Simon Property Group, Inc. (SPG) Q2 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q2 2016 Simon Property Group Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this call will be recorded. I would now like to introduce your host for today's conference, Mr. Tom Ward, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Catherine. Good morning, everyone. Thank you for joining us today. Presenting on today's call is David Simon, Chairman and Chief Executive Officer. Also on the call are Rick Sokolov, President and Chief Operating Officer; Andy Juster, Chief Financial Officer; and Steve Broadwater, Chief Accounting Officer. Before we begin, a quick reminder that statements made during this call may be deemed forward-looking statements within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995, and actual results may differ materially due to a variety of risks, uncertainties, and other factors. We refer you to today's press release and our SEC filings for a detailed discussion of forward-looking statements. Please note that this call includes information that may be accurate only as of today's date. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today's Form 8-K filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com. For our prepared remarks, I'm pleased to introduce David Simon. David E. Simon - Chairman & Chief Executive Officer: Okay. Thank you. We had a productive quarter. We're pleased with our strong financial results. We started, completed, opened several significant redevelopment and new development projects that will further enhance the value of our portfolio. We completed the acquisition of The Shops at Crystals, and we continue to achieve strong operating and financial results and raised our dividend yet again. Results in the quarter were highlighted by FFO of $2.63 per share on a comparable basis excluding a gain on the sale of marketable securities. In the prior year period, FFO per diluted share increased 9.1% or $0.22 year-over-year for the quarter. And for the first six months, our comparable FFO per diluted share is up 12.1% compared to the prior year period. Our operating metrics were strong as well as our cash flow. Our mall and premium outlet occupancy was 95.9%. The 20-basis point decrease in occupancy from the prior year period is a direct result due to the new developments and expansions we opened recently. Leasing activity remains healthy. The malls and premium outlets recorded releasing spreads of $8.88 per square foot, an increase of 14.8%, and our base minimum rent was $50.43 which was up 4.9% compared to last year, reflecting the strong retail demand for our location. And as a reminder, we provided additional new metrics summarizing the composition of our total portfolio NOI. Please see this in the supplemental and the release. And for the second quarter of 2016, our total portfolio NOI increased 7.4% and has increased 7.6% year-to-date. Our comp NOI increased 3.2% for the quarter and is up 4.1% year-to-date. Total reported retail sales per square foot at our mall and outlets were $6.07 compared to $6.20 in the prior year period. Let me put a couple things in perspective. Reported retail sales continue to be negatively impacted by the strong dollar at some of our tourist-oriented malls and outlets. Reported sales per square foot for the malls was down slightly compared to the prior year, primarily due to a retailer and a state with no sales tax, implementing sales restrictions. We mentioned this previously and is important to reiterate and excluding this anomaly, our mall sales per square foot increased for the period. Lower tourism spending continues to impact retail sales at some of our premium outlets. Excluding the negative impact of these high performing tourist-oriented centers, retail reported sales per square foot for the premium outlets was flat. In fact, our traffic in our outlet business thus far is up 2.65% for the year. And finally, the second quarter I'd like to point out that retail sales trends improved progressively with June, recording the strongest monthly sales performance with total sales volume at comparable properties increasing across all of our property types. At the end of the quarter, redevelopment expansion projects were ongoing at 33 properties across the platforms. Our share is $1.4 billion. We continue to expand, transform, enhance our properties. We completed Stanford Shopping Center. And over the next several weeks, we'll complete a number of other transformative and redevelopments including the completion of the connector at King of Prussia that will link the court and the plaza, creating 50 new specialty stores, a comprehensive redevelopment expansion to The Fashion Centre at Pentagon City, a densification of Phipps Plaza with the completion of AC Hotel by Marriott and multi-family residential units. We're also underway with the transformation of La Plaza in McAllen, Texas where we demolished the former Sears box, are under construction on an expansion wing that will accommodate up to 50 specialty stores, four junior anchors and exciting new dining plaza, all of these are accretive returns. We'll continue to flow and fuel our profitability and construction includes among others, but not an exhaustive list, Woodbury Common, Sawgrass Mills, The Galleria in Houston and on. Our new development is focused on important markets where demand is there. During the quarter, we opened a new Tanger Outlet in Columbus. It's off to a great start. It's been a partnership with Steve. Our construction continues on our new outlet in Clarksburg, Maryland which will open in the fourth quarter of this year. We also recently broke ground on a new outlet Norfolk, Virginia which will open in mid-2017. We've got exciting projects in – outside the U.S. We have an outlet under construction in Provence, France, South Korea and Canada, all will open in 2017, also fueling our growth. We also recently started construction in Kuala Lumpur in Malaysia with Genting who is our partner in our other Malaysia asset. And construction is nearing completion at Brickell Centre in Miami. The center is almost entirely leased with 80 retailers and restaurants coming to projects. And we're also continuing construction with our high end retail projects in Fort Worth, anchored by Neiman The Shops at Clearfork. Acquisitions beyond Crystals, we also bought our partner out in our Naples and Venice outlets. So we now effectively own 90% of these two great assets. We completed – turning to capital markets. We completed a successful euro senior offering, €500 million at 1.25% for nine years. Our liquidity stands at $6 billion, and we have an industry leading balance sheet as we hope you know. We increased our dividend 6.5% year-over-year, 3% from the second quarter and we'll pay at least $6.50 which will be 7% over last year. We've also increased our guidance from $10.77 to $10.85. This reflects solid performance in the first half. In our current view, the remainder of the year, we are very pleased with our performance. Questions are available.

