Simon Property Group Inc SPG
Q1 2013 Earnings Call Transcript
Transcript Call Date 04/26/2013

Operator: Good day, ladies and gentlemen, and welcome to the First Quarter 2013 Simon Property Group Earnings Conference Call. My name is Dominique, and I'll be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session.

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

Shelly Doran - VP of IR: 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 filings. This 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.

David Simon - Chairman and CEO: Good morning. Our results for the quarter were strong. FFO was $2.05 per share, up 12.6% from the first quarter 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. Tenants 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 little over eight years.

Let me turn to the all-important development activity; first of all, we opened the Phoenix Premium Outlet centers in Chandler, Arizona on April 4. The center is 100% leased, opened with an impressive collection of stores. I will not name them, Rick will if you are interested. Several high-profile stores we'll be opening in the coming weeks. 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's 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 visitors to Tokyo, given the proximity to 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 in Sawgrass Mills, Dadeland Mall, Seattle Premium Outlets, Orlando Premium Outlets at Vineland, Walt Whitman Shops, and the regrand openings 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 U.S., two in Asia. Our share of this cost is approximately $1 billion and the blended estimated rate of return is approximately 11%. We have 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 releases, demand for space in all of these centers has been exceptional. We expect to be fully leased at opening.

We also have at least eight additional new Premium Outlet products in North America in various stages of predevelopment. Klepierre reported its first quarter revenues this week. You can read about them all. So I will be brief other than to say that rents were up for the quarter to 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've simplified their business with the elimination of the (Segece) sub-brand as well as the ongoing sale of the office portfolio.

They are focused on operations; we've added a new CEO. They are generating additional Simon brand venture type revenues as recently evidenced by the Coca-Cola partnership. They have strengthened their balance sheet to recent financing activities and they've opened two great malls; St-Lazare, Paris and Emporia in Malmo, Sweden and I think if anyone has had the opportunity to visit those centers, you'll see that the Company has clearly the capability to build a first-class 21st century retail.

Today, we announced the dividend of about $1.15 per share for the quarter. Over the past six year quarters, we have increased the common stock dividend. Each quarter's we've 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 cost of 11.3% and strong rent spreads give us good momentum.

Finally, '13 is off to a good start, and we're ready to answer any of your questions that you'd like to post.

Transcript Call Date 04/26/2013

Operator: Jeff Spector, Bank of America.

Craig Schmidt - Bank of America / Merrill Lynch: It's Craig Schmidt here. It sounds like you've made real progress on your dispositions at Klepierre. Maybe you could give some more color on what's left to do, as well as maybe some of your refurbishings that you've done in the portfolio, and any successes you've had in bringing new retailers to your Klepierre portfolio?

David Simon - Chairman and CEO: First of all, they will continue to sell non-core assets as well as the office portfolio. So they've got a couple of the office deals that are close to being signed up, including their headquarters and then they will continue to sell kind of the smaller non-core assets, which frankly are very stable, solid centers, but they don't have the extension capabilities that we're interested in pursuing and they've done a great – a number of extensions (indiscernible) in Paris on the East side of Paris, near the airport that I think represents the ability to take a smaller center and expand it. On the retail front, we're continuing to solidify that. The operational side of the business is the true upside. The coordination among 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've had to add to the personnel ranks, we've had to set the strategy and we're pleased with what's going on there and I think there will be more to come.

Craig Schmidt - Bank of America / Merrill Lynch: Are you surprised that your build need to push rents given the general difficulty in Europe?

David Simon - Chairman and CEO: Look I don't run this day-to-day, there are some questions are better asked for them. We are not the ones pushing the rents. We're providing a 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'm not surprised that number of those countries had stability in cash flow in tough economic times. I think what you've seen here in the U.S. is that the same thing happened here for us in very tough economic times and the one area that where they are having a most difficulty is in Spain. That is a focus for the Company, but that continues to be something that is affecting their cash flow to some extent is because Spain continues to be under pressure for basically all retail real estate owners that have real estate in Spain.

Craig Schmidt - Bank of America / Merrill Lynch: I was impressed with your 96% in St. Louis. Do you know how much will open in August?

David Simon - Chairman and CEO: We should be in the 90s. There's always a few laagered, but that's a real number and we should be in the 90s. I mean even though we'd love to open every center at 100% leased and operate it, sometimes it does take time. Phoenix is a great example. We're a 100% leased. We were in the kind of the low 90s to be at opening, but in the next couple of months, we'll be 100% occupied. The same thing will happen in St. Louis. There may be a couple of slow people, but we are 96% leased.

