西蒙地產 (SPG) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the first quarter 2008 Simon Property Group earnings conference call. My name is Shawn and I will be your coordinator for today. At this time, all participants in a listen-only mode. We'll be facilitating a question-and-answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS)

I would now like to turn the presentation over to your host for today's call, Miss Shelly Doran, Vice President of Investor Relations. Please proceed.

Welcome to the Simon Property Group first quarter 2008 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 risks and uncertainties. Acknowledging the fact that this call may be webcast for some time to come, we believe it is important to note that today's call includes time-sensitive information that may be accurate only as of today's date, April 29, 2008.

The company's quarterly supplemental information package was filed earlier this morning as a Form 8-K. This filing is available via mail or e-mail, and it is posted on the Simon website in the Investor Relations section under financial information, quarterly supplemental packages.

Participating in today's call will be David Simon, Chairman and Chief Executive Officer, and Steve Sterrett, Chief Financial Officer. Rick Sokolov, our President and Chief Operating Officer, is unable to be with us today, as he's recuperating from unexpected shoulder surgery.

Now I will turn the call over to Mr. Simon.

Thank you. Good morning, everyone. I will take just a few moments at this time to provide comments on the quarter, and then we'll open the call up for your questions.

We're pleased to report first quarter FFO of $1.46 per share, which is up 6.6% over the prior year. Positive factors contributing to the quarter include solid operating results for all five of our property platforms, and decreasing LIBOR rates. You should note that this growth in FFO was achieved despite the fact that our share of lease termination settlements was more than $9 million lower in the first quarter of 2008 than in 2007. You may recall that we received some large department store termination income in 2007. FFO was also negatively impacted as a result of a $12 million decrease in fee and interest income, primarily related to an SPG provided mezzanine loan to the Mills. These two items together impacted our FFO growth from 2007 to 2008 by over $0.07 per share.

Occupancy was essentially flat. In our mall portfolio, square footage loss to bankruptcy during the most recent quarter totaled 133,000 square feet as compared to 24,000 square feet during the first quarter of 2007. Even with this, our occupancy at the end of the first quarter is still higher than Q1 of 2006. The decline in the premium outlet occupancy is primarily due to lease terminations or bankruptcy of four tenants comprising about a dozen spaces, and the late March 2008 openings of Houston premium outlets, which was 86% leased at 3/31/08, and the phase two of Rio Grande premium outlets, which had total center occupancy of 85% at quarter end. Today, at Houston and Rio Grande, we're 92% and 94% leased respectively, and we expect the occupancy in the premium outlet portfolio to return to previous levels by year end due to lease up.

We experienced a continued moderation of sales growth in the mall portfolio. Comparable sales were $491 per square foot, up nearly 1% as compared to the year earlier period. Sales have been impacted by the general economic weakening of the U.S. economy as well as our portfolio's higher exposure to Florid,a which has obviously been impacted by the residential market there. Excluding our Florida portfolio, sales would have been been up 2% on a comp basis.

Going to the premium outlet portfolio, sales increased 5.4% to $511 per square foot, driven by our centers with substantial International tourist exposure that continued to see double digit sales growth. Comparable regional mall NOI was up 2.8% for the quarter, which was negatively impacted by the higher debt expenses compared to last year. Comparable NOI growth for our premium outlet portfolio is 4.1%. The releasing spread of our mall portfolio was above historical levels for the quarter, due to the mix of leases involved. We expect the spread to return to a more historical normalized level by year end. And the releasing spread for the premium outlet portfolio was $7.06 for the quarter, representing a strong 29% increase. Effective cost control in the field and the continued conversion of tenants to fixed CAM resulted in higher recovery of common area maintenance expenses during the period, and currently approximately 70% of our regional mall tenants have been converted to the fixed CAM billing methodology.

Our development and redevelopment pipeline remains intact, and will deliver significant value in the upcoming years. We're primarily focused on the redevelopment and expansion of franchise assets in the U.S., and new premium outlet development in the U.S. and in Asia. Capital is a precious resource. We remain very diligent in the allocation of that capital to only those projects that meet our return requirements.

Our balance sheet continues to be one of the strongest in the real estate industry, as evidenced by our A minus A3 ratings, and the recent affirmation of such ratings. We built our balance sheet to be positioned at all times to access capital in multiple forms, and I believe that this balance sheet strength was evidenced by a financing transaction that we completed during the first quarter, which was a $705 million secured recourse term loan on six existing [lowly]-level high quality SPG assets, tapping into their significant embedded equity value of these assets. The facility, which will be or can be increased to $850 million during its term, will mature in March of 2010, contains two one-year extensions at the companies sole option, and the base rate on this facility is at a very favorable LIBOR plus 70 basis points.