Thank you. And our first question comes from Craig Schmidt with Bank of America. Your line is open.

Yeah, thank you. David, you referenced that there was a pickup in June relative to some of the other months. Do you think that we will start to see the annualization of the international shopper pullback? And will that have less of an impact in the numbers going forward? David E. Simon - Chairman & Chief Executive Officer: Well, look I think it's hard to predict, Craig. It's good to see the June sales for our retailers were up. We're starting to see the stronger dollar anniversary, so it'll have less impact on the metrics, but I think more importantly, we're seeing other than the anomaly I talked about in the one – with the one state, our sales were fine and the portfolio outside the tour centers, sales are fine. And we're operating pretty effectively in a very slow growth U.S. economy. So the anniversary impact is coming up in the next few months. We're starting to see it stabilize, but it's very hard to predict.

Okay. And then you've expanded your presence obviously in Las Vegas with Crystals, I just wondered if there would be differing strategies going forward, where you might take Forum Shops one direction and Crystals in another? David E. Simon - Chairman & Chief Executive Officer: No, I think they're – as you know, Vegas, there's so much tourism there, I mean 50 million visitors a year. Each has its own distinct separate marketplace. They, obviously Forum Shops is bigger. It caters to not only a high end consumer, but also a broader consumer. Crystals is more luxury oriented. So I think they both have distinct markets. We'll continue to take advantage of those great assets, and continue to drive the income up in both. So I don't think there'll be a huge change in strategy, but a continuation of improving operations in both assets.

Okay. Thank you. David E. Simon - Chairman & Chief Executive Officer: Sure.

Thank you. Our next question comes from Steve Sakwa with Evercore ISI. Your line is open.

Hi. Good morning, David. David E. Simon - Chairman & Chief Executive Officer: Good morning.

Hi. Look, I know a lot of the metrics were fairly positive. I guess the one that just sort of jumped out was sort of the rolling 12 month leasing spread which had a noticeable drop from 17.5% to just under 15%. Is there anything that sort of happened in this quarter that would have pulled that number down, and what do you think is a reasonable expectation going forward? David E. Simon - Chairman & Chief Executive Officer: Well, look, again, I respect that everyone loves to focus on operating metrics, as you – you know me pretty well, Steve. What's the one operating metric that I focus on? Is this the question?

I know you – total NOI growth and total sales? David E. Simon - Chairman & Chief Executive Officer: No, I look at cash flow growth, my friend, okay. So the other thing that I'd like to point out on that is that we put our entire bucket of activity in that number. I don't know what others do but – so, if we have as an example lease amendments, let's say we have a retailer that we have to restructure because we figure, well, let's keep him in, and operating while we'll ultimately release the space. That amendment goes into that spread. And, if there's anything – again, I'm pleased with the spread. I think we've so much outperformed on our spread that that number of 15% is pretty damn good, $8.88 over ending rent for new rent is pretty damn good. But put that aside, if you are looking to grasp on anything, I would say it's somewhat affected by the fact that we have amendments due to some of the retailer situations that we've been dealing with over the last 12 months. I'm very pleased with the spread. $9 is a good number in a flat economy. I also – you look at our comp NOI which is where I'm focused on cash flow growth. You look at our comp NOI, we haven't just had a couple of years of good numbers, we've had a decade of outperformance versus our peer group. And as you know, when you comp over a comp over a comp over a comp, that's pretty damn good. So we're very pleased with the number. If you want to point out something which I know is your job to do, I would say it's more the amendments which we view is something that we're doing in a very slow economic growth environment in the U.S. And we're dealing with that effectively and yet we're still producing very healthy spreads.

Okay. No, that's helpful. I guess, just secondly, in terms of sort of recapturing some of the department stores and the JVs that you got with Seritage, can you just sort of provide an update on sort of where you stand and the opportunities that you see over the next couple of years to maybe recapture some more boxes? Richard S. Sokolov - President, Chief Operating Officer & Director: Steve, Rick Sokolov. We have continued to work with Seritage and Sears. We've got users identified for our properties in Seritage. As we mentioned last quarter, we're working with Sears just on how to downsize their stores, and that process is ongoing. I will tell you, if you look over the years, we recaptured 93 department stores and we've done a very effective job of deploying them. If you look at our anchor schedule, we have been going on right now, it's an ongoing process. We have a whole team dedicated to it. And the good news is we have substantial demand identified in each of our properties, so we know how we're going to deal with any of these stores that we do get the opportunity to recapture. David talked about La Plaza which was a Sears store. We got a Sears store back at College Mall. Now demolished and we're adding 365 Whole Foods, Ulta, small shops and restaurants. We're making money and making the properties better.

Okay. Thanks, guys. I appreciate it. David E. Simon - Chairman & Chief Executive Officer: Sure. Thank you.

Thank you. Our next question comes from Paul Morgan with Canaccord. Your line is open.

Hi, good morning. David E. Simon - Chairman & Chief Executive Officer: Good morning.

