西蒙地產 (SPG) 2006 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Simon Property Group first quarter 2006 earnings conference call. [OPERATOR INSTRUCTIONS] As a reminder this conference is being recorded for replay purposes. I will now like the turn the presentation over to the host for today's call, Ms. Shelly Doran, Vice President of Investor Relations. Please proceed, ma'am.

Welcome to the Simon Property Group first quarter 2006 earnings conference call. Please be aware that statements made during this call that are not historical may be deemed forward-looking statements. Actual results may differ materially from those indicated by forward-looking statements due to a variety of risks and uncertainties. Please refer to our filings with the Securities & Exchange Commission for a detailed discussion of these risk and uncertainties. Acknowledging the fact that this call may be webcast for some time to come we believe it is important to note today's call includes time sensitive information that may be good only as of today's date, April 28, 2006.

The Company's quarterly supplemental information package was filed this morning as a Form 8-K. The filing is available via mail or e-mail and is posted on the Simon website and Investor Relations section under financial information quarterly supplemental packages. If you would like to be added to the list for e-mail distribution of this information, please notify me Shelly Doran at SDORAN@simon.com. Participating in today's call will be David Simon, Chief Executive Officer; Rick Sokolov, President and Chief Operating Officer; and Steven Sterrett, Chief Financial Officer. And now I will turn the call over to Mr. Simon.

Thanks, good afternoon, and thanks everyone for joining. We're off to a good start for 2006 and are pleased to report that our growth in funds from operations per share was 12.5% for the quarter, that we exceeded the Wall Street consensus estimate by $0.06 per share that, our lease -- 2006 leasing activity is robust and is over 80% complete, that our new development pipeline continues to be strong with timing and returns on target. Based upon first quarter results in our outlook for the remainder of 2006, we have raised both the top and bottom end of our initial 2006 guidance. Steve will give you an update on our financial operations.

Thanks, David. First quarter details are included in our press release and 8-K supplemental filings, so I will just highlight a few points. As David mentioned diluted FFO per share grew 12.5% to $1.26 for the quarter. Our portfolio continues to demonstrate strength and financial and operational results are in line with our plan. I would like to specifically draw your attention to one item.

During the quarter we recorded a beneficial interest in the earnings from Mall of America for the period from August 2004 through and including the first quarter of 2006 attributable to a transfer from a Simon family affiliate of certain cash flow distributions, capital transaction proceeds and related profits and losses. As you will recall, we had ceased recording earnings from Mall of America in August of 2004. The impact of the funds from operations for the catch-up was $14.6 million. Occupancy in our U.S. mall portfolio is 91.6% at quarter end. That's an increase of 10 basis points over the March 31, 2005 level. Occupancy for the Premium Outlet portfolio is 99.3%, that's a 30-basis point increase.

Comparable sales were up 5.5% to $461 a foot in our mall portfolio of 171 properties comprising 65 million square feet of small shop space. Sales increased 5% to $444 a foot in our 34 property premium outlet portfolio. Releasing spreads for the regional mall portfolio were very strong at $10.60 per square foot representing a 30.6% increase. We expect our mall releasing spreads for the full year 2006 to return to the 15 to 25% range provided in our January guidance assumptions.

Releasing spreads within the Premium Outlet portfolio continued to accelerate and were $8.38 a foot representing a 34.9% increase. Consistent with the regional mall portfolio a relatively small percentage of Premium Outlet leasing activity is customarily completed during the first quarter. In the first quarter of 2006 this activity included releasing activity at some of our most successful centers like Camarillo, Carlsbad, Desert Hills, Gillroy, Woodbury, and Rentham. As the year progresses and more deals are included, we would expect a spread to be closer to 25%.

A lease settlement from retail brand alliance for the Casual Corner stores in our portfolio positively impacted results during the quarter. Our share of this settlement was $8.4 million which is equivalent to the annual minimum rent in reimbursement obligations we received for the Casual Corner stores in 2005. Thus our 2006 annual contribution to FFO from these Casual Corner stores will be equal to the amount we recognized in 2005, but the 2006 amount has been recognized fully in the first quarter as lease settlement income. All Casual Corner stores in the SPG portfolio have now closed and we are actively releasing the spaces.

Also positively impacting results for the quarter was the minimal amount of tenant work out and tenant bankruptcy activity. During the first quarter only 115,000 square feet of occupancy was lost to bankruptcy, and we recovered dollars from several tenants that had been previously written off. As a result, the Company's share of provision for credit losses was essentially zero in the first quarter. If I may state the obvious, the overall financial health of our retailers continues to be good.

