西蒙地產 (SPG) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2012 Simon Property Group earnings conference call. My name is Derek and I'll be your operator for today. At this time all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of the conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Miss Shelly Doran, Vice President of Investor Relations. Please proceed.

Good morning, and welcome to Simon Property Group's first-quarter 2012 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 prefer to our filings 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 27, 2012.

During today's call we will discuss certain non-GAAP financial measures. 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.

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; thank you for joining us today. The scope and breadth of our Company can be best described by a high-level overview of our activities and accomplishments during the first few months in 2012. First of all, financial and operationally, let me just state that FFO was $1.82 per share, up 13% from the first quarter of 2011. We exceeded First Call consensus by $0.14. We have now met or exceeded expectations for 31 of the past 33 quarters.

For our Malls and Premium Outlets comp NOI grew 5.7%, and you'll recall that our comp NOI for first-quarter 2011 was up 2.3%; tenant sales were up 11.2%. Both individually the Malls and the Outlet portfolio were up double-digits. Occupancy was up 60 bps, 60 basis points. Average rent for square foot was increased by 4.4%. Re-leasing spread was a positive 9.7% or $4.74 per square foot.

Now let me turn to transactions. As you know, we invested $2 billion in purchasing shares of Klepierre, the second largest owner of retail real estate in Continental Europe with assets valued at a portfolio of EUR16.2 billion. We now own nearly 29% of the Company. I'm Chairman of the supervisory Board and we control three of the nine Board seats.

Our investment provides opportunity for significant value creation through exchanging operational best practices, creating synergy through our leasing and marketing efforts, and the generation of ancillary revenues. We'll be actively involved in the Klepierre capital allocation decisions, including allocation of capital amongst the various assets and the countries in which they do business. And we'll be providing guidance on investment and divestiture decisions and balance sheet management.

We view this investment as having significant optionality for us given the countries in which Klepierre operates, the large number of assets that it owns and manages and the successful operational platform that it possesses. From a capital point of view it essentially replaces our previous European investments which were liquidated at a significant gain to our shareholders over the past couple of years.

Now let me turn to Mills. As you know, we acquired the interest of our joint venture partner and 26 of 36 assets of the Mills Limited Partnership for $1.5 billion. The transaction completed at a good cap rate for us and reinforces this has been a good deal for us and our partner Farallon. We believe there's upside in the assets with growing NOI and we'll continue to pursue many of the redevelopment opportunities in the portfolio. At the end of the day both of these transactions will be immediately accretive to FFO.

To fund Klepierre and Mills transaction we sold unsecured notes and issued common equity; we sold $1.75 billion of senior unsecured notes in three tranches. Rates on the three tranches of notes were the lowest ever achieved by a REIT by an average of 76 basis points. We issued 9.1 million common shares at a price of $137 per share and our rating of A-A3 were affirmed by all three rating agencies.

In addition, we weren't done with that. We acquired another 25% ownership interest in Del Amo Fashion Center where a major redevelopment is in the planning stage. And we sold our interest in Gallerie Commerciali in Italy at a gain to our -- a gain to our investment.

Development activity, if I may turn to, we successfully reopened the fully restored Opry Mills to a great public reception. Space at the center is approximately 90% leased and committed. In addition, we started construction on four new premium outlet centers all scheduled to open in 2013 -- Shisui in Japan, our ninth premium outlet in Japan; Phoenix, serving the greatest Phoenix and Scottsdale areas; Toronto, which actually the groundbreaking was this week, our first upscale outlet center in Canada; and Busan in Korea, our third premium outlet in Korea.

In addition, we signed agreements to develop Premium Outlet Centers in Brazil with the well-known and well respected BR Malls, and in China with the well-known and well respected Bailian Group. And we're focused on a site adjacent to Disney Shanghai. Continued construction on two new premium outlets that will open in the US this year, Merrimack, New Hampshire and south of Houston Texas.

We continued construction on 25 renovation and expansion projects in the US and in Japan with 2012 and 2013 completion dates and we continue to expect our share of development spent to approximate $1 billion in 2012, '13 and '14 respectively.

Let me turn to the dividends. As you now know, we've announced our third consecutive increase in quarterly dividend from $0.95 to $1 per share. Our dividend is now fully 25% higher than it was one year ago at this time. In addition, we are very pleased and honored to be added to the S&P 100 Index in the first quarter joining the likes of Nike, Starbucks, Honeywell and DuPont, all well-known companies where equity market caps are comparable to ours.

Guidance, we increased the top end of our 2012 FFO guidance. Initially, as you know, in February we had guidance of $7.20 to $7.30. Our range now includes a range from $7.50 per share to $7.60 per share, so we increased both the top end and the bottom end of our guidance. Factors contributing to this increase -- essentially stronger operating performance and recent investment activity.

Now let me just conclude, and we can talk about any questions you may have. Our portfolio of high quality irreplaceable assets continues to deliver strong results and is second to none in our industry. Just to illustrate that, I know the size sometimes of our portfolio is somewhat overwhelming and all of our activity obviously is hard to appreciate sometimes, but let me just put this in perspective.

We have in our portfolio of assets 12 that generate over $1,000 per square foot. Our top 30 US average assets average over $1,000 per square foot in sales and provide one-third of our SPG NOI. Our top 50 US average $886 per square foot in sales and provide one-half of our SPG share of NOI. And importantly, our top 100 assets average $700 per square foot and provide three-quarters of our NOI. Needless to say we're off to a good start and active and we're ready for your questions.

(Operator Instructions). Christy McElroy, UBS.

Given GGP's recent deal with Sears to buy back some boxes and leases, I'm wondering if you're having any discussions with the retailer to do the same? And of the 119 Sears' boxes at your malls, are there any that you would specifically point to where you would say we could unlock pretty significant value at that mall if we got the box back?

