May 1, 2009
Executives
Shelly Doran - Vice President of Investor Relations David Simon - Chairman of the Board, Chief Executive Officer Richard S. Sokolov -President, Chief Operating Officer, Director Stephen E.
Sterrett - Chief Financial Officer, Executive Vice President
Analysts
Michael Mueller - J.P. Morgan Jonathan Habermann - Goldman Sachs Quentin Velleley - Citigroup Michael Bilerman - Citigroup Paul Morgan - Morgan Stanley David Fick - Stifel Nicolaus & Company, Inc.
Mark Biffert - Oppenheimer & Co. Richard Moore - RBC Capital Markets Benjamin Yang - Green Street Advisors
Operator
Good day ladies and gentlemen and welcome to the First Quarter 2009 Simon’s Property Earnings Conference Call. My name is Carma and I will be your coordinator for today.
(Operator Instructions) I would now like to turn the presentation over to your host for today’s call Miss Shelly Doran, Vice President of Investor Relations. Please proceed.
Shelly Doran
Good morning and welcome to the Simon Property Group First Quarter 2009 Earnings Conference Call. Please be aware that statements made during this call that are not historical may be deemed forward-looking statements.
Actual results may differ materially from those indicated by forward-looking statements due to a variety of risks and uncertainties. Please refer to our filings with the Securities and Exchange Commission for a detailed discussion of these terms.
Acknowledging the fact that this call may be web cast for some time to come, we believe that it is important to note that today’s call includes time sensitive information and may be accurate only as of today’s date, May 1, 2009. The Company’s supplemental information package was filed earlier today as Form 8-K.
This filing is available via mail or email and is posted on the Simon web site in the Investor Relations section under Financial Information Quarterly Supplemental Packages. Participating in today’s call will be David Simon, Chairman and Chief Executive Officer, Rick Sokolov, President and Chief Operating Officer, and Steve Sterrett, Chief Financial Officer.
I will now turn the call over to Mr. Simon.
David Simon
Thanks, good morning everyone. We are pleased to report an excellent quarter, which is a testament to our high quality portfolio as well as our early recognition last year of the severe economic downturn.
I would like to just take a few minutes to review the financial and operational highlights and then we’ll open it up for questions. We reported FFO per share growth of 10.3% to $1.61 in the first quarter compared to $1.46 in 2008.
First quarter 2009 FFO per share reflects $0.02 of dilution as a result of the issuance of the common stock dividend that we paid in March of 2009. Diluted net income available to common stock holders per share increased 15.4% or $0.45 in 2009, from $0.39 in 2008.
Comp and NOI growth for the regional malls was up 2.7% for the quarter and our comp property NOI statistics do not include lease settlements. Our occupancy in the mall portfolio was 90.8% at quarter end compared to 91.7% in the year earlier period.
Occupancy across all platforms was decreased due to the retail environment as well as the store closings in early 2009 by major retailers who filed bankruptcy in 2008 and subsequently liquidated in the first quarter of 2009, including for the mall portfolio 595,000 square feet, which was primarily the big box retailers Circuit City and Linens ‘n Things. Comparable sales in the mall portfolio were $455.00 per square foot at March 31, 2009 as compared to $491 in the year earlier period.
Sales in the mall platform continued to decline due to the general weakening in the U.S. economy and the reduced performance of some of the higher end tenants.
We did see a deceleration in the rate of sales decline in the quarter, which is encouraging and remember that Easter fell late this year, actually in April as opposed to March of last year, and there was weakness in Florida, California, and the Las Vegas markets which also impacted that statistic. Our regional mall releasing spread was very solid at 24.8% for the quarter, in line with our historical levels and our expectations and what we’ve signaled to the market again about the value of our lease rollovers.
Now let me turn to the Premium Outlet portfolio. Comp NOI grew 7.9% in the quarter.
Occupancy was 96.9% at the end of the quarter as compared to 97.9% last year. The decline again was primarily the result of certain store closings and bankruptcies as well as we opened Jersey Shore last year, which is 90% occupied at the end of the quarter, which had some small impact on that number.
The outlet business sales were $5.07 per foot at the end of the quarter as compared to $5.11 the year earlier period. Our Premium Outlet releasing spread was a robust 33.5% and the pricing power remains strong to do a low occupancy cost stability of sales and steady demand for space from tenants.
Our Premium Outlet portfolio contributes over 19% of our NOI and is without doubt the best collection of outlets in the country and without peer with the highest occupancy rate generating the highest sales per square foot, strongest comp property NOI growth, and highest development returns. Our third primary platform is the Mills.
That was 89.7% leased at the end of the quarter compared to 94.2% in the year earlier period. This decline again was attributable to the bankruptcies of 840,000 square feet primarily Circuit City, Linens and Steve & Barry's.
Sales within the Mills platform was $373.00 per foot at quarter end compared to $379, which again I think helped demonstrate the importance of the consumers looking for value given the economic situation that they currently reside in. Releasing spread for Mills was a +14.1%.
Now let me turn to the capital markets. As you all know we sold $17.25 million common shares and issued $650 million of ten-year unsecured notes near the end of the quarter and that was a total capital raise of approximately $1.2 billion which reduced our borrowings on our corporate credit facility.
Our corporate credit facility has zero outstanding other than the foreign currency exposure that we keep outstanding as a hedge against our foreign income we generate of approximately $440 million of out standings. In March we also refinanced two regional malls at $197.5 million with an average interest rate of 7.77%.