Partially offsetting this strong portfolio performance and the Mall of America inclusion was an $8.9 million increase in interest expense reflecting an increase in one-month LIBOR rates of 200 basis points year-over-year, and an unfavorable real estate tax settlement at one property which impacted us by $2.5 million. Our comparable regional mall NOI growth was 6.1% for the quarter, and approximately 97% of our regional mall NOI's considered comparable. As is our standard practice, this calculation excludes all land sale activity and it also excludes the cumulative beneficial insurance we recorded during the quarter. Without the Casual Corner lease settlement regional mall NOI growth was 4.4%. We expect our regional mall comp property NOI growth to be in the range of 3.5% for the full year 2006. Comparable NOI growth for our Premium Outlet portfolio is 4.1% and again approximately 97% of our Premium Outlet NOI is considered comparable.

Looking now at the balance sheet, we're very pleased with the Standard & Poor's upgrade of our corporate and senior unsecured debt to A minus on March 31, and the Moody's revision to a positive outlook yesterday as we believe these actions are additional validations of our business strategy and the strength of our balance sheet. The upgrade resulted in a reduction in the borrowing rate on our corporate credit facility of 5 basis points to LIBOR plus 37.5 bips. We believe this is the lowest credit facility interest rate in the REIT industry. Balance sheet highlights at March 31, 2006, include a debt to total market cap of 40.6%, outstanding borrowings on our $3 billion revolving corporate credit facility increased 1.1 billion during the quarter to $2 billion in total.

The increase is primarily the result of borrowings to repay $959 million of 2006 unsecured debt maturities including the third and final $600 million tranche of the Chelsea acquisition facility, and the pay off of $140 million mortgage related to a wholly-owned property. We expect to complete a capital markets transaction in the next couple of months to reduce the amount drawn on the facility. Our interest rate coverage was 2.6 times, the weighted average maturity of our debt is five years and the weighted average cost of our debt is 5.95%. We expect our pay-out ratio for the year to remain below 60%, and we continue to expect to generate over $500 million of free cash flow in 2006. With that, I will turn the call now over to Rick to provide a development update.

Thanks, Steve. As was discussed in our press release, we currently have six new projects under construction. Coconut Point in Estero/Bonita Springs, Florida, Round Rock premium outlets in Round Rock, Austin, Texas. Rio Grande Valley premium outlets in Mercedes, Texas, the Village at SouthPark in Charlotte, North Carolina, the Domain in Austin, Texas and the Shops at Arbor Walk in Austin, Texas. Leading is proceeding very well for all of these projects with leasing activity at or above projected rental rates. Additional details for these projects as well as all significant expansions and anchor big box additions are provided in the 8-K.

There is significant value embedded in our development pipeline. In addition to the six projects currently under construction in the U.S., we have a substantial pipeline of projects in predevelopment ready for construction to begin over the next 24 months. The pipeline includes at least three unenclosed regional malls, three Premium Outlet centers and three community lifestyle centers and we believe our new development projects will deliver considerable value for our stockholders. As evidence, consider the success of recent project openings. St. John's town center opened in Jacksonville, Florida in March of last year. Phase I of the project is 100% leased and it's already producing sales in excess of $500 a foot and has been so successful that the planning of a Phase II expansion for a late 2006 ground breaking and fall 2007 opening is already under way. Tokai premium outlets also opened in March of 2005. It is 170,000 square foot first phase is also 100% leased and it generates sales of approximately $750 per square foot.

In January of 2006 we started construction of an additional 53,000 square-foot second phase. Fire Wheel town center opened in Garland, Texas, 15 miles Northeast of downtown Dallas last October. Phase one at Fire Wheel is 95% leased and an expansion of 56,000 square feet of anchor and specialty stores is already under construction. Phase one of Fire Wheel is generating sales in excess of $300 per foot. On May 5, of 2005 Seattle Premium Outlets opened with 381,000 square feet of space. It also is 100% leased and is generating sales in excess of $500 per feet. A 222,000 square foot expansion of Seattle Premium Outlets opened on April 1.

We are currently dealing with 21 centers in the Simon portfolio with overlapping Federated and May stores. Let me give you a status update on our activity with respect to those centers. Boscoffs acquired the Straw Bridges stores in four of our properties, and they are expected to open during 2006. We have announced Nordstrom stores that will replace overlapped stores at four of our properties. We also anticipate the sales of three overlapped stores by Federated to other anchor retail users. Federated will convert four stores at our centers to Federated name plates, and we anticipate that major redevelopment projects featuring primarily lifestyle component additions will occur at six of SPG properties with overlapping stores. We are in the final stages of completing an agreement with Federated regarding these 21 stores and anticipate an announcement regarding that agreement very shortly.

