西蒙地產 (SPG) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2009 Simon Property Group earnings conference call. My name is Marisol, I'll be your operator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of the program. (Operator Instructions). As a reminder, today's conference is being recorded.

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.

Welcome to Simon Property Group's fourth quarter and year end 2009 earnings conference call. Please be aware that statements made during this call that are not historical maybe 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 SEC for a detailed discussion of these terms. Acknowledging the fact that this call may be webcast for some time to come, we believe it is important to note that today's call includes time-sensitive information that may be accurate only as of today's date, February 5th, 2010. The Company's supplemental information package was filed earlier today as Form 8-K. The filing is available via mail or e-mail and it is posted on the Simon website in the Investors 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.

Thank you. Good morning. Thanks, everyone, for joining. I'd like to take a few minutes just to review financial and operational highlights, and then we'll open it up for Q&A.

First on FFO for the quarter, we reported as adjusted $1.66 for the quarter ended December 31, 2009, which is $0.13 above the first call consensus estimate. We're very pleased with our fourth quarter results and our full year results delivered during very uncertain times. We are seeing some positive trends in retail conditions and believe that the environment should continue to experience a slow and gradual improvement. Holiday sales met or exceeded the expectations of most of our retailers, and coupled with good expense control and inventory management, I would expect for fourth quarter earnings for the retailers to be quite good. And yesterday's January retail sales support that premise.

Occupancy in all of our platforms was sequentially up from the end of the third quarter. Mall occupancy up 70 basis points, outlet centers increased 40 basis points, the Mills increased 150 basis points and our community/lifestyle centers increased 180 basis points.

Regional mall comparable sales were $433 per square foot at year end as compared to $470 at year end 2008. For the fourth quarter, the decline in year-over-year was 2.7%. And the month-- for the month of December, the decline narrowed to 1.8%. Florida experienced an improving trend with sales were flat in December while we continue to see softer sales in California, Nevada and Massachusetts, which was a little worse than the rest of our portfolio in the country.

Now, the outlet business at comp sales improved during the fourth quarter with portfolio sales increasing from $492 a foot at 9/30/10 to $500 a foot. At year end, sales were up 6% year-over-year in Q4. Regional mall releasing spreads was year end $4.18 or an increase of 10.3%. Average base rent at year end was $40.04, which was up 1.4% for the year earlier period. The average base rent for the regional mall lease is expiring in 2010 is $37.64 per square foot, which is lower than the rent of the stores that closed or leases expired in 2009 at $40.47 per square foot. And the last half of 2009, we signed new leases at an average rate of $43 per square foot, which again, reinforces our premise that we still continue to believe that our lease is rolling over or expiring or below market rent.

The outlet releasing spread was $8.82 per square foot, or an increase of 29.8% for 2009. The average base rent at year end was $33.45 per square foot, up 21% for the year earlier period. Full year comp NOI growth was three-tenths of 1% for the malls and 5.6% for the outlets.

During the fourth quarter, the Company recorded a noncash impairment charge of $0.26 per share. These charges totaled $88.1 million related to adjustments in the carrying value of one wholly-owned and one joint venture regional mall, a write down of five land parcels and two non-retail real estate assets, and the write-off of certain predevelopment costs related to approximately 25 projects.

Our land held for development on the balance sheet is now $90 million comprised of 12 parcels and 688 acres, which is roughly $130,000 an acre. FFO after this impairment was $1.40 for the quarter.

I'd like to now turn my attention to other matters, dividends. First of all, I'd like to thank our stockholders for their support in 2009 when we made the difficult, but we feel appropriate, decision to pay a significant portion of our dividend in stock in the face of a massive national credit crisis. If you held onto your stock for the year and sold it at year end, your dividend for that year, 2009, was $4.23, which thankfully was much higher than any previous dividend we've paid in our -- since being public. We're also very pleased today that we announced the return to the payment of our dividend in cash. And that for the quarter is $0.60 per share.

On the acquisition fronts, on December 8th, we announced our planned acquisition of Prime Outlets in a transaction valued at $2.325 billion including the assumption of Prime Outlets' existing indebtedness and preferred stock. We expect this transaction to close in the spring.

And let me turn over to some of our sales activity. As was announced in today's release, SPG and Ivanhoe Cambridge entered into a definitive agreement to sell our interest in Simon Ivanhoe to Unibail-Rodamco. Simon Ivanhoe owns a portfolio of two assets in Poland and five in France. The transaction, the portfolio's valued at EUR715 million, and the transaction is subject to customary post-closing adjustments. We expect to record a gain of approximately $300 million, and the transaction is scheduled to close during the first half of 2010. Keep in mind that in 2000, we recorded gains of approximately $125 million related to this venture primarily as a result of the sale of five assets in Poland. So after the sale to Unibail closes, this European venture, one of two, which we continue to have our interest in GCI, will have generated approximately $425 million of gains for us.

We also agree to venture with Unibail and Ivanhoe Cambridge in the development of five potential new retail projects in the Simon Ivanhoe pipeline. We will own 25% interest in these projects. We're pleased to have the opportunity to partner with Unibail-Rodamco and continue our venture relationship with Ivanhoe Cambridge in these five new development opportunities in France. We view this as an excellent opportunity to recycle capital, capitalize on the relatively high valuation of the Euro and sell our interest in a tax efficient manner.

