西蒙地產 (SPG) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2014 Simon Property Group, Inc., earnings conference call. My name is Clinton and I will be your operator for today. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Liz Zale, Senior VP of Corporate Affairs. Please proceed.

Thank you. Good morning, everyone, and welcome to Simon Property Group's first-quarter 2014 earnings conference call. Presenting on today's call is David Simon, our Chairman and Chief Executive Officer; Rick Sokolov, our President and Chief Operating Officer; and Steve Sterrett, our Chief Financial Officer. We are also joined by Tom Ward, our new Vice President of Investor Relations.

Before we begin, just a quick reminder that statements made during this call may be deemed forward-looking statements within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995 and actual results may differ materially due to a variety of risks, uncertainties, and other factors. We refer you to today's press release and our SEC filings for a detailed discussion of forward-looking statements.

Please note that this call it includes information that may only be accurate as of today's date and reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today's Form 8-K filing. Both the press release and the supplemental information are available online at investors. Simon.com.

It is now my pleasure to introduce David Simon.

Good morning. We had a strong start to the year. Results in the quarter were led by FFO of $2.38 per share, up 16.1% from the first quarter of 2013. Once again, our FFO significantly exceeded the First Call consensus estimate.

Our growth strategy continues to generate significant value for our business. Overall business conditions are positive. Demand for space in our portfolio remains strong. Leasing activity is healthy.

We had occupancy growth of 80 basis points compared to Q1 2013 to end the quarter at 95.5%, accelerating releasing spreads to $9.90 per square foot. Our comp NOI growth for malls and outlets was 3.7% despite higher costs from utilities and snow removal. If we normalize this, this affected our comp by roughly 90 basis points.

And as a point of reference, comp NOI, including the Mills and excluding the malls to be spun off as part of WP, was 5.3% for the quarter including the high cost of snow and utility removal.

Now, as reported, our retail sales were essentially flat and I would encourage you to look at our revenues as opposed to our retailer sales. As you know, if we have underperforming retailers, we have the ability to replace them with better retailers at generally higher rents, which generates higher SPG revenues. And as I have said repeatedly, current retail sales does not correlate to our ability to grow our cash flow.

And as a reminder, our consolidated revenues, the revenues that I focus on, grew by 8.2% for the year. These results are a testament to the strength of our assets and the desirability of our locations.

Now development construction continues on new premium outlets in Charlotte, Minneapolis, Montreal, and Vancouver, all high-quality major markets, and that remains our only focus in new development within those kind of markets. Other new outlet projects in our development pipeline are moving forward. We have up to six additional new outlets expected to start construction in 2014 and 2015.

Redevelopment and expansion projects are ongoing at 29 properties in the US, Asia, and Mexico. We started construction on two important redevelopment projects in our portfolio. They include the relocation of Bloomingdale's at Stanford Mall in Palo Alto and the redevelopment of its former location to add 120,000 new square feet of space for small shops and restaurants. And the relocation of Saks Fifth Avenue at Houston Galleria to a new prototype store plus the redevelopment of that existing Saks and an expansion adding 105,000 square feet of luxury retail and restaurants.

We also started construction on the expansion of Yeoju Premium Outlets in Seoul, Korea, that will add approximately 259,000 square feet. And we have a healthy pipeline of other Premium Outlet expansion projects in the works.

Desert Hills Premium Outlets is celebrating the opening of its expansion beginning this Thursday, adding 147,000 square feet, and it is fully leased. As an example, the annualized NOI from this expansion will add $17 million to SPG's NOI as it's a wholly-owned asset.

Construction is ongoing to expand and enhance of our most productive properties including Roosevelt Field, Woodbury Commons, Lenox Square, and Del Amo, to name a few. Overall, we continue to expect redevelopment investments of at least $1 billion annually through 2016 that will contribute incremental growth in NOI and strengthen the position of our assets in the respective geographic areas.

On Klepierre, the transformative Carrefour deal selling 126 smaller assets for nearly EUR2 billion, closed last week and McArthur Glen, our new investment in the outlet business in Europe, is performing well. Our deal side transactions during the first quarter included our acquisition of the remaining interest in Kravco Simon, which held interest in a portfolio of 10 assets including King of Prussia Mall, which we now own 100%, and the acquisition of Arizona Mills, bringing our interest to that center of 100%, as well as development land in Oyster Bay, Long Island, from the Taubman Centers.

Just an update on Washington Prime Group. WP spin off of 98 assets including our strip center business is expected to be completed in the second quarter. Recent activities include announced members of senior management team and independent Board of Directors, including Mark Ordan as CEO.

We are pleased also today to announce that Marc Richards will be joining WP as CFO. He is well-respected and has worked with Mark successfully at Sunrise Senior Living.

We have received indicative investment grade ratings from three major credit agency as follows: S&P BBB, Moody's BAA2, Fitch BBB. All three agencies providing a stable outlook, very strong ratings out of the box and comparable to many REITs that have been rated for a long time, and the balance sheet will be ready to enable the Company in its pursuit of cash flow growth.

Completed financing activities on WP. Nine mortgages were closed and two unsecured facilities comprised of a $900 million revolving credit facility and a $500 million term loan were completed. And now let me turn to the SPG capital markets update.

We completed a $1.2 billion senior unsecured notes offering in January with the weighted average duration of 7.5 years at an average coupon rate of 2.975%, the 65 basis point spread over treasuries for the five-year tranche is the tightest five-year spread ever for a REIT. On March 14, Fitch upgraded our credit ratings to A. We are now at the mid-A level with all three of the agencies, leading the REIT industry.

We closed or locked rates on four new secured loans in the quarter totaling $860 million, of which our share with $491 million, and we expect to generate the $1 billion of cash proceeds from the WP spin upon its completion. Early in April we amended and extended our $4 billion unsecured, multicurrency revolving credit facility to a June 2019 final maturity and were able to reduce the interest rate to LIBOR plus 80 basis points from LIBOR plus 95 basis points. Again, the best in the market.

