Q3 2019 Earnings Call
There will be a question and answer session to ask a question. During the session you will need a press star one on your telephone if your acquire any further assistance. Please press star zero. Please be advised the today's conference is being recorded I would now like to hand, the conference over to your speaker today Mr., Tom Ward Senior Vice President of Investor.
Our relations. Please go ahead Sir.
Thank you should be good morning, everyone for joining us today presenting on todays call, David Simon Chairman Chief Executive Officer in person.
On the color Rick Sokolov boys children for integrated Chief Financial Officer credibility, Chief Accounting Officer.
Before we begin a quick reminder, that statements made during this call may be going forward looking statements within the many of the Seaport Global Securities Litigation Reform Act of merchandise, but.
Actual results may differ materially.
Worthy of risks uncertainties and other factors. We refer you to today's press recently filed for a detailed discussion of the risk factors relating to those forward looking statements. Please note that this call includes information or maybe I could tell me I'd love to these days reconciliations of non-GAAP and its emergency most directly comparable GAAP measures are included within the goes away.
In the supplemental information today's for Mercury filing based approach, we couldn't supplemental information or go border their workforce.
Doctors don't sign a dotcom so prepared remarks that persisted through the fun alright. Good morning, we had a very busy and productive quarter.
And very pleased with our financial results for a results of the quarter were highlighted by funds from operation.
1 billion.
81 million were $3 in a five cents per share.
We achieved this consensus this quarter even with.
A certain on and on unanticipated retailer bankruptcies reduce property level in Hawaii from the acceleration of properties undergoing significant developed redevelopment such as northgate compared to our budget reduced overage rent from tourism spending including.
The negative in from the continued strong U.S. dollar and lower distribution income.
From a certain from certain international investments, we continue to grow our cash flow and report solid key operating metrics Copping, Hawaii increased 1.6% for the third quarter.
Total portfolio increased 1.3% for the quarter portfolio and a why was negatively negatively impacted by 50 basis points due to properties undergoing significant redevelopment and the unfavorable FX impact due to continuing strong dollar year to date comp in Hawaii.
Has increased 1.7% retail bankruptcies negatively impacted our capital y. by over 100 basis points.
In the third quarter, as a reminder, or Japan premium outlets and designer outlets in Europe produce over $1000 in retail sales per square foot and all of our 26 international outlets, excluding Canada, which is in our.
Basically north American portfolio generated coppin NOI growth of 6.3% on a constant currency basis, which as a reminder is not included in our copper NOI and if you did that we'd be well over 2%.
Retail sales momentum accelerated.
In the third quarter reported retail sales per square foot.
Malls and outlets was $680 compared to $650 per foot an increase of 4.5% leasing activity remains solid average base minimum rent was $54.
And 55 cents, the malls and premium.
Lets recorded leasing spreads $12.10 an increase of 22.
22.2% or malls and outlets occupancy ended the quarter 94.7, an increase of 30.
Ah basis points compared the occupancy at the end of the second quarter and again tenant bankruptcies affected that by roughly 60 basis points on an N.Y. weighted basis.
Excluding our international outlets, which I discussed above reach reported were as follows read reported retailer sales on an N.Y. weighted basis is $867 compared to 680 per foot and NOI weighted sales growth was 6.1.
Percent year over year compare compared to 4.5% as mentioned occupancy is 95.8% compared to 94 average base minimum rent a $73.14 compared to the 54 55 number and our weighted comping a wall and alike.
It would be 2.7% we started construction on new premium outlet in Tulsa, Oklahoma scheduled to open in the spring of 2021.
Construction continues on for other new International outlet development, Malaga, Spain, Bangkok, Thailand, West Midlands, England and not a.
Not to forget Normandy, France, which we expect to.
To be a terrific new outlet center, we had a very busy quarter.
In terms of completion of redevelopment projects.
Particular expansions on several of our high performing international outlets, we opened.
Moving to in South Korea, and one in Vancouver out or ER Vancouver designer outlet in Canada. During the quarter. We started construction on our significant redevelopment Tacoma mall and at the ended the third quarter.
We have 30 properties across all of our platforms in the U.S. and internationally with the share of the net cost of approximately 1.4 billion and as a reminder, this is being funded by our internally generated cash flow.
We announced and as Youre aware, we closed on our new venture with the root gilt Groupe to combine our shop premium outlets marketplace with RG Jews highly successful successful rule out a lot and guilt, creating a new multi platform dedicated to digital value.
Being we're very excited to expand our omni channel capabilities in partnership with RG, which is a very profitable company with significant sales our industry, leading capabilities and the physical outlet space combined with the Rgs exceptional ecommerce success.
We'll give shoppers and enhance access to the world's best brands and most compelling deals.
Both online and in store you saw the announcement this week regarding strategic investments I won't have the labor that other than we're very excited about the the transactions that were investing in lifetime fitness pinstripes Sohot core arm sports illustrated.
I'd sports.
You can now for those of you that.
Really like gaming please enter the assignment Cup.
We we encourage you to do so you'll have a lot of fun.
But I will not be a funding the analyst its impact one of you win.
Look for us to open sports illustrated sports gaming restaurants, and the future. So now balance sheet. We completed three trot senior notes totaling $3.5 billion as a coupon rate of 2.61% average weighted terms.
15.9 years, our offering mark industry milestones prior to know ish prior to our issuance no real estate company. It ever issued 1.25 billion, a 30 year bonds in a single issue issuance and the interest rate for each of the Traunches was the lowest achieve.
By any real estate company for similar notes.
We in October completed our for early redemptions of our senior notes totaling $2.6 billion and during the quarter, we repurchased 1.15 million shares after the bond redemptions, our liquidity stands at 7 billion balance sheets in great shape.
We announced a dividend at $2.10 per share 85.
<unk> percent increase year over year, we'll pay $838 in 30 cents per share in dividends in 2019, that's an increase of 5.1%.
Compared to all of last year, we've grown the dividend more than 8% over the last few years and as a reminder, or annualized dividend yield is greater than 5%, which is more than 350 basis points higher than the 10 year Treasury, which is it the basically at a record spread.
Were more than 1.5 times covered.
In terms of our dividend coverage for our CFO .
And we paid out since we've been public now well over $30 billion.
