Feb 1, 2008
Executives
Shelly Doran - Vice President of Investor Relations David Simon - Chairman of the Board, Chief Executive Officer Stephen E. Sterrett - Chief Financial Officer, Executive Vice President Richard S.
Sokolov - President, Chief Operating Officer and Director
Analysts
Paul Morgan - Freidman Billings Ramsey Christy McElroy - Banc of America Securities Jonathan Litt - Citigroup Jonathan Habermann - Goldman Sachs Matthew Ostrower - Morgan Stanley Louis Taylor - Deutsche Bank Jeffrey Spector - UBS Steve Sakwa - Merrill Lynch David M. Fick - Stifel, Nicolaus Greg Stuart and Michael Mueller – JP Morgan Rich Moore - RBC Capital Markets Jim Sullivan - Green Street Advisors
Operator
Good day, ladies and gentlemen, and welcome to the fourth quarter 2007 Simon Property Group earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Ms.
Shelly Doran, Vice President of Investor Relations.
Shelly Doran
Good morning and welcome to the Simon Property Group's fourth quarter 2007 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 risks and uncertainties.
Acknowledging the fact that this call may be webcast for some time to come, we believe it is important to note that today’s call includes time-sensitive information that may be accurate only as of today’s date, February 1, 2008. The company’s quarterly supplemental information package was filed earlier today as a Form 8-K.
This filing is available via e-mail or mail and it is posted on 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; Richard S.
Sokolov, President and Chief Operating Officer; and Stephen Sterrett, Chief Financial Officer. Now I will turn the call over to Mr.
Simon.
David Simon
Good morning. Thank you for joining us today.
Let me take a few minutes just to provide some comments on the quarter and then we’ll open it up for your questions. We are very pleased to report FFO for the fourth quarter of $1.76 per share, up 12.1% over the prior year.
You should note that our 12.1% growth in FFO was achieved despite the fourth quarter impairment charge of $0.12 per share, net of applicable tax benefit of about $19.5 million resulting in our tax benefit of $12.2 million. We had a tax expense of approximately $6.5 million, so we netted those two, related to the write-off of our equity investment in an Arizona land joint venture.
Excluding the impact of the impairment charge, diluted FFO per share increased 19.7% for the quarter to $1.88 per share. Positive factors contributing in the quarter include strong operating results for our regional mall and premium outlet platforms, positive net tenant recoveries were related to our continued conversion to a fixed CAM program with effective cost control and lower cost related to our captive insurance program, continued integration of and positive impact from the Mills acquisition, including our benefit from managing the portfolio.
We did experience a slowing of retail sales in the fourth quarter in our regional mall portfolio. Comparable sales were $491 per square foot, up 3.2% for the year but flat in the fourth quarter.
Sales increased 7% for the year to $504 per square foot in our U.S. premium outlet centre portfolio and fourth quarter sales were up 5%.
Comparable regional mall NOI growth was 6.3% for the quarter, 4.5% for the year. Comparable NOI growth for the outlet portfolio continues to be very strong at 11.1% for the quarter and 9.8% for the year.
Occupancy increased 30 basis points in both the premium outlet portfolio and the mall portfolio. Releasing spreads for our mall portfolio contracted somewhat during the fourth quarter as a result of opening of several big box and large restaurant tenants, in particular at our lifestyle expansions.
For the year, spreads in the mall portfolio were $5.64, or 14.4%, which is somewhat lower than our historical average but if you take out the openings related to our lifestyle expansion, the releasing spread for the mall portfolio for the year would have been $7 and 21%, or 18%, which is obviously slightly above our historical norm. Releasing spreads for our premium outlet portfolio were $7.79 for the year, representing a 33% increase.
Excluding embedded renewal options in some of our older leases, the premium outlet portfolio releasing spreads were over 40%. Gift card sales in 2007 were relatively flat over 2006 at $516 million.
We attribute that really to the proliferation of retailer gift cards throughout the nation. Based upon the results of ’07 and our outlook for ’08, in addition our board of directors yesterday increased our common stock dividend for the quarter of 7.1% from $0.84 to $0.90 for this quarter.
Let me turn just briefly to talk about capital markets. Our balance sheet continues to be one of the strongest in the real estate industry, as evidenced by our A-minus, A3 ratings.
We built our balance sheet so that we would be positioned at all times to access capital in multiple forms and I believe we are well-positioned to weather the continuing challenging capital market and credit market. Given the state of the capital markets, let me just walk through, just for your benefit, what our 2008 plan is.
We only have $350 million of unsecured bonds maturing in 2008. Our share of secured debt maturing in 2008 totals $1.7 billion, although almost $700 million of that total will be extended through pre-existing extension options.
We also have a development, re-development pipeline that is not otherwise funded by construction debt of approximately $800 million in 2008 and in total, when you add the unsecured maturing, our share of the mortgage debt and our pipeline that’s not funded by construction debt, that’s about $2.2 billion. We anticipate funding this but I underline -- but we are not limited to this.
But here are the following sources that we have available to us. First, $1 billion of secured debt maturing as an aggregate loan to value of less than 40%.
The underlying assets generate sales per square foot of $555 per square foot. We expect to generate total proceeds of $1.5 billion, or $500 million of excess proceeds from the refinance of these high quality, low levered assets.
We don’t expect any issue with that. We currently have $1.1 billion available in our revolving corporate credit facility.
We have over $500 million of cash in the bank at year-end, and we will generate over $400 million of free cash flow in 2008. Therefore, when you add it all up, we are not -- obviously we are very comfortable with how we are going to fund our business plan for ’08.
Finally, in ’07 we had a very good year for our company. We generated very strong FFO growth, continued to successfully execute our development and redevelopment pipeline in the U.S.
and abroad. We completed a strategic acquisition, again very financially profitable with Mills.
We fully integrated that portfolio and are now working to grow the cash flow of those assets. And while 2008 promises to be a challenging period because of the macroeconomic environment, we believe we are poised for success.
Demand for space for our retailers continues to be solid. We will expect to get more space back than in recent years.
However, much of that space comes from healthy retailers abandoning certain concepts and obviously they are going to have to negotiate with us to exit their corporate guaranteed leases. We have one of the strongest balance sheets in the industry.
Our development and redevelopment pipeline will continue to create value for us and we will also look for opportunities in this type of environment when they arise. And we also expect to continue to create value from the Mills portfolio as we work through the development and redevelopment pipeline associated with that.
