西蒙地產 (SPG) 2008 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the fourth quarter 2008 Simon Property Group's earnings conference call. My name is Tonya and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be conducting a question-and-answer session towards the end of this conference. (Operator Instructions)

I would now like to turn the call over to Ms. Shelly Doran, Vice President of Investor Relations. Ms. Doran, please proceed.

Thank you. Good morning, welcome to Simon Property Group's fourth quarter and year-end 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 items.

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 of today's date, January 30, 2009. The company's supplemental information package was filed earlier today as a Form 8-K. The filing is available via mail or e-mail and is posted on the Simon Web site 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, Rick Sokolov President and Chief Operating Officer and Steve Sterrett, Chief Financial Officer. I will now turn the call over to Mr. Simon.

Good morning, and thank you, for joining us today. As I stated in our release this morning, our fourth quarter performance was strong. We reported funds from operations of $1.86 per share, up 5.7% over the prior year. For the full year, FFO was $6.42 per share, representing growth of 8.8%. I remind you that our initial guidance for 2008 was $6.25 to $6.45, so, we performed at the top end of that range despite the unprecedented turmoil in the economy, and capital markets.

The FFO for the quarter included an impairment charge of $0.07 per share for costs related to certain predevelopment projects that we are no longer pursuing, and the write-down of one operating asset to its estimated net realizable value. Also included in FFO for the year was the extinguishment charge of $0.07 per share incurred in connection with the redemption of $200 million of moppers notes in the second quarter of '08. Excluding these charge, full-year 2008 FFO per share would have been $0.14 higher, or another 2.4% of growth.

Occupancy in the mall portfolio was 92.4% at year-end as compared to 93.5% last year. In spite of the challenging conditions of 2008, mall occupancy is still very much in line with our recent historical results. Square footage lost to bankruptcy in 2008, our mall portfolio totaled 508,000 square feet, as compared to only 61,000 square feet in 2007. During December we experienced some lost occupancy as a result of certain liquidations and bankruptcy lease rejections.

During the year, occupancy was also negatively impacted by approximately 320,000 square feet of negotiated early store closings, and temporary occupancy reduction also occurred at several properties which were under renovation or redevelopment. Despite all that, we came in at an occupancy that is consistent with, over the last few years of our results.

Our premium outlet portfolio remains nearly fully leased at 98.9% and the Mills platform gained 40 basis points to 94.5%. Premium outlet center retail sales growth remained good, increasing 1.8% to $513 per square foot, and sales in the Mills portfolio was flat at $372 a foot, both a result of the consumer continuing to seek value in this current economic climate.

Comparable retail sales in our mall portfolio were $470 per square foot, down 4.3% as compared to the year earlier period. You will recall that our regional mall sales at September 30 were relatively flat. Actually they were up 40 basis points. The fourth quarter decline we experienced was a direct result of the unprecedented weak 2008 holiday season, experienced across the US, and in particular the performance of luxury and higher-end retailers. Even with weak fourth quarter sales, please keep in mind that our 2000 sales are in fact in line with our 2006 year-end levels.

2008 comparable property NOI for the mall portfolio increased 1%. Comparable NOI growth was impacted by the decline in overage rent due to the weak fourth quarter retail sales, as well as higher than normal bad debt expense as a result of tenant bankruptcies. Comparable property NOI for the premium outlet portfolio increased 7.7% in 2008. The releasing spread for our mall portfolio was $8.02 for the year, representing a 21.3% increase, and again, speaking to the fact that our expiring leases are still below market. And the releasing spread for the premium outlet portfolio was $12.48, representing a strong 48.8% increase, again showing that our expiring leases there are below market.

During the fourth quarter, we successfully opened two new developments, Jersey Shore Premium Outlets and Sendai Premium Outlets in Japan. Both centers opened well leased and projected first-year returns are 11%. Significant redevelopment projects were completed and opened at North Shore Mall in Boston, Ross Park Mall in Pittsburgh, Tacoma Mall in Orlando Premium Outlets. In the US construction continues only on two new projects -- Cincinnati Premium Outlets and the second phase of Domain in Austin, Texas, and two significant redevelopment projects.

Net of construction loans already in place, our domestic development capital expenditures are expected to approximate $250 million to $275 million in 2009, less than one-third of the 2008 spend. And at this point our 2010 spending is projected to be less than $50 million.

Our share of 2009 international development capital expenditures is expected to approximate $120 million. The vast majority of these expenditures will be self-funded by joint venture resources, and will require little or no equity from Simon Property Group. Currently, we do not expect to begin construction on any additional new projects or major redevelopments in 2009.

In the fourth quarter we completed seven new asset financings that raised $584 million of proceeds. Our share was $313 million with the weighted average term of 5.7 years, an average interest rate of 5.9% on the fixed rate financings, and a rate at year-end of 2.4% on the floating rate loans. For all of 2008, Simon completed 21 new secured financings, generating $3.2 billion of proceeds, our share being $2.2 billion, with a weighted average term of 5.2 years and 5.4% on the fixed rate financings. And in addition we issued $1.5 billion of senior unsecured bonds in May of 2008.

As of December, year-end, we had approximately $1.1 billion of cash on hand, including our share of joint venture cash, our availability on our corporate credit facility of $2.4 billion. In addition, our unencumbered portfolio generates EBITDA in excess of $1.7 billion, and retail sales at those centers are approximately $500 per foot. Allowing for a tremendous amount of room under all of our bank and bond covenants.

