Jean Wood - Vice President, Investor Relations Arthur Coppola - Chief Executive Officer and Chairman Thomas O’Hern - Senior Executive Vice President and Chief Financial Officer Robert Perlmutter - Senior Executive Vice President and Chief Operating Officer.

Jeffrey Donnelly - Wells Fargo & Co. Floris van Dijkum - Boenning & Scattergood, Inc. Craig Schmidt - Bank of America Merrill Lynch Jeremy Metz - BMO Capital Markets Nicholas Yulico - UBS Securities LLC Alexander Goldfarb - Sandler O'Neill + Partners, L.P. Vincent Chao - Deutsche Bank Todd Thomas - KeyBanc Capital Markets Inc.

Linda Tsai - Barclays Capital, Inc. Ki Bin Kim - SunTrust Robinson Humphrey, Inc. Steve Sakwa - Evercore ISI Michael Bilerman - Citigroup Omotayo Okusanya - Jefferies & Company, Inc., Richard Hill - Morgan Stanley Michael Mueller - JPMorgan Chase & Co..

Good day and welcome to the Macerich Company Fourth Quarter 2017 Earnings Conference Call. Today's conference is being recorded. At this time, I would 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 fourth quarter 2017 earnings call. During the course of this call, management may make certain statements that may be deemed forward-looking within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially due to a variety of risks, uncertainties and other factors. We refer you to today's press release and our SEC filings for a detailed discussion of forward-looking statements.

Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the earnings release and supplemental filed on Form 8-K with SEC, which are posted in the Investors section of the Company's website at www.macerich.com.

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

Thank you, Jean. The fourth quarter reflected continued solid operating results as evidenced by the strength of most of our key operating metrics.

FFO for the quarter was $1.03 that includes the adverse impact of about $0.10 a share due to revaluing our deferred tax assets as a result of the new lower corporate income tax rates that were passed by Congress at year end. Our guidance in the Street estimates did not factor in that tax rate impact.

Excluding the impact of the revaluation of the deferred tax asset, FFO for the quarter was $1.13 and $3.93 for the year. Same center NOI growth excluding straight-line rents and SFAS 141 income was up 2.4% for the quarter. Year-to-date, the same center growth rate was 2.7%.

The major reasons for the actual being lower than our guidance range in the fourth quarter was largely due to temporary tenant income being less than forecast, other income including advertising being less than forecast, and the results from the Tysons mixed use buildings being less than forecast.

Lease termination fees for the quarter were $7.6 million compared to $4 million in the fourth quarter last year. However, for the full-year lease terminations were relatively flat at $22 million compared to $21 million in 2016. Bad debt expense was relatively modest $900,000 for the quarter down from $1.3 million in the fourth quarter of last year.

During the fourth quarter, the average interest rate was up about 20 basis points to 3.71% at year-end. The balance sheet continues to be in good shape.

At quarter end, our balance sheet metrics were debt to market cap 44%, interest coverage ratio 3.3 times, very healthy and average debt maturity of 5.9 years which we expect to improve as we closed on the financing of Broadway Plaza which I will talk about shortly. In December, we closed on the refinancing of Santa Monica Place.

We put a new five-year floating rate loan of $300 million in place of the former $215 million loan, the initial interest rate is 3.13%. Along with our partner, we closed on a $250 million five-year floating rate loan on the Fashion District Philadelphia. That loan has an initial interest rate of 3.56%.

And we have also arranged a $450 million 12-year fixed rate loan on the recently expanded and renovated Broadway Plaza. The loan is expected to close in February and the rate has been locked at 4.18%. There was no activity in our share repurchase program during the fourth quarter.

In last night's earnings release, we gave guidance for 2018 in the range of $3.92 to $4.02. Some of the major assumptions include same center NOI of 2% to 2.5%, lease terminations are estimated at $22 million comparable to 2017 and 2016 actuals. There are no 2018acquisitions or dispositions reflecting in the guidance.

The average LIBOR rate is assumed to be up 80 basis points compared to 2017 on our floating rate debt of approximately $1.4 billion and we’ve assumed no share buybacks. We have sold 24 non-core assets, lower producing properties in the past few years and have significantly reduced our portfolio size.

Accordingly, we have reduced our property-based staff subsequent to the dispositions and in the first quarter of 2018, we are downsizing our corporate staff and making some significant overhead cuts. Those cuts will take place in the first quarter and will yield annual cost savings of approximately $17 million.

The 2018 income statement benefit from the cuts is approximately $10 million, which will occur in the second, third, and fourth quarter and there will be a severance expense in the first quarter of 2018 of $12 million.

