西蒙地產 (SPG) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2010 Simon Property Group earnings conference call. My name is Michelle and I will be your Operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to your host Mrs. Shelly Doran, Vice President of Investor Relations. Please proceed.

Welcome to Simon Property Group's third-quarter 2010 earnings conference call. Please be aware that statements made during this call that are not historical may be deemed forward-looking statements. Actual results may differ materially from those indicated by forward-looking statements due to a variety of risks and uncertainties. Please refer to our filings with the Securities and Exchange Commission for a detailed discussion of these risks and uncertainties. Acknowledging the fact that this call may be webcast for some time to come, we believe it is important to note that today's call includes time sensitive information that may be accurate only as of today's date, November 1, 2010.

During today's call we will discuss certain non GAAP financial measures as defined by the SEC's Regulation G. Reconciliations of these measures to the most directly comparable GAAP measures are included within the earnings release or the Company's supplemental information package that was included in this morning's Form 8-K. This package is also available on the Simon website in the investor section under financial information quarterly supplemental packages

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

All right, I'll go through some financial operations. Good morning, I'll go over some financial operational results. First of all we reported funds from operation of $0.90 per diluted share for the quarter, which was First Call consensus estimate. This was accomplished despite the recording of transaction expenses of $47.6 million in the quarter, or $0.14 per share. As you may know GAAP now changed at the beginning of 2010 to require the expensing rather than the capitalizing of transaction expenses. FFO was adjusted, which excludes the impact of the debt extinguishment charge related to our August unsecured debt tender was $1.43 per diluted share, an increase -- very importantly an increase of $0.05 from $1.38 in the third quarter of 2009. It was another quarter of industry leading operational performance. We continue to see improvement in our business conditions.

And let me talk, the next few comments will focus on our mall and outlet business which contributes over 90% of our domestic NOI comp sales. On a rolling 12-month basis were $483 per foot, per square foot, up 7.6% as compared to $449 per square foot as of 9/30/09. Tenant sales -- tenant reported sales were 10.6 higher during the third quarter of 2010 as compared to the third quarter of 2009. We're pleased to see this increase in our tenant sales. However we're more focused on growing in our own revenues and I'm pleased to report that our third-quarter consolidated revenues grew $54 million, or 5.9%, over the prior year period.

Comparable property NOI growth was 3.6% for the quarter, 2.8% for the nine months, drivers of the increase in comparable NOI continued to be rent growth from higher occupancy, higher overage rent and lower bad debt expense. During the quarter, gross -- growth in base rents contribute 210 basis points to our comp NOI growth number. Overage was 80 basis points and lower bad debt expense was roughly 60 basis points. As of 9/30, occupancy was 93.6%, sequentially 50 basis points higher than 6/30 and 80 basis points higher than one year ago. As of September 30 the releasing spread for the trailing 12 months was $1.13 per square foot and we're seeing gradual improvement in deal flow and the pricing of our space.

Acquisitions, let me just give you an update on that and disposition activity. On August 30 we completed the acquisition of Prime at a value of approximately $2.3 billion. The transaction added 21 outlet centers -- outlet properties comprising 8 million square feet to our portfolio. As of September 30, the properties were 94.7% occupied with average base rents of $24.52 per square foot and they generated sales of $406 per square foot. This portfolio is an excellent fit for us. It presents a compelling opportunity to benefit from shoppers' demand for brand-name merchandise at attractive pricing. And we believe that our strong track record of operational excellence, financial resources, history of successful acquisition position us to meaningfully improve the performance of these assets for the benefit of tenants, retailers and consumers.

On the disposition front, on July 15 we completed the sale of Simon Ivanhoe, our 50/50 joint venture. Simon and Ivanhoe Cambridge, our JV partner received consideration of EUR715 million. We recorded a gain of $281.3 million on the transaction and as we discussed we retained a 25% interest in four development properties with Ivanhoe and Unibail.

Capital markets, again we were very active in the third quarter. In August we purchased for cash outstanding notes maturing in 2013 and 2014, $1.3 billion of the bonds were tendered at a weighted average duration of three-and-a-half years and a weighted average coupon of 6.06%. We recorded $185.1 million loss on the extinguishment of debt as was recorded in the quarter in connection with this purchase. Concurrently we sold $900 million of 4.375% senior unsecured notes due 2021. The notes were priced to yield 442% -- 4.42%, the lowest coupon of a 10-year REIT bond in history. Net proceeds from the offering were used to partially fund the purchase of the senior unsecured notes tendered. As a result of these activities, we significantly extended the duration of our senior unsecured notes portfolio from 6.8 years to 7.5 years and slightly decreased the weighted average interest rate on that portfolio.

In the third quarter we also closed five new loans totaling $700 million. Our share of that was approximately $300 million, the weighted average interest rate on the loans was 5.3% with a weighted term of 9.8 years. Noteworthy, we recently locked rate at Fashion Valley Mall in San Diego on a ten-year basis at 4.3%. At the beginning of the year many of you were interested in how we planned on using our significant cash on hand, and at 12/31/09 we had $4 billion. This gives you a sense of kind how we deployed the cash in primarily three ways, a reduction of our unsecured debt including the net use of cash in connection with the tenders of $1.5 billion, retirement of secured debt and the unencumbering of assets of $1.1 billion, cash investment in prime and other acquisitions of roughly $550 million. At the end of the quarter, we had approximately $1.3 billion of cash on hand which includes our share of joint venture cash and our availability on our corporate facility of over $3 billion, for a total liquidity position of $4.3 billion.