In addition to the redevelopment activity being generated out of the Federated May overlap, we continue to upgrade our portfolio through the addition of impact department stores, retailers, and restaurants. On March 10, Barney's, New York opened a flagship store at our Coffley Place in Boston. On September 15, Niemann Marcus an additional small shop space will open at SouthPark mall in Charlotte and earlier this month we announced that Nordstrom will relocate from their existing store at Tacoma mall in Tacoma to the Mervyns location facilitating a substantial addition of retailers and restaurants. In reviewing our 8-K you will see that we are continuing to add retailers like Cheesecake Factory, Borders, Barnes & Noble, Dillard's, Dick's Sporting Goods, Target, and Doves throughout the portfolio in 2006 and 2007. I am now pleased to turn the call back to David for a few comments on our international initiatives as well as concluding remarks.

Just to give you an update on Europe, during the fourth quarter of 2005 Ivanhoe Cambridge acquired as you know the 39.5% ownership interest in ERE previously held by another institutional investor. You will recall that ERE owns group BEG our Paris based developer, owner, and manager of retail properties in Europe. During the first quarter of 2006 SPG and Ivanhoe Cambridge equalized their ownership positions in ERE through the purchase of the remaining interest of the BEG founders. SPG and Ivanhoe each now own 50% of the venture which was subsequently renamed Simon Ivanhoe. SPG recognized a gain on this transaction of $34.4 million which was included in our net income but does not flow through to our FFO earnings.

As we documented in this morning's release and 8-K we have a total of seven projects under construction in Europe, five in Italy with GTI, one in France, and one in Poland. All are scheduled to open in '06 and '07. In addition we have several projects in the development pipeline awaiting final approvals. New development in Europe continues to offer attractive yields but as we all know it is a process which requires patience. Japan, Chelsea, Japan, opened the 90,000 square foot third phase of Sanho Premium Outlets on March 4. Sanho located 40 miles north of Tokyo now contains 320,000 square feet. We also broke ground on the 53,000 square foot second phase of Tokai Premium Outlets which Rick mentioned which is projected to open later this year. Tokai is located 25 miles Northeast of Nagoya and will contain 231,000 square feet after Phase II opens.

South Korea site work has commenced on Premium Outlet center there. The Company's first project in South Korea, this upscale fashion oriented outlet center will comprise 250,000 square feet and serve the greater Seoul market. Center is expected to open in the spring and/summer timing of 2007, and leasing efforts for this project are proceeding nicely. China just a few weeks ago we signed documents to proceed with the first five projects to be developed in China for our joint venture with the Morgan Stanley real estate funds [Inaudible] commercial property company. Construction commencement is subject to obtaining acceptable non-recourse debt. Simon and Morgan Stanley each own 32.5% of the projects with CVEC remaining, owning the remaining 35%. Simon's equity investment in the five projects is expected to aggregate approximately $30 million.

Each project will be an urban multi-level retail destination of between 40,000 square meters and 70,000 square meters anchored in all cases by a Wal-Mart store. Warner Theaters may also be an anchor tenant in some of these projects. SPG and Morgan Stanley will be the preferred partners of CVEC for each project that CVEC proposes to develop in the Yang Sea river delta which includes the cities of Shanghai, Nanjing, and Henzho. Simon will oversee the leasing and management activities of the joint venture. We continue to view this relationship as a prudent approach for us to enter and learn more about the Chinese retail marketplace on a profitable basis.

In closing, the first quarter of 2006 was yet again another solid one for us. We're please the with our results and our positioning for the remainder of the year. We look forward to a busy and productive summer kicking off soon with the upcoming annual ICSC convention in Las Vegas. Operator, this concludes the prepared comments of our call today, and we're ready for questions.

[OPERATOR INSTRUCTIONS] Your first question is from Ross Nussbaum from Banc of America Securities.

It is Christine McElroy here with Ross.

We noticed that you -- you didn't buy back any shares in the first quarter. Have you repurchased any shares since the end of the quarter given the dip in the stock in April?

We have not.

Can you update us on your return expectations for China at this point?

We think that they're averaging around a 10% return on costs which is positive leverage at higher return on equity in the 15 to 20% range.

What run rate of lease termination fees are assumed in your guidance for the remaining three quarters?

We assume that our lease termination fees go back to a more normalized level, and typically we run in the 10 to $15 million a year, so you would see on average a couple to $3 million a quarter. The expectation is we would see about that level for the rest of the year.