The remaining 2008 debt maturities consist of $350 million of corporate bonds and approximately $660 million of mortgage debt, excluding the Mills. We're in the process of refinancing the existing $660 million of mortgage debt at amounts equal to or greater than our existing mortgages, and we currently have over $1.7 billion of available capacity on our corporate credit facility as well as $400 million of cash in the bank.

It has now been one year since the acquisition of the Mills. The transaction is exceeding our expectations. I believe the portfolio is significantly benefiting from leasing and operational synergies with our other real estate platforms. We're now ready to take advantage of several redevelopment projects within this portfolio and retennening of certain -- retenanting of certain anchors.

Based upon our solid first quarter results, projected activity for the rest of the year and our view of market conditions, today we gave 2008 FFO guidance of $6.35 to $6.45 per share, which is approximately $1.9 billion of earnings which, you know, is very significant in today's environment, and which also increases the lower end of our previously provided range by $0.10.

We're the largest landlord to most national mall-based retailers. Many tenants generate 10% to 20% of their total sales from stores located in our malls. We're also the largest owner of high quality outlet centers, and retailers highly value this very profitable distribution channel. The depth of these relations, coupled with our high quality mall and outlet portfolio and our below market leases, should also allow us to lessen the negative impact in a time when retailers are closing stores and reducing their growth plans.

This concludes our prepared comments today. We're ready to open the call up for your questions.

Thank you.

(OPERATOR INSTRUCTIONS)

Your first question comes from the line of Jay Haberman with Goldman Sachs. Please proceed.

Good morning. A question for David or maybe for Rick, if he's on the call. Just with regard to banks pulling back credit lines to major retailers, we saw it recently with one of the largest department stores, as well as with women's retailer. Can you just give us some thoughts there as to will this impact store closings throughout the year, in your assumptions?

What we've heard is that there's one lender in particular that is not renewing certain lines of credit. The retailers that have been involved, we have talked to them and it has had absolutely no impact on their view, or their focus on store closings or store expansions. So, at this point, we have not had any impact and we've been told that it will not impact what they're doing.

Ok. And David, you mentioned the four tenants closing stores obviously in the Chelsea division. Can you mention those specifically and also, I think, The Gap closed a bunch of stores as well. Any further thoughts there?

Well, The Gap has closed no stores in the outlet centers. And the store closings on the outlet side have been Mikasa and Bombay. It has all been very -- that's very beneficial for us. Those leases are under market and essentially they've all been re-leased; as you know, it does take -- once a store closed, it takes some time to re-lease it. We're fully confident we'll get the outlet center back up to the - north of 99%. I would also include some Springmaid and Westpoint closings as well. So, most of that is -- we view as a positive.

Ok. I think Tom has a question as well.

Hey guys, on the Houston and Rio Grande outlet openings, did those open a little bit below pro forma in terms of occupancy?

No. No. In fact, Houston is ending up being about a 17% return on cost. Again, we -- you have to understand it opened literally --

March 28th.

March 28th. You know, we're good, but we can't get 100% of every tenant open, and as I said to you, I think Houston is now at 94%. There's some stragglers coming in that are opening. Houston is going gangbusters. Rio Grande is phase two, the opening of that, and again that opened basically at the end of the quarter, and we're actually doing phase three now, so no issue.

Ok, thank you.

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

Good morning. On the International side, I mean you've talked a lot about your intentions to grow that share of your portfolio. I'm wondering - mostly that's been through development so far, are you looking harder at any acquisition opportunities, given the difference between the health of the U.S. economy right now and some of the other markets?

I mean we're looking at a few deals. I'm still of the belief that the U.S. economy will have an impact on the global economy, and I don't think that that's permeated yet. So, last thing we want to do is jump in there and not have that impacted on how people might view the valuation of that. So, I think our -- you know, we've looked at a few more deals. There's one with -- through Simon Ivanhoe that looks maybe a little more opportunistic than we have been in the past. But at this point, I don't expect any material change to our strategy there.

Ok. And you know, when you look at the environment for construction lending in the U.S., are you seeing a lot of fallout from the lifestyle and mixed use kind of projects that were percolating everywhere over the past couple of years? I mean, do you either see anything that is interesting from kind of an opportunistic investment perspective or, alternatively, do you see a lot of projects either not happening or getting pushed back?