Capital expenditures, if I could turn to that, is a little bit higher than we originally planned, approximately $200 million. Which reflects an increase in the redevelopment activity as a result of the improving economic conditions and demand. This capital spend in 2010 includes the completion of our expansion to the South Shore Plaza in Boston, the Domain in Austin and the expansion of the Houston Premium Outlets, which will open this month, the expansion and renovation of Las Vegas Outlet Center, which is projected to open in March 2011, and more than 35 anchor and big-box replacements in 2010. You'll be happy to know, I will not read them, you can find them in our 8-K.

And during the third quarter we constructed -- we started construction on two premium outlet centers, Merrimack Premium Outlets and Merrimack New Hampshire, which is a 380,000 square foot center projected to open in June of 2012. There are 1.7 million residents living within 30 miles of the site with an average household income of $87,000 as the center is located one north of Metropolitan Boston in sales tax free New Hampshire. Johor Premium Outlets in Johor, Malaysia, which is a 175,000 square-foot center projected to open in November of 2011 is located one hour north -- one hours' drive from Singapore.

And Johor Premium Outlets is being developed in a joint venture with Genting Group, and our interest in that is 50%. By the end of 2011, we will have 11 Premium Outlet Centers open and operating in Asia generating total NOI at the property level of well over $200 million. We continue to look at opportunities to upgrade existing department store representation, are working to identify future department store availability based on existing performance. We have been very successful on our efforts to retenant department store and other big-box space and have another 25 deals approved with openings expected in 2011. And again, you'll be happy to know that I won't read those.

Part of our renewed development -- redevelopment push we've identified 16 regional mall assets as potential transformational properties. The scope of these project ranges from adding department stores, restaurants, specialty store tenants to the redevelopment of the entire asset. And we expect work to commence on some of these in 2011.

Finally let me conclude by saying that we are extremely pleased to announce an increase in our quarterly dividend from $0.60 to $0.80, an increase of 33%. This number will -- this -- getting to $2.60 for the year, which will approximate our taxable income and it also position us on a trajectory to pay at least $3.20 per share in 2011. Based upon our results in the quarter and the expectations for the balance of the year, we're also pleased to today increase our 2010 FFO guidance as adjusted by $0.13 on the low end and $0.08 on the high end. And again, we're pleased to reaffirm to you that we expect to be sector leading growth in 2011 and beyond. And we're ready for questions.

(Operator Instructions) Your first question comes from the line of Christy McElroy of UBS.

[And] guys, I've got [Ross] on the line with me as well. David, just following up on your comments on redevelopment, can you give us some of the economics behind expected redevelopment starts over the next couple of years relating to those 16 malls, like total spend, timing of starts, that type of thing?

Well development, redevelopment is an art not a science. But I think our projected spend on these 16, depending on the scope, will be approximately $1.5 billion. And we would certainly, of the 16, hope to get a couple of them started in 2011. We're making some good progress on securing some commitments and then with those commitments I think we'll begin to actually start the project. So I would hope that we would have two to four next year and then at least get the 16 going by the 2013.

And as you were looking at those opportunities, what kind of returns are you targeting?

I would say to you that they're consistent with what we've done historically. And in the redevelopment, we're still trying -- striving to get double digits around 10% and some will average a little bit lower than that but some will be above that. So I would hope that we would be able to generate about 10% on the total investment over that three- to four-year period of time.

What's your occupancy today including temp tenants? Can you give us a sense for how temp leasing has trended so far in the second half relative to past years? And can you discuss some of the economics of the Toys "R" Us pop-ups as compared to normal temp leasing?

Well let me just say as you know we don't include seasonal or temporary tenants in our occupancies.

Right.

Unless a tenant -- unless a retailer is in there for over a year, it is not included in our occupancy. So the seasonal tenants are -- if you-- and as you know you've watched plenty of our Malls, our Malls look 100% occupied even though there may be some temporary tenants, or a handful of temporary tenants in the malls. So it does not include that number. So with that said, I think the demand is reasonably better this year than last year. And the rents, I don't -- I can't -- I don't talk specifically about particular tenants, but I think Toys, Rick, are doing more deals this year than last year.

Substantially more.

Yes. So -- but we don't talk specific rents with tenants, but they did have -- I assume they had a successful Christmas last year otherwise they wouldn't commit to more this year.

And the other thing I would add is that of the temporary tenants that Toys opened with us last year, we were able to convert a significant number of them into long-term permanent deal. This gives them an opportunity to see how a given property is going to react to their offering and if it is encouraging, they are prepared to commit long term and we're anticipating to have a number of those convert this year as well.

Okay and then Ross has a question or two as well.

Yes, hi, guys. Rinascente, are you looking to monetize that investment anytime soon?

Well I don't comment on stuff like that, I try not to, I'm not perfect in that area but the -- actually it's not -- it's really Gallerie Commerciali, GCI as we call it. I really have no comment on that, I'm sorry to say.

Not a problem. The other question I have is can you breakout the same-store NOI growth on the Malls versus the Premium Outlets to get a sense of where those numbers consist, or was one number driving it?

The answer is given the fact that they're both material contributors, they both contributed significantly to our growth. And I will just say this that based upon what I have seen, the Mall comp NOI growth is still industry-leading, if that helps you in anyway but we don't break those out as you know.

And I would assume fair to say that the Outlets are perhaps leading the industry leading Mall number?

That's correct.

Thank you.

Your next question comes from the line of Quentin Velleley of Citi. Please go ahead.

Yes, Michael Bilerman here with Quentin. David, just on the terms of the dividend, I think you said that this would be at least to start off and it sounds like maybe some of the gain offset by some of the charges pushing the taxable for this year. How are you thinking about the dividend heading into 2011 as to where you'd want to set it and is it going to be a few quarters for an increase or you would think about it relative to when you provide 2011 guidance in January to what level the Board is comfortable moving that $3.22?

