西蒙地產 (SPG) 2009 Q3 法說會逐字稿

Good day, and welcome to the third quarter 2009 Simon Property Group earnings conference call. At this time, all participants are in a listen-only mode. (Operator Instructions) I will now turn the presentation over to your host for today, Shelly Doran, Vice President of Investor Relations. You may begin.

Thank you. Welcome to Simon Property Group's third 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 Web cast for some time to come, we believe it's important to note that the call includes time-sensitive information that may be accurate only as of today's date, October 30, 2009. The Company's supplemental information package was filed earlier today with Form 8-K. This filing is available via mail or e-mail, and it is posted on the Simon Web site in the Investor section under Financial Information Quarterly Supplemental packaging.

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, everybody. We reported diluted FFO per share of $1.38 for the quarter, which was $0.05 higher than First Call. Once again, we are pleased with our financial and operational performance. Occupancy in all of our domestic platforms was up sequentially from 6-30-09. Mills was up 150 basis points. Regional mall and premium outlet centers increased 50 basis points, and the community center lifestyle platform increased 40 basis points.

We saw a decline in the regional mall retail sales in the third quarter as compared to third quarter of '08 where comparable sales as of September 30 were $438. The decline in sales for September over September was much lower than any month, year-to-date. Preliminary reports from retailers regarding October have been encouraging. We believe our retailers will have a decent holiday season.

Premium outlet comparable sales were relatively stable in the third quarter at $492 per square foot, down only $1.00 from 6-30-09. And we actually were up in September on a comparable sales per square foot. Mall leasing spreads were $4.04 for the first nine months of 2009. Average base rent at 9-30-09 was $40.05, up 2% for the year earlier period. Premium outlet releasing spread continues to be strong at $9.25 per square foot for the first nine months of '09. Average base rent for the outlets at 9-30-09 was $32.95 per square foot, up from the year earlier period.

Comp property NOI growth for the first nine months of 2009 was up 0.06% for the malls. NOI growth has been impacted by higher bad debt expense resulting from tenant bankruptcies, as well as lower overage rent due to lower tenant sales in 2009 as compared to 2008. Yet we are still up for the year. In our premium outlet portfolio, comp property NOI was 6.5% for the first nine months.

Let me just turn to capital markets and reflect a touch. SPG returned to the capital markets in August with $500 million principal amount of five-year senior, unsecured notes. They were priced to yield 5.46% to maturity. Our third quarter capital activities also include a $400 million mortgage financing for three malls. Additionally, we redeemed $40 million of preferred units at a weighted average rate of just under 8%.

Beginning of '09, there was an incredible amount of uncertainty over the ability of capital in either the secured or unsecured markets. During our call in late January, we discussed an environment which was unlikely that we would be an issuer in the bond market. We might need to repay maturing bonds with our credit facility, and the secured debt financing would be difficult.

Markets have significantly improved for this from the first quarter. We have worked very diligently in the execution of capital markets activity in 2009. The volume of completed and in process transactions is considerable. Put the equity we have raised aside. We have, thus far, issued three unsecured bond offerings totaling $1.75 billion. We have completed or expect to complete before year-end approximately $3.3 billion of secured financing comprised of new loans as well as refinancings. Our share of those financings -- secured financings is approximately $2 billion.

First, a few details on these new loans. We have completed 18 loans, totaling $1.5 billion and $1.25 billion of that was from life companies. Our share of the completed new loans was $1.1 billion. Weighted average interest rate on the loans was 7.2%, and the weighted average life was seven years. By year-end, we expect to close an additional seven refinancings totaling $450 million of which our share is $150 million. Eight new lenders on these new financings were new secured capital providers to SPG.

In addition, we had the contractual right or renegotiated loan extensions of $1.3 billion in 2009, and our share of that was $750 million. Our spreads have continued to rally. Our CDS spreads are quoted currently at 150 bps which has rallied from 550 basis points from the highs in early March. In fact, the highest of which was in December of '08 of at least 750 basis points.

As of September 30, 2009, we had $4 billion of cash on hand, including our share of joint venture cash which is approximately $11.50 per share. Availability on our corporate credit facility is $3 billion, generating a liquidity position of $7 billion.

Now let me talk generally about retail. Retailers have started to gain their footing and certain retailers are growing store counts including Aeropostale, Agaci, Apple, The Buckle, California Pizza Kitchen, Express, Forever 21, H&M, Michael Kors, Pandora, Red Robin, Sperry Topsider -- to name a few. A number of predominantly outlet tenants are also increasing their store counts. We have a significant amount of leasing volume in our pipeline with over 500 deals and 8 million square feet of leases in process across all of our domestic platforms.

In particular, it is good to note that the volume of big box activity has significantly increased in the second half of the year. Since mid-July, we have completed 20 big box deals across the four platforms, and discussions are underway on 20 to 30 more. Retailers include, again, Forever 21, hhgregg, Dave and Buster's, Saks Fifth Avenue off 5th, Bed Bath & Beyond, and TJ Maxx to name a few. We are seeing a flight to quality by the big box retailers. They want to be in malls, outlets, mills, or strip centers where they benefit from shopper quality and traffic.

Now let me turn to guidance. We increased the low end and have maintained the high end of our 2009 FFO guidance taking into account the $0.03 dilutive impact of our $500 million note issuance which was not included in our previous guidance that we issued at the end of the second quarter. The current FFO guidance therefore is $5.40 to $5.50. And, of course, you will recall that includes a 42% impairment from our holdings in Liberty, non-cash.