Well look, we're not going to get into discussions that we have with our individual retailers. We have a good relationship with Sears, we expect over time for a number of those properties to be reclaimed or redeveloped, but nothing really to report beyond that. And look, we do think there's value there. We'll be conservative in how we value the real estate and how we look at it, but I think over time it will provide an opportunity for the Company.

We've heard recently from some specialty retailers that lease negotiations for Class B malls have started to move in favor of the landlords again. Can you discuss your ability to raise rents at B and B- types of assets? And if I think about your rent spreads being 10% across the portfolio, how would that break out between the Class A stuff and the Class B stuff?

You know, one thing we don't like to do is go through Class A and Class B. We're very focused on increasing the cash flow in all of our assets. Obviously the ones that have higher sales per square foot you're able to drive a little bit better bargain. We look to win wins for the retailers. We're doing and lot of business with retailers throughout the portfolio.

Our rent spreads -- our averages mean a lot because they're not -- with a portfolio of our size we can't have one particular center roll over or one center doing so much more business that it's driving the statistics of every other -- of the portfolio. The business has firmed up, we're pleased with where it's headed and where it's going. Retailers are looking for growth. So I'd say things are all pretty good. Rick, do you want to add anything?

I would just underline David's point that if you look in our 8-K and see where our renovations are and where we're adding anchors and department stores, it's throughout the portfolio. And we're increasing market share across the board and that is enabling us to drive that pricing. And to underline -- quantifying David's point on the square footage, when you look at our sales and our statistics, that's on a base of almost 60 million square feet. So there is no way for outliers to influence that, it's a broad operational trend that we're reflecting.

And then just lastly, how much capital do you envision investing in outlets in China and Brazil over the next five years? And what kind of projected returns are you forecasting?

Well, look, it's safe to say that we would -- every international development that we've done in the outlet business had double digits return in the 15% on average range. We would expect that that's kind of the hurdle we're shooting for. In any event we would expect those to be at least double digits.

Brazil, generally we think the market can support in the 10 to 14 opportunities initially. The cost of those will, on average, be in the $100 million plus range. As you know, we are partners 50-50 with BR Malls; that gives you the scope of the situation.

In China right now our focus is on one particular development and we're going through the numbers on that. And it's a little bit early to give you kind of the scope of magnitude of that, but we think it's a great site having visited it personally. It's a great opportunity for the Company. The demand from the retailers is very strong.

China is -- you've got to be extra cautious there. We've had an experience where we learned a lot in China. But generally I think it will be consistent with the build and what we've done in Korea and what we've done in Japan; cost of construction, land values are all kind of the same there. But I don't want to pin those numbers down just yet.

Great, thank you.

Jeff Spector, Merrill Lynch.

Just a couple follow-up questions on Brazil. David, did I hear you say you had 10 to 14 potential sites?

Yes, over a period of time, correct.

And I'm not as familiar with all of the different markets in Brazil. I mean, is there any change in the site criteria or are you saying in your first analysis you feel that there are 10 to 14 sites that really fit that Premium Outlet site criteria density wise?

Correct, that's correct. And we've got currently -- so that's over an extended period of time. We've got one site identified in Sao Paulo, we're not in a position to disclose that yet. If all goes according to plan we have a chance of opening that in late '13, but more likely early '14. And then we're currently evaluating another four additional sites. So the 10 to [four] is over an extended period of time, but we -- we've got one we're very close to moving forward on and then another four that are further along than that.

And for now in Brazil, just sticking with the outlets, or you're still looking at mall opportunities full price?

This is the primary focus right now.

Okay. And then switching to your investment in Klepierre, you -- I think you carefully said that right now you're actively involved on the balance sheet divestitures. You didn't talk about operations at all.

Well, I did mention that -- you may not have picked it up. I mean, we've had some very good beginning discussions with the senior team there. We've owned the stock for six weeks, so you have to put it in perspective, that their senior management team is actually coming here next week. But we're going to coordinate certain retail leasing at the shopping center convention coming up in May -- in the US shopping center convention.

So it's early days on that front, but it's safe to say that there are three or four areas of focus for us -- operational synergies, leasing synergies, cash flow enhancement -- all of that in one category, capital allocation in another category. Along with that is what assets should they be involved in, where should the focus be, what countries are long-term holds, then balance sheet management and then investment divestiture decisions.

So all of those are kind of the three or four buckets where we're focused on both as directors and as shareholders and the cooperation has been excellent. There's nothing so far in our short involvement that has caused any concern for us. Look, Europe has got some macro headwinds, we knew that going in.

The fact of the matter is these opportunities surface when the going is tough, but we're in this for the long haul and we think it's a very good platform that we can help continue to move in the right direction and actually have bottom-line impact improvement on. But that's going to take time.

And are you personally spending a lot of time on that investment --

Yes.

-- going forward? Okay, then my last (multiple speakers) I'm sorry.

No, sure. I mean I'm Chairman of the Board and, like I said, yes, we're very involved -- not just me but my team as well.

Okay and then my last question on development. Anything -- any new potential sites on the full-price side, Mall side, the lifestyle center side for you?

No --.

In the US.

I'm looking at Rick and the answer -- we're just making sure we're both saying no. The answer is no, not really. We think the returns -- we think the returns in order to really induce the full-price guys with the cost of development are just too skinny still. Demand is still not quite there.

And the fact of the matter is with our redevelopment pipeline we've got great stuff going on, I mean really good stuff going on. And with our development -- our premium development, we are under construction -- let me just reinforce this, we are under construction in Phoenix, we are under construction in Toronto, we are under construction in Korea and Japan, we're looking at a couple other areas.