Yeah, let me add -- let me -- I think it is actually -- there is a trend here that's actually very interesting that I think will be extremely beneficial to us. If you think about the recent development - you know, if you go back to the real estate recession and the late -- beginning to the late '80s to the early '90s, it took -- there was a lot of development that occurred during that period of time that took a long time to stabilize. The decade of the '90s obviously was not a decade of new development, and new development really only began to occur, at least in retail, in earnest in kind of the early - after we kind of suffered through the ramifications of 9-11. You know, new development in retail again really only picked up its pace in kind of the mid-2000 decade.

So, frankly, I see a decade -- you think about retail development is basically until 2003, 2004, 2005, 2006. I see a decade -- I do think the current economy and environment -- I see a decade perhaps that retail development is going to be very slow. And I think that's obviously fabulous for us. That's not to say there won't be certain developments. We could be talking -- if you look at the historical trend, I mean it was 15 years essentially before development picked its pace up again. So, I don't think it will be that long because I do think things happen faster and things get worse faster, things get better faster. But I do think we could have a decade of little retail development which, in the long run, is great for us.

The second point I would make, I've heard other people talk about talking to developers. I think there's enough carnage out there that I'm questioning why they would talk to the developers. They ought to be talking to the lenders. And the answer is there's a lot of broken projects out there. I don't think a lot has been recognized. That may present some opportunity for us, you know. There is a reason why, on the other hand, that they're broken. But net-net, you know, if we are looking, we're bypassing the developer. We're going to go straight to the lender. And I think the bottom line is that we could have a decade of slow retail development which, I think, bodes very well for us and other major owners of retail real estate.

Does that include redevelopment? You've obviously had a lot of that yourself.

Well, I think redevelopment really hasn't changed that much. And if you look -- I don't think it will change from the big stable companies. So, our view on that is, you know, it isn't going to change at all. Now, you know, demand on a few projects may get a little squishy. But you know, from that standpoint, I still think franchise assets are so much easier to underwrite, s So much easier for the tenant to understand, and to the extent that financing is an issue, it is so much easier for the financing sources to understand. So I don't sense currently that that's really going to have the material impact. There may be a couple of projects here and there that get delayed or reconfigured, but I would think that that would be a big push for us in our peer group.

Thanks.

Thank you.

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

Good morning. The operating metrics that we're looking at, I guess in the first quarter for the most part are probably negotiated months ago. I'm wondering what your leasing team is telling you what the environment right now is for deals they're negotiating?

You know, it is interesting. I think the -- there has been little serious retrenchment on commitments or new stores. You know, there has been, again, on the margin a few people not wanting to do a few deals. I think the big issue for us the rest of this year and into early '09 is going to be with store closings, and so the focus on us is not so much on you know, the guy committed a store and he's not going to do that. That's been on the margin. We are going to get more space back because, you know, there are tenants that are closing stores or, you know, in - either through chapter 11 or an out of chapter 11 reorg. That will put some space on the table for us, so we're going to be in the process of re-leasing. Again, I wouldn't be overdramatic. We've seen it before. But that is a bigger issue to me than, you know, a guy going from store openings of 35 down to 30.

And would that explain the provision for credit losses kind of ramping up in the first quarter?

Yeah. Craig, it is Steve. I think that partially explains it. We're not really seeing a significant tick up in receivables themselves, but the composition of it has changed a little bit as we have tenants who have either filed or announced restructurings. There is probably a little more receivables that we would view at risk. Having said that, I think the amount of the provision that you saw in the first quarter, and certainly the year-over-year change is not reflective of what we would expect to see the rest of the year. I think we probably have taken most of the pain on that line item in the first quarter.

Ok. And do you have a sense of where same store NOI might be for the outlet sector by the year end?

I think it would be very similar - I mean look, that's a little bit more dependent upon sales than say the mall portfolio. So, it is a little harder to, you know, predict with accuracy. But I think we feel confident that we'll be able to maintain that kind of range. Same thing with the mall portfolio. Even with -- we still -- even though we're somewhat under 3 -- we gave guidance in the 3 to 4 range, still feel we'll be able to hit that. We'll end up having a little bit more unexpected stores coming back, but I think we'll make that up through, you know, other means including temporary tenants and the like. So, we still stand by our comp NOI for both portfolios. It is just going to be a little harder to get there, a little more work, a little more elbow grease.

Thanks a lot.

Thanks.

Your next question comes from the line of [Ambiqua Doyle] with Citigroup. Please proceed.

It's Michael Bilermann here with Ambiqua. David, you talked a little bit at our conference of going out and buying some debt, whether it be CMBS or some unsecured, and then you talk now about maybe going out and buying some of these broken development deals and going to the lenders. Where are you on that today?

