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Simon Property Group (NYSE: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.

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?

David Simon

Well, that sounds like I need a white paper to respond. But look, I think our results over the years have clearly spoken for themselves. We've transformed properties, we've upgraded our portfolio, we've produced terrific operating results in all sorts of different environments. We've made appropriate strategic decisions like the outlet business and the like. From an operating point of view, David, we get to listen to it all the time to be partners with Institutional Investors. There's not a deal that we couldn't have done with an institutional investor, and I think they look and welcome our ability to partner with us. And I'm sure we could probably back all these statements up with numbers if you give us some time. And maybe, that's a good assignment for us but there's no question in my mind that over the years, our performance and our results have certainly indicated that we're better than just what the general economic environment could produce. I don't know if you guys want to add anything to it.

David Harris - Lehman Brothers

My thinking is along these lines, David, is that clearly your focus has been from beginning of the year, let's look at the opportunities in the U.S. And clearly, your pursuit of general growth ended when it did. And I'm thinking, where does Simon go in terms of potentially buying assets in what is obviously a -- there aren't that many assets to buy in the marketplace and some of those have been held for a long time. But probably with people that have perhaps underperformed in the performance of those assets relative to what you could do, is there a line of conversation you can have with those folks and say, "Look, over an extended period of time, we could do much better with this." I'm not talking about FFO or earnings per share from the corporate level. I'm talk about underlying property performance.

David Simon

Well, look, I think the evidence of our ability to do that is in a couple of cases. I mean, first of all, if you look at what we built in Asia on the Outlet side, we basically exported our talent there, and we're going to have a portfolio of 11 outlet centers that are producing close to $1,000 a foot in sales. So also, even though we just recently sold our properties, the two in Poland and the five in France, the fact of the matter is: We built them, we develop them, we lease them. We brought an institutional-quality product to those marketplaces with our guidance and our leasing expertise and the like. So I mean I think there's plenty of evidence of our ability to export our know-how. Now you don't want to do it in a way that suggests hubris because there's been plenty, plenty, certainly plenty of developers that have tried to do that and have not been able to produce the results that are necessary to be profitable overseas. I'd also point out that a number of our customer or retail tenants, have been successful on exporting their brand. So even though we have sold seven assets in Europe, the fact of the matter is, we are not foreclosing the opportunity to grow our company globally. And I think we've been successful in our efforts thus far there. And I think the ability to demonstrate that is readily apparent.

David Harris - Lehman Brothers

Is this one way to summarize what you're saying, is that you see limited opportunities to buy domestically?

David Simon

I didn't say that and I don't necessarily believe that. And look, you could say that in a point in time but I do think circumstances change and the environment that exists today, in my opinion, is not necessarily going to be the environment that exists tomorrow, the next day, and you've got to be a position to deal with that.

Operator

And our next question will come from the line of Jay Habermann, Goldman Sachs.

Jay Habermann - Goldman Sachs

David, you're still sitting on a pretty strong balance sheet with, as you mentioned, lots of cash and current liquidity. I'm wondering of the various options you have today, how you would rank either development, acquisitions or even looking at further paying down debt.

David Simon

Well, we're going to continue to delver if there's not the acquisition opportunities to pursue. But like I said, Jay, is that I do think I've given Rick and the team the greenlight to go re-energize our redevelopment program. And again, we have 15, 20, really transformational assets that I think are going to require meaningful capital and produce wonderful results. So there's plenty to do. Obviously, we're working in some interesting opportunities today. But look, our focus clearly has been to -- we'll pursue general growth, we work successful there. I'll leave that for you to judge that whole process. But our focus obviously has been on Prime, and we've been working very hard to get that transaction closed. And so I think, once we can get some of that done, then I think there'll be plenty of opportunities for this company.

Jay Habermann - Goldman Sachs

And just going back to leasing spreads and I guess sales, I mean the trend has clearly been positive this year in terms of sales productivity. I guess when you start to see that trend translate into some pickup in asking rents? And I guess just balancing that against retailers that continue to be pretty sensitive to occupancy cost.

David Simon

I think we're on a recovery mode. The mood is much better. I mentioned we've increased our occupancy but we're not -- it's not in the period that we were in the '06, '07 period. So I think that's still, Jay, going to still take some time to max out on lease spreads. But look, the mood's better, the demand is better and sales are increasing. So there's a lag in all of that but we feel we'll get back to kind of the spreads that we would like to see going forward. It may take a little more time but it's moving in that direction.

Operator

And your next question will come from the line of Quentin Velleley, Citi.

Quentin Velleley - Citigroup Inc

I'm just curious whether given the demand for mall assets at the moment, is there some kind of opportunity to start sort of recycling capital and potentially, looking at selling some of your middle-market malls?

David Simon

I think at some point, there is still a -- we like our middle-market malls that dominate a good trade area, because they have shown, historically, growth. The stuff that we'd like to sell really, is what I'll call a gum on the shoe. That market is still slow to develop, Quentin. So hopefully, maybe that comes along, there's not that many that have been earmarked for that. But to the extent that, that market starts generate, we'll move forward. Now we do have certain nonstrategic assets on the market that have some redevelopment opportunity, and they're getting more and more interest. So I think we demonstrated -- we probably sold 50 assets over the years. We certainly have recycled some of the European capital. So I think we've shown a pretty good discipline that we're prepared to recycle capital through asset sales.

Quentin Velleley - Citigroup Inc

I think I saw that your joint venture partner [indiscernible] (46:15) New England portfolio is potentially selling their stake. Is that something that you would have any interest in? And if so, is there a rather first offer, or anything that you have on that?