We have a solid financial and operational performance in the third quarter. I am proud of that. Our year-to-date activity has produced good results in a very, very challenging and difficult market. We remain focused on operations, and we continue to believe that we are very well positioned for growth given our balance sheet and access to capital. With that said, we are ready for questions.

(Operator Instructions) Samir Khanal with Morgan Stanley.

Good morning. Could you provide color on where you are currently with respect to your 2010 lease expirations? And on that basis, how you feel about rent spreads next year?

This is Rick. So far through September 30, 2009 to 2010, we are about 44% through our renewals, either executed or in process, and we are making very good progress there. Compare that to September 30, 2008, we were about 53% through our '09 renewals, and so we are a little bit behind. But part of that is a deliberate strategy on our part to delay renewals that are coming up in the second half of 2010 because we believe we will have a more advantageous environment to negotiate those renewals.

And also, although there have not been many transactions, it appears as if the cap rates for B malls have moved higher relative to A malls. Have you reconsidered the possibility of stepping into the market to acquire B-quality malls either on your own or possibility in an institutional JV?

I guess the answer is we look at everything that is available, and if we like the property and we like the price and we like the growth characteristics we will take a hard look at it.

Okay. And also, do you have any outlook for lease termination fees in Q4? Whether they will be materially higher or lower versus the current run rate?

Year-to-date '09 compared to year-to-date '08 is generally a very -- almost right on top of each other. There may be a little bit more activity at the fourth quarter, but nothing that is going to move the needle in any significant way.

Okay. Great. Thanks.

Christy McElroy with UBS.

Good morning. Just looking at your mall releasing spreads which slowed from 17% in the first half to about 11% year-to-date, which could imply that spreads were flat to negative in Q3. From what I understand, your spreads are calculated based on store openings rather than leases signed. So what I am looking at is effectively a lagging spread number that's reflective of leases signed three to six months ago if I understand right.

So what I'm wondering is given that you know where leases are being signed today, was that flat to down number an anomaly based on the mix of leases you were signing at the time? Or is this a new run rate such that you are no longer signing leases at a positive spread?

Hang on a second. It is positive. It's $4.00. It is outperforming just about -- so far, every one that I have seen. We have always said it's $5.00 to $6.00. We are going to be impacted. We are not immune to the economy. But we are proud of our $4.00 spread. We still think we have leases that are under market. And obviously, negotiating rent in a tough economic environment is more challenging. But the fact is it's a positive spread. I have not seen that anywhere else, and we are proud of it.

Absolutely, but if you are backing into a Q3 number, should we just not read into anything and just look at the nine month numbers?

I think there is always a reaction to quarterly performance, and real estate is better viewed over a longer period of time. But that is your job. So I will let you do that. But the fundamentals of our business have not changed. We are dealing with a tough economic environment. It's realistic to assume that when you're in the process of negotiating leases in a tough economic environment you are going to have to be sensitive to that. But the fact of the matter is over a longer period of time, we think our leases are under market, and we will continue to prove that.

Okay. And we saw that you took the management contract at the Galleria in Dallas from General Growth. Are there any other opportunities there? And can you speak generally about your strategy as it relates to third-party management?

I guess I would not say that we took it. We were asked if we were interested and given it's a good market and a very good center, we decided to do it. We also have a relationship with the owner. That was our primary focus. I do not think our strategy is to change. We will occasionally do it for people that we know and we have a relationship with, but beyond that I don't think it's going to change. And we are not out soliciting third-party management contracts. Occasionally, they will come to us. And given the relationship we have with certain institutional investors, we will consider it.

Got you. And then just lastly on the recovery ratio, I noticed it was a little bit above average in the quarter. In your efforts to reduce overall CAM, what percentage of your tenants are on fixed CAM? And is that helping your recovery ratio? So expenses are down, but you are still getting the recoveries from a portion of your tenants.

Christy, this is Steve. We are about 80% converted to fixed CAM right now. So you are exactly right. As we have done a good job in managing the cost, 80% of that benefit has fallen to our bottom line.

Okay, and then just to follow up on that. To what extent are you reducing CAM expenditures that you typically capitalize? And could that potentially reduce your recovery ratio? The recoveries that you are getting from tenants that -- not that it's a huge percentage, the 20%. But the tenants that are not on fixed CAM, that recovery declines?

It's not meaningful. We are managing the capital expenditures at the mall the same way that we have always managed them.

Got you. Okay. Thank you.

Mark Biffert with Oppenheimer.

Good morning. David or Steve, I was wondering if you could comment on the credit provisions that you took. We saw that they declined substantially. Is there anything behind that? Are you just assuming that you are not going to see as much increase in bad debt? Or if you could provide color on that.

Mark, this is Steve. It's formulaic. We look at the different categories of receivables and put a reserve on them depending on what category that they fall in. Interestingly enough, our receivables were actually down third quarter of '09 compared to third quarter of '08. So you see that in the small bad debt expense that we took in the third quarter.

I would say that we collected more cash than we had already expensed probably in the first couple quarters. And that is because we have been aggressive in collecting rent. That is the business, and I think that is partly because there were a handful of tenants that were really uncertain about the world. They feel a little bit better, and they are starting to pay their bills in a more timely manner which really excites me.

So it's your expectation that that line will stay at a fairly low number for the next few quarters at least?

