西蒙地產 (SPG) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2013 Simon Property Group earnings conference call. My name is Dominique and I will be your operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions).

I would now like to turn the conference over to Ms. Shelly Doran, Vice President of Investor Relations. Please proceed.

Good morning and welcome to Simon Property Group's first quarter 2013 earnings conference call. Please be aware that statements made during this call may be deemed forward-looking statements and actual results may differ materially due to a variety of risks, uncertainties and other factors. You may refer to our SEC filings for a detailed discussion of forward-looking statements.

Please note that today's call includes time sensitive information that may be accurate only as of today's date, April 26, 2013. Reconciliations of non-GAAP financial 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 filing. The supplemental is available on the Simon website in the investors 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.

Good morning. Our results for the quarter were strong. FFO was $2.05 per share, up 12.6% from the first quarter of 2012. Our FFO exceeded the First Call consensus at quarter end by $0.05 per share. For our Malls and Premium Outlets, comparable property NOI growth was 4.8%. And that was off a 5.7% increase in Q1 of 2012.

Tenant sales were up 5.3% to $575 per square foot; occupancy up 110 basis points to 94.7%. Base minimum rent per square foot was 3% higher, and our releasing spread was a positive 13.4% or $7 per square foot.

We were very active in the debt markets during the quarter, closing or locking rates on 13 new loans totaling approximately $2 billion, of which our share was $1.3 billion. The average rate was 2.92% and a weighted average term of a little over eight years.

Let me turn to the all-important development activity. First of all, we opened Phoenix Premium Outlet Centers in Chandler, Arizona on April 4. The center is 100% leased, open with an impressive collection of stores. I will not name them. Rick will if you're interested.

Several high-profile stores will be opening in the coming weeks, and the good news is the shopper response has been very strong and many merchants reporting as one of their best outlet openings in the last couple of years.

Shisui Premium Outlets opened on April 19. This is our ninth center in Japan. It is located 15 minutes from Narita International Airport serving greater Tokyo.

The center opened with large crowds and 70 media outlets opening and we expect this to be a terrific center serving the area of visitors to Tokyo, given the proximity of the airport.

Significant redevelopment projects were completed during the quarter at Apple Blossom Mall, Quaker Bridge Mall and South Hills Village. Several significant projects are on track for completion in 2013 including expansions at Sawgrass Mills, Dadeland Mall, Seattle Premium Outlets, Orlando Premium Outlets at Vineland, Walt Whitman shops and the re-grand opening of The Shops at Nanuet, and University Town Plaza in Pensacola.

Redevelopment expansion projects, including the addition of anchors and big-box tenants, are underway at 44 properties in the US, two in Asia. Our share of these costs is approximately $1 billion and the blended estimated rate of return is approximately 11%.

We had three Premium Outlet Centers under construction opening in the third quarter of this year -- St. Louis Premium Outlets in Chesterfield, Missouri, opening August 1, which is 96% leased. Toronto Premium Outlets in Ontario, Canada, opening August 22 which is 85% currently leased. Busan Premium Outlets in Korea opening in late August.

As we highlighted in the press release, demand for space in all of these centers has been exceptional and we expect to be fully leased at opening.

We also have at least eight additional new premium outlet projects in North America in various stages of predevelopment. Klepierre reported its first-quarter revenues this week. You can read about them, so I will be brief, other than to say that rents were up for the quarter.

The total of 3.4% reaffirmed 2013 guidance. We have now owned our stake for 13 months. Progress has been made in several aspects of the business.

They have sold EUR760 million of assets. They have simplified their business with the elimination of the Segece sub-brand as well as the ongoing sale of the office portfolio.

They're focused on operations. We have added a new CEO. They are generating additional Simon Brand venture type revenues, as recently evidenced by the Coca-Cola partnership.

They have strengthened our balance sheet through recent financing activities. And they have opened two great malls in Saint Lazare, Paris, and Emporia in Malmo, Sweden. And I think if anyone has had the opportunity to visit it -- visit those centers, you will see that the Company has clearly the capability to build first-class 21st Century retail.

Today we announced a dividend of $1.15 per share for the quarter. Over the past six quarters we have increased the common stock dividend each quarter as we have been playing catch-up to our taxable income. Our growth rate in our dividend has been over 31% over the last two years.

Importantly, we anticipate -- subject to review and board approval -- increasing our dividend as we anticipate our taxable income continuing to grow.

Guidance, today we increased the top and the bottom line of our 2013 FFO guidance to a current range of $8.50 to $8.60 per share. This is an increase from $0.10 from the initial guidance in February of $8.40 to $8.50 per share. Strong operating performance is the driver of this increase. Occupancy, reasonable mall and premium occupancy costs of 11.3% and strong rent spreads give us good momentum.

Finally, 2013 is off to a good start. And we are ready to answer any of your questions that you would like to post.

(Operator Instructions). Jeff Spector, Bank of America.

It is Craig Schmidt here. It sounds like you have made real progress on your dispositions at Klepierre. Maybe you should -- could give some more color on what is left to do, as well as maybe some of your refurbishings that you have done in the portfolio, and any successes you have had in bringing new retailers to your Klepierre portfolio?

First of all, they will continue to sell non-core assets as well as the office portfolio. So they have got a couple of the office fields that are close to being signed up, including their headquarters. And then they will continue to sell the smaller non-core assets, which, frankly, are very stable and solid centers. But they don't have the extension capabilities that we're interested in pursuing.