We're busy. And these are all very good returns that we are building new to. So at this point why chase full-price retail at lower returns when we've got our plate full on that sense.

Great, thank you.

Michael Bilerman, Citi.

It's Michael, I'm here with Quentin Velleley. David, I just wanted to start -- you think about Klepierre $2 billion, but you're an $80 billion enterprise today. So it's 2.5% of your asset base and it is taking up a lot of your time, you've been to Europe twice in the last month. How do you balance something that's a smaller part today of the enterprise and driving value for the other 97.5% of assets?

And then taking it one step further, you own 30% of the entity today, you're in this for the long-haul, you obviously want to see a lot of improvements. The price you're going to have to pay for the other 70% if you do want to consolidate could be meaningfully higher benefiting Klepierre shareholders rather than Simon shareholders. I'm just -- how do you sort of balance all this?

Well just on the first point, Michael, that's what I do, okay. The one thing that I think amazes folks, given the scope of this Company, is that that's what we do. Rick looks at whether we're getting market value on a new [GAAP piece]. I mean as weird as it sounds, that's just what we do. So I still think a $2 billion investment ought to warrant my serious attention. So that's just what we do.

We've got -- we've added a few people to help -- we added Contis, we added Fivel so we could leverage a little bit my time and Rick's time to do it. But that's what we do, we sweat the details; that's all we know how to do and we don't see changing from that.

And I view -- look, the thing about Klepierre, it's got a portfolio -- it's a share of this is not quite that, it's about EUR14 billion. But the portfolio that it oversees is EUR16 billion. That's a big opportunity for us and Europe is in a state of flux which is an even better opportunity for us ultimately to reinforce our Company's position as a global brand. And there are great benefits to being global.

Many of our -- if you look at our peer group in the S&P 100, and I just read you a few names, they're all global. Our retails are going global. And I think it's a great -- great opportunity, it's a great potential platform for us to really have a significant presence there and create kind of a sister or a fully integrated Simon company over there. We've never had that's opportunity.

I don't know that this can be that, but it's certainly worth the opportunity. And I think coming in at below NAV, even with all the macro headwinds, I don't see how we'd lose, but it's possible we do, but we don't. But when I go through this list of companies in our similar cap range, News Corp., Nike, Colgate-Palmolive, Lilly, Starbucks, Ford, Disney, Union -- well Union Pacific isn't because it's all railroad. But Boeing, they're all international global companies and I think it's important for us to be in that spot.

So look, [Flowers], one of the great value financial investors there is is moving to London because of European opportunities. So this is a great platform, we'll see where it develops. It potentially could go -- it could end here, on the other hand we could take this investment and make it something special. And I have no problem as long as our shareholders are rewarded along that the process in sharing the wealth.

It's Quentin here. Just a question on the outlets in Brazil. With US fashion merchandise sort of three to five times more expensive in Brazil how do you expect the international retailers that are going into your outlets, how do you expect them to I guess compete given the improved US Visa process and also the improvements in Brazilian's ability to purchase over the Internet?

Well look, there are more and more international retailers landing in Brazil and dealing with the tariffs. And certainly from a customer point of view, if we can land those tenants and deliver more value to the customer, then that's why I think we feel like these outlets will be very successful.

It will not have the percentage of international grounds like China, Japan or Korea will because of that particular issue. But we think there's enough there with the Brazilian retailers as well to populate those centers. And there's been one kind of outlet that's been built there and it was successful. I think you're going to have to go small due to some phases, but I think over time you'll have more international penetration.

Okay. Just switching to Europe. Maybe if you could just comment on the health of the hypermarkets in Europe. How do you think they're going to change their business models and evolve to some of the challenges they're facing?

Well, I think that, look, it depends on the retailer. I mean we were, as you know, partners with Auchan and their business model has been very successful and they continue to do very good business. Carrefour, as you know, is a big -- a big partner so to speak with Klepierre. And they've gone through some fits and starts in terms of where they want to go. I think they've got new leadership.

It sounds like they're back to focusing on being very price competitive. And that we think will drive traffic and we think ultimately will help us with the galleries which we own. And you know, it's very interesting, Quentin, just -- you know because you've got a funny accent, but the hypermarkets there, they're disappointed when they do EUR80 million to EUR100 million, whereas we had a department store or a -- anybody that did EUR80 million to EUR100 million in our shopping center, we'd be very thrilled.

So you know, it's all relative. I have all the confidence in the world with where Carrefour is going that they'll continue to be a very -- a worldwide class retailer.

It's funny because Quentin says you have a funny accent.

Well, you know, some people said that -- you should see when I try to speak French.

We had to teach you how to spell Klepierre.

No shot at that.

Thanks, guys.

Cedrik Lachance, Green Street Advisors.

Just one follow-up with some funny accents. Just maybe a quick one on the Mills, just in terms of how you organize the information right now. A number of the Mills properties were moved into other operating properties. Is there anything you need to read into that?

Well, I think what you would read into that is that we're probably not long-term owners of the three assets that are still owned by TMLP. One of those actually we're evaluating that and that is we're hopeful that over time we can reposition that asset. But a couple of them we're probably not long-term owners.

Okay, and regards to your [building] market, those assets, is it a -- timing and ability to market those assets, what do you think that would be?

I would think it would certainly be clarified in the not too distant future, 12 months or so.

Okay. Thank you also for the sales disclosure. In regards to the division there on the sales front, it includes outlets, is that correct?

Yes.

Okay. If we were to exclude outlets from let's say the top 100 category, what would happen to the sales productivity there?

It probably wouldn't matter all that much. But I don't have that -- I don't have that in front of me. But I'd give you a sense of this, it's probably a 75 to 25 split roughly, to give you a sense of order of magnitude.

Out of the 100.