These loans were new originations by major life companies and in fact they had existing indebtedness of approximately $130 million prior to our refinance. We retired $700 million of senior notes.
At the quarter end we have approximately $1.1 billion of cash on hand including our share of joint venture cash and our availability on our corporate credit facility is somewhat over $3 billion. Our unencumbered portfolio continues to include 150 wholly owned assets that generate EBITDA in excess of $1.7 billion.
Our annual cash flow is still projected this year before dividends to be approximately $1.5 billion in 2009. Let me talk about development and redevelopment, talk about the dividend as well.
We opened the Promenade at Camarillo, in Camarillo, California, a 220,000 square foot expansion expected to generate a first year return of 13%. In addition, on April 17 we opened a new Nordstrom at the recently redeveloped and expanded Nordstrom Mall in Peabody, Massachusetts.
In addition, we are finalizing the construction in the U.S. on Cincinnati Premium Outlets, the second phase of Domain in Austin, Texas and the redevelopment expansion of South Shore Plaza in Braintree, Massachusetts.
We currently anticipate that our domestic development capital expenditures net of construction loans already in place will approximate $180 million for the remainder of 2009 and currently we’re projecting less than $50 million in CapEx development spend in 2010. Now let me turn to the dividend.
As you know we have paid particular attention to this. We have treated it with the most seriousness that we can treat any corporate decision that we can make.
We have worked hard and long with our board of directors and we have determined that the Company’s annual common stock dividend will be reduced to the minimum amount required to distribute 100 % of our taxable income and maintain our REIT status. This amount is currently estimated to be $2.70 per share for 2009 and the first quarter of 2009 we paid a dividend of $0.90 per share.
We expect to pay three quarterly dividends of $0.60 per share for the balance of the year to equate to the $2.70 of estimated taxable income. As you may recall, we originally forecasted our taxable income to be approximately $3.30 per share and based on our decision in the Q1 to pay the $0.90 per share dividend on that estimate.
Since that time we have been able to lower our estimated taxable income by taking into consideration the increased share count from our equity issuances as well as additional taxable depreciation available to us, both of which were not included in our original estimate. Accordingly, the dividend announced today in payable on June 19 is $0.60 per share consistent with the dividend announced in the first quarter, the dividend will be paid in a combination of stock and cash.
The cash component of the dividend will not exceed 20% in the aggregate or $0.12 per share. The cash component of the dividend was increased by $0.03 per share or 33% from the first quarter dividend.
Guidance today, we revised and adjusted our 2009 FFO guidance to $6.05 to $6.20 per share. This revision was primarily driven by the 2009 common stock and unsecured debt offerings that occurred at the end of the quarter as our outlook on operations currently remains unchanged.
Finally, let me just say that I am proud of the first quarter. It continues to be a difficult operating environment, but we delivered excellent growth and profits 10% above last years numbers.
We strengthened our industry-leading balance sheet with our common stock and notes offering and we continue to be pleased with how the Company is positioned. We are grateful to continue to maintain our leadership position in the REIT industry.
With that said, operator we are ready for questions.
Operator
(Operator Instructions) Your first question comes from Michael Mueller of J.P. Morgan.
Michael Mueller - J.P. Morgan
Was there any magic behind the cash component of the dividend going up a few cents?
David Simon
Well look, it is our desire to get as much cash dividend as we pay comfortable paying. I think we will continue this strategy for ‘09, but we’re really looking to as soon as we get more and more clarity in the capital markets and that is becoming a little bit clearer, that we are optimistic that we will reinstate the full cash dividend.
I just think it’s hopefully a signal to the market that we’re getting more and more confidence.
Michael Mueller - J.P. Morgan
Okay, not knowing anything else, should we look at, I am assuming the $0.60 probably wouldn’t be a run rate into 2010 or should we think as $2.70 as being an annual and just think of the dividend on an annual basis at this point?
David Simon
I would think that it’s, obviously 2010 is awhile away, but our early projections on our taxable income for 2010 are anywhere between $2.70 and $3.00 per share. Again, there is a lot of variability to that, but it would be our intention to obviously pay our taxable income and to pay the appropriate amount in cash given the current market conditions.
Michael Mueller - J.P. Morgan
Is the Mills occupancy decline, I know you mentioned the boxes who were the culprits there. Was all of that expected and did anything else come out of that that wasn’t expected?
Then can you comment on the demand, the activity that you’re seeing in terms of leasing some of those boxes plus in the Community Center portfolio?
David Simon
I will turn it over to Rick. I mean, the Mills decrease was entirely towards the boxes.
The demand there continues to be decent. There are more and more tenants.
Like, I happened to be there last week and Potomac Mills, the last call of Neiman Marcus were just about to open an Orange Neiman Marcus as well. So, the demand is good, but as you know we have had lots of boxes in those properties.
It will take some time, but the in-line tenancy really didn’t have much variability. It is all associated with the boxes.
Rick Sokolov
And the only other thing, we have another Neiman Marcus last call opening at Gurnee and we also have a number of H&Ms opening in these boxes. The other thing that’s going on is, as David pointed out because of the stable sales performance there we are seeing an increasing migration to the Mills platform of not only outlet tenants that we are cross-fertilizing from Chelsea, but also our full price mall tenants that we’ve started to open in the Mills.
So, our demand for small shop space in the Mills is maintaining relatively stable.
Michael Mueller - J.P. Morgan
Okay and I think on the last call, David, you mentioned an expectation that obviously you can’t just look at any one quarter in terms of spreads, but you said maybe the spreads come into the teens. Can you talk about what you’re seeing post Q1 and into the spring leasing season.
