西蒙地產 (SPG) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 2008 Simon Property Group Inc. earnings conference call. My name is Becky and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Ms. Shelly Doran, VP of investor relations. You may proceed.

Thank you. Welcome to the Simon Property Group's third 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 and 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 the call includes time sensitive information that may be accurate only as of today's date, November 3, 2008. The Company's quarterly supplemental information package was filed earlier this morning as a Form 8-K. This filing will be available via mail or email and it is posted on the Simon website in the investor relations section under "Financial Information Quarterly Supplemental Package."

Participating in today's call will be David Simon, Chairman and Chief Executive Officer, Rick Sokolov, President and Chief Operating Officer, and Steve Sterrett, Chief Financial Officer. I will now turn the call over to Mr. Simon.

Okay. Good morning and thank you for joining us today. We're pleased to report another strong quarter and I would like to just take a few minutes at this time to review highlights for the quarter and then we'll open the call up for your questions. Third quarter FFO, funds from operations, was $1.61 per share, up 10.3% over the prior year. All of our property platforms continue to perform well. Occupancy in the mall portfolio was 92.5% as compared to 92.7% in the year-earlier period, despite the fact that square footage loss to bankruptcy for the first nine months of 2008 totaled 435,000 square feet as compared to 53,000 square feet during the first nine months of 2007.

Our premium outlet portfolio remains nearly fully leased at ninety point -- 98.8%. Comparable sales in the mall portfolio was $493 per square foot, up 0.04% as compared to the year-earlier period. Sales have been affected by the week US economy. Premium outlet sales growth remains strong, increasing 4.2% to $520 per square foot, driven by our centers with substantial international tourist exposure, as well as the US consumer seeking value. Comparable property NOI was up 3.1% for the mall portfolio and 6.6% for the premium outlet portfolio for the nine-months ended September 30. The releasing spread of our mall portfolio was $8.65 for the first nine months, representing a 23.6% increase. The releasing spread for our premium outlet portfolio was $13.02, representing a strong 49.4% increase.

We recently completed significant redevelopments at Tacoma Mall in Tacoma ,Washington; University park in Mishawaka, Indiana; and started construction on our eighth premium outlet center in Japan. In the last month Nordstrom has opened new stores at the Fashion Mall at Keystone in Indianapolis; Roth Park Mall in Pittsburgh and Tacoma; and this week we'll open the fully-leased expansion of Orlando Premium Outlets and next week we'll open Jersey Shore Premium Outlets, which is over 90% leased. We will continue to remain diligent in allocating capital only to those projects that meet our return requirements and in fact, given the current economic conditions we anticipate our capital spending will be down significantly in 2009.

In the third quarter SPG completed six financing that totaled $1.220 billion of proceeds with a weighted average term of six years and an average interest rate of 5.72%. During the quarter we also unencumbered fixed assets that generate over $57 million of annual EBITDA and are unencumbered portfolio to generate -- today generates annual EBITDA in excess of $1.7 billion and sales of approximately $500 per square foot. We have addressed all of our 2008 debt maturities. We are well-positioned financially, given our significant cash position of over $950 million, including our share of joint venture cash and our availability in our corporate credit facility of over $2.5 billion.

Before I get to guidance and my concluding remarks I would like to address two items out in the public domain, the first of which relates to traffic and occupancy. There are a number of firms that monitor and report shopper traffic and occupancy at US malls. These firms issue releases and are interviewed by national media sources purportedly as industry experts on the topic. I would like to go on record and state definitively that we do not report any data to these firms. I believe that several other owners of high-quality retail real estate assets also do not participate. Therefore, I leave to it your judgment as to whether or not their data is representative of the industry and certainly not us. Additionally there has been a great public -- great deal of public speculation about the possibility of our acquisition of General Growth Properties. While our policy is generally not to comment on specific rumors like this, I will tell you that in the current environment I can't envision a set of circumstances that would result in such a transaction.

Now let me turn back to guidance and my concluding remarks. Based upon third quarter results, projected activity for the rest of the year, and our view of current market conditions today we gave 2008 FFO guidance of $6.40 to $6.45 per share, increasing the lower end of our previously-provided range by $0.02. Our initial guidance for 2008 was $6.25 to $6.45 per share and did not anticipate the second quarter 2008 debt extinguishment charge of $0.07 per share. I believe with the drastic change in the economy we're probably one of the few real estate companies that have effectively increased our 2008 guidance. These are clearly challenging times but I believe we will continue to be successful, including generating positive NOI growth from our portfolio and FFO growth in 2009.

We anticipate, obviously, a slower leasing environment and have worked diligently to execute leases for upcoming expiration. As a result we are ahead of where we were at this point in time last year in leasing our upcoming year's expirations. We are aggressively managing our cost and our capital spend and we have a strong balance sheet. I will remind you that we are more than a regional mall company, with substantial income generated by our community center and premium outlet portfolios, both of which should benefit -- offer benefits in a challenging economic environment as consumers continue to look for value.

With that said we're pleased with our results and we're now open for questions.

(OPERATOR INSTRUCTIONS) And your first question comes from the line of Jay Habermann of Goldman Sachs. You may proceed.