At year end, we also sold our joint venture interest in the development and operations of our shopping centers in China. The interests were sold to affiliates of our Chinese partner for approximately $29 million, resulting in a loss of approximately $20 million. We built a good product there, but the middle class consumer is just beginning to spend discretionary income. It'll take a long time for them to fully emerge to shop and spend at moderate to better stores. Remaining in these joint ventures in China would have required additional SPG time and resources as well as the need to fund operating losses. We believe that we have better opportunities to deploy that capital elsewhere.

During the fourth quarter of 2009, we also sold four noncore assets, one mall and three community centers. Notwithstanding the significant amount of work we did, in the spring of 2009, we were not content to sit on our capital. And so with the-- we were very active in the fourth quarter and again in 2010 on the capital markets front. In December, we entered into a new unsecured corporate credit facility to replace our existing facility that would have matured in January of 2011. The initial borrowing capacity is $3.565 billion and represents an increase of the $3.5 billion facility that was expiring. And this new facility contains an accordion feature allowing the borrowing capacity to increase to as much as $4 billion and will now mature on March 31, 2013. The base interest rate on the new facility is LIBOR plus 210 basis points.

In January of this year, we also commenced a tender offer to purchase for cash outstanding notes in 2011 and 2012 and the first quarter of 2013. Total amounts of bonds eligible was $3.25 billion, and 70% of those bonds were tendered totaling $2.285 billion. The notes tendered had a weighted average duration of two years and a weighted average coupon of 5.76%. A $166 million charge to earnings was recorded as a result of the tendering and purchasing of those securities.

Concurrently, we sold $2.25 billion of senior unsecured notes our largest notes offering ever. The offering received exceptionally strong interest with a book total orders totaling $10 billion. We were also able to introduce 30-year bonds into our capital structure. The weighted average duration of the notes offering is 14.4 years. And the weighted average coupon is 5.69%. As a result of these activities, our credit facility size has increased and the maturity extended until March 2013, and we significantly extended the duration of our senior unsecured notes portfolio with no overall increase in our weighted average interest rate.

While we had one of the industry's strongest balance sheets, we believe these transactions were prudent given the volatility that continues to exist in the world's capital markets. As of year end December 31, 2009 we had $4.3 billion of cash on hand, which includes our share of our joint venture cash or roughly $12 per share and the availability of our corporate credit facility of $3.1 billion for a total liquidity position of $7.4 billion.

Now let me turn over to guidance. Today we provided 2010 guidance as adjusted of $5.72 to $5.87 per share. Taking into account the $166 million charge recorded in connection with our January bond tender offer we expect FFO for 2010 to be $5.25 to $5.40 per share. We have outlined some of the major assumptions in our press release. The guidance assumes both the Prime acquisition and the Simon Ivanhoe sale to occur as expected.

Let me conclude by saying 2009 was very-- was memorable in many respects, very difficult and challenging, however, we accomplished a great deal. We were very pleased to deliver total stockholder return of 58% in 2009, significantly outperforming the RMS and S&P 500. We have now outperformed the S&P 500 index and the RMS index in nine of the last ten years. We had solid financial and operational performance throughout the year. We successfully executed several major capital market activities throughout 2010. And year-to-date in 2010, strengthening our all ready strong balance sheet. We are growing again with the acquisition of Prime. We are paying our dividend in cash. And we believe we're positioned to deliver solid operating results in 2010. With that, Operator we're ready for your questions.

Thank you. (Operator Instructions). And our first question comes from the line of Christy McElroy from UBS. Please proceed.

Hi, good morning, guys, I'm on the line with Ross Nussbaum as well. Wondering if you could give us a sense for the conversations leading up to and the thought process behind the sale of the Simon Ivanhoe assets? Is there a change in strategy at all with regard to your European platform? And are you looking to sell any other assets there?

Well we-- it's not overly complicated. We've created a lot of value there. We got an unsolicited offer, and we took that to the next level. We felt comfortable with the value that we're achieving in the sale. When we looked at the growth opportunities of the assets that we were selling, compared them to the opportunities that we can redeploy that capital, taking into account that we can achieve this sale tax free in a sense, and where the Euro is, we thought it was in the best interest of our shareholders.

What was the IRR of that adventure over the life of it including the assets that you sold previously?

It would have been near 30%.

Okay. And then just one follow-up with the-- I just wanted to check my math. Just trying to estimate your share of the proceeds net of the property level debt. I came up with about $200 million. Is that close?

It'll be exactly where the gain is more or less.

Okay. And I believe--

We have basically no basis in this venture.

Okay. And then Ross has a question.

Hi, guys. Two questions for you. One is, it looks like after the end of the year you paid off the loans on Mall of Georgia and University Park. What's going to be the approach on the $0.5 billion loans that you've got coming due this year at Forum Shops and the Westchester?

We will be paying off the Forum Shops and we will be refinancing -- that-- Westchester is a JV, so we'll be refinancing that.

Okay and I guess I'm asking it in a broader context of your cash balance and your line availability. If in the sense that if for some reason you don't land what I'll call a big fish this year, what do you start thinking about from a sense of all this cash and line availability? Do you start saying to yourself, do I start buying back my stock at mid-seven caps? Do I raise the dividends since my AFFO payouts only 50% now? How do you think about it strategically?

