西蒙地產 (SPG) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2011 Simon Property Group earnings conference call. My name is Kathy and I'll be your operator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session toward the end of this conference today. (Operator Instructions). I would now like to turn the conference over to your host for today's call, Miss Shelly Doran, Vice President of Investor Relations. Please proceed.

Hello? Good morning and welcome to Simon Property Group's first-quarter 2011 earnings conference call. Please be aware that statements made during this call may be deemed forward-looking statements and actual results may differ materially from those indicated by forward-looking statements due to a variety of risks, uncertainties and other factors.

Please refer to our annual and quarterly periodic reports filed with the SEC for a detailed discussion. Acknowledging the fact that this call may be webcast for some time to come, we believe it is important to note that our call includes time sensitive information that may be accurate only as of today's date, April 29, 2011.

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.

Okay, good morning, everybody, welcome; we're glad you took time away from watching the royal wedding. And we're pleased to report FFO of $1.61 per share for the quarter, an increase of 14.2% over the first quarter of 2010. And in comparing that, that takes into account the loss on extinguishment of debt that we had in the first quarter of 2010.

Our quarterly results exceeded the First Call consensus by $0.07 per share. Total sales on a rolling 12-month basis were $500 per square foot, up 8.2% as compared to $462 per square foot as of 3-31-2010. Please note that this $500 per square foot is on more than 52 million square feet of GLA. As of 3-31 occupancy was 92.9%, 70 basis points higher than the year earlier period. And the re-leasing spread for the rolling 12 months was a positive of $5.11 per foot.

Beginning in 2011 we changed our reporting of spreads comparing opening and closing rents on a same space basis. This statistic is now also based on total base rent which is minimum rent plus the common area maintenance charge or CAM. And we believe this new methodology will help give investors a better economic picture of certain of our leasing activity. Our re-leasing spreads always have been and will be -- under the new methodology will include all in-line space including spaces larger than 10,000 square feet. So it's all in-line space that that's compared to.

Comparable property NOI growth was 2.3%. We believe, just to highlight a few things -- first of all, the growth in the quarter was virtually 100%, increase was driven by rents. In addition to just compare the Q, not to get overly worried too much from one quarter to the next.

But when you compare Q1 2010 to Q1 2011, I would just keep in mind that in 2011 we had the significantly higher snow removal expense in the first quarter of this year, as well as we -- as you recall last year, we had a -- our credit loss was actually recovery and this year we actually had bad debt expense. When you put the two together and normalize those, our comp NOI growth would be over 100 basis points higher than the 2.3% that was reported.

Capital markets, we've been busy, as always. We closed or locked rate on nine new mortgages totaling $962 million. Our share of that was $543 million. The weighted average rate on the loans is 5.3% and the term -- weighted average term is 9.4 years. During the quarter we also paid off $282 million of unsecured debt with our cash. And we end the quarter with $937 million of cash on hand including our share of JV cash and our credit availability on our facility is $3 billion for a total liquidity position of nearly $4 billion. And as you know, in '11 we expect to generate more than $1 billion of cash after dividends.

Development activity, we're pleased with this on a number of fronts. First of all, we opened our second premium outlet in South Korea, Paju Premium Outlets, located approximately 50 minutes northwest of downtown Seoul. Early reports have been extremely favorable and the center is 99% least at opening.

And just to put it in perspective, our Yeoju Premium Outlet in South Korea continues to perform exceedingly well. It is 100% leased and generates sales of $875 per square foot in US dollars. We also completed the expansion and renovation of Las Vegas Outlet Center and in conjunction with that we rebranded it Las Vegas Premium Outlets South and is located on Las Vegas Strip near McCarran International Airport.

We have two new developments under construction, both Premium Outlets, Johor in Malaysia which will open in November of this year in Merrimack in New Hampshire, which will open in the summer of 2012, but I'm really pushing for the spring of 2012. But that's another story.

During the first quarter we started construction on nine renovation projects and now have a total of 10 under construction. And in 2011 we've been obviously very busy; we plan to open 32 new anchors in big boxes including Herberger's, Kohl's, Carson Pirie Scott, Target, Dick's, [Alta], Marshalls and hhgregg, just to name a few, which I did. And we currently have eight anchor or box deals scheduled to open in 2012. Details on cost, returns and timing for these projects are provided in our supplemental reporting package.

Now let me turn to Japan for a moment. Obviously we're very concerned about the people and what's happening there. But to give you some perspective, our portfolio is comprised of eight properties, four in the south, three in the Tokyo market and one in the north. You will recall that we own a 40% interest in these assets with our well-known and esteemed colleague and partner, Mitsubishi Estates.

Sendai, the smallest of our Japanese assets, was damaged by the earthquake and has been closed since the earthquake. Fortunately repairs are currently underway and we expect the re-opening in mid-June of this year. Costs to repair the center after the payment of our deductible are covered by insurance.

Since the earthquake three of our properties outside of Tokyo, Gotemba, Sanyo and [Ahmi] have been allowed to operate only eight hours per day due to the rationing of electricity. This ended yesterday and the centers have reverted to their regular 10-hour operating schedule. However, given the environment there this could be subject to change.

It is too early to gauge the short-term impact of the earthquake, tsunami and damaged nuclear facilities to our business. Sales of the centers near Tokyo have been below year-ago levels since the quake. As things settle down in Japan we expect these highly productive, high-quality Premium Outlets to revert back to historical trends. However, we anticipate that softness will continue for the remainder of 2011.

Not to be undone by that earthquake, on the good news I will talk a minute about Opry Mills. As you know, we had a historical flood that ravaged Nashville and submerged Opry Mills and flooded it with several feet of water in the mall. The good news is we've reached an agreement with our lenders to finance the restoration of the mall.