Hey, good morning , here with Johan, as well. I guess, David, just to start, clearly the change in outlook and the credit markets can you talk about the 2009 outlook for debt maturities and what options remain available? You did do a stamptial -- substantial amount of refinancing in the quarter and that's certainly positive news, but sounds like you're keeping some powder dry here, you want to keep cash on the balance sheets as well as your line free and

That's accurate. We have $900 million of senior unsecured notes that come due next year, as well as our share of secured debt around $900 million. We don't anticipate any concern about refinancing the secured debt. We are making progress. Obviously the capital markets currently are more or less shut down. I think we've been anticipating for a year now that the world was about to change. We're well positioned to handle that as evidenced by our credit facility, as well as the amount of cash on our balance sheet.

Hey, Jay, this is Steve. I'd just add one comment, In the secured debt that's coming due in 2009, it's properties that average $500 per square foot. It's properties that even as pretty conservative cap rates are 50% loan to value. So I think, even in a relatively-difficult market we feel good about our ability to roll that over.

Okay, sounds good. And you mentioned, as well, reducing the CapEx for next year. Can you comment on specifically what percent decrease you expect? And also, David, your comments with regard to a large competitor? Would you look at one-off acquisitions in terms of individual assets?

Well, let me talk about capital spending. We anticipate a flexible number because we continue to work very diligently to add a lot of value to our portfolio. We feel that there are going to be a number of unique opportunities to do that in the upcoming years. I call it kind of a flex office, flex defense. Right now we're in the flex defense. Our share of capital spending we anticipate being just under $400 million next year in '09. That can certainly increase opportunistically if the world stabilizes, which I think it will in '09, but we're certainly planning that it won't, and that's just my judgment and -- listen, I want to say any -- I went outside of our corporate policy. I'm not commenting on M&A transactions, but I felt like given the size of the transaction, the importance of what's going on there I felt like I had to answer it. Other than that, Jay, I really couldn't shed any more light on that, other than we've been real good stewards of capital here. We will not do anything stupid and we are very focused on continuing to grow our Company prudently. Beyond that I don't want to comment other than those statements.

Sounds good. And then just last question, in terms of the NOI growth you gave the year-to-date statistics. The quarter was -- obviously the third quarter result was a bit of deceleration from the previous quarter. Was there anything in there specifically, whether it was higher bankruptcies you referenced?

No, let me just focus on that. I would always a look to the year-to-date number. I go back, for instance, in the second quarter of '07, the malls had 1.6% NOI growth and the quarterly numbers have a lot of variability to it. We still think very comfortably that knowing we're going to grow the comp NOI of the mall portfolio consistent with the guidance we gave, the third quarter was a little bit lower than that but what we see in the fourth quarter we think will make it up so we're within that 3% to 4% range.

And if Rick is there, any comments on October sales or any thoughts on the Gap and the announcement to close stores?

I 'l just add Rick -- while Rick's gathering his thoughts, what Gap is doing is not unusual and it's something that we've, frankly, have seen and been dealing with over the last couple of years, we don't have October sales. We get those anywhere from 20 to 30 days in arrears, built anecdotally we think October sales are going to be tough. Rick, now that you've gathered your thoughts?

I think October sales are going to be tough. (LAUGHTER) I will say to you that this environment from the credit side is certainly more unique, but in terms of the give and take with our tenants we've gone through this a number of times before. We're working through with our tenants and we are still proceeding with all of our leasing activities and that is continuing a pace.

Great, but it sounds like the spreads are still holding up which is good?

They are.

Okay, thank you.

Thanks.

And your next question comes from the line of Lou Taylor of Deutsche Bank. You may proceed.

Thanks, good morning, guys, David, can you talk a little bit specifically about your January unsecured bond maturities and just philosophically how do you plan to address those, either through secured financing, just using cash, using the line, just how do you specifically think you're going to refinance those bonds?

Well, we're going to use our corporate facilities and/or our cash, assuming -- we're assuming right now that the unsecured markets are not going to be that attractive. So at this point that's why we have husbanded our capital appropriately and we don't -- obviously that's not an issue for us. I think, we think strongly, we believe that there's lots of opportunities for to us access capital of a Company of our position and our liquidity. But right now we're not anticipating that and we'll just use our cash that we have a husband for the -- on the balance sheet.

Okay, thank you. And then second question for Steve, Steve , in terms of the JV share of FFO, or contribution to FFO this quarter, it looks like other income and other expense bounced around a bunch from Q2. Any major events or drivers

Lou, there was just one thing. We sold the residential component of The Domain, which was, as you know, a mall that we opened in Austin, Texas about 18 months ago and our share of the gain -- that was a 50/50 venture with a multi-family developer and our share of that gain was about $9 million.

Great, thank you.

Thanks.

Your next question comes from the line of Christy McElroy of Banc of America. You may proceed.

Hey, good morning, everyone. Just following up on same-store sales growth, can you break that out by month during the quarter? I know that you said that October is not going to be great but I'm specifically curious about the trend in September.

Look, we don't do it by month, but September was worse, September brought us -- basically we were up July and August and September was a tough month in terms of sales. We still ended up 0.04%. But the important thing, we are not a retailer so we don't live and die by monthly sales, and September was a bad month. You saw the retailers. But beyond that we do this on a quarterly, I think it's more importantly -- more important to do it on a quarterly basis because, in fact, we're not a retailer and the what happens in one month really doesn't have any bearing on us at all

And then I noticed in the Mill's regional mall portfolio there was about a 2% decline in comp-store sales, would you say that type of a decline was fairly characteristic of your class B. C. malls in your portfolio in Q3?