All it takes is one unknown bankruptcy or -- it's part of our guidance. We are still anticipating the difficult environment that exists, and it can move up and down a little bit. But it's really a function of the first couple quarters. We reserved a lot of expenses because they were slow in paying bills, and I made sure that they paid as much as what we were entitled to.

Okay. And then I was going through your top tenant list, and I noticed that you lost about 23 stores quarter-over-quarter. And from your remarks earlier in the call, you obviously mentioned that there were some tenants replacing that. I am just wondering what part of your portfolio -- is it the bottom third that you are seeing a lot of these top tenants pull out of? And just maybe give some color around that.

Leasing is a challenge. But we are up from the second quarter. We are down from last year. And it could be a function of the sales performance of a certain retailer and a certain part of the market. It could be a function that they are in an A property, and they cannot afford the freight.

I think you have to drill down to the specific retail asset to do that. But it has been a combination of regional issues and/or not being able to afford the rent or the fact is that we would rather have the space back empty than keep the rent that we could have probably kept the tenant for.

So there is a handful of reasons why that happens. We cannot rely on just one tenant to drive our occupancy. We are hitting the streets. We are scouring the country, and we're looking for the growth tenants. And we're doing okay given the environment.

Okay. And then lastly, just trying to get an update on the acquisition front in terms of what opportunities are you seeing? Is pricing adjusting at all in the opportunities that you are looking at both domestically and internationally? And do you think that you would potentially be able to close anything before the year-end? Or is it more likely a 2010 story?

I am thinking about '10 right now, frankly. We are evaluating a number of opportunities. We will see what happens. We can be very patient. In addition, I will say that I do not think on our plate on the acquisition side is any international activity at this point. We're focused domestically. We are looking at a few opportunities. But I think it's safe to say that '09 -- to do anything in '09 is probably not going to occur.

Okay. Thanks.

Thank you.

Quentin Velleley with Citigroup.

Michael Bilerman here with Quentin. David, I don't know if I want to be at the door when you come demand your rent.

I want you to come with me.

Perfect. I will be back-up. Just a question on the average base rent. And I think this effectively may bring the full circle on the least spreads. The average base rent sequentially went down by about 60 basis points. I know it's up 2% year-over-year. Does that reflect sort of the lease -- potentially negative lease spreads that [weren't] leased in the quarter? Or rent concessions? Or what else may be impacting that average base rent number, which -- and I know it's small. But it went from $40.29 sequentially down to $40.05.

Michael, it is Steve. There are a lot of things that are going to impact that. As David talked about in his prepared remarks, our occupancy is off year-over-year a little bit. And so the mix of stores that closed, as an example. And what those tenants were paying coming out of the mix would be another factor. So you can't look at it only in the context of what -- and try to impute what it might have meant from a leasing spread perspective.

And I would just point out, a quarter analysis can be impacted by mix more than what a year amount would be. I know it's a year-to-date number, but you just can't overreact in terms of that at this point. Like I said, I think the longer picture is -- yes, it's getting tougher. And it has been tougher to maintain our historical lease spreads. There is no denying that. Yet we're still able to eke out a positive spread.

And positive NOI growth.

And positive NOI growth. But is it a challenge? Yes. Do I see it turning negative? The answer is no. But it's a volatile market. And sales and the mood of the tenant is important. And we have been in a very tough retail environment. The good news on all of that is that -- and this is no guarantee. But the mood from our clients is better, and they are thinking more about '10. And hopefully, they will have a positive holiday season, and the store count will grow in 2010. But there is a level of uncertainty out there.

Right. But you're not doing -- and I think you mentioned that you've witnessed what your peers have done this quarter. With Taubman giving -- what effective was, 4% rent relief off the total NOI. You do not have that going on?

Michael, at the margin there could be a little bit of an impact there. Our 2009 rent relief in total will be under $10 million, as in the $7 million to $8 million range. But as I think we said on the call last quarter, we hadn't seen much of it year-to-date. So it's a little back-end weighted, and as you look at the impact on the average base rent it could have a nominal impact. But it's a small number in the contracts of the size of our income statements.

And I will tell you, look -- the rent -- let's talk about rent relief just philosophically for a second, if we could. Our view on rent relief is that, if you are a national tenant and you have a lease -- you have to abide by it. And occasionally, we modify that statement if we think that the tenant is on the verge of a bankruptcy or something along those lines.

And we think our help -- obviously this is not just us. It takes essentially the landlord community as well as their suppliers. We work together to try and keep the retailer out of bankruptcy. We have done that with one national tenant of any size this year.

Now, look. When the lease expires, all bets are off, right? They are going to try to get the lowest rent they can. And we're going to try to get the highest rent. In some cases, we win. In some cases, they win. Most of the time, we try to figure it out so that it works to both parties' advantage.

But, now, let's talk about local retailers. Local retailers, frankly, if they are screaming, and we don't have an immediate use, we may grant rent relief a little bit more generously on a local tenant. But again, that would be driving the number more than any national, regional tenants.

Hi, it's Quentin. Just in terms of the $4 billion of cash, and I know that you are obviously looking for opportunities. But if nothing came up that was suitable to you, what is the time frame where you would start to pay down debt or maybe buy back debt? The reason I ask is because obviously the FFO impact can be quite significant on what assumption you will make.