Opry Mills and its lenders will continue the litigation to have our insurers comply with their obligation to pay all the amounts they agreed to in the event of a flood loss. Repairs and rebuilding the landmarked property have begun and it is expected to open in the spring of 2012.

Most of the previous anchor tenants have committed to be part of the reopening and many of the previous in-line stores have committed to the restored Opry Mills. In addition many new tenants have agreed to come to open stores at the property. We expect on a stabilized basis to exceed the NOI that was in place prior to the flood.

Based upon our results for the quarter and expectations for the balance of the year, today we increased the low end of our 2011 FFO guidance by $0.10 per share and raised the top end by $0.05. This increase in guidance reflects the improving business conditions we are seeing in the US, our ability to execute our game plan. However, it is partially offset by the uncertainty in Japan and the continued closure of Opry Mills.

Finally, let me just mention some management additions. We have recognized that we are very focused in maintaining our leadership position and our desire to execute on many fronts so that we can continue to deliver sector leading growth. We can and should add to our executive team. So accordingly we welcome two new additions to the ranks of executives -- David Contis, Steve Fivel.

David will lead our regional mall platform working with me and Rick and assisted by John Rulli. His first day on the job is next Monday. I'll be out of town, by the way, just to --. Steve Fivel has been here since March and he's assisting Jim Barkley, our General Counsel in all the areas he oversees. We've all known David and Steve for many years and we're very happy to add them to our team to continue our contributions that we expect them to do.

So summary, we had a very good quarter, another one in our long string of successful quarters. And we're ready for questions and answers.

(Operator Instructions). Michael Mueller, JPMorgan.

Yes, hi. A couple things. First of all, looking at the leasing spreads, they picked up considerably from the year-end mark up from about 4% to 10%. If we're thinking about that, is that more driven by say the fourth quarter of '09, just the dropping out of the mix of low rent openings? Or is it more driven by, you had a good second half of the year 2010 in terms of sales, good 2011 so far, so really the opening rent levels are kind of picking up there more.

I would say it's more than more of that. It's a 12-month period of time, so it's representative of what's going on. But look, demand is better; we're able to generate better rents. It's still a very difficult process in doing that, but we've got a good group of people and a very good portfolio. And when you put the two together we're able to drive rents.

Got it, okay. Over the last couple of quarters you put some money to work in terms of mortgage investments. Can you talk a little bit about that? Is that more investments that we should think of as short-term, putting capital to work and you're getting a nice return on it and at some point you get the money back? Or is it more along the lines of there's a shot at getting to the real estate?

Well, given we did it initially with both in mind, but the odds are, based upon what's happening in the capital markets, that will probably just get paid in par.

Okay. And then last question. Sales growth has obviously been pretty good over the past year or so. How far away do you think we are from new development on the traditional mall side? You've been active obviously on the outlet side, but is that something that you're thinking about more these days?

I don't see it, in my -- I think it was in '07, maybe it was early '08 I said a decade away back then. So I may have been a little over dramatic. But we -- Rick, you can comment on this -- we just don't see new full price retail being built anytime in the near future.

And I think that one of the other companion trends to that is that the retailers, as their demand for space picks up, are being accommodated by redevelopments and expansions of the existing square footage in properties. So the existing properties are getting a lot stronger and that in turn is going to make it even more problematic to institute new development going forward.

Got it. Okay, thank you.

Jim Sullivan, Cowen.

Thank you, good morning. David, one of your peers in this quarter talked about buying anchor boxes. And I'm just curious if that's something -- I'm sure you've been doing it all along, but I'm just curious if you're seeing more opportunity to do that now or if you're being more aggressive if the opportunities arise?

I will tell you, Jim, that it's standard operating procedure here to reclaim the boxes that anchors -- that some of our tenants might have owned that closed. So the strategies is not all that different. We like to have tenants kind of secured. We like to drive a tough bargain on it. So it's not -- we don't call it kind of newsworthy events, it's just kind of standard operating procedure that we have the ability to buy it and re-tenant it we will if it makes economic sense. Rick, you can add to that. But we've done a lot of it over the years.

Yes, just to that point -- if you think about our portfolio in the industry, over the years we've had the May/Macy merger; we had Lord & Taylor abandoning substantial stores; we had Montgomery Mall abandoning many stores; Parisian -- over the years we've redone about 75 department stores and you can go back and all of our 8-K's and all of that activity is tracked and in virtually every instance we have ended up with a replacement that is stronger.

But to David's point, we'd like to know what we're going to do with the box before we [borrow] the box. And we want to make sure that we're getting an appropriate return on that capital investment.

Some of the -- Jim, and you can see this in our 8-K's over the period of time, but we're doing 32 box deals in '11. Some of those were purchased boxes, some were lease expiration, some were lease buyouts. So that's just standard operating procedure here.

And kind of a related follow-up question on this point. You've talked on several calls now for a long time about the double-digit returns you get from this kind of box redevelopment activity that you've done. And Rick, you've talked about it in detail over the years.

And then if I connect that, trying to connect the dots, if you will, to the culling of the portfolio issue. This was talked about in the last call. In reference to cap rate movement I think you, David, indicated that you saw cap rates becoming attractive on potential sales opportunities and of course you're in the market with a couple of assets today.

Is there much opportunity or do you ever connect the two; i.e., look at doing a big box renovation with the intention of -- and generating a double-digit yield with the intention of selling that asset when completed to a buyer that likes that type of property? Is it (multiple speakers)?

