Jan 30, 2009
Executives
David Simon – CEO Rick Sokolov – President & COO Steve Sterrett – CFO Shelly Doran – VP IR
Analysts
Michael Mueller - JPMorgan Jay Haberman - Goldman Sachs Mark Biffert - Oppenheimer & Company Lou Taylor - Deutsche Bank Michael Bilerman - Citi Greg Schmidt – Banc of America Carol Kemple – Hilliard Lyons Unspecified Analyst Ben Yang - Green Street Advisors David Fick – Stifel Nicolaus Rich Moore - RBC Capital Markets RJ Milligan – Raymond James
Operator
Good day ladies and gentleman and welcome to the Q4 2008 Simon Property Group Inc. earnings call.
(Operator Instructions) I would now like to turn the call over to your host for today's call, Miss Shelly Doran, Vice President of Investor Relations. You may proceed.
Shelly Doran
Good morning and welcome to the Simon Property Group fourth quarter and year-end 2008 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 risk and uncertainties. Please refer to our filings with the Securities and Exchange Commission for detailed discussion of these risks and uncertainties.
Acknowledging the fact that this call maybe webcast for some time to come, we believe it is important to note that today’s call includes time-sensitive information that maybe accurate only as of today's date, January 30, 2009. The company's supplemental information package was filed earlier today as a Form 8-K.
The filing is available via mail or e-mail and it is posted on the Simon website in the Investor Relation 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 and thank you for joining us today. As I stated in our release this morning our fourth quarter performance was strong.
We reported funds from operations of $1.86 per share, up 5.7% over the prior year. For the full year FFO was $6.42 per share representing growth of 8.8%.
I remind you that our initial guidance for 2008 was $6.25 to $6.45 so we performed at the top end of that range despite the unprecedented turmoil in the economy and capital markets. FFO for the quarter included an impairment charge of $0.07 per share for costs related to certain predevelopment projects that we are no longer pursuing and the write-down of one operating asset to its estimated net realizable value.
Also included in FFO for the year was the extinguishment charge of $0.07 per share incurred in connection with the redemption of $200 million of moppers notes in the second quarter of 2008. Excluding these charges full year 2008 FFO per share would have been $0.14 higher or another 2.4% of growth.
Occupancy in the mall portfolio was 92.4% at year-end as it compared to 93.5% last year. In spite of the challenging conditions of 2008 mall occupancy is still very much in line with our recent historical results.
Square footage lost to bankruptcy in 2008 in our mall portfolio totaled 508,000 square feet as compared to only 61,000 square feet in 2007. During December we experienced some lost occupancy as a result of certain liquidations and bankruptcy lease rejections.
During the year occupancy was also negatively impacted by approximately 320,000 square feet of negotiated early store closings and temporary occupancy reductions also occurred at several properties which were under renovation or redevelopment. Despite all of that we came in at an occupancy that is consistent with over the last few years of our results.
Our premium outlet portfolio remains nearly fully leased at 98.9% and the Mills platform gained 40 basis points to 94.5%. Premium outlet center retail sales growth remained good, increasing 1.8% to $513 per square foot and sales in the Mills portfolio was flat at $372 a foot, both as a result of the consumer continuing to seek value in this current economic climate.
Comparable retail sales in our mall portfolio were $470 per square foot down 4.3% as compared to the year earlier period. You will recall that our regional mall sales at September 30 were relatively flat, actually they were up 40 basis points.
The fourth quarter decline we experienced was the direct result of the unprecedented weak 2008 holiday season experienced across the US and in particular the performance of luxury and higher end retailers. Even with weak fourth quarter sales please keep in mind that our [2000] sales are in fact in line with our 2006 year-end levels.
The 2008 comparable property NOI for the mall portfolio increased 1%. Comparable NOI growth was impacted by the decline in overage rent due to the weak fourth quarter retail sales as well as higher then normal bad debt expense as a result of tenant bankruptcies.
Comparable property NOI for the premium outlet portfolio increased 7.7% in 2008. The releasing spread for our mall portfolio was $8.02 for the year representing a 21.3% increase and again speaking to the fact that our releases, our expiring leases are still below market and the releasing spread for the premium outlet portfolio was $12.48 representing a strong 48.8% increase, again showing that our expiring leases there are below market.
During the fourth quarter we successfully opened two new developments, Jersey Shore premium outlets, and Sendai premium outlets in Japan. Both centers opened well leased and projected first year returns are 11%.
Significant redevelopment projects were completed and opened at North Shore Mall in Boston, Ross Park Mall in Pittsburgh, Tacoma Mall and Orlando premium outlets. In the US construction continues only on two new projects, Cincinnati premium outlets and the second phase of Domain in Austin, Texas and two significant redevelopment projects.
Net of construction loans already in place our domestic development capital expenditures are expected to approximate $250 million to $275 million in 2009, less then one-third of the 2008 spend and at this point our 2010 spending is projected to be less then $50 million. Our share of 2009 international development capital expenditures is expected to approximate $120 million.
The vast majority of these expenditures will self-funded by joint venture resources and will require little or no equity from Simon Property Group. Currently we do not expect to begin construction on any additional new projects or major redevelopments in 2009.
In the fourth quarter we completed seven new asset financings that raised $584 million of proceeds. Our share was $313 million with a weighted average term of 5.7 years and average interest rate of 5.9% on the fixed rate financings and a rate at year-end of 2.4% on the floating rate loans.
