西蒙地產 (SPG) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2009 Simon Property earnings conference call. I'll be your coordinator for today. (Operator Instructions). I would now like to turn the presentation over to your host for today's call, Ms. Shelly Doran, Vice President of Investor Relations. Please proceed.

Good morning, and welcome to the Simon Property Group first quarter 2009 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 terms. Acknowledging the fact that this call may be webcast for some time to come, we believe it's important to note that today's call includes time-sensitive information that may be accurate only as of today's date, May 1st, 2009. The Company's supplemental information package was filed earlier today as Form 8-K. This filing is available via mail or e-mail and it's posted on the Simon website in the Investor Relations section under "Financial Information, Quarterly Supplemental Packages."

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

All right, thanks. Good morning, everyone. We are pleased to report an excellent quarter, which is a testament to our high quality portfolio as well as our early recognition last year of the severe economic downturn. I'd like to just take a few minutes to review the financial and operational highlights, and then we'll open it up for questions. We reported FFO per share growth of 10.3% to $1.61 in the first quarter compared to $1.46 in 2008. First quarter 2009 FFO per share reflects $0.02 of dilution as a result of the issuance of the common stock dividend that we paid in March of 2009.

Diluted net income available to common stockholders per share increased 15.4% to $0.45 in 2009 from $0.39 in 2008. Top NOI growth for the regional malls was up 2.7% for the quarter, and our comp property NOI statistics do not include lease settlements. Occupancy in the mall portfolio was 90.8 at quarter end compared to 91.7% in the year earlier period. Occupancy across all platforms was decreased due to the retail environment, as well as the store closings and in early 2009 by major retailers who filed bankruptcy in 2008 and subsequently liquidated in the first quarter of 2009, including for the mall portfolio, 595,000 square feet, which was primarily the big box retailer, Circuit City, and Linens 'N Things. Comparable sales in the mall portfolio was $455 per square foot at March 31, 2009, as compared to 491 in the year earlier period. Sales in the mall platform continued to decline due to the general weakening in the US economy and the reduced performance at some of the higher end tenants.

We did see a deceleration in the rate of sales decline in the quarter, which is encouraging. And remember that Easter fell late this year -- actually in April as opposed to March of last year -- and there was weakness in Florida, California and the Las Vegas markets, which also impacted that statistic. Regional mall releasing spread was very solid at 24.8% for the quarter, in line with our historical levels and our expectations and what we've signaled to the market again about the value of our lease rollovers. Now let me turn to the premium outlet portfolio. Comp NOI grew 7.9% in the quarter. Occupancy was 96.9% at the end of the quarter as compared to 97.9 last year. The decline, again, was primarily the result of certain store closings and bankruptcies, as well as we opened Jersey Shore last year, which is 90% occupied at the end of the quarter which had some small impact on that number.

The outlet business sales were 507 per foot at end of the quarter as compared to 511 the year earlier period. Our premium outlet releasing spread was a robust 33.5%, and the pricing power remained strong due to low occupancy costs, stability of sales and steady demand for space from tenants. Our premium outlet portfolio contributes over 19% of our (inaudible) lines -- without doubt the best collection in the country and without (inaudible), with the highest occupancy rate generating the highest sales per square foot, strongest comp property NOI growth and highest development returns. Our third primary platform is the Mills. That was 89.7% leased at the end of the quarter compared to 94.2% the year earlier period. This decline, again, was attributable to the bankruptcies of 840,000 square feet, primarily Circuit City, Linens and Steve and Barry's.

Sales within the Mills platform was $373 per foot at quarter end compared to 379; which again I think helped demonstrate the importance of the consumers looking for value given the economic situation that they currently reside in. Releasing spread for Mills was a positive 14.1%. Now let me turn to the capital markets. As you all know, we sold 17.25 million common shares and issued 650 million of 10-year unsecured notes near the end of the quarter, and that was a total capital raise of approximately 1.2 billion, which reduced our borrowings and our corporate credit facility. Our corporate credit facility has zero outstanding, other than the foreign currency exposure that we keep outstanding as a hedge against our foreign income we generate of approximately $440 million of outstandings. In March, we also refinanced two regional malls at 197.5 million at an average interest rate of 7.77%. These loans were new originations by major life companies; and, in fact, they had existing indebtedness of approximately $130 million prior to our refinance.

We retired $700 million of senior notes. At the quarter end, we have approximately 1.1 billion of cash on hand, including our share of joint venture cash and our availability on our corporate credit facility is somewhat over $3 billion. Our unencumbered portfolio continues to include 150 wholly-owned assets to generate EBITDA in excess of 1.7 billion, and our annual cash flow was still projected this year before dividends to be approximately $1.5 billion in 2009. Let me talk about development and redevelopment, talk about the dividend as well. We opened the Promenade at Camarillo -- in Camarillo, California -- a 220,000 square foot expansion expected to generate a first year return of 13%. In addition, on April 17th, we opened a new Nordstrom at the recently redeveloped and expanded Nordstrom mall in Peabody, Massachusetts.