And they have done a great -- a number of extensions like Claye-Souilly in Paris on the side of Paris near the airport that I think represents the ability to take a smaller center and expand it. And on the retail front we are continuing to solidify that. The operational side of the business is the true upside.

The coordination among the retail, what we do at Simon Brand ventures, how we operate the centers is the next chapter in the story. Obviously, that takes some time.

We have had to add to the personnel ranks. We have had to set the strategy and we are pleased with what is going on there, and I think there will be more to come.

Are you surprised at the -- are you surprised at your ability to push rents, just given the general difficulty in Europe?

Look, I don't run this day to day. Some of these questions by better asked for them. We are not the ones pushing the rents. We are providing strategic advice and helping them focus on what is important in their business, and also showing them how we run our business so they can run their business.

I am not surprised that the number of those countries have stability in cash flow in tough economic times. I think what you have seen here in the US is that the same thing happened here for us in very tough economic times.

And the one area that -- where they're having the most difficulty is in Spain. And that is a focus for the Company, but that continues to be something that is affecting their cash flow to some extent. It is because Spain continues to be under pressure for basically all retail real estate owners that have real estate in Spain.

Great, and just -- I was impressed with your 96% leased in St. Louis. Do you know how much will open in August?

We should be in the 90%'s. There is always a few laggards, but that is a real number and we should be in the 90%'s.

Even though we would love to open every center at 100% leased and operated, it does sometimes it does take time. Phoenix is a great example. We are 100% leased. We were in the low 90%'s to be -- at opening, but in the next couple of months we will be 100% occupied.

Same thing will happen in St. Louis. There may be a couple of slow people, but we are 96% leased.

Okay, thank you.

Christy McElroy, UBS.

-- Follow-up on Craig's question about the outlets. Can you disclose the expected yields at Chandler in St. Louis for 2013, and maybe discuss some pre-leasing progress at Columbus and Charlotte?

Look, our yields in the outlet business continued to be attractive. These will be double-digit yields, unquestionably. And Chandler will be probably north of 10%. St. Louis will be at or above 10%.

And in addition, as many probably know, we are looking at Phase II now. And, obviously, as we bring that online in St. Louis we will -- the yields will go up. But they're both north of 10%. They are both north of 10%.

Now, on your question on Columbus, let me just say this. Columbus is a very competitive market. There is a lot of folks that are -- have competing real estate there and sites. So we will see. We may or may not be the victor in that competition. But we are working to continue to try and move that forward.

Charlotte is basically a go deal. So with us and Tanger, we expect to start construction in the next two months. We are very excited about that project.

I'm not going to tell you what the yield is, because I don't know what Tanger does. But it will be very, very good. The retailers are very happy that we have put together our joint venture. They were excited about going it, and it is got to be at least over 50%, 60% preleased.

Not that we really need it, because the one thing that we know is we have 80 Premium Outlets in the world, I think. So we don't -- we don't really need to prelease like some others that might -- because we know whether or not we can lease it. But Charlotte is go, starting construction here shortly. And we are racing to do a 2014 opening.

Okay. And then I know that you continue to do quite a bit of anchor and big-box repositioning. Can you talk a little bit about what the retailer demand is like today for mall anchor space? How you think about getting that space back from a re-tenanting perspective? And are sale-leasebacks of anchor space something that you would consider if a major tenant came to you looking to raise capital?

It is Rick Sokolov. The demand is as good as it has ever been. And I think that can be referenced by the number of spaces we have available.

In our mall portfolio we literally have 635 department stores, and 1% of them, six or seven are vacant. And that is the lowest it has been in as long as I can remember.

We actively deal with every one of our malls to keep a running list of people that have demand to get in there. And we are in a constant dialogue with our anchors that we have identified that we have the potential of getting back to try and make them better. And if you look over the years, I think we have added almost 175 boxes and anchors over the last four years in the portfolio.

So we have been very active, and it is making them a lot better. I do not believe we would really be interested in entertaining sale-leasebacks.

Are you able to quantify maybe a range of what you might pay for vacant anchor box space, Class A mall versus Class B mall?

No. Each deal is very, very -- depends on a lot of individual characteristics of each deal. It is not really something that you can generalize about.

It is Ross Nussbaum. One final question. The 4.8% same-store NOI growth you generated this quarter, if I think about that relative to the occupancy gains you have and the releasing spreads over the last year, it feels like there is something else that is helping that number. Is there a piece there that I am not thinking about?

It partly is good sales growth. Partly is that we are very focused on operating to the best of our ability. I would point out last quarter, quarter -- Q1 2012 we had 5.7% comp increase. So, to have 4.8% on top of 5.7% is just running the Company as well as we can.

But we are never satisfied. We are always trying to improve. And that is what we are all about.

Appreciate it. Thanks.

Paul Morgan, Morgan Stanley.

On your releasing stats, the opening number went from $53 to $59. And I guess it is a 12-month trailing average. And so how much of your -- is there a disproportionate share opening in the first quarter? Because I am trying to see -- kind of forecast that number out. It was a big jump given that it's a rolling average.

This is Steve. Some of it is mixed. In the mall business especially, there are more leases that are tied to traditional retailers' fiscal year-end, which is January 31.

And, in fact, I think if you look at the supplemental, as I recall, the remaining square footage that we have expiring in 2013 is in the 3 million to 4 million square foot range, where over a normal year like 2014/2015, it is 8 million to 9 million square feet. So we have dealt with a lot of the -- especially regional mall expirations that occurred January 31.