Operator: Christy McElroy, UBS.

Christine McElroy - UBS: Follow up on Craig's questions about the outlets. Can you disclose the expected yields at Chandler and St. Louis for 2013? Maybe discuss some pre-leasing progress at Columbus and Charlotte?

David Simon - Chairman and CEO: Well, look, our yields in the outlet business continue 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're looking at Phase II now and obviously, as we bring that online in St. Louis, we will – the yields will go up. They are 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 have competing real estate there and sites. We'll see – we may or may not be the victor in that competition, but we're 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're 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 good. The retailers are very happy that we have put together our joint venture. They are very excited about going in and it's got to be at least over 50%, 60% pre-leased. 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 Christy we don't really need to prelease like some others that might not, because we kind of know whether or not we can least it, but Charlotte (go) starting construction here shortly. We are raising to do a '14 opening.

Christine McElroy - UBS: 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 retenanting perspective? Are sale leasebacks of anchor space something that you would consider if a major tenant came to you looking to raise capital?

Richard S. Sokolov - President and COO: Christy, it's Rick Sokolov. The demand is as good as it has ever been. I think that 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 or six or seven are vacant. That's 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. We are in a constant dialog with our anchors that we've identified that we have the potential of getting back to try and make them better. If you look over the years, I think we've added almost 175 boxes and anchors over the last four years in the portfolio. So, we've been very active in it making them a lot better. I do not believe we would really be interested in entertaining sale leasebacks.

Christine McElroy - UBS: Are you able to sort of quantify maybe a range of what you might pay for vacant anchor box base Class A mall versus Class B mall?

David Simon - Chairman and CEO: Each deal is very, very – depends on a lot of individual characteristics of each deal, it's not really something that you can generalize about.

Ross Nussbaum - UBS: That's 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 had and the release expressed over the last year, it kind of feels like there is something else that's helping that number. Is there a piece there that I'm not thinking about?

Stephen E. Sterrett - SEVP and CFO: Well, I mean, partly is good sales growth, partly is that we're very focused on operating to the best of our ability. I would point out last quarter Q1 '12 we had 5.7% component increase so to have 4.8 on top of 5.7 is just running the Company as well as we can, but we're never satisfied we're always trying to improve and that's what we're all about.

Operator: Paul Morgan, Morgan Stanley.

Paul Morgan - Morgan Stanley: On your releasing stats the opening number went from $53 to $59 and I guess it's a 12 months trailing average and so, I mean how much of your is it a disproportionate share opening in the first quarter because I am trying to see just kind of forecast that number out and it was a big jump than that it's a rolling average?

Stephen E. Sterrett - SEVP and CFO: Paul, this is Steve. Some of it is mix. 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 '13 is in the 3 million to 4 million square foot range, where over a normal year like 2014, 2015, it's 8 to 9 million square feet. So we have dealt with a lot of the – especially regional mall expirations that occurred January 31.

Paul Morgan - Morgan Stanley: That makes sense. Then, can you maybe just characterize – I mean, you provide a lot of – you list all your redevelopment projects and it looks like there is like 37 in there and you have about $700 million, it listed in the (stuff), which is – I mean it's only about $20 million per project, but it looks like there are some that are kind adding new space and it should represent, I guess, a more sizable chunk of that. I'm trying to 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?

David Simon - Chairman and CEO: The lumpy projects are basically, hopefully ready to start shortly. I'm not going to list – just from recall. The lumpy ones, you'll start to see later on this year and in '14 and they include as Roosevelt Field, the Copley, the Lambeau and Woodbury, King of Prussia, to name – Houston Galleria, to name four, five or six lumpy, bigger, bigger, chunkier ones. You're right, a lot of what we have now is, they run $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've got a little – you've got it all over the board, but the lumpier, bigger ones we are essentially in our first Phase of Lambeau. 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 as we 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 shop. So the bigger and lumpier ones really are hopefully beginning to start second half of '13 and '14 will be a huge year for us, '15 as well as these bigger, lumpier ones come on stream.

Stephen E. Sterrett - SEVP and CFO: Hey, Paul, it's Steve. I would just add one thing to that, because it gets lost in the sauce sometime, but between, David mentioned, Woodbury, but he didn't mention Desert Hills, Orlando Premium, Las Vegas North, those are four Premium Outlets that all to north of $1,000 of foot in sales where we are adding significant amount of space. So those are projects that will come on in the next year or two as well.