In addition, we are finalizing the construction in the US on Cincinnati Premium Outlets, the second phase of Domain in Austin, Texas, and the redevelopment expansion of South Shore Plaza in Braintree, Massachusetts. We currently anticipate that our domestic development capital expenditures net of construction loans already in place will approximate $180 million for the remainder of 2009, and currently we're projecting less than $50 million in CapEx development spend in 2010. Now let me turn to the dividend. As you know, we've paid particular attention to this. We've treated it with the most seriousness that we can treat any corporate decision that we can make. We've worked hard and long with our Board of Directors, and we have determined that the Company's annual common stock dividend will be reduced to the minimum amount required to distribute 100% of our taxable income and maintain our REIT status. This amount is currently estimated to be $2.70 per share for 2009. In the first quarter of 2009 we paid a dividend of $0.90 per share; and this we expect to pay three quarterly dividends of $0.60 per share for the balance of the year to equate to the $2.70 of estimated taxable income.

As you may recall, we originally forecasted our taxable income to be approximately 3.30 per share -- $3.30 per share -- and based on our decision in the Q1 to pay the $0.90 cents per dividend -- per share dividend on that estimate. Since that time, we've been able to lower our estimated taxable income by taking into consideration the increased share count from our equity issuances, as well as additional taxable depreciation available to us, both of which were not included in our original estimate. Accordingly, the dividend announced today in payable on June 19 is $0.60 per share, consistent with the dividend announced in the first quarter. The dividend will be paid in a combination of stock and cash. The cash component of the dividend will not exceed 20% in the aggregate, or $0.12 per share. The cash component of the dividend was increased by 3% -- or $0.03 per share -- 33% -- from the first quarter dividend.

Guidance today, we revised and adjusted our 2009 FFO guidance to $6.05 to $6.20 per share. This revision was primarily driven by the 2009 common stock in unsecured debt offerings that occurred at the end of the quarter, as our outlook on operation currently remains unchanged. Finally, let me just say that I'm proud of the first quarter. It was very -- continues to be a difficult operating environment, but we delivered excellent growth in profits, 10% above last year's numbers. We strengthened our industry-leading balance sheet with our common stock and notes offering and we continue to be pleased with how the Company is positioned and we're grateful to continue to maintain our leadership position in the REIT industry. With that said, operator, we're ready for questions.

(Operator Instructions). And the first question comes from the line of Michael Mueller from JPMorgan. Please proceed.

Yes. Hi. Was there any magic behind the cash component of the dividend going up a few cents?

Well, look, I think we are -- it's our desire to get to as much cash dividend as we feel comfortable to pay. I think we'll continue this strategy for '09, but we're really looking to -- as soon as we get more and more clarity in the capital Markets and that's becoming a little bit clearer -- that we're optimistic that we'll reinstate the full cash dividend, and I just think it's hopefully a signal to the market that we're getting more and more confidence.

Okay. I mean, not knowing anything else, should we look at -- I'm assuming the $0.60 probably wouldn't be a run rate into 2010, or should we think of 2.70 as being an annual and just think of the dividend on an annual basis at this point?

I would think that it's -- obviously 2010 is a while away, but our early projections on our taxable income for 2010 are anywhere between 2.70 and $3 per share. Again, there's a lot of variability to that; but it would be our intention to obviously pay our taxable income, and to pay the appropriate amount in cash, given the current market conditions.

Okay. The Mills occupancy decline -- I know you mentioned the boxes who were the culprits there -- was all that expected? Did anything else come out of that that wasn't expected? And then can you comment on just -- I guess the demand, the activity that you're seeing in terms of leasing some of those boxes, plus in the community center portfolio?

Well, I'll turn it over to Rick. I mean, the Mills decrease was all entirely toward the boxes. The demand there continues to be decent. There are more and more tenants -- like we just opened the Last Call -- I happened to be there last week in Potomac Mills -- the Last call Neiman Marcus. We're just about to open an Orange Neiman Marcus as well. So the demand is good; but as you know, we've had lots of boxes in those properties. It will take some time, but the in-line shopping demand or the in-line shopping -- or the in-line tenancy really didn't have very much variability. It's all associated with the boxes.

And the only other thing out, we have another Neiman Marcus Last Call opening at Gurnee. And we also have a number of H&Ms opening in these boxes. The other thing that's going on is, as David pointed out, because of the stable sales performance there, we're seeing an increasing migration to the Mills platform of not only outlet tenants that we are cross fertilizing from Chelsea, but also our full price mall tenants that we've started to open in the Mills. So our demand for small shop space in the Mills is maintaining relatively stable.

Okay. And last question. I think on the last call, David, you mentioned an expectation that -- obviously you can't just look at any one quarter in terms of spreads --- but you said maybe the spreads come into the teens. Can you talk about what you're seeing post Q1 and into the spring leasing season? Do they still look pretty sticky, at least in the -- ?

Yes. Look, I think -- I tried to -- I've been inelegant of my articulation of our leases and the fact that they're under market; but generally, good retail has been around for a long time. And given the fact that good retail real estate, the leases tend to roll over7 to 10% per annum, it just takes a long time to bring that good retail up to market. And we are -- the good retail, we're still feeling reasonably confident that we can deliver rental growth out of. In certain properties you're going to have a struggle to do that, but given the majority of our income is coming from better properties, we still think it's sticky and we would expect to continue to do it. Look, I think the nature of it may come in somewhat, but we still believe strongly that our leases are under market.

Okay. I appreciate it. Thanks.

Sure.

And the next question comes from the line of Jay Habermann from Simon Properties Group. Please proceed.

I didn't realize I switched companies. I'm still with Goldman Sachs does, you know (laughter).