For all of 2008 Simon completed 21 new secured financings generating $3.2 billion of proceeds, our share being $2.2 billion with a weighted average term of 5.2 years and 5.4% on the fixed rate financings. In addition we issued $1.5 billion of senior unsecured bonds in May of 2008.
As of December year-end we had approximately $1.1 billion of cash on hand including our share of joint venture cash and our availability on our corporate credit facility of $2.4 billion. In addition our unencumbered portfolio generates EBITDA in excess of $1.7 billion and retail sales at those centers are approximately $500 per foot allowing for a tremendous amount of room under all of our bank and bond covenants.
We recently announced two senior management changes within the organization, both the result of retirements. John Klein has been promoted and will oversee the premium outlet portfolios president of Chelsea.
John’s career spans 23 years in the retail real estate industry and has been with Chelsea since 1995. Mike Clark continues to oversee the Chelsea international activities.
Greg Goodman has been promoted President of the Mills platform. In his capacity Greg will assume direct oversight of the leasing development property management marketing functions of the Mills asset base and Greg began his career in 1985 and joined the Mills in 1994.
I believe it is a testament to the depth of our company’s management team that we’re able to promote from within the organization to field these two key management positions. Let me turn to the dividend and then the guidance.
First of all as you all know our balance sheet strategy has been a conservative one and we believe that we should be especially prudent in liability management and the allocation of our capital given today’s economy and uncertain capital markets. Our projected 2009 taxable income is $3.30 per share and we expect to maintain our dividend at the $3.60 per share throughout the 2009 level given our taxable income.
Therefore after much thought and deliberation our Board decided to adjust the composition of the dividend to be 90% in common stock and 10% in cash. If adopted for all of 2009 this change in composition would result in the retention of over $925 million of cash.
Needless to say we have a history of strong balance sheet management and appropriate capital allocation and our past accomplishment in this area should give confidence to our stockholder and all of the financial community that we have made the appropriate decision. Our current liquidity as I mentioned before is approximately $3.5 billion.
By paying our dividends 90% in stock and 10% in cash we increase our estimated free cash flow for all of 2009 after debt service dividends distributions and ongoing capital expenditures to approximately $1.5 billion fortifying our company and maintaining our goal of being one of the beacons of this industry. This decision is not made in response to the current retail environment but a means of being conservative with our capital.
We intend to evaluate this decision each quarter and we have also reserved the right to pay the dividend entirely in cash if conditions warrant. Today we gave 2009 FFO guidance of $6.40 to $6.60 per share.
This range takes into account the dividend composition decision as well as our view of current conditions including those in the retail real estate business. As a result of our high quality portfolio, strong balance sheet, cost control measures, we were able to grow FFO per share of 8.8% in a very difficult operating environment when most REITs are reporting negative earnings and no expectations for growth in 2009 which is opposite of what we are saying and what we’ve done.
This year, 2009 will be another challenging year however we are up to the task and now we are ready for any questions.
Operator
(Operator Instructions) Your first question comes from the line of Michael Mueller - JPMorgan
Michael Mueller - JPMorgan
Can you talk real time and tell us what you’re seeing in terms of occupancy expectations for 2009, what you’re seeing in terms of the lease spreads for the mall portfolio, for the outlet portfolio, versus what you put up in 2008.
Rick Sokolov
As David said we are well down the road on 2009 activity. Just to give you some numbers, in 2008 we completed 12,221,000 square feet of executed leases between renewals and new deals.
So far in 2009 we have already executed 467,000 square feet of deals just in January and we have another 7,786,000 square feet of new deals, downsizes and renewals in our lease process. What we’re seeing is that we are very focused on dealing with the tenants across our portfolio.
We are holding our margins and our rents where we can and that is in virtually all of our very good properties and where we have a tenant that we believe is in extreme financial distress, we’re trying to work with them to come up with a mutually acceptable basis for maintaining their occupancy in the portfolio.
David Simon
As we indicated to you, we continue to believe that our comparable NOI for the mall portfolio will either be at least what the EBITDA was last year or up 1% and that’s a pretty good testament to the resiliency of the mall portfolio. Occupancy might come under pressure in our numbers because of the expected bankruptcies of oncoming tenants.
But even obviously that’s been factored into our conclusion in terms of guidance and frankly right now our main focus is maintaining the cash flow and increasing it and that’s where our energy is being spent.
Steve Sterrett
We are in the same place as we sit here at the end of January dealing with our 2009 expirations as we were sitting here a year ago dealing with our 2008 expirations. We are about the same percentage through the current year expirations.
Michael Mueller - JPMorgan
So if you’re looking on a full year, if you were call it a 20% spread or slightly 20, what’s your best estimate at this point as to 2009 and as you look forward to 2010, how they could compress.
David Simon
I think occupancies are going to come under some pressure. There’s been lots of research about how much its going to drop.
It’s not going to be anywhere near the research that I’ve read. I’m happy to point that out individually in terms of who’s coming up with these guesstimates and we clearly have lots of cushion in our market rents in terms of where our leases are rolling over.
So I think we’ll maintain our spreads. They may come, they may not be $8, they may be $5, $6.
We’ve been outperforming in that category. We won’t back off of that.
Occupancy will come under pressure. I think the bottom line is we think we’re going to grow our EBITDA.