We raised the dividend again this quarter to $1.30 per share. That is an increase of $0.05 per share from last quarter and a year-over-year increase of 13%. We will pay at SPG at least $5.15 per common share in 2014, not including the WP expected dividend. As we said to you originally, the WP expected dividend will create an overall effective dividend of $5.65 or another at least $0.50 on a one-for-one basis for WP spend.

Now let's go to guidance. We revised our 2014 guidance upwards to $9.60 to $9.70 of FFO per share. This incorporates our strong performance in the first quarter and raises both the top and the bottom by $0.10.

It's based upon an annual comp NOI growth of at least 4% for our combined mall and outlet portfolio. This FFO guidance is comparable basis with our 2013 results and ignores any potential impact of the WP spin. Once the spinoff is completed, we will provide updated guidance through a press release, reflecting what the impact to SPG will be for the balance of the year.

So, overall, we had a strong start to the year. We are absolutely focused on creating value for our properties and for our tenants and for our shareholders. And now we are ready for questions.

(Operator Instructions) Steve Sakwa, ISI Group.

I can appreciate your comment about the tenant sales and how that doesn't directly impact your business short term. But I was wondering if you guys could maybe try and isolate what the weather impact was, and if you or Rick could maybe talk about regional sales performance. Did you see any difference in places like Florida, Texas, and California versus kind of the Northeast, Mid-Atlantic, and Midwest?

I would refute your first statement, Steve, and I would suggest to you that the most important thing in terms of growing our cash flow is in fact what the market rents of our space are, which are not determinative by what current retailers are producing out of that space, and what our rollover schedule looks like. In fact, if you see our rent spreads of nearly $10 per foot, that would indicate exactly -- sure, we do have some risk to overage rent as sales ebb and flow. But the fact of the matter is recurrent retail sales generally don't have an impact and take an example.

There are a number of teen retailers that are really not performing that well; each one have a variety of reasons. That is in our sales numbers for our retailers, yet that has nothing to do with what the market value of that space can be.

And so again the obsession -- you should be obsessed with our sales. I am obsessed with our revenues, the SPG revenues.

Retailers come and go. If we were worried about retail sales -- this company was originally built -- we had Kmart as our anchors. And if we had looked at Kmart sales, we would've suggested that our sales -- our revenues could never grow.

But in fact, what we do here is we are able to replace underperforming retailers with better retailers and we are able to garner the market rent of what our space should be. And that continues to go up, so it's not a short term -- this is not a short-term issue. This is an issue that has existed for the balance of this 50-year history of this company.

Now Rick mentioned regional. Fact of the matter is sure, the weather -- this company will never use weather as an excuse. It certainly affected our comp NOI by 90 basis points as a high utility snow. We all can talk about the winter.

That's in our rearview mirror. It certainly had an impact on our retailers that exist in our buildings, but it doesn't change the fundamentals of the fact that our business is solid, has the ability to grow its cash flow. We have a long demonstrated track record of being able to do that and we will continue to do that.

But the markets that didn't have snow, etc., they were not as affected in terms of those retailers that report. And I do remind you that the strip center REITs don't even report tenant sales, so -- but, Rick, I don't know if you want to add anything to it.

The one thing I would -- not only do we not use weather as an excuse with you, we do not allow our operating teams in any of our platforms to use weather as an excuse. And we expect those results to be delivered.

You will not be surprised to hear that the better markets were the Pacific, Florida, the Southwest, and Las Vegas, and the markets that were most impacted by the weather were the Plains, the Great Lakes, and the Mid-Atlantic. No great insights there, but as David said, we are managing through.

Okay, thanks. Then just on the leasing front, I know most of the leasing is done for this year but, Rick, can you give us some insight as to what kind of leasing is kind of done for next year?

We are right on track with our leasing renewals and leasing the space this year. As we sit here today, we are right where we were last year at this time for this year, but there is increasing demand. As David said, our job is to curate our properties and bring in the most productive and the growing tenants and eliminate or downsize the tenants that are least productive. And that is what we do on an ongoing basis.

Okay, thanks.

Christy McElroy, Citi.

It's actually Michael Bilerman here with Christy. David, I just had one question just in terms of global expansion and I wasn't sure if your British conference call coordinator was on purpose or not. But where sort of -- you know, the outlet business is clearly global; you have moved that global in all the regions.

How do you sort of feel about traditional retail and where your thoughts are about that side of the business in pursuing more global expansion?

Look, we always -- we have a great outlet platform in Asia. In fact, Stanley is over in Asia I guess tomorrow. It's tomorrow, right? So technically he's a day ahead of us.

We are looking at other Southeast Asia markets to take -- to expand our platform. We have been really successful everywhere in Asia in the outlet business. You know, Japan, Korea, Malaysia. There's a number of southeastern markets, not China, that are very interesting to us. So I would expect, Michael, to hopefully be able to build some new centers there.

We have a good outlet potential in Mexico, where we've got a couple new sites that we are pursuing aggressively including the expansion of our one outlet there. The Brazilian outlet opportunity is somewhat dormant at this point. Couldn't find the right sites and the market -- we were fortuitous in that the market obviously is correcting there so we have no capital at risk and we have nothing necessarily planned there.

Then we've got the McArthur Glen, which very excited about. Not just the assets that we have interest in, but also the development and management platform as well as some of their new expansion opportunities and new development. I was over there a couple weeks ago looking at one of their opportunities, so we think that that business will become more important to us over time.

And turning to the full price, I think our model will continue to be opportunistic. We love, in retrospect, what happened with Klepierre.