We recently announced two senior management changes within the organization, both a result of retirements. John Klein has been promoted and will oversee the Premium Outlet portfolio as President of Chelsea. John's career spans 23 years in the retail real estate industry and has been with Chelsea since 1995. Mike Clarke continues to oversee the Chelsea international activities. Greg Goodman has been promoted President of the Mills platform. In his capacity, Greg will assume direct oversight of the leasing, development, property management, marketing functions of the Mills asset base. And Greg began his career in 1985 and joined the Mills in 1994. I believe that it is a testament to the depth of our company's management team that we're able to promote from within the organization to fill these two key management positions.

Let me turn to the debit end and the guidance. First of all, as you all know, our balance sheet strategy has been a conservative one. And we believe that we should be especially prudent in liability management and the allocation of our capital given today's economy and uncertain capital markets. Our projected 2009 taxable income is $3.30 per share. And we expect to maintain our dividend at the $3.60 per share throughout the 2009 level, given our taxable income.

Therefore, after much thought and deliberation, our board decided to adjust the composition of the dividend to be 90% in common stock and 10% in cash. If adopted for all of 2009, this change in composition would result in the retention of over $925 million of cash. Needless to say, we have a history of strong balance sheet management and appropriate capital allocation strategy, and our past accomplishments in this area should give confidence to our stockholders, and all of the financial community, that we have made the appropriate decision. Our current liquidity, as I mentioned before, is approximately $3.5 billion. By paying our dividends 90% in stock and 10% in cash, we increase our estimated free cash flow for all of 2009, after debt service dividends, distributions and ongoing capital expenditures, to approximately $1.5 billion, fortifying our company and maintaining our goal of being one of the beacons of this industry.

This decision is not made in response to the current retail environment but a means of being conservative with our capital. We intend to evaluate this decision each quarter and we have also reserved the right to pay the dividend entirely in cash, if conditions warrant.

Today we gave 2009 FFO guidance of $6.40 to $6.60 per share. This range takes into account the dividend composition decision as well as our view of current conditions, including those in the retail real estate business. As a result of our high quality portfolio, strong balance sheet, cost control measures, we were able to grow FFO per share of 8.8% in a very difficult operating environment when most REITS are reporting negative earnings and no expectations for growth in 2009, which is opposite of what we are saying and what we have done.

2009 will be another challenging year. However, we're up to the task. Operator, we're ready for any questions.

Thank you. (Operator Instructions) Questions will be taken in the order received. And your first question will come from the line of Michael Mueller with JPMorgan. Please proceed.

Hi, a few questions. First of all, for Rick. Can you talk real time and tell us what you're seeing in terms of occupancy expectations for 2009? What you're seeing in terms of the lease spreads for the mall portfolio, for the outlet portfolio versus what you put up in '08?

As David said, we are well down the road on 2009 activity. Just to give you some numbers. In 2008, we completed 12,221,000 square feet of executed leases between renewals and new deals. So far, in 2009 we have already executed 467,000 square feet of deals just in January. And we have another 7,786,000 square feet of new deals, downsizes, and renewals in our lease process. What we're seeing is that we're very focused on dealing with the tenants across our portfolio. We're holding our margins and our rents where we can, and that is in virtually all of our very good properties. Where we have a tenant that we believe is in extreme financial distress, we're trying to work with them to come up with a mutually acceptable basis for maintaining their occupancy in the portfolio.

I would just add that, as we indicated to you, we continue to believe that our comparable NOI for the mall portfolio will either be at least what the EBITDA was last year, or up 1%. That is a pretty good testament to the mall portfolio. Occupancy might come under pressure in our numbers because of the expected bankruptcies of on coming tenants, but even, obviously, that's been factored into our conclusion in terms of guidance. And frankly, right now our main focus is maintaining the cash flow and increasing it. And that's where our energy is being spent.

This is Steve. Just to add one point to Rick's statistics, we are in the same place as we sit here at the end of January, dealing with our '09 expirations as we were a year ago dealing with our '08 expirations. We're about the same percentage through the current year expirations.

So if you're looking on a full-year, if you were to call it a 20% spread or slightly 20, what is your best estimate at this point as to '09, and as you look forward to 2010 how they could compress.

I think occupancies are going to come under some pressure. There's been lots of research about how much it is going to drop. It is not going to be anywhere near the research that I have read. I am happy to point that out individually, in terms of who's coming up with these guesstimates. And, we clearly have lots of cushion in our market rents, in terms of where our leases are rolling over.

So I think we will maintain our spreads. They may not be $8. It may be $5, $6. We have been out-performing in that category. We won't back off of that. Look, occupancy will come under pressure. I think the bottom line is we think we're going to grow our EBITDA.

Okay. And before -- one other big picture question. Rick, in past calls, you rattled off a list of retailers who are proactively looking for space and still growing. Can you run through that list as it stands today.

Sure. People we're dealing with right now that are going to be opening substantial numbers of stores in our portfolio in 2009 include Forever 21, H&M, Zara, Coach. We're still dealing with Express and opening substantial numbers of stores. Buckle, Sephora. Just to name a few.