That severance costs will impact the quarterly split of FFO, which we expect to be for the year 20% in the first quarter, 24% in the second quarter, 25% in the third quarter and the balance in the fourth quarter. And now I'd like to turn it over to Bob to discuss the retail environment..

Thanks, Tom. Fourth quarter performance generated improved leasing levels with the centers and solid leasing spreads. 2017 began with a high degree of uncertainty, regarding specialty store bankruptcies, retail sales trends and department store closures.

The year ended on more solid floating with an above average holiday season resolution of a number of specialty store bankruptcies and a more balanced owned from the retailer community. Let me start with the leasing statistics. Trailing 12-month leasing spreads were 15.2%. This is up slightly from the previous quarter.

Average rent for leases signed during the trailing 12-month period was $59.20 per square foot. This is 4.6% higher than the previous year. Average base rent within the portfolio is $56.97 per square foot. This represents a 3.8% increase over the prior year.

During the fourth quarter, a total of $1.3 million square feet of leases were signed, bringing the total activity during the year to $3.3 million square feet. During the fourth quarter, new leases totaling over 400,000 square feet were signed with tenants greater than 10,000 square feet.

This included Life Time Athletic at Biltmore, Bristol Farms and La Cumbre, the Zimmer Children's Museum By ShareWell at Santa Monica Place, Nordstrom Rack at SanTan, two Burlington stores at Kings Plaza and Lakewood as well as three new locations with H&M.

The average term for the lease is under 10,000 square feet signed in the fourth quarter was five years. This is compared to the Q3 average of 5.4 years. Leasing levels at the end of the year increased to 95%. This represented a 40 basis point decrease on a year-over-year basis and a 70 basis point increase from the third quarter.

Portfolio sales ended the fourth quarter at $660 per square foot, a 4.8% increase on a year-over-year basis. On the same center basis, trailing 12-month sales were up 3.5%. Bankruptcies in 2017, totaled 850,000 square feet, including 160,000 square feet in the fourth quarter. This was an increase from the previous year level of 500,000 square feet.

We've discussed before, these bankruptcies often present an opportunity to replace lower volume retailers with stronger more productive stores. However, these bankruptcies will impact 2018 income as the space is released. The holiday season for retailers was the strongest in a number of years. According to the U.S.

Census Bureau, sales during the November and December period totaled $690 billion, a 5.5% increase over the previous year. Of this amount 85% of the sales were conducted in physical stores. ICSC research indicated that shoppers spent an average of $842 on gifts and holiday related items. This is an 18% increase over the previous year.

Finally, 90% of the click-and-collect shoppers made an additional store purchase highlighting the relationship of the online and in-store businesses. There have been numerous articles written on the recent passage of tax reform and the positive impact for retailers.

According to the University of Pennsylvania, retailers stand to benefit by an estimated $171 billion over the next 10 years as their corporate tax rate is significantly reduced. The outcome from tax reform at year-end stands in stark contrast to the beginning of 2017 when the fear of a border tax weighed on retailers.

Last Friday, Nordstrom announced their planned relocation to Country Club Plaza in Kansas City opening in 2021. The addition of Nordstrom to this iconic asset advances the vision that Macerich and Taubman share to expand Country Club’s positive position as the premier center in the region.

In conclusion, the combination of a strong holiday season, tax reform law and retailer’s corporate tax burden, and tax relief for individuals has provided support for a solid beginning to 2018.

Retailer sentiment seems to be improving, while bankruptcies and early terminations will continue to provide headwinds in 2018 and temper growth it appears that much of this is working its way through the system. With that, I'll turn it over to Art..

Thanks Bob. Thanks Tom. I just want to review the annual results for 2017 a little bit, some of the basic metrics and look to the outlook also. For the calendar year 2017, by any measure we had a very solid year. Tenant sales are up from $630 a foot to $660. We had another great year of releasing spreads at just over 15%.

We raised our average base rent in our portfolio by 3.8% and same center NOI was up just over 2.5% for the year in spite of the fact that we got hit by unexpected store closures of an unprecedented amount over recent memory.

On our balance sheet, we continue to extend our maturity schedule even though by converting short-term floating rate debt to long-term fixed rate debt. Obviously that has an impact on our FFO for 2018, but extending our maturity schedule and taking interest rate volatility out of the mix for us is just the right thing to do in this environment.

During 2017, we continue to walk our talk on the dispositions. We sold two sub-performing retail assets for over $170 million. We sold $150 million of non-core office properties and another $18 million of other assets for a total of just over $338 million, and we reinvested that money well.