Michael Mueller - JPMorgan
In past calls you’ve rattled off a list of retailers who are proactively looking for space and still growing, can you run through that list as it stands today.
Rick Sokolov
People that we are dealing with right now that are going to be opening substantial numbers of stores in our portfolio in 2009 include Forever 21, H&M, [Tara], Coach, we’re still dealing with Express and opening substantial numbers of stores, [inaudible], Safora, just to name a few.
Michael Mueller - JPMorgan
It seems like in the 90’s, you and your peer consolidated a lot of malls from the pension funds into the hands of yourselves and other operators, if you look at not specifically focusing on GGP but its hard to get around that, if you look at that [entity] that could have a number of malls be sold or liquidated over time, what do you think happens to cap rates, do you think pension funds who had been sellers over the past decade and other institutional investors step back in to help support the cap rates. How do you see that unfolding over the next few years.
David Simon
I think it depends who the seller is. I think cap rates will go up for distressed sellers of quality real estate and I think cap rates will be a lot stickier for strong owners and they’re going to want to get their value.
So I think you almost have to look at the seller to come to that conclusion and its very hard to know. I do think there will be some distressed sellers out there so I think that’s going to create opportunities and I think there’ll be some stronger sellers that are going to wait for values to get back to the kind of levels that they think are appropriate.
Michael Mueller - JPMorgan
But are there more buyers then just three or four players?
David Simon
We hope not.
Operator
Your next question comes from the line of Jay Haberman - Goldman Sachs
Jay Haberman - Goldman Sachs
Want to circle back, obviously occupancy has held up well thus far in this cycle but just want to zero in on store closings, possibly rent renegotiations and perhaps as you look at inline versus anchor space, do you see any weakness with one versus the other in 2009?
David Simon
I think, all I can tell you is that Rick and I are pros at dealing with this in addition to our staff so there is I would say long-term we’re more concerned about some of the bigger boxes then we are about some of the small shop tenants and in terms of what they present to the consumer. But I think in terms of how we deal with occupancy and how we deal with cash flow a lot of these are individual decisions with individual malls, what our relationship with the retailer is, what kind of other growth we can achieve from that retailer and we deal with our retailers on a broad account basis and there’s a lot of give and take and we’ll try to find the solution.
I think having the portfolio we do both in the mall business and in the other value sectors gives us, given the quality, given the productivity of those centers our financial stability I think gives us a great spot to be able to negotiate the right kind of deal with the retailer.
Jay Haberman - Goldman Sachs
And in case there were big box vacancies, where would you see opportunities to fill.
David Simon
I think the best of the breed just like in the retail real estate business, I think the best of the breed retailers are going to take advantage of opportunities whether its Target, Kohl’s, Best Buy, Bed, Bath and Beyond, none of these guys are out of business. They’re all being extremely conservative as we are.
The fact of the matter is their opportunities are going to come from that, they’re not going to come from new development. As I said a year ago, I don’t think anybody believed me, the new development business is dead for a decade.
Maybe its eight years, maybe its not really completely dead. Maybe I’m over dramatizing it for effect but the odds are that there’s going to very very little new stuff for quite some time and the best of the breed, the guys that we want to do business and that want to do business with us, we’re going to have our opportunities.
You go down the category, there’s a winner, there’s guys that have the potential to win. They want to know that they’re dealing with quality real estate and a well-capitalized landlord and we offer both better then anybody in this industry.
Jay Haberman - Goldman Sachs
And you’ve said in the last few calls, no development for a decade, what do you think about mall closings, could it encompass as much as 15 to 20% of the mall industry over this cycle or is that unrealistic.
David Simon
I don’t think it will be that dramatic but I do think there will be malls that will close.
Jay Haberman - Goldman Sachs
On the financing strategy can you talk about the unsecured maturities this year, is that going to come from the line thus far, the savings obviously from the dividend change?
Steve Sterrett
Our bonds have actually tightened a little bit but given where spreads are right now its unlikely in the near-term that we would be an issuer in the bond market and so for planning purposes we’ll just use our line capacity and our cash to retire the $900 million of bonds that come due this year.
Jay Haberman - Goldman Sachs
You mentioned that you are percentage leased in terms of the 2009 the same level of 2008, can you just remind us where that is.
Steve Sterrett
We’re about two-thirds done.
Jay Haberman - Goldman Sachs
And then your same store forecast would you say that’s a worst-case scenario or just as you see it today subject to revision.
Steve Sterrett
Its as we see it today but with a, through the prism of today, we’re just coming off the worst Christmas season that we’ve seen so there’s a fair bit of guesstimating in terms of where tenants sales are and the like but I would tell you we feel very comfortable with that range and that the EBITDA in the mall business will be positive.
Operator
Your next question comes from the line of Mark Biffert - Oppenheimer & Company
Mark Biffert - Oppenheimer & Company
On the retailers that you listed that were coming into the portfolio in 2009 how many of those have come back and asked for renegotiations or concessions on what you’ve already negotiated prior?
Rick Sokolov
Where we’ve got deals that were done for the vast majority, we’ve been [ex] prosecuting them in that basis. A couple have come back and said, gee we are trying to relocate our capital into ten instead of nine and we in some instances, we have perhaps given a little more allowance but gotten more rent in exchange for that allowance.
But the deals have been holding very steady.