A lot of Doe now just to update finally.
Guidance is $12.
To 12, five which is an increase of three cents from the bottom end of the range after giving effect to the 33 said debt extinguishment charge as we outlined for you when we did our notes deal.
A month or so ago, so thats it we're ready for questions.
As a reminder to ask a question you need a press star one on your telephone to withdraw your question press the pound. Please standby, while we compile acuity roster.
And our first question comes from Craig Smith with Bank of America. Please proceed with your question.
Oh, great. Thank you.
I just wanted to talk a little bit I mean, you've been very active in terms of developing your experiential tenants.
For your assets and I, just wonder how high could you taking this penetration.
In the next phase two or three years.
Well I would say to you the.
The level of interest and.
New.
Retailers in this category continues to.
Amaze us they actually are very interested in our real estate so.
Despite the negative narrative that you see from a you know the general media they all want to locate in the mall.
And in our real estate and I think.
We're just at the beginning to that so I continue to.
Expect us to redevelop our assets.
With those kind of retailers.
Significantly over the next decade.
Yes, I was just just thinking about the south Delaware, you're replacing the appendix with the lifetime.
Assets.
Kind of list could that give to that center.
A significant I mean, they they'll.
They'll have 5000 members, they're great for the community.
They are without question the best operator of a lifetime resort.
In that whole industry, they blow everybody away.
They are great partners.
Good friends.
And we expect continued.
Growth there there the reinforce our real estate as a place for the community and.
No I couldn't be prouder, working with them side by side and as partners.
We also have they also have a world class shareholder base.
So you know that's that's a as we create kind of.
Next generation of our company, we're associated ourselves with World class entrepreneurs partners investors.
You know, we could sit here and talk about selling it out lot for $4 million, but I encourage you to think about our company differently.
Okay, and then just lastly, I know we've.
Just on this that you're seeing the human resources and permits.
Are probably more of a generator then your access to capital been.
Are you thinking you might have to accelerate some.
Your capital spend in the next few years, just given the Redev development should be doing any and you seem to continue to be on pace for whether it's the new developments and in the European outlets.
Cetera.
I think it's going to be relatively no within.
No.
Margin of error relatively consistent with what we've been doing the last couple of years correct.
So.
We're spending a billion to a billion than they have per year, that's not going to jump up to two and a half billion just because of what I would.
Because of some of the constraints that we have not financially, but just you know execution. So I would expect us to continue to be in that range over the next.
A few years.
Okay I appreciate it thanks, Yeah sure.
Our next question comes from Christy Mcelroy.
Please proceed with your question.
Hey, it's Michael Bilerman here with Christie.
David Christine I picked up our gold card. So I don't think we're gonna when markets, probably a better chance of doing that than we do.
Again, I would get one of your kids to enter it and then they may have a better shut the new Michael exactly.
If you think about all these investments you're making in a lot of the consumer facing brand and you've talked a little bit about Oh, you went through the lifts on the call.
As reported in the precipice hillhouse.
How house, one was about $100 million, how should we think about the totality of capital that you have out today across all of these different investments. If you look at the balance sheet I'm not sure if it's in the other assets category.
It is that that fatalities gone from 1.2 billion up to 1.8.
Over the course of a nine month can you give us a little bit of a sense of.
The total money that you've put out across all of these different exciting adventures.
Yeah.
Just first of all just to clarify the the.
The increase in the other assets is basically 'cause writing up the leases.
Value I mean, that's the biggest because of the new accounting rules. That's the biggest change. Okay. So you can't go from that number to what we've invested by any stretch for them as you nation. So that's number one number two is to the extent.
That.
We reach materiality, we're obviously going do.
To have to disclose that with our.
In our financial statements in our Q in our K.
You know we show that the other assets is just so you know is the.
And.
Basically the increase in those differ what and it's.
Yeah, It's writing up and that's 525 million roughly when you have to write up your leases to to market with the new accounting rules okay.
So.
We have not reached the the.
I would say it this way, we certainly have not reached our investment.
Our our outside investments to the level of materiality.
That's the first 0.2nd as I look at our embedded gains were basically reinvesting our embedded gains that we had been a arrow in a BG and some of the other a venture group investments into some of these things. So right now we're playing with the houses money.
And it's not material I don't think the Soho House numbers right. So just you know I'm not going to go through each one at each level again I'd encourage everybody tried to think about us a little bit differently, but what we're doing is.
We're making these investments to learn so that we're going to be number one a better company to is.
Creating investments with great partners with great entrepreneurs with great shareholders, I think is going to exponentially increase our.
Our.
Opportunities in our both in our physical and ultimately in a you know in the online world and.
The level of activity that we're seeing.
It's just very encouraging as all I can tell you I mean, I think we're we're at the epicenter of kinda physical online World Entertainment.
In.
Creating a kind of the next generation.
Destination Center and it's we're all trying to put it together, but we're not at this point simple thing to think about is make sure you understand you know that on the deferred assets number one.
Number two is make sure you understand we're not at the materiality.
Level and number three is it's basically we're rolling the embedded gains the way I think about it is enrolling the embedded gains in our future investments, but we're also making these you know not as the learning experience because who cares about learning we're doing it to make money and I expect all of these to.
It's a payoff in the future.
David you've always had been critical to the company success for.
No well over 25 years, you signed your last retention employment agreement back in 2011 that expired back in July where do you think stand in terms of you going without an employment agreement at this point or is that still being worked on.
I have no employment agreement.
So you will just be an employee it will with everybody else.
That's the way, it's shaping up [laughter], yes, that's the answer.
Christy asked the question to Hey, Hey, David Good morning, You mentioned 100 basis point impact I think to combat NOI from bankruptcies in Q3, just to try to get a sense for the impacts that have already incurred been incurred in Q3 versus what could be incremental in Q4, I'm just with regard to the forever 21 bankruptcy filing was there any reserve I know.
Revenue line any impact to same store for nonpayment of pre petition Rand and have you seen any impact to thus far from Barneys, our kitchen collection at this point.
Not at this point I mean, we don't really go through each and every retailer I.
I don't think it's fair given the size of our company.
You know for us to talk about specific retailers I want to.