Lastly, could you comment on whether or not you plan to bid on Mills and if so would you think about bidding on your own or as part of a club deal?

We continue to monitor it. We're not actively engaged in it. It is a very complicated complex company with lots of issues to review and we'll just continue to monitor and see whether or not it is of interest to us.

Are the books out on the Company at this point?

I have no knowledge of that.

Thank you.

Thank you.

Our next question is from Steve Sakwaw from Merrill Lynch.

Good afternoon.

Hi, Steve.

David, most of the operating metric looked very solid and I realize that the shopping center portfolio is a small percentage. The occupancy was down about 130 basis points. Is there anything specific there that's going on and how do you think about that within I guess the long term?

Really, the the primary increase is that we added a new center to it. Wolf Ranch in Austin which is -- we have a lot of space it is north there. The market is growing, and it's a great project we have all the confidence in the world but the lease up has been a little bit slower than what we thought. The statistics, we don't mention the statistics there only because they are relatively volatile given the size of the portfolio. That's my guess, Steve, is that right, probably?

Steve, one other thing I would mention is because the occupancy in the strip center portfolio includes all the anchors, and it is a relatively small portfolio for us, if you have an anchor that you're changing out for whatever reason, that can relatively dramatically impact the occupancy number as well.

Any idea what Wolf Ranch did to just by adding that asset?

It is included in that. What would it be without it?

If you stripped it out.

We can give you that. I don't have it.

Secondly, just what are the return expectations for the international development? I know you spoke, David, about China but I guess in looking at the supplemental you kind of list the number of -- I think you have got nine international projects.

Right, right.

I would say just do it by I will do it by country. The new development pipeline in France we think will be double digits. The biggest project we have hopefully -- we got to go through still a little bit more of a process there is Taluse, and that we think might be as high as 11 return on costs. The Italian developments and redevelopments are a little less. They're in the kind of the ninish range, and the outlet business is all consistent with Korea actually. We really have to look at it after tax. But after tax in Korea we expect it to be commensurate with what we get here pre-tax and in some cases maybe a couple hundred basis points higher.

Kind of mid teens?

Mid teens, and you have to look at it after tax. Japan is essentially the same, on the same basis. China I told you is kind of 10% return on costs. It is a little lower than what we wanted, but these are safe, stable projects that we think will give us a profitable way to enter yet a lot of experience in understanding the market while we assess whether we want to be a more of a player there. Where did I miss? Poland is usually in the high 11, 12, 13% range. The big one in Warsaw I think was around 12%. We've had success in Poland.

Could you or Rick maybe speak to just kind of the leasing? You give a lot of stats on cost and percentage ownership, but can you help us kind of understand where you are on the leasing status of these projects?

Internationally?

Well, internationally, maybe just kind of generically, how far along are you on these projects relative to--?

They're all in lease-up phase, and we don't anticipate any -- it is all strong demand. Anything we can build in France you've got significant backlog of demand there. Italy, the same thing. The portfolio there is 99% leased, and the Chelsea Premium Outlets, you know what goes on there. These will all be high 90's occupied.

Listen, China is a little bit different. We can't -- the preleasing effort there really is focused on the anchors. The small shop is a little bit more on the come, and you really don't prelease that until you start construction.

The only other thing I would say is that we have been the beneficiary of substantial value creation for our shareholders because there has been dramatic cap rate compression in the European product, particularly Poland and the like, so the returns that David has been stating as a going-in return are even magnified based on the value we've been creating.

And then just lastly could you just talk about the leasing status for '06, what percentage, where you are and how far are you into '07 discussions with tenants?

We are 80% complete for '06 and obviously we're very focused on '07. ICSC really will be predominantly focused on '07 activities and the demand I will tell you, the demand is still very, very strong. We're dealing with some return. We're dealing with the Casual Corner space, and the Musicland space are kind of the big events for '06. Generally the demand continues to be very strong.

Okay. Thanks.

Thank you.

Our next question comes from Michael Billermann from Citigroup. Please proceed.

Good afternoon. John is on the phone with me as well.

Hey, guys.

Maybe just on Mall of America, what's going to be the run rate as you go forward on a quarterly basis in terms of FFO contribution?

It is really not going to be overly material. It will contribute like -- it will be less than $0.01 more than likely.

Michael, it is -- we gave you a cumulative catch up number. You know the time period that it applies to. I think if you do a little division you're probably in the ballpark.

The only thing I would say then is it does have floating rate debt on the center, so it is probably going to be less than what that is because of those interest rate changes.