All the time. I mean let's just talk an example. I mean, if we have a -- take in theory a mall that you could sell at an 8 cap rate and we redevelop the box at a 6, we've lost value. If we redevelop that box at a 10 and we think it's an 8 cap asset, then we've created value. So we always take a difficult economic review of the redevelopment opportunity. So the answer -- the simple answer is absolutely. And sometimes you want the ability to redevelop the box to sell the asset. So again, that just factors into what we're trying to do.

Okay, good. Thank you.

Ki Bin Kim, Macquarie.

Thank you. So lately there's been a lot of talk about big-box retailers downsizing their square footage. And I think you guys have a great perspective on this because you own both types of retail properties. On the margin do you see some of that coming into the malls going forward? Minus Best Buy Mobile retailer?

Well, certainly there are some that are playing around with the size of their store; Old Navy is a good example of that. They went through a pretty significant period where they started at one size, grew to another size and I think they're reverting back to kind of their original roots. I think some of the bigger category killer types, the Best Buys of the world are all looking at their footprint.

We expect that some of the bigger stores ultimately will try to increase their efficiency. So we're very aware of that. And I'd say, sure, there are a number of retailers that are looking at the size of their box and what it needs to be going forward. Rick, I don't know if you want to add anything?

Yes, I would just say on the specialty store side there's no consistent pattern. For every one tenant that says well I was 8,000, think I want to be 6,500 in my new prototype, we have others that are saying we were at 6,000, we need to be 10,000. It's really a function of the momentum in that particular business, the number of lines that they're introducing that they want to incorporate into their stores and the way they want to configure their stores. So I don't think that it is a broad-based trend across the retail space.

Okay. And second question, as you're sitting down with tenants during these negotiations, have tenants started to already -- started to show some level of concern regarding commodity price increases? Not just gas prices from the retail sales standpoint, but maybe on the commodity input front like cotton prices which have doubled in the past year? Was that putting pressure on margins and maybe your ability to keep occupancy costs up?

Well look, I think their attitude right now is they believe they can pass that on and I think this year we'll get a good sense of whether they're capable of doing that. If that's the case then I think it's business as usual. If they're unable to pass that on they're going to naturally look at other areas to reduce their operating expenses. And it may come after -- they may come after the landlord community, but up to this point we have not seen it.

And our defense to that is that we have great assets and good people and we can hold our own in that kind of discussion. But at this point they seem to think -- it's not universal, but they seem to think that they can pass it on and the consumer's willing to pay for the good as long as the consumer sees value in that good.

And I would just add that historically the tenants will bring forth any fact that they can put on the table to try and argue for lower rent and we will -- as David said, we'll do what we can to argue for what we think is fair rent and this is nothing new.

Today it could be raw materials, three years ago it could've been healthcare, could've been gas prices, whatever the external circumstances that can broaden the discussion they will do. And I think our results show, as David has said, we can hold our own and those conversations.

Okay and last quick question. Your lease spreads did increase pretty significantly. I was wondering if you could give just the first-quarter 2011 lease spread itself without doing trailing 12 months?

No, we look at it on a yearly basis.

Okay, fair enough. Thank you.

Jay Habermann, Goldman Sachs.

Good morning, guys. With sales up as much as they are now year-over-year and obviously occupancy trending up 70 basis points, where do you think you are now in terms of your ability to push rent versus retailers? And I guess how are they responding just given your focus on top assets?

Well look, I don't like to talk about our negotiations with our clients in the public domain. We're trying to create a fair deal for us and for them. And as I said earlier, it is still a challenge with the retailers, they're very focused, the impact of the great recession is not that far from their mind, and so we've got to deal with that fact. And you've got to try and create a win-win.

So the good news is the environment is better, we're able to increase our rents and we're trying to find that right deal. And the good news is our occupancy costs for the outlets and malls together is at a 12.2% for the first quarter and that's pretty good. So we're in good shape; in a lot of cases we're under rented and in those cases we think we can still be able to increase rents and create profitability for the tenants.

Okay. And then obviously with David Contis joining next week, any sort of changes you anticipate in strategy or is this really a continued focus on your platform?

Well look, I think we have so much to do that we wanted another aggressive, thoughtful, energetic real estate guy on the team to do what we want to do. So we look at it as another experienced set of hands to get the job done. And beyond that, no. He'll be a great fit; he'll work a lot with Rick. Between the way those to talk I'll hopefully be able to get a word in edgewise, that's why I'm leaving the first couple of days next week. But no, he'll be great.

Other than that, I just think we've got a lot to do. The other thing for David, he's had a good experience internationally. So that's like a gift with purchase in terms of him coming on board. It wouldn't surprise me if he or we find an opportunity internationally because of his involvement and he just loves this business. And you want to have guys that love this business on the team.

And actually just on that point, I mean your stock is up now almost 20% since mid January obviously outpacing the [RMC]. But how are you guys thinking about external growth apart from the redevelopments that you've announced? I mean sort of is M&A still on the table?

Well, right now -- M&A is always something that we look at. But, Jay, at this point we don't see much out there in terms of big M&A. But we're active and we continue to look at a lot of different things.

Okay, thank you.

Christy McElroy, UBS.

Hey, good morning. Just a follow-up on a prior comment. I see what you're saying about expansions, redevelopment, creating more space in better performing malls to accommodate retailer growth. But if you're a retailer like Abercrombie or Ann Taylor and you're already in all the better malls in the country and you're actually closing stores in underperforming malls, how do you grow from here? Is it new concepts? Is it straight retail?

Well look, I think for Abercrombie it's obviously international. But we're doing a lot of business with Ann Taylor, so they obviously feel like there are places for them to go in existing portfolios. A number of these retailers are also looking to get in the outlet sector to grow. I mean Bloomingdale's is a great example of that, I think we have three out of the first seven or eight. Right, Rick?