Okay, okay great. That makes sense. Can you maybe just characterize? You provide a lot of -- you list all your redevelopment projects and looks like there is 37 in there. And you have about $700 million elicited in the [sub], which is -- it is only about $20 million per project, but it looks like there is some that are adding new space and should represent, I guess, a more sizable chunk of that.

I'm trying to see, should we see -- should we expect to see more expansions of malls given the demand and given your spreads, and resulting in some lumpier projects that pull that number up? Are there lumpy projects in there that represent a big share of that $700 million?

The lumpy projects are basically, hopefully, ready to start shortly. And I'm not going to list you -- just from recall. The lumpy ones you will start to see later on this year and in 2014. And they include as Roosevelt Field, the Copley, Del Amo, Woodbury, King of Prussia to name -- Houston Galleria, to name four, five or six lumpy, bigger chunkier ones.

You are right. A lot of what we have now is -- they run the -- you know, they run the $20 million, $30 million, $40 million. But you have something like Nanuet, which is $150 million project, and Walt Whitman is around $80 million. So you got a little -- you got it all over the board.

But the lumpier, bigger ones, we are essentially in our first phase of Del Amo. We will begin our first phase of Roosevelt Field here in the fall. Stanford, Rick whispered to me, thank you, we're finalizing everything there to -- as many of you probably know, to relocate Bloomingdale's, build them a new store and then we take over their existing Bloomingdale's store and carve it up for small shops.

So the bigger, lumpier ones really are hopefully beginning to start second half of 2013. And 2014 will be a huge year for us, 2015 as well, as these bigger, lumpier ones come on stream.

Paul, it is Steve. I would just add one thing to that, because it gets lost in the sauce sometimes. But between -- David mentioned Woodbury, but he didn't mention Desert Hills, Orlando Premium, Las Vegas North. Those are four Premium Outlets that all do north of $1000 a foot in sales where we are adding significant amount of space. And so we are -- those are projects that will come on in the next year or two as well (multiple speakers).

As Steve said, those on average are about $100 million a pop.

So that number could -- would -- should really double, probably, in a year from now?

It is going to balloon. It is going to balloon, and I think what we had said -- and what we have said and will say again is that this is our number one priority. This is the huge focus for the Company. This is where we spend most of our time.

And the good news is we recognized this, that the world is not going to end, a little bit ahead of others. So we're in the midst, we are in the midst of doing this now. Woodbury is going to start -- right after this, most people after their first quarter earnings take the afternoon off.

Right after this, Rick and I are going to spend two hours on the final approval of Woodbury. It is $168 million deal. And it is going to really, really be cool and it is really going to start, and we've really got the approvals and blah, blah, blah, blah.

And then in the afternoon we do take the launch break. Rick demands to go out to lunch. I like to eat at my desk. It is a source of much conflict in the organization.

But right after that, we are approving, I don't know, 20-some-odd different mall deals. So, number one priority; we are glad we are in the midst of his now, and a lot of good stuff to come.

Would you think those blended stabilized returns are going to be around -- you have got [nine] -- you have got 14% for the Premium Outlets in there. Is that going to change much?

Yes, you know, look, I think -- they will all be very, very accretive to our Company. As soon as the project gets approved and we put it in there, you will see the return.

Okay, great. Thanks.

Cedrik Lachance, Green Street Advisors.

David, when you look at occupancy, it continues to grow in your portfolio and we're past some previous peaks. Where do you think is stabilized occupancy?

Actually, I have been very impressed with our leasing team that they have been able to achieve these occupancy levels. So I think the focus now is -- it is always good to, on the margin, to continue to increase occupancy. But I do believe that the focus now will be making sure that the mix is the best that it can be.

But I have actually been very pleased and impressed with our leasing team and the amount of -- their ability to drive occupancy. Don't tell them, because then they will take the afternoon off where Rick and I won't. But, no, seriously, I have been very pleased with the results that they have been able to produce.

The only thing I would add is that the number that I am thinking about is higher than I would have told you perhaps a year ago, because what has emerged in our sector now is you have a number of very high fashion, highly productive tenants like Zara, H&M, UNIQLO, Topshop, that are demanding bigger space. And because they are all bigger spaces, that is going to create incremental demand for our space that could enable us to perhaps drive the percentage higher than would otherwise be the case absent that demand.

So, as you look at your ability to change the mix, what can it do for your ability to push rent in the centers?

It is relatively straightforward. The better the tenant does in terms of sales per square foot, the greater they have the ability to pay rent. And so it is really that simple.

So, as we do that, we are hopeful that rent will follow or be part of the initial equation.

And turning maybe to densification, you have got -- you talked about Copley earlier. It seems that you could add nonretail uses, depending on city. How many more malls do you own where you think you could add nonretail uses and densify the sites?

It is Rick. Right now we're working on adding hotels at five different projects. And we're working on adding multi-family at four additional ones. We are under construction with a multi-family project at Firewheel in Garland, Texas, so we still think there is very good demand for it.

What we have found is that when we add these hotels and multi-family or condo components in our projects, they are yielding the higher room rates for hotels and monthly rentals for multi-family, because people very much enjoy the mixed aspects of the community. So we think we bring a -- incremental value to those components and we're going to continue to pursue them.

I would just roughly -- put Copley aside because that is the big one, but there are at least 12 to 15 in each area that are of immediate focus. That doesn't mean it is limited to those, say, 24 to 30. But there are -- there is a list of those 12 or so in each category being hotel and/or multi-family that we are very focused on.