Based upon these factors, the results of our internal budgeting and planning process, and our view of current market conditions, we’ve provided 2008 FFO guidance of $6.25 to $6.45 per share, representing per share growth of 6% to 9% for the 2008 time period. With this said, this concludes our prepared remarks.
We’re more than happy to open it up for questions, so Operator, we can begin the Q&A session.
Operator
(Operator Instructions) Paul Morgan, Freidman Billings Ramsey.
Paul Morgan - Freidman Billings Ramsey
On the expense recovery rate, it continues to be high and you mentioned that contributing to the upside and it came up last quarter, but as I look into ’08, what should we expect the full year recovery rate to be versus the full year for ’07?
Stephen E. Sterrett
I think you have two things that really contributed to the improvement in the recovery ratio in the quarter. One, which is ongoing, is just our conversion to fixed CAM.
We are north of 60% now. We’ll be north of 70% by the end of ’08, and so that improvement I would expect to continue.
There was also an improvement in the quarter which is related really to a bit of a catch-up, and that’s in our insurance program. We had lower insurance expenses in the quarter, which improved the profitability in the recovery.
There is an element of that that I do expect to continue on an ongoing basis but a part of it was clearly a bit of a catch-up for activity that occurred throughout the year. So when I think you look at it on an annual basis, I think we are comfortable in telling you that the recovery, the profitability in recovery is there.
We probably got a little bit of an outsized performance in Q4 that in retrospect, some of it could have been pushed back into the [first few quarters].
David Simon
I’ll just add that as we said historically, and I think we were one of the first companies to anticipate the fact that the macroeconomic and retail environment was going to slow, we have been very focused on our operating expenses. So we have a pretty good plan for ’08.
Obviously we have to execute it but we have a pretty good plan for ’08 to drive down our operating expenses, so we are enthusiastic about that opportunity.
Stephen E. Sterrett
And because over the course of the year, two-thirds of our leases will be fixed CAM, two-thirds of that benefit would inure to our bottom line.
Paul Morgan - Freidman Billings Ramsey
David, last recession you guys dialed down development pretty meaningfully and given your outlook for sales and the overall environment, and you have a bunch already under construction but if you think about your starts over the next 12 to 24 months, are there any moving pieces that you might push out?
David Simon
Well, the biggest focus we’ve had is on redevelopment and I will tell you that that really has not changed. I mean, we are obviously very focused in terms of reaffirming the profit potential from the redevelopment, given the current environment.
Now, on the new development side, we have pushed a couple of the potential deals -- like we have a site in west Houston, we think that’s delayed a year or so. I wouldn’t attribute that to the economic environment.
I just think retail demand is not quite there yet. But no real change in Chelsea at all.
I mean, I think there’s real demand there. We’re very excited about opening in Houston, New Jersey.
We’re very excited about getting the right to build in New Hampshire. They’ve got a couple of other sites that were doing it, so I would say no change in redevelopment, no change in new development on Chelsea and on the mall side, we’ve pushed a couple of deals back but I wouldn’t attribute that too much to the economic environment.
More just feeling that the retail demand was not quite there.
Paul Morgan - Freidman Billings Ramsey
Okay, and a last question for Rick -- in terms of the composition of the store closings that have been announced over the past quarter or so, is there any color you could provide about the mix between top tier properties versus lifestyle centers versus B malls?
David Simon
Let me answer that, if I could. The closings that have been announced, we are always going to have some closings every year but the biggest closings that have been announced have been more concept oriented closings, so just take an example -- Jasmine Sola from New York and Company -- we have five stores.
They are going to close it. Now, they’re in good centers.
In fact, I think all five are in our New England are because that’s where they wanted to start, and that’s really a concept change. I mean you had the -- one of the problems we had, I still don’t know how to pronounce it, Pavia, Pivia, The Finish line concept.
Again, those are in good centers but that’s women’s oriented, Talbot’s Kids and -- so right now, the biggest potential closings are associated with the concept closing as opposed to closings associated with A, B, or C malls. That’s what we are seeing the most of.
Sigurd Olsen with Liz Claiborne, and you know, you have chains going out of business like Bombay. I’d say that’s across the board but most of the new closings that you’ve seen year-to-date have been associated with that kind of activity.
We’ll still see a Foot Locker shedding a few stores, KB’s shedding a few stores. Ann Taylor’s announced shedding a few stores but you know, that’s by and large happening year-in and year-out, and that can happen basically across the board, A, B, or C properties.
Paul Morgan - Freidman Billings Ramsey
Do you think on a net basis, you might not lose as much space if the retailers are maybe trying to put a different concept in that location?
David Simon
Well, my guess is we’ll end up making a deal to get them out of the space, releasing it so we may have a down time but obviously we are going to be very focused on getting the appropriate value for letting them out of the lease.
Paul Morgan - Freidman Billings Ramsey
Thanks.
Operator
And your next question comes from the line of Christy McElroy with Banc of America Securities.
Christy McElroy - Banc of America Securities
Good morning. David, when you outlined your funding options, I don’t believe you mentioned potentially accessing the unsecured market.
Do you see this as another option or is the pricing there too high? And can you give us a sense for what the pricing would potentially be?
David Simon
You know, the market is not -- I mean, the market is there for us if we wanted it but the pricing is too high and we have no real need to go to that market. I will say that obviously we have the liquidity to deal with our ’08 plan and there’s all sorts of other ways we could finance the business beyond what I just described, but we are not -- there is just no motivation for us to go to that market, as choppy and as expensive as it is.
And there is no reason for us to do that. Now, at some point it might calm down but if it doesn’t -- we’re assuming it does not calm down, so that -- and where it would be, I mean, it would be very wide of where we did our last big deal.
Now, our credit default swaps, I don’t know if this is damning with feint praise, but this is what Steven and our treasurer tell me all the time. We are kind of the lowest credit default swaps in the industry and much lower than a number of big, well-known companies but I think it’s damning with feint praise at this point.
Stephen E. Sterrett
I think they are certainly much wider of where they were a year ago at this time.
Christy McElroy - Banc of America Securities
Okay, and then who are the likely types of lenders for the refinancing of the $1 billion of secured debt that you have coming do, whether it’s life insurance companies or banks?
David Simon
Well, I think you’ll have that. I think you’ll also have this -- I mean, I think you’ll have the secured market as well.
The CMBS market I think is still available for good quality stuff. I mean, the mall product really hasn’t experienced any kind of hiccup.
I mean, obviously spreads are a little wider but there is still demand out there for some financing on that level.
