Aug 4, 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
Craig Schmidt – BAS-ML Jonathan Habermann – Goldman Sachs Ross Nussbaum – UBS Mark Biffert – Oppenheimer & Co. Steve Skawa – ISI Group Paul Morgan – Morgan Stanley Nathan Isbee – Stifel Nicholas & Company David Harris – Arroyo Capital Michael Mueller – JP Morgan Michael Bilerman – Citi Quentin Velleley – Citigroup Dennis Mitchell – Sentry Select Capital Alexander Goldfarb – Sandler O'Neill & Partners Richard Moore – RBC Capital Markets Jim Sullivan – Green Street Advisors Jeffrey Donnelly – Wells Fargo Securities
Operator
Welcome to the Q2 2009 Simon Property Group Incorporated earnings conference call. (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
Welcome to the Simon Property Group's second 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 webcast for some time to come, we believe that it is important to note that today's call includes time sensitive information that may be accurate only as of today's date, August 4, 2009. The company's supplemental information package was filed earlier today as Form 8-K.
The filing is available via mail or email and is posted on the Simon Website 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
Good morning. Thank you for joining us today.
I'll take a few minutes to review financial and operational highlights for the quarter and then we'll open it up for Q&A. SPG sound business fundamentals as well as our stability of our high quality regional mall and premium outlet platforms continue to drive results in the second quarter.
We reported diluted FFO per share before an impairment charge of $1.38 for the quarter ended in line with expectations. FFO per share including the impact of the impairment charge was $0.96.
In the second quarter, the company recognized a non-cash impairment charge of $140.5 million or $0.42 per share representing the decline in the value of the company's investment in Liberty International. As of June 30, 2009, we own 35.4 million shares of Liberty at a weighted average price of 574 pence.
Liberty's quoted market price was 397 pence at quarter end June 30 although now it is traded up closing yesterday at 436 pence. It recorded today the impairment charge would be $30 million less given the improvement in the stock price and the current exchange rate.
Until this quarter we marked Liberty investment to market through our comprehensive income on the balance sheet. We concluded this quarter that the decline in value is no longer temporary and therefore, recognized a loss in our income statement.
We continue to have confidence in the longer term value of our investment in Liberty. FFO for the quarter also reflected dilution of $0.14 per share as a result of our 17.25 million shares of common stock that was issued in March and an additional 23 million shares in May.
The issuance of the 40.25 million common shares in March and May offering as well as the 8 million shares issued through our common stock dividends served to strengthen our industry's leading balance sheet. We also recorded 13 million or $0.04 per share less in straight line rent and fair market value of lease income in the second quarter of 2009 as compared to 2008.
Now I'll comment on some operating performances measures. Occupancy across all platforms continues to be affected by the weak retail environment as compared to last year and has been impacted by store closing of retailers who filed bankruptcy in 2008 and 2009.
Across all of our platforms, we've lost over 2 million square feet year-to-date from bankruptcy-related store closings. Regional malls' occupancy was 90.9 at quarter-end which was a decrease of 90 basis points for the second quarter of 2008, primarily as a result of the aforementioned bankruptcies.
Premium Outlets was occupancy at quarter end was 97% a decrease of a 130 basis points from the second quarter of 2008, again primarily due to negotiated store closings where we wanted to recapture the space and again, more bankruptcy related closings. Comparable retail sales continue to decline due to the overall economic environment.
Our mall comparable sales were $442 per square foot at June 30, impacted by the performance of higher end retailers that have been more significantly impacted in today's economic environment. Those retailers had higher productivity to begin with and decreases in their sales had a greater impact on portfolio.
Comp store sales, we've also been impacted given our company's important position in Florida, California, and the Las Vegas markets. As of June 30, Premium Outlet comparable sales were $493 per square foot.
The sales decrease year-over-year was less significant in this platform as the consumer continues to seek value in these economic times. Our mall re-leasing spread was 17% as of June 30 in line with historical levels.
Our Premium Outlet re-leasing spread continued to maintain its strong position at 34.6%. Regional mall comp NOI for the quarter was flat.
It's slightly up actually and for the six months year-to-date was up 1%. Premium Outlet top NOI was 6.1% for the quarter and 7.1% for the first six months.
During the quarter we completed the transition of the Chelsea back office operations through ending Indianapolis, a move that will generate annualized cost savings of approximately $10 million, and we continue to be laser focused on all aspects of our operation. Our operating margin actually increased by 100 basis points in the mall portfolio to 68% for the quarter.
Now let me turn to capital markets. We returned to the capital markets in May raising an additional $1.75 billion through two offerings.
On May 12, the company completed the sale of 23 million shares of common stock at $50 for total proceeds of $1.15 billion. On May 15, the company issued $600 million of 6.75% senior unsecured notes due 2014.
On the second quarter capital activities included the following. We redeemed $ 85 million of our operating partnerships, 8% cumulative redeemable preferred units at par.
Two secured debt closings were completed during the quarter aggregating $230 million. In addition, on July 30, just a few days ago, we closed an additional $400 million of new mortgage financing.
These transactions that I just described generated an additional net cash to the company of $350 million. In 2009, we also exercised or completed extensions of more than $1.1 billion of mortgages.
Our net debt-to-EBITDA ratio was 6.36 times and SPG's prudent balance sheet management strong franchise value was again acknowledged in May when the company's ratings were reaffirmed by three major rating agencies including S&P, reaffirmed it at A minus, corporate credit on unsecured senior debt ratings with a stable outlook. On May 11, Moody's Investor Service affirmed the A-3 unsecured debt rating with a stable outlook.
On May 29 Fitch Ratings affirmed the A minus unsecured senior debt rating with a stable outlook. All three rating agencies cited the company's high quality portfolio including the magnitude of its unencumbered funds from operations, diversified asset base, stable income stream, conservative capital structure, strong access to a variety of funding sources and an accomplished management team as the primary reasons for these affirmations.
Now, as of June 30 our balance sheet includes, including our share of joint venture cash, $2.9 billion of cash and our availability on our corporate credit facility of over $3 billion for a total current liquidity position, including the recent mortgages I talked about of $6.3 billion. And I think the most important thing I can tell you about that is that includes $9.50 a share in cash.
Now development, redevelopment on April 23 we opened The Promenade at Camarillo. This 220,000 square foot expansion expected to generate a 13% first year return.
On April 17 a new Nordstrom opened at the recently developed and expanded Northshore Mall in Peabody, Massachusetts. And actually Thursday we'll be opening Cincinnati Premium Outlet and we expect that to be a very exciting development that will add to the country's best collection of outlets generating the highest sales per square foot, the strongest comp property NOI and the highest development returns.