As you look at the development and redevelopment pipeline, you've got $2.1 billion your share of cost for the projects that are going now and almost that in CIP (17:33), how should we think about kind of beyond the projects that are kind of in place right now, what the shadow pipeline looks like? I mean you talked about it is a tougher environment. I mean do think that this could be a peak that would slow going forward as some of these project completions roll off looking into next year or do you think you've got a shadow pipeline that's going to keep it going at around this level? David E. Simon - Chairman & Chief Executive Officer: Well, let me answer it this way. We actually had a meeting yesterday on Sawgrass Mills and Jersey Gardens is just two examples that together would be $500 million to $600 million of redevelopment. So we're very comfortable and confident, Paul, that even the retail – the retail sales have been anemic this year that when you have properties like that that can't be expanded. We have the appropriate amount of demand to make financial – make the financial consequences very positive for the company in addition to making those properties even more important. So I don't think we're backing off at all or redevelopment and expansion of portfolio. The good news is we have such a good number of high quality assets that we'll continue to find opportunities to expand them. And I like I said, I mean Jersey Gardens and Sawgrass are just two simple examples that pope to mind, but that's going to be $500 million to $600 million spread and will be hopefully delivered in 2019-ish, maybe 2020-ish. And we'll continue to enhance their marketplace position. So we haven't really changed. I think if we've changed anything is – and I mentioned, I think the last call or call before that, we put a lot in the system and that's kind of a little bit about – you saw the 20-basis point getting out. You might react to 20 basis points decrease in occupancy, I assure you I do not, okay. I assure you I do not. But let's – but we put a lot in the system over the last whatever six months, primarily in the outlet that we've decided to spread some of those new ground up developments out a little bit so that we don't stress the system. And we get the lease-up that we want in those. But our strategy really hasn't changed. And I think we've got plenty of opportunities continue to enhance our portfolio.

Great. Thanks. And then my other question, you've talked about and you provided a list of, pretty long list of e-retailers who are looking to open stores in your malls. And I wonder if you have an update on kind of how those rollouts are being received, whether some of these retailers might be initially opening three or four, these could become 20 or 30 or 40 or kind of how it's been playing out so far? David E. Simon - Chairman & Chief Executive Officer: Well. I'll let Rick do his list, and I appreciate you giving him the opportunity because he loves to read his list. I will say this though, there's so much creative stuff going on with new ideas, new concepts that as a simple example, we did a pop-up store with Woodbury Commons with Rent the Runway, where they actually sold some of their existing inventory. And it had unbelievable success. I'm not going to tell you how much they sold because I don't frankly know if I'm allowed to or whatever. But there's a lot of creativity and a lot e-tailers that want access to the physical world, and that's just a small example of a unique idea. I actually happen to meet with the CEO and said, do a pop-up store at Woodbury, okay. They did it, they had a great success. But now I'll turn it over to Rick to give you the list. Richard S. Sokolov - President, Chief Operating Officer & Director: The other thing I would tell you is there have been a number of them and we listed them. Obviously, you've – we talked about Fabletics, Birchbox, Yogasmoga. Everyone understands what the dynamic is going with Amazon. We just made a deal with UNTUCKit. The most important aspect of this is that all of these retailers that have Internet presence understand that a bricks-and-mortar presence in an essential part of their strategy. They get much higher conversion in their store. Their customer acquisition is frankly cheaper, and it's something that we're seeing more and more. We're working with frankly scores of them to come to our properties. It's certainly going to be a source of growth for us going forward in the out years. David E. Simon - Chairman & Chief Executive Officer: And the condition on doing that deal was that Rick could not wear the UNTUCKit shirt, okay. Richard S. Sokolov - President, Chief Operating Officer & Director: All brand negative (23:33) David E. Simon - Chairman & Chief Executive Officer: Okay. And so it's in the lease.

Great. Thanks. David E. Simon - Chairman & Chief Executive Officer: No worries.

Thank you. Our next question comes from Jeremy Metz with UBS. Your line is open.

Hey, good morning. David, earlier you mentioned lease amendments having a bit of an impact on releasing spreads. Obviously, you're taking a selective approach here. But I was just wondering if – more generally are you seeing an increased level of tenants coming to you, looking for lease amendments or would it more or less be consistent with the prior couple years? David E. Simon - Chairman & Chief Executive Officer: Well, it's really – I mean obviously there's some high level news out there with certain retailers. And it's really more of that category than just the person here and a person there. So it's kind of what you've seen. We have less year-to-date bankruptcies than we did last year, but so some of that's just rolling through the numbers that we had to deal with last year.

Okay. And then just sticking with leasing here, obviously, more sales moving online and not maybe getting captured in your sales or occupancy cost figures. I'm just wondering, are you exploring any changes to your lease structures at all at this point to better capture and monitor those sales? David E. Simon - Chairman & Chief Executive Officer: Well, again, our view is to get the market rent that's appropriate for that space. And retail reported and I underscore reported retail sales does not necessarily, as we've had this discussion, correlate to what the market rent for that space is. It's more of a function of location, property, location in the mall, property type, position in the marketplace and so on. So our focus is getting market rent for each and every space and doing it in a way that does not put us at risk with their sales and what we get paid for that space. And that's not changing. Now there's a lot of things going on in the lease in terms of getting credit if they – the sale – again this is only a case when you have overage rent and we're hopefully marking at the market where overage rent, they've got to really outperform to pay us overage rent. But in order to – in their reported sales number, we're negotiating including if it's something fulfilled from the POS system and so on, that it be included in their reported sales number. But again, our focus is more on what the market rent for that space is as opposed to necessarily what the tenants' sales are going to be out of that space.

Good. Appreciate the color. David E. Simon - Chairman & Chief Executive Officer: Sure, thanks.