Well let me just say this, you may not have caught this in my last remarks, we expect, obviously it's subject to Board discussion, but I think it's safe for you to assume that we're going to be paying out $0.80 per quarter next year. And there is a possibility, obviously we're going to have to pay out a -- or we want to pay out 100% of our taxable income. As we look at 2011, even though we haven't finalized our budget process for 2011 and there's a lot of things that go in and out in taxable income, there's -- and then obviously government has some involvement in that, for instance extending bonus depreciation. There's certain states that have an input on that. But I would say that we expect to payout at least $3.20. To the extent that our taxable income is higher, then we would pay out more and that would be determined in the fourth quarter of next year.

That's helpful. And then in terms of the stats, in your supplemental you broke out Prime, it's on page 24, in terms of the occupancy and the sales per foot, but you still kept in the Premium Outlets in with the Malls, I'm just curious why you did that?

Just because it was -- we wanted to make -- scrub all the numbers, make sure it's all -- we wanted to give the market a sense of what the Prime portfolio was by itself. And then next quarter we intend to meld those into our numbers, but we felt since it was just a month old, we hadn't -- there hasn't been a lot of data out there, we wanted to give the market a chance to see the portfolio but it will be melded in next quarter.

Rather than meld it out and split all?

Well we understand your opinion on that and I have an opinion on certain things as well and we'll continue to have -- we continue to welcome those opinions.

Thank you.

Your next question comes from the line of David Harris from Gleacher & Company. Please proceed.

Yes, hi I have a question on credit quality, tenant credit quality that we saw. And many us saw Gymboree taken out by private equity interest just recently, and obviously we've seen the JCPenney move. Tell me is there anything in your leases that sort of protects your position from deterioration in credit? I mean many of these private equity deals seem to involve -- will seem to involve, additional debt on the balance sheet, so you got a less credit worthy tenet theoretically than you had before.

Hi, David, it's Rick. In certain of our leases we do have those constraints and we have requirements for annual certifications and minimum net worth requirements. In the large public company, typically that would not be present. What we are focused on going forward and what they're going to focus on going forward is the ability to convince us that they're going to be able to pay their rent as it comes due. And I would tell you that we very -- to give you an example, Golden Gate acquired Express, that was acquired all cash, now went public. The fact that something goes private is not synonymous with a significant lease up adding of debt and a decrease of the results in EBITDA. We monitor that literally on a biweekly basis for all of our tenants, and if we see a tenant that is going the wrong way, we will reach out to them and tell them we're not going to be able to do more business with you until you get that more in line.

Yes and I'll just say this, David, that the, I still call them LVOs, but the model has changed somewhat with respect to leveraged buy outs. And first of all there's been enough historical bad deals done where leverage was pushed too high and I assume that a number of the sponsors understand that.

Second, and it gets back to Rick's point, with Express and others, the model today frankly is to grow the business. And what we're seeing is when the -- when there are companies taking -- taken private, the growth plans in a lot of cases actually accelerate as opposed to decelerate. So we don't expect much of a change from Gymboree. They were -- they had a pretty good growth trajectory, we expect that to continue, if not increase. So the model is a little bit different and we can only hope that some of the past mistakes have been thoroughly reviewed about too much leverage. But let's face it, it is a reasonable concern for us to be focused on.

I would just say generally the credit profile of our tenants has frankly never been better in terms of their free cash flow and their multiples of EBITDA to debt. So in that regard as a macro consideration, things are more favorable today by a significant margin than they've been in the past.

Okay, David I've got a question for you on the global. I mean obviously this is an environment where there's a great deal of volatility in FX and particularly the expectation that the dollar may be a weak counter against a number of leading currencies. Has that influenced your thinking about where you want to take the Company as a global entity over the next -- over recent times?

Well I guess -- it's -- if you had a -- in a sense if you had a really negative view on the dollar and we felt like we could put our capital to work outside of the US and add value to that real estate, then we would be somewhat motivated to do that. But it's very tough to have a kind of a permanent view on the dollar and where it's going. I mean obviously the last couple of months are wonderful indications of that where we thought we were going to have parity, not we, but the world thought we were going to have parity with the euro and now we're headed back in the other direction. So it certainly must factor in.

Now the fact of the matter is we could still, aside from a number of emerging markets, you can still hedge a pretty good chunk of your investment, if you wanted to. But if you did have the view that the dollar was going to be in a permanent decline, then as a steward of capital would make potentially more sense to have assets outside of the US than it does -- more assets outside of the US than we currently have. But at the end of the day, we've got to make real estate decisions, we're real estate people, and we've got to believe that whatever we buy, we're buying at the right value where we could add value to it. Steve, I don't know if you want to add anything to it?

Well I think David's right, and I would just say one thing, David, that one of the things that we do is because we finance our existing JVs in the local currencies, we do have a bit of a natural hedge anyway in that we're collecting rent as an example in Italy in euros, but our -- the entity is also financed primarily with euro denominated debt.

Yes. If we just set aside then the currency issue for the moment, David. As you look at the world as a sort of range of opportunities, do you still see the US as offering you predominately the most attractive area to allocate your capital?

Well, David I would say that the activity in the US in our sector has considerably slowed. But that doesn't mean that there aren't going to be opportunities. I mean sometimes they arise when you don't expect them and sometimes you have to be patient. But -- and that's been our mantra for quite some time.

Look, if you look at the history of our Company, we've been -- the consistent history of it is we've been criticized every step of the way, but the good news is I think we've made a lot of right decisions. So when we bought CPI, nobody was expecting Malls to really trade and everybody thought we over paid, but obviously the history is that we did a hell of a deal. When we got into the Outlet sector it was after a few years of experience understanding the business. In 2000 we build a couple, we bought it in 2004, we've grown that business, we brought it out of kind of the dark ages into respectability both in terms of the returns it could generate but also in terms of what retailers thought about it, and we brought more retailers into the marketplace.

