Simon Property Group (SPG)

Q2 2010 Earnings Call

July 30, 2010 11:00 am ET

Executives

Stephen Sterrett - Chief Financial Officer and Executive Vice President

Richard Sokolov - President, Chief Operating Officer, Director and Member of Executive Committee

Shelly Doran - Vice President of Investor Relations

David Simon - Chairman, Chief Executive Officer and Chairman of Executive Committee

Analysts

Benjamin Yang - Keefe, Bruyette, & Woods, Inc.

David Wigginton - Macquarie Research

Christy McElroy - UBS Investment Bank

Alexander Goldfarb - UBS

Jeffrey Donnelly - Wells Fargo Securities, LLC

Michael Gorman - Credit Suisse

Quentin Velleley - Citigroup Inc

David Harris - Lehman Brothers

Ian Wiseman - Merrill Lynch

Carol Kemple - J.J.B. Hilliard, W.L. Lyons, LLC

Richard Moore - RBC Capital Markets Corporation

Michael Mueller - JP Morgan Chase & Co

Nathan Isbee - Stifel, Nicolaus & Co., Inc.

Jay Habermann - Goldman Sachs

Craig Schmidt - BofA Merrill Lynch

Paul Morgan - Friedman, Billings, Ramsey & Co.

Presentation

Question-and-Answer Session

Stephen Sterrett

Christy, it's Steve. We are seeing an improvement not only in deal flow as Dave and Rick have talked about, but also in a strengthening of the quality of the deals. So I do think the trends are positive. I also think one of the things to think about, and I know those other people have talked about it on their calls, but one of the things that's impacting spreads is we have had a disproportionate amount of jewelry store closings which are high-rent areas. Dave had mentioned this in his call, but to the extent that that has run its course, that drag on our spreads will cease to be there. And because the rest of the activity is getting better, you should see a natural pick up in the spreads.

Christy McElroy - UBS Investment Bank

And then Steve, just following up on Prime, thinking about the timing, can you remind us was expected accretion in the Prime deal in your current guidance range, and how much did that contribute?

David Simon

This is David. I'll take the Prime question, if I could. I think the important point at this point is, we're going to update our guidance once we know the precise timing of the closing of the transaction. The fact that when we gave guidance originally, we had Prime in it from March 31. We have not backed off our guidance even though we have not had Prime since March 31. And we have reaffirmed our guidance and we will upgrade it and update it once we know the precise timing. So beyond that, Christy, I can't really shed any more light on it other than again, we had budgeted that. We told the world that, that was in our guidance for the end of the -- April 1 essentially in the second quarter. So we produced the results. We beat our own internal budget even though we had Prime in it for the whole quarter.

Christy McElroy - UBS Investment Bank

Rick, you've talked in the past about things looking up for that department stores. Performance is better, balance sheets are better, but they're still sort of working on making their existing product more productive. Could that include more department store closings, or maybe even downsizings on the horizon? And would you be willing to modify REAs and other agreements to allow us to allow certain underperforming anchors to maybe sublease a portion of their box?

Richard Sokolov

That covers a lot of ground. First, David and I literally last week were with three of our major department store companies and none of them were talking about store closings. In fact, the emphasis now is looking for new opportunities and primarily, in our existing product. So we expect that to be the trend rather than store closings. Secondly, in terms of the modification of subleases, we are in -- we're always trying to make our properties better. I think David has pointed out on past calls that we've been very active with replacing underperforming anchors with better anchors, and we're going to continue to do that. So if there are things that we can do working with existing department stores that we believe will make the properties stronger, we're going to be open to have that conversation.

David Simon

And Christy, this is David. Let me just say -- and again I think we're still in an uncertain economic macro environment. But one of the things -- and we have a, I'd say, roughly 20 potential transformational redevelopments that we've been working on. We essentially put them on hold, obviously, last year. And we have reinvigorated the company to pursue those. And I think they're very exciting. It'll add a lot of opportunity for our company, and we're going to accelerate that process. And they go from South Hills in Pittsburgh; to Plaza Carolina in Puerto Rico; to La Plaza in McAllen, Texas; Dadeland; Del Amo; Nanuet; Roswell Field; the Walt Whitman. So there's a lot that we are excited about internally that we've kind of said, let's get started on.

Operator

The next question will come from the line of David Harris, Gleacher & Company.

David Harris - Lehman Brothers

I have two quick questions for you. One is a point of detail and then another big picture question for you, David. Real estate taxes were down notably in the quarter. Is that just a sort of a timing issue or are you doing something wonderful to keep your tax liabilities down?

Richard Sokolov

I think it is more of the latter, but I wouldn't categorize it as wonderful. We have an ongoing sophisticated process to make sure we believe we're being fairly assessed, reflecting the value of the properties. And that there's a whole group of people that are focused on that, and we're yielding some results by engaging with the taxing authorities on the real estate taxes.

David Harris - Lehman Brothers

So the second quarter number is a reasonable run rate, Rick?

David Simon

I believe it is. David, here's my detailed response: At times, there are recoveries. It's a little bit lumpy because at some point, you get recoveries. And obviously, if we do have those, I don't know in the top of my head if we had some recoveries in the second quarter. So sometimes, it's a little bit lumpy because you do get recoveries that you're allowed to offset against the expenses. And obviously though, Rick's point is right on, we are extremely focused that our properties are appropriately assessed.

David Harris - Lehman Brothers

I think about your company which has been public, what, for 16, 17 years. You've been through two recessions now. Can you demonstrate that your management and ownership of the underlying property performance is demonstrably better than the market? And if so, how do you use that in your discussions in terms of forming potential joint ventures or potentially talking to pension funds about transfer of assets that have perhaps underperformed under direct ownership and that could do so much better under your own ownership?

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