As Bobby pointed out, we made good progress during the year in terms of improving the anchor integrity of our centers whether it would be the announcement that Nordstrom is coming to Country Club Plaza or the recycling of the Sears store at Kings Plaza, which we are very excited to be able to showcase for you in April, May of this year as the new anchor tenants that are going to occupy that store take place.

We are very excited about adding Life Time Athletics through Biltmore and we expect to announce another Life Time Athletic deal with one of our premier centers in the very near future. On the point of item athletics, I would point out that this is not another gym and this is not another health club and it's not another fitness center.

This is a holistic wellness facility that draws tremendous amounts of traffic for us at exactly the right hours of the day and the right demographic.

Typical well performing Life Time Athletic in our portfolio, the average household income of the members are at levels that would be comparable to the average household incomes of major retailers like Nordstrom or Neiman Marcus.

We anticipate that at a strong facility, which each of these will be that they'll draw at least 200,000 visitors per year to our properties and at times of the day that don't conflict with the parking needs of other retailers. So we are very excited about that.

Our outlook for 2018, I would say at this point as you can tell from our guidance is cautiously optimistic. I am much more positive as I look into 2019 and 2020.

The reason I am cautiously optimistic for 2018 is that when you get hit with unexpected bankruptcies like we did in 2017, and you do business in high barrier-to-entry cities, many of which are hard to get entitlements in even for the tenants that are replacing existing tenants and you own assets where the rents are extremely high, so you are talking major commitments.

You don't go ahead and just turn on the switch and replace that vacancy overnight. It takes six to 24 months; especially when someone is thoughtful about curating a tenant mix with the replacement tenants that will complement the balance of the center. As Bobby said, the retailer mood is definitely better at this point in time.

You all read the reviews that ICR, the outcome from that conference in January and the fact that retailers – or the legacy retailers and I would point out that the retailers that attend that conference are generally public company retailers and that's not the entire retail universe, that's just the public company retail universe, but their mood is generally better.

The mood of the retailers moving away from the public companies is much brighter than you hear from the public company. As you look at the private companies and I am particularly talking about digitally native, vertically integrated brands. This is the fastest growing digital commerce channel that exists.

From 2016 to 2020 it's estimated that digitally native, vertically integrated brands market share of all of digital commerce will grow from 12% to about 22%. That's much faster growth than any other category or any other individual company. And the good news about these retailers is that they all want stores.

They're in the top of the first inning, most of them, in terms of putting their toe into the water, but at the end of the day they totally understand that it's a balance of digital and offline that makes for a great retailer.

As I look forward into the next two or three years, the big question is where is the demand going to come from to make these centers more vibrant? And the answer is that we see demand coming from the number of source. The legacy retailers are in a better mood. They are fueled by the Tax Cuts that are going to fund expansions for them.

Several of the legacy retailers are working on new digital and offline integrated concepts, which hopefully will be exciting.

As I’ve talked about a few minutes ago, the digitally native, vertically integrated brands are going to be a big source of growth not this year, but as you look at it, it's going to grow year by year by year and each year it's going to grow over the previous year.

In our portfolio, we see integrating complementary uses like the Children's Museum at Santa Monica Place to the center. The Children's Museum currently draws over 250,000 visitors per year and they anticipate that they'll draw significantly more than that in Santa Monica.

And I would note, the Los Angeles is evidently the most under-served Children's Museum market of any major city. There isn't another Children's Museum within a one-hour drive of Santa Monica. So we think it's going to be a great complementary draw to the center.

We think that co-working is going to find a place in our centers, and in fact, we just signed a deal today with a co-working operator to take 35,000 feet of our centers at Scottsdale Fashion Square with an entertainment retail, a lot of the VR concepts and AR concepts are going to find their way into our centers and make them even more exciting as well as experiential retail.

So I'm cautiously optimistic about 2018. I'm proud of 2017, and I'm significantly more optimistic as I look to 2019 and 2020. With that, I’d like to open it up for questions..

[Operator Instructions] We’ll take your first question from Jeff Donnelly with Wells Fargo..

Good afternoon, guys..

Hello, Jeff..

Hello. Actually just I guess question for Tom, and you talked about some of the overhead cuts that you guys are going to be making.

Are you able to talk about maybe looking forward after those cuts are implemented and adjusting for the asset sales? How we should think about the NOI margin of the company and sort of a – I’ll call it, post sales, post cuts basis versus where it was prior to those sales in those cuts? I'm just curious if this ends up enhancing margins of the company?.