Mark Biffert - Oppenheimer & Company
What are you seeing from tenants in terms of them pulling back or trying to shrink their space where maybe their inventory levels have come down and they want to be in smaller stores, or how are you able to accommodate for that.
Rick Sokolov
Again its an interesting dichotomy in our best malls we are seeing very little of that. In fact, we have tenants coming to us saying they want more space so it is really a mall-specific conversation and not really one that is driven by an over arching strategy that runs across all properties.
Mark Biffert - Oppenheimer & Company
Related to the change in dividend payout how much of that is related to the fact that you want to have more liquidity in case of discounted asset pricing at some point later in the cycle where you might want to step back in.
David Simon
That’s in the back of our minds but its not at the front of our mind right now. We are being extra, what I can really say to you, I think we’re just trying to be extra, extra conservative in terms of capital right now primarily to deal with the unforeseen going forward.
We feel extremely confident about our business and about where we are positioned and what we’ve done over the last several years. We’ve made difficult decisions, we’ve zigged when others have zagged but I think at the end of the day I’ll put our track record up against any other real estate REIT in the industry and right now we just want to be a little bit extra, extra cautious or maybe a lot more extra cautious when you’re talking about maintaining another $900 million of cash.
And we just think that’s the right thing to do. This is not a permanent decision, this is a decision that will be evaluated quarterly.
Our Board is obviously very active and engaged in it. But prudence is the better part of valor right now and I hope you would appreciate something like that.
Mark Biffert - Oppenheimer & Company
Looking at the impairment charges that you recorded during the quarter and then looking at the Mills portfolio, seen a number of different REITs take write-downs on joint ventures and I’m wondering how you go about looking at the joint venture with Mills and the potential for impairment at the some of the underperforming centers that you have.
Steve Sterrett
First of all the Mills portfolio is performing right in line with our underwriting from our acquisition. As you know in December we sold the weakest asset in the portfolio, Cincinnati Mills, which we designated for sale.
We look at all of our assets on quarter-by-quarter basis and run them through the traps for an impairment analysis and we’re very comfortable with the conclusions that we’ve reached. We wrote down one, not a Mills asset but a weak mall in Tennessee, to basically its land value.
We wrote off some predevelopment projects that we’re not pursuing any more but nothing else on the radar screen.
Mark Biffert - Oppenheimer & Company
In terms of the feedback you’re getting from some of your lenders from the secured lending side, as well as the unsecured, what are you hearing in terms of them with an appetite for getting capital right now.
Steve Sterrett
You think about the debt side of our balance sheet traditionally there have been four pockets of funds for us. Bonds as I mentioned earlier, our spreads have actually tightened but they’re still at historical [wide] levels and you haven’t seen an reissue really since summer of 2008 and that market is not attractive to us right now.
The banks are all trying to figure out what they’re cost of capital is and so while we are having discussions there’s not a lot of activity going on there. The [CMBS] market is defunct for the current time and our expectation is its going to stay that way for a while.
So the one market that is out there in some sense of normalcy are the [life] companies and there is an appetite. I think one of the very interesting things that the [life] companies have the opportunity to do is significantly upgrade their portfolio both in terms of quality of assets but also quality of sponsors.
And if you think about what one of the things that probably helped the demise in the [CMBS] market is there was very little attention was paid to who the sponsor of the asset was. So I think we will get a disproportionate share of what the open to buy is for the [life] companies.
We’re having lots of conversations, we’re showing them assets that they may not have seen a year or two ago. And there is clearly an appetite on their part to do more business with us.
David Simon I think the tone generally is getting a little firmer but its not quite where it ultimately needs to be but its getting a little bit better.
Operator
Your next question comes from the line of Lou Taylor - Deutsche Bank
Lou Taylor - Deutsche Bank
Can you talk about the JV cash, as that balance builds, how much is really freely distributable to the partners versus you need to have some cash in a venture.
Steve Sterrett
In the JVs your cash on a relative basis is always going to be higher because you’re holding cash in the venture for things like real estate taxes that may only be paid semi annually or annually where for us on a wholly owned consolidated property we’ll [velocitize] that cash because we’re just funding it ourselves. But there is no question that there’s ample cash in the joint ventures, we’re distributing cash in almost every venture on a monthly basis right now and attempting just like we would with corporate cash to use that as efficiently and effectively as we can.
But if you look at the gross number and obviously, half or more is not ours because its our joint venture partner and you do have to be a little bit careful because more of it is going to be targeted for future obligations whether they’re real estate taxes or tenant allowances or CapEx or the like.
Lou Taylor - Deutsche Bank
With regards to your secured debt financings both the JV and at the unconsolidated level what are your expectations for excess finance proceeds coming out of those financings.
Steve Sterrett
We’ve got about a billion dollars of mortgage debt coming due this year and I would tell you there will be pluses and there will be minuses but net net we would expect to essentially be able to roll it over at about an even level, may come out of pocket a little bit on some, may need to de-lever a few but we should be, we’re not a company that’s chased the last 5 or 10% of loan to value so as I look at the portfolio in 2009 its on the aggregate a little under 50% LTV, its $500 a foot, and we’re feeling a little bit better that the market is firming a bit and I think within spitting distance one way or the other we’ll roll that paper over.
David Simon
That billion, that includes, half of that is JV debt so and our partner is going to be responsible obviously for any shortfall there. If not, they’re going to be primed to the extent if capital is required and they don’t put it up and we choose to put it up.