Yes.

So some are looking international. It's interesting, when we first invested internationally we did it in 1998 and the theory was our US retailers would go abroad. We didn't realize it would take them 12 years to do it. But thankfully even though it took them 12 years to get there, we made a lot of money in our pursuit of international expansion.

So, they're finding avenues to grow. I still don't think though, Christy -- I still don't think the demand is so great that it will foster new full price ground up redevelopment. And when I say it won't, there's always going to be maybe a deal here or there that gets done. But in order to get that done you're going to have to have economics.

From our standpoint those economics probably to motivate the retailers to take a risk would be something for us that would be very hard for us to underwrite vis-a-vis the other areas that we can invest our capital. But that could change and I expect it to change. But I don't think it will change in the next year or two.

And just in response to that question in terms of how they grow, and David alluded to this, most of our retailers are now very engaged in brand extensions. So Gymboree is growing with Crazy 8; J. Crew is growing with Madewell Crewcuts; we've got American Eagle that is working with us on 77kids -- and those are just a couple of examples.

And when they are rolling out brand extensions, they are using the metric of their existing stores performance. So they are going to want to open their new brands where their existing brands are already successful. And that is obviously playing right into our strength.

Okay. And then just to follow-up on your outlet comments, aside from Merrimack, have you guys announced any other projects in the US in the pipeline? And can you just generally comment on sort of the uptick in potential supply growth for outlets in the US as more developers are targeting sites and starting new projects?

Well, look, we have not announced the construction of any new outlet. I know -- I know it is mostly public knowledge we are looking and working in Galveston, Texas. And we think ultimately there will probably be -- the market there can only really support one outlet and you've got -- you've got that in process. We will see what happens there.

But we are working on other sites, but we really don't have anything at this point, when I say other markets, but we really don't have anything at this point to announce. But we are confident that we will be able to find some other avenues to build ground up.

And I think in that market, in that sector, there is more demand to build some, but it is not -- there is not going to be a lot of these built because even with outlets in mind, the retailers are very disciplined in where they want to go and on what basis they want to go. And you've got competent developers like us and Tanger and others that understand that dynamic.

Okay. And just lastly, can you talk about how you are approaching shorter-term one-to-three-year leasing versus a couple years ago? So what percentage of your leasing in the quarter was three years or less, excluding temp tenants?

What we have in the leases that were signed in the first quarter, we had -- two years or less was 19%, which is the same percentage that we have been reporting historically. We are doing -- so it hasn't really changed. What we are doing is when we determine our term in our negotiations with our tenants, we are looking at whether we think it is the right use, the right rent, the right tenant in that space, do we have space next to it that is maturing in the next year or so. There are a lot of factors that go into that term discussion. It's something that we are very focused on, but there has not been a material increase in our short-term leasing in the last several years. So we are pretty much normalized going into this part of the cycle.

Thank you.

Cedrik Lachance, Green Street Advisors.

Just looking at the Mills portfolio, as you look back to that transaction, can you give us effectively a report card of how progress has been made? And what would you want to do or what do you want to do with the Mills portfolio going forward?

Well, I would tell you that I think the Mills -- there are 17 Mills. We only show 16 because one doesn't -- is under construction, that being Opry and it is exactly -- the underwriting is exactly what we thought it would be. There is a couple that we knew going into that deal that were very difficult. But the way, as you remember, Cedrik, Mills didn't have much equity, if at all, in those, a couple that were tough. And we are making progress on those couple that are tough. But the fact is they contribute very little cash flow to us and they are on our books for essentially nothing.

The others have gone very well and we have done a great job of improving them. And we are -- we feel very good about the concept, we've added full price, we've added outlets, we've added boxes, we are close to announcing a full-line department store in one or two or three of them, Sawgrass Mills, we've done a great job of executing the outdoor high-end outlets there.

We've also -- you'll notice a decrease in the occupancy. That's really associated with getting back the one anchor there, the Wannado in Sawgrass, which we've got great development plans that will increase the cash flow we think of that center by $4 million to $5 million just on redeveloping that box.

So aside from the two that we always thought were tough that were not great, great locations, we've actually been pleased with it. Farallon has been a very good partner with it and it's gone according -- essentially according to plan.

The good news on the mall side is that we have -- I guess I can't -- we have a big redevelopment that's going to be announced next week. So we can't announce it this week, on one of the malls. And we've also started major work in Southdale.

So we are making really good progress on the malls and we've been pleased with it and it's gone according to what we thought with the major markets, Potomac, Gurnee, all of those kind of going somewhat better than initially expected. And frankly surviving relatively unscathed a great real estate recession.

Okay. And then, so in terms of the 16 mills themselves, do you want to move even further (inaudible) outlets for those properties over time?

Yes, we think we're adding more outlets there. Usually they're in such great dominant super regional mall locations that we're going to do both full price and outlets in some of them, and others we think we can move even more with outlet concepts.

Okay, great. Thank you.

Mike Bilerman, Citi.

Yes, Quentin Velleley is here with me as well. Rick, just a question on the leasing spreads and appreciate the new detail. I guess when you look at total leasing; I mean how much of that was in the quarter? Because I guess moving now to same space but increasing to above 10,000 reduced the square footage that's being shown on the page. So I'm just curious when you look at the totality of it what the trends were like in opening and closings.

Michael, it's Steve. Part of your question is correct, the premise is correct. We did move the same space, but we have always disclosed all GLA, all small shop GLA in our leasing statistics. But to answer your question, the 5.8 million that we included on a same space basis is about 75% of our total leasing activity over the trailing 12 months.