We went in there before anybody thought about investing in European real estate based upon two fundamental beliefs. One is that the cash flow is very sticky. So far, so good ex-Spain, which in fact was not very sticky, but it means less and less to us now that we sold this huge portfolio to Carrefour.

And we can help the Company from a strategic point of view and get them retail-focused and all the other things that we've been doing, help them become better operators, all of which have in fact, scarily, gone according to plan. So we want to be opportunistic. There's a lot of capital now in Europe.

The UK is not a real focus for us. Prices are not necessarily cheap and they are not opportunistic. We had a disappointing experience there. In retrospect, the shareholders and the Board should have thought -- the shareholders technically never got an opportunity but the Board should have probably thought about its response a little bit more thoroughly than it did.

But that's it. We are going to continue to be opportunistic. We are not doing -- this is not glamorous and it's primarily the focus is if we can add and export our ability. And the number one goal is to make money. I have no interest in building monuments.

David, it's Christy here. Wondering if you could talk a little bit about your new Simon Venture Group. Are you spending any time on this personally?

How much capital would you anticipate investing over time? What sort of returns are you looking at? And can you give us some examples of the types of companies you are looking at?

Sure, we have just hired Skyler Fernandes, who has early-stage VC experience. We have made a couple small investments before Skyler's involvement with Jafiti and shopkick -- I almost said Shop and Track -- which has been small investments.

It's really -- the primary focus is in areas where we think it's going to apply the investment and the business model will apply to our physical environment. It could be a new retailer. It could be a new restaurant. It can be a new technology that is important to our consumer and our retailer.

I think over time we could invest anywhere from $25 million to $50 million. We're going to do it very small. We don't want to have a big staff.

If Skyler is listening, Skyler, you are going to have to do most of this on your own. I am involved. He and I met a couple hours yesterday. We've got a couple -- these are $1 million up to $5 million investments a piece.

But it's really trying to -- focused on bettering our product. We can do that through new retailers, restaurants. We can do that through new technology. We can do it through new services and we can do it in a way that can help our retailers like Deliv, which in fact is on the forefront of ultimately providing same-day delivery services to our consumers, which seems to resonate with a number of our consumers.

So that's the theory; it's going to morph. The good news is we have only had really two investment mistakes over time that I would call material -- not material, but with China we only got $0.75 on our $1 but we learned that with China you've got to be very careful.

We also invested in technology in the late '90s. We learned a lot from that. You know, the whole model has changed now because that actually -- we had great ideas there.

But investing in building the stuff -- this was before the cloud. This was when you had to buy the routers, the servers; you had to build everything. Now you can essentially rent it all out. The economics are such that you're never going to have that kind of capital at risk to see whether or not a new idea, a new technology can germinate to something that is meaningful to our portfolio.

That's helpful, thank you.

Dan Oppenheim, Credit Suisse.

Was wondering if you can talk about the issue with the -- kind of sales, talking about previously the tenant didn't really matter but it's really the cash flow. Presumably the cost of occupancy over time does matter.

You had highlighted the teen retailers. Should we assume that, given the comment to the teen retailers, that ex that you are feeling quite good and confident about sort of cost of occupancy overall?

Look, our business has, over its 50-year history and 20 years as a public company where have we produced unbelievable results, always has retailers that get hot, get cold, new concept, old concept. It's just the nature of our business.

Again, occupancy costs are determined at a particular point in time, but it doesn't necessarily equate to what the market value of that rent is or that space is because again that sale that's being generated out of that space is that particular retailer. And that particular retailer could not be generating the sales that that particular space should be generating. That's where it relies on us to either relocate them or replace them with a newer, better retailer.

Again, if you looked at our ability to -- if you looked at our top 10 tenants 20 years ago versus today and if you looked at our cash flow growth 20 years ago to today, despite all of the noise about particular retailers here and there, there is such strong evidence to support my statements. So occupancy cost is interesting, but it's not a factor in what our ability to generate cash flow growth is.

You have to look at the rollover schedule and how that equates to market rents and market rents are determined based upon supply and demand. So in the office sector, you do the same thing. In the strip center sector you do the same thing. In the industrial sector you do the same thing.

But here, for whatever reason, the mall industry has gotten away from cash flow growth as the important determinant in what the value of our company is and more what are the existing retailers' sales. I don't buy that and I've never run this company based upon that, and our track record is evidence of that. I don't know what else to tell you.

(multiple speakers) The only thing that I would add is that, to underline David's point about supply and demand, there is virtually no new supply. If you look over the last six years, supply has been growing 50 bps a year lower than the rate of our population growth, so we are in a very good supply dynamic for the foreseeable future.

And again, retailers -- some -- and it ebbs and it flows. Sometimes there's more retailers that are under pressure than sometimes not, but you cannot replicate our buildings. You cannot build it. There is no new supply. And supply and demand is in our favor, otherwise we couldn't grow our cash flow. It's that simple.

I encourage everybody -- I hope this doesn't sound defensive, but I encourage everybody to understand how we run the business. We run it over a long period of time. We are always replacing retailers.

Some of the toughest calls that Rick and I get are the ones where we move an underperforming retailer out for a better-performing retailer. The retailers that are underperforming, fact is they could be there for five, 10 years and their rents are way under market. It may look bad in their sales, but the fact is it's welcome from us because we can replace them with a better tenant.

Let's take lease settlement income as part of that discussion. The fact is that if somebody -- like we had some lease settlement income. Sony is exiting the mall business. Sony is in A malls.

If they pay me the present value of being in that space and I get that space back and I can lease it for current market value, you and me -- you are not maybe a shareholder, you are an analyst, but you, in a sense, represent shareholders. You and me have just done a good deed. We now get the present value of that space obligation. I get the space back. I can lease it for market rent. That's a win for us.