Lou Taylor - Deutsche Bank
With regards to the outlets, the sales are holding up pretty nicely, where’s the relative strength in that portfolio either geographically or by country or however you slice it.
David Simon
I think the outlet business generally has, [Woodbury] Commons as an example was strong. We started to see some Las Vegas was pretty good, but we’re starting to see softness there and Florida, Orlando, was starting to get soft.
The outlets business has been great but its not immune to the economy. I don’t think anything unfortunately is immune to the kind of economy that we’re seeing in any industry and people still obviously see a lot reasons to go to the value oriented centers but its not immune and some of the tourist areas are starting to see a little softness there.
Operator
Your next question comes from the line of Michael Bilerman - Citi
Michael Bilerman - Citi
I noticed that you removed the fourth quarter same store NOI numbers, we calculated it for the malls, it was down about between 4 and 5%, wondering whether you could outline what the main drivers of that were, and given your forecast for growth for next year, given that drop in the fourth quarter I’m wondering what keeps you confident in those numbers.
Steve Sterrett
At the beginning of 2008 we were substantially enough converted to fixed [cam] that we adjusted how we recognize revenue from common area maintenance payments the tenants are making as opposed to what we had done the prior year. That gave a disproportionate impact to the fourth quarter.
We actually recognized cam revenues earlier because we’re not recognizing them with the tenant pays as opposed to historically we had matched the revenues to the expense that you would do on a pro rata method. It’s a long-winded explanation but that really disproportionately impacted the fourth quarter comp NOI calculation.
You are right in that on the surface the fourth quarter comp NOI which showed down in the 4% range but its irrelevant because 300 of that 400 basis points was simply related to the way we adjusted the methodology and how we calculated cam revenues. Be careful in looking at that headline of down 400 basis points.
The 80 basis points, 100 basis points that David mentioned is more reflective of the trends and that is rolling over our rents at 20%, we have about 10% of leases expire, that gives us 200 basis points of positive growth. Over the course of the year we did get about a 50 basis point positive impact from cam both through cost control and our ongoing conversion to fix cam and then that was offset by the weakness in percentage and overage rents as well as higher bad debt expense.
Don’t put credence into the fourth quarter number and really look at the overall trend for the year in that 1% range.
Michael Bilerman - Citi
So you’re saying it would only be down about 1%.
Steve Sterrett
That’s correct. If you normalize the way we accounted for cam in the fourth quarter, the fourth quarter comp NOI in the mall business would have been down about 100 basis points.
David Simon
And that’s a function of overage rent and bad debt.
Steve Sterrett
Mostly overage rent in the quarter.
Michael Bilerman - Citi
But that’s going to accelerate into next year as well. You have to assume that if sales trends continue to go the way they are the overage rents will continue to get squeezed, you’ll have some increased vacancy, you’ll be able to still have positive mark-to-market but I have to assume the same headwinds that effected you during this year where you were able to eek out the 80 basis points positive but take in more towards the lower end or even negative same store.
David Simon
We feel confident about what we’ve told you. Its flat to 1%.
We have work to do. We’re pretty good at what we do.
We have leases that will roll over. We’re still making leases.
We’re watching our costs. And also we don’t think our bad debt will be as bad as it was in 2008.
We will work hard to achieve what we’ve just explained to you.
Michael Bilerman - Citi
Was there anything on the leasing strategy when you look at your lease rollover, it looks like you took out a million square feet of the 2009 roll, but 2010 went up by about 400,000 square feet, I don’t know if that was just short-term extension of the leasing that was completed in, what was rolling in 2009.
Rick Sokolov
In some instances we are doing short-term one year renewals because frankly we want to keep a tenant in occupancy but in we also want to preserve our optionality because we believe we’re going to have a better pricing market in 2010 then in 2009 and we did not want to tie in for longer term rent that we believe are not optimal for that space.
Michael Bilerman - Citi
When you look at that 400,000 square feet what sort of, was there an abundance of certain tenants and what were you able to eek out in terms of rents on that space, are they paying a higher rent for a one year lease or –
Rick Sokolov
As I told you in our prior statistics we’re dealing with over 12 million square feet of space and we’ve processed probably 8500 leases so its really all built into our numbers and as we said we’ve taken that into account.
David Simon
And just remember that if the lease is not longer then a year its not included in our occupancy. I think other companies weight, average weight their leases, if its less then a year and include part of it but we don’t.
Michael Bilerman - Citi
Just in sense of your liberty shares which have dropped significantly since you acquired them, can you explain what the chances are of a write-down in 2009 and what that would pay at account levels.
David Simon
We’ll have to see what transpires in 2009.
Michael Bilerman - Citi
You didn’t take an evaluation that the move was other then temporary for fourth quarter results, about a 50% decline relative to where you purchased.
Steve Sterrett
We, as I think you see, there’s a valuation adjustment that flows through other comprehensive income reflecting the mark-to-market of liberty.
Michael Bilerman - Citi
As you bought the stake, obviously at the time you were thinking that it was below NAV, how do you think about that today in terms of that stake and being opportunistic with that capital.
David Simon
We think it’s a good company, we are comfortable being a long-term shareholder. We think longer term then quarter to quarter.
We’ll follow obviously whatever GAAP tells us to follow but we have a lot of confidence in the long-term prospects of that company.
Michael Bilerman - Citi
Have you sold or bought any stocks since the last filing?