David Simon

Well, there are contractual restrictions, Quentin, it's not appropriate to get into that. But we're working with our partner in a way, it's been a very good investment, it's been a very good partnership. And obviously, institutional investors to some extent, need to recycle capital. So there's a lot of different ways that can go, but it's been a good transaction for all of the folks involved, and we would expect that to continue whether they stay a partner or whether they exit.

Quentin Velleley - Citigroup Inc

And maybe one for Steve, I just noticed in the second quarter that interest and dividend income jumped quite a lot. I'm just wondering why that was and whether that's likely or running to the third quarter?

Stephen Sterrett

Well, couple of things, Quentin, one -- and I don't know if you're comparing it to last year or to the first quarter -- but Liberty or now Capital & Counties and Capital Shopping Centres does pay at semi-annual dividend that came in the second quarter. So if you were comparing it to the first quarter, that would be part of the explanation. And we have seen rates on our short-term invested cash get marginally better, so we're investing the cash at a little bit higher rates than we've seen. Those would be the two major.

Quentin Velleley - Citigroup Inc

And just the other one for the modeling, in terms of transaction costs, I know you closed the Simon Ivanhoe sale to Unibail effective July. Are they going to be any costs that come in, in the third quarter?

David Simon

Yes, I mean it's likely given that obviously, some of the transaction costs associated with Prime will continue in parts of the third quarter, so yes, hard to pinpoint that number down right now. As you know, you have the accounting change normally that would be capitalized, but Quentin, it will continue. But again, it's hard to pinpoint that number at this point.

Quentin Velleley - Citigroup Inc

And then just lastly, Liz Claiborne in the Chelsea outlets, they've obviously announced that they'll be closing some of their outlets. Just wondering if you've had any discussions with them yet, and what your exposure is?

Richard Sokolov

Well, we have had ongoing discussions with them. We've got 16 outlets that are exclusively Liz, and it's about 190,000 square feet. We've got another 12 outlets that are hybrid where there is a Liz component, along with other brands from Liz Claiborne like Lucky, Kate Spade or Juicy Couture. That's about another 46,000 feet. We list our top tenants and they're not in our top tenants, so they're rental contribution to us is substantially below 1% of our minimum rent, and we're going to approach this like we approach everything else. They have their business objectives, we have ours, and we're going to work with them to hopefully come up with a mutually acceptable conclusion.

Quentin Velleley - Citigroup Inc

And Rick, do you think that those license account [ph] like paying rents sort of at market, or are they below what you'd expect market rents to be?

Richard Sokolov

We think that there could be opportunity for both of us if we can come up with a thing that allows them to satisfy their objective and as ours.

Operator

And the next question will come from the line of Paul Morgan, Morgan Stanley.

Paul Morgan - Friedman, Billings, Ramsey & Co.

Thinking about the short-term leases that you're signing, I know you didn't do, maybe quite as many as some of the peers. But over the past couple of years -- and what's your experience been as those have started to expire, and are tenants more interested in doing longer-term renewals now? Or are you still kind of rolling over a year at a time?

David Simon

It's a combination of both. I mean -- and again, a lot of it is retailer-specific. There is still a level of uncertainty out there. And again, a lot of it's tactical in our side, too, in terms of what we're trying to accomplish with the properties. So I'd say it's marginally better, there's marginally, probably the ability to get a little longer-term lease, but it's not dramatically different than the beginning of the year, Paul.

Paul Morgan - Friedman, Billings, Ramsey & Co.

And then going to the redevelopments that you mentioned, I mean that you've characterize as transformational. I mean a few years ago, transformational often included some mixed-use component or opening it up partially? I mean are these more conservative, do you think? Or is it the same type of project that you were thinking of doing four years ago?

David Simon

I mean the good news about our mixed-use stuff, it's been highly, highly successful, like domain and the residential market, has been terrific. And so we haven't had -- net-net the mixed-use elements that we brought in, the Western Hotel there has been very well received. So I think we've done a pretty good job in bringing that. But to us, the number one priority in any retail development is make it a better retail project. And I think generally speaking, now there may be certain elements that maybe there's a hotel opportunity here or there, or a residential opportunity here or there, the primary focus is on the retail aspect of it. And yes, I would say, generally, the scope may have been narrowed to some extent. So we're trying to figure out how to do it, a little bit less grandiose but not wildly different.

Paul Morgan - Friedman, Billings, Ramsey & Co.

And the return hurdles kind of now that we're seeing it again?

David Simon

I think the return hurdles, given the cost to construction and the demand out there for construction jobs is actually going to be pretty good, pretty consistent. Otherwise -- look, at the end of the day, if it's not, we're going to the next deal.

Paul Morgan - Friedman, Billings, Ramsey & Co.

Rick, you said TIs were kind of no real change there, but at least in your supplemental, what you report is about $75 billion year-to-date, which is quite a bit higher than kind of past year's run rates. And I was wondering if maybe, if some of this is just catch-up from having such a low year last year, or whether really it is certain economics of the deal environment right now or what? But it is higher than what you've reported at least over the past few years.

Stephen Sterrett

Paul, this is Steve. I think Rick's comment was more to the point that on a deal-by-deal basis -- per square foot, we haven't really seen any change in the bid in the ask on the TI side. Clearly, we've had more leasing volume this year. Our leasing volume is up about 1.5 million square feet year-over-year and that's driving the size of that number. But the composition of the deals and what deals get TAs and how much all that really hasn't changed.