Okay. And then just last question here. It seems like in the '90s you and your peers consolidated a lot of malls from the pension funds into the hands of yourselves and other operators. If you look at not specifically folks here on GGP -- but it is hard to get around that -- if you look at that NPV that could have a number of malls be sold or liquidated over time, what do you think happens to cap rates? Do you think pension funds who had been sellers over the past decade, and other institutional investors, step back in to help support the cap rates? How do you see that unfolding over the next few years?

Well, I think it depends who the seller is. I think cap rates will go up for distressed sellers of quality real estate, and I think cap rates will be a lot stickier for strong owners, and they are going to want to get their value. So I think you almost have to look at the seller to come to that conclusion. It is very hard to know. I do think they will be some distressed sellers out there so I think that is going to create opportunities, and I think there will be some stronger sellers that are going to wait for values to get back to levels that they think are appropriate.

But are there more buyers than just three or four players?

We hope not.

Okay. Thank you.

And your next question will come from the line of Jay Habermann with Goldman Sachs. Please proceed.

Good morning,. I'm here with John, as well. David, want to circle back to your comments. Obviously occupancy has held up well thus far in this cycle but just want to zero in a bit on store closings, possibly rent renegotiations. Perhaps as you look at inline versus anchor space, do you see any sort of weakness with one versus the other in 2009?

Well, look, all I can tell you is that Rick and I are pros at dealing with this, in addition to our staffs. So, I would say long-term we're more concerned about some of the bigger boxes than we are about some of the small shop tenants, in terms of what they present to the consumer. I think in terms of how we deal with occupancy and how we deal with cash flow, and a lot of these are individual decisions at individual malls, what the individual mall is like, what our relationship with the retailer is, what kind of other growth we can achieve from that retailer. We deal with our retailers on a broad account basis, and there is a lot of give and take. And we will try to find the solution.

I think having the portfolio we do, both in the mall business and in the other value sectors gives us, given the quality, given the productivity of those centers, our financial stability -- I just think gives us a great spot to be able to negotiate the right kind of deal with the retailer.

And in case there were big box vacancies where would you see opportunities to fill?

I think that the best of the breed, just like in the retail real estate business, I think the best of the breed retailers are going to take advantage of opportunities, whether it is Target, Kohl's, Best Buy, Bed Bath and Beyond. None of these guys are out of business. They are all being extremely conservative, as we are. The fact of the matter is, their opportunities are going to come from that. They are not going to come from new development.

As I said to you a year ago -- I don't think anybody believed me -- the new development business is dead. For a decade. Maybe it is 8 years, maybe it is not really completely dead. Maybe I am over dramatizing it for effect. But, the odds are that there is going to be very very little new stuff for quite some time. And the best of the breed, the guys that we want to do business and that want to do business with us, we're going to have our opportunities. Dick's. You know, you go down the category, there is a winner, there are guys that have the potential to win. They want to know that they are dealing with quality real estate, and a well capitalized landlord, and we offer both, better than anybody in this industry.

And you said now in the last few calls no development for a decade. What do you think about mall closings? Could it encompass as much as 15% to 20% of the mall industry over this cycle? Or is that unrealistic?

I don't think it'll be that dramatic but I do think there will be malls that will close.

Okay and this may be a question for Steve on the financing strategy. Can you talk about the unsecured maturities this year. Is that going to come from the line thus far, the savings, obviously, from the dividend change?

Sure. I mean, Jay, our bonds have actually tightened a little bit, but given where spreads are right now, it is unlikely in the near term that we would be an issuer in the bond market. So for planning purposes we will just use our line capacity and our cash to retire the $900 million of bonds that come due this year.

And Steve you mentioned, just quickly, that you guys were percentage leased in terms of the '09, the same level as '08. Can you just remind us where that is?

We're about two-thirds done.

Okay. And then your same store forecast, would you say that's a worst case scenario or just as you see it today subject to revision?

It is as we see it today but, through the prism of today. Listen, we're just coming off the worst Christmas season that we have seen, so there is a fair bit of guesstimating in terms of where tenant sales are and the like. But I would tell you we feel very comfortable with that range and that the EBITDA in the mall business will be positive.

Great, thanks guys.

And your next question will come from the line of Mark Biffert with Oppenheimer. Please proceed.

Good morning. Rick, first question for you. On the retailers you listed that were coming into the portfolio in '09, how many of those have come back and asked for renegotiations or concessions on what you have already negotiated prior?

Where we have got deals that were done for the vast majority, we have been ex prosecuting them on that basis. A couple have come back and said, "Gee, we're trying to relocate our capital into '10 instead of '09," and we, in some instances, have perhaps given a little more allowance but gotten more rent in exchange for that allowance. But the deals have been holding very steady.

And what are you seeing from tenants in terms of them pulling back or trying to shrink their space where maybe their inventory levels have come down and they want to be in smaller stores? How are you able to accommodate for that?

Well, again it is an interesting dichotomy. In our best malls we're seeing very little of that. In fact we have tenants coming to us saying they want more space. So it is really a mall-specific conversation. And not really one that is driven by an overarching strategy that runs across all properties.

Okay. And then, David, related to the change in dividend payout, how much of that is just related to the fact that you want to have more liquidity in case of discount in asset pricing at some point later in the cycle when you might want to step back in.