Do they still look pretty sticky?
David Simon
Yes, I have been inelegant in my articulation of our leases and the fact that they are under market. But, generally, good retail has been around for a long time and given the fact that good retail real estate the leases tend to roll over 7% to 10% per annum, it just takes a long time to bring that good retail up to market.
The good retail we are still feeling reasonably confident that we can deliver rental growth out of. In certain properties you are going to have struggle to do that, but given the majority of our incomes is coming from better properties, we still think it’s sticky and we would expect to continue to do it.
The nature of it may come in somewhat, but we still believe strongly that our leases are under market.
Michael Mueller - J.P. Morgan
Okay, I appreciate it. Thanks.
Operator
Your next question comes from Jonathan Habermann with Goldman Sachs.
Jonathan Habermann - Goldman Sachs
I thought I would start off with NOI growth. David your comments certainly sound a little bit more positive than the last call, but 2.7% is certainly positive versus your +1% forecast.
How do you see NOI growth trending through out the balance of the year?
David Simon
We are not going to move away from the slats of 1% growth. It is a tough retail environment.
We are just trying to execute to deliver that to the best of our abilities. You can over react on one quarter, but we still feel like we are going to deliver the flat to 1% NOI growth.
Jonathan Habermann - Goldman Sachs
Do you think it will dip negative more towards the middle of the year as these bankruptcies close?
David Simon
I think the real issue at the end of the day is; what are very hard to predict is overage rents. Now that is not a lot but that does have some variability associated with it and that is why we are probably a little bit more cautious.
Obviously we are reserving, you see the bad debt expense. It is still very high compared to historical standards.
That is the variability that is just really hard to pin point.
Jonathan Habermann - Goldman Sachs
The other part of it too is the financing market. It sounds like you are more optimistic there as well?
I know you issued the unsecureds, but have you seen the market improve even since in the last month or so?
David Simon
I think the corporate market is dramatically improved. It is good to see the industry begin to re-equalize, it is good to see the unsecured debt markets come back.
Our spreads have tightened dramatically. That is all good news.
The life companies are providing the capital to the borrowers and the best properties. The one unknown in our industry is obviously the CMBS market and what happens there.
I am not one of these guys sitting around assuming the government is going to help the real estate industry. That is the big unknown and that is the market that lacks the most clarity on.
Jonathan Habermann - Goldman Sachs
Referring to the Life companies for a minute, you did mention that it’s improved. Do you see that as a very deep option at this point or do you think that this is a flurry of activity from the lack of activity from late last year?
David Simon
No, I think it is dependent on the insurance companies, but there is other capital out there that wants safe mortgages with good borrowers on good real estate. They now have the ability to kind of pick and choose and in fact drive pretty good bargains.
I think that market is not extremely deep, but it is there. It is not just life insurance companies, I think we are starting to see debt funds and the like that are going to provide capital to good borrowers and good real estate at pretty good rates.
Jonathan Habermann - Goldman Sachs
Last on GGP, any thoughts in terms of how that is impacting your leasing, or even in terms of Cap rates and transactions that you might see?
David Simon
I think it is too early to tell. I don’t sense it is going to have any impact on our operational aspects, leasing.
It is very interesting, as big as general growth is and obviously as big as we are, we rarely have competed in markets. We may have three, four, or five centers that had some overlap.
We have always competed kind of on a national basis. So, I don’t think it is going to have any impact on the operational side, other than as we said last quarter, I do think the landlord from a retailer perspective is really important, and to the extent we do think we’ll get some residual benefit just because of the position the company is in as well at the quality of our assets.
I don’t think at this point Cap rates impact on financing. I have not seen any and I don’t expect it to really play out for some time.
Jonathan Habermann - Goldman Sachs
Okay, thank you.
Operator
Your next question comes from Michael Bilerman from Citi.
Quentin Velleley - Citigroup
This is Quentin Velleley here with Michael. All of your peers have been saying that a lot of the lease renewals have so far this year have been very short in term of one or two years.
I am just wondering if that is something that you’re experiencing in your leasing?
Rick Sokolov
We have been interested to see the focus on this. Our leasing strategies haven’t changed at all.
Frankly, you can look at our termination schedule in the AK quarter-to-quarter and track it. For whatever it is worth our number of leases less than two years is a dramatically lower percentage than anything that we’ve heard publicly discussed in the other calls.
But, you also need to be reminded that there are a lot of very good reasons for having a shorter term. We want to have our retail spaces have the same expirations; if we can put together a new room that is more marketable, we want to generate more rent, we want to change the mix.
There are a lot of factors and I don’t think that the implication that there is something negative in that trend is appropriate, but in fact, for us, there is no material change historically in our terms.
Quentin Velleley - Citigroup
Okay and just in terms of your gross occupancy cost ratio with the Mall portfolio with retail sales dropping about 7% over the year and obviously rents increasing by 6% or 7%. I am wondering where that ratio is moving to.
I know you said that you think the majority of your portfolio is still under rented. Are there any particular tenants or types of tenants where the occupancy cost ratio is moving up and you’ve got some concern?
Rick Sokolov
First of all, historically we have always tried to ensure that we were getting full rents, but we have always run this business with a view towards ensuring that we can work with our tenants. In fact our occupancy costs within the malls is 14%, which is still very much within the traditional bounds where tenants can remain profitable even at these decreased sales levels.