Operator

The next question will come from the line of Michael Gorman, Cowen and Company.

Michael Gorman - Credit Suisse

If I could just follow up on that TI question for a second, can you just walk through in this environment how you think about the allocation of TAs and the potential return on those as you sit down with tenants, especially given the strong position on your balance sheet and the cash that you have to invest. So the trade-off between potentially earning a higher rent from a tenant versus having to commit the capital?

David Simon

Well, I don't think you want to -- I don't think you want to -- I don't know, maybe I'm misunderstanding the question, but I don't think you want to get in the point where you're giving more TA and buying up rent. I think that creates an unholy alliance. And frankly, the retailers from their standpoint, they're in good capital position as well. So they want to pay market rents and market rents determined by sales productivity. So I think that the traditional way that we've done leasing still holds. We've never been -- as a company, we've always been reluctant to do some of the new, fancy, undercapitalized retailers that have a history, not to say that we've been perfect in this area, but we certainly have been, I think, at least, from what I see, externally and internally, we've always been relatively conservative in terms of putting capital at risk for tenants that are undercapitalized. But I'd say, generally, if you have a healthy retailer, you just don't get in that scenario. It's not a win-win for either side.

Stephen Sterrett

And the only thing I would add is, we, when we're doing our lease approvals, we analyze each lease based on net rent that takes into account the allowance. And we also have a very stringent credit process as our leasing agents will attest. So both of those things and to limit the allowance in relation to rent.

Michael Gorman - Credit Suisse

And David if I could turn for a second to the Outlet business. Obviously, with Prime going on -- there's been a lot of discussion about consolidation in the space. But looking at it from another perspective, you guys had great success with that property types since 2004. How do you think about the potential risk as the regional mall property tightens up, that you see more entrants into the outlets in our space, more competition for land, more competition for deals and potentially lower return hurdles going forward?

David Simon

Well, look, I do think you put on a -- you do make an excellent point, forget consolidation, there are a number of new entrants in the outlet sector. Obviously, we all saw the Taubman announcement, we think there are other mall companies out there that are looking for it and the product is in favor and we expect to see more and more developments. Tanger has announced a number of sites and they have a large pipeline. It is competitive and will remain really competitive, if not more competitive, given the new entrants and the possibilities. So I mean that's the fact of life. We're -- retail, real estate is wildly competitive. It's competitive on a local basis all the time, and so we'll just have to -- I mean we'll have to deal with it. It doesn't force us to do bad developments at low returns but obviously, there's going to be a number of new opportunities out there for the retailers to assess and participate in.

Michael Gorman - Credit Suisse

And then just one last one, maybe for Rick, can you just talk for a little bit about the performance of sort of, maybe what you would call non-traditional anchors as they've come onto your malls? Maybe some of the new releases, if it's too soon to tell, but on the other atypical anchors, how they've been performing and maybe even more so, how the wings that there on have been performing as well?

Richard Sokolov

Well, if you look in the 8-K, we are accelerating that activity and our approach is, there's nothing sacred about our 100 acres and we want to bring as much quality retailing as we can to our properties, and they have helped drive traffic. They have helped to create additional internal traffic and to the extent that they are adding users that are not otherwise available in the property, it's all very positive. So it's something that we have been very good at for a long time, and we're going to continue to do it because we think it adds an additional dimension to our properties.

Operator

And the next question will come from the line of Jeffrey Donnelly, Wells Fargo.

Jeffrey Donnelly - Wells Fargo Securities, LLC

David, I think you guys are fairly successful winding down development and other activities ahead of this most recent downturn. And how's the specter of a slowing economy that we continue to hear about, lead you to think you differently about the tactics you're employing now in leasing, or leverage your capital allocation?

David Simon

Well, certainly capital allocation and not getting over your skis [ph] (1:00:52), there's no question about it. And I'd say to you that the -- now the redevelopment -- I'll call the transformational properties that we'd like to kickstart, is all really led by retail demand. So it's not an issue that we're forcing. I think, if anything, we don't want to force the issue on redevelopment or new development. We want the demand to be there. And if you can -- if the demand is there today, then still uncertain environment, that obviously, these centers have been around a long time and have proven to withstand a lot of different cycles and it's -- in-fill core real estate. So the answer is, we think we can make some of those work. And again, not all but will work, but there's no question about -- the last cycle here has taught us a lot, taught us that we had to have access to a lot of different forms of capital. It taught us never to over promise, to have a good relationships with our shareholders and our institutional partners. And I think we've always been -- we've done a lot of M&A stuff over the years, but we've always financed it conservatively. And certainly, as that develops, we certainly understand that going forward.

Jeffrey Donnelly - Wells Fargo Securities, LLC

And since you mentioned the redevelopment and development -- I mean, on New England, do you think the Merrimack property as you're looking is starting will pencil to the, I guess, 12% to 14% yield you've traditionally get out of the ground up -- development and outlets? And I guess, how do you underwrite cannibalizing the other properties like such us the [indiscernible] (1:02:48) your rent them outlets?

David Simon

Well, we think its it's own separate market. And look, I think you bring up a good point. I mean the numbers that we're pro forma-ing now are less rents than we would have thought two years ago, because I think we have to be more conservative in underwriting. But we still see it as an 11% return on cost and yet, lower than what it was. . .

Stephen Sterrett

But we also carry the land for three years.

David Simon

Yes, and I think Steve is right. The land has been there for a while. Like I said, the demand is there. If the demand weren't there, we wouldn't force the issue.