Next call we can get really specific, but I don't have it entirely in front me. But I think that would give you the general nature of it.

That helps a lot. Okay, thank you very much.

Paul Morgan, Morgan Stanley.

Just sticking with that top 100 as 75% of your NOI, any thoughts given the B Mall sales that have taken place by some of your peers that you might be interested in culling the other 120 there or 25% of the NOI making any effort beyond kind of the single asset type focus?

Well, I think the good news is that that market seems to -- seems to be firming up, there's more players in it. And so, I think historically, Paul, we've always wanted to cull the portfolio. As you know, that's been a relatively tough exercise. But with now Starwood hasn't closed yet, but assuming it closes, you've got a couple other players out there that are looking to invest. I would expect us to continue to play in that game.

We did sell one mall at the end of -- or really actually closed at the very beginning of this year, Gwinnett Mall in Atlanta. So we are -- we would expect to do that -- I think there are more players there and that's the good news. We're trying to understand what their strategy is going forward and I'm sure we'll over time continued to cull the portfolio to some extent.

If I can just go back to Klepierre, as you look at the leasing platforms, and you mentioned the global element of the retailers, do you think -- the time you've had spent with them and then looking at their portfolio of tenants, do you think there's more opportunity to bring their tenants here and your tenants there? Or given your [expressed strength] in Europe, do you think you've kind of already been well on top of that and it's not that incremental from here?

I actually -- I think that probably the more likely opportunity is to bring US retailers there. And as you walk the malls in Continental Europe, they're not -- they're okay, they're not greatly merchandised. I think it possesses a great opportunity for a number of our retailers. And again, that takes time and there are some that are making inroads there.

But generally I would think the opportunity will be more US to Europe, but -- and Rick can comment on that, but there are also opportunities, as you know, for retailers here -- or there to come here. And they're actually making progress to get UK retailers, like as an example Primark, which is a well-known very good UK retailer, to add to the European retail mix there.

So I think -- I think it will be a little bit of everything, but I do feel that our US retailers do think Europe is an opportunity for them. Rick, do you want to --?

And I would say to you just on the other way, if you look -- there's no doubt that the relationships that we've created in dealing with the H&M's and the Zara's and the Lego's are going to stand up in very good stead because we're just now an incrementally more important part of their global footprint, which is what we have always aspired to be.

And then just lastly, sticking with Europe. How do you think about other opportunities for investment now on the continent given you have a minority stake and you might have a different capital position, but how would you handle the conflicts with looking at outlets or looking at other opportunities that come up via Klepierre or independently?

Well look, the outlet business Klepierre has no involvement in. So I don't view that as any particular conflict. But I think it gives us a great opportunity to -- there are so many options on the table for us now that we've got -- have an investment in a very fine company like Klepierre.

By the way, they're very good developers. They build great product. I'd encourage you to look at some of the stuff that they've built. I mean, they're a first-class organization. We think we can respectfully add to that -- add to that. But they're not -- they're damn good on their own. And I think as we look at opportunities we'll sit with them and say, okay, what makes sense?

So I -- it could be within Klepierre, it could be in a joint venture with Klepierre or it could be completely on our own. But we certainly want to see Klepierre -- our investment in Klepierre appreciate. I mean that's the number one goal. And I just will say on the outlet side though, they have no presence in that, that's really not something that they're really going to do and I would view that as a separate path for us to look at what our opportunities there are in that sector.

Okay, thanks.

Alex Goldfarb, Sandler O'Neill.

It is pretty telling of a French organization to appoint an American to be Chairman, so that's a pretty strong statement in and of itself. A question on -- you guys took a major stake in Klepierre and yet when you went to Brazil you just did a JV with BR Malls. Can you just speak about the opportunity or your thoughts on taking a stake in BR Malls?

I mean, speaking to people there's a lot of respect for BR Malls, that the Brazilian market seems to still attract a lot of long-term interest. So sort of curious why you opted for just more of an asset JV rather than more of a corporate JV the way you did with Klepierre?

Well, we really didn't talk about that too much. Brazil is -- I think we want to get our feet wet in Brazil, do it a little bit more methodically. The values there have gone up a tremendous amount where -- and BR Malls is a big company, okay. So, and then you get into the currency risk, though it seems -- their currency seems to only appreciate versus the dollar, but put that aside.

So there's lots of issues there, but we really never got into that kind of dialogue. At this point we're focused just on building out the outlet platform with them.

So it sounds like it's more of a learning curve whereas you've had many years of European experience, you want to build that experience in Brazil, is that --?

And I think so. And look, remember, we had exposure in Europe and I almost view this as kind of replacing what we had -- yes, we put a little bit more money in it, but with a better company, with better growth, long-term growth prospects even though the world is a little wacky there.

A proven organization, lots of optionality on where to take that organization, a way to hedge our currency investment because we can borrow in euros. So there's all sorts of math associated with it that works a little bit easier than in Brazil. Just a quick response -- I mean it's a very complicated question, but just a quick response to your question.

Okay. And then separate and along the same lines, your comments, David, were -- about China were rather tempered about just focusing on one site. Just sort of curious, especially given the recent political scandal over there. Has that made you any more cautious or what is driving your hesitancy about China?

Well, it's obviously just a big, big market and a very complicated market. But what's driving us, it's very simple. The international brands are just -- they're kicking ass there. Just -- if we can get an outlet built in the right location we're very confident we can lease it up. And we have, we think, partnered with a good person to partner with. But we still have to prove the math, prove the ability to make the numbers work and all that.

And it's just a big complicated market and they take -- when they like something they just build it, as you know, right. So supply and demand sometimes is not as thoughtful there as it might be in other more mature markets. So we've just got to make sure that we can make money doing these things. So I think doing one or two thereabouts is probably the right way to go for us right now.