We don't pay as much as Goldman Sachs does.

I thought I'd start off with NOI growth. And, David, your comments certainly sound a little bit more positive than the last call, but 2.7%, certainly positive versus your sort of plus 1% forecast. I guess, how do you see NOI growth trending throughout the balance of the year?

Well, look, I mean we've been -- we're not going to move away from the flat to 1% growth. It's a tough retail environment. We're just trying to execute to the best of our abilities to deliver that. So again, I don't -- you can't overreact on one quarter; but we still feel like we're going to deliver the flat to 1% NOI growth.

Do you think it will dip negative more toward the middle of the year, as sort of these bankruptcies close?

Well, I think the real issue at the end of the day that is very hard to predict is overage rent. Now, that's not a lot, but that does have some variability associated with it, and that's why we're probably a little bit more cautious. Obviously, we're reserving a lot -- you see the bad debt expense. It's still very high compared to historical standards, and that's the variability that's just really hard to pinpoint.

And the other part of it, too, is the financing market. It sounds like you're more optimistic there as well? I mean, I know you issued the unsecureds, but have you seen the market improve even since -- in the last month or so?

Well, look, I think the corporate market is dramatically improved. I mean it's good to see the industry begin to re-equitize. It's good to see the unsecured debt markets come back. Our spreads have tightened dramatically. That's all good news. The light companies are providing capital to their -- to the best -- to the borrowers and the best properties. The one unknown in our industry is obviously the CMBS market; and what happens there -- I'm not one of these guys sitting around assuming the government's going to help the real estate industry, but that's the big unknown and that's the market that lacks the most clarity on.

And referring to the life co's for a minute, I mean, you did mention that it's improved. I mean, do you you see that as a very deep option at this point, or do you think this is a flurry of activity from sort of lack of activity from late last year?

No. I think they have -- I think, look, it's dependent upon the insurance companies, but there's other capital out there that wants safe mortgages with good borrowers on good real estate, and they now have the ability to kind of pick and choose and, in fact, drive pretty good bargains. So I think that market is -- it's not extremely deep, but it's there. And it's not just life insurance companies. I think we're starting to see debt funds and the like that are going to provide capital to good borrowers and good real estate at pretty good rates.

And then lastly just on GGP, any thoughts in terms of how that's impacting your leasing, or even in terms of cap rates and transactions that you might see?

You know, I think it's too early to tell. I don't sense it's going to have any impact on our operational aspects, leasing or -- we're not going -- it's very interesting, as big as General Growth is and obviously as big as we are, we rarely have competed in markets. We may have three or four, five centers that have some overlap. We've always competed kind of on a national basis; but so I don't think it's going to have any impact on the operational side, other than as we said last quarter, I do think the landlord from a retailer perspective is really important; and to the extent -- we do think we'll get some residual benefit, just because of the position the Company's in, as well as the quality of our assets. I don't think at this point cap rates impact on financing. I have not seen any of that. I don't expect it to really play out for some time.

Okay. Thank you.

Thanks.

And the next question comes from the line of Michael Bilerman from Citigroup. Please proceed.

Good morning. This is Quentin Velleley here, I'm with Michael. Just the first question. All of your have been saying that although lease renewals have been doing -- so far this year have been very short in terms of one or two years, I'm just wondering if that's something you're experiencing in your leasing?

This is Rick. We've been interested to see the focus on this. Our leasing strategies haven't changed at all; and frankly, you can look at our termination schedule in the 8-K quarter to quarter and track it. For whatever it's worth, our number of leases less than two years is a dramatically lower percentage than anything that we've heard publicly discussed in the other calls, but you also need to bear in mind that there are a lot of very good reasons for having a shorter term. We want to have our retail spaces have the same expirations. If we can put together a new room that's more marketable, we want to generate more rent. We want to change the mix. There are a lot of factors and I don't think that the implication that there's something negative in that trend is appropriate; but, in fact, for us there's no material change historically in our term.

Okay. And just in terms of -- I guess your gross occupancy cost ratio, with the mall portfolio with rates (inaudible) dropping about 7% over the year, and base obviously rents increasing by 6 or 7%, just sort of wondering where that ratio is moving to? And I know you said that you think the majority of your portfolio is still underrented. Are there any sort of particular tenants or types of tenants where the occupancy cost ratio is moving up and you've got some concern?

Well, first of all, historically we've always tried to ensure that we were getting full rent; but we have always run this business with a view towards ensuring that we can work with our tenants. And, in fact, our occupancy costs within the malls is 14%, which is still very much within the traditional bounds where tenants can remain profitable even at these decreased sales levels. I would also point out -- and this was a point that was referenced by David -- that in our premium outlet portfolio, our occupancy cost ratio is only 8.7%. So in both -- in Chelsea, we know we have a substantial opportunity to bring leases to market ,and that's reflected with the significant rent spreads we are reporting on renewals. And in the mall portfolio, our occupancy cost percentage is stuff that we're still having constructive conversations with our tenant.

Yes. And, Quentin, I would just say look, I think that's -- but sales is obviously having an impact on how retailers are thinking about their business and what they can afford to pay, and that's one of the reasons why our NOI assumptions are not growing 3 or 4% like they have historically, and that's why we think we're, you know, going to be flat, so -- to up 1%. So I mean, there is sensitivity that we have to our retailers given the current sales environment. So it is somewhat of a governor on growth right now, but I think our undermarket undervalued leases allow us to kind of maintain the flatness of what we're projecting.