We would earmark -- we have already earmarked in our own mind next year a lot of that capital payback debt. But right now, absent going into market and paying a premium for our debt, which we are not overly excited about doing, we will do a couple things. Obviously, we have some unsecured bonds coming due which we will pay off with cash. And then we will unencumber assets next year as either those mature and/or come up to their window where we would not incur a pre-payment penalty.

Now most of that, if you look at the schedule, is a little more back-end weighted. We are suffering through -- I read somewhere that someone is getting 50 basis points on their cash. We are getting less than that so I'm going to call that person and find out why they're getting 50 versus our 30 to 40. They may be buying auction rate preferreds for all I know. But I hope to God we're not.

We are not.

We are not.

Let the record show.

You know, we will earmark that. But it is going to be for wholly owned assets where we do not incur a pre-payment penalty on our unsecured bonds. But Quentin, unfortunately, most of that stuff is coming out mid- to the end of next year.

Okay. Got it. And just one last one. I think you made the comment before that with international acquisition opportunities you didn't really have anything on the agenda at the moment. Is that a function of the weak US dollar? Or are there other things going on there? Is it just a lack of opportunities that you're seeing?

It's a function of a number of things. I do think the weakness in the dollar makes a -- obviously, a much challenging proposition. It also is a function of we think there are going to be -- or there are better opportunities in the US. Also, we have created value in our -- absent unfortunately, Liberty, but we have created value in our international activities. But we are assessing our competitive advantages there.

And until we have that assessment done, I think we're better off focusing here on the domestic opportunities which are a little more plentiful at better values. If you bet wrong on the dollar right now, you could get destroyed. And we do not want to see that. And I just think ultimately, there is going to be more -- I feel more comfortable with the pricing here versus elsewhere, that the opportunities are better in the US.

Got it. Thank you very much.

Thanks.

Steve Sakwa from ISI Group.

Hello. It's Steve Sakwa from ISI Group. Couple questions. David, could you just go back to your early comments about the sales trend. You mentioned that September was much lower, but I don't think you quantified that. Could you give us a monthly progression of just how your sales perform (multiple speakers)?

Yes. And actually at the outlet business it was up 4.5%, right? And in the mall business it was down 5%. Now, I think the next question is why are we down a little bit more than some of our peer groups? We do have more exposure to Florida and California than probably a lot of people understand.

I think that is a great long-term position to be in because those are clearly great economies -- great long-term economies, great population migration, and all sorts of those demographic items. But they have been hit the hardest. And Florida has suffered more than people realize.

And I believe we have also, obviously, had some exposure to Las Vegas which has been hit reasonably hard. So I think when you look at those areas, that is probably why we are just a little bit higher sales decline than another top mall company.

And then you mentioned that October was encouraging. I guess, is it your expectation, or do you believe that you could actually be in the positive camp in Q4 here?

Well, listen -- it's very interesting. Rick -- I will let Rick comment on this. We have had a well known retail analyst come to our -- I don't know if she wants a plug or not, but we probably should have asked her. She came and presented to our Board yesterday. We also had a major CEO come see us -- of a major retailer come see us -- Rick and I, Monday, I guess. They are feeling better.

A lot of it depends on how they plan their inventory. And the fact of the matter is the comps compared to last year still could be down just because they have a lot less inventory. But they could with that result be very, very pleased because their margins are going to stay intact. And I will tell you just what I know and what we have asked. There are some that are planning up. There are some that are planning down. But they all feel good about the business. Rick, I don't know if you want to --?

Just a little more specific -- the people that we have been talking to, their inventories are down anywhere from 15% to 22% from last year. So while that is not going to drive top line sales, they are all much more optimistic that because they have less inventory they have to push out the door, they are going to be able to be much more disciplined on their pricing and drive a lot more margin improvement and, most importantly, cash flow.

And one of the areas -- this is really in every size, they are just carrying less of the same size. And everyone feels very well positioned. And if in fact, there's a slight uptick in consumer demand you are going to see substantially better price performance, margin performance, and cash flow performance.

And I guess what I would say to you is it's a little bit what's happening in sales year-to-date. It may come in with less comps, but they may be tickled pink by it. If comps are down 20%, that is not going to be good. But if they are down -- and again, it depends on the retailer -- if they are down 5%, 6%. They may be really happy with that, and that is why we have to just be careful on how we look at that number.

I guess to that point, Rick, you said that your renewals -- you are 44% done for the business for your 2010. And that's a little bit behind where you were last year. What level of sales would get you excited or maybe even disappointed about the continued leasing velocity? Is there a break point that you think about that you kind of --?

The retailers that we are dealing with are certainly focused on sales, but they are far more focused today on profitability and cash flow, which leads to capital allocation for new stores or remodeled stores upon renewal. What we faced in 2009 was most retailers saying we are preserving our cash because we are unsure about our line. And we are unsecured about our ability to finance.

Now that they have better cash margins and better cash on deposit, we are now hearing that they are allocating money for new open-to-buys. And I think David gave you a list in his comments of those stores that are looking at that. So I think it is going to be less correlated with sales and more correlated with profitability and cash flow generation.

Okay. Thanks.

Thanks.

Jay Habermann with Goldman Sachs.

Good morning, everyone. I am here with Johann as well. David, you mentioned using cash to pay down the unsecureds and pay down additional debt. Just two parts to the question. One is, do you have a deleveraging goal? You are already six times net debt to EBITDA. Do you see that trending lower? And obviously, you mentioned the positive impact it has had on your cost of capital thus far this year? And the second question. Can you speak to the dividend? Would you think about reinstating, at some point, the cash dividend?