Stephen E. Sterrett
Right, and the life companies historically have always valued the mall product very highly because of its stability, so I would expect them to be much more in the mix than they’ve been over the last three to five years.
David Simon
And the bank market for credits like us, companies like us, the bank market, to the extent that window is not there, to the extent the insurance window is not there, I don’t expect that but again, with that market -- the bank market is very strong for a company like us. So we can access basically whenever we need it, if we need it.
Christy McElroy - Banc of America Securities
Okay, great and then just lastly, following up on the question before about the store closing announcements, what level of lease termination income are you currently assuming in your ’08 guidance? And then I think you are forecasting roughly flat to down occupancy at year-end, but can you give us a sense for what that should look like throughout the year?
Stephen E. Sterrett
Our historical run-rate over the last three to four years has kind of been in the $15 million to $20 million a year range, and actually if you look at I think ’06, that’s about where we were. In ’07, that’s where we were absent of the two or three large department store termination that we did.
And that’s kind of consistent with our plan for ’08. If it exceeds that, you’ll typically have an offset up in your minimum rent line somewhere so the two tend to net out.
David Simon
But at this point it’s no different than what we’ve historically budgeted.
Christy McElroy - Banc of America Securities
Okay, great. Thanks, guys.
Operator
And your next question comes from the line of Jonathan Litt with Citigroup.
Jonathan Litt - Citigroup
I’m here with [Ambica]. Just sort of curious -- there’s obviously been a lot of press about what’s going on in the debt markets and discussions about the impact that’s going to have on the pricing of real estate.
What’s your sense of what’s happening in your space? Any large assets that you are seeing on the market?
David Simon
Well, you know, the big A quality malls are -- there just hasn’t been any transactions. The last couple have been frankly what we sold to Westfield and what I guess Macerich bought recently.
And my personal view is that on that kind of quality asset, if cap rates have moved, they haven’t moved all that much. You know, where the lack of really understanding value is probably on the lower quality product where a lot of that was bought by entrepreneurs with cheap debt.
And again, that market is pretty much shut down for the time being so there’s -- it’s hard to figure out where those cap rates are but it’s safe to say they probably moved up.
Jonathan Litt - Citigroup
So what would you peg -- if transactions came to market in the class A space, do you think that’s in the five?
David Simon
Yeah, no question about it.
Jonathan Litt - Citigroup
And retention funds would probably do it with relatively low debt at those levels, or you guys?
David Simon
Yeah, I think that’s right.
Jonathan Litt - Citigroup
I think [Ambica] has a question as well. Thank you.
Unidentified Analyst
If we’re thinking about the same-store NOI guidance for the malls, you mentioned that Simon is really focusing on driving operating leverage. If we think about the guidance, what percentage -- is it half of the growth is really going to be driven by driving operating leverage?
And then, could you list the specific items that you are focused on to reduce operating expenses?
Stephen E. Sterrett
Let me talk a little bit about the guidance. We are beholden to some degree to our lease exploration schedule.
We ordinarily have 7%, 8%, 9% of our leases rolling a year. We have not seen any diminution in pricing power so we would expect our leasing spreads, as we’ve noted in the guidance, to be in the historical range.
If you got 10% of your leases rolling and you are re-leasing them at up 20%, inherently that’s 2% comp NOI growth and then the rest of it comes from either better recoveries or growth in ancillary revenues or, as David mentioned, we may get more of a bump in ’08 from driving down the operating costs.
Unidentified Analyst
And then could you give more color on what specifically you are focused on the operating cost side?
David Simon
I would say we have -- we are reviewing a number of our vendor relationships. We are also looking at how to take advantage of economies of scale in the field level with personnel.
We’ve got -- obviously we are very focused on increasing energy efficiency for a number of reasons, one of which obviously, as we think it’s the right corporate thing to do in terms of trying to give back to the environment, but also because it makes good, sound business sense in terms of driving our operating expenses. I mean, those are a few that jump out at me.
We are using our kinds of scale in purchasing but we’ve grown a lot. We’ve been very income oriented, which is appropriate when you have a very strong economic environment.
We are in a less strong economic environment and so it’s always good every few years to take a step back and figure out how we become more efficient and more expense controlled. You know, those are -- I could sit here and tell you a few that come off the top of my head.
Now, when we budget, we do it by lease, by mall, by asset, so we’d have to spend some time to say this effort would get you 20 basis points or not. But basically when we roll it all up, you know, even in a tough environment, we think we could grow 3% to 4% comp NOI.
Unidentified Analyst
Okay, great, and then just one last question -- do you have an update on GAP and Limited and their strategy? Should we expect any store closures or a reduction in the size of their stores?
David Simon
Well, let me say Limited, just essentially Vicki’s and Bath & Body at this point, they’re actually growing, at least at Vicki’s, they are trying to grow their store size and -- so there’s no real change there. And on an express, it’s spun out now on its own.
Their actual results have been pretty good and I think they are -- it’s interesting now that it’s out of Limited. We are very excited about the prospects of that company going forward.
On The GAP, it’s early. We haven’t -- I personally have not met with the new CEO.
I think that’s obviously one of my goals here in the next few months, to get a better handle on the real estate. We are pretty well set on a real estate strategy for them through ’08 and I think we’ll be working on ’09 here shortly.
But not a material change in the ’08 GAP plan for us.
Unidentified Analyst
Okay, great. Thank you.
Operator
And your next question comes from the line of Jonathan Habermann with Goldman Sachs.
Jonathan Habermann - Goldman Sachs
Good morning. A lot of questions on store closings but I’m just curious -- as you look out 2009, 2010, is it too soon to have a sense of the new store openings, or do we really have to wait until ICSC?
What sort of early read are you seeing at this point in terms of tenants that are pulling back in terms of new store openings?
David Simon
Well, Rick can answer this as well. I’ll just say that most of the feeling that we get is a little bit of a hunkering down but not a -- most of the retailers that we talk to are pretty bullish on their business, are pretty well capitalized.
They understand that we are going through an economic cycle here. They are hunkering down for ’08.
It hasn’t changed their long-term view on what they are able to do in ’09 and ’10. So assuming we get back with some more economic growth in ’09 and ’10, I think we’ll get back to the store openings that we’ve had historically, but that’s more of a gut feel as opposed to specific data at this point.
But most of the retailers we are talking to understand these cycles happen and are pretty well capitalized and are just being extra cautious for ’08. Rick, I don’t know if you want to add anything.