Jeffrey Donnelly - Wells Fargo Securities, LLC

And just one last question, if I could, I guess to revisit with Quentin's line of questioning on the New England assets. Is it fair to say though, that your chance -- that there's a chance that you could increase your ownership stake in some of your New England assets? And I guess as a follow-up, can you give us a little color on the Atrium? Do you think that property ceases to be a mall in the future?

David Simon

Well, there is a possibility we could increase our ownership in our Mayflower joint venture. So it could play on a lot of different ways, but that's certainly a possibility. Atrium, in our opinion, probably needs to be redeveloped, and there's a great opportunity in doing that. We think we just have other better uses of our energy in terms of what we're trying to accomplish. So that's why us and our partners have decided to put that on the market. Obviously, we're price sensitive in terms of it is a very good real estate. But ultimately, it's less of a retail development and it's more of an alternative use, which is just -- not that we couldn't do it, but just not our core competency and we'd rather focus on retail.

Operator

And the next question will come from the line of Nathan Isbee, Stifel, Nicolaus.

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

Just going back to the same-store NOIs, your original guidance is 1% to 1.5% positive for the total portfolio, you're tracking 2.3% through the first six months. Where would you peg that now for the full year?

David Simon

Well, can I just say, Nate, before I answer, I just want to say, I saw Dave [David Fick] is retiring. I want obviously, everybody from our side, wish him well. He's been a -- and I'm going to miss his barbs.

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

He gave me a long lessons before he left on how to do it.

David Simon

I get that scent some of that may have rubbed off. But hopefully, we can handle it. But he's been obviously, a very well thought of analyst and we just want to pass on our best wishes to Dave and we will miss his barbs, but I'm sure you'll pick up on that front.

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

I'll do my best.

David Simon

In any event, your question on top NOI, there's still uncertainty with it. But if we can maintain that, I will be very, very pleased given where we originally projected.

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

So you're not willing to change that yet?

David Simon

I'm not willing to change it at this point. But look, I do think the fact that we've reaffirmed our guidance given what I described about Prime, indicates to you that what we're doing -- I'm pleased with how we're performing at this point.

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

And then just moving to Prime for a minute in the papers here, a few weeks ago, there was a little blurb about Prime giving notice to the state of Maryland by September 5, they plan to dial back their home office significantly. Is there anything to read into that, Dave?

David Simon

No, other than what I've described to you, there's nothing more than I can add.

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

And then just going back to the outlets in general, you had mentioned Tanger's pipeline, they've mentioned looking at 17 sites currently in addition to three that are more live. When you look at the landscape, I mean over the last 15, 20 years, it's there's been a net decline in outlet centers in the U.S. How much can this country -- how many more centers can this country absorb in your mind as you look at it?

David Simon

Well, the answer is we're going to find out. I do think there's going to be number of centers built, so we'll find out. But there are a number of centers planned. There's very confident developers that are going to do that, obviously Tanger's successful in their developments, Taubman's a very good developer. They'll be very successful. There's a number of potential conversions that are taking place like what Vornado did with Bergen. Even though I really like to know his returns, he won't tell me, but -- no, I'm just kidding -- I think he's done a very good job on Bergen Town Center. There's a number of malls that are looking to conversions. So it's clear that consumer wants value and it's clear that there's going to be a lot more new and redeveloped centers focused on value for the benefit of the consumers and for the benefit of the retailers. And whether we'll do it too much or not, remains to be seen. I think our industry always pushes the envelope. I would think if you saw some of the developments that occurred and that have stopped over the years, over the last couple of years, you could see that we pushed the envelope. I would not be surprised that if we didn't push the envelope here. But there's a lot of new opportunities out there, and they're being pursued by very competent developers, both on new and redeveloped formats for the outlets sector.

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

So how many sites is Simon/Chelsea looking at today?

David Simon

Our focus obviously has just been on Prime, but we -- besides Merrimack we probably have two or three in the U.S. that we're looking at. And I will tell you this though, we're very focused on our Asian outlets, Nate. We've been very successful there. We're very excited about Singapore market, Malaysia. We're very excited about what's going on in Korea and Japan, despite all of the macro stuff there, our centers are performing very well there. So our ability in brand might grow reasonably well in the outlet side in the U.S. and outside the U.S. And I will mention -- Rick's pointing to me -- I do think it's important to note that we're also expanding a few of our outlet centers here in the U.S. and that will also happen, I think, in our industry.

Operator

And the next question will come from the line of Carol Kemple, Hilliard, Lyons.

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

David, earlier on the call, I think you said something that Prime was going to retain interest in three of their centers?

David Simon

That is correct.

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

And what is the reason for that? Is that they sold better capital-wise? Or is that something the FTC wanting them to do?

David Simon

I really can't add more, Carol, than I've already told you.

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

Can you add or can you say if it's going to change the purchase price?

David Simon

There has been a modification to the transaction and I can't say that the capital that Prime would receive as part of the transaction will allow Prime to go develop. I guess I should have mentioned this to Nate's call or question, it will allow them to go develop their deal in Livermore and Grande Prairie and that's their intention to do so.

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

And in the quarter, were the leasing spreads positive both malls and the outlet centers or just the outlet centers?

David Simon

We put those statistics together. Obviously, the malls have a significant impact on the results given that they're in the 75%, 80% range of our domestic NOI in that number, so -- but we don't break that out now, Carol.

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

Okay, I did know. I need it break it out percentage, but I didn't know if you could comment in general.