Again, you have seen that over a period of time with retailers. The lease settlement income is being generated by our top centers. For whatever reason certain retailers are not wanting to get out of the business or not performing well at this center. It has nothing to do with that center.

Thank you, and I guess one question in terms of the cash flow. There was a comment in terms of the NOI growth, ex WP, being 5.3%. Should we compare that 5.3% with the 3.7%? And I guess it would seem then that WP would have had much lower NOI growth but presumably a lot of assets being in the Midwest and some Mid-Atlantic would've had some impact there.

The other -- the real important thing we did was we put in the Mills there, which generated --. One of the things we are thinking about, and comments are welcome, is that we have not historically put the Mills' comp NOI growth in our overall comp NOI.

But as we are -- once the spin is done it's likely -- we are happy to get input on this -- it's likely that we will then put that in our comp NOI, because these are big cash flow generating assets. And it's probably the bigger assets, which is consistent with what SPG is doing going forward, focused on the bigger assets, and it will probably be in our comp NOI pool. So we wanted to give you a flavor of what that comp NOI growth would be including the Mills.

There's some marginal benefit of the fact that if you were taking out the WP assets, but it's marginal. You are correct in saying that because of the snow and utility costs and a lot of those centers are located in the areas that got whacked in the first quarter, you are correct in saying that that had some impact on that comp NOI as it did for SPG as a whole.

Thank you.

Paul Morgan, MLV.

Good morning. David, I think your comment about market rents for space not being related to what the existing retailer is doing, and I think maybe a great example of that might be just replacing department store space with small shops and the upside you see there. Kind of like what you are doing at Stanford.

But do you have a sense of -- could you give us any sense of kind of how many of those opportunities are in your pipeline? You announced a couple projects, the Phipps and Pentagon City, but is this something you are having discussions with department stores increasingly where they can maybe downsize and you can recapture space at much, much higher rents, or --? Any color?

We are always looking for that and I will let Rick comment on that. It's interesting, though, while that -- neither one of those guys are leaving. They are actually getting new stores in that process, but we are able to make the economics work because of the supply and demand of those particular assets.

They are both in antiquated physical plants, so we are able to make kind of a win-win out of it in that we reclaim, re-demise their existing space, turn it over to small shops. They get a new, brand-new prototype store and it's a win-win.

But part of the lease settlement income that we generated in the first quarter was the full present value of the Saks obligation at Florida Mall, where they paid us. They are leaving shortly, right, Rich?

We are under construction.

And we are going to reclaim that for small shops. That is a mall that does close to $1,000 a foot, something like that. And -- but there's a handful of those. Rick, you want to add -- a handful of those kind of opportunities.

And we are constantly mining the portfolio. We just announced, literally, an expansion in Pentagon. We have announced -- David just talked about Florida Mall. Both of those are just in addition to all the things we have completed over the last year.

Obviously we are always talking with our department stores about where they have got space that we believe can be better deployed and we are in constant conversations about whether we can put it to better use. Sometimes it happens independent of us. A great example of that is the Dick's that is being added in one level of Sears in King of Prussia that was basically done inside the Sears store. But that's going to make that property substantially more productive by having Dick's anchor one level and Sears consolidate into a more productive box on one level.

My other question is related, but -- I think there has obviously been a lot of headlines about not just sales but mall traffic. And then we've had a tick up in bankruptcies and store closing announcements. What you don't hear as much about is kind of the back -- the retailers who are looking to backfill that space.

Maybe I don't know, Rick, do you have some color about people who, for example, would be looking to take the Coldwater Creek stores that are liquidating or folks like that who are -- have upped their store opening targets?

David always makes fun of me when I rattle off the list of the tenants, but the good news is that there is a very vibrant group of tenants that are looking to expand. Lego, Athleta, H&M, Zara, Uniqlo, just a few and all -- Topshop. We are adding Topshops in three places in the portfolio.

There are -- to David's point, historically there have always been tenants that are looking to do business in productive properties. And to the extent the space we are getting back is in productive properties, and happily that's the vast majority of our portfolio, we have users and we have demand at better rents and the opportunity to right-size the space.

Great, thanks.

Just a comment on traffic, I would suggest to you that when a retailer talks about the traffic that may be their particular stores and may not be endemic of the mall's traffic. I would also caution, throw significant caution to the wind that there are a couple of -- one company in particular that holds themself out as the barometer of traffic in the mall industry and their data does not include any common area or entrance data from the Simon Property Group and many other mall owners of quality real estate. We don't know how and in fact what that traffic is that they report.

So I just want you to -- I want to throw caution to the wind when you hear these general statements about traffic. Now was traffic affected by the winter? And the fact is that malls -- we have some statistics which I don't even remember, but how many days our malls were closed compared to last year. It was 10x of what it was but -- so that can happen. It happened.

I just want you to throw caution to the wind. When the media quotes traffic numbers, understand the source of that and its accuracy.

So you are saying your portfolio is doing better than what they are saying for the industry?

I'm saying our traffic was affected by the weather and I'm saying you look at our results and that gives you an indication of what's going on with our portfolio.

Thanks.

David Harris, Imperial Capital.

Good morning, everybody. The Carrefour sale by Klepierre, does that prompt any consideration for special dividend under the French REIT rules, David?

No, the answer is no, because they have the ability to straddle years a little bit like this as well. And they have -- they are also unwinding some hedges as part of that because they were over hedged, so there's some losses associated with that. The fact is it will not end up in a situation where there is an unusual dividend spike. The dividend has been growing, expect that to probably continue, but there won't be something extraordinary associated with that sale.

So the proceeds will be essentially used to delever the Company and at least the initial thought?

Correct, that's correct.

Okay, does that leave you looking for acquisitions in that company now as we go forward, or are you happy with a lower level of leverage?