Not a lot is trading on the CMBS side. It is very interesting. At this point, you know, it is just very hard to find the paper. We do expect that logjam to loosen up. And I think the construction loan side - I was going to be more graphic than I should be. So, let's see how I can word this. I think the beginning -- I think we're going to see the beginning of the recent developments starting to hit the fan because if you think about it, a lot of these were built -- they're going to have harder leaseouts because of the economy. They'll have a harder takeout because of where the secured market is. And so the combination of those -- they're going to be harder to sell because people aren't being that aggressive in valuations. So, as those mature or they tell the lender exactly what the story is, there's going to be a lot of pressure. I think that part of the game is just beginning. The question is, do we like the real estate? There's more lifestyle centers, as an example, going back to an earlier question, there's more lifestyle centers out there for sale than we've seen in the past. I think the floodgates of that is just going to begin to open. The question is, do we like the real estate productivity and some of these are going to -- we're going to end up dealing with the construction loaner.

How far are you in those discussions already?

It is early.

Very early.

Because they may have an interest carry for a year, lower LIBOR rates to help them somewhat, but judgment day is coming.

Steve, you talked about not liking where your unsecured debt is trading, you know, north of 300 over, and not wanting to issue into this environment. Are you actively trying to buy back some of your own debt?

We have not seen any of our unsecured debt to speak of in the market, Michael. We actually saw a couple of key pieces of some of our malls that we were very interested in, but the seller opted not to sell. You know, having said that, we have seen a fair bit of improvement in bond spreads over the course of the last two or three weeks, you know, and our bonds are probably trading 75 basis points inside of where they were, as the market has opened up a little bit. So over the long-term, I view that as a pretty good sign.

Are you an issuer at these levels?

I don't think at these levels, Michael, but I would tell you that we like the trend.

Ambiqua has a couple of questions.

How does store closures being more pushed back later in the year in 2008 impact the 4Q seasonality ramp that the business usually experiences?

It could make the fourth quarter actually a tad bit more seasonal, Ambiqua, but that may be at the margin. You may have a little bit of pressure on occupancy here in the second and the third quarter, as David mentioned, as we get more states back, and it just may mean that we have larger occupancy gains, you know, in Q4 as we re-lease that space and get people open for Christmas, but I think it would very much be at the margin.

And then is there any specific reason you're seeing that the closures are more pushed back later in the year?

No. It is really -- it is really dependent upon the status of the retailer, and what's going on there. So, you know, there are a handful of retailers that, you know, are basically in workout mode, and not knowing exactly what's going to happen with that workout. Are they going to go chapter 11? Are they going to reorganize out of the proceedings basis? Are they going to liquidate? We don't control the space, so there's some -- again, on the margin, there is going to be some variability out there depending on, again, and this is two, three, four -- two or three or four tenants that are out there that are in the midst of that process.

Okay. Then some of the retailers that have announced closures this year, they've announced closures that are occurring in 2009, do you have visibility on which locations those will be in 2009 or have you yet to get to that point in your discussion?

Pretty much we know it. We're pretty much negotiating. I mean it would depend, you know, I mean we're pretty -- we have a pretty good handle of the companies that are are either retrenched or announced some store closings, like the Talbotts, the Ann Taylors, the Gaps of the world, we have a pretty good handle. The ones that create a certain amount of uncertainty are the ones that are that are not -- you know, they don't have that kind of financial wherewithal. So we're trying to weigh that. So, I think generally I would say we have pretty good clarity other than, like I said, two, or three or four that are in the midst of thinking about whether or not they can do a reorg.

Ok, thank you.

Thanks.

Your next question comes from the line of Michael Mueller with JPMorgan. Please proceed.

Yeah, hi. Couple of questions. First of all, looking at the new and redevelopment delivery schedule, a lot of the projects there are '08 obviously. Just wondering if you can give us a sense as to what the pipeline looks like as you move into 2009-2010 for deliveries?

It really hasn't -- we really haven't backed off anything material in terms of 9 and 10. We're still very close to announcing a new outlet center in -- I would say in the next 30 days, that we will be able to deliver in '09. We're delivering a New Jersey premium outlet at the end of '08. We're going to deliver Merrimack in '10. And we'll deliver one more, this one that I talked about, in -- at the end of '09.

International pipeline is pretty status quo. Moving along as expected. We think there is a couple more South Korean opportunities, and even a couple more in Japan that we're working toward, those could be added to the pipeline. And on the redevelopment side of the equation, you know, the big projects are moving. Ross Park, South Shore, North shore, Burlington just opened with, you know, that - so, I mean most of the '08-'09 stuff, North Shore is at '09, South Shore is '10. We've got some big expansions with Orlando premium, which is '09. So, it is pretty much status quo just jumping out at it. Obviously we're looking to add that.