One of the for on that but the reality is we have these we've updated our guidance we've narrowed the range and all of that's kind of embedded in that so.
No I think the important point is.
You know a number of these were unanticipated from our budget. We told you what our budget was at the beginning of year, we don't update our top in Hawaii as you know and we would have well outperformed it we still you know the biggest variable we've got right now is still the overage.
Rent in the in the our tourist centers.
And we'll see how the fourth quarter shakes out to me, that's the bigger variable than anything else.
But all up kind of all of the noise that is out there from a.
Certain retailers is kind of embedded in our guidance for the year.
Okay. Thank you.
Sure.
Thank you and your next question comes from Steve Sakwa with Evercore ISI. Please proceed with your question.
Thanks, Good morning, I guess, David maybe you are Rick could just talk about sort of the leasing pipeline in the momentum and as you think about 2020, and you know kind of where you sit in terms of leasing for next year and just the tenant demand you know how would you sort as described the environment today versus a year ago, and how do you sort of feel like your shaping up on.
2020 expirations.
Hi, Steve It's Rick in fact agent I'm, Jeff.
Through 12 hour days going property by property and frankly, the environment is still strong there are a lot of tenants that want to access our properties across all three platforms. We are doing a whole lot of leasing so far this year, we've done almost 10 and a half million square.
Pete you see our rents are up our spreads to Rob.
And in a lot of instances spaces that were getting back we're putting in more productive tenants at higher rents.
Okay.
I would you say look.
Next year.
We're I think will will you know we obviously.
No. It does take time, we did we are we are having a high bankruptcy year I mean, there's no denying the unit you know I mean, if it were so.
But as we put together are planned for next year I think we'll be I think will be okay. And you know were hustling, we're finding new tenants you know the biggest set that that I see for next year is not so much replacing the bankruptcy, but really no getting our redevelopment.
Right open.
Got it we have taken a step back this year, a reasonable level of cash flow forget whether its cop or whatever else. You know however, you want to describe it but we've taken a reasonable step back this year because of taking down.
You know properties to redevelop and you know and we are we are never a company that does I've seen so many companies throw away the year in say.
Well, we'll we'll get back to 21, we'll get back and 22, we do not do that so the reality is we're going to come in with comp NOI thats going to be not so bad it's a little variable as I've described repeatedly with our.
You know the tourism.
Slow down, which you know we pointed out.
Six but you know three six months ago and now you will you see it across the board for you know for both retailers and companies that are.
I'm.
Have exposure to tourism and the strong dollar.
But but we you know we are still going to deliver CAPNA why growth, it's not going to be that you know is as one of my euros would say not too shabby next year. We've got a lot of you know we don't give guidance until a as you know ended January I thought.
I think it'll be fine, even with even with the bankruptcies that we've got to lease up and.
The fact that we're still in a massive redevelopment number you know.
And that stuff you know the redevelopment takes time and we are in that we are in that business. We're not in that you know.
But we don't have throw away years, Steve you know that about US no I didn't look I appreciate that I I guess again, not I guess trying to delve a little bit onto the redevelopment and just thinking about you know sort of next year and some of the headwind you have taken down Northgate. This year means you sort of think about I guess.
Those types of projects said is negatively impacted do you expect those to continue number one and then as you just sort of think about the list of bankruptcies. This year and you sort of thinking about possibilities for next year does go list of potential bankruptcies next year look a lot smaller than maybe it did a year ago.
Uh huh.
No no I think listen I think were flushing through most of the do okay. So I actually think.
You know now who knows I mean, but I think we're kind of reaching bottom and 18, all messed up or 19, all that stuff.
It's rivaling what happened in 17.
So it's not like something that we haven't experienced before.
Well, we know what we have to do and again I don't want to get ahead of.
Our guidance, but I don't think I don't think.
You're not going to see.
Dramatic.
Oh, my God from US Okay, when we present our plant.
Okay. Thanks sure.
Thank you next question comes from Caitlin Burrows with Goldman Sachs. Please proceed with your question.
Hi, good morning.
Third quarter same store NOI growth of 1.6% seems like it's the best in the mall sector. So just wondering if you guys. He goes through any thoughts you have on how you're able to differentiate differentiate yourself is scale, helping the mix of property types or something else.
Well you know I mean, I think it's not.
If you look over a long period of time I mean, I think we've we've done that for a number of years. So.
I don't really I don't know I mean, it's a function we have good people good assets with diversified not tied in one particular regional placed and again I just want to you know the fact to the matters. If we put in our international business, which we really don't have Oh, we.
We thought we're thinking about it but you know we don't want to confuse people. So I mean, we'd be well over 2% CCOP and a why growth.
And you know don't forget about our international business. It's 26 assets again excludes Canada, because you know we have.
Canada in our premium outlet business from the get go.
So I don't know just you know, it's we're focused on the business and running a day to day. The best that we can so I don't I don't really want to.
Compare or contrast, but I think it's not it's not this isn't like a first quarter with this isn't the first time, we've done that I guess is what I want to say right Rick exactly listen we grind every nickel everybody pays attention to every aspect of our business on the income side in the.
<unk> expense side, and we've been doing it for very long time, very consistently and we intend to continue to do it.
Yeah, I give me who is the culture. So.
We go through every asset while we're planning we were here till nine o'clock last night, we're not sitting here.
You know planning, how we're going to communicate maybe we should because sometimes you know we garble the message well all the time maybe.
Well, we're so weve in the last two days.
You know going through at least this is we're going through our mall portfolio today than you know next week. We go through the international business in each category I've offered a bilerman to come here and see it but awards, telling me not to do that again.
But the reality is.
We're doing that benign we did it all day Monday to nine we do it all day today, we're right. After this call we're doing it there's no downtime we're not planning you know how to communicate what we're doing we're just doing.
And that's the culture.
Got it Okay, and then I was wondering maybe if you guys could talk about the new outlet and Oklahoma that you're working on just what pre leasing has been like and what other retail options kind of R&D area.
Well, we have a very good mall there.
It is the you know I mean, nothing not to dwell you know dwell too much on.
Demographics, but it's the largest trade area without a without an outlet center.
And we've been working on or for a while on you know based on our success in Denver.
And tenant demand.
So we feel extremely confident we're going to be able deliberate for for good return in a.