Thank you.

Steve Sakwa, ISI Group.

Rick, I guess just first question, as you're talking to kind of the larger tenants, the Target's, the Costco's and the like, I know you guys have done a lot, you've replaced a lot of department stores and anchors and added. I'm just wondering how much more activity do you think there is from them.

And I guess as you look through the top 100, how many more assets can you sort of touch? Meaning how much more inventory do you think you can touch and put in? And are these tenants also looking at the bottom 100 properties or are they really focused on the top 100?

In fact it's throughout the portfolio. And if you just keep track of what we've done in the 8-K, this quarter we've got 51 anchors that are being added throughout the various platforms and that's up from the 30 that we listed in the fourth quarter '11. And on top of that we're on another 38 anchors.

Target is still looking for opportunities, we're adding them at Coddington, we're adding them at South Hills and Pittsburgh. And we have a number of other opportunities that we're discussing with them, but also with a whole range of other potential users.

We've added Arhaus Furniture, we opened a new Lord & Taylor, we're opening Macy's at Gurnee, we're opening Last Call Neiman Marcus at Ontario. So it's across the board and we're working with supermarkets, we're opening Fresh Market at the Falls, we're opening Wegmans in Montgomery Mall in Montgomery County Philadelphia, Earth Fare in Appleton.

So we're across the board and there's still a great deal of interest. And we have opportunities because in a lot of instances we're moving out weaker anchors and replacing them with stronger ones.

Okay, so it does seem like it's kind of permeating down into the B Mall product as well?

Well, it's throughout the portfolio. Again, we don't like to categorize A's, B's and C's, it's throughout the portfolio. When you look at the scope of what we've been doing, and we've identified every one, you can see it's throughout across the quality spectrum.

Okay, and then, David, I guess I'll bring up the question because I asked Bobby as well. But just in St. Louis, I mean I realize the outlet business has been fairly competitive; you have certainly won your fair share of battles in different markets so I'm just wondering kind of what your thoughts are in St. Louis. Is that a situation where only one project gets built, and is it just kind of a race to the start line here?

I'm surprised it took that long to bring up. But, look, St. Louis is a good opportunity to build an outlet center. I will just say this, when we get approvals we will build an outlet center in St. Louis.

We don't have approvals yet. We expect them in the near future. But we will build there, and we are very confident in our ability to lease it and provide a very good return for our shareholders. So, we've got to get approvals; that's the only roadblock that I see in terms of our building the center.

And if I'm not mistaken, I believe there is something on May 9, is that correct, when you're supposed to get some final approvals? Or is it further out than that?

Yes, let me -- I will turn that to Rick, he can briefly give you -- but we've got to -- we are very confident we're going to get approvals but we still have to finalize that. And then when we do we are building.

So, go ahead, Rick, you want to --?

There is the hearing on the 9th and the final hearing is on May 21. And then we can start the development at the site.

Okay. Then I guess, David, just lastly on other outlets within the US market. What does the shadow inventory look like or pipeline or potential deals that you might be looking at?

Well, look, just briefly, Phoenix, as you know, is under construction. We're, Rick, 60 --?

60% committed.

60% committed, so that's all systems go. Toronto, there's been a lot of discussion, we're wildly excited about that. That's under construction, 60% committed.

And announced the Bay --.

And announced the Bay which, as you know, a well-known department store there. We think that's important because that will facilitate a lot of the wholesale accounts, so it's all kind of going according to plan. St. Louis and Phoenix both announced a Saks off Fifth as part of our new development there.

We have one site in Florida which we're finishing approvals there, I'm afraid to mention the city because there will be six guys on site. So you know, I'm going to refrain to do that. But needless to say, we are really excited about that. And that could actually start, Rick, don't you think this year maybe?

Yes, that could start in late this year. And we also have Merrimack (inaudible) -- oh by the by, it's opening on June 14 and it's 100% leased. And we have Texas City that's opening in October, that's substantially leased. And what gets lost --

Yes, go ahead, that's where I was going.

-- is all the expansions that we're doing in some of the best outlet centers in the world -- Seattle Premium Outlets is under construction opening in June of next year, Chicago Premium Outlets we're expanding, Desert Hills Premium Outlets is starting next month.

We are expanding Orlando Premium Outlets down by Disney the third quarter of this year, we're expanding Woodbury out, we're expanding Las Vegas North Downtown and that's starting in October of this year. Well, those six expansions combined are probably two or three additional new products adding square footage as the most productive outlets centers pretty much in the world.

We've got -- we're working closely with the town, but Woodbury is really, could be really exciting, it's the best outlet in the world. And what we're thinking about doing there working obviously closely with the town, but assuming we make progress and get some approvals there, I think we take that asset up to yet another level.

Okay, thanks.

Ki Bin Kim, Macquarie.

Just going back to your acquisition of Klepierre, and going back to your comments about corporate level synergies -- well, not synergies, but sharing best practices of that sort, I'm guessing the brainpower would shift more from you to them in terms of expertise and best practices. So how do actually get compensated for that given that it's still technically only an equity investment and not close to any kind of a merger?

Let me say this, we are never too proud to learn from anyone. And in fact, they're a very accomplished company, so I would expect us to learn a lot from them. And I think that's absolutely part of the order. And I -- I mean part of our investment philosophy is we're going to learn a lot from them in terms of how they run the business and operate and it's all part of being a global company in that you take a little bit of everything that you learn across the world and you make everything you have across the world a little bit better. And that can drive the needle.

So I would hope and I would expect that they could actually show us a few things here. So that's very important that I say that. And at the end of the day, if we can add value there, that's fine too because our shareholders will benefit from our investment. And I mean, that's just part of -- it is a little bit risky to go into Europe right now, so we had to weigh that in a sense against taking on the whole enchilada in what's the best way for us from a capital allocation point of view. So those are the trade-offs and I think we're satisfied today kind of where we're at.