Operator

And the next question will come from the line of Ben Yang, Keefe, Bruyette, & Woods.

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

I'm just curious how much of the occupancy gain was attributable to you converting your month-to-month tenant into longer-term deals. Because it looks like you have about 200 fewer tenants compared to last quarter. I mean did you just convert most of this 900,000 square feet into longer-term deals? Or did these guys just end up closing their stores?

Richard Sokolov

Interestingly, for the most part, we have been transitioning to more national tenant as opposed to the month-to-month. And a lot of times, the month-to-month is because we don't want to go longer-term because we want to have a room to split. We want to combine rooms for a different tenant who will pay more rent. So this was not really a process of a lot of month-to-month conversions.

Stephen Sterrett

And Ben, this is Steve, I would just add one more thing and Rick and David talk a lot on our calls over the last four or five quarters about consciously slowing down the leasing activity because of the difficulty in the environment. So that month-to-month number was to some degree, the result of a lease expiring where we chose and the tenant chose not to a year ago, or nine months ago, enter into a permanent deal. We are now, if you will, addressing that given the recovery in the economy.

David Simon

And Steve's right, I mean, I don't know what the exact number is, but it's -- certainly some of those month-to-month is going to longer-term leases.

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

So it sounds like most of them ended up just closing their stores and maybe just -- is that fair?

David Simon

Yes, we suffered a lot of store closings. That's for sure.

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

And then you mentioned some actually converting some Prime leases. When you do make those conversions, does that number show up in your re-leasing spread?

Richard Sokolov

It does. If a temporary tenant converts to a permanent deal, then we treat it as a new lease, that's correct.

Operator

And the question will come from the line of Michael Mueller, JPMorgan.

Michael Mueller - JP Morgan Chase & Co

On the development JVs in France, can you give us a sense as to how much Simon capital could potentially go into that, for what time frame it'll begin to play out?

David Simon

We're only laughing because the build perhaps is a long, frustrating process. Mike, right now, to pursue the development is not going to be a lot of money for us. And as an example, the Toulouse development itself could be north of a couple of hundred million euros. But again, this timing and the approvals is really uncertain. So I would hate to venture, but for us to keep our optionality alive, it will be -- not a very big number.

Michael Mueller - JP Morgan Chase & Co

So it's longer-term stuff and...

David Simon

Yes, it is. I mean the biggest one of which is on the potential front burners, the development in Toulouse that all of us are Unibail, us, as well as Ivanhoe Cambridge are excited about pursuing. But again, that needs to go through a certain process. Don't ever ask me to explain it.

Michael Mueller - JP Morgan Chase & Co

Steve, going back to the TI question, I previously had down -- looking through notes -- in 2010, maybe $75 million on the low end, the $100 million on the high end. I mean, what's the full year expectation now for TIs?

Stephen Sterrett

Michael, I mean we've had an increase in velocity. So wouldn't necessarily expect it to be 2x on what it was in the first six months. But I think it will clearly be at that $100 million or a little bit north range. And I think that's just an increase in the lease and the losses.

Michael Mueller - JP Morgan Chase & Co

And then, I mean when we look at debt maturities over the next year or so, a lot less bonds maturing in 2011 than we saw in '10 and '09. I mean how should we think -- are you thinking differently about what a more normalized cash position is?

David Simon

Well, that's a very good question, I mean the answer is yes. Eventually, we're going to have kind of a normalized number. I can't -- it'd be hard for me to pinpoint exactly today what that is as we still try to sort through the uncertain economic environment. But today, we're over capitalized, not wildly over capitalized but we have reduced our debt by $2 billion. We're generating positive cash flow. Our dividend is obviously very safe and sound. So at the end of the day, we want to kind of just still be a little more thoughtful and more cautious as to where the economic environment comes out. Obviously, there's the deflation specter out there. There's a lot to weigh in to that, that we've got to continue to be just really extra conservative in our thought process for the time being.

Operator

And the next question will come from the line of David Wigginton, Macquarie.

David Wigginton - Macquarie Research

Just had a couple of quick follow ups on lease term fees in the quarter, was that -- I mean, kind of spiked up in the quarter, I wasn't sure that, that was a result of the jewelry store closings you had mentioned? Or that there is something else that at play into that?

David Simon

There were a couple of those and another. We don't like to name the tenant, but there were a couple of deals that where store closings were negotiated. And again, that's not in our comparable NOI numbers. But I just prefer not to name the tenants, but there was one aspect of jewelry retailer that exited the business, so that did spike up because of that.

David Wigginton - Macquarie Research

So in just staying with the jewelers, where would you say we are sort of in the shakeout process among operators at this point of the cycle or whatnot? I mean, have we worked our way to the majority of jewelers that needed to just shut down and go out of business? Or are there more to come?

David Simon

I would think that a lot has taken place. So I think we're past for a lot of that, but there's still probably excess capacity in the jewelry retail space overall. So I mean it's like the restaurants in the sense the restaurants given the demand of -- I don't know, close 1% of the restaurant spaces in America. So I still think there's probably a little bit more to go, but I would say, we've gone through a lot of it.

David Wigginton - Macquarie Research

And I recognize that the split amongst foreclosings just probably pretty evenly crush your portfolio, but have you noticed any like excessive closings, say, in one segment of your portfolio versus another, meaning like maybe the higher end or the lower end?

David Simon

Not really. I mean I think the regional economies have a lot to impact, but not necessarily a particular property type.