You know in a very good market I mean told US is a very good market with good income demographics and.
You know I think it's kind of a it'll it's really our bread and butter. We don't honestly, if we have to pre lease were not the kind of company we need to be so we don't really pre lease.
So to speak.
But we're very confident than a that we'll be able to deliver the product that we want to deliver.
Okay. Thanks.
Yep.
Thank you and your next question comes from Jeremy Metz with BMO capital markets. Please proceed with your question.
Hey, good morning.
David just wanted to go back to Michael's question, a little bit on the Simon ventures, and some of these other investments you made and just hoping you can expand upon your last comment but in response to his just in terms of how do you really think about measure returns for so many just given some of the clear tangential benefits.
Obviously looking to pull from doing these.
Well, the just to be clear.
You know we we these read we expect these returns.
To be similar to what you know private equity type returns.
And they must stand on their own.
But we're making them because we think there's potential to do business with that partner. So there are two separate decisions. One is for instance in lifetime.
It's very simple we looked at a multiple of EBITDA, we looked at their growth we looked at there.
Future and we're very confident that we're going to get a multiple of our invested capital and Oh by the way.
There are wonderful partners.
And we're going to we're going to do arm's length, the business with them going forward and it's a to me that is a perfect scenario of a win win so the investments must stand on their own they must than you know they must be.
And they and we look at them through a private equity lens much like a much like everything else. We've done at the same time, if we can do business with them on an arm's length basis, you know, that's the gravy and and that basically how we look at it and again I.
You know when we expect that we by the way we've.
Yeah, we've had some write offs and our venture group, which is a little these.
Venture groups, a little more at the at the early days of investing you know not in a around may not kind of either BC round.
The C or even DRAM, but the ones that I've announced here.
This week or ones that are basically well established companies. So that's you know this is in many cases growth capital or just solidifying our relationship and we think it's a good investment and again these aren't at the point of materiality.
Again, I want everybody to put the size of our company in perspective.
We are going to make money on those investments one number two is we're going to we are going to.
Learn a lot because a number these companies are the leaders are in their industry and we're not too old Rick and I were close.
Most almost close but we're not too old to learn and.
And I mean, you know not to diverge, but the and we were up but DRG Board meeting last.
Thursday, or Friday, I can't remember, but I mean, the amount that we are going to learn.
In addition to the opportunities that we had as a partnership going forward, but the amount we're going to be a better real estate operator, and this is what I need everyone to try and appreciate.
We're going to be a better real estate operator, the more we know e-commerce , Okay, and the more we know how they entered rate.
And have been partners with one of the best entrepreneurs.
Lastly ever in the ecommerce space one of the early pioneers.
And that team I may just just separates I think ultimately what we're going to be able to do and.
And again I, you know I can't it's I can't say, it's gonna mean, or you know and its and its a profitable company and they do you know several hundred million dollars in sales and all this other stuff, but and we wouldn't have done it had we not felt like the company was worth it but the reality is we're going to and its.
And accelerate our marketplace efforts.
And we're going to be better in the real if we're going to be we're going to make money in that investment, but we're also going to be better real estate operators because of that investment and we're going to know our retailers that are and we do already but.
This is going to take us through another you know hopefully to another level.
And and that's that's you know in technology, and how you integrate it with the physical properties and all you know and with our retailers I think it's going to be very very interesting to see how it all evolves.
Okay, great. Thank you for that and just.
A follow up I have as just on that under Densification projects. All right you removed the disclosure from the south but regardless you obviously have a number of projects going on that are going to deliver hearing I've been 29 team, but really next year and beyond I just wonder if you could talk about the pipeline. What's the total dollars at a gross cost basis today that you're right that you have on.
Under way and I guess, what's beyond what was last disclose I guess last quarter, how much additional opportunities are you working on currently given some of the other meet here for you for capital and it's a bit of a different skill sets I'm, assuming there's a human capacity to how much you can really have going on at any one point along these lines.
I don't read anything into.
The the.
The fact that we took that out so here's why we took it out and you know we could put it back in but number one.
We we if there are under construction and we've approved it it's in our it's in the detail I eat Fips is already in the detail. That's number one number two is we were also outlining other stuff that's being done on on the peripheral of our properties that we aren't doing that I saw.
It was.
No I didn't want to mislead the market somehow even though we asked tricks.
That said that it wasn't our projects. So we took that out and three is the pipeline is so big we weren't having we weren't doing the right discipline of you know what's in there because it is a big big pipeline. So we just felt like it's probably better to communicate it when it's been a Peru.
So the pipeline is actually I didn't want to just live like you know what be at schedule that says here's all the densification, we're going to do I'd, rather just put it in the 8-K when we actually are doing it that's the nature of our company as opposed to you know outlining.
Potential stuff. So the pipeline is continues to be very big Northgate you know if it was northgate continues to evolve it's a billion dollar project.
You know with office residential or all sorts of mixed use stuff. So you know we have the Houston Galleria development again that could have been on a pipe.
But we're not quite ready to start construction. So you'll continue to see what's the number you know over 2 billion to 3 billion. If I had that had to put it put a number on it but will I think we'll just is so much ingrained in our business now there's no reason to separate it. It's just part of our 8-K.
You'll see as we approved deals so I look at it as an evolution.
Our sophistication and our ability to execute as it. So it's just part of our portfolio as opposed to boy. This is a separate distinct.
Schedule doesn't need to be anymore, because it's just part of our part of the nature of what we do.
Got it thanks for the time.
Sure. Thank you and our next question comes from Alexander Goldfarb with Sandler O'neil. Please proceed with your question.
Hey, good morning out there are so it to a two questions first.
Lets walk Alex why did you say good morning out there all the time do you think where that far out.
I I you know I.
It's just a standard hello grading.
So anyway.
Now you're asking me to think I'm, I say, which has tougher [laughter], that's what I said, Oh, sorry about that [laughter] questions.
First on the debt side, obviously, you had strong demand on your unsecured bonds, you price pretty tight Apple.
But maybe you can just talk about what's going on the mortgage market. Some of the folks that we spoken to have said the lenders are you know either pulling back or trying to pair exposure or tightening terms lowering ltvs I mean, we all saw yes, the LTV and the underwriting for the Norwalk. So no mall. So maybe you can just give a sense of what is going.