That's in the back of our minds but that is not at the front of our mind right now. We are being extra -- what I can really say to you is I think we're just trying to be extra, extra conservative in terms of capital right now, primarily to deal with the unforeseen going forward. We feel extremely confident about our business. And about where we're positioned and what we have done over the last several years. We have made difficult decisions, we have zigged when others have zagged. But I think at the end of the day, I will put our track record up against any other real estate REIT in the industry.

And right now we just want to be a little bit extra cautious or maybe a lot more extra cautious when you're talking about maintaining another $900 million of cash. And we just think that's the right thing to do. This is not a permanent decision. This is a decision that will be evaluated quarterly. Our board is, obviously, very active and engaged in it. But, you know, prudence is the better part of valor right now and I hope you would appreciate something like that .

Yes. Steve, added to that, I am looking at the impairment charges that you recorded during the quarter and then looking at the Mills portfolio. A number of different rates take write downs on joint ventures. And I am just wondering how you go about looking at the joint venture with Mills and the potential for impairment at some of the underperforming centers that you have.

First of all, the Mills portfolio is performing right in line with our underwriting from our acquisition. As you know, in December we sold the weakest asset in the portfolio, Cincinnati Mills, which we designated for sale. We look at all of our assets on a quarter-by-quarter basis and run them through the traps for an impairment analysis. We're very comfortable with the conclusions we reached. We wrote down one, it's not a Mills asset but it's a weak mall in Tennessee, to basically it is land value. We wrote off some predevelopment projects that we're not pursuing any more. But nothing else on the radar screen.

Okay great. Then last question, Steve. In terms of the feedback you're getting from some of your lenders from the secured lending side, as well as the unsecured, what are you hearing in terms of them, with an appetite for getting capital right now?

If you think about the debt side of our balance sheet, traditionally there have been four pockets of funds for us. Bonds, I had mentioned earlier, are spreads that have actually tightened but there is still at historical wide levels, and you haven't seen a reissue really since summer of '08. And that market is not attractive to us right now.

The banks are all trying to figure out what their cost of capital is, and so while we're having discussions, there is not a lot of activity going on there. The CMBS market is defunct for the current time and our expectation is it will stay that way for awhile. So the one market that is out there, in some sense of normalcy, are the light companies. And there is an appetite.

I think one of the very interesting things that the light companies have the opportunity to do is significantly upgrade their portfolio, both in terms of quality of assets, but also quality of sponsors. And if you think about what one of the things that probably helped the demise in the CMBS market is there was very little attention paid to who the sponsor of the asset was. So I think we will get a disproportionate share of what the open to buy is for the light companies. We're having lots of conversations, we're showing them assets that they may not have seen a year or two ago. And, there is clearly an appetite on their part to do more business with us.

Okay. Thanks.

I would just add, I think the tone generally is getting a little firmer but it is not quite where it ultimately needs to be. But it is getting a little bit better.

Okay. Thank you,.

And your next question will come from the line of Lou Taylor with Deutsche Bank. Please proceed.

Thanks. Good morning, guys. David or Steve, can you talk about the JV cash. As that balance builds, how much is really distributable to the partners versus you need to have some cash in a venture?

Lou, in the JVs, your cash on a relative basis is always going to be higher because you're holding cash in the venture for things like real estate taxes that may only be paid semi-annually or annually, where for us on a wholly owned consolidated property, we will velocitize that cash because we're just funding it ourselves. But there is no question that there is ample cash in the joint ventures. We're distributing cash in almost every venture on a monthly basis right now and attempting, just like we would with corporate cash, to use that as efficiently and effectively as we can.

But if you look at the gross number, obviously a half or more is not ours, because it is our joint venture partner's, and you do have to be a little bit careful because more of it is going to be targeted for future obligations, whether they are real estate taxes or tenants allowances or CapEx or the like.

Okay. Now with regards to your secured debt financings both at the JV and at the unconsolidated level, what are your expectations for excess finance proceeds coming out of those financings?

We have got about $1 billion of mortgage debt coming due this year. And I would tell you there will be pluses and there will be minuses. But net NEV we would expect to essentially be able to roll it over at about an even level. May come out of pocket a little bit on some, may need to de-lever a few, but we should be -- we're not a company that has chased the last 5% or 10% of loan to value. As I look at the portfolio in '09, it is in the aggregate, a little under 50% LTD, it's $500 a foot. And, as David said, we're feeling a little bit better that the market is firming a bit. And I think within spitting distance one way or the other we will roll that paper over.

Just want to -- Lou, Steve mentioned $1 billion. That includes -- half of that is JV debt. And our partner is going to be responsible, obviously, for any short fall there. If not, they are going to be primed to the extent if capital is required and they don't put it up and we choose to put it up.

Last question either for you David or for Rick. With regards to the outlets, the sales are holding up pretty nicely. Where is the relative strength in that portfolio, either geographically or by country or however you slice it.

I think the outlet business generally -- Woodbury Commons, as an example, was strong. We started to see some -- Las Vegas was pretty good, but we're starting to see softness there. And Florida, Orlando was starting to get soft. So the outlet business had been great, Lou, but it is not immune to the economy. I don't think anything, unfortunately, is immune to the kind of economy that we're seeing in any industry. And people still obviously see a lot of reasons to go to the value oriented centers but it is not immune. And some of the tourist areas are starting to see a little softness there.