Construction continues on two other projects in the U.S., second phase The Domain in Austin, Texas, redevelopment and expansion of the South Shore Plaza in Braintree, Massachusetts, and both are scheduled on time and on budget to open in early 2010. We have no other significant projects scheduled to begin.
International on July 7 we have opened Ami Premium Outlets, the eighth Premium Outlet center in Japan. The 225,000 square foot first phase opened fully leased to over 100 merchants.
We own 40% of this project. Construction continues on five other fully funded projects, two in Italy, which will open in 2010 and three in China scheduled to open in the fall of 2009.
Today we also reaffirmed the guidance provided on May 1, 2009, after giving effect to the impact of the May 12 equity offering, the May 15 senior notes offering and the second quarter non-cash impairment charge associated with our investment in Liberty's common stock, the FFO guidance range is $5.35 to $5.50 per share. Our outlook on core operations is unchanged.
And let me just conclude and we'll be ready for Q&A, while the economic and retail environments remain difficult we believe we have maintained our leadership, industry leadership position due to our high quality and diverse portfolio and our willingness and ability to access various forms of capital. With that said, we'll turn it over to Q&A.
Operator
(Operator Instructions) Our first question comes from Craig Schmidt – Bank of America.
Craig Schmidt – BAS-ML
I just wondered is there any increased activity regarding store closing of the mall anchors?
David Simon
Not dramatically from over the last couple of years. I think there might be a couple that we're at risk for, but I would tell you nothing that hasn't been consistent over the last few years.
Rick, you can add to it.
Richard S. Sokolov
The only thing I would add is to give you a sense of where we are today. We've got 766 department stores in the mall portfolio, of those only 19 are vacant.
Of the 19, 12 are owned by others and of the 19 we're actively discussing replacements in 12 of the boxes.
Craig Schmidt – BAS-ML
And so I mean you're actually doing better on the anchor front than the in line.
Richard S. Sokolov
That is more stable. Their occupancy costs are obviously much lower or they own their stores to begin with.
David Simon
Look, Craig, I don't think it would surprise us if we had some department store closings over the next year or two depending on the economic retail environment, but it's really nothing out of the ordinary that we haven't seen over the last couple of years.
Craig Schmidt – BAS-ML
And what's the current occupancy or leasing on the Cincinnati Premium Outlet?
David Simon
It should be about 85% by year-end.
Craig Schmidt – BAS-ML
And obviously you left the Mills project, what was the fatal flaw in that? Was it the location or just the layout of the center?
David Simon
The location got better but the layout was an old – it was an actually old, original regional mall that was built so it had two levels. It just didn't fit the Mills one-level, value oriented proposition and we were very happy to sell it.
Operator
Our next question comes from Jay Habermann – Goldman Sachs.
Jonathan Habermann – Goldman Sachs
David, on your comments with the environment I know you mentioned it's still challenging. But as we're starting to see signs of improvement and obviously to date you have to be somewhat pleasantly surprised just given that your occupancies holding up well and leasing spreads have held firmly and same store NOI is positive year-to-date.
Can you give us some sense for maybe leasing toward the back half of the year or even 2010? What you are seeing at this point?
David Simon
Well look I think the holiday season is going to be important in terms of the psyche of the retailer for 2010. And I think retail, even though the economy, and a lot seems to be shifting in the right direction, I think it's safe to say that retail is somewhat lagging in that.
We haven't seen that pick up but it is moving in the right direction. I do think that the second half of the year is going to be important and will have some important implications for 2010.
But we're still doing business. We're still opening stores.
There are still retailers that are growing. I don't think 2010 will have in one way or another, be really dramatic when it comes to NOI.
But, Jay, we're battling it out. I mean it's not easy but we're figuring a way to get it done.
Jonathan Habermann – Goldman Sachs
I guess maybe to better ask, I mean, do you expect to see another leg down in rents because the beauty of your business is you've got a predictable fees roll-over schedule in rents that are 10 years old. But if you've got – are you anticipating sort of another step down in rents over the next six months or so?
David Simon
I think it's too early to tell. We still feel very comfortable that we've got leases under market, but it's important ultimately for sales to stabilize.
And I think that's why, see, looking at the second half will be important especially as we get to October, November because the dramatic downturn in retail really occurred in that period of time. So if we can see some stabilization in that in that and the comps aren't as down as what we've seen the first nine months since September then I think we'll be – our leases will continue to show those rent spreads.
And that's what we're anticipating, but we're got to see the retail performance.
Jonathan Habermann – Goldman Sachs
And my second question is, would you look to co-invest with any REIT seeking to sell portions of assets or seeking to sell assets? And any sense of this point of updated pricing of where you look to deploy capital?
David Simon
Well I'm not sure I understand? Can you just restate the first part because I didn't pick that up?
Jonathan Habermann – Goldman Sachs
Would you seek to co-invest with any REITs at this point, whether seeking to sell portions of assets or would you really like to just buy assets altogether from those seeking to sell?
David Simon
Well I don't think we'd co-invest with another REIT. We may buy another REIT but I don't think we'd co-invest in another REIT or with another REIT.
The answer is we're feeling better about the pulling capital opportunistically, but beyond that there's not a lot I can add there. I mean there's nothing imminent in what we're planning to do.
But I don't think we'd partner with another REIT to buy assets. I think we would certainly buy assets or if we felt it was appropriate opportunity to deploy capital and get the appropriate return that we want to see from that, we would certainly consider that.
I mean, the one thing I said and I hope it's important, we do have $9.50 of cash on the balance sheet. So there are very few real estate companies that have it.
That's almost 20% of our market cap. Or so I mean, that's not an insignificant asset in today's world.
Jonathan Habermann – Goldman Sachs
So what would be the pricing level that would push you toward deploying that capital?
David Simon
Well, I don't want to give it away because it may hurt my negotiation. So I think we would – look, we understand our cost to capital very well, even though it's volatile and the cost of equity has been volatile.
We have a better handle of our cost of debt. And so I think anything we would do, we would be – we'd feel comfortable that it would have an accretive and be above our weighted average cost to capital.
So it's a function of the going in yield, what we can do with it and the potential growth in that asset. So we'll see.
Beyond that it's hard for me to comment. I will say to you from our standpoint, I mean, we've had a lot of capital approach us to joint venture our existing assets and/or joint venture new opportunities.