Look, I think obviously we have always felt for, even with kind of the market correction, that we are in good strong financial shape. But you can never be too conservative in today's volatile world. So the answer to that is, that I do think we will continue to deleverage.

Other than, Jay, I think that if we see an opportunity that could add value to our shareholders. We could see a temporary spike up, and then obviously a view toward trying to get down to where we are. So we feel very good where we are. I don't think we would need to go lower. But we want to have a lot of -- we want to be as stable as we can.

Now with respect to the dividend, I will tell you bright, clear, and unequivocally, where we are headed. Obviously, I say this subject to Board. We have discussed it with the Board, and it is obviously subject to market conditions. But we plan on paying cash next year. That is our goal. We do not see anything right now that would deter us from that goal. It will be around our taxable income, which is around where we are this year.

If you add it all up, it depends on transactions and if we can accelerate certain tax depreciation and it gets a little complicated. But our goal would be going forward next year to pay -- we declared a dividend of $0.60. I think we would look to start paying cash at that level or near that level next year with no common equity.

Okay. That is helpful. And then just a second question. Can you give us some sense of the dollar volume of what you are considering for acquisitions at this point? Is it $1 billion range? Are you talking about $5 billion? And also can you give us some sense of the returns? I know returns -- clearly, you were looking at higher returns six months ago, but how your thinking is today?

We have got to have higher returns. There is no question about that. We are in a riskier world. And we would expect to achieve those if we deployed capital. Look, Jay, I really can't do that because it's -- if I gave you -- it's just tough for us to really go. We just have to see -- obviously, if we do anything we will lay it out. We will have a chance to discuss it. But at this point, I cannot shed much light on that.

Okay. Thanks.

Alex Goldfarb with Sandler O'Neill.

Thank you. Good morning. I just want to take a look at the temporary tenants for this holiday season. Is it pretty much on par with the amount of tenants that you had last year? And what percent of NOI comes from the temporary tenants that set up for the holidays?

I will just comment on the velocity of that business, and we have been able to maintain that business pretty constant with last year. We are -- we have been aggressively canvassing all of the properties in our markets as David mentioned because we think this is about market share.

And we believe there are many compromised properties operating in the same markets as our malls. And we want to bring in the tenants into our properties so that they can see if they can do business and just increase our market share which will in turn increase our pricing power.

I just would add that the [cart] business -- we are looking at business in two areas. We have the cart business. Then we have temporarily income when we lose an in-line store, and we put a temporary tenant in that in-line store. You have walked a thousand malls; you know exactly what I'm talking about.

I will say this. The cart business, we are making the deals, but rent is a little under pressure there. And we are having to do a little bit more volume to make up for the lost rent because obviously, Christmas last year was disappointing for that tenant.

So we're churning and burning a little bit more than we have had to do in the past. We think we can bring it in -- in totality where we were last year. This is a business -- a lot of it's a cash business in the sense that you cannot really base a lot of --. There are a number of national tenants that play in that business as well. We have made up some of it by bringing in new uses like -- I'm sure you read about the toys and -- how many deals did we make?

We have done about 25 Toys-R-Us seasonal stores that seem to be initially performing very well for them. And we hope to be able to grow that into permanent stores and to have them come back into the malls on a long-term basis.

And as long as Vornado doesn't negotiate the rent with it, we will be fine. So that business is challenging. We're doing a lot more volume to make up for the softness in rent. But there is an unknown. This is all on the margin for us, but there is a little bit of an unknown in terms of how we deliver it for year-end.

But in terms of which part is more challenging? Filling the vacant in-line? Or filling the carts? And then also just what kind of NOI comes from --?

I'm sorry. It's really the cart rental -- per cart rental. It's not even so much getting the carts leased, it's getting the push back on the rents there.

And what about success in filling the in-line? Is that pretty much on par with last year?

Yes. I think that's okay.

And just a final question is -- probably more for Steve. You talked about unsecured. You talked about secured. What are your thoughts on converts? And is that an area that you would look at? Or you guys would stick more with traditional ten-year -- five-, seven-, ten-year unsecured debt?

It's a good question. We have had and actually still do have converts in the capital structure. We have never done a public deal. They've typically been issued as a bridge security as part of an acquisition. The market is very attractive right now. But as we talked about with a couple of the earlier calls, we have $4 billion of cash that we're sitting on today.

So it is not like we have a ready use for the proceeds. But it is a market that is very open, very attractive right now. And it's something that we're clearly paying attention to.

Can you give us a sense of pricing?

Yes, our coupon would be today [sub 3] with a premium of probably 30%ish.

Thank you.

Craig Smith with Bank of America.

Thank you. Looking over the last four quarters, your same store NOI has been more resilient than your mall peers. I am just wondering if there was one factor you might attribute that to.

It's hard to say. I don't think there is one factor. I just think -- Craig, we are focused individuals.

It looks like you picked up about 250,000 in occupancy in the Mills. I wondered if that is related to your big box comments and if you could name some of the boxes that came in.

In fact, we have and there has been a lot of activity in the Mills in the big boxes. And as you know in that platform, the box square footage and the small shop was included in their occupancy. We have brought in in the last nine months two Neiman Marcus Last Call's, VF Outlet, Christmas Tree Shops, Bed Bath & Beyond, H&M, Best Buy. These properties are very well located.

A couple Forever 21's.