So my view of it is we've just got to be ready, you don't necessarily know when it might happen. We don't do deals just to be deals. Occasionally our discipline has not been perfect, so we've -- every once in a while, we've done that but we've done it on a basis that obviously financially we could handle that. And so I'm not, even though there's nothing imminent in the US, I'm certainly not thinking that that won't have opportunities for us. But I also think internationally and in Asia, I mean as -- it kind of gets lost in the sauce here because of the size, but as I said in my opening remarks, I mean we're going to have 11 centers in Asia, this is the portfolio so our share in Japan is 40%, in Korea it's 50% and so on. But that's going to generate over $220 million of NOI next year with other growth prospects. In fact tonight in New York, I have dinner with our Japanese partner. There's other areas in Asia that we're going to examine, so we've got lots of ways to grow the Company.

I'm not discouraged in the US at this moment, but it's not like it was a year ago. The good news is we made a deal in 2009 when others didn't, and we've also made the right decisions like in 2004, we didn't buy routes where others did. So I'm cool about everything.

Okay. Stay cool. Thank you.

Thanks.

Your next question comes from the line of Paul Morgan of Morgan Stanley. Please go ahead.

Hi, good morning.

Hey, Paul.

So if I look at your lease metrics, you're -- you've done 9 million, 10 million square feet of deals this year at $41 a foot, and the lease expiration has been around $40. Could you help me kind of connect the dots between that and next year or the year after you've got what 18 million square feet expiring between $33 and $34, I mean how much of that is just not really comparable, or I mean would we expect to see like in terms of lease spreads, or lease opening rates to go down significantly based on what you've done so far, or are your spreads going to widen out significantly?

Paul, it's Rick. First of all when you're dealing with our numbers when you say 8 million or 9 million, that's a whole lot of activity that is going to transcend any specific for the most part qualitative skewing in the Mall business. What we are seeing is increasing activity from our tenants. As the sales have gone up, our occupancy costs have come in and we're hopeful that we're going to be able to improve upon our spreads next year over this year. That's the anticipation. We've been able to hold our numbers and one of the things that has obviously helped, we're in a benign bankruptcy market and so as we are getting more demand, we have less spaces that are going out where we have to replace them when we weren't anticipating it. So all those factors will hopefully give us a little better pricing power.

Paul, I'd just -- this is Steve -- I'd just add two things. We talked about it a little bit on the last call, but in 2010 we did lose higher rent paying tenants like the jewelry stores. And so the dollar of the square footage that was the denominator in the equation is certainly higher than what you would see in the lease expiration schedule going forward. So absent that, in 2010 we've had much fewer square footage loss certainly in the last couple of quarters. I'd expect our closures to be closer to our lease expiration, I think that's one. And so that does suggest that you could see an increase in spreads next year.

Another indicator that I would offer you that I think supports that, our calculation is an apple and an orange. We add up all the new leases that we do and we compare it to all the leases that close, but they're not necessarily the same leases. But we do track internally a same space leasing spread and that number on a rolling 12-month basis is about $2.30, so it's a fair bit higher than what you'd see in the publicly reported spread. And I think that goes to Rick's point and just seeing an improved quality of the deal. And I think again as we go into 2011, knock on wood, I would think you'd start to see some acceleration in our spreads.

Is that $2.30 same space number -- does the pattern of it over time look similar to the number you report here, the apples and oranges number? I mean was it in the order of kind of $8 or $10 a couple years ago?

It was higher a couple years ago for sure, yes.

Yes, it -- I would say it maps pretty much the openings and closings in total. And obviously that number is depressed from where we reported in 2008, 2007 and 2006 given the economic conditions that exist. And I would underline Steve's point, in that what drove our closings was unanticipated, the jewelry stores and whatnot. But if we get back to kind of the natural expirations then our spreads ought to migrate toward where they had been historically.

Okay and then on the occupancy side, I mean now that you include Chelsea in there, I have a little bit harder time figuring out where you are in terms of occupancy verses your -- I mean how far in the Malls do you think you are off your 2007 or so peak? And do you think you can -- what's the timing for you to think that you can get back to that type of level?

Where I think -- this is Rick -- I think we're going to continue to make progress towards getting back towards that peak. We have our 80 bips spread that we had through 9/30. We should hopefully hold that through the remainder of the year and we're anticipating continued progress on top of that going into 2011. And so we should be creeping up on that, on the 2007 occupancy, assuming that we don't have unanticipated bankruptcies and other things going out that we don't see today.

And Paul just to -- I mean to fill in the dots or the blanks, if you will, we're between 100 and 150 basis points below peak occupancy in the Mall business.

Okay. Okay, thanks. And then just last question on the Outlet side, obviously there have been people who have been talking about new projects as well. And I mean have you done any analysis? I mean how far -- how much opportunity do you think there is for new outlet centers in the US?

Well look, I don't have a number -- a specific number that I can tell you. There's a lot being talked about and we know what we want to build, which is the Premium Outlets. So we think there are some of those to be built, but I can't give you a specific number, Paul.

Okay. All right, thanks.

Thanks.

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

Good morning, everyone. Rick, you mentioned occupancy costs has trended down a little bit as the sales have come back and clearly bad debt is turning in a much better direction. I guess two questions, one, how widespread is the sales increase, I guess if you strip out Apple and other stores, how widespread is it, and even looking I guess class A Malls versus class B? And number two, as you think about leasing just following on Paul's question, what is your target for occupancy cost I guess as you look out to 2011?