I know at a 30% stake you're still far from M&A. But is there any sharing of personnel?

You know, at this point no. But we do have the ability to add a senior management person to the management board there. And I think over time as we assess what the areas that -- where we could be most beneficial we'll figure out that -- what that -- who that person might be. And I think that will develop over the next few months.

So I do think there will be -- there will be the opportunity there. We do have our Vice President of International Operations basically coordinating and [liaisoning] -- I think is the word, right -- our activities there. He'll be in the office there. So we would hope to have some input on that kind of basis.

And just if you'd clarify one point. I know it's a $2 billion equity investment, but the overall size of the investment is closer to over $4 billion on Klepierre. So could you actually comment on the FFO yield on investment?

Well, I don't know where you get the -- we look at it as a $2 billion investment.

Oh, I'm thinking you included leverage of the Company.

Well, we don't look at it that way. When we're an equity investor we have $2 billion at risk, we don't have $4 billion at risk. So I'd argue that completely with you. But let's put that aside. Your question again -- I lost it?

The expected FFO yield accretion.

Well look, you can do the math, I mean it's a public company. But it is -- it is accretive certainly to our yield given what the multiple we bought it at versus our multiple and where our cost of funding was for the deal.

Okay, thank you.

David Harris, Imperial Capital.

There's no truth to the rumor, David, that you beat the pants off Rick and Steve in the French test, which is why you took the German slot?

Well, you know, I have no talent, but you know what, nor do they.

(Multiple speakers). That would be a race where there was no winner.

We do have one guy that has a pretty good accent, okay. And he's now on the Board. But he tells me he understands French, but I'm not sure, but he does have a good accent.

Are you hedging this in any way, this investment?

Yes, we have hedged -- Steve, how much have we hedged?

David, we left $1 billion out on our line denominated in euros, so we're 50% hedged on our equity investment.

Okay. And does the prospect of President Hollande [that city] with any [tariff]? I mean, you did make references to the uncertainty, but I think the prospect of a socialist president in France is perhaps a little larger in the --?

You know what, look, why is that different than the US? Right? So --.

Well, I have heard specifically, David, that there has been talk around the French REIT structure coming under attack.

No, absolutely not. Look, I don't think that that -- when you look at the properties and how they're merchandise mixed, I'm not -- I don't think that changes the consumer behavior. What's going to change consumer behavior is where the economy goes and whether that's better under Hollande or Sarkozy is up for debate. I'm certainly not in a position to say who's better at what.

But what fascinates me about Europe and what they're going through is the one thing that I will say is that, with respect to Europe, at least they're tackling their deficit problems. David, you're very familiar with what's going on in the UK. You can certainly argue it's too much or too soon or however they're doing it, but we're in complete denial here (multiple speakers).

We have the world's reserve currency which allows politicians to behave as they do here.

Sure. But at some point that changes. So, look, I'm not losing sleep about the French elections. And in fact, nor the US elections in the sense that I think the economies of both can overcome bad politics. Look at the -- we could argue about the level of recovery, but the fact of the matter is you can't keep the American business environment and the American entrepreneur down -- we want to grow, we will grow. And look, I don't view the French economy all that different.

And (inaudible) perhaps more mundane. You raised the dividend three consecutive quarters and that's obviously been pretty impressive. And I know it's hard to pin down your tax liabilities and such like as we go forward. Is it reasonable to think we're going to get this every quarter now?

Well, at some point, not every quarter. We're still chasing our taxable income, so the answer is at some point we'll catch up. But I shouldn't really say more than that other than at some point it will -- we're still chasing it, at some point we'll catch up, but we're still chasing it.

I mean, is it any way possible to characterize the growth in the dividend relative to the FFO? I mean I know it's probably too nefarious at this point to do that, but if you were to grow your FFO by say 10%, is it -- growth of the dividend is going to be the order of 12% or 13% in the most general terms?

I mean, there's a lot that goes into it, especially with asset composition changes. But put that aside, I mean the fact is our earnings are really growing, our dividends has really got to grow.

It's got to grow faster, okay.

It's Steve. There clearly is a correlation between your dividend growth and your FFO growth. It's not a perfect correlation because, as an example, in an acquisition we may get a step up in assets which allows more depreciation expense. So you may not have as much taxable income growth as you do FFO growth. But there is a high correlation.

Okay, merci and au revoir (laughter).

Thank you, David.

Nathan Isbee, Stifel Nicolaus.

Just actually focusing on the core mall portfolio, your sales have been growing double digits quarter after quarter, yet the rent spreads, they're strong but they still aren't back to where they were a few years ago. And it's still an uncertain world and you have some tenants down-sizing, but at what point, given the sales productivity, can you say to the tenants, sorry, we're going to demand rents to reflect the sales progress and see that acceleration in the rent spreads?

Rick, do you want to --?

A couple of things that are relevant in evaluating the spreads. One, if you look at the growth in our average rent, it has been going up considerably every quarter. Secondly, we are building into our leases annual increases in rent.

If you go back historically before we did that when the lease expired you had a much lower base rent because we weren't getting consistent guaranteed bumps in minimum rent over the term of the lease and that has been a major advantage for us in order to take the risk of tenant performance out of our financial matrix. And when you look at the spreads that we have and build that in, it's been a considerable benefit.

Look, Nate, I would also just add to this, look, sales are important, but there is also -- I mean, let's face it, everything is going well, we're running the business better, it can always get better, but there's still a number of retailers that are having margin pressure or comp sales pressures and that puts pressure on our business.

