Welcome to the Macerich Company First Quarter 2016 earnings call. [Operator Instructions]. 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 first quarter 2016 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 the supplemental filed on Form 8-K with the 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 and John Perry, Senior Vice President Investor Relations. With that I would like to turn the call over to Tom.

Thank you, Jean. Consistent with the past practice, we will be limiting the call to an hour. If we run out of time and you still have questions, please do not hesitate to give us a call. First quarter reflected continued strong operating results as evidenced by the strength of most of our portfolios, key operating metrics. We continue to execute on our previously announced $1.2 billion share repurchase program and also recently completed the sale of the non-core mall. We'll talk about those in greater detail later on the call. For the quarter, FFO was $0.87 compared to $0.79 for the quarter in March 31, 2015 negatively impacting the quarterly FFO results was $3.5 million of loss on early extinguishment of debt on the prepayment of the year ahead Town Center loan in January. Other things impacting the quarter, were same center NOI which increased by 7.5% compared to the first quarter of 2015. We made significant expense cuts and initiated cost savings programs that started in the second quarter, 2015. So about a third of the same center NOI growth, this quarter comes from the impact of those expense cuts compared to the first quarter of last year. The balance of the growth was driven by double-digit releasing spreads annual rents increases and aggressive operating cost management. Same center NOI growth for the balance of the year will obviously be less than the first quarter, as we get comp quarters that already had the impact of the expense cuts. Our estimate for the full year remains in the 4.5% to 5% range. Gross operating margin at the centers for the quarter improved to 68.6% from 66.6% in the first quarter last year, bad debt expense was relatively modest at $1.2 million down from $1.6 million in the first…

Thanks, Tom. Leasing activity during the first quarter remained strong. This reflects the high quality of the nature of the company shopping centers. I'll start with occupancy. Occupancy at the end of the first quarter was 95.1%. This represents a 30 basis point year-over-year decline with the sale of Capitola Mall; it's been excluded from the calculation, while fashion outlets in Niagara Falls and South Park were included in the calculations having moved from the development portfolio into the stabilized portfolio. These three changes negatively impacted occupancy by 40 basis points. Absent these portfolio changes, the occupancy level on a year-over-year basis increased by 10 basis points. Temporary occupancy at the end of the first quarter was 5.5%. Leasing spreads; our leasing spreads increased to 15.4% from 14.2% during the previous quarter. These spreads indicate continued strong demand for space in the portfolio. As we've seen in previous quarters, our leasing spreads strongest in the East and West Coast centers. Average rent for leases signed during the trailing 12-month period was $57.44 per square foot. During the first quarter, a total of 733,000 square feet of leases were signed. The square footage of leases signed under 10,000 square feet was 6% higher than the first quarter of 2015. Average term on leases signed in the first quarter was 5.8 years. Portfolio sales were $625 per square foot. This represents a 3% increase on a year-over-year basis. The impact of the previously mentioned portfolio changes reduced sales by $13 per square foot. Comparable center sales increased 4.6% on a year-over-year basis and again, sales increases were strongest in the West Coast centers. Categories that did well during the first quarter included beauty and cosmetics, athletic footwear and athletic apparel, jewellery and restaurants. Bankruptcies; as discussed on previous calls, we approached 2016…

Thanks Bob. Thanks, Tom. And welcome to the call, as you can tell from reading our earnings release, we had a terrific start to the year on all fronts financial fronts, the operating results, re-leasing and leasing activity as well as the for the progression of our development pipeline. All our employees to deliver great growth for the year as well as incremental value for all of our shareholders. I want to talk a little bit about capital allocation strategies. It's something that has been top of mind and many analysts mind lately. Especially given the substantial disparity between the NAV's, of most REITs and the private market evaluations and the discounts that REITs are trading at. Textbook theory would have you in situations like this, sell at higher multiples into the private markets and use that capital to buyback your stock in the public markets at lower multiples and that is exactly, what Macerich has done. As you remember, we did our joint ventures that were announced about eight or nine months ago and then just recently closed in this quarter. We sold about 45% passive interest in several assets, eight assets that represented about 20% of the gross asset value of the company. So we sold an interest in around 9% to 10% of our view of the gross asset value of the company at private market multiples which are significant higher than public market multiples. We took that capital that we announced the buyback program that would have us buying back approximately 10% of our stock in the public markets at significantly lower multiples, all with an idea towards capturing that differential. So we think that, in a very meaningful way that we have pursued a capital allocation strategy that makes all the sense in the world…

[Operator Instructions] and we'll go first to Jeff Donnelly of Wells Fargo.