Given our capital position, we have felt we have positioned that capital to look at, and this is institutional capital, Jay, and we would look for that capital to position for new opportunities. And we are really reluctant to sell our best assets even at what we thought we would be able to get those at, say, a seven cap rate.
Even today, even in today's uncertain environment, we've kind of said, look, selling our best assets, wholly owned best assets at a seven cap rate, given the long-term growth of those is probably not in the best interest of our shareholders."
Operator
Our next question comes from Ross Nussbaum – UBS.
Ross Nussbaum – UBS
David or Rick, if you break down the portfolio either geographically or if I segment the malls into sort of sales stratas, what are you seeing in terms of trends both on rent and occupancy? Is it weakness on the high end and low end and the middle of the portfolio is sort of the sweet spot?
David Simon
Well, I'll let Rick add. I'll just say sales clearly have been most impacted by the better the property, which gives me a lot of confidence that as the better consumer gains their economic footing that that will rebound quicker and faster.
And the sales at the kind of the middle market mall have been relatively stable and kind of benign in terms of this downturn. Now the occupancy, it's interesting, the occupancy is really not that affected by the higher quality properties and our occupancy down turn, that's only 90 Bps from last year, is more impacted by the properties that don't have the higher sales productivity, which is not uncommon, and that's been going on for years and years.
That would be, if I articulated that right, that would be the easiest way to see that. And in sales regionally, I mean it's look, Las Vegas, California, Florida, our markets that continue to be under more duress than, say, even the New York metropolitan area or the Midwest.
Ross Nussbaum – UBS
Okay. And if I think about your occupancy line, am I remembering correctly that you're not including tenants with lease terms under one year in that number?
David Simon
Correct.
Ross Nussbaum – UBS
So what percentage of your mall square footage right now is occupied by those short-term leases? And how has that changed over the last year or two?
David Simon
Well, I would say that it's probably – if you walk our mall, you would see a lot less vacancy than 91%, which we're at. And if you weighted averaged that in and out you'd probably add another 200 to 300 basis points.
Ross Nussbaum – UBS
Okay. And then –
David Simon
Again, a lot of these are temporary tenants that come in for six months, go out. But if you walk the mall, you would see that if you did add kind of a weighted average, Ross, I'd add at least 250 to 200 basis points.
Ross Nussbaum – UBS
Okay. And then on the cart and kiosk business, how should we be thinking about that?
Obviously there's not a lot of disclosure on that business across the entire mall industry. Do you look at it from a standpoint of your effective occupancy rate is X versus the number of spots you can put these things in?
David Simon
Sure.
Ross Nussbaum – UBS
And what's happened to the rents in that business?
David Simon
That business is under pressure, but it's not dramatic. And we're still shooting for the cart business to be relatively flat from last year and we look at rent and occupancy.
Ross Nussbaum – UBS
Okay. Holding up better than I would have thought, given the –
David Simon
Yes. I mean, it's muddling along is the best way to describe it.
It's not killing our numbers. It's not making our numbers.
It is what it is and it's kind of muddling along.
Ross Nussbaum – UBS
And then last question, I was a little surprised to see the dividend announcement today with primarily or a majority of it being stock given your strong cash and liquidity position. What was the thinking behind the board's decision there?
David Simon
Well, I think we signaled to you last quarter that that's what we're going to do for the balance of this year. So you may have not been working then, so you missed the signal, which is okay.
Ross Nussbaum – UBS
No, I got the signal. I guess I'm asking if market conditions have strengthened?
David Simon
Look, I think our view and our goal is to return to paying cash dividends in 2010, cash, and that's our goal and that's essentially what we've signaled to the market. And we've just felt like we might as well be extra conservative and prudent for the balance of the year, and a lot of discussions with a lot of shareholders that supported that view.
And so I think we're just going to ride our decision in the balance of this year and then hopefully as we signal for the market for 2010, obviously subject to board improvement or board involvement and board – the guidance to be shooting for a taxable income as a dividend and doing that in cash.
Operator
Our next question comes from Mark Biffert – Oppenheimer & Co.
Mark Biffert – Oppenheimer & Co.
Good morning. Just continuing on with that, David, I mean, if you guys can, when you look at the debt maturities that you have coming up and the amount of cash that you have.
I mean, is your intent to keep your leverage level at the current levels? Or could you use some of that cash to pay off some of those maturities as they arise?
David Simon
We will definitely use it, not really so much for the balance of this year, but our plans next year is to take a couple of our better secured properties that are currently secured and unencumber those with our cash.
Stephen E. Sterrett
Remember we've also got $1.1 million of bonds coming due –
David Simon
Billion.
David Simon
$1.1 billion, excuse me, of bonds coming due next year, which we could use the cash to pay off as well. Or obviously depending on market conditions, can go back to the market.
Mark Biffert – Oppenheimer & Co.
Okay. And then on the $400 million of mortgage financing that you did, what was the average cost to bid on that?
David Simon
It was 8%.
Mark Biffert – Oppenheimer & Co.
And then in terms of lease termination, how come I noticed that fell considerably in the quarter? What's your expectations into the second half of the year in terms of lease term income?
David Simon
You know, there might be some. We've had some discussions with some retailers.
It's very lumpy. I think our total budget for the year will be met and probably not exceeded.
But somewhere in that – I don't remember that number off the top of my head.
Stephen E. Sterrett
It's about 15 million for the year.
David Simon
Yes. It should be in line with that.
I mean, again, it's a tough number to both budget and to see what ultimately comes up.
Mark Biffert – Oppenheimer & Co.
Okay. Lastly, just related to leasing spreads, I noticed the mall portfolio leasing spreads came down a bit to 17 from 25.
I'm just wondering into the second half of the year, do you expect to hold at that 17% long-term rate or do you think that will come under more pressure as we head into the second half?
David Simon
I think it should. We should finish the year pretty consistent with that.
I mean, it's still about six bucks, maybe under a little pressure. I mean getting the historical rent spreads that we've had over the last three or four years is obviously harder to do today than it was in, you know, the first half of '08 and '07, etc.
But we still feel confident that we've got leases under market, and our goal is to get that five, six bucks. We've actually outperformed over the last three or four years.
Our goal is to perform kind of where we thought.
Stephen E. Sterrett
Yeah, me Mark, I, this is Steve again. I'd say if you'd go back and look at our history over the last, you know, seven or eight years, we've kind of always said 15% to 25%.
David is right. Over the last couple of years, we've been at the higher end of that range.
But given the economic climate that's out there for us to be at the lower level of that historical range, it's not surprising.
Mark Biffert – Oppenheimer & Co.