In fact, we are going to approve this afternoon Southdale, more than likely. I am still struggling with the returns -- okay, because our returns are higher than the multi-family guys get. But -- so I am still trying to -- I am still struggling with some of those deals.

But I do think there is the pipeline to take advantage of that. And it is good for the real estate, too, generally.

Great. And just final question, in your annual shareholder letter you talked about continuing to lead the industry in promoting the malls and marketing medium. How much more can you do -- how much more income can you generate from that aspect of the business?

Well, I think it is also just more than income in that -- I could be wrong here, but I do think -- I do think we are on the verge of a technology backlash. And our focus is creating the mall environment where people -- we had a meeting on this, a brainstorming meeting on this Monday. And something was said that was very clever, is that people today are looking down, they're not looking up.

And what happens in the mall environment, as we do give them the opportunity to look up and around, and not just down -- down meaning at your mobile device and everything else. So I do think the mall has a unique ability to be part of that maybe next wave of trying to create social responsibility, a community relations, community feel, and part of the process where we are actually look up as opposed to look down. So it is a big focus for our Company.

The revenue side, obviously, we love cash flow. So we are cash flow junkies. So we are going to work to that, too. But there is a unique ability for us to really create community in our properties beyond that, and I think that is a huge mission for us to try and achieve.

It's a long-term prospect. Lots of ideas there, very hard to sort out exactly how we will execute it. But -- and the good news is, just to segue into the e-commerce, you are seeing more and more pure e-commerce companies opening stores because they know that people, frankly, want to look up. They don't always want to look down.

So, great example is Warby Parker, this eyeglass thing. It was the new hot dot-com thing and they are opening physical stores. Now, whether they go to the malls I'm not -- who knows. But the fact of the matter is I think they recognize that people want to touch, feel, look up. So, our mission is to get people to look up, not look down.

Great, thank you.

Quentin Velleley, Citigroup.

It has been a while since you combined the operating statistics of the mall and the outlet business together. Can you maybe talk a little bit about how each is performing, some of the similarities and differences? And then as we look at the 79.6% of your NOI that comes from Malls and Premium Outlets could you give us a rough sense as to what the percentage is coming from outlets versus malls?

Sure, I will just say this. Steve can answer the second one. In the real estate recession or I should say the -- not the real estate recession, because, frankly, having lived through 1990 to 1993, this was child's play.

But if you look at the general economy, our outlets clearly outperformed the malls during that 2009, 2010 and 2011 period. And now I will say, generally, in terms of sales growth and comp growth, they're relatively close. The outlets are still marginally better, but the difference between those two is narrowed considerably.

Now with respect to the breakout, do you --?

Yes, if you actually -- in our year-end [tune] that is posted on the website, we do break it out for you. And I don't have it in front of me, but as I recall, the malls are [55%] and I think the outlets are [25%], because when you put the outlets and the Mills together, essentially about a third of our NOI comes from the value side of the business.

Okay, and then maybe just in terms of the ongoing success that you're having with Klepierre in terms of improving operations, and capital and asset sales and so forth having influence, are you spending a lot of time looking at a similar style of public company investment, where you we take similar minority stake and get some Board representation? Is that something that is increasingly attractive to you given the success of Klepierre?

We have thought about it from time to time. It is not a big focus for us. But it could lend itself to a situation here or there.

But Klepierre was -- the reason we made the investment the way we did was for all sorts of reasons, including risk management. So, it really would depend on the circumstances. It is not something that we are out looking to do. But in the right kind of context, it is conceivable.

David, it is the Michael Bilerman speaking. It sounds like if you are really a cash flow junkie, you should put advertising in the floors. That way you can get more money when people are looking down.

We tried that (laughter). We have done that. We did vinyl footprints; didn't go over well. It was great for the kids, then when I saw the adults using it, I thought it was little tacky.

Thinking about Klepierre, I guess we have elapsed the SIC status for them to effectively go private. So, how should we think about your stake and how you want to evolve over time, whether you want this to be a stub outstanding, whether you want to bring it in-house, whether you want to bring a joint venture partner in? How should we think about how that evolves now that at least the REIT issue, the French REIT issue is elapsing?

Well, Michael, I would love to answer that question, but I respectfully won't. We are pleased with the investment. We are making good strides. We need to make more strides.

And I said the big problem with the Company today is somewhat out of their control, and that is just dealing with the Spanish economy. But we are pleased. But I really -- as much as I would like to talk about that kind of stuff, I really can't. It is a public company. I've got to respect that situation. So we are pleased. They are making very good strides.

And I would say, operationally, things do take longer there than they would, say here. But we have been pleased with the blocking and tackling that the company is undertaking, though they still need to do a lot, lot more. We have been pleased with the progress they have made to date.

Then just going back to the rental spreads on page 19 of your supp, and Steve, you answered that the retailer calendar year-end of January 31. But I guess I am still having a hard time if March 31, 2012, you had [7 million of trailing at $54, 49] expiring. And now you are [331 3], 7.4 million square feet at $59 versus $52. And even 12/31/12, 8 million square feet at $53.48.

It just seems like there is -- that the opening/closing arch is much, much higher this quarter. Whatever happened in the first quarter of 2013 was dramatically higher rents than at any point over the trailing 12, any other quarter.

Michael, that is true, but if you also look, there were dramatically higher closing rents as well. So, some of it is clearly mix driven.

Some of it is clearly the fact that over the years our portfolio continues to get better. And so the rents that we were able to do leases at three years ago, five years ago, eight years ago were better, and those are all now rolling off. But mix is clearly an issue, or a component of it.