Thank you. Our next question comes from Caitlin Burrows with Goldman Sachs. Your line is open. Caitlin Burrows - Goldman Sachs & Co.: Hi, good morning. You kind of touched on it earlier, but you guys have two ground-up outlets in process now for being developed in Virginia and Maryland and a number of full-price mall expansions going on. So how would you describe the demand for that space either outlet versus full-price or either one versus itself a year or two ago? David E. Simon - Chairman & Chief Executive Officer: Well, I would say to you that the only – first of all, Clarksburg is going to – I mean Columbus, where we partnered with Tanger was 100% leased I think, maybe there's a couple of vacancies. So that was not impacted at all. We've got Clarksburg, where I think, it's going to be a great development, opens up in Q4. We've got – in that case, we are bringing in a very, what I'd call a high end mix, because we really kind of want that to be ultimately kind of the Woodbury – this is an over exaggeration, so don't hold me to it, but we wanted to kind of be the high end fashion outlet for the mid-Atlantic more or less. And so there's – those retailers sometimes getting them to commit to a new outlet is a little longer process, because in a lot of cases, they don't manufacture for it and it's a function of their full-price strategy. I won't bore you with all the ins and outs of that, but that's going to deliver – we're going to deliver a great mix, and I think the demand has been excellent and we're going to hold a couple of spaces just to fill out the kind of the unique mix there and I'd say that the – I'd say the outlet demand for new product is good. It's not – it really hasn't changed. The only thing that I would say for new projects is the luxury-oriented folks are taking a little bit of a more – a little bit of a breather – a lot of that because of what's going on with tourism. So that's a little bit what I'd call softer than it might have been a year plus ago. But not material as evidenced by the mix that we're producing at Brickell which is going to be a great project that the three partners have worked very hard to produce. Caitlin Burrows - Goldman Sachs & Co.: Okay. And then it seems like over the past couple years, some kind of bright spots at the mall in terms of who's been opening and who's been doing well that you and your peers have talked about includes fast-fashion and restaurants. So was just wondering if those types of mall tenants are still generally looking to have larger stores or more stores or just generally doing maybe better than the other apparel type guys? Richard S. Sokolov - President, Chief Operating Officer & Director: Hi, this is Rick. We are continuing to very much focus on the addition of restaurants and food throughout the portfolios. There is still a considerable amount of demand. Just to let you know, last five years, we've added almost 200 restaurants across our portfolio. We had 25 last year. We have another 53 scheduled to open this year and next year. And so they're also finding substantially increased productivity when they are associated with our projects as opposed to a freestanding pad and that has certainly helped that demand. In terms of the other tenants you alluded to. Certainly, the international tenants are continuing to grow. We've got and we've already talked about e-tailers, we've got brand extensions. There is still considerable demand for our space, and we're doing okay. David E. Simon - Chairman & Chief Executive Officer: And, as Rick said, the restaurant demand is great. Richard S. Sokolov - President, Chief Operating Officer & Director: Yes. Caitlin Burrows - Goldman Sachs & Co.: Great. Thank you. David E. Simon - Chairman & Chief Executive Officer: Sure.

Thank you. Our next question comes from Alexander Goldfarb with Sandler O'Neill. Your line is open. Alexander D. Goldfarb - Sandler O'Neill & Partners LP: Good morning out there. David E. Simon - Chairman & Chief Executive Officer: Good morning. We are out here. We are out here in the Great Midwest. Alexander D. Goldfarb - Sandler O'Neill & Partners LP: Increasingly important part of the country this year. David E. Simon - Chairman & Chief Executive Officer: You bet, you. Alexander D. Goldfarb - Sandler O'Neill & Partners LP: So just a few questions here, David. First, you guys obviously disclosed your rent spreads, and those sort of stats, and stay up (31:55), but can you give a little bit more color on sort of same-center ancillary income growth. As you guys have rolled out that program, is it still growing, is the growth really coming from rolling out more and more ancillary at each mall, or is it more or that maybe you've maxed out individual malls, so that more of the growth is coming as you roll out different programs to new malls and outlets too? David E. Simon - Chairman & Chief Executive Officer: Well, I would – let me give you just a big picture view. I would say, it's actually in the – when you ancillary a lot of – put kind of our SPV effort to a side, we've actually reduced it pretty significantly in our high end portfolio. So we've cleaned out what I'll call a lot of stuff. And again, we think that's the right thing to do. It's maybe, it's clearly costing us some income, but at the end of the day, we think it's the right thing to do. So, if you look at kind of our high end portfolio, we've cleaned a lot of stuff out. And we're very sensitive to creating the environment where those retailers can do the most business. So, if anything, we've suffered dilution, and you know how I love cash flow but I've got to do – I've got to balance that. So we've actually reduced that and that's hurt us over the last few quarters. In the outlet business, it's probably picked up a little bit. So there again – there is an answer for everything, but I think we've done a – we put in some, what I'd call, veteran mall people to kind of run that business over the last couple years, and they've actually done a pretty nice job, increasing those ancillary. So, up in outlet, down in the high end malls, pretty significantly, and I think the rest of it's kind of commensurate with the marketplace. Alexander D. Goldfarb - Sandler O'Neill & Partners LP: Can you – but as far as the reduction at the high end malls, can you just give sort of a magnitude like a percentage like if you had a – was it a 5% reduction to overall ancillary income, 10% when you look in the aggregate what you guys do? David E. Simon - Chairman & Chief Executive Officer: It's enough for me to notice, but we put it all in our numbers and our numbers are our numbers, so I don't want to get into what amount, but it's been – it could be – let me frame it this way a little bit. It could be, at a big mall, $1 million bucks, how's that? How's that if you really want to pinpoint the – on something. Alexander D. Goldfarb - Sandler O'Neill & Partners LP: $1 million...? David E. Simon - Chairman & Chief Executive Officer: Yeah, at a big mall. At a big mall, it could be $1 million. Alexander D. Goldfarb - Sandler O'Neill & Partners LP: So $1 million going away? David E. Simon - Chairman & Chief Executive Officer: No, no. At a big mall – at one big mall. Alexander D. Goldfarb - Sandler O'Neill & Partners LP: Okay. David E. Simon - Chairman & Chief Executive Officer: Okay. So we've done it at a handful of malls, but at a big mall, it can be $1 million. Alexander D. Goldfarb - Sandler O'Neill & Partners LP: Okay. That's helpful. Second question is, just looking at your European portfolio, obviously, a lot of unfortunate tragic events that have occurred, what has been the impact at the retail level? Have – is it people are going forward and life goes on or have you seen any impact to either tenant openings or sales or anything like that or maybe just increased expenses from things that have to be done? David E. Simon - Chairman & Chief Executive Officer: Well, in our ownership interest again, we have basically two ways we operate in, in Europe. We own properties through – primarily through McArthurGlen. And then we have our ownership interest in Klépierre. Klépierre is a public company. I think they reported today. And their numbers have been pretty good, look at retail sales. The only country that I'd say which is not insignificant here that's a little bit underperforming, but still up, is in France. And I don't know that I'd necessarily equate that to the – what's happened terrorist-wise, but just France general economy is a little bit behind, say Italy, Spain and the Netherlands and Scandinavia and so on. So but that's – all that data is out there for you. I think their business is actually pretty decent and they chug along. We see no impact whatsoever in our McArthurGlen portfolio. Look, they have – their assets are in a lot of cases tourist-oriented. And so if tourism changes they'll have that you'll see that impact a little bit. But we haven't seen it so far. Their numbers have been pretty impressive year-to-date. Alexander D. Goldfarb - Sandler O'Neill & Partners LP: Okay. Thanks a lot, David. David E. Simon - Chairman & Chief Executive Officer: Sure.