You're looking at something that's probably, you had a $0.05 positive impact in the quarter and probably, let's call it between $0.02 and $0.03 for the rest of the year, so an $0.08 total variance from previous guidance and so I am just trying to match that up with your sort of increase which was only $0.03 at the mid point.

Well, Michael, I think one of the things you think about, number one, we are in a rising interest rate environment, and we did mention that interest expense on a relatively constant debt portfolio was almost $9 million up quarter over quarter, so you have to take that into account. The second thing is be careful with assuming that the catch-up entry in Mall of America is 100% additive. We're a big company, and big companies tend to have items that kind of hit every year. The names and the concepts may change, but you will have nonrecurring income in each year's P&L. Last year as an example when Eddie Bauer came out of bankruptcy, we got some stock in Eddie Bauer that was valued at at zero that all of a sudden had some value to us, and that was a nonrecurring income item. If you go back three or four years ago we made $20 million from the sale of the Montgomery Ward portfolio. That was nonrecurring income. I just don't think you can take '05 and layer the impact of NOA on top of it. Because there are some things that were in '05 that aren't going to repeat themselves.

I would add this to what Steve said. We did our planning for '06. The appeal has been -- the appeal from the -- the eighth circuit had been rendered, so we were anticipating being able to get that beneficial interest back. We just didn't know when. It was always in our mind as we planned on '06 that there was going to be some benefit, and that was part of the reason why our range was as wide as it was.

And I think now, Michael, having been through the primary bankruptcy season and as Rick and David just mentioned having 80% of our leasing pretty much complete, we are certainly comfortable with raising the bottom end substantially as we did because of where we are with our core business, and that's where we ended up.

What's going to be going forward for Mall of America in terms of other litigation or how the mall is going to be managed?

It is an on going process. There still is litigation, and we'll just -- we just have to take it a step at a time.

Okay. Steve, you talked about the provision obviously being basically zero in the quarter. What is your sort of budget for maybe credit loss as a percentage of minimum rents for the year, you were at 40 bips last year. You typically averaged 80 to 110. What's sort of your forecast for the rest of the year?

It is a good question, Michael. Clearly what we see now the health of the tenants is better or as good as it has been in a long time. In fact, our -- kind of the build receivables that we chase at any one point in time over the last two or three years have averaged about $100 million, we're $30 million below that right now. It would not surprise me if the bad debt experience was lower than it was last year, but I think you have to assume that there will be a couple $3 million a quarter for each of the next three quarters.

It sounds like you want to get to all of our budgeting metrics which is fine but you're going to have to spend a lot of time on it. We're a big company, but generally we budget around 75 basis points of minimum rent as a percent of minimum rent in -- for a bad debt expense.

How about maybe a more top level questions, David? You've talked about $10 billion of sort capacity or acquisition capacity.

Right. Right.

How aggressive do you want to go out and use that? Where are you thinking about the relationship maybe with Ivanhoe allow you to expand a little bit more rapidly in Europe or maybe even in Canada where they're based out of and maybe just walk us through that.

Well, I think the partnership with Ivanhoe is going to be very beneficial for us. We do have an interest in pursuing more European opportunities with Ivanhoe, not every country, but there are plans that we can work together and in a number of countries. They have interest already in a number of countries that they're going to focus in by themselves on. We really have had no discussions with them about Canada at all, but they know our capabilities, so I do think -- it is our intention to definitely grow Simon Ivanhoe in Europe both through development and acquisition and in countries outside of what we have. I don't believe Ivanhoe Cambridge would have invested in formally BEG without the thinking that we would be able to do more with that platform. That's definitely out there for -- to grow.

Thanks.

Thank you.

Our next we comes from Scott Crowe from UBS. Please proceed.

Good afternoon. I am also here with Jeff Spechter and Alex Goldfarb. Firstly, an you give us an update, please on the DaimlerChrysler proving grounds mixed use development project and whether you have any concern over the housing market and if that will impact your timetable for development of the project.

Scott, this is Steve. As I think you know from our announcement when we acquired an interest in the Chrysler proving grounds, there is about a two to three-year entitlement process to put ourselves in a position to literally put the first stick in the ground for the first house, so where the housing market is in two or three years, will ultimately determine the speed and the rapidity to which we build homes there but having said that, under even the most aggressive scenario, this was an absorption that we had planned on taking ten years, so I am sure over the course of us fully developing that parcel with our partners, there will be up's and down's in the cycle. We clearly like the macro factors in the Phoenix market relative to its primary competition being California and the Vegas market. So we feel very good about that, and in fact our underwriting was based on relatively conservative assumptions about where land and housing values would go. We certainly didn't count on or need to have the kind of growth that occurred in the housing market over the last couple of years in order for us to realize a very attractive return from that investment.