Well, let me do the first. In the Mall business, it is pretty broad across project types and across the various categories. Obviously in juniors some are going to be doing better than others because that's a highly quarter-to-quarter and fashion-driven business. But we've seen very good stability across those. In terms of our occupancy costs, I think we've always said that we've like to be in the 13% to 14% range in the Mall business, and the Outlets have been operating less than that. And so long as we can stay in that range, we've seen historically that our retailers can make very good profits and we can make an acceptable return on our assets. And that's pretty much where we are trying to drive the business.

Okay. And maybe for David, I guess even with the dividend increase, you guys are still going to have a fair amount of free cash flow per year, and you've got $1 billion of cash, the line is free and clear. Would you anticipate -- are you looking to build cash on the balance sheet, or did you think you'd look to pay down debt? Because it looks like you're going to have $500 million to $600 million of free cash flow even after the dividend as well as the investments in redevelopment?

Yes, look we'll continue to delever, it's a nice spot to be in. But absent specific investment opportunities we'll continue to delever which will obviously add to our growth rate and hopefully our multiple even though it's not clear that that's the case right at this particular point.

Let me go back to Rick's earlier point. The thing that excites me is, yes, I love tenant sales growth, but I get more excited about our own revenue growth. And there's a lot to the Mall and to the Outlet center that -- now I understand the correlation between the tenant sales and potentially what our revenue is, but the fact of the matter is what's most important to me is our revenue growth. And because part of our job is to merchandise the center where if our retailers aren't producing the revenues that are commensurate with that center, we ought to replace them. And that doesn't get picked up in the comp sales numbers. So that's our -- I don't want anybody mistaken about our focus is to increase our revenues which obviously given the high operating margins we have in our business, that tends to drop disproportionately to the bottom line. That's our focus.

Great. And lastly, any quick comments on Florida, how trends are there?

Better.

Better than the average or --?

Yes, better than the average.

Particularly in the tourist-driven properties, there have been a substantial increase in tours coming in from South America and Europe for that matter, and that's a significant number of properties we have in the state and they are outperforming.

Great, thank you.

Thanks.

Your next question comes from the line of Craig Schmidt of Banc of America/Merrill Lynch. Please go ahead.

Thank you. The 21 Prime properties that are currently doing I guess $406 a foot and $24.52 in average rent, is there any reason why those metrics after they've been managed through the Chelsea team they can't reach Chelsea's level or is there some geography or something constraint that they may not allow them to reach that total level?

Well we expect to enhance the properties, Craig, like we would hope in anything that we've done. And Prime has done a good job over the years but we would hopefully build upon that and continue to increase the productivity and the cash flow from those centers.

Okay. And then in terms of Orlando, you already have about 550 square feet of outlet space and you're adding almost another million, is there anything you need to do to adapt that space? Or given Rick's comments about the strong tourist markets that may not be necessary?

Well Orlando is an interesting market because it's really so many different markets by themselves and they operate kind of independently because the tourism is such that they're different markets. So the answer is not really. I mean they all serve their market well and the good news is that Orlando market is unique in terms of driving visitor traffic. There's nothing in the horizon that would suggest that they can't continue to drive the 40 plus million visitors a year, and we're the beneficiary as long as we continue to maintain high-quality properties catering to those individual submarkets appealing to the tourists that go to each individual tourist destination.

And to David's point, that they're separate markets, a substantial number of tenants are operating in both properties because there are a lot of people that are going to Universal and staying on International Drive that are not going down to Disney and staying on the Disney compound. And that's -- so they are two distinct properties in two distinct markets.

Great. And then finally, I noticed there's been a sales square foot improvement in The Mills and as well as in occupancy pick up, are you introducing more Outlet confidence in that or is that just standard business as usual and it's (multiple speakers)?

It's really -- we are introducing more outlets, tenants and additionally some that were changing kind of what that center is going to be. For instance in Gurnee we are actually expecting to modify a big chunk of that center to be full price and -- but the rest is a lot of just bringing in the better merchants a number of which are brand name outlet operators.

Plus Rick and -- I don't want him to bore you with the details because he's got his list and he's dying to read it, but we won't let him, okay, is that we're adding -- we're doing a good job of retenanting the boxes that we lost with the Steve and Barry's, Linens 'n Things, Circuit City's et cetera. We've got a couple of Bloomingdale Outlets that we brought in to the centers, so just better leasing management and taking advantage of a better economic scenario. And Rick is available later to read you all of what he's done recently.

I'll call Rick later. Thanks a lot.

Your next question comes from the line of Alex Goldfarb of Sandler O'Neill. Please proceed.

Thank you, good morning.

Hey, Alex.

Just quickly on the capital side and this is probably more for your JV properties. Just given where the portfolio lenders are and it seems like they're a little behind, maybe they've caught up, but it seems like they're behind in allocating for the year, has any of that caused you guys or your JV partners to reconsider refinancing plans, or is it more that the thought of refinancing a property is a much bigger decision than simply where you can get a rate and a size of a loan on a project?

Alex, this is Steve. I mean I think it's the latter. A refinancing decision is above and beyond just what your capital spend is. But I mean having said that, it's a high class problem to have, because we do have many properties, JV properties where we've got substantial capital to spend. Rick whispered to me that we're in the midst of doing a renovation of Fashion Valley where we just refinanced. We have some other properties that are in that list of 16 assets that David mentioned that could potentially be transformational, and a couple of them that I can think of right off hand at very low leverage. So the opportunity to roll the source of capital for that transformation into a single financing is certainly there. So we'll look at it on a case-by-case (multiple speakers).