And then with the Elwood Centers, I mean, do you expect to stay at that elevated level or because of reduced tourism or other pressures, do you expect that to compress as well?
David Simon
Well, I – look – I think the number was really outstanding for the quarter. So it will probably have some reduction on that.
But that we still feel very – as we said to you at the beginning of the year, we felt like we could deliver the mall business at less than up to 1%. We're at the 1%.
We'll see how the – we still have some things out our control, including percentage rents, what the sales are, bad debt expense associated with bankruptcy and the like. Still feel like, hey, we're going to be able to deliver it within that range.
We're confident about delivering very healthy, robust comp NOI increase in the outlet business. And obviously, a big, given the occupancy, a big driver of that is the rent spreads, and that we feel like we can still deliver that.
Now the comp NOI as we look at '10, we probably won't be in the 6/7% range, but we think that business ought to be 3%, 4%, at least we hope. Again, a lot of this is going to depend on the consumer and the stabilization that we hope that the economy seems to be getting to ultimately get to the consumer.
Operator
Our next question comes from the line of Steve Skawa – ISI Group. Please proceed.
Steve Skawa – ISI Group
David, is it fair to say that the discussions with the retailers about asking for rent relief is stopped at this point or is that still continuing?
David Simon
I think it's still continuing. It's in a lot of cases in our view, it's a short discussion.
But it's – look, I think a lot of retailers jumped on that bandwagon very early and some have jumped off but not everyone has jumped off. So it's still there our approach to it has not changed, meaning that if we think they're financially stable and they have an existing lease we are not really entertaining it.
Now obviously, lease expirations, that's free game for everybody involved. If they're financially difficult or in 11 or about to go in 11, our approach changes to some extent, but I think, Steve, I think it's too early to say it's past us.
Richard S. Sokolov
I agree. We're still having people trying us out and as David said, our philosophy is if you're stable, you have an obligation and we expect you to meet your contractual obligation.
At the end of that contractual obligation, we'll have a discussion based on each of our views of what the market rents are for that property, that space and that use.
Steve Skawa – ISI Group
Okay. Let me ask a question about leasing.
I think maybe Jay had asked this but just to try and follow up, as you said here today, it's probably fair to say that most of the '09 leasing is done at this point but can you tell us what percentage of the '10 leasing might be completed and how would that compare to a year ago when we were sitting in '08 looking at the '09 leasing?
David Simon
So far, through June 30, we're about 30% through '10. That's either fully executed or deals cut and in process.
At this time in '08 for '09, we were about 37%. And I think that's a combination of two factors.
One, and I think we mentioned this in our last call, we are not aggressively looking at renewals in the back half of '10 because as David has indicated, that's over a year away and we're waiting to see, hopefully, some stabilization in sales trends and more optimistic and constructive outlook for more retailers. So we're not really pressing now for those back half renewals and that's one of the reasons why it's slightly lower at this point as compared to last year.
David Simon
Sure. And, just to add, our rent relief that we've granted year-to-date has basically been de minimis.
If anything has been less that a cent and a half a share. It's not a big driver of our numbers at this point, year-to-date.
Operator
Our next question comes from Paul Morgan – Morgan Stanley.
Paul Morgan – Morgan Stanley
Good, thanks. The outlet rents – did you – is it- am I looking at it incorrectly or is there some change that shows that they're 22.8% higher than a year ago for the Premium Outlets?
Richard S. Sokolov
No, Paul. You are looking at it correctly.
David mentioned earlier that we hold all of the back office to Indianapolis. And in the quarter when we did that, one of the things we did is we loaded all of the rents and all of the Chelsea lease data into our existing Simon operating systems.
And in doing that, we tweaked the classification of how we calculate the rent for Chelsea. And all that did is move the overall average base rent up a little bit.
But it's just conforming to the exact definition that we have for the rest of the platform.
Paul Morgan – Morgan Stanley
Okay. Does that have an effect on the way that your lease spreads appear or anything else?
Richard S. Sokolov
No. It did not.
No, lease spreads have always still been, or always been ending cash rent, old lease, beginning cash rent, new lease.
Paul Morgan – Morgan Stanley
Okay. At what percent of your renewals have you been doing on a short-term basis, you know, two years or less?
Richard S. Sokolov
Through June 30, less than 20% of our leases are for terms less than two years.
Paul Morgan – Morgan Stanley
And what is it typically?
Richard S. Sokolov
That's in line historically with where we've been. Now, I know there's a lot of focus on duration, but you also need to remember there is a lot of good reasons to keep terms short.
We're trying to put space together with tenants. We want maturities to be at the same time of the adjoining space.
We want to be able to give these tenants an opportunity to work through this cycle where they've told us they're optimistic about where they are in the mall and the market. And so, we're not willing to tie up space long-term when we and the tenant believes it will be more productive.
We can get more rent down the road. So we're keeping terms shorter, but even with that said, they are historically where they've been in the portfolio.
Paul Morgan – Morgan Stanley
It's interesting that given the size of your portfolio you're at 20% when some of the other portfolios are saying they're at 50%. Are you seeing a different need to do short term for different quality levels in your portfolio?
I mean there's must be something going on with it. Or is it your negotiating leverage that keeps you doing longer?
Richard S. Sokolov
I'd like to think we're doing a good job for our shareholders in how we're approaching our lease renewals. There's no particular pattern as to better or worse properties in lease term.
We have the motivations to maximize our rent and we do what we think is the best approach to maximize that rent.
David Simon
I just would – look there are strategic reasons to go short term as Rick said. So if that trends up, it's a little bit because we don't, –we may not like the rent we're getting and we may just like to keep the tenant in the space for a period of time.
So it's, as Rick said, or you may want to put the space together, you're waiting for the right tenant and so that number might trend up. It does give us options too, so it's not the end of the world if that trends up.
Just keep that in mind as you assess it.
Paul Morgan – Morgan Stanley
On an investment opportunities given your cash position, you talked about potentially buying portfolios or REITs, etc. I mean how focused would you be when you are looking at opportunities on just highly productive assets or would you look at certainly more exposure to B quality centers?
David Simon
I think our philosophy on what we would want to acquire has not changed given this world, given this economic environment. I think we're still looking to, if we do something it would still be quality retail real estate that we think we can add value to.
And we would not want to do a transaction where we chased yield if we thought the quality was suspect. So I don't think our philosophy has changed there at all.
Paul Morgan – Morgan Stanley
And my last question, any thoughts about how CMBS, given the – you're doing new mortgages at 8% and you look at the rates that are being talked about for those deals, albeit at a lower LTV. What your thoughts are on the trade off there.