Okay. Thanks. Just in terms of Asia, my second question is if you could try to comment on how you're positioning the Simon offer in Asia, particularly at the very high-end of the product range, given what you've done so far has been concentrated on a different end of the spectrum five Premium Outlets and the Wal-Mart JV?

Scott, this is Steve again. We're monitoring Asia, and one of the great things, number one, about our acquisition of Chelsea is it gave us some expertise, people on the ground and people who have been in the Asia market for a long time. As you know, last year we opened a market or an office in Hong Kong as well. Most of our activities to date have been either with the outlet center concept or now in China with the hypermarket anchored, but we are clearly monitoring and are aware of the situation with full price retail over there, would love to have the ability to enter in the full price market much like we would, and we continue to look at Europe as a means to develop outlet centers. I think it is great that we've got a lot of different arrows in our quiver and the ability to build different centers at different price points in lots of different places across the globe.

And I agree, and I would add that in Japan we have such a strong organization with Chelsea, Japan, and our partners there that will be one of the things that were very, very early, but very focused on is discussing with our partners the ability to do full price retail in Japan. That is somewhat of a focus, and obviously what makes this interesting is we have the ability to build what's required wherever it is required in a sense, so we'll look at what the best returns are for the property. I think in China, it is a matter of time before we'll have the ability to do outlet product there as well.

Thanks. Just as a follow-on to that, why haven't you looked more closely at some markets closer to home like Canada and South America that some of your competitors have?

Canada, we had an interesting opportunity several years ago where because of kind of the dislocation currently in the U.S. market we chose to sit on the sidelines regrettably so, because I think that would have been a good investment for us. I think there are a couple of markets in Canada where we're interested in looking at. I know Rick has got -- there are a couple of full price properties that could work there with some unique anchors, so that's in the back of our mind. I think South America we have looked historically there, and the volatility in the currency has led us to be a lot more cautious there than some other places, and ultimately you do have the opportunity to obviously do good real estate because the volatility of the currency in South America we've been worried that good real estate might not necessarily produce a good return just because you may lose the value in currency devaluation.

Okay. Thank you very much.

Thank you.

Your next question comes from the line of Craig Schmidt from Merrill Lynch. Please proceed.

Thank you. This may be a Rick question. Given the low level of bankruptcies in putting aside obviously the financial strength of the retailers, is there any difference in the rules of bankruptcy that might be sort of limiting retailers from taking that path versus the past?

I don't believe there is -- there is a change that was adopted in the Bankruptcy Act that was very helpful to landlords which basically limited the amount of time a judge as a matter of discretion could give to a retailer to accept or reject leases, but frankly, the process now has gotten so sophisticated that the real estate plans are virtually totally in place before they file, and so that's I don't believe a limiting factor in bankruptcy. I believe the real fact is that these retailers are just a great deal of value. Witness the amount of private equity that is flowing into the retail sector buying brands or buying existing retailers because the brand equity in these retailers was significant. I think many of these were able to get resolved short of a bankruptcy and results have been for the most part very compelling and they're making money.

Great. And just one other question, do you know what the preleasing is on Round Rock?

It is virtually leased. It better be. It opens in a few months.

Thanks.

Your next question comes from the line of Paul Morgan from FBR. Please proceed.

Good afternoon.

How are you doing.

Good thanks. I wanted to see if you can comment on the deal you did with Coach to expand the 30 stores in your portfolio. They talked about it recently, it seems like that was pretty much exclusive with you, and I just wanted to get a sense of whether that type of leasing synergy is something you're pursuing more often now and whether expanding existing retailers is -- that are short of opportunities in A malls, opportunities to grow rents even further?

Listen, our number one job is to have superior tenant relationships, and there is a lot that can be done when you look at it in a total situation with your customer then as opposed to little individual deals, and we've been successful in doing that. We've got a number of retailers that are very interested in doing that with us, and we will pursue more of those opportunities that allow us to create a win-win for us and obviously our client, and so I would expect -- I mean Coach, you said it is not really -- they're free to do business with -- we don't have any restraints on what they're doing obviously, but it is just the -- I think it signals that we are very focused on having excellent relationships with our retailers and we are there to help them in their growth plans.