Well, look the fact is we think there'll be investment opportunities. It's-- we have a lot of optionality with that cash. We'll be prudent in exploring the options that exist out there. Rest assured that cash certainly will not put us in the position where we will be reckless in how we treat it. And we-- I hope you would agree that we have been extremely thoughtful and conservative in how we've managed the business through our M&A and sales activities, and we'll continue to do that. I think there'll be significant opportunities over the years for this Company. But to the extent that those don't come to fruition for whatever reason, we'll delever. And I think that'll obviously give us a unique opportunity to also return cash to the shareholders whether that's better in the form of a buyback or dividend it's-- there's lots of views on that but we'll have to take it a step at a time.

Thanks. Go, Saints.

Now come on. Oh, man. Operator?

Our next question comes from the line of Quentin Velleley from Citi. Please proceed.

Hi, good morning. I'm here with Michael Bilerman. Just in terms of your, I would say, strategy and I saw yesterday that Liberty International have decided that they're going to split their business in two. How does that move impact firstly your ownership of that company, but also what your strategy might be longer term and whether or not the UK is still a market that you're interested in?

Well, it still is or otherwise we would have sold the stock. So we've maintained our interest. We're just now-- that news hit last night, so we're just now assessing that. I think for us it's a positive move because it narrows the focus, so we'll-- we think it's probably a-- there's industry logic to what the group there is doing, but we-- it still needs a little bit further analysis. I think if we were disenfranchised, we would have sold our stock by now, we're not afraid to sell assets. So at this point we'll continue to monitor and see what happens there. But overall, the initial reaction is that it could be a positive benefit for the shareholders at Liberty.

Okay. And so-- because I mean if you a step back, you're sort of was saying that the style of most of the European assets, the Unibail and stepping away from China, is a global mall business something that you would like to be longer term or is there still more opportunity here in the US?

Our longer term goal is to make money so, and it sounds silly, but the fact is we're pleased with what happened in Simon Ivanhoe. That we got what we felt was a good offer, and we took advantage of it. We're still involved in assets there. We still have our interest in our joint venture in Italy. But the fact of the matter is, we like to recycle capital. We like to make money. Our greatest franchise here is in the US, and obviously that's important to maintain and be able to grow that. And that continues to be our number one priority.

China, when we went into it, it was an R&D experience. We've learned a lot. We would not rule out doing additional developments in China. It's just that the product that we built is not the product that we want to own long term. And we're still very strong in Asia through the outlet business. We've actually-- are very close to one if not two new developments there. So I think our strategy will continue to take advantage of the ability to recycle capital and build on successful platforms that we have out there.

David, it's Michael speaking. Just going back to Liberty for a second. Would that, in terms of separating the group and I guess disparate parts that didn't fit together, as in your overtures and your discussions with the company and building your stake, was that something that you were pushing in terms of, hey, we're willing to take the true shopping center regional mall portfolio but all this London development and other stuff doesn't fit us. And that sort of got them down the road of saying well why don't we split the company in two, that this effectively makes it almost easier for to you take the piece that you want?

Well, look I-- you can you draw that conclusion. I really-- it's not really appropriate for me to comment on that. But I mean what you-- certainly what you're saying is a logical conclusion, but it's your conclusion. And-- but it certainly is-- if it happens and if the shareholders approve it, certainly a smaller company and it's certainly more focused and it's more up what we do as opposed to anything else. But beyond that, there's not much I can add to it.

Just one last question. In terms of the guidance number the next year, the 1% to 1.5% same-store NOI growth, this year you saw the outlets contributing to most of the 1.8% you got. Is that what you're expecting next year? You're sort of expecting the outlets to be 5% or 6% and the malls to be flat to 1% on a same-store NOI basis?

Well I-- Quentin, this is Steve. I mean you can see because we lay out for you the relative contribution of each of the different segments of the business. You can see that the mall business is about three-and-half X the size of the outlet business. I think one of the things that we would like you guys to start thinking about a little more is us as a retail real estate business. But if you do the calculation in 2009, you'll see that the blended comparable property NOI is relatively consistent with where we-- the guidance for 2010 is relatively consistent with where we ended for 2009. So I think you can draw your conclusions from that.

Okay, got it. Thank you.

Thank you.

And our next question comes from the line of David Wiggington from Macquarie. Please proceed.

Thank you, good morning. Can you guys maybe talk a little bit about your initial plans for the planned portfolio? I recognize it hasn't closed yet, but I mean do you have any immediate redevelopment plans in place? Are you going to be re-renting any of the centers? Are you looking to hold on to all of the centers?

The answer is we really don't have any significant changes in mind, and we're still working through some of that with the transaction we do get to development opportunities that we feel in the long run will be something that we'll work hard to pursue. But I don't think there's going to be a dramatic shift in the opposition of the portfolio or the operation of the portfolio. Prime has done a good job, very good job of running the business and we'll look to continue their successful efforts in the past.

So I guess from your comments, is that essentially saying that there's limited value that you feel you can add to the portfolio at this point or am I misinterpreting your comments?

I would just say that I think without commenting on it specifically, I would suggest that any transaction we've done, we've been able to add value. I would certainly hope that that would be the case here.