I mean the big one that we're going through approval,s which will take about a year, is the Copley, and we're still all systems go trying to get approvals there, but that's going to take a year process.

Okay. And then switching gears for a second, you said Mills was running ahead of expectations. Can you give us a little more color, maybe talk about the occupancy trends at the regional mall portfolio, the Mills portfolio, and how closing The Gap is trending in and just remerchandising?

Well, I would say that the actual Mills side, you know, we've got a lot of redevelopment that we're focused on. We have some real interest on retenanting some of the anchors. So, that's -- and we're actually making a significant amount of deals in the Mills with, you know, with the likes of Nike and Adidas and those kind of players. So, I -- you know, the Mills side is actually -- you know, we're very, very positive in terms of what's going on there. Part of that is because of the demand on the outlet side from specialty retailer and you know, the Neiman Marcus and Mills the Saks of the world continues to be very, very strong and unabated. That's what's obviously having a positive impact on the outlet -- on the premium outlet side as well.

With respect to the malls, we have a couple -- you know, I would say by in large, they're doing as expected. There are a couple that are in major redevelopment mode, that we're holding That were holding on to space as an example, South Vail and St. Paul is a great example of that. Where we're -- you know, we're still waiting in terms of -- so we're not making as much progress there as we would like and primarily because we're still sorting through the development there, [Alama], we're making progress there but again, we want to create some optionality with future redevelopment opportunities. So, I would say the bigger ones are kind of in a holding pattern as we sort through the development. The stable malls are all producing what we thought they would do.

Thank you.

Thanks.

Your next question comes from the line of Christine McElroy at Banc of America.

Good morning. Just following up on leasing. Have you seen a difference in leasing trends and store closings at your class A versus your class B malls? And just going into ICS you [gave us], what does your retailer meeting schedule look like versus last year?

It is -- it's -- you know, it is still very strong. We haven't seen a real change in that. I would say -- I don't know that it is so much A and B. I would say it really depends upon the retailer. And where that retailer is, you know, focused. And again, I think the team sector by in large is very strong and that's an A, B, and C, you know, centers. Then you have retailers that are, you know, again, more broad-based but you know, like, for instance, the Disney store is going through a process now where they're going to be sold or re-organized and, you know, that's across the board. So, it really depends on the retailer. It is obviously easier to lease up an A mall than it is a B mall. But I would say the demand isn't all that different between an A and a B. It just depends on where the retailer situation is.

What about new concepts? What kind of trends are you seeing in leasing there? And are there any you're particularly worried about?

No. I mean I think we have a very strong group of new concepts or new retailers expanding including - you know, there's probably 30, Abercrombie with Gilly Hicks, Hollister, Adidas, Ari of American Eagle, Apple continues to expand, [Back Racks], Bare Essentials, Charlotte Russe, Clark's, Coach Express, Forever 21, H&M, making a lot of deals with H & M, [Giocks], Godiva, Justice, Nike. So - Puma, Fashionale. So, there are plenty of new demand out there that are - you know, we think are going to help deal with some of the guys that are retrenching. So, it is actually - in that sense, a lot of deals are being made.

Okay. And then sorry if I missed this but Steve, could you walk through what kind of gave you the comfort to raise the bottom end of your guidance range at this point?

Christine, it is a couple of things. One, we're obviously one quarter into the year so we've got three months of actual results behind us. We've got more visibility into the leasing activity for the rest of the yea,r even though as David mentioned, you know, there is still a bit of uncertainty with respect to store closings in the second quarter. And then maybe most importantly, you've got a LIBOR curve that looks very different than it did when we published our initial guidance. So, put all of those three together.

Thank you.

Thanks.

Your next question comes from the line of David Toti with Lehman Brothers. Please proceed.

Good morning.

I like your new name.

Lots of pronunciations today. Can you guys speak a little bit about what you're seeing Internationally? Are you seeing retailers track the U.S.? Are you seeing increased concerns about store closings? Just a little bit on that climate there would be great.

The International business is, you know, we don't have a huge subset to make general - big general statements. I will tell you Italy is very stable, even though the economy there is not certainly that strong. So, it is very stable occupancies, and sales are pretty steady. Our new product there has been virtually 100% leased. That's very stable. Poland, we're down to two assets in Poland, but the sales there have been remarkable. So, the economy there continues to be very strong. Japan, even though Japan's economy is slowing, the outlet sector has an unusual niche there in terms of being able to produce sales growth. And so I think that's well -- very well-positioned as the Japanese economy slows which we -- you know, we're seeing certainly globally or domestically in Japan and we expect that to continue. But the -- you know, the outlet position there is very strong and the consumer really, you know, likes that value proposition.