Well it has, Jeff, you've seen the margins improved fairly significantly over the past few years at the property level. So as we've made dispositions at the property level, we've reduced our overhead and our headcount and we've actually improved our margin by about 400 basis points from 2014.

This will be primarily an improvement to the EBITDA margin and as a result of these reductions. We should see an improvement of EBITDA margins by about 120 basis points to 130 basis points. And that will show up gradually through 2018 and it will be there in its entirety in 2019..

Okay. Thanks..

Thanks Jeff..

We'll hear next from Floris van Dijkum from Boenning..

Good morning, Floris..

Hi, good morning, Art. I had a two part question, I guess number one, I guess one of the key things that investors are concerned about obviously is – one is the right value for the mall space and the mall companies and A malls in particular.

And I guess number one, is there – can you give any more updates on what is happening with Broadway Plaza and stake of your partner there and I guess related to that is, would you share with investors what your range of your NAV is or what are the things that prevent you as I believe you shared these with your board every quarter.

What's preventing you from sharing that with the investors?.

Sure, I'm happy to answer the first part and I'm not going to answer the second part. The first part is that our partner has hired an investment banker to market their position. It's a great property and they've just set the teasers out to a number of institutional investors.

And we anticipate strong interest and as – my guess is it will probably because of the size of the asset. Its probably be six months or so before they would likely circle something here, but you'll have a print if you will on that one.

As far as the value of an A mall portfolio, I have an opinion, but I'm not going to share it now because that would be inappropriate, but there's 20 of proxy out there for folks to look at. I mean people are looking for a print and then you have that major transaction between Unify and Westfield and it's didn't happen and you all can do your own map.

So I hope that answers your question and that's the best I can do in terms of answering it for you..

Okay, thanks..

We’ll move next to Craig Schmidt from Bank of America..

Hi, Craig..

Thanks. I guess I wanted to touch a little bit more on finding new opportunities for the digitally native, vertically integrated bands.

What are they looking for in terms of the lease? Are they looking into more of the trial basis? What are you doing to open yourself to those tenants and how might that impact some of the results as you work towards those new retailers..

I think that’s Adam questions Craig..

I'm sorry maybe just an overview of….

I’ve getting with you sorry. Look, the answer is, there was no one answer and if there was any one answer then that would get in the way of my doing business with them. These brands kind of makes them a common characteristics are that they’re digitally native. Okay, they were born in these online worlds, not the offline world.

They're vertically integrated that meaning to say, totally understand their entire supply chain and they're selling their own goods. They're not reselling other people's stuff. That's a huge point selling their own brand.

They've created a brand that's important and that brand has a place within the sector that they are and whether it be apparel shoes or home or beauty. And that brand resonates with their customers that they've acquired through their digital channels. But the other thing that is all – and they all want to have stores.

Having stores is not an appendage, it is the core to their strategy. At the end of the day, the offline stores are a much lower cost of acquisition of new customers for the digital related brands and have a much higher long-term value per customer and a much higher conversion rate. So these brands are born digitally and now they want to go offline.

But as they go offline and they open stores, this is where their expertise doesn't exist and this is where we have to help them as landlords. And so we are helping them in a number of different ways.

We're helping them with a much more flexible lease or helping them in terms of sometimes actually walking them through the process of finding contractors getting the stores build, getting things entitled. We are definitely doing creative leases with them.

There's a place for that in our portfolio, but at the end of the day while the creative part of the lease might exist in the short-term for a year or so ultimately once it proves out for each of us, it becomes a much more conventional lease. So there's no real rule and if the word rule it would get in the way of how we do business.

The only rule is, this is new to them, it's new to us and we're helping them to bridge the gap..

We’ll move to the next caller in the queue Jeremy Metz from BMO Capital Markets. Please go ahead..

Hey guys. You talked about some of the retailer moods improving post reform.

Question for Bob, can you just talk about what this is mean for your outlook for closing and bankruptcies relative to maybe where you were last call? And then do you get a sense that part of this better mood is [indiscernible] to an increased focus on reinvesting in their physical stores here?.

So a couple of comments. As I mentioned before our bankruptcies in 2017 was 850,000 that compares with 500,000 in the previous year. So we definitely saw an uptick. The fourth quarter was actually a little heavier than we had anticipated at 160,000.

I think on the positive signs, you saw at the beginning of 2017 many of the bankruptcies resulting in liquidation, and as we work through the year, the majority of them want the restructuring as opposed to liquidating. So that's a sign of some strength. We think looking at 2018, the bankruptcies are still going to be there.