Okay. And then just with respect to more of a broader question, what is sort of the mindset of most of the retailers that you talk to at this point on your portfolio with respect to their existing footprints and what their plans are whether to shrink those or to grow them at this point?

This is Rick. The environment is clearly stronger than it was this time last year. David commented that the sales results for December and January were great. In fact, in the last two days about eight of our retailers substantially raised their guidance and they are much more focused on growing their footprint and we are substantially engaged in trying to get our fair share of their open to buys that are being created.

So I recognize it's still early, so I mean when-- if you had to venture a guess, would you say they're net openers of the stores or are they going to-- will the openings offset the closings? Or how do you foresee that playing out?

Well, look, I think the big unknown is if there's unforeseen bankruptcies. So that obviously--2010 so far, knock on wood, is resulted in very few bankruptcies or immaterial ones. That's the big unknown. But I think we're looking to in our plan for 2010, I mean occupancy is generally flat, maybe a little bit of an upward tick by year end. And obviously the big unknown is, is there a bankruptcy out there that's going to result in store closings beyond what we've kind of budgeted? So-- but I would, assuming we're still in this kind of environment, I would look to kind of a generally occupancy to be relatively flat from where we were in 2009.

Okay and then that's for both the mall and the outlet center portfolios?

Correct.

Okay, great. Thank you.

And our next question comes from the line of Alexander Goldfarb from Sandler O'Neill. Please proceed.

Yes, good morning. I just want to go back to your growth as you view growing the Company. How does your waiting in the various REIT indices factor into your growth strategy?

It doesn't. That's not up to us to decide. We're just focused on growing our business.

Okay. And then are you still, on the debt side, are you still focused on the size of your maturities or are you feeling comfortable that both the secured and the unsecured markets are once again acting normal so that you can just view having normal laddered maturities?

Well yes I think that's right. Certainly the unsecured market is strong, really strong, and look with Kraft, you saw Kraft sold what $9 billion? Bircher Hathaway sold $8 billion. So it's great to be in that market with those kind of obviously highest qualities that you can-- highest quality companies that you can see in America. So our fact is our orders were $10 billion. We could have gone up. We didn't see a need to do that. So we're feeling very good about our position in the unsecured market.

The secured market is not quite there in terms of where it would be good in terms of real estate that has less of an impact on us, because obviously we can pay off unsecured-- or we can pay off secured debt and use our cash and/or go back to the unsecured market if we continue to unencumber assets. But it's getting better and it's obviously dramatically improved from where we were compared to the first half of 2009. But it's obviously not as strong as the unsecured market.

Okay and then just the final question. Just going to Ivanhoe, what is the reinvestment? So the cap rate on the sale versus your anticipated yield on the development, what are the numbers?

Well, we are not going to disclose a cap rate. But we-- all I can tell you is that we-- over the life of this investment, we've had $425 million of gain and we've been able to repatriate that money back to the good old USA. Tax free.

Don't say that too loudly.

That's what I'm worried about. But I think we're under the radar in terms of any administrative changes, I hope.

How about in a tax-efficient manner.

That sounds much better. Thanks.

And our next question comes from the line of Carol Kemple from Hilliard Lyons. Please proceed.

Good morning. At this point, do you believe there's more opportunities in the US as far as acquisitions or development? And which would you look to do in the future?

Clearly acquisitions. I think as we've said for sometime, and the development business in the US is, I don't want-- I mean is really nonexistent. There's maybe a few assets here and there that might start in 2010 or 2011, but it's going to be few and far between. And one of the things that I'm proud of in this Company, given the size let's we say we have $50 billion of assets roughly, our land held for development is $90 million. So, and that's not just in one project, that's in 12 parcels. So I think the development, new development here is going to be very challenged.

I do think redevelopment, assuming we continue on the recovery of the US economy, I think redevelopment is starting to percolate a little bit more. We've done a lot more anchor redeployments, box activity. You saw it in the mills, you've seen it in the malls in terms of that. So that's getting a little bit better a little bit quicker. And obviously you saw our acquisition activity with Prime, so we think there will be opportunities like that that will surface.

Okay. Thank you.

Sure.

And our next question comes from the line of Jay Habermann from Goldman Sachs. Please proceed.

Hi, good morning. Here with Johan as well. David, given the recent compression in cap rates, I mean does this change at all your appetite for doing any transaction activity? I mean Prime clearly was an attractive level. But has your view changed at all of late given the compression in cap rates?

Well I don't -- I think-- look, we are always going to try to buy at the appropriate value. And if we think the fact that real estate's too expensive, we're going to pass. So I think the opportunity to really feel something that's probably not here right now, but there probably is going to be opportunities where we can buy something at a decent price and be able to make money through our ability to run it a little bit better. But at the end of the day, if the real estate gets too pricey, yes I mean it's going to-- we're going to keep our capitol however dry. I don't know that we've gotten to that point. But I think the opportunity to really steal things at this point is probably not in the cards yet.

But the world is, I don't know how you feel, but I still think we're sitting in an uncertain world. And I think that's best demonstrated by what we did in the last couple of months. I mean we extended our line, we didn't have to. We tendered for bonds and sold bonds to extend our duration, we didn't have to. We sold an asset because we thought it was a good price to recycle capital, we didn't have to. So we're still making prudent decisions every day because you know what, I don't know about you, but I think we learned a lot in 2008 and 2009 even though we were as well positioned to handle any kind of crisis, I still think we learned a lot about it.