And, David, or Rick -- it's Michael speaking -- how much do you think -- I mean, clearly it sounds like other landlords are moving down that path of shorter duration. Do you think it's more so from a retailer perspective of them pushing it and saying look, I don't know where things are going to be. I'm willing -- I'd like to stay here, but cut me a break. I'll stay for another year or two and then we'll see where things are; rather than them leaving. Or how much then is it the landlord saying you know what, I don't want to sign a long-term lease at (inaudible) rent if I know if two or three years things will be better. And I'm just trying to understand that dynamic?

Yes. I think it's both, Michael. Without question it's both, but the important thing is, when we deal with a major tenant, we're dealing with our entire portfolio. And the one thing that -- and if they're uncertain about sales at a particular center, our goal is to shorten everything up as an example, because one thing we don't want to do is just have not such great stores expire when you have -- and then do the longer term leases on the great stores. So we try to balance that; and in some cases, it's a short term band aid. It could be from our perspective. It could be from theirs. Sometimes you're waiting on the right tenant for the space. As Rick mentioned earlier that, you know, we think Sephora is going to come in this year, not next year, so let's hold it over for a year. We had a situation at Dadeland Mall where we did that, as an example.

So it's all part of the equation. And it's not -- I will tell you it's not that dramatically different than what we've been doing over the last few years. Now, is rental expense a higher priority for tenants? Absolutely. But the give and take, the duration of the leases and when you do it and when you don't do it; when you have a holdover tenant, when you don't ,has been pretty consistent over the last several years.

Are you finding -- at least when you're having these portfolio discussions -- clearly, your total portfolio is of high quality, but if you were to bracket it into different classes -- are you finding that at least on a lower quality or the lower sales productivity assets, is that hurting more? Is that where retailers are becoming more concerned about at all?

Well, I think it depends on the retailer really. I mean the -- some of the higher end tenants have had more dramatic sales decreases than what I'll call the moderate to better. So it really is a function of the retailer in the marketplace; but clearly, if the real estate is not that good, you're going to be in a match to maintain the cash flow of that asset/ And look, we've got some that are in that bucket, but we're still able to figure out how to grow our comp NOI even though we have assets in that class.

And then the last question for Steve, can you talk a little bit about the two CMBS loans, where you decided not to fund -- effectively default on? I know one, it was basically just more of a legal ownership than economic. But talk a little bit about the one in Palm Beach. And then separate, from that talk a little bit about, -- clearly, you have a lot of capacity today of a billion dollars in cash and three billion of credit line capacity; but talk a little bit about the maturities in '09, 2010, especially on the joint venture side where you have a lot of secured, larger loans. And then maybe talk about forum shops as they get to the secured maturity on the consolidated portfolio.

Yes. Let me talk about the source in Palm Beach, if I could, Michael, and then Steve could add to the last part. Let me -- first of all, the source, we have a 25% carried interest in that property behind significant preference for what I'll call the true economic owner; and there's two other partners in that deal, and we have no invested capital in that project. We were working toward a refinance, kind of as the manager of the -- property manager of that asset. We were working toward a refinancing of that asset; and then given (Inaudible) bankruptcy, obviously being the major anchor coupled with Circuit City; and Steve and Barry's, the refinancing got impossible to execute. So we are actually trying to work with the true economic owner and the lender to figure out how to come up with an acceptable alternative to keep the -- to extend the maturity date and give us the time to figure out how to fill the space.

Both the true economic owner and the lender have expressed an interest in us maintaining our role in that, even though we don't get any cash flow and obviously the management fee is de minimus in terms of -- in what we're doing. So we're actually trying to be an honest, happy broker to figure out how to make and give both of those -- lender and the borrower -- the ability to maintain the status quo for a better environment down the road. So that's the source. And then let me turn to Palm Beach. Just to give you a little bit of history, Palm Beach -- for those of you who don't know -- we really acquired -- that is, Simon Property Group acquired the asset -- both when we acquired DeBartolo and Corporate Property Investors more than 10 years ago. And those ownership interests, they were owned 50/50, and obviously they were very small in connection with the overall deal of DeBartolo and CPI; and since that time, Michael, we invested millions of dollars renovating. We actually brought in Dillard's during that process. We re-tenanted the mall, and I think we did as good of job as anybody to maintain that center as an enclosed mall. But ultimately, we knew that maintaining it as an enclosed mall was going to be very difficult.

So we began to develop a significant redevelopment plan, which unfortunately, because of the state of the retail environment -- in fact, we were working with IKEA as an example. We were working toward maybe potentially demolishing the mall and the like. But when we lost IKEA, that kind of put that whole development on hold. Additionally, during that period of time, we lost Dillard's; and then subsequently we lost Macy's, and so we were trying to -- and have -- attempted to reach an acceptable resolution with the representative of the lender. And I will point out, this is a non-recourse loan. But those attempts -- the lender, or the servicer, I should say -- really was not interested in having a dialogue on this, and those attempts currently have not reached an acceptable resolution. So with all that said, that's Palm Beach. And again, we've worked very hard to maintain it and to try and redevelop it, but the environment is such that that's going to make it very difficult. This has been a cash flow drain for the Company on this non-recourse loan, and I think our decision is obviously in the best interest of our bondholders and our equity holders and the like.