So, I would say generally, you know, we haven't seen kind of the downdraft but it is a very specific asset base that we have. We're not in the U.K. So, I mean I would imagine sales there are probably tracking the U.S. But that gives you a sense - and in France, you know, we -- again, have assets there but I would characterize them as very stable as well, both occupancy and sales. So, you know, it is not the kind of volatility that you might expect.

All right. Does this strength increase your appetite at all for future investment from where you are now?

I missed the first part of your question. You broke up there.

Sorry. Given your sort of limited exposure overseas right now, does the sustainability of those -- the market strength increase your appetite for further investment?

Well, sure. I mean, you know, there is less retail there and that always -- that always makes the supply and demand equation you know, interesting, certainly from a risk adjusted basis. I mean the biggest issue is the dollar and you know, how you put capital out and, you know, and finding the right opportunity where we could add value and, you know, we've been working on it. We'll continue to work on it.

Great. Thank you.

I do think Asia, you know, certainly the new developing countries in Asia do pose a risk for some interesting bubble-like characteristics. So, not Japan necessarily, but I do think there are Asian markets that have had a lot of new supply and, you know, that's why we've been very cautious in those kinds of markets because there are bubble characteristics out there in certain parts of Asia.

Great. Thank you.

Thank you.

your next question comes from the line of Lou Taylor with Deutsche Bank. Please proceed.

Thank you. David, you had mentioned regional differences earlier in the call with regards to the comparable store sales with Florida being weak. What were some of the other regional differences of note?

Well, I would say the northeast, generally Boston, you know, pretty strong. No real issues there. Midwest, God love the Midwest.

We never had the booms but we're not having the bust.

We're pretty well positioned in the Midwest., like Indianapolis is a decent market for us. The other area that's interesting is southern California is - it's not quite like Florida but, you know, any markets that are really -- northern California seems to be very fine and, you know, again, our exposure there has increased somewhat through the Mills deal. But that seems to have a lot more stability than southern California where, you know, there was a lot more of the residential infrastructure in place, and so I would say that area is soft. Texas actually is holding up well. We're seeing softness in Nevada, Las Vegas for the first time in quite some time. So, we expect that softness to continue.

Okay. And then second question just pertains to your lease expirations in '08, your average rent there is pretty high, around $44 a foot versus low to mid-30s for most of the years. Is it going to impact your leasing spreads this year in terms of what your ultimately going to get due to mix?

Lou, it is Steve. It is a bit of an aberration just that we dealt with, you know, 75 or 80% of our expirations already. So, the stuff that's left, it shows at a higher base rent. David mentioned in his prepared remarks that we expect the leasing spread to return to kind of historical levels, you know, which for us has been plus or minus 20%. That's about where we would expect to see it.

Great. Thank you.

Thanks.

Your next question comes from the line of Carol [Kimball] with Hilliard Lyons. Please proceed.

Good morning.

How are you doing?

Good. On your income statement, I noticed that the other income line item was down. Is that -- can you tell me why? Is that something -

Yeah, that's the Mills.

That's the Mills.

Yeah.

Ok. Thank you.

Sure. And lease terminations.

We had lower-level lease terminations in '08 versus '07.

Okay.

Thank you.

Your next question comes from the line of Ben Yang with Green Street Advisors. Please proceed.

Hey, David. Your outlook business is doing very well. You had previously talked about bringing outlook tenants into the Mills portfolio. Have any retailers actually made this move or indicated plans to do so?

Yeah, I mean great example is Nike, you know, which is a big client of, you know, the Chelsea product. We have [KD Arundel], Colorado, Discover, Franklin and the Block all moving toward - either opened or moving toward deals, just as an example. Tommy Hilfiger, the same thing. And then we're actually getting, you know, some of the mall tenants like Ann Taylor, Victoria's Secret, Gymboree all moving toward either doing - in Vicky's case, they'll have an outlet concept doing Vicky's full price or with Ann Taylor doing their outlet stores. So, that's what -- you know, that's what is good about the Mills right now in this environment. I mean the outlet side of the equation is - you know, is very interesting to a number of retailers. The Neiman Marcus Last Call, the Saks Fifth Avenue off - lots of new deals are in works there as well. So, we're working -- we're seeing what we thought where we would be there. What we're also working on, which we're very close to bringing a full line department store in one property and then even maybe even building a whole lifestyle component to another property that's full line anchored. So, you know, on the Mills, I would say generally all are moving, you know, pretty positively.

Is it fair to say the Mills assets are defensive in a tough economy, similar to what we're seeing for the outlet centers?