That's helpful. And I guess maybe for Steve, in terms of the guidance, can you give us some sense of percentage rents, what you're anticipating? Is that roughly flat year-over-year? And I guess any provisions for credit losses, are you assuming bankruptcies are fairly benign in 2010?

Well, Jay, I mean one, there's a lot of stuff that goes into kind of a single number which is an NOI, but yes, I think it's fair to say, David mentioned in his remarks that we're seeing some improvement in the retail environment. That gradual improvement isn't reflected in both our thoughts about percentage rents and our thoughts about bad debt expense.

And final question. In terms of same-store NOI, can you break out Mills? Do we have a sense of how that's performing versus the rest of your mall portfolio?

The Mills are doing pretty good. I don't have that number in front of us, but for-- we had a little bit of a setback in 2009 because we lost a lot of the boxes like a Circuit City and Linens at the end of 2008 that we've had a good opportunity to lease up. So I think we have growth in 2010. I don't know if you have--

We do and Jay this is Steve. Our-- the growth in the Mills portfolio that we're assuming for 2010 is consistent with the range that we gave you for the overall NOI growth of the enterprise.

Okay. Thank you.

And our next question comes from the line of Jeffrey Donnelly from Wells Fargo. Please proceed.

Good morning, guys.

Hi, Jeff.

And yes, David, I hope the Colts do well for your sake.

Well, we're selling a lot of blue in Indiana. If we have a bump in our fist quarter numbers, it's got to be because of the Colt paraphernalia.

Well I guess, Rick, maybe I'll start here. Is I wanted to take your temperature on the demand for space. Because we all hear stories about openings out there, so the good news stories. But I want to get a better sense of I guess I'll say the overall mix. I don't know if this is the best way to do it, but say last year 70% of retailers were contemplating contraction, 20% were on the fence and 10% were thinking about expanding store count. I guess how would you characterize those figures? I mean what would your sense be on where they were and where we are today?

Well I think if you look at our occupancy numbers, we've done a good job of having the retailers maintain their footprint within our portfolio so they could be positioned to take advantage of a rebound in retail sale. So we experienced absent bankruptcy, as David mentioned, I believe less contraction than perhaps other portfolios. Going forward, as the sales have gotten more stable, we're seeing less pressure on store closings and a larger open to buy. So I would hope that ,which is why David indicated, we hope that perhaps we'll have a slight increase in our occupancy level in 2010 because our leasing activity will enable us to absorb some of that vacant space.

We are doing business with a number of tenants across categories. And I think it's notable, although it's only one store. It's not insignificant that Microsoft decided the way to sell their new product is by reaching out to consumers and they opened at [Michin] VA when it's doing very well. Our channel is still a very compelling one for retail distribution.

I guess on that open to buy niche of the business then, I mean when you talk to retailers for activity in 2010 and 2011, I guess where is the focus? Is it on actually new unit growth, new stores coming in? Are you seeing them take this opportunity of increased vacancy to maybe reshuffle stores? And you might be the net beneficiary, but is-- how would you broke down their activity? Is it possible to do that?

Not in a quantifiable way. I can tell you that anecdotally what we're experiencing now are people coming in and saying we want to open new stores. And there are a number of new concepts such as [PF by Arrow] and Crazy 8 by Gymboree. Collective bands is expanding Sperian Stride Rite. Those are relatively new concepts that are growing. Forever21 is growing, H&M is growing, Oncore is growing. And those are all newer concepts, so it's not a reshuffling of space, it's a total growth profile.

Jeff, let me just say this. I mean look, 2009 was a challenging year in retail real estate world. 2010 is going to be challenging year, too. Part of what we'll suffer for in 2010 are the deals that we did in 2009 that when we did them they were obviously-- the retailer was feeling a lot worse about things than they are today. So look, our numbers reflect that in terms of what we think the world will produce in 2010, but it is a challenge. Retailers are very focused on expenses and rents, they're still closing stores. We're doing the best that we can do, but it's still a challenging environment, and I don't want to obviously discuss the obvious too much. But it-- we are still in a -- it's a better but still a challenged environment for 2010. And we're still working hard to produce the results that we hope to be able to produce the results in 2010 on.

Thanks.

What we're budgeted too. Sure.

I'm curious on Prime. Can you share with us where sales per square foot and occupancy cost ratios are just for that portfolio?

We will-- when the deal closes we'll share all that, but until then, there's confidentiality provisions associated with that.

I understand. Or at least I think this was asked somewhat earlier, but when you think about your goals for that portfolio and where you think operating metrics can move to over time. Do-- is this a portfolio that you think you can close the gap with Chelsea say on sales productivity at least in absolute terms and I guess over time? Could your NOI growth match Chelsea's?

I think-- no-- well, I can say this. Their sales productivity are less than Chelsea, less than what our existing portfolio is today. A part of what we see is an opportunity is to retenant. Again, and Prime has done an excellent job. Part of what we see the vision for these centers is to improve and retenant the mix which will hopefully drive higher sales productivity. So it is not as -- they are producing the results that we had today. The outlet-- the-- what we had with-- the outlet business obviously is a really high-quality portfolio, but we think we can improve that the Prime portfolio by retenanting and bringing in a little higher end mix.