No, not really. I think you've got to look at where the malls are and any new competition that comes to the market. Nothing there that would cause us to be overly concerned.

Okay. And then regarding development leasing in this environment, how much more difficult has it become over the last month to get a retailer to sign a lease on a new development project, both in the US and internationally, and have you seen any tenants pulling out of projects?

Well, the fact is we don't have much new development. We have the expansion of Domain under construction and we have Cincinnati Premium Outlets and we're opening New Jersey, and we had the option of starting some new stuff next year but that's it. So we don't have new development, really, undergoing this year. I will say, though, it's clearly -- there are a handful of retailers that have cut their open to buy, a handful of retailers that are essentially waiting to decide how much they're going to spend next year in terms of CapEx, waiting to see what happens for the next three or four months. Some plans are on hold and frankly we anticipated that. That's why we've been pretty prudent on new development. But, Rick, you can add to that.

And the only other thing I will tell you, at Domain we are done with our anchors and we're probably about 65% leased as we sit here today for an opening in November of '09. So what we're finding is that on the good opportunities people are still interested and happily we do not have a lot of inventory out there right now that we need to deal with that's new.

Is it fair to say that redevelopment leasing has been a lot easier?

Well, it is, but we've been successful In our new development, as well. So for us right now, even though we've had some volatility with certain retailers on a few stores here and there, we feel that we're executing both our redevelopment and our development pipeline according to plan. Now, we expect '09 for new store openings to be at a reduced level. That's why we're a little bit cautious. We're listening to our clients. We're not forcing the issue. We certainly could in some cases, but we're choosing not to. But we're still seeing success in what we're accomplishing, both through our redevelopment and development efforts.

Okay. And then just last --

As evidence, Rick and I were in Pittsburgh, I don't know, was it last week --

Last week.

-- and what we did in Bur -- I was in Boston the week before with Burlington and what we've done there, so we're getting the job done.

On your lease expirations in 2009, I know you said you're ahead of last year but how much of that is already addressed to date and what should we be looking for in terms of releasing spreads versus '08 levels?

Well, let me just give you a sense of the activity that we've had in the mall portfolio. Year to date we have -- and this is all fully-executed -- we have 6.9 million square feet of leases that have been fully executed in '08; that includes new deals, relocations, expansions and renewals and that's 2,451 deals through September 30. We have out for signature -- now these are in process but once they get to a certain point in our system we have a relatively-high confidence that they're going to be executed -- an additional 4.213 million square feet of space representing another 1,336 leases. So as we've been saying for the last several quarters, we have been very focused on dealing with our tenants on a much broader outlook in terms of years. We are substantially ahead probably 10% to 15% as we sit here today on '09 renewals where we were as against '08 renewals and we're now substantially 92 renewals that are coming up in the first quarter of '10 and that was an increased focus on us. We instituted it back in '06 and it's standing in very good stead with us. To date our spreads are holding up, as we've reported, and certainly we are going to continue to make sure we price our space appropriately.

Great. Thanks, guys.

Thank you.

Your next question comes from the line of Mark Biffert of Oppenheimer & Co. You may proceed.

Good morning. David, my first question's regarding the redevelopment and development pipeline. When you look out to '09 what are you guys raising your hurdle rates to when you assess new projects?

Well, that's a good question. Clearly our cost of capital has increased reasonably, right, not more than the marginally. Now we do think that this -- the volatility associated with it and its rampant rise is not a stabilized number, so we're trying to get a handle on that. But I think from new development standpoint thankfully the returns -- the new development focus continues to be with the Chelsea product. The returns continue to be north of 12%, probably in the 12% to 14% range conservatively underwritten. That will continue to motivate us to build, assuming we can still achieve those.

And the redevelopment is a little bit lower than that. We still are looking for double digits. I think we can justify that, given also what it does to the other parts of that asset and also how it positions it in the marketplace. But I would tell you that new development would be north of 12% to 14% and redevelopment would -- clearly we would be looking to try around 10%. And if the current volatility and rapid rise in our cost of capital and the industries' stabilizes at that level then we're going to have to reassess. But my guess is we're dealing with a temporary phenomenon right now.

How temporary in your view do you think that will be?

Well I wish I knew. I really don't. But I don't think -- I think historically our cost of capital has been a lot lower than that and I think it will trend toward the mean. It may not reach where we were in the 2007 period, but I do think it'll revert back to the mean and those kind of investments will add to our net asset value and the value of our firm overall.

Okay. And then, Rick, if you can talk a little bit about the backfill -- or the pent up demand that you might have in any of your malls in terms of the replacement tenants for those that are closing stores, like Boscov's and in line retailers?

I think we've demonstrated over the years that we have been very successful in replacing those types of tenants. An important thing to point out with the Boscov's stores that are closing, those are currently owned by others. All the Mervyn stores that are closing are owned by others. So we are working with those owners in order coordinate activities. We have been actively soliciting interest and we have identified a number of users and it's a combination of working with the people that own those stores and identifying users to come up with a way to go. There are still boxes that are interested in taking these locations, but frankly, as you saw with our Macy stores, a lot of the opportunity comes from just adding additional small shops and in the properties that are better properties that's a significant advantage for us because we want additional small shop space to take advantage of the demand. In the better properties demands is unabated. There are still people that are interested in coming into the better properties and if we can obtain these boxes back it gives us an opportunity to do that.