Yes, and look if a mortgage does not -- is not subject to a prepayment penalty or yield maintenance penalty, we're actively talking to our partner about refinancing it. So now traditional secured debt usually has something along those lines. But we don't have a lot of floating rate debt on our JV at all period. But to the extent that it's not locked out or the yield maintenance is de minimis or there is none, then we're talking to the partner about refinancing which is exactly what happened in Fashion Valley.

Fashion valley is a great scenario historically about kind of what happened. I think we had -- I can't remember all the details other than it came due in 2008, we had -- both of us had to put capital in to pay off the mortgage which I believe was a couple hundred million bucks. Then we got a $50 million loan, then we got -- that $50 million went to $100 million, then that $100 million went to $200 million, and now the $200 million went to $475 million all in the span of 18 months. So maybe -- that's pretty good recollection actually. So I mean that's kind of what happened. We actually had to put in equity and thankfully our partner and us had the equity to do it, but we had to unencumber that asset for awhile when --at the end of 2008.

Okay. And then moving to the Prime, now that the books have been enclosed, can you give us a split of -- originally I think on the cash yields you were talking about 8% but what you think the GAAP yield will be?

Well, no, but we'll do better.

Okay. And then just finally wrapping up on Prime, and there was the item in your press release about the consent agreement, is this just something that sort of just an ordinary document processing thing or is this anything that could linger for a while?

We don't believe so. In other words, we do think it's ordinary course.

Okay. Great, thank you.

Thank you.

Your next question comes from the line of Michael Mueller of JPMorgan. Please go ahead.

Yes, hi, most questions have been answered. But going back to the debt paydown, there's not a lot coming due in terms of secured and unsecured notes next year, should we expect anything in terms of maybe a pool of assets like we saw in 2010 get unencumbered?

Well, Michael we actually don't have a lot of opportunity to unencumber assets in 2011. But as David has already mentioned, we're looking at the balance sheet every day, we're certainly working in, absent of transaction opportunities, we will delever, yet it was interesting you said not a lot to do, but we still got $1 billion plus of mortgages to redo in 2011. They're sliver interests of bonds, I think there's about $400 million left in 2011 that wasn't tendered. You could certainly see us pay that down. But we'll just pay attention to where the market is.

Okay, great. Thanks.

Thanks.

Your next question comes from the line of Steve Sakwa of the ISI Group.

Hi, I have two questions. First, Rick, can you just talk about what percentage of leasing you might have already done for 2011 at this point in the year and compare it to say a year ago and how much leasing you had done in 2010?

Yes, we're through probably about 39%, 38%, 39% of our 2011 and that's pretty much where we were this time last year.

Okay, so even though you're feeling better about the world, I guess I'm trying to figure out if maybe that 39% got committed to at lower rate, now the world's better --?

Well one of the things that we're doing is, and we said this last year, we're not in as much of a hurry because the world is getting better and 2011-- renewals in 2011, some renewals are literally still 13 months out. So there is certainly no hurry to have to address those renewals that are in the fourth quarter where we think we're going to be in a much better, much better shape. We could --- look, we can control that by deciding how we price our space, and so we're going to be very deliberate in how we price our space and that's going to impact the pace of our renewals.

Okay. And then I was wondering if you could maybe just spend a little bit of time talking about Prime and as you kind of look at that portfolio today and maybe hearken back to when you bought Chelsea, I didn't see an occupancy cost, David, disclosed for that portfolio. But just what sort of upsides do you see? I mean obviously that portfolio is not as productive as the Chelsea assets, but as you kind of look here today, you've owned it for a month, what kind of opportunities do you see embedded in that portfolio?

Well let's just say there's no way to replicate what we got out of the Chelsea portfolio, so -- other than a few individual centers here and there that's the highest portfolio out there. So look I think, Steve, it's relatively straightforward stuff. It's better marketing and it is better leasing through better merchandise management and when you do the two together they kind of fuel off each other and you get the desired impact that you're looking to. And there's also going to be the ability to reclaim, redemolish certain space that we think we can make more productive, little developments.

We had our Board at Queenstown last week as an example, and there's a little corner of the center's --- a good center, good leasing, but there's a corner that's effectively not part of the nice atmosphere that was created there. So trying to figure out how to anchor that and retenant it and make it a part of the center is going to be the kind of things that we do. And we've already identified a number of the better merchants that we think we'll be able to add to the portfolio. There's lists and lists of opportunities to better merchandise the centers.

Well David, if you don't want to disclose the occupancy costs, can you just tell us if it's above or below where the -- I guess the Chelsea portfolio or the Premium Outlet portfolio is?

It's below.

Below. Okay and then, Steve, I know it's sort of a technical question, but the $47 million in charges this quarter, any way to sort of just break out some of that amongst the different buckets of things you pursued?

No, Steve, it's just a composition and a compilation of related everything.

The important point is that we're not going to -- you don't expect to see that going forward.

Right, are there any lingering charges that might occur in Q4 as a result of any of the activities you pursued this year?

De minimis.

Yes, I wouldn't expect anything.

Okay, thanks.

Thank you.

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

Hi, good morning.

How are you?

Good. Just returning to the rent spread issue. Can you just please provide some detail on the rent spreads just breaking out Malls versus Outlets?

We've put those together, Nate, if you hadn't noticed.

No, I know but you gave a little bit of detail on the same-store NOI before in terms of saying that it was above the -- it was still industry-leading, would you say that Malls were positive this quarter, or trailing 12?

I'd say Malls are relatively flat.

Okay, thanks.

Sure.

Your next question comes from the line of Andrew Rosivach of Credit Suisse. Please go ahead.

Hi, good morning.

How are you?

Doing well. If you removed Apple from your sales number, do you know how much of the percent growth that attributes?