And I guess when you look at the totality of that 8 million square feet opening and closing, would the spread increase or decrease from that up 10 just to get a perspective of --? Same space is very important, but I'm wondering if we can get perhaps both of them so that we can really understand the impact it is to the bottom line on the totality of the portfolio.

Just, Michael, if we had included a cut at 10,000 feet or 15,000 feet the smaller spaces -- I thought it was --.

The question is if you included all retail?

Well, it still would be substantially higher spreads.

It would still be higher spreads.

I just didn't know if it was higher than 10 or how much meaningful if you include all the leasing that you had completed.

Well, it's 75% of the total population, so it's not going to move it a ton, but it would be higher.

Look, I think you see that in where the average base rent has gone to, right. So that gives you -- that's why that number is still out there because we want people to see what's happening with our average base rent. That takes everything into account -- renewals, extensions, new deals et al, that's why that number is still out there to be shown.

And then when you think about the mills platform and the benefits you've been able to do since you bought it, you do have a partner. And any time you have a partner rather than owning it and a partner who is not going to be a long-term owner of real estate, retail real estate like you are, it does set it up for you eventually have to pay for all the improvements that you did.

Obviously in a fair and negotiated way, I guess how does -- how will that venture eventually be resolved and sort of the timing of doing that? Do you envision buying it? Do you envision bringing in another partner for Farallon's stake and how should we expect that to go?

Well, all fair questions -- all good questions, but very difficult for me to answer obviously because of the confidential nature of our partnership. But I will say this, they've been a very good partner, they've been very supportive, they've been very excited about what we've done with the portfolio, they've been more than willing to reinvest in the asset.

So the partnership couldn't be better. Are they a natural long-term owner like we are? No, clearly. Will that resolve itself in a win-win at the right time? Very, very highly likely. But beyond that, Michael, it's very, very tough for me to venture further.

When you say the right time, is that like a 12-month or should we be thinking three to five years?

I'd like your advice? What would you tell me?

I want the lowest possible price possible for the most accretion.

Me too, okay.

As soon as possible. Curious, last quarter you gave me the Bunny Movie version of the capital shopping centers and how that ended. Why don't you give me the same thing on the outlet center and all the other guys that are out there trying to develop and how you think that's going to end at the end of the day with so much increased competition in the space?

Well look, I don't have a Bunny reference today, but I will say this -- there is a lot that can be spilled between the cup and the lip, right? So my view of it is in this, until somebody starts construction on whatever project that is, full price, redevelopment, outlet -- all we are is yammering.

So we try to keep our yammering -- we're not perfect, we yammer with the best of them. We try to have the lower yammering quotient. We try to be leaders in yammering, but in the meantime, until it starts construction to me it's just a lot of talk.

Yes, hi, it's Quentin here. Just a question in terms of currency. You commented on additional potential offshore expansion. And just with the move and the US dollar, I'm just curious how you think about investing offshore and whether you might change the way that you structure some of your potential offshore acquisitions?

Well look, the interesting thing is you've got a couple -- it's twofold. One is very tough to complicate or consider a major outside of the US investment right now if you have to use your currency to buy something, right. So on the other hand, you could argue well if we're in a further decline, are we not better off having some of our assets outside the US?

Now we have about 5% of our assets outside the US, so naturally we get some marginal benefit on it. But for us to do a major thing outside of the US, unless there was the ability to use currency dominated financing and in some markets you're able to, in some you're not, it's a tall order right now given how weak the dollar is.

So it naturally -- I think at the end of the day when you factor it all in, it probably curtails our investment. I mean our greatest advantage right now should be our cost to capital. But if we can't use that -- I mean besides all the ability to make assets better and all that stuff, that's true. But if we can't export our cost to capital because the dollar is so weak it's a challenge to do further major international expansions.

Yes, we can build -- we're building in Korea, we're building in Malaysia, we're looking at other major Asian markets and actually building stuff and making things happen there. But to do a major deal, we don't -- and if we can't finance it where we don't get the benefit of our cost of capital here and have to convert dollar investment into that currency, I mean you could make a great real estate deal. But if the dollar does strengthen down the road you could get whacked and lose your value. So it's a natural constraint that we've got to deal with.

And I guess on the flip side with the currency, are you seeing more interest from offshore investors into some of your assets, maybe some of the weaker assets or potential for joint ventures? And does that give you some kind of opportunity to maybe sell more US assets?

Well look, I definitely think there is a -- I wouldn't call them weaker assets, but there's clearly the trend from a number of the international institutional investors who have a tendency to gravitate towards the highest quality in the major metropolitan markets, it's clearly moving away from that, looking to want to be in the US for all sorts of reasons, yield one, maybe their view of the dollar ultimately -- you know, all sorts of -- safety, whatever it is that they factor in. And they are going down the quality spectrum to find investment opportunities. So I do think that seems to be a trend that will continue at this point.

That's great, thank you.

Alex Goldfarb, Sandler O'Neill.

Yes, hi, good morning. I just want it to go to the topic of B malls. You guys are marketing some stuff and it seems like every other retail company out there is marketing, whether they call it B's or non-core. How much of the stuff do you actually think will trade? And for the buyers, do you think the buyers will predominately be financial buyers or do you think that we'll see like real real-estate buyers?

I think it's too early to tell kind of what's going to happen out there that will trade and at what pricing. But I think actually you're going to see probably an entrepreneur with equity either from opportunity funds or from other kinds of institutional investors that are going to see the yield opportunity, one, maybe the ability to make the property better, two. And when they put it all together, compared to where they are on buying A-plus, they see that risk adjusted return worthy of taking that investment.

I would say to you though the market is better, the financing market is better. The fact that we're selling four malls is not a big deal. I mean we have sold 100 assets as we've been public. So this is kind of a normal strategy, Alex. We clearly stopped that effort in '08 and '09 and '10 certainly for a period of time, even though we did sell something in '10 at a huge gain for us in Europe.