If you just want to be involved in both or what?
David Simon
Well, let me go back on the 8%. These were with two long-term relationship institutional insurance lenders.
Stephen E. Sterrett
We locked rate back in March and the world was a very different place.
David Simon
It's great to be – and that was the important part. I mean we locked rate and the world was still very, very squishy, but we were doing it when no one else was doing mortgages and so I don't – I think you have to assess it from that standpoint.
Steve's right we locked it in when the world was very, very uncertain. CMBS market is, obviously, the spreads have rallied significantly.
There's starting to be trading. There's starting to be a lot of talk.
We'll assess the impact that TALF will have on it. We're able to see extensions in that market, with good assets and good borrowers.
I think that markets getting better. I don't think it's going to be anywhere near where it was, but it does seem to, we do seem to think that there will be a securitized market here shortly and down the road.
Operator
Our next question comes from the line of Nathan Isbee – Stifel Nicholas & Company.
Nathan Isbee – Stifel Nicholas & Company
Hi. Good morning.
You just mentioned that you had locked the rates back in March. Do you have any loan out for commitment right now and where are you seeing rates today?
Richard S. Sokolov
We do. We've got a community center portfolio pool that we're in the market right now refinancing.
We're going to end up at about 7% blended with a seven-year term. We just closed a mall loan that's 7.5%.
So I would tell you the market is in the low 7s, 8% range right now.
Nathan Isbee – Stifel Nicholas & Company
Okay, but it has come back a little bit since March?
Richard S. Sokolov
It has. Just to amplify on that, obviously the other side of our debt portfolio is the unsecured market and obviously our spreads have come in quite a bit.
I just saw as of yesterday, the five-year was trading under 6% and the 10-year was trading at about 7, so spreads have rallied quite a bit on that market as well.
Nathan Isbee – Stifel Nicholas & Company
Okay and there's been lots of discussion about potential acquisitions. Are there any high quality malls currently being marketed today?
David Simon
Individual malls?
Nathan Isbee – Stifel Nicholas & Company
Or portfolios.
David Simon
Yes, sure, there's some.
Operator
Our next question comes from the line of David Harris – Arroyo Capital.
David Harris – Arroyo Capital
Good morning everyone. I have a couple of questions if I may.
David, back in early May when you had your second equity raise, I asked you in a public format if you were comfortable with the notion that you would be able to record meaningful acquisitions by year end '09. Would you still say yes to that question?
David Simon
Well, I think I hedged my bets in that response a little bit, but there is opportunity for us to add the appropriate quality at the right price in '09. But I think more importantly, David, we don't want to rush to do a deal just to do a deal and our view is we've made a lot of steps to maintain our leadership position.
I would feel very proud of what we've accomplished even though a number of these decisions were very, very difficult to make. We do think that there will be significant opportunities.
There are opportunities today. But most importantly, we don't want to jeopardize all of the hard work and effort that we've gone through to position us for the long run.
I still feel confident that we will, over a reasonable period of time, be able to add to our franchise through acquisition opportunities.
David Harris – Arroyo Capital
My second question relates to the U.K.. The data I look at, whether I am looking at currency, housing, interest rates, would suggest the U.K.
is poised for some kind of a recovery. How vigorous that will be, I guess, is open for debate.
Could you just give us an update as to what you're thinking your Liberty International investment, particularly in the light of, obviously, what is a substantial impairment charge?
David Simon
Well, we're not happy about the impairment charge. As you know, it is non-cash and we do think over time that our investment has the opportunity for us to get our basis back, if not better.
It's got great real estate. It's going through a temporary, we think, downturn, but we haven't lost faith in our ability to recoup, if not add value to our investment.
The interesting thing there is the shopping centers there they don't cater to the high, high end customer like they might. Most of the high end retail there is on the High Street as you know, David, so there seems to be a leveling off in terms of the consumer, almost like what we've seen from the moderate malls here and the higher end, they haven't seen the dramatic decrease in sales because the high end tenants probably are feeling the brunt of that as well in the U.K as they are here.
So we believe in it. We're going to monitor it.
There's not an immediate change to what we are thinking. Obviously, we did step up in when they did their offering and I think we feel, over time, that we will be able to recoup our investment.
David Harris – Arroyo Capital
You are not concerned that prices might firm up. I mean after all, there has been a more dramatic fall off in property prices in the U.K.
than we have seen here to date, and it seems like we are running maybe six months ahead in terms of property value. Things are starting to get active again around acquisitions.
David Simon
Yes. Well, I expect it to firm up and I think ultimately whether we participate in that or even just maintain our stockholder and we'll be the beneficiary of that.
David Harris – Arroyo Capital
Okay, and a question for Steve related to this. Is that position hedged in any way, shape, or form?
Stephen E. Sterrett
No, it's not, David.
David Harris – Arroyo Capital
Okay, so we can look at Fairfax impacts as well.
David Simon
Correct.
Operator
Your next question comes from the line of Michael Mueller – JP Morgan.
Michael Mueller—JP Morgan
Hi. Most questions have been answered, but David, a few minutes ago you mentioned a comment about the outlet center portfolio.
I think you said you thought in 2010 you could see some growth there, maybe 3% or 4%. Just wondering what your early feelings are about the mall portfolio as you look out the 2010.
David Simon
Well, I think it's early. There may be a little bit of pressure there, but it is going to be de minimis and I think our goal, and we go through our budget process, but I think our goal for 2010 will be to deliver it flat.
I think that could be a challenge. I think a lot will depend on sales, but if it is not flat it's, I mean, we are seeing all these comparable NOIs down, what I would call dramatically, 3%, 4%, 5%.
We don't see that with our portfolio. Now, I think it's up to you to figure out why.
I am trying to figure out why from our standpoint, but if it is under pressure, it is going to be maybe at 100 basis points. In other words, last year or this year we said zero to one.
Maybe next year it is negative one to zero, but I still think we are still early in the process to do it. We do not see the dramatic comparable NOI down like we are seeing with other retail portfolios and with other mall portfolios with departments, with hotels, etc.
We don't see that.
Operator
Your next question comes from Quentin Velleley – Citi.
Michael Bilerman—Citigroup
Good morning. I am here with Quentin.
We just want to come back to this whole notion of, essentially, buying a REIT, which in your view, could be U.K. REIT like Liberty or maybe a bankrupt REIT, like General Growth in the U.S.
or maybe a strip center REIT at your strip center portfolio. I guess there is a lot of different opportunities given your size about where you can place your bet.