So that's the status of that. I'll turn it over to Steve for your last part of your question, other than to say the good news in both our secured and our secured indebtedness coming up in about '09 and '10 in our JV is -- a lot of that was with life companies that were well down the road. If you look at our consolidated '09's, the vast majority of that is with insurance companies that we have a wonderful relationship with that we've made very good progress on. And the same thing can be said for '10's, our '10's as well, so -- but I'll turn it over to Steve to add more color if you'd like.

Yes, Michael, just to echo David's point, as an example, 75% of our '09 maturities are non-CMBFs. The other thing I'd point out is in the '9's, '10's and even going out to '11, our current debt yield based on current EBITDA is in the 15% range. So these are loans that in the aggregate are popely sized even given the current market conditions, which is why we've made the statement that we'd expect to be able on a net/net basis to refinance our security indebtedness in whole. Not to say we won't have to equity ties certain assets; and as David mentioned in his prepared remarks, we actually got excess proceeds from a couple of the loans that we've done already. But net/net, we think we're in pretty good shape. You asked about forum shops specifically; I suspect because of its size -- and it is a large loan that I would also tell you it does well north of $80 million of NOI -- so again when you look at it from a debt yield perspective, it is certainly not overlevered. And one of the great advantages of our Company compared to many others is we have a big unencumbered portfolio, and so the ability to mix and match our financing sources. We are not dependent on rolling over every mortgage maturity that comes due; and as David mentioned earlier, we certainly believe the bond market is substantially improved from where we saw it a month or so ago. So I feel very good about the ability to continue to roll over our mortgage debt and to finance the Company.

And just to give you a perspective on that, that's what our line is there for essentially. So the Oklahoma assets that we refinanced we actually paid off the mortgages --

One in January.

One in January.

And (inaudible) loan in March.

Yes. So we paid one at the end of the year, actually, and then one in January. So I mean, if need be, that's what our cash and our availability will do until we can refinance assets or refinance our line through other mechanisms.

(Inaudible) bonds or what have you, yes.

Thanks for very detailed color.

No worries.

The next question comes from the line of Paul Morgan from Morgan Stanley. Please proceed.

Good morning.

How are you doing?

Good, thanks. Do you think you're in the position now from a balance sheet perspective to take advantage of acquisition or investment opportunities when they come along, or do you still think that from where pricing talk is and where you are that you'd rather wait?

Well, Paul, I will tell you that we're feeling better about the world generally. We were -- we obviously have been very conservative on capital; but I think the steps that we've taken, though painful in some respects and not that's something we wanted to do, I'd say we're feeling better about the market generally. I think we're looking to be -- we're looking more outward yet. It may be still too early, to you know, to do -- to become more on the offense. But our mood here is getting a little bit more forward-thinking than it has been over the last six months; and what's interesting, I do think there is capital in lots of different ways for us to be to be opportunistic as the opportunities arise. Steve, I don't know if you want to add anything to that, but -- ?

Well, first of all, Paul, I'd say welcome back into the fray.

Thank you.

I think I'd just echo what David said. One of the things that we have clearly seen over the last six months is the move of capital towards the higher quality sponsors. You know, I think at the height of the CMBS market, who actually owned the mall or who the partner in the mall was was maybe less important as I'd ever seen it in the 20 years I've been doing this. I think we're at the other end of the spectrum right now; and money -- and there is still a ton of money sitting on the sidelines -- has gravitated towards the better sponsors. And so I think when you couple what we've done already from the capital raising standpoint, plus some of the inquiries we have gotten about people wanting to put money to work side by side with us, I think David is right in that we're feeling a little better about the opportunities that we're inevitably going to see come down the road, because there is obviously still a lot of distress in the market, and we're going to see opportunity.

I mean, you have been pursuing some of those outside the US. Is there a bias now for anything incremental being domestic or foreign?

I think the primary focus currently will be domestic, Paul, without question.

Okay. Well, last question on -- just sort of visibility from a leasing perspective. In my experience, [ICSC] comes and you start -- you talk about a lot of deals for -- this year it will be 2010. How much are retailers sort of willing to kind of think about their fall 2010 openings, or has everybody got just a much shorter time horizon right now?

In the interest -- Paul, this is Rick. We've had in the last three weeks in anticipation of [ICSC] probably five to eight tenants a week coming in here, because with our portfolio and across the platforms, we get a lot more done, and we are talking to them about 2010 deals. Obviously, they want to see what the future holds as well, but three months ago no one was even thinking about it. Now they are starting to think about it for new stores, but we are actively finalizing our renewals and are working now on our renewals in 2010.

I mean, did you think that the balance we've had a bit in sales has actually changed the attitude at all, or is it too early for that?

I think they are still wanting to see some firmer trends. What I will say, we have -- David and I have met with a number of these retail CEOs over the last several weeks, and they are at least more comfortable in understanding the trends. There was a period of time in January and February where they didn't really know what was ahead of them. Now I think they are a little more comfortable as to that, but they still want to get some firmer feel for how this is going to unfold over the next few months.