So we're always looking to recycle capital, it's not a transformational deal for like some of the others that might be out there. But long story short is we'll have to wait and see. It's going to be a combination of operators, maybe even others -- some other real estate -- major real estate companies, we're just going to have to wait and see how it shakes out.

Okay, so if I understand what you're saying, it sounds like you're a little less optimistic that there's going to be a lot trading. There will be some trading, but it doesn't sound like you're expecting a huge amount, is that fair?

Well, I think the market is better and I think trades will happen. I'm just not going to quote what I think cap rates are going to be because I honestly don't know yet. But I do think there's going to be more velocity in -- you used the term the B assets. I do think there will be more velocity. I think it's too early to speculate from our standpoint where cap rates will be.

Okay. And my second question is for Steve. I think it was last call you commented on the pile of pitch books for converts that's in your office. Sort of curious what the latest pile is? And what are your thought on doing some more 30-year or if you have a view of the 30 non-call five, if that's attractive to you?

The piles are growing, Alex, the convert pile, obviously the capital markets are very robust right now, so unsecured debt markets are very attractive. And one of the things that we need to take into consideration is one of the things David said in his opening comment; we're sitting here with $4 billion of liquidity right now. So we certainly don't have the need to go to the capital markets.

But having said that, given the attractiveness of the all-in rate now certainly on the bond side, it is something that we monitor and we will continue to monitor. Right now I would tell you we are not as enthralled with the convert markets. And I think it's not something that we would look at to put in the capital stack right now.

I would just say that, just to add to what Steve said -- I mean one of the bigger decisions we'll have to make this year is whether we want to warehouse capital given the capital -- we don't need it necessarily, but it is relatively cheap. And we do think, I mean I think -- I may be completely wrong, but I do think rates are going to go up at some point.

And so one of the bigger decisions we'll have to make at some point this year is whether we go ahead and warehouse capital, not equity capital, but whether we warehouse other forms of capital on the theory that rates are going to go up at some point here. And that's a decision that we think about all the time.

But it's tough because we haven't seen it but usually we don't want to be in the case where we react. Real estate guys tend to react while rates are going up as opposed to when rates are low. And we'd like to be a little -- at least we don't have to be perfectly smart but we'd like to be less stupid.

Sounds like a good strategy. Thank you.

Nathan Isbee, Stifel Nicolaus.

Hi, good morning. Just focusing on prime for a second, you clearly have had some good success leasing up some of the vacancy. Can you talk about your success there in terms of driving rents and perhaps put a number to that?

Well, I know we won't put a number to it, but --.

I kind of expected that.

Sorry. Look, I think we feel really good about the deal. We did obviously going in. We're glad to have David as an OP holder, he's been a great OP holder as well and it's just been a good win-win deal for everybody involved. It's a good portfolio; we expect to do some good stuff with it. Nate, it's tough for me to give you numbers, I probably won't, I know I won't. But Rick, do you want to add anything to it?

The only thing I would say to you, Nate, is that what we've been able to do is as the new tenants enter the outlet sphere we now have an additional portfolio of properties that they can immediately open stores in. And we're getting the benefit of that and we see it with tenants that we've had relationships with, like Coach is opening Coach Men's, Bare Escentuals, Vera Bradley.

We're just taking these tenants now across a broader portfolio of properties and that's really providing incremental momentum both in rents, but also in sales because we're bringing in higher productivity tenants into the portfolio.

And I'd just reinforce what Rick said. I mean the greatest opportunity there is to increase the mix which drives sales. And obviously that's the focus.

What's the occupancy (inaudible) currently?

We don't separate that out. But it wouldn't -- it's not all that different than what you'd see from the outlet sector.

Okay, thanks. And then just quickly in terms of your increased guidance. Can you just quantify the change in your same store NOI assumption?

Well, we didn't do it this year. We didn't give an NOI, a comp NOI in our original guidance. But right now we expect to beat our own internal budget.

Okay.

That didn't answer your question?

No.

We didn't -- I'm sorry; I'm not purposefully frustrating you --.

I was thinking the wedding was going to put you in a good mood.

He did get two kisses in, which we're proud of him. But we -- the fact is we didn't give specific guidance there, we have our own internal budget and we hope to beat our own internal budget.

All right, thanks.

David Harris, Gleacher & Company.

You see, I told Buckingham Palace that I couldn't possibly make it because I had a prior engagement to listen to the Simon telephone conference call. David, --.

We're glad you took time away from your festivities.

Actually, I couldn't afford my wife's ambitions around the hat; I think that was really the deciding factor. Hey, listen, I was reading your annual review and on the international, I know you fielded a couple of questions on this today, but you make a reference to we have proven to be valuable exporters of our know how.

I kind of read that and thought it was a little imbalanced in the sense that I would have thought you would have learned a lot or could learn a lot from operating in overseas markets and taking best practices and exploiting them around the globe. I'm thinking in particular too overseas tenants have really sort of enlivened the US retail scene in the last few years as well. Any comments around that?

Well look, our know how, if you look at what we've built, I mean the outlets that we build in Asia are essentially our outlets here in the US and they didn't exist prior to that. I think if you saw the product that we built in Poland and the product that we built in France, we're actually highly US influenced.

We certainly -- we learn every day here, abroad and everything else. But I think the fact of the matter is we've had a profound and positive impact on what we've done. And that's really what my comment was meant to be.

If you look at Gotemba in Japan, it's really modeled after what we did in Woodberry. If you look at what we did in Yeoju in South Korea, it's very similar to what we did in other parts of the US. So I think we've -- in fact if you go to Dubai and you look at what they've built, I mean they've taken the best of foreign shops and other malls in the US and replicated that.