David Simon - Chairman and CEO: As Steve said, those are on average of about 100 million of pop.

Paul Morgan - Morgan Stanley: So I mean that number could – where it should really double probably in a year from now?

David Simon - Chairman and CEO: It's going to (below) and then I think what we have said and we'll say again is that this is our number one priority. This is the huge focus for the Company. This is where we'll spend most of our time. The good news is we recognized this that the world was not going to end a little bit ahead of others, so we're in the midst of doing this now. Woodbury is going to start right after this, most people, after their first quarter want earnings take the afternoon off, right after this, Rick and I are going to spend two hours on the final approval of Woodbury. It's a $168 million deal and it's going to really, really be cool and call and it's really going to start and we've really got the approvals and blah, blah, blah. Then in the afternoon we do take a lunch break. Rick demand to go out to lunch. I like to eat at my desk. It's a source of much conflict in the organization. But right after that, we're approving, I don't know, 20 some odd different mall deals. So number one priority, we're glad we're in the midst of this now and a lot of good stuff to come.

Paul Morgan - Morgan Stanley: Would you think those blended stabilized returns are going to be around – I mean you've (90) at 14% for the premium outlets in there. Is that going to change much?

David Simon - Chairman and CEO: Look, I think they will all be very, very accretive to our company. I don't – as soon as the project gets approved and we put it in there, you will see the return.

Operator: Cedrik Lachance, Green Street Advisors.

Cedrik Lachance - Green Street Advisors: David, (a little bit of) occupancy that continues to grow in your portfolio and would pass some previous peaks. Where do you think is stabilized occupancy?

David Simon - Chairman and CEO: Actually, I've been very impressed with our leasing team that they've been able to achieve these occupancy levels. So I think the focus now is – it's always good to – on the margin to continue increase occupancy, but Cedrik I do believe that the focus now will be making sure that the mix is the best that it can be, but I've actually been very pleased and impressed with our leasing team and the amount of their ability to drive occupancy. I'll tell them because then they'll take the afternoon off where Rick and I won't, but now seriously I've been very pleased with the results that they've been able to produce.

Richard S. Sokolov - President and COO: Cedrik 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 the number very high fashioned, highly productive tenants like Zara, H&M and Uniqlo, Topshop that are demanding bigger spaces and because they are all bigger spaces, that's going to create incremental demand for our space that could able to us perhaps drive the percentage higher than what otherwise be the case, absent that demand

Cedrik Lachance - Green Street Advisors: So you look at your ability to change the mix, what can you do for your ability to push rents into the centers?

David Simon - Chairman and CEO: Well, look, it's relatively straightforward. The better the tenant does in terms of sales per square foot, the greater they have the ability to pay rent. So it's really that simple. So as we do that, we're hopeful that we'll be able to follow or be part of that initial equation.

Cedrik Lachance - Green Street Advisors: Turning maybe to densification; you've got – you're talking about Copley earlier. It seems that you could add non-retail users depending on the city. How many malls do you own where you think you could add non-retail users and densify the site?

Richard S. Sokolov - President and COO: Cedrik, it's Rick. Right now, we're working on adding hotels at five different projects and we're working on adding multifamily at four additional ones. We're under construction with a multifamily 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 multifamily or condo components in our projects, they are yielding the higher room rates for hotels and monthly rentals from multifamily because people very much enjoy the mixed aspects of the community. So we think we bring an incremental value to those components and we're going to continue to pursue it.

David Simon - Chairman and CEO: Just roughly put Copley aside because that's the big one, but there are at least 12 to 15 in each area that are of immediate focus. That doesn't mean it's limited to those say 24 to 30, but there is a list of those 12 or so in each category be in hotel and/or multifamily that we're very focused on. In fact, we're going to approve this afternoon Southdale more than likely. I'm still struggling with like the returns, because our returns are higher than the multifamily guys get. But so I'm still struggling with some of those deals, but I didn't think there is a pipeline to take advantage of that. It's good for the real estate too generally.

Cedrik Lachance - Green Street Advisors: Just final question in your annual shareholder letter you talked about continuing to leave the industry and 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?