We don't believe they're going to be as high as they were in 2017. We really just see – when we look at the list, we are working through some of the major ones and it doesn't mean they're not out there.

In terms of where that tax savings goes whether it goes into stores or whether it goes into online or it goes to their employees or goes to their shareholders, I guess every company is going to make their own decision. We do believe that the brick-and-mortar store needs more attention from these retailers.

It's a very profitable means and as evidenced with many of the digital brands, it is part of their growth trajectory to have these physical stores. So we don't see it is an either or we see them being complementary. We see the retailers starting to understand the relationships better and use them more effectively for multiple venues. .

Thanks guys..

We will hear next from Nick Yulico from UBS..

Thanks. I guess just going back to – Art, you talked about being cautiously optimistic for this year. And how should we square that with the lease term fees and guidance being similar this year versus last year.

And I know you don't get into specific occupancy guidance, but kind of feel like you're implying that bankruptcies are not as high this year and you finally gets through some of the releasing of space that should we assume that you could have a little bit better occupancy benefit this year?.

I believe that we could have some occupancy benefit this year, but I feel much more positive about on a relative basis occupancy gains in 2019. Look we're working very hard, it's job one. Everybody in this Company is in the leasing business today and that starts with me.

As far as lease term fees, those are frankly – they don't come under my radar screen. One way or another, they are what they are, there's a long-term history there, and while they're non-recurring they seem to recur in a non-recurring in consistent manner. So that's my view..

Thanks..

Thank you..

We’ll move next to Alexander Goldfarb from Sandler O'Neill..

Hi, good morning..

Good morning..

Good morning, Art. Just a question for you. You're going to have a chance to bring a board member on. At the coming election, one of your board members have decided to step down or not run for reelection. As you guys look at the business, I mean you talked a lot about digital retailers and how the industry is changing.

As you see the Company going forward is there anything in particular that you're looking for in a quality perspective of a new board member as you look at running the Company forward?.

Yes. We definitely have a profile of what the board is looking for and what the nominating governance committee is going to be looking for. We have a number of candidates that are regularly in our queue. And the board will – and the nominating governance committee will be evaluating this over the near-term. And we have a great board.

Our two most recent additions John Alschuler and Steve Hash have been terrific on the board. And we have every reason to believe that it's a very attractive board for people to join that we're going to be able to attract high quality candidates..

Thank you..

Thank you..

Vincent Chao from Deutsche Bank has your next question..

Hey, everyone. Tom, just want to go back to your comments about some the ins and outs of the same-store NOI in the fourth quarter. You mentioned a number of things and then Bobby just mentioned the bankruptcies in the fourth quarter being a little bit higher than expected.

Can you just maybe quantify what that 160,000 really good to the numbers? And maybe on the lease terminations fee which I thought maybe had something to do with it, I mean that was higher than expected I think for the full-year.

Can you just maybe give some color around what drove that heightened amount of terminations and maybe how that impacted either occupancy or same-store NOI in the quarter?.

Well I’ll let Bob comment the second, but in terms of his negotiating for the lease term fees, but we did have a bit more than we expected, of course, that causes vacancy which adversely affected the quarter. So in one case it helped, in one case it hurt and close to offsetting is my estimate on those.

The other things I mentioned were things that we typically see as relatively strong in the fourth quarter and did not meet our forecast which was based roughly on last year's actual and that included advertising revenue was off, temporary tenant income was also off this year compared to forecast and last year.

And also we had less rent from the Tysons mixed use assets primarily the office building and the apartments which had mostly timing differences on lease up that was slower than expected..

In terms of the terminations there were probably two larger terminations. One has received a lot of publicity, but basically these were brands that were owned by parents with significant resources which resulted in two larger settlements in the fourth quarter.

In terms of the fourth quarter bankruptcies, it probably didn't impact the numbers in a huge way, it's probably more of a 2018 issue than it is in fourth quarter 2017 because of the timing of when they happened..

Okay. Thank you..

We’ll hear next from Todd Thomas from KeyBanc Capital Markets..

Good morning, Todd..

Hi, thanks. Good morning. Art, I wanted to ask about a series of events that happened recently that I was hoping you could shed some light on.

Bloomberg reported on January 22 that your largest shareholder Ontario Teachers was contemplating a privatization and two days later research note was published, indicating that you commented no activity there and then Macerich filed an 8-K the following day saying the same, and less than a week later the sole board member representing Ontario Teachers indicate that he will not stand for re-election the upcoming annual shareholder meeting.