Okay. Thanks.

Thank you.

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

Good morning. If I just stick on that point for a second, does that suggest that this is one area where you still do have an appetite for investment in buying back some of these boxes like you did with Federated May or is there less of an interest than there was then given the market as it is now?

Look, I think there is. I think the fact is, though, the people that bought those or refinanced those boxes bought them in a robust market and they have to understand that values associated with those boxes are different in our view than their view. So the answer is, yes, we're interested in buying them. It's probably not at the prices they have either on their books or what they would like to get and we'll see how it shakes out.

Okay. There've been a lot of retailers putting out various releases and comments about aggressively renegotiating their rent and requesting relief and various things like that, could you just give your comment about when you see these what your view of what's going on right now and, for example, are you giving the type of relief of going to percentage rent only type structures or what your stance is in those negotiations?

Well, sure. It's safe to say that this is -- we have dealt with rent relief and rent relief requests basically since I've been here since 1990, right, so that's about 18-plus years, and it really is very retailer specific. And ultimately the only thing I -- the judgment call mostly comes in if we think that the tenant's about to file chapter eleven and whether we can help offset that through some combination of rent relief or negotiated store closings. And we'll look at it. We're very -- we have a -- basically an unbelievable staff that can assess viability and what we might get in chapter eleven reorg versus the prospects of them going forward if we grant them rent relief. A lot of times it's an industry issue so if we're doing it we'll find out what the other developers are doing and more or less come up with a consistent format. So that really is retailer specific.

If it's an existing lease and if it's a healthy retailer we really won't entertain rent relief. And the only other item is if it's at the expiration of a lease and that's typical depending on the market value of the space what the tenant brings and so on. And I will tell you that there is anecdotally some increase in rent relief, but our policy and procedures in how we deal with that hasn't changed in this market and I will say that I've been doing this for awhile -- not as long as Rick -- but I will tell you that our approach to this has not changed and what we've seen really isn't anything that causes us by any stretch of the imagination alarm. This is consistent with a down economic cycle and one that we know how to navigate through.

I would only add two things. One, we have made it incumbent upon our leasing agents to look out a year to identify those tenants that David just mentioned that are coming to an end of the lease term with lower-than-appropriate productivity and we want to make sure that we have already started leasing their space to another tenant. which will enable us to hopefully maximize our ability to either renew that tenant with better rent or just say, thanks, we appreciate that you have to leave, good bye, because we have a replacement tenant at market rate. And the only other thing I would say -- and this is to David's point that we're not a retailer -- we're very focused on the credit of our tenants and we have an entire department here that is constantly assessing that credit and happily in this cycle the credit of the tenants that we're doing business with happens to be substantially firmer than it was in previous downturns, say in '80 and in '90. So you have many less people walking in and saying I'm out of business, now let's talk.

And the only other thing I'd add to that, Paul, is obviously our position in the industry, our quality portfolio, our Premium Outlet portfolio allows us to be best positioned to negotiate with the retailer the best possible outcome for us and for the retailer. So we have tools available to us that are somewhat distinctive.

Thanks. My last question on the rent spreads, there's a big healthy spread between where your expiring rents that show up on your lease schedule versus where you signed -- the rate at which you've signed leases so far this year. Is there any reason that we might be cautious in interpreting that as just a very healthy cushion, is there some vulnerability or -- I don't want to just all of a sudden assume that you're going to get the same spreads or even assume that the spreads will be positive, but is there anything we should think about in terms of the size of that spread now and where you think it'll come out next year given what retailers are saying?

Well, Paul, th mix of leases that are expiring does change from year to year, so looking at, for example, the leases that we signed in '08 and trying to compare them to '09 expirations is a bit of an apple and an orange, but what I would tell is that you can go back to look at five years of history in our K. and our rollover spreads in the mall business has been pretty consistently between 15% and 25% and I think we would expect that same range of outcome in 2009.

Thanks.

Your next question comes from the line of Michael Dimler of UBS. You may proceed.

Hi, good morning. This question's aimed at Steve. Just wanted to try to get a more numerical sense of what's going on at the mortgage level with respect to your JVs. Compared to a year ago, maybe two year ago, what can you -- what kind of a cap rate are the lenders putting on the properties now versus then, and what are you seeing in terms of the bids on the rates?

The market is obviously much different than it was a year ago. The cap rates specificly is going to be very dependent upon the quality of the asset, but it's -- I think it's fair to say that cap rates are higher, loan to values are lower and spreads are wider. And we've clearly seen all three of those move in that direction over the course of the last six to 12 months.

I would add, though, if you look at our historical finance policy, Michael, we have never been looking for that last marginal dollar, that last marginal cost. So even though cap rates have moved up and they can -- the cap rates have moved up say 9% to 9%, as we run through our maturity schedule on secured assets it will be at something abnormal for us not to be able to refinance our existing secured debt. We may have a couple of ones that even in today's environment that may require some level of capital contribution in terms of dealing with the amount of new mortgage, but we have never been the max proceeds guy on secured financing.