Forever 21's. And I think the point that David made in his comments about the flight to quality. What we're seeing is that these big box users now understand that they are going to be advantaged by getting the incremental traffic that they get in a Mills environment while still having their own entrance and their own parking field and visibility as opposed to being in a smaller math strip center.

So we are finding a lot more interest in the boxes that become available. We also are in the process of making deals with Sea Life and Legoland that are part of Merlin. And that will also just add market share to the properties.

Great. I'd also say I picked the bet that fourth quarter same store sales are positive.

Look, Craig, there are a number of retailers that feel that way. But the world is volatile. So we will -- the mood is better from them, for sure which is (multiple speakers).

I guess the next 60 days will tell us a lot.

Right.

Thanks.

Thank you.

Michael Mueller with JPMorgan.

David, going back to acquisitions for a second. Your comments from a couple minutes ago about if you do something you will see your leverage tick up a little bit. But you would sit there and lay it out. It does not necessarily sound like a pipeline of smaller one-off deals. And it sounds like something bigger in scale. Am I reading a little too much into that or is that a reasonable assumption?

Look, the answer is, we have identified -- it is interesting. We have identified roughly 30-ish recent new lifestyle centers that are in distress. It's interesting because we thought maybe that would be a great opportunity. Rick and I have gone over it, and there is maybe one or two that we would pursue. And I think historically, we have done -- when we have done our stuff, over the last few years it has been on the bigger scale.

So I guess, if there are those opportunities, it is logical to conclude that it will probably be more of that than the individual ones. There is not a lot of individual stuff out there. The distressed retail is frankly distressed for a reason -- some of it will be good long-term. We are evaluating that.

But we were -- one, very surprised to know there were at least 30-something in trouble. That's a lot because these are -- a lot of these were high land values, high construction costs. But even more surprising is that, at the end of the day, that 30 plus, there are only two or three that would wet our whistle.

Okay. And going back to the core for a second. And I think you answered this in some prior questions. But when you were talking about the leasing spreads and the comments were coming up about Q3. Is it fair if we're thinking about the 44% or 43% of leases that have already been addressed for 2010 -- that if we look on a year-to-date basis for '09, the spreads on that -- the crop of what's come up -- are in the vicinity of that year-to-date number? Even if it's a little bit lower but somewhere in the ballpark?

I think it's very hard to generalize. As David said, every lease is its own story. Every property is its own story. While it's a significant amount of square footage that we are dealing with, there is no trend if we have rollovers coming over in a weaker property, that's going to impact the spread. When the rollovers are coming over in a better property, that's going to move it up.

I think we have a large enough base and a large enough sample that, as David said, we are still going to generate positive spreads. And we are just very focused on running the business, making the best deal that we can for each of these renewals.

Now look, I think part of -- again, any moment -- point in time you have to be careful with -- it's a good question. And I guess at any point in time you have to be careful to draw too much from. Partly the reason we are below '09 versus '08 is that we want to wait -- we are hopeful that a better Christmas season, holiday season will give more confidence to the retailer, and we can negotiate a better deal. That's part of it.

Some of it is the retailer saying, listen, I want to see how they are. We would not be accurate saying that it's all part of that strategy. Part of it is they want to wait and see how they shake out, and the trend may be working in our favor. Remember, '08 was different than '09 in terms of the mood for the retailer. Even though it certainly was not robust, the retail world did not end until mid-September. So when we had those commitments, they were pretty much done by the time we reported the September 30 numbers.

So, look, it is tougher right now. We are confident that we've still got the spread. The spread will come under pressure because we are dealing in a tough economic environment. There will be pressure on occupancy like we have seen in '09. And we think even with that said, because of where we are in the industry, we will continue to outperform our peer group. But we are not the immune to the bigger picture right now, and our results indicate it.

We are 60 basis points up which some would feel good about. We want to be 300 basis points up. So we're feeling it. We are doing the best we can in a tough environment. But certainly these numbers will feel pressure, and you're seeing it.

Okay. And lastly, for Steve. If I look out in terms of the secured debt coming due over the next couple years, it seems like the malls that are almost certain to be unencumbered -- you have Georgia, [Forbes Shops], [Copley]. Any others that are on that list as well?

That is the majority of the list, Michael. There could be another one or two sneak on there. But for 2010, those are certainly the ones that we'd focus on.

Okay. Appreciate it. Thank you.

Matt [Wishar] with 40/86 Advisors.

My question has been answered. Thank you.

Alright.

David [Fick] with Stifel Nicolaus.

Good morning. When you look at the GDP same store leasing numbers that are running negative 20%, they have commented that they don't believe your numbers -- and I don't want to beat this horse to death on the leasing spreads this quarter. And I understand your hesitancy on a single quarter number. But the third quarter denominator is the biggest quarter in terms of how you report leasing spread. And given that you were up 17% year-to-date at the end of June, and now up 10%, it would appear that you mathematically have to have a negative number in the third quarter.

So you are saying you have a high confidence level in the $4.00 spread. You will see how that works going forward. And all we have at this point is a one-quarter trend line. What are we to make of GDP overlaid against you? Is it simply that they are not a good counterparty to the tenants anymore? Or they are having to give up rent compared to you?

David, you can ask that -- I have no comment on that. Other than, I think we have answered it. We have asked and answered, frankly other than -- look, the spread has come under pressure. We are not denying that. We have still got a spread. And we've told you that the spread has always been $5.00 to $6.00. We have outperformed in a better economy.