Just one last question is for you, David, I guess. Is that there was a lot of speculation, I think in the last quarter, that Simon had made an investment in general growth securities debt equity, et cetera I guess to remove some of that. (Inaudible) interest, if there is any material interest that you guys hold in GDP today?

I really am not going to comment on that at this point.

Thanks, guys.

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

Yes, hi. Couple things. First of all, a follow up for Rick. Rick, when you were talking about the increased calls coming in from retailers and the open to buys et cetera, and can you talk a little bit more about specifically where it's coming from? Is more the interest-- do you see a dramatic difference when you look at the outlet segment versus, we've heard a lot about box retail leasing up with Junior Anchors, a lot of traction there from the strips there compared to the traditional regional mall tenants? Is one tenant dramatically leading that pack in those conversations?

It is really across the portfolios. There are a number of tenants that have announced new outlet initiatives such as New York & Co, Anne Taylor Loft, Bloomingdale's Outlet, and that is providing some benefit for the outlet portfolio and the Mills portfolio. I mentioned earlier some of the concepts that are driving the demand on the mall side. We have been doing, as David mentioned, a good job of redeploying our box space that was available with Anchors such as Best Buy, Bed Bath, Neimen Marcus, Last Call, Forever21, H&M are all filling boxes that we had available in the various portfolios, and we should not underestimate the importance of no new developments. As these boxes want to grow, we've got development at the lowest levels in 20 years. That is going to benefit the existing portfolios increasing our market share and taking advantage of that open to buy.

Okay. Okay and maybe shifting gears for a second. David, I guess when Roush was purchased back in 2004, my recollection is part of the reason why you folks didn't get it is you were angling just more for the retail assets and didn't necessarily want to own the land business. I mean if we're thinking about the business day or bigger Company, I mean, how do you view those noncore assets I guess specifically looking at potential with something with General Growth particularly the land business?

Well I don't like the land business. But I mean that has nothing to do with Roush or General Growth, that's not our business. Our business is retail real estate, so we did venture into one land development deal, wasn't-- I blame Steve on that. But-- no, I'm kidding, I was part of the decision, but it's just a business we don't know, we don't like. It's for-- it's not our core competency. But that's not a Roush or General Growth statement, that's just a statement for all. And I think it's best exhibited as I said (inaudible), we got-- think about the size of our Company, we have 12 parcels for $90 million on the books. So that gives you an idea, if we had the land, it's to develop it and it's not to hold it.

So with that said, I think when-- look the Roush is very interesting to go back in 2004 and I think it's very important because obviously there's lots of speculation about us and General Growth. We had the opportunity in 2004, as I go back and examine that time period, we were right at the outset of our Chelsea deal. And at the same time Roush came up, this was previous to the public obviously knowing, but I knew, we had every opportunity to buy Roush and not-- it would have been frankly at that time probably hard to do both. But we certainly could have not bought the outlet business, Chelsea and bought Roush. The fact of the matter is we think Roush was overpriced. There was no way to make the numbers work. We probably could have made them work better than General Growth because we would have refinanced it immediately. But we like the value that Chelsea provided and obviously we continue to reap the rewards for that.

So that thing-- and listen we-- it's vivid to me in 2004. I had a dinner with Toni Dering. I'd been calling on Toni for-- he probably got sick of me calling on him, and he finally told me he was ready. I just couldn't believe the price he was ready at and thankfully we went in another direction. That won't be any different for any other deal that we look at.

Okay. okay, appreciate it. Thank you.

Sure.

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

Hello, good morning, guys.

Hi, Rich.

Steve, if you did do a mortgage today, what kind of loan-to-value on a regional mall do you think you'd be looking at?

Oh, Rich, I would tell you the lenders and kind of the secured community is thinking about it less in terms of LTV and more in terms of debt yield. And on a really good quality asset, you can be down in 12% to maybe 13% debt yield.

Okay. All right, good. Thank you. And then I'm curious on the European stuff, that you guys did the sale, and you still have the development venture. Is that-- why do that, I guess, and is that a distraction to have those few assets like that?

Well, the answer is we're not obligated, so we have an option. And there were a couple there-- frankly it was a distraction running the company, and I don't mean that negatively. The people that run that business have done a terrific job, and they did a -- they've created a lot of value. But it was a distraction that we were running it. This case, we have an option to participate if their approval's there, we'll get to underwrite it.. If we think there's value we're in, if we don't, we're out. So it-- there's a lot less maintenance and oversight that we need to provide. And if the rights are achieved there, then we'll-- there'll be opportunity going forward without having to oversee it and worry about the day-to-day business. So I-- it's kind of having our cake and eating it too, I think. And we would expect that that team with Unibail could get these over the finish line and there'll be some future value there for us.

Okay, good. Great, thank you. And last thing, David, on General Growth, are you in active negotiations with those guys while they wander through this bankruptcy proceeding?

No.

Okay. Great, thank you.

And our next question is a follow up from the line of Quentin Velleley from Citi. Please proceed.