I guess maybe we start on Liberty. You can talk a little bit about potentially recouping your investment.
You're obviously about a 6.5% shareholder today. Are you looking at that relative to just seeing the market price firm up relative to your cost basis, or potentially, given your seat today owning, being the largest shareholder out of [Donny], being a more activist type or, maybe not activist, but trying to work with them to either simonize or do something else to improve the operation in some way to get your investment up?
David Simon
Well, it is a very good question and I wish I could answer it. But, it is a very good question and I guess I wish I could answer it.
We think it's a good company. We are not pleased we are under water.
We are not giving up hope, but Michael, I wish I could add to that, but beyond that, we are just going to have to see how that evolves. It is a very good question.
It is an interesting – we are in an interesting strategic position there. We do have optionality without material stake, and we do see opportunities in the U.S.
We do want the strongest balance sheet in this industry, so we do see all of these as strategic decisions that we've got to evaluate appropriately.
Michael Bilerman – Citi
I'm just curious of how you've obviously put $350 million into Liberty, right? I mean the size of a regional mall in the U.S.
so it's not like just play money. I'm just wondering how active you are in trying to make money on the investment.
David Simon
Well we want to make money, that's for sure. Michael, I can't really say anything other than what I said.
I apologize for that.
Michael Bilerman – Citi
The other thing you mentioned is there are opportunities today. Can you just characterize a little bit about at least the type of opportunities that are on the market that you're referring to?
David Simon
Well, I think there are domestic U.S. retail opportunities today and there's no question about it.
There are opportunities that we can create today. Sometimes it's not just showing up in your laps.
Sometimes you've got to go create them. And I think where we're focused obviously is we've got the U.K.
situation we talked to you before and we do think that beyond that, I mean our focus will be in addition to assessing the strategic opportunities there is primarily focused on the U.S.
Michael Bilerman – Citi
Now is that, obviously you talked a little bit about your own CMBS issues and being able to cover that with mortgage debt, unsecured financings and being able to go out and tap other forms of capital whether it be TALF. But I guess, are you guys thinking about trying to be on the offensive on other people's CMBS problems and how far down the road you may be in trying to maybe just lose some of those assets that may not have the same successes you're having in terms of other finance.
David Simon
Well, I think there'll be opportunities. I absolutely think there'll be opportunities along those lines, though the stuff that we have seen thus far doesn't meet our quality spectrum.
I mean, there's been some amazing retail. A lot of that's in new development.
I mean there's been amazing amount of damage done in terms of the retail development, the NOI generated, the amount of leverage. So I do think there will be, I don't think it's huge massive opportunities, but there's going to be some opportunities on kind of a one-off basis to pick up some of those broken developments.
Quentin Velleley – Citigroup
Just in terms of your $6.3 bill of liquidity and looking at opportunities, is there sort of some amount that you've got set aside for potential opportunities versus some amount that you've got set aside to ensure your CMBS refinancing and so forth get done?
David Simon
Well, it all goes into the blender to produce the appropriate result. The last thing we're going to want to do is jeopardize the foundation we've built so long for, right?
So sure, I mean it would be hard to pluck all of that capital toward an external opportunity without addressing the refinancings that we need and will continue to do. But Quentin, as you know, there's lots of capital that is circling opportunities that we would think we could be able to tap into if we find the right opportunity.
Quentin Velleley – Citigroup
And that's a joint venture.
David Simon
Sure.
Quentin Velleley – Citigroup
Could you give us some kind of indication of what the volume of that capital might be? Is it $2 billion or $4 billion for example?
David Simon
It could be in the billions range, yes, if the opportunity was there.
Quentin Velleley – Citigroup
And just one on Mills, just looking at the portfolio and just wondering if there's any increased desire of your joint venture partner to potentially exit the joint venture and whether or not that could present some kind of an opportunity for you?
David Simon
Farallon has been a great partner as well as KNM at the property level, Farallon obviously at the corporate level. There's been absolutely no indication.
I think they view this as kind of a medium for long-term investment and there's been no indication at all that they're looking to exit the portfolio until in totality. I think our joint venture will sell assets as situations arise but beyond that it's business as usual.
Quentin Velleley – Citigroup
And just a question on the sponsorship income, you talked a little bit about temporarily leasing the department kiosks. What sort of happening on sponsorship and other sort of other income that you're generating?
David Simon
It's actually above our numbers year-to-date which is a little bit above last year. And so far, they feel like they're going to bring in '09 slightly above budget, so again, it's a tough business.
A lot of it's local driven, but the mood is a little bit better there than certainly it was at the beginning of the year.
Quentin Velleley – Citigroup
Do you have much visibility as you head into 2010 in terms of those contracts? I mean it does make up $100 million of EBITDA at this point.
David Simon
Well, I think that a couple of the bigger relationships are being renewed and solidified so we do have color on that. And then a lot of that is just driven locally which is you've got to fill your book essentially every year.
And that visibility is not there for 2010 yet. But the big important relationships in terms of corporate relationships really hasn't changed in our being fortified.
Quentin Velleley – Citigroup
And how much of that $100 million is those big contracts versus the local?
David Simon
It's, I'm going to say, I don't have that at the top of my head, but I would say that the regional and local probably produce over half of it as a general indication of kind of where that is.
Quentin Velleley – Citigroup
And just our last question, just as you think about the U.S. acquisitions and you talked about opportunities.
You've got malls, the shopping centers, and the outlets, is there opportunities in each of them or are you more inclined one versus the other?
David Simon
I think there are going to be opportunities in all of them and I think it's safe to say that you see an indication of where we have leadership position and I think our view as we kind of talk about the strategic buckets that we're trying to sort through, that we would want to solidify and enhance, I should really say, enhance our leadership position in those buckets as opposed to other buckets. So you can see where the predominance of our NOI comes from and I think those are the areas we're primarily focused on.
Operator
Our next question comes from Dennis Mitchell – Sentry Select Capital.
Dennis Mitchell – Sentry Select Capital
I have some questions on leasing but I think we've beaten that to death so just last question I had was in terms of the opportunities, more and more we're seeing people dip into securities or extending their reach into other areas. I'm just wondering if you guys would be looking at purchasing the securities of not just the equity securities but possibly debt or anything like that.
David Simon
Well look, I think our preference would be to own the asset directly because that's where we could add the most value. So that's certainly our preference.
That's where we've had our best success. And when you can control the asset and I think primarily that will continue to be our focus.
Dennis Mitchell – Sentry Select Capital
So not even in an opportunity where you might purchase the debt in light of at some point in the future getting your hands on the asset itself?