And remember we also have partners in these and where you see most of the secured financing is with our JV partners. So to the extent that that does happen our partners are going to have to come up with a capital contribution but I will tell you, and underline, that we don't anticipate other than a couple of mortgages here and there assuming the world stabilizes even in the higher cap rates. In addition, the most important fact that I can tell you is that we have $1.7 billion of EBITDA that's unencumbered, right, so put whatever cap rate you want to put on that. I think I made it my statement $500 per foot in sales. That gives you a sense of the fire power that we have to deal in today's volatile financial market.

I just want to clarify, you said 9% is not out of the question in terms of cap rate on some of these assets?

Yes.

Okay. And as a follow up, I'm curious as to -- there's a lot of noise out there that the life insurance companies might be pulling back on direct real estate investment and lending. I was wondering if you could just sort through who's really out there in the market right now and who's pulling back?

I think it's safe to say -- and that's why '08's done for us -- that a lot of life insurance companies that on hold for the rest of this year. We've been told by them they're anxious to replenish their investment next year. They're on the side lines. That's fine for us, it doesn't matter because we're done. But there are a number of life insurance companies that aren't making commitments for the rest of the year, no big deal. We anticipate them coming back into the market. It would be awkward for us to go through and list them other than we've been a wonderful borrower from life insurance companies. Sponsorship is more and more important. As they go through credit committees they're going to want to put dollars out. We have tended to perform for them so we think when things normalize or stabilize in '09 that we'll be able to tap into that market, as we did in the third quarter. We closed a life insurance company deal at the end of the third quarter.

Okay, great color. Thanks.

Thank you.

Your next question comes from the line of Michael Bilerman of Citi. You may proceed.

Thank you. [Quinton Valeli's] on the line with me, as well. David, just going back to your comments on GGP, you were very specific to say that you don't -- say that you can't envision a set of circumstances that would result in an acquisition of the entire company. What are those circumstances that led you to say that?

Well, Michael, we're important stewards of capital here, we will look at any and all transactions, but we're also realists about capital markets, return expectations and so on, and that's led us to the conclusion that we are where we are today. Beyond that it's awkward for me, I would rather not comment more than what I've done. There's been lots of public speculation so we felt it was important to address it. But obviously the size of the transaction is probably the biggest reason and where capital markets exist today for size we are realists, so I think that's important to communicate to the market given the speculation out there.

I guess at the same time if -- based on your relationship and your capital position if you're able to derisk the transaction somehow by bringing in partners, by carving up the portfolio and getting it at the right price and working with the lenders, it's not off the table, right? I mean this is just saying, look, in its entirety I'm not me alone going to do it in the current state?

Beyond what I said I can't elaborate, but I just want to reinforce the fact that in all of our transactions that we've done we've done them appropriately, I think. In hindsight I think the market can attest to that. The last thing we want to do is absolutely make a mistake or take an undue risk in today's environment And that's where we stand.

It's just Quentin here. You commented that same-store NOI and FFO growth would both be positive next year. Can you just comment on the drivers behind that assumption?

Well, again, just so everybody knows we have a consistent cycle on how we budget at the Company. We do that basically unfortunately in the month of November so we're -- actually we've been at it a little bit longer so we've been doing that, then we announce our growth at the end of -- I'm sorry, at the beginning of '09, somewhere near our earnings -- first quarter earnings -- or year-end earnings call. We're going through the same process but obviously we know what we've developed, we know what we've redeveloped, we have preliminary budgets that we're going through from all of our various platforms and we can put it in the blender and get a sense of where thing are headed and that's what gives us confidence to state that. The exact range and numbers we'll communicate that to the marketplace. I also want people to get some sense of comfort that even in today's world we feel like we'll produce positive NOI growth and we'll do that through leasing, cost containment and then what's coming in the pipeline. I think that's the important statement that I wanted to convey to people.

Okay. And just in relation to Liberty you've increased your stake and there's obviously a lot of rumors out there at the moment. Are you able to make a comment on that at all?

No, other than we continue to own the stock. We believe we're -- the stock we own is under the intrinsic value of the company, even in -- as the world adjustments in terms of what cap rates are. And beyond that we don't have any additional comment.

What is your stake currently?

It is what --

The same as we disclosed at the end of the quarter, Michael.

You haven't bought any more in the market?

In the UK you have to disclose additional increments of over 1% so let's -- it's safe to say that we have not increased the stake beyond the 5% or else we'd have to disclose it.

Then I guess in you're -- when you're talking in terms of same-store growth for next year, I guess it wrapped up in that it's not a huge fall off in unexpected closures on the retail front, occupancy declines that you just are really out of your control?

Well, look, we're certainly budgeting what we know in these numbers and we're certainly being conservative, but as much as we'd like to say there are things out of our control, that's correct, the biggest of which is that. But the biggest one also is to some extent percent sales and it doesn't -- it's not a huge number but it's obviously hard for to us predict where sales for a particular retailers are going to be in '09. So, sure, there is some volatility. That's why we give a range and that's why we'll treat that the same way we've treated our earnings guidance. In addition the good news is I think -- I've had Shelly look at this thing, we've gotten really good at this. I think if Shelly knows these numbers -- I've looked at the last 20 quarters, I think we've beat 17 or whatever it is once, twice. It's really good performance. We would hope to be able to continue to do that next year.