May be just a first question, if I could on 2016 guidance for Tom. I just wanted to clarify; you said you felt that net of the Capitola sale that you had raised your outlook by $0.03. I'm just curious is that because of the positive performance you had in Q1 or is that because your outlook for future quarters is improving?

Jeff, it was a result of a strong quarter in the first quarter, part of that maybe timing differences such as recognition of lease termination revenue. We tend to back and wait those through the year, we had about $3.4 million that came in the first quarter, so for us to hold our range where it was originally, one with the $0.03 of dilution was because of the positive result in the first quarter.

It's helpful and maybe just a follow-up question for you Art, I'm not sure if you'll be able to talk about it, but I saw on the Proxy that you know one of the areas that you received kudos for in 2015 was a comprehensive succession plan was undertaken. Are there, are there any highlights from that you're able to share with folks on the call or is it?

Really it's something that it's pervasive throughout the organization. So, there were about a dozen people within the organization that received new opportunities in an upwardly mobile manner. We have one of those individuals here on the call, with us Perlmutter who is promoted to be our Chief Operating Officer, but across the board Eric Salo was promoted to be our EVP of Strategic Initiatives in addition to Mall Operations. We have a new Head of Leasing, there were about a dozen people overall in all departments that received new responsibilities, this is just reflective of the deep bench that we have as well as a committeemen to provide that kind of mobility to our very talented team.

Thanks, guys.

And next we'll go to Vincent Chao of Deutsche Bank.

Just wanted to go back to the comments that you had, all the discussions you're having with tenants that are currently online retailers that are looking to get into your stores and thinking about the stores as part of brand awareness type of campaign. Do you anticipate or was there any discussion about how the leasing economics might change at the mall as a result of sort of this integration of online and offline businesses?

Yes, it's all being. First of all, there is going to be no rule of thumb because if there is then we're going to continue to have being difficult to approach. So, we're going to have to be just as creative as the people that we're trying to do business with. So in the beginning, there will be shorter lease terms, there will be pop-up stores that will be initiated, there'll be some rents that we think are really being paid for out of the marketing budget of the retailers, where they're looking to try and extend their brand awareness. It will be a much more creative and approachable restructure, with a hope and a view that as these retailers pan out, they will essentially have become incubated and then they'll be migrated into the more traditional long-term relationships that we have with the vast majority of our tenants. But we see, we see great opportunity here, and the thing that I would say is that, my personal view on this is significantly more positive today than it was three months ago, and that's really a function of me personally, along with Eric who I mentioned was appointed to be Head of our Strategic Initiatives spending significant amount of time with early stage founders of eTail concepts. People that are somewhere probably between an angel series and a series A financing, they're just beginning to think about opening a store, they've had some success online, they have a brand that people seem to like a lot and when you meet with these folks, you go into it in the beginning and I said, I wonder if this is going to be a difficult conversation to convince them that they should be in this old school shopping mall. It's just the…

Okay, thanks for that and are there certain malls that you think this will take place sooner rather than later, if we want to sort of get a first-hand look at how these things are evolving.

Yes, we're going to its funny. These eTailers, you wonder if you have to convince them that they should be in the mall, they're pretty smart. When you talk to them and say, okay and now where would you like to be? They say oh, Santa Monica Place, Tysons Corner, Broadway Plaza, Corte Madera, Queens Center. It's like, I don't know if they're reading a supplement or what, but they're pretty smart in terms of what they're picking. Now they're also picking and we're also focusing on digitally savvy communities. So Northern Virginia, New York City area and Southern California in particular Santa Monica is a great testing ground because it gives the brands the opportunity to show off their ideas for example here in Santo Monica to the community here, which 55% of our business community in Santa Monica is now digital. They call it Santa Monica Silicon Beach. So you know the Bay Area, Southern California, Tysons Corner, places at North Bridge Chicago, Michigan Avenue, the Borough's in New York. These are the initial places that they want to experiment and we're fine with that.