David Simon - Chairman and CEO: I think it's also just more than income in that. I could be wrong here, but I do think we're on the verge of a technology backlash and our focus is creating the mall environment where people we had a meeting on this kind of a brainstorm meeting on this Monday and something was said that was very clever is that people today are looking down, they are not looking up and what happens in the mall environment is we do give them the opportunity to look up and around and not just down, down meaning actually 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, community relations, community feel, and part of the process where we actually look up as opposed to look down. So it's a big focus for our company. The revenue side, obviously, we love cash flow, so we're cash flow junkies, so we're going to look to that too, but there is a unique ability for us to really kind of create community in our properties beyond that and I think that's 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. The good news is, just to segue into the e-commerce, you're 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 a great example of this Warby Parker, this eyeglass thing that was kind of the new hot dotcom thing and they're opening physical stores. Now whether they go to the malls or not, I'm not – who knows, but the fact of the matter is, I think they recognized that people want to touch, feel, look up. So our mission is to get people to look up, not look down.

Operator: Quentin Velleley, Citi.

Quentin Velleley - Citi: It's been a while since you combined the operating statistics of the mall and the outlet business to give up. Can you maybe talk a little bit about how each is performing some other similarities and differences? Then as we look at the 79.6% of your NOI that comes from malls and premium outlets, could you sort of give us a rough sense as to what the percentage is coming from outlets versus malls?

David Simon - Chairman and CEO: Sure, I'll 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 '90 to '93, this was child's play. But if you look at the general economy or outlets, clearly outperformed the malls during that '9, '10 and '11 period, and now I will say Quentin, generally in terms of sales growth and comp growth, they're relatively close. The outlet is still marginally better, but the difference between those two has narrowed considerably. Now with respect to the breakout, do you…

Stephen E. Sterrett - SEVP and CFO: Yeah, Quentin, if you actually at our year-end (too) that's 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.

Quentin Velleley - Citi: 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 an influence. Are you spending a lot of time looking at a similar style of public company investment, where you'd take a similar minority stake and get some board representation? Is that something that's increasingly attracted to you given the success of Klepierre?

David Simon - Chairman and CEO: We have thought about it from time to time. It's not a big focus for us. But you know, 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 reason, including risk management. So it really would depend on the circumstances. It's not something that we're out looking to do. But in the right kind of context, it's conceivable.

Michael Bilerman - Citi Investment Research: David, it's Michael Bilerman. It sounds like if you're really a cash flow junk, you should put advertising in the floors, that way you can get more money when people are looking down.

David Simon - Chairman and CEO: We tried that. We've don't that. We did buy a footprint such – but it didn't go over well. It was great for the kids. Then when I saw the adults using it, I thought it was a little tacky.

Michael Bilerman - Citi Investment Research: Thinking about Klepierre, I guess we've elapsed the six 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 (stab) outstanding, whether you want to bring it in-house, whether you want to bring a joint venture partner. How should we think about how that evolves now that the – at least the REIT issue, the French REIT issue is elapsing?

David Simon - Chairman and CEO: 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. I said the big problem with the Company today is somewhat out of their control and not just dealing with the Spanish economy. But we're pleased, but I really as much as I'd 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're pleased they are making very good strides. I would say, operationally, things do take longer there than they would say here. But we've been pleased with kind of the blocking and tackling that the company is undertaking. They still need to do a lot more, they – we've been pleased with the progress they have made to date.

Michael Bilerman - Citi Investment Research: Just going back to the rental spreads on Page 19 of your (stuff), and, Steve, you answered that the count, the retailer calendar year end, the January 31. But, I guess, I'm still having a hard time. March 31, '12, it's (13 million) trailing at $54, $49 expiring and now you're 3/31/3 7.4 million square feet of $59 versus $52, and even 12/31/12, 8 million square feet of $53, $48, it just seems like there's – that the opening and closing are just much, much higher this quarter. Whatever happened in the first quarter of 2013 was dramatically higher rents than at any point over trailing '12 any other quarter.

David Simon - Chairman and CEO: Michael, that's 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 risk 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.

David Simon - Chairman and CEO: I would just point out that, we have in our portfolio, U.S. portfolio, not including the Mills or actually it does includes the Mills, we have 121 properties that do over $700 a foot. So …

Michael Bilerman - Citi Investment Research: 121?

Stephen E. Sterrett - SEVP and CFO: The averages $700 a foot (indiscernible).

David Simon - Chairman and CEO: 121, so, and as Steve said, Rick said, we're really trying to make those properties better and better in all sorts of different ways. That's 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'm sure part of its mix. We can drill down to it a little bit more, but demand is good, and we have got a reasonably good portfolio.