Very, very, very little. Remember we have 65 million square feet, then we add the Outlets to it so it's 80 million there I -- we had like 40 Apple stores, so I don't have it off the top of my head, but it's -- it would be de minimis in terms of the growth. I mean obviously we think they're a great retailer and a great company and we want to do more and more stores with them. But in terms of having a major impact that -- just not there for us.

Okay, great. Nice quarter.

Thank you.

Your next question comes from the line of Cedrik Lachance of Green Street Advisors.

Thank you. You have a small stake in Value Retail in Europe. What's your appetite for doing more on the Outlet side on the European continent?

Well look, I would say that put Value Retail aside, I would say that we have a obviously a nice US Outlet business, we have a nice Asian Outlet business, and strategically given there's a commonality of the product and the retailers, it would be nice to have a European presence in that business. But I won't talk specifically about Value Retail or anybody else, but it would make strategic sense for us to be represented in Europe with good quality outlet centers.

And what's the best way to approach that. Is it-- if you had development primarily or do you think there are interesting acquisition targets over time?

Well I'd say both are tough, frankly, Cedrik. Development is clearly the hardest to do but we have looked at certain things in the past. And I would say on the acquisition side, there could be opportunities for us down the road. So I would lean more toward acquisitions than ground-up development just because of the length required to develop there and all of the uncertainties and all the stops and starts. But we look at both, we look at both.

Okay, thank you.

Thanks.

Your next question comes from a line of Omotayo Okusanya of Jefferies & Co. Please go ahead.

Yes, good afternoon. Most of my questions have been answered, but just a few quick follow-up points. Could you tell us what occupancy costs actually were at the end of third quarter?

Yes, for the end of the third quarter for combining Malls and Outlets it was 12.1%.

12.1%, that's helpful. And then the reversal of the provisioning during the quarter, could you talk a little bit about the reasoning behind that and what we can kind of expect in regards to credit provisioning on a going forward basis?

Yes, I mean what happened in the third quarter quite frankly is we just collected some receivables that we had fully reserved for. And when you collect something in cash and there's no longer anything to offset it with on the balance sheet, it has to flow through income. I mean historically, Tayo, our bed debt expense runs about 50 basis points, so 0.5% of revenue. I would say it looks like 2010 is a year where we're going to end up with literally close to zero bad debt expense. But if you're looking on a go forward basis, I think it'd be difficult to replicate that experience in 2011. So I'd expect to see some return to a more normal level of bad debt.

Great, that's helpful. Then last question, as we start to head into the holiday season, just could you give us a general sense of what you're hearing from your tenants about what sales look like or what their expectations are going to be?

Look I will tell you that the good news is Christmas holiday season is no longer make or break for our retailers. The way it's been 20 years ago, that's all you heard about was they had to have a good Christmas season to survive. Our retailers are much better operators, so its not make or break the holiday season any longer. I can tell you that generally the holiday season never meets expectations too. I think one of the last ten years it's met expectations. So much has to do with the mood and psyche of that consumer and there's obviously a lot out there to sway it one way or another, I'll leave my political views to the side for the time being.

So the long winded answer is my own personal view is it won't meet expectations, but it's just because I'm betting on history that it never seems to. And when I say expectations, probably more of what the media or NRF or some of these other people put out. But I don't get overly excited one way or another whether it meets or beats or doesn't just because I think from a retailer's point of view they've learned how to manage it appropriately. They do seem poised to have a better season because inventories have been built up. That's good and bad, right? That's good in the sense that if there is demand they can drive sales, on the other hand it is looking like the season could be a touch more promotional than it has been in the past. But again, I don't get caught up in the-- it's almost like the politicism whose going to win and whose not going to win. Lots of pundits out there. The good news is from our retailers, they seem to be able to manage it either way.

Very helpful, thank you.

Thank you.

Your next question comes from the line up Ben Yang of Keefe, Bruyette & Woods. Please--

Hi, good morning, thanks. David, you mentioned the occupancy costs is currently lower for Prime versus your other Outlets, I'm curious if you have the same occupancy cost target from both outlet portfolios when you sign new leases, and if you don't, I'm wondering if there's any reason why you can't get to that same level for Prime?

Well look, I think we have enough experience that we know what market rents ought to be and given that we feel good that there's growth in the Prime portfolio and not only because of where rents are verses where market rents are, but also because we're going to make the centers better. And by making them better, retailers are going to want to be there and that's, Ben that's essentially-- I wish it were more complicated than that, but that's basically what our guys are charged to do.

I mean-- but will there come a day when you can maybe narrow that occupancy costs gap, or do maybe less productive outlet centers just naturally get a lower occupancy cost?

Well there's certainly part of that. There's no question there's part of that. But I mean-- and typically what we've had in the Outlet business is even though rents have increased, sales have increased even at a higher rate, so the occupancy cost still can't catch up to the number that makes sense. But clearly, there are going to be centers that have lower productivity, you're not going to be able to charge the kind of rent that you could at higher productivity. So there's certainly part of that element with Prime and even existing outlets that we have today. And that's the same thing for Malls as well.

Okay, that's helpful. And just final question, do you guys revise your same-store NOI guidance for the year? Because I think it currently stands at about 1% to 1.5% seems like.

I think-- I'm looking at 2011, so the answer is no, but I think we'll do better. Okay.

Great, thanks, guys.

Thank you.

Your next question comes from the line of Rich Moore of RBC Capital Markets. Please go ahead.

Hello, guys, good afternoon.

How are you, Rich?

Good, thank you. On percentage rents, we're looking at percentage rents as a percentage of sales and those seem to go higher, is that the inclusion of Prime do you think or is there something else going on in there?

It has nothing to do with Prime at all really. We only had Prime in for a month. It's really just better sales across the portfolio, and obviously both in the Mall and in the Outlet side.