I would also point out, and this was a point that was referenced by David, that in our Premium Outlet portfolio our occupancy cost ratio is only 8.7%, so in both platforms, in Chelsea, we know we have a substantial opportunity to bring leases to market and that is reflected with the significant rent spreads we are reporting on renewals. On the Mall portfolio our occupancy cost is stuff that we’re still having constructive conversations with our tenants.
David Simon
Quentin, I would just say look sales are obviously having an impact on how retailers are thinking about their business and what they can afford to pay and that is one of the reasons why our NOI assumptions are not growing 3% or 4% like they have historically, and that’s why we think we’re going to be flat to up 1%%. There is sensitivity that we have to our retailers given the current sales environment, so it is somewhat of a governor on growth right now, but I think our under market, under valued leases allow us to kind of maintain the flatness of what we’re projecting.
Michael Bilerman - Citigroup
This is Michael, clearly it sounds like other landlords are moving down that path of shorter duration. Do you think that is more so from a retailer perspective of them pushing it and saying look, I don’t know where things are going to be.
I would like to stay here, but cut me a break and I’ll stay for another year or two and then we’ll see where things are, rather than them leaving. Or, how much then is it the landlord saying you know what I don’t want to sign a long-term lease at massively down in rents if I know in two or three years things will be better.
I am just trying to understand that dynamic.
David Simon
Without question it is both, but the important thing is when we deal with a major tenant we’re dealing with our entire portfolio and if they are uncertain about sales at a particular center our goal is to shorten everything up, as an example, because one thing we don’t want to do is just have not such great stores expire and then do the longer term leases on the great stores. So, we try to balance that.
In some cases it is a short-term band-aid. It could be from our perspective.
It could be from theirs. Sometimes we are waiting on the right tenant for the space.
As Rick mentioned earlier, we think so four is going to come in next year, not this year, so let’s hold it over for a year. We had a situation at Dadeland Mall where we did that, as an example.
It is all part of the equation. I will tell you it is not that dramatically different than what we’ve been doing over the last few years.
Now, is rental expense a higher priority for tenants? Absolutely, but, the give and take, the duration of the leases and when you do it, when you don’t do it, when you have a hold over tenant, when you don’t has been pretty consistent over the last several years.
Michael Bilerman - Citigroup
Clearly your total portfolio is of high quality. When you are having these portfolio discussions, if you were to bracket it into different classes are you finding that, at least on the lower sales productivity assets is that hurting more; is that where retailers are becoming more concerned about at all?
David Simon
I think it depends on the retailer really. I mean some of the higher end tenants have had more dramatic sales decreases in, what I’ll call, the moderate to better.
So, it is really a function of the retailer in the marketplace. Clearly though, if the real estate is not that good you are going to be in a match to maintain the cash flow of that asset.
Look, we’ve got some that are in that bucket, but we’re still able to figure out how to grow our comps NOI even though we have assets in that class.
Michael Bilerman - Citigroup
Steve, can you talk a little bit about the two CMBS loans, where you decided not to fund effectively default on. I know one was basically just more of a legal ownership than economic, but talk a little bit about the one in Palm Beach.
Separate from that, clearly you have a lot of capacity today, $1 billion of cash and $3 billion of credit line capacity. Talk a little bit about the maturities in ‘09, 2010, especially in the joint venture side where you have a lot of secured larger loans and then maybe talk about forum shops which is the biggest secured maturity on the Consolidated portfolio.
David Simon
Let me talk about the source in Palm Beach and then Steve can add to the last part; first of all, the source. We have a 25% carried interest in that property behind significant preference for what I will call the true economic owner; there are two other partners in that deal.
We have no invested capital in that project. We were working toward a refinance kind of as the property manager of that asset.
We were working toward a refinancing of that asset and then given Fortunoff’s bankruptcy, obviously being the major anchor, coupled with Circuit City and Steve & Barry's the refinancing got impossible to execute. So, we are actually trying to work with the true economic owner and the lender to figure out how to come up with an acceptable alternative to extend the maturity date and give us the time to figure out how to fill the space.
Both the true economic owner and the lender have expressed an interest in us maintaining our role in that, even though we don’t get any cash flow and the management fee is de minimus in terms of what we’re doing. So, we are actually trying to be an honest happy broker to figure out how to make and give both of those lender and the borrower the ability to maintain the status quo for a better environment down the road.
So, that is the source. Now let me turn to Palm Beach.
Just to give you a little bit of history, Palm Beach, for those of you who don’t know, Simon Property Group acquired the asset both when we acquired DeBartolo and Corporate Property Investors more than ten years ago. Those ownership interests were owned 50-50.
They were very small in connection with the overall deal of DeBartolo and CPI. Since that time we invested millions of dollars renovating.
We actually brought in Dillard’s during that process. We re-tenanted the mall.
I think we did as good a job as anybody to maintain that center as an enclosed mall, but ultimately we knew that maintaining it as an enclosed mall was going to be very difficult. So, we began to develop a significant redevelopment plan which unfortunately, because of the state of the retail environment, in fact we were working with Ikea as an example, we were working toward maybe potentially demolishing the mall and the like.
But, when we lost Ikea that kind of put that whole development on hold. Additionally, during that period of time we lost Dillard’s and then subsequently we lost Macys.
So, we were trying to and have attempted to reach an acceptable resolution with the representative of the lender; I will point out, this is a non-recourse loan. But, those attempts, the servicer really was not interested in having a dialogue on this and those attempts have not currently reached an acceptable resolution.
With all that said, that is Palm Beach and again we have worked very hard to maintain it and to try and redevelop it, but the environment is such that that’s going to make it very difficult. This has been a cash flow drain for the Company, on this non-recourse loan.