Hi, just a quick one on guidance. I'm wondering if you can disclose what the net impact in 2010 guidance is of the two main transactions you've done being the Ivanhoe sale, which I assume might be dilutive to earnings depending on what you do with the proceeds and obviously the Prime acquisition, which would have been accretive?

Yes. I think you're right on both accounts. I mean we've told the market on both fronts-- well we told the market on Prime that it will be accretive to earnings. If you just pay down debt that's costing us nothing, or putting it on our balance sheet regardless of the cap rate, it will be dilutive Simon Ivanhoe for the short period of time. We are not -- until both close, we're not going to give you individual numbers, but when they do, we're happy to do that. But for the time being, it's in our numbers. And you are right, though, one is accretive. That being the Prime deal and the other one is dilutive for the short run, and that would the sale.

Okay. And also with guidance, you've seen the expense recovery rate increase over time. Now I think it's almost 109% at the moment. Now, I assume that's because of fixed cam and operating expense reductions. With your guidance, are you're assuming a similar level recovering rate or do you expect that to tail off over the next few years?

Quentin, it's Steve. Let me say this, we-- and I think this goes back to kind of how David and Rick have run the business over the last couple of years. We were very early to recognize the downturn and were pretty aggressive in how we reduced operating expenses while at the same time not sacrificing the quality of how we managed the assets. I think most of that cost savings, we feel like we've wrung out of the business. So what you're going to see is a relatively flat cost environment for 2010. Now we do get the benefit of the uptick in Eastcam because of them have annual increases. But any improvement would be pretty modest.

Yes, I would only say that there's another, God forbid we get into another real economic tailspin, there's probably another lever of operating expenses we could get to, but we certainly don't want to do that. And I think Steve's assumption is appropriate in that we think that the general economic world, though not certainly robust, has stabilized and with that we think our operating expense savings has stabilized as well.

And just the last thing. I noticed that in the fourth quarter, and I mean it happened last year as well but to a different extent, your operating expenses go down quite a bit but your repairs and maintenance go up. Is there something seasonal there or was there something that happened in the fourth quarter that explains that?

Quentin, the repairs and maintenance is pretty simple. We actually don't do much repair and maintenance work in the fourth quarter, but we do most of it during the warmer weather months leading up to the fourth quarter. So what you're seeing is just those expenses flow through because we're capturing all of the costs of all of the work having been done in the say July to October type of time frame. What was your other question?

Operating expenses in the fourth quarter drop off as well while sort of repairs and maintenance go up, operating expenses go down.

There's nothing remarkable that I can think of off the top of my head about the operating expenses. The repair and maintenance clearly have some seasonality to it because you don't do as much work in the cold winter months. You're obviously not doing parking lots and roofs and thing like that in the first quarter because of the weather. But nothing that strikes me in the operating expenses. I'll take another look--

It may have been we had less snow. I mean you hit snow items like--

Removal and things-- I mean there are some seasonality items, but nothing of significance.

Okay. We'll follow up. Thank you.

We'll follow up if there's something extraordinary there.

Thanks.

No worries.

Our next question comes from the line of David Harris, Private Investor. Please proceed.

Yes, thanks for taking my call. Good morning, everybody.

Hi, David.

David, if we go back a couple of years, one of the reasons you gave for going global, and this is sort of a long term undepending, was the wide gap between retail square footage per capita in the US and the rest of the world. Now that's not changed in the last few years. So I'm just wondering are you just don't put so much weight on looking at a metric like that in terms of thinking about where you want to be over the next five years?

No, I think it's important. The-- I think the fact is, I think what you're looking at is selling a-- you have to separate that from what we're selling. And at the end of the day, we're selling Poland, which doesn't-- Poland has not the restrictions and the right to build that other places do. And you got to look at where the real estate comes from that. So it's certainly an advantage. But the-- what we are doing here is not a change in thinking along those lines.

Okay and it seems to me that whilst I can understand the currency or a great offer can motivate your short-term sort of thinking, is a great challenge for business your size in terms of the way you want to position yourself over the next four or five years is having the capacity to deploy capital when the environment turns more favorable. And that in particular in property business means having the personnel on the ground that can actually put the capital to work effectively.

Yes and I think that's where if you understood what we own there though, a good platform is not going to take us to that next level that you're talking about.

Okay.

This was -- this is a-- was a good development team, success in Poland. Poland is an ice country, but it's still Poland. Okay.

It's all right, I'm not Polish, say what you want.

Warsaw's a great city but it's still Warsaw. And the team there is not a team that can-- they're good and talented in what they do. It's not a team that's going to take us create the European platform that we have here anywhere else.

And then your thinking on China. Just to-- sorry to sort of flaunt this, but that seems to be rather more sort of strategic in thinking. It seemed to me that you were implying that you think that the great consumer society is going to take a little longer to come around than you had thought?

Well, look we always knew going in it was a significant risk. We're one of the few-- I'm personally, now others aren't, I mean I'm a little bit more bearish on that consumer than a lot of people. Now every time I talk to a retailer, he thinks I'm crazy. But the moderate-- what we built and where we built it, even though we were well executed and well leased, the moderate consumer i.e. let's say the suburban mall here as an analogy, is not -- they do not spend the way you need to to support the rental income stream that you need to to support the yield that you need to support.