And I would just point out that we have in our portfolio, US portfolio, not including the Mills, or actually it does include the Mills, we have 121 properties that do over $700 a foot. So --.

121?

That average $700 a foot in sales.

121. So -- and as Steve said, Rick said, we are really trying to make those properties better and better in all sorts of different ways. So that is going to lead to more rent growth.

But, again, I would not overreact to one really good-looking statistic in one particular quarter. Just like I would ask for forgiveness to the extent that one quarter we have a statistic that looks bad, I am sure part of it is mix. We can drill down to it a little bit more, but demand is good and we have got a reasonably good portfolio.

Thank you.

Alex Goldfarb, Sandler O'Neill.

Just going, back to Christy's question around department stores, and just thinking about JCPenney in particular, especially as they brought in AlixPartners, your sense of -- as you guys, obviously, speak to them, other department stores, how much do you think the massive Ala Moana trade has warped department store managements in thinking what their boxes are worth? Or do you think most people are pretty realistic in what they think their real estate is worth?

Look, I can't speculate what Ala Moana -- how that has affected the judgment of department store or retail CEOs. I would point out, though, since Ala Moana there just hasn't been a lot of box trades. And you can come to your own conclusion as to why, maybe because they don't want to sell or maybe there is a spread between the bid and the ask. I don't know. But I can't speculate on how they think about that at all.

Okay. And then going to Klepierre, while I know that you don't want to comment directly on their operations, can you just give us a sense -- as you guys think about the growth in what Simon can bring to their platform, the split between improving NOI versus the -- bringing in a Simon Brand venture type revenue stream and increasing that ancillary income?

How would you think about the growth? Is more of it is just going to come from NOI? Or is there a big opportunity, you think, to really improve the ancillary income that that could be a meaningful contributor?

Again, I am not going to quantify that. It is not something I can do.

Look, I think the important thing to put in perspective there is that we don't run the company. We own a stake. We are pleased with the stake. We can show them how we run it and then they need to apply it.

And we brought in -- the company has brought in some talented people to learn from what we do, assuming we do what we do reasonably well. I am not telling you we do what we do is great, because I always think it can get better. But assuming we do what we do reasonably well, we can show them how we do it and how we think about the business, but they've got to do that. They are the ones that need to do it.

And it is not easy to do when the economy there is sputtering along, and in some cases still contracting, i.e. Spain. But they get what we are doing. They want to run the company better. They are running the company better.

And I think as I said in my letter, I do think there is growth there as soon as the economy of Europe generally stabilizes. And I do think the economy of Europe will stabilize. It is not going to, despite my personal view of it, it is not going to continue to contract as it has over the last year or two.

So -- but -- it was a long-winded answer, but I'm not going to speculate exactly how much NOI growth there is. But I do think there is improvement in how they run the business. And I think they would agree. I think that is their big focus in the upcoming years.

Okay, and then just finally, for Steve, and the -- and thank you for the new supplemental -- on page 23 in the CapEx and development page, there is an item called conversion from accrual to cash basis. And if you don't have this offhand we can discuss off-line, but just curious what that is.

It is simple. We give you a CapEx number and -- but there are CapEx numbers where we have accrued obligations, like we have got a construction but we haven't paid it yet. And all we are doing is giving you both the accrual number and the cash number, because some people look at it and want the accrual number; some people want the cash number.

Okay, that makes sense. Thank you.

And, by the way, that has been in there for --

Long time.

A long time.

David Harris, Imperial Capital.

Good morning, got us out of bed early this morning, guys.

I know. We are off our rhythm. We are usually -- we are usually 11, but we deferred.

Yes. Listen, this is a question, David, see if you feel constable you feel answering this. Any thoughts as to what Simon might look like if we were to lose the tax break?

I don't worry about that at all. I just -- REITs have been around for 60 years. It is not going to happen. I just can't imagine it is going to happen.

But as you know, it is revenue neutral. If in fact there was some -- some change, I think most politicians understand the importance of commercial real estate has in stabilizing the general economy. The last thing in the world they would want to do is create some kind of economic uncertainty.

They have seen the fact that this -- that the downturn and what commercial real estate, how it handled itself, and the amount of liquidity that REITs brought to the table to stabilize pricing and not create what happened in the early 1990s. As I said, I have lived through that, as has Rick.

Me too.

You too. Some others. It is not going to happen. But, by the way, if it did, we would be best positioned to take advantage of it because, as you know, our cash flow is significantly above our dividend payment.

Look, I have always fantasized, I probably shouldn't say this -- so I have always fantasized, we pay out $1.5 billion a year in dividends, $1.6 billion? What is the number now?

Yes, about $1.6 billion.

$1.6 billion. Imagine if I had that amount of capital for two, three, four years. So we would do some great stuff with it.

But, David, that is an aside. It is not going to happen. REITs have performed. They have been very important to the economy. They have been great for individual shareholders. They have helped stabilize pricing. No way.

Okay, so no plan B planning at this point?

We don't need to, but like I said, if the sun hits the moon and hits another galaxy, we will be better positioned than anybody else.

Well, tax breaks aren't granted in perpetuity, so I think the question is out there. A similar question, actually, related to Klepierre. Obviously, there has been a lot of talk about tax increases and public policy responses that may be somewhat more fluid in Europe today. Any notion at all that the tax status of a company like Klepierre is being questioned?

Not at all.