Operator: Alexander Goldfarb, Sandler O'Neill.

Alexander Goldfarb - Sandler O'Neill: Just going, I guess, sort of back to Christy's question on department stores, and just thinking about J.C. Penney 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 worked departments for managements and thinking that their boxes are worth? Or do you think most people are pretty realistic in what they think their real estate is worth?

David Simon - Chairman and CEO: 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 so that your own conclusion is to why me, because they don't want to sell or maybe there is a spread between the bid we ask I don't know, but I can speculate on how they think about that all Alex.

Alexander Goldfarb - Sandler O'Neill: Then going to Klepierre, well, 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 and what Simon can bring to their platform? The split between improving NOI versus 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 just going to come from NOI or is there a big opportunity you think to really improve the ancillary income back to be a meaningful contributor?

David Simon - Chairman and CEO: Well, again, I'm not going to quantify that. It's not something I can do. I think the important thing to put in perspective there, Alex, is that we don't run the Company. We own a stake. We're pleased with the stake, we can show them how we run it and then they need to apply it. 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'm 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. It's 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're doing, they want to run the Company better, they are running the Company better and I think as kind of 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's not going to – despite my personal view of it, it's not going to continue to contract as it has over the last year or two. So, 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's their big focus in the upcoming years.

Alexander Goldfarb - Sandler O'Neill: Then just finally for Steve – and thank you for the new supplemental. On Page 23 in the CapEx and development page, there is an item called conversion from accrual, the cash basis and if you don't have this off hand we can discuss offline, but just curious what that is?

Stephen E. Sterrett - SEVP and CFO: Well, it simple Alex, we give you a CapEx number, but there are CapEx numbers where we have accrued obligations like we've got a construction bill, but we haven't paid it yet. All we're doing is giving you both the accrual number and the cash number because some people look at it and want the accrual numbers, some people want the cash number.

David Simon - Chairman and CEO: By the way that's been in there for long time.

Stephen E. Sterrett - SEVP and CFO: Long time.

Operator: David Harris, Imperial Capital.

David Harris - Imperial Capital: Just a question, David, see if you feel comfortable, you feel answering this, is there any thought as to what Simon might look like if we would lose the tax break?

David Simon - Chairman and CEO: I don't worry about that at all, David, I just – rates have been around for a 60 years, it's not going to happen – I just can't imagine it's going to happen as you know it's revenue-neutral if in fact there was some change – I think most politicians understand the importance that 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 the downturn and what commercial real estate, how it handled itself and the amount of liquidity that reached – brought to the table to stabilize pricing and not create kind of what happened in the early 90s, as I said, I have lived through that, as has Rick.

David Harris - Imperial Capital: Me too.

David Simon - Chairman and CEO: You too. Some others. It's 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've always fantasized, I probably shouldn't say this, so I've always fantasized we payout $1.5 billion a year in dividend, $1.6 billion? What is the number now?

Richard S. Sokolov - President and COO: Yes, $1.6 billion.

David Simon - Chairman and CEO: $1.6 billion. Imagine if I had that amount of capital through two, three, four years. So we would do some great stuff with it. But David, that's on a side, it's not going to happen. REIT's have performed. They have been very important to the economy. They have been great for the individual shareholders. They have helped stabilize pricing. No way.

David Harris - Imperial Capital: Okay, so no plan B planning at this point?

David Simon - Chairman and CEO: Well, 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.

David Harris - Imperial Capital: I assume the question actually related to Klepierre. I mean obviously, there has been a lot of talk about tax increases and public policy responses that maybe somewhat more fluid in Europe today. Any notion at all that the tax status of the Company like Klepierre is being questioned?

David Simon - Chairman and CEO: Not at all.

Operator: Michael Mueller, JPMorgan.

Michael Mueller - JPMorgan: Want to go back to the leasing spreads again, not to beat a dead horse here. But the 13%, sort of the 300 basis points pick up. When I first looked at that, what went into my mind was, you're starting to roll some shorter term, post downturn leases. And you are going to get the benefit there. I guess, what I'm trying to get out is, does it feel like this increase whether it's 200 basis points, 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're back down to 10%?