Thank you. Our next question comes from Christy McElroy with Citi. Your line is open.

Hi. Good morning, Michael Bilerman as well. David E. Simon - Chairman & Chief Executive Officer: Good morning.

Just a follow-up on the department store recapture. To what extent do you think we'll continue to see department store closings? And how do you think about sort of the economics of redeveloping a box like that in terms of the cost per square foot of the redevelopment and then looking at sort of the rent that you can get on new tenants versus the increased rents of the department stores currently there? David E. Simon - Chairman & Chief Executive Officer: Christy, first off, all of our recapture activity has been included in all of our development yield tables. And I think we've said that we work it out and we get comparable yield that we can get in the rest of our development projects. There's a range from the high single-digit, low double-digit. We've identified the boxes and every deal is unique as to what the costs would be for redeveloping the box. Is it a full box user, are we splitting the box? How the box is configured? But all of those yields are in and the most important thing is that we've been able to produce our results and we've had a great deal of activity in that sector as witnessed by all the anchors that we continue to add across the company.

And are you closer to executing on some of the Seritage deal? David E. Simon - Chairman & Chief Executive Officer: I'm sorry, could you repeat that?

Are you closer to executing on some of the Seritage projects that you've discussed... David E. Simon - Chairman & Chief Executive Officer: Well, we're again working with Sears on the economics and configuration of their downsizes. As soon as we have that in place, we'll be able to proceed. We have identified and have firmed up commitments for the vast majority of those boxes.

Hey, David, it's Michael Bilerman. I had a quick question on the balance sheet. Back at our conference in March, you talked about wanting to sort of hoard more capital at this stage, rather than spending a lot of capital. And if you look at the balance sheet today, it's the best it's ever been in your entire history. You talk about $6 billion of liquidity and significant amount of balance sheet capacity and unbelievable cost of capital. How should we interpret that position? And is it gearing up to be able to be opportunistic in the next cycle or still within this cycle? And how should we think about the capital that you have? David E. Simon - Chairman & Chief Executive Officer: Well, look, I love being in the spot that we're in. We have no plans. As you know, we said it publicly, we're out of the big deal business. I mean I reserve the right to change my mind I guess. But if you ask me today, I'm out of the big deal business. Eventually, as we all know, there's going to be cycles in our – in economic world that we live in. And Rick and I are grizzled veterans, when it comes to real estate, recessions and stuff. I mean so it's always good to be in that spot. Obviously, Andy is here. We've worked very hard to be in that spot. It allows us to grow our dividend. It allows us to put capital back into the business that feeds on itself. So I think pretty much nothing's changed, Michael, it's business as usual. We have no intention of really doing anything with that other than continuing to build that. And I don't if there'll be a cycle. I have no idea, but we are out of the big deal business and we're going to maintain that kind of liquidity and capital, primarily to – that's the balance sheet we want. We think that should be valued by the market. I'll let you decide whether it is or isn't. I don't know and it allows us to reinvest in our portfolio. I think the one thing that that we all talk about physical retail and we talk about physical real estate and I don't care of what, whether it's an office, a hotel, a mall or strip center, if you don't have a good looking product and you're not, your customer's not going to show up. And if you're – if you got an apartment building, you got an office building, you got a mall, you got a strip center, you got a physical retail store, if it doesn't look good and then it's not, doesn't have the right services, and it doesn't have the right tenant mix or clientele, you're going somewhere down the road, that's the competitive society that we live in. And I think our capital allows us to try. We don't execute this the way, I think we can continue to be better, much better in this. But our balance sheet allows us to have a really, really, really good looking physical product and we've got a lot of work to continue to make it even better, better, better. And I would encourage anybody that owns physical real estate or leases physical real estate, that's our goal, that's our job. You got to have – I mean, just like if you're Boeing, and you're manufacturing airplanes, you go to their manufacturing facility, I guarantee it's state-of-the-art beautiful, and that's what they do with their capital.