Okay, so you think that could continue, you think that's sort of trending higher, is that what it sounds like?

Well it's clearly-- I mean it's clearly trending higher as you can see by our sales growth for our retailers. That's for sure.

Okay, so the percent--

But it is a variable number and it's-- once the retailers in there, it's out of our control it's really how they produce. But it ought to-- assuming it continues on that path, it ought to be certainly higher than last year.

Okay good. Thank you, David. And then in the other income line, Steve in the joint venture portfolio that seemed to jump unusually, what was in there again?

It's two things that are primarily driving it, Rich. Number one is a property that we are a 25% owner of had a large out lot peripheral transaction that was about a $20 million gain. Our share of that was about $6 million. So even though you're seeing a large impact in the JV footnote, actually our sure of it isn't that significant. The other one is just, and you see this in the consolidated financials as well, we had a higher level of lease termination activity, I think it was up about $10 million in the JVs and I think our share of that was about $3 million. So that's the majority of increase, the rest of it's just normal growth in business that we're seeing across some of the line items that 's flowing through there.

Okay, very good. Thank you, guys.

Sure.

You have a follow up from the line of Quentin Velleley of Citi. Please proceed.

Hi, good afternoon. Just in terms of the 16 transformational redevelopment projects that you were speaking about earlier on, I think you sort of mentioned that a few of those projects would be complete redevelopments of the assets. So I'm just curious which assets they were? And whether or not we should be thinking about that as sort of defensive CapEx as well as expansion CapEx?

Well we have two malls that are basically had been demalled and produced no income today, and in fact they have a slight negative. So those certainly would be in that category. And-- but I don't think given the opportunity ahead of us and given the lack of new space out there, I would say to you that not any of this is really defensive, it's really because there's an opportunity in there and demand has somewhat increased. When I think of defensive, it's in-- the way you'd describe it is maybe in connection with something else happening in the market place. These are just there to be done to be improved upon.

Okay. And so of the $1.5 billion, it's a very small proportion?

Clearly, clearly.

Okay, thank you.

Thank you.

You have a follow up from Dan Harris of Gleacher & Company. Please go ahead.

[Expletive] well thanks for [sticking] by to the chair even if they change my first name. Hey, I don't know if I dare ask this question, but General Growth comes out of bankruptcy shortly, and it's got some powerful backers and a rebuilt balance sheet. Have you been briefing the troops for a tougher battle ahead?

I'll let our performance speak for itself. So fact of the matter is, David, we have prospered whether General Growth was growing in bankruptcy or emerging from bankruptcy, the bottom line is we've been able to grow our business and do well regardless of what they or anyone else has done. And I look back and say-- it's very interesting to me, and I know a lot of people aren't earnings focused, but we're going to be one of the few, let's just take First Call as a barometer, based on 2011, we're actually had the potential if you use First Call as a barometer to actually have the best earnings per share that we've had. So yes, we did some diluted deals. We sold common stock at, I'm not thrilled about the price we did, but we felt like in the scheme of things we had to do it. We're actually-- our growth is such that we're going to, if you believe First Call and obviously we're going to come out with our guidance, but I wouldn't be talking like this if I didn't think that that was a possibility.

We're going to actually outgrow our dilution and hopefully next year do better than what we've ever done, which was in 2008. Correct? Our FFO, record FFO per share. So-- which our record FFO per share I think was $6.42. You can see that we're-- our dividend trajectory is back to where it was. You compare all of the other REITS out there, and in particular all the other retail REITS, they're 30%, 40% of their FFO per share, and 30% and 40% of their dividend per share. And in some cases even a lot worse than that. So as an example, well I won't say it because I mean it's really-- But so the fact of the matter is our troops know what we want them to do regardless of whether what happens with General Growth or not. So I think I answered it, your question?

Yes. Clearly, let's tackle it a slightly different way. Is that , I mean of the last couple-- setting aside the public companies and obviously we've got-- we've had a fairly good handle at that, is do you have a sense,

We have an interesting chart we'd be happy to share it with you.

Okay, well look-- a NAREIT maybe. No let me ask my question then it's probably-- maybe you can show me the visuals in a couple of weeks. Is, do you have a sense over the last couple of years that the stronger companies, and would obviously include most of the public companies within that group, have picked up substantial market share from some of the other players in your market place?

Well certainly and-- but certainly at a property level there's some of that. But more importantly, it's really as a-- at a company level that you can see that differentiation easiest. So--

Does the chart show that, it must bottom left, top right, all charts that I ever look are done that way, don't they?

Of course. Certainly when we do the charts.

All right is that the-- is that what you're going to show me in a couple of weeks, David?

We will now.

Good, good. I look forward to it. All right, Thank you.

Thank you, take it easy.

And you have a follow up with Steve Sakwa of ISI Group.

Hi. Yes I just wanted to make sure, Steve when you were providing that same-store NOI increase in the 8-K, that does include the benefit of lease termination income?

It does not include the benefit of lease termination income. We separate lease termination income out.

Okay, so I guess really then the figure for the nine months though does include the benefit of the-- basically the reversal of the bad debt to share but not the increase in lease termination income?

That's correct. Bad debt is the component of ame-store --

Yes, we-- in our earlier comments we mentioned how much that was of the 3.6%.

Right, for the quarter bad debt added about 16 basis points. So it would had been 3% if bad debts would have been the same as last year.

And Steve do you know what it was for the year, the nine months number?

The bad debt is 80 basis points, I believe.

Okay, thanks a lot.

Sure.

If there are no further questions, I would now like to call back over to Mr. Simon for closing remarks.

Okay-- Sorry, Operator, I jumped on you there. Thanks, everybody, we'll talk to you soon.

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