neill Michael Mueller - J.P. Morgan Todd Tom - KeyBanc Capital Markets Christy McElroy - Citibank Steve Sakwa - Evercore ISI Vincent Chao - Deutsche Bank Paul Morgan - Canaccord Genuity Rich Moore - RBC Capital Markets Tayo Okusanya - Jefferies Haendel St.

Juste - Morgan Stanley Ki Bin Kim - SunTrust.

Presentation:.

Welcome to The Macerich Company Second Quarter 2015 Earnings Conference Call. 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 like to remind everyone that this conference is being recorded and would now like to turn the conference over to Jean Wood, Vice President of Investor Relations. Please go ahead..

Thank you everyone for joining us today on our second quarter 2015 earnings call. During the course of this call, management will be making forward-looking statements, which are subject to uncertainties and risk 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. 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 are posted in the Investors section of the company’s website at www.macerich.com.

I also want to announce that Macerich will be hosting a property tour of Tysons Corner Center and the new mixed-use development on Thursday morning, October 1st. You have the opportunity to stay at the new Hyatt Regency Tysons Corner Center. We will be sending out a save-the-date with more details soon.

Joining us today are Art Coppola, CEO and Chairman; Tom O'Hern, Senior Executive Vice President and Chief Financial Officer; and Robert Perlmutter, Executive Vice President, Leasing. With that, I would like to turn the call over to Tom..

Thank you, Jean. Consistent with past practice, we’ll be limiting the call to one hour. If we run out of time and you still have questions, please do not hesitate to call me, John Perry, Jean Wood or Art. It was another very strong quarter for us.

We are now really starting to see the benefit in our operating results from all the major portfolio transformations we have done over the past two years. This includes the sale of 15 malls and the redeployment of that capital into more productive faster-growing assets.

Leasing spreads were good again this quarter and we saw strong yield volume on 335,000 square feet of shop spaces and the average deposit of re-leasing spread compared to the expiring rent was 17.5%. Mall occupancy was again very high at 95.5%, up 10 basis points from a year ago, as well as up 10 basis points sequentially from last quarter.

Temporary occupancy remained relatively flat at 5.3%, up slightly from 5.2% at June 30 of ’14. In light of the very significant retail bankruptcies in the second half of last year and early ‘15 this are very good occupancy results. Average mall store base rents increased to $53.62 that was up 9% from a year ago.

Looking at FFO for the quarter we reported this morning FFO at $0.89 per share that compared to $0.86 in the second quarter of 2014. Reflected in was $1.6 million loss on extinguishment of debt, as well as $11.4 million of expense related to an unsolicited takeover attempt and contested proxy, together they makeup $0.08 a share.

Excluding those two items FFO was $0.97 per share for the quarter ahead of both our guidance range and consensus estimates. Same center NOI during the quarter increased 7.5% compared to the second quarter of last year and year-to-date same center NOI growth is up 6.29%.

This increase was driven by increased occupancy, double-digit re-leasing spreads, annual rate increases and an aggressive operating cost management program put into place this year. The results through midyear have lead us to increase our same center guidance range assumption up 100 basis points to 5.5% to 6% for the full year.

As a result of the increase in same center NOI, we saw nice lift in the gross operating margin. Our gross margin increased to 69.8%, up from 67% from the second quarter of 2014. Bad dept expense for the quarter was $2 million, slightly higher than last year in the second quarter where we incurred $1.7 million of bad debt expense.

During the quarter the average interest rate was down to 3.47% compared to 4.11% a year ago, and if you look at the other balance sheet metrics, debt-to-market cap at quarter end was 36.9%, we had a very healthy interest coverage ratio of 3.7 times. Debt-to-EBITDA on a forward basis was 7.2 and average debt maturity of 5.5 years.

And the financing market continues to be strong and we will continue to be in that market with the number of high quality assets that have been unencumbered recently and our candidates for long-term fixed rate financing. They include Fresno Fashion Fair, South Plains Mall, Inland Center, as well as 29th Street in Boulder.

In today's press release we -- as a result of the strong first half results and outlook for the balance of the year, we bumped and narrowed our FFO guidance range. We increased to $3.86 to $3.94 and that’s up from the prior guidance of $3.83 to $3.93 per share.

Looking at tenant sales, a good quarter there as well, the portfolio mall tenant sales per foot were up 10% to $623 a foot for the year ended June 30, 2015, that compared to $567 for the year ended June 30, 2014. On a same center basis sales per foot were $619 and that compared up 6.5% to $581 at June 30, 2014.