Great, thank you,.

Thank you,.

And your next question will come from the line of Michael Bilerman with Citi. Please proceed.

Yeah it is Quentin Velleley. I am here with Michael. The first question. I noticed that you removed the fourth quarter same store NOI numbers. We calculated that for the malls was down about between 4% and 5%. Just wondering whether you could outline what the main drivers of that were. And secondly, given your forecasting from zero to 1% growth for next year, given that drop in the fourth quarter, I am just wondering what gives you confidence in those numbers?

Quentin, this is Steve. I will try to stay out of the weeds in describing this, but at the beginning of 2008, we were substantially enough converted to fix cam that we adjusted how we recognized revenue from common are maintenance payments that tenants are making as opposed to what we had done the prior year. That gave a disproportionate impact to the fourth quarter. We actually recognized cam revenues earlier because we're now recognizing them when the tenant pays as opposed to historically we had matched the revenues to the expenses that you would do on a prorata method.

It is a long-winded explanation but that really disproportionately impacted the fourth quarter comp NOI calculation. You're right in that on the surface the fourth quarter comp in NOI would show down in the 4% range, but it is irrelevant because 300 of that 400 basis points was simply related to the way we adjusted the methodology and how we calculated cam revenues.

So be careful in looking at that headline of, down 400 basis points. The 80 basis points, 100 basis points that David mentioned, is more reflective of the trends, and that is rolling over our rents at 20% up, we have about 10% of leases expired. That gives us 200 basis points of positive growth. Over the course of the year we did get about a 50 basis point positive impact from cam both through cost control and our ongoing conversion to fixed cam, and then that was offset by the weakness, as David mentioned, in percentage and overage rents, as well as higher bad debt expense. So don't put credence into the fourth quarter number and really look at the overall trend for the year in that 1% range.

Okay. So you're basically saying that it would only be down about 1% if you took that impact out?

That's correct. If you normalize the way we accounted for cam, in the fourth quarter, the fourth quarter comp NOI in the mall business would have been down about 100 basis points.

And that's a function of overage rent and --

And bad debt.

And bad debt.

Mostly overage rent in the quarter.

But that is going do accelerate into next year as well. You have to assume that if sales trends continue to go the way they are, the overage rents will continue to get squeezed. You will have some increased vacancy. You will be able to still have positive mark-to-market. But I got to assume the same head winds that affected you during this year where you were able to eke out the 80 basis points positive would take you to the lower end -

Michael we feel confident about what we have told you. It is flat to 1%. We have work to do. We're pretty good at what we do. We have leases that are rollover. We're still making leases and we're watching our costs. We don't think our bad debt will be as bad as it was in '08. We will work hard to achieve what we have just explained to you.

Is there anything, Rick, maybe on the leasing strategy, when you look at your lease rollover, page 19 of the SUP, it looks like you took out about 1 million square feet of the 2009 roll, but 2010 went up by 400,000 square feet. I don't know if that was just short term extensions of the leasing that was completed, or was rolling in '09. Trying to get more clarity and color.

In some of the instances we are doing short term one-year renewals because, frankly, we want to keep the tenant in occupancy but we also want to preserve our optionality because we believe we're going to have a better pricing market in '10 than perhaps we had in '09 and we did not want to tie in for longer term rents that we believe are not optimal for that space.

And when you look at that 400,000 square feet, was there an abundance of certain tenants? What were you able to eke out in terms of rents on that space? Are they paying higher rents for one-year lease?

As I told you in our prior statistics, we're dealing with over 12 million square feet of space and we processed probably 8,500 leases, so it is really all built into our numbers. And, as David said, we have taken that into account.

And just remember, Michael, that if the lease is not longer than a year it is not included in our occupancy. So, we don't -- I think other companies weight, average weight, their leases if it's less than a year, and include part of it, but we don't.

Just in terms of your Liberty shares which have dropped significantly since you acquired them, maybe if you could explain what the chances are of a writedown in 2009, and what that be at account levels?

Well, we will have to see what transpires in 2009.

You didn't take an evaluation that the move was other than temporary for fourth quarter results, it was about a 50% decline relative to where you purchased.

Mike, as I think you see, there is a valuation adjustment that flows through, other comprehensive income, reflecting the mark-to-market of Liberty.

And do you have any other, as you bought the stake, obviously at the time you're think that it was below NAV. How do you think about that today, in terms of that stake and being opportunistic with that capital?

We think it's a good company. We're comfortable being a long-term shareholder. We think longer term than quarter-to-quarter. We will follow obviously whatever GAAP tells us to follow but we have a lot of confidence in the long-term prospects of that company.

Have you sold or bought any stocks since the last filing?

We don't disclose that, other than what we're obligated to disclose.

So, you haven't fallen -- you were last right below the 5% threshold.

We've disclosed what we're going to disclose. And that's available publicly.

Okay. Thank you,.

Sure.

And your next question will come from the line of Craig Schmidt with Bank of America Merrill Lynch. Please proceed.

Thank you,. This year -- or actually this quarter, there had been an increased chatter about tenants renegotiating rents. To the point it seems to come up every discussion about mall REITS. From your perspective, what is the greatest increase those negotiations could go in '09 relative to '08?