I think our decision is obviously in the best interest of our bondholders and our equity holders and the like. That is the status with that.
I will turn it over to Steve to answer the last part of your question. Other than to say the good news in both our secured and our secured indebtedness coming up in ‘09 and ’10, and our JV, and a lot of that is with life companies that were well down the road.
If you look at our consolidated nines the vast majority of that is with insurance companies that we have a wonderful relationship with that we have made very good progress on. The same thing can be said for our tens as well.
But, I will turn it over to Steve to add more color, it you would like.
Steve Sterrett
Yes, Michael, just to echo David’s point as and example 75% of our ’09 maturities are non-CMBfs. The other thing that I would point out is in the 9s, 10s and even going out to 11 our current debt yields based on current EBITDA is in the 15% range, so these are loans that in the aggregate are appropriately sized even given the current market conditions, which is why we have made the statement that we expect to be able on a net-net basis to refinance our security indebtedness in whole.
Not to say we won’t have to necrotize certain assets. As David mentioned in his prepared remarks, we actually got excess proceeds from a couple of the loans that we have done already, but net-net we think we are in pretty good shape.
You asked about forum shops specifically, I suspect because of its size and it is a large loan, but I will also tell you it does well north of $80 million of NOIs. So again, when you look at it from a debt yield perspective it is certainly not over levered.
One of the great advantages of our company compared to many others is we have a big unencumbered portfolio and so the ability to mix and match our financing sources we are not dependent on rolling over every mortgage maturity that comes due. As David mentioned earlier, we certainly believe the bond market is substantially improved from where we saw it a month or so ago.
I feel very good about the ability to continue to roll over our mortgage debt and to finance the Company [interposing].
David Simon
Just to give you a perspective on that, that is what our line is there for essentially. Take the Oklahoma assets that we refinanced, we actually paid off the mortgages, one in January and so we paid one at the end of the year actually and then one in January.
So, if need be that is what our cash and our availability will do until we can refinance assets or refinance our line through other mechanisms.
Michael Bilerman - Citigroup
Thanks for the very detailed color.
Operator
Your next question comes from Paul Morgan from Morgan Stanley.
Paul Morgan from Morgan Stanley
Do you think you are in the position now from a balance sheet perspective to take advantage of acquisition or investment opportunities that might come along or do you still think that from where pricing talk is and where you are that you would rather wait?
David Simon
Well, Paul, I will tell you that we are feeling better about the world generally. We obviously have been very conservative on capital.
I think that the steps that we have taken, although painful in some respects and not something we wanted to do, I would we are feeling better about the market. Generally I think we are looking more outward yet.
It may be still too early to become more on the offense, but our mood here is getting a little bit more forward thinking than it has been over the last six months. What is interesting, I do think there is capital in lots of different ways for us to be opportunistic as the opportunities arise.
Steve, do you want to add anything to that?
Steve Sterrett
First of all, Paul, welcome back into the fray. I think I would just echo what David said.
One of the things that we have clearly seen over the last six months is the move of capital towards the higher quality sponsors. I think at the height of this EMS market who actually owned the mall or who the partner in the mall was maybe less important then I had ever seen it in the 20 years I have been doing this.
I think we are at the other end of the spectrum right now and money, and there is still a ton of money sitting on the sidelines, has gravitated towards the better sponsors. So, I think when you couple what we have done already from a capital rate standpoint, plus the enquiries we have gotten about people wanting to put money to work side-by-side with us, I think David is right in that we’re feeling a little better about the opportunities that we are inevitably going to see come down the road, because there is obviously still a lot of distress in the market and we are going to see opportunities.
Paul Morgan from Morgan Stanley
You have been pursuing some of those outside the U.S., is there a bias now for anything incremental being domestic or foreign?
David Simon
I think the primary focus currently will be domestic, Paul, without question.
Paul Morgan from Morgan Stanley
My last question is on visibility from a leasing perspective. In my experience ICSC comes and you talk about a lot of deals for, this year it will be 2010.
How much are retailers sort of willing to think about sort of fall 2010 openings, or does everybody have a much shorter time horizon right now?
Rick Sokolov
We’ve had in the last three weeks an anticipation of ICSC probably five to eight tenants a week coming in here, because with our portfolio and across the platforms we get a lot more done and we are talking to them about 2010 deals. Obviously they want to see what the future holds as well, but three months ago no one was even thinking about it and now they are starting to think about it for new stores, but we are actively finalizing our renewals and are working now on our renewals in 2010.
Paul Morgan from Morgan Stanley
Did you think that the bounce we’ve had a bit in sales has actually changed the attitude at all, or is it too early for that?
Rick Sokolov
I think they still want to see some firmer trends. What I will say, Dave and I met with a number of these retail CEOs over the last several weeks and they are at least more comfortable in understanding the trends.
There was a period of time in January and February where they didn’t really know what was ahead of them. Now I think they are a little more comfortable as to that, but they still want to get some firmer feel for how this is going to unfold over the next few months.
David Simon
I would just say I think their mood is better, from the guys I talked to. No one knows for sure where we are going to be the next six months in terms of the broader economy, but I will tell you that given the dramatic fall off from September to December and the slowing down of the sales rate of deceleration, that sounds right: I would tell you that their mood is more stable and more forward thinking without question.
That is not to say there aren’t certain retailers that are still not seeing that rate of deceleration slow, but I think it’s clearly a little bit better than it was in December.