Right. And you're still earning very good returns on that incremental investment so it's creating a lot of underlying value as well? David E. Simon - Chairman & Chief Executive Officer: And that's why we have the balance sheet that we've got today.

Right. Well, then the question is whether you think there's going to be something bigger from an investment perspective at your assets that you want to position for, right. So being able – Christy asked about the department stores, whether you'd become much more aggressive at putting a lot of capital and being very aggressive in the near-term to sort of attack that, right, having to – it's not being out of the big deal business buying someone else, but you can certainly produce something internally with your own space that may require above average capital spend for a period of time? David E. Simon - Chairman & Chief Executive Officer: Yeah. I mean, look, I think with all the activity there, I think we see that kind of continuing at the pace that it's been. I mean we've been obviously very active the last few years doing that, and lot of this good stuff is coming online. So I think, if outlet new development slows, I mean that's more capital that we can dedicate to getting the box money back. So I kind of see that as a steady state frankly. So, but I don't – we're not warehousing capital to do some big transaction. It's basically to continue to be a appropriately rated company and continuing to have the capital to invest in our products. That's the goal.

Okay. Thanks, David. David E. Simon - Chairman & Chief Executive Officer: Sure.

Thank you. Our next question comes from Paul Adornato with BMO Capital Markets. Your line is open.

Thanks. Good morning. Was wondering if you could provide an update on what you're seeing in terms of traffic at your properties, appreciate your comments on the tourist visits, but what else are you seeing in terms of traffic? David E. Simon - Chairman & Chief Executive Officer: Well, you may have missed this. In the outlet business, our traffic is up 2.65% year-to-date, even though spend is down in some of the tourist-oriented centers. Richard S. Sokolov - President, Chief Operating Officer & Director: On the malls, what we're finding is that the traffic is stable, and interestingly, I know a lot of retailers have reported decreased traffic. What we're seeing is that the consumers are still in our properties, but they are visiting less stores on each visit, and it gets back to David's point about the physical presentation. Our retailers need to have stores that present compelling reasons for these consumers to visit them as they're walking our properties. So there will be less traffic because they're stopping in less stores, but the measures that we look at, the traffic in our properties overall is stable.

And so, as a follow-up, whose problem is that when it comes to leasing? Does that fall back on the retailer or ultimately you need to attract that retailer as well? David E. Simon - Chairman & Chief Executive Officer: Well, I think, listen, we're going to take responsibility as well. The retailer needs too. I think we're all in this together kind of deal. So we've got to have the right retail mix. We've also got to be able to introduce technology in the mall that gets people to visit. I think what Rick was really saying is that with all of the research that's done by consumers and when they go to the mall, they're not probably doing as much window shopping as they probably have done historically. They're more kind of on a mission to – they know they want to go to these three stores. It's our goal, and obviously the retailers' goal, but it's our goal to get them to spend more time, more time means more spend and visit more stores. We have to take some of that responsibility as well. We're certainly not shirking that. And I think that's where technology can help us do that.

Great. And so what specifically are you rolling out and how is that going in terms of... David E. Simon - Chairman & Chief Executive Officer: Well, we got – we have much too long of a conversation to do that, but there's a lot of communication that we're doing directly to the consumer that we will hope, we'll hope that it will get the consumer to stay longer as well as visit more stores. The communication helps visit more stores. Staying longer I think is on ambience, a diverse – more mix, restaurants, entertainment, et cetera, that will help in that cause.

Great. Thank you. David E. Simon - Chairman & Chief Executive Officer: Sure.

Thank you. Our next question comes from Vincent Chao with Deutsche Bank. Your line is open.

Hey, good morning, everyone. David E. Simon - Chairman & Chief Executive Officer: Good morning.

I know we've talked about the rent spreads earlier, but just curious in the context of the commentary about the overall economy being soft, that's been your commentary for quite some time as well as... David E. Simon - Chairman & Chief Executive Officer: By the way, have I been accurate in that? I just want to know.

No, you have been accurate. No question there. I guess the question is just around sort of pricing power with your tenants, I mean however you want to define it if rent spread's not necessarily the best metric. Just curious if there's been any change there? David E. Simon - Chairman & Chief Executive Officer: I said rent spreads, somebody asked me a question, I explained to you that we put amendments in our rent spreads, okay. And if I had to isolate – again, I think the $8.88 is pretty damn good, but if you had to isolate, why wasn't it 17%, it's because of certain amendments where we're taking the decision either to work with the retailer or do it more of on a temporary fashion while we re-lease the space which makes economic sense. And again I would also point out that year-to-date our comp NOI is up 4%, 4.1%. The economy is growing at 1%. I don't know, you tell me what it is. You got a bunch of people on your payroll that will tell you what the economy is growing. Maybe not on your payroll, but on the bank's payroll. And we're outperforming 300 basis points which is not – You got to put it in perspective, so what's your question?