I think the Company is now in a position that it can look for opportunities, whether new development expansions, some acquisitions here and there. But they are clearly focused on, given the significant change, they are very focused on growing the business now, which two years ago when we got there, I would say it was a different scenario.

So thankfully, they have executed extremely well and they are looking for growth similar to what all major retail owners do; do some development, some expansion, some potential acquisitions here and there.

Now your estimable CFO has not yet been given a speaking part, but I just wondered if there is any update on his replacement.

Well, I don't think he -- unfortunately, you've asked a question where he can't respond to that either.

Well, I don't do great quarter, guys, but I wanted to throw in a compliment.

Thank you. Sometimes a pat on the back never hurts from anybody. So in any event, as you know, we have been -- it's very interesting. This company, again, it gets -- there's a lot that gets lost in the sauce. You know, on one hand this week we are going to open Desert Hills. It's going to be 100% leased and it's going to add $17 million of cash flow to the Company.

At the same time, we hired a new venture guy. Europe is doing well. You've got all the redevelopment. We're doing the WP deal, right, and then obviously I've got to focus on Steve's replacement. So just from my point of view here - and this is probably -- I'm telling the people here; they're probably looking for me to say, what am I going to say.

So I have been thinking long and hard about this. And as you know, the biggest focus we have had over the last two or three months has been WP. That management team is basically set, done, which is very good news, and it's a great team. They are young, energetic. It's got a mix of Simon-trained folks. It's got our strip center entrepreneurial group, and then it's got the outsider and a couple of his colleagues that I think ultimately will create a very unique dynamic company that is really going to be hustling for growth.

Now that that's said and it looks like the spend is again subject to Board approval, winding around the last corner, I have been thinking more and more about this. And I will probably have an opinion in a month or two, but right now I am seriously considering internal candidates as the first line of defense.

The good news is we have got a great bench. We've got guys that are savvy veterans, younger people that want to move up. We have a great culture here and I think we can do it internally, but I just want -- I don't want to rush to judgment. I want WP to get done, and then I think once that gets done I think something could happen in the next four to eight weeks.

That's probably news to everybody in this room, but therein lies my thinking. So I hope you appreciate the honesty of my response.

Very good, thank you.

Ki Bin, SunTrust.

Thanks, I had just a couple of follow-ups. In terms of traffic data and your tenant replacement commentary, could you just talk a little bit about this -- we are midway through April, almost May now, and I wouldn't say it has been very warm, but have you seen some kind of catch up in the past couple months in terms of tenant traffic or sales or anything like that might be a better indicator going forward?

I think we can say that April is off to a much better start. We obviously had Easter moving from March into April. March was better than February. February was better than January and that trend is continuing into April, and we certainly anticipate that we will have some catch up.

Okay, and the second question. I'm sure you guys get this all the time, but if you had to estimate, how many more outlets do you think in the US that we absolutely could use? And how does that number compare to some of your -- like in Europe where you are trying to expand?

Well, again, I don't -- if you look at some of the general industry publications, there's a pipeline of 50 and I would just say I don't believe that that whole pipeline will be built. I do think you are going to -- last year, 2013, 2014 was going to be an active year. So I think you'll see five or six or so in the next two, three, four, five years.

So if I had to guess, I think you're going to see probably 20 or so added over the next three, four, five years. I don't think it's going to be quite as frenzied as everybody thinks. I think we have a really good handle, as you might imagine, on this industry, so that's my own personal view.

But I don't control -- developers are always pushing the limit. Whether four, five, or six bad outlets get built, it doesn't impact our outlet business and what we do. And as you know, we are looking to only build in major markets where there really is unquestionable demand for the premium outlet product. And if it's a marginal market, we are just going to pass and we have passed on a number of sites.

Rick, you can add to anything.

The one thing that I would emphasize, and David talked about it in the context of Desert Hills, we are spending as much time and money expanding our existing great premium outlets as we are trying to build new ones. Desert Hills opens Thursday. We opened an expansion in Orlando, opened an expansion in Seattle. We are under construction in Las Vegas North downtown, 147,000 feet.

We are expanding Woodbury. We are expanding Chicago and these are all among the best outlets in the United States. We are expanding Livermore. And all of those expansions taken together are probably two or three new projects, but they will be dramatically more productive, dramatically better returns, and they have the benefit of enhancing what we already have.

Similar question, but how about for Europe? Do you see that potential of it being just a lot bigger?

I think Europe, the right to build there is much more difficult, but there is a pipeline that we have at MGE that we are going to pursue. But it's a lot tougher, it's a lot harder to get done. There's a lot more restrictions in terms of how outlets get viewed in Europe in terms of laws there, but if you do get the rights to build there it's a terrific, terrific opportunity.

So there will be more but I think it will be measured and we will have our fair share of that. But there is definitely -- part of what we wanted to do with MGE was in fact build some new centers in Europe.

Okay. Thank you, guys.

Jeff Spector, Bank of America Merrill Lynch.

It's Craig Schmidt for Jeff Spector. I was just wondering if we could spend a little time talking about The Mills. It seems like it has the highest return on redevelopments.

Its minimum rents are growing well and it has also seemed to have done the best in terms of sales per square foot productivity since 4Q 2009 in terms of its lift. I know you were doing a lot of things at a lot of different Mills, but what is meeting with the biggest success to sort of drive this?

I think that -- Craig, it's Rick -- the Mills have been performing great and I think that some of it, hopefully a lot of it, is attributable to us being able to broaden their appeal. What we've been able to do through our relationships is bring tenants that have been successful in premium outlets in The Mills to operate off-price concepts and bring tenants into The Mills from the mall business to operate full-price concepts. And that combination has been very compelling.

So tenants like Victoria's Secret, Bath & Body Works are operating full-priced concepts and tenants like Michael Kors, Coach, Express are operating off-price concepts. And that combination has created, as David said, properties that are 1.5 million to 2 million square feet doing hundreds of millions of dollars of sales and providing unique franchise in each of the markets where they operate.