Again, during the period Arizona and California were top regions for us in terms of sales growth. At this point, I would like to turn it over to Bob Perlmutter to discuss the leasing environment..

Thanks, Tom. As Tom indicated the second quarter leasing metrics were good. Leasing spreads for the trailing 12 months were up 17.5, occupancy rose by 10 basis points to 95.5%, sales reached $623 a foot.

Bankruptcies moderated significantly from the previous quarter and our signed leases for tenants over 10,000 square feet was strong with over 450,000 square feet signed during the quarter including three locations with H&M. Demand from retailers for the company’s mall locations and outlet venues continues to be positive.

We see retailers seeking to tie in multi-channel retail opportunities and further establish their brand identity. In addition we see emerging brand and foreign retailers entering the U.S. through store locations, which are typically on the East and West Coast and that aligns with our portfolio.

Tenant bankruptcies during the first quarter provide a significant headwind with eight national retailers declaring bankruptcies. These tenants affected 76 stores containing approximately 247,000 square feet, which generated sales of only $241 per square foot. Included were larger chain such as RadioShack, Wet Seal, and Cache.

Some of this impact has been mitigated with approximately 46% of the space either leased or approved and in lease documentation. We have seen and expect to continue to see some retailers with larger store fleets reduce their store count. This is illustrated by Gap’s recent announcement to close 175 stores.

Most of these store closures are effectuated through natural lease expiration as oppose to lease buyouts. We continue to believe the quality of the company's portfolio reduces the impact from both bankruptcies and store closures, which we believe will be felt disproportionately in the lower quality centers.

Leasing progress continues to be made at Broadway Plaza located in Walnut Creek, California. The initial portion of the first phase will open this November with 22 spaces containing 45,000 square feet. We currently have leases executed for 20 of the spaces or 91%. The remaining two spaces we expect to sign leases shortly.

Some of the tenants will be part of the initial phase and new to the include Lululemon, KIT&ACE, Michael Kors, Madewell, Kiehls, Lou & Grey, Athleta and Vince Camuto. The balance of the first phase will open in May 16 and contain approximately 150,000 square feet. We expect to make a more detailed announcement on the tendency later this year.

Significant resources are also been applied to improving the quality and revenue generation from the common areas of the shopping center. Sources of revenues include permanent kiosks and seasonal carts, as well as advertising and sponsorship.

As the portfolio has migrated to fewer but more dominant centers, these opportunities will grow and will result in improved operating margins. Through the second quarter the number of deals approved has doubled as compared to the previous year. The majority of this impact will be felt in 2016 when the lease is annualize.

An example of this has been the conversion from stationary guest service kiosk into mobile concierges, including text responses to customer’s inquiries.

This has not only improved the customer service, the customer experience, but has also allowed us to convert the former guest kiosk which are often the best locations within the shopping center into rent paying retailers.

Another example of this is the Santa Monica Place, where the new ArcLight Theater will present significant advertising opportunities for major motion picture releases. Lastly, to comment on sales, year-to-date sales through the second quarter have reached $623 per square foot.

The increase is attributed to a couple of factors, including the improvement in many of the key tenant sales, including people like Sephora, American Eagle, Foot Locker, VICTORIA'S SECRET, secondly, to the impact of high volume retailers like Apple and Tesla, third, the closure of low-volume stores such as RadioShack, Wet Seal, and Cache.

And finally the disposition of lower productivity centers. In summary, we believe our portfolio offers retailers with key locations in major markets that serve dense trade areas. These opportunities will increase in importance to omnichannel retailers that have either existing store fleets or are attempting to build store bases.

And with that, I would turn it over to Art..

Thank you, Bob and thank you, Tom. We’re very pleased with our operating results and with all of our metrics that we have put up here for the first six months. And as you can see by our guidance adjustment, we’re very bullish about our future, mid-term as well as longer term outlook.

Same-center NOI is significantly above the guidance, even the high end of the guidance range that we provided at the beginning of year. And one might ask, what is the new normal as I look at it. Tom mentioned that he sees total same-center NOI of around 6% on the portfolio this year. And we’re not in a position yet to give guidance for 2016 and ‘17.

But we internally are expecting to see same-center NOI growth in that same range of 6% over the next couple of years or so. And that’s largely been put into place as a consequence of re-leasing activity, consequence of the margin improvement, some of which are yet to come, particularly on the revenue side.

But we are very, very bullish on our ability to improve our margins. It was asked, I know, by one analyst, well have your really changed your business practices on the expense side to increase your margins. And the answer is really no.