Okay, okay. All right, very good. Good luck with the hoop, Steve.

Michael Mueller, JPMorgan.

I want to go back to the leasing spreads again, not to beat a dead horse here, but the 13%, so the 300 basis point pickup. When I first looked at that, what went into my mind was your starting to roll some shorter term, post-downturn leases and you're going to get the benefit there.

So I guess what I'm trying to get at is, does it feel like this increase, whether it is 200 basis point, 300 or whatever it is, is probably going to be sticky going forward? Or is it just purely an anomaly where Q2 rolls around and for some reason we are back down to 10%?

It is Steve. Let me take a shot at it, and Rick can weigh in or David. I think if you look at -- we give you five quarters' worth of information. And the one thing you can see from the five quarters is that the spread has increased over each of the five quarters. The magnitude of the increase this quarter was substantial relative to the trend that we had been seeing, but we had been going from the low $4s to the mid-$4s to $5 a foot.

So, and as I said, some of that is lumpy because of first quarter expirations. But the fact is deals -- deal flow has been getting better. Quality of deals has been getting better.

Occupancy cost has stayed relatively low, so as you want to think about it, as mark-to-market or however you want to think about it, there is -- there should be an upward bias. Is the upward bias from $5 to $7? I think that is hard to say. But the trend has been good.

Okay. And then, I guess, secondly, just curious about what are the thoughts on the pace of rolling out outlets in Brazil today compared to what you were thinking six months or a year ago?

Let me answer that if I could. I think both -- as you know, we have looked diligently in Brazil and diligently in China. Both markets for us have proven to be very, very difficult to find the right project with the right risk/reward ratio. And hence we have nothing -- we are still looking with BR Malls. We are still hopeful that eventually we will be able to do something there.

China is proved to be a market that I continue to really question whether or not anybody can make money investing there, especially us. And so I'm hopeful that, over time, we will find the right opportunity with BR in Brazil, but that has taken longer than we anticipated. And then China is really, really on the back burner. And I have no regrets about it being on the back burner.

Got it. Okay, thank you.

Vincent Chao, Deutsche Bank.

Thanks for taking the question. Just want to go back to JCPenney real quick. Just, obviously, given the transition at the top there, just wondering if you could share your thoughts on that move itself. But then, also, given their return to more traditional marketing tactics that they have been known for, at the ground level have you seen any change or -- in traffic levels and that kind of thing since the move?

Let me just mention we are pleased that Mike Ullman is back. I think he will -- he is obviously a very competent, seasoned, thoughtful CEO and leader, and given all the turmoil that Penney was going through, a perfect choice to help stabilize the company. And we have a great respect for him and his ability.

And I would say, generally, having walked a number of Penney stores with David Contis and Rick over the last month or so, the stores are looking better. So I think they are headed on the right track. It is very hard for me to speculate exactly how it is all going to shake out, but the bottom line is the organization needed some stability and thoughtfulness. And I think Mike is perfectly the right guy to provide that.

Okay, thank you. And just want to go back some comments you made about the department store -- the anchor space and the 635 -- only six or seven vacant, so some of the lowest vacancy you've ever seen there. But then you also said that -- I think I heard no interest in the sale-leasebacks.

Just curious if you could comment on what kind of demand is out there for additional anchor space. Obviously with the vacancy low, that is good, but are you seeing much demand for anchor space? It just seems like most people are moving to the outlet channel in terms of the traditional anchors.

This is Rick. There is a great deal of demand for the space. And if you look at the kinds of tenants that we are adding to the properties, we are adding Wegmans, Fresh Market, Dick's, theaters, health clubs. There is a substantially broader number of categories of retailers that want to take advantage of all the traffic and mass that we are creating at these properties.

So we have, again, more demand today than we have had historically from a broader collection and variety of retailers than we have had in the past. And all of that is helping drive, I think, the growth of our properties and the lack of vacancy among our anchor boxes.

Okay. I guess you have enough data points at this point for some of these nontraditional anchors -- anchor malls, as far as how the performance of those malls compares to historically the traditional setup or mix?

I think that all of our anchor components are part of the mix that we have at the property. They are not going to be game changing, but they obviously want to be at properties that are consistent with their growth. And in some instances it is merely a function of whether we can accommodate the physical configuration. A Wegmans needs almost 4 acres of land for a single level building. Well, in a lot of instances that can't happen.

So it is really less a function of that kind of correlation and more a function of can we continue to give our trade area shoppers more reasons to come to our properties, and that is what we are all about.

Okay, thanks, guys.

Rich Moore, RBC Capital Markets.

On the bankruptcy front and the lease termination front and that sort of side of the equation, it seems that things are pretty good. I guess, Rick, how would you characterize the outlook for lost tenants over the next, I don't know, 3 to 9 months?

If you look historically or bankruptcy numbers have been up a little in 2013, just because of Bakers, but overall the credit profile of our tenants has never been better. Our receivables, as Steve can elaborate, have never been in better shape. Our bad debt is stable. So we are feeling good about the credit profile of our tenants and, more importantly, their rent-paying ability which continues to be pretty strong.

This is Steve. Just to put numbers on Rick's overall statement, I think at the end of the third quarter we were chasing $42 million of receivables that had been billed but not yet been paid. And that is on about a $7 billion annual base of revenue that we build, either on the consolidated or the JV properties. So you're literally talking about less than two days' worth of revenue. And the credit profile, as Rick said, is very strong right now.