I think the other very important point that came out of the Coach announcement and candidly you can see it across our portfolio is the fact that our regional mall portfolio is of such a strength and quality that we could find 30 opportunities that met Coach's quality objectives on top of the 35 or so stores we already have with Coach which means that a minimum of 65 of our properties are of a quality level, market position and productivity that high quality retailers are going to find them very compelling places to do business.

Have you done any other master agreements like that before?

Yes. We did it with The Gap. We've done it with the gap when we were rolling out the Old Navy's, we came out with a program and did that as well.

The only thing I would say, it is not a master agreement. It is obviously all down at one time with a portfolio approach. Each individual property is negotiated individually on the financial aspects of it based on where the store is being located.

Okay. Going to the nine projects in predevelopment that you mentioned, do you just have a sense of timing and total investment, are these 2008 and 2009 or are we talking a longer time frame than that.

The range in investment is going to vary. All of them we indicated would probably start within the next 24 months. Several could be starting as quickly as the first quarter of 2007, and you have a sense in our 8-K disclosures of the range of costs for the Chelsea product and the range of costs for our unenclosed regional malls on a per square foot base and these products that we're discussing are consistent with our approach to quality and markets that we've all along. I think that our existing filings will give you a pretty good basis for projecting the kind of capital expenditures.

It will be over $1 billion of total costs when it is all said and done.

That's not counting your investment in the redevelopments related to Federated May?

No, no.

That's correct.

I think, Paul, if you think about our capital spending and try and look at a run rate for the next three to four years, I think using what we did in '05 is a decent run rate, but you'll have to then layer on whatever we end up spending incrementally for the Federated stores because I think our pipeline has been relatively consistent for the last two or three years as we finish projects we have new ones stepping in to their place. The lump in it all will be kind of the May federated review.

Last question on the buyback, any plans to increase the authorization?

Plans to renew it because I think we have an upcoming expires in May. We would plan on renewing that this May.

Thanks.

Thank you.

Our next question comes from Greg Andrews from Green Street Advisors. Please proceed.

Good afternoon. David, you mentioned the Ivanhoe relationship in Europe and that you bought the interest from the BEG founders, and I am wondering have they now departed and if you could describe what the platform is that's there now?

Well, no, the original founder who owned the vast majority of that interest, 90% of that interest has retired several years ago, and there was one other founder that ran the construction engineering part of the business which we sold a few years ago. Another share owner actually is the -- kind of runs the development there, so -- and he obviously is still very much involved and incented to continue to stay. The platform essentially is a European development company. It is based in Paris. It has the ability to develop in France, in Poland where we've been successful. We're currently looking in Russia. And it manages properties in Turkey as well, so it is really a very experienced continental European developer which has its full capabilities from development leasing, management, architecture, and the like.

I am not fishing for a job here, but just curious, is it fully staffed then in the way that will allow you to capitalize on the opportunities you're thinking about?

Well, one market that's under serious consideration is the Russian market, and what typically happens is if we do create a platform we will source that effort both with some of the Simon Ivanhoe people will relocate there, but in that in particular we are to pursue that market. We would have to add resources for that, and basically the pipeline in Poland and in France we have the resources, but if we do become aggressive in say a new market we would have to bring additional personnel to the table.

And, Greg, but things we try to do as well and this is true not only with the French venture but also our Italian venture is we do try and utilize some of the expertise that we have here in terms of architecture, engineering, I don't want to say Simonize, but certainly try to bring some of our learnings here to the projects we're developing in Europe.

I guess the best example of formally BEG is the mall that we built in Poland.

Warsaw.

Warsaw. If you were to see that, you would say these guys are first class rate developers. That project I would be pleased to have anywhere in the United States of America.

And could you just talk quickly about the decision making process in conjunction with Ivanhoe? Is there some kind of Board that oversees all of this?

There is a Board and essentially we both have to agree.

Is it an even number of people on the Board from each company?

Yes.

Shifting gears, Steve, you mentioned that the same property NOI excluding the lease termination fees was 4.4 for the quarter. You kind of gave guidance for the full year of around 3.5. Are you expecting some deceleration or what kind of reconciles those two numbers?

It is really a function, Greg, as I mentioned earlier that our bad debt expense was zero for the first quarter, and we would assume a return to a more normal rate for the last three quarters.

Okay. Then also the BK for the year, you said 115,000 square feet in the first quarter. Could you just remind me how that compares to last year?

We were like 250,000 some odd last year. When in and of itself was down almost 500,000 square feet a year before, so it is not to say that there won't be one or two other small filings and so that number could certainly go up a little bit, but if we look at the landscape, there are not a lot of trouble spots that we see out there.

Let me just add, though, Greg, that those numbers do not include Musicland.