Okay, thank you.

And we'll go next to Michael Mueller of JPMorgan.

Couple questions. first, why was 500 North Michigan pulled from a shadow pipeline and then second, can you give any update on the Candlestick development?

No, big deal [ph] 500 is just that's, you know we had place to placeholder in there early on, as to what we thought we were to going to spend there. It's become increasingly apparent that it's going to be a completely tenant driven and development driven conversation, that number maybe high, maybe low, what we originally thought, as we developed an idea for what we are really going to do there, which is been partially influenced by our recent acquisition of the square block of Wabash which is really upgraded our thoughts. We'll bring it back into the shadow pipeline and the real pipeline. My guess is, the next time it comes back it will be in the real pipeline not the shadow. As far as Candlestick goes, everything is proceeding well there. Our anticipation is that will open in late 2019 and could be earlier than that, but I'm not I doubt it, it's a very big development surrounding us and so there's tremendous amounts of infrastructure that are being put into place to enable to shopping center to exist, things that we don't control. So the opening day couldn't move around a little bit, one way or the other. But the demand has been very good from a retailer perspective and we take it has an opportunity to be a really great center.

When do you think, you'll start construction on that one?

There's a huge amount of infrastructure that has to be done. So the actual start of our work it's actually quite late in the cycle. So it's almost two years from now.

Okay, thank you.

And now we'll move to Alexander Goldfarb from Sandler O'Neill.

So just a few questions, first. Tom, on the stock buybacks you guys have a $1 billion till you've done $800 million, so the $400 million that's remaining didn't hear any mention of it in guidance. So one; is there any of it in guidance and two; what do you guys think as far as completing the rest of $1.2 billion or the $800 million is where you're now and there will always be some excess out there for future use, but nothing planned at the moment.

Yes, the entire $1.2 billion was factored into the guidance. We felt the first two ASRs were fairly successful, so there's certainly a possibility we would do a third but for now that is in guidance.

Tom, it is in guidance, right?

Yes, it is in guidance.

Okay and then on the urban front. You guys mentioned that your malls are more urban so obviously more shoppers and at the same time, when you guys are walking through the NOI differences. Last year, you mentioned that higher cost of operating [indiscernible] urban led to differences in NOI margin, but just curious over the past six to 12 months there's certainly been a lot more initiatives on minimum wage in a lot of the urban areas, how is this manifested itself either in mall operations or in what the tenants are able to pay as far as rent or what have you? So basically, how is it impacted the mall business, if at all?

It has not.

Okay. thank you.

I mean, there is you know, as that happens there would be one argument that would be that, as minimum wages go up, people have more money to spend, it's a sales going up. Does that counter act, the cost of labor, you know going up also, I don't know. The truth of matter is by the way, vast majority of our employees are already well above minimum wage anyway, so that does have impacts on restaurants and some retailers but the other plus side of that is, Chicago has the highest real estate taxes in the country, that doesn't drive retailers away from doing business in Chicago, they just accept the fact that if we're going to do business in Chicago, they're going to pay high real estate taxes. Santa Monica, let's say it has a living wage that's inactive here, that's not going to drive people away from doing business in Santa Monica. It just, they realize that's part of the equation.

Okay, thank you, Art.

I think it would be more of an issue in secondary less densely populated trade areas. Thank you.

And next we'll go to Todd Thomas of KeyBanc Capital Market.

Just a follow-up on the stock buyback, so it's in guidance but it sounds like it's not something that's definitive at this time, which I think is a change in the messaging around that. I guess, based on your comments Art, in your prepared remarks around public and private evaluations. It would seem like a certainty. I'm just trying to understand whether you know anything has changed there with regarding to your plans to complete the full $1.2 billion.

It's a certainty.

Okay.

You can book it. As Hawaii Five-0 said, you can book em' Danno.