So we've been very pleased with it and we are growing it. We've got expansions underway at Sawgrass. We are working on redevelopments at Great Mall. We are working on an expansion at Orange and there's a lot of growth runway built in that platform.

Is there any potential for a ground-up development of a Mills project at this point?

I think that's going to be more difficult, frankly. There are not many markets left in the United States that can support a 2 million square foot, ground-up development that does $500 million to $700 million from day one, so I would not look for that.

Okay. Then the Yeoju expansion, the premium outlet, is there any direction that you want to take the new tenants that you are bringing into that project?

It will continue to be the high-end tenants there. The existing center has a great tenant mix, so it will continue to be kind of all of the American as well as European brands and the international companies. It is an international retail mix. There are some Korean retailers, but by and large it's all the brands that you are familiar with.

Okay. Then hopefully this is a Steve Sterrett question. The pickup in other income, will we see that going forward? Will we have as active of land sales and/or the lease settlement, or should we assume that that starts to resemble 2013?

No, Craig. Rick and David talked a lot about the lease settlement income and I think we did have a fair bit of activity in the first quarter. I wouldn't expect that level of activity to go through the rest of the year. And land sales, as you know, are pretty lumpy, but I certainly wouldn't expect that level of activity for the rest of the year.

Okay, great. Thanks a lot.

Alexander Goldfarb, Sandler O'Neill.

Good morning. Just two questions here. First up, on the line of credit, you guys now have I think almost $7 billion if you include the accordions of capacity. So do you -- which seems like an awful lot just given that if you guys wanted to do anything I would assume that you would have a line of bankers outside of Indy and 399 Park in less than an hour.

How much capacity --? Is more of this insurance? Like as you guys pay the facility fee is more of this just the comfort of knowing that you have that? Or is there something else, like just preparing for the next credit crisis or something, just to know that, God forbid, you had to put on major mortgages or refinancings that you just had that available?

Well, Alex, it's Steve. I do think, if you look at our debt maturity schedule, we do have $2 billion to $3 billion of debt maturing a year. We are a large company.

We did have -- people tend to forget, but we did have an instance not all that long ago in this country where the capital markets were pretty dysfunctional for an extended period of time. So we have been operating under a philosophy that we want $5 billion to $6 billion of liquidity kind of at all times. Call it insurance, call it what you want, but I think that's prudent for a company of our size.

Okay. And then just a second question is what are the next steps or what else needs to be done before the Board can declare Washington Prime good to go?

Well, we just have to become effective with the SEC, which we are getting closer and closer. The Board has got to review all the final things and then we make an announcement. It's moving quickly and so it's just a process of essentially just becoming effective with the SEC. And then Board approval and then we are off to the races.

You saw, Alex, we filed another amendment to the Form 10 yesterday, amendment number 3, so we are, as David mentioned, kind of getting down to the short strokes.

Okay, so this is just all the back and forth where they give you comments and hopefully that list of comments is getting smaller and smaller and then it's good?

Yes.

Okay, perfect.

If you are excited, you could read the 600 pages of total documents. If you have nothing to do this weekend.

You know, my kids were saying, Daddy, we like you doing boring Daddy work. We don't like playing with you. So I will do that. Listen, thanks.

Daniel Busch, Green Street Advisors.

Thank you. David, following the WP spin off of the smaller (inaudible) malls and strip centers, will there be any other remaining malls in the portfolio that you would consider non-core and could be potential candidates for disposition?

Well, there certainly always -- we are always going to portfolio manage our assets, so the answer to that is sure. There's -- we are -- we have partners in some assets. Partners may want to sell; we may agree with them. So, yes, sure, we are always going to portfolio manage our asset base.

It appears like there's a growing number of B and C malls coming to the market. Do you have a sense of what the demand is for that type of quality? Is it similar to the quality that WP is?

I don't want to -- look, again WP's malls are -- I see all sorts of references from the analytic community. My view of WP's malls, the one overriding point is that they are smaller. They are just not big malls and I will you decide whether that is a B mall, a C mall, an A mall.

I don't think about it like that. I look at the cash flow. What's the sustainability of the cash flow? Is that a market where you can grow the cash flow?

The one thing that I will agree with is that they are smaller than our average mall. And we think those assets, because -- as we've gotten bigger over time and focused on the bigger assets, they tend to lose the day in and day out focus that they deserve.

So with that preamble said, look, there's a lot of capital in the real estate industry generally for all sorts of assets. Money wants to be put to work in the top quality assets, in redevelopment assets, new development across the spectrum in hotels, retail, office, etc., and I think WP will be able to take advantage of whatever strategy ultimately they put together.

But there are buyers for everything right now in any assets. I look at your NAV analysis and I can tell you our partner is selling a mall and the cap rate is blowing me away in terms of how low it is. So there is a lot of capital for retail real estate in every bucket. To some extent there's product available and to some extent there is less product available, but I expect a lot of trades to happen.

Great, thank you.

Vincent Chao, Deutsche Bank.

Good morning or afternoon to you guys. I just want to go back to the releasing spreads. On a percentage basis they have been improving for quite a few quarters here now in a row. I'm just curious if you could break that down between -- sort of what's driving that.

Is it more market rent increases or is it just the base of the malls or the spaces that are closing? Is it maybe not growing or is going the other way?

Fundamentally, we just have a very good supply/demand dynamic. I would tell you that when you look at our spread calculations they include almost 8 million square feet of space, so it is less susceptible to specific project influences and much more representative of overall trends throughout our business. And we are just able to lease our product at higher rents because, frankly, I do believe our properties are taking market share and we are having a more desirable portfolio for the retailers to want to operate in.