Can you just provide some context on the sequence of events, and following up on the board seat opening, is there an intention by Ontario Teachers to maintain board representation?.

Well, first of all as to your last question, they don't have any inherent right to a board seat, so that's not relevant. Look as far as the rumors that hit the papers in the press, we made our comments about our view on the rumors. Those comments speak for themselves.

As far as John Sullivan’s decision to not run for reelection, John was a very valuable board member for us and his decision to not run for re-election was not as a result of any disagreement between John and the company.

The news is what the news is and we stand by what we put out in the way of public you know positions in the 8-K that we filed and that's really all I had to say about that. Thank you, next..

We’ll move next to Linda Tsai from Barclays..

Hi, how you thinking about the quarterly cadence of SSNOI in 2018? Should we assume that occupancies can be weighed down some of the closures in the first half? So SSNOI should be strong in the second half or maybe just in more color how you are thinking about the trend?.

I'm going to jump in and preempt your answer, Tom. I know you're going to try and answer that question. I'm going to encourage you not to answer that question because there are too many things that happen every day and every week and we don't control them.

We give our best for you for the year and then we try and give you guidance by quarter, Tom, you're free to go ahead and answer the question. But I'll tell you the way, I think about it – I think about it on an annual basis because to think about it on a quarterly basis, there are just too many things that can be read into it.

The wrong way one way or the other, one quarter versus the other that's my view and that's from with looking at things 360 and I think it's the right way to look at it I really do I understand the need for everybody to want to look at things quarterly, but at every numbers that's out there.

The one that I would highly encourage you to move away from focusing on a quarterly basis, as an entire sell side and investor world, get away from at our quarterly same center NOI, but that's up to you and you can answer the question Tom..

I don't think it would be terribly prudent of me to answer. Given that preamble, I will give you the quarterly split on FFO though Linda.

It's because of the severance in the first quarter is going to be low 20% on FFO and then the middle of the year is 24% in the second quarter, 25% in the third and then in the fourth quarter because we do have some seasonality to our business at our revenues that's the balance for the year. Thank you..

Thanks..

We’ll move next to Ki Bin Kim from SunTrust..

Thanks.

Could you comment on the pace of early lease renegotiations, I have it gotten better or how does that compare to 2017?.

Ki Bin, I’ll try to take this. As I mentioned our sense is that the legacy retailers, the retailers with the larger fleets are feeling a little bit more comfortable with their business and that's reflecting in the renewals. It's not always reflecting in economics that we would like, but it is bringing more consistency.

So it does seem like there's more predictability to how we're dealing with the tenants. The mandates to close stores seem to be moving a little bit towards working together to try to keep stores open and talk about new plans. So I wouldn't say it's robust by any means, but it does seem to be improving on the renewals..

Okay, and is that the renewals of activity or occupancy blips that caused the decrease and SFAS 141 rental income?.

The decrease in 141 was primarily due to a Macy's building that we purchased and therefore it eliminated and so you reverse out the 141 asset on the books that was the main reason I went down and a non-recurring item..

Okay. Thank you..

We'll hear next from Steve Sakwa from Evercore ISI..

Thanks. Good morning. I guess just a couple questions are around kind of some of the new uses, and you talked about the museum at Santa Monica Place, you talked about this co-working deal for Scottsdale.

I'm just wondering if you could sort of talk about the returns on those deals and how those compare to some of the other returns, which are looking at.

And then is there any comments you could provide on the sale of Westside Pavillion and the kind of process that's going on there?.

Sure. The museum, it's a legitimate question. I'm actually glad that you asked it because some people might say well what happened, did you given the space. This was space that was on the third level, the Santa Monica Place is about 25,000 feet.

And we actually were going to put a co-working operation into it and we expected that we would be able to generate net rents from that cold co-working space of something within $10 of our average ADR that we have in our portfolio, which is actually pretty good for the third level of that particular property. And the museum approached us.

We talked to them.

And we decided – and they actually offered a comparable rent to us, and we just decided, look the co-working would have been interesting, it would have been profitable and would have brought nice traffic and some dizziness up there on the third level, but it wouldn't have brought 300,000 visitors moms with kids and an interactive experiential experience.

This is – the word museum actually does a disservice. This is a totally interactive experiential operation. They've got classes. They've got public programs in the arts, music movement, cross cultural exchange, early childhood education. It's completely interactive. So I'm really bullish on that.