All right and then, I guess a follow-up for Tom on that, then with regard to the balance sheet. So after the sale of Capitola, the line balances are little under $700 million, add another $400 million on the stock buybacks and you still have to fund the development and redevelopment another $600 million or $700 million of pro rata spend there, so what's the plan to permanently finance a line and are you comfortable taking off leverage at this point in the cycle?

Well, you've also got to keep in mind, Todd we've got Broadway Plaza coming onto, it's unencumbered today and we have very little NOI coming in from there. So that's going to come up, at the end of the day we're not to going to be taking leverage up much at all. Remember, we prefunded the buyback with the $2.3 billion we generated by selling the joint venture interest. So, unlike a lot of companies lever up to do the buyback we already raised the capital ahead of time. In terms of the line, I mentioned a couple of financings. We're pulling a substantial amount of excess proceeds out of the North Bridge financing for example, we did the same in Corte Madera and in addition given the great financing market, we will probably put a long-term mortgage on Freshno Fashion Fair, which is currently unencumbered and that's about $340 million of proceeds that within the use to pay down the line of credit. So we expect even after third ASR or however, we chose to do it to get the buyback up to the $1.2 billion that we would have a line that would vary between $500 million and a $1 billion, which is comfortable for us given that, we can take that line all the way up to $2 billion.

Okay and then, just one more, just follow-up on the eCom retailers that are opening stores and leasing space, you know how big of an opportunity is that as you see it today. is there any way that you can maybe frame it up for us a bit share with us, how you're thinking about as a potential opportunity over the next few years?

I'm not ready to quantify for you, but it's the single biggest opportunity that I see. I'm absolutely certain that this is going to happen. I'm absolutely certain that it's going to be very incremental and I think it's going to be material, look we have to play the handout. There will be higher failure rates with experimenting with some of the eTailers which is one of the reasons, that we need to figure out a vehicle to allow them to experiment without a lot of friction or expense. So we're working on a store model that makes the opening up a store for an eTailer much less costly and less risky for both of us. But I'm absolutely convinced that over the next three to five years that there will be an incremental 5% to 10% of our EBITDA will be coming from retailers that don't exist in the brick and mortar world today, and that's very significant when you add it all up.

Okay, that's helpful. Thank you.

And we'll move next to Christy McElroy of Citi Bank.

Just on sales productivity, in looking at Biltmore, Scottsdale and Kierland, for all three sales are down about 3% to 5% year over year, is there anything market specific going on with traffic there? And then also what was the rationale for removing the Group Five property level sales leader?

I'll take the first part of that question. I don't think there is anything unique about Phoenix other than remember last year in the first quarter, the Super Bowl was in Phoenix was to boost activity at all the properties.

And Christy in terms of the bottom section, the list there. It's only about 5% of our total NOI, so it's not terribly material, but we did find and it put us a little bit of a competitive disadvantage as we try to market some of those assets for sale to have the sales per foot number in there and we saw far more detrimental from a business standpoint then benefit for including those, so they've been taken out but again very material about 5% of our total NOI and hopefully, shrinking.

Hi, Art it's Michael Bilerman speaking, one question. Question on sort of capital allocating and you talked in your comments about selling assets at private market pricing and being able to buy your stock at what you, and you used the word firmly in the press release, believe to be a discount to those values. And so, as I think about as you sort of complete the $400 million, which we can book it and then you have the redevelopment and development pipeline, you have the same store growth that you're pushing, if the stock doesn't start to reflect what you firmly believe is NAV, after you do those three things, what do you?

I don't know it's a same question that I think applies to 99.9% of the REITs in America. I think we're the only one that have taken significant action on that point. We're putting; we're taking action that expresses our conviction in these beliefs. We're delivering significant I think value back to our shareholders through the special dividend that we paid, as well as the stock buyback and we'll revisit that as we get closer to finishing up the initially announced stock buyback, but again I would point out, we're the only REIT that has done this in our space, in this material or the way. And yet, we all are faced with exactly the same issue. It's a matter of fact, several analyst believe that other mall REITs are trading at even greater discounts to their NAV than we are.