Paul Morgan from Morgan Stanley
Thanks.
Operator
Your next question comes from David Fick from Stifel Nicolaus.
David Fick - Stifel Nicolaus & Company, Inc.
In hindsight you guys may have done one of the most expensive A rated REIT bond deals in history. I am wondering if given what’s happened in response to that and how you helped the people who followed on, might you now come back and try to dollar cost average that down?
David Simon
Sure, look, we are going to look at that market when it is appropriate. We chose to punch a hole in the capital markets because we were concerned about the industry and concerned about the cycle that was out there.
So, we decided to take some short-term pain for hopefully a long-term reward. We don’t have any regrets about decisions that we made.
I mean our timing. It is hard to know whether we would be where we are today, but we knew that that cost was expensive.
We thought that by doing it ultimately we would be able to access markets more cost effective and so far it looks like we are moving in that direction. It is a long winded answer to say yes, we never think our cost of capital was where we were at the end of March, but we chose to incrementally suffer that pain, because we didn’t like the cycle that we and/or the industry was in.
David Fick - Stifel Nicolaus & Company, Inc.
Thank you. When you did the Mills deal you talked about redevelopment opportunities, and they had some things in the works at the time including Del Amo and potentially adding some colonnade style features to some of the other projects.
We haven’t seen anything like that over the last couples of years. I am wondering if it is just the environment, or do you have things in the works that you might be willing to talk about in the next six months or so?
Rick Sokolov
In fact, we are in the process of finalizing, right now, a 15,000-foot expansion to the colonnade at Sawgrass Mills. There are a number of tactile things going on within the Mills portfolio that David already discussed the last call.
We are adding a number of other small shops in the Mills properties. In terms of the more dramatic redevelopment in the Mills malls, obviously the capital programs of the fashion retailers that we are focusing on to reposition those assets are on hold and it is going to be some period of time before they are prepared to engage in the conversations on those redevelopments.
At the mills properties themselves, we are working on a number of other projects, but as has been our historic practice, we don’t really talk about those things until we have something concrete to say.
David Simon
I would just under line that the actual Mills we have actually done a lot of new boxes. Neiman, we are doing a lot of Orange Gurney as Rick suggested.
We are very satisfied with how we have positioned the mills. We have two disappointments and I will say that they are directly related to the economy and that is in Southdale and Del Amo and we think both are great long-term real estate opportunities, it is just I think those have been somewhat of a set back.
Not because we don’t have the vision or the plan, it is just they are going to be on hold. I would say by and large the Mills progress we have been very pleased with.
The other one that we created was Gurney. We were looking to do a lifestyle addition.
We kind of put that on hold because of the economy, but as Rick mentioned Neiman is going there in any event. I would say we are bringing hopefully a casino to Rundle Mills.
Rick and I did that over the weekend, more Rick than me. I just found out where Rick was.
The Mills we feel good about. We’ve got a couple disappointments in those two big malls, but I think there are opportunities for when the world gets a little bit better.
David Fick - Stifel Nicolaus & Company, Inc.
David, I think you were recently quoted as saying that GGP didn’t realize that they were distressed sellers and that you were more interested, I think you have allude to that on the call, using the word opportunistic a couple of times. What do you consider opportunistic Cap rate here?
David Simon
Well I can’t tell you because you may tell somebody. Now look, I think it’s one we would look at where we’re trading and a premium to that.
Assuming we believe in the growth prospects of that asset, like we do of our company. I think they will be out there; we just have to be somewhat patient.
David Fick - Stifel Nicolaus & Company, Inc.
Thank you.
Operator
Your next question comes from Mark Biffert from Oppenheimer & Co.
Mark Biffert - Oppenheimer & Co.
I wanted to ask what your optimal view is on leverage looking ahead. You have seen a number of other REITs come out and say that they are lowering their views on where they think their debt to equity should be longer term.
Have you assessed what that is for you?
Rick Sokolov
I think we are comfortable now. I think as we look to be more opportunistic we are going to need more firepower ultimately.
But, I think our balance sheet, the fact that the regional malls have the kind of cash flow resiliency where we are. We are making steps to delever.
We will continue to make those steps. You see where we are with the rating agencies.
I feel like we’re there, but we can always focus on our cash flow generation to delever and that is what we’re in the process of doing right now.
Steve Sterrett
I would just add one thing. If you think about the stability of the mall business and obviously the results that we’ve been able to demonstrate in terms of holding the EITDA in a terrible economic environment, I mean, we are covering our EBITDA 2.6x right now in terms of interest coverage.
Given the stability and the cash flow, that is a very comfortable place to run our business. Now that leverage may change up or down depending upon your view of Cap rates.
But I think if you just think about it from a cash flow coverage, running the business north of 2 1/2 times is a comfortable place for us to be.
Mark Biffert - Oppenheimer & Co.
Okay and then related to the leasing spreads, I was wondering if you could provide a little more color in terms of how many of those leases were signed last year prior to the downturn and you still saw that positive wide spread and if that should shrink over the next year or two as we start to see you report your results?
Steve Sterrett
I would say this; it is a huge portfolio, so the size of the numbers doesn’t mean something. Having said that, I think as David mentioned in response to an earlier question, we gave guidance at the beginning of the year expecting that lease spreads could go down to the lower end of our 15% to 25% historical range in the mall.
They haven’t done that yet, but does that mean that they couldn’t come down a bit as we get farther into the year? Sure they could.
But, we still feel leases are under market. We still feel very good about our ability to generate meaningfully positive leasing spreads.