Just one last one. n the international Premium Outlets development, it looks like two projects have dropped off the list, one in Italy, one in China. Can you just comment on --

Let me -- I'll take mea culpa for the team even though it wasn't my typo. We accidentally dropped off the deal in Sicily. It's not a Premium Outlets, it's an actually a hyper-market anchored mall in Catania. That is still all systems go, it's under construction. We just had a typo. Don't lose confidence in the other data. I just think it's a -- it happened. Happy Sterrett's turning into our China expert with a little guidance from me. We have actually -- we have put that in a holding pattern waiting for just a little bit more data from some of our existing four centers there. We may be pushing that back or we may be putting that on permanent hold, so at this point we anticipate putting that on hold for the time being.

Okay. All right, that's great. Thank you.

Thank you.

Your next question comes from the line of Jeff Spector of UBS. You may proceed.

Good morning. Is there any way you could quantify some of the things that could impact same-store NOI in '09? You talked about the pressure retailers are putting on renegotiating deals, some of the other things that we could see?

Well, I think it's the same -- it's the same metrics that affect us every year. I don't think it's any different '09 versus what's transpired historically. It's lease up, it's occupancy, it's sales growth, it's rent spreads and then it's what we can do on the cost side. So all of the same fundamentals apply even in the more difficult retail environment that exists. As I said we still feel pretty good at the moment where we stand today that we're going to generate positive NOI growth out of both the material parts of our business, being the mall business and the outlet business.

Can you talk about leasing progress for '09? I'm not sure -- I apologize if you said it -- what percent you've completed so far?

We are ahead of '09 as we sit here today. We're probably about 70% through our '09 renewals, which is in advance of where we were this time last year -- or going into '08 as we sat here on our third quarter call in '07.

Can you talk about the releasing spreads you've gotten so far on that 70%?

Well, as we said earlier, the spreads as demonstrated in this quarter are holding up. We just have to get the leases. We've already fully executed a substantial number this year and we hope to have more and the spreads are holding up. Okay. And did you provide an update on King of Prussia?

No.

No.

No update?

There's not been an update as far as I know.

Okay, thank you.

Thanks.

And your next question comes from the line of Ben Yang of Green Street Advisors. You may proceed,

Hi, good morning. David, in the past you've talked about your expectation that the Company might take advantage of certain distressed real estate opportunities -- and not necessarily pertaining to GGP -- given what's happening in the retail and credit markets yet it sounds like you're clearly concerned about the availability of credit, as well as your own capital needs probably a few years from now. So in light of that how do you balance the desire to pursue attractive real estate opportunities versus maintaining a healthy balance sheet?

Well, that's what a Chief Executive Officer does, right, so let me just say this. I'm not worried. I just want to underline what you said, which is I have no worries at all about our ability to deal with what we have to deal with here. So there was a phrase in your question that suggested that we might have a worry about what our capital needs are here and how we're going to deal with it. I have -- I want to underline this strongly, I have no worries about our ability to deal and meet with our capital needs here.

Now I love opportunities. I think we've been opportunistic historically. I think in this environment we will be able to do that, Ben. But on the other hand, we've got to be thoughtful on how we do that and the world is a little bit unstable and I think we're just being extremely cautious which is what we -- I think appropriate to do given the environment. Now, my instincts is to be aggressive and opportunistic and I think we will continue to find those opportunities but we've got to balance that with caution in this market. We are not nervous. We're all steam ahead. We're doing pretty much what we want to do, but we're just -- we're adding a little more caution to our approach.

Sure. Is it premature to start thinking about your maturities in 2010 and 2011?

No, not at all and obviously 2010 we have our secured debt, we've got a fantastic group of assets coming due including Forum Shops, Copley, Westchester, if you look at all of those and the amount of outstanding on those I think you'll see that those are under leveraged. And again I just reinforce it's never too early to the plan for the future. That's what we're all about. We don't see any issue there.

Okay, thank you.

Thank you.

Your next question comes from the line of Michael Mueller of JPMorgan. You may proceed.

Hi, David, earlier when you were talking about lenders and underwriting you said some of the weaker assets you think the lender's would use maybe a 9% cap. When you look at the opposite end of the spectrum for your strongest assets where do you think lenders are underwriting those today and do you think that's -- they're appropriate?

Well, I think everybody's being cautious right now, right, so they're clearly under that -- the debt service coverage is higher than it was. But the important point that -- let me -- I thought I stressed but let me stress again, our model has never been the max leverage on individual assets. So even with today's more stringent underwriting requirements, the vast, vast, vast majority of the mortgages that we will refinance in the upcoming years we don't see any issue with refinancing the existing indebtedness. In addition, you look at our corporate cash, you look at our corporate facilities and then you couple that with $1.7 billion of unencumbered EBITDA, which is unprecedented in the real estate industry. So, these are things that we're obviously focused on but it's -- the stricter underwriting requirements will not have an impact on us other than on the margin.

Mike, this is Steve, just to add one comment. Our financing model isn't dependent upon the ability for to us rollover mortgage debt and generate excess proceeds. In an environment where we can do that and it makes sense cost wise we will do that, but our business model doesn't depend on that. So as David said, if we're in a is scenario for '09, 2010, what have you, all we're doing is basically rolling over existing debt that's fine because we've other avenues of capital, like the bond market, like free cash flow, like our unencumbered EBITDA to draw from.