Right I wouldn't agree with that, it was just that, whether you had something else in mind to help narrow that GAAP.

It's not a unique issue to Macerich and we're only one that has done anything about it, in a material way.

Yes, fine thank you.

Thank you.

And next we'll go to Ki Bin Kim of SunTrust.

Quick question on your same store NOI, how much of that did it get benefit from some of your development or redevelopments they included in this year's comp?

We don't include redevelopment or development unless they've been in for the full period for both periods. I mean others in the sector do include it, but we don't include it. So if it was Broadway Plaza probably won't be included same center NOI until about 2019 for example, even though rents to NOI start coming online. I mean we think that's an artificial boost to same center growth number and we don't do it.

But how about Tysons, which I believe has been in both periods.

Well Tysons office has been in for both periods and is included. I wouldn't say it's materially change that number. Tysons apartments are not included in the hotel it's not included because they haven't been in for the full period in both.

Okay and if I look at our expense margins and I'm just looking at management company expenses and shopping centers expenses as a percent of base rent. It seems like in the first quarter it went up to like 71% which is a bit higher than normal, with your recovery ratio is going down a little bit, on bad calculation just curious if there was anything unusual or seasonal in there?

Well, as I mentioned in my earlier remarks. We do have a seasonal business. So you can't look at the gross margin for example based on necessarily on one quarter and compare it for the prior quarter because we have 30% of our FFO comes in the fourth quarter. So to compare that, to compare the fourth quarter of 2015, to the first quarter of 2016 on most metrics is inappropriate you need to compare it to the same quarter of the prior year. And as I mentioned, and this does not include the management company but we look at operating margin keyed in, as I said before operating margin for the first quarter of 2016 was 68.6% compared quite favorably to the first quarter of last year, which was 66.6%.

Yes, I was looking at it year over year. I probably should have clarified. But I guess we can take it off-line.

Okay, happy to do that.

And now we'll move to Paul Morgan with Canaccord.

Just going back to the eCommerce thing one more time. I mean, given all the discussions you've been having recently, I mean does it make, you think any differently about the kind of keepers and assets you might look to sale just in the context of new generation of retailers maybe thinking differently as they role these things out. I mean, obviously it seems like kind of traditionally new retailer look to start with a lot of high-end malls, but maybe the kind of if eRetailers are thinking about it, as much from a initially from a marketing perspective, the tone of the discussion is different. I mean is there any kind of takeaway from those conversations that pertain to your kind of your asset management?

Well little bit, I mean more in the context that it validates all that we've been doing over the past five years in continuing to upgrade the quality of our portfolio, really focusing on assets that are in the heart of the last mile and that's really the issue, if you're talking about one is a digitally born retailer think about. I think they think about the last mile, they don't necessarily think about high end because lot of the goods digital retailers are selling are not high end. And so, I do think they think about where would I like to be, where I can give to you know the digital world they think about eyeballs [ph] in the physical world they think football. So where can I go that's got a lot of foot traffic, where can I go retailers are proven winners, where can I go that you know is in the heart of a densely populated trade area. All of those factors that I think will influence where the retailers of the world will want to initially migrate really puts us in a perfect position to service their needs. How far will they go beyond that time will tell? I mean, there's one case to be made in my mind that certain digital retailers will actually be, will do really well in secondary and even tertiary markets. Where they can access a market and provide an exciting retail experience to that market that market normally, that those shoppers wouldn't otherwise be exposed to, time will tell but I'm absolutely convinced the convergence is happening. If I had to put it in terms of where we are in the cycle like I said, first setting but I think it's going to be a real source of excitement for our properties and profits.

Great and then just kind of separately.

And I would also say, the opportunity from this new retail demand dwarfs the old school retailers that may file bankruptcies and shrink their store counts overtime.

I mean, how many chain would you that you've spoken to or you think you could open a store there is kind of in the next 12 months?

More than dozen, but I'm not going to name, names.

Okay, that's helpful. And then just second question on occupancy, just there are few malls that big dips quarter-to-quarter so Corte Madera, Santa Monica, Stonewood, anything specific is that going to bounce back or going down there?