So again, that's not to denigrate the international marketplace, and we've certainly seen a lot of wow stuff over there. But we've certainly contributed to all of the activities we've done overseas.

Touching on the other side of your point, in terms of the international tenants coming into our domestic portfolios, we've done a very good job of implementing them into our portfolio. We just opened the flagship H&M store form shop, we're doing a lot of business with them, have a very close relationship with them.

But it's not just them; it's Pampolina from Spain, Inglot from Poland, Diva from Australia, Aritzia from Canada. I mean there are a lot of international tenants that we are doing business with across all three of our platforms, the mills, the outlet centers and the malls.

I'm curious, Rick, actually -- I'm curious, are there any ideas coming out of Asia? Because all of the international stuff seems to -- the fresh international ideas seem to be coming out of Europe. Is there anything out of your Asian contacts?

What we are anticipating is that Uniqlo is going to be a major player here and they're building their flagship right on Fifth Avenue. And then we expect that we're going to have a similar type of expansion that we've seen with H&M. They started in the major cities and now they're throughout the country and growing very rapidly and doing very well in their stores.

And the thing that we understand about the Asians is that they love to come to the US and shop. So one of the great things that we provide them in their travels is the fact that we have great places to shop. So marketing to them is really, really important.

Okay. Just on Asia and thinking a bit more on Japan, I know you made your comments there. Is that -- as I sit here today, would you be inclined to try and step up your investments in Japan, notwithstanding those comments you had to make about currency?

Well, we have always -- we're actually expanding Ahmi right now which is -- right now is somewhat affected by what's going on with the nuclear facilities. But we have not looked at the full price market there. We've had great success in the outlet market. Cracking the code on full price in Asia has been a struggle for us -- values, the cost to develop full price there, the size of the deals, the ability to get the land and the right location.

So that's been the tougher one -- that's been the tougher code for us to crack. We do think though our outlet business in Asia can grow and we're excited about that. Ultimately can we crack the full price thing in Asia? I don't know yet, David, it's tough because, first of all, it's not devoid of a lot of full price to begin with. And second, where you want the locations, the land cost, the infrastructure cost and the competition are all challenges that we'd have to deal with.

Well, you may not want to respond to this, but surely your relationship with Mitsubishi Estates would open a few doors for you on the full price, wouldn't it?

They are good partners.

Okay. All right, I hear the message. Thanks, guys.

Jeff Spector, Merrill Lynch.

Good morning, guys. I just want to follow up on the comments about rates going up here some time. I guess can you be a little bit more specific on your thoughts when you say some time?

Well, I wish I knew, you know.

At least what you're thinking.

Look, I think it's conceivable that how am I -- look, anything that we can refinance today we're refinancing. We have certain mortgages that are obviously locked out to prepayment penalties. So we don't think it's cost-effective -- trading dollars essentially and it's not cost effective to do that.

But the big issue for us if we do think rates are going to go up is whether or not we would do some kind of bond deal and warehouse the capital, because right now we don't have -- if you remember what we did in '09 and '10, or in '10, I'm sorry, '10 essentially is we bought -- we refinanced bonds and we bought them back and ended up being, at least in today's world, an okay trade. So the question is whether we want to do something like that again or just hold onto the capital and wait for maturing debt to come due.

Jeff, this is Steve. Just to kind of amplify on David's comments, if you look at, as an example, where the benchmark 10-year treasury is today and you track it back over any length of time, whether it's 10 years, 20 years, 30 years, it's clearly at historically low levels and at levels where over a long period of time they have not been for a very large percentage of that measurement period.

So I think any time you're in an environment where rates are at historically low levels it does give you pause to reflect about what do you want to go get more capital? Because history would tell you that the probability is those rates aren't going to be at that level forever. And I think David framed it pretty well. We've got a lot of liquidity, we don't have an immediate use for the capital, but if your view is that it may be more expensive down the road it may make sense to go access that capital now.

Okay. And I'm not sure if you'll answer this question. And do you think that the market is properly pricing in higher rates when we think about today's current stock prices, thoughts on cap rates -- [implied] cap rate on the group?

Well, I think the market is probably anticipating a recovery and a stable interest rate environment (multiple speakers).

(multiple speakers) lack of yield in the rest of the world and there's a lot of --.

And I think, look, I mean I think the fact of the matter is that's been the reality. Our view is recovery, you're seeing a recovery, we've been at it for a few quarters now. Clearly interest rate market has been very stable. At some point that might change. I'm not so much worried about the recovery as opposed to the interest rate environment.

Okay, then turning to leasing. I know you said earlier on a public call it's tough to answer questions. I guess can I just ask in general in your negotiations are you focusing and on sales the next 12 months or are you still negotiating on trailing 12?

When we're negotiating with the tenants it is a very individualized negotiation. We're looking at their growth in the last six months, but we're looking at the use, the space, the size of the space, the quality of the mall, the space in the mall, there are a lot of factors that go into how we price our rent. And certainly sales growth is one of them but it is not the only one.

And I'd just say really the biggest focus is the market value of that space, right. You could have a retailer in that space that's not performing, and I wouldn't want to tie the rent to that sales performance when in fact the market value is higher and would indicate a higher rent. Leasing is an art like -- certainly we try to make it as scientific as we can.

We're leaders in data generation here in terms of all of the tools available to us to assess that. We assign market value for each space, we use it sometimes, we ignore it others. At the end of the day we have relationships that factor into it. So at the end of the day we kind of all put it together and the best thing going for us is our judgment. It's an art, it's not a science. It's not order taking, it's what does it do for the center, merchandise mix, where do we want to take the center. And all those factor in.