On the mortgage side of the business and whether it's by asset type is it across the board or is it certain productivity levels.
Of malls et cetera, just a bit more color on there.
Good morning.
So look I think from the mortgage perspective, you know this year, it's been a relatively light year from a maturity profile perspective, but we're much more active next year, you're already in the market on some of those assets and are receiving the solid indications back in line.
Patients are look I think at the end of today, we're not seeing any.
He reduction in appetite, but certainly that's a function of our asset quality.
And so what we spend up market is going to be there I understand that there's a few deals that are out there now that will get price here in the next six to eight weeks, which will further provides price discovery in that marketplace, Yeah and look I think.
You know our would or would we reaffirm.
Brian's points, but also just add a couple of things number one is.
Sponsorship in.
And again not that I'm, not reflecting any other deals that are out there, but sponsorship is the case for everybody sponsorship.
As a critically important.
That's number one.
And you know the balance sheet.
And that's what's great about you know where we stand is that you know we don't.
We can do all sorts of different financings you know, we're not tied to the secured market or the unsecured market.
And that again is a material.
Separate or which you know I mean, we didnt harp on it again today since you know when Tom.
How does this first thing you usually puts it in unlike I think people are tired of talking about it so.
But I would think that.
And the proof is always in the putting which the putting was pretty damn good a month ago. Okay.
Well.
So the reality is we do have this separate or in our.
Real estate peer group.
Because we have the ability to go in and out of the market's pretty effectively weather secured or unsecured et cetera.
Okay that that's helpful. And then the second question is on you know all the new investing you're doing yeah. The guilt. This sports illustrated whether or not you do a forever 21, you know all these things as you underwrite them how is your tolerance for sort of the the.
The time to get to cash flow positive is it the same as you would underwrite for real estate, meaning a or do these projects take longer or do you allow yourself more rope to let these things go before you decide ultimately due to just kick the venture out and move onto the next just curious how you're underwriting is different and the time and takes place.
The stability first season, yeah, the non traditional retail ventures versus traditional retail real estate.
Well I think it really depends on the category and what the.
I mean, the reality is all these companies have comparable so you know some case there you know there valued at five times cash flow in some cases, there valued at 20 times cash flow and you know, it's really a function of what we see in the future and we're the market.
We're the market is so we don't we don't.
I'm really get ahead of ourselves one way or in other on and I'd like I said I think we look at it similar to what you know.
With respect to time Inventure group, what kind of debenture people look at it we'd look at it with the same lens.
And you know in the private equity I think we do the same thing and again, we have this extra sauce in the sense that you know were were.
We're expecting to get other benefits out of it which are not necessarily in our numbers, but which is important to us.
You did I don't want to talk about retailers, specifically and but we are not just so everyone is clear we're not involve.
In the one retailer you mentioned about investing or.
You know I'm.
Doing anything on that front I mean, I take it got mischaracterized last call. So I just wanted to be clear on you know on on on on that we're not we're not involved in 80.
Retailer that is in big BK in terms of us looking to invest I'm, so just to be clear on that.
Okay. Thank you David drawer.
Thank you next question comes from Rich Hill with Morgan Stanley . Please proceed with your question.
Hey, David.
So look I think the reason that your differentiating yourself is you're playing a lot more offensive than maybe some of your peers, who are playing defense. So with that in mind I have I have one question a follow up to that.
Seven 8% development yields to quote you not too shabby in this world backdrop of slow growth low rates are you seeing maybe even even more demand from sovereign wealth funds other foreign investors to maybe you partner with you on your developments with an eye on the long term.
Well look I think I'm.
Really good question rich and.
You know I [laughter].
It's funny.
Most of those folks I got to be careful here. So don't you know I don't need to.
You know I mean, right now let's face it were a contrarian investment okay. If you looked at our multiple compared to kind of most of the other non retail real estate.
Competence and you know if you look at you know cash flow stability or multiples or however, you want to slice and dice. It. We're you know in today's world, where we're contrary and there and and there are not.
Finally, a lot of concern investors, there's more herd mentality.
There are some very sophisticated sovereign wealth that would love to partner with us.
On new opportunities.
And again, you know and when I say new opportunities you know existing.
So.
Existing.
Existing.
Real estate that they maybe half of them they want someone like us to you know to to do that we're we're starting those discussions very.
You know they're very early early early days just to get to know them, but the reality is not a lot of contrary investment and for whatever reason, we are considered a contrarian, but the but you do make a good point, we're on the office and the fact that matters, we've been so busy and excited about the both the redevelopment the debt.
Vacation.
And some of the new ventures that we've had that.
That's that's perfectly fine for us so we're going to continue to run the business. So I do think at some point.
No. There is a you know there's that we'll be at swapped back the reality, but you know.
Those kind of investors would rather by certain asset types are the three and a half yields I won't name names as opposed to you know six plus in class a regional malls.
Less than historically, a bad that overtime.
And you know who might have say I'm smarter than those other other guys, but listen I'm willing to I'm willing to play the game and see whose right in the long run.
Got it and so so one follow up question to that.
You look if you have a tremendous amount of free cash flow that you're spending office super strong balance sheet [noise] <unk>.
Why wouldn't you just a ramp up capex as a percentage of your operating cash flow right now and spend even more money to redevelop your properties for the future and how I guess I guess the question I'm. Ultimately asking is you had said capex is going to be relatively range bound well why wouldn't you play even more offense in what you're playing right now.
Well it goes back to little you know I mean, it is literally some of the big projects we have.
We're still constrained by getting approvals so we have.
You know two or three.
You know big ones that are in the approval process just to name three the jump out of the bright Orange County.
Stoneridge, which is in the East Bay area of of 'em, California.
King of Prussia. So you know, we we don't have the approvals yet to start debt, that's the biggest limit or.
And you know I don't.
And we are building office and the reality is.
We don't that's the one area, we're not going to build spec on I mean were so depending on the side, we're gonna what's some.
The tenants, we're not we're not the foolish so but we think we have really good product its differentiated in the markets that were contemplated in it but you know getting the lead tenant.
Does take a little bit of time, so I think we're.
No, we're pretty aggressive, but you know and North Integrated example, I think north day, we could've been a little more methodical.