Sure, Corte Madera and Santa Monica these are centers that have pretty small middles. So a couple of bigger tenants moves can affect the occupancy. At Corte Madera, Banana Republic had an 18,000 foot store, two levels and we relocated them into new 9,500 foot store. So that impacted the occupancy and at Santa Monica place, we had a bankruptcy with Kitson which is actually as we talked about earlier great opportunity long-term in terms of improving quality, improving rent and in the short-term might be an opportunity for some of the digital efforts that are being discussed and then we actually had a lease with CB2 that we as the landlord terminated. So those affected the occupancy in the first quarter.

Okay, great thanks.

And we'll go next to Andrew [indiscernible] of Goldman Sachs.

This is actually Caitlin Burrows. I had a question regarding the share repurchases that you did in the first half and those that you planned to do in the rest of the year. Does that give us good reason to think in 2017 should see extra strong earnings growth or is there, some other separate moving part that could limit that potential?

Look you got a lower share count, you have the same amount of revenue growth of the properties. I think that does translate into a lift to your growth momentum, that's really part of the reason. It's a really very good question actually, a lot of people focus on the - the one-time discrepancy between private and public market values but what they don't focus on, it's a very good point. Is that by reducing the share count, if you still have the same fundamental positives at a property level, then it does accelerate your EBITDA growth rate. So yes, I'm afraid that answer is yes.

Okay and then I was just.

Well, I don't think we're in position to give guidance yet for 2017.

Well I'm talking, I'm only talking academically and intellectual purity.

Well I would just say perhaps in addendum to your comment, then that would maybe acceleration of EBITDA per share.

Okay, thank you. Because you've got the lower share count, good point.

Okay and then just on the sales side. You guys obviously breakout your sales by buckets and even at your top properties it was, some good growth overall in the trailing 12-month. So I was just wondering, if you had any idea versus what's some of the other A malls have been reporting in that tourist and their spending have been negatively impacting them, how your portfolio has been able to still generate growth and kind of be okay, even despite that.

Well, I think we talked about it in one of the previous calls. We don't have a huge exposure to many of the traditional tourist markets. We do have certain properties like fashion outlets in Niagara or Santa Monica that have a big tourist element.

And Arizona.

And Scottsdale as well.

We're not immune .

Right, but the New York properties are not really tourist based and so our portfolio is probably non-influenced by those factors.

Okay, thanks.

Thank you. I think we've got time for one more question. Operator, do we have other questions.

Certainly. We'll take that question now from Craig Schmidt of Bank of America

This is I guess for Bobby. Bobby, heading into 2016 you perhaps had a more cautious view of store closings, now that we're four months in, is it as you expected or are you still looking for more shoes to drop?

No, I would say within our existing tenant base nothing that's occurred during the first four months is really a surprise to us. So I think it's pretty much along the lines than we've expected. I think there is certain elements that have done better maybe that we had expected, [indiscernible] a little bit on the emergence of eCommerce, retailers into the shopping centers. We've seen increasing activity albeit small in terms of numbers. We're seeing increasing activity from that sector, so that's been a positive. The leasing on the development project it has been strong. So I would say within the existing tenant base and sort of as expected and some others continue to remain strong.

Okay, great and then just a little bit about fashion outlets in Philadelphia you mentioned things are going well there, are you successful in winning some important food components to come to this project.

We think food will be a big part of the merchandize mix and we think there is some really good opportunities in particular because of the market and the nature of smaller shop opportunities in the market. So that's our restaurant group is very focused on that and we do see that as an opportunity given the downtown location and then transportation system.

And the addition of a lot of new hotels and residential, it's just part of the overall fabric of downtown Philadelphia has seen a tremendous amount of new restaurant activity which is really a function I think of servicing the incremental residential population as well as tourist that are there. So we're just part of that and we benefit from that, so yes.

Okay, thank you.

All right, thank you all for joining us. We look forward to seeing you next month, so lot of you NARIET and look forward to reporting on the balance of the year. Thank you.

And with that ladies and gentlemen, that does conclude today's conference call. We'd like to thank you again for your participation, you may now disconnect.