Yes. I would just say I think their mood is better, from the guys I talked to. I think it's important -- no one knows for sure kind of where we're going to be the next six months in terms of the broader economy, but I will tell you that given the dramatic falloff from September to December and the slowing down of the sales rate of deceleration -- if that sounds right -- I would tell you that their mood it more stable and more forward-thinking, without question. That's not to say there aren't certain retailers that are still want seeing that rate of deceleration slow, but I think it's a little bit better, clearly, than it was in December.

Thanks.

And your next question comes from the line of David Fick from Stifel Nicolaus. Please proceed.

Good morning.

How you doing?

Hi.

In hindsight, you guys may have done one of the most expensive A-rated rebond deals in history. I'm wondering if given what's happened in response to that, and how you helped the people who followed on, might you now come back and try to dollar cost average that down.

Sure. I mean, look, we're going to look at that market when it's appropriate. Look, we chose to punch a hole in the capital markets because we were concerned about the industry and concerned about the cycle that was out there. So we decided to take some short turn pain for hopefully a long term reward. We have -- we don't have any regrets did decisions that we made. I mean, our timing -- it's hard to know whether we'd be where we are today. But we knew that that cost was expensive. We thought that by doing it, ultimately we would be able to access markets more cost effective, and so far it looks like we're moving in that direction. It's a long winded answer to say yes. I mean, we never think our cost to capital was where we were at the end of March, but we chose to incrementally suffer that pain because we didn't like the cycle that we and/or the industry was in.

Thank you. You -- when you did the Mills deal, you talked about redevelopment opportunities, and they had some things in the works at the time, including Del Amo and potentially adding some Colonnade-style features to some of the other projects. We haven't seen anything like that over the last couple years, and I'm wondering if it's just the environment, or do you have things in the works that you might be willing to talk about in the next six months or so?

Well, this is Rick, David. In fact, we are in the process of finalizing right now a 15,000-foot expansion to the Colonnade at Sawgrass Mills. There are a number of tactical things going on within the Mills portfolio. David already discussed the Last Call. Were adding off Broadway a number of other small shops in the Mills properties. In terms of the more dramatic redevelopments in the Mills malls, obviously the capital programs of the fashion retailers that we are focusing on to reposition those assets are on hold, and it is going to be some period of time before they're prepared to engage in the conversations on those re-developments. At the Mills properties themselves, we are working on a number of other projects; but as has been our historic practice, we don't really talk about those things until we have something concrete to say.

Yes. I would say -- I would just underline that Mills -- the actual Mills, we've actually done a lot of new boxes -- Neiman's -- we're doing a lot of Orange -- Gurnee, as Rick suggested. So I think our -- we're very satisfied with how we've positioned the Mills. We had two disappointments, and I'll say they are directly related to the economy, and that's in Southdale and Del Amo; and we think both are great long-term real estate opportunities. ,It's just I think those have been somewhat of a setback -- not because we don't have the vision or the plan. It's just they're going to be on hold. But I'd say by and large, the Mills progress we've been very pleased with. And the other one that we created was Gurnee.

We were looking to do a lifestyle addition; and we kind of put that on hold because of the economy, but as Rick mentioned, Nieman's is going there in any event. So I'd say we're bringing, hopefully, a casino to Arundel Mills. We did -- Rick and I did that over the weekend -- more Rick than me. I just found where Rick was, okay? But I mean, the Mills we feel good about. We've got a couple disappointments in those two big malls, but I think there are opportunities for it when the world gets a little bit better.

Great. Lastly, David, I think you were recently quoted as saying that GGP didn't realize that there were distressed sellers and that you were more interested -- I think you've alluded to that on the call using the word opportunistic a couple of times. What do you consider an opportunistic cap rate here?

Well, I can't tell you because you may tell somebody. But now look, I think it's one where we would look at where we're trading at a premium to that; and assuming we believe in kind of the growth prospects of that asset, like we do of our Company. So I think they'll be out there. We just have to be somewhat patient.

Thank you.

And the next question comes from the line of Mark Biffert from Oppenheimer. Please proceed.

Good morning. Steve, wanted to ask you quick about -- or maybe David -- about what your optimal view is on leverage looking ahead. You've seen a number of other REITs come out and say that they're lowering their views on where they think their debt to equity should be longer term. Have you assessed what that is for you?

Well, look. I think -- we're comfortable now, I think, as we look to be more opportunistic. We're going to need more firepower ultimately, but I think our balance sheet -- the fact that the regional malls have the kind of cash flow resiliency where we are -- I mean, we're making stems to delever. We'll continue to make those steps. You see where we are with the rating agencies. I mean, I feel like we're there, but we can always focus on our cash flow generation to delever, and that's what we're in the process of doing right now.

Mark, this is Steve. I'd just add one thing, you know. If you think about the stability of the mall business -- and obviously the results that we've been able to demonstrate in terms of holding the EBITDA in a terrible economic environment support -- I mean, we're covering our EBITDA 2.6 times right now in terms of interest coverage. Given the stability of the cash flow, that's a very comfortable place so run our business. Now that leverage may change up or down depending on your view of cap rates; but I think if you just think about it from a cash flow coverage, running the business north of 2 1/2 times, I thin,k is a comfortable place for us to be.

Okay. And then related to the leasing spreads, I was wondering if you could provide a little more color in terms of how many of those leases were signed last year prior to the downturn, and you still saw that positive widespread, and if that should shrink over the next year or two as we start to see you report your results?