We had its just to get your you know.
Depresses me, a little bit, but just to give you an order of magnitude.
You know we had.
Roughly we had in that and our numbers this year to do about 15 million of analog.
And it's Gonna do five you know roughly identified come on I know these numbers.
And you know that's because we celebrated we basically decided lets just get on with our lives and tear them all that okay happened to be out there in the mall is coming down believe or not.
So we are doing it. It's just you know I think we're moving pretty fast.
Some of these areas, we're not gonna be you know if we are building office, we're not going to get over our skis I mean, that's 100000 square foot cutesy building, that's one thing, but but we're not going to get over our skis too much on some of the stuff to make sure.
We're in good shape.
Got it that's that's helpful. David Thank you for sure.
Thank you operator next question comes from Nick Yulico with Scotiabank. Please proceed with your question.
Good morning, I, sorry, if I missed this but can we just get the bankruptcy impact on same store NOI growth. This quarter I think it was cited as about 100 basis points in the first two quarters this year.
It's 100 year to date and it was 60 roughly 60 in this quarter correct or no.
The quarter under for the quarter I'm, sorry hundred for the quarter.
Okay. Thanks, and then.
Second question, it's just going back to forever 21.
Did the bankruptcy filing for them.
The only have one existing store on the store closure list that Roosevelt field. This you know this excludes all the stores in development, which will not be opening.
So I guess, you know that store closure list I mean should that give us comfort that there's one store in there or should we be expecting that all of your 98 stores with them either you're already gave rent relief or you're planning to over the next year.
Again, I don't we don't want to talk about specific retailers.
You know I think there will have to see how that all that that.
Bank bankruptcy evolves I mean.
There are more stores that they rejected that.
Or about to reject that they never opened in again I don't want to get into Nitty gritty detailed but in that particular case.
You brought it up it was widely Roes, we had a handful of those that at leases executed that won't be opening so.
Whether you know now they weren't in our initial numbers in any event. So you'll see some of those can come out one way or another but a it's never been in arch until they opened its not in our.
Not in our document I guess or 8-K, but we'll see how it goes I mean I can't.
No I can't I'm, not you know and I want to be very careful here. So I'm not in involved in it. We're you know were negotiating kind of the future like every other major landlord and.
We'll see how it all shakes out at the end of the day.
Okay now itself I guess I'm, just trying to tie back to you know the bankruptcy impact year to date, if it was 100 basis points I'm, assuming there was not.
Much in that from Forever 21, unless you've already renegotiating leases and that's why almost 1.5% of your base ran so as we look forward over the next year.
You know, it's kind of feels like that bankruptcy impact of forever 21 by itself.
Could be similar to your overall bankruptcy impact this year is that fair well I think you'll see a bigger.
Well, we'll know more in 2020, it's not going to be.
You know material in 19.
And I think the focus is gonna be really 2020, what what that that group is able to do going forward, which is out of our hands.
And you know, where we're gonna have to wait and see will have a again I don't want to get in that particular tenants, but we'll have that that.
Our view of what happens with that and other bankrupt tenants will ultimately be in our 2020 estimates.
And that and that's the way for us to look at it at this point.
Materiality of any of these guys in in the next.
You know your end is not in my opinion.
Got to be material.
Okay. All right. Thank you for you it might be you know once that might be what I'd have okay, but it's it you know we did update our guidance and what we know today about the bankrupt tenants in our guidance and that's the important thing and that our view of you know some of these bankrupt tenants and what.
Our plan is for 2020.
We'll be at our 2020 guidance and that's the best way I can answer that.
Thank you.
Sure.
Thank you and your next question comes from Linda Tsai with Jefferies. Please proceed with your question.
Hi, just following up on what you were just talking about so with some of these bankruptcies having been unexpected in 19 as you look out to 2020 do you think a base case of 2% SS NOI growth would still be achievable.
[noise], we give our guidance at the end of January .
I don't do we have a date yet not yet.
We get where we're waiting to see if the Colts make the Super Bowl because we want them, we want them. They we want to know.
We want to work at around that.
And that's a.
There was a joke, but no I actually think they're pretty good team but.
Where we get that all of that will be reflected and we've never given 2020 guidance and.
No I mean people have estimates all over the place. So I don't I don't really pine on a one way or another.
Okay, and then in terms of S.P.O. Dotcom, how are you in Michael Rubin thinking about its value proposition I'm you know how much crossover the product to provide a mine through SPM dot com is available through other online distribution channels and then do you have any sense of the price differential on SPL dot com, how it might compare with other discounts.
Like roster TJ.
Yeah I look at this is a complicated that's a complicated question and.
Sake, or I think the important thing is.
We both sake and not just us but.
You know or RSP old team and the a existing RG GE team.
Couldn't be more excited about the future opportunities to gather that we have I think 13 is.
Unquestionably excited I would not.
You know.
I think it's gonna be are great partnership for our company.
And together, we're going to do a lot more.
Both in terms of growing.
Their existing business and then the partnership taking.
The origins of our business and extrapolating that going going forward, but it is early days.
We're very committed to making this a exciting and.
You know between.
All of our relationships with the brands and all of our physical attributes and.
Their ecommerce attributes.
Yeah. This could be a really really significant opportunity for.
For our partnership so, let's let's give it a little bit of time or can't give you an exact road map because some of this stuff we like the keys to ourselves because we are.
We are still.
Growing the business and the you know there's a lot of competition out there on that front so.
But you know again couldn't be couldn't be more pleased with the potential opportunity in the future.
Thanks for that.
Sure.
Thank you operator next question comes from high bin Kim with Suntrust. Please proceed with your question.
Thanks, Good morning.
Sure you look we have you been reporting improving sales per square foot forward a path you know several years.
But that formula Yeah, there's some noise to it because it denominators always changing.
So I was wondering if you had a sense of the total sales productivity.
On at your centers over the past couple of years I'm, just trying to get a sense of if it's becoming more right Brent or.
So much static overtime.
And I realize hotels and apartment can't healthy enough for it but just trying to get a bigger picture side.
Uh Huh [laughter], you know I and I will give you the benefit of rules large numbers there is absolutely.