David Simon
No, we absolutely wouldn't rule that out at all. But I think again, just in terms of our preference, it would be tone the asset because that's where you can, as a mortgage holder, as a mez holder, you don't have all that much influence in the operations as an equity holder in a public company.
You don't have that much influence unless you really rattle the cage. So our focus will continue to be primarily, and again, I wouldn't rule it out, but primarily in the ownership.
Now we could make – buy some securities in a very loan-to-own but the biggest focus will continue to be to own actually the bricks and mortar.
Operator
Our next questions comes from Alexander Goldfarb – Sandler O'Neill & Partners
Alexander Goldfarb – Sandler O'Neill & Partners
Just some very quick questions here, just going back to your earlier comments at the front of the call on the tenant and what they're experiencing at the moment, are you seeing them change their ordering habits for the holiday season or are they still looking at scaling it back materially from last year?
Richard S. Sokolov
Our conversations with the tenants are indicating they're taking a very conservative position on inventories. They're really looking at inventory as the best way to increase their cash position by decreasing their inventory.
And so you're going to see them, I believe, positioned to have tighter inventories which we believe is going to still put some pressure on sales in the fourth quarter but is going to hopefully substantially increase their cash flows and their margins because if there's any uptick at all I think there's going to be considerably less goods available to be purchased by the consumers.
Alexander Goldfarb – Sandler O'Neill & Partners
So even with the equity markets up and some of the positive economic indicators, they haven't changed – they haven't increased their ordering for the holidays?
Richard S. Sokolov
No.
Alexander Goldfarb – Sandler O'Neill & Partners
Next question is going back to your earlier comments about sales decline and the relationship of that and tenants' ability to pay, do you have a sense for how much sales decline? Like if sales declined in the second half another 7%, would that put pressure on tenants' ability to maintain their current rent structure or what's your view on where the break point is for how much sales can decline before tenants start to have issues?
David Simon
Well, look, that's an individual tenant-by-tenant review. And clearly, there are some tenants that have had dramatic sales decline that are under pressure already including like the jewelry business and as just one example of that where they've had dramatic sales decline.
So it's a category-by-category approach. And I will just tell you that the important thing is that the decrease that we've seen thus far has been kind of at the higher-end tenants with the higher margins so they probably have a little more room to go then certain others.
But to answer your question, you really need to do it specifically by tenant and by category and certainly within that category by tenant. Even in a category like the teen retailers, you've got a number of tenants that are performing very well and some that aren't and so it's very hard to answer that generally, other than I do think the fact that we're seeing it kind of at the better tenants with the higher margins gives us some comfort that they can continue to withstand a sales decrease.
Operator
Our next question comes from Richard Moore – RBC Capital Markets
Richard Moore – RBC Capital Markets
Steve, on the five financings, the two you did in second quarter and the three you did post-the end of the second quarter, were those on existing loans or are those unencumbered at the time?
Stephen E. Sterrett
The two we did in the second quarter were on existing loans. The $400 million financing that David mentioned that closed last week was unencumbered assets.
Richard Moore – RBC Capital Markets
Okay, so what roughly would you say is the unencumbered NOI pool? in that total?
Stephen E. Sterrett
It's still about 56%, 57% of our total NOI.
Richard Moore – RBC Capital Markets
Okay, and so it's – okay that's fine. Great, thanks, and then Rick do you have thoughts on which tenants are in particular, are opening stores at this point.
Usually you have a pretty good laundry list of tenants who are opening stores.
Richard S. Sokolov
Well I can tell you that in '09 we have entered into leases in '09 for stores to open in '09 or '10 with H&M, Forever 21, Zara, Bare Essential, Delia's, Crazy Eight, which is a new concept from Gymboree. We're having a great deal of focus on the franchisors, so we're doing business with Five Guys and Noodles.
We're very pleased Microsoft has just gone into the retail business and they've announced their first two stores and we have one of them in Mission Viejo Mall, so there's still a number of tenants that are doing business and as David said, there is a lot of activity going on in the portfolio.
Richard Moore – RBC Capital Markets
Thank you guys, and then David, on TALF, are you actively working on anything with TALF?
David Simon
The answer is no, we were really more focused on it a couple of months ago. Obviously with all the success we've had in capital markets we're really waiting and assessing kind of where it ultimately shakes out.
That's not to say we won't use it and be a participant in it, but at this point we're not active.
Richard Moore – RBC Capital Markets
Okay, and then thank you, and then same sort of thing on General Growth, are you still mostly monitoring that would you say, or is there anything new to report on what you are doing with General Growth?
David Simon
Nothing currently to report, new.
Richard Moore – RBC Capital Markets
Okay, and last thing for me guys, is Domain, could you give us an update on the progress there with regard to the various pieces you expect to come on line with in the next six or eight months?
Richard S. Sokolov
Absolutely, in October of this year the expansion Dix is opening. Then in February of '10 Dillard's Village Road Show opens.
We have an apartment complex and a joint venture with Columbus Realty in GE pension fund. That's opening in the fourth quarter of this year, and then in February along with the anchors we anticipate opening about 85% leased and we'll have those tenants open over the next month or two months in the first and second quarter of next year.
And then in March of '10, we're opening our Westin Hotel at Domain in a venture with White development. So it's coming together.
We've got a nice line up of tenants primarily focused on the juniors category and food because we pretty much did not put a lot of juniors in the initial section of Domain, so they were anxious to show off in this section, so it's coming together.
Operator
Your next question comes from the line of Jim Sullivan – Green Street Advisors.
Jim Sullivan – Green Street Advisors
Thanks. David I respect your reluctance to talk about some of the opportunities as it relates to Liberty and what you might do or might not do, but I was hoping you could talk about relative value as you think about deploying some of your large cash pile in the U.S.
versus perhaps other parts of the world including the U.K.? When I look at Liberty I see a company trading at an implied cap rate after making all the adjustments you need to make to compare U.K.
with U.S., an implied cap rate that starts with a five and then I look at Simon and I see a stock that trades at an implied cap rate starting with an eight. We saw a recent deal announced that suggests the cap rates for some of the best models in the United States are probably in the cap rate range in the sevens.
And as I think about you protecting a position in Liberty, considering perhaps expanding that position, how should I think about relative value? I get it that there's scarcity value for the Liberty portfolio, but it's the company that certainly has challenges ahead with 10% of its tenants in bankruptcy, a bunch of high loan devalued maturities about to mature over the next couple of years, and then finally seeing property NOI dropping even faster than expected pace.