We have two-thirds of our leases done so, we we're talking about the balance of what we want to get accomplished. And at the end of the day, Craig, if it happens, it is not overly -- it is immaterial, I would say. Wwe're a company that has over $3.2 billion of EBITDA, so any one tenant on $2 of rent per square foot is not going to drive our our results one way or another. We're also, as I said to you earlier, extremely well positioned to deal with tenants in that area, that want to do that. But, we will make an assessment of whether we want to maintain a relationship with the TENANT, what they are doing for us and trying to carve a win-win.

Are tenants doing that? Sure. Is it something that we know how to deal with? The answer is yes. Is that reflected in what we think the comp NOI production we're going to have next year? The answer is yes. Could it get worse? Sure. Could it get better? Sure.

But at this point, from your perspective, even looking at deals going forward, it is not really moving the needle to the degree you would expect when you see these conference calls on retailers. Is that right.

Well, put it this way. It is more important for their results than it is for ours. and that goes without saying, and I can walk you through that model if you have more time. So the answer is it is more material for them than it is for us. We produce a lot more sales and we're a lot more important to their success than they are to ours. And I guess the best way to describe that is generally the small shop retailer does about 20% of their sales in our portfolio, and as you can see, the percent of rent, the highest is, as Rick is showing me, is around 2%. So you can figure the math out.

Okay. And then just when are you guys expecting the retail same store sales in the nation to turn positive again?

Well, listen I don't think we can anticipate, I don't think we can give you a number on that. Part of this is self fulfilling, right? The retailers are extremely conservative, they have reduced their inventory. They are running. They are running, I think it is important to note, and I think everybody should anticipate that, that's why their sales are going to be less important to us this year than you might appreciate, I guess, is that they are going to have lower sales because they are going to be extremely conservative on their inventory. And, they are going to be very focused on their margins. So, we expect sales probably to continue to decline because they are just going to have less goods to sell.

Okay. Thanks.

Sure.

And your next question will come from the line of Carol Kemple with Hilliard Lyons. Please proceed.

Good morning,. I just had a couple.

How are you doing?

Good, how are you all?

Good.

I just had a couple questions. First one was on the dividend change. It says you all have the option to pay it entirely in cash if you choose. What would make you all decide to do that?

Well, I think if we become less prudent in terms of capital allocation, we feel that there is a better credit market out there among those kind of things.

Okay. And then on the outlet side, what retailers are wanting space in the outlets, and are you seeing any of your mall retailers deciding to go to the outlet forum?

Yes we're seeing more and more of that. We have seen that trend over the last couple of years and what we continue to see that.

Are there any specific ones that you can name?

Well, in fact, recently Ann Taylor announced they are establishing an Ann Taylor Loft outlet division and they are very focused on doing that. We are working with Bath and Body who is now interested in expanding their presence in the outlets. And I will tell you, as a collateral item to that, in our Mills portfolio we're seeing even more of a growth of the full price retailers wanting to grow in that format, and they have been opening a considerable number of stores like Express and Sephora and Victoria's Secret, all with very good results. So both of those platforms are benefiting from tenants getting into multiple channels and cross fertilizing across our platforms.

Okay thank you.

And your next question will come from the line of Anar Ismailov with Gem Realty.

This is Anar. I have several questions. You said two-thirds of the leases for 2009 have been addressed already. So does it mean at this point in the year that one-third will not be renewing their leases?

No, we're just in the process of negotiation.

So there is still -- do you have a sense of what percent of the 2009 expirations will not be renewed?

Well, we tend generally to not renew for all sorts of reasons about 20%.

20% to 30%.

That could be a function of they are not paying the rent, we want to remerchandise it, they want to leave, all of those reasons.

And at this point what percent have indicated that they will not be renewing?

No different than historical trends, I would say.

Got it. And then you show expirations for malls and freestanding and then for anchors. Have you addressed two-thirds of anchors as well, or it's all different proportions.

The anchors are a very different scenario because they all have options built into their leases, and a very high percentage of those options are renewed. So those typically do not have to give notice until six months prior to the expiration, and we're working with them. But there are minimal anchors that have indicated, even to even discuss potentially, not renewing. They are staying in place.

Got it. Okay. And then if you take a look at your less productive centers, let's say square foot of 350 and below, how have they performed? How is their sales per square foot and occupancy held up?

Again it depends a little bit on where that center is. So $350 square foot in one area of the country is actually not a bad center, and, if it were in the New York area it might be a little tough. It somewhat depends on the competition and the retail market there. The vast vast majority of our centers are dominant in their trade area, and even if they produce $350 are fine, they are hanging in there doing their business they needed to. They may not have the growth characteristics of some of the higher productivity centers but were maintaining the cash flow.

Would you say the occupancy for those centers has held up similarly to your overall portfolio?

It is a case-by-case basis.

Okay. And then you mentioned that also in case-by-case basis you will work with tenants that are struggling to maintain occupancy. What percent of the tenants would you say are struggling? Or how many tenants are you talking to?

Frankly, it is a very small percentage. If you look. Again, David indicated we're at $3.2 billion enterprise and the number of tenants that we are even having conversations with is a very, very, very small fraction of that. And candidly, in many instances, we do not agree to give any kind of accommodation. These are not one-way negotiations. We're going to be talking to them about what their prospects are, what rent they are willing to pay, are they willing to extend their terms. There are a lot of other aspects of this, and happily we're positioned with that strength of our portfolio and our balance sheet to be able to have these negotiations on a very even footing with the tenants.