I guess the question was regardless of the spread, I mean how are you thinking about pricing power with your tenants today versus maybe six months ago or a year ago? David E. Simon - Chairman & Chief Executive Officer: I think every – we don't have a cookie cutter commodity product. So every deal is different. In some cases, we have pricing power. And frankly, in some cases, we don't because of whatever, competitive situation, bad space, mediocre asset. In some cases, we have great space, great asset, high demand. We put it all in the blender, we produce the results that we produced. And I don't – I can't answer – I don't have a cookie cutter answer for you. I mean it is deal-by-deal. We are driven deal-by-deal, space-by-space, lease-by-lease. We've been doing it for a lot of years and that's what we continue to do. And there's just no easy answer I can give to you. Other than all of that dynamics of what I just described, funnel into our numbers, that funnel into the results, and then we declare our results.

Okay. That's fair enough. Another question just – in terms of the investment side of things, I know you're out of the big deal business here, and you also said that, you're not really seeing any real impacts in Europe as of yet. But I was just curious if you – do you expect to see some opportunities open up over there particularly in the UK, obviously, the dollar is strong right now, so it would help the investment case, although I know that's not your focus, but just curious how you're thinking about the investment opportunity over there? David E. Simon - Chairman & Chief Executive Officer: Well, look, I think all of those transactions are very difficult. I mean I – here is my short answer on the UK, so I offered a company who bought an asset, diluted the company's shareholders down by 25%, I offered £4.25, they told me the company was worth £6.50, and the stock today is trading at £2.70, okay. So I'm not enthralled with – I think the UK – it's impossible to make deals happen unless somebody wants something to happen. So I'm out of the big deal business. The UK, I've no interest in the UK where – other than I have a affinity to a football club there that I really love, okay. But, beyond that, I doubt that there'll be any great opportunities in those markets...

Okay. Thanks a lot. David E. Simon - Chairman & Chief Executive Officer: Yeah, no worries.

Thank you. Our next question comes from Rich Moore with RBC Capital Markets. Your line is open.

Yeah. Hi, good morning, guys. David E. Simon - Chairman & Chief Executive Officer: Good morning.

Go back (53:55) if I could to the Seritage stuff that a couple of people have asked about. The first thing, Rick, I'm curious, I thought when these were all set up originally, each of the boxes, there was a specific plan laid out for which part Sears would get and which part Seritage would get. And so are you guys negotiating to try to change that or try to take more of the space, I guess from the Sears... (54:23)? Richard S. Sokolov - President, Chief Operating Officer & Director: The primary discussion is just on the cost of implementing the agreed upon downsizes. In a couple of instances, the way that we've been able to procure users would make it more efficient for both Sears and us if there were slight reconfigurations, but that's not the issue. It's just a process of, you talk about loading docks and separating air conditioning systems and vertical escalation systems and entrances, it's just a complicated process that we're going through.

Okay. Then I find also then on that, you hint at some point the landlord has to provide Sears with a six-month notice to vacate and then they have six months to actually leave the property, have you guys given or I guess has Seritage given or the joint venture given notice to Sears yet to vacate those various assets? Richard S. Sokolov - President, Chief Operating Officer & Director: We have not and we will not until we have a firm understanding of what our capital requirements are and what our returns are going to be, and we can't do that until we finalize these discussions.

Okay. So none of the stores have been given that six-month notice? Richard S. Sokolov - President, Chief Operating Officer & Director: No.

Okay. And then the last thing guys is, do you still own the Seritage stock that you got as part of this whole transaction? David E. Simon - Chairman & Chief Executive Officer: Yes.

Okay. And you plan to keep that I guess, is that the idea? David E. Simon - Chairman & Chief Executive Officer: I mean the plan, plan is a funny word, right. Hard to say, Rich. No real – just hard to say.

Okay. All right. Good. Thank you, guys. I appreciate it. David E. Simon - Chairman & Chief Executive Officer: Yeah, no worries.

Thank you. Our next question comes from Ki Bin Kim with SunTrust. Your line is open.

Thank you. So just a broader question about market rents for A malls, if look back at a couple two years of leasing activity, you roughly signed rents at $68 of square foot to $70 a square foot, I would think over a two-year period or more, the noise of good spaces versus bad spaces probably gets out of your away with law of large numbers. So just curious, do you think market rents on average for your product has grown recently and what do you think will happen going forward? David E. Simon - Chairman & Chief Executive Officer: Well, we don't – we give you every year our earnings estimates, our comp NOI estimates, and that's made up of a lot of things, and including our view of what certain spaces are worth and what we think there'll be – the rents are. So I mean I don't know what else – I mean, that what else I can tell you that other than what I've already said earlier. We haven't backed off or – if anything, we've increased our guidance. We haven't backed off our comp or portfolio NOI. We've actually outperformed so far. All that kind of ultimately shows itself kind of our view. And, again, we don't have – it's not like we can – it's – we're not a hotel, so even if we – our market rent view changed up or down, I don't control the – they have a lease there. So, again, it's only going to impact, what, 8% of portfolio per year. So we always – take an example, let's say we got nervous and we cut all these bad deals, wouldn't really impact us at the end of the day because it's only 8% of the portfolio per annum. Now, if you did it several years in a row, we catch up with this. So, again, market rents, it's not – I don't mark my portfolio up or down every day like I do a hotel business. That's why we have stability of cash flow. That's why we can withstand cycles. That's why we've had this history of comp NOI increases, and I don't know what else I can do other than answer it in that fashion.

