David Simon of Simon Property: worst of the economic downturn in 2009

Simon Property Group, a real estate investment trust (REIT), that owns real estate properties primarily of regional malls, Premium Outlet centers, The Mills, and community/lifestyle centers in the U.S. and abroad (Europe, China, Japan) announced second quarter FFO topping Wall Street expectations. Despite the good results occupancy rates in the mall portfolio was down during the quarter. CEO David Simon sees the worst of the economic slowdown manifest in 2009.

Here is what David Simon, Chairman and Chief Executive Officer had to say during the call: Occupancy in the mall portfolio was down 20 basis points as compared with the year earlier period. Square footage lost to bankruptcy for the first six months of 2008 totaled 151,000 square feet as compared to 30,000 square feet during the first six months of 2007.

As we discussed in the first quarter, the decline in the premium outlet occupancy is primarily due to lease terminations or bankruptcies of four tenants comprising about a dozen spaces and the late March 2008 openings of Houston premium outlets and Phase 2 of Rio Grande premium outlets, we expect occupancy within the premium outlet portfolio to return to previous levels.

David Simon:
I’d just, Paul, though, it is, we’re going to have more store closings in ’08 and in ’09 than we did in ’06 and ’07. I mean there’s no ambiguity about that. Now again, we still think the way we operate and the way we’ll still be bale to grow our cash flow, but we’re going to deal with more store closings in ’08 and ’09 than what we have at least in the last couple years.

Now the one thing I will say at this point, the cycle that we’re in doesn’t feel like or seem like anything different from a retail perspective that we haven’t already dealt with previously unfortunately numerous times. So at this point, it feels like/seems like kind of something we’ve done. I’d say a déjà vu all over again, but we’ve seen it.

David Simon:
Well, I think it’s tough because we’re I think kind of in the… We’re in the first half of the downturn let’s say, okay. It’s a very tough judgmental call. I do think we’ll see the worst of it manifest itself in ’09, not ’10. But a lot of the story hasn’t been written and clearly the trend of better properties getting better and worse properties getting worse is only going to accelerate in a tough economic environment.


source: Simon Property Group, Inc. Q2 2008 Earnings Call Transcript
Seeking Alpha http://seekingalpha.com/article/87498-simon-property-group-inc-q2-2008-earnings-call-transcript?source=yahoo&page=-1