Understood but when you're looking at where others are pegging the value of the assets in the lending community the stronger assets, are they using somewhere in the neighborhood of a seven? Are they in the sevens? Is it higher than that or lower than that?

Yes, again, it depends on the asset. It'd be in that range.

Okay. Okay, thank you.

And your next question comes from the line of Rich Moore of RBC Capital Markets. You may proceed.

Hi, good morning, guys. Hey, Rick, do you have the list or thoughts on retailers that are opening stores in 2008, 2009 -- I guess 2009, really, or has that shrunk someone to irrelevant at this point?

In the specialty area we are continuing to do business with the retailers that we've done business with historically. We've got significant openings schedule in '09 with Coach, [Arrow Postel], Forever 21, Limited Brand, Express, Sufora, Buckle, Tween, Wet Seal, and all of those are things that have been reconfirmed in the last few weeks. So I think David made the point that are retailers becoming more cautious? Certainly. Are they evaluating how much incremental open to buy they're going to have in '09? Yes. Is it going to be like May of '07 when retailers would come in and say, guess what, I just -- I want to open 20 new stores that I didn't have in my budget? Probably not, but where they've had budgets they're maintaining the budgets and they're continuing to open stores.

I'd just underline another important point to that, Rich, is that -- two things. One is there is no new development, so the open to buys that exist will reside in existing centers which is a really important point for us in that what's happened with the economy and capital basically eliminates new development and I mentioned this last quarter or quarter before, it could be as long as a decade of new development in a material sense. There will always a few deals here or there. Additionally the retailers are as focused on sponsorship and who they do business with as lenders, as shareholders and as other constituencies and again, that reinforces where we are in the industry.

Okay. All right, good, thank you, David. And then on the debt side, Steve, you guys were talking about where you stand with insurance companies. What's your feel for what the bank guys are saying? I realize you don't necessarily have to give mortgages, but when you talk to these guys, as I'm sure you do, the loan officers in particular, do you sense any improvement in their tone or are they just sort of, we're dead in the water at this point?

I think it's a little earlier to sense an improvement, Rich. Don't forget that the financial institutions have gone through a dramatic repricing of their own cost of capital and I think they're still ferreting out what their business model looks likes. They're in the business of lending money, but I think it's a bit early yet to say that they're back active in the market. We expect that to happen,, it may not be until the back half of 2009, but there is very little activity in that market right now.

Okay, great.

I hate to say it, Rich, but again sponsorship and quality of assets and the team is an extremely important criteria that they'll do and I think they want to go with a proven player.

Okay. Great. Thank you. And then the last thing, guys, is same sort of thing on the private equity side, is there anybody out there who has any interest in working with you to find -- again GGP-type things aside -- just distressed opportunities or is that sort of capital interested at this point or are they sitting on the sidelines?

I would tell you that there is capital for those kind of investments and again I hate to -- I think that they would love to align themselves with someone like us. The good news is we've again been able to avoid a mine field in a sense. We looked at the fund business, we chose not to do it after thoughtful consideration and I think given where that business is in hindsight it was the right decision to make. But on the other hand we've been very successful in our Mills deal and align ourselves with opportunistic capital. Rich, there's no doubt in my mind that that kind of capital is available for us depending upon the situation.

Okay. Great. Thank you, guys.

Thank you.

Your next question comes from the line of Jeff Donnelly of Wachovia. You may proceed.

Good morning, guys. This might be for Steve, but I think, David, you mentioned in your comments about 2009 about cost containment as one opportunity. Are those costs that can be trimmed away today or are you speaking more about at the margin in terms of trimming expenses?

Well, look we've provided ourselves on always being reasonably run, but -- so it's a little bit of both. It's all on the margin given the size of our Company, but look, we're out to be as profitable as we can. So there's things that we can do in different environments. The good news at the property level, again, is if we are able to generate the savings at the property level that adds to our bottom line given the fixed [cam] scenario. Obviously inflation is out of the system, which is really good. That's going to help on utilities. I think that's going to help on real estate taxes in terms of assessments. You can go down the road. We were looking a few months ago at a tougher economic environment, higher utility costs and the like and now we've got a tough economic environment, but we're seeing savings on the cost side. So we're going to pull as many levers as we can to be as profitable as we can. But yet we're not -- this is a Company that's been reasonably run, we can always be better, so I don't think that it's going to be dramatic savings in totality.

And just a question concerning occupancy given what you're hearing from retailers. Can you give us an update on when you think industry occupancy might hit a bottom in the future, what that bottom looks like versus say today or occupancy this year? And maybe even beyond that when you think that turns a corner? I could ask you questions all day long. I guess I'm trying to figure out variability between market size and even mall productivity at this point?

That's a really hard one. I don't -- I do think it will bottom some time in '09, but that's a crystal ball thing. The important point here is, even with the retailer restructurings that exist, the slower sales, the somewhat reduced open to buys, we still think we/re going to generate positive NOI growth and that's the important metric to look at.

Just a last question or two for Rick if I could. How is demand looking for your 2008 seasonal business around in-line and kiosk temporary tenants? I know it's early but do your gift cards sales pace at this point providing early indication for holiday sales?