It's simply put, the expiring rent is just lower than the market rents and so that has got a lot -- there's a lot of reasons for that, but that's the simple answer. So if you look at our expiring rent schedule and you see where our market rents are, therein lies why we have the spread, which therein lies why we have the ability to increase our cash flow year after year after year.

Again -- Steve, you may know this -- I believe Q1 comp last year was 5%, something like that.

Yes.

So our 3.7% was off of a base of 5% and that 3.7%, as I mentioned, was hurt 90 basis points by extraordinary costs associated with the harsh winter. So you can normalize it, you can do whatever you want with it, but that's just how we would look at it. It's that simple.

Now notice I didn't talk about retail sales. I talked about market rent.

Right and that's what I'm trying to get at. I guess maybe asked another way is how market rents for your portfolio have gone up, let's say, over the last year or so as opposed to the spread, which --.

The good news is it has clearly gone up because you've seen the spread accelerate.

Okay. Then maybe just another topic. I know it's early days in your ownership there on the Oyster Bay development, but is there any update on how the development planning process is going over there?

It's very early days, so really nothing to add there other than we are excited about the opportunity. Our partners are excited about the opportunity. We very much look forward to working with the town to find a win-win. So we think it's a great opportunity for us and will be a high priority for us over the next year or so as we go through the process.

Okay, thanks.

Tayo Okusanya, Jefferies.

Yes, good afternoon. Going back to development and redevelopment yields, also noticed that you took up the yield on the outlet development to 10% from 9% last quarter. Just wondering what was driving that.

Two things. One, we've been able to bring in our costs at a little below budget. Two, we have had a lot of demand and we've been able to lease it at higher rents and so we got higher returns.

I would say it differently. I would say typically they sandbag us on the rents they charge, but we let it get approved in any event. It's all about setting expectations, isn't it?

Very much so. Were there any particular asset that kind of drove the average up or was it -- is this kind of happening across the entire development portfolio?

Pretty much across the board we are seeing those trends.

Okay, that's helpful. Then just staying on the outlet side, and then there was some news out there a few days ago about Charlotte, North Carolina, and the whole process of your development there. Some pushback from local residents. Just kind of curious if you could opine on that.

It's opening on July 31 of this year. It's very well leased and we are in very good shape there.

Okay, that is helpful. Then last one from me; this one to Steve. Credit provisioning levels also went up during the quarter. Just kind of curious what you are seeing from that perspective and what we should be modeling going forward.

Tayo, we've talked a lot over the last few years about bad debt expense being really low. I think what you saw this quarter is just a bit of a reversion to the mean.

If you look at in the context of $5 billion-plus of consolidated revenues, I think we bill north of $7 billion a year to tenants. Having $5 million of bad debt expense a quarter is still pretty de minimis, but I think that is probably more reflective of the run rate that we're going to see this year.

Is that reflective -- you're just updating your estimates or are you're actually seeing more issues with the tenants themselves that's actually causing an actual increase in that number?

No, it's a bit of a combination of both. Our overall receivable level is still pretty low, but interestingly enough, our bad debt reserve is pretty much formulaic-driven. And because you have had more tenants either announce store closings or in a couple of cases go into bankruptcy, we reserve a higher percentage of outstandings against those types of tenants and it generated a slightly higher bad debt expense this quarter.

Great, thank you very much.

Ben Yang, Evercore.

Thanks. Maybe just building on the earlier lease spread question. I believe your spreads are based on openings and closings, so I was just wondering if you could maybe talk about spreads based on signed leases, maybe what that trend has been and also maybe how that compares with that 19.5% that you report in your supplemental.

Ben, you're right in that the spread is based on cash closing rent compared to cash opening rent. But because the population, as Rick mentioned, is so large -- it's 8 million square feet at any one point in time -- looking at it on a signed basis relative to the actual openings isn't going to move the number a lot.

But I will echo what Rick said earlier that demand for space is good. Deal quality continues to improve overall. We have been pleased to see the continued acceleration in the leasing spreads, but looking at it from a signed basis to an actual opening basis isn't going to materially move the number.

Okay, got it. That's helpful. Then also you talked a little bit about the lease termination income. Was that all Sony or was there other retailers in that mix? Maybe also, since it's a lot higher, can you also offer what your guidance is for the full year on that line item?

We don't like to do that, but we had Sony and I mentioned to you about the other department store scenario, so -- but that gives you the bulk of it, more or less.

In commenting, Ben, on the volume of it, if you look back over our last several years, we have averaged $20 million to $25 million a year of lease settlement income. We just happened to have a larger chunk of that in the first quarter.

Could it be more significant in 2014 than it has been the last couple of years? Well, we are certainly off to a start. And as Dave and Rick mentioned, because of a couple of the lumpy things that have occurred in the first quarter, it could trend a little higher. But it's certainly not going to trend at the same level we saw in the first quarter.

Again, to emphasize, this is a good thing because again I don't lose the space. I just get a present value of the lease obligation or very close to it and then I have the ability to lease the space up. So it is not something -- we've got to get the right values. We do lots of analysis, as you might imagine. We are very sophisticated on this front.

Well, typically we don't execute it until we've got a replacement center in place.

But this is not a bad thing at all.

I totally get it's not bad, but could it hit higher to that $20 million to $25 million that you have historically reported in the past?

It has a chance this year, primarily because we did the one big deal with the department store, which I would say is kind of somewhat out of the ordinary.

Was that big deal, was that kind of baked into your earlier guidance? I'm just kind of wondering if that was a --?

Yes.

Okay, got it. And then maybe --.

Absolutely. That has been in the works for two, three years.

Okay, helpful. Maybe final question; you talked a little bit about the other income in your consolidated. Why exactly did the other income in your joint venture also go higher?

Because part of that lease settlement, the big lease settlement that I mentioned was in -- it's a JV property.