David Simon
We don’t disclose that other then what we’re obligated to disclose.
Michael Bilerman - Citi
You were last right below the 5% threshold,
David Simon
Well we disclosed what we’re going to disclose and that’s available publically.
Operator
Your next question comes from the line of Greg Schmidt – Banc of America
Greg Schmidt – Banc of America
This quarter there’s been an increased chatter about tenants renegotiating rents, to the point it seems to come up every discussion about mall REITs, from your perspective what’s the greatest increase those negotiations could go in 2009 relative to 2008.
David Simon
We’ve got two-thirds of our leases done so we’re talking about the balance of what we want to get accomplished and at the end of the day if it happens its not overly, its immaterial I’d say. We are a company that has over $3.2 billion of EBITDA so any one tenant on $2 of rent per square foot is not going to drive our results one way or another.
We are also as I said earlier extremely, well positioned to deal with tenants in that area that want to do that but we’ll make an assessment of whether we want to maintain a relationship with the tenant, what they’re doing for us, and trying to carve a win win. Are tenants doing that?
Sure. Is it something that we know how to deal with?
The answer is yes. Is that reflected in what we think the comp NOI projection we’re going to have next year, the answer is yes.
Could it get worse? Sure.
Could it get better? Sure.
Greg Schmidt – Banc of America
But at this point from your perspective even looking at deals going forward its not really moving the needle to the degree you would expect when you see these conference calls on retailers.
David Simon
Put it this way, its more important for their results then it is for ours. And that goes without saying and I can walk you through that model if we had more time.
So the answer its more material for them then it is for us. We produce a lot more sales and we’re a lot more important to their success then they are to ours and I guess the best way to describe that is generally the small shop retailer does about 20% of their sales in our portfolio and as you can see the percent of rent, the highest is around 2% so you can figure the math out.
Greg Schmidt – Banc of America
When are you expecting the retail same store sales in the nation to turn positive again.
David Simon
I don’t think we can anticipate, give you a number on that. Part of this is self-fulfilling.
The retailers are extremely conservative, they’ve reduced their inventory, they are running, I think its important to note and I think everybody should anticipate that that’s why their sales are going to be less important to us this year then you might appreciate is that they are going to have lower sales because they are going to be extremely conservative on their inventory. And they are going to be very focused on their margins.
So we expect sales probably to continue to decline because they are just going to have less goods to sell.
Operator
Your next question comes from the line of Carol Kemple – Hilliard Lyons
Carol Kemple – Hilliard Lyons
On the dividend change it says you have the option to pay it entirely in cash if you choose, what would may you decide to do that.
David Simon
I think if we become less prudent in terms of capital allocation we feel that there’s a better credit market out there among those kind of things.
Carol Kemple – Hilliard Lyons
On the outlet side, what retailers are wanting space in outlet and are you seeing any of your mall retailers deciding to go to the outlet form.
David Simon
We’re seeing more and more of that. We’ve seen that trend over the last couple of years and we continue to see that.
Carol Kemple – Hilliard Lyons
Are there any specific ones that you can name?
Rick Sokolov
In fact recently Anne Taylor announced that they are establishing an Anne Taylor Loft outlet division and they are very focused on doing that. We are working with Bath and Body who is now interested in expanding their presence in the outlet and I will tell you as a collateral item to that in our Mills portfolio we are seeing even more of a growth of the full priced retailers wanting to grow in that format and they’ve been opening considerable number of stores like Express and Safora and Victoria Secret all with very good results.
So both of those platforms are benefiting from tenants getting into multiple channels and cross-fertilizing across our platforms.
Operator
Your next question comes from the line of Unspecified Analyst
Unspecified Analyst
Two-thirds of the leases for 2009 have been addressed already so does it mean at this point in the year that one-third will not be renewing their leases.
David Simon
No, we’re just in the process of negotiation.
Unspecified Analyst
Do you have a sense of what percent of the 2009 expirations will not be renewed?
David Simon
Generally we tend to not renew for all sorts of reasons about 20% and that could be a function of they’re not paying the rent, we want to re-merchandise it, they want to leave, all of those reasons.
Unspecified Analyst
At this point what percent have indicated they will not be renewing.
Steve Sterrett
No different then historical trends I would say.
Unspecified Analyst
You show expirations for malls and free standing and then for anchors, have you addressed two-thirds of anchors as well or its all different proportions.
Rick Sokolov
The anchors are a very different scenario because they all have options built into their leases and a very high percentage of those options are renewed. So those typically do not have to give notice till six months prior to the expiration and we’re working with them but there are minimal anchors that have indicated even discussed potentially not renewing, they are staying in place.
Unspecified Analyst
If you take a look at your less productive centers, let’s say sells per square foot of $350 and below how have they performed, how is their sales per square foot and occupancy held up.
David Simon
Again it depends a bit on where that center is so at $350 square foot in one area of the country is actually not a bad center and if you were in the New York area it might be a bit tough. It somewhat depends on the competition and the retail market there.
The vast majority of our centers are dominant in their trade area and even if they produce $350, are fine. They’re hanging in there doing their business they need to do.
They may not have the growth characteristics of some of the higher productivity centers but we’re maintaining the cash flow.
Unspecified Analyst
So would you say the occupancy for those centers has held up similarly to your overall portfolio.
David Simon
It’s a case-by-case basis.