It appears to be. There is a more interesting value proposition for the consumer, you know, but I want to be a little cautious because I think we're just -- we're still at the beginning of -- you know, in a down economy or -- I'm not smart enough to know what inning we're in, but it appears to be a little bit more defensive. Most importantly, the demand seems to be -- the demand on the outlet side is high, and it seems to be -- we seem to be seeing the benefit of that with the Mills portfolio.

Okay. And then finally, you previously also mentioned that you were still refining some of the Mills data. Have you guys found any more surprises, either good or bad, in the past few months or so?

Pretty much that's behind us.

It is? Okay. Thank you.

Thanks.

Your next question comes from the line of Jeff Donnelly with Wachovia.

Good morning, guys. Just building on one of Christine's regarding questions regarding [IPSC]. David, what is the tenor of your meeting scheduled there versus prior years? Are you seeing more meetings on the books addressing things like store closings or just renewals, versus filling vacancies or new projects, or is it just kind of more of the same?

Well, I would say it is more of the same. You know, I did live through -- you know and Rick is not on the call to commiserate with this. But we did -- there were several years where '93, '94, '95, et cetera, where all we did was essential workouts. I don't sense that at all at this upcoming convention. You know, there will be a few I'm sure, but I don't sense anywhere near, you know, what we had to deal with in the mid-90s.

Okay. And Steve, if I heard you correctly or - correctly in an earlier response, is it fair to say that you'll see the most significant level of lease expirations in Q2 '08 for you guys?

No. Most of the leases expire, a good proportion of the leases expire in the first quarter. Jeff, what I did say, I think, is that we still have some variability with potential store closings, and we will see probably more space come back to us in the second quarter.

Okay. I guess I'm curious as to if mall occupancy was down 10 basis points in Q1, and I think initially you guys projected flat to 100 basis point decline in guidance for 2008, at least at the start of the year. I guess I'm wondering if you have a positive experience say by the end of Q2, do you think you might reconsider the magnitude of the occupancy decline you gave at the start of the year for your full year guidance?

I think this, Jeff. I do think there is another, you know, 50 plus basis points of risk on the down side to occupancy Q2 from store closings that are, as David mentioned, are people who are either in workout mode or we would expect to get space back. The demand for space is still decent. We're pushing very hard, and the visibility would be can we get back to flat by year end? That would certainly be the objective. If we miss it, you know, I don't think we miss it by 100 basis points.

And I'm just curious, one last question on occupancy. Is it also -- I guess am I stretching too far to say any further declines in occupancy will probably come from expirations than terminations, as opposed to bankruptcies? Do you think your termination revenues could actually be above norm in the next few quarters?

Well, again, the guys that are, you know, we're hedging here because there are a couple of guys that are, you know, somewhat on this -- on the -- you know, deciding what they're going to do in terms of how they want to restructure. And I would say the variability is really with that sector of two, three, four tenants, as opposed to the guys that we kind of know what's happening with. So, some of that may produce lease termination income but it is still in process. So, you know, the bottom line for us is you know, we still think we're going to grow our NOI 3% or 4%. Composition may change somewhat because of the -- the variability of, again, these -- the handful of tenants I talked about.

David, are they more in the home goods area, or is there a particular theme to what area they operate in?

It is really across the board. Disney is a great example. The Disney Store situation. You know, we're negotiating with them right now. As you know, they were owned by Children's Place. There is a movement toward Disney buying them back, which is actually very positive for us. But they don't want to operate, you know, the 350-store chain that they had. They want to operate a smaller chain. You know, we're going to have some closings associated with that, and you know, we're negotiating. So, it would be great to say here's what's exactly going to happen but we're still in that process of working through that. That's really -- it is -- a couple of those guys that are like that, like a Disney, like a Wilson's, that we're still trying to get a handle on that, you know, we're working obviously closely with the tenants but that's creating the variability.

Okay. Thanks, guys.

Thank you.

Your next question comes from the line of Jeff Spector with UBS. Please proceed.

Good morning.

Hey, Jeff.

Does your guidance still assume a soft landing in the economy?

The guidance makes no -- I would tell you that our guidance is really not dependent upon the economy. You know, I don't know that we can sit there and say - you know, forecast GDP growth and then that's going to spit out Exactly what comp NOI is going to be. You know, we have -- it is a judgment call. We know kind of what our lease up is. We know -- we have variability in sales. We have variability in interest rates. You put it all in. We make some judgment calls. That's how it gets -- that's how we get to our numbers and that's why we have a range. You know, that's also why I'd love not to give guidance, okay? But you know, we're fine. And you know, if it does become less or more severe then I think there will be more opportunities for us. So, I'm good with that, too.