Given our large portfolio, there's absolutely your comment about the denominator changing it's irrelevant in terms of our results because one particular property going in a one particular property going out or 10 going in or 10 going out and kind of moved the number my friend.
So that's number one number two is many cases in our new or new developments you know they come in below.
Our average.
And.
You know with that said you know they if anything its understating it.
And then finally I'll say you know we continue to believe that.
We're reporting.
And this is really important and I've said, it again and I don't want to keep saying it but we're getting do you watch reported to us.
And in some cases, what's reported to us is not actually grow sales.
Okay and.
I just went back to the topic of your investments like you're making and and places like argue GE authentic brands I know, it's easy to get the sense that you're focused on making your fleet better and adding on a different types of opportunities like your private equity a venture capital.
Right when does it start to become more interesting to actually increasing your fleet size.
Or is it the case that the upside opportunity and redevelopment EM and.
Private equity type of investments is still.
Just far greater at better opportunity, then increasing doping side.
When you did you see fleet yeah.
No group mall count three telfair account things like that.
Well look I think you know, we've historically been acquisitive over or career, we just haven't done anything in awhile.
But you know the fact of the matter is if the.
We were we have so much going on in so many opportunities here I feel pretty.
Pretty good again, I don't feel like we need to do that but theres something out there that's.
That makes sense a you know we would look at it but you know I think it's business as usual for us and.
The focus being on.
I mean, the you know this sounds like gobbledygook, but the focus is just making us a better company, we've got plenty of.
Assets and all of these things that we're.
Doing in attempting to do is to make the the real estate in our company better but we are we are we're more than a real estate company and that we interface with brands and consumers to an unbelievable set.
So why not.
Take advantage of that reach you know that we've done reasonably well, but we can certainly do it too much greater extent and that's that continues to be a focus for us.
Alright, thank you.
Sure. Thank your next question comes from Vince T-bone with Green Street Advisors. Please proceed with your question.
Hi, good morning, the morning.
Could you elaborate on the magnitude of the decline international tourism and the impact that had on foot traffic in tenant sales some of your key gateway market properties.
Well, we don't give out specifics on that but I mean, it the put it this way that business has been the tourist centers have been relatively flat in terms of sales.
And and we think had we had a normal.
You know if we had a normal what I'd call. It normal dollar in terms of the strength versus these to be the euro.
And other currencies in the.
And you know and all the other noise that's out there we would have expected at five 6% increase.
So I don't know if that Vince I don't want that gives you kind of what do you want but its you know that some of our bigger international property sales has been flat.
And Traffics actually nothing too much the problem, it's been stable, but it's really we're seeing a flatness of the sales that we would expect did you know when we did budget. We would have expected to have a five or so percent increase in sales.
And there's not a bad that's helpful color and then just one more for me maybe switching gears a little can you provide in you know some color on the trends you're seeing in the private market for malls. I mean do you think cap rates are the number of interested bidders has changed over the last six months or so.
I would say to you Matt.
I have not seen a change, but I would think that.
I I have not really seen a tangible change.
I still think Oh, you know.
Investing is more or less or herd mentality.
And we're you know.
I was going to give an animal analogies that I better refrain.
Last time, I did cockroach, which I I'm not going to do today, but.
I think people steel you know the guys that have the money.
You know I think they they they've always been.
<unk> retail real estate, it's always been you know, it's not it's not a commodity show the operator really matters.
So to speak so it's not like had you know warehouse, that's like you know one commodity versus than that.
And so the operators matter and the money that kind of goes in and out a commodity real estate.
As you know, it's always kind of ebbs and flows for retail real estate, because the who the operator is always been materially important.
So that's that's one aspect I'd say to you. The next is I still think you know there a surprisingly I'm actually surprised about it but you know the so called.
You know smart money has not played a bigger role in this but you know I mean, they obviously have different points of view and they may be right, but we feel pretty good about what we're doing.
No that's helpful and just one follow up on that I mean, it lets say you know the herd mentality does push cap rates higher there a point, where you would potentially come in and be an acquirer of single assets on the market given to your point. The platform. You know makes a big difference in you could probably no increase in a wide some of these acquisitions.
Yeah, I think if there was a good fit we would certainly take a take us hard look at.
Okay, Great and I think that's I think that's the other point I mean, we're not really seen.
I think that's a good point, but we're not really seen kind of that a assets show up on the market.
Okay. No that's helpful. Thank you.
Sure no worse.
Thank you operator next question comes from Michael Mueller with JP Morgan. Please proceed with your question.
Hi, Good morning, I guess following up on that for the properties, where you have JV partners have you seen those investors want to exit more in recent years, where they find with exposures and it's more about where to park incremental dollars for them.
I would say a lot of them.
Or following the herd mentality.
Okay.
Does that I am I mean, I'm not trying to be Q.
My clear on that not all restate what I the answer.
I think so I think so I would that imply.
Okay. Thank all I think a lot of the folks out there or you know a little nervous about our business, but you know.
I would just put it you know that our business not Simon property group business, but.
You know nervous about the you know.
You know or whatever retail generally and.
And so they do tend to.
They do you know there they do tend to follow the herd mentality.
That's where somebody maybe us.
Next is going to make a lot of money I assure you I've seen this movie before and.
Our cash flows are very very very resilient.
You have good real estate and a good operator, they always evolving always change.
And if you look at the mall that.
No that.
Was built in the sixties you look at the malls that were built in the seventies in Eightys and Ninetys in 2000 look at the redevelopment I mean, my goodness they changed a lot and.
And they're changing today.
So I don't I don't know one here I mean, I know one here is.
There's a overly concerned about it but you know, but all of these guy they all get the you know it.
A lot of people suffer suffer from groups thing, Okay, maybe we do too but we.
We Oh, we don't we're in good shape.
Got it and I mean would you think over the next three years five years or so maybe we see a pick up and you buying out some of these JV partners or is it little bit more of a function of you've got to big redevelopment pipeline lot of capital that's going there and you're getting bigger returns on that so it's the I guess, that's the trade off how do we think about that.
Ah, Yes, I mean, what we're focused listen I'm going to if they're nervous so I'm going to buy him at a real big discounts. So let them get really nervous I want to nurse okay.
Service is good for US okay. So that's okay.
Got you know that reality, it's there could be opportunities.