And the big reason is because there's, in my opinion, there's no social safety net there. You don't have employee benefits, you don't have Medicare, you don't have retirement benefits. And the consumer there in that range is very, very conservative. Now when you go to the fancy cities with the expats and the well compensated Chinese, you do get good retail production.

In addition, I mean there's so much that was built there in so short of time that it's hard to know what's really great, I mean aside from the obvious places in Beijing and Shanghai and some of the other major cities, it's not obvious what's really great real estate. And if you're going to do it, you've got to be there for a long time and you got to sort it out. And so much is being built that, I don't know if I'd call it a bubble, but there's going to be winners and losers and you know what we were okay. We lost a little. We're ready to, again in 2009, David, what we learned was we're going to really -- it's good for to us really be a little bit more focused. So China was a distraction, let's move it aside. It wasn't obvious.

The platform that we had in Europe, we didn't see a way to get really bigger, really more meaningful, so that became a distraction. We got a really good offer. We made a lot of money. We believe the Euro's headed down, we're pretty much right on that. And these are decisions that we make all the time. We'd rather be bigger and bolder elsewhere, being little and insignificant is a distraction.

Okay. Great. Thank you.

Thanks.

Our next question comes from the line of Jim Sullivan from Green Street Advisors. Please proceed.

Thanks. David, your Company already owns about 20% of the malls in the US. Your comments on the call have suggested that your capital deployment over the next couple of years is going to be focused on US retail acquisitions and presumably mall acquisitions will be a primary focus for you. And I'm curious as you think about playing an additional role as consolidator of the US mall business, where, if anywhere, antitrust considerations come into play? And I'm particularly interested as I speculate on a Simon GGP which would result in a company that would own 50% of the higher quality malls in the country and really result in a monopoly position in a couple of markets. Can you provide your comments on how antitrust may or may not impede your ability to play that consolidator role?

Well look, I can't-- I certainly can't comment on the behalf of the FTC. I would suggest that some of your statements I disagree with in terms of market share and monopoly. We certainly would argue strenuously that neither of those occur with or without GGP or anybody else. Retail real estate is very diverse. There's a lot of it out here, let's face it the average consumer has 22 square-- per square-- per capita-- per square foot per capita. And the retailers have lots of options. So I guess, Jim, I really can't comment on FTC or anybody else for that matter in terms of antitrust implications.

But I would take-- I don't agree with your statement on monopoly or market share. And I think, as you know, there's a lot of retail real estate out there. And it's very diverse. And retailers go in and out of product all the time. And I don't think you can look at one particular segment or one particular market. We have a great challenge in physical real estate with the Internet.

We are giving the advantage to Internet retailers because they don't collect sales tax from the consumer, which is a great disservice to the local mom and pops that are out there paying employee taxes and sales taxes and trying to make ends meet. That's a tremendous travesty that exists here that we've got as an industry focus on. Beyond that, there's really not much I can add to your question.

Thank you.

Thanks.

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

Hi, good morning. As you look at the expiring rents it's 37 to 74 which is about 7% below 2009. Would you say that's a function that these rents are just farther below market that you had in 2009 or is there a qualitative difference in the space that's expiring?

No, it-- our portfolio is so diverse that there's not a qualitative difference. It's just-- no that's when, that's what happens to be expiring. So there's-- it's pretty consistent year in and year out in terms of the quality.

That's at 6 million square feet of space. So it's a very broad sampling, so it wouldn't be a qualitative slice that would impact that.

So based on the $43 that your signing in the second part of 2009, it's pretty safe to say you would expect a significant ramp back up to where your historical rent spreads are?

Well look I don't think we can get to historical numbers just yet until there's a stronger economy and stronger demand from retailers. But I think it does reinforce, as I said our premise, that we still think our leases are under market. That's why we've been able to generate higher rents. It's just that the productivity that we're able to generate would indicate we still have room there. But it's obviously the ability to generate higher rents is impacted by the current state of the economy. So the good insurance policy to have, we think, will be positive. That's what our budget is. But I don't think we're in an environment where that we can go back to quite the historical numbers we've produced over the years.

Okay. You'd spoken on the last call that you'd made a calculated decision,with just-- with a few retailers to push off sign the leases, taking a wait and see attitude for the holiday season. Just with the benefit of hindsight here, was the holiday season strong enough to get you those higher rents?

Yes, absolutely. We are, I think, going to benefit as we go into 2010 in negotiations. As we commented earlier, not just sales trends but more importantly cash flow and profitability have been substantially better for these retailers. And when you read all of the retail analysts, they are now saying to the retailers, how are you going to grow your top line? 2009 was, are you going to maintain 2010 as hopefully growth. But as David said earlier, there's still a difficult environment out there, but it is clearly better now than it was.

Yes, and I'd say, Nate we certainly didn't get hurt by that decision.

So it was a good bet. Okay.

Well it-- right now it's-- the bet's still out there. We've still got to finish ten deals, but it-- we're certainly in the game.

Okay and just lastly, where do you stand on 2010 expirations?

We are about 63% through our tens, and that's about where we were this time last year.

Okay. Great. Thanks.

Thank you.

This concludes the question-and--answer session for today's program. I would now like to turn the presentation over to Mr. David Simon for any closing remarks.

All right. Thanks, everybody, for your time and questions. And have a great Super Bowl weekend and obviously we're expecting to you root for the Colts. Take care.

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