Rick Sokolov
Let me just add to Steve’s point on the metrics. Year-to-date we have executed 3, 347, 000 square feet of leases comprising 1,071 deals.
So, in and of itself that is a very large sample that is driving the stats that we put out.
Mark Biffert - Oppenheimer & Co.
Okay thanks for the color. Lastly, Steve I noticed that repairs and maintenance expense came down compared to last quarter relatively high and then your credit for losses doubled quarter-over-quarter.
Can you give us a little more guidance on your expectations for the rest of the year?
Steve Sterrett
Without talking about repairs and maintenance specifically, because things can move quarter-to-quarter, but if you just look at the overall operating costs of the mall, we have done a very good job of controlling our costs in this environment and I would expect that kind of overall trend to continue for the rest of the year. As it relates to the bad debt expense, I think given the uncertainty of the environment that we’re in, I would like to think that when we look back 12 months from now we will have been a little conservative in the first quarter.
So I wouldn’t necessarily expect that provision to be a run rate for the year, but I don’t think there is any question that we are in an environment where bad debt expense in ’09 could be higher than it was in ’09.
Mark Biffert - Oppenheimer & Co.
Okay, thanks.
Operator
Your next question comes from Richard Moore from RBC Capital Markets.
Richard Moore - RBC Capital Markets
When you look at leasing what percentage of the ’09 leases do you have expiring at this point?
Rick Sokolov
We are probably upwards of 85%. In addition to the statistic I just said, we have another in our lease approval process 7,126,000 square feet that is being processed.
Another 2,109 leases and I said we are already well into our 2010 renewals.
Richard Moore - RBC Capital Markets
Okay so year-end ’09 occupancy is probably going to be what do you think?
Rick Sokolov
It is very hard to speculate, because we don’t know what is going to happen in terms of tenants that end up filing or what happens even with the tenants that have filed. One of the positive things that we’ve seen, that I think is reflected in David’s point in the capital markets is that tenants that filed December/January, it was straight to liquidation.
What we are seeing now is that there is more dip financing available and a number of the tenants that have filed in the last 60 days are actively discussing which leases they want to assume as opposed to just going right to liquidation. So, it is very hard to project today where that is going to end up.
Richard Moore - RBC Capital Markets
All right, good, thanks. Then it sounds like, and it seems to me, that the bankruptcy season in general was lighter than people expected, but how would you put it in context historically?
I mean what do you think of this last first quarter and the bankruptcies we saw versus what we’ve seen in the past?
Steve Sterrett
I would just say I think the concept of a bankruptcy season is probably less relevant. Rick mentioned that the first part of the year there was no dips to the end thing, I think that muted the bankruptcies if for no other reason than people knew if they took the risk to go into bankruptcy they were probably going into liquidation and no one wants to sign their own death certificate.
One of the outcomes to the fact that there is a bit of dips in the end thing now is that there may be more bankruptcies here later in the year, just because people have a little bit more confidence that they can do a reorganization as opposed to a liquidation. I think it is hard to say, but we certainly would not be surprised if there were more bankruptcies yet this year.
David Simon
I will tell you, we lost a lot of occupancy due to bankruptcies in the first quarter, Rich, so it’s, I mean our set back in the leasing occupancy this quarter is all as a result of the bankruptcies.
Richard Moore - RBC Capital Markets
Okay, all right good. Thanks Dave.
Then Rick, would you give us the hit parade of who the tenants are that are most maybe increasing their desire to open stores, your feel for more excitement, maybe, among certain tenants with regard to your portfolio.
David Simon
I will tell you that people we are working with now that are opening stores in ’09 and still have expressed an appetite in ’10 are stores like Express, H&M, Sophora, Forever 21, J Crew, Apple, Zara. The good news is the junior category there are a lot of people that are interested in locating stores in our properties.
In the Outlet portfolio the list is far longer. There is continued demand in the Outlet portfolio.
We are seeing a number of tenants come into the Outlet portfolio that are new to the Outlet portfolio. So, I don’t want to say if anything it is robust, but there is work going on.
Richard Moore - RBC Capital Markets
Okay and then on the GDP bankruptcy, are you guys involved in that in any way, or do you just monitor it, or what are you doing there?
David Simon
We are certainly monitoring it. It will be a fascinating thing to monitor.
Richard Moore - RBC Capital Markets
Does that mean you don’t actually have discussions with them at any time, or is that something you can’t talk about?
David Simon
We are not having any discussions with them currently. This is going to be a long complicated process that can go a lot of different ways; so we are going to stay closely abreast of it.
Richard Moore - RBC Capital Markets
On construction costs, are you guys seeing a drop in construction costs and does that provide any benefit here as tenants continue to avoid new developments, but they’re maybe going forward as they might take another look at some of these?
David Simon
Yes, it is certainly going to help us, a dramatic reduction in costs.
Rick Sokolov
Perhaps more important is there is going to be a dramatic reduction in new supply. So over the next five years we anticipate that there is going to be very few new projects brought forth.
It is going to materially help us increase the market share of our existing properties.
Richard Moore - RBC Capital Markets
Okay great. Thank you, guys.
Operator
Your next question comes from Michael Bilerman from Citigroup.
Michael Bilerman - Citigroup
In relation to you stake in Liberty, do you participate in the follow on offering?
David Simon
We are not a liberty, no pun intended, to disclose.
Michael Bilerman - Citigroup
You would have to file, I guess, if you did buy, correct?
Rick Sokolov
When the deal closes which won’t be for another month or so.