But you know, we'll we'll see.
Okay, Thanks, David but short.
Thank you and we have a follow up question from Christy Mcelroy with Citi. Please proceed with your question.
Hello.
Christie's Your line is you please on meal.
Hello, Hey, David Hi, David It's probably here I know that just an accounting question for me I know that the new straight lining of Tam within traffic on a lot of college fish.
And in higher.
This year, but with that but the recent bankruptcies I'm just wondering what its assets have been in their off so I'm trying to write off of a current straight line rent steamed uncollectible just with the bankruptcies. This here given the new rules around determination of on Collectability, just trying to get a good times for what the normal run rate has turned out line.
I mean, it that all flows through so you know like I don't have that off the top my head I would say to you.
It's not material.
But you know I mean that we'd do that all the time right. So that we have to we have to.
Make that decision all the time, whether its collectible not cool.
Okay, I just didn't know stand with a material impact on that line aside from that being elevated industrial I am.
Not mature.
Hey, David It's Michael speaking.
You talked a little bit about how your stocks a contrarian investment at this point given the multiple and Ah you use some of your significant balance sheet capacity to buy back your stock right. You did about 300 million in the last.
Six month.
You've talked a little bit on this call about maybe partner on the sovereign wealth it sounds like either.
Buying assets that poor managing assets, they may own or look at me lie.
No I don't think I don't think I've said that Michael so.
Said I said there.
Said there are very few concern investors right now.
And we're not really worth the very early stages that seen how they feel about or.
You know the you know the market in general so I just wanted to be clear on that okay.
Hey debt was looking for when you were talking about.
Maybe working with them and I didn't know if there's an opportunity to either liquefy some of the value in the asset value is created.
The debt markets provide did you catch amount of capital at very attractive rate by this your stock that though is the one that [noise].
This associated with the performance that you're putting out so.
I know in the past you've been reluctant to sell JV Stakes in your assets to buy back your stock I'm wondering if that's changed at all in some of these conversations that your happen having.
You find that there's an opportunity to.
Partner with contrarian capital that you'd want to do that.
Well.
Again, I have never been a fan.
ER to sell.
And they asset.
To make a more because they assets grow historically overtime and most everybody that sold in a asset if theyre going to believe it's an asset in the future.
Regret that decision okay. So.
And buying stock back was a temporary investment decision.
And the reality is we're in this for the long haul as we've demonstrated over.
Almost 26 years as being a public company. So I think that's kind of the worst thing.
Frankly, we could do.
Getting this mark.
You know, making the you know getting a mark on our portfolio was fools gold it's never worked.
Because the next question is well what about the rest of the portfolio. So.
And again just to reemphasize so the answer is.
You know.
No interest in doing that number one number two is there or.
Some of these this I mean, we're just I.
I don't want to overemphasize and hopefully I didn't know looked back at the call, but we're not you know we're not out running around saying do you want to go you know people come to US we'll talk to him about.
About.
Interest partnership interests, but we're not out you know soliciting sovereign wealth funds, we're not out doing that reality, if you don't need their capital. So yeah. You know they know my number you know one 800, David call me if they want they don't they don't have to okay.
Right and I wasn't thinking about it from a market square I don't want to overemphasize, we've talked to a few here and there I think they respect what we do but I don't really know and maybe that's a.
Flaw in us that we haven't really solicited them just had better relationships, but you know I mean.
We've done okay without them being a major player for us.
To get to where we are today, we've never needed that in scale.
So that's that so I don't want to overemphasize, we've had discussions.
Discussions here and there because you know sometimes they call sometimes ago right. So we're not out we're not out trying to buy partnership interest of ourselves or others, we're not out talking to sovereign wealth. Other then we'll have a couple of conversations that look the reality is a lot of that institutional and got.
There is as we all know don't you know.
Have a certain queasiness over retail we've seen that before it doesn't affect us it's not it doesn't it affects you it affects others. It does not affect me.
And my company, what we do that's the important point, okay, Yeah, and I wasn't thinking about a from a positive mark I.
I was thinking about more show and being able to rain.
Total capital and invested in your socket Oh, you know just basically bolster.
That program that you're doing right now using the free cash flow in capacity, giving something more meaningful if you're able to find an investor that's willing to partner with you I understand.
The dynamics and I understand giving up the growth I didn't know if that was part of the psyche today.
Just given where things stand.
No I mean, the stuff that look I think most of the and again were beaten Oh, you know we're spending more time on this than warrants it but most people most institutional investors would like to do something you know as a as we've talked to him off and on over several.
Years.
Most of all like to do external stuff with us.
Right and you know, but the realities, we haven't been doing that so we haven't been talking too okay. So.
No again, it's it's we're we're we're we're we're spending too much time on this on the on the other fraud look we've got what you know why arent, we aggressively buying our stock that listen we love our balance sheet will be you know I think it's an unbelievable advantage unbelievable it's under appreciated.
Sorry, Tom I took a paragraph in the teleconference decks to do three and a half billion dollars and four hours.
So your bonds you know blah blah blah is all pretty powerful we don't want to jeopardize that we've seen when people it.
Overstepped their numbers overstepped their credit ratings, you know how it kinda kinda retard the opportunities going forward, we don't want to do that and importantly, I mean, we're in the process of.
You know, adding to our already successful retail real estate.
Portfolio and what is what does that mean, we're doing all this densification stuff. We're building our consumer facing business you know we're positioning the company for the future and you know.
As we all know you know any leading company out there or invest in the future.
You know from Microsoft Amazon to you know to go down the list.
Ah every successful company.
In understands the importance of investment.
And so I want the balance sheet that allows us to invest if I had criticism of.
No.
Historical retailers they did not.
Invest in there and again, it's not for me to criticize honestly, so I don't want this to.
Sounds you know you know like I know it all but the reality is what we've seen what Rick and I have seen.
Because of strain balance sheets or overspending in one thing versus another thing is the inability to reinvest in your business is a major no no.
So that's.
You know that we are not gonna do the major no no.
Hi, Thanks for attending.
Sure.
Thank you I'm not showing any further questions at this time I like to turn the call over to Mr., David Simon for any closing remarks.
Okay. Thank you everyone have a great day.
Ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
[noise].