Okay. And my last question. In your lifestyle center portfolio, there was a, I think, a significant drop in occupancy. Was there anything in particular that happened?

It is the community center and lifestyle division. The preponderance of the GLA in that portfolio is in the strip centers and some of the large boxes. So the --

Linens 'N Things.

Linens 'N Things and Circuit City is the primary driver of that.

Got it. Thank you, very much.

Sure, thanks.

And your next question will come from the line of Ben Yang with Green Street advisors. Please proceed.

Hi, Good morning,.

How are you doing.

Good. Being back to the sales theme, it looks like comparable sales in your mall portfolio fell about 16% during the fourth quarter. Can you first comment on whether that number is in the right ballpark and then is there any reason to believe the trend won't continue into 2009?

You're much too high. Sales did drop but if you looked -- I think you said 15%. Yes -- I don't have -- do you have the numbers, Steve?

It is more like in the 10% range.

We can't prognosticate where sales are going to come out. We all know what is going on in the general economic environment. And I think, Ben, as we have said, the retailers are very focused on what they are going to have in the stores in terms of inventory management. So we're expecting sales to decrease. That's one of the reasons why you see our comp NOI projection for '09 to be flat to 1%. Because we are still projecting our overage rent to decrease for '09, which is a direct result of sales.

I wish we knew exactly where that is. There is variability in it. It is not going to drive us one way or another because you can see what overage and percentage rents mean in terms of our EBITDA but we are expecting sales trend to continue downward.

And then what exactly are you expecting for 2009 in terms of sales?

It is a tenant by tenant analysis.

For your portfolio could it be down 10% of the year?

We're not projecting that much but for overage we actually trended so it depends on how the tenant did, and it is really a tenant by tenant analysis when we do our planning.

Given your experience in the industry, do you think there had been a secular shift in consumer spending and that mall sales could be permanently lower once the dust settles?

I really don't sense that Ben at all. Retail obsolescence had been increasing over the past decade. I think any time you run into this kind of downturn you're going to see maybe an acceleration of that. But I firmly believe that good centers and strong centers with appropriate sponsorship and management will hold their value. They are much more resilient in terms of cash flow generation than any other product that exists. Look at hotels. If you lose one office attendant, you can't replicate that income stream any time in the near future. The malls are a lot more resilient than you would think. I do think there will be more obsolescence in this environment but I don't think we're in a five or ten year secular shift.

Okay, and then you commented earlier on seeing some weakness in luxury. Can you just comment briefly on the sales trends between your high-end and your less productive malls?

Again I didn't have that --

They were pretty much the same, interestingly enough. There was not an outsized -- in fact they were each down about the same. And again, the luxury tenants, in some instances, were down significantly, but part of that is because they were up so much in 2007. And one of the issues that the luxury tenants had is that they were basically caught in a U-turn in their demand. So when they ordered their inventory for 2008, it was based on very robust trends in 2007. The more moderate priced retailers had less robust trends in 2007, so had more modest inventories in 2008. And were not as substantially impacted.

And I would just add that, lots of retailers have already posted their comp sales, the vast, vast majority of them -- and we keep track of this. If they post their comp sales up or down, we will tend to -- our portfolio will tend to outperform there. So let's say a retailer reports 8% up, our portfolio will probably be 10% or 11% up. Or if they report down, we will be less down. And again, that's the vast, vast majority. Sometimes it doesn't quite happen that way but that's the vast majority. So I think when you look at comp sales for the retailers, you can make probably a pretty reasonable assumption that we're out-performing slightly on the positive and slightly on the negative. And that's something we track about and that's why we continue to be a very important ingredient to the retailers success.

Great. Thank you,.

Sure.

And your next question will come from the line of David Fick with Stifel Nicolaus. Please proceed.

Good afternoon.

How are you doing?

All right. David, you mentioned you have more concerns about some of the box tenants. I am just wondering if you might comment on where Sears, K-mart goes given that you have them in more than half of your locations.

Well, I really, David, don't like commenting on specific retailers. You know, it puts us in a tough spot. Other than I feel very confident from a financial point of view that they are in good shape, producing positive operating cash flow, and they are focused on becoming a better merchant. So, beyond that, that's really all I can say on that.

You had approached them at some point about maybe taking some stores back and they didn't entertain that. Is that something that you still think you have alternative uses should there be an issue going forward?

Sure. I mean, again, I think what we will see is, some of the very good centers will ultimately get some good real estate back. I will take an example. One Sears store we were able to purchase was in South Park in Charlotte where we had a Neiman and Nordstrom and other Tenants. And Sears just wasn't the right tenant for that higher-end mall. And that's not always the case. I mean, they perform very well in a number of higher-end malls. So I think in those cases there may be those kind of deals, not just with Sears but with some of the other boxes or department stores.

Okay. How is the Cincinnati Mills sale com in against your basis in expectation?

On Cincinnati?

Yes.

Right on it. Otherwise we would have a gain or a loss associated with it. Right what we thought the value was.

Okay great. Bankruptcies in general for the small tenants have been below what most people thought and I think you indicated that for January. But what about, as you look forward, in terms of factoring inventory this summer? Is there anything that you might be prepared to do to help your tenants who won't find financing?