The co-working opportunities that we're doing, it's not the 50-yard line on the first level of a mall. And these work in urban locations where you have the profile of the type of worker that likes to use a co-working space and I'm very bullish on those.

We're again seeing average ADRs in our early analysis of this that are within the zip code of the average ADRs in our portfolio and above the type of rent that we would get from a pure retail idea.

So I think that there are – look each of these have to stand the rigor of a financial return, but if you can get a good financial return and have a complementary use that drives traffic and brings a new customer to a property then in this world it’s a great thing to do. And there is going to be just more and more and more of this in our portfolio.

Our portfolio is essentially being town squares. It's whatever wants to be in the center of a town or a city is what's going to be there.

The Director of the Children's Museum, I met with her the other day and she said I don’t have half a dozen Children’s Museums around the country to contact me and say how did you get into that shopping center because we think it's brilliant to put Children’s Museums and shopping centers for all these reasons.

So on the experiential and the entertainment side of retail, there's just no shortage of companies that are developing experience a lot of ideas, and they're very exciting, and think Dave & Busters today and Chuck E. Cheese of yesterday, put them on steroids and doesn't quite approach Disneyland, but it's pretty darn interesting and they are coming.

And look don't have to stand the test, the financial discipline test on any other space, but the good news about them is, look it's a complimentary use, it's a different use, and they're all traffic generators. And they were bringing the good traffic and the right traffic just as I was talking about with Life Time Athletics.

That brings a perfect customer to us. So it's the type of thing in this new era of the town square that you're going to see more and more of them coming to these properties. And I think they’re going to be great. So you gave one question and I gave you four answers. Thank you. Next..

We’ll move next to Christy McElroy from Citi..

Hey. It’s Michael Bilerman here for Christy. Art, your relationship with Ontario Teachers and Cadillac goes back over two decades now. So it's been a very close relationship between the two firms.

And I remember a few years ago when you did the deal in November 14 and swapping the assets for stock it was the opportunity for them to move from an asset level to an enterprise level. And you invited John onto the board at that time at 11% stake which is now built up to almost 17% as your largest shareholder.

Can you at least share with us the rationale and the reason and I recognize you said there's no disagreement, but can you at least share with us some of the rationale behind him stepping off what he provided you because arguably you do have a very close relationship between the two organizations that goes back a very long time and it's really rare to see in our shareholder relinquish the opportunity to sit on a board and effectively manage what is a multi-billion dollar position?.

Well let me first of all say, yes, I have enjoyed a very good relationship with Cadillac Fairview and Ontario Teachers now for 21 years. It's a very important relationship. John is the CEO of Cadillac Fairview. And Cadillac Fairview and Macerich continue to share best – the largest operator and the highest quality operator in Canada.

We continue to share best practices back in forth literally every week and that's ongoing. So the relationship between the two companies, Cadillac which is by Ontario and Macerich is extremely good. As to the reason that he decided not to stand for re-election, I cannot speak for him and he did not give me a specific reason..

And the intention is to replace him with any independent or…?.

Yes, definitely. Yes, absolutely. We have a number of really good candidates that we're focused on.

And look, we'll miss John as a Director, but not being a Director doesn't preclude him from having a very close pulse on how the operations at Macerich’s are doing, and again, we share best practices back in forth everyday with their marketing teams, their leasing teams, we sent tenants north, they sent tenants south and that hasn't stopped and that will continue..

And his voting agreement with the shares does that – I can't remember what the agreement was since he have to vote in line with the board's recommendation for everything above the 10.9% stake?.

That's a matter of public record. Tom if you – I don't recall all of that off the top of my head..

I think it's just in excess of 15%..

Okay. Thank you..

It's a matter of public record. So I get checked the public record and we will get back to you on that. It's a matter of public record. Let's answer the question that way..

Okay. Thank you..

Thanks Mike..

We'll hear next from Tayo Okusanya from Jefferies..

Hi, yes, good afternoon. My question is mainly focused around capital structure.

Just trying to understand why there were no buybacks in 4Q and why no new plan in 2018 given the big discount to NAV, and as worldwide this isn’t released by your paper to fund recently when any of your leases generally a much longer that that?.

I answered that question on our last call that we really saw share buybacks is dropping down our priority list given the other opportunities that we've had in our portfolio, and if anything I would say that it's probably dropped even a little bit more.

It has absolutely nothing to do with the perception of value because it's a great – in our view, it's a great buy.

But look I think in the uncertain times that we live in retaining capital from dispositions or other activities and reserving them for redeployment into the densification of our properties in the redevelopment of our properties is a more value creating activity for us than anything else that we can do.