We are not quite getting the $5.00 spread in a tougher economy. It's still positive. We are not done with '10; we will see how '10 shakes out. The good news is the environment is getting better. So the pressure may subside to some extent, but I have no comment on somebody accusing us of that. I will not give that the --.

You are obviously looking at GDP. Can you give us any comment on why you think their rent spreads are so negative?

No, absolutely not.

Thank you. With respect to Mills, are there any remaining significant clean-up items with respect to that acquisition? Can you give us a status, for example, of the class action suit that was filed a couple years ago?

That is in a process of being dealt with according to our plan. But there are some technicalities associated with it, but it is pretty much in the rearview mirror for us.

Lastly, you had a couple of assets that went back to lenders this year, appropriately so. As you look forward, how does your watch list look in terms of non-recourse givebacks?

I think it will be very -- if it gets to that point it will be extremely, very much on the margin for us. Our preference would be to figure out how to work with the lender. But it cannot happen in all of the cases. So if, in fact, it happens again, it will very much be on the margin. And there is no guarantee it will happen again.

Okay. Thanks.

Jeff Donnelly with Wells Fargo.

Good morning. Rick, I just want to follow up on your point about the strategy to delay renewals for late 2010. Is that premised on your expectation for a strong holiday and a particular economic outlook for 2010? I am just curious what your assumptions are, and what might lead you to rethink that decision one way or the other?

I think that it is lesser a function of the strong holiday with respect to sales, but there is an assumption that -- and it is not really an assumption, it's based on talking to the retailers which David and I are doing a whole lot of every day. That they are feeling better, and we have absolutely seen several instances of retailers that were in here in the second quarter asking for rent relief and modifications and then came back in the third quarter and said -- well, looks like we are okay. We don't need anything. We are going to make it.

Obviously, we believe that with their inventory policies, with the cash flow generation, with where we believe they will be on profitability in the fourth quarter, we will have a more welcoming environment to have those discussions with the retailers for the renewals in the back half of '10. We are very focused on our 1-31-10 renewals. We're getting those done, that's tomorrow, we are putting that in place.

But we're hopeful that these retailers will be in a better position and frankly, as I read all the retail analysts and all of their ratings and their movements -- virtually all the retailers are getting upgrades and more positive outlooks based on the expectation that there is going to be a more profitable Christmas which may or may not be related to more sales.

I guess then set our expectations for early 2010. Do you think we will see fewer store closures this time around post-holiday season?

We certainly had a significant number of bankruptcies in -- year-to-date in 2009. And I would certainly hope that we would be below that level in 2010.

And then, switch gears, if I could. David, there are a handful of outlet property portfolios on the market. Are those of interest to you guys? And does your experience tell you that Chelsea can be successful improving sales and profitability at outlets and I guess I will call them secondary markets?

We are trying to negotiate the pay with the team there now, so I do not want to give them any compliments. No, listen, the outlet business has been a good business for us. And the Chelsea team -- the outlet team has performed exceptionally well.

So our view, if we grow our business we are going to look for quality retail real estate. And it could be in outlets, it could be in malls. As I mentioned to you before, it could be in some of these lifestyle centers. We look at anything and everything. We do not have any one desire to do malls ahead of outlets, or outlets ahead of malls. It's really a function of where we think the best return is, and what we can do to that cash flow if we bought a center. So we have not done a lot of acquisitions in the outlet business. We have done a little bit here and there, but it has really been mostly been organic growth.

If I could just ask one last question. Admittedly, it's probably a softball for you on the outlet business. But I have covered you guys and Chelsea independently for a long time. I really can't recall a time when sales in that area were weak or even down.

What do you think is driving that secular growth, I guess I'll call it, in outlets? Because it seems deeper than just consumers finding value in a recession right now. Is it a mix to higher price points? Or do you see it in foot traffic? Or do you think it's just taking share from full price retail?

It is a good question. And the fact is I think that it all boils down to the consumer and they just find it -- they find the value there. And the value is more than just price, it is how the center looks; how the center feels; what tenants you have; what merchandise they have. I think we have also changed the paradigm a little bit with the outlet business by bringing it closer in.

And as an example, I was just in Cincinnati over the weekend. And I visited our outlet center that we just opened, and it was an old mall site, right? I don't know which -- now I remember, but I will not say which developer was trying to build a fashion center there.

But anyway, it's well done. It is on the highway, it looked beautiful. We've still got some lease-up to do there, but the merchandise was -- the stores had great merchandise -- had great prices. And I think the consumers just recognize that.

What is interesting that I have seen year-to-date, in the Chelsea portfolio we have always had, over the last three, four, five years, wonderful growth in sales from the tourist centers. And In fact, what we have seen year-to-date is that tourist centers have taken a hit. If there is any reason why Chelsea -- even though September was up, reported down sales -- we reported down sales, was because the tourist centers were taking a little more of a hit. The Floridas of the world, Vegas and even something like Woodbury.

But, what was interesting in the sales at the Cincinnati's, even though that is not in the comp number, but we have Northern Indiana, even between Indianapolis -- the Chicago's of the world were actually very strong for the outlet business. I think it's long-winded by saying I think the consumer just -- they like the brands, they like the value, they like the selection, they like the price.

If I could just -- one other thing. If you look historically, the other thing that I would like to think that we have brought to the outlet industry is building bigger impact centers in a racetrack configuration. So the square footage is larger. The absolute number of outlets in the United States is probably substantially reduced from where it was ten years ago. So you have more concentrated, powerful properties which is driving the results of those properties.