David Wigginton - Macquarie Research

With respect to sales increases leading to rent increases, I mean, historically, what has been the timeline, I've been observing your portfolio, if anything you guys -- is it different from what you would expect to see in general in a regular mall portfolio? Or do you feel like you were able to capture pricing power quicker than maybe most mall operators?

David Simon

No, I think we're no different than -- there's a lag and there's also a certain level of certainty that the retailer wants as they see their sales increase. I mean if they have a good quarter, it doesn't necessarily mean -- they are open to buys might increase, but they're still going to be pretty conservative on the rent and to the sales ratio. So there's a lag and it's a macro impact and we're no better than anybody else in that category in terms of being able to accelerate that gap.

David Wigginton - Macquarie Research

I mean is just a matter of them seeing several quarters, consecutive quarters of sales increases that gets them going?

David Simon

I think it's also very specific on the retailer and the position that they're in and what they're trying to do. Are they trying to gain market share? Are they trying to penetrate a regional market further? So there's a lot that goes into it. But generally, the retailers are taking a reasonably conservative stance, and rightfully so, just like we are in a lot of respects.

Operator

And we have a question from the line of Rich Moore, RBC Capital Markets.

Richard Moore - RBC Capital Markets Corporation

On the dividend, David, where do you guys stand on that? It seems to me that you're at some sort of a minimum payout ratio at this point and you got to raise the dividend? Does that sound right?

David Simon

You're warm.

Richard Moore - RBC Capital Markets Corporation

So not yet, but getting there?

David Simon

Look, I think we're going to have to assess. Obviously, our taxable income is going to be affected by the Simon Ivanhoe sale. So we have to factor that in and obviously, we're going to spend the next four or five months doing that. But in addition to that, Rich, I think as a look at '11, our taxable income, there's a lot of stuff that is going on with us in terms of our taxable income, we have the share issuance, we had more shares outstanding, we had the taxable write-off associated with the bond premium that we paid. Assuming all of that kind of just normalized, we spend this year normalizing all of that, then I look at '11 and again, it's obviously, we're projecting an economic environment, but '11. But let's assume it's consistent with what we have, I mean we are -- I would venture to say at the bare, bare minimum of what we need to pay given where we are today. So that will definitely have to be addressed on a more permanent basis in '11, as a lot of the extraordinary events of the last year have played themselves out.

Richard Moore - RBC Capital Markets Corporation

And then Steve, on the straight-line rent item, that seem to jump pretty high the quarter. Is there anything special in there? And that, does it go back down from here?

Stephen Sterrett

Nothing really special, Rich. And again, we talked about leasing velocity being higher, that tends to be driven by strictly [ph] (1:25:16) of deals you're doing so...

Richard Moore - RBC Capital Markets Corporation

And then same kind of thing on the preferred dividends for I and that was actually negative. I assume that some sort of accounting treatment for the retirement of the I, is that right?

Stephen Sterrett

Yes, it's just a cleanup and a true up for the redemption of the item we did in the first quarter.

Richard Moore - RBC Capital Markets Corporation

And then on the recoveries, the recovery ratio, that was also a bit higher than usual? Is that going to continue you think?

Stephen Sterrett

Well, I mean we're in an environment now, Rich, where we're 80% converted to fixed TM [ph] (1:25:49), most of those have contractual annual increases in the recovery. So to the extent that we're able to manage our expenses at a rate below that, you should see the recovery continue to get better.

Richard Moore - RBC Capital Markets Corporation

And then last thing, Rick, the list of retailers that are hot today, or that are getting hotter in the second quarter, have you got that?

Richard Sokolov

Well, we always hesitate to do that because everybody else then starts to call them. But we are doing deals in '10, PS by Aero is rolling out, Sperry and Stride Rite from Collective Brands, Michael Kors, Rue 21, Francesca. We're doing Microsoft deals, we're doing Pandora deals, LEGO Crazy 8 with Gymboree and Forever 21, as David has alluded to. There is a little bit higher velocity of tenant interest, and we're hopefully taking advantage of that.

David Simon

And on the box side, Rich, we have Target, Kohl's, I mean they're looking for moral opportunities so that bodes well for us as well.

Operator

And we have a question from the line of Ian Wiseman, ISI.

Ian Wiseman - Merrill Lynch

Just a housekeeping question for Steve, the $13 million of transaction costs that you had this quarter, is that related to Prime? And if so, can we expect similar expenses for the balance of the year?

Stephen Sterrett

No, it's not just Prime, Ian. It's a combination of all, multiple transactions that we were working on. So some of which will occur, some of which didn't occur.

David Simon

Yes, I mean, I said, Ian, earlier that we'll continue to have Prime expenses in the third quarter, but that's a higher run rate and then obviously, upon the that transaction closing, as we expect that, that number ought to, obviously come down.

Operator

And this concludes the question-and-answer portion of today's call. I'd like to turn the call back to Mr. David Simon for closing remarks.

David Simon

Okay. Thank you, everybody for participating. We look forward to talking to you in the future. Take care.

Operator

And ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect, and have a great day.

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2010 Simon Property Group Earnings Conference Call. My name is Diana and I'll be your operator for today. [Operator Instructions] I would now like to turn the call over to your host for today, Ms. Shelly Doran, Vice President of Investor Relations. Please proceed.