Unspecified Analyst
You mentioned that on case by case basis you will work with tenants that are struggling to maintain occupancy, what percent of the tenants would you say are struggling.
Rick Sokolov
Frankly it is a very small percentage. If you look again we indicated we’re a $3.2 billion enterprise and the number of tenants that we are even having conversations with is a very very small fraction of that and candidly in many instances we do not agree to give any kind of accommodation.
These are not one-way negotiations though. We’re going to be talking to them about what they’re prospects are, what’s the rent they’re willing to pay, are they willing to extend their term.
There’s a lot of other aspects of this and happily we are positioned with the strength of our portfolio and our balance sheet to be able to have these negotiations on a very even footing with the tenant.
Unspecified Analyst
In your lifestyle center portfolio there was a significant drop in occupancy, was there anything in particular that happened.
Steve Sterrett
It’s the community center and lifestyle division, the preponderance of the GLA in that portfolio is in the strip centers and some of the large boxes, Linens & Things and Circuit City, is the primary driver of that.
Operator
Your next question comes from the line of Ben Yang - Green Street Advisors
Ben Yang - Green Street Advisors
Going back to the sales theme it looks like comparable sales in your mall portfolio fell about 16% during the fourth quarter, can you comment on whether that number is in the right ballpark and then is there any reason to believe the trend won’t continue into 2009.
David Simon
You’re much too high. Sales did drop but if you looked at, its more like in the 10%.
We can’t prognosticate where sales are going to come out. We all know what’s going on in the general economic environment and I think as we’ve said the retailers are very focused on what they’re going to have in the stores in terms of inventory management so we are expecting sales to decrease.
That’s one of the reasons why you see our comp NOI projection for 2009 to be flat to 1% because we are still projecting our overage rent to decrease for 2009 which is a direct result of sales. I wish we knew exactly where that is.
There’s variability in it. Its not going to drive us one way or another because you can see what the overage and percentage rent mean in terms of our EBITDA but we are expecting sales trend to continue downward.
Ben Yang - Green Street Advisors
What exactly are you expecting for 2009 in terms of sales.
David Simon
It’s a tenant-by-tenant analysis.
Ben Yang - Green Street Advisors
For your portfolio, could it be down 10% for the year.
David Simon
We are not projecting that much but for overage we actually trended so it depends on how the tenant did and it’s really a tenant-by-tenant analysis when we do our planning.
Ben Yang - Green Street Advisors
Given your experience in the industry do you think there’s been a secular shift in consumer spending and that mall sales could be permanently lower once the dust settles.
David Simon
I really don’t sense that at all. There are going to be, I think retail obsolescence has been increasing over the last decade.
I think any time you run into this kind of downturn you’re going to see maybe an acceleration of that but I firmly believe that good centers and strong centers with appropriate sponsorship and management will hold their value. They are much more resilient in terms of cash flow generation then any other product that exists.
Look at hotels, if you lose one office tenant you can’t replicate that income stream any time in the near future. The malls are a lot more resilient then you think.
I do think there will be more obsolescence in this environment but I don’t think we’re in a five or ten year secular shift.
Ben Yang - Green Street Advisors
You commented earlier on seeing some weakness in luxury can you comment briefly on the sales trends between your high end and your less productive malls.
Rick Sokolov
They were pretty much the same interestingly enough. There was not an outsized, in fact they were each down about the same and again the luxury tenants in some instances were down significantly.
But part of that is because they were up so much in 2007 and one of the issues that the luxury tenants had is that they were basically caught in a U-turn in their demand so when they ordered their inventory for 2008 it was based on very robust trends in 2007. The more moderate priced retailers had less robust trends in 2007 so had more modest inventories in 2008 and were not as substantially impacted.
David Simon
Lots of retailers have already posted their comp sales. The vast majority and we keep track of this, if they post their comp sales up or down we will tend to, our portfolio will tend to outperform.
So let’s say a retailer reports 8% up our portfolio will probably be 10 or 11% up. Or if they report down we will be less down and again that’s the vast, vast majority.
Sometimes it doesn’t quite happen that way. I think when you look at comp sales for the retailers, you could make a probably a pretty reasonable assumption that we’re outperforming slightly on the positive and slightly on the negative and that’s something we track about and that’s why we continue to be a very important ingredient to the retailer success.
Operator
Your next question comes from the line of David Fick – Stifel Nicolaus
David Fick – Stifel Nicolaus
You mentioned you have more concerns about some of the box tenants and I’m wondering if you might comment on where Sears, K-Mart goes given that you have them in more then half of your locations.
David Simon
I really don’t like commenting on specific retailers. It puts us in a tough spot other then I feel very confident from a financial point of view that they’re in good shape producing positive operating cash flow and they’re focused on becoming a better merchant.
Beyond that that’s really all I can say.
David Fick – Stifel Nicolaus
You had approached them at some point about maybe taking some stores back and they didn’t entertain that, is that something that you still think you have alternative uses should there be an issue going forward.
David Simon
Sure, and again I think what we’ll see is, some of the very good centers will ultimately get some good real estate back because I’ll take an example, the one Sears store that we were able to purchase was in South Park in Charlotte, where we added Neiman and Nordstrom, and other tenants and Sears just wasn’t the right tenant for that higher end mall and that’s always the case. They perform very well in a number of higher end malls but and so I think in those cases there may be those kind of deals.
Not just with Sears but with some of the other boxes or department stores.