Okay. And with the year-to-date rebound in reach stock prices, if they remain level for a period of time, do you think we'll see a pickup in M&A public to public?

Well, you know, I don't know. I guess maybe. I really -- M&A is such a -- is such a -- an emotional framework that I do think that -- let me put it this way. I do think a running -- running a company in a tough economic environment is -- you know, is very difficult, and I think it will wear down a lot of people. Not us. But it is going to wear down a lot. And usually when you're worn out is when you want to get out. So, you know, I guess I'm not -- I don't know if it is stock price so much but more of kind of where the mindset is, and I think it is tough. It is tough and running any company in a tougher environment. And you know, that could lead to more M&A, more than stock price -- stock price charts.

Okay, thank you.

Thanks.

Your next question comes from the line of Nate Isbee with Stifel Nicolaus. Please proceed.

Hey, I'm here with David as well. What are the leasing spreads you're generating in the traditional [Mills] portfolio?

I would say they're consistent with the mall business, specialty stores.

Okay. And just to touch base with -

We're very anxious to see David when he tours the portfolio. We're going to want an escorted tour, though.

Yeah. How is [Alamowala] looking these days, David?

What's that?

I'm sorry.

That's the wrong company.

The [Delamo], sorry.

Delamo? Well, that's not a Mills. Delamo is, you know, still in lease-up phase. A unique asset with lots of opportunities.

Any movement there on a fashion anchor? The fashion anchor has been discussed for five years. I know it wasn't you. But any progress there?

We have only discussed it for a few months so you know, we still have some time there.

You're hopeful?

It may be harder to achieve than, you know, what Mills -- I still think there is a possibility but it may be harder to achieve and the time period may be longer than what the market was originally told by the earlier group. We're still working on it, in other words.

I understand, thank you.

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Your next question comes from the line of Rich Moore with RBC Capital Markets. Please proceed.

Hi, good morning, guys.

Good morning.

What are you seeing on the concession front? Are you offering more concessions in this environment, being that it is a bit tougher for tenants?

No. The only thing I would say is that to the extent that we have a tenant in the workout mode, we do a thorough -- that's really when they have leverage on, you know, okay, we're going to -- if you don't make a deal, we're going to put in chapter 11, and I mean I put that aside because in that case, I mean we have to decide -- we do a pretty thorough analysis on whether we're better off recouping our lease value through what the estate would get versus what kind of retailer they are, what kind of company it is, and whether we're -- it is in our best interest to keep them going. To put that aside, I would say generally if it is just a straight-up deal, there's not - there hasn't been a big change in - you know, much higher TA or much lower rents. Everything is on the margin. I would say that trend is pretty consistent. We are giving some rent relief to tenants that are -- you know, in this workout phase, I'd say.

Okay. Good, thank you. Then on the specialty retailing side, you know, that's an area you might think would run into difficulty in a weaker environment. Is there any -- do you have any thoughts on specialty retailing at this point?

Well, again, it depends on the tenant and the sector. You know, lots of teen retailers are doing very fine. You know, the H&Ms, and the - of the world and the Forever 21s are doing extremely well. So, it really depends on the retailer. I would tell you that it is not -- you know, it is tough but it is not a disaster in a lot of cases.

Okay. And then how about like the carts and kiosks, Dave? Is that an area --

You know, surprisingly, we're okay there. I mean I would think that -- I would tell you that I would have thought that that business would obviously be impacted by the economy, but we're going to -happened to ride up with the guy who runs it today in the elevator, and I grilled him to make sure because I knew I was going to get this question. I'm kidding. He seemed to be fine. There may be a little bit of receivable issues on some of them, but demand is holing up and he thinks, you know, we'll be okay for what we're thinking about this year.

Okay. Okay, good. The last thing, Steve, what are you thinking for LIBOR? How did you come about a LIBOR assumption, I guess, when you were working on your guidance for 2008?

Rich, whether it was the original guidance or the updated guidance, all we do is take the forward curve. I don't pretend to be any smarter than what the forward curve is.

I'm disappointed. I thought you were going to tell me where LIBOR is going. Thank you, guys.

But if you know, let us know.

I certainly will.

All right. Thanks.

Ladies and gentlemen, that concludes our Q&A session. I would like to turn the call back over to management for closing remarks.

Well, thank you, everybody. We're disappointed we didn't get the question about Rick's shoulder, but he's recuperating fine.

We're sure he's listening in and we wish him well.

We wish him well. In any event, thank you. I'm sure we'll see some of you in the next month but appreciate your support. Thank you.

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