Shelly Doran

Thank you. Welcome to Simon Property Group's Second Quarter 2010 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’s important to note that today’s call includes time-sensitive information that may be accurate only as of today’s date, July 30, 2010. During today's call we will discuss certain non-GAAP financial measures which defined with the SEC's Regulation G. Reconciliations of these measures to the most directly comparable GAAP measures are included within the earnings release or the company's supplemental information package that was included in this morning's Form 8-K. This package is also available on the Simon website, in the Investors 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

Okay. Good morning, everybody. Thanks for joining us. I'll just give a few minutes of overview, and then we'll open it up for some Q&A.

First, on the financial and operational front, we reported FFO of $1.38 per diluted share for the quarter, which was $0.04 above first call consensus estimates, and which was also burdened by over $0.03 of nonrecurring transaction expenses for the quarter. In addition, we continue to lead our peer group in comparable property net operating income generating 1.9% growth in the second quarter of 2010, and 2.3% for the six-month period. Drivers in this leading comparable NOI include: Revenue and rent growth, increases in occupancy, higher percentage rents as a result of increasing sales in our continued and effective cost control on management, as well as reduction in bad debt compared to the previous period given the lower bankruptcies.

As of 6/30, comparable sales on a rolling 12-month basis were $474 per square foot, as compared to $456 per square foot last year. Tenant reported sales, 4.9% higher during the second quarter as compared to the second quarter of 2009. And on a year-to-date basis, reported sales for six months ended June 30, were 6.2% higher as compared to the same period in 2009.

As of 6/30, our occupancy was 93.1%, 90 basis points higher than 3/31, and 80 basis points higher than one year ago. At June 30, the re-leasing spread for our trailing 12 months was $0.50 per square foot, or 1.2%. Leasing spreads have been impacted by a number of jewelry store closings. But I also want you to keep in mind that this is just base rent. We've had an increase in our CAM of at least that number, if not more. And we'd also like you to keep in mind that our increase in occupancy of 90 basis points, or 700,000 square feet includes some leasing and some tougher locations that we were able to accomplish in the second quarter.

Demand for space continues to improve. The ICSC convention was positive. Leasing activity has increased, and we fully executed 6.3 million square feet in new leases and renewals in the first six months of 2010 in malls and outlets as compared to 4.7 million square feet in the first six months of 2009.

Finally, in Operational, I just want to say, the important point is that our year-to-date comparable NOI is up 2.3%, with higher sales, higher occupancy and positive leasing spreads. Dispositions, let me move to that and acquisition activity. As we disclosed in our earnings release, we sold one asset in our GCI joint venture property, Porta di Roma, where we had a 19.6% interest, and our gain in that was $20 million. Of course, this is not included in FFO. And on July 15, we completed the previously announced sale of Simon Ivanhoe, our 50/50 European joint venture with Ivanhoe Cambridge. We received EUR 750 million, and Simon property group expects to record a gain of approximately $280 million on the transaction in the third quarter. We also entered into a JV with Unibail and Ivanhoe Cambridge to pursue the development of four new retail projects in France. We'll have a 25% interest in this venture and have the ability to determine on a project-by-project basis whether to retain our ownership interest.

On May 13, we acquired the 345,000 square-foot outlet center from Prime, the Puerto Rico asset. In addition, on May 28, we increased our ownership interest of approximately 19% in Houston, which culminates in over a 50% interest in this terrific asset. The combined cost of these acquisitions was approximately $385 million and including the assumption of the existing indebtedness.

Let me turn to the Capital Markets. In the first six months of the year, we paid off $700 million of senior unsecured notes. We've also unencumbered three malls, paying off approximately $800 million of mortgages in maturity. In July, we unencumbered two additional malls with $282 million of mortgages. The net result is we reduced our leverage by over $2 billion in the last seven months.

The secured markets continue to improve both on the life insurance market, as well as the CMBS. The other day, we've closed seven new loans totaling $900 million, $515 million was from life companies, $330 million from CMBS placements and $55 million from bank loan. We've also locked rate in the third quarter of another $500 million of loans, $375 million coming from insurance companies, $125 million from CMBS originations. These three loans will have a weighted average of 5.3% and a term of 10 years.

At the end of the quarter, we had $2.6 billion of cash on hand, including our share of JVs, and the availability on our corporate credit facility, including the Simon Ivanhoe sale that occurred in July, which we used the partial proceeds to pay down our euro tranche of our revolver. We'll have $3.5 billion, so a total capital availability of over $6.1 billion.

Development activity, we are higher than our budget given improving economic conditions. We originally budget around $100 million. We think we'll end up spending close to $200 million, and we expect to have double-digit returns on this capital. We're also excited to announce that we'll start the construction of Merrimack premium outlets in Merrimack, New Hampshire this fall with our projected opening in 2012. And we have two outlet centers undergoing significant expansions, Houston Premium Outlets and Las Vegas Outlet Centers.

Also, we've done a very good job in our tactical projects, redevelopment opportunities as we've re-claimed certain departments locations and big boxes. During the first six month of 2010, we opened 14 new anchors for big boxes, including Nordstrom, Best Buy, Bed Bath & Beyond, H.H. Gregg. In addition, we have 15 additional stores under construction and schedule to open in 2010 and again, they include Forever 21, Whole Foods, Crate & Barrel and Target.

On the international front, there are two new Premium Outlet Centers projected to open in 2010: Paju Premium in South Korea commenced construction in late March, that's in the northern part of Seoul; and Johor Premium Outlets is going to break ground in August, that will serve the Singaporean market. We're partnering with the Genting Group, a well-known and well-respected company in Malaysia and throughout the world. And on completion in 2011, we will have 11 premium outlet centers in Asia.