And frankly, when you look at the capital situation today, the construction in the retail sector is at a 20-year low. We certainly anticipate it will remain there, and the lack of new supply can only hopefully help the demand side for the existing product.

That's great. Thanks.

Thanks.

Dennis Mitchell with Sentry Select.

Good morning, or sorry, good afternoon now. At this point, my questions have all been asked. So thank you very much.

Sure. Thanks.

Rich Moore with RBC Capital Markets.

How are you? Staying with the thoughts you just expressed on the development front. The Tanger guys are out there saying that they have found one development to do and maybe some other ones. And Rick, you were saying that tenants are getting a little more excited about the existing assets. David, do you think the ten-year moratorium that you put on new development maybe is a bit too much? And are you guys looking to break ground on anything?

Well, when I said that -- you did not hear me say, except for outlet?

True, I did.

Somebody asked me what I was going to dress up this weekend for Halloween. And I said well, I have kind of a ghoulish sense of humor. I said a lifestyle developer. But I do think there is going to be some outlet development. A good example is, besides redevelopment, we have -- as you know, Rich, we have our land in Merrimack, New Hampshire.

And we're going to have a decision to make in the spring whether to build it, but I think right now -- start building it. We are going to eventually build it, but whether we want to start in the spring of '10 or wait another year. Right now, I think the mood is to start next year which, frankly, I would not have included any time up until the last month or two.

So the good news is we will have time, we do not have to rush it. But I still think the amount of outlet development is still going to be very few and far between. And that is okay because it will drive the demand in our existing centers. But, there will be some. And I think certainly that will come ahead of full price retail.

Now a lot of people suddenly want to turn every center -- any land that they had into an outlet center. We will have to deal with that. If the world continues to improve, we will have to deal with that oncoming rush to -- desire to build. But the stuff that we will do will make economic sense.

Okay. So really nothing new from you guys. Maybe Merrimack, obviously, But nothing new beyond that for 2010 groundbreakings?

No. The only thing David did allude to -- the redevelopment. We have built into our new projects with Chelsea expansion opportunities. And they are already laid out, already master planned and in a project. So if demand comes back and we can get an acceptable return, maybe a couple of those opportunities get moved which further consolidates the square footage in our property and prevents incremental competition in those markets.

Okay, Rick, thanks. And then the same thing on The Domain. Where are you guys with The Domain and the future phases that you have envisioned? Are those getting pushed further down or are they coming back to life?

Let me just clarify because it can be a little bit confusing. We have opened our Domain Phase 1 which is Neiman, Macy's anchored. It was opened about two years ago, right? Our Phase 2 is opening in the early spring, and that is anchored by Dillards, Dick's, Village Road Show, Maggiano's, and a number of small shop tenants. That is opening -- Dick's is opening actually earlier. But that is opening in February of '10.

And then there is another project that uses The Domain name that another developer is looking to develop, but we have no financial interest in that. And I am not sure of the status on that. So we're going to be pretty much done with Domain when we open. We will have lease-up -- continual lease-up and management opportunities. But we are done in the spring in terms of the new development there.

Okay, great. That is very helpful, thanks. And last thing, Rick, year-end occupancy? What do you think that's going to be?

We are today 91.4%. We'd hope that it would tick up a little more into the fourth quarter. It depends if anything loosens, but we hope that it's going to be closer to 91.5%, 91.6%. It's just a function of where we end up with the year-end getting stores open.

Okay. Great. Thank you, guys.

Jim Sullivan with Green Street Advisors.

Thank you. David, there has been a lot of discussion on the call with respect to '09 holiday and '10. But I would like to ask you to maybe look out a little bit further into '11, '12, and '13, particularly as it relates to tenant sales growth.

When we look at the Company's history, tenant sales growth following economic downturns has recovered pretty quickly to the mid-positive, single digit range. And it just seems, as we sit here today, that the consumer this time around is in a different spot -- a more negative spot as it relates to their balance sheet and the level of debt that they are carrying, which would make that kind of recovery much harder to achieve this time around, again, out in '11, '12, and '13. Do you agree with that or do you have a different point of view?

I think the consumer is clearly going to be challenged in terms of spending. And certainly to the extent that we continue to have such a weak job picture. I will tell you that I think Corporate America is on the verge of starting to hire again and employ capital which will lead to job growth. I think in the environment we are in today I agree with you.

I think there is a reasonable chance though we will be in a much better job picture in '10. I think that is going to be corporate-led. And obviously, retail lags. And so I think you are right that '10 will continue to have a lag impact. But the CapEx in Corporate America will be up significantly in '10 right now. Think about it, we are -- Tanger announced they are going to build. We might build in New Hampshire.

There are lots of companies in various sectors that I think are thinking about growth. And in order to achieve growth, I think they need to hire people which will give a certain stability in the job growth which may make '11 and '12 a little bit better than what we are feeling today.

So I am not as pessimistic on '11, '12. I think '10 will continue to be a tough environment because we have the lag impact. But if Corporate America seems to be positioning to hire a little bit more, put more capital to work, we could have it better in '11, '12 then what we might feel like today.

Thank you.

This concludes our Q&A session. I will now turn the call back to Mr. Simon for closing remarks.

Thank you, everyone. I appreciate your interest and your questions. We look forward to talking to you in the future.

This concludes today's presentation. You may now disconnect. Good day.