Richard S. Sokolov
The only thing that I would add to that is there are several retailers that really look at this as an opportunity. They are hoping that there will be a little increase in supply and they are approaching us now opportunistically saying I still have open to buys for ’08, if you’ve got several spaces that open up, I want them.
And there are a number of examples like that that we are working with that are going counter to that trend.
David Simon
That’s a good point. A great example of that is like a J.
Crew that’s -- I mean, they’ve called and said I want to know who’s on the ropes, I want to look at the space. Abercrombie is in that spot, so I think that’s a very good point.
Jonathan Habermann - Goldman Sachs
And it sounds like it’s not going to come so much from bankruptcies -- is it more of a case of just tenants not renewing, so your renewal percentage drops this year?
David Simon
I think the biggest closings are going to be concepts where the tenant no longer wants to operate them. And for us right now, it’s like a demo with Pac Sunwear and the rest are kind of not a big -- the only real bankruptcy liquidation that we are dealing with thus far in a material way is Bombay, where we have 35 stores.
But you know, Talbot’s Kids & Mens is closing. That’s seven stores.
They’re going to be in good malls. That’s not a big issue, so most of it is really just concepts not working quite the way they wanted to and going from there.
The KB Toys, the Transworld Radio Shack, they’ve been over a two- or three-year period kind of weaning down their portfolio and we’ll always have a few of those. But I don’t sense a huge change from historical closures on that.
Stephen E. Sterrett
If you look at our top 50 or 100 tenant relationships, the risk of bankruptcy of any of those is quite frankly not very high right now. I mean, they are still in pretty good financial shape.
I think we will always have some of the smaller tenants, just by the nature of the beast. But as we look out, I think bankruptcies will be relatively modest in ’08.
Jonathan Habermann - Goldman Sachs
Okay, and just on Mills, turning to that, could you provide -- is there any additional upside you are expecting in terms of occupancy from the value centers? And I guess as well, can you provide cap rates on the assets sold?
David Simon
Well, the two that we sold to Westfield were about a five cap rate, and that’s -- so that’s that. There are -- we feel very good -- we think we’ll have about 5%-plus in the Mills EBITDA this year and primarily, that’s a handful of better running of the portfolio, more efficiency, more lease-up, you know, bringing outlet tenants there with, given our relationships with those tenants through Chelsea.
So it’s really across the board and better in terms of better performance.
Stephen E. Sterrett
I’d also say there’s a significant opportunity to improve the occupancy in the regional malls side of the Mills. You know, those malls are $450 a foot malls.
They kind of look and feel like ours but they are 400 basis points lower occupied than our overall portfolio is, so that will be clearly a point of focus in ’08.
Jonathan Habermann - Goldman Sachs
Thanks, guys.
Operator
And your next question comes from the line of Matthew Ostrower from Morgan Stanley.
Matthew Ostrower - Morgan Stanley
Good morning. I know in the past you guys would look at the B mall thing and didn’t pick it up in terms of adding to your portfolio, but from your comments and looking at the public markets and for everything on the private markets, it sounds like the only -- looking at it today, which could change, it seems like the only really obvious place where you might be able to put some opportunistic money out is in the B and C mall arena.
And I guess I’m just wondering, based on how things keep evolving here, is there sort of a price that makes sense for you? Are you waiting for a price or have you really made a strategic decision here that those operations are too challenging and the fundamentals may be too challenging, so you are just not interested in that?
David Simon
No, I mean, we never get -- I never get too worried about B -- classifying malls, I frankly hate to classify malls A, B, or C. To me, it’s whether we can increase the cash flow and obviously what kind of return we would get based upon the price.
I don’t think our strategy is going to change in terms of what we’ve done over the last several years, in terms of we want quality real estate. Now, if we think we can pick up a mall that people might think a B or C, but we think we can redevelop it and make it better real estate, and we can justify it on a risk-adjusted basis, we’ll do it.
But I don’t think you’ll see us chase not such good real estate just to create short-term accretion. I think our strategy has been pretty consistent.
We’ve flirted with the idea but we felt at the end of the day we were going to chase not such great real estate and we didn’t really want to do that. Mills we felt, you know -- hey, look, they have had some real estate that wasn’t great but we felt by and large, this was pretty good real estate in pretty good major markets and that’s why we chased that deal.
I’m rambling but the bottom line is I don’t think our strategy will change given the environment today.
Matthew Ostrower - Morgan Stanley
Okay, great. And then just on Mills, if I read it right, it looked like the average rent on the traditional Mills assets came down a little bit in the quarter.
Did you comment on that already?
Stephen E. Sterrett
Nothing remarkable there, Matt. That may be as much as anything, just a mix in terms of the space leasing, you know, because that includes boxes the size of the -- the lease activity could move it.
Quite frankly, it could also be just us continuing to refine the data. I mean, as you might imagine, we took our first stab at the end of the third quarter.
I would tell you we are 99.44% pure but give us a little wiggle room there. There’s nothing remarkable going on in that portfolio.
David Simon
You might -- I mean, I would just say you might have, since you have 17, you may have a little more volatility in those numbers quarter by quarter, just because as Steve said, you do have boxes in there that are included in those numbers and if you sign two or three boxes in one quarter versus the next, you’re going to get some volatility.
Matthew Ostrower - Morgan Stanley
Okay, and finally just on the impairment charge, did that all flow through the way that you guys had projected in the press release that you put out?
Stephen E. Sterrett
It did, pretty much. I think the press release, Matt, we said it was $0.11 a share.
It ended up rounding up to $0.12, but it was a $55 million gross charge and then in our tax line in the P&L, there’s a $20 million benefit against that charge, so the net’s 35 on an SPG LP basis.
David Simon
And you only see the benefit on the tax line of 12-something because we have a tax expense.
Stephen E. Sterrett
Yeah, we do have a tax expense on --
Matthew Ostrower - Morgan Stanley
Okay. Thank you.
Operator
And your next question comes from the line of Louis Taylor with Deutsche Bank.
Louis Taylor - Deutsche Bank
Good morning. Can you guys just talk a little bit about your development, or redevelopment starts in ’08 and what do you expect for volumes and give us a sense for -- in terms of mix, in terms of international/domestic, outlet center versus a redevelopment within the core mall portfolio?
David Simon
If I can turn to a page here, you may hear some rough numbers. Give me one second, unless Rick, you have it handy.