Yes, the biggest driver of the movement in that number though, Ben, is the nature of some of the income that flows through from McArthurGlen. A lot of it is service-related income. As you know, we own half of the economics of the development and the management business and so that's the primary driver of the delta.

Got it, thank you.

Michael Mueller, JPMorgan.

Thanks. Just following up on that real quick, so the $11 million is consolidated. What is the overall pro rata number for lease term this quarter? And when you talked about $20 million to $25 million normally, is that a consolidated number or is that the pro rata number?

The $20 million to $25 million number would be the annual run rate kind of on a pro rata basis.

Got it. And what was the full pro rata in Q1 then?

It was high teens.

Got it, okay. Then last question. I guess historically you've talked about development spend having at least about $1 billion a year for the next few years. As you look out from this standpoint, how many years out does that generally account for at this point?

Well, we had said through 2016 but we will -- it's not set in stone.

Got it. Okay, great, thanks.

Jim Sullivan, Cowen Group.

Yes, thank you. Just one quick question I guess for David and Rick. The so-called fast retailing tenants have been growing pretty dramatically in your properties for a number of years now. I think it shows up with Forever 21 being now a top 10 tenant and an average store size, just looking at the metrics in the setup, of more than 10,000 square feet.

Historically, of course, you have excluded stores of more than 10,000 square feet in the sales productivity number. I just wonder if, given the ambitious plans of cohorts like H&M and Uniqlo, whether you've given any consideration to perhaps including the fast retailing productivity and the reported productivity, given how important they seem to be and look like it's going to increase in importance.

Well, Jim, if you have listened to my --.

I heard every word.

If you listen to my discussion on tenant sales, I would suggest to you -- it's an interesting derivative. There's no correlation and the fact is there is no other industry that I know that is focused on retail sales; therefore, this is what's going on with your property.

I before saying look at our cash flow and measure us on that basis and I think somehow the industry has gotten off track here by being the most important metric. I look at the analyst reports that came out today, even though we beat consensus by $0.14 or something like that, we've had unbelievable historical growth.

Our comp NOI has grown year after year; was up marginally in the Great Recession. The balance sheet is AAA. We are adding all this new development. The one constant dialogue I got was the tenant sales, right? And so you want more of that so I can read more of that.

I am somehow -- I am happy to have this discussion with you and other shareholders, but somehow we are losing track that retailers come and go. We used to -- this company was built based upon Kmart leases.

No, I understand all that. I just think the point is that fast retailing as a format does seem to be, in terms of its size -- Forever 21 is an in-line tenant and I have no idea, by the way, what their productivity is. It's simply that they are now a top 10 tenant and H&M and Uniqlo have pretty ambitious expansion plans as well.

I was just -- all I'm doing is suggesting that the original reason for excluding tenants of over 10,000 square feet, I just wonder if it still applies when we think about that type of retailer.

I don't think -- as the mix has broadened in these centers that metric is probably less and less important. What happens if we bring in service tenants or we take a department store down and put in an office building or an apartment complex?

I don't think -- I think we are losing sight of it's real estate and it's about organic cash flow growth and it's not about what a particular person is doing in a particular space. Because, again, we own the real estate. They don't perform; we get it back. Then the next question is what can we do with that real estate?

So I will tell you what. I will put it in there if you talk about it on page 10 and not on page 1, okay?

I will just say for my note, by the way, I stressed if people want more space and are willing to pay more for it that's a key driver. So not guilty as charged here, at least in that respect.

Just one other question I had for you, and this maybe is a Rick question. The development activity number went up close to $300 million at the end of the first quarter versus the end of the year. Am I correct in assuming, Rick, that as far as the mall category, which is where it all took place, that that number didn't include your announcements on Pentagon and Phipps, number one? Number two, that it would be virtually all the Simon post-spin malls that we are talking about there?

You should not presume the latter, because we are reporting everything on a combined basis so far. So in that regard there is capital attributable to those post spin assets and we are doing things.

Houston Galleria.

Yes, Houston Galleria has started. We have also started on Florida malls, so a number of new ones have come into that mix. But it is not a function of spin or post-spin or pre-spin and it does not yet include Pentagon or Phipps. We just announced those. Those will be starting construction this quarter.

So the -- sorry, go ahead. I was just going to say post-spin -- I just want to make sure I understood the comments you made earlier regarding the level of development activity that we should expect from Simon post-spin.

Obviously, it sounds like it's going to be the same kind of number as we have been thinking about historically for the Company. Obviously, the contribution should be relatively greater given that the post-spin company base is going to be a little bit smaller. But is there an opportunity in these malls that there could be an accelerated, an increased level of major expansion spending given that where you are spending the money and the big money seems to be on the biggest, strongest assets where the demand is really very strong?

Certainly that is going to come about and we've got several other projects that we are working on that we hope to announce. We've already talked about the connection to King of Prussia, so there are other nine-figure projects coming down the road, including Copley, that are going to certainly continue that level of spend in the post-spin Simon.

Okay, very good. Thank you, guys.

And I was just going to add, Jim, just to make sure everyone that is still on the call, all of our numbers that we reported are all include the WP assets: occupancy, sales --

Comp NOI.

-- comp NOI, all of the 8-K stuff is all including WP. So all of that, just to make sure everybody understands that.

Thank you. I would now like to hand the call back to management for closing remarks.

Okay, thank you. Before we conclude today's call, for our stockholders that may be on this call, our annual meeting is May 15. Hopefully, you have seen our proxy statement that we filed on April 10. Your vote is very important to us.

The Board has unanimously recommended that stockholders vote for all of the proposals and I would ask you to please vote for all of the proposals. If you have not seen the proxy statement, you can download a copy by visiting annualmeeting. Simon.com. Thank you, everyone, for your time today.

Thank you for joining today's conference. This concludes the presentation and you may now disconnect. Thank you.