Yeah. I mean the reason I ask is just trying to gauge the difference between the NOI growth from – stemming from favorable vintage releasing which is any real estate company versus market rent growth. That's why I asked that question. But my second question is more on leverage. You've always done a little mix of European denominated debt or euro denominated debt versus U.S. I'm assuming that spread has gotten more favorable towards the euro. Any change in larger plans of how to refinance from debt coming due, maybe more geared towards Europe versus here? David E. Simon - Chairman & Chief Executive Officer: No, I mean we're pretty much hedged on the margin, and so we're not going to get over allocated to euro. We're only going to finance kind of what our investment base there is and we are pretty much hedged. So, if we – even though there may be a rate differential, we'd have to swap it back to the U.S. dollars because otherwise we would be over allocated and we are, as I said, we're hedged. And that could be something we would look at. But we – to me, it's a little too cute. I'd rather finance my U.S. assets in U.S. dollars, and my European assets in European dollars, and my Japanese assets in yen, and the currency fluctuations are the currency fluctuations and we have the natural hedge with our investment base. And that's been the strategy. I don't think it'll change.

Great. Okay. Thank you. David E. Simon - Chairman & Chief Executive Officer: Sure.

Thank you. Our next question comes from Michael Mueller with JPMorgan. Your line is open.

Thanks. Hi, just have a couple quick numbers question. One, are there any material Crystal acquisition costs in the quarter? And then, secondly, your occupancy cost was $12.7 million in the quarter. How does that compare to the combined levels that you had in say 2007, 2008? David E. Simon - Chairman & Chief Executive Officer: Well, I mean I don't have – the answer is no, and the first one, and then Tom will get back to you on what our occupancy costs in 2007, 2008 is. I don't recall, frankly.

Got it. Okay. Thank you. David E. Simon - Chairman & Chief Executive Officer: No worries.

Thank you. Our next question comes from Richard Hill with Morgan Stanley. Your line is open. Richard Hill - Morgan Stanley & Co. LLC: Hey, good morning. Two quick questions from me. I'm sorry if I missed this previously, but you mentioned about the anomaly with some sort of sales restrictions in a particular state, and again, I'm sorry if I missed it, but could you elaborate on that? David E. Simon - Chairman & Chief Executive Officer: No. Richard Hill - Morgan Stanley & Co. LLC: Okay. All right. Thank you. And then, secondly, I know you've said you're out of the big deal business, and you said that there's not necessarily opportunities in Europe. But I look at Klépierre and it does look like it's performing well as you mentioned. Would you consider increasing your stake there? David E. Simon - Chairman & Chief Executive Officer: I think we're very pleased with the position that we're in. Richard Hill - Morgan Stanley & Co. LLC: Okay. Thank you. David E. Simon - Chairman & Chief Executive Officer: Sure. Richard Hill - Morgan Stanley & Co. LLC: No more questions from me. David E. Simon - Chairman & Chief Executive Officer: Yeah. No worries. Thank you.

Thank you. Our next question comes from Tayo Okusanya with Jefferies. Your line is open.

Yes. Good morning. Just a quick question around the lease amendments that you talked about earlier on that has some impact on releasing spreads. Is there any other detail you can kind of share about those amendments, kind of how they come up, why the decision was made to actually do them? David E. Simon - Chairman & Chief Executive Officer: Well, it's a lease-by-lease, store-by-store, mall-by-mall analysis. And I mean we make judgment call, that's what we do every day, judge. Do we want to re-lease it, how, what's the downtime, is – does it give us time to re-lease it, on and on and on. So it's 50 years of experience that goes into that.

Okay. And there is a mix of tenants like large national guys and local guys, and it's like a whole mix of people, that are kind of impacted by that? David E. Simon - Chairman & Chief Executive Officer: Yeah. It's just the nature of our business for many, many years about what the right thing to do is with that retailer in that specific space.

Got it. Okay. Thank you. David E. Simon - Chairman & Chief Executive Officer: Yeah. No worries.

Thank you. Our next question comes from Floris van Dijkum with Boenning. Your line is open. Floris van Dijkum - Boenning & Scattergood, Inc. (Broker): Great. Thank you. I'll keep it very short because I know there are some other calls coming up, but David and Rick, quick question. Your vision of the mall in five years, how is the tenant composition today going to change in your view in terms of the percentage of, for example, entertainment as a percentage of the overall mall tenant base? David E. Simon - Chairman & Chief Executive Officer: Well, look, the simple answer is there's no cookie cutter answer, and it's all going to be – the mall business and the retail business, you can have these big overwriting things, but the reality is how it gets executed really focuses on trade area-by-trade area, layout-by-layout, physical configuration-by-physical configuration. And so therefore, there's no overall answer to that, other than simplistically, I think the mix will be more diverse. There will be more entertainment, more food services, more other services, and there'll be technology in it to enhance the shopping experiences. There'll be more services, but how that all gets computed into one particular scenario will depend differently on the North side of Indianapolis versus the South side of Indianapolis. So that's just the nature of our projects, and the good news is we've got an organization that can figure out, I hope the North side of Indianapolis versus the South side of Indianapolis and what's right for that trade area. That's simple answer. Floris van Dijkum - Boenning & Scattergood, Inc. (Broker): Okay. Just curious, what's your favorite football team? David E. Simon - Chairman & Chief Executive Officer: Crystal Palace. Floris van Dijkum - Boenning & Scattergood, Inc. (Broker): Okay. Great. Thanks. David E. Simon - Chairman & Chief Executive Officer: No, worries.

Thank you. And I'm showing no further questions at this time, I'd like to turn the call back to Mr. David Simon for any closing remarks. David E. Simon - Chairman & Chief Executive Officer: Thank you and have a good rest of the summer.

Thank you, ladies and gentlemen, for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.