Richard S. Sokolov
The ones that are under construction for delivery in ’08 are going to be Hamilton Town Center in Noblesville, Houston Premium Outlets in Houston, , and Pure Park in Panama City. Those are the new developments that are coming online in ’08 and all those are in the 8-K.
David Simon
Let me do it this way, if I could -- we have our share -- again, this is our share -- of about $1.37 billion and so it is pretty specific here, but just to give you a sense, the regional malls are 611 -- we do it by platform and this does not include international, so -- but we do it by platform, so let me just walk you through it, if you’re interested.
Louis Taylor - Deutsche Bank
David, I was actually looking for the new activity for ’08 in terms of the additions to the pipeline in ’08. Should we --
David Simon
Yeah, well, it’s pretty -- I mean, the pipeline is pretty much what we thought it was going to be, so it’s $1.37 billion domestic. Of the new starts, again this doesn’t include -- this kind of goes over periods of time but we have $300 million in the premium outlet business new; in the mall business, about $100 million new; and the lifestyle centers, about 70 new.
The balance of that is basically redevelopment in the mall portfolio, a little bit of capital dedicated to the Mills portfolio, and then we do have some asset intensification of about $50 million in terms of residential and hotel.
Louis Taylor - Deutsche Bank
So this would be new activity to begin construction in ’08?
Stephen E. Sterrett
No, that’s the total spend of everything, some of which will obviously start in ’08 but some of which has been under construction and that’s the ’08 spend.
Louis Taylor - Deutsche Bank
Okay. I’m not looking for the spend.
I’m looking for what new projects do you expect to add to the list this year, so --
David Simon
It’s really in our 8-K. I mean, the best way to do that is go through the 8-K.
The ones we may add that are not in there are Chelsea’s got two or three deals that are close to getting board approval and close to getting permitting approval.
Louis Taylor - Deutsche Bank
Okay, now, beyond the outlet center expansions that you’ve listed in the 8-K, are there many more opportunities within the outlet center portfolio to expand existing centers, say two to three years down the road?
David Simon
Yes. Rick, do you want to add to that?
Richard S. Sokolov
We are, just as we’ve created a number of expansions that really were not on the Chelsea radar screen before we started really focusing on how we can maximize returns, and out of -- from our start, we’ve expanded Orlando, we’ve expanded Las Vegas, and we are expanding [Camareo] and we are working now on looking at at least three other expansions and, as we’ve pointed out previously, even it the Chelsea new product, we are now building in much larger pieces of land and master planning expansions. So literally right now, Rio Grande is already expanding, and it is open a year.
Philadelphia Premium Outlets was opened in November and it has its phase two expansion opening in March and we’ve got additional expansions built into Houston, another expansion for Rio Grande, that are also building off of just the new product that’s coming online. So there’s going to be considerable activity in that portfolio adding space.
David Simon
Let me also just see if I can round up the conversation here; you know, when we announced our $5 billion development or redevelopment pipeline, when we did that, we probably spent -- you know, by the end of ’08, we will have spent probably $2.5 billion of that. And we’re -- some of it on the, is kind of pushed out, like a site in Houston, we had a site in North Atlanta that we don’t think is ready.
You know, we pushed a few deals out. I will tell you that Chelsea opportunities have probably increased so the balance of that $5 billion is still pretty good and we are more than halfway through that.
But we still anticipate kind of the $1 billion a year. Again, it ebbs and flows but about $1 billion a year and I’d say we’re well over half of that done.
Louis Taylor - Deutsche Bank
Great. Okay, then, one just small follow-up question for Steve with regard to the expense recoveries.
Was there much in the way of capital recovery in ’07?
Stephen E. Sterrett
There was, yeah. And you know, capital is a little bit of a wasting asset as you convert to fixed CAM.
Now, some of that was not actual capital spending but it was capital that had been hung up on our balance sheet as deferred and we were able to accelerate the recovery of that, while we are still fairly substantially pro rata. So not a meaningful number and [a little bit of it].
Louis Taylor - Deutsche Bank
Great. Thank you.
Operator
And your next question comes from the line of Jeffrey Spector with UBS.
Jeffrey Spector - UBS
Good morning. In terms of 4Q sales, can you discuss how the different regions performed and maybe the different retail categories as well?
David Simon
For fourth quarter? Is that -- I didn’t hear your first part.
Jeffrey Spector - UBS
Please, yes, fourth quarter.
David Simon
Well, it’s interesting. I think generally, as we reported it was flat, so it’s pretty consistent with Midwest, which is relatively flat.
We did see some softness in Florida and California, more than what we would have thought, ex whatever assets are that cater to the international tourist. And I guess that’s really the color.
I mean, Florida, if we had a regional mall in Florida that caters to the general marketplace, not the tourist, it was either flat or maybe even down a tick or two. Orange County was pretty soft.
Midwest has been flat. I think the Midwest has been flat for I don’t know how many years, other than Indianapolis seems to be the best of the Midwest.
But generally, the thing about our numbers, our averages mean something because we have such a vast portfolio. I would say generally flat now and with respect to the specific retailers, you know, there were some shining spots in each category but there was no great category at all when it came to results, other than I’d say the electronic guys seem to have the best performance.
Rick, I don’t know if you want to add anything.
Richard S. Sokolov
The only other ones that -- I agree totally with the characterization. Accessories were also a little stronger.
Juniors were a little stronger. Books and records continue to be a little weaker and the women’s -- I don’t know how to phrase it politically correct, but the mature women’s segment was softer.
Jeffrey Spector - UBS
Okay, and then just a follow-up to Matt’s question about B malls and where implied pricing, what the cap rates are for those malls right now. Is there any institutional demand to partner with you?
Previously you had talked about a B mall fund, whereas that -- in this market, is that --
David Simon
There is demand to partner for us with, you know, on new deals. It’s always a little more challenging on existing assets because we always have to confront the issue, why are you selling X of this, but in terms of new deals, new opportunities, we always have interest to partner with us.
I mean, look at the Mills as a great example of that. So that hasn’t change.
It’s a little tougher when we are trying to sell maybe half an asset but we really don’t do that. I don’t really like that strategy.
If we’re not comfortable operating it, we’re better off just selling the asset, so we don’t do that as a routine. When we do bring in partners, they tend to be for new opportunities.
Jeffrey Spector - UBS
Can you comment on how much of your ’08 leasing is completed at this point?
David Simon
Rick, do you want to do that?