Let me address the former first. We are on track for our in-line business and we really don't have any indications that that is going to step back. And in terms of the gift cards, the vast -- a significant percentage of that business is done in the fourth quarter and so it's really not a leading indicator as we sit here today. But on the seasonal business we are -- we still have the demand and there's still the entrepreneurs that want to take advantage of that and we've been more focused. Now interestingly another, I think, enhancement is that we're now looking at those tenants as a source of incremental permanent tenants and we've been able to convert a number of the tenants that started in our portfolio as temporary tenants in carts into very successful full in-line tenants with good unique local businesses. So that's an important source of leads for us, as well as just revenue.

Last question concerns the Nordstrom's in Boston. I know you don't have a time for a case study here, but it opened in Burlington in recent past and I think Liberty Tree opens this week. What's the new and renewal leasing discussions been like around these deals and how is that shaping up for Southshore?

Well, I would -- I'd just say if you go -- Liberty Tree is a Nordstrom rack so it's a different animal. It's not a full line -- full-priced Nordstrom. I will tell you if you look at Burlington and the lease up, Nordstrom is a wonderful retailer and they add a lot to the mall environment and they bring -- they allow us in a lot of cases to execute an upgraded dependent mix, which is what we did at Burlington, in their wing. And even though the timing's not great it's a great long-term situation for us there.

And I'd just -- David alluded to this earlier, but an interesting study is Ross Park where we added Nordstrom in lue of a Macy's and with the announcement of Nordstrom we got a LL Bean and there's a Tiffany and a Louis Vuitton and a Michael Kors and a Juicy Couture, so we have substantially transformed Ross Park Mail into the unambiguous place to shop in a trade area of over 1.5 million people and that's what we do here.

Great. Thanks, guys.

Thank you.

Your next question comes from the line of James Ellman of Seacliff. You may proceed.

Yes, thank you. Could you give us a little bit of outlook on how your business would have the ability to show flexibility or what happens to your business if some of the prognostications of same-store sales for this holiday season being down 10% to 15% due to loss of consumer credit, as well as the slowing economy?

Again, not a lot of our earnings is tied directly to sales. Most -- vast majority in the mall portfolio is tied to fixed rent, so -- and then as [Eldridge] -- the part that's tied to sales it's a combination of sales throughout the whole year and what we've noticed is that if some people go out of overage rent others go in and it kind of -- is a pretty static environment. Now with the outlet business the outlet business we have -- more of the anchors are tied as a direct percent of rev -- of sales, but we think the outlet business is somewhat counter cyclical in that consumer -- and certainly with gas, there was a lot of questions on gas prices and how that may affect the outlet. We actually think the consumer may look for more value and so maybe there's better sales there despite the environment. We don't know., we'll find out. So the long story short is it's a couple of cents here and there out of $640 to $645, so it's -- not to say that it's -- in my view it's somewhat immaterial. I let you judge whether that's material or not, but it's not going to make or break us one way or another.

Right. Well, I understand the percentage rent is a relatively small size in your revenue statement, but if we had a 10% to 15% -- a significant drop in holiday sales I imagine that would put many of your tenants to the wall. How do you deal with that? How do you react to that?

Well, again, I think as Rick said, if you look at the vast majority of tenants that we're doing business with they are well capitalized and so it would depend on the tenant and so on in terms of reaction to it.

And I would also make the point that the tenants have not been operating their business in a vacuum and they've been substantially reducing their inventory, reducing their in-store employees because they're running their businesses for bottom line EBITDA. as well. So while they care, that's another thing going on.

So last question would be if they have been cutting back inventory significantly, is there a chance you're going to have significant empty shelves this holiday season?

No. no.

Very good. Thanks for the time.

Thank you.

Your next question comes from the line of Fred Taylor of MJX Asset Management. You may proceed.

Yes, at this point the question I had, the rollover the secured debt, was probably beaten to death but let me ask at a slightly different angle. Would you refinance maturing unsecured debt with secured debt thus changing the mix?

Not at this point.

Okay. Thank you.

Thank you.

And your next question comes from the line of Michael Bilerman of Citi. You may proceed.

I just had a follow up on Las Vegas and what you're seeing at the Forum Shops and Trends and how you're looking at the market overall?

Well, look, Forum Shops continues to be the leader in Vegas. Clearly I think we said this in our first call -- first quarter call, I believe, that we had seen softness in Las Vegas. It continues to be that way. There is no -- the drop in sales that we saw over the first half of the year continues to be that kind of drop. In other words, the drop percentage not increasing. It's kind of at that same level that we saw in the 5%, 10% drop, but even with that said it's still the number one performer so -- in Vegas but Las Vegas obviously has had its issues.

I guess in this sort of environment would you be less willing to put more capital to work in Vegas?

Do you have something specific in minds, Michael?

I'm not a broker so I'm not hocking anything.

Look, I think we can underwrite Las Vegas reasonably well given our knowledge of it and beyond that obviously we're pleased with the Forum Shops but I think we have to take into fact -- take into account the fact that Las Vegas economy is not doing so well right now.

Okay. Thank you.

Thank you.

I am showing that you have no further questions at this time. Gentlemen, I'd like to turn the call back over to you for closing remarks.

Okay. Thank you for participating. I'm sure we'll see a number of you at NAREIT so take care.

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