We are fortunate enough this year to have a couple of major portfolio contracts for maintenance security for example, come up for renewal and given the strength of our portfolio and the quality of the assets and the size of the assets, we’re able to negotiate significant reductions there as well as in other areas.

So we’re very pleased about all of our operating metrics and the performance of the company and the outlook for the future on the leasing side. On the development side, Bob and Tom both touched on a couple of projects that are very meaningful to us.

Very happy with where we are in Broadway Plaza, at Tysons Corner, you are invited to a tour that’s coming up here in the near future. Residential Tower is now taking move-ins. It is currently well at least above schedule. It’s currently 33% leased that we anticipated being fully leased by this time next year.

As we look at other major projects that are underway, Scottsdale Fashion Square, the Dick’s Sporting Goods anchor recently opened. They are doing very well. Harkins opens up later this year, same combination of additional anchors are going to be opening up later this year at Cerritos and early next year at Cerritos. Very pleased with the impact.

But the announcement in the construction and the reality of the ArcLight Cinema that’s had on the third level of Santa Monica Place, which has actually also helped us to lend a signature restaurant that will be coming through the third level of Santa Monica Place and we expect it will generate tremendous amount of traffic.

At Green Acres, the leasing on Green Acre Commons, the contiguous space that we are building on the land that we acquired there is coming along extremely well. Preleasing activity both at Fashion Outlets in Philadelphia at the Gallery at Market East, coming along well as is San Francisco.

Last earnings call, we’re on the heels of just announcing our joint venture with Sears on nine assets. We have been meeting with Sears and the Seritage people. We’re very pleased to have the opportunity to redevelop it, to reposition those line assets.

And we anticipate over the next 60 to 90 days that we’ll be in position to make more concrete announcements about what’s happening within the Sears’ portfolio with us and the rationalization but very happy with where we sit there.

And in particular, we could be seeing pretty significant reconfigurations and remerchandising and developments available to us at Cerritos and Washington Square in particular, both great centers and centers where we have the ability to recapture over 200,000 square feet from Sears and each of them Sears controls at 28-acre parcel of land there.

We’re looking at various ideas for various expansions. So very bullish on where we are, pleased with our results year-to-date. And at this point, we’d like to open it up for Q&A..

Thank you. [Operator Instructions] We’ll take our first question from Craig Schmidt with Bank of America..

Art Coppola:.

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And we’ll take our next question from Alexander Goldfarb with Sandler O'Neill..

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And we will take our next question from Michael Mueller with J.P. Morgan..

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Todd Tom is next with KeyBanc Capital Markets..

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Thank you..

And from Citibank, we have Christy McElroy. Please go ahead..

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We haven’t given any additional guidance on 2016 yet, Christy. It would be premature to do that at this point..

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No..

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And we will take our next question from Steve Sakwa with Evercore ISI..

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And from Deutsche Bank, we have Vincent Chao. Please go ahead, sir..

Vincent Chao:.

Well, I think from a category standpoint, some of the stronger categories have been home furnishings, jewelry, athletic apparel, and athletic footwear, those would be some of the strongest. Regionally, the West Coast and Arizona has led the sales increases.

As I mentioned, what we see principally in terms of sales growth is many of our core tenants that occupy space in almost everyone of our centers, I think I mentioned some like Sephora and Victoria's Secret and Foot Locker, they have had very good sales trends. Kay Jewelers is another one that had good sales trends.

And then you do have the impact of the unique high volume retailers like Apple and Tesla. I think the weakest part of the market has been the apparel, and that is important for the malls because they do occupy a significant portion of the mall space. And that’s probably been the softest part of the market..

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And next, we will take Paul Morgan with Canaccord Genuity. Please go ahead, sir..

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And we have Rich Moore with RBC Capital Markets next. Please go ahead..

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And from Jefferies we have Tayo Okusanya. Please go ahead..

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And we’ll take our next question from Haendel St. Juste, Morgan Stanley..

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And we’ll take our next question from Ki Bin Kim with SunTrust..

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Ladies and gentlemen, at this time, this does conclude our question-and-answer session. I would now like to turn the call back over to our speakers for any closing and additional remarks..

Thank you for joining us. Again, we’re pleased with our results. We’re not sitting back and going to rest on our laurels.

We are very bullish in our ability here to continue to put up outsize growth over the next several years, both from an operational view point, as well as from a value creation view points for our development, redevelopment pipeline that’s currently there and as it gets expanded.

So look forward to speaking with you, seeing you and thank you again for joining us today. Thank you..

Ladies and gentlemen, at this time, this does conclude today’s presentation and we appreciate everyone's participation..