Richard S. Sokolov
Yeah, we are -- as a matter of fact, we are meeting next week with all of our regional teams to focus and I was going through that. We today are probably 65% to 75% through the renewal process and we’re now working on frankly starting on ’09 and we’ve been pushing our leasing group to be more proactive in anticipating perhaps where there may be some renewals that won’t come through, so we have other tenants already lined up that we can move in that space with a minimum of downtime.
Jeffrey Spector - UBS
Last question -- can you just update on domain and how that’s doing?
David Simon
It’s basically 100% leased, doing about $500 a foot. And we are building -- I don’t know why we ever called it Building P, but we call it Building P -- we’re building Building P.
It should open in the fall and we will be starting Domain 2 here in the next month or two for an ’09 delivery.
Jeffrey Spector - UBS
Thank you.
Operator
And your next question comes from the line of Steve Sakwa from Merrill Lynch.
Steve Sakwa - Merrill Lynch
Steve, if we think about your normalized number for 2007, it’s a little over $6. I know you mentioned the lease termination fees would maybe be cut in half.
Is there anything else we should think about that was sort of non-recurring? I know you had the mezzanine loan to the Mills joint venture and I don’t know from a profitability standpoint how much that contributed but maybe outside of those two things, is there anything else non-recurring?
Stephen E. Sterrett
Well, you’re right in that Arizona obviously and the $20 million-ish of lease terminations from the department store deals that we did, there was probably an accelerated amount of fee income, primarily related to the financings that we did around the Mills transactions, so that would be non-recurring. You know, the only other thing that’s a nuance Steve is that for the first half -- actually, the first three months of our loan, the mezzanine loan, we did not have an ownership interest in the Mills.
If you’ll recall, we made that loan before we closed the transaction and under the accounting rules, we could recognize 100% of the profit where, post closing because we own half the enterprise, we could only recognize half the profit. And that’s probably $10 million.
So I mean, there’s -- but those would be the big items.
Steve Sakwa - Merrill Lynch
So just to be clear, so $10 million of earnings in ’07 that won’t recur because of a change in ownership --
Stephen E. Sterrett
That’s correct.
Steve Sakwa - Merrill Lynch
A decrease in lease termination fees, and then an acceleration of other fee income from the Mills deal.
David Simon
Part of that you are going to offset because you are going to have a full year of Mills and we’ll have a full year of running the business, which is profitable. So the net net of that probably is pretty close but we probably -- I mean, we can give you specifically.
We don’t have that at our fingertips, but it’s probably going to make it a little bit lumpy quarter by quarter but from a year-end, it’s probably going to be pretty close because we’ll have the business longer, we’ll run it longer, and that may offset some of the extraordinary fee income that we got from the transaction.
Steve Sakwa - Merrill Lynch
I guess the reason I’m asking is if you take the 602, which I think would be sort of a normalized number, and you look at the low end of your guidance, it’s about 4% growth. And given your expectations for NOI growth this year, even though you are cautious on retail sales, and given your leverage profile, one would think you’d get higher growth than 4%, so there’s clearly something that’s pulling that growth rate down at the low end.
Stephen E. Sterrett
Well, you certainly have to back out the $20 million of lease terminations that we got in the first quarter of ’07. Those are as non-recurring as the Arizona write-off was.
David Simon
Well, if you take that out, then you are back to the --
Stephen E. Sterrett
Yeah, you’re basically back to 6% at the low end and 9% at the --
Steve Sakwa - Merrill Lynch
Okay, and then David, I guess from a big picture, you’ve obviously been I think appropriately cautious, but the NOI forecast that you’ve put out there I guess are more optimistic than maybe your tone would be about sales. And is that just because it’s sort of, if you will, the spillover effect that happens from all the things that you did in ’07 that just kind of carry over?
And the real impact of this slow down, to the extent it continues, would really be felt more in ’09?
David Simon
Well, look, the mall product is very resilient, so even in a -- if we get into a terrible recession, then that’s a different issue right now. But we are thinking it’s recession like, but the mall product is very resilient and we are pretty confident that we ought to be able to grow our business 3% to 4%, even in a tough economic environment.
Now, if it gets to where we are in a deep recession, all bets are off for us and anybody else. But I don’t think we’re going to change our tune in ’09 given what we think the environment is now.
If it gets worse, you know, maybe but there’s ways we’re going to run the business so that we can create that kind of cash flow growth.
Steve Sakwa - Merrill Lynch
Okay, and then one last question on international -- can you remind me where you are and sort of your thought process on Brazil?
David Simon
We think Brazil -- we’re not really active in Brazil. We think -- what I’ve seen, some of the recent deals, we think it’s -- listen, the growth there is pretty interesting but we think clearly you’re better -- on a risk-adjusted basis, to put capital in there at the valuations that are talking about now and you contrast that to the U.S., the U.S.
is a no-brainer. And I frankly feel that way in most developing countries right now because I think the growth expectations in a lot of the developing countries is probably overstated right now.
So I think it’s a no-brainer in terms of putting capital there versus the U.S. I’d bet on the U.S.
right now.
Steve Sakwa - Merrill Lynch
Okay, thanks.
Operator
And your next question comes from the line of David Fick with Stifel, Nicolaus.
David M. Fick - Stifel, Nicolaus
I’d like to circle back on the releasing spread question. I’m a little confused about how the lifestyle center openings and releasing affect that number and pull it down from a run-rate that had been more like 23% to 14% in one quarter.
Stephen E. Sterrett
Well, David, if you’ll recall, and we’ve talked about it several times on recent calls, we are doing a fair bit of redevelopment of some of the old Federated boxes. And several of those came online this year fourth quarter.
A lot of that was big box activity and those are 20,000, 30,000 square foot boxes where instead of getting $40 or $45 a foot, we’re getting $20 or $25 a foot. Still a good reutilization of the space, certainly more profitable than the original department store, but if you do enough of them, and there was 600,000 square feet of that stuff in the fourth quarter alone, that’s enough to pull your spread down --
David Simon
Yeah, and if you look at -- if you look at -- you know, again, quarter to quarter, you’ve got to be careful. I think year-end is a pretty good number but you look at, we were at 17.6% last year, 20.7%.
When you take out 17.1 in ’04 and when you take out the boxes that Steve pointed to, you’re at 18%, so it’s right on line. Just to give you an example, we did a -- I don’t want to quote the rent here, because hopefully it’s a good rent, but we did a, like an AMC at Castleton Square Mall, well, that’s well below our average but it’s also 62,000 square feet, so we thought it would be appropriate just to subtract that out to give you a better sense of what the number is, and we did several crate and barrels at Boca Town Center.