And so that's why the spreads aren't -- not everybody in the retail world is hitting on all cylinders. So -- and they may have margin pressures which puts pressure -- we want them in the center, or we don't have backups right away, so there's still -- obviously our average are really important because of the size and they give you a real good indication.

But that reason it's not $8 or $10 is because there's a handful of retailers that are important in the portfolio that are under margin pressures or sales pressures. And instead of just telling them get lost, we're still working with them as they try to improve their business.

All right, and then just quickly on Halton Hills, you've only announced one tenant. Can you just give us maybe a little more detail?

Sure, well Rick will list you some tenants.

We're basically 60% committed now and leases that are going -- Banana, Brooks, Cole Hahn, Converse, gap, Levi, Nike, Puma, we talked about the Bay, Under Armour, Calvin Klein, Hugo Boss, Michael Kors. It's going to be an outstanding selection of retailers and we're going to create what is going to be the unique premium outlet environment in that market.

So given that tenant mix, another competing center perhaps a few miles closer to Toronto, you think people will be willing to drive past to get to yours?

Well, look, I'm not going to really comment on this other potential site other than to say there are a lot of merits to our site and, Nate, we're opening next year, okay. We don't have to get any approvals, we're done, we're under construction and we'll lease the center. And so I don't know what else I can tell you other than that. And you can draw your own conclusions, we're done, we're moving and we have no worries.

Okay, thanks.

Ben Yang, KBW.

David, going back to your comments on the new players making a push into the mall industry, just curious what you think these newcomers might mean to the mall industry longer term given that it's an oligopoly that obviously benefits from fewer rather than more owner operators.

Yes, I missed part of your -- can you just restate it because I just -- the connection wasn't that good.

Yes, just obviously private equity trying to make -- increase their presence in the mall space, it's an oligopoly, fewer owners are better than more owners and I'm just curious to get your thoughts on what this might mean to the industry longer term.

Well, I certainly don't use oligopoly as any -- by any stretch of the imagination. I mean, retail, if you want to hear my -- I'll save you a lot of diatribe here. But retail is really competitive, malls compete with all sorts of retail online, strip centers, lifestyle centers. So that may be your view of the world, it's not mine.

Because we -- it is really a competitive industry across the board and it's tough, very tough. The more that people want to come into the business and put capital into it I think the better for us. I'm not sure I answered your question, but -- and look, at the end of the day operating your real estate is -- the key to success in retail real estate primarily is to contrast it to say office, has been operating it better versus buying it right and then finding the right time the cap rates are X and waiting for cap rates to move in your favor.

That's not always the case, but generally that -- unlike office where it's really more of potential timing where you can -- where it can help. The answer for a lot of those folks is just how do they operate it and can they operate it effectively. And if they can maybe they'll make money, which I think is good, it attracts more capital.

Institutionally, and Steve can comment on it, I mean institutionally the level of interest from deep -- deep money institutional investors in high-quality retail assets has never been higher and price is secondary because they look at the returns -- I shouldn't say -- going in yield is a secondary consideration, it's really the growth of the NOI. And I mean it's never been higher, frankly, but again, the need for us to look at that source of capital is not critical, but it's never been higher.

Okay, but I guess the difference this time is that unlike a passive pension fund that gives you guys money, these guys are trying to build actual platforms to run their businesses, but that is helpful.

But just moving along, you also made comments that the B malls are firming up. I think Rick mentioned retailers are generally opening up across the board, you're obviously always trying to call the low-end of the portfolio. But does this make you maybe more or less inclined to sell your B malls, maybe taking advantage of mall buyers out there, but maybe at the risk of missing the recovery in the B mall space?

No, look, I think we're good enough to know what we believe in in the future and what is better in other people's hands in terms of just a poor allocation of our human resources. And just sometimes it's okay to sell and let somebody redevelop it just because we've got enough to do and we want to allocate our resources elsewhere. So I think we can handle that issue in particular. And I said, look, the fact that there's more people coming into that market might lead to a few more sales from us over a period of time.

Okay, thank you.

Rich Moore, RBC Capital Markets.

David, on Klepierre, can you buy or build something together in a joint venture given that you guys sit on the Board of Klepierre?

Sure, I mean it would have to be subject to approval of their Board without us participating. But, certainly, sure. I wouldn't say (multiple speakers).

Oh, good, I was just (multiple speakers) yes.

Yes, absolutely. I mean if we had a development or an acquisition and we could certainly partner. It would have to be approved by the Board without our involvement, but sure.

Okay, all right, good, thanks. And then on Del Amo, that has always struck me as very good real estate. I used to live out there in that area, and yet nothing has ever -- nothing seems to ever come of that asset.

Yes, we know.

I mean, what are you guys thinking there? I mean what is the plan? You said you were working on a big redevelopment. What's the idea?

Well, I'll let Rick start. But you're 100% right. It's been a source of frustration for us. I mean, we were working on some plans in -- and we bought Mills in April of '07, right? Those got derailed by the '09 crunch. They're back up and running, we have real confidence in that otherwise we wouldn't have bought.

And that was ahead of our bigger deal with Farallon. Rick, this is Contis' baby. We are -- he's not here to tell you about it because it might take 10 minutes. But Rick can give you the highlights of what we're doing. And we would hope definitively to really start this thing next year, but let -- Rick can give you the high-level.

Yes, a couple of bullet points. One you can change everything about a property other than where it is and it's in a great, great market that is really underserved by fashion retailing. We've got interest from a couple of fashion anchors. We've got great support from the city.

And we're looking at a total redevelopment of the property that would substantially change its character by keeping some of the existing anchors, replacing some of the anchors, adding anchors. And the best thing is we've got substantial demand from retailers and restaurants. So there's a lot to do, we're spending a great deal of time on it, we have people based out there that are working on it on a constant basis and we're very optimistic we're going to be able to (multiple speakers).