So I don't see share buybacks in the 2018 timeframe and I signal that strongly in the last call..

Gotcha, and then the use a five year paper to funded longer duration leases?.

Well, that was kind of a unique situation. Most of our financing has been long-term effects like Broadway Plaza for example, 12 years, but in the case of Santa Monica Place, there's a lot of moving pieces there still and we didn't want to finance that long today and find ourselves in a couple years being very under leverage on that particular asset.

Just as example are talked about the Children's Museum is going in on the third level there's a few other changes and so that was a relatively rare situation where we decided to go with short-term financing on than long-term.

In the case of Philadelphia that's a construction project and that essentially is a pre-funded construction loan, which typically we do go short-term on those..

On the other hand Broadway has a much longer term..

Broadway is a 12-year loan..

Santa Monica that was – look the landlords would have loved to have gone long, and normally I would have done that, but you really need to measure where you are in the cycle and we saw so much near-term upside in the NOI at Santa Monica over the next three years that we just felt it was silly to tie it up for 10 years will be more..

Okay, great..

And we’re trying to ladder our maturity schedules also that's part of the two..

Gotcha.

And then just my second question same-store NOI just going back to that, again trying to understand the slowdown in 2018 versus 2017 if you guys did feeling really comfortable about where occupancy could end up in 2018, kind of just one of the many other factors that are resulting in slight slowdown in 2018 versus 2017?.

Like you said, I’m cautiously optimistic about 2018 for all the reasons that we've talked about today. Look if this was late I would say we're in choppy waters from an incident that happened in 2017, which was a tremendous amount of store closures.

It takes six to 24 months to intelligently re-curate and re-merchandise these spaces and great centers like we know. And I'm cautiously optimistic so we'll see..

Okay, all right. Thank you..

Thank you..

Your next question will come from Rich Hill from Morgan Stanley..

Hey, good morning. Thanks for taking my call and question. Just want to get quickly back into the numbers for a second.

It looks like over the rents declined around 10% year-over-year in 4Q, I was hoping maybe you could just spend a little bit of time helping us reconcile that with some of the commentary that we've heard that that sales were – there I say robust in 4Q 2017?.

Yes, Rich. I’ll take part of that. I’ll let Bob answer part of that as well. The percentage rents we get from – in a very few tenants percentage wise. We must prefer to have big base rent and percentage rent is just not terribly relevant or significant percentage of our total rents.

If you look at total rents for the year at $993 million percentage rents for the year is only $17 million.

So it's relatively in significant, very few tenants are actually in percentage rent and what we hope is as leases expire and we're able to renew those leases at higher rents, the tenant will move out of being in a percentage rent paying position and into a position of paying significant base rent..

Yes, Rich, the only thing I would add to that is as Tom said a lot of times, these are the more productive specialty stores within the shopping center and either they wind up wanting to expand and upgrade their presentation early in which case we try to roll the percentage right into their new base rent or at renewal we try the same thing.

So part of it going down probably reflects either the renewal at expiration or early expansions of some productive tenants that are generating the percentage rent..

Got it. Thanks for the color. I'll stop there..

Okay. I think we'll get time for one more..

Your last question will come from Michael Mueller from JPMorgan..

Hi..

Hey, Mike..

Tom, your comments about temp tenant and ad leasing being down or ad revenues being down on the fourth quarter, can you put some color on that? Was it a function of just having a pretty high bogie that you just didn't get or was it more of a case where the normal course of business just didn't materialize this year?.

Well in the case of advertising revenue for example that was based on prior year, and I'm sure Bob and Art have an opinion on this, but we base that on history and maybe there is a little shift, maybe people are moving more to handheld devices rather than the billboards and signage..

Yes. I think the media business is a business that sort of happens fairly quickly. And a couple of things fell out at the end of the year that we had hoped to get in and unfortunately some of those deals can make a reasonable impact. So it's not a long lead item.

It's something that's presented fairly quickly and decisions are made very quickly, but it's also not as predictable as a 10-year lease in terms of receiving revenue..

Got it.

And what about the temp tenants?.

Temp tenants, again, I don't know that I can offer any color. Clearly that is something in our budget that we pushed to try to maximize knowing that we were going to have vacancies during the year and it did not hit the budget side. And I know that I can add any color to that..

Got it. Okay. Thank you. End of Q&A.

All right. Thank you, all. We appreciate you joining us today and we look forward to communicating with you in the weeks and months to come. Thank you very much..

That does conclude today's teleconference. We thank you all for your participation..