We did a crate and barrel at Burlington, so that just happened to be a lot of fourth quarter openings. No big deal in terms of --
David M. Fick - Stifel, Nicolaus
And you’re using the same box, so you’re not -- I’m just wondering why it’s even seen as re-leasing a development.
Stephen E. Sterrett
David, it’s not the same box. This is tearing down a department store and building an outward facing lifestyle component to a center.
David M. Fick - Stifel, Nicolaus
That’s what I assume, and so I don’t know why it would even be consider re-leasing I guess in terms of the --
Stephen E. Sterrett
Because the way we look at re-leasing, which I think is pretty comparable with the way most of the industry looks at it, is what was the sum total of all your expirations and terminations and compare it to the sum total of all the space that you lease. We do look at it, David, on a comparable space basis and we look at only the leasing activity that we did in ’07 and go back and look at what that identical expiring rent was for that same population of spaces.
That number was over $9 a foot in 2007.
David M. Fick - Stifel, Nicolaus
And as a percentage?
Richard S. Sokolov
That number is available but we don’t really post it because --
Stephen E. Sterrett
The percentage was like 23%, 24%. It was ,more than $9.50 a foot.
David Fick - Stifel Nicolaus
That seems hugely relevant, thank you. David could you comment on your exposure to Sears in gross and where you see the process right now as it related to you?
David Simon
When you say what our total base rent is from Sears?
David Fick - Stifel Nicolaus
Yes.
David Simon
Is that what you’re asking?
David Fick - Stifel Nicolaus
Yes. And strategically, how you are viewing them right now as a tenant?
David Simon
Look , we’ve had an under-performing Sears for several, several years. I mean we do think they’re very smart people so we are optimistic that they will turn the business around.
Our financial exposure is --
Stephen E. Sterrett
About $13 million a year in base minimum.
David Simon
I mean it’s not huge, that’s $0.04 a share.
Stephen E. Sterrett
It’s spread over, I don’t know what percentage of the 150 stores we have that have leases, but it’s clearly spread over a large number of stores.
David Simon
We have a good working relationship with them, we get things done, development approvals and whatnot. But we are not privy to their internal strategy.
I mean they keep it close to the vest like they do with everybody else. So we’d like to know more but frankly we just don’t.
David Fick - Stifel Nicolaus
Finally, you didn’t buy back any stock in fourth quarter, what are you assuming about this year and what’s your current posture on your share repurchase?
David Simon
That’s a good question. Right now we have not modeled any stock buy back, we still have authorization to do it, but it’s not in our numbers.
Obviously it would be accretive to do so. We feel right now given the world that we want to keep our powder dry to be opportunistic but we don’t rule changing out, changing that view on a day-by-day basis.
So we’ve got their authorization. What we did we in the fourth quarter was tumultuous.
I don’t want to be one of these guys that read I bought the stock at $100 and it’s now trading at $80 which a lot of corporate America did frankly, so we’re going to be conservative there. Our authorization is serious and to the extent that we think we should do it, we will do it.
Operator
Your next question comes from Michael Mueller – JP Morgan.
Greg Stuart – JP Morgan
I just had a couple of questions. The first one is relating to guidance I noticed the range seems pretty widened.
I wanted to know what key concerns impacting the sensitivity of that range that would probably make you come out on the low end versus the high end?
David Simon
Well look, I mean the world is a little wacky right now so we tend to be when we do our guidance at the beginning of the year, we tend to be conservative. We also tend to narrow that range as we get through some of the operating months.
But we’re taking the same strategy we’ve taken over the last few years; nothing has changed. When we roll up our budget, LIBOR had not materially moved.
There is a lot of volatility in today’s business world so we felt like a higher or wider range was appropriate given the extreme volatility that’s occurring with the economy, with job growth, with interest rates, with capital availability, et cetera. So that’s really reflected in the wideness of the range.
At the end of the day, we’re very comfortable with our business and where we’re positioned and we’ll operate accordingly.
Greg Stuart – JP Morgan
Could you just run over quickly for me what CapEx expectations were for ‘08?
Stephen E. Sterrett
As David mentioned earlier we’re going to spend just a little bit over $1 billion in new developments, redevelopments here in the U.S. I think our spend internationally is a couple hundred million dollars.
In terms of just the operating CapEx, it won’t be much different than we’ve seen in prior years; I think in ‘07 our share of operational CapEx looks like it was about $175 million and our tenant allowances were about $120 million, I think. So you’re about $300 million in total I think that’s probably a fair number for ‘08 as well.
Greg Stuart – JP Morgan
Bigger picture, as you look at the world what will have to happen for you to push back on your developments? What do you see for tenants to pull back in ‘08, ‘09?
Development pipeline?
David Simon
I tell you with what we have right now in the pipeline, we feel pretty confident we’re going to go ahead and execute that. There are a couple that are like, for instance, we’re going through the approval process on [Topley] to expand the retail as well as build a residential tower there.
That’s the one deal that we might be somewhat sensitive too in terms of timing but on the other hand, it is really assuming it’s a two-and-a-half, three year build it’s really, given the quality of the real estate, you’re really talking about what it’s going to look like in 11 or 12. So I don’t think there’s much that’s going to deter us with existing pipeline based on ‘08, ‘09.
We’re very well capitalized. We have our plan very well put together.
Again on the margin, a few deals here and there but I would say the one that jumps out at me that we’re very sensitive to the market would be the residential tower in [Topley]. But again, that’s a judgment call in 12 or 11 depending on when or if we get the approvals we need to build it.
Operator
Your next question comes from Rich Moore - RBC Capital Markets.
Rich Moore - RBC Capital Markets
Good morning, guys. Are you seeing any concessions, any retailers asking for concessions from in-place retailers?
I guess I’m looking for guidance, who aren’t going bankrupt or necessarily closing stores but are looking for some kind of concession?
David Simon
We always deal with that, I mean there’s always some retailers that do that. Nothing out of the ordinary, nothing, nothing -- and I underline emphatically -- nothing like what we had to deal with in early 90s, mid 90s, nothing even close to that.
There’s always going to be a few tenants that are doing the horse trade on that stuff but nothing out of the ordinary and nothing, nothing like what we’ve dealt with in prior economic slowdown. Rick, do you want to add to that?
Richard S. Sokolov
I think that’s right. We have not seen anyone coming in saying we want a wholesale renegotiation of our rent and I think one of the things to underline is our retailers generally their balance sheet -- notwithstanding their stock prices -- are really very good.