Yes, and the only thing I'd say, given the size of the property it's going to be in a couple phases. But the first phase we would hope to start in '13.

Okay, so this is probably a few hundred million dollars in total, something like that?

Yes, yes, I think that's probably right.

And you think we'll get that fashion department store that the previous CEO of Mills promised us about six or seven years ago?

We'll let you know.

Yes, good, thank you. And then a couple quick questions for Steve. Were there any acquisition expenses this quarter? I mean, I couldn't figure out where they might be. I thought they might be in G&A but I didn't see anything in there.

There were not, Rich. Under Generally Accepted Accounting Principles, when you make an equity investment you capitalize those expenses. So it's -- they've been capitalized as part of the investment in Klepierre line.

And I'd just say, we had de minimis cost on Farallon deal that we just put in other expenses.

Okay, and then the percentage of rents of the joint venture jumped pretty significantly and I'm assuming that's because there's more percentage rents in the Klepierre portfolio, is that right?

No. There were no -- we did not record any results associated with Klepierre in the first quarter, Rich, so that's organic activity related to the portfolio.

Why would those be so high? They seemed abnormally high -- maybe I'm missing something, but they seemed unusually high.

Well there's -- we have a number of venture properties in very, very good markets that have been benefiting from the influx in visitors and that's what you're seeing, we've had great sales (multiple speakers).

And also that includes the Japan -- some of the Japan expansions and all those are -- in Japan they're all -- basically in Korea they're all percentage rent deals. So we've had great success there. The one thing on our --.

In fact that's a good point, David, because part of the results driving the JV line, Rich, are, if you remember last year was the earthquake in Japan. So we had much better results coming out of Japan first quarter of '12 compared to '11.

And one thing just to keep everybody in perspective, when I mentioned all these assets, our international outlets on average do about $1,000 a foot. And those are not in the numbers that I stated at the end of my prepared remarks.

Okay, very good. Thank you, guys.

Michael Mueller, JPMorgan.

Just one question. You obviously have been very complimentary of Klepierre and you seem like you want to be in Europe longer-term. So just thinking what would cause you not to step up and increase your investment over time once the option period becomes effective? Is it just what's going on with the sovereign issues in Europe or is it something else?

Well, it's hard to -- I mean, it's hard to know exactly where we are and what we're doing. But look, I think, as I said to you, what we have done there and what the company -- all the assets and intangibles that the company -- the company being Klepierre -- possess I think just gives us a tremendous amount of optionality on the whole of Europe. And we'll see where that goes.

Okay. Okay, thanks.

Tayo Okusanya, Jefferies.

Just a couple of quick questions. Brazil and China, did you guys talk about potential yields on those developments, what that could look like?

Not yet, because we do that once we start construction. But I would say to you Brazil -- I said a little bit earlier, I mean we would expect them to be consistent with -- on a mall yield there double digits and China -- we would expect that to be consistent with our Asian developments, which have all been in the mid-teens. But we'll give more clarity to that once we start construction on something.

Okay, that's helpful. And then just the Phoenix construction, could you talk about that in relation to Arizona Mills being so nearby, whether that creates any issues in regards to trying to lease up that asset?

Not really. We view them as two separate and distinct markets. Arizona Mills is more of an infill project, it's actually weathered the Phoenix situation pretty well, the Phoenix economy pretty well. And we think they'll hopefully be a little bit complementary.

And we expect given the infill location and the fact that the outlet will probably drive more tourism where Arizona Mills is probably more -- considered more of a regional mall in a sense in terms of less tourism that they'll both be able to prosper as the economy continues to improve.

Okay. And that's despite the fact that Arizona Mills has a whole bunch of outlet oriented stores in it already?

Well, I think you need to focus. Arizona Mills is almost 1.3 million square feet, it's got a substantial entertainment component with a theater and Sea Life, it has a number of tenants that are, as David said, regional mall type tenants. There's a Penny outlet, there's Forever 21, there's H&M. So it really is focused on a much broader market and, while there will be some overlap, it's a relatively small percentage of the square footage in the merchants at Arizona Mills.

Got it, that's helpful. And then to Klepierre, is the European market dramatically different such that the [Simonization] process that you guys are so good at in the US, is that easily transferable to these assets from generating ancillary income, banner income -- like all the kind of other things that you kind of established as industry practices here in the US, how easy can you really translate over to there (inaudible)?

Well, it's certainly more of a challenge than it is here. But we have had some success in our previous European investments in doing that. And what's interesting, it's changed a lot in that the retailers are now much more global than the ones that we deal with in the US and in Europe. So I'm hopeful that it won't be as easy as it is here in doing that. I mean when we buy something that we don't own it's a pretty easy transition. There -- it's going to take more time but I think the opportunity exists.

Great. And then just one more last question. In regards to the question about A malls and B malls, I think we've all been pushing, trying to get confirmation from you that there is demand spillover to the B malls, but you don't quite seem to want to confirm that. Just kind of curious one way or another why that's so?

Well, I think all we said is we don't like to say A or B malls. You know our portfolio, you can decide what you think of it. We like it a lot. And our statistics that we report on each quarter would have to -- given that it's a huge asset base it would -- the averages are meaningful and I don't think we could produce these results if only the top end of the assets were producing -- were producing results. So how does that answer the question?

Well said.

Okay.

Thank you.

It's hard for me to -- I appreciate the compliment because that's a real challenge sometimes. Thank you.

At this time I'm showing no further questions in queue. I'd like to turn the call back over to Mr. David Simon for any closing remarks.

Okay, thanks for your time. Hopefully we didn't take too long and we'll talk to you soon.

Ladies and gentlemen, that concludes today's conference. We thank you for your participation. You may now disconnect. Have a great weekend.