Sometimes we do and part of that, David, would be what we can do on the rent side. But, the one area that is a concern for retail, you know, a number of retailers are still good retailers. Their financial structure may not be appropriate or they took on leverage from a buying out of a tenant, or they went private with too much leverage. There are all sorts of things. And some of those are just good retailers with too much leverage.

The one concern we do have, again -- I mean, we have lots of concerns -- but one concern that doesn't seem to be breaking the ice, is that those retailers with a good plan or good operator, would maybe have bad capital structure. The lack of dip financing continues to be an issue. And we saw this in December, a little bit, and that's why our occupancy got hit. Normally if a retailer went out of business, or went into Chapter 11, they would get dip financing and they would restructure their capital structure and they would be able to operate. Given the lack of dip financing right now, retailers are just liquidating.

We would like to see some stability or some market to come back in the dip world. I don't think that is something we're going to play in, but we would like to see that, we would like to see that market come back. It has always been a profitable market for the lenders of that but they reined in their loans. This is one area where they are not taking any risk.

And David just one other comment on that. The vast majority of our retails have very strong balance sheets with virtually no debt. So the retailers David are talking about were those that were maybe involved in some LBOs and added on a lot debt. But the credit profile of our retailers, which we monitor on a weekly basis, is frankly stronger even after taking into account substantial decline in the last 12 month EBITDA reflecting December's results. So the good news is that the concerns you're talking about are going to be isolated among a small number of tenants.

Okay. Great, thanks guys.

Thank you.

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

Hi, guys. Good morning,.

How are you doing?

Thinking about re-leasing times for a minute. If you guys have some bankruptcies, how quickly do you think you re-lease that space?

And achieve it in '09?

Yes.

That would be a challenge. And that's where I mentioned earlier, Rich, that the occupancy, if that happened, could come under a little bit of pressure. Because that'll be a challenge. There is not a huge open for the retailers. So if that happened and we weren't able -- and that retailer liquidated and went out of business, to achieve that in '09, we would make that up by doing some local leasing or some temporary tenant leasing which is still maintaining its demand. But, to get the full occupancy the way we calculate it, which is to have a lease over a year, might be difficult to achieve for that calendar year in '09.

Okay. All right. Very good, thanks David. And then thinking about the financing picture for a second. Steve, are any of these guys talking about extensions? Is that a more prevalent conversation? Or how do they feel about extending debt, if you or some of your peers can't get a piece of debt done?

Well, I think it is two things, Rich. Let's separate the light company market from the CNBF market. A light company who has a loan coming due knows the asset. In the case of our portfolio is very comfortable with the asset and wants very much to extend. So, renewals is an ordinary course of business there.

The question is when you have got a CNBF loan and the loan is performing. And that is a conversation that you're going to have with a servicer, and we will see. There is clearly maturities that are coming due.

Having said all that, Rich, for us, as I mentioned, very comfortable loan to value, very modest leverage. So happily it is not a situation that we have been dealing with.

Okay. And then Steve, the unsecured note you have that is due today, that goes on the line of credit, I assume?

Correct.

Well, we do have cash, too, so --

Right, right. Okay. And then private equity, is there any thawing in terms of interest in the real estate space from pension funds and other equity sources?

I would say generally US-based by-and-large, no. International based, yes. I think the US-based pension fund is tougher because of their own -- what is going on either with their endowments or the retirees or their own cash. It's not so much that real estate has been blacklined, it's just they have lots of things to worry about. Hedge fund performance, private equity, LBL performance, capital calls, commitments, retiree benefits, poor performance, et cetera.

Okay and is that international interest in US assets?

Yes.

Okay. Okay. And then the last thing guys from me is, the three Vegas assets that the General Growth has, I mean you guys are obviously a logical potential buyer of those assets. Is that something you're looking seriously at?

No.

Okay. All right very good. Thanks guys.

Thank you,.

Your next question will come from the line of R.J. Milligan with Raymond James. Please proceed.

Good afternoon.

How are you doing.

I am doing all right. The majority of my questions have been answered. I had one follow-up. You guys commented that the number of retailers struggling and coming back to renegotiate rents was very small. I was just wondering how does that translate into delinquencies? Where are they now versus a year ago or even three months ago?

Our receivable balance at the end of January will be pretty much right on top of where it was at the end of December. And December '08 was pretty much right on top of where it was on December of '07. Not to say we're not having to work harder and chase a little harder to get those dollars in the door but that we have not seen a significant change in the composition of our receivable balance.

Oka, very good. My last question is, I don't know if you guys can comment but who is currently on your credit watch list? Which retailers are you guys concerned about?

It is no different than what everybody else is. Again it is very tough for us to name retailers publicly, but there are a handful. And, again, some of these are good operators that are on their because they bought something or they went private or those kind of things as opposed to just bad performance. But it is very tough for us to name retailers publicly like that.

Okay, thank you, very much.

Thank you,.

There are no more questions at this time.

Okay, well, -- I'm sorry -- I just wanted to say thank you,. Listen, we're proud of our '08 performance when others aren't growing their company, And I think, again, we feel confident that we will continue to be able to maintain our unparalleled record of growth in '09. Thank you,.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. And have a great day.