I think that we really are not particularly seeing that at all and it’s really just a case-by-case basis in ordinary course of business.
Rich Moore - RBC Capital Markets
If you did get any of that, the mechanics of that would be that they would actually renegotiate the lease? Is that how that works or would you just let them not pay a month or?
David Simon
We tend to say no first, okay. I don’t want to give you my negotiating strategy over the phone.
But really ultimately our decision is if we don’t work with the tenant, what’s the ramifications of that? Are they going to go into Chapter 11?
Do we believe in the long-term viability of the tenant, in the relationship? That kind of goes through and there is no one pat answer other than we always start with no.
Rich Moore - RBC Capital Markets
Okay that’s fair. That’s good.
Second thing, do you guys have any thoughts on what’s going on with the equity interest in the sector from private equity, from big pension funds? Any color on that?
Stephen E. Sterrett
Do you mean on a direct investment basis Rich?
Rich Moore - RBC Capital Markets
Yes I realize Steve that that’s not so much what you guys are doing but have you got any feel for how many times your phone rings with requests or any color on it?
Stephen E. Sterrett
The answer is a lot. I mean I think it has always been a product that the institutional quality investor has very much liked and their interest tends to be skewed towards the A level assets but demand for space or demand to own the higher quality assets is very strong.
The phone rings a lot because quite frankly I think they all recognize they need another operator/partner because of the intensity of the management of the assets. But it’s an asset class that have always been very highly valued by the institutional community.
Rich Moore - RBC Capital Markets
So you have not seen that slow as a result of what’s been going on in the broader market?
Stephen E. Sterrett
No. Obviously as David mentioned earlier, we don’t have a lot of product but there is high interest out there.
David Simon
And I would just say that the interest tends to be for new opportunity just because that creates a level playing field. So if we were to go buy a new mall or new company X, I think the interest on those kinds of deals is extremely high and unabated because then you can underwrite it together.
Everybody is on the same page etcetera versus if we were to sell a half interest on the existing asset there is some concern as to why we would do that. We certainly don’t need to do that from a capital point of view.
Rich Moore - RBC Capital Markets
Okay, very good. Thanks and then the last thing is the other subcategory under other income, was a bit higher this time Steve, any thoughts on that?
Stephen E. Sterrett
Rich, I did mention that there was a little bit of fee income that was one of the drivers, financing fee related. That’s pushing that number up because when you compare it to ‘06 obviously there was none.
That’s probably the only thing that’s really remarkable in there Rich. Simon’s rate of interest continues to grow and so to the extent that there is a component of income in there and some of that flows through that line item that’s added to some of the growth.
Those are the two biggest drivers of the business.
Operator
Your last question comes from the line of Jim Sullivan - Green Street Advisors.
Jim Sullivan - Green Street Advisors
Question on the lifestyle centers, I’d love to get your opinion on how you think lifestyle centers are going to fare in a recessionary type situation? It seems like the retailers that you see so commonly at all lifestyle centers are the ones that are reporting already some pretty ugly same-store sales comps and when you think about the product type that they are in, the mature women’s apparel and the national restaurant chains etcetera, what is your outlook on how lifestyle centers might fair in a recession?
Is there much of a difference between say the lifestyle centers that are attached to existing mall properties versus the standalone lifestyle centers that a private guy might’ve built across the street or down the road?
David Simon
That’s a good question let me take the last first. We’ve had great success in adding, doing that two-for, which is adding some of those tenants and book stores and restaurants, popping it out on the mall.
There’s a lot of, I hate using the word synergy, but there is just a lot of good that comes from it. It reinvigorates the mall, it gives the customer what it wants, so it’s really a nice thing to do.
It seems to work for the tenant. It seems to work for the developer.
So that seems to be continuing on unabated. Obviously some of those tenants are being more cautious as you pointed out because of the macro thing.
We have not been a big believer, other than there have been some that have been good, but we have never really been a big believer in the cutesy lifestyle center that has a couple hundred thousand square feet. We do think they long-term viability issues.
The bigger ones, the ones that we build and some of our colleagues you have to look at those as a mall frankly without a roof. Again, that ends up being is it good real estate?
Does it have the right tenant mix? Does it have the right anchors?
We do think and we should ask Rick as well, but I do think that the cutesy ones that do rely certainly on the, as Rick phrased it, the more mature women are certainly going to fare poor in this environment until those retailers turnaround because that’s what drawing the customer there in the first place. They don’t have the diversity of mix to draw that customer so those will suffer significantly.
Rick, what do you think?
Richard S. Sokolov
I agree totally. I think the way to think about a lifestyle center is what’s its franchise value?
As David pointed out, the properties we’ve built that are open air are basically anchored by the department stores, restaurants, theaters, bookstores and are upwards of a million square feet. They’ve created a franchise and a market share that’s significant in their market Where you have a project that doesn’t have that market share and franchise value, I think it’s going to be much more subject to losing its market share because there are many less reasons for any shopper to visit that particular location when you have a narrower mix and a narrower number of offerings and less square footage.
David Simon
I would say the only other point is it’s clear that at least what we’re seeing is that there are a number that are being built that are going to have a hard time leasing. None of ours of course, and a lot that’s been on the drawing board I think obviously in the current environment both from a capital point of view mostly but also from a macroeconomic view, I think they’re going to have a very hard time getting off the ground.
Jim Sullivan - Green Street Advisors
David on your last call in response to a question regarding the state of the economy and retailer bankruptcies you said we actually embrace these kinds of economic changes. That’s when we’ve done some of our best work.
What did you mean by that? Do lifestyle centers perhaps represent the opportunity this time around?
David Simon
Well I think they could. There’s a few that again we would want them to have a certain critical mass.
Because again I think generally the 200,000 square foot ones were not that enamored with long term. But they could and I think simply we have always conservatively financed our growth since being public.
We’ve been criticized over how we did it, but that’s fine. That’s what being public is all about.
When times are challenging is when we’ve done some good work. Look, it’s challenging out there.
I would rather have no bankruptcies, I would rather have no leases turn over but on the other hand that’s when you can make some hay and that’s where great wealth in our industry has been created either through development or buying at the right price. We tend to be able to buy at the right price when few can buy.
Operator
This concludes our Q&A session. I’ll now turn the call back over to Mr.
Simon for closing remarks.
David Simon
Thanks everyone for your interest and I look forward to talking to you over the upcoming months.