Stephen E. Sterrett - SEVP and CFO: It's Steve, let me take a shot at it, and Rick in weigh in, or David. I think if you look at the – 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. You know the magnitude of the increase this quarter was substantial relative to the trend that we have been seeing, but we had been going from low 4's to the mid 4's, to the $5 a foot. And as I said, some of that is lumpy, because of first quarter expiration, but the fact is, deal flow has been getting better, quality of deals has been getting better. Occupancy costs have stayed relatively low. So, as you want to think about it, it's mark-to-market or however you want to think about it, there should be an upward bias. Is the upward bias from $5 to $7, I think that's hard to say, but the trend has been good.

Michael Mueller - JPMorgan: 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 year ago?

David Simon - Chairman and CEO: Let me answer that if I could. I think both. As you know, we've 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. Hence we have nothing going – I mean, we're still working with BR Malls. We're still hopeful that eventually we'll be able to do something there. China has proved to be a market that I continue to really question whether or not anybody can make money investing there, especially us. So I'm hopeful that over time, we'll find the right opportunity with BR in Brazil, but that's taken longer than we anticipated. Then China is really, really on the back burner. I have no regrets about it being on the back burner.

Operator: Vincent Chao, Deutsche Bank.

Vincent Chao - Deutsche Bank: I just want to go back to J.C. Penny 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 there are sort of returns in more conditional marketing tactics that they have been known for at the ground level. Have you seen any change in traffic levels and that kind of thing since the move?

David Simon - Chairman and CEO: Well, let me just mention we're pleased that Mike Coleman is back. I think he will – he is obviously very confident, seasoned, thoughtful CEO and leader, and given all the turmoil that Penny was going through a perfect choice to help stabilize the Company and in that we have great respect for him and his ability. I would say generally having walked a number of Penny stores with David Contis and Rick over the last – not just stores, so the stores are looking better. So I think they are headed on the right track. It's very hard for me to speculate exactly how it's 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.

Vincent Chao - Deutsche Bank: I wanted to go back to some comments you made about the departments, the anchor space, I think 635, only six or seven vacant. So some of the lowest vacancy you've ever seen there, but then you also kind of say that I think I heard no interest in 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's good, but are you seeing much demand for anchored space? It just seems like most people are moving to the outlet channel in terms of the traditional anchors.

Richard S. Sokolov - President and COO: This is Rick. There is a great deal of demand for the space, and if you look at the kinds of tenants that we're adding to the properties, we're adding Wegmans, Fresh Market, (deck), theaters, health clubs. There is substantially broader number of categories of retailers that want to take advantage of all the traffic and math that we are creating at these properties. So we have again more demand today than we have had historically from a broader collection and a variety of retailers than we've had in the past, and all that is helping drive, I think the growth of our property and the lack of vacancy among our anchor boxes.

Vincent Chao - Deutsche Bank: I guess do you have enough data points at this point for some of these non-traditional anchor malls, as far as how the performance of those malls compares to historically the traditional setup our mix?

Richard S. Sokolov - President and COO: I think that all of our anchor components are part of the mix that we have at the properties. They are not going to be game-changing, but they obviously want to be a property that are consistent with their growth and in some (instances) merely a function of whether we can accommodate the physical configuration. Wegmans needs almost four acres of land for a single level building, well, in a lot of instances that can happen, so it's really less a function of that kind of a correlation, more a function of can we continue to give our trade area shoppers more reasons come to our properties and that's what we're all about.

Operator: Rich Moore, RBC Capital Markets.

Richard 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 loss tenants over the next I don't know three to nine months?

Richard S. Sokolov - President and COO: If you look historically our bankruptcy numbers have been up a little in '13 just because of bakers, but overall the credit profile of our tenant has never been better. Our receivables as Steve can elaborate have never been in better shape our bad debt is stable. So we're feeling good about the credit profile of our tenants and more importantly their rent paying ability which continues to be pretty strong.

Stephen E. Sterrett - SEVP and CFO: Rich this is Steve. Just to put numbers on kind of Rick's overall statement, I think at the end of the third quarter, we were chasing $42 million of receivables that have been build, but not yet been paid and that's all 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.

Richard Moore - RBC Capital Markets: (I don't think) my calculator decimals go out there for Steve. Then on the outlets, I think didn't you guys do the development of Houston and Tangers doing Charlotte and then how do you split up Columbus? So I guess who is driving Columbus is what I'm curious.