Yes, I don't think my calculator decimals got that far, Steve. Okay, good, thanks. Then on the outlets, I think -- didn't you guys do the development of Houston and Tanger is doing Charlotte? And then how do you split up Columbus, so I guess who is driving Columbus is what I am curious?

In Charlotte we've -- we actually switched the roles that we had in Texas. And we are -- in Texas we were the developer and we jointly leased and they run the center. In Charlotte they are the developer, as it was their site.

We are going to manage the center and will jointly lease. And then in Columbus, again Columbus is a competitive marketplace, but in Columbus we are switching back to the other deal. So it has been -- partnerships are very common in the real estate industry. All sorts of people have partnered, developers over the years have always partnered.

We have a very good relationship with Tanger. So it is just natural to say, okay, this is the way it was here. We are going to swap there and then go back here. And then if there is another deal to do, we would -- it would probably swap back to the way we were doing Charlotte.

So, long-winded, but Charlotte will be -- the Charlotte premium Outlet and then Tanger will be branding Columbus, if in fact we are -- the successful developer.

Okay, thanks. And then, David, how many more do you think of the eight that you have going you would do with -- or that you are thinking about for North America -- you would do with Tanger?

In the two or in the eight, and that of the eight in North America that includes Canada, by the way, and we are actually looking at another site in Mexico. And we have seen very good progress in our outlet in Mexico City. But of the eight, two of those are Charlotte and Columbus of the eight.

Okay, and no more planned yet with Tanger?

No, sir.

Okay, good, thanks. And then the last thing, Steve, the recovery ratio, I think it was pretty much a high this time, this quarter. Is it going to stay up where it is?

I would tell you in a weird sort of way the recovery ratio, the way those of us who have been around a while have historically thought about it, is less relevant now because we are 90%-plus converted to fixed CAM. So the CAM charge is just another fixed charge that the retailer looks at in the calculation of the total occupancy cost that they are paying to the landlord.

Our fixed CAM all have individual annual escalators, and if you look at our operating costs, they have been pretty flat. And as long as that is the case, you're going to see the recovery ratio the way developers have traditionally thought about it continue to increase.

But I will tell you just in terms of our ability to drive rents, if you go back, and we have given you some of the quarters in the K, but our occupancy cost is down over 100 basis points since 12/31/10. So we are still providing very good profitability and value for our retailers.

Okay, great. Thank you, guys.

Ben Yang, Evercore Partners.

David, you made some comments this quarter that demand is picking up in the B mall category, that sales were actually okay. So three, four months into the new year, is that still the situation generally that the B mall segment continues to perform okay?

Yes.

Okay.

Yes, it is.

Okay. And then, also, maybe for Steve, based on some of your recent conversations with lenders, are the lenders taking a more conservative approach, maybe, to the B mall category, given obviously what is happening at JCPenney?

I would just say the lenders, and I assume you're referring to the secured lenders, generally speaking have kept a more conservative posture. Loan-to-values are still relatively modest. Underwriting is still relatively conservative. And that is true regardless of the quality of the asset.

Okay, so no significant change over the past few weeks, given, obviously, the new management team at JCPenney and a lot of uncertainty going on with that particular anchor? Is that a fair --?

That is fair.

Okay, and then maybe switching gears, you made some comments on China just now, on the back burner just to find opportunities to make money. Can you just elaborate a bit on some of the challenges that you see in China today that make you a little more cautious, because I do recall that you guys did go into China a few years ago doing some Wal-Mart anchored centers, and I am curious what you see today that makes it still very challenging for you guys?

That was a very good experience, and we brought -- look, anytime you invest capital and you only bring 70% of it back home, you learn a lesson. And I would say generally, generally the ability to underwrite the product there in terms of what the tenants are going to pay, what the costs are, what the approval process is, all of the elements of the P&L and a pro forma, including construction cost, land cost, permitting, it is all very -- not to say that people can't make money there, but it is all very difficult to really have a high degree of confidence.

And when you think of the risk associated there, you would hope that the returns are better, at least on the piece of paper that you're ready to make the investment are. And, frankly, they're not. And that is where the big gap exists.

And so a lot of it is build it and they will come, and that plays out pretty badly in real estate development. It certainly -- build it and they will come in the US, as Rick knows and I know. Rick is older, so he knows a little bit more than I know. Build it and they will come did not make every mall successful. There are a lot of malls that, frankly, shouldn't have been built.

So it is just very tough to have the level of precision that we want. And if there were a margin for error, i.e. returns on investment that were higher, you would take the risk. I just don't see it in everything that we look at on a piece of paper in China.

Brazil is a little bit different. You can pencil better returns there. But, again, finding the right site and the ability to build and so on is a little more tough -- difficult, but you do see a little bit of a -- you do see much better returns, at least on a piece of paper.

Okay, very helpful. And maybe just one final one on China, what type of returns would make it more attractive for you to go into China, given all the risks that you elaborated on?

You'll know it when we do it (laughter). Right now I don't see anything on the drawing board that is going to -- and again, please, the fact of the matter somebody could be very successful and we could miss an opportunity. But for whatever reason, whatever we're looking at is just not making sense for us. That is not to say others might not be successful.

Great, thank you.

Josh Patinkin, BMO.

A couple questions on Toronto Premium Outlet and the broader opportunity set for the Premium Outlet brand in Canada. Hudson Bay is opening their first outlet store there. Are you in a position to announce any other merchants?

Yes, we will. I don't know when we're going to do that, but we normally do that -- we normally have done that throughout the process, but we will. This should be, by all accounts, a very successful outlet center.