David Fick – Stifel Nicolaus
How did the Cincinnati Mills sale come in against your basis and expectations.
David Simon
On Cincinnati, right on and otherwise we’d have a gain or loss associated with it.
David Fick – Stifel Nicolaus
Bankruptcies in general for the small tenants have been below I think what most people thought and you indicated that for January, but what about as you look forward in terms of factoring inventory this summer, is there anything you might be prepared to do to help your tenants who won’t find financing.
David Simon
Sometimes we do and part of that would be what we can do on the rent side but the one area that is a concern for retail when they, remember retailers are still good retailers, their financial structure may not be appropriate or they took on leverage from a buying out of a tenant or they went private with too much leverage, there are all sorts of things. But and some of those are just good retailers with too much leverage.
The one concern that we do have, one concern that doesn’t seem to be breaking the ice is that those retailers with a good plan or a good operator but maybe have bad capital structure the lack of [dip] financing continues to be an issue. And we saw this in December a little bit and that’s why our occupancy got hit.
Normally if a retailer went out of business or went into Chapter 11 [inaudible] they’d get dip financing and they’d restructuring their capital structure and they’d be able to operate. Given the lack of dip financing right now retailers are just liquidating.
So we would like to see some stability or some market to come back in the dip world. I don’t think that’s something we’re going to play in but we would like to see that market come back.
Its always been a profitable market for the lenders of that but as they reined in their loans this is one area where they are not taking any risk.
Rick Sokolov
The vast majority of our retails have very strong balance sheets with virtually no debt. So the retailers David are talking about are those that were maybe involved in some LBOs and added on a lot of debt but the credit profile of our retailers which we monitor on a weekly basis is frankly stronger even after taking into account substantial declines in the last 12 month EBITDA reflecting December’s results.
So the good news is that the concerns you’re talking about are going to be isolated among a small number of tenants.
Operator
Your next question comes from the line of Rich Moore - RBC Capital Markets
Rich Moore - RBC Capital Markets
Thinking about releasing times for a minute, if you have some bankruptcies in the first quarter how quickly do you think you release that space.
David Simon
In 2009, that would be a challenge and that’s where I mentioned earlier that the occupancy, if that happened, could come under a bit of pressure because that would be a challenge because there’s not a huge open, to open for the retailers. So if that happened and we weren’t able to, and that retailer liquidated and went out of business, to achieve that in 2009 we would make that up by doing some local leasing or some temporary tenant leasing which is still maintaining its demand.
But to get the full occupancy the way we calculate it which is to have a lease over a year might be difficult to achieve for that calendar year in 2009.
Rich Moore - RBC Capital Markets
Thinking about the financing for a second, are any of these guys talking about extensions, is that a more prevalent conversation or how do they feel about extending debt if you or some of your peers can’t get a piece of debt done.
Steve Sterrett
I think its tow things, let’s separate the life company market from the CMBS market. A life company who has a loan coming due know the assets, in the case of our portfolio is very comfortable with the asset and wants very much to extend so renewals is kind of an ordinary course of business there.
The question is when you’ve got a CMBS loan and the loan is performing and that’s the conversation that you’re going to have with the servicer and we’ll see. There’s clearly maturities that are coming due.
Having said all that for us as I mentioned, very comfortable loan to values, very modest leverage so happily its not a situation that we’ve been dealing with.
Rich Moore - RBC Capital Markets
The unsecured note that you have that’s due today, that goes on the line of credit I assume?
Steve Sterrett
Correct.
David Simon
We do have cash too.
Rich Moore - RBC Capital Markets
Private equity, is there any thawing in terms of interest in the real estate space from pension funds, other equity sources.
David Simon
I would say generally US based by and large, no. International based, yes.
I think the US based pension fund is tougher because of their own what’s going on either with their endowments or their retirees or their own, not so much that real estate has been black lined, its just they’ve got lots of things to worry about, hedge fund performance, private equity LBL performance, capital calls, commitments, retiree benefits, the poor performance, etc.
Rich Moore - RBC Capital Markets
And is that international interest in US assets?
David Simon
Yes.
Rich Moore - RBC Capital Markets
The three Vegas assets that general growth has, you are obviously a logical potential buyer of those assets, is that something you’re looking seriously at.
David Simon
No.
Operator
Your next question comes from the line of RJ Milligan – Raymond James
RJ Milligan – Raymond James
You commented that the number of retailers struggling and coming back to renegotiate rents was very small, how does that translate into delinquencies, where are they now versus a year ago or even three months ago.
Steve Sterrett
Our receivable balance at the end of January will be pretty much right on top of where it was at the end of December and December 2008 was pretty much right on top of where it was at December of 2007. Not to say we’re not having to work harder and chase a little harder to get those dollars in the door, but we have not seen a significant change in the composition of our receivable balance.
RJ Milligan – Raymond James
Who is currently on your credit watch list, which retailers are you concerned about.
David Simon
I think its no different then what everybody else is, again its very tough for us to name retailers publically but there are a handful and again some of these are good operators that are on there because they bought something or they went private or those kind of things as opposed to just bad performance. But its very tough for us to name retailers publically like that .
Operator
There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.
David Simon
I just wanted to say thank you. We’re proud of our 2008 performance when others aren’t growing their company and I think again we feel confident that we’ll continue to be able to maintain our unparalleled record of growth in 2009.
Thank you.