Michael Bilerman - Citigroup
And then again, talk about your intentions, I guess you are not at liberty to talk about it?
David Simon
We are not at liberty to talk about it.
Michael Bilerman - Citigroup
All right thank you.
Operator
Your next question comes from Michael Mueller - J.P. Morgan
Michael Mueller - J.P. Morgan
Steve, home and regional costs dropped off quite a bit from prior run rates and year over year. I was just wondering if you could give us an idea what is going on there.
Then Rick, you were talking about 2010 leasing activity. Can you give us a sense in terms of that early activity, the comment about spreads being toward maybe the lower end of the historical band.
Do you think that will carry over into 2010 as well?
Rick Sokolov
Let me comment on the renewals first. The renewal activity that we’re doing to date really reflects David’s comments.
Happily the properties that drive our results, we still have pricing power and we are operating within the historic expirations. Properties that have less pricing power there is more pressure, but overall we think we’re going to continue as we have historically.
David Simon
I would just say we are going to be smart about renewals too, because we have confidence in our business, in our company, and in our properties that if you rush, rush, rush to do a renewal in a mall that you think is really good and you’ve got long-term growth prospects, you don’t want to give away the store, in a sense. So, we are just being very thoughtful about what the right rent is for the long-term of that space as opposed to what it might be in this particular moment in time.
Steve Sterrett
Mike, on your question about the home office costs, it is a couple of things, as I think David and Rick have alluded to over the past three or four calls. We got ahead of the curve with cost management that included right sizing parts of the business that were construction development related.
In the first quarter of the year is where we do our incentive pay outs for the prior year and they were lower in ’09 than they were in ’08.
Michael Mueller - J.P. Morgan
Okay, thank you.
David Simon
And we didn’t have to have the government ask us to do it.
Operator
Your next question comes from David Fick from Stifel Nicolaus & Company, Inc.
David Fick - Stifel Nicolaus & Company, Inc.
Just one point of clarity, when you disclose lease spreads on expiring and renewal leases, that is for deals signed in the quarter, not for the actual deals that rolled over in a quarter, right?
Rick Sokolov
No, David, it is for tenants that actually open and close. So we match actual tenants whose leases expired or spaces who closed compared to tenants who opened.
David Fick - Stifel Nicolaus & Company, Inc.
That gives you tremendous visibility over the next couple of quarters because everything that is going to happen is pretty well signed at this point.
Rick Sokolov
I am not sure I understand your question.
David Fick - Stifel Nicolaus & Company, Inc.
You know what deals are signed to open or close in Q2 already and so you pretty much would know what your lease spreads are going to be for Q [interposing].
Rick Sokolov
I would say this, when we gave guidance at the beginning of the year, I remember people asking why are you at zero to one, because a lot of people were more negative in their estimations. It was because 2/3 of our ’09 leasing was done and we did have visibility into what those spreads might be, yes.
David Fick - Stifel Nicolaus & Company, Inc.
Okay. What does your guidance assume about additional shares from the stock dividends for the remainder of this year?
David Simon
It is consistent with what we modeled at the beginning of the year.
Rick Sokolov
Do you mean our FFO guidance?
David Fick - Stifel Nicolaus & Company, Inc.
I mean obviously you are not going to issue as many shares now as you would have when you initially gave guidance.
Rick Sokolov
The guidance assumes that we continue to pay a stock dividend for the remainder of the year consistent with what we’ve done this quarter. But, it does not assume any additional equities.
David Fick - Stifel Nicolaus & Company, Inc.
Okay great. Thanks.
Operator
Your next question comes from Ben Yang from Green Street Advisors
Benjamin Yang - Green Street Advisors
David, you guys co-own a mall with General Growth in Texas, a shopping center that is apparently being sued by its anchor Dillard.
David Simon
Yes.
Benjamin Yang - Green Street Advisors
Can you comment on the law suit and also perhaps how your relationship with General Growth has evolved since their financial troubles began last year, maybe either as it pertains to this mall or other malls that you jointly own?
David Simon
Let me just say this. We picked up half an interest in this mall when we bought CPI.
This was a joint venture between Rouse and CPI. General Growth picked up their interest when they bought CPI and they have been the property manager, or I am sorry Rouse, they and Rouse have been the property manager since we’ve ever been involved in it and they have taken the lead on it and they had been leading the charge on the litigation.
We are a partner, but we have no day-to-day involvement in the managing of the asset. General Growth, we know Adam the guy that runs it now.
I would say our relationship with them is fine. We have asked to take over the management of this asset for a number of years.
We have been turned down through that process, but it is what it is.
Rick Sokolov
Just to be clear, this is the only joint venture we have with General Growth.
Benjamin Yang - Green Street Advisors
I am just wondering if you think the General Growth turmoil has in any way contributed to the deterioration of that center. Do you have any opinion on that?
David Simon
I think they are, and we are supporting them, arguing that the deterioration is not exactly what the Dillard companies have suggested. Given the litigation we will leave it at that.
Benjamin Yang - Green Street Advisors
Okay and do you think the lawsuit in any way impacts the opening of Dillard’s at The Domain, which is located just a few miles away?
David Simon
No, not at all.
Benjamin Yang - Green Street Advisors
Okay, thank you.
Operator
We have no further questions at this time. I would not like to turn the call back over to Mr.
Simon for closing remarks.
David Simon
Okay thank you everyone. We appreciate your support and we look forward to talking with you in the future.
Take care.
Operator
This concludes the presentation for today ladies and gentlemen. ( Operator instructions)