That's right.

We will be losing space associated with Transworld's acquisition of certain leases there, so you will see that number spike up in the -- as that gets processed in the second and third quarter. Great. Then a quick question for Rick. I notice in a couple of malls you're replacing Anchors with restaurants at the Gallery at Houston, the Lord and Taylor space and at Smith Haven, the Stern's store and I am just curious if that's something we'll probably see some more of or is that kind of just on a case by case basis?

We are very focused on adding restaurants to our properties. What we have found is that good sit-down restaurants, substantially extend the time of stay, the frequency of visits, and candidly there is per square foot productivity is usually at or above the mall average. In every instance it is a very positive result if you look you'll see we're adding Cheesecakes and Grand Lux in a number of properties. When we redid Charlotte we added Margianno Cheesecake, McCormick and Schmidt and Morton's and it is something we are going to try and do wherever we can where we have a physical platform that can accommodate their needs.

Are the economics on those deals as good as other ways of reusing the Anchor boxes?

In fact, they are.

Great. Thank you very much.

Thank you.

Our next question comes from Michael Mueller from J.P. Morgan. Please proceed, sir.

A quick question for Steve. I know you mentioned 14.5 or 14.6 million for Mall of America in the quarter. On the pro rata statement you have about a 10 million adjustment on that line item. Is the difference down below in depreciation or something or can you just tie those two numbers together.

The depreciation, the 10.2 is a net income number. You're adding back depreciation.

Just real quick, G&A and home regional costs, what's ballpark run rate for those two in aggregate?

The only unique element, Mike, in the first quarter would be that we're on a 26 pay period cycle. We have two quarters a year that have seven pay periods and two quarters that have six. The first quarter was a seven pay period quarter, but other than that what you saw in the first quarter if you make that one small adjustment would be a good run rate.

We had a $1 million additional cost associated with our consent fee on with our bonds at Chelsea. That's another expense.

That's in other expense. That was the one nonrecurring item in the quarter.

Perfect. Thanks.

Our next question comes from David Fick from Stifel Nicolaus please proceed.

Good afternoon. You just answered part of my question. What was the total redemption cost on the Chelsea preferreds?

It was $1.1 million. It wasn't a redemption cost on the preferred, David. What we did is went out to the existing Chelsea bond holders and asked for their consent to not have to file as a FEC registrant, and we spent $1.1 million. We will recover that. I think the longest bond from Chelsea matures in like 2010, something like that. Say there is four or five years outstanding. We think we will more than recover that cost. There is probably about a two-year pay back on that expense.

Okay. I ask this every quarter and don't get a satisfactory answer. Same space rent spreads. You always said they're pretty close to the spreads that you report. Is that still true?

That is still true, yes.

Even with the big spreads this quarter? All right. Brand venture growth, 9%. Is that sort of a run rate that we should now accept as being reality or will that reaccelerate at some point?

I think we still view it as kind of a low double digit grower, obviously because the base is substantially higher. The growth rate will slow down, but I think it might accelerate a little bit here over the remainder of the year and we would see low double digit growth.

Great. Thanks.

Thank you.

Our final question is from Dennis Maloney from Goldman Sachs. Please proceed, sir.

I know you guys posted obviously very strong sales growth in the first quarter. I was wondering with higher gas prices are you seeing any difference in the recent sales performance of your A malls versus your B malls? Could you provide some color on that and then if you could also provide some color on any regional or market differences in sales growth.

Let me do if I can the regional first. What you find in our regions is that the southwest has been very strong. The mountain and the plains which for us is really north of Texas and in the Colorado and Vegas area have also been very strong. New England and the Great Lakes midwest regions have been a little weaker. When you look at -- and Florida has been very strong at well. When you look at the particular qualitative differences, there is a skewing of better malls are growing better, but it is more of a regional bias and also when you look we're also substantially -- we had several malls that are still doing outstanding sales growth because of the rebound effect of the hurricanes. Now we have Preon Lake that is doing very well and we're still experiencing that growth on the southwest coast of Florida and in the East Coast of Florida from last year's hurricanes.

To the extent that you could put an average on the A and B, and describe the difference between the two, could you put a number on that?

It is not overly material.

Okay. Great. Thank you very much.

At this time there are no more questions. I would like the turn the call over to Mr. Simon for closing remarks. Please proceed, sir.

Thank you, operator. Thanks to everyone for your interest, and we look forward to seeing and talking to you in the near future. Take care.

Thank you for your participation in today's conference. This concludes the presentation. You may now all disconnect. Have a great day.