Well, Mark, I'd say this. I mean it's a huge portfolio. So the size of the numbers does mean something; but having said, that I think as David mentioned in a response to an earlier question, we gave guidance at the beginning of the year expecting that lease spreads could go down to the lower end of our 15 to 25% historical range in the mall. You know, they haven't done that yet, but does that mean that they couldn't come down a bit as we get farther into the year? Sure, they could. But obviously we still feel leases are under market, still feel very good about our ability to generate meaningfully positive leases.

And let me just add to Steve's point on the metrics, year-to-date we've executed 3,347,000,000 square feet of leases comprising 1,071 deals. So in and of itself, that's a very large sample that's driving the stats that we put out.

Okay. Thanks for the color. And then lastly, Steve, I was wondering -- I noticed that repair and maintenance expense came down relatively -- or compared to last quarter -- relatively high and then your credit for losses doubled quarter-over-quarter. Can you give us a little more guidance on your expectations for the rest of the year?

Well, without talking about repairs and maintenance specifically, because things can move quarter to quarter; but if you just look at the overall operating costs at the mall, we have done a very good job of controlling our cost in this environment. And I would expect that kind of overall trend to continue for the rest of the year. As it relates to the bad debt expense, I think given the uncertainty of the environment that we're in, I would like to think that when we look back 12 months from now we will have been a little conservative in the fourth quarter -- I mean, in the first quarter. So I wouldn't necessarily expect that provision to be a run rate for the year, but I don't think there's any question that we're in an environment where bad debt expense in '09 could be higher than it was in '08.

Okay. Thanks.

Sure.

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

Hi, guys. Good morning. When you look although leasing, what percentage -- I don't think you mentioned it, Rick -- what percentage of the '09 leases have you got done at this point -- expiring leases?

We're probably upwards of 85%. We have -- in addition to this statistic I just said, we have another in our lease approval process 7,000,126,000 square feet that's being processed another 2,109 leases; and I said, we're already well into our 2010 renewals.

Okay. So year-end '09 occupancy is probably going to be what, do you think?

It's very hard to speculate, because we don't know what is going to happen in terms of tenants that end up filing, or what happens even with the tenants that have filed. One of the positive things that we've seen that I think is reflected in David's point in the capital markets is that tenants that filed December, January, it was straight to liquidation. What we're seeing now is that there's more dip financing available, and a number of the tenants that have filed in the last 60 days are actively discussing which leases they want to assume as opposed to just going right to liquidation. So it's very lard to project today where that's going to end up.

Okay. All right. Good. Thanks. And then it sounds like -- and it seems to me -- that bankruptcy season in general was lighter, certainly, than people expected. But how would you put it in context historically? I mean, what do you think of this first quarter and the bankruptcies we saw versus what we've seen in the past?

Well, Rich, this is Steve. I would just say I think the context of a bankruptcy season is probably less relevant. You know, Rick mentioned that in the first part of the year there was no dips (inaudible). I think that muted the bankruptcies, if for no other reason that people knew if they took the risk to go into bankruptcy they were probably going to liquidation, and no one wants to sign their own death certificate. You know, one of the outcomes of the fact that there is a bit of dip financing now is that there may be more bankruptcies here later in the year, just because people have a little bit more confidence that they can do a reorg as opposed to a liquidation. So I mean, I think it's hard to say; but we certainly would not be surprised if there were more bankruptcies yet this year.

Yes. But I will tell you we lost a lot of occupancy due to bankruptcies this quarter, Rich. So it's -- I mean, our setback in leasing occupancy this quarter is all as a result of the bankruptcies.

Okay. All right. Good. Yes, thanks, Dave. And then, Rick, would you give us the hit parade of who the tenants are that are most -- maybe increasing their desire to open stores? Your feel for more excitement, maybe, among certain tenants with regard to your portfolio?

I'll tell you who -- yes, people that we are working with now that have opened -- are opening stores in '09 and still have expressed appetite in '10 are stores like Express, H&M, Sephora, Forever 21, J.Crew, Apple, Zara.

Don't tell him. The other developers might (inaudible).

Right (laughter). But the good news is there are -- in the junior category, there are a lot of people that are interested in locating stores in our property; and in the outlet portfolio, the list is far longer. There is continued demand in the outlet portfolio. We're seeing a number of tenants come into the outlet portfolio that are new to the outlet portfolio, and so it's -- I don't want to say it's anything that's robust, but there's work going on.

Okay. Great. Thanks. And then on the GGP bankruptcy, are you guys involved in that in any way? Or do you just monitor it, or what are you doing there?

Well, what -- we're certainly monitoring it. I mean it has -- it will be a fascinating thing to monitor.

And does that mean you don't actually have discussions with them at any time, Dave, or is that something you can talk about?

Well, we're not having any discussions with them currently. But this is going to be a long complicated process that can go a lot of different ways. So obviously, we're going to stay closely abreast of it.

Okay. All right. And then last thing is on construction costs, are you guys seeing a drop in construction costs? And does that provide benefit here as tenants continue, I guess, to avoid new developments, but maybe going forward as they might take another look at some of these?

Yes. I mean, yes. It's certainly going to help us. (Overlapping Speakers) Dramatic reduction in cost.

And perhaps more important is there's going to be a dramatic reduction in new supply. So over the next five years, we anticipate that there's going to be very few new projects brought forth. It's going to materially help us increase the market share of our existing properties.

Okay, great, thank you, guys.