Now let me turn to Prime and then we're prepared to open up for questions. Our acquisition of Prime Retail is to be reviewed by the FTC, and we are fully cooperating in that review. I wanted to give you a couple of updates on the specifics of the deal. As I mentioned, we closed on the Puerto Rican asset of the outlet, of Prime's outlet center, and we're currently in the process of negotiating leases for all of the vacant space and once those with leases are executed, we'll be 100% occupied. We subsequently amended our agreement with Prime so that they will retain its Saint Augustine center, as well as its Livermore and Grand Prairie development projects.

And as we noted in our May conference call, U.S. antitrust authorities have consistently recognized that the retail industry is highly competitive and fragmented. Retailers have many options to choose from when deciding where to sell their merchandise, including both a variety of brick-and-mortar locations. And of course, the Internet, where sales growth has exploded in recent years.

We have received an overwhelming show of support from this deal from our retailer tenants. They recognized the highly competitive nature of this business and our acquisition will provide a significant amount of new capital to a company currently in financial distress, and put that capital to work to improve the operations of Prime assets and therefore, improve the retailers' performance in those centers.

We remain confident that we will close the remainder of the transaction. And as noted in our release, we have reaffirmed our 2010 guidance and once precise timing of the closing of Prime transaction is known, we will provide an upgrade to our guidance upon that inclusion.

So finally, let me just say, I am proud of our organization and the quarter that we produced given all of the continuing uncertainty in the economic environment, and we're ready for questions.

Operator

[Operator Instructions] And the first question will come from the line of Alexander Goldfarb of Sandler O'Neill.

Alexander Goldfarb - UBS

Just going back to Prime. Just want to get a little more color here. I mean, United and Continental only announced the deal a few months ago, with EU has already approved that. What are your advisers and what is the FTC saying that's just taking so long on this?

David Simon

Alexander, I'd love to be able to comment further on it but you'll just have to rely on the statements that I've made. And again, we remain confident, but I really don't have much to add beyond what I've mentioned.

Alexander Goldfarb - UBS

And then switching to leasing. I just want to get sort of an update on where you think TIs are going to end up this year? And then if we look at the re-leasing spreads over the next -- or the rent roll over the next few years, if we think about $38 being the sort of market and sort of $34 rent rolls, should we expect sort of 12% re-leasing spreads over the next few years?

David Simon

Well, look, I think a lot's been -- we've read some of the analytic research today about the rent spreads and I think we need to park in back on a couple of things. One is last year was a tough, tough year. And as you know, we did a number of things to help our retailers survive last year. And as those leases have been executed, has put undeniably so pressure on our leasing spreads. So what we're seeing in our results is exactly what we expected. And in fact, I think the guidance that we gave to you early in this year actually, we thought we would have comparable NOI down, and we're actually performing much better than we anticipated. I think as the market stabilizes, we're convinced that we've got the ability to continue to generate positive leasing spreads that we have done historically as a public company for the last 17 years. So we are not immune to the economic environment that's occurred over the last 18 months. I'm proud of what we've done. The fact that we still have positive leasing spreads is a testament to the quality of our portfolio, testament to our positive relationships with our tenants and a testament to the organization. And I'd also say we leased -- we increased our occupancy and in this market, that's something to be proud of. So bottom line, long winded, this is -- sales increases, certainly rents are related to the ability to deal with, to rent increases given that we've seen rent stabilized and sales are moving in the right direction. We feel good that we'll continue to generate positive leasing spreads.

Alexander Goldfarb - UBS

And then the TI expectation for the year?

Stephen Sterrett

TIs have not shown any appreciable change. We're still basically seeing the same amount of TIs that we've had historically.

Alexander Goldfarb - UBS

So like 75, or so for this year is fine?

Stephen Sterrett

I believe that's about where our run rate has been for the TIs.

Operator

And the next question will come from the line of Jeff Spector Bank of America Merrill Lynch.

Craig Schmidt - BofA Merrill Lynch

Actually, its Craig Schmidt here. Actually, I wanted to talk on the -- you had a very strong sequential pickup in occupancy, the 90 bps. And I guess in part, it sounds like you were able to lease some of the tougher locations you were saying. But as we look at the third and Fourth quarter, should the sequential gains slow, or are there still more tough locations you think you can get leased up in the last half of the year?

Richard Sokolov

Craig, this is Rick. We are still seeing a good flow of deals. Remains to be seen how much more we can sequentially increase on a 90 bp gain, but we should be able to hold those gains year over year.

David Simon

And certainly, historically, there is a pickup in occupancy as we go into the third and fourth quarter, so I would hope that we continue to do that. Obviously, there was one reasonable-sized bankruptcy, Premier Salon. We don't think there's a lot more but that's always the unknown. But we think that will move in the right direction.

Craig Schmidt - BofA Merrill Lynch

And do you have a sense of where the occupancy might actually end up end of the year?

David Simon

Again, I think it will be positive. I wouldn't want to pinpoint the number at this point. But we were, again, looking for flat occupancy compared to last year but I think in our guidance, we'll be able to do better than that.

Operator

And the next question will come from the line of Christy McElroy, UBS.

Christy McElroy - UBS Investment Bank

I know how much you guys love questions on re-leasing spreads. I've realized that the stores, they're opening now, are reflective of some of the tough releases that were signed last year or over the last couple of quarters. Can you give us a sense for what kind of spreads you're seeing on the small-shop leasing that you're doing today and is that sort of giving you the confidence in the forward-looking comments?

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