Certainly having positive sales history, positive -- which is positive traffic all go into the blender and all make the job somewhat easier than it was a year or two ago. But it's all those things that factor into what's the right -- what we're trying to accomplish and what the right rent is.

Okay and then turning to international. We know David Contis has experience in Brazil; we just did a tour there. I mean do you think that it's too late at this point? Do you think you missed the opportunity on full price in Brazil?

Not necessarily. David -- the research we've done, the biggest constraint that I see in Brazil is that the currency issue as opposed to real estate issue and the cost of the financing there. So you don't get -- we wouldn't get much of any advantage on our lower cost of capital here to put money to work.

But I think the story on the real estate front doesn't seem to have changed at all. The problem is you really do have a dollar currency issue that makes it a little more challenging to conceptualize a transaction there.

Okay, and then last question. Where do you stand on '11 leasing and what are some of your goals heading into ICSC?

Well, '11 leasing is for all intents and purposes, our renewal's done. We're well into 2012. For as frankly ICSC is much less important. In fact the month of April and the month of May prior to ICSC are our peak periods of tenants coming to Indianapolis to meet with us because the volume of activity we have, they'll come for two days in order to go over all the opportunities in the portfolio, whereas at ICSC you're really limited to half an hour or hour sound bites. So we're doing a lot of leasing, we're focusing on our 12 renewals and leasing up the vacant space and so far we're seeing good momentum.

And I'd say this, Jeff, that the biggest focus that we'll have is on some of our major redevelopments. So included in that are like Nanuet Mall is a -- we are finally at the point now where we're going to start demolishing that center. We have Quaker Bridge, Del Amo, Dadeland, La Plaza, Plaza Carolina, Southdale, Southridge, Copley, what we're doing on the island, Laguna Hills, Stanford -- we hope to push along a potential expansion of that center.

And then we've about some things in the outlet side as well, potential new projects that we could start talking about there. So that would be of the -- and Rick is right, I mean '11 is essentially done, '12 renewals -- but I'd say the focus really for us is going to be on the major redos that we've got -- we're on the cusp of doing.

Great, thanks, guys.

Carol Kemple, Hilliard Lyons.

Good morning, guys, congratulations on a nice quarter.

Thank you.

[When I went into the line] -- just the decline in other income from the year ago period?

Yes, we had big lease settlement income in the first quarter of 2010, Carol.

Okay. And then this question is probably for Rick. Are you seeing any new and exciting retail concepts coming to the malls?

Okay, hold your breath.

Thank you for asking. You know we are. And what's interesting is that they're coming from all different places. For example, we're doing deals with Fiat dealers because they're not opening their new dealerships, they're reintroducing the concept to the United States and they want to be where the people are.

We are signing leases with Tesla Motors, the new electric car maker, because they want to have their demonstrations where the people are. We're doing deals with Microsoft, the biggest Internet-based company, they need to open stores where the people are and that's our malls.

I could go on, but David will give me the hook. I'll stop when David gives me the hook. Well, Love Culture is growing very substantially; Francesca's has filed for a public offering, a relatively new concept; Charming Charlie's; Pandora just went public. There is just a lot of activity going on in our portfolio and happily throughout the portfolio.

These are not just concepts that want to be in the top 100 malls, these are concepts that have broader price points and want to have 400 to 800 stores in their ultimate build out. So it's very exciting.

Okay, great, thank you.

Bin Yang, Keefe, Bruyette & Woods.

Yes, hi, good morning, thanks. Just one quick one from me. Maybe David, do you have any thoughts on potentially teaming up with a partner to do outlet center development in Canada? Maybe starting in Toronto just a few miles away from another potential site? Just curious if you've had any discussions with [Calloway] to potentially start a partnership there?

Well, we are looking into Canada, Ben, I can't say -- I can't really put any more meat on the bones there. We do think it's a pretty good market for a handful of centers, but I can't really say anything more than that. But we are looking into that marketplace.

I mean hypothetically if you were to form some type of partnership do you envision yourself as just maybe a capital partner or would there be some type of development, management, leasing that you would share with your hypothetical partner?

Well, if we did a venture in the -- I mean, this goes for any outlet venture whether it's US, Canada, Mexico, Malaysia, Japan, Singapore, China, we would definitely add operational expertise. We would not just -- it just wouldn't be our capital. So that's kind of -- that clearly would be the case.

Okay, great, thank you.

Tayo Okusanya, Jefferies & Co.

Good afternoon, congratulations on a solid quarter.

Thank you.

A quick question. When I look closely at results for the quarter, I mean you guys beat consensus roughly by about $0.08. The midpoint of your new guidance is up about $0.08 versus your old guidance. But it sounds like operationally things are getting better, leasing spreads are getting better, leasing velocity is getting better. I'm just surprised guidance wasn't up more. Is there anything unique in first quarter in regards to the $0.08 beat that you expect will not be repeated in the back half of the year?

Not really. We're a little cautious on Japan. We have a very robust international outlet business. Some people forget about it, but it's not inconsequential, it's a great business. So we're being somewhat conservative on what the outcome of that is. It's sales dependent and we just don't have enough history yet on what's happening there.

The South is actually pretty good in Japan; sales have bounced back pretty reasonably. But we just don't know and we like to be generally conservative in setting expectations. So you put that together, we still have to execute our game plan. We're good but we're not infallible. So you put it all together and it's where guidance came out.

All right, thank you very much.

With no further questions at this time I would now like to turn the conference back over to Mr. Simon for closing remarks.

Okay thanks, everybody, for your time and your interest and we look forward to talking to you in the near future.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. Now disconnect and have a good day.