And the next question comes from the line of Michael Bilerman from Citigroup. Please proceed.

Just a quick follow-up, just relation to your stake in Liberty. Do you participate in the follow-on offering?

We're not at liberty -- no pun intended -- to disclose.

If you --- would have to file, I guess, if you did buy, correct?

When the deal closes, Michael, which won't be for another month or so.

Okay. And then you can't talk about your intentions, I guess, either. You're not at liberty to talk about it? .

We're not at liberty to talk about it. All right. Thank you. Sorry.

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

Yes. Thanks, hi. Just two quick follow-ups. First, Steve, home and regional costs dropped off quite a bit from prior run rates and year-over-year. Just wonder if you can give us an idea of what's going on there. And then, Rick, you were talking about 2010 leases, or 2010 leasing activity. Can you give us a sense in terms of those -- that early activity? The comment about spreads being toward maybe the lower end of the historical bend, do you think that will trend -- that will carry over into 2010 as well?

Well, let me comment on the renewals first. The renewal activity that we're doing to date really reflects David's comments. And happily, the properties that drive our results we still have pricing power, and we are operating within the historic expirations. Properties that have less pricing power, there's more pressure; but overall, we think we're going to continue as we have historically.

I would just say we're going to be smart about renewals, too, because we have confidence in our business, in our Company and in our properties that we don't -- if you rush, rush, rush to do a renewal in a mall that you think is really good and got long-term growth prospects, I mean, you don't want to give away the store in a sense. So we're just being very thoughtful about what the right rent is for the long-term of that space as opposed to what it might be in this particular moment in time.

And, Mike, on your question about the home office cost, it's a couple of things I think David and Rick have alluded to over the past three or four calls. We got ahead of the curve with cost management that included rightsizing parts of the business that were construction development-related, and then the first quarter of the year is where we do our incentive payouts for the prior year, and they were lower in '09 than they were in '08.

Okay. Thank you.

And we didn't have to have the government ask us to do it.

Great. Thanks.

And the next question comes from line of David Fick from Stifel Nicolaus. Please proceed.

Yes. Just one point of clarity, guys. When you disclosed lease spreads on expiring and renewal leases, that's for deals signed in the quarter, not for the actual deals that rolled over in the quarter, right?

No, David. It's for tenants that actually open and close. So we match actual tenants whose leases expired on/or spaces who closed compared to tenants who open.

That gives you tremendous visibility over the next couple quarters, because everything that's going to happen is pretty well signed at this point?

I'm not sure I understand your question.

Well, you know what deals are signed to open or close in Q2 already, and so you pretty much would know what your lease spreads are going to be for Q2.

Well, I mean, I would say this. When we gave guidance at the beginning of the year, I remember people asking, why are you at zero to one, because a lot of people were more negative in their estimations. It was because, you know, 2/3 of our '09 leasing was done, and we did have visibility into what those spreads might be, yes.

Okay. What is your guidance -- what does your guidance assume about additional shares from the stock dividends for the remainder of this year?

It's consistent with what we modeled in the beginning of the year.

Our FFO guidance?

I mean, obviously, you're not going to issue as many shares now as you would have when you initially gave guidance.

The guidance assumes, David, that we continue to pay a stock dividend for the remainder of the year consistent with what we've done this quarter, but it does not assume any additional equity.

Great, thanks.

Thanks.

And the next question comes from the line of Nathan Isbee from Stifel Nicolaus. Please proceed.

My question has been answered, thank you.

Thank you.

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

Hi, good morning. David, you guys co-own a mall in Texas -- a shopping center that is apparently being sued by its anchor, Dillard.

Yes.

Can you comment on the lawsuit, and also perhaps how your relationship with General Growth has evolved since their financial troubles began last year? Maybe either as it pertains to this mall, or other malls that you jointly own?

Well, let me just say this. I mean, this is a -- we picked up a half an interest in this mall when we bought CPI. General Growth has managed -- this was a joint venture between Rouse and CPI. General Growth picked up their interests when they bought CPI and they have been the property manager -- what did I say? Oh, I'm sorry, Rouse, thank you. They've been the property manager -- they and Rouse have been the property manager since we've ever been involved in it, and they have taken the lead on it and they have been leading the charge on the litigation; and we're just -- we're a partner, but we have no day-to-day involvement in the management of the asset. Our relationship -- General Growth, we know Adam, the guy that runs it now. I mean, I'd say our relationship with him is fine. We have asked to take over the management of this asset for a number of years. We have been turned down through that process, but it is what it is.

But, Ben, just to be clear. This is the only joint venture we have with General Growth.

Okay. I mean, I'm just wondering if you think the General Growth turmoil has in any way contributed to the deterioration of that center? Do you have any opinion on that?

Well, I think they are and we are supporting them, arguing that the deterioration is not exactly what the Dillard companies has suggested. And so, given the litigation, we'll leave it at that.

Okay. And do you think the lawsuit in any way impacts the opening of Dillard's at the Domain, which is located just a few miles away?

No. Not at all.

Okay. Thank you.

Sure, no problem.

And we have no further questions at this time. I would now like to turn the call back over to Mr. Simon for closing remarks.

Okay. Thank you, everyone, and we appreciate your support and look forward to talking with you in the future. Take care.

This concludes the presentation for today, ladies and gentlemen. You may now disconnect. Have a wonderful day.