We are already 85% leased and committed, and we will be putting out a press release in the next month or so. It is opening in August, so it is happening. And it has gotten very good response from both Canadian-based retailers, but also the US retailers that are operating in Toronto already.

Yes.

Okay, so that was my next question. The American brands, I am trying to assess their level of interest in Canada. And are the Canadian brands that are going in there, are they developing a made-for-outlet merchandising strategy similar to what's happened?

Some are. Some are now. Hudson Bay is a perfect example. We have a wonderful relationship with the parent, which is, as you know, Lord & Taylor. And we picked up the phone and said, this -- you are doing Lord & Taylor outlets in the US, a few here and there. You ought to do it with Hudson Bay and really we generated that idea. They thought long and hard about it and they were very interested in doing that, so I do think it will start a trend there, no question about it.

And the US folks are very interested, assuming they have a full price presence ahead of that. And they will -- Canada generally is very attractive to most US retailers, but not all are there. And some of their outlet concepts will be delayed to the extent that -- until they have the full price there, which is coming.

And for us, with Toronto Premium Outlets, the luxury brands are starting to hit Toronto. And what we think over time is they hit there, we have the natural place for them to do the outlet. But, again, that is going to take time.

In the meantime, we are going to have a terrific center. And we have a phase 2 there that will allow us to bring in the luxury guys as they hit the greater Toronto market.

Okay. As you look at Canada, how many premium outlet caliber malls are there to build in Canada, do you think?

We expect in our -- at least one of the -- this was a great secret. Now you have got three or four of the eight, but one in (laughter) anyway. One of the eight, at least eight is in Montreal, which we expect, again, another meeting today on it. But we are going to start construction on that in July. And so we think that is a good market, a very good market.

Now it poses a little trickier leasing, because number of the US brands won't go up to Quebec, but we think that is offset by some of the international brands that really do like Montreal. In fact, Montreal is a great fashion city, and they have great malls there and we think it is going to be a great long-term project.

So we have got Montreal. Obviously, Vancouver is a very interesting market as well. We are focused on those kind of bigger gateway areas up in Canada.

Okay, thank you.

Nathan Isbee, Stifel Nicolaus.

David, you have updated your FFO guidance after the first quarter for stronger operations. And just going back to the first -- fourth quarter call, you said on that call it was going to be tough to match the 4.8% same-store growth you did in 2012. Can you perhaps give us an update on those thoughts?

The first quarter was very good. We had a very -- what is really impressive to me is that it was off a really good first quarter in 2012. So that is pretty significant cash flow growth when you add the 5.7% plus the 4.8%, or on top of the 4.8%.

Great.

I am conservative by nature. I think the organization generally is -- even though we probably don't compliment them as much as we should -- they are really doing a good job. So it would be -- I would be very, very excited if we maintained it. We are not anticipating that.

We also trended down for the year. First quarter was better, so last year if you look -- I don't remember where we were in overall for 2012. But --.

4.8%.

4.8%. So I think 2013 we are heading the right direction. I'm really not answering your question, but yes, it is off to a good start is all I can tell you.

Okay. And then you talked about some of the fundamental strength in the B mall market. There seems to be some new entrants into the B mall category, people looking to buy some of those major assets, et cetera. What are your thoughts in terms of perhaps accelerating your sales out of that group, taking advantage of the new entrants to that market?

Well, we are still going to prune the portfolio, so I am pleased that there are new people coming into the market that are looking at deals. So I think that is good for us generally.

Okay, and then, just finally on St. Louis, you have 97% spoken for at this point. Now that you're getting closer to the open, can you give us a little bit more, perhaps, the insight into negotiations with the retailers on why they chose your site over the competing, and what type sales they're expecting to get out of?

I can't -- I really am not going to get into that, other than to say we presented to them what we thought the center was, was going to be like Cincinnati Premium Outlets. This was how we envisioned the productivity and the mix. And that has been very -- it is a quiet center, but it has been well-received by the community and by the retailers. And that is how we sold it to the retailers.

Now they have a lot of confidence that when we say we are going to build Cincinnati, they did. We did that. So that is how we sold it. And to them, in terms of how they should think about their productivity, the pricing was similar to that. And we took it from there.

Nothing beyond that, really. It was -- it was competitive. But at the end of the day, I think retailers have a level of confidence with us that -- in terms of the outlet product.

I will say this, though, we got -- because pricing a new deal, there is not -- the outlet retailer generally they know what they can afford to pay. So as much as we would like to say there is this great, huge negotiation on rents, they're used to saying, here is what I pay on a new outlet center, and that is what they pay.

So they are in a very good position to bargain what the rental rate is.

The one thing they really wanted to do, they really don't like competing centers. They really like when that there is one site and then they all go because they don't -- they don't -- they know what they can afford to pay. Then that is what they pay.

So in Charlotte, as much as the market might think, boy, Charlotte looks like we are going to build that one center, the retail community loved the fact that they didn't have to worry about a competing site. They really, really liked it.

Now, in St. Louis, I'm sure a number of them felt that way as well.

Okay, and I guess your success there hasn't whetted your appetite for another site now?

No, we have lost plenty of those too. But -- like I said it is not -- it is common to partner and just get a deal done for the community, for the retailers and be done with it. But in this case it didn't happen.

All right, thanks so much.

This concludes today's question and answer session. I would like to hand the call back over to Mr. Simon for closing remarks.

Okay, thank you for your time and your interest, and we will talk to very, very soon.

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