David Simon - Chairman and CEO: In Charlotte, we actually switched the roles that we had in Texas. 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 we'll jointly lease. Then in Columbus, again Columbus is a competitive marketplace. But in Columbus, we're switching back to the other deal. So it's been – partnerships are very common in the real estate industry. All sorts of people are partnered or developers over the years have always partnered. We have a very good relationship with Tanger and so it's just kind of a natural to say, okay, this is the way it was here. We're going to swap there and then go back here and then if there's another deal to do, it would probably swap back to the way we're doing Charlotte. So long-winded, but Charlotte will be a the Charlotte Premium Outlet and then Tanger will be branding Columbus, if in fact we're the successful developer.

Richard Moore - RBC Capital Markets: Then David, how many more do you think of the eight that you have going, you would do with or that you're about for North America, you'd do with Tanger?

David Simon - Chairman and CEO: Well, in two or in the eight, and that would be of the eight North America, that includes Canada by the way and we are actually looking at another site in Mexico. We've seen very good progress in our outlet in Mexico City. But of the eight, two of those are Charlotte and Columbus of the eight.

Richard Moore - RBC Capital Markets: No more plan yet with Tanger?

David Simon - Chairman and CEO: No.

Richard Moore - RBC Capital Markets: Then the last thing. Steve, the recovery ratio, it was pretty much a high this time, this quarter. I mean is it going to stay up where it is?

Stephen E. Sterrett - SEVP and CFO: Well, I'd tell you a weird sort of way the recovery ratio, the way those of us who have been around a while has historically thought about it. It's kind of less relevant now because we are 90% plus converted to fixed KM. So the KM charge is just another fixed charge that the retailer looks at in the calculation of the total occupancy cost that they're paying to the landlord. Our fixed KM all have individual annual escalators. If you look at our operating costs, they've been pretty flat, and as long as that's the case, you are going to see the recovery ratio, the way developers have traditionally thought about it continue to increase.

Richard S. Sokolov - President and COO: I would tell you, just in terms of our ability to drive rents, if you go back and we've given you some of the quarters in the K, but our occupancy cost is down over 100 basis points since 12/31's end. So we're still providing very good profitability and value for our retailers.

Operator: Benjamin Yang, Evercore Partners.

Benjamin Yang - Evercore: David, you made some comments last 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 malls segment continues to perform okay?

David Simon - Chairman and CEO: Yes. It is.

Benjamin Yang - Evercore: 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's happening at J.C. Penney?

Stephen E. Sterrett - SEVP and CFO: Well, Ben, I would just say that 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. That's true regardless of the quality of the assets.

Benjamin Yang - Evercore: So no significant change over the past few weeks, given obviously the new management team at J.C. Penny and then a lot of uncertainty going on with that particularly anchor, is that fair?

Stephen E. Sterrett - SEVP and CFO: That's fair.

Benjamin Yang - Evercore: Then maybe switching gears. You made some comments on China just now, on the backburner to find opportunity to make money. Can you just elaborate a bit on some of the challenge that you see in China today that makes you a little more cautious, because I do recall that you guys did go to China a few years ago, doing some more and more of anchored centers and I am curious what you see today that makes it still very challenging for you guys.

David Simon - Chairman and CEO: Well, that was a very good experience. We brought 70 – look, anytime you invest capital and you only bring 70% of it back home, you learn a lesson. I would say, Ben, 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 the elements of the P&L and a pro forma including construction cost, land cost, permitting, it's all vary – not to say that people can't make money there, but it's 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 are ready to make the investment are and frankly they are not and that's where the big gap exist and so a lot of it is build and they will come and that plays out pretty badly in real estate development. I mean it's certainly we have built it and they will come in the U.S. as Rick knows and I know, Rick is older so he knows a little bit more than I know. Build it and then will come did not make every mall successful. There are a lot of malls that frankly shouldn't have been built. So it just very tough to have the level of precision that we want and if there were 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 a much better returns at least on a piece of paper.

Benjamin Yang - Evercore: 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've kind of elaborated on?

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

Operator: Josh Patinkin, BMO.

Joshua Patinkin - BMO Capital Markets: Couple of 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?

David Simon - Chairman and CEO: Yeah, 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.

Richard S. Sokolov - President and COO: We're already 85% leased and committed, and we will be putting out a press release in the next month or so. It's opening in August; so it's happening and it's gotten very good response from both the Canadian-based retailers, but also the U.S. retailers that are operating in Toronto already.

Joshua Patinkin - BMO Capital Markets: 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?