Why should I be excited about that kind of company and implied cap rate in the fives versus what you might be able to do with your cash in the U.S?
David Simon
Well, look, I think, Jim, you articulated right on why we are where we are as opposed to doing more than what we've done, and there's no question in our mind that as we look at external opportunities, we do like the long-term prospects potentially of the U.K. market, but our primarily focus will be in the U.S.
and it won't be in Asia and it won't be in Europe. It'll be here.
We do think we can all most value here with our platform. We do think the opportunities are – there are more opportunities that exist there and I think there are – our view would be that that's the primary focus.
Now Liberty, we think we will recoup our investment and beyond that there's not a lot that I can say. We do think there are elements of what we can do that might add to what they do there, but that's – that is what it is and we'll see how that shakes out.
But our intentions if we do look to deploy external capital we do think there are great opportunities in the U.S. And certainly on a risk adjusted basis of what we can add value to it's hard to argue that point, so, nothing that you've said isn't what we've grappled with, and we're not pleased that we're currently under water, but the worst thing we could do is try to recoup that in a not so intelligent way.
Jim Sullivan – Green Street Advisors
That's very helpful. Thank you for that, and then Steve, a follow up on the current mortgage environment.
You mentioned that the current rates are in the low sevens to eight. You know what we've seen over the many months is that capital is available for malls but only the highest quality, only for the best sponsors, underwritten at fairly low loan-to-values and very conservative underwriting with respect to NOI.
Is that still the case as you look at the deals you're looking at today? Could you get financing, mortgage financing on a, say, B plus mall or lower if you didn't provide corporate recourse?
Stephen E. Sterrett
I would say this, Jim. I would say the sponsor matters a lot.
So for us I would say yes, and in fact we are in the market now with what I would describe as a couple of middle market malls, and there is money out there available, yes. Now in terms of the leverage, and the underwriting, I think it's still relatively conservative.
You are seeing debt yields in kind of the mid-teens, going to translate into about 50% LTV, but I think as the – especially the insurance companies that are doing on-balance sheet lending, I think the quality of the sponsor is very, very important these days. And as a result of that we're seeing very good interest even in assets other than our top tier assets.
Jim Sullivan – Green Street Advisors
And just to clarify that, the sponsorship is important because these insurance companies are asking you for recourse or their non-recourse deals where they want to know that you're behind it versus somebody else?
Stephen E. Sterrett
The latter; non-recourse deals where they want to know that a quality operator with a stable balance sheet and a long contract record is behind it.
Operator
Your next question comes from the line of Jeffrey Donnelly – Wells Fargo Securities.
Jeffrey Donnelly – Wells Fargo Securities
Rick, retailers and retail developers arguably got into trouble expanding into markets where I guess all the opportunity was predicated on household growth, which obviously isn't happening today. What's your sense, and I guess what are you hearing from retailers about their longer term plans beyond 2009 or 2010 as they think about unit counts a few years down the road?
Do you think they retreat from those types of markets over time? Is this just a blip or do you think there's maybe there's been an overreaction where they actually look – I'll call it concentrate in the more infill markets in this next up cycle, if you will, for retail?
Richard S. Sokolov
Based on the conversations that David and I have been having with these retailers, they are viewing their new store, new development program very guardedly. They are going to be very cautious deploying capital, and where they're going to deploy that capital they're going to do it where there is high degree of certainty as to results and the highest degree of certainty as to results is deploying that capital to open new stores in proven assets and proven markets.
And we're seeing that, that there's still demand for our proven assets and proven markets. And I think that the retailers' attitude is reflected by the fact that when you look at the new development pipeline it's non-existent.
It's almost – it's the lowest it's been in 20 years. And I believe that is a silver lining to our current situation as retailers do get more comfortable with allocating capital for new stores that is going to benefit the existing supply because there are going to be virtually no new supply available to them.
Jeffrey Donnelly – Wells Fargo Securities
And David, I know you've got to take the acquisition opportunities that sort of come to you because the mall industry is not exceptionally large I guess in the number of opportunities available, but given what Rick was just saying, do you have a unique view I guess about the markets you'd like to see your marginal dollar go into here in the U.S.? I mean if put differently if some malls come to market in metros that are out there, has your appetite changed to the better or worse than maybe two years ago because your view on those metros has changed markedly?
David Simon
Absolutely. There are certainly markets that are – you would have to factor in and underwrite their current situation because though they may be good long term markets, they're going to be dislocated for a reasonable period of time.
And I think a lot of those were the kind of the typical markets where you had a lot of new retail development that has not stuck. And I absolutely think you've got to factor that in because those are markets that are a little bit dislocated.
And again they're great long term markets I think eventually, but you've going to have to be really smart in terms of how you would underwrite those. And how you underwrite any deal, I mean today underwriting potential NOI is going to be a challenge for anybody that wants to make an external investment.
Thankfully we're equipped to do that, but I do think that the markets themselves are very important ultimately in where you want to deploy capital.
Jeffrey Donnelly – Wells Fargo Securities
What are examples maybe of the larger metro markets where you think it could take longer for them to recover?
David Simon
Well if I say I might offend some people so I'll, again I'll defer but I mean I'm sure you have a sense of where. A lot of them are where there's a lot of new retail development plopped into the market.
Or in fact there's new development going on right now that's got to be leased up. I'll let you draw the appropriate conclusions.
Jeffrey Donnelly – Wells Fargo Securities
I guess just a last question, too, before I let you, I guess, get your lunch. What are capital partners telling you about their geographic preferences?
And I guess are they holes that have emerged or deepened given where they want capital to flow? And I guess related to that have you heard any private equity funds trying to assemble funds to pursue mall assets?
David Simon
Well, there's definitely an interest to deploy capital in good retail. I don't think they, I think they look at just like we would.
I think they're looking at the individual asset and its position in the market place. They have not redlined any particular market as far as we know.
It's more asset by asset review.
Jeffrey Donnelly – Wells Fargo Securities
Any private equity guys do you think gearing up you think to go after mall business assets?
David Simons
Well, some of them have a lot of capital. The good news is the mall business is always been operational intensive so it's been harder for them to justify a lot of significant bets.
I mean they've always wanted to partner with an operator. I don't see that, certainly in today's environment where retail relationship is critical, I don't see that changing at all.
Operator
That concludes the Q&A portion of today's call. I now would like to turn the call over to Mr.
Simon for closing remarks.
David Simon
Listen, I think the questions today were very good and we appreciate you asking them to us, and we appreciate your interest. Thank you.
Operator
This concludes the presentation. Thank you for your participation.
You may now disconnect.