David Simon - Chairman and CEO: Yeah, 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're doing Lord & Taylor outlets in the U.S. a few here and there. You ought to do 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 to trend there, no question about it. The U.S. folks are very interested assuming they have a full price presence ahead of that and – Canada generally is very attractive to most U.S. 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, you know, we have the natural place for them to do the outlet, but again that's going to take time. In the meantime, we're 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 kind of the greater Toronto market.

Joshua Patinkin - BMO Capital Markets: As you look at Canada, how many Premium Outlet caliber malls are there to build in Canada do you think?

David Simon - Chairman and CEO: Look, we expect in our at least a one of the – this was a great secret. Now you've got three or four of the eight, but one in – anyway – one of the eight, at eight is in Montreal, which we expect, again another meeting today on it, but we're going to start construction on that in July. So that's – we think that's a good market, a very good market. Now it poses a little trickier leasing because number of the U.S. brands won't go up to Quebec, but we think that's 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's going to be a great long-term project. So we've got Montreal, Obviously Vancouver is a very interesting market as well. We're focused on those kind of bigger gateway areas up in Canada.

Operator: Nathan Isbee, Stifel, Nicolaus.

Nathan Isbee - Stifel, Nicolaus: David, you've updated your FFO guidance at the first quarter for stronger operations. Just going back to the 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 '12. Can you perhaps give us an update on those thoughts?

David Simon - Chairman and CEO: Well, look, the first quarter was very good. We have a – what's really impressive to me is that it was off a really good first quarter in '12. So that's pretty significant cash flow growth when you had the 5.7% plus the 4.8% on top of the 4.8%. So, 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 kind of trended down through the year. First quarter was better. So, last year if you look, we kind of – I don't remember where we were overall through '12, but 4.8%. So, I think '13, we're heading in the right direction. I'm really not answering the question. But it's off to a good start is all I can tell you.

Nathan Isbee - Stifel, Nicolaus: Then you talked about some of the fundamental spreads of the B mall market. There seems to be some new entrants into the B mall category, people looking to buy some of those (indiscernible) et cetera. What are your thoughts in terms of perhaps accelerating your sales out of that group taking advantage of new entrants in that market?

David Simon - Chairman and CEO: Well, we're still going to prove in the portfolio. So, I am pleased that there are new people coming into the market that are looking at deals. So, I think that's good for us, generally.

Nathan Isbee - Stifel, Nicolaus: Then just finally on St. Louis. You are 97% spoken for at this point – now that you are getting closer to the open, can you give us a little bit more, perhaps the insight into the negotiations with the retailers on why they chose your site over the (indiscernible) and what type of sales are you expecting to get (indiscernible).

David Simon - Chairman and CEO: Look, I can't – I really, I'm not going to get into that, Nate, other than to say we presented to them what we thought the center was going to be like Cincinnati Premium Outlets. This was kind of how we envisioned the productivity and the mix. That's been very – it's a quite center, but it's been well-received by the community and by the retailers. That's how we sold it to the retailers. Now, they have a lot of confidence that, we say we're going to build Cincinnati, they did; we did that. So that's how we kind of sold it. Today in terms of how they should think about the productivity, the pricing was similar to that. We took it from there. I mean, nothing beyond that really. I mean, it was competitive, but at the end of the day, I think, retailers have a level of confidence with us in terms of the Outlet product. I will say this, though we got the – because pricing in new deal, the outlet retailer generally, they know what they can afford to pay. So as much as we'd like to say there's just great, huge negotiation on rents, I mean they're used to saying, here's what I pay on the new outlet center and that's what they pay. So they're in a very good position to bargain what the rental idea is, I mean the one thing they really wanted to do, they really don't like competing centers, they really like when there is one site and then they all go, because they know what they can afford to pay and then that what's they pay. So in Charlotte as much as the market might think, boy, Charlotte, looks like we're going to build that one center, the retail community love the fact that they didn't have to worry about a competing site. They really, really liked it. Now in St. Louis Luis I'm sure a number of them felt that way as well.

Nathan Isbee - Stifel, Nicolaus: I guess your success there hasn't whetted your appetite for another (place)?

Stephen E. Sterrett - SEVP and CFO: Look, we've lost plenty of those too. But I mean but it's – like I said it's not – it's common to partner and just get a deal done for the community, for the retailers and be done with it. In this case it didn't happen.

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

David Simon - Chairman and CEO: Thank you for your time and your interest and we'll talk to you very soon.

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